TMI Blog2015 (3) TMI 147X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 44BB of the Act.- Decided in favour of assessee. TDS credit - Held that:- We direct the AO to verify this aspect and to decide about the allow-ability of the above TDS credit in accordance with law. - Decided in favour of assessee for statistical purposes. Levy of interest u/s 234B - Held that:- The proviso inserted into the provisions of section 209 enables the revenue to levy interest in a case where the payer has not deducted tax at source when he makes payment to a non- resident recipient. However, the proviso was introduced vide Finance Act, 2012 with effect from AY 2012-13 onwards and, thus not applicable in the present case. Consequently, interest cannot be levied under section 234B - Decided in fvaour of assessee. - ITA No. 107/Del/2012 - - - Dated:- 13-2-2015 - Shri S.V. Mehrotra And Shri George George K JJ. For the Appellant : Smt. Rashmi Chopra, Advocate For the Respondent : Smt. P.K. Sidhu DR. ORDER Per Shri George George K, JM: 1. This appeal, at the instance of the assessee, is directed against the final assessment order dated 8.11.2011 passed by the assessing officer under section 143(3) read with section 144C of the Income tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... return of income plus income inadvertently not considered by the assessee of ₹ 7,34,77,387/- plus a sum of ₹ 21,30,128/- being sum received on account of bunkering charges) should not be considered as taxable income and be taxed at 10% as royalty under section 115A of the Act. 5. Referring to agreements entered into with the hirer of vessels, the assessee explained that it was engaged in providing marine logistics services and facilities and, hence, the requirements of section 44BB are satisfied. Without prejudice, it was submitted that the provision of vessels on hire which was used in prospecting for or extraction or production of mineral oil also satisfies the requirement of section 44BB. 6. The assessing officer did not agree with the submissions of the assessee. The draft assessment order u/s 144C was passed on 28.12.2010. In the said order, it was held that section 44BB does not apply in the case of the assessee for the following reasons: (i) Section 44BB is applicable for two streams of revenue; one is for services which are in connection with prospecting, exploration or production of mineral oil and the second stream is for rental of equipment used or t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee and as per section 115A, the gross receipts are taxable at the rate of 10%. [para 4.25] 7. For the above reasons, the AO treated the revenue from hire charges amounting to ₹ 92,45,23,957/-, income inadvertently not considered and added by assessee itself amounting to ₹ 7,34,77,387/- and reimbursement of fuel charges amounting to ₹ 21,30,128/-,totaling to ₹ 93,40,01,823/- as royalty taxable at 10% as per section 115A of the Act. .At page 32 of the draft assessment order, while computing the taxable income, the AO has mentioned that the sum of ₹ 93,40,01,823/- as taxable income to be taxed as FTS/Royalty . 8. The assessee filed objections before the Dispute Resolution Panel (DRP), Delhi, on 28.1.2011. The DRP, vide its directions dated 26.9.2011,endorsed the views of the AO and held that section 44BB is not applicable to a non-resident who supplies plant and machinery on hire to a person who does not itself undertake the activities of providing services or facilities in connection with prospecting for or extracting or production of mineral oil exploration. Accordingly, the DRP was of the view that the receipts of the assessee by way ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the prospecting for, or extraction or production of, mineral oils in India; and (b) the amount received or deemed to be received in India by or on behalf of the assessee 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 outside India. (3) Notwithstanding anything contained in sub-section (1), an assessee may claim lower profits and gains than the profits and gains specified in that sub-section, if he keeps and maintains such books of account and other documents as required under subsection (2) of section 44AA and gets his accounts audited and furnishes a report of such audit as required under section 44AB, and thereupon the Assessing Officer shall proceed to make an assessment of the total income or loss of the assessee under sub--section (3) of section 143 and determine the sum payable by, or refundable to, the assessee. 11. Section 44BB is applicable to a non-resident, 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 pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2006 with M/s Transocean Offshore Deepwater Drilling Inc and the remaining three agreements were entered into by the assessee on May 5 2006 with M/s Transocean Offshore International Ventures Ltd. Each agreement is in respect of a particular vessel. The five vessels covered under these five agreements are, namely, SBS Nimbus, SBS Stratus, SBS Torrent, SBS Typhoon and SBS Cirrus respectively. The agreements are described as uniform time charter party for offshore service vessels . The assessee is described as owners of vessels and the hirers i.e., M/s Transocean Offshore Deepwater Drilling Inc and M/s Transocean Offshore International Ventures Ltd are described as charterers. The place of delivery and redelivery of vessels is in India. The period of hire in respect of vessels SBS Nimbus and SBS Stratus is from the date of delivery of vessels through termination of charterer s three year primary term integrated service contract with ONGC. In respect of other three vessels viz., SBS Torrent, SBS Typhoon and SBS Cirrus, period of hire is mentioned as three years firm . In respect of all five contracts, area of operations of vessels is mentioned [box 17 of the contract] as Offshore I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect logs accessible to the charterers or their agents. (ii) The Master shall sign cargo documents as and in the form presented, the same, however, not to be Bills of lading, but receipts which shall be non-negotiable documents and shall be marked as such. The charterers shall indemnify the owners against all consequences and liabilities arising from the Master, Officers or agents signing under the direction of the charterers, those cargo documents or other documents inconsistent with this charter party or from any irregularity in the papers supplied by the charterers or their agents. (b) The vessel s crew if required by charterers will connect and disconnect electric cables, fuel, water and pneumatic hoses when placed on board the vessel in port, as well as alongside the offshore units; will operate the machinery on board the vessel for loading and unloading cargoes; and will hook and unhook cargo on board the vessel when loading or discharging alongside offshore units. If the port regulations or the seamen and / or labor unions do not permit the crew of the vessel to carry out any of this work, then the charterers shall make, at their own expense, whatever other arrangements ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f such liability. (b) Not used (c) The owners shall pay for all permits, costs involved in establishing import guarantee bonds, and clearance expenses, both for the vessel and / or equipment, required for or arising out of this charter party, taking into account all relevant exemptions provided by / through ONGC as detailed in clause 25 below. 14. Attachment F in respect of all five contracts deals with the scope of work of the assessee. Sections 1 to 3 of Attachment F are relevant in this connection and the same are reproduced hereunder: Section 1 - SBS Nimbus and SBS Stratus Any specifications, quantities, standards, quality, description set out or referred to in this scope of work are minimum requirements only. Owner shall be responsible for determining and providing all necessary personnel, equipment, facilities and materials, engineering, designs, programs, dockside space, permits and licenses in such quantities and of such qualities necessary to fulfill the requirements of this Charter Party, including without limitation this scope of work, so as to ensure that the work is conducted without interruption and in accordance with the standards of a good and prud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urs a day during the term of contract. 1.7 The responsibility for obtaining all statutory clearances like DG shipping, clearance for operating the vessels on the Indian coast, naval clearance from ministry of defense, customs clearance etc, rests with the owner. 16. Under section 2 of Attachment F to all five contracts, location of drilling is mentioned as ONGC Deepwater blocks East and West Coast of India / ONGC locations in coastal India. 17. From the aforesaid terms of the contracts entered into by the assessee, it is evident that the assessee not only provided the vessel on hire but also provided services or facilities to the charterers. The entire operation, navigation and management of the vessel was under the exclusive control and command of the owners, their master, officers and the crew. The assessee provided the services of carrying personnel materials between base and offshore installations, as well as between offshore installations, standby rescue operations in offshore, assistance in emergencies arising out of mud loss, blow out etc., occurring in offshore, routine surveillance in offshore for safety and security reasons, any other fieldwork as instructed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for offer made by the Transocean entities and the said invitation clearly made a reference to attachment F , which spells out the scope of work and made it clear that the said attachment was to be a part of the charter party. The other argument of the revenue that the hire charges are based on each day of use and, hence, it is a case of simple hiring is also not correct since as held by the Hon ble Supreme Court in Senairam Doongarmall v CIT [1961] 42 ITR 392 (SC) the measure and method of its payment is not decisive of the character of a payment. In the above decision, it was held by the 3 Judge Bench of the Hon ble Supreme Court that compensation paid for requisition of assessee s tea factory and buildings is a capital receipt irrespective of the fact that the said compensation was computed based on estimate of tea that would have been manufactured. 20. Be that as it may, even if one were to consider that the assessee was engaged in simple hiring of vessels, the same, in our opinion, would still be covered by the second limb of section 44BB which deals with supplying plant and machinery on hire used or to be used in the prospecting for or extraction or production of mineral ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xtraction or production of, mineral oils. There is no requirement under section 44BB that the services or facilities or supplying of plant and machinery should be provided only to the main person who is engaged in prospecting for or extraction or production of, mineral oils i.e., ONGC in the present case. In other words, the applicability of section 44BB is not only restricted to the assessee (first leg contractors) who has directly entered into a contract with the person who is engaged in prospecting for or extraction or production of, mineral oils i.e., ONGC in the present case. The revenue s argument is that the words used or to be used are used in terms of the Plant and Machinery and not to specify the person who shall use it, i.e. the clause used, or to be used is in conjunction with the clause in the prospecting for, or extraction or production of, mineral oils . This argument actually support the case of the assessee since what really matters is the activity for which the plant and machinery is used i.e., prospecting for or extraction or production of, mineral oils irrespective of who uses the plant and machinery whether (it is used) by first leg contractors i.e., hir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... finding of fact that the services and facilities provided by the assessee along with plant and machinery are used in offshore drilling operations i.e., the activity of prospecting for or extraction or production of mineral oils. Consequently, the requirements of section 44BB are satisfied in the present case. 24. In view of the above, there is no merit in the contentions of the revenue that the assessee is not an eligible assessee under section 44BB since it has not directly entered into contract with the ONGC and it is not undertaking the activities specified in section 44BB itself and being second leg contractors they are not eligible under section 44BB. 25. The contention of the revenue that the gross receipts of the assessee are taxable under section 44DA and / or section 115A is also fallacious for the reason that under both section 44DA and section 115A, the payer of royalty or fees for technical services has to be either the Government or an Indian concern. In the present case, the assessee is in receipt of income from M/s Transocean Offshore Deepwater Drilling Inc, M/s Transocean Offshore International Ventures Ltd and its affiliates which are not Government or India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Court in PGS Geophysical AS v Additional Director of Income tax [2014] 369 ITR 27 held at page 39 - para 19 : Thus, after April 1 2011, income falling within the scope of section 44DA(1) of the Act would be excluded from the scope of section 44BB of the Act. However, during the period from April 1, 2004 to April 1, 2011, i.e., period when income falling within section 44DA(1) of the Act was excluded from the ambit of section 115A(1)(b) of the Act but was not expressly excluded from the scope of section 44BB(1) of the Act the same was liable to be taxed under section 44BB(1) of the Act. Since the assessment year 2008-09 falls within the period, the income of the assessee, to the extent it falls within the scope of section 44DA(1) of the Act and stands excluded from section 115A(1)(b) of the Act would be computed in accordance with section 44BB(1) of the Act. 28. Impliedly, the Hon ble Jurisdictional High Court held that the amendments made by Finance Act, 2010 w.e.f. 1.4.2011 are prospective in nature and not clarificatory. The learned DR s argument that the above amendments are clarificatory in nature is therefore fallacious. In any case, since section 115A and section 44D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction with the activity of prospecting for or extraction or production of mineral oils. The revenue s reliance of the above decision of the Supreme Court is therefore misplaced. 31. The judgment of the Hon ble Madras High Court in Poompuhar Shipping Corporation Ltd. vs. ITO, 360 ITR 257 is not applicable since the said decision does not deal with the applicability or otherwise of section 44BB. The revenue s reliance on section 9(1)(vi) to categorize the assessee s income for hire of vessels as royalty is also not correct since clause (iva) of section 9(1)(vi) excludes amounts referred to in section 44BB. The other arguments, decisions relied on by the learned DR including the one on Base erosion profit shifting are also not relevant in the factual matrix of the present case and considering what we have already held. In view of the above, we hold that the income of the assessee for the year under consideration is to be computed in accordance with section 44BB of the Act. Consequently, Ground Nos. 1 and 2 are allowed. 32. In Ground No. 3, it is urged that the learned DRP/AO erred in assessing the amount received on account of reimbursements cannot be considered as royalty. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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