IT APPEAL NO. 5418 (MUM.) OF 2013
[ASSESSMENT YEAR 2013-14]

SAKTIJIT DEY, JUDICIAL MEMBER 
AND RAJESH KUMAR, ACCOUNTANT MEMBER

Dr. Dipak Ripote for the Appellant. 
Yogesh Thar for the Respondent.

ORDER

Saktijit Dey, Judicial Member - Instant appeal by the Department is directed against the order dated 1st May 2013, passed by the learned Commissioner (Appeals)–11, Mumbai, for the assessment year 2013–14.

2. Grounds raised by the Department are as under:—

"1.	On the facts and in the circumstances of the case and in law, the Id. CIT(A) has erred in adjudicating the appeal filed by M/s Abu Dhabi Ship Building PJSC who is not Applicant of the application u/s 195(2). The application was filed by ONGC.
2.	On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in adjudicating the appeal filed by M/s Abu Dhabi Ship Building PJSC. The section 246A(1) and 248 of the I.T. Act, 1961 do not enable M/s Abu Dhabi Ship Building to file the appeal against the order of Section 195(2) of IT Act.
3.	On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in not appreciating the fact mentioned in para 4 of order u/s 195(2) that the income is accruing or arising in India.
4.	On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in not appreciating the fact that DTAA (between India and UAE) benefit is not available to the consortium.
5.	On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in not appreciating the fact that consortium is working through 'dependent agent' namely M/s Abu Dhabi Ship Building PJSC and the dependent agent is a form of Permanent Establishment of Abu Dhabi Ship Building PJSC in India."

3. Brief facts are, Oil and Natural Gas Commission (ONGC) entered into a contract with Abu Dhabi Ship Building PJSC and Rodman Polyship, Vigo, Spain, a consortium of two companies for construction of nine number of Immediate Support Vessels (ISV). After completion of trials, the vessels in sea worthy state are to be delivered to ONGC at Mumbai. ONGC filed application on 4th October 2012, before the Assessing Officer, purportedly under section 195(2) of the Act, requesting for approval for non–deduction of tax at source on payment to be made to Abu Dhabi Ship Building PJSC for the construction of the ISVs. In the said application, it was stated by the payer ONGC that no tax is required to be deducted as per the double taxation avoidance agreement between India and UAE and further the consortium does not have a Permanent Establishment (PE) in India. Along with the application for non–deduction of tax, the ONGC also filed other details. The Assessing Officer after verifying the details furnished was of the view that the provisions of section 9(1) would be applicable to the payments made as there is a business connection in India as a result of which income is deemed to accrue or arise in India. For coming to such conclusion, the Assessing Officer relied upon the following facts:—

?	The contract is a turnkey contract
?	The contract was signed in India
?	The ship would be delivered in India complete in all respect & in sea worthy stage.
?	The cost of transportation /delivery to India would be borne by the consortium.
?	The imports & clearance responsibility is on the contractor (consortium).
?	The liability of insurance also lies on the consortium.
?	The contract also allows hiring of Local Indian subcontractors for the work of contractor.
?	The registration of vessels with Director General of Shipping has to be done by the contractor before delivery.
?	Inspection service & repair work before delivery would also be the responsibility of the contactor.
?	During the guarantee period the personnel of contractor may visit the vessel for checking and carrying out remedial work of facilities & equipment, all such expenses would be borne by the contractor.
?	The consortium has appointed an Indian agent to whom 2% agency commission (para 3.1 of the agency agreement) would provided, who would work on behalf of the Non Resident. Further the details regarding agent of the Non Resident are also provided in the contract. The participation of Indian agent for the transaction further proves the Indian business connection.
?	The letter obtained from Abu Dhabi ship Building states at article 4 of the letter dated 08.11.2012 that the contract does not stipulate that any job/assignment related to the subject supply contract will be done in India, even partly.
	However perusal of the article 6.4 (page no. 9) of the contract describes assignment. The above clause is read as under;

"The contractor shall not, save with the previous consent in writing of the ONGC, sublet/subcontract, transfer or assign the contract or any part thereof in any manner whatsoever. However such consent shall not relieve the contractor from any obligation, duty or responsibility under the contract."

Further as per the article 25 (page no. 26) of the contract which speaks about preference to local companies it is stated;

	"The contractor agrees to give priority and preference to locally owned companies when hiring subcontractor, subject to price, quality & delivery being equivalent."
	"25.1 Contractor shall source the fuels like petrol, diesel etc if required for carrying out the works/services covered under this contract from M/s Mangalore Petrochemicals Limited, Mangalore (a subsidiary of ONGC) wherever feasible."

	As per article 30 (page no. 98 of the agreement) the following conditions should apply as regards subcontracting of any portion of work pertaining to design, engineering, procurement, fabrication, transportation, installation, lop side modification, pre-commissioning, start up & commissioning of works entrusted to the contractor.
	From the reading of above clauses of the contract it is clear that the consortium is not barred from carrying out any activity through subcontractor in India.

4. The Assessing Officer observed that the aforesaid facts proved that there is a business connection of the non-resident in India. He, however, opined that in terms of Explanation–1 of section 9(1), in case of a business of which all the operations are not carried out in India the income of the business deemed to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India. As stated by the Assessing Officer, in order to know the income attributable to the business in India, the Assessing Officer sought for necessary details from the ONGC vide letter dated 8th November 2012. In response to the said letter, it was submitted that percentage of profit accruing arising out of the contract cannot be disclosed as it is confidential. However, it was submitted that there would be net loss of 10%. It was further submitted that the payee would not be subject to tax in India due to the treaty benefit of India and UAE. It was submitted that Abu Dhabi Ship Building PJSC being a leading partner of the consortium, the treaty applicable would be Indo-UAE. The Assessing Officer, however, did not accept the claim of ONGC. He noted that ONGC has entered into a contract with consortium and not with the Abu Dhabi Ship Building PJSC. He observed, consortium not being a member of any treaty country, the benefit of treaty of either country to which the consortium members belong as resident would not be available to the consortium. For such conclusion, the Assessing Officer relied upon some decisions of the Authority for Advance Ruling (AAR). As far as the claim of the applicant that no P.E. of the consortium is in India, the Assessing Officer countered it by stating that the Indian agent of consortium will constitute P.E. Further elaborating, the Assessing Officer observed that examination of the agency agreement between the consortium and India agent, namely, Trishakti Electronics and Industries Ltd. (TEIL), would reveal the following facts:—

"The total fee payable would be 0.5% of the total contract value as per the copy of contact (between ONGC & consortium) and 2% as per the copy of contract between the Indian agent & Consortium (para 3.1 of the agency agreement) as furnished by the agent. However audit report of the Indian agent for the year ended 31st March 2012 states commission receivable to be 0.5% of the contract value.

The consortium is dependent upon the agent for its activities in India. The activities of the agent are not limited to purchase of goods or merchandise for the consortium. Verification of the P&L account of the agent shows that the agent has no commission income or to say any other source of income which can show that the agent has acted in his normal course of business.

As per the audited P&L account of year ending 31st march 2012, shows only income from crane hire charges of Rs. 1,66,10,493/- & crane mobilization charges of Rs. 2,70,000/-. The other income (Rs. 42,84,165/-) shown is dividend, interest, foreign exchange fluctuation, prior period income.

From the copy of agency agreement it is found that the Indian agent is engaged for following activities;

The agent would provide consultancy to the consortium on exclusive basis.
The consortium would not appoint any other agent for the project.

?	The agent would carry out project related analysis and studies.
?	Provide advice to legal, financial & procedural aspects of doing business in India.
?	Review & analyse lender requirements issued by the ONGC regarding the project.
?	Provide advice to the consortium & to assist the consortium in the preparation of the required proposal in the form required by the ONGC.
?	Inform the consortium as far as possible about the status of lender & the progress of the consortium's proposal once it is submitted.
?	Attend meetings at reasonable intervals as may be required by the consortium at mutually agreed locations to review the achievement of objectives by the agent.
?	Assist the consortium whenever required in arranging entry Visa's accommodation, transport etc for the consortium personnel to visit ONGC. Arrange meetings with ONGC.
?	Providing services in all pre-tendering & post-tendering services.
?	It is supposed to provide all administrative & Logistic support in India."

5. The Assessing Officer observed, scope of work of the Indian agent of the consortium and the quantum of agency commission goes to show that the Indian agent will constitute a P.E. of the non-resident. The Assessing Officer observed that as the treaty benefit would not be available for consortium, the profit attributable to its activities in India would be taxable in India. In this context, it was observed by the Assessing Officer that the claim of 10% loss by the assessee not being supported by any evidence will not be accepted. The Assessing Officer further went on to observe that in the absence of details provided by the assessee, the income assessable in India has to be estimated. Accordingly, the Assessing Officer concluded that 20% out of the total contract value of $ 2,02,81,194, is attributable to Indian activity. Thus, the Assessing Officer worked out the profit attributable to Indian part of the activity as 10% which worked out to $ 4,05,622 which according to the Assessing Officer is assessable in India. As it appears from the facts on record, after receiving the aforesaid order, ONGC deducted tax at source on the payments made to Abu Dhabi Ship Building PJSC. Being aggrieved of the order passed by the Assessing Officer, directing ONGC to deduct tax at source, Abu Dhabi Ship Building PJSC filed an appeal before the learned Commissioner (Appeals).

6. In the course of hearing of appeal before the first appellate authority, making elaborate submissions, it was stated that as per the contract with the ONGC, the consortium is to construct nine ISVs on turnkey basis. It was submitted, these lightly armed surface vessels are to be deployed in open seas as well as in coastal waters and primarily meant for deployment in ONGC's off-shore development area under the command of Indian Navy for day and night surveillance, high speed interception of small intruder vessels and anti-terrorist operations and also for carrying out rapid insertions/extractions of marine commandos for ship/off-shore intervention. Referring to the contract entered with the ONGC it was submitted that as per the terms of the contract and inter-se arrangement between the partners of the consortium Abu Dhabi Ship Building PJSC is to build four ISVs at its Abu Dhabi Shipyard, UAE and Rodman Polyships is to build five ISVs at its Shipyard in Spain. It was submitted by the assessee as per the terms of section 195(1), any income chargeable under the provisions of the Act is subject to deduction of tax at source. It was submitted, as per the delivery schedule under the contract, the builder shall submit four weeks advance intimation in this regard prior to the schedule date of delivery confirming readiness of the vessels. Thereafter, Abu Dhabi Ship Building PJSC will raise final invoice for the final amount as noted in the contract and would get the payment at Abu Dhabi. ONGC has to monitor the entire construction process at Abu Dhabi, whereas, the manufacturer of the vessels has to make the vessels fully and completely seaworthy in all respect at its Abu Dhabi Shipyard, UAE and Rodman Poly Shipyard at Spain and vessels are to be given delivery at Mumbai. It was submitted, if the entire process of construction of vessels and its delivery to ONGC at Mumbai is visualized it will be clear not even a fraction of entire process of construction of vessels was done anywhere in India and as per the terms of the contract the vessels are to be supplied complete in all respect. It was submitted, ONGC was all through examining the construction of the vessels at various stages and it has to be fully completed including TPI and classification clearances before they are accepted by ONGC at Abu Dhabi Shipyard, UAE, and thereafter they are finally shifted to Mumbai. Thus, it is ONGC which is to be completely satisfied with the workmanship and seaworthiness of the vessels at the Abu Dhabi Shipyard. It was submitted, as per the terms of the contract the construction of the vessels and its completion and testing was totally made and done outside India. Not even a single part of the vessels was manufactured and constructed in India. Therefore, section 9 of the Income Tax Act, 1961 will have no application to the assessee. The assessee has no business connection in India, hence, no part of the income from the sale of vessels from the assessee to ONGC can be brought to tax in India. It was submitted, property in the vessels passed to ONGC at Abu Dhabi while making final payment towards the cost of vessels as per the payments schedule. Thus, it was submitted, the last installment as per the payment schedule towards the price of vessels has to be paid by ONGC to the assessee when delivery of vessels by the assessee to ONGC is complete in all respect including certificates, documents, etc. and ready to commence voyage to Mumbai. Referring to the payment schedule provided under the contract, it was submitted, ONGC is to be fully satisfied with the construction of vessels at Abu Dhabi till it is fully seaworthy. Thus, transactions of sale between the assessee and ONGC being on principal-to-principal basis and no part of such transaction having taken place in India, it cannot be said that any business connection is there to attract the provisions of section 9(1)(i). The assessee submitted, even transportation cost of vessels from Abu Dhabi to Mumbai though paid by the assessee was also included in the contract value. It was submitted, as per the scope of work, delivery of nine ISVs along with spares/accessories, etc., are to be completed in 20 months from the date of contract. Thus, the assessee has to deliver the vessels complete in all respect to ONGC at its shipyard at Abu Dhabi after raising invoice for the last and final installment of 10%. Only after such payments, vessels are to be shipped to India. Of-course, the assessee has to comply with formalities as per the applicable rules of Director General (Shipping) of India. Thus, the entire work of construction of vessels having taken place outside India at Abu Dhabi Shipyard and Spain, there is no business connection in India. It was also submitted, there is no service contract between the assessee and ONGC. Once the vessels are constructed at Abu Dhabi and are delivered to ONGC, there remains nothing to be done and performed by the assessee except its shipment to India. Even there is no after-sales-service contract. The assessee submitted, it has no P.E. in India, hence, provisions of section 9(1)(vii) is not applicable as it has not earned any income from salary, interest or either from dividend or royalty in India. Contesting the observations of the Assessing Officer that Trishakti Electronics and Industries Ltd. (TEIL) is a dependent agent, hence, to be considered as P.E. of the assessee, it was submitted TEIL has only brought the assessee and ONGC to enter into an agreement and for that purpose, it received commission of 0.5% of the contractual amount. Therefore, services rendered by TEIL are only confined to assisting the assessee for the tender and its acceptance. TEIL has no obligation or duty to perform in the matter of construction of the vessels and its supply to ONGC. The contract is between the two principals. It was submitted, even going by the Explanation 2 to section 9(1), defining the term "fee for technical services", the payment received by the assessee cannot be treated as FTS as the definition of FTS does not include consideration for any construction, assembling, mining or like project undertaken by the recipient or consideration which could be income of the recipient chargeable under the head "salaries".

7. The learned Commissioner (Appeals) after considering the submissions of the assessee and examining the materials on record including the assessment order observed as per the scope and terms of agreement. ONGC has awarded contract for delivery of nine new ISVs made as per specification of ONGC. Complete work related to design and construction of the vessels is done outside India though, the vessels were delivered in India after trial and inspection. Thus, according to the learned Commissioner (Appeals), no work related to construction of the ship was carried out in India. Though, the Assessing Officer held that 20% of the contract amount paid to the assessee is attributable to services rendered in India on the ground that assessee has appointed TEIL as agent and paid commission of 0.5% of total contract value, however, learned Commissioner (Appeals) observed, the commission is payable directly by ONGC from the bills raised and after TDS. Referring to certain clauses of the contract between the assessee and ONGC, the learned Commissioner (Appeals) observed, TEIL is supposed to provide information and assistance to assessee in pre - and post-tendering activities and to provide counsel, guiding facilities after contract is awarded, for carrying out related study and analysis for the consortium, provide legal, financial and procedural aspects. He was of the view that these services do not in any manner constitute the services of an agent to be treated as agency P.E. as per the treaty. He observed that though TEIL has been termed as agent in the agreement, but it cannot be regarded as agent for the purpose of Article–5 of the treaty since TEIL has no authority to conclude contract or for delivery of vessels or maintenance of vessels, etc. Further, the commission is payable directly by ONGC after TDS by adjusting from the bills raised by the assessee. Further, on examination of copy of annual book of TEIL, for the year 2011-12, he found that the total revenue of TEIL for that financial year is Rs. 211.64 lakh and for financial year 2010-11 is Rs. 288.68 lakh, whereas, the total commission receivable by TEIL for the services rendered @ 0.5% of the contract value constitutes Rs. 50 to Rs. 55 lakh over contract period of 20 months. Thus, looking at the income earned by TEIL it cannot be said that it is wholly devoted towards rendering of services to the assessee so as to constitute a P.E. in terms of Article-5 of Indo-UAE treaty. The learned Commissioner (Appeals) observed, the role of Indian agent is limited to providing information, guidance, counsel and liaisoning. It has got no role either in construction of the vessels or shipment of vessels or signing of contract or execution of contract. Therefore, it cannot be said that TEIL constitutes an agency P.E. or a dependant agent P.E. of the assessee in terms of Article-5, clauses (4) and (5) of the treaty. Further, the learned Commissioner (Appeals) referring to different clauses of the agreement between the assessee and ONGC and other facts and material on record observed that the entire work relating to the construction of the vessels was done outside India. Therefore, the consideration of 20% of the gross receipt towards income accruing in India is without any basis but merely on an estimate. He observed, as per the agreement the vessels fitted with all equipments designed by the assessee as per drawings, specification of technical information and to the satisfaction of the representative of ONGC are to be delivered in seaworthy state complete in all respect in India at Mumbai. Before the delivery static and dynamic control testing is to be done and vessels are to be handed over to the ONGC at the designated shipyard. The delivery of all the nine vessels is to be completed on/or before 2nd October 2013, i.e., within 20 months from the date of contract. The contractor is under obligation to complete and rectify all protocol defects arising within the warranty period of 12 months from the date of issue of certificate of completion and acceptance of the work and taking delivery of vessels by the Corporation. The learned Commissioner (Appeals) referring to clauses 51, 62 and 63 of the agreement noted that handing over the vessels is an event distinct and separate from the delivery of vessels. He observed, the delivery of the vessels is to be done after satisfaction of the representatives of the ONGC regarding its seaworthy state at Mumbai whereas vessels are to be handed over complete in all respect including attainment of full dead weight and completion of the vessels is to be done by the assessee as per specification of manufacturers of various equipments and machinery and specified operational parameters in the presence and to the satisfaction of the class, societies, representatives after minimum four weeks' notice to the ONGC to remain present during the trial. Any defects noticed in the trial shall be rectified at the earliest by the builders and further trials shall be carried out to the satisfaction of class societies for ONGC representatives. Though, final acceptance trial is to be done at Mumbai before delivery of the vessels, however, it is only for the purpose that the vessels are constructed in accordance with the plan and specifications and it is seaworthy in actual sea condition at Mumbai where it is to be used. Thus, the learned Commissioner (Appeals) concluded though, the final acceptance and trials were to be conducted at Mumbai and vessels were delivered to ONGC at Mumbai at the cost of the assessee, but actually the assessee has handed over the vessels to the representatives of the ONGC in its shipyard outside India after conducting trials and removal of the defects pointed out by ONGC. The learned Commissioner (Appeals) observed that on examination of delivery conditions and trials of various equipments and the control exercised by ONGC regarding selection of equipment, testing of equipment and related consequential control in the release of payment together with release up to 90% of payment at sea trial and release of balance 10% of payment on delivery of vessels at Mumbai, handing over of vessels at shipyard and delivery at Mumbai, it can be said that as per agreement, property in various component passes on to ONGC on completion of trials of respective components and subsequent acceptance thereof by the ONGC, though, they remained in possession of the assessee. He observed as per the terms of the agreement, ONGC has no right to reject the vessels but it has right only for the removal of the defect either by the assessee or at the cost of the assessee. Thus, it was observed by the learned Commissioner (Appeals) that property in vessels passes to ONGC when they were handed over to the representative of ONGC after trial at shipyard of the assessee, though, the vessels remained in possession of the assessee till final delivery at Mumbai. Further referring to Explanation-2 of section 9(1)(vii), the learned Commissioner (Appeals) observed that as the project for which the payment was made is for construction of ships it is covered under exception provided under Explanation-2 to section 9(1)(vii). While coming to such conclusion, the learned Commissioner (Appeals) referred to a number of judicial precedents. Thus, on the basis of the aforesaid analysis, the learned Commissioner (Appeals) finally concluded that no income taxable in India is earned by the assessee in connection with supply of nine ISVs constructed to the specification of the ONGC. Accordingly, upholding the claim of the assessee he allowed the appeal. Being aggrieved of the aforesaid order of the learned Commissioner (Appeals), the Department is in appeal before us.

8. The learned Departmental Representative raising preliminary objection regarding maintainability of appeal before the learned Commissioner (Appeals) submitted, appeal filed by the respondent assessee before the first appellate authority is not maintainable as the order passed under section 195(2) is not an appealable order under section 246A. Drawing the attention of the Bench to section 246A, learned Departmental Representative submitted, nowhere in the said provision order passed under section 195(2) has been referred to. He submitted, the appeal filed by the respondent before learned Commissioner (Appeals) being not maintainable under section 246(1), should have been dismissed at the threshold. Learned Departmental Representative submitted, the learned Commissioner (Appeals) while deciding the issue in favour of the assessee has relied upon the clauses of Indo-UAE DTAA, however, the said DTAA is not applicable to consortium. He submitted, though, the assessee had claimed that ONGC has made payment to it directly, hence, it is an affected party but the said submissions of the assessee is misleading and incorrect as ONGC had made payments to the assessee as a leader of the consortium and for and on behalf of the consortium. In this context, he referred to clause (3) of the MOU. Thus, it was submitted by the learned Departmental Representative, payment made by the ONGC was to consortium and the assessee had only received it on behalf of the consortium as its leader. That being the case, the benefit as per DTAA is not available to the consortium as it is not a resident of either of the contracting states. The learned Departmental Representative submitted, it had business connection in India as part of the contract was executed in India. He submitted, as per the terms of contract, the vessels built by the consortium underwent seaworthy testing in Indian water, therefore, part of the contract was performed by the assessee in India. Further, it had done registration of the vessels in India as per Indian laws which proves that part of the contract was performed in India. He submitted, as per the contract, it was mandatory to purchase certain items from Indian entities. Learned Departmental Representative submitted, in case of the assessee not only contract was signed in India but there are various other activities which took place in India. Learned Departmental Representative submitted, the obligation for deduction of tax was by the payer ONGC and not by the assessee. He submitted, as per the agreement between the ONGC and the consortium, it is the consortium which was required to apply for no deduction certificate and only if they fail then ONGC will apply. Therefore, primary duty was of the assessee to apply for no deduction certificate. The learned Departmental Representative submitted, at the stage of issuance of certificate under section 195(2), the liability of assessee under the Indian Income Tax Act, cannot be determined as such certificate is to be issued on prima facie verification, hence, is not final. He submitted, the final tax liability is decided in assessment proceedings. Therefore, whether income has accrued to the assessee in India and assessee's liability to tax under the Income Tax Act, cannot be determined at this stage until it is examined in an assessment proceedings. Thus, it was submitted that the order passed by the learned Commissioner (Appeals) deserves to be set aside.

9. Learned Authorised Representative strongly supporting the order of the learned Commissioner (Appeals) submitted section 246A enables the assessee aggrieved by certain orders to prefer an appeal before the learned Commissioner (Appeals). He submitted, as per the definition of the assessee under section 2(7), it would mean a person by whom any tax or any some of money is payable under the Act. Therefore, since the assessee is a person by whom tax is payable under the Act it is an assessee as per section 2(7) of the Act. Learned Authorised Representative submitted, all invoices pertaining to the contract for construction of the ISVs were raised by the assessee only and payments were also received part of which the assessee in turn pays to the other member of the consortium on the basis of the cashflow it gets from the ONGC. Thus, the assessee being a person aggrieved by order passed under section 195(2), is entitled to file an appeal under section 246A. For such proposition, he relied upon the following case laws.

(i)	Kikabhai Abdulali v. ITAT [1957] 32 ITR 762 (Bom.);
(ii)	CIT v. N. Ch. Raw & Co. [1983] 144 ITR 557/[1982] 11 Taxman 226 (Cal.);
(iii)	CIT v. Hindustan Steel Ltd. [1989] 45 Taxman 273/179 ITR 213 (Cal.);
(iv)	Shankarrao Sathwane v. ITO [2004] 89 ITD 611 (Hyd. - Trib.);
(v)	Chittaluri Peda Venkaa Subhaiah & Co. v. ITO [1983] 6 ITD 507 (Hyd. - Trib.); and
(vi)	Jyoti Tin & Allied Industries v. ITO [1993] 44 ITD 743 (Hyd.)

10. As far as the contention of the learned Departmental Representative that an order passed under section 195(2), is not appealable under section 246(A), as it is not specifically mentioned in section 246A, the learned Authorised Representative referring to the language employed under section 246A submitted that an order against the assessee where the assessee denies its liability to be assessed under the Act is also an order coming within the purview of section 246A. He submitted, as the assessee has denied its liability to be assessed under the Act, it is eligible to file an appeal against the order passed under section 195(2). For such proposition, he relied upon the following decisions:—

(i)	CIT v. Kanpur Coal Syndicate [1964] 53 ITR 225 (SC);
(ii)	CIT v. M. Pyngrope [1993] 200 ITR 106 (Gau.) ;
(iii)	M. Anandan v. ITO [1995] 53 ITD 428 (Mad.); and
(iv)	ITO v. Bhogavati Sah. Sakhar Karkhana Ltd. [2006] 101 ITD 302 (Pune) .

11. Distinguishing the decisions of the Hon'ble Jurisdictional High Court in CIT v. Tata Engg. & Locomotive Co. Ltd. [2000] 245 ITR 823/[2001] 114 Taxman 141 (Bom.), learned Authorised Representative submitted the decision is not applicable as it is not an authority to support the Department's view that order under section 195(2) is not appealable. As far as the merits of the issue is concerned, learned Authorised Representative submitted that the contention of the Department that the assessee had a business connection under section 9(1)(i) in India on the premise that the contract was signed in India the ship was delivered in India, registration of vessels have to be done in India and some products like fuel was purchased from Indian suppliers does not establish business connection. He submitted, only because the contract was signed in India it cannot be said that there is a business connection in India. For such proposition, he relied upon the following decisions:—

(i)	Ishikawajma-Harima Heavy Industries Ltd. v. DIT [2007] 158 Taxman 259/288 ITR 408 (SC); and
(ii)	Dy. CIT v. Ericson A.B. [2012] 343 ITR 470/204 Taxman 192/[2011] 16 taxmann.com 371 (Delhi)

12. Learned Authorised Representative submitted, merely because the assessee had purchased some utilities from Indian entities, it cannot be said to have business connection in India. He submitted, an entity may import goods from many foreign entities in various countries for manufacture of goods but for that reason alone, it cannot be said that there is a business connection in each of the various countries from which purchase of goods were made. He submitted, as per section 9(1)(i), clause (b) of Explanation-1, mere purchase from India will not result in business connection. Contesting the claim of the Department that the assessee had carried out a part of business operation in India, the learned Authorised Representative submitted as per the terms of contract, operations pertaining to construction of vessels were carried out outside India. Learned Authorised Representative submitted, only because vessels were delivered in Mumbai, it does not establish business connection in India. Referring to the payment schedule as per the terms of agreement the learned Authorised Representative submitted that payment of last 10% of the contract value has to be made at the time of delivery of the vessels complete in all respect including certification, documentation, ready to commence voyage to destination port at Mumbai. Therefore, entire payment has to be made by the ONGC to assessee at the time of delivery before commencement of voyage to India. He submitted, as per the terms of agreement, construction of vessels is to take place at contractor's designated shipyard at Abu Dhabi and Spain. Learned Authorised Representative submitted, as per the terms of contract, the delivery of the vessels is done when it is complete in all respect and ready to commence voyage to its destination port in Mumbai. Countering the argument of the Department that delivery of the vessels was made at Mumbai as per clause 63 of the Contract, the learned Authorised Representative submitted, the said clause cannot be read in isolation and should be read along with clause 62A to 62F of the contract dealing with the control and trials where it has been provided inter alia that acceptance trial would not be carried out until the vessels are completely finished and ready for delivery. He submitted, as per the terms of agreement, sea trials are to be performed at contractor's shipyard at Abu Dhabi or Spain. That being the case, it cannot be said that delivery of ship has taken place in India. As far as the allegation of the Assessing Officer that registration of the vessels has taken place in Mumbai, therefore, the assessee has business connection in India, learned Authorised Representative submitted, the registration of vessels in India is merely to comply with regulatory requirement in India, hence, cannot result in business connection in India. As far as allegation of the Department that TEIL is a dependent agent, hence, has to be treated as P.E. of the assessee since 0.5% of the project value has been paid to the agent, the learned Authorised Representative submitted, TEIL is an independent agent and does not work exclusively for the assessee or the consortium. He submitted, TEIL provides agency services to various entities in various countries such as China, Romania, Kazakhstan, Spain, UAE, etc. Hence, TEIL is an independent agent acting in the ordinary course of business and not working mainly or wholly for the assessee. Therefore, in view of first proviso to Explanation-2 to section 9(1)(i), such agent does not constitute business connection. He submitted TEIL has no authority to conclude contracts on behalf of the assessee. TEIL also neither maintains a stock of goods or merchandise on behalf of the assessee. That being the case, agency relationship with the TEIL does not result in either a business connection under section 9(1)(i) or P.E. under the DTAA. Learned Authorised Representative submitted, in the contract between the ONGC and assessee, the scope of work of the assessee as well as Rodman Polyship has been clearly defined and divided. Assessee and Rodman Polyship have to construct the vessels in the specified proportion at their respective shipyards. The responsibility of each Member of the consortium has also been described in appeal in the MOU reached between the parties. Learned Authorised Representative submitted, the plea of the Department that treaty benefit would not be available to the assessee or the consortium is unacceptable. He submitted, the consortium is not a partnership since each member has its own responsibility inter-se and they bear their own costs. He submitted, as the assessee is a company established in UAE treaty benefit would be applicable to the assessee. Referring to the decisions relied upon by the Assessing Officer, learned Authorised Representative submitted the ruling of the AAR in the case of Schellenberg Wittmer, In re [2012] 210 Taxman 319/24 taxmann.com 299 (AAR - New Delhi) is not applicable to the facts of the present case as in that case, as per Indo-Spain DTAA partnership firm is not a person. Whereas, there is no such provisions in Indo-UAE DTAA. As far as the AAR ruling in the case of Linde A.G.,Inre [2012] 349 ITR 172/207 Taxman 299/19 taxmann.com 238 (AAR - New Delhi), the learned Authorised Representative submitted the said decision has been overruled by the Hon'ble Delhi High Court in S.A. Builders v. CIT [2007] 365 ITR 001 (Delhi) (sic). Further, the learned Authorised Representative submitted, the benefit of DTAA would be available to the consortium members as ADSB is the resident of Dubai and Rodman Polyship is the resident of Spain. The relevant tax residency certificates of both the entities have been submitted before the Departmental Authorities. He submitted, since there is no agency P.E. in India, therefore, in terms of Article-7, business profits received from ONGC are not chargeable to tax in India. Learned Authorised Representative submitted, in any case of the matter, the amount received by the assessee since is not an income either under section 9(1)(i) or 9(1)(i), the receipts from ONGC are not subject to tax in India, therefore, there is no requirement for deduction of tax at source on such payments made to the assessee by the ONGC. He, therefore, submitted the order passed by the learned Commissioner (Appeals) deserves to be upheld.

13. We have considered the submissions of the parties and perused the material available on record as well as the decisions relied upon by both the Counsels. At the outset, we propose to deal with the preliminary objection raised by the Department with regard to maintainability of appeal filed by the respondent assessee purportedly u/s 246A. It is the contention of the learned D.R. that the order passed u/s 195(2), is not an appealable order u/s 246A as there is no mention of such an order u/s 246A.

14. It is also the contention of the learned Departmental Representative that the only provision under which the order under section 195(2) can be challenged before the learned Commissioner (Appeals) is under section 248 of the Act. Before deciding the preliminary issue raised by the Department on the maintainability of the appeal filed by the assessee before the first appellate authority, it is necessary to look into some of the statutory provisions which has relevance to the issue at hand. Section 195 of the Act mandates that a person responsible for paying to a non-resident or a foreign company any interest or any other sum chargeable under the provisions of the Act except salary, at the time of credit of such income to the account of the payee or at the time of payment in cash, cheque or demand draft or by any other mode shall deduct income-tax at source at the prescribed rate. However, sub-section (2) of section 195 provides that if the payer/deductor paying any sum to the non-resident considers that the whole of such sum would not be income chargeable of the recipient he can make an application to the Assessing Officer to determine by an order the appropriate portion of such sum chargeable to tax so that tax shall be deducted on such proportion of the sum determined as chargeable to tax. Sub-section (3) of section 195 also provides an option to the recipient of income to make an application in the prescribed manner to the Assessing Officer for grant of a certificate authorising him to receive such interest or other sum without deduction of tax at source subject to fulfilment of conditions laid down as per rules made under sub-section (5) of section 195. Section 246A lays down the provision for filing of appeal before the first appellate authority by an assessee or deductor or collector of tax aggrieved by an order passed under certain provisions of the Act as enumerated under different clauses of section 246A. On a careful reading of section 246A, we find there is no mention of an order passed under section 195(2) as an appealable order. The only provision we could locate in the Act under which an appeal is provided before the learned Commissioner (Appeals) against an order passed under section 195 is section 248. However, an appeal under section 248 can only be filed by a deductor upon fulfilment of certain conditions laid down therein.

15. Keeping the aforesaid statutory provisions in view, if we examine the facts of the present case, it is evident that on 4th October 2012, Chief Manager (F&A), ONGC, Mumbai, made an application, purportedly under section 195(2) of the Act, before the Assessing Officer for an order of non-deduction of tax at source. The Assessing Officer, however, rejected the application filed by the ONGC under section 195(2) vide order dated 23rd November 2012. Undisputedly, neither the respondent assessee nor the consortium or the other constituent has approached the Assessing Officer for a no deduction of tax certificate in terms of sub-section (3) of section 195 or under section 197. Therefore, against the order passed under section 195(2) the payer/deductor i.e., ONGC could have filed an appeal under section 248 before the learned Commissioner (Appeals) provided the conditions laid down therein are fulfilled. However, no such appeal, as it appears, has been filed by the ONGC before the learned Commissioner (Appeals). On the contrary, one of the constituents i.e., Abu Dhabi Ship Building PJSC, the respondent before us, filed an appeal before the learned Commissioner (Appeals) challenging the order under section 195(2). The issue before us is whether the appeal filed by Abu Dhabi Ship Building PJSC, before the learned Commissioner (Appeals) is maintainable under section 246A. As already stated herein before on a careful reading of section 246A, we find that an order passed under section 195(2) is not mentioned as an appealable order. It is the contention of the learned Authorised Representative appearing for the assessee that the expression "an order against the assessee where the assessee denies his liability to be assessed under this Act used in clause (a) of section 246A(1)" enables the assessee to file appeal against the order under section 195(2) before the learned Commissioner (Appeals). However, we are not impressed with the aforesaid contention of the learned Authorised Representative. The expression, "an order against the assessee where the assessee denies his liability to be assessed under this Act" cannot be considered in isolation but has to be read not only in the context of the provisions contained under section 246A of the Act but other provisions of the Act also. If we read the provisions of section 246A as a whole, it would emerge that the order appealed against must be an order against the assessee determining its liability to be assessed under the Act. In the present case, the order passed u/s 195(2) admittedly is not against the assessee but against ONGC. Moreover, the liability of the assessee to be assessed under the Act can only be determined in an assessment proceeding and not under section 195(2). Therefore, the party which could have challenged the order passed under section 195(2) before the learned CIT(A) u/s 248 is ONGC subject to fulfilment of conditions mentioned therein. Right to appeal under the Income-tax Act is a statutory right. Therefore, right to appeal does not exist unless it is specifically conferred by the statute. On a careful reading of the provisions of the Act, it is found, a specific provision has been engrafted into the Act by way of section 248 under which an appeal against an order under section 195 can be filed that too, by the payer/deductor of tax. Therefore, when there is a specific provision for filing appeal against an order u/s 195(2) by a specified person, the appeal before the first appellate authority can be maintainable only if it is filed in terms of the said provision and in no other manner. In the present case, facts on record indicate that after the order was passed under section 195(2) the payer/deductor i.e., ONGC has deducted tax at source on the payments made to the respondent and has remitted tax to the Government account. This is also evident from the letter dated 29th November 2012 of ONGC a copy of which is at Page-125 of the paper book. Further, at the time of hearing, we were informed by the Counsels appearing for the parties that assessment in case of the respondent has also been made in the meanwhile and the proceedings are pending before the appellate authority. Therefore, in our view, the course open to the assessee is to deny its liability to be assessed under the Act in such proceedings and claim refund of the amount deducted at source from its receipts/income. As far as the decisions relied upon by the learned Authorised Representative regarding the maintainability of appeal under section 246A, on a careful analysis of the decisions, it is noticed that in all these cases, the orders demanding tax or determining liability were directly against the assessee, hence, in that context, the Courts held that appeal before the learned Commissioner (Appeals) is maintainable. However, in the present case, as already stated, the order appealed against before the learned Commissioner (Appeals) was not against the assessee but against ONGC under section 195(2) of the Act. For the sake of completeness, we think it appropriate to deal in nutshell with few of the decisions relied upon by the learned Authorised Representative.

16. In the case of M. Pyngrope (supra), the assessee had filed return of income under section 139 declaring certain income. The Assessing Officer processed the return of income under section 143(1) of the Act and determined the tax payable. Against the order under section 143(1), assessee filed an appeal before the first appellate authority claiming that his income is exempt under section 10(26). The learned Commissioner (Appeals) entertaining the appeal of the assessee, allowed his claim. The Department challenged the decision of the learned Commissioner (Appeals) before the Tribunal raising the issue of maintainability of the appeal. However, the Tribunal upheld the order of the learned Commissioner (Appeals) by holding that the appeal is in respect of an order against the assessee where the assessee denies his liability to assessee under the Act. In the present case, the order passed under section 195(2) is not against the assessee. Therefore, this decision is not applicable to the facts of the present case.

17. In the case of M. Anandan (supra), the facts are almost similar. In this case, assessee challenged the order passed under section 143(1), claiming that the pension earned by him was not taxable in India in terms of DTAA. The appeal filed by the assessee under section 246(1) was held maintainable before the learned Commissioner (Appeals). Thus, as could be seen, the order challenged before the first appellate authority was passed against the assessee.

18. In the case of Shri Bhogavati Sah. Sakhar Karkhana Ltd. (supra), the issue was an order raising demand under section 206C of the Act was passed against the assessee on his failure to collect tax at source. Though, order passed under section 206C was not specifically mentioned under section 246, however, the Tribunal took a view that the expression "assessee denies his liability under the Act" would make the order appealable under section 246(1).

19. Thus, from the aforesaid facts, it is clear that an order was passed against the assessee raising a demand, despite the assessee denying its liability to be assessed under the Act. However, in case of the assessee before us there is no such situation of demand being raised against the assessee. As reiterated earlier, the order challenged before the first appellate authority by the respondent is an order passed under section 195(2) of the Act directing the ONGC to deduct tax at source. Thus, there is neither any order against the assessee nor there is determination of chargeability to tax under the Act.

20. In case of Kanpur Coal Syndicate (supra), the issue is completely different as it dealt with power of the learned Commissioner (Appeals) or the Tribunal in disposing of the appeal. Facts of the case are, the Assessing Officer made an assessment in the name of an Association Of Persons (AOP). The said AOP filed an appeal before the learned Commissioner (Appeals) claiming that instead of assessing the income at its hand, the Assessing Officer should have assessed the income in the hands of the individual members. Though, the learned Commissioner (Appeals) dismissed the appeal of the assessee. On further appeal before the Tribunal it held that, though, the Income Tax Officer had the power to assess the income of the AOP as such or in the alternative on the individual members thereof in respect of their proportionate shares in the income but the Tribunal had no power under the Act to direct the ITO to exercise his power in one way or other. When the matter went in reference to the High Court, the High Court held that the Appellate Tribunal has jurisdiction to give directions to appropriate authority to cancel the assessment made on the AOP and make a fresh assessment on the members of that association independently. Thus, as could be seen, the issue in the aforesaid decision was in relation to powers of the Appellate Authority. Moreover, the order appealed against before the first appellate authority and the Tribunal was passed against the assessee and not against a third person. Therefore, in these circumstances, we are of the view that these decisions are of no help to the assessee not only because of the fact that in all these cases, orders were passed directly against the assessee determining a liability under the Act but the assessees have denied their liability. Whereas, in the appeal before us, the order appealed against is an order passed under section 195(2) against ONGC requiring it to deduct tax at source on payments made to the assessee. Further, there is no final determination of liability under the Act as far as the assessee is concerned which can only be determined when assessment is framed against the assessee. That besides, there being a specific provision under section 248 of the Act for filing appeal against order passed under section 195(2) of the Act, that too by payer/deductor of tax at source the said order cannot be challenged under section 246A of the Act by the respondent. In the aforesaid view of the matter, we are of the considered opinion that the appeal filed by the respondent assessee before the learned Commissioner (Appeals) against the order passed under section 195(2) in the case of ONGC is not maintainable. The learned Commissioner (Appeals), in our view, was not competent under the provisions of section 246A of the Act to entertain such an appeal. We, therefore, set aside the impugned order passed by the learned Commissioner (Appeals) and restore the order of the Assessing Officer under section 195(2).

21. As we have decided the Department's appeal in its favour on the issue of maintainability of the appeal, there is no necessity to deal with the other grounds raised on merit in this appeal.

22. In the result, Department's appeal stands allowed.