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2016 (7) TMI 947 - ITAT DELHI

2016 (7) TMI 947 - ITAT DELHI - TMI - Income for taxation as per section 44BB - taxability of fees for technical services - whether applicability of sections 44D and 44DA got excluded? - AO concluded that assessee’s receipts were effectively connected with the project office of the assessee in India and, therefore, taxable u/s 44DA - Held that:- The Tribunal in the case of Baker Hughes Asia Pacific Ltd.(2014 (7) TMI 601 - ITAT DELHI), has relied on the decision of Hon’ble Jurisdictional High Cou .....

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presumptive basis u/s 44BB of the Act. The services carried on by assessee are in connection with the prospecting for mineral oils and, therefore, following the decision of Hon’ble Supreme Court, the assessee’s appeal deserves to be allowed. In view of above discussion, the assessee’s appeal is allowed and the appeal filed by the Revenue stands dismissed. - Decided in favour of assessee. - I.T.A .No.5602/Del/2013, I.T.A .No.5400/Del/2013 - Dated:- 13-5-2016 - SHRI S. V. MEHROTRA ACCOUNTANT MEMB .....

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n-resident company, incorporated under the laws of British Virgin Islands, and is engaged in the business of acquisition and processing of twodimensional (2-D) and three-dimensional (3-D) seismic data for companies engaged in exploration and production of mineral oils in India. The assessee had set up a project office in India for execution of the contract with the upstream companies and tires it was submitted that the assessee has a permanent establishment (PE) in India. It was submitted that s .....

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income of the assessee has been computed as per the provisions of section 44 BB of the act at a deemed profit of 10% of gross revenues. 2.2. During the year under consideration the assessee has offered the revenues from the following contracts: Name of the company contract details Contract No. and date Scope of work Contract Revenue ONGC Contract No. MR/WOB/MM/ GP/QML/Hon'ble Supreme Court /OB/2006/EB-2132 Long term leasing of one Q-marine vessel for the field season 2007-08 two Q-marine ve .....

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010048244 dt 27.07.2009 Carrying out Simultaneous . Inversion in Block CY-DWN-2001/1 2,288,000 ONGC Contract No. MAT/MP/E-II(2739)/AMC-WG/2008-09dt. 04.02.2009 Annual Maintenance contract for Upgradation, maintenance and support of Omego Software Licences 19,444,291 ONGC Contract No.901005356 Agreement dated 03.08.2006 For Hiring of AMC Servsics for a period of 3 years for Omego Processing System on Board M/V Saga Sandhani 999,567 ONGC Work order No 5010037378 Purchase order dated 05.03.2008 Ins .....

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Reprocessing of Colombia Borojo Block 5,352,678 Santos Contract No.700008 dated 23.01.2009 Marine 3D Seismic data processing services of blocks NEC-DWN-2004/1 andNEC-DWN-2004/2 Offshore India 57,908,845 Cairn Contract No.1000000 381 Provision of 3D PSTM Seismic Data Processing Services 41,680,828 Hardy Contract No. Delivery of pre migration gathers for PV3 and FonE Delivery of Pre Migration gahes fsor PY3 and 462,500 ENI Contract No.226/AN/PROC/2 009 dated 06.11.2009 3D Seismic Data Processing .....

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terpretation course at UAN 1,155,250 Total Receipts 7,407,572,086 2.3. It has been submitted by the assessee that the above contracts have been continuing since previous year in respect of most of them and in respect of new contracts executed for which revenue have been offered during this year are also having similar nature of scope of work. The scope of work of the above contracts include processing of PD line data, survey long-term lease of Marine technology, hiring of Q-Marine Vessel with th .....

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rofit and gains in connection with the business of exploration etc. of mineral oils in the case of non-resident and since assessee was rendering technical services, therefore, section 44BB was not applicable. He issued a notice u/s 142(1), in response to which the assessee pointed out that its income was taxable u/s.44BB of the Act as the services rendered by it were not technical services within the meaning of Explanation 2 to section 9(1)(vii) of the Act. The assessee further pointed out that .....

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ion the amendments brought in w.e.f. 1.4.2011 by Finance Act 2010, concluded that assessee s receipts were effectively connected with the project office of the assessee in India and, therefore, taxable u/s 44DA of the I.T. Act as these are fees for technical services. Ld.AO further made addition in respect of reimbursement of mobilisation/demobilisation receipts in the hands of the assessee to an extent of ₹ 63,46,38,677/-. 2.7. The Ld.AO also disallowed the reimbursement of service tax re .....

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essee s own case for assessment year 2007-08, in ITA No. 5977/Del/2010. The assessee had also placed reliance upon the decision of M/s CGG Veritas Services SA Vs. Additional Director of Income Tax (International taxation), Denradun, reported in (2012) 50 SOT 335 (DEL). The ld.CIT(A), following the decision of assessee s own case for the previous assessment year allowed the ground released by the assessee. However on the issue relating to reimbursement of the mobilisation/demobilisation expenses .....

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issioner of Income Tax (Appeals) - II [hereinafter referred to as the 'learned CIT(A)'] under section 250(6) of the Income-tax Act, 1961 (hereinafter referred to as the 'Act') (received by the Appellant on 19 August 2013) on the following grounds: Addition qua mobilization / demobilization receipts attributable to distance travelled outside India: 1. The learned CIT(A) has erred in taxing receipts amounting to ₹ 634,638,677 from mobilization/ demobilization of vessels attri .....

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mit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal so as to enable the Hon'ble Tribunal to decide the appeal in accordance with the law. Rervenues Appeal ITA No. 5400 1. Whether on the facts and circumstances of the case, the Ld CIT(A) has erred in holding that the revenues of the assessee from the activities of proceedings of PD line data, long- term lease of marine vessels, AMC for hiring of MT Survey, carrying out simultaneo .....

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d in holding that the income of the assessee was not taxable under the provisions of see 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. 3. Whether on the facts and 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 see 44BB and ignoring the fact that taxability u/s 44BB shall not apply in respect of income referred to .....

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as erred in ignoring the distinct scheme of taxation of FTS/Royalty and disregarding the insertion of provisos in section(s) 44BB/44DAIl15A and the rationale behind the introduction of said clarificatory proviso's in the Finance Bill 2010. 6. Whether on the facts and circumstances of the case, the CIT(A) has erred in relying on the decision of the IT A T in the case of M/s CGG Veritas Services, SA in ITA No.4653/Del/20l0 (on the issue that once a PE is established to be in place then the inc .....

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g vs CIT. 8. Whether on the facts and circumstances of the case, CIT(A) has erred in not appreciating the findings given by the AO who has held that the receipts of the assessee is in the nature of Fee for Technical Services and has estimated the income by applying deemed profit rate of 25% on gross receipts as per the provisions of Rule 10 of the Income tax Rules, 1962 in the absence of books of accounts. 5. We shall 1st deal with the issue relating to taxability revenues from seismic data acqu .....

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has been mentioned separately in the contract, as it is separate from the consideration received for services for exploration which is the main activity of the assessee. 5.2. At the outset the ld.AR submitted that the issue in ground No. 1 of the assessee s appeal relating to the revenue received from mobilisation/demobilisation, whether taxable in India or not is now settled by the order of this tribunal in assessee s own case for assessment year 2009-10 in ITA number 04/09/2006/del/12. This Tr .....

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ation 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 birth. Mobilisation is paid as 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 bases, the revenue is attributable to the activity of mobilisatio .....

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he case of Sedco Forex International Inc (supra). The ratio laid down by Hon ble Supreme Court in that case is not applicable here as it is not a case where separate parts of a contract are executed at different places. The argument that the payment was in the nature of reimbursement of expenses incurred by the assessee company and hence not income was also rejected by the Hon ble High Court. Thus we are unable to agree with the contentions of Ld. counsel for the assessee. Thus these grounds of .....

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issue now stands settled by the order of Hon ble jurisdictional High Court in the case of the DIT Vs. Mitchell Drilling International Pvt. Ltd. in ITA No. 403/2013. 6.1. On perusal of the judgment of the Hon ble High Court in DIT Vs. Mitchell Drilling International Pvt. Ltd (supra), the question that was considered is as under: whether the amount of service tax collected by the assessee from its various clients should have been included in gross receipts while computing its income under the pro .....

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emed to be received by the assessee for the services rendered by it. The assessee is only collecting the service tax for passing it onto the government. 6.2. The Hon ble High Court while deciding this issue has dealt with all the judgments, referred by Ld.CIT (DR) before us, which are as under: 1. Chowringhee sales Bureau Pvt.Ltd. Vs. CIT reported in (1973) 87 ITR 542(SC) 2. George Oaks (P) Ltd Vs. State of Madras (1962) 2 SCR 570. 6.3. The Hon ble High Court has distinguished these judgments to .....

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es to the taxability of fees for technical services under section 44 BB or under section 44DA or and under section 115A of the act. 7.1. Ld. AR submitted that to the facts of the present case for the year under consideration, the gross receipts of assessee are taxable u/s 44BB because, insertion of section 44DA in the proviso to sec. 44BB w.e.f. 1.4.2011, has been held to be prospective in nature. He submitted that ld.AO has given specific finding of permanent establishment of assessee being the .....

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s for technical services paid under the contract is effectively connected with such permanent establishment or fixed place of profession in India. In section l15A(l)(b) the Finance Act, 2003 with effect from 1.4.2004 substituted words "a non-resident (not being a company) or a foreign company includes any income by way of royalty or fees for technical services other than income referred to in sub-section (1) of section 44DA" for words "a foreign company, includes any income by way .....

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visions of section 44BB (1) will not be applicable in respect of income referred to this section. On combined reading of proviso to section 44BB (1) and second proviso to section 44DA-it is clear that the fee for technical services rendered in connection with prospecting for or extraction or production of mineral oil though effectively connected with PE or fixed place of profession will fall not under section 44BB(1) and will be assessable under section 44DA of the Act. To make it more clear the .....

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or fixed place of profession-(section 44DA); (iv) Other fee for technical services without business PE or fixed place of profession-(section l15A); Thus it is abundantly clear that with effect from assessment year 2011-12 fee for technical services whether rendered in connection with prospecting for or extraction or production of mineral oil or otherwise will be assessable either u/s 44DA or section l15A of the Act depending on fact whether such receipts are effectively connected with PE or fixe .....

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Ld. AR has placed as reliance on the decision of this Tribunal in assessee s own case for assessment year 2007-08 and 2009-10 in ITA No. 5977/Del/2010. 7.3. Ld.AR referred to the decision of Hon ble Supreme Court in the case of ONGC Ltd. Vs. CIT (2015) 59 Taxmann.com 1, wherein it has been held that, where the dominant purpose of agreement is for prospecting, extraction or production of mineral oil, though there may be certain ancillary works contemplated thereunder, the payments received by th .....

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l oils though there may be certain ancillary works contemplated thereunder. If that be so, we will have no hesitation in holding that the payments made by ONGC and received by the non-resident assessee is all foreign companies under the said contracts is more appropriately assessable under the provisions of section 44 BB and not section 44D of the act. On the basis of the said conclusion reached by ours, we allow the appeals under consideration by setting aside the orders of the High Court passe .....

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ational Ltd., reported in (2013) 35 Taxman.com 345. He submitted that the Hon ble court has set aside the issue back to the assessing officer for examining the same. 8.2. In the rejoinder ld.AR submitted that the Hon ble Uttrakhand High Court has actually dismissed the appeal filed by the revenue. He submitted that the Hon ble High Court has set aside the issue to the assessing officer only with respect to permanent establishment or fixed place of profession which has not been examined by the as .....

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gment under appeal, the claim of the department that the assessee is not covered by section 44 BB and it falls either under sections 115 A over 44 DA was not accepted by the tribunal in view of the insertion of the proviso to subsection (1) of section 44 BB by the finance act, 2010 w.e.f. 1st April, 2011. Whereas, the section 44 BB deals with all kinds of services in connection with prospecting for, extraction or production of mineral oils; section 44DA deals with, amongst others, fees for techn .....

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oviso to subsection (1) of section 44 BB was inserted. 8.3. The ld.AR submitted that the assessment year before the Hon ble Uttarakhand High Court was 2007-08 does he submitted that the amendment being prospective in nature would not be applicable to the year prior to 2012-13. 9. We have considered the rival submissions and have perused the record of the case. The assessment year under consideration is 2010-11, which is prior to assessment year 2011-12. The insertion of section 44DA in the provi .....

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ection 44BB is retrospective and, therefore, royalty and fees for technical service should be taxed u/s 44DA and not u/s 44BB. In our opinion, the amendment cannot be held to be retrospective particularly because it brings substantial change in the taxability of assessee. It is well settled law that an amendment to the taxing statute if results in higher tax burden on assessee then it is prospective in nature and not retrospective. We find that this issue has been dealt elaborately by Hon ble Ju .....

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wherein in para 11 &12, has been held as under; 11. We do not think that there is any error in the view taken by AAR. Basically the rule that the specific provision excludes the general provision has been applied. Section 44BB is a special provision for computing the profits and gains of a non-resident in connection with the business of providing services or facilities in connection with, or supplying plant and machinery on hire, used or to be used, in the prospecting for, or extraction or p .....

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ntract in respect of which the royalties or fees for technical services are paid is effectively connected with the permanent establishment or fixed place of profession. Such income would be computed and assessed under the head "business" in accordance with the provisions of the Act, subject to the condition that no deduction would be allowed in respect of any expenditure or allowance which is not wholly or exclusively incurred for the business of such permanent establishment or fixed p .....

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cting for, or extraction or production of mineral oils". Revenues earned by the non-resident from rendering such specific services are covered by Section 44BB. It is a well settled rule of interpretation that if a special provision is made respecting a certain matter, that matter is excluded from the general provision under the rule which is expressed by the maxim "Generalliaspecialibus non derogant'. It is again a wellsettled rule of construction that when, in an enactment two pro .....

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he very essence of the rule of harmonious construction. In South India Corporation (P) Ltd. v. Secretary, Board of Revenue Trivandrum, AIR 1964 SC 207 it was held that a familiar approach in such cases is to find out which of the two apparently conflicting provisions is more general and which is more specific and to construe the more general one as to exclude the more specific. 12. The second proviso to sub-section (1) of Section 44DA inserted by the Finance Act, 2010 w. e. f. 01.04.2011 makes t .....

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nt has not been spelt out in Section 44BB; moreover, a flat rate of 10 percent of the revenues received by the non-resident for the specific services rendered by it are deemed to be profits from the business chargeable to tax in India under Section 44BB, whereas under Section 44DA, deduction of expenditure or allowance wholly and exclusively incurred by the non-resident for the business of the permanent establishment in India and for expenditure towards reimbursement of actual expense by the per .....

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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 .....

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hen an assessee rendering such services as provided in Section 44BB cannot claim the benefit of being assessed on the basis that 10 percent of. the revenues will be deemed to be the profits as provided in Section 44BB. In other words, the amendment made by the Finance Act, 2010 w. e. f. 01.04.2011 in both the sections, cannot have the effect of altering or effacing the fundamental nature of both the provisions and their respective spheres of operation or to take away the separate identity of Sec .....

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