DCIT, Dehradun V. M/s. SBS Marine Ltd. (Now known as Viking Supply Ships Ltd.), Mumbai

ITA 161/DEL/2015

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 4227 (ITAT-DEHRADUN)
• Duration Of Justice: 6 year(s) 4 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 08-01-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: THAKUR SINGH MAPWAL
• Section: 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. 161/ DEL/2015 (ASSESSMENT YEAR: 2011 - 12 ) DCIT, CIRCLE - II, INTERNATIONAL TAXATION, DEHRADUN VS. SBS MARINE LTD, (NOW KNOWN AS VIKING SUPPLY SHIPS LTD) C/O. PRICEWATER HOUSE COOPERS PVT LTD, PWC HOUSE, PLOT NO. 18A, GURU NANAK ROAD, (STATION ROAD), BANDRA (WEST), MUMBAI PAN: AAICS2595R (APPELLANT (RESPONDENT) REVENUE BY: SHRI THAKUR SINGH MAPWAL, JCIT DR 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 LEARNED DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 2, (INTERNATIONAL TAXATION), THERE ARE KNOWN AGAINST THE DIRECTION OF THE LEARNED DISPUTE RESOLUTION PANEL II, NEW DELHI (THE LEARNED DRP) WHERE SUCH DIRECTIONS HAVE BEEN INCORPORATED IN ORDER OF THE LD AO/ DY. CIT, CIRCLE - 2, DEHRADUN DATED 26.11.2014 FOR THE AY 2010 - 11 . 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE HONBLE 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 THE REVENUES EARNED FROM NON - RESIDENT COMPANIES ON ACCOUNT OF PROVISION OF VESSELS ON HIRE (EQUIPMENT RENTAL) UNDER CONTRACTS FOR MARINE LOGISTI CS PAGE | 2 SERVICES, AS AGAINST THE PROPOSED ACTION OF THE AO TO BRING THE REVENUE TO TAX U/S 44DA OF THE ACT. 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE HONBLE DRP HAS ERRED IN NOT APPRECIATING THE FACT IN THE PRESENT CASE THE VESSELS/SERV ICES WERE NOT PROVIDED/RENDERED BY THE ASSESSEE DIRECTLY TO AN ENTITY WHICH IS ENGAGED IN PROSPECTING ETC OF MINERAL OIL AND IS DIRECTLY A MEMBER OF THE PRODUCTION SHARING CONTRACT. 2.1 WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE HONBLE DRP HA S 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 SERVICES RENDERED BY FIRST - LEG AND SECOND - LEG VENDORS, IGNOR ING THE FACT THAT THE RECEIPTS FROM SECOND - LEG ARE IN RESPECT OF CONTRACTS WHICH ARE ENTERED INTO WITH COMPANIES NOT DIRECTLY ENGAGED IN OIL PRODUCTION AND EXPLORATION AND, THEREFORE, ARE LIABLE TO TAX U/S 44DA READ WITH SECTION 9(L)(VI)/9(L)(VII) AND NOT U/S IN 44BB OF THE IT ACT, 1961. 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE HONBLE DRP HAS ERRED IN ITS INTERPRETATION OF THE LEGISLATIVE INTENT BEHIND THE SCHEME OF TAXATION ENVISAGED IN 9(1 )(VI)/9( 1 )(VII) READ WITH SECTIONS 44DA AND 4 4BB, 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) 299 ITR 438 UTTARAKHAND], 4. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE HONBLE DRP HAS ERRED IN IGNORING THE EFFECT OF THE AMENDMENT BROUGHT IN VIDE FINANCE ACT, 2010 W.E.F. 01.04.2011, IN TERMS OF WHICH INCOME COVERED BY SECTION 44DA HAS BEEN SPECIFICALLY EXCLUD ED FROM THE SCOPE OF SECTION 44BB FOR ASSTT YEARS 2011 - 12 (THE YEAR UNDER CONSIDERATION ) ONWARDS. 4.1 WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE HONBLE DRP HAS ERRED IN IGNORING THE DISTINCT SCHEME OF TAXATION OF FEES FOR TECHNICAL SERVICES (FTS) AND ROYALTY AND DISREGARDING THE INSERTION OF PROVISO IN SECTION 44BB/44DA/115A AND THE RATIONALE BEHIND THE INTRODUCTION OF SAID AMENDMENT IN THE FINANCE BILL 2010 IN HOLDING THAT THE INCOME OF THE ASSESSEE FROM THE ABOVE SERVICES WAS COVERED UNDE R THE PRESUMPTIVE PROVISIONS OF SECTION 44BB. 4.2 THE HONBLE DRP HAS ERRED IN NOT APPRECIATING THE FACT THAT EVEN IN TERMS OF RATIO OF THE JUDGMENT IN THE SAID CASE OF OHM LTD [[352, ITR 406 (DELHI) CITED BY IT, THE PROVISIONS OF SECTION 44BB ARE NOT APPL ICABLE WHERE THE SCOPE OF THE SERVICES/FACILITIES PROVIDED BY AN ASSESSEE IS GENERAL IN NATURE FALLING UNDER SECTION 44DA(1) OF THE ACT. 4.3 THE HONBLE DRP HAS ERRED IN MECHANICALLY FOLLOWING THE DECISIONS IN THE CASE OF M/S OHM LTD WITHOUT FIRST ADJUDIC ATING UPON THE ISSUE AS TO WHETHER AND HOW THE SCOPE OF THE SERVICES/FACILITIES RENDERED PAGE | 3 UNDER THE CONTRACTS IS NOT GENERAL IN NATURE AND THEREFORE, DOES NOT QUALIFY AS ROYALTY/FTS U/S 9(L)(VI)/9(L)(VII) OF THE ACT TAXABLE UNDER SECTION 44DA. 5. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE HONBLE DRP HAS ERRED IN HOLDING THAT THE PROVISIONS OF SECTION 44BB OF THE ACT ARE MORE SPECIAL PROVISIONS WHICH SHALL PREVAIL OVER THE PROVISIONS OF SECTION 9(L)(VI)/9(L)(VII) READ WITH SECTIONS 44DA AND 115A OF THE ACT, NOT APPRECIATING THE FACTS THAT BOTH SET OF PROVISIONS ARE SPECIAL IN NATURE WHICH OPERATE IN THEIR OWN CLEARLY DEFINED SPHERES AND THEREFORE, ONCE A PARTICULAR RECEIPT OR INCOME TAKES ON THE CHARACTER OF ROYALTY/FTS AS DEFINED IN SECTION 9(1 )(VI)/9( 1 )(VII), IT CANNOT BE CONSIDERED FOR TREATMENT U/S 44 BB OF THE ACT. 6. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE HONBLE DRP HAS ERRED IN NOT APPRECIATING THAT SINCE SECTION 44DA/115A ARE SPECIAL PROVISIONS FOR TAXATION OF INCOME IN THE NATURE OF ROYALTIES AND FTS AND IF A SPECIAL PROVISION IS MADE RESPECTING A CERTAIN MATTER IS EXCLUDED FROM THE GENERAL PROVISIONS UNDER THE RULE OF GENERALLIA SPECIALIBUS NON DEROGANT. 7. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE HONBLE DRP HAS ERRED IN NOT APPRECIATING THAT THE TERM SERVICES OR FACILITIES USED THEREIN ARE NOT DEFINED AND THE TWO TERMS USED ARE GENERAL IN NATURE AND THEREFORE, ONCE THE PAYMENTS TAKE THE CHARACTER OF ROYALTY FTS U/S 9( 1 )(VI)/9( 1 )(VII), THE Y GO OUTSIDE THE PURVIEW OF SECTION 44BB AND HAVE TO BE TAXED AT RATES APPLICABLE TO ROYALTY/FTS U/S 44DA/115A OF THE ACT. 8. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE HONBLE DRP HAS ERRED IN HOLDING THAT THE REVENUES EARNED BY THE AS SESSEE ON ACCOUNT OF PROVISION OF SERVICES WERE IN CONNECTION WITH PROSPECTING ETC OF MINERAL OIL AND HENCE ELIGIBLE FOR TREATMENT U/S 44BB OF THE ACT, WITHOUT ADJUDICATING THE ASPECT OF ELIGIBILITY IN TERMS OF SECOND LIMB OF THE EXCLUSIONARY PROVISO (EXPL ANATION TO SECTION 9(L)(VII) OF THE IT ACT, 1961) I.E. FOR A PROJECT UNDERTAKEN BY THE RECIPIENT IN TERMS OF THE PROPOSITION CONFIRMED BY HONBLE DELHI HIGH COURT IN CIT V RIO TINTO TECHNICAL SERVICES [2002 - TII - OL - HC - DEL - FNTL]. 9. WHETHER ON THE FACTS A ND IN THE CIRCUMSTANCES OF THE CASE, THE HONBLE DRP HAS ERRED IN HOLDING THAT SECTIONS 44DA AND SECTION 115A APPLY ONLY TO CASES WHERE THE INCOME BY WAY OF ROYALTY OR FTS IS EARNED BY A NON - RESIDENT BY WAY OF ROYALTY OR FTS FROM GOVERNMENT OR AN INDIAN EN TITY AND WHERE AN INCOME IS RECEIVED BY A NON - RESIDENT FROM ANOTHER NON - RESIDENT, THE PROVISIONS OF SECTION 44DA/115A DO NOT APPLY. 9.1 WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE HONBLE DRP HAS ERRED IN NOT APPRECIATING THE FACT THAT S ECTION 44DA ENSHRINES THE SOURCE RULE OF TAXATION AND IS INTENDED TO COVER PAGE | 4 ALL THE PAYMENTS IN THE FORM OF ROYALTIES ETC. WHERE THE SOURCE OF SUCH PAYMENT LIES IN INDIA. 9.2 WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE HONBLE DRP HAS ERR ED 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 EXCLUDED BY IT IN INDIA AND THEREFORE THE SOURCE OF THE PAYMENTS AS WELL AS THE SITUS OF THE ACTIVITY TO WHICH THESE PAYMENTS PERTAIN LIES IN INDIA. 9.3 WHETHER THE HONBLE DRP HAS ERRED IN NOT APPRECIATING THE FACT THAT THE PHRASE INDIAN CONCERN IN SECTION 44DA HAVING NOT BEEN DEFINED, IT HAS TO BE GIVEN A PURPOSIVE CONSTRUCTION AND, THEREFORE, 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 SECTION 44DA OF THE ACT. 3. FACTS SHOW THAT ASSESSEE IS A NON - RESIDENT COMPANY BASED IN UNITED KINGDOM, ENGAGED IN THE BUSINESS OF PROVIDING OF SOURCE AND VESSELS ON HIRE . THE VESSELS ARE USED TO SUPPORT OFFSHORE DRILLING OPERATIONS UNDERTAKEN IN CONNECTION WITH OIL AND GAS EXPLORATION ACTIVITIES . THE ASSESSEE AS EXECUTED CONTRACT S WITH NON - RESIDENT COMPANIES . THUS, THE ASSESSEE FILED ITS RETURN OF INCOME ON 28/9/2011 DECLARING TOTAL INCOME OF 53,006,750 OFFERING THE INCOME OF TOTAL REVENUE OF 530,067,495/ AT THE RATE OF 10% APPLYING THE PROVISIONS OF SECTION 44BB OF THE INCO ME TAX ACT . THE LEARNED ASSESSING OFFICER WAS OF THE VIEW THAT THE ABOVE INCOME IS TAXABLE AS FEES FOR TECHNICAL SERVICES AND THEREFORE HE DETERMINED THE TOTAL INCOME OF THE ASSESSEE AT THE RATE OF 25% AT 132,516,873/ . ACCORDINGLY, THE DRAFT ASSESSMEN T ORDER WAS PASSED WHICH WAS CHALLENGED BY THE ASSESSEE BY FILING AN OBJECTION BEFORE THE LEARNED DISPUTE RESOLUTION PANEL . THE LEARNED DISPUTE RESOLUTION PANEL GAVE A DIRECTION THAT THE PROVISIONS OF SECTION 44 BB OF THE INCOME TAX ACT PRESCRIBING THE PR ESUMPTIVE RATE OF TAXATION AS APPLICABLE TO A NON - RESIDENT ENGAGED IN THE BUSINESS OF PROVIDING SERVICES AND FACILITIES IN CONNECTION WITH OF SUPPLYING PLANT AND MACHINERY ON HIRE USED OR TO BE USED IN THE PROSPECTING FOR OR EXTRACTION OF PRODUCTION OF MIN ERAL OILS IT FURTHER HELD THAT THE PROVISIONS OF SECTION 44 BB OF THE ACT DO NOT CONTAIN ANYTHING TO SUPPORT THE INTERPRETATION OF THE LEARNED ASSESSING OFFICER OF THE SO - CALLED SECOND LEG CONTRACT SO AS TO DENY THE APPLICABILITY OF THE PAGE | 5 SECTION TO THE ASSE SSEE. THEREFORE, THE LEARNED DISPUTE RESOLUTION PANEL OBSERVED THAT THE INCOME OF THE ASSESSEE SHOULD BE CHARGEABLE TO TAX AT THE RATE OF 10% BY APPLYING THE PROVISIONS OF SECTION 44 BB OF THE ACT . THE LEARNED ASSESSING OFFICER PASSED THE FINAL ASSESSMENT ORDER ON 26/11/2014 DETERMINING THE TOTAL TAXABLE INCOME OF THE ASSESSEE AT 53,006,750/ . HOWEVER, HE IS AGGRIEVED WITH THE DIRECTION OF THE LEARNED DISPUTE RESOLUTION PANEL WITH RESPECT TO THE CHARGEABILITY OF THE SECOND LEG CONTRACT INCOME UNDER THE PROVISIONS OF SECTION 44 BB OF THE INCOME TAX ACT. 4. THE LEARNED DEPARTMENTAL REPRESENTATIVE VEHEMENTLY SUPPORTED THE ORDER OF THE LEARNED ASSESSING OFFICER WHEREAS THE LEARNED AUTHORISED REPRESENTATIVE PAYMENT PLEASE SUPPORTED THE ORDER OF THE LEARNED DISPU TE RESOLUTION PANEL. 5. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTION AND FIND THAT THE ISSUE SQUARELY COVERED BY THE DECISION OF THE HONOURABLE SUPREME COURT IN CASE OF OIL AND NATURAL GAS CORPORATION LTD. V. COMMISSIONER OF INCOME - TAX AND ANOTHER 376 ITR 306 WHEREIN IT HAS BEEN HELD THAT WHERE BRIEF 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 PROSPECTING, EXTRACTION OR PRODU CTION 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 THERE UNDER. IF THAT BE SO, THE PAYMENTS MADE BY THE ONCE AND RECE IVED BY THE NON - RESIDENT OR FOREIGN 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 WIT H EXPLANATION 2 TO SECTION 9(1)(VII) OF THE ACT BUT MORE APPROPRIATELY ASSESSABLE ON A PRESUMPTIVE BASIS UNDER SECTION 44BB OF THE ACT. WE FIND THAT THE PITH & SUBSTANCE OF THE CONTRACT IS FALLING UNDER THE PROVISIONS OF SECTION 44 BB OF THE INCOME TAX ACT . IN VIEW OF THIS WE DISMISS ALL THE GROUNDS OF THE APPEAL FILED BY THE LEARNED ASSESSING OFFICER. PAGE | 6 6. IN THE RESULT APPEAL OF THE LEARNED AO IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 3 1 . 05 .2021. - S D / - - S D / - (SUDHANSHU SRIVASTAVA) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 3 1 .05 .2021 A K KEOT COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI