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ADIT Intl. Taxation, Ayakar Bhawan, Dehradun Versus Tidewater Marine Intl. Inc., C/o. Nangia & Co. and vice-versa

2016 (2) TMI 921 - ITAT DELHI

Reopening of assessment - Held that:- As the original returns were accepted u/s 143(1) of the act there cannot be any change of opinion and therefore reopening is valid. Reopening is not challenged before us on any other ground. Hence we dismiss the CO of the assessee accordingly. - Royalty us./ 9 (1) (vi) - Receipt of the assessee is rental of vessels received from non-production sharing companies (i.e. Second Leg contracts) - non applicability of provisions of section 44BB - Held that:- In .....

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n gross basis u/s 115A of the Income tax Act. - Interest u/s 234B & 234C is not chargeable - ITA Nos. 592 /Del/2013, ITA No. 746 /Del/2013 , ITA No. 1810 /Del/2013, C.O. No.63/Del/2013 in ITA Nos. 592 /Del/2013 , ITA Nos. 5289 /Del/2010 ,ITA Nos. 5775 /Del/2011 - Dated:- 7-2-2016 - SHRI I.C.SUDHIR, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER Assessee by: Sh. Anuj Kumar Arora, CIT DR Revenue by: Sh. Amit Arora, CA O R D E R PER PRASHANT MAHARISHI, A. M. 1. Captioned appeals .....

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evenue of second leg Contract Whether Interest U/s 234B is challenged? Mobilisation advance 592/Del/2013) Revenue 2004-05 18,03,35,319 Yes N.A. 263/del/2013 Assessee 2004-05 Against reopening of assessment 5289/del/2010 Assessee 2007-08 30,04,25,130 Yes 5775/Del/2011 Assessee 2008-09 3,70,49,514 Yes N.A. 746/del/2013 Revenue 2009-10 99,24,572 13477470 1810/del/2013) Revenue 2009-10 NA Yes NA 3. We first take up the Cross objection filed by assessee in ITA no 592/Del/2013 for AY 2004-05 i.e. co. .....

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n the absence of any tangible new material which can possibly justify the reopening of assessment under section 148. iii. That the Ld. CIT (A) erred in not holding that the notice under section 148 was bad in law and hence the resultant reassessment proceedings were void ab-initio. 4. Brief facts of the case are that the assessee is a company existing under the laws of Panama engaged in the business of the providing offshore supply of vehicles and associated services to the oil and gas industry. .....

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; 160561005/- are in the nature of royalty as they pertain to second leg contracts not eligible for preferential treatment u/s44BB of the Income tax Act and therefore are in the nature of royalty u/s 9(1) (vi) of the Act and they are therefore chargeable to tax @25%. 5. The assessee aggrieved with this order preferred an appeal before learned Commissioner of Income-tax (Appeals). The learned Commissioner of Income-tax (Appeals) has decided the issue in favour of the assessee holding that the ser .....

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is chargeable to tax as royalty. 6. The assessee is a sub-contractor engaged in rental of vessels. Revenue contested that decision of CGG Veritas (supra) has not been accepted by the revenue and though appeal has not been filed before the Hon‟ble High Court but a miscellaneous application is pending before the Tribunal. Regarding the issue of levy of interest u/s 234B it is contested that revenue has filed special leave petition before the Supreme Court against the case of Jacob Civil Inc .....

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the entire revenue u/s 44BB of the Act which is not correct as the assessee is only providing supporting vessels which used for logistic purpose and these vessels are not used for drilling or exploration purposes and therefore it is merely rent for the vessels it is not covered u/s 44BB of the Act. He further submitted that there is an amendment in the Finance Bill 2010 w.e.f. 01.04.2011 coupled with the decision of Foramer France provides enough tangible material for formation of belief to the .....

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gainst the reasons recorded for reopening. 10. On perusal of the order of CIT (A) we could not find that ground challenging the reopening of the assessment has been raised before him. However as the assessee has raised this legal ground which according to established legal proposition assessee can raise at any time of the proceedings. No further facts are also required to be obtained on this issue, therefore we do not set aside this issue to the file of CIT (A) but adjudicate it. 11. Original as .....

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nnot be any change of opinion. For this proposition assessee has relied on the decision of Honourable high court of Uttarakhand in B J service company Middle East Ltd & Others V DCIT (intl. Taxation) 339 ITR 169. We have carefully perused this decision where in according to the facts of the case original assessment was framed u/s 143(3) of the act and therefore Honourable high court has held that 52. To recapitulate, the reasons given for initiating proceeding under section 148 of the Act is .....

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ons of section 44DA or section 115A irrespective of the business to which it relates. 53. In view of the decision of the Delhi High Court in Bhai Sunder Dass and Sons Co. P. Ltd. v. CIT [2003] 259 ITR 33 (Delhi) and that of the Gujarat High Court in Austin Engineering Co. Ltd. v. Joint CIT [2009] 312 ITR 70 (Guj), this court is of the view that subsequent pronouncement by a court or a superior court does not entitle the Assessing Officer to reopen the assessment proceedings on the ground that th .....

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bsequent decision rendered by this court. In the opinion of the court, this reasoning amounts to a change of opinion by the Assessing Officer. Further, there is no failure on the part of the assessee in disclosing fully and truly all material facts. 54. In so far as the second reason is concerned, the court finds that the primary facts had been disclosed by the petitioner, namely, the agreement/ contracts were placed before the Assessing Officer. The court further finds that the Assessing Office .....

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falls under section 44BB of the Act. The Full Bench of the Delhi High Court in the case of Kelvinator [2002] 256 ITR 1 (Delhi) has held that where an assessment order has been passed under section 143(3) of the Act, a presumption can be drawn that such an order had been passed on due application of mind. Because in case of the assessee original assessment is not u/s 143(3) but merely returns were processed u/s 143(1) of the act, reliance on above decision is misplaced. 12. Honourable Supreme Co .....

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ch as while accepting the return under the aforesaid provision no opinion was formed and, therefore, on this basis, the notice issued was valid. We find that this aspect is squarely covered by the judgment of this court in Asst. CIT v. Rajesh Jhaveri Stock Brokers Private Ltd. [2008] (14) SCC 208* in the following manner : "In the scheme of things, as noted above, the intimation under section 143(1)(a) cannot be treated to be an order of assessment. The distinction is also well brought out .....

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e Departmental work to scrutinise each and every return and to concentrate on selective scrutiny of returns. These aspects were highlighted by one of us (D. K. Jain J.) in Apogee International Ltd. v. Union of India**. It may be noted above that under the first proviso to the newly substituted section 143(1), with effect from June 1, 1999, except as provided in the provision itself, the acknowledgment of the return shall be deemed to be an intimation under section 143(1) where (a) either no sum .....

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ted to be payable in the intimation became permissible. And nothing more can be inferred from the deeming provision. Therefore, there being no assessment under section 143(1)(a), the question of change of opinion, as contended, does not arise." 3. The offshoot of the aforesaid discussion is to hold that the judgment of the High Court is erroneous and warrants to be set aside. We allow this appeal setting aside the impugned judgment of the High Court. 13. Therefore we hold that as the origin .....

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lowing grounds of appeal:- (i) Whether CIT(A) has erred in holding that receipts of the assessee as a subcontractor engaged in rental of vessels is not royalty u/s 9(i)(vi) of the Act. (ii) Whether On the facts and circumstances of the case, the CIT(A) has erred in holding that the receipts on account of hire of Marine Offshore supply vessel was not in the nature of Royalty u/s 9(i)(vi) of the IT. Act, 1961 and eligible for 44BB. (iii) Whether on the facts and circumstances of the case the CIT ( .....

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er the presumptive provisions of sec. 44BB, disregarding the insertion of proviso in section 44BB/44DA/115A and the rationale behind the introduction of said clarificatory proviso's in the Finance Bill 2010. (v) Whether on the facts and circumstances of the case the CIT (A) has erred in relying on the decision of the ITAT in the case of M/s CGG VERITAS in holding that the income of the assessee company was covered under the provisions of section 44BB given AO's finding regarding PE ignor .....

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n the case of Jacobs Civil Incorporated/ Mitsubishi involving similar issue. (vii) Whether on the facts and circumstance of the case CIT(A) has not appreciated that assessee has failed to distinguish the case of ONGC vs. IAC 29 ITD 422 which clearly states that section 44BB will not apply to the case of a mere transport vessel, and that the facility hired out has to be intimately connected with the prospecting for oils etc. 16. Following broad issues that emerges for the adjudication are:- a. Re .....

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of Honourable Jurisdictional High court. 17. Before us revenue contended by written submissions as under :- a) In terms of the provisions of section 44BB, the receipt of only such non-resident assessee who has supplied plant and machinery on hire used for the purposes of 'prospecting for, or extraction or production, of mineral oils' shall be eligible for the benefit under section 44BB of the Act. It is notable that the phrase 'used or to be used‟ is used in s 44BB is in contex .....

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relating to vessels / ships used for transportation simplicitor; (ii) Receipts of sub-hiring. b) He further relied on following decisions a. ITAT in ACIT v. Interocean Shipping (I) (P.) Ltd. [1994] 51 ITD 582 (DELHI) (Para 8) b. Geofizyka Torun Sp.zo.o, In re, [2010] 186 TAXMAN 213 (AAR), c. ITAT in ONGC v Inspecting Assistant Commissioner [1989] 29 ITD 422 (DELHI) (1989) 33 TTJ 606 d. Hon'ble Supreme court in the case of Union of India v. Gosalia Shipping (P.) Ltd. [19781 113 ITR 307 e. Su .....

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: (A) Receipts from supplying on hire of a mere transportation vessels / ships; and / or (B) Receipts when the assessee is the second (or further) leg supplier of plant and machinery e) It is his further submission that once the hire receipts are excluded from s 44BB, they have been brought to tax by the AO as equipment royalty as receipts from industrial / commercial vessels / ships u/s 9(1) (vi) of the Act. He defended that AO treated all hiring receipts as "Royalty" income within th .....

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case of the assessee, Tidewater, the main issue is that the vessels supplied mere transportation vessels, used for "transporting goods, supplies or equipment in support of exploration or production of offshore mineral and energy sources". g) He further submitted that the contrasting phrases 'in connection with' as against 'used, or to be used1 are being appropriately emphasized and contrasted / compared now. The SBS Marine decision is silent on this critical aspect. h) Rega .....

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case of SBS Marine Limited which has been upheld by honourable High court relying on decision of honourable Supreme Court. LD AR also made written submission dealing with the above decision as well as putting his submission on issues raised by ld. DR. The main arguments over and above the clinching argument of the AR were :- a) The revenue is taking differing stand in AY 2003-04 these all payments were considered u/s 44BB of the Act therefore on the ground of consistency this issues by decided .....

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ction 44BB of the Act are excluded from the definition of term Royalty. c) He relied on following decisions to support his views on this issue. a. LOUIS DREYFUS ARMATEURES SAS in ITA No. 5814/DEL/2010 date of pronouncement 17-02-2015 b. ADIT vs. Baker Hughes Singapore Pte. Ltd ITA No.744/DEL/2013 date of pronouncement 20-04-2015 c. PRIDE OFFSHORE INTERNATIONAL LLC vs. ADIT in ITA no. 5406/DEL/2012 d) On retrospective applicability of Section 44BB and 44 DA by the finance Act 2010 he relied on Ou .....

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perused and considered all the decision cited before us which we considered as relevant for deciding the issue. 20. Provisions of section 44BB are as under :- SPECIAL PROVISION FOR COMPUTING PROFITS AND GAINS IN CONNECTION WITH THE BUSINESS OF EXPLORATION, ETC., OF MINERAL OILS (1) Notwithstanding anything to the contrary contained in sections 28 to 41 and sections 43 and 43A, in the case of an assessee being a non-resident engaged in the business of providing services or facilities in connecti .....

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44DA or section 115A or section 293A apply for the purposes of computing profits or gains or any other income referred to in those sections. (2) The amounts referred to in sub-section (1) shall be the following, namely:- (a) the amount paid or payable (whether in or out of India) to the assessee or to any person on his behalf on account of the provision of services and facilities in connection with, or supply of plant and machinery on hire used, or to be used, in the prospecting for, or extracti .....

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in that sub-section, if he keeps and maintains such books of account and other documents as required under sub-section (2) of section 44AA and gets his accounts audited and furnishes a report of such audit as required under section 44AB, and thereupon the Assessing Officer shall proceed to make an assessment of the total income or loss of the assessee under sub-section (3) of section 143 and determine the sum payable by, or refundable to, the assessee. 21. Therefore according to the section it .....

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nes what plant is and what is mineral oil. 22. There is no dispute on applicability of this section to the business of the assessee. Only limited issue before us is whether supplying plant or machinery on hire to a company which in turns provides services or facility to the company which is engaged in the specified 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‟ sup .....

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ate bench has also been upheld by honourable Uttarakhand High court vide order dated 6.8.2015 in ITA No 36/2015 applying judgement of Honourable Supreme court in case of Oil And natural Gas Coorp. Limited V CIT [376 ITR 306 ( SC)]. There is no contradictory decision of any high court placed before us. Therefore we are 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 .....

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t. Section 80IA(4)(i)(b) provides that the enterprise carrying on the business of developing, operating and maintaining any infrastructure facility has to enter into an agreement with the Central Government of a State Govt. or a local authority etc. In the absence of any requirement in section 44BB that the person providing 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 extractio .....

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hicles in their business of running them on hire is entitled for higher rate of depreciation on the vehicles given on lease. It was held by the Hon'ble Supreme Court that the lessor need not himself use the vehicles in the business of running them on hire. The rationale of the aforesaid decision of the Supreme Court 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 bus .....

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n the present case. 24. In view of the above, there is no merit in the contentions of the revenue that the assessee is not an eligible assessee under section 44BB since it has not directly entered into contract with the ONGC and it is not undertaking the activities specified in section 44BB itself and being second leg 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 eli .....

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endments proposed in section 44BB and 44DA of the Act would take effect from 1st April, 2011 and would apply in relation to the assessment year 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. Hence we reject this argument of the revenue. 26. As we have already held that receipt of the assessee is chargeable tax pertaining to second leg contracts also u/s 44BB of the Income tax act, consequentl .....

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vi) of the appeal is against the charging of interest u/s 234B of the act. 29. The Only argument of the Ld DR is that it is consequential and relied on the decision of 45 taxmann.com 422 (Delhi HC) Alcatel Lucent USA, Inc. 30. LD AR against this submitted that appellant being a non-resident, is not liable to pay any advance tax under the Act, as its entire income is subject to deduction of tax at source. Accordingly, the appellant cannot be held liable to pay interest u/s 234B. Further the appel .....

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s. Halliburton Offshore Services Inc. 271 ITR 395 (Uttarakhand) DIT (International Taxation) Vs. NGC Network Asia LLC 313 ITR 187( BOm) DIT (International Taxation) Vs. Clifford Chance LLP in ITA No. 2883 of 2008 (Boom) 31. We have carefully considered the rival contentions . We have carefully considered the above argument which is mainly that in a case of a non-resident whose entire income was subject to tax deduction at source under s. 195 interest u/s 234 B is not chargeable. There are confli .....

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it is that when the income is chargeable to tax in India of Non resident u/s 195 they cannot escape the liability of interest u/s 234B of the act. It has come to our notice that SLP filed before the Honourable supreme court in case of DIT (International Taxation) Vs. Clifford Chance LLP in ITA No. 2883 of 2008 (Bom) has been dismissed as stated in ITA No.5823/Del /2011 Assessment Year : 2008-09 in Fugro Geoteam AS V Addl. Director of Income tax Levy of Interest 8. Interest u/s 234B & 234C i .....

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is not chargeable. 32. Hence we dismiss the ground no (v) of the appeal of the revenue. 33. In the result appeal of the revenue is dismissed. 34. Now we come to appeal of the assessee for AY 2007-08[ ITA No 5289/Del/2010] where in Ground No 1 to 5 were against the income of second leg contract income chargeable u/s 44BB of the act or as equipment royalty u/s 9(1) (vi) of the Income tax Act. Both the parties agreed that facts of this case were identical to case heard for AY 2004-05 in revenue .....

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s identical to ground no (vi) decided by us in the appeal of the revenue for AY 2004-05 to which both the parties agreed. Therefore we allow this ground of appeal of the assessee. 37. In the result appeal no 5289/Del/2010 For A Y 2007-08 filed by the assessee is allowed. 38. Now we come to appeal of the assessee for AY 2008-09[ ITA No 5775/Del/20011] where in Ground No 1 to 5 were against the income of second leg contract income chargeable u/s 44BB of the act or as equipment royalty u/s 9(1) (vi .....

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