TMI Blog2016 (2) TMI 921X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 are bunch of 6 appeals for AY 2004-05 to 2009-10 out of which 4 appeals are pertaining to a single issue of taxability of certain receipts u/s 44BB of the Act. One appeal ITA No 1810/del/2013 is preferred by Department against the issue of chargeability of interest u/s 234B of the act. It includes one cross objection against reopening of assessment u/s 147 of the act for AY 2004-05 preferred by assessee. 2. For the sake of clarity these appeals are tabulated as under:- ITA No Preferred by A.Y Revenue of second leg Contract Whether Interest U/s 234B is challenged? Mobilisation advance 59 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st of ₹ 15842689/- and J. Ray McDermott Eastern Hemisphere Ltd. of ₹ 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 service have been rendered on equipment hire are for the purpose of extracting mineral oil. Following the decision of CGG Veritas in ITA No.4653/Del/2010 dated 25.01.2012 held that this income are chargeable to tax not as royalty but u/s 44BB of the Act. Regarding chargeability of interest u/s 234 of the Act following the decision of Maersk Company Ltd. 334 ITR 79 held that it is not chargeable. Therefore revenue is in appeal on the limited issue that the income of the assessee from non-PSC vendors is chargeable to tax as royalty. 6. The assessee is a sub-contractor engaged in rental of vessels. Revenue contest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment is framed u/s 143(1) on 28.01.2004 there cannot be any chance before the AO of application of mind and framing of opinion and therefore we reject the contention of the assessee that there is change of opinion. It is an admitted fact that for earlier years assessee has taken the view which is being contested by revenue in this year. However as the original assessment is just a processing of return of income u/s 143(1), there is no application of mind by AO at that time therefore there cannot 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 : (a) that the services rendered are technical in nature and is liable to be taxed as a fee for technical services in view of the decision of the Uttaranchal High Court in the case of CIT v. O. N. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Court has held in case of DCIT V Zuari Estate Development and Investment company limited 373 ITR 661 ( SC) that 2. After going through the detailed order passed by the High Court, we find that the main issue which is involved in this case is not at all addressed by the High Court. A contention was taken by the appellant-Department to the effect that since the assessee's return was accepted under section 143(1) of the Income-tax Act, there was no question of change of opinion inasmuch 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the CO of the assessee accordingly. 14. Now we come to the appeals of the revenue for AY 2004-05 ( ITA No 592/Del/2013) 15. The revenue has filed this appeal against the order of the learned Commissioner of Income-tax (Appeals)-II, Dehradun dated 08.11.2012 for the Assessment Year 2004-05 raising the following 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 (A) has erred in holding that the assessee was eligible for sec. 44BB even though the nature of services rendered by the assessee was equipment hire rejecting the distinction between first leg and second leg and PSC vs. Non PSC vendors made by AO, purely on the grounds that it had no judicial precedent. (iv) Whether on the facts and circumstances of the case the CIT (A) has erre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 context of 'supplying plant and machinery on hire'. This is in contrast with the phrase 'in connection with' applied for 'providing services or facilities' in the same section. The phrase 'used or to be used' is used in context of plant and machinery and is in conjunction with the term 'prospecting for, or extraction or production, of mineral oils'. Thus, the legislature never intended to include following receipts under the purview of section 44BB: (i) Receipts 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .AR contended that the issue is now squarely covered in favour of the assessee by number of tribunal decision. He particularly relied on the decision of ITAT in 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 in favour of the assessee. b) That the Explanation to section 44B says that plant includes ships, aircraft, vehicles, drilling units, scientific apparatus and equipment, used for the purposes of the said business; It is pertinent to mention that the aircraft and vehicles specified in the definition of plant and machinery can only be used for transportation of men, material and equipments from onshore to offshore. It is further submitted that the plant machinery covered under section 44BB of the Act are excluded from the defi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... achinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils in India; and (b) the amount received or deemed to be received in India by or on behalf of the assessee 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 extraction or production of, mineral oils outside India. (3) Notwithstanding anything contained in sub-section (1), an assessee may claim lower profits and gains than the profits and gains specified 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 applies to (i) a non resident who is engaged in the business of providing facilities of or services in connection with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement. 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 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, mineral oils as required under section 44BB. The Hon'ble Supreme Court in ICDS Ltd v CIT [2013] 350 ITR 527 held that the assessee leasing the vehicles to others who use the said vehicles 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chargeable u/s 9(1) (vi) of the and consequently liable to tax @ 25 % on gross basis u/s 115A of the Income tax Act. In view of above ground no (1) to (v) of appeal of revenue are dismissed. 27. Further ground no (vii) of the appeal is also dismissed as we have followed the decision of Honourable High court of Uttarakhand which has been decided placing reliance on the decision of Honourable Supreme court. 28. Ground no (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 appellant has submitted that levy of interest under s. 234B is unwarranted as the matter stands squarely covered by the decision of the Hon'ble High Courts of Uttarakhand and Delhi in the following cases: DIT vs. GE Packaged Power Inc (Delhi High Court), I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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‟s appeal. 35. We have already decided that issue in ground No (i) to (v) (vii) the case of the appeal of revenue for AY 2004-05. Therefore we also hold in the case of the assessee for AY 2007-08 that assessee is entitled to the preferential tax treatment u/s 44BB of The Income Tax Act on second leg contracts. Hence Ground No 1 to 5 of the appeal of the assessee is allowed. 36. Another ground no 6 of appeal of the assessee was against the charging of interest u/s 234B of the act which is 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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