TMI Blog2009 (9) TMI 565X X X X Extracts X X X X X X X X Extracts X X X X ..... our of the assessees and against the Revenue - 89 and 130 of 2007 and 2,5,6 and 7 of 2009 - - - Dated:- 11-9-2009 - COMMISSIONER OF INCOME-TAX Versus ENRON EXPAT SERVICES INC. ENRON EXPAT SERVICES INC. Versus ASSISTANT COMMISSIONER OF INCOME-TAX (OSD) ENRON GLOBAL EXPLORATION AND PRODUCTION INC. Versus ASSISTANT COMMISSIONER OF INCOME-TAX (OSD) ENRON OIL AND GAS EXPAT SERVICES INC. Versus ASSISTANT COMMISSIONER OF INCOME-TAX (OSD) COMMISSIONER OF INCOME-TAX Versus ENRON OIL AND GAS INTERNATIONAL INC. B.C. KANDPAL ACTG. C.J. and B.S. VERMA J. Ajay Vohra and S.K. Posti for the appellant. Arvind Vashish for the respondent. JUDGMENT B. S. Verma J.- These appeals, preferred under section 260A of the Income-tax Act, 1961, are directed against the judgment and orders dated February 9, 2007 in I. T. A. No. 4756/Del/2005 and March 9, 2007 in I. T. A. No. 2141/Del /2005 and the consolidated judgment and order dated September 5, 2008 in I. T. A. Nos. 394/D/2005, 380/D/2005, 381/D/2005, 382/D/2005 respectively passed, by the Income-tax Appellate Tribunal, New Delhi. 2. Appeals Nos. 89 of 2007 and 130 of 2007, for the respective assessment year, ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of India and payments received through debit notes are only reimbursement of actual expenses. It was also claimed that the income of the assessee-company is not taxable in India in view of article 7(3) of the Double Taxation Avoidance Agreement (DTAA) with the USA. 6. In I. T. A. No. 89 of 2007 and I. T. A. No. 130 of 2007 filed by the Revenue/appellants, learned counsel for the appellants raised the following questions of law : "(1) Whether the Income-tax Appellate Tribunal was legally correct in upholding the decision of the Commissioner of Income-tax (Appeals) which was perverse on facts and circumstances of the case in not appreciating the facts that production sharing contract (PSC) was applicable only to the members of the consortium/joint venture and the assessee, Enron Expat Services Inc. (EESI) was not a member of consortium/joint venture and it was only an affiliate of (Enron Oil and Gas India Ltd. (EOGIL). Hence, the terms and condition of the production sharing contract were not applicable to the EESI at all ? (2) Whether the Income-tax Appellate Tribunal was legally correct in upholding the decision of the Commissioner of Income-tax (Appeals) that principle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : (1) CIT v. Halliburton Offshore Services Inc. [2008] 300 ITR 265 (Uttarakhand) ; and (2) Sedco Forex International Inc. v. CIT [2008] 299 ITR 238 (Uttarakhand). 10. We have gone through the said case law. The said case law does not deal with the present controversy. These are applicable where admittedly the assessees were residents of a country with which India does not have Double Taxation Avoidance Agreement and the services were not provided to the production sharing contract which was approved in terms of section 42 of the Act. As regards the applicability of section 44BB of the Act, it would have application only in a situation where the foreign company is liable to be assessed under the provisions of the Act. Where the foreign company opts to be assessed in terms of the provisions of the relevant Double Taxation Avoidance Agreement, the provisions of section do not come into play. 11. Sri Ajay Vohra and Sri S. K. Posti, learned counsel appearing on behalf of the assessee, contended that the assessee-company has rendered the services cost-to-cost basis to EOGIL in terms of the production sharing contract (PSC) entered into by EOGIL with Indian concerns duly approved ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture incurred by the assessee, whether before or after such commercial production, in respect of drilling or exploration activities or services or in respect of physical assets used in that connection, except assets on which allowance for depreciation is admissible under section 32 ; (c) to the depletion of mineral oil in the mining area in respect of the assessment year relevant to the previous year in which commercial production is begun and for such succeeding year or years as may be specified in the agreement ; and such allowances shall be computed and made in the manner specified in the agreement, the other provisions of this Act being deemed for this purpose to have been modified to the extent necessary to give effect to the terms of the agreement." 13. The taxability of the share of income of each member of the production sharing contract has to be determined in terms of section 42 which over-rides other provisions of the Act. In other words, section 42 is a separate code in itself and the taxability of each member of the production sharing contract has, therefore, to be determined in terms of the provisions of the production sharing contract read with the said section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... most favourable prices charged by the affiliate to third parties for comparable services under similar terms and conditions elsewhere and will be fair and reasonable in the light of prevailing international petroleum industry practice and experience." 17. The term "affiliate" is defined in article 1.2 of the production sharing contract as follows : "1.2. 'affiliate' means a company that directly or indirectly controls or is controlled by a party to this contract or a company which directly or indirectly controls or is, controlled by a company, which controls a party to this contract, it being understood that 'control', means ownership by one company of more than fifty per cent. (50 per cent.) of the voting securities of the other company, or the power to direct, administer and dictate policies of the other company even where the voting securities held by such company exercising such effective control in that other company, is less than fifty per cent. (50 per cent.) and the term 'controlled' shall have a corresponding meaning." 18. It is an admitted and undisputed position that the aforesaid assessees/ entities are affiliates of EOGIL. In terms of the provisions of the PSC, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other State but only so much of them as is attributable to (a) that permanent establishment ; (b) sales in the other State of goods or merchandise of the same or similar kind as those sold through that permanent establishment ; or (c) other business activities carried on in the other State of the same or similar kind as those effected through that permanent establishment. (2) Subject to the provisions of paragraph (3), where an enterprise of a Contracting State carries on business in the other Contracting State through a permanent establishment situated therein, there shall in each Contracting State be attributed to that permanent establishment the profits ; which it might be expected to make if it were a distinct and independent enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly at arm's length with the enterprise of which it is a permanent establishment and other enterprises controlling/controlled by or subject to the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that business profits arising to a US enterprise are liable to tax in India only if the US enterprise has a permanent establishment ("PE") in India. Paragraph (3) of article 7 provides that in determining the profits attributable to the permanent establishment deduction shall be allowed for expenses incurred in relation to earning of such income. The findings recorded by the Tribunal in this regard in I. T. A. Nos. 4756 and 4757/Del/2005 dated February 9, 2007 require no interference. 23. The submission of the learned counsel for the Revenue that the matter is covered against the assessees by the decisions reported in CIT v. Halli-burton Offshore Services Inc. [2008] 300 ITR 265 (Uttarakhand) and Sedco Forex International Inc. v. CIT [2008] 299 ITR 238 (Uttarakhand) is totally incorrect because of the fact, as held above, the present controversy did not arise for determination by this court in these appeals. 24. The principle of res judicata shall not operate on legal issues. The Tribunal has held that no objection seems to have been taken by the income-tax authorities on the basis of estoppel. The Tribunal also referred to the judgment passed by the Delhi High Court in CIT v ..... X X X X Extracts X X X X X X X X Extracts X X X X
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