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Swiwar Offshore Pte. Ltd. C/o. Devesh K. Shah & Co. Versus Addl. DIT (International Taxation) Mumbai And DDIT (International Taxation) 4 (2) (2) Mumbai Versus Swiwar Offshore Pte. Ltd. C/o. Devesh K. Shah & Co.

2017 (12) TMI 302 - ITAT MUMBAI

Taxing of income u/s. 44BB as against section 44B - assessee had given three ships on hire that the ships were used for transporting men/goods to offshore locations of India that that the hirer was carrying the activities related to the exploration and production of mineral oil at offshore location - Held that:- Section 44BB will prevail over section 44B as it is a special section which came on statute later and deals with specific activities. If the services provided by the assessee are exclude .....

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. 44BB was introduced. The ships were hired by the user for transporting men/machines to locations where it was doing exploration/production of mineral oil. Thus it was not a case of transporting goods or livestock by ships simplicitor. The activity was directly and closely related with ‘services’rendered by plant and machinery and the ships for the purpose of section 44BB have been treated as plant. As the services were rendered 'in connection with' prospecting for and exploration activities so .....

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t the order of the FAA does not suffer from any legal or factual infirmity. So confirming the same we decide the effective ground of appeal against the AO for both the AY. s. - I. T. A. /7939/Mum/2011 I. T. A. /4884/Mum/2012 I. T. A. /3563/Mum/2015 I. T. A. /4994/Mum/2012 I. T. A. /3680/Mum/2015 - Dated:- 30-11-2017 - Sh. Rajendra Accountant Member And Ravish Sood Judicial Member Revenue by: Shri M. V. Rajguru-Sr. DR Assessee by: Shri Madhur Agarwal and Ms. Indira Anand-AR. s ORDER Per Rajendra .....

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nt dt. Assessed Income 2008-09 30. 09. 2008 ₹ 2 24 58 118/- 22. 02. 2011 ₹ 2 99 44 157/- 2009-10 24. 09. 2009 ₹ 4 65 40 938/- 09. 02. 2012 ₹ 6 88 57 928/- 2010-11 30. 09. 2010 ₹ 4 88 71 609/- 23. 05. 2013 ₹ 72 59 58 024/- As the issues involved in all the appeals are almost similar so we are adjudicating all the appeals together. ITA/7939/Mum/2011-AY. 2008-09: 2. Effective Ground of appeal raised by the assessee is about taxing its income u/s. 44BB of the Act .....

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e had provided the ship on hire that the income was to be assessed as per the provisions of section 44B of the Act. He referred to the Agreements entered into by the assessee with the hirers and held that the vessels had been specifically supplied by the assessee to the co-ventures on hire that the vessels were to be used in activities related to exploration and production of mineral oil that the owner had not earned any income from carriage of passengers/goods/mail/livestock through the vessels .....

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er that those vessels were self propelling small ships used for various jobs at sea ports and off shore that they would carry equipments like cranes winches and long steel wires on boats for use in the sea that vessels were used to pull other vessels to push big ships or to assist them in turning for berthing at port that they would also carry fuel/fresh water in bulk to supply to other ships or rigs at sea/off shore that they were used for lifting heavy anchors from sea as well as transporting .....

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special purpose vessels fitted with various equipments that hirers were using them for specific purposes at off shore location in India that the assessee was engaged in business of providing services/facilities and supplied plant and machinery (a ship on hire) that was used by the hirer in exploration/extraction or production of mineral oils that as per the Explana - tion to Sec. 44B ship was a plant that same was used by the hirer in its business of extraction / production of mineral oil. He ma .....

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used by a hirer in the activity of exploration extraction and production of mineral oil would be taxable in the hands of the assessee u/s. 44BB of the Act. Finally he upheld the order of the AO. 2. 2. Before us the AR argued that the assessee had provided the ship on hire that even if the hirer used in the business/activity related to extraction or production of mineral oil provisions of section 44BB were not applicable that the business of the assessee was limited to giving the ship on hire th .....

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he assessee was engaged in shipping business. He relied upon the cases of Schlumberger Asia Services Ltd. (317 ITR 156) Manglore Refineries and Petrochemicals Ltd. (225taxman58)and Mitchell Drilling Internation -al(P. )Ltd. (380 ITR 130). He further argued that assessee could opt for lower taxes by opting for application of the provisions of section 44B. In that regard he referred to the case of Bosotto Brothers Limited(8 ITR 41). The DR supported the order of the FAA and argued that the ships w .....

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hat the ships were used for transporting men/goods to offshore locations of India that that the hirer was carrying the activities related to the exploration and production of mineral oil at offshore location that the AO and FAA held that the assessee had to pay taxes as per the provisions of section 44BB(@10%) whereas the assessee claimed that tax should be levied as per section 44B (@7. 5%). Thus the basic issue to be decided is as to whether the provisions of section 44B of the Act can be appl .....

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sidents . Explanatory notes on the provisions of the Finance Act 1975 read as follow: 37. Under the existing law taxable profits of foreign shipping enterprises are determined by suitably apportioning their global profits between their Indian business and foreign business or on the basis of "voyage accounts". Difficult and complicated issues arise in such assessments particularly in relation to depreciation (including unabsorbed depreciation of earlier years) the balancing charge/allow .....

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er cent of the aggregate of the following amounts namely- (i) the amount paid or payable (whether in or out of India) to the assessee or to any person on his behalf on account of carriage of passengers livestock mail or goods shipped at any port in India; and (ii) the amount received or deemed to be received in India by or on behalf of the assessee on account of the carriage of passengers livestock mail or goods shipped at any port outside India. 38. It should be noted that the new s. 44B overri .....

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ce admissible in the relevant previous year. Since the provisions of s. 32 are specifically overriden by the new s. 44B the unabsorbed depreciation for earlier years will not be allowed in determining the profits and gains for the asst. yr. 1976-77 and subsequent years. Losses incurred in earlier years other than the losses due to depreciation will however be allowed to be set off against the profits for the asst. yr. 1976-77 and subsequent years subject to the fulfilment of the existing conditi .....

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to be used in the exploration for and exploration of mineral oils. With a view to simplifying the provisions the Amending Act has inserted a new s. 44BB which provides for the determining of the income of such taxpayers at 10 per cent of the aggregate of certain amounts which have been specified. This amount will include the amounts received or due to be received in India on account of such services or facilities or supply of plant and machinery. 21. 2 The amendment will not apply to any income .....

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with or supply of plant and machinery on hire used or to be used in the exploration for and exploration of mineral oils. The Parliament engrafted the aforesaid provision in the Act as a measure of simplification providing for determination of income of such taxpayers at 10% of the aggregate of certain amount. Because of the non obstante clause section 28 of the Act has no application. In other words section 44BB is applicable where the assessee being a non-resident is engaged in the business of .....

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e receipts of that foreign resident as well as receipts or gains other than those mentioned in the section is not chargeable to tax. ii. It would be logically fallacious to use the taxability of 10% which is expressly provided in section 44BB and to pass over or fail to recognise the exemption from tax as to the balance 90% of the receipts and 100% of other profits and gains which is also provided for in section 44BB by necessary and inescapable conclusion. iii. The section provides for taxation .....

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ion the word 'services' shall be understood in its plain and ordinary sense. If the legislature wanted to give a restricted meaning to the expression 'services' explicit words to that effect would have been deployed. The contextual setting and the company in which the expression 'services' is found is suggestive of inference that far from excluding technical/consultancy services they were also intended to be brought within the ambit of section 44BB. The word 'services .....

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ing and exploration of oil and gas and the Parliament thought it fit to accord a special treatment to the income derived by these two categories of non-residents in India. vi. Between the competing provisions namely section 9(1)(vii) r/w ss. 44DA and 44BB section 44BB being a more specific provision will prevail for the purposes of computation. Sec. 44DA provides for method of computation of income by way of fees for technical services received by a non-resident or a foreign company carrying on .....

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ting and extraction of mineral oils not having a fixed place of business from where the operations are carried on. Thus the existence of PE is a common feature in both the sections though there is an explicit reference to PE under section 44DA. Rendering of technical services through PE may be a common feature of both the sections although in the case of section 44DA it is explicitly mentioned. But what is important is the nature of business and it is that factor which serves as an indicator to .....

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is section plant includes ships aircrafts apparatus and equipments used for the purpose of said business and mineral oils include petroleum and natural gas. Thus the amount received by the assessee on account of supply of spare parts of ships aircrafts apparatus and equipments used for the purpose of the business is squarely covered u/s. 44BB. viii. If an assessee does not claim benefit of section 44BB(3) it cannot claim that amount which it receives by way of mobilization advance outside India .....

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purview of section 44BB then it cannot come again under the purview of the other parts of the Act dealing with profits and gains of business or profession. xi. Section 195A is not applicable to it and concept of multiple-stage grossing up of income is also not applicable to deemed profits to be computed u/s. 44BB. xii. It is open to an assessee to claim lower profits and gains if he kept and maintained books of account and other documents as required u/s 44AA(2)and get accounts audited and furni .....

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ies cannot be taxed u/s. 44BB of the Act. In short section 44BB will prevail over section 44B as it is a special section which came on statute later and deals with specific activities. If the services provided by the assessee are excluded very little purpose will be served of incorporating section 44BB for computing the profits in relation to the services connected with exploration and extraction of mineral oils. The provision will then operate in a very limited field. In our opinion the Parliam .....

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and closely related with services rendered by plant and machinery and the ships for the purpose of section 44BB have been treated as plant. As the services were rendered 'in connection with' prospecting for and exploration activities so in our opinion the income arising out of such activities has to be assessed u/s. section 44BB and not u/s. 44B of the Act. 2. 3. 5. Now we will deal with argument of opting of lower tax rates by an assessee. We are of the humble opinion that no choice has .....

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particular rate. Because of the international treaties tax-payers have been given choice to opt for a beneficial provision but same concession is not available to the assessees who are not having international income. Beneficial treatment of one section cannot be extended to other sections without explicit mandate of the parliament. We have gone through the case of . In our opinion facts of the matter under appeal are different from the case of . The matter deals with 1922 Act and is not about .....

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ion if both are to be compared. In a way the matter helps the cause of revenue as it holds that special provision should prevail over general provison. We are of the opinion that section 44BB is a special provision as compared to section 44B. The cases relied upon by the assessee i. e. Schlumberger Asia Services Ltd. Manglore Refineries and Petrochemicals Ltd. and Mitchell Drilling International (P. )Ltd. (supra)do not deal with the real issue i. e. in case of conflict which of the section Sec. .....

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ars are decided against the assessee. ITA. s/4994 /Mum/2012 3680/Mum/2015 AY. s 2009-10&2010-11 4. Effective grounds of appeal filed by the AO for both the AY. s is deleting the addition made by the AO on account of service tax payable to the Government by the assessee. During the assessment proceedings the AO found that the assessee had charged service tax to BGEPIL as a part of the billing for the charter hire charges. In that regard the assessee contended that such service tax collected b .....

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ce tax receipts would be a part of the gross receipts of the assessee chargeable to tax u/s. 44BB of the Act. 4. 1. In the appellate proceedings the FAA referred to the order of the Mumbai Bench of the Tribunal in the case of Islamic Republic of Iran Shipping Lines (11 taxmann. com 349) wherein it was held that the Delhi Bench of the Tribunal in the Technip case had not taken note of the Bombay High Court decision in the case of Sudharshan Chemical Industries. The Mumbai Bench of the Tribunal fu .....

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