TMI Blog2015 (12) TMI 367X X X X Extracts X X X X X X X X Extracts X X X X ..... nd would not apply to the cases in hand which is of the earlier assessment years.” Thus the question of retrospectivty cannot be accepted and is being repelled and so this ground of Revenue fails. - ITA No. 5928/Del./2013, CO No.194/Del/2014 - - - Dated:- 24-11-2015 - Shri A. T. Varkey, Judicial Member And Shri Prashant Maharishi, Accountant Member For the Petitioner : Shri Amit Arora Suraj Nangia, CAs For the Respondent : Shri Anuj Arora, CIT DR ORDER Per A. T. Varkey, Judicial Member The appeal filed by the revenue and the cross objection filed by the assessee are directed against the order of the Commissioner of Income-tax (Appeals)-II, Dehradun dated 26.08.2013 for the assessment year 2010-11. 2. The assessee is engaged in the business of providing geophysical services to the oil and gas exploration industry. Draft assessment order for the year under consideration i.e. 2009-10 under section 143(3) / 144C (1) of the Income Tax Act, 1961 (hereinafter the Act ) was passed on 11.03.2012 on a total income of ₹ 57,24,29,240/-. The said draft assessment order was as under :- Return of income was filed by the assessee on 30.09.2011 declaring t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... QC products (e.g. paper plots. screen dumps wherever required etc.) preparation and submission of deliverables/outputs. The contractor will provide 3D seismic data processing facilities consisting of computers, software, tape drivers, printers and other required peripheral equipment. A competent team of seismic data processors in professional and efficient manner should deliver an output of high quality seismic data required for interpretation. The contractor is solely responsible for the quality for all aspects of the data processed. Contract No. PETROGAS/MBOSN/3D Acquisition /08-09 with Petrogas E P LLC dated September 29, 2008 for Marine 3D Seismic and Gravity Magnetic Data Acquisition Services. The scope of work and technical specification of offshore 3Dseismic data processing (Appendix A) is provided in Section 3 of the contract. They are summarized as under :- Scope of work 2.1 The work shall mainly comprise contractor's provision of 790 sq. kms. of Marine 3D seismic data acquisition using 6 streamers and 2 guns arrays in exploration block MB-OSN-2004/2 (Mumbai Offshore) and Gravity-Magnetic data acquisition along the 3D seismic survey. Contractor w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... non-obstante clause with respect to Sections 28 to 41 which are the computation sections. The AO, after observing the aforesaid sections and considering the submissions of the assessee, held that, In the light of discussion above, it is clear that provisions of section 44BB will not be applicable against FTS receipts of the assessee. It is obvious from the extracts of the Finance Bill 2010 referred earlier that the amendment in proviso to section 44BB (1) as well as in section 44DA are in the nature of clarificatory and as such, following the Hon'ble Supreme Court as mentioned above, the clarification brought in by the amendments must be read into the main provision with effect from time that the main provisions of section 44BB came into force. Thus, even though clarificatory amendments are made effective from 1st April 2011, in view of legislative intent, even prior to the said clarificatory amendments as mentioned above, the income in the nature of FTS or Royalties cannot be taxed under presumptive scheme of taxation under section 44BB(l) of Income Tax Act, 1961. The receipts of the assessee are covered under provisions of Section 44DA of I.T. Act and therefore income is to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed u/s 9( 1 )(vi i) of the IT Act, 1961 ( the Act ). 2. Whether on the facts and in the circumstances of the case, the Ld CIT(A) has erred in holding that the income of the assessee was taxable under the presumptive provisions of sec 44BB and ignoring the fact that taxability u/s 44BB shall not apply in respect of income referred to in section 44DA in view of the clarificatory proviso to sec. 44BB and sec 44DA of the Act. 3. Whether on the facts and in the circumstances of the case, the Ld CIT(A) has erred in holding that the income of the assessee was not taxable under the provisions of sec 44DA r.w.s 115A even though the nature of services rendered by the assessee were technical in nature liable to tax u/s 44DA of the Act. 4. Whether on the facts and in the circumstances of the case, the Ld CIT(A) has erred in interpretation of the legislative intent behind the scheme of taxation envisaged in 9(1)(vii) read with sections 44DA and 44BB of the Act, ignoring the decision in the case of CIT vs M/s ONGC As Agent of M/s Foramer France [(2008) 299 ITR 438 Uttarakhand] . 5. Whether on the facts and in the circumstances of the case, the Ld CIT(A) has erred in ignor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and on this basis, the income has been determined after applying an estimated profit rate of 25% on the gross receipts. 6. The ld. DR relied on the order of the AO and also filed the synopsis of the oral submissions made, which are reproduced as under :- SYNOPSIS OF REVENUE'S ORAL SUBMISSIONS 1. The assessment order dated 10.05.2013 is emphatically relied upon. Following additional submissions are made. Legislative Intent: To exclude income in the nature of FTS / Royalties from 44BB 2. Amendment to proviso to sections 44DA 44BB brought in by the Finance Act 2010 (relevant extract of Explanatory notes is annexed at Annexure 'A' which clearly bring out that the amendment was clarificatory) was 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. 3. In following decisions the Courts have held that despite a prospective date mentioned in the Finance Act, the amendment may have retrospective operation. While holding so, the Courts have held that sometimes legislature specifically mentions about the retrospective operation of an amendment and in so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eated as clarificatory in nature. Carve out in Section 9(1 )(vii) for FTS for assembly, 'mining or like project' undertaken by the recipient 7. In CGG Veritas Services SA [2012] 18 taxmann.com 13 (Delhi), the Hon'ble ITAT held that exception to definition of FTS as contained in Explanation 2 to section 9(1 )(vii) has two limbs: a. First, it should be construction, assembly, 'mining or like project' and b. Second, this project should be undertaken by the assessee (relying upon Delhi High Court Decision in Rio Tinto Technical Services [2012] 17 taxmann.com 70 (Delhi)). 8. Therein, Hon'ble ITAT Delhi also clarified that in Instruction No. 1862, question referred was regarding definition of 'mining or like project' only and second limb of the exception was not subject matter of said instruction. This position was corroborated in numerous decisions including MI Overseas (AAR), CAT Geodata Gmbh (AAR) etc. 9. DIT vs. Jindal Drilling and Industries Ltd ([2010] 320 ITR 104/182 Taxman 59 (Delhi)) and Geofizyka Torun sp Z.O.O, In re [2010] 320 ITR 268/186 Taxman 213 (AAR - New Delhi), relied upon by Delhi High Court in DIT v. OHM L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... drilling operations for the purpose of production of petroleum would clearly amount to a mining activity or a mining operation. Viewed thus, it is the proximity of the works contemplated under an agreement, executed with a non-resident assessee or a foreign company, with mining activity or mining operations that would be crucial for the determination of the question whether the payments made under such an agreement to the non-resident assessee or the foreign company is to be assessed under Section 44BB or Section 44D of the Act. The test of pith and substance of the agreement commends to us as reasonable for acceptance. Equally important is the fact that the CBDT had accepted the said test and had in fact issued a circular as far back as 22.10.1990 to the effect that mining operations and the expressions mining projects or like projects occurring in Explanation 2 to Section 9(1) of the Act would cover rendering of service like imparting of training and carrying out drilling operations for exploration of and extraction of oil and natural gas and hence payments made under such agreement to a non-resident/foreign company would be chargeable to tax under the provisions of Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and 2010 and the explanatory notes thereunder were also not before Supreme Court since the case pertained to AY 1985-86/1986-87. It is very humbly submitted that the decision differs on fact and in law from the case on hand since the Hon'ble Supreme Court did not have the opportunity to address the following aspects: (i) Examine second limb of the exception to definition of FTS as contained in Explanation 2 to section 9(1 )(vii) (ii) Examine the legislative intent and the amendments brought about by Finance Act 2010 INTEREST u/s 2348 13. Without prejudice to Revenue's stand that interest u/s 234B is indeed chargeable in the present case, following additional / 'protective' submission is made: It needs to be determined if the assessee had some role in having lower or no deduction of TDS u/s 197. It may be the case that the assessee itself may have approached the AD or would have insisted on the payer to deduct no TDS. [2010] 194 TAXMAN 495 (DELHI) Director of Income-tax v. Jacabs Civil Incorporated/ Mitsubishi Corporation: It is stated at the cost of repetition that the liability to deduct or collect the tax at source is that of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Hon'ble ITAT is as under: 5. The Ruling of AAR in the case of Geophzika Torun Sp. Zo.o has been confirmed by the Hon'ble Delhi High Court in the case of Director of Income Tax-II Vs. OHM Ltd. [2012] 28 taxmann 120 (Del). The said judgment of the jurisdictional High Court in the case of Director of Income Tax-II Vs. OHM Ltd. (Supra) was followed by the Hon'ble jurisdictional High Court in the case of PGS Geophysical AS (Supra). In the light of the above judgments of Hon'ble jurisdictional High Court, we hold that for the relevant assessment year, assessee is entitled to declare its income under the provision of Section 44BB of the Act. It is ordered accordingly. It is further submitted that the above order of Hon'ble ITAT was affirmed by the Hon'ble Uttarakhand High Court by dismissing the appeal of revenue at the very threshold vide order dated 06-08-2015 in ITA No. 28/2015. Relevant observations of the Hon'ble High Court are as under: 4. In the light of the judgment of the Hon'ble Apex Court in Civil Appeal No. 731 of 2007 and connected cases (Oil Natural Gas Corporation Limited vs. Commissioner of Income Tax another), t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the payments made under such an agreement to the non-resident assessee or the foreign company is to be assessed under Section 44BB or Section 44D of the Act. The test of pith and substance of the agreement commends to us as reasonable for acceptance. Equally important is the fact that the CBDT had accepted the said test and had in fact issued a circular as far back as 22.10.1990 to the effect that mining operations and the expressions mining projects or like projects occurring in Explanation 2 to Section 9(1) of the Act would cover rendering of service like imparting of training and carrying out drilling operations for exploration of and extraction of oil and natural gas and hence payments made under such agreement to a non-resident/ foreign company would be chargeable to tax under the provisions of Section 44BB and not Section 44D of the Act. We do not see how any other view can be taken if the works or services mentioned under a particular agreement is directly associated or inextricably connected with prospecting, extraction or production of mineral oil. Keeping in mind the above provision, we have looked into each of the contracts involved in the present group of cases a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act would take effect from 1st April, 2011 and would apply in relation to the asst. yr. 2011-12 and subsequent years. The amendment is prospective in nature and would not apply to the cases in hand which is of the earlier assessment years. It is submitted that the revenue has filed an special petition before the Hon'ble Uttarakhand High Court against the above case and same has been dismissed by the Hon'ble High Court vide order dated May 28th 2013 reported at 216 Taxman 190. Relevant observations of the court are as under: whereas section 44BB deals with a non-resident assessee providing, amongst others, services or facilities in connection with prospecting for, or extraction or production of, mineral oils, the sections mentioned in the proviso, referred to above, deal with fees received by nonresident assessees for providing, amongst others, services or facilities. Therefore, by adding the proviso with effect from 1st April, 2011, a clear cut distinction has been made between those non- resident assessees, who are engaged in the business of providing, amongst others, services or facilities in connection with prospecting for, or extraction or production of, mi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n for inserting the second proviso to sub-section (1) of Section 44DA and a reference to section 44DA in the proviso below sub-section (1) of Section 44BB. A careful perusal of both the provisos shows that they refer only to computation of the profits under the sections. If both the sections have to be read harmoniously and in such a manner that neither of them becomes a useless lumber then the only way in which the provisos can be given effect to is to understand them as referring only to the computation of profits, and to understand the amendments as having been inserted only to clarify the position. So understood, the proviso to sub-section (1) of Section 44BB can only mean that the flat rate of 10 percent of the revenues cannot be deemed to be the profits of the nonresident where the services are of the type which do not fall under that section, but are more general in nature so as to fall under Section 44DA. Similarly, the second proviso to sub-section (1) of Section 44DA can only be interpreted to mean that where the services are general in nature and fall under the sub-section read with Explanation 2 to Section 9(l)(vii) of the Act, then an assessee rendering such services a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that the issue is squarely covered by the decision of Hon'ble Jurisdictional High Court, decision of Hon'ble Delhi High Court in the case of OHM (supra) and by the decision of the ITAT in CGG Veritas (supra) and Phonex (supra). Our submissions in respect of Argument no. 2 i.e. Benefit of section 44BB is not applicable on second leg contracts It is submitted that the Hon'ble Delhi Tribunal in case of SBS Marine Limited vs. ADIT ITA No. 107/DEL/2012 date of pronouncement 13-02-2015has held that benefit of section 44BB of the Act should not be denied to the second leg contract. Relevant extract of the pronouncement is as under: 23. Further, there is no requirement of a direct contract or agreement with the person actually engaged in prospecting for, or extraction or production of, mineral oils as canvassed by the revenue for the applicability of section 44B8. One may refer other provisions of the statue which insists on an agreement. For instance, section 42 deals with allowances allowable in computing the profits or gains of any business consisting of the prospecting for or extraction or production of mineral oils in relation which the Central Go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot eligible under section 44BB. 29. The Revenue has heavily relied on the judgment of the Hon'ble Supreme Court of India in Union of India vs. Gosalia Shipping Pvt. Ltd., 113 ITR 307 = 2002- TI/-40-SC-L8-INTL and the judgment of the Hon'ble Madras High Court in Poompuhar Shipping Corporation Ltd. vs. ITO, 360 ITR 257 = 2013-TII-37-HC-MAD-INTL in contending that the contracts entered into by the assessee with its customers are in the nature of a contract for hire of equipment. In Gosalia's case, the Hon'ble Supreme Court had to consider whether a hire charge paid under time charter was a payment on account of carriage of goods. In this context, the Hon'ble Supreme Court held at page-311 that in order that it may be said that amount was payable on account of the carriage of goods, it would be necessary to show that one is the consideration for other, that is to say, that the payment which the charterers had agreed to make to the owners of the ship was in consideration of the carriage of goods. It was observed that if the charterers were liable to pay the amount irrespective of whether they carry the goods or not, it would be difficult to say that the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... date of pronouncement 17.02.2015wherein it has been held that the provision of section 44BB does not distinguishes between the main contractor and a sub-contractor. Relevant extract of the pronouncement is as under: 60. A reading of the aforesaid judicial precedence clarify that sec. 44BB does not distinguish between the main contractor or a subcontractor as has been interpreted by the AO and the DRP. The conclusions of the AO and the DRP are erroneous on account of the reason that the provision clearly envisages the non- resident assessee to be engaged in the business of supplying plant and machinery on hire. The only condition imposed, so to say, is that such plant and machinery has to be used or should be used for the purposes of prospecting for, or extraction or production of mineral oils. The language in section 44BB in our view is clear so also the legislative intention. It is a trite law that has already held by the Hon'ble Supreme Court in B. Parmannand vs. Mohan Koikal 2011 (4) see 266 that the language employed in a statute is the determinative factor of the legislative intend. It is well settled principle of law that the Court cannot read anything into a statu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 nature of royalty/ FTS, and not for a project undertaken by the appellant, is not eligible for benefit of Section 4488 as it would be contrary to the decisions of Hon'ble jurisdictional High Court in the cases of Foramer France and Rolls Royce. It is contended that the provisions of Section 4400A, as in force with effect from 1st April 2011, are clarificatory in nature and have to be read into the provisions of the Act. Its her contention that the provisions of Section 44BB are meant for the first leg 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 Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rocess will infringe neutrality if it is to be swayed by such policy consideration. The judicial neutrality must not only be neutral vis -avis the party but also value neutral vis-a-vis competing ideologies. Judicial authorities are to interpret the law as it exists 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 se 1762 : (1980) 3 SCC 719 (p. 1764 of AIR 1980 SC), Every new discovery nor argumentative novelty cannot undo or compel reconsideration of a binding precedent ... A decision does not lose its authority merely because it was badly argued, inadequately considered or fallaciously reasoned .... . Similarly, in the case of Kesho Ram Co. vs. Union of India (1989) 3 see 151, Hon'ble Supreme Court had observed that (t}he binding effect of a decision of this Court does not depend upon whether a particular argument was considered or not, provided the point with the reference to which the argument is advanced subsequently was actually decided in the earlier decision ..... ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration Limited vs. Commissioner of Income Tax another), the substantial questions of law relating to the assess ability of the amounts under Section 448B have to be answered against the appellant / revenue. Accordingly, we answer the said questions of law against the revenue in the light of the aforesaid judgment of the Hon'ble Apex Court. 5 .. 6. In such circumstances, the appeals are disposed of as follows: (i) We answer the questions of law relating to the assessability of the amounts under Section 44BB against the Revenue. 9. In the light of the aforesaid order of the co-ordinate Bench which have been affirmed by the Hon ble High Court, we respectfully follow the same and we hold that for the relevant assessment year i.e. AY 2010-11 the assessee is entitled to declare its income under the provision of section 44BB of the Act. 10. The next question is whether the Amendment in section 44BB and 44DA should be read as retrospective is also no longer Res-Integra as pointed out by the Ld. AR. In B J service company middle East Ltd vs DCIT 339ITR169by order dated 20.08.2011, the Hon ble Uttarakhand High Court, the jurisdiction High Court has held as u ..... X X X X Extracts X X X X X X X X Extracts X X X X
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