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Income Tax Appellate Tribunal, DELHI BENCH: ‘D’, NEW DELHI
Before: SH. BHAVNESH SAINI & SH. O.P. KANT
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: ‘D’, NEW DELHI BEFORE SH. BHAVNESH SAINI, JUDICIAL MEMBER AND SH. O.P. KANT, ACCOUNTANT MEMBER ITA No. 6166/Del/2014 Assessment Year: 2011-12 Vs. M/s. DDIT, International Taxation, Tidewater Marine International Inc., 17th Floor, Aayakar Bhawan, 13A-Subhash Road, Dehradun Jawahar Vyapar Bhawan, Tolstoys Marg, New Delhi PAN : AAACT7573Q (Appellant) (Respondent) Appellant by Sh. Gaurav Dudeja, Sr.DR Respondent by Sh. Amit Arora, CA Date of hearing 31.10.2017 Date of pronouncement 31.10.2017 ORDER PER O.P. KANT, A.M.:
This appeal by the Revenue is directed against order dated 26/08/2014 passed by the Commissioner of Income-tax (Appeals)-II, Dehradun, raising following grounds of appeal:
Whether on the facts and circumstances of the case, the Ld. CIT(A) has erred in holding that no distinction can be made between receipts from Production Sharing Contract Participants ('PSC partners') and Non-Production Sharing Contract entities (Non PSC Partners) and between services rendered by first-leg and second-leg vendors, ignoring the fact that the receipts from non-PSC partners on account of supplies of plant & machinery on hire ('equipment rental') are in respect of contracts which are entered into with companies not directly engaged in Oil Production and Exploration and therefore, liable to tax u/s
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9(l)(vi)/9(l)(vii) read with section 44DA and not section 44BB of the IT Act,1961 ('Act'). 1(a) The Ld CIT(A) has erred in holding that the receipts of the assessee from 'non- PSC partners for supplying plant & machinery on hire ('equipment rental') are not in the nature of Royalty u/s 9(l)(vi) of the Act, 1961 read with section 44DA of the Act and are eligible for treatment under presumptive provisions of section 44BB of the Act. 2. Whether on the facts and in the circumstances of the case, the Ld CIT(A) has erred in ignoring the effect of the amendment brought in vide Finance Act, 2010 w.e.f. 01.04.2011, in terms of which income covered by section 44DA has been specially excluded from the scope of section 44BB for Asstt. Years 2011- 12 the year under consideration onwards. 2.1 Whether on the facts and circumstances of the case, the Ld CIT (A) has erred in ignoring the distinct scheme of taxation of Fees for Technical Services and Royalty and disregarding the insertion of proviso in section 44BB/44DA/115A and the rationale behind the introduction of said amendment in the Finance Bill 2010 in holding that the income of the assessee company from equipment rental from Non- PSC Partners was covered under the presumptive provisions of section 44BB. 2.2 The Ld CIT(A) has erred in not appreciating the fact that even in terms of ratio of the judgment in the said of OHM Ltd. [(352, ITR 406 (Delhi) cited by him, the provisions of section 44BB are not applicable where the scope of the services/facilities provided by an assessee is general in nature under section 44DA(1) of the Act. 2.3 The Ld CIT(A) has erred in mechanically following the decisions in the case of M/s OHM Ltd without first adjudicating upon the issue as to whether and how the scope of the services/facilities rendered under the contract is not general in nature and therefore, does not qualify as Royalty u/s 9(l)(vi) of the Act taxable under section 44DA. 3. Whether on the facts and circumstances of the case, the Ld CIT(A) has erred in ignoring the decisions of jurisdictional High
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Court in the cases of ONGC as Agent of Foramer France and M/s Rolls Royce Pvt Ltd. [2007-ITI-03-HC-UKHAND-INTL]. 4. Whether on the facts and circumstances on the facts, the Ld CIT(A) has erred in reversing the action of the AO who, having held that the assessee's revenues on account of 'equipment rental' under contracts with Non-PSC Partners is liable to be taxed u/s 44DA, rightly estimated the income of the assessee by applying 25% rate of profit on gross receipts in the absence of books of accounts and details of expenses incurred in providing the services. 5. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in holding that interest u/s 234B of the Income Tax Act, 1961 ('the Act') was not chargeable in this case by relying upon the case of M/s Maersk [334 ITR 79]. a. The Ld CIT(A) has erred in not appreciating the fact that the case of M/s Maersk was distinguishable on facts as it dealt with a case where the employer failed to deduct tax at source despite the specific provisions of the Act in terms of which the employer was mandatorily required to deduct tax from the salary paid to the employee. In the said case, the Hon'ble Court held that an employee is not liable to pay advance tax on salary because u/s 192 there is an obligation on the employer to deduct tax at source. The case does not lay down a general preposition of law that interest u/s 234B 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. b. The Ld CIT(A) 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 234B of the Act is accepted, a proposition affirmed subsequently in the case of M/s Alcatel Lucent (judgment of Delhi High Court dated 07.11.2013 in ITA No. 327 & Ors of 2012).
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The appellant prays for leave to add, amend, modify or alter any grounds of appeal at the time or before the hearing of the appeal.
At the outset, the learned counsel of the assessee submitted that the issues-in-dispute raised in the grounds of appeal by the Revenue are duly covered in favour of the assessee by the order of the Tribunal in ITA Nos. 592, 746 & 1810/Del/2013 for assessment years 2004-05, 2009-10 & 2009-10 respectively. 3. The learned Sr. DR though relied on the order of the Assessing Officer, could not controvert the fact that issues-in-dispute raised in the appeals are covered in the favour of the assessee. 4. We have heard the rival submission of the parties and perused the relevant material on record. We find that broadly following two issues have been raised in the grounds of appeal: a): whether the receipt from rental of vessels received from non- production sharing companies (i.e. second leg contracts) is in the nature of royalty under section 9(1)(vi) of the Act or it is a receipt chargeable to tax under section 44 BB of the Act. b): whether interest under section 234B of the Act is chargeable in the case of the assessee. 5. Both these issues have been decided in favour of the assessee by the Tribunal (supra). On the first issue, the finding of the Tribunal in the case of the assessee itself, from para-19 to para-24 of the order (supra) is reproduced as under:
“19. We have carefully considered the rival contentions. We take up the first ground of appeal of revenue which is against the issue of chargeability of tax on the receipt of rental income from Non PSC companies offered for taxation u/s 44BB of the act by assessee. We have perused and considered all the decision cited before us which we considered as relevant for deciding the issue.
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Provisions of section 44BB are as under:- SPECIAL PROVISION FOR COMPUTING PROFITS AND GAINS IN CONNECTION WITH THE BUSINESS OF EXPLORATION, ETC., OF MINERAL OILS (1) Notwithstanding anything to the countrary contained in section 28 to 41 and section 43 and 43A, in the case of an assessee being a non-resident engaged in the business of providing services or facilities in connection with, or supplying plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils, a sum equal to ten per cent, 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 business or profession": Provided that this sub-section shall not apply in a case where the provisions of section 42 or section 44D or section 44DA or section 115A or section 293A apply for the purposes of computing profits or gains or any other income referred to in those sections. (2) The amounts referred to in sub-section (1) shall be the following, namely:— (a) the amount paid or payable (whether in or out of India) to the assessee or to any person on his behalf 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 in India; and (b) the amount received or deemed to be received in India by or on behalf of the assessee 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. (3) Notwithstanding anything contained in sub-section (1), an assessee may claim lower profits and gains than the profits and gains specified in that sub-section, if he keeps and maintains such books of account and other documents as required under sub-section (2) of section 44AA and gets his accounts audited and furnishes a report of such audit as required under section 44AB, and thereupon the Assessing Officer shall proceed to make an assessment of the total income or loss of the assessee under sub-section (3) of section 143 and determine the sum payable by, or refundable to, the assessee. 21. Therefore according to the section it applies to (i) a non resident who is engaged in the business of providing facilities of or services in connection with or
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(ii) is supplying plant machinery or hire used in (iii) prospecting for or extraction or production of mineral oils (iv) then 10 % of specified amount shall be chargeable to tax. (v) It would be charged to tax under the head profits and gains of the business. (vi) Specified amount is specified u/s 44BB (2) of the act. (vii) There are two explanations to the section which defines what plant is and what is mineral oil. 22. There is no dispute on applicability of this section to the business of the assessee. Only limited issue before us is whether supplying plant or machinery on hire to a company which in turns provides services or facility to the company which is engaged in the specified business is eligible for claim of concessional rate of taxation u/s 44BB of the act or not. This is in common parlance referred to as “ Second Leg5 Contracts. The ‘plant’ supplied by the assessee are vessels and therefore they cover in the definition of plant which is also not in dispute. 23. Coordinate bench of ITAT in SBS Marine Limited v ADIT [ITA 07/Del/2012 dated 13.2.2015] after considering the decisions of Hon’ble supreme court in case of UOI V Gosalia Shipping Pvt. Limited [113 ITR 307] & Poomphur Shipping corporation Limited V ITO [360 ITR 257] , both of which are heavily relied by the revenue has decided this issue. Further this decision of Coordinate bench has also been upheld by Hon’ble Uttarakhand High court vide order dated 6.8.2015 in ITA No 36/2015 applying judgment of Honourable Supreme court in case of Oil And natural Gas Coorp. Limited V CIT [376 ITR 306 (SC)]. There is no contradictory decision of any high court placed before us. Therefore we are duty bound to follow the decision approved by Honourable Uttarakhand high court. Coordinate bench has held as under: “23. Further, there is no requirement of a direct contract or agreement with the person actually engaged in prospecting for, or extraction or production of, mineral oils as canvassed by the revenue for the applicability of section 44BB. One may refer other provisions of the statue which insists on an agreement. For instance, section 42 deals with allowances allowable in computing the profits or gains of any business consisting of the prospecting for or extraction or production of mineral oils in relation which the Central Govt, has entered into an agreement. Section 80IA(4)(i)(b) provides that the enterprise carrying on the business of developing, operating and maintaining any infrastructure facility has to enter into an agreement with the Central Government of a State Govt, or a local authority etc. In the absence of any requirement in section 44BB that the person providing
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services, facilities or plant and machinery on hire should have directly entered into a contract or agreement with the person actually engaged in prospecting for or extraction or production of, mineral oils, one cannot curtail the scope or applicability of section 44BB to second leg contractors whose contracts or agreements are with first leg contractors but whose services or facilities or plant and machinery are used in connection with prospecting for or extraction or production of, mineral oils as required under section 44BB. The Hon'ble Supreme Court in ICBS Ltd v CIT [2013] 350 ITR 527 held that the assessee leasing the vehicles to others who use the said vehicles in their business of running them on hire is entitled for higher rate of depreciation on the vehicles given on lease. It was held by the Hon'ble Supreme Court that the lessor need not himself use the vehicles in the business of running them on hire. The rationale of the aforesaid decision of the Supreme Court may be applied in the context of section 44BB in as much as section 44BB does not mandate that the assessee should directly enter into contract with the person engaged in the business of prospecting for or extraction or production of, mineral oils or the services or facilities or plant and machinery on hire should be directly provided to the said person alone. We have already given a finding of fact that the services and facilities provided by the assessee along with plant and machinery are used in offshore drilling operations i.e., the activity of prospecting for or extraction or production of mineral oils. Consequently, the requirements of section 44BB are satisfied in the present case. 24. In view of the above, there is no merit in the contentions of the revenue that the assessee is not an eligible assessee under section 44BB since it has not directly entered into contract with the ONGC and it is not undertaking the activities specified in section 44BB itself and being second leg contractors they are not eligible under section 44BB.” 24. Therefore, in view of the decision of SBS Marine Limited V ABIT (Supra) we hold that even second leg contracts are also eligible for the benefit of tax treatment provided u/s 44BB of the Act.”
Further, on the issue of operation of the amendment to section 44BB and 44DDA, the Ld. CIT-(A) has observed that considering the interpretation contained in the case of OTIM Ltd., reported in 352 ITR 406 (Del), the position of the case would not change specially when the services are squarely covered in consonance with what is envisaged under section 44BB of the Act. We find that the Tribunal (supra) has also held the services rendered as envisaged under section 44BB of the Act. The Ld. CIT-(A) has followed the decision of the jurisdictional High Court
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on the issue in dispute and thus, we do not find any error in the finding of the ld. CIT-A. 7. The second issue of charging of interest under section 234B of the Act has also been decided in favour of the assessee by the Tribunal (supra) as under:
“31. We have carefully considered the rival contentions. We have carefully considered the above argument which is mainly that in a case of a non-resident whose entire income was subject to tax deduction at source under s. 195 interest u/s 234B is not chargeable. There are conflicting decision of Honourable Delhi High Court on the issue as it is evident from the decisions relied up on by assessee as well as LD DR. In the case cited by LD AR reasoning of the Hon’ble Court was that once the entire income of the assessee was subject to tax deduction at source under s. 195, the assessee was not liable to pay any 'advance tax' in terms of section 209(l)(d) and hence, could not be faulted for shortfall in payment of advance tax. However in the case cited by LD DR it is that when the income is chargeable to tax in India of Non-resident u/s 195 they cannot escape the liability of interest u/s 234B of the act. It has come to our notice that SLP filed before the Honourable supreme court in case of DIT (International Taxation) Vs. Clifford Chance LLP in ITA No. 2883 of 2008 (Bom) has been dismissed as stated in ITA No.5823/Del /2011 Assessment Year : 2008-09 in Fugro Geoteam AS V Addl. Director of Income tax: “Lew of Interest 8. Interest u/s 234B & 234C is not chargeable, since assessee is a non- resident and as such tax is to be deducted at source by Indian party. The Hon’ble High Court in the case of DIT Vs. NGC Network Asia (Supra) and in the case of DIT Vs. Clifford Chance LLP (Supra) has decided issue in favour of assessee. The SLP filed from the judgment of the Hon’ble Uttrakhand High Court in the case of DIT Vs. Clifford Chance LLP was dismissed by the Hon’ble Supreme Court. Therefore, we hold interest u/s 234B & 234C is not chargeable.” 32. Hence we dismiss the ground no (v) of the appeal of the revenue.”
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In view of the above, respectfully following the finding of the Tribunal (supra) in the case of the assessee itself, we dismiss the grounds raised by the Revenue. 9. In the result, appeal of the Revenue is dismissed. The decision is pronounced in the open court on 31st Oct., 2017. Sd/- Sd/- (BHAVNESH SAINI) (O.P. KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 31st October, 2017. RK/-(D.T.D) Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi