TMI Blog2018 (3) TMI 1599X X X X Extracts X X X X X X X X Extracts X X X X ..... nts which further emphasises their independent role of work with ONGC though work has to be performed jointly. Further it is also observed that no member had any role to play in respect of the scope of work allocated to the other member and neither of the consortium members shared any costs nor risk and had managed their own deliverables. Following the decision of AG, LINDE ENGINEERING DIVISION AND ANOTHER VERSUS DEPUTY DIRECTOR OF INCOME TAX [2014 (4) TMI 975 - DELHI HIGH COURT] - we hold that Consortium Agreement dated 04/05/03 between Slumberger Asia Services Ltd and Transocean Offshore Deepwater Drilling Pvt. Ltd., do not constitute an AOP. As on date, regarding prospecting for or extraction or production of mineral oil is not to be treated as technical services for the purposes of Explanation 2 to section 9 (1) (vii) and would rather be covered by section 44 BB of the Act. Transocean Offshore Deepwater Drilling Inc. being consortium member has rightly offered to tax the receipts u/s 44BB in the return of income. Disallowing the reimbursement of expenses - Held that:- These are payments related to the services rendered by assessee, and forms part of the receipts. Respe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issuing any directions to AO u/s 144C of the Income Tax Act, 1961 (the Act). 1.3. In view of grounds at 1.1 and 1.2 above, the appellant prays that impugned order passed u/s 143(3) r.w.s. 144C(13) of the Act be quashed since it is bad in law and void ab initio to the extent of assessment made in the hands of appellant on protective basis. Ground 2. 2.1. On the facts, in law and in circumstances of the present case, the Ld. Assessing Officer erred in holding that the consortium of appellant and Schlumberger Asia Services Ltd. (SASL) constitutes an Association of Person (AOP) under the provisions of the Act. 2.2. On the facts, in law and in circumstances of the present case, the Ld. Assessing Officer erred in holding that the consortium of appellant and Schlumberger Asia Services Ltd. (SASL) constitutes resident AOP within the meaning of section 6(4) of the Act. 2.3. On the facts, in law and in circumstances of the present case, the Ld. Assessing Officer erred in considering the gross revenue as per return of income at ₹ 2,710,962,770 as against ₹ 2,689,794,956/- declared by the appellant in the return of income Ground 3 3.1. On the facts, in law and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer erred in levying interest u/s 234D of the Act. ITA No.3044/Del/2013(Revenue s Appeal) 1. Whether on the facts and circumstances of the case the CIT(A) has erred in ignoring the specific finding of the AO that there was a consortium contract with Transocean Offshore Deepwater Drilling (TODDI) and Schlumberger Asia Services Ltd (SASL) as consortium members and ONGC as the second party, formed an AOP. 2. Whether on the facts and circumstances of the case the CIT(A) has erred in ignoring the facts that the income of the consortium was earned and liable to tax in the capacity of AOP. 3. Whether on the facts and circumstances of the case the CIT (A) has erred in holding that the assessee was not liable to be assessed as AOP in respect of its contractual receipts from ONGC for provision of Deepwater Drilling Rigs along with integrated services. 4. Whether on the facts and circumstances of the case the CIT(A) has erred in reversing the finding of the AO that the assessee was an AOP which was formed with the object of associating for the common purpose of driving profits and gains from the execution of contract awarded by ONGC on the basis of the Consortium agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot been accepted by the Department. 13. Whether on the facts and circumstances of the case the CIT (A) has erred in reversing the finding of the AO that the assessee was an AOP. 14. Whether on the facts and circumstances of the case the CIT (A) has erred in holding that interest u/s 234-B was not chargeable in this case by relying upon the decision of Hon'ble Uttrakhand High court in the 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. 15. 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. ITA No. 4655/Del/2013 (Assessment Year 2007-08) with CO no.60/Del/2014 CO No. 66/Del/2014 ITA No. 4655/Del/2013 1. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in ignoring the specific finding of the A.O that the consortium contract of Transocean Offshore Deepwater Drilling (TODDI) and Schlumberger Asia Services Ltd. (SASL) as consortium members, and ONGC as the second party, formed an Association of P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for execution of the project on their own and bid was submitted by them as an AOP for execution of a single contract based on Consortium Agreement dated 28.5.2003 and awarded on that basis and any subsequent agreement between the partners could not override the said MOU on which basis the contract had been awarded. 9.Whether on the facts and circumstances of the case, the Ld. CIT(A) has erred in reserving the finding of the AO that assessee was an AOP which was formed with the object of associating for the common purpose of deriving profits and gains from the execution of contract awarded by ONGC on the basis of Consortium Agreement dated 28/05/2003 for common purpose, common action and joint and several responsibility for successful completion of the contract. 10.Whether on the facts and circumstances of the case, the Ld. CIT(A) has erred in holding that the ratio of the ruling of AAR in the case of Linde AG (AAR No. 962 of2010) is not applicable to this case when the facts of the case are similar to those in the case of Linde AG. 11. The appellant prays for leave to add, amend, modify or alter any grounds of appeal at the time or before the hearing of the appeal. CO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... formed with the object of associating for the common purpose of deriving profits and gains from the execution of contract awarded by ONGC on the basis of Consortium Agreement dated 28/05/2003 between TODDI and SASL for common purpose, common action and joint and several responsibility for successful completion of the contract. 5.Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in ignoring that termination in respect of individual member as per clause 2.7 of the Consortium Agreement would be termination of contract. 6. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in holding that there was no sharing of profit and loss, which established the most vital ingredient for existence of AOP as laid down by Apex Court in 39 ITR 546(SC). 7.Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in holding that there was no AOP when bid was submitted as on AOP, contract was awarded to AOP (refer para 4.3 of consortium contract) and risks and costs were also cast on AOP and a Consortium Leader (refer Article 5) to ensure smooth execution of the project. 8.Whether on the facts and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g and equipment on hire in India. Transocean Offshore Deepwater Drilling Pvt.Ltd along with Slumberger Asia services Ltd., formed a consortium for the purposes of submitting tender to ONGC in connection with the provisions of deepwater drilling rig along with integrated services. The consortium eventually entered into a contract with ONGC under which Transocean Offshore Deepwater Drilling Pvt.Ltd was to provide oil drilling rig and some integrated services and Slumberger Asia services Ltd., was to provide certain mud engineering services. Transocean Offshore Deepwater Drilling Pvt.Ltd for the assessment years under consideration filed return of income offering income from contract with ONGC to tax under section 44 BB of the Act. 2.1. The case was selected for scrutiny and a draft order under section 144C was passed in which certain variations were proposed in the return of income of Transocean Offshore Deepwater Drilling Pvt.Ltd. which are as under, being the issues for adjudication in appeals filed by Transocean Offshore Deepwater Drilling Pvt.Ltd.; Ld. AO proposed to hold Transocean Offshore Deepwater Drilling Pvt.Ltd and Slumbers Asia services Ltd. as an Association of per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into Consortium Agreement dated 04/05/03, defining their rights and obligations inter-se, for efficient coordination of work under contract with ONGC. Ld.Counsel referred to agreement placed in paper book at pages 1-23. 2.7. Let us analyse the relevant Clauses of the consortium agreement dated 04/05/03. Article 1.1 other definitions and interpretation of terms in the agreement where (c) defines the term consortium as; (c) Consortium shall mean the temporary collaboration of Transocean and Schlumberger for the limited purpose of preparing and submitting a tender to ONGC and performing the contract in coordinated manner in accordance with the Transocean s and Schlumberger s scope of work, all in accordance with its terms and those of this agreement Thereafter Article 2.2 is a relationship between the members which reads as follows: 2.1. The Members hereby associate themselves for the sole and limited purpose of : (a) Preparing and submitting the Tender; (b) performing the contract in a coordinated manner in accordance with each Member s scope of work; and (c) defining their rights and obligations in connection with the performance of the contract as menti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ltaneously terminated, provided that the Terminated Member shall be bound by this Agreement until such time as the Terminated Member has fulfilled all of its obligations hereunder which were outstanding at the time of termination of the Contract by ONGC as aforesaid. Article 3.0 : Scope of Work Clause 3.1: Each Member s scope of work as set out in Appendix A (scope of work) shall be performed by such Member in accordance with the terms and conditions of this MOU and the Contract. 3.2. Each Member shall be responsible for obtaining and maintaining all permits, licences and other authorisations required for the performance of its particular scope of work. Article 6 : Payments and Financing 6.1. All payments due to ONGC shall be made to respective account of each of the Members and that resolutions of disputes over invoices shall be the responsibility of the relevant Members only and not of the Consortium Leader. 6.2. The Consortium Members shall submit invoices to ONGC in United States Dollars in each month following the month in which the Members perform the work in accordance with the contract. Schlumberger shall provide its invoices to ONGC simultaneously with Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing at any time or from any cause whatsoever as a result of invocation of the above clauses by ONGC. 9.2 Claims of ONGC or Third Parties It is a requirement by ONGC that both Members are jointly and severally responsible for discharging all the obligations under the Contract and the Members hereby acknowledge such a requirement. Notwithstanding the aforesaid or anything contained in the Agreement or the Contract to the contrary but except as otherwise provided Ii clause 9.1 above, each Member shall be indemnified, held harmless and defended by the other Member against any claim raised by ONGC or any third party against it in connection with the performance of the Contract and resulting from an action or inaction reasonably attributable to the other Member (the Responsible Member ), provided that no admission of guilt or culpability shall be made or prejudicial action taken without the prior written consent of the responsible Member. Any amount resulting from a Judgment, award, penalty or otherwise that is assessed against a Member as a result of an action or inaction that may be reasonably attributed to the Responsible Member in advance of any due date. Nothing contained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, loss of revenue, loss of production or loss of business interruption, it being understood however that in no event shall any claims enforced by ONGC or a third party against a Member be considered as a special, Incidental, indirect, or consequential damage under this Agreement. All disputes, if any, in this regard shall be raised and settled by the concerned Member directly with ONGC. 9.6 Mitigation of Damages Each Member will be under the obligation to mitigate its damages In the event of the other Member's default under this Agreement or the Contract. 9.7 Responsibilities of the Members for Performance Transocean in its role as consortium Leader will endeavour to ensure that the Project is performed with due care in a proper and professional manner. However, Transocean does not warrant the accuracy, correctness or completeness of any services performed within the Project by other Members, and all warranties or guarantees, whether express or implied, in relation to such services are expressly excluded. Each Member assumes full responsibility for all services provided by it to ONGC under the Contract. 9.8 Responsibility Matrix Each Party (Transocean Member ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in the form of a fiduciary transfer of ownership of the said equipment, temporary works, materials and other things to and in favor of the Other Member or such other form of preferred lien as the other Member in their discretion may determine. (c) The Insolvent Member shall be fully responsible for and shall remain liable for all additional costs incurred in the completion of its scope of work. (d) Any such event or action as mentioned in this Article 11.2 shall not diminish or affect any liability of the Insolvent Member pursuant to Articles 7.0 or 9.0. Article 10- Performance Bond/Bank Guarantee 10.1. If ONGC requires Trasnocean to provide a performance bond or bank guarantee to cover performance of more services than those for which Transocean is responsible for providing under the Contract, those Members whose services are covered by such bond or guarantee shall pay Transocean in advance a share of the price paid by Transocean for the bond or guarantee in the proportion which the estimated value of services to be provided by that Member bears to the estimated total value of the services the performance of which is covered by such performance bond or bank guarantee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecognises separate invoice presentation by each member of the consortium to ONGC for their particular scope of work. 2.9. Ld. Counsel vehemently argued that Consortium Agreement between Slumberger Asia Services Ltd., and Transocean Offshore Deepwater Drilling Pvt.Ltd. would not constitute an AOP as it does not fulfill the necessary conditions for being an AOP. 3. On the contrary Ld. CIT DR submitted that there are ramifying modifications which leads to the conclusion that MoU dated 28/05/03 contains clauses which constitute Slumberger Asia Services Ltd., and Transocean Offshore Deepwater Drilling Pvt.Ltd. as AOP. He tabulated certain differences in order to substantiate his argument of Slumberger Asia Services Ltd., and Transocean Offshore Deepwater Drilling Pvt.Ltd. being an AOP which are as under: Sl.No. Attributes MOU 4/5/03 MOU 28/5/03 ONGC Contract a.1 Clear demarcation/segregation of work Yes (App-B) Yes (App-A) Yes (Ex-M) a.2. Clear demarcation/segregation of costs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld.Counsel submitted that there is a clear scope of work which is demarcated between the members of Consortium, for which separate remuneration has been received from ONGC. He submitted that Transocean Offshore Deepwater Drilling Pvt.Ltd. has been considered to be the controller of the consortium only for administrative convenience with ONGC. 4. We have perused the submissions advanced by both the parties in the light of the records placed before us. We refer to Circular No. 7/2016 dated 07/03/16 issued by CBDT, wherein, clarification regarding taxability of consortium members has been provided, which reads as under: A consortium of contractors is often formed to implement large infrastructure projects, particularly in Engineering, Procurement and Construction ('EPC') contracts and Turnkey Projects. The tax authorities in many cases have taken a position that such a consortium constitutes an Association of Persons ('AOP') i.e. a separate entity for charging tax. The claim of taxpayers, on the other hand, is contrary to this view. This has led to tax disputes particularly in those cases where each member of the consortium, although jointly and severally li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he sake of application of bid with ONGC. In our considered opinion in case of any differences between the consortium members the agreement dated 04/05/03 are enforceable independently. 4.2. Further from the agreement dated 06/11/03 entered into by Consortium with ONGC makes it clear that Consortium members being Slumberger Asia Services Ltd., and Transocean Offshore Deepwater Drilling Pvt.Ltd. had distinct and separate scope of work by virtue of their technical expertise and their respective spheres of work. Slumberger Asia Services Ltd was to provide various services like logging while drilling, cementing services, wire line logging services, mud logging services and mud services whereas Transocean Offshore Deepwater Drilling Pvt.Ltd. was to provide drilling unit which is major capital equipment provided on charter hire basis along with personnel to operate the said drilling unit. 4.3. In respect of the payments by ONGC it is further observed that each consortium member raised separate invoices, on which ONGC shall honor both the invoices independently. It is also observed that both the members have agreed to maintain separate books of accounts which further emphasises their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court held as under: 49. The Tribunal has rightly commented that Section 44BB of the Act is a special provision for computing profits and gains in connection with the business of exploration of mineral oils. Its purpose was explained by the Department vide its Circular No. 495 dated September 22, 1987, namely, to simplify the computation of taxable income as number of complications were involved for those engaged in the business of 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 etc. Instead of going into the integrities of such computation as per the normal provisions contained in Sections 28 to 41 and Sections 43 and 43A of the Act, the Legislature has simplified the procedure by providing that tax shall be paid @10% of the 'aggregate of the amounts specified in sub-section (2)' and those amounts are 'deemed to be the profits and gains of such business chargeable to tax...'. It is a matter of record that when income is computed under the head 'profits and gains of business or profession', rate of tax payable on the said inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idered opinion, these are payments related to the services rendered by assessee, and forms part of the receipts. Respectfully following the decision of Hon ble Supreme Court in case of Sedco Forex(supra), we hold that these payments are to be included while computing income u/s.44 BB of the Act. Accordingly this ground raised by assessee stands dismissed. 6. Ground No. 4.1 This ground raised by assessee is in respect of levy of interest u/s.234 B of the Act. 6.1. In our considered opinion, this issue has attained finality by the decision of Hon ble Supreme Court in case of DIT, Intl.Tax.-I vs. G.E.Parts INC., reported in (2016) 73 Taxman.Com 186, wherein Hon ble Court upheld decision of Hon ble Delhi High Court. Hon ble Supreme Court had dismissed the SLP filed by the revenue. 6.2. The observations of Hon ble Delhi High Court upheld by Hon ble Supreme Court are as under: 23. For the above reasons, this Court finds that no interest is leviable on the respondent assessees under Section 234B, even though they filed returns declaring NIL income at the stage of reassessment. The payers were obliged to determine whether the assessees were liable to tax under Section 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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