Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, DELHI BENCH ‘F’ NEW DELHI
PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER The present appeal has been preferred by the assessee for the assessment year 2008-09.
The assessee is a non-resident company and was engaged during the year under appeal in the business of providing equipment and operating personnel in connection with exploration and exploitation of mineral oil worldwide. The assessee had filed Returns of Income declaring total income of Rs. 124,730,694/- u/s 44BB of the Income Tax Act, 1961 (hereinafter called ‘the Act’). Draft order u/s 144C of the Act was passed proposing certain variations to the income of the assessee who then approached the Disputes Resolution Panel (DRP) on the following issues:-
(1) Department’s proposal to deny the benefit of section 44BB of the Act and tax the income of the assessee from various contracts u/s 9(1)(vii) of the Act instead.
(2) Department’s proposal to tax the revenue not received by the assessee on account of deductions aggregating to Rs.
20,064,921/- as fee for technical services (FTS).
(3) Department’s proposal to charge interest u/s 234B and 234C of the Act.
On the issue of taxing the receipts u/s 44BB instead of section 9(1)(vii) of the Act, the DRP gave the following directions:-
“The Panel has noted that a similar issue came up for the consideration of this Panel in the A.Y. 2007-08 in assessee’s case. The assessee’s objection in that year was that the A.O erred in holding that the provisions of sec. 44BB did not apply to income from the assessee’s contract with Selan Exploration Technology Ltd. and Niko Resources Ltd. The Panel noticed that the assessee had undertaken two types of contracts: one for directional drilling and the other for Wirelines services and Perforating Services. The A.O did not allow the benefit u/s 44BB to the contracts for Wireline Logging and Perforating Equipments and held that income from these was fees for technical services. This Panel after considering the facts of the case confirmed the stand taken by the A.O and held that the income from contract with Selan and Niko Resources was of the nature of fees for technical services. As the consideration also and the Assessment Year 2008-09 facts of the case are similar this Panel confirms that the revenue from the contract with Selan will be taxed as fees for technical services. ............. The A.O is directed to tax the revenues from the contracts other than the contract with SELAN as income u/s 44BB and not as ‘fees for technical services’. As for the revenue from SELAN, as discussed earlier, it would be taxed as ‘fees for technical services.”
The issue of charging to tax, revenues not received by the assessee was restored to the file of the Assessing Officer to verify whether the assessee was consistently following the cash
system of accounting and allow assessee’s claim accordingly.
4.1 On the issue of levy of interest u/s 234B and 234C, the DRP refused to interfere.
Now, the assessee has approached the Tribunal and has raised the following grounds of appeal:-
“Based upon the facts of the case, the assessee respectfully submits the following grounds which are without prejudice to and independent of each other:
1. That the assessing officer erred on facts and in law in completing assessment under section 144C/143(3) of the Income-tax Act, 1961 (‘the Act’) at an income of Rs. 132,266,253/- as against the income of Rs. 124,730,690/- returned by the appellant.
2. That the assessing officer erred on facts and in law in holding that while revenues from all contracts qualified for taxation u/s 44BB of the I.T. Act, 1961, revenues against contracts with Selan Exploration Technology Limited were in the nature of ‘fees for technical services’ in terms of section 9(1)(vii) of the I.T.
Act, 1961.
3. That the assessing officer erred on facts and in law in not accepting that the contracts executed by the assessee were in the nature of ‘mining or like projects’ as referred to in the Explanation to section 9(1)(vii) of the I.T. Act, 1961.
4. That the assessing officer erred on facts and in law in assessing revenue of Rs. 8,372,843/- arising from services rendered by the appellant in connection with exploration/prospecting/extraction of mineral oil under section 9(1)(vii) of the Act as opposed to section 44BB of the Act.”
5. That the assessing officer erred on facts and in law in levying interest under section 2341 and 234C of the Act especially when there was no liability on the assessee to pay advance tax under section 209(1)(d) of the Income- tax Act, 1961.
The appellant craves leave to add to, alter, amend or vary from the above grounds of appeal at or before the time of hearing.”
The Ld. AR submitted that the issue of applicability of section 44BB has already been decided in favour of the assessee in Assessment Year 2007-08 in by the ‘C’ Bench of ITAT, New Delhi in its order dated 11.7.2014 wherein it has been held that the equipment and service provided by the Assessee falls within the ambit of provision of section 44BB of the Act in Para 224 of the pronouncement which reads as under:
“224. Ground nos. 1 to 6 relate to addition qua equipment rental, service charges and sale of consumables and services rendered by assessee in connection with exploration/ prospecting/ extraction of mineral oil. For the detailed reasons given in we hold that the income arising on account royalty/ FTS, letting out of equipment etc. was to be taxed u/s 44BB. Adopting the same reasons, we allow ground nos. 1 to 6 in favour of the assessee.”
It was submitted that the above order of ITAT was affirmed by the Hon'ble Uttarakhand High Court by dismissing the appeal of revenue at the very threshold vide order dated 06- 08-2015 in ITA No. 75/2014. It was further submitted that while disposing the appeal of the appeal of the revenue in High Court, the Hon'ble Court has relied upon the decision of Apex Court in case of ONGC Limited in of 2007 (date of pronouncement July 1st 2015).
On the issue of charging of interest u/s 234B and 234C, the Ld. AR submitted that this issue also has been decided in favour of the assessee in para 225 of the order of the Tribunal as aforementioned which reads, “Ground No. 7 raised by the assessee relates to charging of interest u/s 234B/D. For the reasons given in we hold that the assessee was not liable to pay interest u/s 234B. Accordingly, ground is decided in favour of the 5 assessee.”
The Ld. DR relied on the order of the Assessing Officer and the DRP.
We have heard the rival submissions and have also perused the record. It is seen that both the issues have been decided in Assessment Year 2007-08 in favour of the assessee by the decision of the Coordinate ‘C’ Bench of the Tribunal in I.T.A. No. 5286/Del/2010. The issue of assessability of amount under section 44BB of the Act was also affirmed by the Hon'ble High Court of Uttarakhand in of 2014. The relevant observations of the Hon'ble High Court are as under:-
“4. In the light of the judgment of the Hon'ble Apex Court in Civil Appeal No. 731 of 2007 and connected cases (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 .............
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. 11. A reference can also be made to the decision of the Hon’ble Apex Court in ONGC vs. CIT & Anr. in Civil Appeal No 731 of 2007 wherein the Hon’ble Apex Court in its Order dated 01/07/2015 has allowed the appeal of ONGC on the substantial question of law framed which reads as, “ Whether the amounts paid by the ONGC to the non-resident assesses/foreign companies for providing various services in connection with prospecting, extraction or production of mineral oil is chargeable to tax as ‘fees for technical services’ under section 44D read with Explanation 2 to section 9(1)(vii) of the Income Tax Act or will such payments be taxable on a presumptive basis under section 44BB of the Act?”
The Hon’ble Apex Court has answered the question as under, “Viewed thus, it is the proximity of the works contemplated under an agreement, executed with a non-resident assessee or a foreign company, with mining activity or mining operations that would be crucial for the determination of the question whether the payments made under such an agreement to the non-resident assessee or the foreign company is to be assessed under section 44BB or section 44D of the Act. The test of pith and substance of the agreement commends to us as reasonable for acceptance.
Equally important is the fact that the CBDT had accepted the said test and had in fact issued a circular as far as 22.10.1990 to the effect that mining operations and the expressions “mining projects” or “like projects” occurring in Explanation 2 to section 9(1) of the Act would cover rendering of service like imparting of training and carrying out drilling operations for exploration of and extraction of oil and natural gas and hence payments made under such agreement to a non-resident/foreign company would be chargeable to tax under the provisions of section 44BB and not section 44D of the Act. We do not see how any other view can be taken if the works or services mentioned under a particular agreement is directly associated or inextricably connected with prospecting, extraction or production of mineral oil.”
However, the issue of charging interest u/s 234B was remitted by the Hon'ble Uttarakhand High Court to the file of the Assessing Officer to consider whether there is any liability under section 234B on the basis that the amounts in question would be assessed under section 44BB of the Act.
Respectfully following the judgment of the Uttarakhand High Court (which is also the jurisdictional High Court for the assessee) we hold that the entire receipts of the assessee will be chargeable to tax under section 44BB of the Act. As far as the issue of charging of interest u/s 234B and 234C is concerned, keeping in line with the directions of the Hon’ble jurisdictional High Court in this regard, we remit back the matter to the file of the Assessing Officer to give a specific finding as to whether any liability would arise u/s 234B and 234C of the Act since all the receipts are to be assessed u/s 44BB of the Act.
In the result, the appeal of the assessee is partly allowed.
Order pronounced in the Open Court on 29th April, 2016.