M/s. VALENTINE MARITIME LTD, MUMBAI V. ADIT (IT) 2(2), MUMBAI

ITA 154/MUM/2009

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 4987 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-08-2010
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: 2005-2006
• Appeal Filed On: 09-01-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: NARENDER SINGH
• Keywords: Deemed to accrue or arise in india
• Section: 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH L MUMBAI BEFORE SHRI P.M. JAGTAP (AM) AND SMT. ASHA VIJAYAR AGHAVAN (JM) ITA NOS. 154 & 155/MUM/2009 ASSESSMENT YEAR-2005-06 VALENTINE MARITIME GULF LLC, C/O SRI VINOD AGNANI-CAS, 2004-05,MONTREAL, B-31, SHASTRI NAGAR, ANDHERI (W), MUMBAI-400 053 PAN - AABCV1070B VS. THE ADIT, INTERNATIONAL TAXATION 2(2), 1 ST FLOOR, SCINDIA HOUSE, BALLARD ESTATE, N.M. ROAD, MUMBAI-400 038 (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI HIRO RAI RESPONDENT BY: SHRI NARENDER SINGH O R D E R PER SMT. ASHA VIJAYARAGHAVAN (JM) THESE TWO APPEALS ARE PREFERRED BY THE ASSESSEE AR E DIRECTED AGAINST THE ORDERS PASSED BY THE LD. CIT(A)-XXXI, MUMBAI FOR TH E ASSESSMENT YEAR 2005-06. SINCE THE ISSUE IS COMMON IN BOTH THE APPE ALS, THESE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF THROUGH TH IS CONSOLIDATED ORDER. 2. THE ASSESSING OFFICER HAS DISCUSSED IN PARA 7 OF ASSESSMENT ORDER. THE ASSESSEE HAS CLAIMED DEDUCTION OF RS.6,68,43,23 5/- (USD 15,12,975) IN FORM OF MOBILIZATION OF EXPENSE U/S.4 4BB OF THE INCOME TAX ACT, 1961 WITH REFERENCE TO THE AGREEMENT WITH L & T WHILE THE ASSESSEE HAS CLAIMED MOBILIZATION /DEMOBILIZATION E XPENSES OF RS.97,17,083/- WITH REFERENCE TO CONTRACT WITH HHI. AS PER AGREEMENT WITH L & T AND HHI THE ASSESSEE WOULD RECEIVE A FIX ED AMOUNT IN FORM OF VALENTINE MARITIME 2 MOBILIZATION EXPENSES IRRESPECTIVE OF THE REAL AMOU NT SPENT ON MOBILIZATION. THE ASSESSING OFFICER NOTED THAT TH E ASSESSEE HAS PLACED RELIANCE ON SAIPAN SPA VS. DCIT (2004) 88 ITD 213 ( DEL). THE LEARNED ASSESSING OFFICER HELD THAT THE CONTENTION OF THE A SSESSEE IS NOT ACCEPTABLE AS THIS DECISION HAS BEEN OVERRULED BY T HE HONBLE HIGH COURT IN THE CASE OF M/S. SEDCO FOREX INTERNATIONAL INC. VS. CIT MEERUT IN ITA 99 OF 1999 AND NEW NO.434 OF 2001 (UTTARAKHAND). THE LEARNED ASSESSING OFFICER HAS REPRODUCED THE CONTENTS OF TH E DECISION. THEREFORE, THE ASSESSING OFFICER CONCLUDED THAT THE ASSESSEE CANNOT CLAIM ANY DEDUCTION FOR MOBILIZATION AND DEMOBILIZA TION CHARGES U/S.44BB OF THE ACT. THE LEARNED ASSESSING OFFICE R FURTHER OBSERVED THAT THE SECTION 44 BB IS COMPLETE CODE IN ITSELF A ND ALL AMOUNTS EITHER PAID OR PAYABLE WHETHER IN INDIA OR OUTSIDE INDIA O R RECEIVED OR DEEMED TO BE RECEIVED IN INDIA OR OUTSIDE INDIA ARE MUTUAL LY INCLUSIVE. THE ASSESSING OFFICER HAS THEREFORE, DENIED THE DEDUCTI ON SO CLAIMED BY THE APPELLANT. 3. THE LEARNED AR SUBMITTED BEFORE THE LD. CIT(A) T HAT THE EXPLANATION (A) TO SECTION 9(1) OF THE ACT PROVIDES AS UNDER: IN THE CASE OF A BUSINESS OF WHICH ALL THE OPERATIO NS ARE NOT CARRIED OUT IN INDIA, THE INCOME OF THE BUSINESS DE EMED UNDER THIS CLAUSE TO ACCRUE OR ARISE IN INDIA SHALL BE ON LY SUCH PART OF THE INCOME AS IS REASONABLY ATTRIBUTABLE TO THE OPE RATIONS CARRIED OUT IN INDIA. THIS IT CAN BE OBSERVED THAT SECTION 9 OF THE ACT E NVISAGES THE FACT THAT EVEN IF THERE IS A BUSINESS CONNECTION IN INDIA, THE WHOLE OF THE PROFITS ACCRUING OR ARISING FROM THE B USINESS CONNECTION IS NOT DEEMED TO ARISE IN INDIA AND THER EFORE IS NOT TAXABLE IN INDIA. IT IS ONLY THAT PORTION OF THE P ROFITS, WHICH CAN REASONABLY BE ATTRIBUTED TO THE OPERATIONS OF THE B USINESS CARRIED ON IN INDIA, WHICH IS LIABLE TO TAX IN INDI A. THIS APPORTIONMENT OF PROFITS HAS TO BE MADE ON A RATION AL AND REASONABLE BASIS. AS A RESULT, IT IS RESPECTFULLY SUBMITTED THAT SINCE THE RECEIPTS FOR MOB/DEMOB WAS FOR WORK DONE OUTSIDE THE TERRITORIAL WATERS OF INDIA, THE SAME SHOULD NOT BE TAXABLE IN VALENTINE MARITIME 3 INDIA. IN THIS CONNECTION, WE HAVE RELIED UPON TH IRD MEMBER ORDER IN THE CASE OF SAIPEM S.P.A. VS. DEPUTY COMMI SSIONER OF INCOME TAX (2004) 88 ITD 213 (DEL) WHEREIN THE MAJO RITY MEMBERS HAVE HELD THAT SEC.5 IS THE CHARGING SECTIO N AND NO INCOME CAN BE BROUGHT TO TAX UNLESS IT FALLS WITHIN THE SCOPE OF SAID SECTION AND THEREFORE MOBILIZATION CHARGES, RE CEIVED BY THE NON-RESIDENT ASSESSEE OUTSIDE INDIA, ATTRIBUTABLE T O THE TRANSPORTATION OF RIGS OUTSIDE TERRITORIAL WATERS O F INDIA WERE NOT CHARGEABLE TO TAX UNDER S.44BB R.W.S. 5(2). 4. THE LD. CIT(A) HELD AS FOLLOWS: I HAVE CONSIDERED THE FACTS. I FIND THAT SECTION 44BB BEGINS WITH A NON OBSTANTE CLAUSE. IT PROVIDES FOR CHARG ING 10% TAX ON THE AGGREGATE OF RECEIPTS REFERRED TO IN S.44BB (2). EVEN IF THE NON- RESIDENT COMPANY MAKES A LOSS IN A GIVEN YEAR IT IS LIABLE TO PAY TAX. THEREFORE, SEC.44BB PROVIDES BOTH FOR CHARGEABILITY OF TAX AND COMPUTATION. THEREFORE, IT IS A COMPLETE CODE BY I TSELF. I ALSO FIND THAT THE ISSUE OF MOBILIZATION AND DEMOBILIZATION C HANGES IS COVERED BY THE DECISION OF HONBLE HC UTTARAKHAND IN SEDCO FOREX INTERNATIONAL INC. VS. CIT & ORS (2008) 299 ITR 238 (UTTARAKHAND) WHEREIN IT WAS HELD THAT MOBILIZATION FEE PAID TO T HE ASSESSEE BY ONGC HAS NO NEXUS WITH THE ACTUAL AMOUNT INCURRED B Y THE ASSESSEE COMPANY FOR TRANSPORTATION OF DRILLING UNI TS OF RIGS TO THE SPECIFIED DRILLING LOCATION IN INDIA AND THAT MOBIL IZATION FEES NOT REIMBURSED OF EXPENDITURE-ONGC WAS LIABLE TO PAY FI XED SUM STIPULATED IN THE CONTRACT REGARDLESS OF ACTUAL EXP ENDITURE WHICH MAY BE INCURRED BY THE ASSESSEE COMPANY. AS PER S EC.44BB, AMOUNT RECEIVED BY THE ASSESSEE TOWARDS MOBILIZATIO N CHARGES WAS RIGHTLY TAKEN IN TO ACCOUNTS. RESPECTFULLY FOLLO WING THE SAME, I HOLD THAT THE LEARNED ASSESSING OFFICER WAS JUSTIFIED IN NOT ALLOWING DEDUCTION ON ACCOUNT OF MOBILIZATION AND DEMOBILIZA TION CHARGES CLAIMED BY THE APPELLANT. THEREFORE THE ADDITION ON THIS ACCOUNT IS CONFIRMED AND THIS GROUND OF APPEAL IS DISMISSED. 5. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), ASSESS EE PREFERRED AN APPEAL BEFORE US AND RAISED THE FOLLOWING GROUND: THE LD. CIT(A) ERRED IN CONFIRMING THE TAXABILITY OF MOBILISATION/DEMOBILIZATION CHARGES RECEIVED BY THE APPELLANT WHICH WERE PERTAINING TO ACTIVITIES CARRIED OUT OUT SIDE INDIA AND HENCE NOT CHARGEABLE TO TAX AS PER THE I.T. ACT , 1961. VALENTINE MARITIME 4 6. THE LD. COUNSEL FOR THE ASSESSEE SHRI HIRO RAI R ELIED ON THE DECISION OF SAIPEM S.P.A. VS DCIT (DELHI TM) AND SUBMITTED AS FOLLOWS: SECTION 44BB IS NO DOUBT DESCRIBED AS A SPECIAL P ROVISION FOR COMPUTING PROFITS AND GAINS IN CONNECTION WITH THE BUSINESS OF EXPLORATION ETC. ON MINERAL OILS BUT T HE TERM NOTWITHSTANDING ANYTHING TO THE CONTRARY REFERS TO SECTIONS 28 TO 41 ETC. IT CANNOT REPLACE, SUPERSEDE OR LEAN IN FAVOUR OF SEC. 5 WHICH IS THE CHARGING SECTION, WHEREBY TH E SCOPE OF TOTAL INCOME OF AN ASSESSEE WHETHER IT BE OF A RESI DENT OR IT BE OF A NON RESIDENT IS WORKS OUT. IT WOULD BE NECESS ARY IN EVERY CASE WHETHER IT BE THAT OF A RESIDENT THAT OF A NON -RESIDENT TO FIRST OF ALL DECIDE AS TO WHETHER A PARTICULAR RECE IPT OF AN ITEM OF INCOME IS LIABLE TO BE INCLUDED IN THE TOTAL INC OME VIS--VIS SECTION 5 AND IF IT IS TO BE SO INCLUDED, THEN THE QUESTION WOULD ARISE AS TO HOW THE TAXABLE PART THEREOF IS TO BE C OMPUTED AND AT THIS STAGE SECTION 44BB STEPS IN. 7. HE FURTHER SUBMITTED AS FOLLOWS: SECTION 5 IS THE CHARGING PROVISION AND NO INCOME CAN BE BROUGHT TO TAX UNLESS IT FALLS WITHIN THE SCOPE OF THE SAID SECTION AND THE USE OF THE EXPRESSION SUBJECT TO OTHER PROVISI ONS OF THE ACT IN SECTION 5 WOULD MEAN THAT IF ANY OTHER SECTION OPER ATES TO EXCLUDE FROM THE TOTAL INCOME OF ANY PERSON ANY INCOME, WHI CH OTHERWISE FALLS WITHIN THE BROAD FRAMEWORK OF TOTAL INCOME AS LAID DOWN IN SECTION5, SUCH SECTION WOULD PREVAIL. TO EMPHASISE , THE PROVISIONS OF SEC. 44BB VIS--VIS THE LEGISLATIVE INTENT MEAN THAT THESE REPLACE THE SYSTEM OF COMPUTATION OF INCOME EARLIER ENVISAG ED BY APPLICATION OF THE PROVISIONS OF SEC. 28 TO 41 AND SECTION 43 & 43A BUT THE PROVISIONS OF SECTION5, WHICH IS THE CHARGING SECTI ON WOULD REMAIN INTACT AND THESE BY NO MAXIMUM OF INTERPRETATION WO ULD BE SUPERSEDED BY THE PROVISIONS OF SEC. 44BB. AS PER CIRCULAR NO. 495 DT. 22.9.1987, SEC. 44BB WAS NO DOUBT DESCRIBED AS A SPECIAL PROVISION FOR COMPUTING PROFITS AND GAINS IN CONNEC TION WITH THE BUSINESS OF EXPLORATION OF MINERAL OIL BUT THAT WAS A MEASURE OF SIMPLIFICATION PROVIDING FOR DETERMINATION OF INCOM E OF SUCH TAXPAYERS AT 10 PER CENT OF THE AGGREGATE OF A CERT AIN AMOUNT. 8. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND RELIED ON THE DECISION OF HIGH COURT OF UTTARKHAND IN THE CAS E OF CIT VS R&B VALENTINE MARITIME 5 FALCON DRILLING CO. 181 TAXMAN 62 AND SEDCO FOREX I NTERNATIONAL INC 299 ITR 238 WHEREIN IT HAS BEEN HELD AS FOLLOWS: SECTION 4 OF THE INCOME-TAX ACT, 1961, IS A CHARGI NG SECTION AND SECTION 5 CONTAINS THE SCOPE OF TOTAL I NCOME. SECTION 9 PROVIDES THE INCOMES DEEMED TO ACCRUE OR ARISE IN INDIA IN THE CONTINGENCIES DESCRIBED UNDER THIS SEC TION. THUS, SECTIONS 5 AND 9 BOTH ARE AIMED AT THE INCOME FOR T HE TAXABILITY UNDER SECTION 4 WHILE SECTION 44BB DOES NOT TAKE INTO ACCOUNT THE INCOME FOR CALCULATING THE AGGREGA TE AMOUNT TO CALCULATE TEN PER CENT. PROFITS AND GAINS. PROFI TS AND GAINS IS A TYPE OF INCOME TO BE TAXED UNDER A LEGAL FICTION, I.E., AT TEN PER CENT. OF THE AMOUNT SPECIFIED IN SUB-SECTION (2 ) OF SECTION 44BB. SECTION 44BB IS A SPECIAL PROVISION RELATING TO NON- RESIDENT ASSESSEES WHO PROVIDE SERVICES AND FACILIT IES IN CONNECTION WITH, OR SUPPLY OF PLANT AND MACHINERY O N HIRE USED, OR TO BE USED, IN THE PROSPECTING FOR, OR EXT RACTION OR PRODUCTION OF, MINERAL OILS IN OR OUTSIDE INDIA. TH E SECTION IS A COMPLETE CODE IN ITSELF. THE AMOUNTS REFERRED TO IN SUB-SECTION (2) OF SECTION 44BB ARE FOUR TYPES OF AMOUNTS AND A LL THE FOUR TYPES OF AMOUNTS ARE MUTUALLY INCLUSIVE AND HAVE TO BE TAKEN INTO ACCOUNT EITHER ALL OF THEM OR ANY OF THEM AND ITS CLAUSES THEMSELVES PROVIDE WHETHER THE PAYMENT IS MADE INSI DE INDIA OR OUTSIDE INDIA. WHERE THE NON-RESIDENT COMPANY EN TERS INTO A COMPOSITE CONTRACT WITH A RESIDENT COMPANY UNDER A TURNKEY PROJECT AND THE SEVERABLE PARTS THEREOF COM PRISE ONSHORE AND OFFSHORE SERVICES IN INDIA AND ALSO OFF SHORE AND ONSHORE SERVICES OUTSIDE INDIA THE PRICE RECEIVED B Y THE NON- RESIDENT COMPANY FOR SUCH SERVICES AND SUPPLY WOULD BE TAXABLE 9. WE HEARD BOTH THE PARTIES. WE FIND THAT THE THI RD MEMBER DECISION IN THE CASE OF SAIPEM S.P.A. VS DCIT WAS PRONOUNCED ON 24.12.2003 AND THE DECISION OF UTTARKHAND HIGH COUR T IN THE CASE OF SEDCO FOREX INTERNATIONAL INC PRONOUNCED ON 28 TH SEPT. 2007. IT WAS ARGUED BY THE LD. COUNSEL FOR THE ASSESSEE THAT THE DECISION OF SAIPEM S.P.A. WAS NOT CONSIDERED BY THE UTTARKHAND HIGH CO URT IN THE CASE OF SEDCO FOREX INTERNATIONAL INC. NEVERTHELESS WE FIN D THAT THE DECISIONS OF HC UTTARAKHAND IN SEDCO FOREX INTERNATIONAL INC. VS . CIT & ORS (2008) 299 ITR 238 AND CIT VS R&B FALCON DRILLING CO. 18 1 TAXMAN 62 BOTH VALENTINE MARITIME 6 BY THE UTTARKHAND HIGH COURT ARE THE ONLY HIGH COUR T DECISIONS AVAILABLE. 10. WE ARE AWARE OF THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION, MUMBAI VS M/S. SONAT OFFSHORE DRILLING IND. MUMBAI WHICH READS AS FOLLOWS: WE DO NOT INTEND TO ADMIT THIS PETITION AS ALL THE QUESTIONS ARE KEPT OPEN BY THE TRIBUNAL AS THE TRIBUNAL HAS P ASSED AN ORDER OF REMAND. IN THE ORDER OF REMAND THE TRIBUN AL HAS STATED THE AO AFTER GIVING REASONABLE OPPORTUNITY O F HEARING TO THE ASSESSEE WILL VERIFY THE FIGURES GIVEN BY ASSES SEE REGARDING CALCULATION OF PERCENTAGE OF MOBILIZATION OF REVENUE ATTRIBUTABLE WORK DONE IN INDIA AND THEN TO CONSIDE R THE SAME FOR THE PURPOSE OF SECTION 44BB. 11. WE FIND THAT THE BOMBAY HIGH COURT HAS NOT GONE INTO THE MERITS OF THE CASE AND HAS MERELY ADMITTED THE PETITION. K EEPING IN MIND THE HIERARCHY OF JUDICIAL ADMINISTRATION, WE ARE BOUND TO FOLLOW THE DECISION OF THE UTTARKHAND HIGH COURT AVAILABLE ON THE ISSUE AND NOT THE ORDER IN THE CASE OF SAIPEM (TM), WHICH IS A TRIBUNAL DECISI ON. WE THEREFORE DISMISS THE APPEAL OF THE ASSESSEE. 12. IN THE RESULT, THE APPEALS FILED BY THE ASSESSE E ARE DISMISSED. ORDER PRONOUNCED ON THIS 27 TH DAY OF AUGUST, 2010 SD/- SD/- (P.M. JAGTAP ) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 27 TH AUGUST, 2010 RJ VALENTINE MARITIME 7 COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR L BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI VALENTINE MARITIME 8 DATE INITIALS 1 DRAFT DICTATED ON: 12.8.2010 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 13.8 .2010 ______ SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: _________ ______ JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: _________ ______ JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: _________ ______ SR. PS/PS 6. KEPT FOR PRONOUNCEMENT ON: _________ ______ SR. PS/ PS 7. FILE SENT TO THE BENCH CLERK: _________ ______ SR. PS/PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK: _________ ______ 9. DATE OF DISPATCH OF ORDER: _________ ______