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Income Tax Appellate Tribunal, DELHI BENCH “F” NEW DELHI
Before: SHRI AMIT SHUKLA & SHRI PRASHANT MAHARISHI
The aforesaid appeal has been filed by the assessee against the impugned order dated 17.12.2014, passed u/s. 143(3)/144C (13) in pursuance of direction given by the DRP u/s.144C dated 02.12.2014. In the grounds of appeal
, the assessee has raised the following grounds:-
1. The learned Assessing Officer erred in law and on facts in treating reimbursement of Rs.1,61,76,978/- on account of reimbursement for equipments lost in the oil well and communication immersat charges as part of drilling operational proceeds and by applying the provisions of section 44BB.
2. The Learned Assessing officer erred in law and on facts by rejecting the claim of non-taxability of the reimbursement of service tax of Rs.1,86,26,817 in computing income u/s 44BB of the Act. 3. The Learned Assessing officer erred in law and on facts by rejecting the claim of chargeability of tax on interest of Rs. 1,90,16,660 on income tax refund as per Article 12 of Double Tax Avoidance Agreement (DTAA) between India and France.”
2. At the outset, ld. counsel for the assessee submitted that so far as the ground no.1 is concern, the same is covered against the assessee by this Tribunal in assessee’s own case for the Assessment Year 2008-09 and similarly the issue of interest of income tax refund stands decided against the assessee by the Hon'ble Uttarakhand High Court in the case of the assessee.
3. As regards the ground no.2 is concerned; he submitted that this issue has been decided in favour of the assessee by the Tribunal in the Assessment Years 2008-09 and 2009-10.
Learned DR also admitted that the aforesaid issues are covered by the earlier orders of the Tribunal.
The assessee-company which is incorporated in France is engaged in executing contracts with M/s. ONGC Ltd. for offshore drilling operations relating to mineral oil in India. It has computed its income as per the provision of Section 44BB (1) and thereby applying a deemed net profit rate of 10% of gross revenues.
In so far as issue raised in ground no.1, i.e., with regard to reimbursement of communication immersat charges and reimbursement of loss in whole equipment, assessee had not offered it for taxation on the ground that it has nature of reimbursement and it should not be included in the gross receipts. We find that this issue has been decided by the Tribunal in assessee’s own case for the Assessment Years 2008-09 and 2009-10. The relevant observations and findings of the Tribunal in Assessment Year 2008-09 reads as under: “Ground No.2 & 3 is against inclusion in the gross receipts amount received on account of communication charges and on account of repair/cost of equipment charges. The Ld AR had argued that the issues were covered in its favour by the order of Tribunal in its own case for assessment year 2002-03 placed at paper book page 238, We have gone through the findings of the orders and we observe that during this year the Hon'ble Tribunal had made a finding of fact vide para 20 of the order. The relevant findings are reproduced as under:-
"No doubt, section 44BB is a code in itself and it starts with non obstante clause which excludes application of sec. 28 to 41 and section 43 and 43A but at the same time to assess any sum under that section, the activity must fall within the activity described in sub section (2) of sec. 44BB. Supply of dry fruits and recovery of communication expenses specifically do not find mention in sub sec. (2) of sec. 44BB as these activities have nothing to do with activity of prospecting for mineral oil or extraction or production of mineral oils in India or outside India. As regards the reimbursement of cost of equipment, the same also does not fall within the ambit of sub sec/(2) of sec. 43BB as the same applies to supply of plant and machinery on hire of the equipment, 75% cost of which was reimbursable was not machinery on hire being used in such activity. There was no material on record to show that the said equipment was used on hire either by the assessee or the contractee. Therefore, the reimbursement payments received by the assessee not coming within the scope of sec. 44BB had rightly been held to be excludible by the Commissioner (Appeals). The reimbursement of expenses was also not taxable under other provisions of the Act as there was no material on record to show that any element of profit was embedded in the reimbursement- received by the assessee. In absence of element of profit in the amount received by the assessee as reimbursement no income could be assessed under other provisions of the Act also."
9. We further find that Hon'ble Uttrakhand High in the case of CIT v. Halliburton Offshore Service Inc. 300 ITR 265 has summed up the findings on account of receipts vide para 5 & 6 which are reproduced below:- Section 44BB provides that the deemed profits and gains under sub sec. (1) shall be at the rate of 10% of the aggregate amount specified in sub sec. (2). We proceed to analyze sub sec. (2) clause (a) of sub sec. (2) refers to the amounts (A) paid to the assessee (whether in or out of India) 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) payable to the assessee (whether in or outside India) on account of the provision of services and facilities in connection with or supply of plant & machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils in India. Clause (b) of sub sec. (2) refers to the amounts (A) received by assessee in India 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 and (B) deemed to be received by the assessee in India on account of provision of services and facilities in connection with or supply of p/ant & machinery on hire used, or to be used, in the prospecting for, or extraction or production of mineral oils outside India. Thus it is dear from the perusal of sec. 44BB that all the amounts either paid or payable (whether in India or outside India) or received or deemed to be received (whether in India or outside India) are mutually inclusive. This amount is the basis of determination of deemed profit and gains of the assessee at the rate of 10%. Therefore, in our view, the Tribunal fell into error in not appreciating the difference between the amount and the income. Amount paid or received refers to the total payment to the assessee or payable to the assessee or deemed to be received by the assessee, whereas income has been defined u/s 2(24) of the IT Act and sec. 5 and sec. 9 deal with the income and accrued income and deemed income. Sec. 4 is the charging section of the income tax act and definition as well as the incomes referred in sections 5 & 9 are for the purpose of imposing the income tax under sec. 143(3). Section 44BB is a complete code in itself. It provides by a legal fiction to be the profits and gains of the non resident assessee engaged in the business of exploration at the rate of 10% of the aggregate amount specified in sub sec. (2). It is not in dispute that the amount has been received by the assessee company. Therefore the Assessing Officer added the said amount which was received by the non resident company rendering services as per provisions of sec. 44 BB to the ONGC and imposed the income tax thereon."
10. In view of the above, we find that receipts received by .the assessee necessarily forms part of gross receipts and in view of the above ground No.2 & 3 is also dismissed.”
Thus, following the aforesaid judgment of the Tribunal, we hold the order of the learned CIT (A) and decide the issue against the assessee.
In so far as the issue raised in ground no.2 is concern, that is, reimbursement of service tax of Rs.1,86,26,817/-, admittedly the same has been decided in favour of the assessee by the Tribunal in the Assessment Years 2008-09 and 2009-10 wherein the Tribunal has followed the decision of Sedco Forex International Drilling Co. Vs. ADIT, 139 ITD 188 and same proposition has also upheld by the Hon'ble Delhi High Court in the case of DDIT vs. Mitchell Drilling International Pvt. Ltd. (2015) 380 ITR 130 (Del).
Thus, respectfully following the ratio laid down by the Hon'ble Jurisdictional High Court and also the earlier precedents of the Tribunal, we hold that service tax being a statutory liability cannot form part of the gross receipt for the purpose of deemed profit u/s.44BB. Accordingly, this issue stands decided in favour of the assessee.
Lastly, coming to the issue of interest of income tax refund. Admittedly, this issue has been decided against the assessee by the Hon'ble Uttarakhand High Court in the case of the assessee itself vide judgment and order dated 04.12.2013 in Income Tax Appeal No.16 of 2009 wherein it has been held that since assessee has permanent place of business in India and is subjected to tax in India, then interest on refund of income tax is not covered by Article 12 of the treaty. Thus, following the aforesaid judgment of the Hon'ble High Court, this issue is decided against the assessee.
In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open Court on 23rd April, 2018.