MMA OFFSHORE ASIA VESSEL OPERATIONS PTE LTD. ,SINGAPORE vs. CIT (INTERNATIONAL TAXATION)-3, MUMBAI

Statutory notices were issued and served upon the assessee and subsequently, after due verification of submissions made by the assessee and documents available, the income of the assessee was assessed at Nil and the exemption claimed as per DTAA amounting to Rs. 33,46,06,627/- was allowed.

Since the assessment order only refers to the submissions made by the assessee and documents considered thereon and there being no further

The first notice dated 31/03/2021 was followed by notice u/s 142(1) of the Act dated 07/07/2021 with the following questionnaire:- “1. Copy of ROI and certified copies of the following documents along with all its schedules. (i) Computation of total income with notes to accounts attached thereto. (ii) Annual report including Balance sheet, P&L & Audit report, if any. (iii) Form No. 3CEB, if applicable. (iv) Copy of 26AS and reconciliation.

Detailed and descriptive note on the nature of activity conducted during your operations in India along with a detailed note on the modus operandi.

Submit a detailed note on the nature of income and justify the exemption claimed if any in the return of income.

Details along with quantum of all income earned through your operations in India during the year under consideration, whether offered to tax or not.

Copy of approval /permission granted by the Reserve Bank of India / SEBI and other regulatory bodies to you to operate in India.

Copy of Tax Residency certificate.

Submit copy of all the contract agreements and other agreements signed with Indian parties with respect to your operations in India.

Reconciliation statement of the income returned with the income corresponding to credit of TDS claimed as per the return of income and in accordance with the AIR. You are also requested to submit copies of all TDS certificates for verification of the claim of credit and 26AS.

The complete details of inter-office adjustments showing the gross adjustments and the net adjustments.

Any other document on which you may wish to rely in support of Return of Income.

Recurring Issues: With reference to the additions/disallowances made in the earlier assessment orders and appeal status, please give details of similar claims liable for disallowances on similar grounds. In case the issues have been decided in your favor at any stage of appeal, relevant details may also be submitted. Please provide copies of the last three (03) assessment orders."

The assessee replied as under:- {This space has been left blank intentionally. P.T.O} EY Building a better working world 24 July 2021 Mumbai-400028, India The Deputy Commissioner of Income Tax International Tax Circle - 3(2)(2), 16th floor, Air India, Nariman Point. Mumbai - 400021. Dear Madam, Re: MMA Offshore Asia Vessel Operations Pte Ltd ('MMA') PAN: AACCJ8004E

Submit a detailed note on the nature of income and justify the exemption claimed if any in the return of income As stated in Point 2 above, MMASV has entered into time charter agreements with BGEPIL and McDermott. The details of income earned by MMASV from the both the contracts are forming part of Annexure 2. MMASV is a tax resident of Singapore for the period 1 April 2018 to 31 March 2019 (copy of Tax Residency Certificate covering year under consideration attached as Annexure 5), therefore, as per section 90(2) of the Act, it would be governed by the provisions of the India-Singapore tax treaty or the Act whichever is more beneficial. We have discussed below the taxability of revenues of MMASV under the Act as well as tax treaty: Taxability under the Act Section 44BB of the Act is a special provision for taxation of non-residents engaged in the business of providing services in the oil and gas sector. As the scope of work pursuant to the contract is integral to the prospecting and extraction of oil and gas, the taxability of the revenues should be governed under section 44BB of the Act. The relevant extract of the section is reproduced below: "44BB Special provision for computing profits and gains in connection with the business of exploration, etc., of mineral oils as follows: (1) Notwithstanding anything to the contrary contained in sections 28 to 41 and sections 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 percent 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" Section 44BB(1) of the Act applies to 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 oil. As per section 44BB(1) of the Act, a sum equal to 10 percent of the gross revenues received by the section 44BB(1) be deemed to be the profits and gains from such business. Thus, section 44BB(1) of the Act applies to a non-resident engaged in the business of providing services or facilities in connection with the prospecting for, or extraction or production of mineral oil. As stated above, MMASV has entered into time charter contract for providing 'MWV Falcon' vessel and 'Jay Vigilant' vessel and services such as seismic, hydrographic, diving support, anchor handling, towing, ROV support for pipeline, commissioning, pre-commissioning services etc. along with bulk transfer, cargo & personnel transfer and food run, accommodation for charterer personnel, catering and communication facilities services for all crew who are involved in exploration work.

Details along with quantum of all income earned through your operations in India during the year under consideration, whether offered to tax or not. The income earned by MMASV from business operations in India are summarised as below: Contract BGEPIL McDermott Total Gross income earned during TY 2018-19 (U ) 45,52,885 1,94,356 47,47,241 Gross income earned during TY 2018-19 (INR) 32,09,51,234 1,36,55,393 33,46,06,627 Offered to tax or not Exempt - Please refer Point 4 for detailed submissions Exempt - Please refer Point 4 for detailed submissions

Copy of approval/permission granted by the Reserve Bank of India/ SEBI and other regulatory bodies to you to operate in India. MMASV does not have any office/ presence in India, hence, it does not require any approval/ permission from RBI/SEBI/Other Regulatory to operate in India.

Copy of Tax Residency certificate ('TRC') Copy of TRC for year 2018 and 2019 are enclosed as Annexure 5. 8. Submit copy of all the contract agreements and other agreements signed with Indian parties with respect to your operations in India. (point 7 of the notice). Copy of agreements with BGEPIL and McDermott are enclosed as Annexure 6A and Annexure 6B respectively. Page 6 of 7 EY Building a better working world Reconciliation statement of the income returned with the income corresponding to credit of TDS claimed as per the return of income and in accordance with the AIR. You are also requested to submit copies of all TDS certificates for verification of the claim of credit and 26AS. (point 8 of the notice) We have attached TDS certificate issued by BGEPIL as Annexure 7. 10. The complete details of inter-office adjustments showing the gross adjustments and the net adjustments. (point 9 of the notice) We request you to provide exact details required by your goodself to enable MMASV to collate the same.

Any other document on which you may wish to rely in support of Return of Income As discussed in Point 4, we have attached the a copy of the VDR evidencing the presence of the vessels namely MMV Falcon and Jaya Vigilant in India, being less than 183 days Annexure 4. refer

Recurring Issues: With reference to the additions/disallowances made in the earlier assessment orders and appeal status, please give details of similar claims liable for disallowances on similar grounds. In case the issues have been decided in your favor at any stage of appeal, relevant details may also be submitted. Please provide copies of the last three (03) assessment orders. This the first year of assessment, hence, details called for are not applicable. We request you to above on records and oblige. Should your goodself require any further information and clarifications, we shall be happy to provide the same. Yours faithfully, For Ernst & Young LLP Sanjay Shukla Digitally signed by Sanjay Shukla DN: cn-Sanjay Shukla, email-Sanjay Shukla@in.ey.com Date: 2021.07.23 22:04:39 +05'30' Authorized Signatory Encl: as above

From the above it is crystal clear that specific queries were raised by the AO in respect of nature of income and justification for the claim of exemption. The AO also asked specifically for contract agreements and other agreements signed with the Indian parties with respect to operations in India.

From the above reply of the assessee exhibited hereinabove, it can be seen that the assessee had given complete details and descriptive note of the nature of activity conducted during the year in India along with a detailed note on the modus operandi. In its reply, the assessee has also given complete details and justification of the exemption claimed in its return of income. It was elaborately explained as to how the provisions of Section 44BB of the Act would apply and after its application how the income will be exempt, does not come within the purview of Articles 5, 7 or 12 of the India Singapore tax treaty.

Not satisfied with the submissions of the assessee, the AO issue second notice u/s 142(1) of the Act dated 15/09/2021 raising the following queries:- “As per order us 127 of IT Act passed by CIT(IT)-3, Mumbai, the juri iction of the assessee has been transferred to this office for disposal of pending assessment proceeding.

Bulk transfer, cargo, personnel transfer and food run,

Accommodation for charterer personnel with allied activities

Catering services for the crew

Communication facilities You are required to submit the specific services provided under each above scope along with supporting documents. You are further required to substantiate as to how said activities are covered under section 44BB of IT Act. Please note that you have submitted in your submission that receipts from said agreement are covered under section 44BB of IT Act therefore you are bound to explain as to how activities performed by you are connected with prospecting for, exploration or production of mineral oils in India. Therefore, you are expected to submit all the activities done by you and establish their direct and inextricable connection with activities covered in section 44BB of IT Act. In case you fail to do so, please treat this as show cause for denying the deemed income provision under section 44BB of IT Act. d) As per said agreement, the period of charter of vessel is 195 days with 2 extension of 15 days each and mobilisation window period 23.10.2018 to 07.11.2018. Submit the date of mobilisation of vessel and total period under which vessel was chartered to charterer under said agreement.

In respect of Jaya Vigilant: a) Details of vessel registration along with supporting documentary evidence. b) Your relationship with the vessel, whether owned or chartered along with supporting documentary evidences. If owned, year in which acquired along with cost and mode of acquisition, if chartered, name of owner with country and copy of charter agreement and relationship with owner.

As per your submission vessel “Jaya Vigilant" is time chartered by J Ray McDermott SA (McDermott) for which agreement between assessee and McDermott dated 01.06.2017 is submitted. In respect of this agreement, submit the followings: a) Country from where the vessel was dispatched to India under this agreement along with date of dispatch of vessel with supporting document, date of entry of vessel in India along with supporting document b) Date when the vessel was relieved by the charterer under said agreement along with supporting document c) The scope of work has been defined under said agreement under Para 37 titled "Scope of work (SOW)" wherein following items appear under scope of work to be performed by the charterer:

It can be seen from the above that the AO, referring to the previous reply of the assessee raised further queries which were replied by the assessee vide response dated 22/09/2021. The most relevant part of the reply read as under:- 22 September 2021 The Deputy Commissioner of Income Tax International Tax Circle - 3(3)(1), 16th floor, Air India, Nariman Point, Mumbai-400021. Dear Sir, Re: MMA Offshore Asia Vessel Operations Pte Ltd ('MMA') PAN: AACCJ8004E

In respect of MWV Falcon: a. Details of vessel registration along with supporting documentary evidence. The vessel MWV Falcon is a steel offshore supply ship registered in Singapore. A copy of the vessel registration certificate is enclosed as Annexure 4. b. Relationship with the vessel, whether owned or chartered along with supporting documentary evidences. If owned, year in which acquired along with cost and mode of acquisition, if chartered, name of owner with country and copy of charter agreement and relationship with owner. The vessel is chartered from a related party, i.e. MMA Offshore Asia Pte. Ltd, a company incorporated under the laws of Singapore. A copy of charter agreement dated 27 August 2018 is enclosed as Annexure 5. The vessel is owned by Poet Shipbuilding & Engineering Pte Ltd, an unrelated party to MMA. As per submissions made by MMA, vessel "MWV Falcon" is time chartered by BG Exploration and Production India Pvt. Ltd. (BGEPIL) for which agreement between assessee and BGEPIL dated 24.09.2018 is submitted. In respect of this agreement, submit the following: a. Country from where the vessel was dispatched to India under this agreement along with date of dispatch of vessel with supporting document, date of entry of vessel in India along with supporting document. Vessel was dispatched to the Mumbai Port from Singapore on 20 October 2018. Please refer the vessel daily report enclosed as Annexure 6. Further, the vessel reached the Mumbai port on 1 November 2018. We have enclosed a copy of the vessel daily report as on 2 November 2018 which specifies the arrival date and time in Mumbai port as Annexure 7. ✓ Kindly note that a Vessel daily report is a document that is required to be maintained by the vessel on a daily basis. Amongst other information, it provides: Details that support client invoicing (i.e. the client is provided with the VDR's during the charter period) An operations report describing activities on board the vessel, including who boarded and disembarked the vessel; and A summary of port calls logging when the vessel arrives at and leaves a port. b. Date when the vessel was relieved by the charterer under said agreement along with supporting document. The vessel was relieved by the charterer on 23 May 2019. Further, the vessel was enroute to Singapore from Mumbai port on 30 May 2019. A copy of the vessel daily report evidencing off-hire is enclosed as Annexure 8 and Annexure 9 respectively. c. The scope of work has been defined under said agreement under Para 2 titled "Scope" under "Technical Attachment B" wherein following items appear under scope of work:

From the reply of the assessee it can be seen that once again the assessee has explained in detail its claim of exemption.

To seek further clarification, the AO issued a third notice u/s 142(1) of the Act dated 17/09/2021, raising following queries:- “In addition to queries raised vide notice u/s 142(1) dated 15.09.2021, you are required to furnish the following details:

To which, the assessee replied as under:- EY Building a better working world 27 September 2021 00028. India The Deputy Commissioner of Income Tax International Tax Circle - 3(3)(1), 16th floor, Air India, Nariman Point, Mumbai - 400021. Dear Sir, Re: MMA Offshore Asia Vessel Operations Pte Ltd ('MMA') PAN: AACCJ8004E

In support of its claim of exemption, the assessee has also submitted the following certificates from the Directorate General of Hydrocarbons, Ministry of Petroleum & Natural Gas, Govt. of India:-

From a thoughtful consideration of the aforestated queries raised by the AO during the assessment proceedings and the detailed submissions made by the assessee, it is crystal clear that the AO raised specific queries and the assessee gave specific replies, therefore, we do not find any justification in assumption of juri iction by the ld. CIT u/s 263 of the Act, wherein the ld. CIT setting aside the assessment order held that the assessment order is not only erroneous but also prejudicial to the interest of the revenue.

The entire case of the ld. CIT revolves around his allegation that the AO has not conducted proper enquiry into the details of the assessee's operations and has not applied his mind to the details provided by the assessee.

As explained elsewhere, the AO has made thorough enquiry and after considering the submissions and the documentary evidence took a view that the income of the assessee is not taxable. The view taken by the AO is against the plausible view on the facts of the case as explained elsewhere. Therefore, the allegation of the ld. CIT is not only baseless but also full of surmises and conjectures.

Assuming yet not accepting that the AO has not conducted proper enquiries, nothing prevented the ld. CIT to conduct enquiries as held by the Hon'ble High Court of Delhi in the case of ITO vs. DG Housing Projects Ltd. [2012] 343 ITR 329 (Delhi)(HC). The relevant findings read as under:- “In cases of wrong opinion or finding on merits, the CIT has to come to the conclusion and himself decide that the order is erroneous, by conducting necessary enquiry, if required and necessary, before the order under Section 263 is passed. In such cases, the order of the Assessing Officer will be erroneous because the order passed is not sustainable in law and the said finding must be recorded. CIT cannot remand the matter to the Assessing Officer to decide whether the findings recorded are erroneous. In cases where there is inadequate enquiry but not lack of enquiry, again the CIT must give and record a finding that the order/inquiry made is erroneous. This can happen if an enquiry and verification is conducted by the CIT and he is able to establish and show the error or mistake made by the Assessing Officer, making the order unsustainable in Law. In some cases possibly though rarely, the CIT can also show and establish that the facts on record or inferences drawn from facts on record per se justified and mandated further enquiry or investigation but the Assessing Officer had erroneously not undertaken the same. However, the said finding must be clear, unambiguous and not debatable. The matter cannot be remitted for a fresh decision to the Assessing Officer to conduct further enquiries without a finding that the order is erroneous. Finding that the order is erroneous is a condition or requirement which must be satisfied for exercise of juri iction under Section 263 of the Act. In such matters, to remand the matter/issue to the Assessing Officer would imply and mean the CIT has not examined and decided whether or not the order is erroneous but has directed the Assessing Officer to decide the aspect/question. This distinction must be kept in mind by the CIT while exercising juri iction under Section 263 of the Act and in the absence of the finding that the order is erroneous and prejudicial to the interest of Revenue, exercise of juri iction under the said section is not sustainable. In most cases of alleged “inadequate investigation