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Income Tax Appellate Tribunal, “A” BENCH, CHENNAI
Before: HON’BLE SHRI V. DURGA RAO, JM & HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM
आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member)
Aforesaid appeal by assessee for Assessment Year (AY) 2021-22 arises out of final assessment order dated 29-09-2023 passed by Ld. Deputy Commissioner of Income Tax, Intl.Taxation-1(1), Chennai (AO) u/s 143(3) r.w.s. 144C(13) of the Act pursuant to the directions of Ld. Dispute Resolution Panel-2, Bengaluru (DRP) u/s 144C(5) of the Act dated 21-09-2023. Though the assessee has raised multiple grounds of appeal
, however, the sole grievance of the assessee is confirmation of disallowance u/s 40(a)(i).
2. The Ld. AR advanced arguments and filed written submissions. It has been submitted that no such disallowance could have been made since the provisions of Sec. 40(a)(i) are not applicable to the case of the assessee for the reason that the income was offered on presumptive basis u/s 44BB. The Ld. CIT-DR controverted the arguments of Ld. AR and also filed written submissions. Having heard rival submissions and upon perusal of case records, our adjudication would be as under.
3. Proceedings before lower authorities 3.1 Upon perusal of directions of Ld. DRP, it could be seen that the assessee is non-resident company in India and incorporated in Singapore. The assessee is engaged in providing services and facilities relating to exploration and exploitation of mineral oil and natural gas. The return of income was filed as project office of the assessee in India. The assessee filed return of income on 13-03-2022 admitting income of Rs.13.97 Crores in terms of Sec. 44BB of the act. The assessee claimed TDS credit of Rs.12.38 Crores. The Ld. AO passed draft assessment order on 12-12-2022 by making disallowance for non-deduction of tax at source (TDS) u/s 40(a)(i) for Rs.55.41 Crores. Before DRP, the assessee contended that it was assessed u/s 44BB (1) and paid tax on presumptive basis @10% of aggregate amount received by the assessee. The assessee also submitted that the provisions of Sec. 44BB(1) begins with non-obstante clause and override the provisions of Sec.28 to 41 and therefore, impugned disallowance is not called for.
3.2 The Ld. DRP noted that the assessee had taken three rigs on hire as bareboat from Asian offshore Ltd. (AOL) and from another group entity namely deep drilling 8 Pte. Ltd. (DDPL) The assessee paid bareboat charges to the two entities. The assessee deducted TDS on payment made to AOL but did not deduct TDS on payment made to DDPL. The Ld. AO, in the draft assessment order, rendered a finding that DDPL remained in India for more than 183 days and therefore, it constitutes to have permanent establishment. The income of DDPL on hire charges would, therefore, would be taxable in India as business income. The Ld. DRP also noted the factual report submitted by Ld. AO that the argument of the assessee being assessable u/s 44BB(1) would be devoid on any merits because the assessee had chosen to maintain accounts u/s 44AA and the same were also audited u/s 44AB of the Act which is pre-condition for being assessed u/s 44BB(3). However, the provisions of Sec. 44BB (1) does not contain any such kind of condition. Finally, accepting the stand of Ld. AO, the objection of the assessee was rejected. Pursuant to same, an assessment was framed by Ld. AO u/s 143(3) r.w.s. 144C(13) on 29-09-2023 which is in further appeal before us. 3.3 Before Ld. AO, the assessee reiterated that DDPL was non- resident company in India and bareboat agreement was signed outside India. The assessee as well as payee was non-resident entities and the transaction was between two non-resident entities. Therefore, no income accrued or deemed to have accrued in India. The assessee relied on non-obstante clause of Sec. 44BB(1). However, Ld. AO held that the assessee filed its return of income u/s 44BB and therefore, impugned disallowance would be attracted as per stand taken by department in AY 2020-21. The income of DDPL would be taxable in India as business income. Accordingly, the impugned disallowance was made and the same was added to the income offered by the assessee u/s 44BB of the Act. Aggrieved, the assessee is in further appeal before us. Our findings and Adjudication 4. From the facts, it emerges that the assessee is a non-resident company. It has offered income u/s 44BB on presumptive basis @10% of gross receipts arising out of a project office situated in India. The returned income has been accepted by Ld. AO in the assessment order. The payee under consideration i.e., DDPL is also a resident of Singapore. The provisions of Sec.44BB of the act starts with a non- obstante clause and excludes the application of other provision of Section 28 to 41 and Section 43 and 43A of Income Tax Act which would include the provisions of Sec.40a)(i) also. The impugned transactions have been entered into between two non-residents outside India. The provisions of Sec.44BB read as under: - "Special provision for computing profits and gains in connection with the business of exploration, etc., of mineral oils" 44BB. (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 nonresident, 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 subsection, 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. Explanation. - For the purposes of this section, (i) "plant" includes ships, aircraft, vehicles, drilling units, scientific apparatus and equipment, used-for the purposes of the said business; (ii) "mineral oil" includes petroleum and natural gas. It could thus be seen that these provisions have overriding effect on other provisions of the act. Further, the provisions of Sec.44BB provide complete code of computation of income from business of a non-resident of the nature specified in section 44BB, to the exclusion of specified sections. Therefore, the excluded provisions could not be resorted to for the purpose of computing business of exploration of mineral oil u/s 44BB.
We find that impugned issue is covered in assessee’s favor by the earlier decision of Tribunal in assessee’s own case for AY 2019-20, IT(TP) No.38/Chny/2022 dated 20.07.2023 wherein it was held as under:- 5. We have heard both the sides, perused the materials available on record and gone through the draft assessment order, directions of the ld. DRP and final assessment order. We have considered the written submissions filed by the assessee. We have also carefully considered the detailed written submissions filed by the Revenue in light of certain judicial precedents. In this instant case before us we are called upon to decide whether the payments made to DD8PL for bare boat hire charges is liable to tax in India or not. The assessee has filed a return under section 44BB of the Act offered lower profit than the 10 percentage of aggregate receipts by maintaining the books of account and other documents and audited and furnished the tax audit report u/s 44AB of the Act. The ld. DR raised an objection that the assessee company is covered by the provision of Section 44BB of the Act. Section 44BB of the Act is an exclusive section that deals with the income arising from the exploration, extraction, ship or machinery used or to be used in connection with such exploration. As per the provisions of section 44BB(1) of the Act, a sum equal to 10% of the aggregate of the amount specified in sub-section (2) is deemed to be the profits and gains of such business chargeable to tax under the head “profits and gains of business or profession”. It is because the provision of section 44BB of the Act has quantified the deemed income of the non-resident assessee at 10%, it has opened with the clause “Notwithstanding anything to the contrary” contained in sections 28 to 41 and sections 43 and 43A of the Act. The aggregate amounts are quantified in sub-section (2) of section 4BB of the Act to be the amount paid or payable, received or deemed to be received etc. As per the sub-section (3) of section 44BB of the Act, the non-resident can claim a lower profit. It is for the purpose of claiming lower profits that the non-resident must file a return and prove the same with support of his regular books of accounts and other documents and by complying with other conditions specified therein ie., 44AA, 44AB and 143(3) of the Act. In this regard the assessee relied upon the following judicial precedent: i. Decision in case of Frontier Offshore Exploration (India) Ltd vs. DCIT Central Circle (1). Chennai vide where in it is held as “6. This is where the special provision of section 44BB comes into play. Where the statute has provided a special provision for dealing with a special type of income such a provision would exclude a general provision dealing with the income accruing or arising out of any business connection. Section 44BB is a special provision to the exclusion of all the contrary provisions provided in sections 28 to 41 and 43 and 43A of the Act. Once the provisions of sections 28 to 41 and sections 43 and 43A stand excluded the method of computing the business income of the non-resident on the basis of the books of account goes out of the picture.” ii. Coordinate Bench in case of Deep Drilling 5 Pte Ltd vs. DCIT, vide IT(TP)A No. 17/Chny/2021 wherein it is held that: 17. In this view of the matter and considering the facts and circumstances of the case, we are of the considered view that consideration received by the assessee for providing rig services to M/s. CAIRN India Ltd., is not liable to tax in India as royalty u/s.9(1)(vi) and Article-12 of the India Singapore Tax Treaty. Further, income of the assessee is also not taxable as business profits in terms of the provisions of Sec.44BB of the Act, because business profits of an enterprise of a contracting state shall be taxable only in that state unless such enterprise is carried out its business in other contracting state through a Permanent Establishment. Since, there is no Permanent Establishment in the case of the assessee the question of taxation of business profits in India does not arise. Therefore, we are of the considered view that the AO as well as the ld. DRP completely erred in taxing income of the assessee in India. Hence, we direct the AO to delete the addition made towards income of the assessee in terms of Sec. 9(1) and Artlce-12 of the India Singapore Tax Treaty.
Further the assessee has argued that the provisions of section 195 of the Act will not applicable as the payments were made in outside India. The provisions of section 195 are to be invoked, only if such sum which is chargeable to tax under the Income-tax Act, 1961 on which TDS can be made. In the present case, a bareboat lease contract entered by the assessee and DD8PL in Singapore i.e., outside in India and the payment is also made in outside India. Further the payment done to DD8PL are bareboat charter are business receipts for the Singapore Company and the company does not having PE and not taxable in India. Based on the facts and circumstances, the provisions of section 195(1) of the Act is not applicable as the income is not chargeable to tax in India. In this regard, the assessee relied upon the following judicial precedent:
i. Decision of Hon'ble Supreme Court of India in case of Transmission Corporation of AP Ltd. vs. CIT vide citation [1999] 105 Taxmann 742 (SC) wherein held – “Section 195 of the Income-tax Act, 1961 - Deduction of tax at source - Other sums – Whether scheme of tax deduction at source applies not only to amount paid which wholly bears ‘income’ character such as salaries, dividends, interest of securities, etc., but also to gross sums, whole of which may not be income or profits of recipient, such as payment to contractors and subcontractors and payment of insurance commission -Held yes - Whether expression 'any other sum chargeable under the provisions of this Act’ would mean ‘sum’ on which income-tax is leviable - Held yes- Whether expression ‘any other sum chargeable under the provisions of this Act’ would include cases where any sum payable to the non-resident is a trading receipt which may or may not include 'pure income' - Held, yes – Whether assessee who makes payments to non-residents under contract entered into is under obligation to deduct tax at source under section 195 and the obligation is limited only to appropriate proportion of income chargeable under Act -Held, yes.” ii. Decision of Hon’ble Supreme Court of India in case of GE India Technology Cen. (P) Ltd. vs. CIT, (2010) 193 Taxman 34 (SO), wherein, it is held – Section 195 of the Income-tax Act, 1961 - Deduction of tax at source - Payment to non-resident - Whether the moment a remittance is made to a non-resident, obligation to deduct tax at source does not arise; it arises only when such remittance is a sum chargeable under Act, i.e., chargeable under sections 4, 5 and 9 - Held, yes - Whether section 195(2) is not a mere provision to provide information to ITO(TDS) so that department can keep track of remittances being made to non- residents outside India; rather it gets attracted to cases where payment made is a composite payment in which certain proportion of payment has an element of 'income' chargeable to tax in India and payer seeks a determination of appropriate proportion of sum chargeable - Held, yes. iii. Decision of Hon'ble ITAT Delhi in case of ACIT Vs. Interocean Shipping (I) (P) Ltd., 51 ITD 582 (Delhi), wherein it is held that: “The ship hired out by NR was not a ship but was a specially designed vessel of the nature of machinery which would ply in the ocean and assist in the construction of offshore platforms that were used for the exploration of mineral oil. Therefore, the claim of the department that the hire charges received by NR were taxable in the contracting State because of article 9, was to be rejected because the said article covers shipping income arising from the operation of ships. Article 7 of the DTA covers business profits to be taxed in the Contracting and the Contracted State, i.e., the other State, only when the enterprise which is a resident of the Contracting State has a permanent establishment in India, such as maintaining of an office, etc. In the instant case, it was undisputed that NR was a resident enterprise in the UK. It had as its business the hiring out of its vessel for offshore operations and it was not the case of the department that NR had any permanent establishment in India. Therefore, the hire charges paid to NR would be liable to be taxed in the U.K. In view of the provisions contained in article 7, since the hire charges was not subjected to Indian taxation, the question of deducting any tax from the hire charges payable to NR did not arise. The order of the Commissioner (Appeals) cancelling this order of the Assessing Officer was, therefore, upheld."
Having heard and examined the case and. basing on the judgements, it is clearly established that the payment of bareboat charter by ASPL to DD8PL does not liable to tax India as per the Article 7 read with Article 5 of the India Singapore DTAA and ASPL is not liable to deduct any withholding tax under section 195 of the Act as income earned by DD8PL is not chargeable to tax in India.
Thus, the assessee has exercised the option available under section 44BB of the Act by maintaining regular books of accounts and got the book audited and thus, the payment done to DD8PL are bareboat charter are business receipts for the Singapore Company and the company does not have PE and not taxable in India as per the DTAA between India and Singapore, the assessee is not liable to deduct any tax in India under section 195 of the Act. Therefore, no disallowance for the expenditure under section 40(a)(1) of the Act is warranted. Under the above facts and circumstances, we set aside the orders of authorities below and delete the addition made by the Assessing Officer and confirmed by the ld. DRP. Thus, the appeal filed by the assessee is allowed.
In the result, the appeal filed by the assessee is allowed. We find that similar facts exist before us in this year. No change in facts has been demonstrated and it has also not been shown to us that aforesaid adjudication has been reversed by any higher judicial authorities, in any manner.
6. The Ld. DR has submitted that the assessee has netted its income by deducting GST and therefore, the assessee has disclosed lower rate of profit. However, the said submissions could not be accepted since it is never the case of Ld. AO that the assessee has not offered income u/s 44BB. Secondly, in the case of CIT vs. Vantage International Management Co. (156 Taxmann.com 23), Hon’ble Supreme Court confirmed the stand of Hon’ble High Court holding that reimbursement of service tax ought not to be included in aggregate of amounts specified in clauses (a) and (b) of Sec. 44BB(2) since it was not an amount received by assessee on account of services provided by them in prospecting, extraction or production of mineral oils. In our opinion, services tax as well as GST bear same character of receipts. We also find that the assessment clearly accepts the income computed by the assessee u/s 44BB. Therefore, this plea does not render any assistance to the case of the revenue. For the aforesaid reasons, the impugned disallowance stands deleted. We order so.
7. The appeal stands allowed. The connected stay application has been rendered infructuous and hence, dismissed. Order pronounced on 17th May ,2024