PACIFIC CREST PTE LTD,NOIDA vs. DCIT CIRCLE-2(2)(2) INTERNATIONAL TAXATION, NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH: ‘D’ NEW DELHI

BEFORE SHRI G.S. PANNU, HON’BLE PRESIDENT AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER

ITA No.661/Del/2021 Assessment Year: 2012-13

M/s. Pacific Crest Pte. Ltd., Vs. DCIT, C/o- Nagia & Co. LLP, Circle-2(2)(2), A-109, Sec.-136, International Taxation, Noida. New Delhi PAN :AAFCP6343R (Appellant) (Respondent)

Appellant by Sh. Amit Arora, CA Sh. Vishal Misra, CA Department by Ms. Rashmita Jha, CIT(DR) Date of hearing 02.01.2023 Date of pronouncement 31.03.2023

ORDER PER SAKTIJIT DEY, JM: Captioned appeal by the assessee is against the final

assessment order dated 10.04.2021 passed under section

147/143(3) read with section 144C of the Income-tax Act, 1961

(in short ‘the Act’) pertaining to assessment year 2012-13, in

pursuance to the directions of learned Dispute Resolution Panel

(DRP).

ITA No.661/Del/2021 AY: 2012-13

adjudication.

Rs.23,85,90,034/- as royalty under section 9(1)(vi) read with

section 115A of the Act.

entity incorporated under the laws of Singapore and is a tax

resident of Singapore. From System Generated Information (AIR),

the Assessing Officer noticed that though, in the year under

consideration, the assessee had received certain payment from

Larson & Toubro Ltd. and Polarcus DMCC, on which tax under

section 195 of the Act has been withheld, however, the assessee

has not filed any return of income. Being of the view that income

chargeable to tax has escaped assessment, the Assessing Officer

reopened the assessment under section 147 of the Act by issuing

a notice under section 148 of the Act. As observed by the

Assessing Officer, even in response to the notice issued under

section 148 of the Act, the assessee did not file any return of

income. It is observed by the Assessing Officer, the assessee did

not respond to the notices issued under sections 142(1) and

133(6) of the Act. Ultimately, the Assessing Officer issued a show- 2 | P a g e

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cause notice to the assessee in terms of section 144(1)(b) of the

Act calling upon the assessee to explain why the assessment

should not be completed to the best of judgment under section

144 of the Act. In absence of any reply to the said show-cause

notice, the Assessing Officer proceeded to complete the

assessment by treating the receipts of Rs.23,85,90,034/- as

royalty/Fee for Technical Services (FTS) and brought to tax by

applying the provisions of section 115A of the Act. Accordingly, he

proposed the draft assessment order.

objections before learned DRP. Before learned DRP, the assessee

submitted that it had given on hire vessels (ships) to Larson &

Toubro Ltd. and Polarcus DMCC for use or to be used in

prospecting for, or exploration or production of minerals oils by

the concerned parties. It was submitted, since, the receipts from

giving on hire the vessels are in connection with the activities of

prospecting for, or extraction or production of mineral oils, they

will be taxable under section 44BB of the Act on presumptive

basis. After considering the submissions of the assessee and

evidences furnished, learned DRP called for a report of the

Assessing Officer. After examining the report of the Assessing 3 | P a g e

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Officer and other materials on record, including submissions of

the assessee, learned DRP observed that as per Explanation 2(iva)

to section 9(1)(vi) of the Act, the use or right to use any

industrial, commercial or scientific equipment comes within the

definition of royalty. Thus, learned DRP held that as per the

aforesaid provision, the amount received by the assessee is in the

nature of royalty. Proceeding further, learned DRP held, though,

section 44BB is a special provision in the statute to tax income

from the business of prospecting for, or exploration and

production of mineral oils, however, it will be applicable only in

case the non-resident is having a Permanent Establishment (PE)

in India. Learned DRP observed, since, the assessee did not have

any PE in India, section 44BB would not be applicable. For the

very same reason, learned DRP held, even, section 44DA would

not apply. Thus, ultimately, learned DRP held that the receipts

are in the nature of royalty in terms of Explanation 2(iva) to

section 9(1)(vi) of the Act, hence, taxable in terms of section 115A

of the Act. In terms with the directions of learned DRP, the

Assessing Officer completed the assessment.

reiterated the stand taken before learned DRP. Drawing our 4 | P a g e

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attention to the charter hire agreement with Polarcus DMCC and

Larson & Toubro Ltd., learned counsel submitted, the vessels

were given on hire to the concerned parties for seismic support

duties and transportation of coated pipes respectively in

connection with prospective for, or exploration or production of

mineral oils. Thus, he submitted, the receipts are squarely

covered under section 44BB of the Act. In support of such

contention, learned counsel relied upon the following decisions:

the observations of learned DRP.

decisions relied upon and perused the materials on record. The

short issue arising for consideration is, whether the disputed

receipts are taxable as business profits of the assessee under

section 44BB of the Act or are in the nature of royalty as defined

in Explanation 2 (iva) to section 9(1)(vi) of the Act. It is evident,

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while framing the draft assessment order, the Assessing Officer,

though, has brought the receipts to tax under section 115A of the

Act, however, he has not specified the exact nature of receipts,

whether royalty or FTS. However, learned DRP has characterized

the receipts to be in the nature of royalty in terms of Explanation

2(iva) to section 9(1)(vi) of the Act.

examine the nature and character of receipts and their taxability

under the Act. On perusal of the charter hire agreement between

the assessee and Polarcus DMCC kept in the paper-book, it is

observed that the vessel was given on hire for seismic support

duties in the east coast of India and the vessel is to be operated

by assessee’s personnel/employees. It is further observed, the

requirement of the vessel is for drilling, testing, completing and

abandoning single bore hole, including any site, track thereof

which is defined as well. Similarly, assessee has entered into

charter hire agreement with Larson & Toubro Ltd. for a vessel to

transport coated pipes in west coast India. As per the terms of the

agreement, the vessel was required for offshore use either in well,

which is defined to mean drill, test, complete and abandon a

single bore hole, including in site track thereof or offshore site, 6 | P a g e

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which is defined as the area within three nautical miles of an

offshore unit from or to which the owners (assessee) are requested

to take their vessels by the charterer. Though, learned DRP has

alleged that the assessee has not produced any supporting

evidence which could indicate that assessee’s vessels were hired

by the concerned parties for use or to be used in prospecting for,

or exploration or extraction or production of mineral oils,

however, the agreements clearly vindicate assessee’s stand that

the vessels were given on hire for use or to be used in prospecting

for, or extraction or production of mineral oils. At this stage, it is

necessary to look to the provision contained under section 44BB

of the Act, which is reproduced below:

“Insertion of new section 44BB 11. In the Income-tax Act, after section 44B, the following section shall be inserted and shall be deemed to have been inserted with effect from the 1st day of April 1983, namely: — Special provision for computing, profits and gains in connection with the business of exploration, etc., of mineral oils. '44BB (1) Notwithstanding .anything to the contrary contained in sections 28 to 41 and sections 43 and 43A, in the case of an assessee 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-section (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 secti6h 42 or section 44D or section 115A or section 293A apply for the purposes of computing profits or gains or any other income referred to in those sections.

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(2) The amounts referred to in sub-section (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 He received in India by or on behalf of the assessee on account of the provision of services facilities 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. Expanation,—For the purposes of this section— (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.'.

a special provision for computing profits and gains in connection

with the business of exploration, extraction, production of mineral

oils. The provision starts with a non-obstante clause overriding

anything contrary contained under section 28 to 41 and 43 and

43A of the Act. Further, the provision applies to a non-resident

engaged in the business of providing services or facilities in

connection with prospecting for, or extraction or production of

mineral oils. It also applies to a non-resident supplying plant and

machinery on hire for use or to be used in prospecting for, or

extraction or production of mineral oils. The provision provides, a

non-resident having income from the aforesaid activities would be

subject to tax at 10% on gross basis. Explanation under section 8 | P a g e

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44BB defines plant to mean ships, aircrafts, vehicles, drilling

units, scientific apparatus and equipments used for the purposes

of business mentioned under section 44BB(1) of the Act. Proviso

to section 44BB(1) restricts the applicability of the provisions

where the provisions of section 42, section 44D, section 44DA or

section 115A or section 293A are applicable for the purposes of

computing profits or gains. It is evident, learned DRP brought to

tax the receipts under section 115A of the Act primarily for two

reasons; firstly, the receipts are in the nature of royalty in terms

of Explanation 2(iva) to section 9(1)(vi) and, secondly, the

assessee has no PE in India.

no doubt, the expression ‘royalty’ has been defined only under

section 9(1)(vi) of the Act. Even, section 115A read with

Explanation refers to the definition of royalty as defined in

Explanation 2 to section 9(1)(vi) of the Act. As stated earlier,

Explanation 2 to section 9(1)(vi) defines the term royalty. In the

facts of the present case, undisputedly, learned DRP has treated

the receipts as royalty in terms of Explanation 2(iva), which reads

as under:

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“Explanation 2.—For the purposes of this clause, "royalty" means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head "Capital gains") for— (i) ………………. (ii) ……………… (iii) ……………….. (iv) ……………… (iva) the use or right to use any industrial, commercial or scientific equipment but not including the amounts referred to in section 44BB;” 12. As could be seen from the aforesaid definition of royalty, it is

in two limbs. Though, in the first limb, the use or right to use any

industrial, commercial or scientific equipment is treated as

royalty, however, the second limb carves out an exception by

providing that the amounts referred to in section 44BB of the Act

cannot be treated as royalty. In our considered opinion, while

treated the receipts as royalty, learned DRP has overlooked the

exception provided in the second limb of Explanation 2(iva) to

section 9(1)(vi) of the Act. Thus, once the receipts are covered

under section 44BB of the Act, automatically, they are excluded

from the definition of royalty as provided under Explanation 2(via)

to section 9(1)(vi) of the Act. Since, in the facts of the present

case, the receipts in dispute are for giving on hire vessels for use

or to be used in prospecting for, or exploration or production of

mineral oils, which is an activity covered under section 44BB of

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the Act, it cannot be treated as royalty under Explanation 2(iva) to

section 9(1)(vi) of the Act. At this stage, it is necessary to examine

whether the activities of seismic duties and transport of coated

pipes would be covered under the provisions of section 44BB. In

our view, the language employed in section 44BB is wide enough

to encompass the aforesaid activities. In fact, the decisions relied

upon by learned counsel for the assessee clearly support the

aforesaid view. In case of Valentine Maritime (Gulf) LLC Vs. ADIT,

the Coordinate Bench has held that receipt from giving on hire

tugs and barges to be used in prospecting for, or extraction or

production of mineral oils would come within section 44BB of the

Act. The same view was expressed by Hon’ble Bombay High Court

in case of Larson & Toubro Ltd. (supra). In case of Western Geco

International Ltd. (supra), the Hon’ble Third Member has

expressed the view that the seismic data services and mining

projects are inextricably linked to activities covered under section

44BB of the Act. Thus, keeping in view the ratio laid down in

these decisions, we hold that the receipts are covered under

section 44BB of the Act. The second reasoning of learned DRP is

since the assessee did not have any PE in India, section 44BB

would not apply. On a careful reading of section 44BB of the Act, 11 | P a g e

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we do not find any such requirement as has been pointed out by

learned DRP. Section 44BB applies to a non-resident entity

carrying on business in connection with prospecting for, or

extraction or production of mineral oils. The provision, unlike

section 44DA, does not put any mandatory condition of existence

of PE for the applicability of the provision.

view expressed by the Assessing Officer and learned DRP.

Accordingly, we direct the Assessing Officer to tax the receipts

under section 44BB of the Act. This ground is allowed.

counting of the revenue.

materials on record. It is the case of the assessee that as per

Form 26AS for financial year 2011-12 relevant to the assessment

year under dispute, the actual receipts of the assessee are to the

tune of Rs.11,92,95,017/-. Whereas, the Assessing Officer has

taken double the amount for the purpose of taxation. It is

observed, after considering the submission of the assessee,

learned DRP has observed that on perusal of Form 26AS, prima

facie, it appears to be a case of double counting of revenue. 12 | P a g e

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However, the assessee was directed to provide complete copy of

bank statements and summary reconciliation sheets submitted

before them to the Assessing Officer for enabling the Assessing

Officer to undertake the reconciliation exercise. However, in the

final assessment order, the Assessing Officer has repeated the

addition of Rs.23,85,90,034/- with the following observations:

“However, the assessee has failed to provide any documents in this regard to reconcile the revenue till date. The assessee has failed to provide the bank statements and the summary reconciliation sheet as directed by the DRP before this office till date. In absence of any documents, it is not possible for this office to reconcile the revenue earned by the assessee. In view of the above, the revenue is taken at Rs.23,85,90,034/-“ 16. As could be seen from the aforesaid observations of the

Assessing Officer, he has alleged that the assessee failed to

provide the bank statements and summary reconciliation sheets

in terms with the direction of learned DRP. Considering the fact

that the assessee itself has furnished copy of bank statements

and summary reconciliation sheets before learned DRP, we do not

see any reason, why they could not be furnished before the

Assessing Officer.

documents before the Assessing Officer, in which case, the

Assessing Officer shall examine them and rectify the mistake of

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double addition, in case it is there. However, the assessee must

be provided an opportunity of being heard before deciding the

issue.

granting credit of TDS amounting to Rs.57,12,356/- by the

Assessing Officer .

factually verify assessee’s claim and allow credit of TDS in

accordance with law.

and 234B. This ground, being consequential in nature, does not

required adjudication.

Order pronounced in the open court on 31st March, 2023

Sd/- Sd/- (G.S. PANNU) (SAKTIJIT DEY) PRESIDENT JUDICIAL MEMBER Dated: 31st March, 2023. RK/- Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi

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