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2016 (8) TMI 322 - ITAT DELHI

2016 (8) TMI 322 - ITAT DELHI - TMI - Taxability in India - Proportionate amount received for demobilization of vessels outside Indian territorial waters to be included in the gross receipts u/s 44BB - As per assessee this income is not chargeable to tax in India as per section 5 read with section 9 of the Act - Held that:- This issue has already been decided by the Hon’ble High Court in case of Sedco Forex International Inc. vs. Commissioner of Income-tax [2007 (9) TMI 196 - UTTARAKHAND HIGH CO .....

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legality or perversity in the findings returned by the ld. CIT (A) reversing the order passed by the AO as to the holding the assessee’s revenue on account of equipment rent under contract with non-PSC Partners taxed u/s 44DA of the Act. So, we are of the considered view that the contracts entered into between the assessee and other parties, known as second leg contracts are eligible for benefits of tax treatment u/s 44BB of the Act. - Decided against revenue - ITA No.5864/Del./2013, ITA No.5927 .....

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iling the present appeal sought to set aside the impugned order dated 26.08.2013 passed by the Commissioner of Income-tax (Appeals)-II, New Delhi qua the assessment year 2010-11 on the ground that :- That the Ld. CIT (A) has erred on facts and in law in affirming the action of the A.O. in holding that the amount aggregating to ₹ 37,198,378/- being the proportionate amount received by the appellant for demobilization of vessels outside Indian territorial waters is to be included in the gros .....

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the assessment year 2010-11 on the grounds inter alia that :- 1. Whether on the facts and circumstances of the case, the Ld CIT(A) has erred in holding that no distinction can be made between receipts from production Sharing Participants ( PSC Partners') and Non-Production Sharing Participants ('Non-PSC Partners') and between services rendered by first-leg and second-leg vendors, ignoring the fact that the receipts from non-PSC partners on account of supplies of plant & machinery .....

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1)(vii) of the Act, 1961 read with section 44DA of the Act eligible for treatment under presumptive provisions of section 44BB of the Act. 2. Whether on the facts and in the circumstances of the case, the Ld CIT(A) has erred in ignoring the distinct scheme of taxation of Fee for Technical Services and Royalty and disregarding the insertion of provisos in section(s) 44BB / 44DA / 115A and the rationale behind the introduction of said c1arificatory provisions in the Finance Bill 2010 while holding .....

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n of the Hon'ble Supreme Court in the case of Sedco Forex International Drilling v/s CIT. 4. Whether on the facts and circumstances of the case, the Ld CIT(A) has erred in ignoring the decision of jurisdictional High court in the cases of a GC as Agent of Foramer France and M/s Rolls Royce Pvt Ltd [2007-TII- 03-HC-UKHAND-INTL] 5. Whether on the facts and circumstances of the case, the Ld. CIT (A) has erred in reversing the action of the AO who, having held that the assessee revenues on accou .....

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n, FCA along with Shri Hitesh Dodhi, CA put in appearance and filed written replies. During the year under assessment, assessee offered gross revenue of ₹ 102,20,66,402/- and has computed the income by applying deemed profit rate at 10% u/s 44BB of the Act in respect of all the seven contracts entered into between the assessee and the other seven parties duly detailed in para 2 of the assessment order. Assessee offered an amount of ₹ 5,68,000/- on account of interest income u/s 244A .....

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arges amounting to ₹ 40,06,422/- and accordingly, assessee was called upon to explain. Finding the explanation furnished by the assessee not tenable, AO came to the conclusion that by taking the gross receipt, it means that what is to be brought to tax is the total cost burden of the sub-contract given to the assessee plus its profit margin and since, in this case, the revenues are being assessed u/s 44BB reimbursement of the service-tax receipts of the assessee shall also be included in r .....

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production and exploration of the activities itself and found the same to be a second leg contract. Total receipt in respect of aforesaid contract came to ₹ 90,65,24,815/-. AO noticed second category of contracts where payments received by non-resident company from another non-resident (not a member of production sharing contract) (PSC) for supplying plant and machinery on hire used or to be used by a third party for the activities specified in section 44BB (1) of the Act and found the sam .....

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by way of challenging the assessment order who has partly allowed the appeal. Feeling aggrieved, both the revenue as well as assessee approached the Tribunal by way of filing separate appeals by challenging the impugned order passed by the ld. CIT (A). 7. We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case. ITA No.5864/Del/20 .....

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the ld. AR for the assessee fairly conceded that this issue has already been decided by the Hon ble High Court in case of Sedco Forex International Inc. vs. Commissioner of Income-tax [2008] 299 ITR 238 (Uttarakhand) against the assessee, so the ld. CIT (A) has rightly held that mobilization charges constitute part of the gross receipts of the assessee as per provisions contained u/s 44BB. Consequently, ground no.1 is determined against the assessee. ITA No.5927/Del/2013 (FILED BY THE REVENUE) G .....

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e Supreme Court. 11. Now, the sole question arises for determination in this case is:- as to whether revenue received by the assessee from non-Production Sharing Participants (non-PSC) Partners are in the nature of royalty pertaining to second leg contract and as such not eligible for treatment under presumptive provisions of section 44BB of the Act and chargeable to tax @ 25%? 12. Identical issue stands decided by the coordinate Bench of the Tribunal in assessee s own case qua AYs 2004-05, 2007 .....

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ecified business is eligible for claim of concessional rate of taxation u/s 44BB of the act or not. This is in common parlance referred to as Second Leg‟ Contracts. The plant supplied by the assessee are vessels and therefore they cover in the definition of plant which is also not in dispute. 23. Coordinate bench of ITAT in SBS Marine Limited v ADIT [ITA 107/Del/2012 dated 13.2.2015] after considering the decisions of honourable supreme court in case of UOI V Gosalia Shipping Pvt. Limited .....

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re duty bound to follow the decision approved by Honourable Uttarakhand high court. Coordinate bench has held 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 44BB. One may refer other provisions of the statue which insists on an agreement. For instance, section 42 deals with allowances allowable in comput .....

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roviding services, facilities or plant and machinery on hire should have directly entered into a contract or agreement with the person actually engaged in prospecting for or extraction or production of, mineral oils, one cannot curtail the scope or applicability of section 44BB to second leg contractors whose contracts or agreements are with first leg contractors but whose services or facilities or plant and machinery are used in connection with prospecting for or extraction or production of, mi .....

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ourt may be applied in the context of section 44BB in as much as section 44BB does not mandate that the assessee should directly enter into contract with the person engaged in the business of prospecting for or extraction or production of, mineral oils or the services or facilities or plant and machinery on hire should be directly provided to the said person alone. We have already given a finding of fact that the services and facilities provided by the assessee along with plant and machinery are .....

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eg contractors they are not eligible under section 44BB. 24. Therefore in view of the decision of SBS Marine Limited V ADIT (Supra) we hold that even second leg contracts are also eligible for the benefit of tax treatment provided u/s 44BB of the Act. 25. Second Contention raised was that amendment in section 44BB and 44DA should be read as retrospective. Honourable uttarakhand High court in assessee s own case in 339 ITR 169 has held that As stated earlier, the combined effect of the provisions .....

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