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TMI Blog2014 (10) TMI 735X X X X Extracts X X X X X X X X Extracts X X X X ..... from the following contracts: CONTRACTS With Oil & Natural Gas Corporation Limited Contract no: MR/ WOB/MM/QMV/SC/41/2006/EB/2013 Contract No: MR/WOB/MM/GP/QML/SC/08/2006/EB-2109 Contract No: MR/WOB/MM/GP/QML/SC/08/2006/EB-2132 Contract No: 9010005356 Contract No: AMT/IMP/E-1/SCON/2D-3D/2734/WG/05-06 RELIANCE INDUSTRIES LIMITED Contact No.OGI-3588925 Contact No.OGI-3606488 Contact No.OGI-3621135 Contact No.OGF-3623954 ESSAR Contact No.2007/ESSR/CB/ON/3/DP/L/001 PRIZE PETROLEUM Contact No.PPCL-JAL/WG/2D-SD/2008/01 CAIRN Contact No.1000000381-3D/PSTM/Seismic Data HARDY Contact No.CY-OS-2/052/3D/seismic Data re-Processing ENI Contact No.058/AN?PROC?2007-3D/Seismic Data Processing Services 4. The above contracts have been continuing since previous year in respect of most of them and in respect of new contracts executed for which revenues have been offered during this year are also having similar nature of scope of work. The scope of work of the above contracts includes processing of PD line data survey Long term lease of marine technology. Hiring of Q. Marine Vessel with the help of its personnel and equipment, Seismic Data Acquisition and processing, Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection are fulfilled. Accordingly gross receipts are taxed as per provisions of sec. 9 (1) (vii) (c) of the I. T. Act and taxed at normal rate applicable to foreign companies." 3. Regarding bringing tax of the amount of mobilization/demobilization charges on activities attributable to mobilization under taken outside the territorial water of India. The Assessing Officer held as follows: "With regard to objection no.2 to tax the amount of mobilization/demobilization charges even on those activities of mobilization/demobilization charges which are undertaken outside the territorial waters of India, the DRP has observed/ directed in para 3.2 of the order as under: "The issue was also involved in the earlier assessment year and the objections on this point were considered by this panel for those years and were not accepted. Keeping in view of the above the stand taken by this panel in earlier years, the proposal to tax the mobilization/demobilization charges is upheld and the objection made by the assessee is rejected." 4. Aggrieved, the assessee filed this appeal on the following grounds: "1. That the direction of Hon'ble DRP and assessment order passed by Ld. Assessing Officer u/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 pertaining to revenues received by the appellant on account of mobilization/demobilization activities attributable to distance traveled outside India as fees for technical services u/s 9(1) (vii) of the Act, without appreciating that such revenues are in connection with the prospecting for, extraction of production of mineral oil and subject to tax under Levy of interest 7. The Ld. Assessing Officer has erred on facts and in law in levying interest u/s 234B and section 234C of the Act amounting to INR 277,546,000 and INR 10,640,069 respectively disregarding the fact that appellant is a non-resident assessee and its entire revenues/ receipts are subject to tax withholding in India u/s 195 of the Act and the appellant has no liability to pay advance tax u/s 209(1) (d) of the Act. 8. The Ld. Assessing Officer has erred on facts and in law in holding that the appellant has concealed the particulars of its income or furnished inaccurate particulars and initiating penalty proceedings u/s 271(1) (c) of the Act. 9. The Ld. Assessing Officer has erred on facts and in law in holding that the appellant is required to comply with the provisions of section 44AB of the Act by furnishing th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be construed as an independent provision -held, yes -whether in case of a non-resident assessee where provisio0ns of section 42 or section 44D or 44DA or section 115A or section 293A are applicable for purposes of computing profits or gains or any other income referred to in those sections, proviso to section 44BB(1) will be pressed into service and, accordingly, provisions of section 44BB(1) would not apply-held, yeswhether with effect from 1.4.2004 fee for technical services, which is not connected with permanent establishment of business or fixed place of profession in India, will be taxable u/s 115A(1) (b) -held, yes, (in favour of revenue) Section 115A, read with section 44BB, of the Income tax Act, 1961-Foreign companies -Tax on dividends, royalties, etc.- assessee, a French company engaged in providing geological and geophysical services for exploring mining potential, derived income in India from execution of exploration projects for prospecting mineral oil deposits in the offshore waters under four contracts with ONGC and one contract with ENI, U.K - Projects involved conducting seismic survey of large area of sea bed and acquisition of seismic data- Assessee file ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne operating area to another. In the Oil and Gas sector as a normal practice, customers generally compensate a contractor for such movements known as mobilizastion/demobilization fee. Further, when drilling equipment is mobilized from outside India and the same is demobilized from India, substantial portion of operations are actually performed outside India. Definition of the term 'India' The definition of 'India' for the purposes of levying income tax includes exclusive economic zones of India and therefore the provisions of the Act extends to 200 nautical miles from the Indian coast. Taxability of mobilization/ demobilization activity in India Section 4 of the Act is the charging section. Section 5(2) provides for the scope of total income of a non-resident person as per which the total income of a non-resident in any previous year includes all income from whatever source derived which: * is received or is deemed to be received in India; or * accrues or arises or is deemed to accrue or arise in India. During AY 2009-10, WGIL has received revenues amounting to Rs. 53.37 crores in respect of mobilization/ demobilization of vessels. Payment in respect of the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ization! demobilization attributable to distance travelled outside India should not be taxable, the Appellant placed reliance on the following judicial precedents: * Rand B Falcon Drilling Co vs. ACIT [(2007) 14 SOT 281(Delhi ITAT)] * Saipem S.P.A. vs Deputy Commissioner of Income Tax [(2003) 86 ITD 572 (Delhi ITAT)] * Assistant Commissioner of Income Tax vs Jindal Drilling Leasing [(1991) ITA No 6452 (Mumbai ITAT)] (Unreported judgment) * Deputy Commissioner of Income Tax vs Sonat Offshore Drilling Inc [(1994) ITA No 7414 (Mumbai ITAT)](Unreported judgment) * Joint Commissioner of Income Tax vs Fugro Engineers BV [(1999) ITA No 6246 (Mumbai ITAT)](Unreported judgment) * McDermott ETPM vs Deputy Commissioner of Income Tax [(2005) 92 ITD 385 (Mumbai ITAT)] * Joint Director of Income-tax (OSD) vs J Ray Mcdermott Eastern Hemisphere Limited - (2010) ITA No 1557! Mum! 2007 It was submitted that even in a case wherein a composite and lumpsum consideration is agreed, the Hon'ble Supreme Court in the case of Ishikawajima and Hyundai Heavy industries clarified that the Revenue authorities are duty bound to determine the portion attributable to taxable activities under the Act an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ruling of Sedco Forex is not applicable to the facts of Appellant's case. The Departmental representative other submission was that even payments made outside India are includable for purposes of Section 44BB. Reference was made to Section 44BB(2)(a) wherein the phrase 'whether in or out of India' was used. Appellant respectfully submits that such an interpretation would be incorrect as such phrase has to be read in the context and the only possible interpretation would be that consideration received for provision of services referred to in that clause for prospecting etc., would be taxable whether the same are received in India or outside of India. Such a phrase cannot be read in a way to subject transactions which are effected outside India and paid outside India and which are clearly outside the scope of charging section of the Act. PrayerWe request your Honours to kindly take the above submission on record, consider the same and to allow our appeal in toto. In case your Honours require any clarifications, we would be most 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 agai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... verrides Sections 28 to 41 and sections 43 and 43A. Here emphasis is on the business carried out by the assessee. Mobilization and Demobilization are activities in connection with the business of the assessee in India. The movement of the Rig is a part of the business of the assessee and it is not an independent business or even an independent activity. The income in the case of the assessee is no doubt accruing or arising in India as the business is being undertaken in India. The assessee claim that Section 9 refers to the revenues and revenues cannot be attributed to the out of India activities, is baseless and untenable. First, Section 9 refers to income and not to revenue. Section 9 takes into account situations where a business consists of many operations/activities which are mainly carried out "out of India" by the non-resident and due to some business connection in India in relation to the same business, the income accruing or arising, whether directly or indirectly, is taxable in India. In the case of the assessee 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Section 44B (similar deeming/presumptive section) will lead to absurd results as then only amounts proportionate to distance travelled in Indian water would be taxable. The results are not what the Legislature has intended." 10. After hearing rival contentions, we are of the considered opinion that the issue is covered by the judgement of the Jurisdictional High Court in the case of Sedco Forex International Inc.(supra). We are not convinced with the arguments of the Ld.Counsel for the assessee trying to distinguish this case law for the reason that the entire payment in question was made for the purpose of execution of the contract in India. 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. 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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