WESTERNGECO INTERNATIONAL LTD.,GURGAON vs. DDIT, DEHRADUN

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: ‘D’, NEW DELHI BEFORE SH. BHAVNESH SAINI, JUDICIAL MEMBER AND SH. O.P. KANT, ACCOUNTANT MEMBER Assessment Year: 2006-07 Vs. DDIT, International Taxation, M/s. WesternGeco International 14th Ltd., Floor, Tower C, Dehradun Building No. 10, DLF Cyber City, Phase-II, Gurgaon PAN : AAACW4324J (Appellant) (Respondent) Appellant by S/sh. Sandeep S. Karhail & Purshottam Anand, Adv. Respondent by Sh. Gaurav Dudeja, Sr. DR (Intl. Taxation) Date of hearing 09.11.2017 Date of pronouncement 17.11.2017 ORDER PER O.P. KANT, A.M.:

This appeal by the assessee is directed against order dated 16/12/2011 passed by the Commissioner of Income-tax (Appeals)-II, Dehradun [in short ‘the CIT(A)] for assessment year 2006-07, raising following grounds:

1 The Ld. CIT-(A) has erred on facts and in law in holding that the entire revenue arising from mobilization activities/undertaken outside India are taxable under the provisions of section 44BB of the Income Tax Act, 1961 (the Act) without appreciating that the mobilization revenues attributable to activities undertaken outside India (amounting to Rs 68,68,60,829/-) is not taxable in India under the Act.

1.1 The CIT-(A) has erred on facts and in law in applying the ruling of Hon'ble High Court of Uttarakhand in case of Sedco Forex (170 Taxman 459) without appreciating that the said decision was rendered under different fact pattern which is not applicable in the instant case.

3. The appellant craves leave to add, alter or withdraw any or all the above grounds of appeal

either before or during the course of hearing in the interest of natural justice.

4. All of the above grounds of appeal are without prejudice and notwithstanding each other.

2. Briefly stated facts of the case are that the assessee filed return of income on 30/11/2006 declaring income of Rs.64,52,52,255/-. The case was selected for scrutiny and notice under section 143(2) of the Income Tax Act, 1961 (in short ‘the Act’) was issued and complied with. Since the assessee was engaged in the business of providing equipments and services or facilities in connection with prospecting for or extraction or production of mineral oils, the revenue received in pursuance to the said contracts was offered to tax under section 44BB of the Act in the return of income filed by the assessee. In the scrutiny proceedings, the Assessing Officer observed that out of the total revenues of Rs.716,39,65,861/- the assessee did not offer revenue of Rs.68,68,60,829/- on account of mobilization carried outside India, relying on the decision of Tribunal in the cases of Saipem SPA Vs. DCIT, 88 ITD 213 and ACIT Vs. Jindal Drilling Leasing. However, the Assessing Officer held that entire mobilization revenue was chargeable to tax under section 44BB of the Act, in view of the decision of the Hon’ble High Court of Uttarakhand in the case of Sedco Forex International Drilling Inc. (229 ITR 238). Accordingly, he included the said revenue for the purpose of section 44BB(1) of the Act. 2.1 The Assessing Officer also added a sum of Rs.2,45,82,481/-, which was reflected in Form 16 issued by the Tax Deductors, but was not included by the assessee on the ground that assessee followed cash accounting system. 2.2 Aggrieved, the assessee filed appeal before the Ld. CIT-(A), who upheld the finding of the Assessing Officer.

3. At the outset, before us the Ld. counsel of the assessee submitted that issue in dispute involved in ground Nos. 1 and 1.1 of the appeal is concerned, same is covered against the assessee by the decision of the Hon’ble Supreme Court decided recently on 30/10/2017 in the case of Sedco Forex International Inc. Vs. Commissioner of Income Tax in Civil Appeal No. 04/09/2006 of 2010 alongwith other civil appeals. 4. In respect of the ground No. 2, the learned counsel filed an application admitting additional evidence consisting of relevant TDS certificates, invoices and payment advices. The learned counsel submitted that the assessee is following cash accounting system therefore the revenue which is not received in cash during the year was not offered for the purpose of section 44BB of the Act . He submitted that the additional evidence might be admitted and the issue-in dispute might be restored back to the file of the Assessing Officer for deciding in the light of additional evidences. 4.1 The Ld. Sr. DR, on the other hand, concurred that issue in dispute in ground No. 1 is covered against the assessee and in respect of ground No. 2 though he relied on the order of the lower authorities but did not object for restoring the matter to the Assessing Officer for deciding afresh in the light of the additional evidences filed by the assessee. 4.2 We have heard the rival submission and perused the relevant material on record. As far as ground Nos. 1 and 1.1 of the appeal are concerned, the Hon’ble Supreme Court in the case of Sedco Forex International Inc. (supra) has upheld the finding of the Hon’ble High Court of Uttrakhand that entire mobilization fee has to be included for the purpose of revenue under section 44BB of the Act, whether it is paid in India or outside India. The relevant finding of the Hon’ble Supreme Court is reproduced as under:

“47) Section 44BB starts with non-obstante clause, and the formula contained therein for computation of income is to be applied irrespective of the provisions of Sections 28 to 41 and Sections 43 and 43A of the Act. It is not in dispute that assessees were assessed under the said provision which is applicable in the instant case. For assessment under this provision, a sum equal to 10% of the aggregate of the amounts specified in sub-section (2) shall be deemed to be the profits and gains of such business chargeable to tax under the head ‘profits and gains of the business or profession’. Sub-section (2) mentions two kinds of amounts which shall be deemed as profits and gains of the business chargeable to tax in India. Sub-clause (a) thereof relates to amount paid or payable to the assessee or any person on his behalf on account of 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 in India. Thus, all amounts pertaining to the aforesaid activity which are received on account ofprovisions of services and facilities in connection with the said facility are treated as profits and gains of the business. This clause clarifies that the amount so paid shall be taxable whether these are received in India or outside India. Clause (b) deals with amount received or deemed to be received in India in connection with such services and facilities as stipulated therein. Thus, whereas clause (a) mentions the amount which is paid or payable, clause (b) deals with the amounts which are received or deemed to be received in India. In respect of amount paid or payable under clause (a) of sub- section (2), it is immaterial whether these are paid in India or outside India. On the other hand, amount received or deemed to be received have to be in India. 48) From the bare reading of the clauses, amount paid under the aforesaid contracts as mobilisation fee on account of provision of services and facilities in connection with the extraction etc. of mineral oil in India and against the supply of plant and machinery on hire used for such extraction, clause (a) stands attracted. Thus, this provision contained in Section 44BB has to be read in conjunction with Sections 5 and 9 of the Act and Sections 5 and 9 of the Act cannot be read in isolation. The aforesaid amount paid to the assessees as mobilisation fee is treated as profits and gains of business and, therefore, it would be “income” as per Section 5. This provision also treats this income as earned in India, fictionally, thereby satisfying the test of Section 9 of the Act as well. 49) The Tribunal has rightly commented that Section 44BB of the Act is a special provision for computing profits and gains in connection with the business of exploration of mineral oils. Its purpose was explained by the Department vide its Circular No. 495 dated September 22, 1987, namely, to simplify the computation of taxable income as number of complications were involved for those engaged in the business of providing 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 etc. Instead of going into the nitigrities of such computation as per the normal provisions contained in Sections 28 to 41 and Sections 43 and 43A of the Act, the Legislature has simplified the procedure by providing that tax shall be paid @10% of the ‘aggregate of the amounts specified in sub-section (2)’ and those amounts are ‘deemed to be the profits and gains of such business chargeable to tax...’. It is a matter of record that when income is computed under the head ‘profits and gains of business or profession’, rate of tax payable on the said income is much higher. However, the Legislature provided a simple formula, namely, treating the amounts paid or payable (whether in or out of India) and amount received or deemed to be received in India as mentioned in sub-section (2) of Section 44BB as the deemed profits and gains. Thereafter, on such deemed profits and gains (treating the same as income), a concessional flat rate of 10% is charged to tax. In these circumstances, the AO is supposed to apply the provisions of Section 44BB of the Act, in order to find out as to whether a particular amount is deemed income or not. When it is found that the amount paid or payable (whether in or out of India), or amount received or deemed to be received in India is covered by sub-section (2) of Section 44BB of the Act, by fiction created under Section 44BB of the Act, it becomes ‘income’ under Sections 5 and 9 of the Act as well. 50) It is stated at the cost of repetition that, in the instant case, the amount which is paid to the assessees is towards mobilisation fee. It does not mention that the same is for reimbursement of expenses. In fact, it is a fixed amount paid which may be less or more than the expenses incurred. Incurring of expenses, therefore, would be immaterial. It is also to be borne in mind that the contract in question was indivisible. Having regard to these facts in the present case as per which the case of the assessees get covered under the aforesaid provisions, we do not find any merit in any of the contentions raised by the assessees. Therefore, the ultimate conclusion drawn by the AO, which is upheld by all other Authorities is correct, though some of the observations of the High Court may not be entirely correct which have been straightened by us in the above discussion. For our aforesaid reasons, we uphold the conclusion. Resultantly, all the appeals of the assessees are dismissed.”

4.3 Respectfully following the above judgment of the Hon’ble Supreme Court, we uphold the finding of the Ld. CIT-(A) on the issue in dispute and dismiss the ground Nos. 1and 1.1 of the appeal.

“2. That in the return of income for the Assessment Year 2006-07, an amount of INR 2,60,14,833 (equivalent to USD 6,00,082), which was appearing in TDS certificates issued by respective customer (i.e. M/s Reliance Industries Limited) for that year, was not offered to tax as this amount was not received from the customer as per cash basis of accounting followed by the Assessee for income tax purpose. Detailed break-up of such amount is enclosed herewith as Annexure 1 and copy of TDS Certificates, respective invoices and payment advices pertaining to M/s Reliance Industries Limited is enclosed herewith as Annexure 2.

5. That in the above context and for completeness of facts, I also state that TDS credit of 11,46,989 has been allowed to the Assessee (break-up provided in Annexure 1 enclosed herewith), which pertains to amount not received from M/s Reliance Industries Limited as mentioned in Paragraph 2 above.”

5.1 We find that Ld. CIT-(A) upheld the finding of the Assessing Officer. The relevant extract of the impugned order is reproduced as under:

“6.1 Since no accounts have been filed or maintained it is not understood as to what is the basis for treating receipts on cash and mercantile basis. Also, this receipt has not been offered to tax in subsequent years on whatever ground. Thus, it is held that this receipt has to be taxed in the year in which tax at source has been deducted. The Ld. AO may ensure that benefit of TDS must be given on this receipt.” 5.2 Before us, the learned counsel submitted additional evidences and claimed that the assessee was following Cash Accounting system. The learned counsel has requested for restoring the matter to the file of the Assessing Officer for considering afresh. We are of the opinion that additional evidences filed by the assessee are essential for deciding the issue in dispute, accordingly we admit the same. Further, we are of the opinion that in respect of amount of Rs.2,60,14,833/-, the claim of cash accounting system followed by the assessee need to be verified by the Assessing Officer in the light of additional evidences and then only the issue of considering the amount as revenue for the purpose of section 44BB of the Act can be adjudicated. Further, regarding the amount of Rs.14,32,352 /-, whether the same has already been offered to tax or not, needs verification at the end of the Assessing Officer . 5.3 In view of the facts, we feel it appropriate to restore the issue in dispute to the file of the Assessing Officer for adjudication afresh in the light of additional evidences filed by the assessee. It is needless to mention that the assessee shall be afforded adequate opportunity of being heard. The ground of the appeal is allowed for statistical purposes.