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Income Tax Appellate Tribunal, DELHI BENCH ‘B ’, NEW DELHI
Before: SHRI N. K. SAINI & SHRI KULDIP SINGH
(Appellant) (Respondent) Department by : Ms. Kesang Y Shirpa, Sr. DR Assessee by : Shri Amit Arora, CA Date of hearing : 30.10.2015 Date of pronouncement : 27.11.2015 ORDER PER KULDIP SINGH, JM:
Since in the aforesaid appeal and cross objection, identical grounds have been raised and even issues involved are identical, with the concurrence of the authorized representatives of the parties to the appeal, the C.O.No71/Del/2013 same are taken up together for decision by way of this common order to avoid repetition of discussion.
2. The appellant ADIT, International Taxation, Dehradun by filing the present appeal in I.T.A.No.748/Del/2013 under I. T. Act, 1961 (hereinafter referred as ‘the Act’), sought to set aside the impugned order dated 08.11.2012 passed by Ld. CIT(A) –II, Dehradun for the Assessment Year 2009-10 on the grounds inter alia that: 1. Whether on the facts and circumstances of the case, the CIT(A) has erred in holding that the provisions of well testing equipments and services was not in the nature of FTS squarely covered under section 9(1)(vii) of the I.T. Act, 1961.
2. Whether the CIT(A) has erred in holding that the income of the assessee was taxable under the provision of section 44BB even though the nature of services rendered by the assessee were technical in nature and has not adjudicated the aspect of eligibility in terms of second limb of the exclusionary proviso i.e. "for a project undertaken by the recipient" as confirmed in Delhi High Court Decision in Rio Tinto.
3. Whether on the facts and circumstances of the case, the CIT(A) has erred in holding that the income of the assessee was taxable under the presumptive provisions of see 44BB and ignoring the fact that taxability U/S 44BB shall not apply in respect of income referred to in section 44DA in view of the clarificatory proviso to see 44BB and see 44DA.
4. Whether on the facts and circumstances of the case, the CIT(A) has erred in interpretation of the legislative intent behind the scheme of taxation envisaged in 9(l)(vii) r.w. 44DA and 44BB and the insertion of 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.
5. Whether on the facts and circumstances of the case, the CIT(A) has erred in ignoring the distinct scheme of taxation of FTS/Royalty
C.O.No71/Del/2013 and disregarding the insertion of proviso in section 44BB/44DA/115A and the rationale behind the introduction of said clarificatory proviso's in the Finance Bill 2010 when relying on the case of M/s CGG VERITAS to hold that the income of the assessee company was covered under the provisions of section 44BB.
6. Whether on the facts and circumstances of the case, the CIT(A) has erred in relying on the case of M/s CGG VERITAS ignoring that the said decision of the ITAT has not been accepted by the department and a MA has been filed, while appeal was not filed purely on account of tax effect consideration.
7. Whether on the facts and circumstances of the case, the CIT(A) has erred in not appreciating the finding given by the AO who had held that the Fee for Technical /service/Royalty received by the assessee which is a 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.
8. Whether on the facts and circumstances of the case, the CIT(A) has ignored the fact the Department has filed a special petition before divisional bench of the Court in the case of BJ Services and 22 others which is still pending.
Whether the CIT(A) has erred in not appreciating that proviso to Section 44BB is not inserted per majorem cautelam' but explains and clarifies the main provision as the term services or facilities used therein are not defined and the two terms used are too general in nature and thus once the payments are characterized as FTS under section 9(1 )(vii), they go outside the purview of Section 44BB and have to be taxed as FTS at applicable FTS rates as prescribed under the Act and/or DTAA.
10. Whether the CIT(A), has erred in not appreciating that since 44DA being the special provision for taxation of income in the nature of royalties and FTS where these are effectively connected with a PE, then if a special provision is made respecting a certain matter that C.O.No71/Del/2013 matter is excluded from the general provision under the rule of "Generallia specialibus non derogant".
11. Whether on the facts and circumstances of the case, the CIT(A) has erred in 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 into 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. CIT.
12. Whether the facts and circumstances of the case the CIT(A) has 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 t he case of Maersk (334 ITR 79) where as the 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.”
3. The appellant M/s. Expro Gulf Ltd.., by filing the cross appeal in C.O. No.71/Del/2013, sought to set aside the impugned order dated 08.11.2012 passed by Ld. CIT(A) II, Dehradun for the Assessment Year 2009-10 on the grounds inter alia that: “1. That the Ld. Commissioner of Income-tax, Appeals-II, Dehradun [CIT(A)) erred in not upholding the claim of the appellant that its nature of operations in India, i.e. the work performed by the appellant in India under the various contracts with its customers, was not fees for technical services and/or royalty as defined in Explanation (2) to section 9(1)(vii) and Explanation (2) to section 9(1) (vi) respectively.
2. Without prejudice to the above, that the Ld. CIT(A) has erred in not upholding that the activities performed by the appellant are in the nature of a building, construction, installation and/or a mining or like project and for this reason, excluded from the ambit of the definition of fees for technical services as defined in Explanation (2) to section 9(1 )(vii).
3. Without prejudice to any of the above, that the Ld. CIT(A) has erred in not holding that the scope of operations of the assessee are squarely covered by the decision of the jurisdictional High Court of Uttarakhand in the case of CIT Vs. ONGC as agent of Scan Drilling Company in ITR No.2 of 2001.
4. That the Ld. CIT(A) has erred in not upholding that the equipment supplied by the appellant on hire is not in the nature of royalty payments in view of clause (iva) of Explanation (2) to section 9(1 )(vi).”
4. Briefly stated, the facts of this case are: during the processing of the return of income filed by the assessee qua the Assessment Year 2009-10 declaring total income of Rs.94,72,390/-, the case was subjected to scrutiny and consequently, notices u/s 143(2) and 142(1) along with questionnaire dated 26.07.2012 were served upon the assessee and in response thereto, Shri R. P. Eashwaran, FCA attended the proceedings from time to time, submitted written replies.
The assessee, being non-resident company incorporated under the laws of Cyprus, received revenue on account of contract dated 13.12.2008 with BG Exploration and Production India Ltd; Cairn Energy India Pvt. Ltd.; Jubilant Oil and Gas Pvt. Ltd. and Halliburton Offshore Inc. The assessee has rendered services for providing well testing equipment and services to aforesaid companies and has offered gross revenue of Rs.9,47,23,889/-, and has computed income by applying deemed profit rate of 10% u/s 44BB of the Act. Out of the aforesaid contract, three contracts namely BG C.O.No71/Del/2013 Exploration and Production India Ltd; Cairn Energy India Pty. Ltd. and Jubilant Oil and Gas Pvt. Ltd. are production sharing contracts and as such falling in first leg contract with company engaged directly in oil exploration.
During the year under assessment the assessee has also executed contract of hire of offshore supply vessel with M/s. Haliburton Offshore Services Inc. which is not a production sharing contract company, thus it is a second leg contract.
From the terms and conditions of contact it is clear that the assessee is providing well testing equipment and services through wire line testing, surface testing etc. using a full slim hole DST string or with a production test incorporation a wire line retrievable down hole shut in tool. Thus, the service provided under all the three contracts relate to well testing by weenie of similar procedures. So, in view of the above procedure, the issue of taxability has been determined to be taxed as FTS and confirmed to be so in the case of Precision Energy Services for Assessment Year 2007-08 and also in the case of assessee for the Assessment Year 2008-09 where the same contracts were performed and part of the revenues from those contracts are continued to be received in the present year under consideration. So, it is clear that the assessee has been rendering technical services and as such, its income is not covered u/s 44BB of the Act and taxable as FTS and this issue has been confirmed by DRP in the aforementioned years.
So, in view of the provisions of Section 144C, the draft assessment order dated 09.12.2011 is finalized for Assessment Year 2009-10 of the assessee. In view of Section 144C(3)(b) of the Act, to which no objection has been filed by the assessee, the assessment is accordingly finalized on the total income of Rs.2, 36,80,970/-.
C.O.No71/Del/2013 9. The assessee carried the matter before Ld. CIT(A) by Assessment Year of filing appeal who has partly allowed the same vide impugned order. Feeling aggrieved, the Revenue has come up before the Tribunal by filing the present appeal. At the same time, assessee has also filed cross appeal by raising the identical issues.
However, at the very outset, Ld. A.R. of the assessee M/s. Expro Gulf Ltd. Ltd. has not pressed the cross appeal and consequently the same has been dismissed as withdrawn without prejudice to the right of appellant assessee in the appeal no. 748/Del/2013 filed by the Revenue.
Ld. D.R. challenging the appeal under consideration contended that Ld. CIT(A) has erred in holding that the income of the assessee was taxable under the provisions of Section 44BB(1)(b) and relied upon the decision of Hon'ble Jurisdictional High Court in the case of Rio Tinto and further relied upon the order passed by A.O.
However, on the other hand, Ld. A.R. reiterated his arguments extended before Ld. CIT(A) and relied upon the order passed by ITAT Delhi Bench ‘B’ in in assessee’s own case for the Assessment Year 2008-09 and further contended that the case of the assessee is fully covered by the aforesaid order passed by the Tribunal.
13. Now, the short question arises for determination in this case is, “as to whether Ld. CIT(A) has erred in computation of income of the assessee by invoking provisions contained in Section 44BB of the Act by setting aside the order passed by the A.O.”. The A.O. in consonance with the order of DRP; passed draft assessment order dated 09.12.2011 in terms of the provisions contained u/s 144C by observing that the assessee is not entitled for concessional benefit u/s 44BB of the Act. Since, no objection has been filed C.O.No71/Del/2013 by the assessee to the draft order and the total income of the assessee was assessed at Rs.2,36,80,970/-.
Undisputedly, the assessee’s own case qua the Assessment Years 2008-09 and 2010-11 has been decided by ITAT Delhi Bench ‘B’, New Delhi vide order dated 12.02.2015. Ld. A.R. vehemently contended that the present case is covered by the order passed by the Tribunal in assessee’s own case in I.T.A.No.5561/Del/2011 and 4650/Del/2014 (supra). For ready reference, the submissions of the Revenue in respect of provisions of Section 44BB and its non applicability to the case in hand are extracted as under: “Rule is that where the main provision is clear, its effect cannot be cut down by the proviso. But where it is not clear, the proviso, which cannot be presumed to be a surplus age, can properly be looked into, to ascertain the meaning and scope of the main provision. In support of the above proposition, reliance is placed on the decision of Hon'ble Supreme Court in the case of Hindustan Ideal Insurance Co. Ltd. Vs LIC of Indi 1963 AIR S.C.1083.
Proviso to Section 44BB is not inserted per majorem cautelam as canvassed by and on behalf of the applicant but it explains and clarifies the main provision as the terms "Services or facilities "used therein are not defined and the two terms used are too general in nature. The proviso thus restricts the applicability of the substantive provision of section 44BB in relation to those persons who are either engaged in the business for prospecting, etc., for mineral oil (Section 42) or foreign companies who received fee for technical services from an Indian concern etc., (44D) or in the cases of non- residents and foreign companies receiving fee for technical services (Section 115A) and persons covered by the notification issued by the central Government (Section 293A).”
Proviso would be rendered useless if we are to hold that Section deals with all sorts of services be it of general nature, as a class in itself as well services of technical, consultancy or managerial nature which form a distinct and separate species of services. This can also be explained by provisions contained at least in three (3) tax
C.O.No71/Del/2013 treaties which India has entered into with Austria, Germany and Japan. Relevant extracts of Paragraph 3 of Article 5 relating to Permanent establishment and Article dealing with royalties and fee for technical services of these tax treaties may be referred to. It may be pertinent to mention that the language used in Paragraph 3 of Article 5 in these tax treaties is same as that used in section 44BB of the Income tax Act, 1961. The existence of PEs is covered in the Article dealing with royalties and Fee for technical services separately and the taxability of PE by virtue of Article 5, Paragraph 3 would be covered separately by Article 7 of these tax treaties.
The phrase "In connection with" used in section 44BB only broadens the scope of the section to cover services which are not of technical nature and enacts a special provision for determination of tax liability of persons engaged in providing such services which would be outside the scope of technical services.
Instruction o. 1862 dated 22-10-1990 dealing with the interpretation of the term "Mining or like project", is issued in an entirely different context as can be seen from the statement of the case referred for the opinion of learned Attorney General and the opinion of Learned AG. From the context of this instruction, it can be seen that the same would not be applicable to the facts of the case of those applicants who are engaged in the carrying out seismic surveys as the instruction would apply only to those who are engaged in the drilling operations. The services provided by such applicants would not come within the exclusionary part of the Explanation (2) to Section 9 (1) (vii) of the Act as no mining or like project is undertaken by such applicants 5. Section 44D has been made inoperative in respect of agreements after the 3151 Day of March 2003 and with this two streams for taxation of persons engaged in providing services of technical nature is evident, one for those having a PE in India (Section 44DA) and the other who do not have a PE [Section 9 (1) (vii) read with section 115A]. 6. Board's Circular No 649 dated 31-3-1993 also clarifies what situation would govern the aspect of taxability of fee for technical services where there is a treaty existent and where there is none.
C.O.No71/Del/2013 In view of the above, the income of the assessee covered U/S 9(l)(vii) of the Income-tax Act, 1961 and therefore, the assessee is not entitled for confessional benefit under section 44BB of the Income-tax Act, 1961.
The issue of taxability of receipts in respect of the above contracts as fees for technical services u/s 9(1)(vii) had come up before the DRP when the AO has determined receipts for A.Y 2008-09 as FTS, the DRP has confirmed the stand taken by the AO and held that income of the assessee is FTS. The contract with HOSI also comprise of performance of same type of activities viz. provision of Well Testing Services and Equipment. Accordingly, following the directions of DRP as old contract from last year are continuing in this year also income of the assessee is held as FTS.”
However, Ld. Counsel for the assessee contended that since the present appeal is on identical facts and issue already raised have been decided by ITAT in 4650/Del/2013 and C.O.29/Del/2013 in assessee’s own case, the present appeal may be treated as covered one.
The contention of Ld. D.R. that the A.O. has returned the specific findings that the assessee has no PE in India during the relevant period, is not tenable in view of the admitted fact that the assessee has PE in India and return of income (ROI) was filed and assessment was passed accordingly. 17. The A.O. on the issue of taxability of proceeds in respect of all the contracts entered into by the assessee for the year under assessment as fee for technical services (FTS) u/s 9(1)(vii) complied with the order passed by DRP who has confirmed the stand taken by A.O. that the income of the assessee is FTS. The contract with M/s. Halliburton Offshore Services Inc. (HOSI) also relates to the performance of sale and its activities viz.
C.O.No71/Del/2013 provision of well testing services and equipments and consequently, the income of the assessee is held as FTS.
Having perused the decision of coordinate bench of ITAT in assessee’s own case in (supra) for the Assessment Year 2008-09 and 2010-11, we are of the considered view that the present case is fully covered as contended by Ld. A.R. for the assessee. For ready reference, operative part of the order passed by the Tribunal in the case (supra) is reproduced as under: “12. The contention of the Revenue that it is to be determined whether the assessee had a PE in India during the relevant period, it is argued that this has to be looked into. This argument in our view has no merit for the reason that, the admitted position is that the assessee has a PE in India. An ROI was filed and assessment was framed on that basis.
The DRP had followed its own order in the case of M/s. Precision Energy Services Ltd. For Assessment Year 2007-08 and held that the income in question is taxable as FTS u/s 9(1)(vi) of the Act. The ITAT, Delhi Bench reversed this order of the DRP in the case of Precisions Energy Services Ltd. of assessment year 2007-08 in and held that under the fact and circumstances of the case, the income is taxable u/s 44BB of the Act. The reason is that the scope of work as per the contracts requires, the assessee to provide a rig based surface well, testing equipment along with operating personnel. Thus the order of the DRP in the case of M/s. Precision Energy Services Ltd. is no more a good law. Hence, we have reversed this impugned order of the DRP.”
Hon'ble High Court of Uttarakhand in of 2015 in assessee’s own case by following the judgement of Hon'ble Supreme Court in Civil Appeal No.731/2007 on identical issue has held that the amount representing work like drilling and exploration of well is covered by Section 44BB of the Act and as such, liable to be reckoned u/s 44BB of the Act.
C.O.No71/Del/2013 20. In view of what has been discussed above and in consonance with the view taken by the Coordinate Bench of ITAT (supra) and by applying the ratio of judgement dated 06th Augusts 2015 delivered by Hon'ble High Court of Uttarakhand in the assessee’s own case (supra) on the identical issue in similar facts and circumstances, the assessment order passed in consonance with the order of DRP for the Assessment Year 2009-10 is not sustainable in the eyes of law. Consequently, finding no illegality and perversity in the impugned order, the present appeal filed by the Revenue in for the Assessment Year 2009-10 is hereby dismissed. Cross Objections No.71/Del/2013 filed by the assessee is also dismissed. Order pronounced in the open court on 27th Nov., 2015. 20.