M/S.ABAN SINGAPORE PTE LIMITED ,HYDERABAD vs. DCIT,INTERNATIONAL TAX 1(1), CHENNAI

आयकर अपीलीय अिधकरण, ‘डी’ �ायपीठ, चे�ई IN THE INCOME-TAX APPELLATE TRIBUNAL ‘D’ BENCH, CHENNAI �ी वी. दुगा� राव, �ाियक सद� एवं �ी जी. मऺजुनाथा, लेखा सद� के सम� । Before Shri V. Durga Rao, Judicial Member & Shri G. Manjunatha, Accountant Member I.T.(TP)A. No.13/Chny/2022 िनधा�रण वष�/Assessment Year: 2018-19 M/s. Aban Singapore Pte Limited, The Deputy Commissioner of C/o P. Murali & Co., Vs. Income Tax, Chartered Accountants, 6-3-655/2/3, International Tax 1(1), Somajiguda, Hyderabad 500 082. Chennai. [PAN: AAQCA2845Q] (अपीलाथ� /Appellant) (��थ�/Respondent) अपीलाथ� की ओर से / Appellant by Shri P. Murali Mohan Rao, CA : ��थ� की ओर से/Respondent by Shri Sasikumar, CIT for : Dr. S. Palanikumar, CIT सुनवाई की तारीख/ Date of hearing 19.06.2023 : घोषणा की तारीख /Date of Pronouncement : 20.07.2023 आदेश /O R D E R PER V. DURGA RAO, JUDICIAL MEMBER: This appeal filed by the assessee is directed against the final assessment order passed under section 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 [“Act” in short] dated 09.02.2022 relevant to the assessment year 2018-19 in pursuant to the directions of the ld. Dispute Resolution Panel-2, Bengaluru under section 144C(5) of the Act dated 23.01.2022. The assessee has raised following grounds: 1. The Final assessment order passed by the Dy. Commissioner of Income Tax, INTL TAX 1(1), and Chennai (herein after referred to as 'AO') is bad both in the eve of law and on facts.

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after following due procedures, the Assessing Officer has completed the assessment by passing a draft assessment order under section 144C of the Act dated 15.04.2021 by considering the income as royalty and assessed the total income at ₹.26,79,37,138/-. Against the draft assessment order, the assessee filed its objection before the ld. Dispute Resolution Panel-2, Bengaluru. The ld. DRP sustained the adjustment proposed by the Assessing Officer and rejected the objections of the assessee. Considering the direction of ld. DRP, the Assessing Officer has passed the final assessment order dated 09.02.2022 assessing total income of the assessee at ₹.26,79,37,138/-.

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16.02.2018 to 31.03.2018 was also obtained by the assessee. The ld. Counsel for the assessee further submitted that the Assessing Officer has ignored the provisions of section 44BB of the Act and passed the final assessment order, which is contrary to law. He also submitted that the issue involved in this appeal is squarely covered by the decision of the Coordinate Bench of the Tribunal in assessee’s sister concern case for the assessment year 2017-18 in IT(TP)A No. 17/Chny/2021 dated 07.02.2022 in the case of Deep Drilling 5 Pte Ltd. v. DCIT.

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Prayer: Combined reading of this written submission and the written submission made in the case of Deep Drilling 5 Pte Limited for the AY 2018-19, the modus operandi was clear that by splitting of the contracts, the appellant companies intended to avail tax benefit in both the countries. Their claim that there was no PE in India is no longer acceptable as the P&L account of Aban Offshore Singapore Pte Limited itself was signed by the directors of Deep Drilling 5 Pte Limited. It was just artificial splitting of profit to evade tax in both the countries. Appellant's claim that they had no PE in India is also devoid of any merit on account of all those relevant facts brought on record in both the written submissions. It is submitted that the precondition of existence of PE is not necessary for taxing the assessee u/s.44BB of the IT Act in view of the decision of Hon'ble ITAT, New Delhi in the case of M/s. UMW Sher (L) Ltd. vs AO, International Taxation. Multiple grounds of appeal on PE raised by the appellant is liable to be dismissed on account of the facts on record. It is prayed that Hon'ble ITAT is the highest fact-finding authority, all these facts may kindly be taken on record while deciding the appeal as the appellant is not having any valid reasons to claim exemption of equipment hire charges received from Vedanta Limited. 5. We have heard both the sides, perused the materials available on record and gone through the draft assessment order, directions of the ld. DRP and final assessment order. We have also considered the written submissions filed by both the parties. We find that the issue involved in this appeal is squarely covered by the decision of the Coordinate Benches of the Tribunal in assessee’s sister concern case for the assessment year 2017-18 in the case of Deep Drilling 5 Pte Ltd. v. DCIT (supra), wherein, the Tribunal has observed and held as under: “11. We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. We have also carefully considered detailed Written Submissions filed by the Revenue in light of certain judicial precedents. The assessee is engaged in the business of providing deep drilling rig driller-5 used in oil exploration. The assessee had entered into an agreement with M/s. CAIRN India Ltd. (Vedanta) to carry out certain activities including well

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drilling at off-shore location designed by CAIRN in PR-OSN-2004/1 Palar-Pennar Block on the east coast of India. As per the agreement between the assessee and M/s. CAIRN India Ltd., if you go through the scope of work, the assessee shall deploy equipments necessary for drilling work including drilling rig and other incidental equipments and also necessary supplies, materials and tools required for the said work. The assessee shall also provide necessary manpower including Rig Manager, Logistic Manager, warehouse man, Office supporting staff and sufficient personnel to perform the services. From the scope of work as referred to in the agreement between the parties, it is undoubtedly clear that it is not a case of simple hiring of drilling rig with other equipment, but a comprehensive contract for drilling work with all men and materials to be provided by the assessee. Further, said agreement was remain in force till the contract completes and as per the facts available on record, the assessee was present in India only for 53 days (i.e. from 07.02.2017 to 31.03.2017). 12. In the light of above factual back ground, if you examine the reasons given by the AO to treat consideration received by the assessee for carrying out drilling work for M/s. CAIRN India Ltd., one has to examine the reasons given by the AO to bring said payments within the definition of royalty as defined u/s.9(1) of the Act, r/w Article-12 of the India Singapore Tax Treaty. The provisions of Sec.9(1) defines the term royalty, as per which, royalty means consideration (including with lump sum consideration but excluding any consideration which would be income of the recipient chargeable under the head ‘capital gains’) for the use or right to use an industrial, commercial or scientific equipment but not including amounts referred to in Sec.44BB of the Income Tax Act, 1961. Similarly, Article-12 of the India Singapore Tax Treaty (DTAA) defines the term royalty, as per which, payments of any kind received as a consideration for the use of, or the right to use an industrial, commercial or scientific equipment other than payment derived by an enterprise from activities described in paragraph 4(b) & 4(c) of Article-8 of the India Singapore Tax Treaty. Similarly, the provisions of Sec.44BB of the Act, deals with computation of profit & gains in connection with the business of exploration, etc., of mineral oils. As per the said provisions, in the case of the assessee being a non- resident engaged in the business providing services or facilities in connection with or supplying plant & machinery on hire, used or to be used in the prospecting for or extraction or production of mineral oils, than income shall be computed as per the provisions of Sec.44BB of the Income Tax Act, 1961. Therefore, to decide the impugned dispute of taxability of income received by the assessee, one has to examine the receipts in the light of the definition of royalty as per the Income Tax Act, 1961 and also Article-12 of the India Singapore Tax Treaty. 13. The definition of royalty as per Sec.9(1) and Article-12 of the India Singapore Tax Treaty DTAA is one and the same. As per which, consideration for the use or right to use industrial, commercial or scientific equipment but not including the amounts referred to Sec.44BB of the Act. In the present case, if you consider the nature of work undertaken by the assessee with M/s. CAIRN India Ltd., there is no doubt that work carried out by the assessee which falls under the provisions of Sec.44BB of the Act as business receipts. Further, the scope of work as per the agreement clearly indicates that it is not a case of simple hiring of the equipments for drilling work but a comprehensive contract for drilling work which involves machine, materials and men required for the said work. Therefore, we are of the considered view that consideration received by the assessee from M/s. CAIRN

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India Ltd., is not a equipment hiring charges which can be treated as royalty in terms of Sec.9(1)(vi) of the Act rws Article-12 of the India Singapore Tax Treaty. 14. Having said so, let us examine the issue in the light of the provisions of Sec44BB of the Act. As we have already stated in the earlier paragraphs, provisions of Sec.44BB deals with special provision for computing profit and gains in connection with the business exploration of mineral oils, etc. As per the said provisions, any consideration received for providing services or facilities in connection with, plant and machinery on hire used or to be used in the prospecting for extraction, production of mineral oils, then income should be computed as per the said provisions. In the present case, there is no dispute with regard to the nature of work carried out by the assessee which falls under the special provisions of Sec.44BB of the Act. Therefore, it is necessary to examine the taxability of income of the assessee in the light of the provisions of Sec.44BB of the Act and also Article-7 r/w Article-5 of the India Singapore Tax Treaty, which deals with taxation of business profits of an enterprise. 15. The assessee is a tax resident of Singapore and therefore, it is entitled to apply the provisions of the India Singapore Tax Treaty for determination of its tax liability in India. It is also settled position of law that, to the extant tax treaty provisions are more beneficial to a tax payer, then tax payer can adopt treaty provisions which is beneficial and further, treaty provisions would override the provisions of Income Tax Act, 1961. This legal principle is supported by the decision of Hon’ble Supreme Court, in the case of Union of India v. Azadi Bachao Andolan (2003) 263 ITR 706 (SC) and other host of cases. In this case, there is no doubt that, the assessee activity falls under the provisions of Sec.44BB of the Act, and Article-7 r/w Article-5 of the India Singapore Tax Treaty. Therefore, we are of the considered view that the findings recorded by the lower authorities that the activities carried out by the assessee are not coming under the provisions of Sec.44BB of the Act and Article-7 r/w Article-5 of the India Singapore Tax Treaty DTAA is incorrect and unfounded under law. 16. As regards, taxation of income of the assessee, it is an admitted fact that the assessee is a tax resident of Singapore and as per Article-7 r/w Article-5, the profits of an enterprise of a contract in state shall be taxable in that state unless the enterprise carries on business in the other contracting state through a Permanent Establishment situated therein. Article-5 defines, the concept of PE and as per the said Article, it includes mines, oil or gas well, quarry and other place of extraction of natural resources and further an installation or structure used for the exploration or exploitation of natural resources, but only if so used for a period of more than 120 days in any financial year. Therefore, it is very clear that from Article-7 r/w Article-5 of the India Singapore Tax Treaty, business income of an enterprise of a contracting state is taxable in other contracting state, if the enterprise has a PE in other contracting state. In the case of an installation or structure used for exploration of natural resources, the existence of PE will come into play, only such installation or structure is used for a period of more than 120 days in any financial year. In the present case, the assessee carried out the work in India only for a period of 53 days and hence, as per Article-7 r/w Article-5 of the India Singapore Tax Treaty, business profits of the assessee is not liable to tax in India, because the assessee does not have a Permanent Establishment situated in India. In absence of Permanent Establishment (PE), business profits of Singapore Tax Resident cannot

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be taxed in India, if such profits are in the nature of business profits as per Article-7 rws Article 5 of the India Singapore Tax Treaty. In the present case, there is no doubt with regard to the nature of receipts of the assessee which falls under the category of business profits and thus, same cannot be taxed in India because it is taxable only in residence country. In the present case, the stay of the assessee in India is less than 120 days, which is not disputed by the AO. As per the AO, the assessee stayed in India only for 53 days. Further, the assessee has furnished Tax Residency Certificate, as per which, the assessee will be regarded as resident in Singapore for Income Tax purpose for the impugned Asst. Year. Moreover, the assessee has obtained a Certificate from the AO u/s.197 dated 25.01.2017, wherein, the AO has issued lower rate of tax deduction at source on income of the assessee which is based on the provisions of Sec.44BB of the Act, which taxes income sum equal to 10% of aggregate amount received by the assessee from the said business. From the above, it is very clear that, income of the assessee is in the nature of business profits which can be dealt with as per article 7 r/w article 5 of the India Singapore tax treaty, but not royalty as considered by the AO as well as the ld. DRP under section 9(1) and article 12 of the India Singapore tax treaty. 17. In this view of the matter and considering the facts and circumstances of the case, we are of the considered view that consideration received by the assessee for providing rig services to M/s. CAIRN India Ltd., is not liable to tax in India as royalty u/s.9(1)(vi) and Article-12 of the India Singapore Tax Treaty. Further, income of the assessee is also not taxable as business profits in terms of the provisions of Sec.44BB of the Act, because business profits of an enterprise of a contracting state shall be taxable only in that state unless such enterprise is carried out its business in other contracting state through a Permanent Establishment. Since, there is no Permanent Establishment in the case of the assessee the question of taxation of business profits in India does not arise. Therefore, we are of the considered view that the AO as well as the ld. DRP completely erred in taxing income of the assessee in India. Hence, we direct the AO to delete the addition made towards income of the assessee in terms of Sec. 9(1) and Artlce-12 of the India Singapore Tax Treaty. 18. In the result, the appeal filed by the assessee is allowed.” 6. The case law relied on by the ld. DR in the case of M/s. UMW Sher (L) Ltd. has no application to the facts of the present case. Moreover, the ld. DR could not controvert the decision of the Tribunal in assessee’s sister concern case for earlier assessment year by filing any higher Court(s) decision having modified or revered the decision of the Tribunal. Accordingly, by following assessee’s sister concern case for the assessment year 2017-18 in I.T(TP) A No. 17/Chny/2021 dated

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07.02.2022 in the case of Deep Drilling 5 Pte Ltd. v. DCIT (supra), the Assessing Officer is directed to delete the addition made towards income of the assessee in terms of section 9(1)(vi) of the Act and Article 12/Article 13 of DTAA.

Sd/- Sd/- (MANJUNATHA, G.) (V. DURGA RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER Chennai, Dated, the 20.07.2023 Vm/- आदेश की �ितिलिप अ�ेिषत/Copy to: 1. अपीलाथ�/Appellant, 2.��थ�/ Respondent, 3. आयकर आयु�/CIT, 4. िवभागीय �ितिनिध/DR & 5.गाड� फाईल/GF.