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Income Tax Appellate Tribunal, DELHI BENCH ‘B’,
Before: SHRI N. K. BILLAIYA, & MS. SUCHITRA KAMBLE
ORDER PER N. K. BILLAIYA, ACCOUNTANT MEMBER:
This appeal by the assessee is preferred against the order dated 29.01.2015 framed u/s 143(3) r.w.s 144C(13) of the Income-tax Act, 1961 [hereinafter referred to as 'the Act' for short] pertaining to A.Y 2012-13.
The substantive grievance of the assessee is two-fold – firstly, the assessee is aggrieved by the findings of the Assessing Officer that the provisions of section 44BB of the Act are not applicable to the services rendered by the assessee to ENI India Ltd. The assessee is further aggrieved by treating the revenue of the assessee in the nature of FTS. Secondly, the assessee is aggrieved by the levy of interest u/s 234B of the Act.
Briefly stated, the facts of the case are that the appellant company is a company incorporated under the laws of Italy. During the year under consideration, the appellant is a non resident company and has earned revenue from providing services to ENI India Ltd, a company involved in prospecting, extraction and production of mineral oil. For this purpose, it has entered into the service agreement with ENI India Ltd. The assessee offered revenue to tax in India under the provisions of section 44BB(1) of the Act as it believes that it is engaged in the business of providing of services in connection with prospecting for, or extraction or production of minerals oils to ENI India Ltd.
During the course of scrutiny assessment proceedings, the A.O examined the services rendered by the assessee and found that these services are removed from the core activities that are incidental and connected with prospecting for, or extraction or production of mineral oils and in that sense, these services are not covered under the provisions of section 44BB of the Act. The Assessing Officer was of the firm belief that the revenues of the assessee are of the nature of technical services and the income on account of the same is income by way of FTS u/s 9(1)(vii) of the Act and accordingly, taxed the same as business income of the assessee.
The assessee raised objection before the DRP and the DRP confirmed the assessment order. The relevant findings of the DRP read as under:
“We have perused the service agreement alongwith its Annexures entered by the assessee with ENI India. The submission highlighted above and the reasoning give by the AO, prima-facie, show that the nature of services rendered by the assessee is not directly in connection with the oil exploration though the services are technical in nature. The AO, in para 6.3 of the impugned order, held that the assessee's income falls in purview of section 44D, 44DA and 4 115A and thus it is not in the ambit of reference. The section 44BB.-We have scanned various decisions on the issue under decision rendered in CGG Veritas Services SA v Addl Director of Income Tax (Int Tax)(ITAT, Delhi), ITA 4653 of 2010 (Del ITAT) dt.25.01.2012, has a binding precedent on various matters relating to taxability of FTS in general. However, it is not a binding precedent as regards the taxability of an assessee having a PE, since it was rendered specifically for an assessee which does not have a PE. Any reference to taxability of an assessee having PE is only obiter. The legislative history of the Sections 9, 115A, 44D, 44BB and 44DA shows that FTS, whether or not PE's present, and regardless of the fact the assessee is rendering services in connection with prospecting/exploration/extraction of mineral oil, are not taxable in u/s 44BB. This is specifically supported by the decisions of Hon'ble Uttaranchal High Court in CIT v. ONGC as Representative Assessee of Rolls Royce (P.) ltd.[200S] 170 TAXMAN 563/214 CTR 135 and the case reported in 299 ITR 436. Under the scheme of the Income Tax Act, FTS can be taxed only u/ss. 115A, 44D or 44DA. The amendments vide Finance Act 2010; inserting mutually exclusionary clauses in s. 44BB and s.44DA are clarificatory. The services rendered by the assessee falls within the scope of Technical Services as defined in Sec 9(l)(vii) Expln. 2 and are not excluded as consideration of "construction, assembly, mining or like project". The income received from services
5 provided by the assessee is in the nature of managerial, technical or consultancy services. The rule of res judicata does not apply to assessment proceedings under the Income Tax Act. Although the AO, in the earlier assessment year had allowed taxability u/s 44BB, he was justified in applying the correct law in the current assessment year, instead of perpetuating a mistake. The principle of consistency does not operate against law. On the contrary, Sec 44DA is also a specific provision and is not overruled by S.44BB. The CBDT has clarified that even branch of a foreign company is an Indian concern for the section 44BB. The CBDT instruction No 1862 dated 22.10.1990 is of no help to the assessee. The Instruction cannot be applied to take a case Put of the ambit of S. 115A and place it in S.44BB. In view of above and the reasoning given in the impugned order, we are of the considered view that the AO is justified in holding that the assessee's services do not fall in the purview of section 44BB. In view of various judicial pronouncements and various Articles of DTAA, we find merit in the AO's finding that the FTS has to be assessed as business income. Accordingly, we decline to interfere with the AO's finding on this score.”
Before us, the ld. counsel for the assessee drew our attention to the contract between the Government of India and ENI India and ONGC and GAIL India which is exhibited at pages 59 to 215 of the paper book.
The ld. counsel for the assessee further drew our attention to the service agreement dated 14.04.2008 entered into between the appellant and ENI India Ltd for providing services. The ld. counsel for the assessee further relied upon the decision of the Hon'ble Supreme Court in the case of ONGC 376 ITR 306 and the decision of the Tribunal in the case of Technip UK Ltd 101 Taxmann.com 365. It is the say of the ld. counsel for the assessee that the facts of the case are identical to the facts considered by the Tribunal in the case of Technip UK Ltd [supra] and the nature of the contract and services rendered by the assessee are covered by the decision of the Hon'ble Supreme Court in the case of ONGC.
Per contra, the ld. DR relied upon the assessment order.
We have heard the rival submissions and have given thoughtful consideration to the orders of the authorities below. We have carefully perused the service agreement which is exhibited at pages 218 to 262 of the paper book. The bone of contention is that the Assessing Officer did not consider the case of the assessee u/s 44BB of the Act on the ground that section 44BB of the Act is not applicable to second level contractors. A similar issue was considered by the co- ordinate bench in the case of Technip UK Ltd [supra]. The relevant findings read as under:
“17. The second contention of the Revenue is that section 44BB of the Act is not applicable to second level contractors.
A plain reading of section 44BB of the Act envisages a non-resident service provider not merely engaged in the business of providing services or facilities in connection with prospecting, extraction or production of mineral oils but providing such services / facilities to a person / entity engaged in such activities. The said section does not distinguish between the main contractor or a sub-contractor. If the intention of the Legislature was to restrict the benefit of section 44BB of the Act to the main contractor only, then, the words after ‘the assessee engaged in the business of ‘providing services or facilities in connection therewith’ or ‘supplying plant and machinery on hire' ought to have been omitted. Hence, where the provision does not create any discrimination between the person who actually does the activity of prospecting for or extraction or production, and the person who renders services in connection therewith, the section cannot be narrowly construed.”
It would not be out of place to refer to the decision of the co- ordinate bench in assessee’s own case in ITA No. 4284/DEL/2013. Though the said decision of the co-ordinate bench was in respect of the order framed u/s 263 of the Act, but the findings are very much relevant to the case in hand. The relevant extract of the said decision of the co- ordinate bench reads as under:
“In the instant case, ground for which the DIT assumed jurisdiction u/s 263 of the Act are that provisions of section 44BB of the Act does not cover second leg contract and the said section is not application to sub-contracts engaged in providing technical services to contractors for those undertaking projects in oil exploration, that income received by the assessee was clearly covered u/s 44DA of the Act and hence not taxable u/s 44BB of the Act and that the A.O has not taxed out country receipts and that contract was a composite one and the A.O in the order did not discuss the taxability of the total receipts with regard to the admitted PE of the assessee in India.
From the various decisions filed by the assessee in the paper book, we find it has been held in various decisions that section 44BB of the Act are applicable to second level contractor/sub-contractor. We find the Delhi Bench of the Tribunal in the case of Louis Dreyfus Armateures SAS [supra] has held as under:
“60. A reading of the aforesaid judicial precedence clarify that sec. 44BB does not distinguish between the main contractor or a sub-contractor as has been interpreted by the AO and the DRP. The conclusions of the A.0 and the DRP are erroneous on account of the reason that the provision clearly envisages the non-resident assessee to be engaged in the business of supplying plant and machinery on hire. The only condition imposed, to say. is that such plant and machinery has to be used or should be used for the purposes of prospecting or extraction or production of mineral oils. The language in section 44BB in our view is clear so also the Legislative intention. It is a trite law that has already held by the Hon'ble Supreme Court in B. Parmannand v.Mohan Koikal [2011] 4 SCC 266 that "the language employed in a statute is the determinative factor of the Legislative intend. It is well settled principle of law that the Court cannot read anything into a statutory vision which is plan and unambiguous". If the legislatures intention as contended by the Revenue was to restrict the benefit of sec. 44BB only to the main contractor or ONGC, then the words after 'the assessee engaged in the business of supplying plant and machinery on hire' or 'providing services or facilities' ought to e been omitted. Hence, where the provision does not create any discrimination between the person who actually does the activity of prospecting for or extraction or production, and the person who supplies the plants and machinery, the narrow interpretation of the provision is thus not permitted. The basic condition to satisfied in the said provision is that the plant or machinery supplied or lented on hire by the assessee, non-resident should be used in the prospecting for or extraction or production of minerals oils or where equipment has been supplied, such equipment should have been used for the purposes of prospecting for or extraction or fiction of mineral oils. Having regard to the above we are of the considered opinion that the fetter assumed by authorities below while interpreting the provisions of Section 44BB of the Act are manifestly it and there is nothing in the said provision so as to disentitle a sub-contractor from invoking the said provision. Accordingly we do not find any fault in the claim of the assessee that revenues received under the charter agreements with CGG for providing two seismic survey vessels are in consideration with prospecting extractions or production of mineral oils and therefore taxable u/s 44BB of the Act.”
The various other decisions relied on by the ld. counsel for the assessee also support the proposition that the provision of section 44BB of the Act are held to be applicable to the tax payer being a second leg contractor/sub-contractor. Further, it has been held in various decisions including the decision of the Hon'ble Delhi High Court in the case of DIT Vs. OHM Ltd. reported in 352 ITR 406 that the services rendered in relation to extraction and production of mineral oil are taxable u/s 44BB of the Act.”
Respectfully following the findings of the co-ordinate bench, we hold that the assessee’s case comes within the purview of section 44BB of the Act.
In so far as the services rendered by the assessee making it eligible to come within the purview of section 44BB of the Act, it has been decided by the Hon'ble Supreme Court in the case of ONGC [supra] wherein the Hon'ble Supreme Court held that each contract must be considered to find the brief description of the works covered under each contract. The Hon'ble Supreme Court set out the details of 11 the work covered eligible to fit in the provisions of section 44BB of the Act. The relevant work read as under:
Geological study of the area and analysis of seismic information reports to design 2 dimensional seismic surveys “34. Feasibility study of rig to assess its remaining useful life and to carry out structural alterations. 35. Engineering analysis of rig. 36. Imparting training on cased hold production log evaluation and analysis. 37. Training on well control. 38. Training on implementation of Six Sigma concepts. 39. Training on implementation of Six Sigma concepts. 40. Training on Drilling project management. 41. Training in Safety Rating System and assistance in development and audit of Safety Management System. 42. To develop technical specification for 3D Seismic API modules of work and to prepare bid packages. 43. Supply supervision and installation of software which is used for analysis of flow rate of mineral oil to determine reservoir conditions. 44. Supply, installation and familiarization of software for processing seismic data.
In the light of the above, a perusal of the service contract mentioned elsewhere clearly shows that the appellant had rendered similar services to ENI India Ltd for which services it received the revenue which it offered u/s 44BB of the Act. Considering the facts of the case in totality, in the light of judicial decisions discussed hereinabove, we are of the opinion that the assessee’s case comes within the purview of section 44BB of the Act and its income should be taxed accordingly. First substantive grievance is accordingly allowed.
Second substantive grievance relates to levy of interest u/s 234B of the Act.
A similar issue was considered by the co-ordinate bench in the case of Technip UK Ltd [supra]. The relevant findings read as under:
“25. In our understanding of the law, as per the provisions of section 234B of the Act, the assessee who is liable to pay advance tax u/s 208 of the Act will be liable to interest u/s 234B of the Act if he fails to pay such tax or advance tax paid by him falls short of 90% of the assessed tax. As per provisions of section 208 r.w.s 209(1) of the Act, advance tax payable has to be computed after reducing from the estimated tax liability the 13 amount of tax deductible/ collectible at source on income which is included in computing the estimated tax liability. Such balance tax liability is the advance tax payable under section 208 of the Act.
The Hon'ble Delhi High Court in the case of DIT v. GE Packaged Power Inc. 373 1TR 65, held that no interest under section 234B of the Act can be levied on the assessee-payee on the ground of non-payment of advance tax because the obligation was upon the payer to deduct the tax at source before making remittances to them. The relevant extracts of the decision are reproduced hereunder: “22. This Court, therefore, holds that Jacobs (supra) applies in such situations; Alcatel Lucent (supra) can be explained as a decision turning upon its facts; its seemingly wide observations, limited to the circumstances of the case. This Court, therefore, holds that the view taken by ITAT was correct; the primary liability of deducting tax (for the period concerned, since the law has undergone a change after the Finance Act, 2012) is that of the payer. The payer will be an assessee in default, on failure to discharge the obligation to deduct tax under Section 201 of the Act.
14 27. For the above reasons, this Court finds that no interest is leviable on the respondent assessees under Section 234B, even though they fled returns declaring NIL income at the stage of reassessment. The payers were obliged to determine whether the assessees were liable to tax under Section 195(1), and to what extent, by taking recourse to the mechanism provided in Section 195(2) of the Act. The failure of the payers to do so does not leave the Revenue without remedy; the payer may be regarded an assessee-in-default under Section 201 and the consequences delineated in that provision will visit the payer. The appeal of the Revenue is accordingly dismissed without any order as to costs. "
It may be pointed out that the Finance Act, 2012, w.e.f. 1.4.2012 added proviso below section 209(1)(d) of the Act. But the said proviso is applicable from assessment year 2013-14 and, therefore, prospective in operation.
In our understanding, the insertion of the proviso cannot be considered to have retrospective effect so as to expose a non- resident company to levy of interest u/s 234B of the Act for the assessment years prior to assessment year 2013-14. In the light of the above, we direct the Assessing Officer to not charge interest u/s 234B of the Act.”
Respectfully following the findings of the co-ordinate bench, we direct the Assessing Officer to not charge interest u/s 234B of the Act for the year under consideration.
In the result, the appeal of the assessee in is allowed.
Order pronounced in the open court on 25.02.2019.