TMI Blog2014 (10) TMI 735X X X X Extracts X X X X X X X X Extracts X X X X ..... he order of the CIT(A) is upheld - Decided against assessee. Taxability of mobilization/demobilization revenues - Nature of mobilization/demobilization activities – Held that:- Following the decision in SEDCO FOREX INTERNATIONAL INC. (formerly known as Forex Neptune International Inc.) Versus CIT [2007 (9) TMI 196 - UTTARAKHAND HIGH COURT] - Mobilisation is a stage payment, as part of the total consideration for execution of the contract - The assessee would be moving its machinery from one place of work to another place of work - Mobilisation is paid as an advance for such movement and is generally adjusted against running bills - It is not a case where a separate payment is made for a transportation contract - Mobilisation is an incidental activity to the main activity of carrying out the contract in India – Decided against assessee. - ITA No.4906/DEL/ 2012 - - - Dated:- 24-1-2014 - SHRI J. S. REDDY And SHRI A. T. VARKEY, JJ. For The ASSESSEE BY : Shri Nageshwar Rao, Adv. For The REVENUE BY : Shri Sanjeev Sharma, CIT. DR. ORDER PER J. S. REDDY, AM: This is an appeal filed by the Revenue directed against the order of the Assessing Officer passed u/s 143 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring of vessel and technology in contracts with RIL ONGC and undertakes seismic data processing services for ESSAR. The assessee was requested to explain why all the receipts from these contracts amounting to ₹ 684,33,36,220/- should not be taxed as Fee for technical services and claim of section 44BB be disallowed. 2. The assessee carried the matter before the DRP without success. The Assessing Officer in the impugned assessment order has followed the directions of the DRP and held as follows: 3. The directions of the Dispute Resolution Panel u/s 144C(5) of I. T. Act 1961 vide orders dated 27.06.2012 have been received in this office on 05.07.2012. Copy of order dated 27.06.2012 is enclosed as annexure A . The DRP has observed/ directed as under: With regard to objection no.1, the DRP has observed / directed in para 3.1 (iii) of the order as under:- Therefore provisions of section 9(1) (vii) (c) would apply to the income received by the assessee from these three non-resident companies. Here it may be also be pointed out that sec 44DA and sec. 115A only lay down, respectively, the manner of computation of income of various types including fees for technical ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer u/ s 143(3) read with section 144C(13) of the Act, pursuant to those directions are bad in law in as much as failed to appreciate the facts involved and the law thereon, and thus liable to be quashed. Dismissal of claim of the Appellant for taxability of seismic data acquisition and processing services. 2. The Ld. AR has erred on facts and in law in dismissing the claim of the Appellant that the income being consideration amounting to INR 6,780,198,253 received from business of rendering seismic data acquisition and processing services are in connection with prospecting for, extraction or production of mineral oil to customers and should be computed in accordance with the provisions of section 44BB of the Act. Taxability of revenues from seismic data acquisition and processing services as fees for technical services 3. The Ld. Assessing Officer has erred on facts and in law in assessing revenues received by the appellant amounting to INR 6,780,198,253 for provision of seismic data acquisition and processing services as fees for technical services are in connection with the prospecting for and/ or extraction or production of mineral oil subject to tax u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of section 44AB of the Act by furnishing the audited accounts by the specified date and initiating penalty proceedings u/s 271B of the Act. Short grant of credit for taxes deducted as source 10. The Ld. Assessing Officer has erred on facts and in law in granting the credit of taxes deducted at source (TDS) only to the extent of INR 81,334,703 as against credit of TDS amounting to INR 361,969,036 claimed by the appellant in its return of income for the subject AY: thereby granting a short credit of TDS to the extent of INR 280,634,333. 5. Ground no.1to 5 are on issue whether the income of the assessee has to be computed in accordance with the provisions of sec.44BB of the Act or brought to tax u/s 9 (1) (vii). The Assessing Officer applied provisions of section 44AB and section 115A (1) (b). Admittedly this legal issue is covered in favour of the assessee by the judgment of Delhi B Bench of the Tribunal in the case of CGG Veritas services, SA vs. ADIT International Taxation Dehradun (2012) reported in 18 Taxmann.com 30 (Del) wherein it is held as follows : Section 9, read with section 44BB and 115A, of the Income-Tax Act, 1961- Income Deemed to accrue or arise i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a bed and acquisition of seismic data- Assessee filed its return of income for relevant assessment year in status of non-resident, declaring an income u/s 44BB(1) Assessing Officer, however, assessed receipts u/s 115A read with section 9(1) (vii)-whether, activities undertaken by assessee under aforesaid contracts would fall under definition of fee for technical services covered in first limb of Explanation2 to section 9(1) (vii) held, yes- whether since admittedly, receipts were not connected with PE in India fee for technical services rendered in connection with prospecting for or extraction or production of mineral oil would be assessable u/s 115A and, thus, provisions of section 44BB(1) would not apply-held, yes (In favour of revenue) 6. The Ld. Departmental Representative submitted that the issue whether the assessee has a P.E. in India or not has to be verified and for that reason the matter should be remitted back to the Assessing Officer. Mr. Nageshwar Rao pointed out that to apply section 44AD also, having permanent establishment is a must. He further submitted that the Assessing Officer has recorded that the assessee has a permanent establishment. 7. We are of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of mobilization/ demobilization of vessels. Payment in respect of the mobilization/ demobilization was received by WGIL outside India. Out of the same, WGIL has offered ₹ 6.31 crores to tax on account of mobilization/ demobilization activities attributable to Indian operations for the subject AY under section 44 (BB) of the Act. However, revenues amounting to ₹ 47.06 crores were not offered to tax by WGIL as the same were attributable to activity/ distance travelled outside India. It was clarified that the mobilization/ demobilization consideration is agreed and mentioned separately in the contract as it is separate from the consideration for services for exploration, which are the subject matter of assessment under section 4488 of the Act. It was submitted that as per the charging provisions of sections 4 and 5 of the Act, the mobilization/ demobilization revenues could be subject to tax in India only if the same accrued or arose in India or were deemed to accrue or arise in India. Further, section 9(1)(i) of the Act, inter alia, provides that income arising through or from any business connection is deemed to accrue or arise in India. Clause (a) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the Revenue authorities are duty bound to determine the portion attributable to taxable activities under the Act and the non-taxable portion. Accordingly, it is submitted that in the instant case for AY 2009-10, out of the total revenues received by WGIL with respect to mobilization! demobilization of vessels amounting to ₹ 53.37 crores, only revenues amounting to ₹ 63.13 crores should be subject to tax (under section 44BB) on account of mobilization/ demobilization activities attributable to Indian operations. Distinguishing the ruling of Sedco Forex Intemational Inc. During the course of the hearing, the Learned Department Representative ('DR') placed reliance on Uttarakhand HC ruling in Sedco Forex Internationallnc ('Sedco Forex') to support Department's contention that the entire amount mobilization! Demobilization revenues received by WGIL should be taxable in India while computing its income under section 44BB of the Act. As submitted by the Appellant's counsel the decision in Sedco Forex is distinguishable as the following aspects did not receive the consideration of the Hon'ble HC: WGIL has submitted the certific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ost willing and feel duty bound to submit the same. 9. The Ld.D.R. on the other hand submitted that the issue in question is squarely covered against the assessee by the judgements of the Uttarakhand High Court in the cases of (a) Sedco Forex International Inc. reported in 299 ITR 238; (b) in the case of Halliburton Offshore Service Inc. reported in 300 ITR 265 and (c) in the case of Trans Ocean Offshore Inc. 299 ITR 248. He further relied upon the order of the Assessing Officer as well as the findings of the D.R.P. He submitted that : The issue of taxability of these amounts is settled by a number of the decisions of the Hon'ble Uttarakhand High Court. Some of these decisions are: Sedco Forex Internationallnc 2991TR 238; Halliburton Offshore Service Inc 300 ITR 265; and Trans Ocean Offshore Inc 299 ITR 248. The Hon'ble High Court has held that Section 44BB is a complete Code in itself. If the assessee chooses to be taxed under Section 44BB of the Act then the provisions of the Section apply. The amounts that are taxable are explicitly stated in Section 44 BB (2). The wording of the Section leaves no doubt that any amount received by the assessee is not be taxabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee the business is being carried out In India. It cannot be the case of the assessee that it is carrying out its main business outside India and only income from the operations carried out in India is taxable. The assessee has carried out its business in India and all receipts are taxable in India. In case ofthe assessee there are no business operations outside India in connection with the payments received by it. The assessee's claim could be justified when the Rig for example was working or used outside India for example also to drill a well in the North Sea for the same client. In that case, some of the operations were carried out outside India and income in relation those operations may not be taxable in India. The movement of Rig from any place was for the purpose of the business in India and that is the reason that the Project owner agrees to pay the moving charges. The Reliance of the assessee on various case laws including the Decision in the case of Ishikawajima and Hyundai Heavy Industries are of no help because in those cases the contracts consisted of various divisible parts. Various parts taken together formed the full contract. Some of these parts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n contract. The submission that the assessee would try to work out, based on some basis, the revenues attributable to the activity of mobilization carried out outside India, cannot be accepted, as such an exercise would amount to estimating income for activities outside India, when the scope of the contract is for execution of the contract in India. Mobilisation in our view is an incidental activity to the main activity of carrying out the contract in India. The judgement of the Hon ble Supreme Court in the case of Ishikawajima and Hyundai Heavy Industries Ltd. vs. DIT, reported in 288 ITR 408 has been discussed by the Hon ble High Court in the case of Sedco Forex International Inc. (supra). The ratio laid down by the Hon ble Supreme Court in that case is not applicable here as it is not a case where separate parts of a contract are executed at different places. The argument that the payment was in the nature of reimbursement of expenses incurred by the assessee company and hence not income was also rejected by the Hon ble High Court. Thus, we are unable to agree with the contentions of the Ld.Counsel for the assessee. Thus these grounds of the assessee are dismissed. 11. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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