HALLIN MARINE UK LTD.,,NEW DELHI vs. ADIT, DEHRADUN

Thus, the amounts which are to be taken are the amounts paid to assessee whether in or out of India, payable to 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 the amount received or deemed to be received in India by 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.

Sri Porus Kaka, learned counsel for the appellant concluded by relying heavily on the law laid down by Hon’ble apex Court in case of Ishikawajma-Harima Heavy Industries Ltd. vs. Director of IT (supra). The facts of this case have been narrated in the para 2 of the judgment and are that the assessee appellant company was incorporated in Japan, a resident of said country, paid taxes in Japan. It is engaged, inter alia, in the business of construction of storage tanks as also engineering, etc. It formed consortium along with Ballast Nedam International BV, Itochu Corporation, Mitsui & Co. Ltd., Toyo Engineering Corporation and Toya Engineering (India) Ltd. With the said consortium members, it entered into an agreement with Petronet LNG Ltd. on 19th Jan., 2001 for setting up a liquefied natural gas (LNG) receiving, storage and degasification facility at Dahej in the State of Gujarat. A supplementary agreement was entered into by the parties on 19th March, 2001. The contract envisaged a turnkey project. Role and responsibility of each member of the consortium was specified separately. Each of the members of the consortium was also to receive separate payments. The appellant was to develop, design, engineer and procure equipment, materials and supplies, to erect and construct storage tanks of 5 MMTPA capacity, with potential expansion to 10 MMTPA capacity at the specified temperatures i.e. 200 degrees celsius. The arrangement also was to include marine facilities (jetty and island breakwater) for transmission and supply of LNG to purchasers; to test and commission the facilities relating to receipt and unloading, storage and regasification of LNG and to send out regasified LNG by means of a turnkey fixed lump sum price time certain engineering procurement, construction and commission contract. The project was to be completed in 41 months. The contract indisputably involved : (i) offshore supply, (ii) offshore services, (iii) onshore supply, (iv) onshore services and (v) construction and erection. The price was payable for offshore supply and offshore services in US dollars, whereas that of onshore supply as also onshore services and 10 5290/Del/2012, & C.O. No. 463/Del/2012, AY-2009-10 Hallin Marine UK Ltd. construction and erection partly in US dollars and partly in Indian rupees.

While determining the tax liability of the appellant, the Hon’ble apex Court has taken into consideration s. 5(2), s. 9(1)(i) and s. 9(1)(vii) of the IT Act and considered the question of imposition of tax on income arising from a business connection of the appellant. Sri Porus Kaka heavily relied upon para 98 of the aforesaid judgment which contains the conclusion as held by the Hon’ble apex Court. Sub-cl. (6) of cl. (A) of para 98 reads as under : "Clause (a) of Expln. 1 to s. 9(1)(i) states that only such part of the income as is attributable to the operations carried out in India, is taxable in India."

Sri Porus Kaka also referred from the judgment and submitted that where the non-resident assessee entered into a composite contract with a resident company under turnkey project the severable parts thereof comprised onshore and offshore services in India and also offshore and onshore services outside India and the price received by non-resident company for such services and supply was not taxable.

We very respectfully submit that in the judgment Ishikawajma- Harima Heavy Industries Ltd. vs. Director of IT (supra), Hon’ble Supreme Court has dealt with the assessment of a non-resident company on its income as per provisions of s. 5 and s. 9 of the IT Act. Here in the present case, provisions of s. 5 and s. 9 are not attracted. Sec. 4 is a charging section and s. 5 contains the scope of total income, which provides that subject to the provisions of this Act, the total income of any previous year of a person who is a resident includes all income as described under this section and s. 9 provides the incomes deemed to accrue or arise in India in the contingencies described under this section. Therefore, s. 5 and s. 9 both are aimed at the income for the taxability under s. 4 of the Act, while s. 44BB does not take into account the income for calculating the aggregate amount to calculate 10 per cent profit and gains. Profit and gains is a type of income to be taxed under a legal fiction i.e. @ 10 per cent of 11 5290/Del/2012, & C.O. No. 463/Del/2012, AY-2009-10 Hallin Marine UK Ltd. the amount specified in sub-s. (2) of s. 44BB. Sec. 44BB is a special provision relating to 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. Thus, the reliance placed by Sri Porus Kaka, learned counsel for the assessee, is misplaced as we have observed that the amount referred in sub-s. (2) of s. 44BB are four types of amounts and all the four types of amounts are mutually inclusive and has to be taken into account either all of them or any of them and its clauses themselves provide that whether the payment is made inside India or outside India.

In the present case, a finding has been recorded by the Tribunal that it was not in dispute before the Tribunal that the payment was made to the appellant company outside India and the mobilization fee as claimed by the assessee was paid to the appellant by ONGC has no nexus with the actual amount incurred by the appellant company for transportation of drilling units of rigs to the specified drilling locations in India. Hence, the mobilization fee is not the reimbursement of expenditure. ONGC was liable to pay a fixed sum as stipulated in the contract regardless of actual expenditure which may be incurred by the assessee company for the purpose. In view of the fictional taxing provision contained under s. 44BB, the AO was right in adding the amount of Rs. 99,04,000 for the asst. yr. 1986-87 and amount worth Rs. 64,64,530 for the asst. yr. 1987-88 received by the assessee towards mobilization charges for the purpose of imposing income-tax and CIT(A) and Tribunal were also right in upholding the order of the AO.

In view of our foregoing discussion, the appeal is devoid of merit and is dismissed accordingly. Question is answered in favour of the Revenue and against the assessee. There shall be no order as to costs.

In respect of grounds nos. 3, 4 and 6 of the Revenue , the ld CIT(DR) contended that the amendment brought out by the Finance Act, 2011 to the proviso to Section 44BB and Section 44DA of the act , was in the nature of a clarificatory amendment and, therefore, its application should be read into the main provisions with effect from the time the main provisions came into effect, as held in the judgment of the Apex Court in the case Sedco Forex International Drilling Incorporation Vs. Commissioner of Income Tax, (2005)2799 ITR 310/149 Taxmann 352 (SC) and thus the said amendment clearly takes the assessee’s receipt out of the purview of Section 44BB of the Act, accordingly, the income of the assessee was to be taxed as fee for technical services/royalty. 11.1 On the other hand, ld. Authorized Representative submitted that these grounds have been decided in favour of the assessee in the assessee’s case itself passed for the assessment year 2008-09 by the Tribunal. 11.2 We have heard the rival submissions and perused the material. The amendment brought by the Finance Act, 2011 cannot be made effect from the retrospective effect as that it adversely affects the interest of the assessee. We are in agreement with the findings of the Hon’ble Supreme Court in the case of Sedco Forex International Drilling Incorporation Vs. Commissioner of Income Tax, (supra) that clarificatory provisions should be made applicable form the date when the main provision was introduced. The relevant paragraph of the judgment is reproduced as under:

As was affirmed by this Court in Goslino Mario (supra), a cardinal principle of the tax law is that the law to be applied is that which is in force in the relevant assessment year unless otherwise provided expressly or by necessary implication [See also : Reliance Jute & Industries Ltd. vs. CIT (1979) 13 CTR (SC) 186 : (1980) 1 SCC 139]. An Explanation to a statutory provision may fulfil the purpose of clearing up an ambiguity in the main provision or an Explanation can add to and widen the scope of the main section [See : Sonia Bhatia vs. State of U.P. AIR 1981 SC 1274, 1282 para 24 : (1981) 2 SCC 585, 598]. If it is in its nature clarificatory then the Explanation must be read into the main provision with effect from the time that the main provision came into force [See : Shyam Sunder vs. Ram Kumar (2001) 8 SCC 24 (para 44); Brij Mohan Das Laxman Das vs. CIT (1997) 138 CTR (SC) 214 : (1997) 1 SCC 352, 354; CIT vs. Podar Cement (P) Ltd. (1997) 141 CTR (SC) 67 : (1997) 5 SCC 482, 506]. But if it changes the law it is not presumed to be retrospective irrespective of the fact that the phrase used are 'it is declared’ or 'for the removal of doubts’.

The assessee in this case is a company which is incorporated in the United States of America and is executing World Bank finance projects. One of these projects financed by the World Bank is undertaken by the National Highway Authority of India which was also executed by the assessee. For the asst. yr. 2001-02 the assessee filed its return of income declaring an income of Rs. 96,83,278. This return was picked up for detailed scrutiny and notice under s. 143(2) of the IT Act, 1961 was issued. Thereafter, the assessment was framed on 26th March, 2004. The AO had inter alia found that there was short payment of taxes in as much as the advance tax was not paid by the assessee on due dates and therefore, the AO was of the opinion that the assessee had incurred interest liability under s. 234B of the Act. After giving show-cause notice in this behalf, the AO added the liability of interest under s. 234B of the Act.

We may point out at this stage itself that the plea of the assessee was that all the projects which were being executed by the assessee at the relevant time, it was the obligation and the statutory duty of the National Highway Authority of India to deduct the tax at source and the assessee being a non-resident, 100 per cent tax at source was to be deducted. For this reason there was no liability of the assessee to pay any advance tax and thus interest under s. 234B of the Act could not be charged from the assessee. This contention was not acceptable to the AO. In his opinion, it was for the assessee to show income from all the projects, compute the tax and take credit of taxes paid either prepaid or otherwise by enclosing the proof of such payment along with return of income. The TDS certificates were to be collected by the assessee even where taxes are borne by the payer. Since the assessee had not disclosed any certificates nor shown proof of payment of taxes, the AO held that the assessee was liable to pay 19 5290/Del/2012, & C.O. No. 463/Del/2012, AY-2009-10 Hallin Marine UK Ltd. interest under s. 234B of the Act. The assessee preferred an appeal before the CIT(A) against the assessment order so passed challenging the levy of interest under the said provision. The assessee was successful in that appeal in as much as CIT(A) allowed the appeal vide order dt. 29th Nov., 2004 and set aside the order of the AO on this aspect. The Revenue, feeling aggrieved by the order of the CIT(A), approached the Tribunal. However, the plea of the Revenue was not accepted by the Tribunal which resulted in dismissal of the said appeal vide impugned orders dt. 13th April, 2007.

Under similar circumstances, in the assessment orders passed for the various assessment years in case of M/s Mitsubishi Corporation, interest charged under s. 234B of the Act has been deleted by the Tribunal. In these judgments passed by the Tribunal, the Tribunal has referred to the two judgments namely, that of the Uttaranchal High Court and the Bombay High Court where the views taken by the said Courts that since it was the payer who paid the amount to the assessee to deduct the tax at source, the assessee could not be fastened with the liability of interest. The judgment of the Uttaranchal High Court in the case of CIT & Anr. vs. Sedco Forex International Drilling Co. Ltd. & Ors. (2004) 186 CTR (Uttaranchal) 144 : (2003) 264 ITR 320 (Uttaranchal). After extensively dealing with the identical issue, the Court gave the following reasons for holding that the liability of the assessee to pay interest would not arise under these circumstances : "17. Although we agree with the conclusions of the Tribunal, we prefer to give our own reasons in support of our conclusion that on the facts and circumstances of this case, levy of interest under s. 234B on the assessee is not justified. Firstly, the decisions of the Tribunal on the interpretation of the contracts regarding on period and off period salary were conflicting. Ultimately, the legislature has stepped into clarify the position by the Finance Act of 1999. In this connection, it is important to note that s. 234B imposes interest, which is compensatory in nature and not as a penalty [see Union Home Products Ltd. & Ors. vs. Union of India (1995) 129 CTR (Kar) 217 : (1995) 215 ITR 758, 766 (Kar)]. Secondly, although s. 191 of the Act is not overridden by ss. 192, 208 and 209(1)(a)(d) of the Act, the scheme of ss. 208 and 209 of the Act indicates that in order to compute advance tax the assessee has to, inter alia, estimate his current income and calculate the tax on such income by applying the rates in force. That under s. 209(1)(d) the income-tax calculated is to be reduced by the amount of tax which would be deductible at source or collectible at source, which in this case has not been done by the employer company according to the law prevailing for which the assessee cannot be faulted.

This judgment was followed by the Bombay High Court in the case of Director of IT (International Taxation) vs. NGC Network Asia LLC (2009) 222 CTR (Bom) 86 : (2009) 18 DTR (Bom) 203. The Bombay High Court also took note of the judgment of the Madras High Court in the case of CIT vs. Madras Fertilisers Ltd. (1984) 149 ITR 703 (Mad) which had taken a similar view. The following observations of the Madras High Court are also worth quoting : "..If the TDS has not been deducted and paid over to the Department, then the banks whose duty it is to make deduction can be treated as the assessee in default under the provisions of s. 201 of the Act. Interest also can be collected along with the amounts which they ought to have deducted but which they did not deduct under s. 201(1A). Therefore, under the provisions of s. 201, that portion of the tax which has not been deducted and paid over to the Department will have to be paid with interest by the banks which are under a duty to make the deduction at the source. We have thus to keep in mind s. 201(1A) of the Act while construing s. 215 of the Act which deals with the interest payable by the assessee in respect of the tax assessed on him. Sec. 215(1) of the Act proceeds as follows : '215. Interest payable by assessee—(1) Where, in any financial year, an assessee has paid advance tax under s. 212 on the basis of his own estimate and the advance tax so paid is less than seventy-five per cent of the assessed tax, simple interest at the rate of twelve per cent per annum from the 1st day of April next following the said financial year up to the date of the regular assessment shall be payable by the assessee upon the amount by which the advance tax so paid falls short of the assessed tax.' 5. This section provides that when the advance tax paid is less than seventy-five per cent of the assessed tax, simple interest @ 12 per cent per annum shall be levied from the 1st day of April next following the said financial year up to the date of the regular assessment, on the amount by which the advance tax falls short of the assessed tax. The 'assessed tax' has been defined in s. 215(5) of the Act, as meaning the tax determined on the basis of the regular assessment as reduced by the amount of tax 21 5290/Del/2012, & C.O. No. 463/Del/2012, AY-2009-10 Hallin Marine UK Ltd. deductible in accordance with the provisions of ss. 192 to 194, s. 194A, etc. As per this definition, 'assessed tax' represents the tax determined by regular assessment as reduced by the amount of tax deductible in accordance with the provisions of s. 194A of the Act. Therefore, the expression 'assessed tax' used in s. 215(1) of the Act has to be understood as the tax finally assessed as reduced by the amount of tax deductible in accordance with the provisions of s. 194A of the Act. As already stated, that tax is deductible at source on the interest income under s. 194A of the Act cannot be disputed. So long as s. 215 of the Act permits the levy of interest only on the difference between the assessed tax and advance tax actually paid, we have to take note of the amount of tax deductible at source under s. 194A of the Act, and this has been specifically provided in sub-s. (5) of s. 215 of the Act. It is significant to note that normally advance tax is paid either on the basis of the previous year's assessment or on the basis of the estimate given by the assessee long before the final assessment and at that stage, there is no question of actual deduction of the tax at source in respect of the interest income and the deduction at source takes place practically at the end of the year when the interest is paid and it is for this reason the statute in sub-s. (5) of the Act uses the expression 'deductible' instead of 'deducted'. Therefore, construing sub-s. (5), it is not possible to understand the expression 'deductible' occurring therein as 'deducted'.

Mr. Sabharwal, the learned counsel appearing for the Revenue strenuously argued that s. 234B of the Act was an independent and standalone provision and once the ingredients/conditions contained in that section were satisfied, the liability to pay the interest would arise. Reading the provision of the section, he argued that since there was a default in payment of advance tax, interest thereupon had to be paid by the assessee as held by the Supreme Court in the case of CIT vs. Anjum M.H. Ghaswala & Ors. (2001) 171 CTR (SC) 1 : (2001) 252 ITR 1 (SC). He submitted that it was totally unnecessary to look into the other provisions like ss. 191, 195, 201, 209, 215 etc. for determining the liability of payment of interest. His submission was that whereas s. 209(1)(d) uses the expression "deductible or collectible", the legislature in Expln. 1(i) of s. 234B of the Act had consciously used the expression "income deducted or collected at source..". Therefore, what was to be 23 5290/Del/2012, & C.O. No. 463/Del/2012, AY-2009-10 Hallin Marine UK Ltd. seen was whether the tax at source was deducted or collected or not and if it was not actually collected or deducted, the liability to pay interest arose. We are not persuaded by this submission of Mr. Sabharwal. It is stated at the cost of repetition that the liability to deduct or collect the tax at source is that of the payer. Therefore, for the purposes of s. 234B of the Act, the question would be as to whether the payee, i.e. the assessee in this case, had any role in deducting or collecting the tax. Once that is in the negative, and it was not duty of the payee/assessee, the question of payment of any interest would not arise as it cannot be said, in such circumstances, that the assessee is in default for the purposes of s. 234B of the Act. No doubt, as per the judgment in the case of Anjum Ghaswala (supra), if there is a default in making the payment of advance tax, the consequence which is to follow is that the interest becomes payable under s. 234B of the Act. But in the instant case, the provisions of s. 234B of the Act would not be attracted at all.

Sec. 2(1) of the Act defines "advance tax" to mean the advance tax payable in accordance with the provisions of Chapter XVII-C of the Act. These provisions are contained from s. 207 onwards. Sec. 209 falls under this chapter. Sub-s. (1) thereof deals with four situations under which the advance tax payable by the assessee is to be computed. Admittedly, these cases do not concern with cls. (a) to (c). Clause (d) of sub-s. (1) of s. 209, which is relevant reads as under : "(d) The income-tax calculated under cl. (a) or cl. (b) or cl. (c) shall, in each case, be reduced by the amount of income-tax which would be deductible or collectible at source during the said financial year under any provision of this Act from any income (as computed before allowing any deductions admissible under this Act) which has been taken into account in computing the current income or, as the case may be, the total income aforesaid; and the amount of income-tax as so reduced shall be the advance tax payable."

This clause categorically uses the expression "deductible or collectible at source" and it is this clause which is incorporated by the Uttaranchal High Court in the said judgment (supra) in the manner already pointed above. The scheme of the Act in respect of non-residents is clear. Sec. 195 of the Act puts an obligation on the payer, i.e. any person responsible for paying to a non-resident, to deduct income-tax at source at the rates in force from such payments excluding those incomes which are chargeable under the head 'Salaries'. Therefore, the entire tax is to be deducted at source which is payable on such payments made by the payer to the non- resident. Sec. 201 of the Act lays down the consequences of failure to 24 5290/Del/2012, & C.O. No. 463/Del/2012, AY-2009-10 Hallin Marine UK Ltd. deduct or pay. These consequences include not only the liability to pay the amount which such a person was required to deduct at source from the payments made to a non-resident but also penalties etc. Once it is found that the liability was that of the payer and the said payer has defaulted in deducting the tax at source, the Department is not remedy less and therefore can take action against the payer under the provisions of s. 201 of the IT Act and compute the amount accordingly. No doubt, if the person (payer) who had to make payments to the non-resident had defaulted in deducting the tax at source from such payments, the non-resident is not absolved from payment of taxes thereupon. However, in such a case, the non-resident is liable to pay tax and the question of payment of advance tax would not arise. This would be clear from the reading of s. 191 of the Act along with s. 209(1)(d) of the Act. For this reason, it would not be permissible for the Revenue to charge any interest under s. 234B of the Act.

We thus answer the aforesaid question in favour of the assessee as we are of the opinion that the Tribunal has rightly held that the assessee was not liable to pay any interest under s. 234B of the Act following the judgments of the Uttaranchal and Bombay High Courts.(emphasis supplied) 11.7 Thus the Hon’ble High Court has said that , where , the assessee is not having any role in getting the lower or no deduction , the interest under section 234B of the Act was not chargeable for failure of the payer in deducting the tax at source. Though the issue in dispute has already been decided in favour of the assessee by the Tribunal in AY 2008-09, but facts in the year under consideration may be different as regards to role of the assessee in getting lower or no deduction of certificate, following the judgement of the Jurisdictional High Court in the case of Jacabs Civil Incorporated ( supra) , we restore the issue to the file of Assessing Officer for verification of the fact , whether any certificate of lower or no deduction of tax was obtained and provided by the assessee to the payer, and if the answer is negative, no interest under section 25 5290/Del/2012, & C.O. No. 463/Del/2012, AY-2009-10 Hallin Marine UK Ltd. 234B of the Act is chargeable in the case of the assessee. Accordingly, we allow this ground of appeal