M/s. Halliburton Offshore Services Inc., Mumbai V. DCIT, Dehradun

CO 231/DEL/2016

• Counselvise Citation: [2016] 112 COUNSELVISE.COM (IT) 4101 (ITAT-DELHI)
• Duration Of Justice: 17 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 08-07-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 21-06-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ANUPAMA ANAND
• Keywords: Presumptive income; Business income; Depreciation
• Section: 234B; 44BB; 192

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL DELHI DELHI DELHI DELHI BENCH BENCH BENCH BENCH C CC C : NEW DELHI : NEW DELHI : NEW DELHI : NEW DELHI BEFORE SHRI BEFORE SHRI BEFORE SHRI BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT G.D. AGRAWAL, VICE PRESIDENT G.D. AGRAWAL, VICE PRESIDENT G.D. AGRAWAL, VICE PRESIDENT AND AND AND AND SMT. BEENA A. PILLAI SMT. BEENA A. PILLAI SMT. BEENA A. PILLAI SMT. BEENA A. PILLAI, JUDICIAL MEMBER , JUDICIAL MEMBER , JUDICIAL MEMBER , JUDICIAL MEMBER ITA NO ITA NO ITA NO ITA NO . .. . 6585/DEL/2014 6585/DEL/2014 6585/DEL/2014 6585/DEL/2014 ASSESSMENT YEAR : ASSESSMENT YEAR : ASSESSMENT YEAR : ASSESSMENT YEAR : 2011 2011 2011 2011 - -- - 12 1212 12 DEPUTY COMMISSIONER OF DEPUTY COMMISSIONER OF DEPUTY COMMISSIONER OF DEPUTY COMMISSIONER OF INCOME TAX, INCOME TAX, INCOME TAX, INCOME TAX, CIRCLE CIRCLE CIRCLE CIRCLE- -- -1, 1, 1, 1, (INTER (INTER (INTER (INTERNATIONAL TAXATION), NATIONAL TAXATION), NATIONAL TAXATION), NATIONAL TAXATION), DEHRADUN. DEHRADUN. DEHRADUN. DEHRADUN. VS. VS. VS. VS. M/S HALLIBURTON OFFSHORE SERVICES M/S HALLIBURTON OFFSHORE SERVICES M/S HALLIBURTON OFFSHORE SERVICES M/S HALLIBURTON OFFSHORE SERVICES INC., INC., INC., INC., C/O NANGIA & CO., CAS, C/O NANGIA & CO., CAS, C/O NANGIA & CO., CAS, C/O NANGIA & CO., CAS, 3 33 3 RD RDRD RD FLOOR, NCR PLAZA, FLOOR, NCR PLAZA, FLOOR, NCR PLAZA, FLOOR, NCR PLAZA, NEW CANTT ROAD, NEW CANTT ROAD, NEW CANTT ROAD, NEW CANTT ROAD, DEHRADUN DEHRADUN DEHRADUN DEHRADUN 248 001. 248 001. 248 001. 248 001. PAN : AAACH5154M. PAN : AAACH5154M. PAN : AAACH5154M. PAN : AAACH5154M. (APPELLANT) (RESPONDENT) CROSS OBJECTION CROSS OBJECTION CROSS OBJECTION CROSS OBJECTION NO NONO NO .231/DEL/2016 .231/DEL/2016 .231/DEL/2016 .231/DEL/2016 ASSESSME ASSESSME ASSESSME ASSESSME NT YEAR : NT YEAR : NT YEAR : NT YEAR : 2011 2011 2011 2011 - -- - 12 1212 12 M/S HALLIBURTON OFFSHORE M/S HALLIBURTON OFFSHORE M/S HALLIBURTON OFFSHORE M/S HALLIBURTON OFFSHORE SERVICES INC., SERVICES INC., SERVICES INC., SERVICES INC., C/O NANGIA & CO., CAS, C/O NANGIA & CO., CAS, C/O NANGIA & CO., CAS, C/O NANGIA & CO., CAS, 3 33 3 RD RDRD RD FLOOR, NCR PLAZA, FLOOR, NCR PLAZA, FLOOR, NCR PLAZA, FLOOR, NCR PLAZA, NEW CANTT ROAD, NEW CANTT ROAD, NEW CANTT ROAD, NEW CANTT ROAD, DEHRADUN DEHRADUN DEHRADUN DEHRADUN 248 001. 248 001. 248 001. 248 001. PAN : AAACH5154M. PAN : AAACH5154M. PAN : AAACH5154M. PAN : AAACH5154M. VS. VS. VS. VS. ADDITIONAL DIRECTOR OF ADDITIONAL DIRECTOR OF ADDITIONAL DIRECTOR OF ADDITIONAL DIRECTOR OF INCOME TAX, INCOME TAX, INCOME TAX, INCOME TAX, INTERNATIONAL TAXATION, INTERNATIONAL TAXATION, INTERNATIONAL TAXATION, INTERNATIONAL TAXATION, DEHRADUN. DEHRADUN. DEHRADUN. DEHRADUN. (APPELLANT) (RESPONDENT) REVENUE BY : SMT. ANUPAMA ANAND, CIT - DR. ASSESSEE BY : SHRI AMIT ARORA, CA. DATE OF HEARING : 30.06.2016 30.06.2016 30.06.2016 30.06.2016 DATE OF PRONOUNCEMENT : 08.07.2016 08.07.2016 08.07.2016 08.07.2016 ORDER ORDER ORDER ORDER PER G.D. AGRAWAL, VP PER G.D. AGRAWAL, VP PER G.D. AGRAWAL, VP PER G.D. AGRAWAL, VP : :: :- -- - ITA NO.6585/DEL/2014 ITA NO.6585/DEL/2014 ITA NO.6585/DEL/2014 ITA NO.6585/DEL/2014 REVENUES REVENUES REVENUES REVENUES APPEAL : APPEAL : APPEAL : APPEAL :- -- - THIS APPEAL BY THE REVENUE FOR THE ASSESSMENT YEAR 2011-12 IS DIRECTED AGAINST THE ORDER OF LEARNED CIT(A)-II, DE HRADUN DATED 4 TH SEPTEMBER, 2014. ITA-6585/DEL/2014 & C.O.231/DEL/2016 2 2. GROUND NO.1 OF THE REVENUES APPEAL READS AS UND ER:- 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE, THE LD.CIT(A) HAS ERRED IN HOLDING THAT NO DISTINCT ION CAN BE MADE BETWEEN RECEIPTS FROM PRODUCTION SHARING CONTR ACT PARTICIPANTS (PSC PARTNERS) AND NON-PRODUCTION SH ARING CONTRACT ENTITIES (NON-PSC PARTNERS) AND BETWEEN S ERVICES RENDERED BY FIRST-LEG AND SECOND-LEG VENDORS, IGNOR ING THE FACT THAT THE RECEIPTS FROM NON-PSC PARTNERS ON ACC OUNT OF PROVISION OF EQUIPMENT ON HIRE (EQUIPMENT RENTAL) AND PROVISION OF TECHNICAL SERVICES (TECHNICAL SERVICE S), ARE IN RESPECT OF CONTRACTS WHICH ARE ENTERED INTO WITH CO MPANIES NOT DIRECTLY ENGAGED IN OIL PRODUCTION AND EXPLORAT ION AND, THEREFORE, NOT ELIGIBLE FOR TREATMENT UNDER THE PRE SUMPTIVE PROVISIONS OF SECTION 44BB OF THE IT ACT, 1961 (AC T). 1(A) THE LD.CIT(A) HAS ERRED IN HOLDING THAT THE RE CEIPTS OF THE ASSESSEE FROM NON-PSC PARTNERS ON ACCOUNT OF EQUIPMENT RENTAL AND TECHNICAL SERVICES, INCLUD ING RELATED RECEIPTS ON ACCOUNT OF SALE OF CONSUMABLES & RE- IMBURSEMENT OF SERVICE TAX ETC., WERE TAXABLE UNDE R SECTION 44BB OF THE ACT AS OPPOSED TO SECTION 44DA READ WITH SECTION 9(1)(VI)/9(1)(VII) APPLICABLE TO ROYAL TIES AND FEE FOR TECHNICAL SERVICES (FTS). 3. WE HAVE HEARD BOTH THE PARTIES AND HAVE PERUSED THE MATERIAL PLACED BEFORE US. WE FIND THIS ISSUE TO BE COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF ITAT IN THE CASE OF SBS MARINE LTD. VS. ADDITIONAL DIT IN ITA NO.107/DEL/2012, DATED 13 TH FEBRUARY, 2015, WHEREIN THE ITAT HELD AS UNDER:- 23. FURTHER, THERE IS NO REQUIREMENT OF A DIRECT C ONTRACT OR AGREEMENT WITH THE PERSON ACTUALLY ENGAGED IN PROSPECTING FOR, OR EXTRACTION OR PRODUCTION OF, MI NERAL OILS AS CANVASSED BY THE REVENUE FOR THE APPLICABILITY O F 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 OF THE PROSPECTING FOR O R EXTRACTION OR PRODUCTION OF MINERAL OILS IN RELATIO N WHICH THE CENTRAL GOVT. HAS ENTERED INTO AN AGREEMENT. S ECTION ITA-6585/DEL/2014 & C.O.231/DEL/2016 3 80IA(4)(I)(B) PROVIDES THAT THE ENTERPRISE CARRYING ON THE BUSINESS OF DEVELOPING, OPERATING AND MAINTAINING A NY INFRASTRUCTURE FACILITY HAS TO ENTER INTO AN AGREEM ENT WITH THE CENTRAL GOVERNMENT OF A STATE GOVT. OR A LOCAL AUTHORITY ETC. IN THE ABSENCE OF ANY REQUIREMENT I N SECTION 44BB THAT THE PERSON PROVIDING SERVICES, FACILITIES OR PLANT AND MACHINERY ON HIRE SHOULD HAVE DIRECTLY ENTERED INTO A CONTRACT OR AGREEMENT WITH THE PERSON ACTUALLY ENGA GED IN PROSPECTING FOR OR EXTRACTION OR PRODUCTION OF, MIN ERAL OILS, ONE CANNOT CURTAIL THE SCOPE OR APPLICABILITY OF SE CTION 44BB TO SECOND LEG CONTRACTORS WHOSE CONTRACTS OR AGREEMENTS ARE WITH FIRST LEG CONTRACTORS BUT WHOSE SERVICES OR FACILITIES OR PLANT AND MACHINERY ARE U SED IN CONNECTION WITH PROSPECTING FOR OR EXTRACTION OR PR ODUCTION OF, MINERAL OILS AS REQUIRED UNDER SECTION 44BB. T HE HON'BLE SUPREME COURT IN ICDS LTD V CIT [2013] 350 ITR 527 = 2013 TIOL-06-HON'BLE SUPREME COURT-IT HELD TH AT THE ASSESSEE LEASING THE VEHICLES TO OTHERS WHO USE THE SAID VEHICLES IN THEIR BUSINESS OF RUNNING THEM ON HIRE IS ENTITLED FOR HIGHER RATE OF DEPRECIATION ON THE VEH ICLES GIVEN ON LEASE. IT WAS HELD BY THE HON'BLE SUPREME COURT THAT THE LESSOR NEED NOT HIMSELF USE THE VEHICLES I N THE BUSINESS OF RUNNING THEM ON HIRE. THE RATIONALE OF THE AFORESAID DECISION OF THE SUPREME COURT MAY BE APPL IED IN THE CONTEXT OF SECTION 44BB IN AS MUCH AS SECTION 4 4BB DOES NOT MANDATE THAT THE ASSESSEE SHOULD DIRECTLY ENTER INTO CONTRACT WITH THE PERSON ENGAGED IN THE BUSINE SS OF PROSPECTING FOR OR EXTRACTION OR PRODUCTION OF, MIN ERAL OILS OR THE SERVICES OR FACILITIES OR PLANT AND MACHINER Y ON HIRE SHOULD BE DIRECTLY PROVIDED TO THE SAID PERSON ALON E. WE HAVE ALREADY GIVEN A FINDING OF FACT THAT THE SERVI CES AND FACILITIES PROVIDED BY THE ASSESSEE ALONG WITH PLAN T AND MACHINERY ARE USED IN OFFSHORE DRILLING OPERATIONS I.E., THE ACTIVITY OF PROSPECTING FOR OR EXTRACTION OR PRODUC TION OF MINERAL OILS. CONSEQUENTLY, THE REQUIREMENTS OF SE CTION 44BB ARE SATISFIED IN THE PRESENT CASE. 24. IN VIEW OF THE ABOVE, THERE IS NO MERIT IN THE CONTENTIONS OF THE REVENUE THAT THE ASSESSEE IS NOT AN ELIGIBLE ASSESSEE UNDER SECTION 44BB SINCE IT HAS N OT DIRECTLY ENTERED INTO CONTRACT WITH THE ONGC AND IT IS NOT UNDERTAKING THE ACTIVITIES SPECIFIED IN SECTION 44B B ITSELF AND BEING SECOND LEG CONTRACTORS THEY ARE NOT ELIGI BLE UNDER SECTION 44BB. ITA-6585/DEL/2014 & C.O.231/DEL/2016 4 4. THE FACTS OF THE CASE UNDER APPEAL ARE SIMILAR B ECAUSE IN THIS CASE ALSO, THE ASSESSING OFFICER DENIED THE BENEFIT OF SECTION 44BB TO THE ASSESSEE ON THE GROUND THAT THE ASSESSEE HAS NO T ENTERED INTO AN AGREEMENT DIRECTLY WITH CENTRAL GOVERNMENT BUT IS O NLY A SECOND LEG CONTRACTOR. THE IDENTICAL ISSUE HAS BEEN CONSIDERE D AND DECIDED BY THE ITAT IN THE ABOVE MENTIONED CASE. THEREFORE, T HE RATIO OF THE ABOVE DECISION WOULD BE SQUARELY APPLICABLE. IT WA S ALSO POINTED OUT BY THE LEARNED COUNSEL THAT THE ABOVE DECISION OF I TAT HAS BEEN UPHELD BY HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. M/S SBS MARINE LIMITED VIDE INCOME TAX APPEAL NO.36 OF 2015. IN VIEW OF THE ABOVE, WE, RESPECTFULLY FOLLOWING THE ABOVE DEC ISION OF ITAT AND HON'BLE JURISDICTIONAL HIGH COURT, UPHOLD THE ORDER OF LEARNED CIT(A) AND REJECT GROUND NO.1 OF THE REVENUES APPEAL. 5. GROUND NOS.2 TO 5 OF THE REVENUES APPEAL READ A S UNDER:- 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE LD.CIT(A) HAS ERRED IN IGNORING THE EFFEC T OF THE AMENDMENT BROUGHT IN VIDE FINANCE ACT, 2010 W.E.F. 01.04.2011, IN TERMS OF WHICH INCOME COVERED BY SEC TION 44DA HAS BEEN SPECIFICALLY EXCLUDED FROM THE SCOPE OF SECTION 44BB FOR ASSTT YEARS 2011-12 (THE YEAR UNDE R CONSIDERATION) ONWARDS. 2(A) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) HAS ERRED IN IGNORING THE DISTINCT SC HEME OF TAXATION OF FEE FOR TECHNICAL SERVICES AND ROYALTY AND DISREGARDING THE INSERTION OF PROVISOS IN SECTION 44BB/44DA/115A AND THE RATIONALE BEHIND THE INTRODU CTION OF SAID AMENDMENT IN THE FINANCE BILL 2010 IN HOLDI NG THAT THE INCOME OF THE ASSESSEE COMPANY FROM EQUIPMENT RENTAL AND TECHNICAL SERVICES FROM NON-PSC PARTN ERS WAS COVERED UNDER THE PRESUMPTIVE PROVISIONS OF SECTION 44BB. 2(B) THE LD.CIT(A) HAS ERRED IN NOT APPRECIATING TH E FACT THAT EVEN IN TERMS OF RATIO OF THE JUDGMENT IN THE SAID OF OHM LTD [352, ITR 406 (DELHI)] CITED BY HIM, THE PR OVISIONS OF SECTION 44BB ARE NOT APPLICABLE WHERE THE SCOPE OF THE ITA-6585/DEL/2014 & C.O.231/DEL/2016 5 SERVICES/FACILITIES PROVIDED BY AN ASSESSEE IS GENE RAL IN NATURE FALLING UNDER SECTION 44DA(1) OF THE ACT. 2(C) THE LD.CIT(A) HAS ERRED IN MECHANICALLY FOLLOW ING THE DECISION IN THE CASE OF M/S OHM LTD WITHOUT FIRST ADJUDICATING UPON THE ISSUE AS TO WHETHER AND HOW T HE SCOPE OF THE SERVICES/FACILITIES RENDERED UNDER THE CONTRACTS IS NOT GENERAL IN NATURE AND THEREFORE, D OES NOT QUALIFY AS ROYALTY/FTS U/S 9(1)(VI)/9(1)(VII) OF TH E ACT TAXABLE UNDER SECTION 44DA. 3. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) HAS ERRED IN HOLDING THAT THE I NCOME EARNED BY THE ASSESSEE FOR IMPARTING OF SERVICES WA S ELIGIBLE FOR TREATMENT U/S 44BB OF THE ACT, WITHOUT ADJUDICATING THE ASPECT OF ELIGIBILITY UNDER THE SE COND LIMB OF THE EXCLUSIONARY PROVISO (EXPLANATION TO SECTION 9(1)(VII) OF THE IT ACT, 1961) I.E. FOR A PROJECT UNDERTAKEN BY THE RECIPIENT IN TERMS OF DECISION OF HON'BLE DELHI HI GH COURT IN CIT V RIO TINTO TECHNICAL SERVICES [2012-TII-01- HC-DEL- INTL]. 4. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE LD.CIT(A) HAS ERRED IN IGNORING THE DECISIONS O F JURISDICTIONAL HIGH COURT IN THE CASES OF ONGC AS A GENT OF FORAMER FRANCE AND M/S ROLLS ROYCE PVT LTD [2007-TI I-03- HC-UKHAND-INTL]. 5. WHETHER ON THE FACTS AND CIRCUMSTANCES ON THE FA CTS, THE LD CIT(A) HAS ERRED IN REVERSING THE ACTION OF THE AO WHO, HAVING HELD THAT THE ASSESSEES REVENUES ON AC COUNT OF EQUIPMENT RENTAL AND SERVICES UNDER CONTRACT S WITH NON-PSC PARTNERS IS LIABLE TO BE TAXED U/S 44DA, RI GHTLY ESTIMATED THE INCOME OF THE ASSESSEE BY APPLYING 25 % RATE OF PROFIT ON GROSS RECEIPTS IN THE ABSENCE OF BOOKS OF ACCOUNTS AND DETAILS OF EXPENSES INCURRED IN PROVID ING THE SERVICES. 6. AT THE TIME OF HEARING BEFORE US, IT WAS POINTED OUT BY THE LEARNED COUNSEL THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HONBLE APEX COURT IN A SSESSEES OWN CASE WHICH IS REPORTED IN 278 CTR 153. IT WAS ALSO STAT ED THAT THERE WERE GROUP OF APPEALS BEFORE HONBLE APEX COURT IN WHICH THE LEAD CASE WAS OF ONGC AND VARIOUS OTHER ASSESSEES WHICH INCLUDED THE ASSESSEE ITA-6585/DEL/2014 & C.O.231/DEL/2016 6 UNDER APPEAL BEFORE US. IN THE ABOVE MENTIONED CAS E, HONBLE APEX COURT HELD AS UNDER:- A CAREFUL READING OF THE AFORESAID PROVISIONS OF T HE ACT GOES TO SHOW THAT UNDER SECTION 44BB(1) IN CASE OF A NON- RESIDENT PROVIDING SERVICES OR FACILITIES IN CONN ECTION WITH OR SUPPLYING PLANT AND MACHINERY USED OR TO BE U SED IN PROSPECTING, EXTRACTION OR PRODUCTION OF MINERAL OI LS THE PROFIT AND GAINS FROM SUCH BUSINESS CHARGEABLE TO T AX IS TO BE CALCULATED AT A SUM EQUAL TO 10% OF THE AGGREGA TE OF THE AMOUNTS PAID OR PAYABLE TO SUCH NON-RESIDENT ASSESSEE AS MENTIONED IN SUB-SECTION (2). ON T HE OTHER HAND, SECTION 44D CONTEMPLATES THAT IF THE INCOME O F A FOREIGN COMPANY WITH WHICH THE GOVERNMENT OR AN INDIAN CONCERN HAD AN AGREEMENT EXECUTED BEFORE 1.4.1 976 OR ON ANY DATE THEREAFTER THE COMPUTATION OF INCOME WO ULD BE MADE AS CONTEMPLATED UNDER THE AFORESAID SE CTION 44D. EXPLANATION (A) TO SECTION 44D HOWEVER SPECIFIES THAT FEES FOR TECHNICAL SERVICES AS MENTIONE D IN SECTION 44D WOULD HAVE THE SAME MEANING AS IN EXPLANATION 2 TO CLAUSE (VII) OF SECTION 9(1). TH E SAID EXPLANATION AS QUOTED ABOVE DEFINES FEES FOR TECHN ICAL SERVICES TO MEAN CONSIDERATION FOR RENDERING OF AN Y MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES. HOW EVER, THE LATER PART OF THE EXPLANATION EXCLUDES FRO M CONSIDERATION FOR THE PURPOSES OF THE EXPRESSI ON I.E. FEES FOR TECHNICAL SERVICES ANY PAYMENT RECE IVED FOR CONSTRUCTION, ASSEMBLY, MINING OR LIKE PROJECT UNDE RTAKEN BY THE RECIPIENT OR CONSIDERATION WHICH WOULD BE CHARGEABLE UNDER THE HEAD SALARIES. FEES FOR TE CHNICAL SERVICES, THEREFORE, BY VIRTUE OF THE AFORESAID EXP LANATION WILL NOT INCLUDE PAYMENTS MADE IN CONNECTION WITH A MINING PROJECT. THE INCOME TAX ACT DOES NOT DEFINE THE EXPRE SSIONS MINES OR MINERALS. THE SAID EXPRESSIONS ARE F OUND DEFINED AND EXPLAINED IN THE MINES ACT, 1952 AND THE OIL FIELDS (DEVELOPMENT AND REGULATION) ACT 1948. WH ILE CONSTRUING THE SOMEWHAT PARI MATERIA EXPRESSIONS APPEARING IN THE MINES AND MINERALS (DEVELOPMENT AND REGULATION) ACT 1957 REGARD MUST BE HAD TO THE PRO VISIONS OF ENTRIES 53 AND 54 OF LIST I AND ENTRY 22 OF LIST II OF THE 7TH SCHEDULE TO THE CONSTITUTION TO UNDERSTAND THE EXCLUSION OF MINERAL OILS FROM THE DEFINITION OF M INERALS IN SECTION 3(A) OF THE 1957 ACT. REGARD MUST ALSO BE HAD ITA-6585/DEL/2014 & C.O.231/DEL/2016 7 TO THE FACT THAT MINERAL OILS IS SEPARATELY DEFINE D IN SECTION 3(B) OF THE 1957 ACT TO INCLUDE NATURAL G AS AND PETROLEUM IN RESPECT OF WHICH PARLIAMENT HAS EXCLU SIVE JURISDICTION UNDER ENTRY 53 OF LIST I OF THE 7T H SCHEDULE AND HAD ENACTED AN EARLIER LEGISLATION I.E. OIL F IELDS (REGULATION AND DEVELOPMENT) ACT, 1948. READING SECTION 2(J) AND 2(JJ) OF THE MINES ACT, 1952 W HICH DEFINE MINES AND MINERALS AND THE PROVISIONS OF THE OIL FIELDS (REGULATION AND DEVELOPMENT) ACT, 1948 SPECIFICALLY RELATING TO PROSPECTING AND EXPLOR ATION OF MINERAL OILS, EXHAUSTIVELY REFERRED TO EARLIER, I T IS ABUNDANTLY CLEAR THAT DRILLING OPERATIONS FOR TH E PURPOSE OF PRODUCTION OF PETROLEUM WOULD CLEARLY AMOUNT T O A MINING ACTIVITY OR A MINING OPERATION. VIEWED THUS, IT IS THE PROXIMITY OF THE WORKS CONTEMPLATED UNDER A N AGREEMENT, EXECUTED WITH A NON- RESIDENT ASSESSEE O R A FOREIGN COMPANY, WITH MINING ACTIVITY OR MINI NG OPERATIONS THAT WOULD BE CRUCIAL FOR THE DETERMI NATION OF THE QUESTION WHETHER THE PAYMENTS MADE UNDER SUC H AN AGREEMENT TO THE NON-RESIDENT ASSESSEE OR THE FO REIGN COMPANY IS TO BE ASSESSED UNDER SECTION 44BB OR SECTION 44D OF THE ACT. THE TEST OF PITH AND SUBST ANCE OF THE AGREEMENT COMMENDS TO US AS REASONABLE FOR ACCEPTANCE. EQUALLY IMPORTANT IS THE FACT THAT TH E 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 PR OJECTS OR LIKE PROJECTS OCCURRING IN EXPLANATION 2 TO S ECTION 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 N ON- RESIDENT/FOREIGN COMPANY WOULD BE CHARGEABLE T O TAX UNDER THE PROVISIONS OF SECTION 44BB AND NOT SECTIO N 44D OF THE ACT. THE ABOVE FACTS WOULD INDICATE THAT THE PITH AND SU BSTANCE OF EACH OF THE CONTRACTS/AGREEMENTS IS INEXTRICA BLY CONNECTED WITH PROSPECTING, EXTRACTION OR PRODU CTION OF MINERAL OIL. THE DOMINANT PURPOSE OF EACH OF SU CH AGREEMENT IS FOR PROSPECTING, EXTRACTION OR PRODUCT ION OF MINERAL OILS THOUGH THERE MAY BE CERTAIN ANCILLARY WORKS CONTEMPLATED THEREUNDER. IF THAT BE SO, WE WILL HAVE NO HESITATION IN HOLDING THAT THE PAYMENTS MADE BY ON GC AND RECEIVED BY THE NON-RESIDENT ASSESSEES OR FOREI GN COMPANIES UNDER THE SAID CONTRACTS IS MORE APPROPR IATELY ASSESSABLE UNDER THE PROVISIONS OF SECTION 44BB AN D NOT ITA-6585/DEL/2014 & C.O.231/DEL/2016 8 SECTION 44D OF THE ACT. ON THE BASIS OF THE SAID CONCLUSION REACHED BY US, WE ALLOW THE APPEALS UNDER CONSIDERATION BY SETTING ASIDE THE ORDERS OF THE H IGH COURT PASSED IN EACH OF THE CASES BEFORE IT AND R ESTORING THE VIEW TAKEN BY THE LEARNED APPELLATE COMMISSIONER AS AFFIRMED BY THE LEARNED TRIBUNAL. 7. IT WAS ALSO POINTED OUT THAT WHILE DECIDING THE ISSUE AGAINST THE ASSESSEE, THE ASSESSING OFFICER HAS RELIED UPON THE DECISION OF HONBLE HIGH COURT OF UTTARAKHAND IN THE CASE OF ONGC WHICH HAS BEEN REVERSED BY HONBLE APEX COURT IN THE CASE OF ONGC (SUPRA). SINCE THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HONBLE APEX COURT, WE, RESPECTFULLY FOLLOWING THE SAME, UPHOLD THE ORDER OF LEARNED CIT(A) ON THIS POINT AND REJECT GR OUND NOS.2 TO 5 OF THE REVENUES APPEAL. 8. GROUND NO.6 OF THE REVENUES APPEAL READS AS UND ER:- 6. WITHOUT PREJUDICE TO THE GENERALITY OF THE GROU ND RELATING TO TAXATION OF ENTIRE RECEIPTS AS ROYALTY/ FTS, WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LD.CIT(A) HAS ERRED IN HOLDING THAT THE AMOUNTS RECEIVED AS RE-IMBURSEMENT OF SERVICE TAX ARE NOT INCLUDIBLE IN GROSS TURNOVER EVEN FOR THE PURPOSE O F COMPUTING TAXABLE INCOME U/S 44BB. 6(A) THE LD.CIT(A) HAS ERRED IN NOT APPRECIATING TH E FACT THE PROVISIONS OF SECTION 44BB ARE A SELF-CONTAINED CODE PROVIDING FOR COMPUTATION OF PROFITS AT A FIXED PER CENTAGE OF GROSS RECEIPTS OF THE ASSESSEE AND ALL THE DEDUC TIONS AND EXCLUSIONS FROM INCOME ARE DEEMED TO HAVE BEEN ALLOWED TO THE ASSESSEE. 6(B) WHETHER THE LD.CIT(A) HAS ERRED IN NOT APPRECI ATING THE FACT THAT ONCE THE RECEIPTS HELD AS TAXABLE U/S 44BB OF THE ACT, THERE IS NO SCOPE FOR COMPUTING OR RE-COMP UTING THE PROFITS BY EXCLUDING ANY ELEMENT OF THE RECEIPT S FROM THE TOTAL TURNOVER AS THE SAME WOULD AMOUNT TO DEFE ATING THE VERY PURPOSE OF PROVIDING FOR A SCHEME OF SIMPL ER MODE OF COMPUTATION OF PROFITS U/S 44BB OF THE ACT AND ITA-6585/DEL/2014 & C.O.231/DEL/2016 9 OBVIATING THE NEED FOR ACCOUNTING FOR INDIVIDUAL RE CEIPTS AND PAYMENTS ETC. 6(C) WHETHER THE LD.CIT(A) HAS ERRED IN IGNORING TH E RATIO OF THE JUDGMENT IN THE CASE OF M/S CHOWRINGHEE SALE S BUREAU (P) LTD. (82 ITR 542, SC) WHEREIN THE HONBL E APEX COURT HAS HELD THAT THE SALES TAX COLLECTED BY AN A SSESSEE IN THE ORDINARY COURSE OF ITS BUSINESS FORMS PART O F ITS BUSINESS RECEIPTS. OWING TO THE INHERENT SIMILARIT Y IN THE NATURE OF THE SALES TAX AND SERVICE TAX, THE RATIO OF THE JUDGMENT IN THE SAID CASE IS DIRECTLY APPLICABLE IN THE FACTS OF THE INSTANT CASE. 9. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL PLACED BEFORE US. WE FIND THIS ISSUE ALSO TO BE COVERED I N FAVOUR OF THE ASSESSEE BY THE DECISION OF HON'BLE DELHI HIGH COUR T IN THE CASE OF DIT VS. MITCHELL DRILLING INTERNATIONAL PVT.LTD. [201 6] 380 ITR 130 (DELHI), WHEREIN HONBLE HIGH COURT AT PARAGRAPH 16 & 17 HEL D AS UNDER:- 16. THE COURT CONCURS WITH THE DECISION OF THE HIG H COURT OF UTTARAKHAND IN DIT V. SCHLUMBERGER ASIA SERVICES LTD. (SUPRA) WHICH HELD THAT THE REIMBURSEMENT RECEIVED BY THE ASSESSEE OF THE CUSTOMS DUTY PAID ON EQUIPMENT IMPO RTED BY IT FOR RENDERING SERVICES WOULD NOT FORM PART OF THE GROSS RECEIPTS FOR THE PURPOSES OF SECTION 44 BB OF THE ACT. 17. THE COURT ACCORDINGLY HOLDS THAT FOR THE PURPOS ES OF COMPUTING THE PRESUMPTIVE INCOME OF THE ASSESSEE FOR THE PURPOSES OF SECTION 44 BB OF THE ACT, THE SERVI CE TAX COLLECTED BY THE ASSESSEE ON THE AMOUNT PAID BY IT FOR RENDERING SERVICES IS NOT TO BE INCLUDED IN THE GRO SS RECEIPTS IN TERMS OF SECTION 44 BB(2) READ WITH SEC TION 44 BB(1). THE SERVICE TAX IS NOT AN AMOUNT PAID OR PA YABLE, OR RECEIVED OR DEEMED TO BE RECEIVED BY THE ASSESSE E FOR THE SERVICES RENDERED BY IT. THE ASSESSEE IS ONLY COLLECTING THE SERVICE TAX FOR PASSING IT ON TO THE GOVERNMENT . 10. FROM THE ABOVE, IT IS EVIDENT THAT WHILE DECIDI NG THE ABOVE ISSUE, HON'BLE DELHI HIGH COURT HAS CONCURRED WITH THE DEC ISION OF HONBLE HIGH COURT OF UTTARAKHAND IN THE CASE OF DIT VS. SC HLUMBERGER ASIA SERVICES LTD. [2009] 317 ITR 156. NO CONTRARY DE CISION HAS BEEN ITA-6585/DEL/2014 & C.O.231/DEL/2016 10 BROUGHT TO OUR KNOWLEDGE. WE, THEREFORE, RESPECTFU LLY FOLLOWING THE ABOVE DECISION OF HON'BLE DELHI HIGH COURT CONCUR W ITH THE LEARNED CIT(A) THAT SERVICE TAX COLLECTED BY THE ASSESSEE W ILL NOT FORM PART OF RECEIPT FOR THE PURPOSE OF COMPUTING INCOME U/S 44B B OF THE ACT. GROUND NO.6 OF THE REVENUES APPEAL IS ACCORDINGLY REJECTED. 11. GROUND NO.7 OF THE REVENUES APPEAL READS AS UN DER:- 7. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE LD.CIT(A) HAS ERRED IN HOLDING THAT INTEREST U/S 234B OF THE INCOME TAX ACT, 1961 (THE ACT) WAS NOT CHARGEABLE IN THIS CASE BY RELYING UPON THE CASE OF M/S MAERSK [334 ITR 79]. A. THE LD.CIT(A) HAS ERRED IN NOT APPRECIATING THE FACT THAT THE CASE OF M/S MAERSK WAS DISTINGUISHABLE ON FACTS AS IT DEALT WITH A CASE WHERE THE EMPLOYER FAILED TO D EDUCT TAX AT SOURCE DESPITE THE SPECIFIC PROVISIONS OF TH E ACT IN TERMS OF WHICH THE EMPLOYER WAS MANDATORILY REQUIRE D TO DEDUCT TAX FROM THE SALARY PAID TO THE EMPLOYEE. I N THE SAID CASE, THE HONBLE COURT HELD THAT AN EMPLOYEE IS NOT LIABLE TO PAY ADVANCE TAX ON SALARY BECAUSE U/S 192 THERE IS AN OBLIGATION ON THE EMPLOYER TO DEDUCT TAX AT S OURCE. THE CASE DOES NOT LAY DOWN A GENERAL PROPOSITION OF LAW THAT INTEREST U/S 234B IS NOT CHARGEABLE IN ALL CAS ES, PARTICULARLY IN CASES WHERE THE NON-RESIDENT ASSESSEE/PAYEE/DEDUCTEE HAS PLAYED A ROLE IN INDUCI NG NON-DEDUCTION OR SHORT-DEDUCTION ON THE PART OF THE PAYER/DEDUCTOR. B. THE LD.CIT(A) HAS ERRED IN FAILING TO TAKE NOTE OF THE OBSERVATIONS OF THE HONBLE HIGH COURT IN THE CASE OF M/S MITSUBISHI [330 ITR 578, DEL] THAT THE ROLE OF THE ASSESSEE/PAYEE/DEDUCTEE IN SHORT-DEDUCTION OR NON- DEDUCTION OF TAX NEEDS TO BE ASCERTAINED BEFORE CLA IM REGARDING NON-LIABILITY TO INTEREST U/S 234B OF THE ACT IS ACCEPTED, A PROPOSITION AFFIRMED SUBSEQUENTLY IN TH E CASE OF M/S ALCATEL LUCENT (JUDGMENT OF DELHI HIGH COURT DATED 7.11.2013 IN ITA NO.327 & ORS OF 2012). 12. WE FIND THAT LEARNED CIT(A) HAS DECIDED THIS IS SUE IN FAVOUR OF THE ASSESSEE FOLLOWING THE DECISION OF HON'BLE JURI SDICTIONAL HIGH COURT ITA-6585/DEL/2014 & C.O.231/DEL/2016 11 IN THE CASE OF DIT AND ANOTHER VS. MAERSK CO.LTD. [2011] 334 ITR 79 (UTTARAKHAND)(FB). NO CONTRARY DECISION IS BROUGHT TO OUR KNOWLEDGE. THEREFORE, WE UPHOLD THE ORDER OF LEARNED CIT(A) AN D REJECT GROUND NO.7 OF THE REVENUES APPEAL. ASSES ASSES ASSES ASSESSEES SEES SEES SEES C.O. NO.231/DEL/2016 : C.O. NO.231/DEL/2016 : C.O. NO.231/DEL/2016 : C.O. NO.231/DEL/2016 :- -- - 13. GROUND NOS.1, 2 & 3 OF THE CROSS-OBJECTION FILE D BY THE ASSESSEE ARE ADMITTED TO BE IN SUPPORT OF THE ORDER OF LEARN ED CIT(A). THEREFORE, THE SAME ARE TREATED AS INFRUCTUOUS AND REJECTED AS SUCH. 14. GROUND NO.4 OF THE ASSESSEES CROSS-OBJECTION R EADS AS UNDER:- THAT WITHOUT PREJUDICE TO THE ABOVE, THE RESPONDEN TS CLAIM THAT REIMBURSEMENT OF EXPENDITURE AGGREGATING TO INR 36,552,043 IS NOT CHARGEABLE TO TAX AT ALL SINC E THE RECEIPTS LACK ANY ELEMENT OF PROFIT, THE LD.CIT(A) HAS ERRED IN HOLDING THAT REIMBURSEMENTS WERE TO BE INCLUDED IN THE RECEIPTS FOR THE PURPOSE OF DETERMINATION OF INCOME UNDER SECTION 44BB OF THE ACT. 15. AT THE TIME OF HEARING BEFORE US, IT WAS FAIRLY CONCEDED BY THE LEARNED COUNSEL THAT THIS ISSUE IS COVERED AGAINST THE ASSESSEE BY THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN TH E CASE OF CIT AND ANOTHER VS. HALLIBURTON OFFSHORE SERVICES INC. [2 008] 300 ITR 265 (UTTARAKHAND). IN THE ABOVE MENTIONED CASE, THE AS SESSEE RENDERED SERVICES TO THE ONGC. FOR THE ASSESSMENT YEAR 1991 -92, IT CLAIMED THAT THE AMOUNT OF RS.6,16,989 RECEIVED ON ACCOUNT OF REIMBURSEMENT OF FREIGHT AND TRANSPORTATION CHARGES ACTUALLY INCU RRED IN RESPECT OF EQUIPMENT WAS NOT INCLUDIBLE WHILE COMPUTING ITS IN COME UNDER SECTION 44BB. THE ASSESSING OFFICER REJECTED THE C LAIM BUT THE COMMISSIONER OF INCOME-TAX (APPEALS) AND THE TRIBUN AL ACCEPTED IT. ON APPEAL TO THE HIGH COURT, IT WAS HELD AS UNDER : - ITA-6585/DEL/2014 & C.O.231/DEL/2016 12 HELD, ALLOWING THE APPEAL, THAT IT WAS NOT IN DISP UTE THAT THE AMOUNT HAD BEEN RECEIVED BY THE ASSESSEE. THER EFORE, THE ASSESSING OFFICER ADDED THE SAID AMOUNT WHICH W AS RECEIVED BY THE NON-RESIDENT COMPANY RENDERING SERV ICES UNDER THE PROVISIONS OF SECTION 44BB TO THE ONGC AN D IMPOSED THE INCOME-TAX THEREON. HE WAS JUSTIFIED I N DOING SO. 16. WE, THEREFORE, RESPECTFULLY FOLLOWING THE ABOVE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT, UPHOLD THE ORDER OF LEARNED CIT(A) ON THIS POINT AND REJECT GROUND NO.4 OF THE CROSS-OBJE CTION FILED BY THE ASSESSEE. 17. IN THE RESULT, THE APPEAL OF THE REVENUE AND TH E CROSS-OBJECTION OF THE ASSESSEE BOTH ARE DISMISSED. DECISION PRONOUNCED IN THE OPEN COURT ON 08.07.2016 . SD/- SD/- (BEENA A. PILLAI (BEENA A. PILLAI (BEENA A. PILLAI (BEENA A. PILLAI ) )) ) ( (( ( G.D. AGRAWAL G.D. AGRAWAL G.D. AGRAWAL G.D. AGRAWAL ) )) ) JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT VK. COPY FORWARDED TO: - 1. APPELLANT : DEPUTY COMMISSIONER OF INCOME TA X, DEPUTY COMMISSIONER OF INCOME TAX, DEPUTY COMMISSIONER OF INCOME TAX, DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE CIRCLE CIRCLE CIRCLE- -- -1, (INTERNATIONAL TAXATION), 1, (INTERNATIONAL TAXATION), 1, (INTERNATIONAL TAXATION), 1, (INTERNATIONAL TAXATION), DEHRADUN. DEHRADUN. DEHRADUN. DEHRADUN. 2. RESPONDENT : M/S HALLIBURTON OFFSHORE SERVICES I NC., M/S HALLIBURTON OFFSHORE SERVICES INC., M/S HALLIBURTON OFFSHORE SERVICES INC., M/S HALLIBURTON OFFSHORE SERVICES INC., C/O NANGIA & CO., CAS, C/O NANGIA & CO., CAS, C/O NANGIA & CO., CAS, C/O NANGIA & CO., CAS, 3 33 3 RD RDRD RD FLOOR, NCR PLAZ FLOOR, NCR PLAZ FLOOR, NCR PLAZ FLOOR, NCR PLAZA, NEW CANTT ROAD, A, NEW CANTT ROAD, A, NEW CANTT ROAD, A, NEW CANTT ROAD, DEHRADUN DEHRADUN DEHRADUN DEHRADUN 248 001. 248 001. 248 001. 248 001. 3. CIT 4. CIT(A) 5. DR, ITAT ASSISTANT REGISTRAR