Q.3(A)

The facts of the case are similar to those of CIT vs. Hyundai Heavy Industries Co. Ltd.decided by the Supreme Court.

(i) Permanent establishment (PE) means a branch, fixed place of business,etc.The exprerssion "business connection" has not been defined in the Income-tax Act.Business connection suggests that there must be nexus between an activity in India and income arising in India.It also presupposes some degree of permanence also. In fact any double tax avoidance agreement between India and foreign country provides that if resident of one country is engaged in the activity of installation and commissioning in a project in the other country for not less than 180 days, such project office is deemed to a PE in that other country.

In view of that the office of Mingle Engineering Ltd, the Korean company should be regarded as its PE or business connection inINdia.

(b) In this case the contract is not indivisble.It has two parts-(a) supply of fabricated struture and (b) provision of installation and commissioning servcie.Assuming that in respect of suuply of fabricated structure the ownership had passed to the Indian entity, Crude OIl India Ltd., outside India, the sale was concluded outside India and no part of profit on supply of the fabricated structure i.e Rs. 2 crores cannot be considered as income from business connection in India or such profit cannot be attributed to PE i.e. project office for installation and commissioning. Hence profit of Rs. 2 crores cannot be deemed to accrue or arise in India u/s 9(1) and is not liable to tax in India.

On the other hand, as the project office is a deemed PE or a business connection in India, profit attributable to such office shall be taxed in India.  Section 44BB provides that where a non-resident is engaged in the business of providing services or facilities in connection with prospecting for or extraction or production of mineral oil in India, amount equal to 20% of the amount payable for such service or facilty shall be deemed to be profit chargeable to tax under the head "profits and gains of business or profession". Therefore, 10% of the amount payable for such service i.e. Rs.1.50 crores isa liable to tax in India.

(c) It is not clear from the question whether the Korean company and the Indian company are associated enterprises.If they are not AEs, then the TP rules will not apply and there will be no upward adjustment to the profit of Indian entity.

Q.3(A)

The facts of the case are similar to those of CIT vs. Hyundai Heavy Industries Co. Ltd.decided by the Supreme Court.

(i) Permanent establishment (PE) means a branch, fixed place of business,etc.The exprerssion "business connection" has not been defined in the Income-tax Act.Business connection suggests that there must be nexus between an activity in India and income arising in India.It also presupposes some degree of permanence also. In fact any double tax avoidance agreement between India and foreign country provides that if resident of one country is engaged in the activity of installation and commissioning in a project in the other country for not less than 180 days, such project office is deemed to a PE in that other country.

In view of that the office of Mingle Engineering Ltd, the Korean company should be regarded as its PE or business connection inINdia.

(b) In this case the contract is not indivisble.It has two parts-(a) supply of fabricated struture and (b) provision of installation and commissioning servcie.Assuming that in respect of suuply of fabricated structure the ownership had passed to the Indian entity, Crude OIl India Ltd., outside India, the sale was concluded outside India and no part of profit on supply of the fabricated structure i.e Rs. 2 crores cannot be considered as income from business connection in India or such profit cannot be attributed to PE i.e. project office for installation and commissioning. Hence profit of Rs. 2 crores cannot be deemed to accrue or arise in India u/s 9(1) and is not liable to tax in India.

On the other hand, as the project office is a deemed PE or a business connection in India, profit attributable to such office shall be taxed in India.  Section 44BB provides that where a non-resident is engaged in the business of providing services or facilities in connection with prospecting for or extraction or production of mineral oil in India, amount equal to 20% of the amount payable for such service or facilty shall be deemed to be profit chargeable to tax under the head "profits and gains of business or profession". Therefore, 10% of the amount payable for such service i.e. Rs.1.50 crores isa liable to tax in India.

(c) It is not clear from the question whether the Korean company and the Indian company are associated enterprises.If they are not AEs, then the TP rules will not apply and there will be no upward adjustment to the profit of Indian entity.

Q.4(A)

Section 220(6) empwers  AO to grant stay of collection of demand at his discretion where the assessee files appeal to the CIT(A) under section 246A. If he grants stay of collection of demand, he will not treat the assessee as assessee  in deafault. Such power is discretionery in nature. However, the AO is required to exercise his discretion judiciously. He should grant stay if he finds  the facts and circumstances justify. He should not refuse to grant stay in a mechanical way without application of mind. He may however impose any condition subject to which the stay will be operational e.g. payment of certain percentage of the demand, furnishing security, etc.

4.(B)

Penalty of Rs. 10,000 can be imposed by the AO.

SIR,

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