TMI Blog2024 (1) TMI 264X X X X Extracts X X X X X X X X Extracts X X X X ..... n Oil wells - DR considering oil- well house as building instead of Plant and Machinery for the purpose of allowance of depreciation - HELD THAT:- We hold that the oil wells are eligible for depreciation as Plant Machinery and the Assessing Officer is directed to re-compute the depreciation on oil wells on opening WDV. With respect to additions made during the year, the A.O. may call for necessary details from the assessee to ascertain the nature of additions made and allow depreciation as per the above directions. Disallowance of deduction u/s 80IB(9) for Dholka Oil field - whether each well operated by the assessee is a separate undertaking eligible for deduction under Section 80IB(9)? - HELD THAT:- Since the issue whether the Explanation to section 80IB(9) would operate retrospectively or not is pending adjudication before the Hon ble Supreme Court, following the decision of the assessee s own case for assessment year 2001-02, 2002-3 and 2005-06 at this juncture, we are refraining from adjudicating ground nos. 3 4 and restore the matter back to the file of Assessing Officer to decide the issue in accordance with the directions of the Hon ble Supreme Court d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayments were made by JIT Head Office on behalf of the assessee. Depreciation on opening WDV of expenditure held to be of capital nature in the assessment proceedings - HELD THAT:- We are in agreement with the Ld. Counsel for the assessee that the depreciation may be allowed to the expenditure which has been held to be capital expenditure as per directions given by the ITAT in assessee s own case for A.Y. 2007-08. Accordingly, the Assessing Officer is directed to grant depreciation to the assessee on expenditure held to be capital in nature, in accordance with law. Nature of expenses - preliminary drilling expenses - HELD THAT:- It would be useful to reproduce the relevant extracts of the ITAT in assessee s own case for A.Y. 2007-08 [ 2023 (5) TMI 1003 - ITAT AHMEDABAD ] nature of expenses incurred by the assessee coupled with the fact that the Department has not brought anything on record to show that any capital asset of enduring nature was brought into existence, the claim of the assessee on expenses incurred on preliminary drilling expenditure is hereby allowed. Disallowance of subscription charges on the ground that no technical services has been made available - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SA in relation to Dholka Oil Fields Reserve Audit - whether the payment towards such audit fees qualifies as fee for technical services under the Act read with the Treaty.? - HELD THAT:- We observe that in the instant facts, payment was made by the assessee carrying out of reserve audit of Dholka Unit. Looking into the facts of the instant case, we are of the considered view that in the instant case, no technology has been made available to the assessee during the course of providing of aforesaid audit services , which is a mandate of Article 12 of the India-USA DTAA for any services to qualify as fee for technical services / fee for included services under the India-USA Tax Treaty. In our considered view, DRP has correctly observed that looking into the instant facts and nature of services for which payment was made by the assessee viz. audit services, there can be no inference that any technology was made available to the assessee, looking into the nature of services availed by the assessee. It is also not the allegation of the Department that RPS, USA has a permanent establishment or fixed placed of business in India so that the income erred by RPS USA should be tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the appellant in the field operations (including oil-well) as per Entry iii(8)(xii) of Appendix I to the Income Tax Rules, 1962. It is submitted that it be so held now. 3 The Assessing Officer has erred in holding that the appellant is not entitled to deduction u/s. 80IB(9) of the Act in respect of wells in Dholka oilfield. It be so held now. 4 The Assessing Officer has erred in not granting depreciation of Rs. 8,06,481/- on amount paid for acquiring participating interest in Joint Venture (shown as goodwill in the books of account) which is business or commercial right of similar nature as envisaged u/s 32 of the Act. It is submitted that it be so held now. 5 The Assessing officer has erred in disallowing professional fees paid to Horizon Petroleum Consultants Inc. US of Rs. 1,26,81,958/-under section 40(a)(i) for not deducting tax at source. 5.1 The Assessing officer erred in not appreciating that no technology is made available and hence the same is not covered within Article 12 of India-USA DTAA. It be so held now. 6 The Assessing officer has erred in disallowing reimbursement of expenses paid to Head office of Rs. 1,44,67,504/- u/s 40(a)(i) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he aforesaid decision passed by Hon ble Supreme Court, the ITAT dismissed the appeal filed by the assessee for assessment years 2005-06, assessment year 2001-02 and assessment year 2002-03. 5.2 Accordingly, the counsel for the assessee submitted that this ground of appeal may accordingly be decided against the assessee. 5.3 In the result, ground no. 2 of assessee s appeal is dismissed. 6. In light of the above observations made by ITAT in assessee s own case for A.Y. 2007-08 and assessee s submission on this issue, Ground No. 2 of the assessee s appeal is dismissed. Ground Nos. 2.1 2.2:- The Department erred in considering oil- well house as building instead of Plant and Machinery for the purpose of allowance and depreciation under Section 32 of the Act. 7. The brief facts in relation to this ground of appeal are that the Assessing Officer granted depreciation @ 10% by treating oil wells as building as per explanation to the definition of building in Appendix-1 of Income Tax Rules, which refers to wells and tubewells . On the other hand, the assessee s contention is that oil wells are Plant Machinery and are eligible for claiming depreci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case in ITA No. 2389/Ahd/2015 read with MA No. 149/Ahd/2021. The copies of the aforesaid orders have been placed before us for our perusal. 6.3 We observe that this issue has been decided in favour of the assessee for assessment year 2006-07 and the relevant extracts of the ITAT order are reproduced for reference: 5. We have heard the rival contentions of both the parties and perused the materials available on record. Admittedly, the ITAT was pleased to allow the depreciation to the assessee after making reference to the order of the ITAT in ITA No.3988/And/2018 for the Assessment Hear 2005-06 vide order dated 31/12/2019 in the own case of the assessee. But due to the mistake, the ITAT has directed the AO to delete the addition made by him, though there was not any addition made by the AO during the assessment proceedings. Thus the question of deleting the addition made by the AO does not arise. Accordingly, we rectify the para 26.1 of the order of the ITAT as detailed under: Accordingly we direct the AO to allow depreciation at the rate of 60% on the oil well and oil field equipment as plant machinery as provided Entry U(8)(xii) as Appendix I to the Income Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer. Ground No. 2.2 (Oil field equipment are eligible for depreciation @ 60% being plant and machinery) 8. In ground no. 2.2, the assessee s contention is that oil field equipment used for field operation should also be considered to be a part of oil well and depreciation should be allowed on oil field equipment @ 60% as is applicable to mineral oil concern as per Entry 8 of Appendix-I. 8.1 We observe that ITAT in assessee s own case has allowed depreciation on oil field equipment in assessment year 2006-07 in ITA No. 2389/Ahd/2015 r.w. M.A. No. 149/Ahd/2021 8.2 Accordingly, respectfully following the decision in assessee s own case for assessment year 2006-07, we hold that the assessee is eligible to claim depreciation on oil field equipment @ 60% (the relevant extracts of the aforesaid decision have been reproduced in the earlier part of the ruling while discussing the ground no. 2.1 of assessee s appeal) 8.3 Accordingly, the Assessing Officer is directed to re-compute the depreciation on oil field equipment on opening WDV. With respect to additions made during the year, the A.O. may call for necessary details from the assessee t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erve that the benefit of deduction u/s. 80IB(9) given to undertakings engaged in commercial production of natural gas was sought to be removed retrospectively by explanation 11 to the said provision. However, the retrospective insertion of explanation was held to be unconstitutional by the Gujarat High Court in the case of Niko Resources Ltd. vs. Union of India 274 ITR 369 since this affected the vested right of the assessee and therefore the Gujarat High Court struck down the aforesaid Explanation as being arbitrary and violative of Article 14 of the Constitution. However, the above findings made by the Gujarat High Court in the case of Niko Resources supra have been stayed by the Hon ble Supreme Court while admitting the SLP in CC No. 18370 of 2015. In the aforesaid order, the Supreme Court held as below:- as we are entertaining the matter, the High Courts where the appeals are pending shall not finalize the same till the matter is dealt with by this Court. 15.2 Therefore, the present matter whether each well would constitute a separate undertaking is pending adjudication before the Supreme Court. Further, the Supreme Court in the case of similar provision u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dication in light of order of Hon ble Supreme Court of India. Ground No.4:- Depreciation on goodwill (Rs. 8,06,481/-) 15. Before us, at the outset, Ld. Counsel for the assessee submitted that on identical set of facts, ITAT Ahmedabad in assessee s own case has set- aside the issue to the Assessing Officer for carrying out necessary verification in their order for A.Y. 2007-08. Accordingly, it was submitted that in light of the observations made by the ITAT for A.Y. 2007-08 the matter may be restored to the file of Assessing Officer for carrying out necessary verification. 16. It would be useful to reproduce the relevant extract from the ITAT order for ready reference:- 37. The brief facts in relation to this ground of appeal are that the assessee company in its return of income has claimed an amount of Rs. 14,33,745/- as depreciation on goodwill. During the course of assessment, the assessee vide letter dated 18-12-2019 submitted that the amount shown under the head goodwill is the amount paid by the company in respect of value of assets acquired by it along with interest in joint venture from L T. However, the Assessing Officer disallowed the claim of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el for the assessee was two fold. Firstly, that DRP had disallowed the claim of depreciation by placing reliance in the case of Techno Shares and Stocks case passed by the Bombay High Court, however, the aforesaid decision has been reversed and decided in favour of the assessee by the Hon ble Supreme Court in the case of Techno Shares and Stocks Ltd. vs. CIT 193 taxman 248. Accordingly, since the aforesaid case has since been decided by the Supreme Court in favour of the assessee and since the issue was decided by the DRP against the assessee on the basis of aforesaid case, which has since been reversed by the Supreme Court, the depreciation should be allowed to the assessee. The second contention raised by the counsel for the assessee is that since depreciation on the aforesaid asset has already been allowed to the assessee in the earlier years and the aforesaid asset was forming part of block of assets on which the depreciation has been allowed for various years, then, in view of various judicial precedents on the subject which have held that once depreciation has been allowed to the assessee on an asset forming part of block of asset, then, even if such asset has not been put to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , this would give a vested right to the assessee to claim depreciation on such asset which has been mistakenly/inadvertently granted by the Department in the earlier years. Secondly, we are also not in agreement with the argument for the assessee that the claim of depreciation can be examined by the Department only in the first year when the asset was acquired and the Department is precluded from examining claim of depreciation in the subsequent assessment years. In our considered view, if the Department omitted to examine the claim of the assessee in earlier assessment years or if Department is of the view that such claim of depreciation has been incorrectly allowed to the assessee in the previous assessment years, then, nothing precludes the Department from examining the claim of the assessee simply on the reasoning that the claim of depreciation can be examined only in the year when the asset was first acquired by the assessee. The third contention of the counsel for the assessee was that since the decision of Techno Shares and Stocks supra (on which reliance was placed by DRP) has since been reversed by the Supreme Court in favour of the assessee, then the claim of depreciation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee is eligible to claim depreciation as goodwill as per assessee s books as intangible assets u/s 32 of the Act, as per assessee s submissions before the Department. Accordingly, in the interest of justice, this issue is being restored to the file of Assessing Officer to examine firstly, whether or not depreciation is allowable on the aforesaid asset and under which category the assessee is claiming depreciation on the same i.e. as depreciation on goodwill or as depreciation of any other commercial right or intangible asset u/s. 32 of the Act. Secondly, the Assessing Officer may also examine that the necessary supporting documents in justification for assessee s claim of depreciation. Accordingly, this issue is aside to the file of ld. Assessing Officer with the aforesaid directions. 39. In the result, ground no. 13 13.1 of assessee s appeal are allowed for statistical purposes. 17. Accordingly, in light of the directions given by the ITAT Ahmedabad for assessee s own case for A.Y. 2007-08, the matter is being restored to the file of Assessing Officer for carrying out necessary verification to examine firstly, whether or not depreciation is allowable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of the India-USA Tax Treaty cannot be applied in the present case. Accordingly, the Assessing Officer disallowed the aforesaid payments under Section 40(a)(ia) of the Act for non-deduction of tax at source under Section 195 of the Act. 22. We observe that in the aforesaid case, the AO do not comply with the direction given by DRP and has not examined whether Article 12 of the Tax Treaty or Article 15 relating to independent personal services would be attracted in the instant set of facts. Further, we observe that even the assessee apart from furnishing self-declaration filed by the individual consultants to whom the payments were disbursed by the JTI Head Office on behalf of the assessee, did not furnish any conclusive evidence to show that the individual consultants were tax residents of USA. 23. Accordingly, looking into the above facts, in the interest of justice the matter being restored to the file of the Assessing Officer to examine whether the correct Article to be applied in the instant facts should be Article 12 relating to fee for technical services / fee for included services or Article 15 relating to independent personal services of the DTAA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lifies as revenue expenditure and hence may be allowed as revenue expenditure. Further, the assessee has incurred a sum of Rs. 1,16,918/- towards other sundry expenses, may also be allowed as revenue expenditure since no capital asset of enduring nature was brought into existence by way of aforesaid expenditure and hence the same may be allowed to the assessee as revenue expenditure. However, expenses towards purchase of furniture and fixture Rs. 2,09,679/-, and another payment to Dishnet Wireless Ltd. for purchase of asset Rs. 8,55,500/- and payment of Rs. 85,554/- towards purchase of furniture and fixture for new office have been incurred for purchase of furniture and fixture and other capital assets and hence are in the nature of capital expenses. Accordingly, the same cannot, in our view, be allowed as revenue expenditure in the hands of the assessee. However, the Assessing Officer is directed to allow depreciation on such fixed asset in accordance with law after carrying out the necessary verification. 28. In the result, ground no. 9 of assessee s appeal is dismissed and ground no. 9.1 of assessee s appeal is allowed for statistical purposes. 27. Before us, the Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 580/- debited to the profit and loss account on account of preliminary drilling expenses by treating the same as capital expenditure. In appeal, the DRP upheld the order of Assessing Officer by observing that the preliminary drilling expense have been incurred by the assessee on account of fees, studies and other consultancy charges with regard to creation of new assets and therefore the aforesaid expenditure is capital in nature. 22. Before us, the counsel for the assessee submitted that the aforesaid expenditure has been incurred on revenue account to analyse the feasibility of drilling of production wells. The expenses include consultancy charges, food and lodging relating to consultancy and drilling expenses. The counsel for the assessee submitted that these expenses have been incurred as revenue expenditure as part of assessee s business operation and no new asset has come into existence which could give enduring benefit. The counsel for the assessee submitted that these expenses are normal day to day expenses with respect to nature of industry. The counsel for the assessee placed reliance on several judicial precedents in support of its contention. In response, the ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts of the instant case has correctly observed that subscription to data base is not payment for technical services as per the DTAA. 39. We have heard the rival contentions and perused the material on record. We observe that the ITAT in various cases have held that payments towards subscription fees for access to specified online data base could not be considered as fees for technical services , support may be drawn from the following judicial precedents which have upheld the above proposition of law:- (i) Elsevier Information Systems GmbH (2019) 106 taxmann.com 401 (ii) TIS Two Administration (Singapore) Pte. Ltd. (2010) 40 SOT 16 (iii) CIT vs. De Beers India Minerals P. Ltd. 346 ITR 467 (Kar) (iv) Adani Port Infrastructure Pvt. Ltd. ITA No. 1405/Ahd/2009 (v) BA Research India Pvt. Ltd. ITA No. 3106/Ahd/2011 (vi) Guy Carpenter Co. Ltd. 20 taxmann.com 807 (vii) Sheraton International Inc. 178 taxman 84 (viii) Relx Inc. 149 taxmann.com 78 (Delhi Tribunal). 40. Accordingly, in light of the facts relating to this ground of appeal and judicial precedents on the subject, we are of the considered view that the DRP has not erred in holding that the aforesa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion with respect to Ground No. 2.2 of assessee s appeal for A.Y. 2009-10 Ground No. 1 of the assessee s appeal is allowed for A.Y. 2010-11. Ground No.2:- Disallowance of deduction under Section 80IB(9) of the Act 46. In light of our observation with respect to Ground No. 3 of assessee s appeal for A.Y. 2009-10 Ground No. 2 of the assessee s appeal is restored to the file of Ld. AO with similar directions as for A.Y. 2009-10. Ground No.3:- Disallowance of depreciation of Rs. 6,04,861/- on intangible asset 47. In light of our observation with respect to Ground No. 4 of assessee s appeal for A.Y. 2009-10, Ground No. 3 of the assessee s appeal is restored to the file of the Ld. AO with similar directions as for A.Y. 2009-10. Ground No.4:- DRP erred in not allowing reimbursement of expenses paid to Head Office under Section 40(a)(ia) of the Act of Rs 1,87,825/-. 48. The brief facts in relation to this ground of appeal are that the assessee has taken services of Interactive Interpretation and Training Inc. USA in relation to data evaluation of NELP VIII and Seismic 2D data interpretation. The aforesaid cost was incurred in relation to the India Project ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is general in nature hence does not require any specific adjudication. Now we shall come to Department s appeal for A.Y. 2010-11(ITA No. 739/Ahd/2014) Ground No.1:- Erred in law and facts in directing AO that if the Hon ble High Court allows writ petition, AO should allow assessee to submit Form 10CCB and allow the claim u/s 80IB(9) of the Act. 56. We observe that while adjudicating on Ground No. 3 of assessee s appeal, for A.Y. 2009-10 with respect to deduction under Section 80IB(9) of the Act the matter was restored to the file of Assessing Officer to allow the assessee s claim of deduction under Section 80IB(9) of the Act in line with the directions given by Hon ble Supreme Court, with whom the present issue is pending. 57. Accordingly, in light of observations made in assessee s appeal in Ground No. 3 for A.Y. 2009-10, the matter is being restored to the file of the Assessing Officer to grant relief to the assessee, in accordance with law. Ground No.2:- Erred in law and on facts in allowing claim of assessee in respect of disallowance of subscription charges of Rs. 7,71,554/- 58. In light of our observation with respect to Ground No. 3 of Depar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... personal services; since these overseas companies had no fixed base or PE in India, payment made to them would not be chargeable to tax in India. 61. Accordingly, in light of the facts of the instant case, we find no infirmity in the order of DRP so as to call for any interference. 62. In the result, Ground No. 3 of the Department s appeal is dismissed. Now we shall take up the assessee s appeal in ITA No. 242/Ahd/2014 for A.Y. 2011-12 63. Ground No. 1 is general in nature and does not require any specific adjudication. Ground No.2:- Disallowance of deduction under Section 80IB(9) of the Act. 64. In light of our observation with respect to Ground No. 3 of assessee s appeal for A.Y. 2009-10, Ground No. 2 of the assessee s appeal is restored to the file of Ld. AO with similar directions as for A.Y. 2009-10. Ground No.3:- Disallowance of claim of depreciation and additional depreciation on certain assets at 60% being Plant Machinery 65. In light of our observation with respect to Ground No. 2.2 of assessee s appeal for A.Y. 2009-10 Ground No. 3 of the assessee s appeal is allowed for A.Y. 2011-12. Now we shall take up the Department s app ..... X X X X Extracts X X X X X X X X Extracts X X X X
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