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Income Tax Appellate Tribunal, DELHI BENCH “G”, NEW DELHI
Before: SHRI H.S. SIDHU & SHRI O.P. KANT
Date of Hearing : 29-06-2016 Date of Order : 08-07-2016 ORDER
PER H.S. SIDHU : JM
The Revenue has filed the present appeal against the impugned order dated 25/10/2012 passed by the Ld. Commissioner of Income Tax (Appeals)-II, Dehradun on the following grounds:-
1. Whether on the facts and circumstances of the case, the CIT(A) has erred in bringing to tax the receipt of non- resident from lease of vessel and crew to EMGS on account of time charter agreement for assisting EMGS in exploration of seabed and subsoil for data interpretation, u/s. 44BB of the Act, instead of Royalty/FTS as treated by the AO under Article 13 of the DTAA signed between Indian and Norway.
2. Whether an the facts and circumstances of the case the CIT (A) has erred in not appreciating the fact that 44BB does not cover "second leg" contracts, and that this beneficial position is for assessee who are engaged in prospecting for or extraction, or production of mineral oils and not for assessee in leasing/time charter business.
3. Whether on the facts and circumstances of the case the CIT (A) has erred in holding that income from equipment rental is not chargeable under section 9(1)( vi) of the I. T.
Act, when under its exclusionary clause, income in respect of "second leg" contracts in leasing/time charter business are not covered under section 44BB.
4. Whether on the facts and circumstances of the case the CIT (A) has erred in holding that the income of the assessee was taxable under the presumptive provisions of sec. 44BB, ignoring the fact that taxability under section 44BB shall not apply in respect of income referred to in section 44DA in view of the clarificatory proviso to sec. 44BB and sec. 44DA.
5. Whether on the facts and circumstances of the case the CIT(A) has erred in not appreciating the fact that proviso to section 44DA brought about by the Finance Act 2011 was only clarificatory in nature and its application has to be read into the main provisions, in view of the decision of the Apex Court in the case of Sedco Forex International Drilling v/s CIT.
6. Whether on the facts and circumstances of the case the CIT(A) has erred in not adjudicating the issue of taxability of gross receipts accruing to assessee against pro data basis offered by assessee on merits, holding that AO's action is upheld only for the purpose of 44 BB computation.
7. Whether on the facts and circumstances of the case the CIT (A) has erred in relying upon the decision of the ITAT in the case of Mls CGG VERITAS Services, SA in which has not been accepted by the department and against which appeal to the Hon'ble Uttarakhand High Court is being filed.
Whether on the facts and circumstances of the case the CIT (A) has erred in holding that interest under section 234B was not chargeable in this case by relying upon the decision of Hon'ble Uttrakhand High court in the case of Maersk (334 ITR 79) where as the department has contested the issue and has filed SLP before the Apex Court against in the case of Jacobs Civil Incorporated/ Mitsubishi involving similar issue.
The appellant prays for leave to add, amend, modify or alter any grounds of appeal at the time of before the hearing of the appeal.” 3
Facts narrated by the Revenue Authorities are not disputed by both the parties, therefore, need not been repeated here for the sake of brevity.
3. At the time of hearing, Ld. Counsel of the assessee, Shri Amit Arora, Advocate has stated that the similar issues in dispute have already been adjudicated and decided by the ITAT ‘G’ Bench, New Delhi in assessee’s own case in (AY 2009-10) vide order dated 17.4.2015. He further stated that Hon’ble High Court of Uttrakhand at Nainital in a group cases in Income Tax Appeal No. 68 of 2014 & Ors. vide Judgment dated 6th August, 2015 in which the Assessee was also the party wherein the Hon’ble High Court has decided the issues in favour of the Assessee. Therefore, he requested that the issues involved in the present Appeals are squarely covered by the ITAT decision dated 17.4.2015 as well as Hon’ble High Court of Uttarakhand Judgement dated 6.8.2015, hence, the present Appeal filed by the Revenue may be dismissed by upholding the order of the Ld. CIT(A).
4. On the contrary, Ld. DR relied upon the order of the Assessing Officer and reiterated the contention raised in the grounds of appeal, raised by the Department.
We have heard both the parties and perused the relevant material available on record, especially the impugned order passed by the Ld. CIT(A) alongwith the order passed by this Bench as stated in para 3 as aforesaid. We are of the view that the Ld. First Appellate Authority has elaborately dealt the issues at Page 9 to 11 vide para no. 4.0 to 5.0 vide his impugned order dated 25.10.2012 and decided the issues in dispute in favor of the assessee. For the sake of convenience, the relevant paragraph no. 4.0 to 5.0 of the impugned order is reproduced hereunder:-
“4.0 The first ground challenges the action of Ld. AO in adding a sum of Rs 7,59,13,253 to the gross receipts which then has been considered for the purposes of computation of income. The AO found that the Appellant had offered receipts for some months on pro-rata basis and not on the basis of actual receipts. The Ld. AO then proceeded to work out the total receipts and the resultant was considered for computation of income as Royalty.
4.1 The Ld ARs have assailed this action (of taxing revenues claimed as accruing outside India) as under:
2.1. "CONTENTION OF THE APPELLANT 2.3.1 For the previous year relevant to Assessment Year 2008-09, the assessee had derived revenues under a time chartered Agreement dated October 27, 2005 from EMGS which is on account of providing vessel and services in connection with prospecting for, or extraction or production of mineral oils.
2.3.2 As per Section 9(1) of the Income Tax Act, 1956; The following incomes shall be deemed to accrue or arise in India-
(i) "All. income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India or through the transfer of a capital asset 5 situate in India."
Further, explanation to section 9(1)(i) of the Act, provides that In the case of a business of which all the operations are not carried out in India, the income of the business deemed under this clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India.
(vii) Income by way of fees for technical services payable by-
(a) The Government; or (b) A person who is a resident, except where the fees are payable in respect of services utilized in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India; or (c) A person who is a non- resident. where the fees are payable in respect of services utilised in a business or profession carried on by such person in India or (or the purposes of making or earning any income from any source in India:
2.3.3 Section 9(1)(i) read with Explanation I and section 9(1)(vii) of the Act defines the scope for taxability of income earned by foreign companies. Under both the section, income of the non-resident is deemed to accrue or arise in India only where the operations are carried out in India or services utilized in a business/profession carried on by such person in India or for the purpose of earning any income from any source in India.
2.3.4 In the present case, assessee has given vessels on time charter basis to EMGS. It s respectfully submitted that since the vessel was physically outside India for November 2007 (26 days) to January 2008 (15 days) it can be argued that the business activates was outside India, the services are utilized outside India and the source of income is also outside India. Therefore the revenues received by the assessee for this period does not accrue or arise in India and hence is not taxable in India.
2.3.5 Documentary evidence explaining why revenues for November 2007 (26 days) to January 2008 (15 days) have been prorated and not offered in full is enclosed in "Annexure I"
2.3.6 In this connection, attention is invited to the following decisions / rulings where it has been held that mobilization charges received by the foreign company would be taxable in India only to the extent the same relates to the distance travelled by the equipment within the Indian territorial waters (i.e. 200 nautical miles from the appropriate base line) and consequently mobilization charges received towards travel of equipments beyond such territorial waters will not be taxable in India.
Decision of the Hon'ble Mumbai Tribunal in case of ACIT v Jindal Drilling Leasing "Income from transporting the rig has occurred to the assessee's or has arisen to it only when the transportation has taken place and that transportation was both in India as well as outside India. Accrual of income in India would, therefore, be only for the portion of the voyage which pertained to the travel in India. The balance amount would accrue and is payable to the non-resident for the transportation outside India and therefore, the receipts thereof would not be covered by the provisions of section 44BB of the Act".
4.2 To begin with it has already been held that this case should be dealt with u/s 44BB of the Act. Then the issue to be decided here would be whether the appellant can have his income 'divided into receipts accruing outside India (and hence not taxable) and receipts accruing inside India (taxable). It may be mentioned that this position is not tenable considering that u/s. 44BB of the Act, there is an express mandate to tax global receipts pertaining to any contract having a proximate nexus with the activity of prospecting for or extraction of mineral oils in India. In the case of Sedco Forex Intl, Inc. reported in 299 ITR 238 (UK) the Hon'ble Uttarakhand High Court has interpreted Sec. 44BB of the Act as under:-
"Section 44BB does not take into account the income for calculating the aggregate amount to calculate 10 per cent profits and gains. Profits and gains are types of incomes to be taxed under a legal fiction, i.e., at 10 per cent of the amount specified in sub-section (2) of section 44BB. Section 44BB is a special provision relating to the non-resident assessee, who is 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 oils in or outside India. The section is a complete code in itself. The amounts referred to in sub-section (2) of section 44BB are four types of amounts all of which are mutually inclusive and either all of them or any of them and its clauses themselves provide whether the payment to be taken into account has been made inside India or outside India."
This interpretation has been further elaborated in the case of CIT Dehradun vs. R&B Falcon Drilling Co. reported in 181 Taxman 62 (UK). Attention is invited to para 6 of this judgment where it has been specifically laid down that the moment a claim is submitted for taxability U/S 44BB of the Act, the entire receipts, including the sums paid or payable, whether in or outside India, to the assessee or to any person on his behalf on account. of provision of services and facilities in connection with or supply of plant & machinery used on hire, or to be used in the prospecting for or extraction or production of mineral oils in India, will be taxable.
Furthermore, this interpretation has further been relied on by the Hon'ble AAR, Delhi in the case of Western Geco IntI. Ltd. [AAR No.938 of 2010 dated 25.07.2011) reported in 201 Taxman 101 (AAR-Delhi)].
Keeping in view the above position of law, it is held that the entire receipts accruing to the appellant on behalf of the contract with M/s EMGS shall be treated as receipts for the purpose of computing income U/S 44BB of the Act and the action of Ld. AO in working out the full quantum of receipts by adding the impugned amount, is upheld (though for. the purposes of section 44 BB computation).
5.0 Ground number 3 challenges the charging of interest u/s. 234B and 234D of the Act. The issue of charging u/s. 234B of the Act is covered in favour of the Appellant by the case of Maersk Company report in 334 ITR 79 (UK). The interest u/s. 234D of the Act would be consequential after giving effect to this Appellate order.
6.0 I the result, the appeal is partly allowed.”
5.1 We also find that the Tribunal in assessee’s own case in (AY 2009-10) vide order dated 17.4.2015 has adjudicated the similar issues and decided the same in favour of the assessee. The relevant paras 5 to 6 are reproduced hereunder for the sake of convenience.
“5. We have heard both the parties and perused the relevant material on available on record, especially the impugned order passed by the Ld. CIT(A) alongwith the order passed by this Bench as stated in para 3 as aforesaid. We are of the view that the Ld. First Appellate Authority has dealt this issue at Page 3 vide para no. 4.0 & 5.0 wherein he has followed his own order relevant for the asstt. year 2008-09 and decided the issue in dispute in favor of the assessee. For the sake of convenience, the relevant paragraph no. 4.0 & 5.0 of the impugned order is reproduced hereunder:-
“4.0 The first ground of appeal challenges the action of the Ld. AO in assessing income as “royalty” rather than u/s 44BB of the Act. The Ld. AR placed on record a copy of the Appellate Order in the Appellant’s own case for A.Y. 2008-
09. (Appeal No. 277/CIT(A)-II/2011-12, order dated 25.10.2012] in which on identical facts the income has been held assessable u/s. 44BB of the Act on the entire receipts (gross). Since the facts are the same in the present appeal, the income is directed to be assessed u/s. 44BB of the Act by adopting the gross receipts for working out taxable income.
5.0 The second ground challenges the levy of interest u/s. 234B of the Act. This issue is covered in favor of the Appellant due to the case of Maersk Company Ltd. reported in 334 ITR 79 (UK).”
5.1 After going through the findings given by the Ld. CIT(A) in the impugned order as well as the order passed by the ITAT, ‘C’ Bench, New Delhi in a group cases, in which the assessee was also the party in (A.Y. 2007-08) Siem Offsore Inc. C/o Emgee Corporation vs. Addl. DIT (Intl. Taxation) vs. Addl. DIT (Intl. Taxation) decided on 11.6.2014, we are of the considered view that the issue in dispute has already been adjudicated and decided by this Bench in assessee’s own case, in its favor for the asstt. year 2007-08 in ITA No. 5633/Del/2010 (A.Y. 2007-08) decided on 11.6.2014. Respectfully, following the order of the Coordinate Bench, the appeal filed by the Revenue is dismissed. We direct the AO that the income of the assessee is to be assessed u/s. 44BB of the Act by adopting the gross receipts for working out taxable income.
5.2 As regards another issue regarding levy of interest u/s. 234B of the I.T. Act. We find that this issue is also covered in favor of the assessee due to the case of Maersk Company Ltd. reported in 334 ITR 79 (UK).
5.3 Keeping in view of the aforesaid discussions and precedent, we are of the considered view that the order of the Ld. CIT(A) is a well reasoned order, which does not need any interference on our part, hence, we uphold the same on the issues in dispute, as aforesaid.
In the result, the Appeal filed by the Revenue stands dismissed.”
5.2 We further find considerable cogency in the Ld. Counsel of the Assessee’s contention that the aforesaid Tribunal’s order dated 17.4.2015 and the Hon’ble High Court of Uttrakhand at Nainital in a group cases in Income Tax Appeal No. 68 of 2014 & Ors. vide Judgment dated 6th August, 2015 in which the assessee was the Party wherein the Hon’ble High Court has decided the issue in favour of the assessee. For the sake of convenience, the relevant portion of the aforesaid judgment of the Hon’ble High Court of Uttarakhand is reproduced hereunder:-
“2. The main substantial question of law, which would arise in all these appeals, relate to the assessability of the amounts under section 44BB of the Income Tax Act.
We have heard the learned counsel for the parties.
In the light of the judgment of the Hon’ble Apex Court
in Civil Appeal No. 731 of 2007 and connected case (Oil
& Natural Gas Corporation Limited vs. Commissioner of Income Tax & another), the substantial questions of law relating to the assessability of the amounts under section 44BB have to be answered against the appellant/revenue. Accordingly, we answer the said questions of law against the Revenue in the light of the aforesaid judgment of the Hon’ble Apex Court.
5. There remain two further substantial questions of law,
which revolve around the finding of the Tribunal that there is no liability to pay interest under section 234B of the Income Tax Act. The learned counsel for the Revenue would, in fact, submit that the question may have to be re-done by the Assessing Officer as to whether there is liability to pay interest under section 234B even on the basis of answering all the substantial questions of law against the Revenue.
6. In such circumstances, the appeals are disposed of as follows:
(i) We answer the questions of law relating to the assessability of the amounts under section 44BB against the Revenue.
(ii) In relation to the substantial questions of law relating to Section 234B, we remit the matter back to the Assessing Officer to consider whether there is any liability under Section 234B on the basis that the amounts in question would fall to be assessed under Section 44BB of the Act.”
6. In the background of the aforesaid discussions and respectfully following the precedents of the ITAT and the Hon’ble High Court of Uttarakhand, as aforesaid, we are of the view that the Ld. CIT(A) has passed a well reasoned order which does not need any interference on our part, hence, we uphold the same.
In the result, the appeal of the Revenue is dismissed. Order pronounced in the Open Court on 08/07/2016.