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Valentine Maritime (Gulf) LLC C/o Vinod Agnani Versus Asst. Director of Income Tax (International Taxation) – 2 (2) , Mumbai And Vice-Versa

Eligibility of assessee for benefit of DTAA between India and UAE - income was wrongly assessed as Royalty u/s 9(1)(vi) - Held that:- assessee-company was eligible for the benefits of DTAA between India and UAE and that in view of the provisions of Sec. 90(2) of the Act, it was open for the assessee-company to chose between the taxation as per the India-UAE DTAA or as per the Act, whichever was more beneficial to it. - Decided in favour of assessee. - Application of Sec. 44BB of the Act in o .....

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ments have been placed in the Paper Book at pages 1 to 4. In the absence of any cogent material brought out by the Revenue, we hereby affirm the said finding of CIT(A) and accordingly, Revenue fails on this aspect. - In respect to the earnings from M/s. Leigthton Contractors India Pvt. Ltd. for hiring of barge JU-251 following the phraseology of Sec. 44BB of the Act, in our considered opinion, even the earnings from hiring of barge JU-251 to M/s. Leigthton Contractors India Pvt. Ltd. are eli .....

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that the amount of ₹ 11,77,55,535/- received from M/s. Leigthton Contractors India Pvt. Ltd. is also liable to be taxed in terms of Sec. 44BB of the Act. Thus, assessee succeeds on its additional Ground of appeal. - Interest charged u/s 234B - Held that:- Notably, in terms of the judgment of Hon'ble Bombay High Court in the case of DIT(IT) vs. NGC Network Asia LLC (2009 (1) TMI 174 - BOMBAY HIGH COURT ), wherein held that where the duty is cast on the payer of income to deduct tax at .....

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. Pannu, AM These are cross-appeals filed by the assessee and the Revenue against the order of CIT(A)-11, Mumbai dated 04.10.2010, pertaining to the Assessment Year 2007-08, which in turn has arisen from the order passed by the Assessing Officer dated 15.02.2010 under section 143(3)r.w.s 144C(1) of the Income Tax Act, 1961 (in short the Act ). 2. The Grounds of appeal raised by the assessee and Revenue in their respective appeals are as under :- ITA No. 8694/Mum/2010 (Assessee s appeal) 1. The l .....

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tor (I) Private Limited for Time Charter Hire Tug Boat JU 251 as Royalty under section 9(1)(vi) of the Act instead of Business Income under Article 7 of DTAA between India & U.A.E, Even though CIT(A) held that Valentine Maritime (Gulf) LLC is entitled to tax benefits and since the assessee did not have PE in India the same is not taxable. ITA No. 9239/Mum/2010 (Revenue s appeal) 1. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in directing the deletion of .....

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me Tax Act, 1961. Revenue s additional Grounds of appeal :- 1. On the facts and in the circumstances of the case and in law, whether the Id. CIT (A) has erred in direction the assessing officer to treat the assessee as eligible for the benefit of DTAA between India and UAE. 2. On the facts and in the circumstances of the case and in law, whether the Id. CIT(A) erred in directing AO to assess the income of the assessee on the gross receipts of ₹ 3,92,36,846/-/- under provisions of section 4 .....

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e assessee before us is a foreign company incorporated in Abu Dhabi, United Arab Emirates (UAE). The assessee-company has been established in 1996 and is operating in the field of oil & gas construction industry. In the earlier years, assessee had been engaged in providing technical services as well as laying/installation of line pipes for three pipeline projects in Bombay High North field as a sub-contractor of M/s. Engineers India Ltd. The precise facts in relation to the disputes before u .....

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lease basis for the period 1.11.2005 to 31.5.2006. For said hiring, assessee received a sum of USD 352413 as hire charges. Secondly, assessee has given another boat by the name of Zakher King to M/s. Aracadia Shipping Ltd. for the period 25.12.2006 to 31.3.2007 (contract continued till 7.5.2007) against which it received a sum of ₹ 2,40,47,846/- as hire charges. The said boat was used by M/s. Aracadia Shipping Ltd. in the Mumbai High Offshore Field (Bassein field) for the purpose of topsi .....

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o boats and one barge was claimed as exempt in terms of Article 7 read with Article 5 of the Double Taxation Avoidance Agreement (DTAA) between India and UAE. Even in the assessment proceedings, assessee claimed that aforesaid earnings were by way of contractual receipts, which are in the nature of business profits covered by Article 7 of DTAA between India and UAE and, therefore, in the absence of any Permanent Establishment (PE) in India within the meaning of Article 5 of DTAA, such receipts w .....

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icer was that assessee could not be considered as liable to tax as per India-UAE DTAA and thus could not be treated as a resident of contracting state within the meaning of Articles 1 and 4 of the DTAA on the basis of the Residency certificate issued by the Ministry of Finance and Industry, UAE. Having held the assessee not eligible for the benefits envisaged under India-UAE DTAA, the Assessing Officer proceeded to examine the alternate plea of assessee that the impugned earnings be taxed in ter .....

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he Act. The said alternative plea of the assessee has also been negated by the Assessing Officer on the ground that assessee does not fulfil the conditions prescribed in Sec.44BB of the Act. According to the Assessing Officer, from the details furnished it could not be satisfactorily proved that the vessels were indeed used by M/s. Aracadia Shipping Ltd. and M/s. Leigthton Contractors India Pvt. Ltd. for the purpose of prospecting of or extraction or production of mineral oils, which was a requi .....

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8377; 15,69,92,381/- was taxed as Royalty @ 10% in terms of Sec. 115A of the Act. 6. The aforesaid assessment was carried in appeal before the CIT(A) on various Grounds. Firstly, the assessee canvassed that the Assessing Officer was not justified in denying the applicability of India-UAE DTAA while determining the tax liability. With regard to the revenue earned from M/s. Aracadia Shipping Ltd. for hiring of tug boat Valentine III and Zakher King, assessee contended that the Assessing Officer er .....

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ssessed as Royalty u/s 9(1)(vi) of the Act. The CIT(A) has considered the aforesaid aspects. Inasmuch as the plea of assessee for applicability of provisions of India-UAE DTAA is concerned, the CIT(A) upheld the stand of assessee by following the earlier appellate order in assessee s own case for Assessment Year 2006-07. The CIT(A) held that assessee-company was eligible for the benefits of DTAA between India and UAE and that in view of the provisions of Sec. 90(2) of the Act, it was open for th .....

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overed within the scope of taxation envisaged u/s 44BB of the Act and not as Royalty u/s 9(1)(vi) of the Act. So however, in the context of India-UAE DTAA, the CIT(A) disagreed with the stand of assessee that such earnings were to be considered as business profits within the meaning of Article 7 of DTAA. The CIT(A) has made out a case that Article 7 of DTAA would apply only to the profits earned from leasing of ship on a bareboat charter basis, i.e., without crew (on dry lease basis) whereas ass .....

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of Royalty covered by Article 12(3) of the DTAA and, therefore, such earnings were taxable in India. Since the CIT(A) found that the tax liability under the domestic law, i.e., under the Act in terms of Sec. 44BB of the Act was more favourable than the tax laws under the DTAA, he invoked Sec. 90(2) of the Act and directed the Assessing Officer to tax the sum u/s 44BB of the Act. This decision of CIT(A) has been assailed by Revenue before us by way of additional Ground of appeal no. 2 stated abov .....

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Ltd. and was not directly involved in connection with prospecting of mineral oil. For the said reasons, he affirmed the stand of Assessing Officer to deny the taxation of such receipts in terms of Sec. 44BB of the Act. Instead, he upheld the stand of Assessing Officer that the income earned from hiring out of barge JU-251 fell within the scope of Article 12(3) of the DTAA between India and UAE and amounted to Royalty. It was also noticed by CIT(A) that since the tax liability under the DTAA and .....

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e same relate to the stand of assessee that earnings from lease of vessels to M/s. Aracadia Shipping Ltd. and M/s. Leigthton Contractors India Pvt. Ltd. are assessable as business profits within the meaning of Article 7 of India-UAE DTAA. Insofar as the Grounds of appeal raised by the Revenue in its Memo of appeal are concerned, the same arises from the action of CIT(A) in deleting the interest charged u/s 234B of the Act for shortfall in the payment of advance tax. 9. In the above background, w .....

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rder has been placed on record and it was a common point between the parties that the precedents continue to hold the field as the same have not been altered by any higher authority. As a consequence, the additional Ground of appeal no. 1 raised by Revenue is decided in favour of assessee and against the Revenue. Thus, Reveue fails on additional Ground of appeal no. 1. 11. The issues raised in additional Ground of appeal no. 2 of Revenue and the additional Ground of appeal raised by assessee rel .....

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erred to the decision of Tribunal dated 19.3.2015 (supra) wherein the earlier decision of Tribunal for Assessment Year 2005-06 has been followed. Of course, it is seen that the said decision of Tribunal was rendered in connection with the income earned from laying and installation of pipelines in Bombay High North field. The incomes in the instant year are by way of hiring of vessels for use by the hirer in the business of prospecting for or extraction or production of mineral oils. It is pointe .....

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inalised u/s 144C(3) r.w.s 143(3) of the Act dated 22.2.2011, the Assessing Officer has himself accepted that the earnings from hiring of vessels to M/s. Aracadia Shipping Ltd. and M/s. Leigthton Contractors India Pvt. Ltd. are liable to be assessed in terms of Sec. 44BB of the Act. In particular, it is pointed out that in Assessment Year 2008-09 the earning from M/s. Leigthton Contractors India Pvt. Ltd. was with respect to barge JU-251, which is also the subject matter of consideration in the .....

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present case, assessee had indeed leased out the vessels on wet lease basis. By referring to the decision Delhi Bench of Tribunal, it is sought to be pointed out that there was no requirement that the leased vessel should actually be used in the prospecting for or extraction or production of mineral oils and that it would be sufficient if such vessel is used for the purposes of business of prospecting for or extraction or production of mineral oils. In the context of understanding of Sec. 44BB o .....

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not being repeated for the sake of brevity. 14. We have carefully considered the rival submissions. Sec. 44BB of the Act deals with provision for computing profits and gains in connection with the business of exploration, etc. of mineral oils. Sec. 44BB of the Act seeks to provide a presumptive determination of profits and gains of businesses referred therein. It is applicable in the case of an assessee, being a non-resident, which is engaged in the business of providing services or facilities .....

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hipping Ltd., wherein it is confirmed that the two tug boats hired from the assessee have been used for the anchor handling operations at Bombay High Offshore field (basin field) and at Bombay High Offshore field (D1). In the context of the use of barge JU-251 hired out to M/s. Leigthton Contractors India Pvt. Ltd. at Jamnagar, assessee has furnished a Naval Security Clearance Certificate dated 17.1.2007, copy of which has been placed at page 78 of the Paper Book. The Naval clearance prescribes .....

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as the earnings from M/s. Aracadia Shipping Ltd. are concerned, the same are eligible for taxation in terms of Sec. 44BB of the Act and not the earnings from M/s. Leigthton Contractors India Pvt. Ltd. With regard to the earnings from M/s. Leigthton Contractors India Pvt. Ltd., the CIT(A) found that the hired barge was used for offshore accommodation/construction activities at Jamnagar, which was an activity not directly involved in connection with prospecting for or extraction or production of .....

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ook at pages 1 to 4. In the absence of any cogent material brought out by the Revenue, we hereby affirm the said finding of CIT(A) and accordingly, Revenue fails on this aspect. 16. Now, we may take up the plea of assessee with respect to the earnings from M/s. Leigthton Contractors India Pvt. Ltd. for hiring of barge JU-251. As per the terms of arrangement, copy of which is placed at pages 5 and 6 of Paper Book, the said vessel has been used for offshore accommodation/ construction activities a .....

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ting for or extraction or production of mineral oils. In this context, we may refer to the decision of the Authority for Advance Ruling (AAR) in the case of Lloyd Helicopters International Pty Ltd., 249 ITR 162 (AAR) wherein even the income derived from providing of helicopter to facilitate operation of extraction and production of mineral oil was held to be eligible for assessment Sec. 44BB of the Act. In the instant case, it is not in dispute that the assessee is indeed engaged in the business .....

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3.2.2015 (supra) :- 20. Be that as it may, even if one were to consider that the assessee was engaged in simple hiring of vessels, the same, in our opinion, would still be covered by the second limb of section 44BB which deals with supplying plant and machinery on hire used or to be used in the prospecting for or extraction or production of mineral oils. As per the Explanation to section 44BB, the term plant includes ships, aircraft, vehicles, drilling units, scientific apparatus and equipment, .....

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oil. It is sufficient if the plant or machinery is used for the purposes of the business of prospecting for or extraction or production of mineral oil. 21. In Lloyd Helicopters International Pty. Ltd., In re (249 ITR 162), the Authority for Advance Ruling ruled that the consideration received by the assessee from Command Petroleum India Pty. Ltd. by way of a charter hire for providing helicopters for transporting men and material to an offshore location would be governed by the provisions of se .....

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Advance Ruling held that the consideration received for providing marine logistic services have to be dealt under section 44BB. 22. The revenue has unduly stressed on the word in the forming part of the expression supplying plant and machinery on hire used, or to be used, in the prospecting for or extraction or production of, mineral oils A plain reading of the above expression only provides that the assessee should be engaged in the business of supplying plant and machinery on hire and such pl .....

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, mineral oils i.e., ONGC in the present case. In other words, the applicability of section 44BB is not only restricted to the assessee (first leg contractors) who has directly entered into a contract with the person who is engaged in prospecting for or extraction or production of, mineral oils i.e., ONGC in the present case. The revenue s argument is that the words used or to be used are used in terms of the Plant and Machinery and not to specify the person who shall use it, i.e. the clause use .....

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ction or production of, mineral oils i.e., ONGC in the present case. 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 computing the profits or gains of any business consisting o .....

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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 bl .....

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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 used in offshore drilling operations i.e., the activity of p .....

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efore, following the aforesaid precedent and the phraseology of Sec. 44BB of the Act, in our considered opinion, even the earnings from hiring of barge JU-251 to M/s. Leigthton Contractors India Pvt. Ltd. are eligible for assessment u/s 44BB of the Act. In coming to such a conclusion, we are also conscious of the stand of Assessing Officer as manifested in the assessment order for Assessment Year 2008-09, wherein hiring receipts from M/s. Leigthton Contractors India Pvt. Ltd. on account of hire .....

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