Saipem Portugal Commercio Maritimo SU LDA, New Delhi V. DCIT (International Taxation), Dehradun

ITA 2071/DEL/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 3627 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 6 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-11-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 08-06-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 18-04-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: GAURAV DUDEJA
• Assessee Lawyers: VI SHAL MISHRA; SSH AMIT ARORA
• Keywords: Double taxation relief

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL, DELHI BENCH C, NEW DELHI BEFORE : SHRI H.S. SIDHU, JUDICIAL MEMBER AND SHRI L.P. SAHU, ACCOUNTANT MEMBER ITA NO. 2071/DEL./2016 ASSESSMENT YEAR: 2011-12 SAIPEM PORTUGAL COMMERCIO MARITIMO SU LDA C/O NANGIA & COMPANY, SUITE 4A, PLAZA M-6, JASOLA, NEW DELHI. (PAN AAICS0784N) (APPELLANT) VS. DCIT (INTL. TAXATION), CIRCLE-2, DEHRADUN (RESPONDENT) APPELLANT BY S/SH. AMIT ARORA & VISHAL MISHRA, CA RESPONDENT BY SH. GAURAV DUDEJA, SR. DR ORDER PER L.P. SAHU, A.M.: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF LD. CIT(A)-2, NOIDA DATED 11.02.2016 FOR THE ASSESSMENT YEAR 2011 -12 ON THE FOLLOWING EFFECTIVE GROUNDS : 1. THAT THE LD. CIT(A) ERRED ON FACTS AND IN LAW IN AFFIRMING THE ACTION OF THE ASSESSING OFFICER IN HOLDING THAT REIMBURSEMENT OF EXPENSES AGGREGATING TO INR 14,51,797/- FROM GSPC WERE INCLU DIBLE IN THE RECEIPTS FOR THE PURPOSE OF DETERMINATION OF INCOME UNDER SE CTION 44BB OF THE INCOME-TAX ACT. THE LD. CIT(A) FAILED TO APPRECIATE T HAT THE SAID AMOUNT IS DEVOID OF ANY PROFIT ELEMENT AND DO NOT CONSTITUTE INCOME IN THE HANDS OF THE APPELLANT. 2. THAT THE LD. CIT(A) ERRED IN LAW IN HOLDING THAT T HE PROVISIONS OF SECTION 44BB DO NOT APPLY TO PROVISION OF BARGE, WI THOUT APPRECIATING THAT THE RECEIPTS OF INR. 340,035,436/- FOR ACTIVITY CAR RIED OUT BY APPELLANT FOR DATE OF HEARING 09.11.2017 DATE OF PRONOUNCEMENT 13 .11.2017 ITA NO. 2071/DEL./2016 2 L&T IS INEXTRICABLY LINKED WITH EXPLORATION, EXPLOIT ATION AND PRODUCTION OF MINERAL OIL AND CANNOT BE HELD TO BE TAXABLE AS ROY ALTY IN TERMS OF SECTION 9(1)(VI) OF THE ACT. 2. THE BRIEF FACTS RELATING TO FIRST GROUND OF APPE AL ARE THAT THE ASSESSEE RECEIVED A SUM OF RS.14,51,797/- AND DID NOT OFFER IT TO TAX ON THE PREMISES THAT THESE RECEIPTS WERE IN NATURE OF REIMBURSEMENT OF EXPENDITURE INCURRED BY THE ASSESSEE. THE AO OBSERVED THAT THE REIMBURSE MENT CLAIMED BY THE ASSESSEE WAS ON ACCOUNT OF PAYMENTS RECEIVED FOR MA TERIAL USED WHICH IS INTRICATELY LINKED WITH THE EXECUTION OF CONTRACT A ND GROSS CONTRACT RECEIPTS. HE, THEREFORE, TAXED THE SAME U/S. 44BB OF THE IT A CT. THE LD. CIT(A) AFTER CONSIDERING VARIOUS DECISIONS ON THE ISSUE, CONFIRM ED THE ACTION TAKEN BY THE ASSESSING OFFICER, WHICH HAS BEEN CHALLENGED BY THE ASSESSEE BY WAY OF GROUND NO. 1 ABOVE. 3. WE HAVE HEARD THE RIVAL SUBMISSIONS ON THE ISSUE AND HAVE GONE THROUGH THE ENTIRE MATERIAL AVAILABLE ON RECORD. A T THE OUTSET, BOTH THE PARTIES AGREED THAT THE ISSUE IS SQUARELY COVERED BY THE DE CISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF COMMISSION ER OF INCOME TAX VS. HALLIBURTON OFFSHORE SERVICES INC., 300 ITR 265 (UT TARAKHAND), WHEREIN IT HAS BEEN HELD THAT SECTION 44BB IS A COMPLETE CODE IN I TSELF AND ALL AMOUNTS INCLUDING REIMBURSEMENTS ARE INCLUDIBLE WITHIN THE AMOUNT PAID OR PAYABLE TO ITA NO. 2071/DEL./2016 3 THE ASSESSEE FOR THE PURPOSE OF TAXATION UNDER SECT ION 44BB OF THE ACT. THEREFORE, THIS ISSUE IS DECIDED AGAINST THE ASSESS EE AND IN FAVOUR OF THE REVENUE, FOLLOWING THE AFORESAID DECISION OF HONBL E JURISDICTIONAL HIGH COURT. ACCORDINGLY, GROUND NO. 1 RAISED BY THE ASSESSEE IS DISMISSED. 4. THE FACTS RELATING TO THE ISSUE INVOLVED IN GROU ND NO. 2 ARE THAT THE ASSESSEE CLAIMED THAT THE OPERATIONS OF THE VESSELS /EQUIPMENTS GIVEN ON HIRE TO L&T WERE OUTSIDE INDIA AND IN INTERNATIONAL WATE RS. THEREFORE, THEIR RECEIPTS WERE TAXABLE ONLY IN PORTUGAL AND NOT IN I NDIA AS PER ARTICLE 8 OF DTAA BETWEEN INDIA AND PORTUGAL. IT WAS ALSO THE SU BMISSION OF THE ASSESSEE THAT SINCE THE BARGE WAS SUPPLIED TO L&T TO BE USED ULTIMATELY IN CONNECTION WITH EXPLORATION, EXTRACTION AND PRODUCTION OF MINE RAL OIL, THE RECEIPTS FROM THE SUPPLY OF BARGE SHOULD HAVE BEEN TAXED U/S. 44B B OF THE ACT. RELIANCE WAS PLACED ON THE DECISION OF HONBLE APEX COURT IN ONG C VS. CIT (CIVIL APPEAL NO. 731 OF 2007). THE AO WAS OF THE OPINION THAT SINCE THE ASSESSEE HAD GIVEN SPECIALIZED VEHICLE/VESSEL/EQUIPMENT ON HIRE TO L&T , ITS RECEIPTS ARE TAXABLE AS ROYALTY AS DEFINED IN SECTION 9(1)(VI) OF THE AC T READ WITH ARTICLE 12 OF INDIA-PORTUGAL DTAA. HE, THEREFORE, CONCLUDED THAT THE INCOME OF THE ASSESSEE IS COVERED U/S. 9(1)(VI) OF THE IT ACT AND THEREFOR E, THE ASSESSEE IS NOT ENTITLED FOR CONCESSIONAL BENEFIT UNDER SECTION 44BB OF THE ACT. HE, THEREFORE, BROUGHT ITA NO. 2071/DEL./2016 4 THE GROSS REVENUES AMOUNTING TO RS.34,00,35,436/- R ECEIVED IN RESPECT OF L&T CONTRACT TO TAX AS ROYALTY RECEIPT ON GROSS BASIS T AXABLE @ 10%. THE LEARNED CIT(A) AFTER MAKING AN ELABORATE DISCUSSION ON THE ISSUE, HELD THAT SINCE GSPC AND HOECL ARE ENGAGED IN THE BUSINESS OF EXPLORATIO N IN THE ACTIVITIES OF THE PROSPECTING, PRODUCTION OF MINERAL OILS, THE SUPPLY OF PLANT AND EQUIPMENTS BY THE ASSESSEE TO GSPC AND HOECL WERE TAXABLE U/S. 44 BB OF THE ACT. HOWEVER, SINCE L&T WAS IN BUSINESS OF ENGINEERING AND FABRIC ATION ALONG WITH OTHER ALLOWED ACTIVITIES AND WAS NOT ENGAGED IN THE ACTIV ITY OF EXPLORATION, PROSPECTING AND PRODUCTION OF MINERAL OIL, THE RECE IPTS OUT OF SUPPLY OF EQUIPMENTS TO L&T WAS TAXABLE AS ROYALTY, AS DONE B Y THE ASSESSING OFFICER. THIS DECISION OF LD. CIT(A) IS CHALLENGED BY ASSESS EE BY WAY OF GROUND NO. 2 ABOVE. 5. WE HAVE HEARD THE SUBMISSIONS OF BOTH THE PARTIE S AND PERUSED THE MATERIAL ON RECORD AND WE FIND THAT THE ISSUE UNDER CONSIDERATION IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F ITAT, DELHI BENCH IN THE CASE OF SBS MARINE LIMITED (ITA NO. 107/DEL./2012, WHEREIN IT HAS BEEN THAT SECOND LEG CONTRACTS ARE ALSO ELIGIBLE FOR BENEFIT OF TAX TREATMENT PROVIDED IN SECTION 44BB OF THE ACT. THIS DECISION OF ITAT STOO D CONFIRMED BY THE JURISDICTIONAL HIGH COURT IN ITA NO. 36/15 (COPY PL ACED ON FILE) AFTER RELYING ITA NO. 2071/DEL./2016 5 ON THE DECISION OF APEX COURT IN ONGC VS. CIT, 376 ITR 306. SIMILAR VIEW HAS BEEN TAKEN BY ITAT IN THE CASES OF B.J. SERVICES CO . ME LIMITED (ITA NOS. 3889/DEL./2010, 421/DEL./2012 AND 4831/DEL./2012 DA TED 19.12.16 (COPY PLACED ON PAPER BOOK) AND SEVERAL OTHER DECISIONS. RESPECTFULLY FOLLOWING THE ABOVE DECISIONS OF HONBLE JURISDICTIONAL HIGH COUR T AND THE TRIBUNAL, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND AGA INST THE REVENUE. ACCORDINGLY, GROUND NO. 2 RAISED BY THE ASSESSEE DE SERVES TO BE ALLOWED. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 13.11.2017. SD/- SD/- (H.S. SIDHU) (L.P. SAHU) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 13.11.2017 *AKS* COPY OF ORDER FORWARDED TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES, NEW DELHI