1998 PLP (Trib (PTD)

15. The learned counsel of the respondent, Mr. Iqbal Naeem Pasha, after narrating the facts and repeating the argument made by him before the learned C.I.T.(A) as reproduced by the C.I.T.(A) in his order, has advanced additional arguments in reply to the submissions made by the learned C.I.T., appearing as Departmental Representative.

16. First contention of Mr. Pasha is that in view of judicial consensus in this regard expressions used in a statute or a Notification are to be interpreted by looking at "what is clearly said" instead of seeking guidance from commentaries as to the "probable intention of the Legislature "

" what is unexpressed has the same value as what is unintended".

17. According to the learned A.R. the language of the "Convention between Romania and Pakistan" (S.R.O. 128(1)/81, dated 15th February, 1981) being beyond any ambiguity, this Tribunal "cannot imply anything which is not expressed or import provisions in the Notification so as to support assumed deficiency". He has placed reliance, in this context, on the decisions in the cases reported as 27 T.C. 205/248; AIR 1953 SC 255/267; 1897 A.C. 22; 1991 PTD 1028/1039 (Supreme Court of Pakistan).

18. Next submission of Mr. Pasha is that paragraph 1 of Article 5 of the Convention defines Permanent Establishment to mean "a Fixed place of business in which the business of the Enterprise is wholly or partly carried on. Since the expression used in Paragraph I is means and not "includes", the terms "a place of management, a branch, an office, a factory, a workshop" etc., are to be interpreted in such a way that such places constitute "Permanent Establishment" only if they meet he requirement of paragraph 1. .

19. The learned counsel has attempted to repel the argument of the learned D.R. to the effect that the place where repairs and maintenance of the Aircrafts are undertaken by the personnel of the non-resident lessor is "a workshop" within the meaning of paragraph 2 of Article 5 of the Convention by submitting that no "repairs of the Aircrafts or any parts thereof are undertaken in Pakistan since neither the Lessor nor the Lessee possesses any "lathe machines or grinding instruments". Mr. Pasha has produced a file containing dozens of documents from the contents whereof it was manifest that parts of the Aircrafts were sent to Romania for repairs. As regards "inspection and maintenance" of the Aircrafts after each flight Mr. Pasha's contention is that "inspection and maintenance" is done by the personnel of the non-resident with the assistance of the Lessee's personnel at the "open space where the Aircrafts have landed which is always a different open -space at the airport and hence cannot be equated with "a fixed place of business where the business of the enterprise is wholly or partly carried on".

20. In reply to the arguments of the learned D.R. that "store room" for keeping "spare parts" belonging to the non-resident and the 'office' at the airport where the "Pilots" and "Cabin Crew" in the employment of the non?resident have consultations with the management of M/s. Aero Asia before and after each flight could be equated with "place of management" or "office" of the non-resident, the learned A.R. of the respondent has submitted that as per certificate and documents available on the records Lessee of the "storeroom" and "office" at airport is M/s. Aero Asia International (Pvt.) Ltd. who pays the rent thereof to Civil Aviation Authorities and which is not reimbursable by the non-resident Lessor of the Aircrafts.

21. Mr. Pasha has brought to our notice clause (3.10) of the "Wet Lease Agreement" which reads:

"The Lessee shall provide on its own cost a proper storeroom at the location for `safe storage of Supporting Inventory over the. Lease term as well as proper access for the Lessor's personnel."

22. According to the learned A.R. of the respondent it is manifest that the "storeroom" where the "Supporting Inventory" is stored is undisputedly in the possession of the Lessee who is required to allow proper access for the Lessor's personnel for the purpose of maintenance of the Aircrafts.

23. Mr. Pasha's contention is that "a place of Management", "an office" or "a branch" must either be owned by the non-resident Enterprise or must be in its possession, having Leasehold rights thereon, then alone these could be equated with "a fixed place of business in which the business of the Enterprise is wholly or partly carried on".

24. We have given our careful consideration to the submissions of the learned representatives of the two parties (supra) and have diligently perused the terms of the Wet Lease Agreement (WLA) as well as the provisions of the relevant Articles of the Avoidance of Double Taxation Convention (ibid).

25. It emerges, that the obligations of the Lessee, as per W.L.A., inter alia include, besides payment of "Basic Lease Rate" (BLR) and "Extra Flying Hour Rate" (EFHR), the provision of services and facilities to the Lessor's Personnel at its own cost.

26. The W . L. A. defines the "Basic Lease Price" as the net amount which shall be paid by the Lessee to the Lessor for the minimum guaranteed flying hours at the Basic Lease Rate of US $ 927 for each Flying Hour, for each month, while the Extra Flying Hour Price is defined as the total amount which shall be paid by the Lessee to the Lessor for each Flying Hour @ US $ 825 in excess of the minimum guaranteed flying hours, in respect of each Aircraft, in any month. Further, clause (5.3) of the W.L.A. provides:

"5.3????? The Basic Lease Rate and the Extra Flying Hour Rate include:

Aircraft depreciation, interest, insurance for the Aircraft, Lessor standard third party liability insurance, passenger, baggage and cargo insurance while on board the Aircraft, Lessor Personnel insurance, salaries for the Lessor Personnel, maintenance for the Aircraft (labour and materials except those on the Lessee's account as stipulated here above)."

27. The exceptions (supra), on Lessee's account, are stipulated in clauses (3.8), (3.10) and (3.16) of the W.L.A. that are being reproduced hereunder for the benefit of reference:

"3.8.The Lessee shall provide at its cost for the Lessor's Personnel

(a)??????? any and all required visa, work permits and endorsement or revalidation of the Lessor's Personnel licences, if requested by the Lessee or by Civil Aviation Authority of Pakistan; (b)??????? suitable office, and access to telephone, fax and telex???? communication of operational nature; (c)??????? first class hotel accommodation 4t an international standard; (d)??????? ground transportation whenever required; (e)??????? medical assistance for emergency cases. 3.10. The lessee shall provide on its own cost a proper storeroom at the location for safe storage of Supporting Inventory over the Lease Term, as well as proper access for the Lessor's Personnel. 3.16 The transportation of Lessor's Personnel,: spare parts and other maintenance materials will be covered by the Lessor on the flight BUH-KHI and v. v. sectors only. All expenses related to other transportations will be absorbed by the Lessee."

28. It, thus, transpires that the costs of Lessor's "Personnel", "Office" and "Sotreroom" (supra) are not being borne by the Lessee gratis. The Lessee, in fact is bearing the costs under a contractual obligation which means that it is not without due consideration having been shown while fixing the R.L.R. and E.F.H.R. in clauses (5.1), (5.2) and (5.3) of W.L.A. as evident from the phrases, net amount" and "total amount" employed in the definitions (supra).

29. Thus the stress laid, by the learned counsel of the respondent, on the "non-reimbursable" basis of the facilities supra, provided by the Lessee, both before us as well as before the learned C.I.T.(A), is misplaced.

30. Further the Wet Lease Agreement (ibid) defines the term "Location" as under:

"'Location' means Karachi or other agreed airport in Pakistan or in other country where the maintenance for the aircraft is to be organized by the Lessor with the agreed facilities provided by the Lessee as herein stated and where the aircraft is habitually kept and operated during the Lease Term. "

31. The term "Lessor's Personnel" as defined under the Agreement and few of the Lessor's relevant undertakings as per Agreement, to be performed by Lessor's Personnel over the lease term for which they enjoy authority delegated by the Lessor, as stipulated in the agreement are also being reproduced hereunder:

"'Lessor's Personnel' means any and all Lessor's employees delegated to perform the Lessor's undertaking over the Lease Term. 2.4?????? Prior to or on the commencement date and subject to the provisions of the Article 3.6 herein, the Lessor shall make available at the Location of the Aircraft Lessor's Personnel duly qualified and licensed by the Romanian Civil Authority in order to operate and maintain the aircraft. 2.4.1??? for the first month of-Lease Term

(a)??????? three sets of cockpit crew each consisting of two persons; (b)??????? three sets of cabin attendants each consisting of three persons; the Lessee will provide one additional cabin attendant to ensure the translation of any and all announcements on board; (c)??????? a number of eight engineers; (d)??????? one commercial coordinator; 2.4.2 starting with the second month of Lease Term

(a)??????? five sets of cokpit crew each consisting of two persons; (b)??????? five sets of cabin attendants each consisting of three persons; for the purpose of training and authorizing the Lessee's cabin crew over the second and the third month, of Lease Term within the number of Lessor's cabin attendants properly authorized instructors will be provided. Starting with the fourth month of Lease Term the Lessor will provide only one cabin attendant per each cockpit crew, the other two cabin attendants being provided by the Lessee; (c)??????? a number of ten engineers, (d)??????? one commercial coordinator. , 2.8?????? The Lessor's Personnel shall monitor, keep proper records and assist the Lessee with all formalities to be performed by the Lessee in order to ensure the required Customs formalities for the Support Inventory/movement required for the Aircraft maintenance. 2.9 Subject to the Lessee complying with its obligations under this Agreement the Lessor will cause the Aircraft to be operated, maintained, crewed and controlled in accordance with the manufacturer's recommendations contained in the Flight Manual of the Aircraft, as approved by the Romanian Civil Aviation Authority and with the observance of all applicable laws and regulations of the State of Registration. 2.10The Lessor shall insure that the Lessor's Personnel shall follow the reasonable instructions of the duly authorized representatives of the Lessee in accordance with the terms of this Agreement, in compliance with the Lessee's roster systems. The Lessee shall not hold the Lessor's Personnel, personally liable for any act or omission without Lessor's prior consent. No action whatsoever may be brought against the Lessor's Personnel without notification to and the consent of the Lessor. "

32. Similarly the term "Support Inventory" as defined under the Agreement and another relevant "Lessor's undertaking" as per Agreement, are being reproduced hereunder:

"'Support Inventory'

means any items of, the Lessor's property, including? but not limited to spare parts, components, engines, rotables, materials required by the Lessor for the maintenance and operation of the Aircraft. 2.5?????? Subject to the provisions of Articles 3.2 and 3.10 herein the Lessor undertakes to provide the Support Inventory over the Lease Term required for the maintenance of the Aircraft using its best efforts."

33. It is evident from the stipulations (supra), firstly that it is clearly expressed that there are specifically agreed locations where the maintenance for the aircraft is to be organised by the Lessor with agreed facilities to be provided by the Lessee. Further, it is agreed that "location" would be such where the aircraft is "habitually kept".

34. Secondly, that it is clearly expressed that the Lessor is contractually bound to make available, at the location of the aircraft, Lessor's Personnel, as per Terms 2.4, 2.41 and 2.4.2 of the Agreement (ibid), over the lease term.

35. Thirdly, that it is clearly expressed that the Lessor's Personnel shall have authority delegated by the Lessor to perform Lessor's undertakings in Pakistan over the lease term.

36. Fourthly, that it is clearly expressed that the lessor shall provide the "Support Inventory" at the location where the Agreement requires the Lessee to provide a proper storeroom not only for its safe storage but for being accessable to the Engineers/Lessor's technical personnel so as to enable them to organise maintenance of the aircraft under delegated authority from their employer to perform the Lessor's undertaking over the lease term.

37. The explicit stipulations of the W.L.A. (supra), in our considered view, lend credibility to the findings of the learned D.C.I.T. and the submissions of the learned D.R. referred to in paragraphs 7 and 13 (supra) and negate the submissions of Mr. Pasha as per paragraph 19 (supra). The mere fact that parts of the aircrafts are sent for repairs to Romania does not negate the fact that the respondent is under contractual obligation to organise the maintenance for the aircraft at the "location" with the agreed facilities provided by the lessee "where the Aircraft is habitually kept", through its own technical personnel posted in Pakistan, duly delegated to perform respondent's undertakings, using the "Support Inventory" stored safely at a proper storeroom accessable to them. The C.A.A. certificate produced during the course of proceedings, in our view, does not support the contention of the learned counsel of the respondent that the open space where the maintenance for the aircraft is organised is "always a different open space". Actually the location where the maintenance for the aircraft is to be organised by the respondent is clearly defined in the W.L.A. The mere fact that aircraft of the respondent instead of being parked in a hanger is- parked in open space at agreed airports as advised by C.A.A./Navigation control makes it nonetheless fixed. The view convassed by the learned counsel amounts to the suggestion that where there are several hangers at the disposal of the C.A.A. and it advises the parking of various aircrafts, according to availability, on various occasions, it would mean there is no fixed place. We regret, we cannot subscribe to this view. The interpretation of the term fixed place in the context of facts and circumstances of respondent's case, in our considered view, means the space allocated by the C.A.A./Navigation control at the "Location" as defined under W.L.A. Moreso, when the existence of the support inventory storeroom and availability of respondent's technical personnel is also ensured at the "location" under the W. L. A.

38. Similarly, regarding the submission of the learn8d counsel of the respondent that in order to qualify as a fixed place where the business of the Enterprise is wholly or partly carried on, as stipulated in Article 5.1 of the Convention, the "Office" must either be owned by the non-resident enterprise or must be in its possession, having leasehold rights thereon, we find that in the instant case the respondent is in possession of a "suitable office" which the lessee is contractually bound to provide under clause (3.8.b) of W.L.A., thus, the respondent has the legally enforceable claim over the office. Further, as stipulated therein, the lessee is obliged to ensure that respondent's personnel have access to telephone, fax and telex communication of operational nature in the office.

39. Thus, besides "the office" that independently falls under the inclusive definition of Permanent Establishment, the respondent by virtue of having the agreed facilities and the proper storeroom at the location where the maintenance for the aircraft is to be organised by it, also has a workshop that too falls under the inclusive definition of Permanent Establishment under Article 5.2 of the Convention.

40. There is no cavil with the proposition of the learned counsel of the respondent that such places i.e. "the office" and "the workshop" shall not constitute "Permanent Establishment" unless they meet the two requirements of Article 5.1 of the Convention. The two requirements are (i) a fixed place where (ii) the business of the enterprise is wholly or partly carried on. However, on the facts (supra), we have found that both the office and the workshop set up at the location are fixed places of business in which the respondent's personnel carry out the business of the respondent-Enterprise, as stipulated under the Wet Lease Agreement. The nature of business carried on there, discussed at length (supra), is such that we have no hesitation in holding, that the respondent would not be entitled to any Basic Lease Price or Extra Flying Hour Price unless it is properly and regularly performed over the Lease Term.

41. Accordingly, we find that the learned C.I.T.(A) is not justified in holding that provision of certain facilities like small office space, to the respondent, by the lessee on non-reimbursable basis does not constitute P.E. The impugned finding, on the facts (supra), has no basis.

42. Further, the learned C.1.T.(A), in view of the clear stipulations in W.L.A., has misdirected himself in holding that the provision of the small storage space on non-reimbursable basis, for the support Inventory, is specifically excluded, from constituting P.E., under Article 5.3(b) of the Convention. We find that in the instant case the proper storeroom is not a place for the maintenance of the stock of goods or merchandise belonging to the Enterprise solely for the purpose of storage display or delivery. On the contrary, it is a place for safe storage of the Support Inventory required by the respondent for the maintenance and operation of the aircrafts that yield the Basic Lease Price as well as the Extra Flying Hour Price.

43. The finding of the learned C.I.T.(A) that there is no evidence of 'a workshop at the airports managed by the C.A.A. is found equally untenable in view of the clear terms of the W.L.A. and the foregoing findings of facts to the contrary.

44. Regarding the reliance placed by Mr. Iqbal Naeem Pasha before the learned C.I.T.(A) as well as before us, in the context of what P.E. postulates, on the case reported as C.I.T. v. Vishakapatam Port Trust (A.P.) (1983) 144 ITR

146. We find firstly that it is only .an obiter dicta of Jagannadha Rao, J. Secondly, the instant case is not on all fours with the case (ibid) while the respondent, in the instant case, is deriving income from lease price of the aircrafts that remain the property of the respondent over the Wet Lease Term and thereafter, and it has undertaken. the maintenance and operation of the aircrafts by its own personnel to be kept posted in Pakistan over the lease term, the German Company in the case (ibid) has supplied, under an agreement with the Port Trust the mechanical equipment, the structural steel-work, the lubrication system, the rubber belting, the electrical equipment, ballast and spares for installation of a plant known as "Bucket Wheel Reclaimer", an engineer-erector is delegated for supervising the total erection and the Port Trust has provided suitable skilled and unskilled labour, scaffolds etc., water and electricity, at its own cost, for the erection work, a company incorporated in India is employed as a sub-contractor to fabricate a single thick steel sheet, and certain items that the German Company has manufactured in Germany and has despatched to Bombay Port are firmly embedded on the steel plate by the sub-contractor and are delivered at Visakhapatnam where the items directly despatched by the German Company to Visakhapatnam Port are put on the said plate under the supervision of the German Engineer.

45. The German Company has supplied the items against the L.C. opened by the Port Trust. The German Engineer who has supervised the erection has received D.M. 90,000 in Germany and Rs.22,000 during his stay in India. The subcontractor has been paid Rs.919,000 in India.

46. The Andhra Pradesh High Court, on the foregoing facts, has inter alia held: "(iii) that there was nothing in the contract between the German Company and the Port Trust which contemplated that the German Company was to set up in India any establishment of a permanent or enduring nature either wholly or substantially, which would amount to a virtual projection of the German Company in India. Nor had any evidence been led in this behalf. The agreement was purely for the supply of parts of equipment and for sending of an expert engineer to supervise the erection of the reclaimer by the Port Trust. The contract between the German Company and the Port Trust made it clear that the Port Trust was in charge of installation of the plant. There was no evidence that the German Company reimbursed the expenditure of the Port Trust in this regard. The word 'erection' was specifically described in the contract as meaning 'wages and travelling expresses'. Therefore, the erection of equipment did not amount to the German Company having a 'Permanent Establishment' in India. The agreement between the German Company and the Poona Company did not also amount to the German Company having a permanent establishment in India. The original contract between the German Company and the Port Trust contemplated the employment of sub-contractor or sub-supplier. The Poona Company was so employed later. There was neither any identity of interest nor identity of character nor of personality, nor was there any unity in profit-making between the Poona Company and the German Company so that the former may be treated as an Indian agent of the latter; "

47. We, accordingly, find that the decision (ibid) is, of no avail to the respondent and reliance of the learned C.I.T. (A) therein is misplaced.

48. Further, the observation made by another C.I.T.(A), while deciding an appeal preferred on behalf of M/s. Aero Asia International (Pvt.) Ltd., regarding the Permanent Establishment in respondent's case and referred to by the learned C.I.T.(A) in his order impugned in the instant appeal, has no binding effect.

49. Accordingly, we find on the foregoing facts and circumstances of the case, that the respondent, by virtue of having a fixed place of business in Pakistan in which the business of the respondent is at least partly carried on by respondent's personnel on regular basis, has a Permanent Establishment in Pakistan as defined under Article 5 of the Convention. Consequently, so much of the profits of the respondent, an enterprise of the contracting State of Romania, carrying on business in the other contracting State of Pakistan, through Permanent Establishment in Pakistan, are taxable in Pakistan, as are attributable to such Permanent Establishment.

50. The impugned orders of the learned C.I.T. (Appeals) are, therefore, vacated and the assessment orders of the learned D.C.I.T. are restored.

51. The appeals are allowed