ADIT, Dehradun V. M/s. Dolphin Drilling Ltd., Dehradun

ITA 197/DEL/2013

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 2804 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 2 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-03-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 08-06-2017
• Assessment Year: 2004-2005
• Appeal Filed On: 10-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SURENDER PAL
• Assessee Lawyers: VISHAL MISRA
• Keywords: Depreciation; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : B : NEW DELHI BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND MS SUCHITRA KAMBLE, JUDICIAL MEMBER ITA NO.197/DEL/2013 ASSESSMENT YEAR : 2004-05 ADIT, INTERNATIONAL TAXATION, 13-A, SUBHASH ROAD, AAYAKAR BHAWAN, DEHRADUN. VS. DOLPHIN DRILLING LTD., C/O NANGIA & CO., 75/7, RAJPUR ROAD, DEHRADUN. PAN: AABCD8263C (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI AMIT ARORA, CA & SHRI VISHAL MISRA, CA DEPARTMENT BY : SHRI SURENDER PAL, SR. DR DATE OF HEARING : 19.03.2018 DATE OF PRONOUNCEMENT : 20.03.2018 ORDER PER R.S. SYAL, VP: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A) ON 31.10.2012 IN RELATION TO THE ASSESSMENT YEAR 2004-05. ITA NO.197/DEL/2013 2 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS A COMPANY INCORPORATED WITH LIMITED LIABILITY IN UNITED KINGD OM, WHICH FILED ITS RETURN DECLARING LOSS OF RS.44.40 CRORE. THE ASSESSEE ENT ERED INTO A CONTRACT AGREEMENT WITH ONGC LTD. FOR CHARTER HIRE OF DEEP W ATER DRILLING RIG DP DRILLSHIP WELLFORD DOLPHIN FOR OFFSHORE DRILLING. THE ASSESSEE COMPANY DID NOT OWN ANY DRILLSHIP AND, HENCE, ENTERED INTO AN AGREEMENT WITH ANOTHER COMPANY, NAMELY, DOLPHIN DRILLING PTE LTD., SINGAPORE FOR CHARTER HIRE OF DRILLSHIP. IT ENTERED INTO AN AGREEMENT WI TH ANOTHER NON-RESIDENT COMPANY ALPHA CREW INCORPORATED IN NORWAY, FOR SU PPLY OF CREW. THE ASSESSEE, BEING A NON-RESIDENT COMPANY ENGAGED IN T HE BUSINESS OF EXPLORATION OF MINERAL OILS ETC., OPTED FOR THE PRO VISIONS OF SECTION 44BB(3) OF THE ACT BY MAINTAINING NECESSARY BOOKS OF ACCOUN T. THE ASSESSEE, INTER ALIA, CLAIMED DEDUCTION OF RS.35,72,02,369/- FOR ACQUIRI NG RIGHTS OF MANAGEMENT OF DRILLSHIP FROM DOLPHIN DRILLING SINGA PORE. THE ASSESSEE CLAIMED THAT IT ACQUIRED A RIGHT OF MANAGEMENT OF T HE DRILLSHIP FROM DOLPHIN SINGAPORE IN CONSIDERATION OF RS.35.72 CROR E TO ELIMINATE RECURRING PAYMENT @ 7% OF GROSS REVENUE ATTRIBUTABLE TO DRILL SHIP, WHICH IT OTHERWISE WOULD HAVE PAID ON YEAR TO YEAR BASIS. THUS, IT WAS CLAIMED THAT A SUM OF ITA NO.197/DEL/2013 3 RS.35.72 CRORE WAS OF REVENUE NATURE AND HENCE DEDU CTIBLE IN FULL. THE ASSESSING OFFICER DOUBTED THE GENUINENESS OF AGREEM ENT WITH DOLPHIN DRILLING SINGAPORE AND, HENCE DISALLOWED THE SAID S UM OF RS.35.72 CRORE. EVENTUALLY, THE MATTER CAME UP FOR CONSIDERATION BE FORE THE TRIBUNAL. VIDE ORDER DATED 30.01.2009, THE TRIBUNAL IN ITA NO.1572 /DEL/2007, ACCEPTED THE GENUINENESS OF THE ASSESSEES CLAIM OF ACQUIRIN G MANAGEMENT RIGHT IN THE DRILLSHIP. IT, HOWEVER, SET ASIDE THE ORDER OF THE CIT(A) AND DIRECTED THE ASSESSING OFFICER TO ADJUDICATE THIS ISSUE AFRESH A FTER CONSIDERING THE ACCOUNTING TREATMENT GIVEN BY THE ASSESSEE AND DOLP HIN DRILLING SINGAPORE AND ALSO EXAMINING WHETHER THE EXPENDITURE IS OF CA PITAL OR REVENUE NATURE. 3. THE ASSESSING OFFICER, IN THE CONSEQUENTIA L PROCEEDINGS, AGAIN, HELD THE TRANSACTION AS NON-GENUINE. IN THAT VIEW OF TH E MATTER, IT WAS HELD THAT THERE WAS NO QUESTION OF CONSIDERING SUCH EXPENDITU RE AS OF REVENUE OR CAPITAL NATURE. THE LD. CIT(A) ACCEPTED THE GENUINE NESS OF THE TRANSACTION. HE, HOWEVER, HELD THAT THE PAYMENT MADE BY THE ASSE SSEE WAS A CAPITAL EXPENDITURE SUBJECT TO DEPRECIATION AS PER LAW. THE REVENUE IS AGGRIEVED AGAINST THE ORDER PASSED BY THE LD. CIT(A). ITA NO.197/DEL/2013 4 4. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE REL EVANT MATERIAL ON RECORD. PRIMARILY, IT IS NOTICED THAT THE TRIBUNAL IN PARA 37.8 ON THE PENULTIMATE PAGE OF ITS ORDER REMITTED THE ISSUE BA CK TO THE FILE OF THE ASSESSING OFFICER FOR FRESH CONSIDERATION AFTER OBS ERVING THAT: WHILE ADJUDICATING THE ISSUE AFRESH, THE A.O. SHALL ALSO DECIDE ALL OTHER ASPECTS OF THE ISSUE OTHER THAN THE ASPECT RELATING TO THE GEN UINENESS OF THE ASSESSEES CLAIM OF DEDUCTION ON ACCOUNT OF MANAGEMENT RIGHT I N THE DRILLSHIP. THIS SHOWS THAT THE TRIBUNAL ACCEPTED THE GENUINENESS OF THE TRANSACTION OF ACQUIRING MANAGEMENT RIGHTS OF DRILLSHIP. IT HAS B EEN CLEARLY ADMITTED BY BOTH THE SIDES THAT THE AFORESAID ORDER OF THE TRIB UNAL HAS ATTAINED FINALITY INASMUCH AS IT HAS NOT BEEN CHALLENGED BY EITHER SI DE BEFORE THE HON'BLE HIGH COURT. IN THAT VIEW OF THE MATTER, IT BECOMES APPARENT THAT THE GENUINENESS OF THE ASSESSEES CLAIM OF HAVING ACQUI RED MANAGEMENT RIGHT IN THE DRILLSHIP WAS ACCEPTED BY THE TRIBUNAL IN TH E FIRST ROUND. 5. BE THAT AS IT MAY, WE REPRODUCE CHRONOLOGY O F EVENTS LEADING TO ACQUIRING MANAGING RIGHTS IN THE DRILLSHIP, GIVEN O N PAGE 4 OF THE IMPUGNED ORDER, AS UNDER:- ITA NO.197/DEL/2013 5 NAVIS ASA (NAVIS) WAS THE PARENT COMPANY OF NAVIS EXPLORER AS (NAS). ORIGINALLY, NAS WAS THE SOLE OWNER OF THE RIG AS WE LL AS THE MANAGEMENT RIGHTS OF THE RIG NAVIS EXPLORER I. VIDE AGREEMENT DATED 1 NOVEMBER, 1998, NAS TRANSFER RED THE MANAGEMENT RIGHTS OF THE RIG NAVIS EXPLORER I TO M/S R&B FALCON (INTERNATIONAL & DEEPWATER INC) (RBF). ON 30 TH JUNE, 2000, FRED OLSEN ENERGY ASA (FOE) ENTERED IN TO A SALE/PURCHASE AGREEMENT WITH RBF. VIDE HIS AGREEME NT, FOE AGREED TO PURCHASE: A. THE MANAGEMENT RIGHTS OF THE RIG NAVIS EXPLORER I : AND B. 38.47 PER CENT OF SHAREHOLDING IN NAVIS. IN THE MEANWHILE, FOE CONTINUED TO PURCHASE MORE SH ARES IN NAVIS THROUGH OTHER MEANS AND CONSOLIDATED ITS HOLDING TO AN EXTENT THAT NAVIS MERGED WITH FOE SUBSEQUENTLY. ON 30 TH NOVEMBER, 2001, NAS SOLD RIG NAVIS EXPLORER I TO FRED OLSEN DRILLING AS, OSLO, NORWAY (FOD). ITA NO.197/DEL/2013 6 SUBSEQUENT TO THE ACQUISITION, NAVIS EXPLORER I W AS RECHRISTENED AS BELFORD DOLPHIN AND WAS PUT INTO OPERATION BY FOD . FOE TRANSFERRED THE MANAGEMENT RIGHT OF BELFORD DO LPHIN TO NAS IN DECEMBER, 2001. ON 1 ST JANUARY, 2002, NAS MERGED WITH DOLPHIN DRILLING AS (DAS). IN THE RESULT: A. TITLE IN THE OWNERSHIP OF THE RIG NOW RESTED WITH F OD B. TITLE IN THE MANAGEMENT RIGHTS OF THE RIG NOW RESTE D WITH DAS WITH EFFECT FROM 9 AUGUST, 2001, THE MANAGEMENT RIG HTS AGREEMENT WAS TRANSFERRED BY DAS TO DOLPHIN DRILLIN G LIMITED (DOLPHIN) FOR A VALUE OF NOK 56,347,931. 6. IT IS APPARENT FROM THE ABOVE CHRONOLOGY OF EVEN TS THAT THOUGH THE TITLE IN THE OWNERSHIP OF THE RIG RESTED WITH FRED OSLAN DRILLING AS, OSLO, NORWAY, BUT, THE TITLE IN THE MANAGEMENT RIGHTS OF THE RIG MOVED FROM DOLPHIN DRILLING, SINGAPORE TO THE ASSESSEE W.E.F. 9 TH AUGUST, 2003, FOR WHICH THE ASSESSEE PAID RS.35.72 CRORE AS FEE FOR A CQUIRING MANAGEMENT RIGHTS OF DRILL SHIP. IN VIEW OF THE ABOVE DISCUSSI ON, IT IS CLEAR THAT THE ITA NO.197/DEL/2013 7 ASSESSEE ACQUIRED MANAGEMENT RIGHTS OF DRILLSHIP IN A BONA FIDE AND GENUINE TRANSACTION BY PAYING A SUM OF RS.35.72 CRORE. IT IS, THEREFORE, HELD THAT THE TRANSACTION BETWEEN THE ASSESSEE AND DOLPHIN DRILLI NG, SINGAPORE, IS A GENUINE TRANSACTION. 7. COMING TO THE SAID PAYMENT BEING OF CAPITAL OR R EVENUE NATURE, IT IS FOUND THAT THE LD. CIT(A) HELD IT TO BE OF CAPITAL NATURE AS AGAINST THE ASSESSEES CLAIM OF REVENUE NATURE. ON A SPECIFIC QUERY, THE LD. AR SUBMITTED THAT CONSIDERATION OF RS.35.72 CRORE WAS PAID FOR ACQUIRING MANAGEMENT RIGHTS OF DRILLSHIP FOR A PERIOD OF FIVE YEARS. IN VIEW OF THE FACT THAT THE ASSESSEE PAID RS.35.72 CRORE FOR ACQU IRING MANAGEMENT RIGHTS OF DRILLSHIP FOR A PERIOD OF FIVE YEARS, THE VIEW C ANVASSED BY THE LD. CIT(A) IN TREATING THIS AMOUNT AS CAPITAL EXPENDITURE, HAS TO BE COUNTENANCED. ONCE THE PAYMENT MADE BY THE ASSESSEE IS HELD TO BE CAPITAL EXPENDITURE, THE ASSESSEE IS ENTITLED TO DEPRECIATION AS PER LAW AS HAS BEEN HELD BY THE LD. CIT(A). 8. IN SO FAR AS THE ASPECT OF ACCOUNTING TREATMENT RESTORED BY THE TRIBUNAL TO THE ASSESSING OFFICER IN THE FIRST ROUN D IS CONCERNED, WE FIND ITA NO.197/DEL/2013 8 THAT THERE IS NO FINDING GIVEN BY THE LD. CIT(A) ON THIS ASPECT. THAT APART, THE ACCOUNTING TREATMENT OF A PARTICULAR AMOUNT AS EXPENDITURE CANNOT CHANGE THE CHARACTER OF REAL TRANSACTION FOR THE PU RPOSE OF ITS DEDUCTIBILITY OR OTHERWISE. WE, THEREFORE, UPHOLD THE IMPUGNED O RDER IN TREATING THE TRANSACTION OF RS.35.72 CRORE AS PAYMENT FOR ACQUIR ING MANAGEMENT RIGHTS OF DRILLSHIP AS GENUINE; TREATING SUCH EXPENDITURE AS OF A CAPITAL NATURE AND NOT DEDUCTIBLE IN THE YEAR OF PAYMENT IN FULL; AND DIRECTION TO GRANT DEPRECIATION ON THIS CAPITAL EXPENDITURE AS PER LAW . 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 20.03.201 8. SD/- SD/- [SUCHITRA KAMBLE] [R.S. SYAL] JUDICIAL MEMBER VICE PRESIDENT DATED, 20 TH MARCH, 2018. DK ITA NO.197/DEL/2013 9 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.