TMI Blog2019 (12) TMI 1230X X X X Extracts X X X X X X X X Extracts X X X X ..... 5) and the assessment order dated 19.09.2018 passed by the AO u/s 143(3) r.w.s. 144C(5) and 144C(13) of the Act. Therefore, we set aside the order of the AO and restore the matter to him to make an order afresh after examining each of the contract/agreement and by following the ratio laid down by the Hon ble Supreme Court in ONGC [ 2015 (7) TMI 91 - SUPREME COURT] . - Thus the 2nd to 8th ground of appeal are allowed for statistical purposes. - ITA No. 6642/MUM/2018 - - - Dated:- 20-12-2019 - Shri Mahavir Singh (Judicial Member) And Shri N.K. Pradhan (Accountant Member) For the Assessee : Mr. M.P. Lohia, AR For the Revenue : Ms. Abha Kala Chanda, CIT-DR And Ms. Kavita Kaushik, DR ORDER PER N.K. PRADHAN, A.M. This is an appeal filed by the assessee. The relevant assessment year is 2015-16. The appeal is directed against the order passed by the Assistant Commissioner of Income Tax (International Taxation)-3(2)(1), Mumbai (hereinafter, the AO) u/s 143(3) r.w.s. 144C(5) 144C(13) of the Income Tax Act 1961, (the Act ). 2. The grounds of appeal filed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. erred in levying interest under section 234B of the Act amounting to ₹ 1,00,01,922. 10. erred in initiating penalty proceedings under section 271(1)(c) of the Act. 3. Briefly stated, the assessee is a Singapore based company. It is a tax resident in Singapore. The control and management of its affairs is situated entirely in Singapore and hence it is a non-resident in India. The assessee filed its first Indian return of income in AY 2015-16 i.e. the AY under consideration is the assessee s first year pursuant to commencement of its Indian operations. During the course of assessment proceedings, the Assessing Officer (AO) asked the assessee to explain as to why receipts earned from provision of services through various vessels were not offered to tax. In response to it, the assessee filed a written submission before the AO stating that during the impugned assessment year, it has earned revenues from the following contracts for provision of vessels on time charter basis : Charterers Vessel Name Charter period ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year is purely in the nature of leasing/hiring of vessel on rental and hence, taxable as royalty. Accordingly, the AO concluded that the receipts in lieu of the lease of the vessels to the respective charterers is actually pure hire of the vessel. Relying on the judgment of the Hon ble Madras High Court in the case of Poompuhar Shipping Corporation Ltd . (38 taxmann.com 150), the AO held that receipts are in the nature of equipment royalty. 4. Before us, the Ld. counsel for the assessee submits that the vessels were provided by the assessee on time charter basis and the same were present in India from 15.12.2014 to 31.03.2015 during the FY 2014-15 and accordingly, the total period of operation in India pursuant to the abovementioned contract is 106 solar days; the vessels were chartered to the respective charterers along with the crew for carrying out certain activities in connection with exploration or extraction of mineral oils in India. It is stated that the assessee has provided services using the vessels to the charterers to enable them to undertake subsea installation, testing and pre-commissioning of the subsea facilities, commissioning ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for computing income of non-resident from provision of services or facilities in connection with or supplying plant machinery on hire used in prospecting and extraction or production of mineral oil in India. It is stated by him that in the said ruling, the Supreme Court held that the services rendered by various non-resident companies with which ONGC had entered into separate agreements for availing of diverse services (such as provision of personnel with expertise and experience in operation and management of an oil rig, engineering and technical support, processing of seismic data, consultancy services, training service, analysis of data, geological and feasibility study, inspection and repair service etc.) were inextricably linked with prospecting, extraction or production of mineral oil and hence were mining and related/ancillary services, so as to get excluded from the definition of FTS as provided under the Act. Further, reliance is placed on the order of the Tribunal in case of Swiwar Offshore Pte Ltd. v. ADIT (89 taxmann.com 346) (Mumbai-ITAT), wherein it is held that where an assessee, a non-resident gave vessels on hire to India companies, in view of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee has full control over the vessel and the crew, the revenue earned by it will not be taxable as royalty under the Act; accordingly the revenue earned by the assessee are not for hire or use of or right to use of any industrial, commercial or scientific equipment but for provision of services. In this regard, reliance is placed by him on the order of the ITAT, Chennai in the case of Sical Logistics Ltd. (TS-701-ITAT-2016), wherein it is held that since the master/crew of the vessel is under the control of the owner of the vessel, the payments received in lieu of the same should not be taxable as royalty. Similarly, reliance is placed by him on the decision in Dell International Services India Private Limited 305 ITR 37 (AAR), Technip Singapore Limited v. DIT (385 ITR 408), Van Oord Dredging and Marine Contractors BV v. ADIT (7589 Mumbai 2012). Thus it is stated by him that the revenues of the assessee can only be taxed u/s 44BB of the Act. However, the revenue were not to be chargeable in India in view of beneficial provision of DTAA. Elaborating further, it is stated by him that the assessee has provided services/facilities in connection with exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w. Section 44BB is a special provision for computing profits and gains in connection with the business of exploration of mineral oil. Parliament engrafted the aforesaid provision in the Income Tax Act as a measure of simplification providing for determination of income of such taxpayers at 10% of the aggregate of certain amount. By virtue of section 44BB and because of non-obstante clause, section 28 of the Act will have no application. Thus section 44BB contains special provision for computing profits and gains in connection with the business of exploration, etc., of mineral oils. Under the said section, in the case of an assessee being non-resident engaged in the business of providing services or facilities in connection with or supplying plant and machines on hire for use or to be used in the prospecting of or extraction or production of mineral oils, a sum equal to 10% of the aggregate of the amounts specified shall be deemed to be the profits and gains of such business chargeable to tax under the head profits and gains of business or profession . Deemed profits to the tune of 10% are taxed under the said section and it over ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lations; Will operate appropriate machinery on board the vessel (i.e. loading unloading cargoes, anchor handling etc) Will hook on and unhook cargo when discharging/loading in port and offshore installation; Will be in sufficient number to allow the vessel to operate for twenty-four hours per day; Will obtain and maintain all available pilotage exemptions for port locations etc. Clause 18 - Bunkers at delivery and redelivery MVPL is responsible for provision of lubricant oils, grease and other consumables throughout the charter period. Clause 26 - Insurance MVPL shall be under an obligation to effect and maintain insurance policies. MVPL was also responsible for any damage of the vessel and crew therein and accordingly would bear all the costs in relation to the same. Clause 10: Scope of work for AHT Apart from Anchor Handling activities the AHT would be required for intra-field transfer of personnel and material at required location (i.e. Mumbai); AHT to have positioning equip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lause 14 - Insurance - MVPL shall be under an obligation to effect and maintain insurance policies. MVPL was also responsible for any damage of the vessel and crew therein and accordingly would bear all the costs in relation to the same. Clause 6 - Master and Crew - the entire operation, navigation and management of the vessel shall be in the exclusive control and command of MVPL; the vessel. The vessel will be operated and the services hereunder will be rendered as requested by charterers, subject always to the exclusive right of MVPL; and Clause 7 - Owners to provide - Remuneration of the master, officer and other crew is to be borne by MVPL. 6.2 At this juncture, we refer to the judgment of the Hon ble Supreme Court in ONGC (supra). In that case, the assessee-company ONGC and a nonresident/ foreign company had entered into an agreement by which the nonresident company had agreed to make available supervisory staff and personnel having experience and expertise for operations and management of drilling rigs. The assessee-company paid amounts to non-resident assessees/foreig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reign company is to be assessed under Section 44BB or Section 44D of the Act. The test of pith and substance of the agreement commends to us as reasonable for acceptance. Equally important is the fact that the CBDT had accepted the said test and had in fact issued a circular as far back as 22.10.1990 to the effect that mining operations and the expressions mining projects or like projects occurring in Explanation 2 to Section 9(1) of the Act would cover rendering of service like imparting of training and carrying out drilling operations for exploration of and extraction of oil and natural gas and hence payments made under such agreement to a non-resident/foreign company would be chargeable to tax under the provisions of Section 44BB and not Section 44D of the Act. We do not see how any other view can be taken if the works or services mentioned under a particular agreement is directly associated or inextricably connected with prospecting, extraction or production of mineral oil. Keeping in mind the above provision, we have looked into each of the contracts involved in the present group of cases and find that the brief description of the works covered under each of the said contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in association with personnel of ONGC. 12. 1535 Laboratory testing under simulated reservoir conditions. 13. 1514 Consultancy for optimal exploitation of hydrocarbon resources. 14. 2797 Consultancy for all aspects of Coal Bed Methane. 15. 6174 Analysis of data of wells to prepare a job design. 16. 1517 Geological study of the area and analysis of seismic information reports to design 2 dimensional seismic surveys. 17. 7226 Opinion on hydrocarbon resources and foreseeable potential. 18. 7227 Opinion on hydrocarbon r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... drilling rig and verification of reliability of control systems in the drilling rig. 33. 2008 Expert advice on the device to clean insides of a pipeline. 34. 2795 Feasibility study of rig to assess its remaining useful life and to carry out structural alterations. 35. 925 Engineering analysis of rig. 36. 1519 Imparting training on cased hold production log evaluation and analysis. 37. 1533 Training on well control. 38. 1518 Training on implementation of Six Sigma concepts. 39. 1516 Training on implementation of Six ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. Under Article 141 of the Constitution, the law declared by the Supreme Court shall be binding on all courts within the territory of India. Once there is a pronouncement of the highest Court of the land, the same is binding on all courts, tribunals and all authorities in view of this Article. If the Hon ble Supreme Court has construed the meaning of a section, then any decision to the contrary given by any other authority must be held to be erroneous. In the instant case, we find that neither the AO nor the DRP has examined the applicability of section 44BB by looking into whether the pith and substance of each of the contract/agreement entered by the assessee is inextricably connected with prospecting, extraction or production of mineral oil. This is evident from the order of the DRP dated 29.08.2018 passed u/s 144C(5) and the assessment order dated 19.09.2018 passed by the AO u/s 143(3) r.w.s. 144C(5) and 144C(13) of the Act. Therefore, we set aside the order of the AO and restore the matter to him to make an order afresh after examining each of the contract/agreement and by following the ratio laid down by the Hon ble Supreme Court in ONGC ..... X X X X Extracts X X X X X X X X Extracts X X X X
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