GST Helpdesk   Subscription   Demo   New User   Login      
Tax Management India .com
TMI - Tax Management India. Com
Extracts
Home List
← Previous Next →

2016 (9) TMI 201 - ITAT DELHI

2016 (9) TMI 201 - ITAT DELHI - TMI - Clam of non-taxability of the reimbursement of service tax in computing income u/s 44BB of the Act denied - Held that:- Service tax received by the assessee cannot be included in the gross receipt for the purpose of computation of deemed profit. Consequently, this ground is determined in favour of the assessee. - Reimbursement of loss of equipment in the well - whether includible in the gross revenue received from M/s. ONGC Limited for the purpose of com .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

it. So, consequently ground no.1 is determined in favour of the revenue. - Deducution u/s 44BB computation - inclusion of amount received by the assessee on account of “Communication Immersat Charges” - Held that:- This issue has already been decided in assessee’s own case [2008 (2) TMI 465 - ITAT DELHI-G ] qua AY 2002-03 and as such, we hold that reimbursement of Communication Immersat Charges are not in the nature of reimbursement and as such are not liable to be taxed under the provisions .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

m a nonresident company, M/s Pride Foramer on account of provision of offshore drilling rig on hire for executing contracts with M/s. ONGC; and treating the amount received by the assessee from M/s. Pride Foramer on account of the provisions of drilling rig under Charter Agreement not in the nature of royalty as defined u/s 9(1)(vi) of the Act and not taxable under the provisions contained u/s 44DA read with section 115A of the Act and that DRP has rightly not applied the distinct scheme of taxa .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

raised in the aforesaid appeals, the same are being disposed off by way of consolidated order to avoid repetition of discussion. 2. The appellant, Pride Foramer SAS (hereinafter referred to as the assessee ), by filing the aforesaid appeal being ITA No.1405/Del/2014, sought to set aside the impugned order dated 23.12.2013 passed by Dispute Resolution Panel-II, New Delhi qua the assessment year 2009-10 on the ground inter alia that :- The learned Assessing Officer and Hon ble DRP erred in law an .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

hat :- 1. Whether on the facts and circumstances of the case, the Hon'ble Dispute Resolution Panel DRP') has erred in directing the Assessing Officer to exclude an amount of ₹ 89,57,794/- received by the assessee on account of "equipment lost in hole" from gross revenues received from M/s ONGC Limited for the purpose of computation of profits under the presumptive provisions of section 44BB of the Income Tax Act, 1961 ("The Act"). 2. Whether on the facts and cir .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Department against the order of the Hon'ble ITAT in assessee's own case for Assessment Year 2002-03 reported in [(2008) 22 SOT 204] wherein the above issue has been decided in favour of the assessee, ignoring the fact that the said order was not accepted by the Department on merits and appeal against the said order was not filed solely on account of the tax-effect being below the threshold monetary limit prescribed in terms of the internal instructions of the Department. 2.2 Whether the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

44BB are a self-contained code providing for computation of profits at a fixed percentage of gross receipts of the assessee and all the deductions and exclusions from income are deemed to have been allowed to the assessee. 3.1 Whether the Hon'ble DRP has erred in not appreciating the fact that once the receipts are offered to tax u/s 44BB of the Act which provides for computation of profits on gross basis, there is no scope for computing or re-computing the profits by excluding any element o .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

"equipment lost in hole" and "Communication Immersat Charges." 4. The appellant, Addl. Director of Income-tax, International Taxation, Dehradun (hereinafter referred to as the revenue ), by filing the aforesaid appeal being ITA No.225/Del/2014, sought to set aside the impugned order dated 27.12.2013 passed by Dispute Resolution Panel-II, New Delhi qua the assessment year 2009-10 on the grounds inter alia that :- 1. Whether on the facts and circumstances of the case, the Hon&# .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

P') has erred in holding that the amount received by the assessee from M/s Pride Foramer, on account of the provision of drilling rig under charter agreement was not in the nature of Royalty as defined u/s 9(1)(vi) of the Act and was not taxable under the provisions of section 44DA r.w.s. 115A of the Act. 3. Whether on the facts and in the circumstances of the case, the Hon'ble Dispute Resolution Panel ('DRP') has erred in holding that the revenues earned by the assessee on accou .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

012-TII-OI-HC-DEL-INTL]. 4. Whether on the facts and in the circumstances of the case the Hon'ble Dispute Resolution Panel ('DRP') has erred in not appreciating the fact in the present case the drilling rig was not provided on hire by the assessee directly to an entity (M/s ONGC) which is engaged in prospecting etc of mineral oil and is directly a member of the Production Sharing Contract. 5. Whether on the facts and circumstances of the case, the Hon'ble Dispute Resolution Panel .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

)(vi)/9(l)(vii) read with section 44DA and not section 44BB of the IT Act, 1961. 6. Whether on the facts and circumstances of the case the Hon'ble Dispute Resolution Panel ('DRP') has erred in its interpretation of the legislative intent behind the scheme of taxation envisaged in 9(1)(vi) read with sections 44DA and 44BB ignoring the decisions in the cases of M/s Rolls Royce Pvt. Limited [2007-TII-03-HCUKHAND- INTL] and M/s ONGC as agent of M/s Foramer France [(2008) 299 ITR 438 Utta .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ees For Technical Services and disregarding the insertion of provisos in section 44BB/44DA/115A and the rationale behind the introduction of said clarificatory proviso in the Finance Bill 2010 in holding that the income of the assessee company was covered under the provisions of section 44BB. 8. Whether on the facts and in the circumstances of the case the Hon'ble Dispute Resolution Panel ('DRP') has erred in not appreciating that since sections 44DA/115A are special provisions for t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

i) read with sections 44DA and IISA of the Act, not appreciating the fact that both set of provisions are special in nature which operate in their own clearly defined spheres and therefore, once a particular receipt or income takes on the character of Royalty as defined in section 9(1 )(vi), it cannot be considered for treatment u/s 44BB of the Act. 10. Whether on the facts and circumstances of the case, the Hon'ble Dispute Resolution Panel ('DRP') has erred in holding that sections .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

xplains and clarifies the main provision as the terms services or facilities used therein are not defined and the two terms used are too general in nature and thus once the payments take the character of royalty u/s 9(1)(vi) they go outside the purview of section 44BB and have to be taxed as royalty at rates prescribed for Royalty income under the Act and/or DTAA. 12. Whether on the facts and circumstances of the case, the Hon'ble Dispute Resolution Panel ('DRP') has erred in directi .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

l at the time or before the hearing of the appeal. Brief facts of ITA Nos.1405/Del/2014 and 1634/Del/2014 5. Briefly stated the facts necessary to decide issue in controversy in the aforesaid cross appeals are : the assessment order under section 143(3) / 144C(13) of the Income-tax Act, 1961 (for short the Act ) was passed at total income of ₹ 46,62,77,770/-. The assessee has earned a sum of ₹ 89,57,794/- on account of equipment lost in well, ₹ 5,09,404/- on account of immersat .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ricately linked to the service/work rendered by the assessee and arises due to the related receipts and as such, it is to be treated as part of taxable gross receipts and thereby assessed the total income of the assessee at ₹ 45,08,70,660/-. 6. Assessee carried the matter before the Dispute Resolution Panel-II, New Delhi who has partly accepted the objections raised by the assessee and directed the AO to correct the figures for computation stated to have been added twice. Feeling aggrieved .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the facts and circumstances of the case. Brief facts of ITA No.2225/Del/2014 8. Briefly stated fact of this case are : draft assessment order dated 10.02.2014 was passed u/s 143(3) / 144C(13) of the Act assessing the total income at ₹ 13,71,51,706/-. Pursuant to the scrutiny proceedings initiated against the assessee, necessary details were filed by the assessee through Shri Prashant Kochar, CA and Shri Sunny, CA. 9. Assessee company is incorporated in USA and is in the business of provid .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s of account were maintained for this purpose. Assessee claimed that such agreement are taxable u/s 44BB and not taxable as royalty u/s 9(1)(vi) of the Act or under Indo US Treaty. Finding the submissions made by the assessee not tenable, AO came to the conclusion that the payment received by assessee from leasing of Oil Drilling Rig Pride Hawaii is not covered under section 44BB and treated the rental receipts of the assessee as royalty u/s 9(1)(vi) of the Act. After complying with the directio .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

of challenging the order passed by DRP. 11. 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.1405/DEL/2014 & ITA NO.1634/DEL/2014 12. Ld. AR for the assessee challenging the impugned order passed by AO/DRP contended that the issue in controversy is covered by the order passed by ITAT, Delhi Bench in assessee s .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

n Immersat Charges from gross receipts received from M/s. ONGC Ltd. for the purpose of computation of profit under the presumptive provisions of section 44BB of the Act by the DRP relied upon the draft order passed by AO. GROUND NO.1 OF ITA NO.1405/DEL/2014 13. Now, the question arises for determination in this case is :- as to whether reimbursement of service-tax amounting to ₹ 13,82,40,973/- is required to be excluded in computing the income u/s 44BB of the Act as alleged by the assessee .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

sioner of Income-tax (supra) qua AY 2008-09 is reproduced as under :- 11. As regards ground No.4 regarding receipt of service tax issue, this issue has been examined by the Tribunal in the case of Sedco Forex Drilling Inc. 139 ITD 188 wherein it has been held that service tax being a statutory liability cannot form part of gross receipts for the purpose of deemed profit u/s 44BB. The relevant findings of the Tribunal are reproduced below:- As regards reimbursement of amount in respect of service .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ing 10 per cent of the aggregate amount specified in sub-s. (2) of s. 44BB as deemed profits and gains of such non-resident assessee who is engaged in the business of providing services or facilities in connection with, or supplying plant and machinery on higher used, or to be used, in the prospecting for, or extraction or production of, mineral oils. The amount referred in sub-s. (2) of s. 44BB are the amounts (a) paid to the assessee (whether in or out of India) on account of the provision of .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

on account of the provision of services and facilities in connection with, or supply of plant and machinery on higher used, or to be used, in the prospecting for, or extraction or production of, mineral oils outside India and (d) deemed to be received by the assessee in India on account of the provision of services and facilities in connection with, or supply of plant and machinery on higher used, or to be used, in the prospecting for, or extraction or production of, mineral oils outside India. .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ry liability, would not involve any element of profit and accordingly, the same could not be included in the total receipts for determining the presumptive income. In the light of view taken by the Mumbai Bench, especially when the ld. DR did not place any material before us, controverting the aforesaid findings of the ld. CIT(A) so as to enable us to take a different view in the matter nor brought to our notice any contrary decision, we are of the opinion that service tax paid by the assessee c .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

for the revenue has not placed before us any material to depart from the view taken by the coordinate Bench in the case of cited as Pride Foramer SAS vs. Addl. Commissioner of Income-tax (supra). So, following the order passed by coordinate Bench, we hereby hold that the service tax received by the assessee cannot be included in the gross receipt for the purpose of computation of deemed profit. Consequently, this ground is determined in favour of the assessee. GROUND NOS.1, 2 & 2.1 of ITA N .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

as ACIT vs. Pride Foramer France SAS (supra) qua AY 2002-03 wherein it is categorically decided that reimbursement of the loss of equipment in hole/well amounting to ₹ 89,57,794/- forms the part of gross receipts and as such falls within the presumptive provisions of section 44BB of the Act for the purpose of computation of profit. So, consequently ground no.1 is determined in favour of the revenue. 19. The next question arises for determination in this case is :- as to whether amount of & .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

findings :- 20. No doubt that section 44BB is a code in itself and it starts with non obstantive clause which excludes application of sections 28 to 41 and sections 43 and 43A of the Act but at the same time, to assess any sum under that section, the activity must fall within the activity described in sub-section (2) of section 44BB of the Act. Supply of Dry Fruits and recovery of communication expenses specifically do not find mentioned in subsection (2) of section 44BB as these activities have .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d on hire either by the assessee or the contractee. Therefore, the reimbursement payments received by the assessee being not coming within the scope of section 44BB of the Act have rightly been' held to be excludible by ld. CIT (A). The case law relied upon by ld. DR have no application to the facts of present case as the nonsubstantive clause of section 44BB is held to be applicable only in respect of activities refer to in section 44BB(2) of the Act. The reimbursement of expenses is also n .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ble Uttaranchal High Court in the case of Sedco Forex International Inc. ( supra) :- "In the present case, a finding has been recorded by the ITAT that it was not in dispute before the Tribunal that the payment was made to the appellant company outside India and the mobilization fee as claimed by the assessee was paid to the appellant by ONGC has no nexus with the actual amount incurred by the appellant company for transportation of drilling units of rigs to the specified drilling locations .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e assessee towards mobilization charges for the purpose of imposing income-tax and CIT(A) and ITAT were also right in upholding the order of the Assessing Officer.' [Emphasis supplied] 21. From the above observations it is clear that mobilization fee was not considered reimbursement on the ground that this was not in the nature of reimbursement; therefore, the same could not be brought to tax under the provisions of section 44BB of the Act. Their lordships in the said case have considered se .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ed by the assessee were not a fixed sum as stipulated in the contract. It was based on actual expenditure which has been incurred by the assessee for that very purpose. There was no element of profit. Therefore also provisions of section 44BB could not be applied for present case. 21. Ld. DR has not brought on record any material to depart from the findings returned by the coordinate Bench in assessee s own case cited as ACIT vs. Pride Foramer France SAS qua AY 2002-03 and as such, we hold that .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

assessee from leasing of oil drilling rig as royalty; that there is no distinction between receipt from production sharing participants (PSC Partners) and non-production sharing participants (non-PSC Partners) and between plant and equipment profit on hire by first leg and second leg vendors and the receipt from second leg are not liable to tax u/s 9(1)(vi) and 9(1)(vii) read with section 44DA and not section 44BB of the Act have already been decided by the coordinate Bench of the Tribunal in a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

following decisions of Mumbai Bench of the Tribunal in the case of Micoperi S.P.A. Milano (supra), the Hon'ble Authority of Advance Ruling in the case of Wavefield Inseis ASA (supra) and Bourbon Offshore Asia Pte Ltd., In re [2011] 337 ITR 122/200 Taxman 408112 taxmann.com 232 (AAR- New Delhi), Hon'ble Jurisdictional High Court in the case of OHM Ltd. (supra) as well as the decision of authority for advance ruling in the case of Spectrum Geo Ltd., In re [2012]209 Taxman 397/346 ITR 422/ .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

hority of Advance Ruling in the case of Spectrum Geo Ltd. (supra) as under :- "12. The inquiry now is whether the income derived by the applicant from performing its contract with the UAE Company would be assessable to tax as, fees for technical services under section 440, 44DA, or 115A of the Act. Admittedly, the income derived by the applicant Is from a UAE company and not from the Government or an India concern. In other words, income derived by the applicant is from a nonresident compan .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

for mineral oils and from a foreign company, the applicant would be entitled to claim to be assessed under section 44BB(1) of the Act. The ruling; therefore, on question no 3 is that the Income derived by the applicant are to be computed in accordance with the provisions of section 44 BB (1) of the Act." (Emphasis Supplied). 14. As discussed above, the Hon'ble Delhi Bench of the ITAT in the case of Louis Dreyfus Armateures SAS (supra) has decided an identical issue in favour of the ass .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

n or production, and the person who supplies the plants and machinery, the narrow interpretation of the provisions is thus not permitted. It has been held that the basic condition to be satisfied in the said provision is that the plant or machinery supplied or lented on hire by the assessee, a non-resident should be used in the prospecting for or extraction or production of mineral oils or where equipment has been supplied, such equipment should have been used for the purposes of prospecting for .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

re in consideration with prospecting for extraction or production of mineral oils and, therefore, taxable under sec. 44BB of the Act. 15. We, however, find that the decision dated 09.07.2014 of Hon'ble Delhi High Court in the case of PGS Geophysical AS (supra) has not been cited before the ITAT in the case of Louis Dreyfus Armateures SAS (supra). Hon'ble Delhi High Court in the case of PGS Geophysical AS (supra) vide para No. 20 of the judgment has been pleased to hold that the receipt o .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e above cited case is fulfilled. So far as the second condition that the contract entered into by the assessee in India was effectively connected with that PE in India is concerned, the dispute in this regard remained that the assessee being subcontractor as per the Authorities below was not eligible for the benefit of section 4BB of the Act. The Delhi Bench of the ITA T in the case of Louis Dreyfus Armateures SAS (supra) after discussing the issue in detail has held that the provision does not .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ere equipment has been supplied, such equipment should have been used for the purpose of prospecting for or extraction or production of mineral oil. Thus, we find that there is no dispute that the contract entered into by the assessee in India was effectively connected with that PE in India and the dispute as to whether letting out drilling rig, services and facilities by the assessee in connection with prospecting production and extraction of mineral oil under the contract with Pride Foramer as .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

available under sec. 44BB of the Act towards the hire charges of the drilling rig by applying the deemed profit ratio of 10% under the said provisions. It is held accordingly with direction to the Assessing Officer to compute the tax as such by allowing the benefit of the provisions laid down under sec. 44B of the Act. Ground No.1 is accordingly allowed. 25. Ld. DR for the revenue has not brought on record any material to depart from the view taken by the coordinate Bench in assessee s own case .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 



|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version