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Income Tax Appellate Tribunal, DELHI BENCH “H” NEW DELHI
Before: SHRI S.V. MEHROTRA : & SMT. BEENA A. PILLAI :
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “H” NEW DELHI BEFORE SHRI S.V. MEHROTRA : ACCOUNTANT MEMBER AND SMT. BEENA A. PILLAI : JUDICIAL MEMBER 1. 1247/Del/2015 (AY 2006-07) 2. 2652/Del/2011 (AY. 2006-07) 3. 5363/Del/2012 (AY 2006-07) 4. 491/Del/2014 (AY 2007-08) 5. 2297/Del/2012 (AY 2007-08) 6. 5364/Del/2012 (AY 2009-10) Viking Maritime Inc. Vs. DCIT Circle 3(1)(2) C/0 Nangia & Co., CAs, International Taxation, Suite 4A, Plaza M6, Jasola New Delhi. New Delhi. PAN: AABCV 7320 E Appellant ) (Respondent) Appellant by : Shri Amit Arora CA & Sh. Sandeep Nagpal CA Assessee by : Sh. Anuj Arora CIT(DR) Date of hearing : 06/04/2016. Date of order : 25/04/2016. O R D E R PER S.V. MEHROTRA, A.M:
The captioned appeals have been preferred by the assessee against separate orders of Deputy Director of Income Tax (International Taxation) Circle 2(2), New Delhi (‘AO’). for A.Y. 2006-07 and ITA no. 2297/Del/2012 for A.Y. 2007-08 have been filed against separate orders passed u/s 263 by the Director of Income tax (International Taxation)-II, New Delhi. All these appeals were heard together and are being disposed of by a composite order for the sake of convenience.
First we take up (AY 2006-07):
This appeal arises out of the assessment order dated 14.8.2012 passed by the AO u/s 143(3) r.w.s 263 pursuant to the directions dated 16.7.2012 of ld. DRP u/s 144C(5) of the I.T. Act, 1961.
Brief facts of the case are that the assessee company, incorporated under the laws of USA, is a tax resident of USA. It renders services in geophysical exploration and interpretation and its complete scope of work was entailing acquisition of 2D/3D seismic data and basic seismic data processing onboard by employing seismic vessel and qualified and experienced personnel. The onboard data processing involved processing the data acquired to remove distortions arising during the acquisition stage and convert the data into usable form. It was further explained that the seismic activities constituted an integral part of oil and gas exploration activities and the acquisition of seismic data was a crucial and an initial step in the prospecting for mineral oil which aids in identifying hydrocarbon bearing structures for development and production of mineral oil.
During the year under consideration the assessee had received gross receipts of Rs. 44,80,75,712/- from the following two contracts entered into with M/s Reliance Industries Ltd. i) Contract for 2D seismic data acquisition and onboard onshore processing. ii) Contract for 3D seismic data acquisition and onboard/onshore processing.
The assessee had offered its income for taxation as per section 44BB of the Income-tax Act. The AO observed that section 44BB was applicable for computing profit and gains in connection with the business of exploration etc. of mineral oils in the case of non-resident and since assessee was rendering technical services, therefore, section 44BB was not applicable. He issued a notice u/s 142(1), in response to which the assessee pointed out that its income was taxable u/s 44BB of the Act as the services rendered by it were not technical services within the meaning of Explanation 2 to section 9(1)(vii) of the Act. The assessee further pointed out that for services in the nature of “seismic surveys”, the applicable section was 44BB and said services could not be taxed under sections 44D, 44DA or 115A of the Act. The assessee further pointed out that the amendment to section 44BB by way of insertion of section 44DA in the proviso to section 44BB was prospective in nature and, accordingly, the applicability of sections 44D and 44DA got excluded.
The AO, however, after considering the provisions of section 44BB and also taking into consideration the amendments brought in w.e.f.
1.4.2011 by Finance Act 2010, concluded that assessee’s receipts were effectively connected with the project office of the assessee in India and, therefore, taxable u/s 44DA of the I.T. Act and Article 7 of DTAA between India and USA. He observed that the Global net profit rate as per global financial statement filed by the assessee was 10.157% and applying the same rate to the gross receipts he computed the business income of assessee at Rs. 4,55,11,050/-.
Being aggrieved with the order of AO the assessee is in appeal before us and has taken following grounds of appeal:
“1. That the order of learned Deputy Director of Income-tax, Circle 2(2), International Taxation, New Delhi ("DDIT") read with directions of DRP u/s 144C is bad both in law and on facts of the case. 2. That the order of the learned DDIT made in pursuance of order under section 263, which is illegal, is without jurisdiction, illegal, and bad in law. 3. That the learned DDIT has erred in assessing income at RsA,55, 11 ,0501- as against RsA,48,07,5701- computed by the Appellant u/s 44BB of the Income-tax Act, 1961 ("the Act") for the assessment year 2009-10.
4. That the learned DDIT has erred in holding that provisions of section 44BB of the Act are not applicable to the services rendered by the Appellant to the Indian customer and in taxing the income u/s 44DA of the Act.
5. That the learned DDIT has erred in not appreciating that seismic data acquisition and onboard processing activities as carried out by the Appellant are in connection with exploration, extraction and production of mineral oil, as contemplated in section 44BB of the Act.
6. That the learned DDIT has erred in placing reliance on the decisions distinguishable on facts. For Viking Meritirne Inc.
7. That the learned DDIT/DRP has erred in not following the decisions (including Advance Rulings), on same facts, as relied upon by the Appellant, even having accepted that some decisions of higher authorities took a view contrary to his perception of law.
Without prejudice to the above grounds, the learned DDIT has erred in holding that the amendment as made by Finance Act, 2010 in proviso to section 44BB(1) for excluding the income covered by the provisions of section 44DA from its purview w.e.f. 1.4.2011, is clarificatory and accordingly, retrospective in nature.
9. Without prejudice to the above grounds, the learned DDIT has erred in holding that the services rendered by the Appellant are in the nature of "fees for technical services" within the meaning of Explanation 2 to section 9(1)(vii) of the Act.
10. That the learned DDIT has erred in initiating penalty proceedings under section 271 (1)( c), not initiated in the draft
order of assessment as forwarded to the Appellant and which was subject matter of the directions of learned DRP. The penalty as initiated in such manner is without jurisdiction. 11. That, without prejudice to Ground No. 10, the provisions of section 27l(1)(c) of the Act are not attracted on facts of the case. 8. Ld. counsel further referred to the decision of Hon’ble Supreme Court in the case of ONGC Ltd. Vs. CIT (2015) 376 ITR 306 (SC), wherein it has been held that wherein dominant purpose of agreement is for prospecting, extraction or production of mineral oil, though there may be certain ancillary works contemplated thereunder, then the payments received by the non- resident assessee or foreign companies under the said contracts are assessable under the provisions of section 44BB and not section 44D of the Act.
Ld. counsel for the assessee submitted that the gross receipts of assessee are taxable u/s 44BB because insertion of section 44DA in the proviso to sec. 44BB w.e.f. 1.4.2011 has been held to be prospective in nature. He submitted that AO has given specific finding of permanent establishment of assessee being there in India. He referred to the decision of ITAT Delhi Bench in the case of CGG Veritas Services SA Vs. Addl.
Director of Income-tax (International Taxation) (2012) 50 SOT 335, wherein in para 46 of the order the Tribunal has, inter alia, observed as under:
“46. On combined reading of section 44DA(1) and 115A(1)(b) it is clear that the provisions of section 44DA(1) are applicable in the case of a non-resident assessee who carries on business in India through a permanent establishment, or performs professional services from a fixed place of profession, and fees for technical services paid under the contract is effectively connected with such permanent establishment or fixed place of profession in India. In section l15A(l)(b) the Finance Act, 2003 with effect from 1.4.2004 substituted words "a non-resident (not being a company) or a foreign company includes any income by way of royalty or fees for technical services other than income referred to in sub-section (1) of section 44DA" for words "a foreign company, includes any income by way of royalty or fees for technical services". Therefore, w.e.f. 1.4.2004 fee for technical services which. is not connected with permanent establishment of business or fixed place of profession in India, will be taxable u/s l15A(l)(b) of the Act. As observed earlier section 44DA was inserted in proviso to section 44BB (1) by the Finance Act, 2010 with effect from 1.4.2011 and simultaneously inserted second proviso to section 44DA applicable from assessment year 2011-12 according to which provisions of section 44BB (1) will not be applicable in respect of income referred to this section. On combined reading of proviso to section 44BB (1) and second proviso to section 44DA-it is clear that the fee for technical services rendered in connection with prospecting for or extraction or production of mineral oil though effectively connected with PE or fixed place of profession will fall not under section 44BB(1) and will be assessable under section 44DA of the Act. To make it more clear the fee for technical services can be divided in following categories: (i) Fee for technical services rendered in connection with prospecting for or extraction or production of mineral oil having business PE or fixed place of profession-(section 44DA); (ii) Fee for technical services rendered in connection with prospecting for or extraction or production of mineral oil without having business PE or fixed place of profession- (section l15A); (iii) Other fee for technical services having business PE or fixed place of profession-(section 44DA); (iv) Other fee for technical services without business PE or fixed place of profession-(section l15A);
Thus it is abundantly clear that with effect from assessment year 2011-12 fee for technical services whether rendered in connection with prospecting for or extraction or production of mineral oil or otherwise will be assessable either u/s 44DA or section l15A of the Act depending on fact whether such receipts are effectively connected with PE or fixed place of profession, or not. However, for assessment year 2004-0S to 2010-11 the consideration received for fee for technical services rendered in connection with prospecting for or extraction or production of mineral oil though effectively connected with PE or fixed place of profession will fall outside the scope of section 44DA and will be assessable under section 44BB (1) of the Act for the simple reason that proviso to section 44BB(1) does not contain section 44DA for these years.”
He further referred to the decision of Hon’ble Delhi High Court in the case of DIT Vs. OHM Ltd. wherein Hon’ble Delhi High Court in paras 11 & 12 has observed as under:
“11. We do not think that there is any error in the view taken by AAR. Basically the rule that the specific provision excludes the general provision has been applied. Section 44BB is a special provision for computing the profits and gains of a non-resident in connection with 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 including petroleum and natural gas. Section 44DA is also a provision which applies to non- residents only. It is, however, broader and more general in nature and provides for assessment of the income of the non- resident by way of royalty or fees for technical services, where such non-resident carries on business in India through a permanent establishment situated therein or performs services from a fixed place of profession situated in India and the right, property or contract in respect of which the royalties or fees for technical services are paid is effectively connected with the permanent establishment or fixed place of profession. Such income would be computed and assessed under the head "business" in accordance with the provisions of the Act, subject to the condition that no deduction would be allowed in respect of any expenditure or allowance which is not wholly or exclusively incurred for the business of such permanent establishment or fixed place of profession or in respect of amounts, if any, paid by the permanent establishment to its head office or to any of its other offices. Under section 44BB one does not find any reference to a permanent establishment in India. The type of services contemplated by the provision is more specific than what is contemplated by Section 44DA. Section 44BB refers specifically to "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". Revenues earned by the non- resident from rendering such specific services are covered by Section 44BB. It is a well settled rule of interpretation that if a special provision is made respecting a certain matter, that matter is excluded from the general provision under the rule which is expressed by the maxim "Generalliaspecialibus non derogant'. It is again a well-settled rule of construction that when, in an enactment two provisions exist, which cannot be reconciled with each other, they should be so interpreted that, if possible, effect should be given to both. This was stated to be the "rule of harmonious construction" by the Supreme Court in Venkataramana Devaru v. State of Mysore, AIR 1958 SC 255. If as contended by the Revenue, Section 44DA covers all types of services rendered by the non-resident that would reduce section 44BB to a useless lumber or dead letter and such a result would be opposed to the very essence of the rule of harmonious construction. In South India Corporation (P) Ltd. v. Secretary, Board of Revenue Trivandrum, AIR 1964 SC 207 it was held that a familiar approach in such cases is to find out which of the two apparently conflicting provisions is more general and which is more specific and to construe the more general one as to exclude the more specific.
The second proviso to sub-section (1) of Section 44DA inserted by the Finance Act, 2010 w. e. f. 01.04.2011 makes the position clear. Simultaneously a reference to Section 44DA was inserted in the proviso to sub-section (1) of section 44BB. It should be remembered that section 44DA also requires that the non-resident or the foreign company should carryon business in India through a permanent establishment situated therein and the right, property or contract in respect of which the royalty or fees for technical services is paid should be effectively connected with the permanent establishment. Such a requirement has not been spelt out in Section 44BB; moreover, a flat rate of 10 percent of the revenues received by the non- resident for the specific services rendered by it are deemed to be profits from the business chargeable to tax in India under Section 44BB, whereas under Section 44DA, deduction of expenditure or allowance wholly and exclusively incurred by the non-resident for the business of the permanent establishment in India and for expenditure towards reimbursement of actual expense by the permanent establishment to its head office or to any of its other offices is allowed from the revenues received by the non-resident.
Because of the different modes or methods prescribed in the two sections for computing the profits, it apparently became necessary to clarify the position by making necessary amendments. That perhaps is the reason for inserting the second proviso to sub-section (1) of Section 44DA and a reference to section 44DA in the proviso below sub-section (1) of Section 44BB. A careful perusal of both the provisos shows that they refer only to computation of the profits under the sections. If both the sections have to be read harmoniously and in such a manner that neither of them becomes a useless lumber then the only way in which the provisos can be given effect to is to understand them as referring only to the computation of profits, and to understand the amendments as having been inserted only to clarify the position. So understood, the proviso to sub-section (1) of Section 44BB can only mean that the flat rate of 10 percent of the revenues cannot be deemed to be the profits of the nonresident where the services are of the type which do not fall under that section, but are more general in nature so as to fall under Section 44DA. Similarly, the second proviso to sub-section (1) of Section 44DA can only be interpreted to mean that where the services are general in nature and fall under the sub-section read with Explanation 2 to Section 9(1)(vii) of the Act, then an assessee rendering such services as provided in Section 44BB cannot claim the benefit of being assessed on the basis that 10 percent of. the revenues will be deemed to be the profits as provided in Section 44BB. In other words, the amendment made by the Finance Act, 2010 w. e. f. 01.04.2011 in both the sections, cannot have the effect of altering or effacing the fundamental nature of both the provisions and their respective spheres of operation or to take away the separate identity of Section 44BB. We do not, therefore, see how these amendments can assist the Revenue's contention in the present case, put forward by the learned Senior Standing Counsel. We, therefore, agree with the AAR that in the present case the profits shall be computed in accordance with the provisions of section 44BB of the Act and not section 44DA.
Ld. counsel further referred to the decision of the ITAT Delhi Benches in the case of Baker Hughes Asia Pacific Ltd. Vs. Addl. DIT, rendered in and 420/Del/2012 and others 2014-TII- 104-ITAT-DEL-INTL, wherein in para 65 the Tribunal has observed as under:
The department’s contention is that section 44DA inserted by the Finance Act, 2010 w.e.f. 1-4-2011 in section 44BB is retrospective and, therefore, royalty and fees for technical service should be taxed u/s 44DA and not u/s 44BB. In our opinion, the amendment cannot be held to be retrospective particularly because it brings substantial change in the taxability of assessee. It is well settled law that an amendment to the taxing statute if results in higher tax burden on assessee then it is prospective in nature and not retrospective. We find that this issue has been dealt elaborately by Hon’ble Jurisdictional High Court (Uttrakhand) in B.J. Services (supra). We are not inclined to accept the contentions advanced on behalf of the revenue, reproduced earlier, for the simple reason that the issue is squarely covered by the decision of Hon’ble Jurisdictional High Court, decision of Hon’ble Delhi High Court in the case of OHM (supra) and by the decision of the ITAT in CGG Veritas (supra) and Phonex (supra).
12. With reference to the aforementioned decisions, ld. counsel submitted that the issue of taxability of gross receipts by assessee u/s 44BB is no more res integra.
Ld. CIT(DR), however, submitted that the Hon’ble Supreme Court in the case of ONG (supra), has not examined the interplay between section 44BB and 44D and has also not considered the effect of amendment in the proviso to section 44BB.
Ld. CIT(DR) relied on the decision of Hon’ble Uttrakhand High Court at Nainital in the case of CIT Vs. ONGC as representative assessee of M/s Rolls Royce Pvt. Ltd. in of 2007 dated 20.09.2007. He pointed out that in this case the Tribunal’s order, holding that the receipts were taxable u/s 44BB have been set aside and it has been held that the technical services rendered by assessee were squarely covered under Explanation 2 appended to clause (vii) to sub-section (1) of section 9, which has been adopted by reference u/s 44D and section 115A of the Act.
In the rejoinder ld. counsel submitted that the Hon’ble Supreme Court has reversed the order relied on by AO.
We have considered the rival submissions and have perused the record of the case. All the years under consideration including the assessment year 2006-07 are prior to AY 2010-11. The insertion of section 44DA in the proviso to section 44BB w.e.f. 1.4.2011, has been held to be prospective in nature, which has been considered in detail in the case of Baker Hughes Asia Pacific Ltd. Vs. Addl. DIT (supra). We have extracted the findings of various decisions relied by ld. counsel for the assessee in detail and, therefore, it would suffice to observe to refer to the decision of Hon’ble Delhi High Court in the case of OHM Ltd. (supra), wherein in para 12 it has been held that amendment made by the Finance Act 2010 w.e.f. 1.4.2011 in both sections viz. 44DA and 44BB cannot have the effect of altering or effacing the fundamental nature of both the provisions and their respective spheres of operation or to take away the separate identity of section 44BB.
As far as the reliance of ld. CIT(DR) on the decision of Hon’ble Uttrakhand High Court in ONGC’s case is concerned, we find that the said decision is not applicable to the present set of facts more particularly because there the services rendered by assessee were of inspecting the three units of RR Avon Gas Generator Driven Process Gas Compressor at SHP Platform, whereas the assessee in our case is carrying on seismic surveys the receipts from which have been held taxable u/s 44BB in various decisions noted in the submissions advanced by ld. counsel for the assessee.
Further, the decision relied upon by ld. CIT(DR) has not considered the effect of insertion of sec. 44DA in the proviso to section 44BB. On the other hand, we find that Tribunal in the case of Baker Hughes Asia Pacific Ltd. (supra) has relied on the decision of Hon’ble Jurisdictional High Court (Uttrakhand) in B.J. Services for rejecting the department’s contention that section 44DA inserted by Finance Act 2010 w.e.f. 1.4.2011 in section 44BB is retrospective. Moreover, we find that Hon’ble Supreme Court in the case of ONGC has set at rest the entire controversy by holding that provisions of various services in connection with the prospecting for, or extraction or production of mineral oils, is taxable on presumptive basis u/s 44BB of the Act. The services carried on by assessee are in connection with the prospecting for mineral oils and, therefore, following the decision of Hon’ble Supreme Court, the assessee’s appeal deserves to be allowed. In view of above discussion, the assessee’s appeal is allowed.
ITA no. 1247/Del/2015 (AY 2006-07):
This appeal arises out of assessment order dated 22.12.2014 passed by the AO u/s 148/143(3), pursuant to DRP’s directions dated 14.11.2014 u/s 144C(5) of the I.T. Act. The issues involved are identical to the issues involved in ITA 5363/Del/2012 for AY 2006-07 above. In ITA 5363/Del/2012 we have held that the gross receipts received by the assessee are taxable u/s 44BB and not u/s 44DA of the Act. Since on merits the issue involved stands decided in favour of assessee, therefore, the ground relating to reopening of assessment has become academic. Accordingly, the impugned order passed by the AO is set aside and the assessee’s appeal is allowed.
ITA no. 2652/Del/2011 ( AY 2006-07):
This appeal has been filed by assessee against the order dated 31.3.2011 passed by the Director of Income-tax u/s 263(1) of the Income-tax Act, 1961, for revising the order passed by the AO, accepting assessee’s income returned u/s 44BB in AY 2006-07.
While dealing with assessee’s appeal being , against the assessment order dated 14.8.2012 passed by the AO u/s 143(3) r.w.s 263 and the directions of ld. DRP u/s 144C(5) of the I.T. Act, 1961, we have held that the gross receipts received by the assessee are taxable u/s 44BB and not u/s 44DA of the Act. Since on merits the issue involved stands decided in favour of assessee, therefore, the impugned proceedings u/s 263(1) have become academic in nature and, therefore, the assessee’s appeal is allowed.
ITA no. 491/Del/2014 (AY 2007-08):
This appeal arises out of the assessment order dated 24.12.2009 passed by the AO u/s 143(3) of the I.T. Act, 1961, pursuant to DRP’s directions dated 31.10.2013 u/s 144C(5) of the I.T. Act.
While dealing with assessee’s appeal for AY 2006-07, being we have held that the gross receipts received by the assessee are taxable u/s 44BB and not u/s 44DA of the Act. Facts of the case remaining the same, for the very same reasons herein also we allow the assessee’s appeal by holding that assessee’s income is taxable u/s 44BB of the Act.
ITA no. 2297/Del/2012 (AY 2007-08):
This appeal has been filed by assessee against the order dated 23.3.2012 passed by the Director of Income-tax u/s 263(1) of the Income-tax Act, 1961, for revising the order passed by the AO, accepting assessee’s income returned u/s 44BB in AY 2007-08.
While dealing with assessee’s appeal for AY 2006-07, on merits we have held that the gross receipts received by the assessee are taxable u/s 44BB and not u/s 44DA of the Act, therefore, the impugned proceedings u/s 263(1) have become academic in nature and, therefore, the assessee’s appeal is allowed.
ITA no. 5364/Del/2012 (AY 2009-10):
This appeal arises out of the assessment order dated 14.8.2012, passed by the AO u/s 143(3) of the I.T. Act, 1961, pursuant to DRP’s directions dated 16.7.2012 u/s 144C(5) of the I.T. Act.
While dealing with assessee’s appeal for AY 2006-07, being we have held that the gross receipts received by the assessee are taxable u/s 44BB and not u/s 44DA of the Act. Facts of the case remaining the same, for the very same reasons herein also we allow the assessee’s appeal by holding that assessee’s income is taxable u/s 44BB of the Act.
In the result, all the appeals preferred by the assessee are allowed. Order pronouncement in open court on 25/04/2016.