TRANSOCEAN OFFSHORE INTERNATIONAL VENTURES LTD.,NEW DELHI vs. DCIT (INTERNATIONAL TAXATION), DEHRADUN

This appeal is preferred by the assessee against the final assessment order passed u/s 143(3) r/w Section 144C(1) of the Income Tax Act, 1961 (hereinafter referred to as "the Act") for assessment year 2011-12.

2.0 Brief facts of the case are that the assessee company is incorporated under the laws of Cayman Islands and the services being provided entail providing offshore drilling units and other Assessment year 2011-12 equipment along with personnel to operate such equipment and other allied services in relation to the drilling operations. the return of income was filed by the assessee under the provisions of section 44BB(1) of the Act, declaring total income of Rs. 125,22,46,882/-. After initial processing of return u/s 143(1) of the Act, the case was picked up for scrutiny. During the course of assessment proceedings, the Assessing Officer noticed that the assessee had entered into an international transactions with Associated Enterprises (AE) during the year and, accordingly, the case was referred to the Transfer Pricing Officer (TPO) u/s 92 CA(1) of the Act. During the assessment year under consideration, the assessee had carried out business activities with regard to providing drill rigs and integrated services in connection with exploration and provision of mineral oil. In all, the assessee had provided seven rigs during the assessment year for the purpose of executing offshore drilling contracts in India.

All the seven rigs which were provided during the year were continuing from earlier year contracts i.e. they were ongoing contracts. The company provided drilling operations under contracts to Reliance Industries Ltd. and Oil & Natural Gas Corporation of India during the year under consideration. In view Assessment year 2011-12 of the provisions of section 44BB of the Act, the assessee offered 10% of its gross receipts as income chargeable to tax. The gross revenue during the year amounted to Rs. 1246,15,886/- in respect of all the contracts. However, the AO noticed that, while computing the gross revenues, the assessee had excluded the following revenues received from these contracts:- i. Reimbursements on account of material Rs.3,46,78,179/- ii. Reimbursement of Fuel Rs.44,18,34,292/- Service tax receipts Rs.107,41,11,953/- iii. Mobilization receipts Rs.20,81,27.148/- iv.

2.1 On being asked to show cause as to why the above receipts/reimbursements should not be included in the gross receipts, it was the contention of the assessee that since the receipts were purely in the nature of reimbursements and not on account of any service rendered, the same were not taxable.

Similarly, with respect to mobilization receipts, it was submitted that only proportionate revenues relatable to activities in India were included and those relatable to activities outside India were excluded. However, the Assessing Officer, after considering the submission of the assessee, proceeded to include all above four amounts in the total taxable gross receipts and thereby computed the gross receipts at Rs. 136,81,02,102/- . Apart from Assessment year 2011-12 this, the Assessing Officer also added the gross receipt from TDSIPL amounting to Rs. 15,94,96,140/- to the income of the assessee without giving the benefit of provision of section 44BB.

2.2 Aggrieved, the assessee filed its objections before the learned

Dispute Resolution Panel (DRP). The Ld. DRP held that as far as the consideration received by the assessee from contract with TDSIPL was concerned, the same was also to be taxed as per provisions of section 44BB. Similarly, with respect to the service tax element which had been clubbed by the Assessing Officer with the gross receipts for the purpose of computing taxable profits u/s 44BB, the Ld DRP directed the Assessing Officer to delete the element of service tax from the gross receipts. With respect to reimbursement of expenses which had been included by the Assessing Officer in the gross receipts, the Ld. DRP directed that reimbursement of expenses was business receipt which was to be included for the purpose of computing the taxable income and further no deduction for expenses was allowable in view of the scheme of presumptive taxation. While issuing such directions, the Ld. DRP placed reliance on the judgment of the Hon’ble High Court of Uttarakhand, which is the Jurisdictional High Court for the assessee, in the case of CIT vs.

Assessment year 2011-12 Halliburton Offshore Services Inc reported in 300 ITR 265

(Uttarakhand). With regard to the mobilization fee, the Ld. DRP rejected the assessee’s contention on the ground that the assessee did not furnish any particulars in this regard.

2.3 Subsequently, the final assessment order was passed on 29.12.2015 and now the assessee is before the ITAT and has raised the following grounds of appeal:-

“Ground No. 1

On the facts and circumstances of the case, the Ld. AO/DRP has erred on facts and in law in holding that the sum of INR. 208,127,148/- received by the appellant towards fee for mobilization/demobilization of the rig outside India, is to be included in the gross receipts u/s 44BB of the Act without appreciating that the said amount does not accrue or arise to the appellant in India in terms of s.5(2) read with s.9 of the Act.

Ground No. 2

On the facts and circumstances of the case, the Ld. AO/DRP has erred on facts and in law in holding that the amounts aggregating to INR. 476,513,071/-, received by the appellant from its customers as reimbursement of actual expenses(material and fuel expenses) incurred by the appellant on their behalf, is to be included in the gross receipts u/s 44BB of the Income Tax Act, 1961 (the Act).

Your appellant prays that the erroneous order be cancelled and appropriate relief may be granted to the appellant.”

Assessment year 2011-12 3.0 At the outset, the Ld. AR fairly admitted that both the issues raised by the assessee are covered against the assessee by the order of the ITAT in assessee’s own case in ITA No. 5286/Del/2011. The Ld AR placed a copy of the ITAT order before the Bench and submitted that the same may be followed.

4.0 The Ld. CIT DR had no objection to the proposition of the Ld. AR.

5.0 Having heard both the parties and also after having perused the material on record, we find that the assessee’s ground no.1 challenging the direction of the Ld. DRP in holding that the amount of 208,127,148/- received by the assessee towards fee for mobilization/demobilization of the rig/s outside India, is to be included in the gross receipts u/s 44BB of the Act, is covered against the assessee by the order of the ITAT Delhi Bench in assessee’s own case for assessment year 2008-09 wherein in Para 6, the issue has been dealt with and the Coordinate Bench of the Tribunal has followed the order of the Hon’ble Uttarakhand High Court in the case of Sedco Forex International Drilling Ltd. reported in 299 ITR 238 (Uttarakhand). The relevant observations of the Hon’ble Uttarakhand High Court in the case of Sedco Forex International Drilling Ltd.(supra) are as under:-

Assessment year 2011-12 “Held, dismissing the appeal, that the payment made to the assessee was outside India and the mobilization charges paid to the assessee by ONGC had no nexus with the actual amount incurred by the assessee for transportation of drilling units of rigs to the specified drilling locations in India. Thus, the mobilization charges were not reimbursement of expenditure. ONGC was liable to pay a fixed sum as stipulated in the contract regardless of the actual expenditure which might be incurred by the assessee for the purpose. In view of the fictional taxing provision contained u/s 44BB, the Assessing Officer was right in adding the amount of Rs. 99,04,000/- for the assessment year 1986-87 and the amount of Rs. 64,64,530/- for the assessment year 1987- 88 received by the assessee towards mobilization charges for the purpose of imposing income tax and the CIT(A) and the Tribunal were also right in upholding the order of Assessing Officer."

5.1 Accordingly, on identical facts and respectfully following the order of the jurisdictional High Court in this regard, we dismiss ground no. 1 of assessee’s appeal.

5.2 As far as ground no. 2 which challenges the direction of the Ld. DRP in holding that the amounts aggregating to Rs. 476,513,071/-, received by the assessee from its customers as reimbursement of actual expenses(material and fuel expenses) incurred by the assessee on their behalf is to be included in the gross receipts u/s 44BB of the Income Tax Act is concerned, we find that this issue is also covered against the assessee by the order of the ITAT in assessee’s own case for assessment year Assessment year 2011-12 2008-09 wherein the Coordinate Bench had followed the judgment of the Hon’ble Uttarakhand High Court in the case of CIT vs. Halliburton Offshore Services Inc (supra). It is also to be noted that an identical issue was held against the assessee in assessment year 2007-08 also. The relevant observations of the Coordinate Bench in this regard are reproduced as under:-

"S. 44BB of the Income Tax Act, 1961 is a complete code in itself. It provides by a legal fiction the profits and gains of a non resident assessee engaged in the business of oil exploration at 10% of the aggregate amount specified in sub sec. (2). Clause (a) of sub section (2) refers to the amounts, (a) paid to the assessee (whether in or out of India) on account of the provision of services and facilities in connection with, or supply of plant & machinery on hire used or to be used in the prospecting for, or extraction or production of, mineral oils in India and (b) payable to the assessee (whether in or out of India) on account of the provision of services and facilities in connection with, or supply of plant and machinery on hire used, or to be used in the prospecting for, or extraction or production of, minerals oils in India. Clause (b) of sub section (2) refers to the amounts (a) received by assessee in India on account of the provision of services and facilities in connection with, or supply of plant and machinery on hire used or to be used in the prospecting for, or extraction or production of, mineral oils outside India. Thus it is clear from a perusal of section 44BB that all the amounts either paid or payable (whether in or out of India) are mutually inclusive. This amount is the basis of determination of deemed profits and gains of the assessee at 10%. The amount paid or received refers to the total payment to the assessee or payable to the assessee or deemed to be received by the assessee, whereas income has been defined u/s 2(24) of the Income Tax Act, 1961 and section 5 and 9 deal with the income and accrued income and the deemed income. 8

Facts being the same, respectfully following the above cited order of Hon'ble Uttrakhand High Court, we dismiss ground No 1(2) of appeal. Ground No. l (1) being general in nature do not require any adjudication. "

5.3 Accordingly, on identical facts and respectfully following the ratio of the judgment of the Hon’ble Jurisdictional High Court in the case of CIT vs. Halliborton Offshore Services Inc (supra), we dismiss ground no. 2 also.

6.0 In the result, the appeal of the assessee stands dismissed. Order pronounced in the open court on 29th October, 2018.