B.R. Gavai JUDGMENT
Rohinton Fali Nariman, J.
1. This appeal by the Department revisits the question as to the taxability of income attributable to a "permanent establishment" set up in a fixed place in India, arising from the 'Agreement for avoidance of double taxation of income and the prevention of fiscal evasion' with the Republic of Korea ("DTAA").
2. On 28.02.2006, the Oil and Natural Gas Company ("ONGC") awarded a "turnkey" contract to a consortium comprising of the Respondent/Assessee, i.e. Samsung Heavy Industries Co. Ltd. (a Company incorporated in South Korea), and Larsen & Toubro Limited, being a contract for carrying out the "Work", inter alia, of surveys, design, engineering, procurement, fabrication, installation and modification at existing facilities, and start-up and commissioning of entire facilities covered under the 'Vasai East Development Project' ("Project").
3. On 24.05.2006, the Assessee set up a Project Office in Mumbai, India, which, as per the Assessee, was to act as "a communication channel" between the Assessee and ONGC in respect of the Project. Pre-engineering, survey, engineering, procurement and fabrication activities which took place abroad, all took place in the year 2006. Commencing from November, 2007, these platforms were then brought outside Mumbai to be installed at the Vasai East Development Project. The Project was to be completed by 26.07.2009.
4. With regard to Assessment Year 2007-2008, the Assessee filed a Return of Income on 21.08.2007 showing nil profit, as a loss of INR 23.5 lacs had allegedly been incurred in relation to the activities carried out by it in India.
5. On 29.08.2008, a show-cause notice was issued to the Assessee by the Income Tax authorities requiring it to show cause as to why the Return of Income had been filed only at nil, which was replied to in detail by the Assessee on 02.02.2009. Being dissatisfied with the reply, a draft Assessment Order was then passed on 31.12.2009 ("Draft Order") by the Assistant Director of Income Tax International Transactions at Dehradun ("Assessing Officer"). This Draft Order went into the terms of the agreement in great detail, and concluded that the Project in question is a single indivisible "turnkey" project, whereby ONGC was to take over a project that is completed only in India. Resultantly, profits arising from the successful commissioning of the Project would also arise only in India. This Court's judgment in Commissioner of Income Tax and Anr. v. Hyundai Heavy Industries Co. Ltd., MANU/SC/7731/2007 : (2007) 7 SCC 422, was distinguished by the learned Assessing Officer stating that, in that case, the project was in two separate parts, unlike the Project in the present case. Referring then to the Mumbai Project Office, the Assessing Officer held:
It is evident from the above that the work relating to fa........