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2015 (5) TMI 816 - ITAT DELHI

2015 (5) TMI 816 - ITAT DELHI - TMI - Eligibility for benefit of section 44BB denied - AO treated the payment received by the assessee from leasing of oil drilling rig as royalty as per Article 12 of India- USA DTAT - Held that:- There is no dispute that the contract entered into by the assessee in India was effectively connected with that PE in India and the dispute as to whether letting out drilling rig, services and facilities by the assessee in connection with prospecting production and extr .....

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e receipt of the assessee can be taxed under sec. 44BB only if the assessee has a PE in India during the relevant period and the contract entered into by the assessee in India was effectively connected with the PE in India have been fulfilled in the present case, we are of the view that the assessee is very much eligible for the benefit available under sec. 44BB of the Act towards the hire charges of the drilling rig by applying the deemed profit ratio of 10% under the said provisions. It is hel .....

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by charging surcharge and education cess on income tax rate in excess of the maximum rate of tax prescribed under Article 12 of the India USA Double Tax Avoidance Treaty. These issues are consequential in nature to the issue raised in ground No. 1 adjudicated herein above. These grounds thus do not need independent adjudication - Decided in favour of assesse. - ITA No.5406/DEL/ 2012 - Dated:- 22-5-2015 - SHRI I. C. SUDHIR AND SHRI T. S. KAPOOR, JJ. For the Appellant :Shri Vidur Puri, CA, Shr .....

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ed Assessing Officer erred in law in charging interest u/s 234B & 234C, when there was no obligation for advance tax ,as income received by the Assessee was subject to tax deduction at source and tax was also deducted in accordance with order passed under section 195 of the Income Tax Act. 3. The learned Assessing Officer erred in law by charging surcharge and education cess on income tax rate in excess of the maximum rate of tax prescribed under Article 12 of India-USA Double Tax Avoidance .....

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s eligible for benefit of section 44BB of the I.T. Act on the payment received by it from leasing of oil drilling rig as royalty ? 4. The relevant facts are that the assessee company incorporated in USA is pride group entity. The assessee is in the business of providing drilling rig, services and facilities in connection with prospecting production and extraction of mineral oil under the contract with pride foramer as accepted by Oil and Natural Gas Commission (ONGC). The assessee provided offsh .....

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) of the Act. The AO passed a draft order in which he proposed to tax the assesee s income as royalty u/s 9(1)(vi) (Article 12) of the India USA DTA Agreement @ 10% as against the demand profit rate of 10% of revenue as adopted by the assesee u/s 44BB(1) of the Act. The assessee raised objection against the proposal before the Ld. DRP but could not succeed. Being aggrieved the assessee has preferred present appeal before us. 5. At the outset of hearing Ld. AR pointed out that in the assessment y .....

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India) Ltd. vs. DCIT (2012) 13 ITR (TRIB) 168/(2011)10 taxmann.com 250 (Chennai) Director of Income-tax-II vs. OHM Ltd. (2012) 26 taxmann.com 120 (Delhi)/(2013)352 ITR 406 Stumpp, Schuele and Somappa Ltd. vs. CIT (1991) 190 ITR 152 (Kar) Microperi S.P.A. Milano Vs. DCIT (2002) 321 ITR 369 (Mumb.) CGC Marine Resources Vs. DCIT (2012) 21 Taxman. Com 502 (Del) Wavefield Inseis ASA 320 ITR290, 322 ITR 645 (AR) 6. The Ld. AR referred provisions laid down u/s 44BB(1) of the I.T. Act with this submissi .....

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0 & 21 of the paper book which is extract of contract between pride foramer and ONGC for providing the services for drilling rig Pride Hawai . He submitted further that in para No. 1 page No. 1 of the asstt. order and in para No. 4.4 at page No. 3 of the asstt. order the AO has wrongly inserted the word directly going beyond the provisions laid down u/s 44BB(1) of the Act. She was thus not correct in saying that the word used were not directly applied to the activities in connection with pro .....

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ed page 26 of the paper book i.e. letter issued by the office of the Deputy Commissioner of Income Tax on 7.8.2007 to M/s. Pride Foramer SAS making it clear by mentioning nature of services for charter hire of M/s. Pride Foramer SAS for drilling operations for a company with ONGC . 7. Ld. CIT(DR) on the other hand submitted that there is no any direct decision on the issue by the Tribunal. The order dated 27.12.2013 of the DRP in subsequent year 2009-10 allowing the eligibility of the assessee f .....

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ices through drilling unit M/s. Pride Foramer SAS made available at page Nos. 17 to 21 of the paper book. While concluding his arguments the Ld.CIT(DR) pointed out that the Delhi Bench of the ITAT in the case of Siem Offshore A.S. & Ors. Vs. ADIT - ITA No. 1295/Del/2013 (A.Y. 2008-09) and ors. Vide order dated 09.09.2014 in view of the decision of Hon'ble Delhi High Court in the case of PGS Geophysical A.S. vs. ADIT - ITA Nos. 612 of 2012, order dated 09.07.2014 has set aside the matter .....

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ssee in India was effectively connected with the PE in India. 8. The Learned AR rejoined with the submission that the ratio of PGS Geophysical A.S. (supra) is not applicable in the case of the assessee as the assessee is another non-resident and section 44DA is not applicable in the case of a non-resident. He pointed out further that in its recent decision dated 17.2.2015, the Delhi Bench of the ITAT in the case of Louis Dreyfus Armadeures SAS vs. ADIT (2015) - 54 Taxmann.com 366 (Delhi - Trib) .....

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of the Act is that besides the foremost condition of assessee being a non-resident the assesee should be, (a) first limb, engaged in the business of providing services or facilities in connection with the prospecting production and extraction of mineral oil, (b) second limb, engaged in the business of supplying of plant and Machinery on hire used or tobe used in the prospecting, or extraction of mineral oils. Thus we find that for second limb the conditions are :- i) supply of plant and machiner .....

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he Pride Foramer for the purpose of enabling the Pride Foramer to carry on the provide the drilling operation services under the contract with ONGC and rig is the key plant and machinery for prospecting and extraction of mineral oil. d) The requirement of sub-section (1) of section 44BB is that the plant and equipment must be used in the prospecting for or extraction of mineral oils. e) Without the utility of Rig no drilling operation can be carried out for extraction or prospecting of mineral O .....

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ce is that it is used in the prospecting for or extraction of mineral oils. 11. The contention of the AO against the claimed benefit by the assessee remained that the drilling unit is not directly in use by ONGC. As per him, second limb of the provision laid down u/s 44BB of the Act is not attracted since the rig is supplied not by enterprise having a direct contract with ONGC but by sub contractor. The stand of the AO was that for oil related activities, rig hire is not applicable for sub-contr .....

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A (supra) before the Authorities for Advance Ruling (supra) for the purpose of executing contract with ONGC, the applicant has entered into a contract with the PF from the company incorporated in Faroe Islands which had provided a chase vessel on time charter basis. Under agreement, entire operations, navigation and management of vessel provided on hire will be in exclusive command and control of vessel owner and vessel will be in exclusive command and control of vessel owner and vessel will be .....

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u/s 9(1)(vi). After discussing in detail the authority have answered both the issues in affirmative. Similar view has been expressed in other cited decisions by the Hon ble authority. The Delhi Bench of the Tribunal in the case of CGG Marine Resources vs. DCIT (supra) has observed in para No. 8.4 that AAR in the case of Wavefield Inseis ASA has clearly decided that it is immaterial whether there was a direct contract of the oil producing company or not. The case of the assessee cannot be more d .....

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up for extraction, prospecting and production of mineral oil. 13. Besides, the Ld. DRP in the case of assessee itself for the asstt. year 2009-10 following decisions of Mumbai Bench of the Tribunal in the case of Micoperi S.P.A. Milano vs. DCIT (Supra), the Hon ble Authority of Advance Rulling in the case of Wavefield Inserts ASA (Supra) and Bourbon Offshore Asia Pte Ltd. 337 ITR 122 , Hon ble Jurisdictional High Court in the case of DCIT vs. OHM Ltd. (supra) as well as the decision of authorit .....

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of the decision of the Hon ble Authority of Advance Ruling in the case of Spectrum Geo Ltd. as under :- "12. The inquiry now is whether the income derived by the applicant from performing its contract with the UAE Company would be assessable to tax as, fees for technical services under section 440, 44DA, or 115A of the Act. Admittedly, the income derived by the applicant Is from a UAE company and not from the Government or an India concern. In other words, income derived by the applicant i .....

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nection with the prospecting for mineral oils and from a foreign company, the applicant would be entitled to claim to be assessed under section 44BB(1) of the Act. The ruling; therefore, on question no 3 is that the Income derived by the applicant are to be computed in accordance with the provisions of section 44 BB (1) of the Act." (Emphasis supplied). 14. As discussed above, the Hon'ble Delhi Bench of the ITAT in the case of Louis Dreyfus Armateures SAS vs. ADIT (supra) has decided an .....

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or extraction or production, and the person who supplies the plants and machinery, the narrow interpretation of the provisions is thus not permitted. It has been held that the basic condition to be satisfied in the said provision is that the plant or machinery supplied or lented on hire by the assessee, a non-resident should be used in the prospecting for or extraction or production of mineral oils or where equipment has been supplied, such equipment should have been used for the purposes of pr .....

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y vessels are in consideration with prospecting for extraction or production of mineral oils and, therefore, taxable under sec. 44BB of the Act. 15. We, however, find that the decision dated 09.07.2014 of Hon'ble Delhi High Court in the case of PGS Geophysical A.S. vs. ADIT (supra) has not been cited before the ITAT in the case of Louis Dreyfus Armateures SAS vs. ADIT (supra). Hon'ble Delhi High Court in the case of PGS Geophysical A.S. vide para No. 20 of the judgment has been pleased t .....

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n'ble High Court in the above sited case is fulfilled. So far as the second condition that the contract entered into by the assessee in India was effectively connected with that PE in India is concerned, the dispute in this regard remained that the assessee being sub-contractor as per the Authorities below was not eligible for the benefit of section 4BB of the Act. The Delhi Bench of the ITAT in the case of Louis Dreyfus Armateures SAS vs. ADIT (supra) after discussing the issue in detail ha .....

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n or production of mineral oil or where equipment has been supplied, such equipment should have been used for the purpose of prospecting for or extraction or production of mineral oil. Thus, we find that there is no dispute that the contract entered into by the assessee in India was effectively connected with that PE in India and the dispute as to whether letting out drilling rig, services and facilities by the assessee in connection with prospecting production and extraction of mineral oil unde .....

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