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Additional Director of Income Tax (International Taxation) Versus Baker Hughes Singapore Pte Ltd

Applicability of provisions of section 44BB - interpretation of the legislative intent behind the scheme of taxation envisaged in 9(1)(vii) rw 44DA and 44BB - whether the provisions of Section 44BB will apply to the facts or whether Section 44DA will be applicable on the facts of this case? - whether hire of equipment and personnel was not in the nature of FTS and equipment Royalty squarely covered u/s 9(1)(vii)? - Held that:- The CIT(A) following the decision of a coordinate bench in the case o .....

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T Vs Maersk Co Ltd [2011 (4) TMI 886 - Uttarkhand High Court ] and the CIT(A) has merely followed the said decision, but yet the Assessing Officer is aggrieved that, as this decision has been challenged in appeal before Hon’ble Supreme Court, the CIT(A) ought not to have followed the same. Such a plea can only be stated and rejected. The mere fact that a binding judicial precedent has been challenged before a higher forum does not dilute, curtail or otherwise affect its binding nature. Once Hon’ .....

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haira Sidhu For the Respondent : Amit Arora ORDER Per Pramod Kumar: 1. By way of this appeal as also by the cross objection, correctness of learned CIT(A) s order dated 22nd November 2012, in the matter of assessment under section 143(3) r.w.s. 148 of the Income Tax Act 1961 for the assessment year 2004-05, has been called into question. 2. We will first take up the appeal filed by the Assessing Officer. 3. Grievances raised by the Assessing Officer, which are by way of questions that we are req .....

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come of the assessee company was covered under the provisions of section 44BB ignoring that the said decision of the ITAT has not been accepted by the department against which a miscellaneous petition has been filed. 3. Whether on the facts and circumstances of the case, the CIT(A) has erred in holding that the hire of equipment and personnel was not in the nature of FTS and equipment Royalty squarely covered u/s 9(1)(vii) of the l.T. Act, 1961. 4. Whether on the facts and circumstances of the c .....

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ction (1) of Section 44DA and a reference to Section 44DA in the proviso below sub-section (1) of Section 44BB. 6. Whether the CIT(A) has erred in not appreciating that proviso to Section 44BB is not inserted per majorem cautelam' but explains and clarifies the main provision as the term services or facilities used therein are not defined and the two terms used are too general in nature and thus once the payments are characterized as FTS u/s 9(1)(vii), they go outside the purview of Section .....

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ecialibus non derogant and thus, its reliance on Jindal Dr illing is misplaced. 8. Whether the CIT(A) has erred in not appreciating that the decision of Director of Income Tax V Jindal Drilling and Industries Ltd. (2010) 320 ITR 104, pertaining to AY. 2000-¬01, 2001-02 does not contain any reference to section 44DA as the said provision came on the Statute w.e.f. 1.4.2004 and the reliance thereon is thus misplaced. 9. Whether the CIT(A) has erred in not appreciating that he decision of Jinda .....

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spect of income referred to in section 44DA in view of the clarificatory proviso to sec 44BB and sec 44DA. 11. Whether on the facts and circumstances of the case, the CIT(A) has erred in appreciating the fact that proviso to section 44DA brought about by the Finance Act 2011 was only clarificatory in nature and its application has to be read into the main provisions with effect from the time the main provision came in to effect in view of the decision of the Hon'ble Supreme Court in the case .....

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ces of the case, the CIT(A) has erred in not appreciating the finding given by the AO who had held that the Fee for Technical/service/Royalty received by the assessee which is a non-resident company was correctly estimated @ 25% of gross receipts as per the requirements of Rule 10 of the Income Tax Rules, 1962 in the absence of books of accounts and taxed accordingly. 4. As a careful reading of the above rather detailed grounds of appeal would show, the two short issues that we are really requir .....

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k Co Ltd [ (20111) 334 ITR 79 (Uttarakhand)] and the CIT(A) has merely followed the said decision, but yet the Assessing Officer is aggrieved that, as this decision has been challenged in appeal before Hon ble Supreme Court, the CIT(A) ought not to have followed the same. Such a plea can only be stated and rejected. The mere fact that a binding judicial precedent has been challenged before a higher forum does not dilute, curtail or otherwise affect its binding nature. Once Hon ble jurisdictional .....

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al with the matter in a little more detail. 5. To adjudicate on this grievance, only a few material facts need to be taken note of. The assessee before us is a non-resident company, and, as it appears from the details furnished in the return of income, i t has an office at Midas Sahar Plaza, Kondivita, Andheri (East), Mumbai. During the relevant financial period, the assessee has earned revenues of ₹ 68,24,70,607 from the following contracts: 1. Contract No. : 2001/KGD6L-E2-DR-G-170-MB wit .....

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ed for provision of DMM, Directional Drilling and Sidetrack Package. 6. Contract No. : SU4C0438 with Niko Resources. 7. Contract No. : HAZ-34232 with Niko Resources. 8. Contract No. : 2003/B/G/D/597 with BG Exploration & Production India Limited for extended reach drilling in Tapti and Panna areas - feasibility study. 9. Contract No. : RJ2Cb5001 with Cairn Energy India Pty Limited for provision of mud chemicals, technical services and laboratory equipments. 10. Contract No. : RJCB5028 with C .....

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quipment & Services. 5. There is no dispute that the income earned by the assessee is from hiring of equipment and from rendering of services to the entities engaged in oil exploration work. There is also no dispute that the income so earned by the assessee was offered by the assessee to tax, on presumptive profits @ 10% under section 44BB of the Act. The point of dispute is confined to whether or not the provisions of Section 44BB will apply to the facts of this case. While contention of th .....

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ceipts. The CIT(A) has, following the decision of a coordinate bench in the case of CGG Veritas (ITA No. 4653/Del/2010; order dated 25th January 2012) and noting that the assessee has a PE in India and that the case pertains to assessment year prior to 2011-12), upheld the contention of the assessee, and has, accordingly, held that the income is liable to tax@ 10% under section 44 BB of the Act, and, aggrieved by the stand so taken by the CIT(A), the Assessing Officer is in appeal before us. . 6 .....

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was decided in favour of the assesse, contended that no case can be held to be covered, standing as it does on own facts which are distinguishable . She has elaborate arguments in support of the stand of the Assessing Officer and urged us to take an independent view of the matter. Her line of reasoning, in broad terms, is like this. It is pointed out that the payments for use and hire of equipment and personnel is equipment royalty/ fees for technical services, and that the income being in natur .....

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contractors engaged in prospecting, extracting and producing mineral oils, and that the benefit of these provisions cannot be extended to the vendors and suppliers of such first leg contractors. It is submitted that doing so would amount to base erosion and profit shifting from developing countries. A reference is then made Heydon s rule and submitted that the amendments in the scheme of Section 44BB and 44DA, vide Finance Act 2010, though stated to be effective from assessment year 2011-12 mus .....

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nd not for the purposes in which the equipment or personnel are put to use. It is then submitted that the decision of PGS Geophysical AS Vs ADIT (269 CTR 433) contradicts the findings in the earlier Hon ble Delhi High Court decision in the case of DIT Vs OHM Ltd (352 ITR 406), based on which the coordinate bench has decided this issue in favour of the assesse. It is submitted that the decision of the coordinate bench in the case of Baker Hughes Asia Pacific Ltd (supra), by which this issue in ap .....

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no occasion to deviate from the same. We are thus urged to confirm the findings of the CIT(A) and decline to interfere in the matter. 9. We have noted that the issue is directly covered by the decisions of the coordinate benches and there are no direct decisions on the issue by any higher forums. The meticulous research done by the learned Commissioner (DR), as also her erudite arguments, are of not of any practical effect at this stage. As for the BEPS considerations, as so strenuously argued .....

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and not as it ought to be in the light of certain underlying value notions. As for the legal arguments advanced by the learned Commissioner (DR), as was laid down by Hon ble Supreme Court in the case of Ambika Prasad Mishra vs. State of UP AIR 1980 SC 1762 : (1980) 3 SC C 719 (p. 1764 of AIR 1980 SC), Every new discovery nor argumentative novelty cannot undo or compel reconsideration of a binding prec edent... A decision does not lose its authority merely because it was badly argued, inadequate .....

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