DCIT, CIRCLE- 1, INTERNATIONAL TAXATION, DEHRADUN vs. GAIA SHIP MANAGEMENT AS, MUMBAI

O R D E R PER M. BALAGANESH, A. M.: 1. The appeal in AY 2014-15 and 5304/Del/2018 for AY 2015-16, arises out of the order of the Commissioner of Income Tax (Appeals)-2, Noida, [hereinafter referred to as „ld. CIT(A)‟, in short] in Appeal No.103/CIT(A)-2/2016-17 dated 27.09.2017 for AY 2014-15 and in 87/CIT(A)/2017-18/Noida dated 30.05.2018 for AY 2015-16 against the order of assessment passed u/s 143(3)/ 144C(3)(a) of the Income-tax Act, 1961 (hereinafter referred to as „the Act‟) dated 24.01.2015 by the DCIT, International Taxation, Circle-2, Dehradun and ACIT, International Taxation, Circle-2, Dehradun for AY 2015-16 (hereinafter referred to as „ld. AO‟).

M/s. Gaia Ship Management AS

“1 Whether on facts and in the circumstances of the case and in law, the CIT(A) has erred in allowing benefit of Article 23(4) of convention between India and Norway by ignoring the vital fact that the assessee was not engaged solely in the supply operations 2 Whether on the facts and circumstances of the case and in law, the CIT(A) has erred in allowing benefit of Article 23(4) of convention between India and Norway by picking the offshore supply operations part in isolation out of the scope of work carried out by the assessee that consists of a number of other activities/services which are not covered by the special provisions of Article 23 of DTAA between India and Norway. 3 Whether on facts and circumstances of the case, the CIT(A) has ermed in allowing benefit of Article 23(4) of DTAA between India and Norway by ignoring the comprehensive scope of the contract as mentioned in "RECITALS of the contract which clearly stipulates that the services required to be performed by the assessee includes lowing services anchoring services, standby services surveillance services, emergency evacuation service, rig mobilization or demobilization services etc. In addition to supply services. These activities are not at all covered by the provisions of Article 23(4) of the above DTAA 4 Whether on facts and circumstances of the case, the CIT(A) has erred in allowing benefit of Article 23(4) of DTAA between India and Norway by ignoring the clause mentioned in column 1.1 (b) of scope of work of the contract which inter alia contains the provision that the offshore vessel of the assessee would be required to stand by the drilling rig always for any emergency office operation This activity is not at all covered by the provisions of Article 23(4) of the above DTAA 5 Whether on facts and circumstances of the case and in law, the CIT(A) has erred in allowing benefit of Article 23(4) of DTAA between India and Norway by ignoring the clauses mentioned in column 1.1 (b) of scope of work of the contract which inter alia contains the provision that the offshore vessel of the M/s. Gaia Ship Management AS assessee would be required to evacuate the personnel onboard the offshore rig in the event of any calamity. This activity is not at all covered by the provisions of Article 23(4) of the above DTAA 6 Whether on facts and circumstances of the case and in law, the CIT(A) has erred in allowing benefit of Article 23(4) of DTAA between India and Norway by ignoring the clauses mentioned in column 11 (b) of scope of work of the contract which inter alia contains the provision that the offshore vessel of the assessee would be required to carry out routine surveillance in offshore for supply and security reason. This activity is not at all covered by the provisions of Article 23(4) of the above DTAA 7 Whether on facts and circumstances of the case and in law, the CIT(A) has erred in allowing benefit of Article 23(4) of DTAA between India and Norway by ignoring the clauses mentioned in column 1.1 (c) of scope of work of the contract which inter alia contains the provision that the offshore vessel of the assessee would be required to be deployed on rig tow for rig mobilization or demobilization or movement between drilling location to run anchors for the rigs and to carry necessary towline for the same. This activity is not at all covered by the provisions of Article 23(4) of the above DTAA 8 Whether on facts and circumstances of the case and in law, the CIT(A) has erred in allowing benefit of Article 23(4) of DTAA between India and Norway by ignoring the clauses mentioned in column 11 (d) of scope of work of the contract which inter alia contains the provision that the offshore vessel of the assessee would be required to handle anchors that a jack-up or semi sub or drilling ship might use for rig positioning This activity is not at all covered by the provisions of Article 23(4) of the above DTAA 9 Whether on facts and circumstances of the case and in law, the CIT(A) has erred in allowing benefit of Article 23(4) of DTAA between India and Norway by ignoring the clauses mentioned in column 1.1 (e) & (f) of scope of work of the contract which inter alia contains the provision that the assessee would be required to depute two captains with minimum of five years of experience in anchor handling This clause shows that the activity of anchor handling is a very important and integrated part of the contract. This activity is not at all covered by the provisions of Article 23(4) of the above DTAA. 10 Whether on facts and circumstances of the case and in law, the CIT(A) has erred in allowing benefit of Article 23(4) of DTAA between India and Norway by ignoring the fact that the contract is an integrated one whose main ingredients are towing, anchoring. standby services, emergency services, surveillance services, ng mobilization/demobilization services etc, which do not fall within the ambit of Article 23(4) of the DTAA 11 Whether on the facts and circumstances of the case and in law, the CIT(A) has erred in holding that receipts on account of service tax are not includible in gross revenues of the assessee for the purpose of computation of profits under the presumptive provisions of u/s 44BB of the IT Act, 1961 M/s. Gaia Ship Management AS 12 Whether the CIT(A) has erred in not appreciating the fact that the provisions of section 44BB of the Act are a self-contained code providing for computation of profit at a percentage of gross receipts of the assessee and all the deductions and exclusions from income are deemed to have been allowed to the assessee. 13 Whether the CIT(A) has erred in not appreciating the fact that once the receipts are offered to tax u/s 44BB of the Act which provides for computation of profits on gross basis, there is no scope for computing or re-computing the profits by excluding any element of the receipts from the total turnover as the same would amount to defeating the very purpose of providing for a scheme of simple mode of computation of profits u/s 44BB of the Act and obviating the need for accounting for individual receipts and payments etc.

6. At the outset, the ld AR stated that the contract which had generated revenue to the assessee during the year under consideration is continuing contract from earlier year which fact is not disputed at all. The very same issue and argument advanced by the ld DR before us were already considered by this Tribunal in assessee‟s own case for AY 2010-11 in dated 18.06.2019. We have gone through the said order and we find that similar grounds were raised by the revenue during AY 2010-11 also before this Tribunal. For the sake of convenience, the order passed by this tribunal is reproduced herein for AY 2010-11 dated 18.06.2019:- M/s. Gaia Ship Management AS “This appeal is filed by the Revenue against the order dated 6/6/2014 passed by CIT(A)-I1, Dehradun for Assessment Year 2010-11. 2. The grounds of appeal

are as under:- “1. Whether on the facts and in circumstances of the case and in law, the Ld. CIT (A) has erred in holding that the income of the assessee is liable to be taxable under Article 23(4) of India - Norway Double Taxation Avoidance Agreement ('DTAA'). 1.1.Whether the Ld. CIT(A) has erred in his interpretation of the scope of the provisions of Article 23(4) of the DTAA which are applicable only to profits derived from the activities of "transportation of supplies or personnel" and operation of other vessels "auxiliary to such activities". 1.2. Whether the Ld CIT(A) has failed to appreciate that the activities carried out by the assessee included "Anchor Handling Services" which are beyond the scope of the services contemplated under Article 23(4) of the DTAA and therefore, the Assessing Officer was justified in holding that the income of the assessee is not eligible for treatment the said Article and is liable to be assessed u/s 44BB of the Income Tax Act, 1961( 'the Act')

2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in holding that Service Tax would not form part of gross receipts for the propose of computation of profits under the presumptive provisions of u/s 44BB of the Act. 2.1. Whether the Ld. CIT(A) has erred in not appreciating the fact that the provisions of section 44BB are a self-contained code providing for computation of profits at a fixed percentage of gross receipts of the assessee and all the deductions and exclusions from income are deemed to have been allowed to the assessee. 2.2. Whether the Ld. CIT(A) has erred in not appreciating the fact that once the receipts are held as assessable u/s 4488 of the Act which provides for computation of profits on gross basis, there is no scope for computing or re- computing the profits by excluding any element of the receipts from the total turnover as the same would amount to defeating the very purpose of providing for a scheme of simpler mode of computation of profits u/s 44BB of the Act and obviating the need for accounting for individual receipts and payments etc. 2.3. Whether the Ld. CIT(A) has erred in ignoring the judgment of the Hon'ble ITAT in the case of DDIT v/s Technip Offshore Contracting, [29 SOT 33 Del] and the Ruling of Hon'ble AAR in the case of Siem Offshore [337 ITR 207], wherein it has been held that service tax receipts of the assessee have to be considered as part of its gross receipt for the purpose of presumptive determination of profit. 2.4. Whether the Ld. CIT(A) has erred in ignoring the ratio of the judgment in the case of M/s Chowringhee Sales Bureau (P) Ltd (82 ITR M/s. Gaia Ship Management AS 542, SC) wherein the Hon'ble Apex Court has held that the Sales Tax collected by an assessee in the ordinary course of its business forms part of its business receipts. Owing to the inherent similarity in the nature of the sales tax and service tax, the ratio of the judgment in the said case is directly applicable in the facts of the instant case.

3. Whether on the facts and in the circumstances of the case and in law, the Ld CIT(Appeals) has erred in holding that the assessee is not liable to pay interest u/s 2348 of the Act and in observing that the issue is covered in favour of the assessee by decision in the case of M/s Maersk [334 ITR 79, UK] 3.1. Whether the Ld CIT(Appeals) has erred in not appreciating the fact that the case of M/s Maersk was distinguishable on facts wherein the employer failed to deduct tax at source despite the specific mandatory provisions of the Act stipulating the employer being liable to deduct tax on the salary paid to the employee, thereby holding that an employee is not liable to pay advance tax on salary. 3.2. Whether the Ld CIT (Appeals) has erred in not appreciating the fact that the said case does not lay down a general proposition of law that interest u/s 2348 is not chargeable in all cases, particularly in cases where the Non- Resident assessee/payee/deductee has played a role in inducing non- deduction or short-deduction on the part of the payer/deductor. 3.3. Whether the Ld CIT(Appeals) has erred in failing to take note of the observations of the Hon'ble High Court in the case of M/s Mitsubishi [330 ITR 578, Del] that the role of the assessee/payee/deductee in short-deduction or non-deduction of tax needs to be ascertained before claim regarding non-liability to interest u/s 2348 of the Act is accepted, a proposition affirmed subsequently in the case of M/s Alcatel Lucent (judgment of Delhi High Court dated 7 11.2013 in & Ors of 2012) and followed by 1TAT Delhi in the order dated 13.06.2014 in the case of Nortel Network India International Inc [ITA No. 4766/DEL/20I 1] 4. The appellant prays for leave to add, amend, modify or alter any grounds of appeal

at the time of or before the hearing of the appeal.

3. The assessee company is a non resident company incorporated under the law of Norway. The assessee company entered into the contract with Gujrat State Petroleum Ltd. vide contract dated 12/12/2007 for off shore supply vessel services required for off shore drilling. Return of income was filed by the assessee electronically on 30/09/2010 declaring total income of Rs. 2,72,78,810/-. The case was selected for scrutiny and accordingly notice u/s 143(2) was issued on 21/9/2011. Further, notice u/s 142(1) along with questionnaire dated 4/4/2012 was issued by the Assessing Officer. Further, notice u/s 142(1) dated 7/11/2012 was issued and another notice along with questionnaire dated 30/11/2012 was issued. The CA and AR of the assessee attended the proceedings from time to time and submitted written replies. A draft assessment order u/s 143(3)/144C(1) of the Income Tax Act, 1961 was Page | 7 M/s. Gaia Ship Management AS passed on 15/3/2013 thereby assessing total income at Rs. 3,82,96,710/-. The Assessing Officer made addition of Rs. 36,37,17,501/- in respect of receipts offered and also made addition of Rs. 1,92,49,636/- towards service tax receipts as well as made addition as to total income u/s 44BB towards Rs. 3,82,96,714/-.

4. Being aggrieved by the assessment order, the assessee filed appeal before the CIT(A). The CIT(A) partly allowed the appeal of the assessee.

5. The Ld. DR submitted that the CIT(A) was incorrect in holding that the income of the assessee is liable to be taxable under Article 23(4) of the India- Norway Double Taxation Avoidance Agreement (DTAA). The Ld. DR relied upon the Assessment Order.

6. In result, revenue‟s appeal is dismissed." The issue in the present assessment year is identical to that of A.Y. 2005-06. The CIT(A) rightly held that Article 23(4) of the Norway DTAA speaks of a case whereby transportation of personnel or materials to an oil drilling site would attract lesser rates of tax. The Assessing Officer wrongly placed reliance on the isolated clause (d) of the contract with M/s GSPC to deny the benefit to the assessee. In fact the entire contract should have been considered properly by the Assessing Officer which he failed to do so. Therefore, in light of the decision of the Tribunal which is having identical facts in the present year as well, this issue is decided in favour of the assessee. Ground No. 1 of the Revenue‟s appeal is dismissed.

8. As regards to Ground No. 2, the Ld. DR submitted that the CIT(A) erred in holding that Service Tax would not form part of gross receipts for the purpose of computation of profits under the presumptive provisions u/s 44BB of the Act. The CIT(A) failed to appreciate the fact that the provisions of Section 44BB are a self-contained code providing for computation of profits at a fixed percentage of gross receipts of the assessee and all the deductions and exclusions from income are deemed to have been allowed to the assessee. The Ld. DR submitted that once the receipts are held as assessable u/s 44BB of the M/s. Gaia Ship Management AS Act which provides for computation of profits on gross basis, there is no scope for computing or re-computing the profits by excluding any element of the receipts from the total turnover as the same would amount to defeating the very purpose of providing for a scheme of simpler mode of computation of profits u/s 44BB of the Act and obviating the need for accounting for individual receipts and payments etc. The Ld. DR relied upon the decision of Tribunal in case of DDIT vs. Technip Offshore Contracting (29 SOT 33 Del.) and Ruling of AAR in case of Siem Offshore (337 ITR 207). The Ld. DR also relied upon the decision of the Hon‟ble Apex Court in case of ONGC vs. CIT 376 ITR 306.

9. The Ld. AR submitted that the CIT(A) has rightly deleted this additions. The Ld. AR relied upon the decision of the Hon‟ble Delhi High Court in case of DIT vs. Mitchell Drilling International (P.) Ltd. 380 ITR 130.

7. All the arguments of the ld DR have already been addressed by this Tribunal in assessee‟s own case referred (supra) hence, we hold that the ld CIT(A) was duly justified in granting relief to the assessee. Accordingly, grounds raised by the revenue for AY 2014-15 are dismissed.