FUGRO ROVTECH LTD, MUMBAI V. ASST DIT (IT) 3(2), MUMBAI

ITA 1230/MUM/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4404 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-01-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Assessment Year: 2010-2011
• Appeal Filed On: 24-02-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: M P LOHIA SHRI G M DOSS
• Section: 143(3); 234B; 132; 28; 2

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI BEFORE S/SHRI B.R.BASKARAN, AM AND PAWAN SINGH, JM ./ I.T.A. NO . 1230 / MUM/ 2014 ( / ASSESSMENT YEA R : 2010 - 11 ) FUGRO ROVTECH LI MITED (NOW KNOWN AS FUGRO SUBSEA SERVICES LIMITED C/O SRBC AND ASSOCIATES LLP, 16 TH FLOOR, THE RUBY, 29 SENAPATI BAPAT MARG, DADAR (W), MUMBAI - 400028 / VS. ASSTT. DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION) - 3 ( 2 ), 13 2 , 1 ST FLOOR, SCINDIA HOUS E, BALLARD PIER, MUMBAI - 400038 ( / APPELLANT ) .. ( / RESPONDENT ) ./ ./PAN. : AABCF1751B / APPELLANT BY SHRI M P LOHIA / RESPONDENT BY SHRI G M DOSS / DATE OF HEARING : 3.11.2015 / DATE OF PRONOUNCEMENT: 08. 1 . 201 6 / O R D E R P ER B R BASKARAN, AM : THE ASSESSEE HAS FILED THIS APPEAL CHALLENGING THE ASSESSMENT ORDER PASSED BY THE AO U/S 143(3) READ WITH SECTION 144C OF THE ACT IN CONFIRMITY WITH THE DIRECTIONS ISSUED BY DISPUTE RESOLUTION PANEL (DRP) FOR ASSESSMENT YEAR 2010 - 11. THE ASSESSEE IS AGGRIEVED BY THE ORDER PASSED BY THE AO ON THE FOLLOWING ISSUES: - ( A ) INCLUSION OF DEMOBILI ZATION REVENUE IN THE GROSS RECEIPTS. ( B ) REJECTION FOR CLAIM FOR DEDUCTION OF CREDIT NOTE ISSUED. ( C ) CHARGING OF INTEREST U/S 234B AND 234C OF THE ACT. ITA NO. 1230 / MUM/ 2014 2 THE LD A.R DID NOT PRESS THE GROUND RELATING TO NON - GRANT OF CREDIT OF TDS. OTHER GROUNDS ARE GENERAL IN NATUR E AND HENCE THEY DO NOT REQUIRE ANY ADJUDICATION. 2. THE ASSESSEE IS A FOREIGN COMPANY INCORPORATED IN UNITED KINGDOM. IT IS ENGAGED IN THE BUSINESS OF PROVIDING SERVICES IN CONNECTION WITH PROSPECTING, EXTRACTION AND EXPLORATION OF OIL AND GAS. ANOTH ER COMPANY NAMED M/S ALLSEAS MARINE CONTRACTORS SA (HEREINAFTER ALLSEAS) WAS AWARDED A CONTRACT BY M/S RELIANCE INDUSTRIES LTD TO UNDERTAKE CONSTRUCTION OF OFFSHORE FACILITIES FOR DEVELOPMENT OF CERTAIN GAS FIELDS. M/S ALLSEAS ENTERED INTO A CONTRACT WI TH THE ASSESSEE FOR PROVISION OF CERTAIN SERVICES TO IT. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION DECLARING TOTAL INCOME AT RS.5.66 CRORES AS PER THE PROVISIONS OF SEC. 44BB OF THE ACT, BUT THE ASSESSMENT WAS COMPLETED ON A HIGHER FIGURE. 3. THE FIRST ISSUE RELATES TO THE INCLUSION OF DEMOBILIZATION REVENUE IN GROSS RECEIPTS FOR THE PURPOSE OF COMPUTING TAX U/S 44BB OF THE ACT. THE AO NOTICED THAT RECEIPTS RELATING TO DEMOBILIZATION AND REDELIVERY OF VESSEL SERVICES W AS OFFERED TO TAX FOR 6 DAYS OF TRANSIT PERIOD OUT OF 36 TRANSIT DAYS. THE AO, BY PLACING RELIANCE ON THE DECISION RENDERED BY HONBE UTTAARAKHAND HIGH COURT IN THE CASE OF CIT VS. SEDCO FOREX INTERNATIONAL DRILLING INC. (299 ITR 238) HAS HELD THAT THE E NTIRE AMOUNT OF DEMOBILIZATION REVENUE FOR ALL 36 DAYS IS REQUIRED TO BE TAKEN AS GROSS AMOUNT OF CONTRACT U/S 44BB OF THE ACT. THE LD DRP ALSO UPHELD THE SAME. 4. WE HEARD THE PARTIES ON THIS ISSUE. BEFORE US, THE LD D.R ALSO RELIED UPON THE CASE OF EMGS PROJECT OFFICE VS. DDIT (2012)(27 TAXMANN.COM 147)(DELHI ITAT), BESIDES THE DECISION RENDERED IN THE CASE OF SEDCO FOREX INTERNATIONAL DRILLING INC. (SUPRA), TO SUPPORT THE VIEW TAKEN BY THE AO. ITA NO. 1230 / MUM/ 2014 3 THE LD A.R PLACED RELIANCE ON THE SUBMISSIONS MADE B EFORE THE ASSESSING OFFICER AND HE DID NOT FURNISH ANY CONTRARY DECISION. THUS, WE NOTICE THAT THE VIEW TAKEN BY THE AO THAT THE DEMOBILISATION REVENUE PERTAINING TO THE ENTIRE PERIOD OF 36 DAYS IS INCLUDIBLE IN THE REVENUE U/S 44BB OF THE ACT IS SUPPORTE D BY THE ABOVE SAID TWO DECISIONS. ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE DECISION TAKEN BY HIM ON THIS ISSUE AND ACCORDINGLY AFFIRM THE SAME. 5. THE NEXT ISSUE RELATES TO THE REJECTION OF CLAIM FOR DEDUCTION OF CREDIT NOTE ISSUED BY THE ASSE SSEE TO M/S ALLSEAS. THE ASSESSEE HAD DEDUCTED A SUM OF RS.7.96 CRORES FROM THE GROSS REVENUE, WHILE COMPUTING INCOME U/S 44BB OF THE ACT. THE ASSESSING OFFICER CONSIDERED THE SAME AS REIMBURSEMENT OF FREIGHT CHARGES AND ACCORDINGLY HELD THAT SUCH KIND OF REIMBURSEMENTS ARE ALSO INCLUDIBLE IN THE GROSS REVENUE AND ACCORDINGLY REJECTED THE SAID CLAIM. BEFORE THE LD DRP, THE ASSESSEE SUBMITTED THAT THE ABOVE SAID CLAIM IS NOT A CASE OF REIMBURSEMENT, BUT THE LD DRP DID NOT AGREE WITH THE SAME. 6. TH E LD A.R SUBMITTED THAT THE ASSESSEE HAD AGREED TO PROVIDE SERVICES TO M/S ALLSEAS FOR OPERATIONAL DAY RATE OF GBP 52,050, WHICH WAS ARRIVED AT BY TAKING THE FUEL COST OF GBP 350 PER CUBIC METER. THE FUEL COST WAS TO BE BORNE BY THE ASSESSEE. THE CONTRAC T FURTHER PROVIDED THAT, IF THE FUEL COST EXCEEDED THE RATE OF GBP 350 PER CUBIC METER, THE EXCESS AMOUNT SHALL BE BILLED SEPARATELY BY THE ASSESSEE. THE LD A.R SUBMITTED THAT THE M/S ALLSEAS AGREED TO SUPPLY THE FUEL TO THE ASSESSEE AT ITS OWN COST. SI NCE THE FUEL COST IS REQUIRED TO BE BORNE BY THE ASSESSEE AS PER THE CONTRACT, THE COST OF FUEL SUPPLIED BY M/S ALLSEAS IS REQUIRED TO BE PAID BY THE ASSESSEE TO M/S ALLSEAS AS PER THE AGREED RATE OF GBP 350 PER CUBIC METER. THE LD A.R SUBMITTED THAT THE ASSESSEE HAD RAISED BILL ON M/S ALLSEAS AT THE AGREED RATE OF GBP 52,050/ - IN THE EARLIER YEARS AND OFFERED ITA NO. 1230 / MUM/ 2014 4 THE SAME FOR TAXATION. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE ISSUED A CREDIT NOTE FOR RS.11.65 CRORES TO M/S ALLSEAS IN RESPECT OF THE FUEL SUPPLIED BY IT DURING THE PERIOD FROM JANUARY 2008 TO JUNE 2009 AND ADJUSTED THE SAME AGAINST THE AMOUNT DUE FROM THEM. IN THE RETURN OF INCOME FILED FOR AY 2010 - 11, THE CREDIT NOTE AMOUNT WAS CLAIMED AS DEDUCTION, SINCE THE CREDIT NOTE WAS ISSUED D URING THE YEAR RELEVANT FOR AY 2010 - 11 AND ALSO SINCE THE ASSESSEE IS FOLLOWING CASH SYSTEM OF ACCOUNTING. FOR AY 2010 - 11, THE ASSESSEE HAD ALSO RAISED INVOICE UPON M/S ALL SEAS FOR A SUM OF RS.3.69 CRORES. HENCE, AFTER ADJUSTMENT OF RS.3.69 CRORES AGAIN ST THE CREDIT NOTE OF RS.11.65 CRORES, THE ASSESSEE CLAIMED DEDUCTION OF RS.7.96 CRORES. THE LD A.R SUBMITTED THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN REJECTING THE CLAIM FOR DEDUCTION OF RS.7.96 CRORES, AS THE SAME REPRESENTS COST OF FUEL SUPPLIED BY M/S ALLSEAS AND THE GROSS AMOUNT HAS ALREADY BEEN OFFERED TO TAX IN THE EARLIER YEARS. 7. WE HEARD THE PARTIES ON THIS ISSUE. THE ASSESSEE HAS COMPUTED THE INCOME U/S 44BB OF THE ACT, WHICH READS AS UNDER: - [ SPECIAL PROVISION FOR COMPUTING PRO FITS AND GAINS IN CONNECTION WITH THE BUSINESS OF EXPLORATION, ETC., OF MINERAL OILS. 44BB. (1) NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN SECTIONS 28 T O 41 AND SECTIONS 43 AND 43A , IN THE CASE OF AN ASSESSEE [, BEING A NON - RESIDENT,] ENGAGED IN THE BUSINESS OF PROVIDING SERVICES OR FACILITIES IN CONNECTION WITH, OR SUPPLYING PLANT AND MACHINERY ON HIRE USED, OR TO BE USED, IN THE PRO SPECTING FOR, OR EXTRACTION OR PRODUCTION OF, MINERAL OILS, A SUM EQUAL TO TEN PER CENT OF THE AGGREGATE OF THE AMOUNTS SPECIFIED IN SUB - SECTION (2) 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' : PROVIDED THAT THIS SUB - SECTION SHALL NOT APPLY IN A CASE WHERE THE PROVISIONS OF SECTION 42 OR SECTION 44D OR [ SECTION 44DA OR] SECTION ITA NO. 1230 / MUM/ 2014 5 115A OR SECTION 293A APPLY FOR THE PURPOSES OF COMPUTING PROFITS OR GAINS OR ANY OTHER INCOME REFERRED TO IN THOSE SECTIONS. (2) THE A MOUNTS REFERRED TO IN SUB - SECTION (1) SHALL BE THE FOLLOWING, NAMELY : (A) THE AMOUNT PAID OR PAYABLE (WHETHER IN OR OUT OF INDIA) TO THE ASSESSEE OR TO ANY PERSON ON HIS BEHALF ON ACCOUNT OF THE PROVISION OF SERVICES AND FACILITIES IN CONNECTION WITH, O R SUPPLY OF PLANT AND MACHINERY ON HIRE USED, OR TO BE USED, IN THE PROSPECTING FOR, OR EXTRACTION OR PRODUCTION OF, MINERAL OILS IN INDIA; AND (B) THE AMOUNT RECEIVED OR DEEMED TO BE RECEIVED IN INDIA BY OR ON BEHALF OF THE ASSESSEE ON ACCOUNT OF THE PRO VISION OF SERVICES AND FACILITIES IN CONNECTION WITH, OR SUPPLY OF PLANT AND MACHINERY ON HIRE USED, OR TO BE USED, IN THE PROSPECTING FOR, OR EXTRACTION OR PRODUCTION OF, MINERAL OILS OUTSIDE INDIA. [(3) NOTWITHSTANDING ANYTHING CONTAINED IN SUB - SECTION (1), AN ASSESSEE MAY CLAIM LOWER PROFITS AND GAINS THAN THE PROFITS AND GAINS SPECIFIED IN THAT SUB - SECTION, IF HE KEEPS AND MAINTAINS SUCH BOOKS OF ACCOUNT AND OTHER DOCUMENTS AS REQUIRED UNDER SUB - SECTION (2) OF SECTION 44AA AND GETS HIS ACCOUNTS AUDITED AND FURNISHES A REPORT OF SUCH AUDIT AS REQUIRED UNDER SECTION 44AB , AN D THEREUPON THE ASSESSING OFFICER SHALL PROCEED TO MAKE AN ASSESSMENT OF THE TOTAL INCOME OR LOSS OF THE ASSESSEE UNDER SUB - SECTION (3) OF SECTION 143 AND DETERMINE THE SUM PAYABLE BY, OR REFUNDABLE TO, THE ASSESSEE.] EXPLANATION. FOR THE PURPOSES OF THIS SECTION, (I) 'PLANT' INCLUDES SHIPS, AIRCRAFT, VEHICLES, DRILLING UNITS, SCIENTIFIC APPARATUS AND EQUIPMENT, USED FOR THE PURPOSES OF THE SAID BUSINESS; (II) 'M INERAL OIL' INCLUDES PETROLEUM AND NATURAL GAS. AS PER SEC. 44BB(1), 10% OF THE AGGREGATE AMOUNTS SPECIFIED IN SUB - SECTION (2) SHALL BE DEEMED TO BE THE PROFITS AND GAINS OF SUCH BUSINESS CHARGEABLE TO TAX. THE AMOUNTS REFERRED TO IN SUB. SEC. (1) SHALL BE THE ITA NO. 1230 / MUM/ 2014 6 AMOUNT PAID OR PAYABLE TO THE ASSESSEE OR RECEIVED OR DEEMED TO BE RECEIVED IN INDIA BY THE ASSESSEE. 8. WE NOTICE THAT THE PROVISIONS OF SEC. 44BB OF THE ACT PROVIDE FOR DETERMINATION OF PROFITS AND GAINS OF BUSINESS AT A FLAT RATE OF 10% OF THE GROSS AMOUNT OF CONTRACT. THE SECTION DOES NOT CONTEMPLATE ALLOWING ANY DEDUCTION. 9. UNDER THE ABOVE SAID BACKGROUND, WE SHALL EXAMINE THE FACTS AVAILABLE IN THIS CASE. THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT THE ASSESSEE IS ENTITLED TO RECEIVE OPERATIONAL DAY RENT AT THE RATE OF GBP 52,050 FROM M/S ALLSEAS. HENCE, UNDER THE PROVISIONS OF SEC. 44BB OF THE ACT, THE ABOVE SAID AMOUNT OF GBP 52,050 PER DAY IS THE GROSS AMOUNT REFERRED TO IN SUB. SEC (2) AND 10% OF THE SAME SHALL BE TAKEN AS THE PROFITS AND GAINS OF BUSINESS OF THE ASSESSEE UNDER SUB. SEC. (1) OF SEC. 44BB OF THE ACT. THE ASSESSEE HAS CLAIMED DEDUCTION OF THE CREDIT NOTE ISSUED BY IT TO M/S ALLSEAS IN RESPECT OF FUEL SUPPLIED BY M/S ALLSEAS TO THE ASSESSEE. NO DOUBT, THE FUEL COST IS AN ITEM OF EXPENDITURE FOR THE ASSESSEE AND HENCE THE SAME IS REQUIRED TO BE ALLOWED AS DEDUCTION WHILE COMPUTING PROFITS AND GAINS OF BUSINESS. HOWEVER, SUCH A CLAIM CAN BE ALLOWED ONLY IF THE PROFITS AND GAINS OF BUSINESS IS COMPUTED UNDER NORMAL PROVISIONS OF THE ACT. IN THE INSTANT CASE, THE PROFITS AND GAINS IS COMPUTED AT 10% OF THE GROSS RECEIPTS AS PER THE DEEMING PROVISIONS OF SEC. 44BB OF THE ACT. WHEN THE PROFITS AND GAINS OF BUSINESS IS COMPUTED UNDER DEEMING PROVISIONS, THEN THE SAME IS REQUIRED TO BE COMPUTED STRICTLY IN ACCORDANCE WITH THE METHODOLOGY SPECIFIED IN THAT SECTION. SEC. 44BB OF THE ACT DOES NOT PROVIDE FOR DEDUCTION OF ANY OF THE EXPENDITURE. HENCE, EVEN THOUGH THE COST OF FUEL SUPPLIED BY M/S ALLSEAS TO THE ASSE SSEE HEREIN CONSTITUTES AN ALLOWABLE EXPENDITURE, THE SAME CANNOT BE ITA NO. 1230 / MUM/ 2014 7 DEDUCTED FROM THE GROSS RECEIPTS, SINCE SEC. 44BB OF THE ACT DOES NOT PROVIDE FOR DEDUCTION OF ANY OF THE EXPENDITURE. 10. THE QUESTION OF ISSUING CREDIT NOTE ARISES IN THIS CASE, SINCE THE PARTY RECEIVING THE (M/S ALLSEAS) SERVICES HAS SUPPLIED THE FUEL TO THE ASSESSEE. IF THE ASSESSEE HAS PURCHASED THE FUEL FROM AN OUTSIDE PARTY, THE QUESTION OF ISSUING CREDIT NOTE DOES NOT ARISE AT ALL. IF THE ASSESSEE HAD SO PURCHASED FROM A THIRD PARTY, IT WOULD NOT HAVE CLAIMED DEDUCTION OF COST OF FUEL AND WOULD HAVE COMPUTED INCOME ON THE DAY RENT OF GBP 52,050/ - . HENCE, THE SAME POSITION SHOULD PREVAIL, EVEN IF THE FUEL IS SUPPLIED BY M/S ALLSEAS, AS THE GROSS AMOUNT DOES NOT UNDERGO A CHANGE. THUS, THE CREDIT NOTE ISSUED BY THE ASSESSEE IS A CASE OF ADJUSTMENT OR SETTLEMENT OF THE AMOUNT PAYABLE/RECEIVABLE BY THE PARTIES AND THE SAME SHALL NOT HAVE ANY EFFECT ON THE GROSS AMOUNT OF DAY RENT OF GBP 52,050/ - . 11. IN VIEW OF THE ABOVE, WE AR E OF THE VIEW THAT THE ASSESSEE IS NOT ENTITLED TO CLAIM DEDUCTION OF RS.11.65 CRORES FROM THE GROSS AMOUNT OF THE CONTRACT, SINCE IT IS A CASE OF ADJUSTMENT OF PAYMENTS RECEIVABLE/PAYABLE BETWEEN THE PARTIES. THOUGH IT IS STATED THAT THE DEDUCTION HAS BEE N CLAIMED TO THE EXTENT OF RS.7.96 CRORES, WE NOTICE THAT THE ASSESSEE HAS ACTUALLY CLAIMED DEDUCTION OF RS.11.65 CRORES. THE CLAIM OF THE ASSESSEE MAY BE ADMISSIBLE, IF THE INCOME IS COMPUTED U/S 28 TO SEC. 43 OF THE ACT. SINCE THE INCOME IS COMPUTED AS PER THE PROVISIONS OF SEC. 44BB OF THE ACT AND SINCE THE SAID SECTION PROVIDES A DEEMING FICTION FOR COMPUTING THE PROFITS AND GAINS OF PROVISIONS, THE CLAIM OF THE ASSESSEE IS NOT ADMISSIBLE. ACCORDINGLY, WE DO NOT FIND ANY MERIT IN THE CONTENTIONS OF T HE ASSESSEE AND ACCORDINGLY REJECT THE SAME. 12. THE NEXT ISSUE RELATES TO THE ISSUE OF CHARGING INTEREST U/S 234B AND 234C OF THE ACT. THE LD A.R SUBMITTED THAT THE DECISION RENDERED BY ITA NO. 1230 / MUM/ 2014 8 HONBLE BOMBAY HIGH COURT IN THE CASE OF DIT VS. NGC NETWORK ASIA LLC (313 ITR 187) SHALL APPLY TO THE FACTS PREVAILING IN THE INSTANT CASE. ACCORDINGLY, WE SET ASIDE THIS MATTER TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTION TO COMPUTE THE INTEREST U/S 234B AND 234C OF THE ACT IN ACCORDANCE WITH THE RATIO LAI D DOWN BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF NGC NETWORK ASIA LLC (REFERRED SUPRA). 13. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS TREATED AS PARTLY ALLOWED. PRONOUNCED ACCORDINGLY ON 8TH JAN , 2 01 6 . 8TH JAN, 2 01 6 SD SD ( PAWAN SINGH ) ( B.R. BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: 8TH JAN , 2 01 6 . . . ./ SRL , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - CON CERNED 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI CONCERNED 6. / GUARD FILE. / BY ORDER, TRUE COPY (ASSTT. REGISTRAR) , /ITAT, MUMBAI