DCIT, Dehradun V. M/s. Swiber Offshore Marine Pte Ltd., Mumbai

ITA 1183/DEL/2015

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 4226 (ITAT-DEHRADUN)
• Duration Of Justice: 6 year(s) 3 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2010-2011
• Appeal Filed On: 27-02-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: THAKUR SINGH MAPWAL
• Keywords: Business income; Transfer pricing; Double taxation relief
• Section: 201; 144C; 44BB; 115A; 44DA

Judgement Text

PAGE | 1 INCOME TAX APPELLATE TRIBUNAL DEHRADUN CIRCUIT BENCH: DEHRADUN BEFORE SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO. 1183 /DEL/ 2015 (ASSESSMENT YEAR: 2010 - 11) DCIT, CIRCLE - II, INTERNATIONAL TAXATION, DEHRADUN VS. SWIBER OFFSHORE MARINE PTE LTD, C/O. DEVESH K SHAH & CO, CAS, 106, 1 ST FLOOR & 203, 2N D FLOOR, BANAJI HOUSE, 361, DR. D. R. ROAD, FLORA FOUNTAIN, MUMBAI PAN: AAJCS6025K (APPELLANT (RESPONDENT) REVENUE BY: SHRI THAKUR SINGH MAPWAL, JCIT ASSESSEE BY : NONE DATE OF HEARING 03 /03/2021 DATE OF PRONOUNCEMENT 3 1 / 0 5 /2021 O R D E R PER PRASHANT MAHARISHI, A. M. 1. THIS APPEAL IS FILED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE II, (INTERNATIONAL TAXATION), DEHRADUN AGAINST THE DIRECTION OF THE LEARNED DISPUTE RESOLUTION PANEL II , NEW DELHI (THE LEARNED DRP) PASSED U/S 144C (5) OF THE INCOME TAX ACT, 1961 (THE ACT) DATED 10/12/2014 PURSUANT TO THAT ORDER OF THE LD AO/ DY. CIT, CIRCLE - 2, DEHRADUN DATED 06.01.2015 FOR THE AY 20 09 - 10 WAS PASSED. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE HON'BLE DISPUTE RESOLUTION PANEL (DRP) HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO APPLY THE DEEMED PROFIT RATE OF 10% U/S 44BB OF THE INCOME TAX ACT, 1961 ('THE ACT') ON ALL THE RECEIPTS EARNED BY THE ASSESSEE FROM M/S SWIWAR OFFSHORE PTE LTD ('SOPL') AND M/S SWIBER OFFSHORE CONSTRUCTION PTE LTD.('SOCPL'), AS AGAINST THE PROPOSED ACTION OF THE AO TO TREAT ALL THE RECEIPT S AS FEE FOR TECHNICAL SERVICES (FTS) LIABLE TO TAX AS BUSINESS INCOME UNDER ARTICLE 7 OF THE INDIA - SINGAPORE DTAA ('DTAA') READ WITH SECTION 44DA OF THE ACT AND COMPUTING THE TAXABLE INCOME OF THE ASSESSEE @ 16.95% OF THE GROSS - RECEIPTS OF THE ASSESSEE. 1.1 WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE HON'BLE DRP HAS ERRED IN NOT APPRECIATING THE FINDINGS OF THE AO THAT THE RECEIPTS FROM M/S SOPL ON ACCOUNT OF 'SHIP MANAGEMENT SERVICES' AND RECEIPTS FROM M/S SOCPL ON ACCOUNT OF PROVISION OF S ERVICES OF 'TRANSPORTATION VESSELS' AND 'INSTALLATION VESSELS' WERE IN THE NATURE OF FTS WHICH WERE EFFECTIVELY CONNECTED WITH ASSESSEE'S PERMANENT PAGE | 2 ESTABLISHMENT (PE) IN INDIA IN THE FORM OF PROLONGED PRESENCE OF ITS PERSONNEL AND VESSELS IN INDIA AND THER EFORE, THE RECEIPTS OF THE ASSESSEE WERE LIABLE TO BE ASSESSED AS BUSINESS INCOME UNDER ARTICLE 7 OF DTAA. 1.2 WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE HON'BLE DRP HAS ERRED IN NOT APPRECIATING THAT THE EXPRESSION 'SERVICES' OR 'FACI LITIES' USED U/S 44BB ARE NOT DEFINED AND THE TWO TERMS USED ARE GENERAL IN NATURE AND THEREFORE, ONCE THE PAYMENTS TAKE THE CHARACTER OF FTS/ROYALTY AS DEFINED U/S 9(L)(VII)/9(L)(VI) READ WITH THE CORRESPONDING PROVISIONS OF THE DTAA, THEY GO OUTSIDE THE PURVIEW OF SECTION 44BB AND HAVE TO BE TAXED AT RATES APPLICABLE TO FTS/ROYALTY ON GROSS BASIS U/S 115A OR AS BUSINESS INCOME UNDER ARTICLE 7 OF THE DTAA READ WITH SECTION 44DA OF THE ACT. 1.3 WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE HON'BLE DRP HAS ERRED IN NOT APPRECIATING THE FACT THAT IN THE PRESENT CASE THE VESSELS AND THE SERVICES WERE NOT PROVIDED BY THE ASSESSEE DIRECTLY TO AN ENTITY (M/S ONGC) WHICH IS ENGAGED IN PROSPECTING ETC OF MINERAL OIL AND IS DIRECTLY A MEMBER OF THE P RODUCTION SHARING CONTRACT. 1.4 WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE HON'BLE DRP HAS ERRED IN HOLDING THAT NO DISTINCTION CAN BE MADE BETWEEN RECEIPTS FROM PRODUCTION SHARING PARTICIPANTS (PSC PARTNERS) AND NON - PRODUCTION SHARING PARTICIPANTS (NON - PSC PARTNERS) AND BETWEEN PROVISIONS OF SERVICES BY FIRST LEG AND SECOND - LEG VENDORS, IGNORING THE FACT THAT THE RECEIPTS FROM SECOND - LEG ARE IN RESPECT OF CONTRACTS FOR PROVISION OF SERVICES/VESSELS PER SE AND NOT CONTRACTS FOR SERVICES 'IN CONNECTION WITH' OIL PRODUCTION AND EXPLORATION AND, THEREFORE, ARE LIABLE TO BE TREATED AS FTS/ROYALTY 9(L)(VI)/9(L)(VII) READ WITH SECTION 44DA AND NOT SECTION 44BB OF THE IT ACT, 1961. 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE HON'BL E DRP HAS ERRED IN HIS INTERPRETATION OF THE LEGISLATIVE INTENT BEHIND THE SCHEME OF TAXATION ENVISAGED IN 9(L)(VI)/9(L)(VII) READ WITH SECTIONS 115A/44DA AND 44BB, IGNORING THE DECISIONS IN THE CASES OF M/S ROLLS ROYCE PVT. LTD [2007 - TII - 03 - HC - UKHAND - INTL ]AND M/S ONGC AS AGENT OF M/S FORAMER FRANCE [(2008) 299ITR 438 UTTARAKHAND)]. 2.1 WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE HON'BLE DRP HAS ERRED IN NOT APPRECIATING THE FACT THAT PROVISO TO SECTION 44DA BROUGHT ABOUT BY THE FINANCE ACT 201 1 WAS ONLY CLARIFICATORY IN NATURE AND IT APPLICATION HAS TO BE READ INTO THE MAIN PROVISIONS WITH EFFECT FROM THE TIME THE MAIN PROVISION CAME INTO EFFECT IN VIEW OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF SEDCO FOREX INTERNATIONAL DRILLI NG V/S CIT. 2.2 THE HON'BLE DRP HAS ERRED IN NOT APPRECIATING THE FACT THAT EVEN IN TERMS OF RATIO OF THE JUDGMENT IN THE SAID OF OHM LTD. [(352, ITR 406 (DELHI)] CITED BY IT, THE PROVISIONS OF SECTION 44BB ARE NOT APPLICABLE WHERE THE SCOPE OF THE SERVICES/FACILITIES PROVIDED BY AN ASSESSEE IS GENERAL IN NATURE FALLING UNDER SECTIONS 9(L)(VI)/9(L)(VII) READ WITH 115A/44DA OF THE ACT. 2.3 THE HON'BLE DRP HAS ERRED IN MECHANICALLY FOLLOWING THE DECISIONS IN THE CASE OF M/S OHM LTD WITHOUT FIRST ADJUDI CATING UPON THE ISSUE AS TO WHETHER AND HOW THE SCOPE OF THE SERVICES/FACILITIES RENDERED UNDER THE CONTRACTS IS NOT GENERAL IN NATURE AND THEREFORE, DOES NOT QUALIFY AS FTS U/S 9(L)(VII) OF THE ACT AND TAXABLE UNDER SECTION 44DA OF THE ACT READ WITH ARTIC LE 7 OF THE DTAA. 3. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE HON'BLE DRP HAS ERRED IN HOLDING THAT SECTIONS 115A AND 44DA APPLY ONLY TO CASES WHERE THE INCOME BY WAY OF ROYALTY OR FTS IS EARNED BY A NON - RESIDENT FROM GOVERNMENT OR AN INDIAN PAGE | 3 CONCERN AND WHERE AN INCOME IS RECEIVED BY A NON - RESIDENT FROM ANOTHER NON - RESIDENT, THE PROVISIONS OF SECTION 115A/44DA SO NOT APPLY. 3.1 WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE HON'BLE DRP HAS ERRED IN NOT APPRECIATING THE FACT THAT SECTIONS 44DA/115A ENSHRINE THE SOURCE RULE OF TAXATION AND IS INTENDED TO COVER ALL THE PAYMENTS IN THE FORM OF ROYALTIES/FTS ETC. WHERE THE SOURCE OF SUCH PAYMENTS LIES IN INDIA. 3.2 WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, TH E HON'BLE DRP HAS ERRED IN NOT APPRECIATING THE FACT THAT THE PAYMENTS IN THE PRESENT CASE HAVE BEEN MADE BY A NON - RESIDENT ENTITY IN RESPECT OF CONTRACTS BEING EXECUTED BY IT IN INDIA AND THEREFORE THE SOURCE OF THE PAYMENTS AS WELL AS THE SITUS OF THE AC TIVITY TO WHICH THESE PAYMENTS PERTAIN LIES IN INDIA. 3.3 WHETHER THE HON'BLE DRP HAS ERRED IN NOT APPRECIATING THE FACT THAT THE PHRASE 'INDIAN CONCERN' IN SECTIONS 115A/44DA HAVING NOT BEEN DEFINED, IT HAS TO BE GIVEN A PURPOSIVE CONSTRUCTIONS AND THEREF ORE, A NON - RESIDENT ENTITY EXECUTING CONTRACTS IN INDIA AND MAKING PAYMENTS IN RESPECT OF SERVICES AVAILED FOR EXECUTION OF SUCH CONTRACTS IN INDIA SHOULD BE TREATED AS INDIAN CONCERN FOR THE PURPOSE OF THE SECTIONS 115A/44DA OF THE ACT. 3. DESPITE NOTICE, N ONE APPEARED ON BEHALF OF THE ASSESSEE AND THEREFORE THE ISSUE IS DECIDED ON THE MERITS OF THE CASE AS PER FACTS AVAILABLE ON RECORD. 4. BRIEFLY STATED THE FACTS SHOW THAT ASSESSEE IS A COMPANY INCORPORATED UNDER THE LAWS OF SINGAPORE . DURING THE YEAR, THE A SSESSEE HAS EARNED INCOME FROM PROVIDING SHIP MANAGEMENT SERVICES TO SWIWAR IN RESPECT OF THREE OF ITS VESSELS GIVEN ON CHARTER HIRE TO BG EXPLORATION AND PRODUCTION INDIA LTD IN CONNECTION WITH PROSPECTING ET CETERA OF MINERAL OIL IN TERMS OF CONTRACT WI TH ONGC . THE ASSESSEE HAS ALSO EARNED INCOME - PROVIDING VESSELS ON HI RE ON TIME CHARTER BASIS TO SWIWAR OFFSHORE CONSTRUCTION PTE LIMITED IN RESPECT OF PROJECT HYDRA AND PROJECT PA N NA IN CONNECTION WITH PROSPECTING ETC OF MINERAL OIL BEING DONE BY BG EXPLORATION IN INDIA . THE ASSESSEE IN ITS RETURN OF INCOME AND OFFERED THE GROSS REVENUE OF RS 1 16,53,057 FROM SWIWAR TO TAX U/S 44BB OF THE ACT AT THE PROFIT RATE OF 10% . THE RECEIPT FROM SWIWAR OFFSHORE CONSTRUCTION PTE LIMITED WAS NOT DISCLOSED IN RETURN OF INCOME . DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND BEFORE FRAMING THE DRAFT ASSESSMENT ORDER ASSESSEE DISCLOSED THE SAME AND CLAIMED THAT THE ABOVE RECEIPTS ARE NOT TAXABLE UNDER ARTICLE 5 (3)/ARTICLE 8 OF THE DOUBLE TAXATION AVOIDANCE A GREEMENT IN RESPECT OF INSTALLATION VESSELS TRANSPORT VESSELS RESPECTIVELY . IT SHOULD BE TAXTBLE U/S 4BB OF THE ACT. THE AO IN THE DRAFT ASSESSMENT ORDER HAS REJECTED THE CLAIM OF THE ASSESSEE AND AND TAXED GROSS REVENUE FROM SWIWAR TAXATION AS FEES FOR TE CHNICAL SERVICES U/S 9 (1) (VII) OF THE ACT AND FROM SWIWAR OFFSHORE CONSTRUCTION PTE LIMITED AS ALSO FEES FOR TECHNICAL SERVICES UNDER THAT SECTION HOLDING THAT IT IS CHARGEABLE TO TAX ACCORDING TO ARTICLE 7 OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT AND APPLIED THE PROFIT RATE OF 16.95% IN TERMS OF THE AL P DETERMINED BY THE TRANSFER PRICING OFFICER . PAGE | 4 5. THE ASSESSEE AGGRIEVED WITH THE DRAFT ASSESSMENT ORDER PASSED BY THE LEARNED ASSESSING OFFICER PREFERRED AN OBJECTION BEFORE THE LEARNED DRP . THE LEARN ED DRP DIRECTED THE LEARNED ASSESSING OFFICER AFTER RELYING ON THE SEVERAL JUDICIAL PRONOUNCEMENT THAT THE GROSS AMOUNT RECEIVED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION FROM BOTH SWIWAR AND SWIWAR OFFSHORE CONSTRUCTION PTE LIMITED SHOULD B E BROUGHT TO TAX BY APPLYING THE DEEMED PROFIT RATE OF 10% U/S 44 BB OF THE INCOME TAX ACT . BASED ON THE DIRECTION OF THE LEARNED DISPUTE RESOLUTION PANEL THE LEARNED ASSESSING OFFICER PASSED AN ORDER U/S 143 (3) READ WITH SECTION 144C (13) OF THE INCOME TAX ACT ON 6 JANUARY 2015 DETERMINING THE TOTAL INCOME OF THE ASSESSEE AT 116,520,275. 6. NOW THE LEARNED ASSESSING OFFICER IS AGGRIEVED WITH THE DIRECTION OF THE LEARNED DISPUTE RESOLUTION PANEL WHEREIN THE CONTENTION OF THE LEARNED ASSESSING OFFICER THAT THE ABOVE INCOME IS CHARGEABLE TO TAX AS FEES FOR TECHNICAL SERVICES U/S 9 (1) (VI) /(VII) OF THE ACT WAS REJECTED AND HELD THAT THE TOTAL INCOME OF THE ASSESSEE SHOULD BE ASSESSED BY APPLYING THE PROVISIONS OF SECTION 44BB OF THE INCOME TAX ACT. 7. THE LEARN ED DEPARTMENTAL REPRESENTATIVE HEAVILY RELIED UPON THE ORDER OF THE LEARNED ASSESSING OFFICER. 8. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE LEARNED DEPARTMENTAL REPRESENTATIVE AND THE ORDERS OF THE LOWER AUTHORITIES. THE ONLY GRIEVANCE OF THE LEARNE D ASSESSING OFFICER IS THAT THAT THE CONSIDERATION RECEIVED BY THE ASSESSEE FROM SWIWAR AND SOCPL SHOULD BE TAXED AS FEES FOR TECHNICAL SERVICES WHEREAS THE LEARNED DISPUTE RESOLUTION PANEL HAS HELD THAT SAME IS CHARGEABLE TO TAX UNDER THE PROVISIONS OF S ECTION 44 BB OF THE INCOME TAX ACT. IN THE PRESENT CASE ASSESSEE HAS EARNED CONTRACTUAL REVENUE FROM CONTRACTS ENTERED INTO WITH SWIWAR (SHIP MANAGEMENT SERVICES) AND SOCPL FOUR VESSELS ON TIME CHARTER BASIS FOR TWO PROJECTS FOR PROVIDING SERVICES IN CONNE CTION WITH OIL AND GAS EXPLORATION AND PRODUCTION OPERATIONS. THE CLAIM OF THE ASSESSEE WAS THAT IT IS ENTITLED TO BE TAXED U/S 44 BB OF THE INCOME TAX ACT FOR BOTH THE CONTRACTS. UNDISPUTEDLY BOTH THE CONTRACTS IN THAT IN SUBSTANCE ARE FALLING INTO THE PR OVISIONS OF SECTION 44BB OF THE INCOME TAX ACT LOOKING AT THE PITH AND SUBSTANCE OF THE CONTRACTS . NOW THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONOURABLE SUPREME COURT IN THE CASE OF ONGC VERSUS COMMISSIONER OF INCOME TAX 376 ITR 306 WHEREIN IT HAS BEEN HELD THAT IF DESCRIPTION OF THE WORKS COVERED UNDER EACH OF THE CONTRACTS IN QUESTION WOULD INDICATE THAT THE PITH AND SUBSTANCE OF EACH OF THE CONTRACTS WAS INEXTRICABLY CONNECTED WITH PR OSPECTING, EXTRACTION OR PRODUCTION OF MINERAL OIL. THE DOMINANT PURPOSE OF EACH OF SUCH AGREEMENTS WAS FOR PROSPECTING, EXTRACTION OR PRODUCTION OF MINERAL OILS THOUGH THERE MAY BE CERTAIN ANCILLARY WORKS CONTEMPLATED THEREUNDER. IF THAT BE SO, THE PAYMEN TS MADE BY THE ONGC AND RECEIVED BY THE NON - RESIDENT OR FOREIGN PAGE | 5 COMPANIES UNDER THE CONTRACTS FOR PROVIDING VARIOUS SERVICES IN CONNECTION WITH PROSPECTING, EXTRACTION OR PRODUCTION OF MINERAL OILS WERE NOT CHARGEABLE TO TAX AS FEES FOR TECHNICAL SERVICES UNDER SECTION 44D READ WITH EXPLANATION 2 TO SECTION 9(1)(VII) OF THE ACT BUT MORE APPROPRIATELY ASSESSABLE ON A PRESUMPTIVE BASIS UNDER SECTION 44BB OF THE ACT. IN VIEW OF THIS WE DO NOT FIND ANY MERIT IN THE APPEAL OF THE LEARNED ASSESSING OFFICER AND ACCORDINGLY GROUND NUMBER 1 3 OF THE APPEAL ARE DISMISSED. 9. IN THE RESULT, APPEAL OF THE LEARNED ASSESSING OFFICER IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 3 1 .0 5 .2021. - S D / - - S D / - (SUDHANSHU SRIVASTAVA) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 3 1 .0 5 .2021 A K KEOT COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI