TMI Blog2019 (1) TMI 1851X X X X Extracts X X X X X X X X Extracts X X X X ..... :- Section 44DA would be applicable where the income by way of royalty or fees for technical services is received from the Government or an Indian concern in pursuance to an agreement made by a non-resident or a foreign company with Government or Indian concern after 31st day of March, 2003. In the case under consideration before us, admittedly, the payment is neither received from the Government nor from an Indian concern. Therefore, Section 44DA would not be applicable and, the decisions of ITAT in assessee s own case in earlier years holding that the income of the assessee is to be determined as per Section 44BB, would hold good. We, therefore, respectfully following the decisions of ITAT in earlier years, direct the Assessing Officer to determine the income of the assessee by applying Section 44BB. Levying interest under section 234B - HELD THAT:- As relying on own case we hold that the assessee was not liable to pay interest under Section 234B. - ITA Nos.245/Del/2017, 3640/Del/2017, 4839/Del/2018 & 4840/Del/2018 - - - Dated:- 30-1-2019 - Shri G.D. Agrawal, Vice President And Shri Sudhanshu Srivastava, Judicial Member Appellant by : Shri Ajay Vohra, Senior Advoca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asons best known to the assessee. 6. At the time of hearing before us, learned counsel stated that the assessee is rendering services to BG Exploration and Production India Limited (BGEPIL) and BGEPIL is reimbursing expenses to the assessee. Therefore, there is no income which could be chargeable to tax in India. He has furnished a long written submission of 63 pages in support of his contentions. However, he was fair enough to state that this issue is considered by the ITAT in assessee s own case in the earlier years, wherein the ITAT did not accept the assessee s contention but directed that the income of the assessee be determined under Section 44BB. This view is being consistently taken by the ITAT in preceding many years. He specifically pointed out to the order dated 18th March, 2015 for assessment year 2007-08 vide ITA No.171/Del/2012, which is followed in assessment years 2008-09 to 2010-11 in ITA Nos.470/Del/2013, 815/Del/2014 107/Del/2015. 7. Learned CIT-DR, on the other hand, relied upon the order of the Assessing Officer and he also furnished written submissions, which read as under :- PRELIMINARY 1. The assessment order and the DRP directions /order of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces had been provided on cost-to-cost basis. Tribunal s findings were based on the ld. CIT(A) s observation that the assessee had produced invoices and no material was brought by the AO to doubt the debit notes and invoices. However, in the present year the assessee has not produced any evidence before the AO or ld. DRP to justify that it had incurred any expenses.[p.184] - AO had carried out a survey u/s 133A of the Act at the premises of BGEIPL on 12-11-10 (i.e. A.Y.2011-12) and during the survey operations, no documents were produced to substantiate rendering of services by your employees and regularization of such services by BGEIPL. [p.185, para-9.12] - The debit notes did not show as to on what account and where the expenses were incurred by the assessee on behalf of BGEIPL. [p.185. par-9.13] - Ld. Counsel has pointed out that it is not possible to give one to one nexus for each debit note vis- -vis services rendered.[p.185, para9.14] ITAT- - we hold that the amount received by the assessee from BGEIPL is taxable and cannot be accepted to be reimbursement of expenses by BGEIPL to the assessee. [p.159, para-5.1] - the assessee s alternate contention that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... curred by the assessee. (p185, 9.11) The TPO did not propose any adjustment because the TPO was prohibited by section 92C(3) to reduce the transaction price of receipts which would have resulted in reduction of income. Therefore, the finding of the TPO in the case of the assessee has no bearing to the issue before us which is with regard to claim of the assessee that the receipts are reimbursement of expenses. (p185,9.12) Result of Survey (p185,9.12) Now the core issue that remains for consideration is whether the whole amount claimed to be reimbursement should be accepted or not. (p186,9.23) Assessee failed to substantiate its claim regarding allocation of expenses incurred by it for the services rendered to BGEIPL .consequently, the assessee was not entitled to the deduction claimed. (p186-187,9.24) 2008-09 to 2010-11 Followed 2007-08 B. Claim of the Assessee- It is the option of the assessee to be governed either by the provisions of the domestic legislation i.e. Income Tax Act or the DTAA. Historically, the assessee has never opted to be governed by the provisions of the Act or more specifically, the provisions of sec. 44BB. A.Y. 2003-04 to 2005-06- GO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no agreements (DRP, p.8) b. There can be other expenses as well which are not affected by the terms of PSC contract. [Refer submissions for ground 8 before DRP p40-42] c. Findings of ITAT in case of BGEPIL for 2010-11 in 2017-TII-154-ITAT-DEL-TP 28. The Ld. authorized representative made detailed submission on this count as under:- i. Assessee incurs expenditure to undertake activities required by the PSC, having regard to its standard of operation, including the quality of execution of work, access to latest industry information and global updates, safety of its employees and the environment, etc. The said expenses are required to be incurred based on commercial expediency determined by the appellant. The same are not necessarily accepted by the JV partners as the incurrence and need is not dependent on the point of view of the other contractors in the JV (who likewise may incur expenditure based on their commercial expediency having regard to their overall business and circumstances, which may vary from that of the appellant in different aspects). However, the cost would have to be incurred by ASSESSEE based on commercial expediency, notwithstanding that some cost may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd production of crude oil and natural gas. [p.383-385] 31 ..The Assessee has stated that it has incurred such expenditure having regard to its standard of operation and the quality of execution work, safety of its employees in the environment. These expenses are required to be incurred by the Assessee based on the commercial expediency. The Assessee has stated that in relation to the support functions, which are innovatively inevitable for carrying on its business and incurred based on the commercial expediency are expenses belonging to the Assessee which cannot be accepted by the operating board. Further, there may be certain expenditure which are required to be incurred to enable the Assessee to perform its operation under the production sharing contract sustaining its activities and maintaining its standard of operations. It is irrelevant whether the joint operator board has approved such expenditure or not because there may be several other reasons for jointventure partners to not to share the expenditure. (p.392) 3. Allowability of such Non-PSC expenditure. On the basis of supporting third party evidences furnished during the course of assessment proceedings, expenditu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as Group does not have a cost allocation policy, but the assessee has failed to justify how this policy had been used to allocate the expenses to Indian assets. Ld. CIT(DR) has pointed out that for taxation services an amount of ₹ 31,56,243/- was allocated. Ld. CIT(DR) has rightly observed that assessee has to establish that where and to whom these amounts were paid and how the same are connected to Indian business. BGEPIL was operating the PSC and was maintaining the accounts in India, therefore, it could reasonably be inferred that it must have separately made payments to its tax advisor. Why this amount has been further charged by BGEPIL, the assessee was required to demonstrate this aspect. 9.19. Further, the ld. CIT(DR) has questioned as to why the Indian Permanent establishment was allocated marketing expenses which were not incurred in India. He has rightly pointed out that Executive VP support is no doubt the head office expenses and attract the application of section 44C but the deduction could not be allowed in full. 9.20. Ld. CIT(DR) has also pointed out that the report of PWC has to be considered having regard to the terms of reference for appointing it. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess the assessee is able to substantiate its claim the deduction cannot be allowed. In this regard we may refer to the decision of Hon'ble Supreme court in the case of CIT Vs. Calcutta Agency Ltd. (1951) 19 ITR 191, wherein it has been held that the burden of proving the necessary facts in order to entitle the assessee to claim exemption u/s 10(2)(xv) was on the assessee but the necessary facts had not been established by the assessee at any stage of the proceedings and the High Court was in error in applying the principles of Mitchell's case on the assumption of facts which were not proved. Consequently the assessee was not entitled to the deduction claimed. In view of above discussion, keeping in view the entire conspectus of the cases, we are of the opinion that it would be fair to tax the assessee's receipts u/s 44BB, as has been done in past also. In this regard we find ourselves in agreement with the ld. counsel for the assessee that in AY 2003- 04, the department while preferring appeal before Hon'ble High Court has itself taken a ground that the assessee's receipts are taxable u/s 44BB and the ITAT erred in deciding that the receipt are not taxable u/s 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eduction for expenses only to the extent approved by the Operating Board under the Production Sharing Contract (PSC). 12. By way of these grounds, the assessee has made an alternate claim that if at all the income is taxable, it should be taxed in terms of Section 44BB and not Section 44DA. Learned counsel was fair enough to point out that in Section 44DA, the second proviso has been inserted with effect 01.04.2011, which reads as under :- Provided further that the provisions of section 44BB shall not apply in respect of the income referred to in this section. 13. He submitted that, however, Section 44DA itself is not applicable in the case of the assessee because the assessee has not received any amount from Government or an Indian concern which is a precondition for applicability of Section 44DA. The entire amount received by the assessee is from BGEPIL which is not an Indian concern. 14. Learned DR, on the other hand, relied upon the orders of authorities below. 15. We have carefully considered the arguments of both the sides and perused the material placed before us. As we have already stated that the ITAT in the earlier years, the relevant portion of which ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, respectfully following the decisions of ITAT in earlier years, direct the Assessing Officer to determine the income of the assessee by applying Section 44BB of the Act. Ground Nos.7 8 of the assessee s appeal are, therefore, allowed. 17. Ground No.9 of the assessee s appeal reads as under :- That the AO/DRP erred on facts and in law in levying interest under section 234B of the Act. 18. We have heard both the parties and find this issue to be covered in favour of the assessee by the order dated 17th April, 2015 of ITAT in assessee s own case in ITA No.470/Del/2013 and others. We find that the ITAT held as under :- 11. We have carefully considered the arguments of both the sides and perused the material placed before us. The ld. CIT-DR (Intl. Tax) has distinguished the decision of Hon ble Jurisdictional High Court on the ground that in the case before the Hon ble Uttarakhand High Court, the assessee s income was chargeable to tax under the head salaries on which tax was to be deducted by the employer. In the case of the assessee, it is the business income and not the salary income and; moreover, the employees of the assessee-company were looking after the acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ged. While forming this opinion, their Lordships of Hon ble Jurisdictional High Court have referred various sections under which tax is required to be deducted like 190, 191, 192, 198, 200, 201, 203 and 204. Therefore, the contention of the ld. CIT DR that the above decision would be applicable only where the tax is to be deducted from salary cannot be accepted. The ld. CIT DR also mentioned that it is the assessee who decided the rate on which tax is to be deducted at source. We are unable to agree with this contention of the ld. CIT DR because tax is to be deducted at source as per the rate prescribed under the Income tax Act. If any assessee wants the deduction of tax at lower rate than the rate prescribed under the Income tax Act, such assessee has to apply to the Income Tax Officer and it is the Income Tax Officer who can issue the certificate for deduction of tax at lower rate. It is not the case of the Revenue that the tax deducted at source by BGEPIL was not as per the prescribed rate under the Income tax Act. Moreover, the Hon ble Jurisdictional High court has also taken note of the situation that if the tax is not properly deducted by payer, then he would be liable to pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income, if any, should be taxed under Section 44BB of the Income-tax Act and not under Section 44DA. We have already considered this issue while deciding ground No.7 8 of assessee s appeal for assessment year 2011-12 and, for the detailed discussion therein, we agree with the assessee s contention that the income of the assessee is chargeable to tax u/s 44BB and not u/s 44DA. Accordingly, ground Nos.3 4 of the assessee s appeal are allowed. 24. Ground No.5 is against levy of interest u/s 234B. This ground is identical to ground No.9 of the assessee s appeal for assessment year 2011-12. For the detailed discussion therein, we hold that the interest u/s 234B is not chargeable. Accordingly, ground No.5 is allowed. 25. Ground Nos.6 7 of the assessee s appeal are against initiation of penalty proceedings u/s 271B and 271(1)(c) respectively. The same are premature. Accordingly, they are rejected as such. 26. By way of ground No.8, the assessee has claimed that the impugned order passed by the AO/DRP is in violation of principles of natural justice. However, at the time of hearing before us, the learned counsel has not advanced any argument in support of this ground and ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is in violation of principles of natural justice. However, at the time of hearing before us, the learned counsel has not advanced any argument in support of this ground and has not proved how the impugned order is in violation of principles of natural justice. Accordingly, we reject ground No.7 of the assessee s appeal. 34. Ground No.8 is of general nature and needs no specific adjudication. ITA No.4840/Del/2018 (AY 2014-15) :- 35. At the time of hearing before us, both the parties agreed that since the grounds as well as facts are same, therefore, their arguments remain the same as in assessment year 2011-12. With this submission, we proceed to decide various grounds raised by the assessee for assessment year 2014-15. 36. By way of ground No.1, the assessee has claimed that the receipt of amount from BGEPIL is reimbursement of income and the same is not chargeable to tax as income. We have already considered this issue while deciding ground Nos.3 to 6 of assessee s appeal for assessment year 2011-12 and, for the detailed discussion therein, we hold that the receipt from BGEPIL cannot be accepted to be reimbursement of income but the same is business receipt chargeable ..... X X X X Extracts X X X X X X X X Extracts X X X X
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