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

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: ‘C’: NEW DELHI BEFORE SH. H.S. SIDHU, JUDICIAL MEMBER AND SH. O.P. KANT, ACCOUNTANT MEMBER ITA No. 5217/Del/2012 Assessment Year: 2009-10 M/s. Hallin Marine UK Ltd., Vs. ADIT, Intl. Taxation, Dehradun C/o Nangia & Company, Suite 4A, Plaza M-6, Jasola, New Delhi (PAN: AABCH9433L) (Appellant) (Respondent)

And ITA No. 5290/Del/2012 Assessment Year: 2009-10 ADIT, International Taxation, Vs. M/s. Hallin Marine UK Ltd., 13A-Subhash Road, Aayakar C/o Nangia & Company, Suite Bhawan, Dehradun 4A, Plaza M-6, Jasola, New Delhi (PAN: AABCH9433L) (Appellant) (Respondent) And C.O. 463/Del/2012 [In ITA No. 5290/Del/2012] Assessment Year: 2009-10 M/s. Hallin Marine UK Ltd., Vs. ADIT, International Taxation, C/o Nangia & Company, Suite 13A-Subhash Road, Aayakar 75/7, Rajpur Road, Dehradun Bhawan, Dehradun (PAN: AABCH9433L) (Appellant) (Respondent)

Appellant by S/sh. Amit Arora & Suraj Nangia, CAs Respondent by Sh. Anuj Arora, CIT (DR) Date of hearing 15.12.2015 Date of pronouncement 20.01.2016

2 ITA Nos. 5217& 5290/Del/2012, & C.O. No. 463/Del/2012, AY-2009-10 Hallin Marine UK Ltd. ORDER PER O.P. KANT, A.M.: These cross appeals and cross objection of parties are directed against the order dated 16.07.2012 of the learned Commissioner of Income Tax(Appeals)- II, Dehradun, passed for the assessment year 2009-10. These appeals and cross objection are heard together and being disposed by a consolidated order. ITA No. 5217/Del/2012 for AY 2009-10 2. The assessee raised the following ground of appeal: “The learned Commissioner of Income Tax(Appeals) has erred in holding that the revenue of Rs. 38,454,152/- on account of work performed outside Indian taxable territory were includible in the aggregate amount referred to in sub-section 92) of Section 44BB of the I.T. Act, 1961 as opposed to the appellant’s claim that the same constituted income which did not accrue or arise to the appellant inside India. The Commissioner of Income Tax(Appeals) has not appreciated that the work performed outside India would not be included while calculating the aggregate amount referred in sub-section (2) of Section 44BB of the Act.” 3. The facts in brief are that the assessee, a non-resident company, provided specialized vessels along with crew members to another non-resident company, namely, “Allsea Marine Contractor SA”, who in turn was engaged in carrying out survey work for another company, namely, M/s B.G. International Production India Ltd. In the previous year relevant to the assessment year under consideration, M/s. B.J. International Production India Ltd. was engaged by M/s Reliance Industries Ltd. for laying pipelines for gas production facility in KG Basin. The assessee filed its return of income on 04.01.2010, declaring total income of Rs. 20,04,62,410/-. The return of income of the assessee was selected

3 ITA Nos. 5217& 5290/Del/2012, & C.O. No. 463/Del/2012, AY-2009-10 Hallin Marine UK Ltd. for scrutiny and notice under Section 143(2) of the Income-tax Act, 1961 (for short “the Act”) was issued on 16.09.2010. In the course of scrutiny proceedings, the learned Assessing Officer observed that the assessee declared its income under the presumptive taxation scheme provided under Section 44BB of the Act, whereas from the facts and circumstances of the assessee, he was of the opinion that the assessee was liable to tax for the services rendered as fee for technical services (FTS) under Section 9(1)(vii) of the Act. Further, the learned Assessing Officer also observed that part of the revenue from the contract with M/s Allseas Marine Contractor pertaining to the activities of demobilization of the vessel i.e. bringing vessel for carrying out contract and its exit from Indian territorial water, was excluded by the assessee from the gross contract receipt offered under Section 44BB(2) of the Act and profit from the said revenue was treated as income earned outside India by the assessee and therfore it was not offered for taxation in the return of income under consideration. The Assessing Officer was of the view that the profit on entire gross revenue/receipt from the contract should have been offered for taxation under fee for technical services (FTS). Accordingly, in the draft assessment order, the learned Assessing Officer proposed adding of Rs. 3,84,54,152/- for revenue claimed from activities outside India , to the contractual revenue/receipts of Rs. 200,46,24,105/- offered by the assessee under Section 44BB(2) of the Act and thereafter the Assessing Officer proposed computation of income of Rs. 51,07,69,560/- at the rate of 25 percent on the above gross revenue/receipt of Rs. (200,46,24,105+

4 ITA Nos. 5217& 5290/Del/2012, & C.O. No. 463/Del/2012, AY-2009-10 Hallin Marine UK Ltd. 3,84,54,152=) 204,30,78,257/- as fee from technical services (FTS) . As the assessee expressed its wish not to object before the DRP, the learned Assessing Officer passed final assessment order under Section 143(3) r.w.s. 144C of the Act and assessed the income at Rs. 51, 07,69,560/- as was proposed in the draft assessment order. The first appellate authority i.e. ld. Commissioner of Income Tax(Appeals) accepted the claim of the assessee that the income from providing vessel was to be assessed under the presumptive taxation provided in Section 44BB of the Act at the rate of 10 percent. of the gross revenue/receipt, however, the learned Commissioner of Income Tax(Appeals) simultaneously held that under the provisions of Section 44BB of the Act, global revenue from the contract including demobilization charges would be considered for the purpose of computation of aggregate amount and thus, the claim of the assessee that the revenue from the activity outside India was excluded from Section 44BB of the Act, was rejected by him. Aggrieved, both the assessee and the Revenue are before us in appeal and cross objection. 4. In sole ground raised by the assessee in appeal qua including revenue from part of contract executed outside Indian taxable territory, for the purpose of aggregate amount referred under sub-section (2) of Section 44BB of the Act, the learned Authorized Representative fairly admitted that the issue was decided against the assessee in the case of Sedco Forex International Drilling Inc. 299 ITR 238 by the Hon’ble Uttaranchal High Court, being the jurisdictional High Court and thus the judgment is a binding precedent.

5 ITA Nos. 5217& 5290/Del/2012, & C.O. No. 463/Del/2012, AY-2009-10 Hallin Marine UK Ltd. 5. On the other hand, the Commissioner of Income Tax (Departmental Representative) concurred with the submissions of the learned Authorized Representative. 6. We have heard the rival submissions and perused material on record. The Hon’ble Uttaranchal High Court in the case of Sedco Forex International Drilling Inc.(supra) has decided the issue in dispute as under:

“8. The question of law raised to be considered by this Court is as under : "Whether on the facts and circumstances of the case, the Tribunal was right in upholding the inclusion of mobilization charges while calculating the aggregate amount referred in sub-s. (2) of s. 44BB of the IT Act." 9. Sec. 44BB is a special provision for imposing the income-tax treating 10 per cent of the aggregate amount specified in sub-s. (2) of s. 44BB as deemed profits and gains of such non-resident assessee who is 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. The amount referred in sub-s. (2) of s. 44BB are 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, (b) payable 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, (c) 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 (d) deemed to be received by the 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,

6 ITA Nos. 5217& 5290/Del/2012, & C.O. No. 463/Del/2012, AY-2009-10 Hallin Marine UK Ltd. mineral oils outside India, which is clear from the perusal of s. 44BB, which is reproduced as under : "44BB. (1) Notwithstanding anything to the contrary contained in ss. 28 to 41 and ss. 43 and 43A, in the case of an assessee, being a non- resident, 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-s. (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 s. 42 or s. 44D or s. 115A or s. 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-s. (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-s. (1), an assessee may claim lower profits and gains than the profits and gains specified in that sub-section, if he keeps and maintains such books of account and other documents as required under sub-s. (2) of s. 44AA and gets his accounts audited and furnishes a report of such audit as required under s. 44AB, and thereupon the AO shall proceed to make an assessment of the total income or loss of the assessee under sub-s. (3) of s. 143 and determine the sum payable by, or refundable to, the assessee. Explanation—For the purpose of this section,—

7 ITA Nos. 5217& 5290/Del/2012, & C.O. No. 463/Del/2012, AY-2009-10 Hallin Marine UK Ltd. (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." 10. 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. 11. Sri Porus Kaka, learned counsel for the assessee submitted that the amount of mobilization charges cannot be included in the amount referred to under sub-s. (2) of s. 44BB as the mobilization charges represent reimbursement of expenses incurred for transportation of drilling units of rigs from outside India to designated drilling places in India and the payment has also not been made in India. He very emphatically submitted that the payment outside India cannot be deemed to be received in India under cl. (b) of sub-s. (2) of s. 44BB. He placed reliance on following authorities : (1) Saipem S.P.A. vs. Dy. CIT (2004) 86 TTJ (Del)(TM) 1 : (2004) 88 ITD 213 (Del)(TM); (2) CIT vs. Toshoku Ltd. (1980) 19 CTR (SC) 192 : (1980) 125 ITR 525 (SC); (3) Carborandum Co. vs. CIT 1977 CTR (SC) 209 : (1977) 108 ITR 335 (SC); (4) CIT vs. Tata Chemicals Ltd. (1974) 94 ITR 85 (Bom); (5) CIT vs. Hukumchand Mills Ltd. (1968) 67 ITR 79 (SC); (6) Anglo-French Textile Co. Ltd. vs. CIT (1954) 25 ITR 27 (SC); (7) Hukum Chand Mills Ltd. vs. CIT 1976 CTR (SC) 217 : (1976) 103 ITR 548 (SC);

8 ITA Nos. 5217& 5290/Del/2012, & C.O. No. 463/Del/2012, AY-2009-10 Hallin Marine UK Ltd. (8) CIT vs. Avtar Singh Wadhwan (2001) 165 CTR (Bom) 414 : (2001) 247 ITR 260 (Bom); (9) CBDT vs. Chowgule & Co. Ltd. & Ors. (1991) 98 CTR (Kar) 124 : (1991) 192 ITR 40 (Kar); (10) V.M. Salgaocar & Bros. Ltd. vs. Deputy Controller, RBI & Ors. (1991) 93 CTR (Kar) 49 : (1991) 187 ITR 381 (Kar); (11) CIT vs. Best & Co. (P) Ltd. (1966) 60 ITR 11 (SC); (12) CIT vs. Dunlop Rubber Co. Ltd. (1982) 29 CTR (Cal) 25 : (1983) 142 ITR 493 (Cal); (13) CIT vs. Industrial Engineering Projects (P) Ltd. (1993) 109 CTR (Del) 73 : (1993) 202 ITR 1014) (Del); (14) CIT vs. Tata Engineering & Locomotive Co. Ltd. (2001) 165 CTR (Bom) 67 : (2000) 245 ITR 823 (Bom); (15) Godhra Electricity Co. Ltd. vs. CIT (1997) 139 CTR (SC) 564 : (1997) 225 ITR 746 (SC); (16) CIT vs. Tejaji Farasram Kharawalla Ltd. (1968) 67 ITR 95 (SC); (17) Union of India & Anr. vs. A. Sanyasi Rao & Ors. (1996) 132 CTR (SC) 81 : (1996) 219 ITR 330 (SC); (18) CIT vs. Amarchand N. Shroff (1963) 48 ITR 59 (SC); (19) CIT vs. Ajax Products Ltd. (1965) 55 ITR 741 (SC); (20) Sedco Forex International Drilling Inc. vs. Jt. CIT (Tribunal ‘D’ Bench, Delhi) (ITA No. 2024/Del/2001) (Asst. yr. 1998-99); (21) Circular No. 495 dt. 22nd Sept., 1987 [(1988) 67 CTR (St) 1] in respect of s. 44BB; (22) Finance Bill 1987 in respect of introduction of s. 44BB; (23) Notes on Clauses in Finance Bill, 1987 in respect of introduction of s. 44BB; (24) Memorandum Explaining Provisions in respect of introduction of s. 44B in Finance Bill, 1987;

9 ITA Nos. 5217& 5290/Del/2012, & C.O. No. 463/Del/2012, AY-2009-10 Hallin Marine UK Ltd. (25) McDermott International Inc. vs. Addl. CIT & Anr. (2003) 180 CTR (Uttaranchal) 492 : (2003) 259 ITR 138 (Uttaranchal); (26) CIT vs. F.Y. Khambaty (1986) 50 CTR (Bom) 275 : (1986) 159 ITR 203 (Bom); (27) Ishikawajima-Harima Heavy Industries Ltd. vs. Director of IT (2007) 207 CTR (SC) 361 : (2007) 288 ITR 408 (SC) : 2007 (3) SCC 481. 12. 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 ITA Nos. 5217& 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. 13. 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." 14. And sub-cl. (1) of cl. (B) of para 98 of the aforesaid judgment reads as below : "Sufficient territorial nexus between the rendition of services and territorial limits of India is necessary to make the income taxable." 15. 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. 16. 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 ITA Nos. 5217& 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. 17. 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. 18. 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. 7. Respectfully following the above binding principle, we hereby hold that the revenue/receipt from mobilisation charges (i.e. for work performed outside India) of Rs. 3,84,54,152/- received by the assessee has been rightly taken for the purpose of amount referred under sub-section (2) of Section 44BB of the Act by the Ld CIT(A) and thus no interference is required on

12 ITA Nos. 5217& 5290/Del/2012, & C.O. No. 463/Del/2012, AY-2009-10 Hallin Marine UK Ltd. his findings on the issue in dispute. Accordingly, this ground of appeal of the assessee is dismissed.

ITA No. 5290/Del/2012 for AY: 2009-10 9. The Revenue raised the following grounds of appeal: 1. Whether on facts and circumstances of the case, the Commissioner of Income Tax(Appeals) had erred in holding that the provisions of vessels, ROV equipment and personnel to M/s. Allseas Marine Contractor SA for carrying out survey work as per contractor which M/s BGIPL was not in the nature of FTS and equipment Royalty squarely covered u/s 9(1)(vi) and 9(1)(vii) of the I.T. Act, 1961. 2. Whether on facts and circumstances of the case, the Commissioner of Income Tax(Appeals) has erred in holding that the income of the assessee was taxable under the provisions of sec. 44BB even though the nature of services rendered by the assessee were technical in nature, and not for a project undertaken by the assessee. 3. Whether on facts and circumstances of the case, the Commissioner of Income Tax(Appeals) had erred in holding that the assessee had deemed PE as per the proviso to Article 5(2) of the Indo-UK DTAA by virtue of which the income of the assessee was taxable under the presumptive provisions of sec. 44BB and ignoring the fact that taxability u/s 44BB shall not apply in respect of income in the nature of FTS/Royalty referred to in Section 44DA in view of the clarificatory proviso to sec. 44BB and sec. 44DA. 4. Whether on facts and circumstances of the case, the Commissioner of Income Tax(Appeals) had erred in not appreciating the fact that proviso to section 44DA brought about by the Finance Act, 2011 was only clarificatory in nature and its application has to be read in to the main provisions with effect from the time the main provision came in to effect in view of the decision of the Hon’ble Supreme Court in the case of Sedco Forex International Drilling Vs. Commissioner of Income Tax, delivered on 17.11.2005. 5. Whether on facts and circumstances of the case, the Commissioner of Income Tax(Appeals) had erred in holding that interest u/s 234B was not chargeable in this case by relying upon the decision of Hon’ble Uttarakhand High Court in the case of Maersk (334 ITR 79) where as the

13 ITA Nos. 5217& 5290/Del/2012, & C.O. No. 463/Del/2012, AY-2009-10 Hallin Marine UK Ltd. department has contested the issue and has filed SLP before the Apex Court against in the case of Jacobs Civil Incorporated/Mitsubishi involving similar issue. 6. Whether on facts and circumstances of the case, the Commissioner of Income Tax(Appeals) had erred in not appreciating the finding giving by the Assessing Officer who had held that the fee for Technical Services/Royalty received by the assessee which is a non-resident company from another non-resident company was correctly estimated @ 25% of gross receipts as per the requirements of Rule 10 of the Income Tax Rules, 1962, in the absence of books of accounts and taxed accordingly. 7. The appellant prays for leave to add, amend, modify or alter any grounds of appeal at the time of before the hearing of the appeal. 10. In respect of ground nos. 1 and 2 of the Revenue’s appeal qua holding by the ld CIT(A) that the provisions of vessels, ROV equipment and personnel to M/s. Allseas Marine Contractor SA with M/s. BGIPL was not in the nature of FTS and it was taxable under the provision of Section 44BB of the Act, the learned Authorized Representative of the assessee submitted that these grounds were decided in favour of the assessee for assessment year 2008-09 in ITA No. 5562/Del/2011 vide order dated 11.07.2014 in the case of the assessee itself. 10.1 Learned Commissioner of Income Tax (Departmental Representative), on the other hand, relying on the order of the Assessing Officer submitted that the vessels provided on hire (along with personals) were highly specialized vessels, equipped with technical gadgets and performed through highly technical crew which established that the assessee was providing technical services and thus was taxed as fee for technical services rightly by the Assessing Officer. Further, the learned Commissioner of Income Tax (Departmental Representative) submitted that the assessee was a second leg contractor and, therefore, it was not

14 ITA Nos. 5217& 5290/Del/2012, & C.O. No. 463/Del/2012, AY-2009-10 Hallin Marine UK Ltd. providing plant and machinery directly for activities of prospecting for, or exploration or production of, mineral oils covered by Section 44BB of the Act. He further submitted that the argument in respect of highly specialized nature of a vessel and second leg contractor were not available before the Tribunal in earlier year. 10.2 We have heard the rival submissions and perused the material on record. The Tribunal in the case of the assessee itself for assessment year 2008-09 in para 209, held as under: “209. Grounds raised in respect to addition qua hiring of equipment in connection with exploration/prospecting/extraction of mineral oil; and addition qua activity outside India, for the detailed reasons given in ITA No. 5283/Del/2010, are covered in favour of assessee. Accordingly, we hold that the income arising on account of royalty/FTS, letting out of equipment etc. was to be taxed u/s 44BB. Adopting the same reasons, we allow these grounds in favour of the assessee.” 10.3 We have seen that Vessels and the status as second leg contractor of the assessee has not changed as compared to AY 2008-09, thus the facts and circumstances of the assessee remained same as were in AY 2008-09. Thus, in view of the above discussion, following the findings of the Tribunal in the case of assessee itself for AY 2008-09, we hold that income from hiring of the vessels was rightly held as taxable under Section 44BB of the Act by the ld CIT(A) and no interference is required in finding of the ld CIT(A) on the issue in dispute. Accordingly, we dismiss the grounds No. 1 and 2 of appeal of the Revenue.

15 ITA Nos. 5217& 5290/Del/2012, & C.O. No. 463/Del/2012, AY-2009-10 Hallin Marine UK Ltd. 11. 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:

16 ITA Nos. 5217& 5290/Del/2012, & C.O. No. 463/Del/2012, AY-2009-10 Hallin Marine UK Ltd. 14. 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’.

In above judgment it is also held that if the amendment changes the law , it has to be prospective in nature. The Tribunal in the case of the assessee for AY 2008-09 cited above have already been dealt the arguments of the Commissioner of Income Tax(Departmental Representative ) that the effect of amendment carried out in Section 44BB and Section 44DA are not having retrospective effect. The relevant para of the judgment of the Tribunal is as under: “65. The department’s contention is that section 44DA inserted by the Finance Act, 2010 w.e.f. 01-04-2011 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

17 ITA Nos. 5217& 5290/Del/2012, & C.O. No. 463/Del/2012, AY-2009-10 Hallin Marine UK Ltd. 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).”

11.3 Respectfully following the above findings of the Tribunal in the case of the assessee for the assessment year 2008-09, we dismiss ground Nos. 3, 4 and 6 of appeal of the Revenue. 11.4 As regard to ground no. 5 qua the interest was not chargeable under Section 234B of the Act, The ld CIT(DR) relied upon the decision of Hon’ble Uttaranchal High Court in the case of Maersk Company Ltd. Vs. Department of Income Tax, reported in 334 ITR 79. The learned Commissioner of Income Tax (Departmental Representative) also relied on the decision of the Jurisdictional High Court in the case of Director of Income Tax Vs. Jacobs Civil Incorporated reported in 194 Taxmann 495 and submitted that it needs to be determined, if the assessee had played any role in having lower or no deduction of TDS. 11.5 On the other hand, learned Authorized Representative submitted that this issue was already decided in favour of the assessee in the assessee’s case itself for assessment year 2008-09 . He also submitted that no certificate of lower or no deduction was obtained by the assessee. 11.6 We have heard the rival submissions and perused the material on record. The issue of charging interest under section 234B of the act has been dealt in the judgement of the Hon’ble Delhi High Court in the case of Director of Income- tax Vs Jacabs civil Incorporated ( supra) as under:

18 ITA Nos. 5217& 5290/Del/2012, & C.O. No. 463/Del/2012, AY-2009-10 Hallin Marine UK Ltd.

“1. In IT Appeal No. 491 of 2008, M/s Jacabs Civil Incorporated is the assessee and in all other appeals, M/s Mitsubishi Corporation is the assessee/respondent. However, the issue in all the cases is the same which relates to the charge of interest under s. 234B of the IT Act, 1961. We may point out at the outset that both these assessees are non-resident companies. The common question of law which arises for consideration in all these appeals relate to "whether the levy of interest under s. 234B of the IT Act, 1961 for short deduction of TDS is mandatory and is leviable automatically." For the sake of convenience, we may look into the facts as they appear in IT Appeal No. 491 of 2008. 2. 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. 3. 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 ITA Nos. 5217& 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. 4. 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.

20 ITA Nos. 5217& 5290/Del/2012, & C.O. No. 463/Del/2012, AY-2009-10 Hallin Marine UK Ltd. As stated above at the relevant time there were conflicting decisions of the Tribunal. A bona fide dispute was pending. The assessee had to estimate his current income. The words used under s. 209(1)(a) make the assessee estimate his current income and since a bona fide dispute was pending, imposition of interest under s. 234B was not justified without hearing and without reasons. Accordingly, we answer this question in the affirmative, i.e., in favour of the assessee and against the Department." 5. 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 ITA Nos. 5217& 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'. 6. Further, the learned counsel for the assessee appears to be right in his submission that in cases where the tax is deductible at source, that will have to be excluded from consideration while the estimate of the income for the payment of advance tax is submitted. Reliance is placed by the learned counsel on the language used in s. 190(1) which is as follows : '190. (1) Notwithstanding that the regular assessment in respect of any income is to be made in a later assessment year, the tax on such income shall be payable by deduction at source or by advance payment, as the case may be, in accordance with the provisions of this chapter.' 7. That section seems to provide that the tax in respect of a regular assessment is payable either by deduction at source or by advance payment, as the case may be, in accordance with the provisions of Chapter XVII. Thus, the deduction of tax at source and payment of advance tax have been treated as two alternative modes of payment of tax in advance. Hence, where the statute provides for deduction of tax at source in respect of a particular income, the concerned assessee need not pay any advance tax in relation to the said income. In this case, it is not in dispute that in respect of the interest income, deduction of tax at source is

22 ITA Nos. 5217& 5290/Del/2012, & C.O. No. 463/Del/2012, AY-2009-10 Hallin Marine UK Ltd. contemplated under s. 194A of the Act. However, the deduction at source has not been effected by the banks which paid the interest to the assessee which they should have done as per the provisions of the Act. For the default of compliance with s. 194A the bank can be brought under s. 201 as an assessee in default. Sec. 201(1A) specifically provides that if a person or authority who is bound to make a deduction of tax at source as contemplated by the statute does not deduct or after deducting fails to pay the tax, then such a person or authority is liable to pay simple interest on the amount of tax not deducted from the date on which such tax was deductible to the date on which the said tax was actually paid. Thus, in respect of interest income on which deduction of tax at source should have been made, the liability to pay interest is fastened on the person or authority who failed to make deduction as required under s. 194A. Therefore, in respect of the tax payable on the said interest income, the assessee also cannot be taken to be liable to pay interest. Otherwise, it will mean that there are two persons under the Act to pay interest on tax on the same income. The legislature would not have contemplated such a situation where in respect of the tax on interest income, two persons are liable to pay interest for the delayed payment of tax. We are, therefore, inclined to hold that whatever there is a possibility of a deduction of tax at source, the person who had failed to deduct tax at source is liable to pay interest and not the assessee, as otherwise, there will be charging of interest twice on the payment of tax in relation to the same income. Such an interpretation should normally be avoided. In this case, therefore, the Tribunal appears to be right in holding that in terms of s. 215 interest could not be levied on the assessee on the tax which is deductible at source. We answer the said questions referred to us in the affirmative and against the Revenue. The Revenue will pay the costs of the assessee." 6. 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 ITA Nos. 5217& 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. 7. 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." 8. 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 ITA Nos. 5217& 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. 9. 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 ITA Nos. 5217& 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 for statistical purpose. 12. Ground no. 7 is general in nature, and thus not required to adjudicate upon. 13. Thus, the appeal filed by the Revenue is allowed partly for statistical purpose. C.O. No. 463/Del/2012 for AY: 2009-10 14. At the outset, the learned Authorized Representative withdrew the cross objections filed by the assessee. Accordingly, the same is dismissed as withdrawn. 15. In the result, both the appeal and the cross objection filed by the assessee are dismissed and the appeal filed by the Revenue is allowed partly for statistical purposes. The decision is pronounced in the open court on 20th January, 2016.

Sd/- Sd/- (H.S. SUDHU) (O.P. KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 20th January, 2016. RK/- Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi