M-I Overseas Ltd., New Delhi V. DIT, New Delhi

ITA 2456/DEL/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61665 (ITAT-DELHI)
• Duration Of Justice: 11 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-05-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 11-04-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 13-05-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: D K GUPTA
• Keywords: Permanent establishment; Difference of opinion; Change of opinion
• Section: 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH E : NEW DELHI) SHRI RAJPAL YADAV, JUDICIAL MEMBER AND BEFORE SHRI B.C. MEENA, ACCOUNTANT MEMBER ITA NO.2456/DEL./2011 (ASSESSMENT YEAR : 2006-07) M-I OVERSEAS LIMITED, VS. DIRECTOR OF INCOME-TAX , SUITE 4-A, PLAZA 6 A, INTERNATIONAL TAXATION- II, JASOLA, NEW DELHI-110 025. NEW DELHI. ( PAN : AADCM8895K) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI AJAY VOHRA, ADVOCATE & SHRI ROH IT GARG, CA REVENUE BY : SHRI D.K. GUPTA, CIT DR ORDER PER B.C. MEENA, ACCOUNTANT MEMBER : THIS APPEAL FILED BY THE ASSESSEE EMANATES FROM THE ORDER OF THE DIRECTOR OF INCOME TAX, INTERNATIONAL TAXATION-II, NEW DELHI DATED 28.03.2011 FOR THE ASSESSMENT YEAR 2006-07. 2. THE RETURN OF INCOME WAS FILED ON 30.03.2007 DEC LARING INCOME OF RS.6,18,35,432/-. DURING THE YEAR, ASSESSEE HAS RE CEIVED THE GROSS REVENUE OF RS.1,58,93,17,996/-. OUT OF WHICH THE ASSESSEE HAS OFFERED A SUM OF RS.61,83,54,322/- UNDER SECTION 44BB (1) OF THE INC OME-TAX ACT, 1961 (HEREINAFTER REFERRED AS THE ACT). THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PROVIDING EQUIPMENTS OF SERVICES OR FACILITIES IN C ONNECTION WITH PROSPECTING ITA NO.2456/DEL./2011 2 FOR EXTRACTION OR PRODUCTION OF MINERAL OILS. THE ASSESSEE HAS CONSIDERED THE RECEIPT OF RS.40,20,380/- ON ACCOUNT OF REIMBURSEME NT OF REVENUE AND RS.96,69,43,294/- ON ACCOUNT OF IMPORTED MATERIAL S UPPLIED. THE ASSESSING OFFICER INCLUDED THE REIMBURSEMENT RECEIPT OF RS.40 ,20,380/- FOR COMPUTING THE TAXABLE INCOME UNDER SECTION 44BB OF THE ACT IN VIEW OF THE HON'BLE UTTARAKHAND HIGH COURT DECISION IN THE CASE OF CTI VS. HALLIBURTON OFFSHORE SERVICES INC. 300 ITR 265. IN RESPECT OF THE REC EIPTS RELATING TO MATERIAL SUPPLIED IMPORTED FROM OUTSIDE INDIA, THE ASSESSING OFFICER HELD THAT ASSESSEE IS HAVING A PERMANENT ESTABLISHMENT IN INDIA. MATE RIAL SUPPLIES IMPORTED FROM OUTSIDE INDIA AND TITLE OVER THE GOODS PASSED ON TOE THE PURCHASER OUTSIDE INDIA. THE GOODS ARE SOLD ON ACCOUNT OF PE RMANENT ESTABLISHMENT IN INDIA, HENCE BROUGHT TO TAX AT THE DEEMED PROFIT RA TE OF 2% IN VIEW OF THE PROVISIONS OF SECTION 9(1)(I) OF THE ACT. ASSESSME NT WAS FINALIZED ON 24.12.2008. DIRECTOR OF INCOME-TAX (INTERNATIONAL TAXATION) PASSED AN ORDER U/S 263 OF I.T. ACT BY CANCELLING THE ORDER TO MAKE AFRESH ASSESSMENT. 3. THE ASSESSEE HAS COME ON APPEAL BEFORE US BY TAK ING THE FOLLOWING GROUNDS :- BASED UPON THE FACTS OF THE CASE, THE ASSESSEE RES PECTFULLY SUBMITS THE FOLLOWING GROUNDS WHICH ARE WITHOUT PRE JUDICE TO AND INDEPENDENT OF EACH OTHER: GROUND NO. 1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE ORDER DATED 28.03.2011 PASSED BY THE DIRECTOR OF IN COME-TAX, ITA NO.2456/DEL./2011 3 INTERNATIONAL TAXATION - II, NEW DELHI ('DI') UNDER SECTION 263 OF THE INCOME TAX ACT, 1961 ('THE ACT') DIRECTING THE AO TO MAKE A FRESH ASSESSMENT IS BEYOND JURISDICTION, BAD IN LAW AND VOID AB INITIO. GROUND NO. 2 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE DI ERRED IN SEEKING TO SUBSTITUTE HIS OWN REASONING AN D OPINION AS AGAINST THAT ADOPTED BY THE AO AT THE TIME OF FRAMI NG THE ASSESSMENT ORDER. THE LD. DI HAS FAILED TO APPRECIA TE THAT A CHANGE OF OPINION IS NOT PERMISSIBLE UNDER THE PROV ISIONS OF SECTION 263 OF THE ACT. GROUND NO.3 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. DI ERRED IN NOT APPRECIATING THAT WHEN THE AO A LLOWED THE CLAIM OF THE ASSESSEE AFTER DETAILED EXAMINATION IN A SCRUTINY ASSESSMENT, IT CAN NOT BE PRESUMED THAT ALL THE REL EVANT ISSUES WERE NOT CONSIDERED. GROUND NO. 4 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE DI ERRED IN HOLDING THAT THE ASSESSMENT ORDER DATED 24 .12.2008 PASSED UNDER SECTION 143(3) OF THE ACT WAS ERRONEOU S AND PREJUDICIAL TO THE INTEREST OF REVENUE AND IN DIREC TING THE ASSESSING OFFICER TO MODIFY THE SAME, BY HOLDING TH AT THE PROFITS FROM THE OFFSHORE SUPPLIES WAS TO BE COMPUTED BY AP PLYING A PROFIT RATE OF 10 PER CENT AS AGAINST 2 PER CENT AS DONE BY THE ASSESSING OFFICER AT THE TIME OF FRAMING THE ASSESS MENT. GROUND NO. 5 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE DI ERRED IN HOLDING THAT THE ASSESSMENT ORDER DATED 24 .12.2008 PASSED UNDER SECTION 143(3) OF THE ACT WAS ERRONEOU S AND PREJUDICIAL TO THE INTEREST OF REVENUE AND IN DIREC TING THE ASSESSING OFFICER TO MODIFY THE SAME, BY HOLDING TH AT THE REVENUE FROM M/S DOLPHIN DRILLING LIMITED & M/S SCHLUMBERGER ASIA SERVICES SHOULD HAVE BEEN TAXED A S FEES FOR ITA NO.2456/DEL./2011 4 TECHNICAL SERVICES UNDER SECTION 9(1)(VII) AND NOT UNDER SECTION 44BB AS DONE BY THE ASSESSING OFFICER AT THE TIME O F FRAMING THE ASSESSMENT. GROUND NO.6 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE DI ERRED IN EXERCISING JURISDICTION UNDER SECTION 263 OF THE ACT IN RESPECT OF THE ABOVE ISSUES, WITHOUT APPRECIATING T HAT THE SAID ISSUES WHERE TWO VIEWS ARE POSSIBLE THEREBY OUSTING JURISDICTION UNDER THE SAID SECTION. GROUND NO.7 THAT THE DI ERRED ON FACTS AND IN LAW IN NOT APPREC IATING THAT THE TWIN CONDITIONS UNDER SECTION 263 OF THE ACT, VIZ., ASSESSMENT ORDER BEING (I) ERRONEOUS AS WELL AS (II) PREJUDICI AL TO THE INTEREST OF REVENUE, WERE NOT SATISFIED, IN AS MUCH AS, NO P REJUDICE IS CAUSED TO THE REVENUE IN RESPECT OF THE IMPUGNED IS SUES AS HIGHLIGHTED IN GROUND NOS. 4 AND 5 ABOVE. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR VARY ANY OF THE ABOVE GROUNDS OF APPEAL BEFORE OR AT THE TIME O F HEARING. 4. THE ASSESSEE HAS CHALLENGED THE ORDER OF THE DIR ECTOR OF INCOME-TAX, INTERNATIONAL TAXATION-II, NEW DELHI ON THE GROUND THAT IT WAS BEYOND JURISDICTION, BAD IN LAW AND VOID AB INITIO. THE A SSESSEE HAS ALSO CHALLENGED THAT ON THE BASIS OF THE CHANGE OF OPINION, ACTION U/S 263 IS NOT PERMISSIBLE. THE ASSESSEE HAS ALSO CHALLENGED THAT ASSESSING OFF ICER HAS MADE DETAILED EXAMINATION IN THE SCRUTINY ASSESSMENT. ASSESSEE H AD ALSO CHALLENGED ORDER OF DIT THAT PROFIT ON OFF SHORE SUPPLIES IS TO BE C ALCULATED @ 10% INSTEAD OF 2%. THE ASSESSEE HAS ALSO CHALLENGED ORDER OF DIT ON THE GROUND THAT ORDER MADE BY ASSESSING OFFICER WAS ERRONEOUS AND PREJUDI CIAL TO THE INTEREST OF ITA NO.2456/DEL./2011 5 REVENUE. THE ASSESSEE HAS ALSO CHALLENGED THAT THE DIT WAS NOT JUSTIFIED IN HOLDING THAT THE REVENUE FROM M/S. DOLPHIN DRILLING LIMITED & M/S. SCHLUMBERGER ASIA SERVICES SHOULD HAVE BEEN TAXED A S FEE FOR TECHNICAL SERVICES UNDER THE PROVISIONS OF SECTION 9(1)(VII) OF THE ACT AND NOT UNDER SECTION 44BB AS DONE BY THE ASSESSING OFFICER. THE ORDER OF THE DIT ALSO CHALLENGED ON THE ISSUE THAT WHEN TWO VIEWS ARE POS SIBLE THEN DIT HAS NO JURISDICTION U/S 263 OF THE ACT TO SET ASIDE THE VI EW TAKEN BY ASSESSING OFFICER. FINALLY, ASSESSEE HAS PRAYED THAT FOR IN VOKING THE PROVISIONS OF SECTION 263 OF THE ACT, TWO CONDITIONS, I.E. ONE OR DER SHOULD BE ERRONEOUS AND SECOND IT SHOULD BE PREJUDICIAL TO THE INTEREST OF REVENUE WERE NOT SPECIFIED. 5. WE HAVE HEARD BOTH THE SIDES IN DETAIL. THE ASS ESSEE ENTERED INTO A COMPOSITE CONTRACT WITH ONGC TO PROVIDE COMPLETE MU D ENGINEERING SERVICES WHICH HAVE BEEN TERMED AS MUD SERVICES & SUPPLY MUD- CHEMICALS TO ONGC IN THE CONTRACT. BOTH THE SERVI CES AS WELL AS THE MATERIAL REQUIRED TO PROVIDE SUCH SERVICES IS A COM POSITE AND INTEGRAL PART OF THE CONTRACT. THE ASSESSEE SPECIALIZED IN PROVIDIN G THESE SERVICES ALONG WITH SPECIALIZED CHEMICALS REQUIRED FOR THE PURPOSE. TH US, BOTH THESE ASPECTS ARE COMPOSITE AND CANNOT BE SEGREGATED IN PART. THIS W AS A CASE OF COMPOSITE WORK CONTRACT WHICH CANNOT BE CONSIDERED IN PARTS F OR THE PURPOSE OF TAXATION. THE ASSESSEE HAS OPTED FOR WORKING OUT THE TAXABLE INCOME AS PER THE PROVISIONS OF SECTION 44BB OF THE ACT. SECTION 44B B OF THE ACT PROVIDES FOR ITA NO.2456/DEL./2011 6 ASCERTAINMENT OF FICTIONAL INCOME FOR THE PURPOSE O F TAXATION. IT IS FIXED AT 10% OF THE AMOUNT PAID OR PAYABLE FOR THE SERVICE R ENDERED OR FACILITY PROVIDED IN CONNECTION WITH THE PROSPECTING FOR OR EXTRACTION OR PRODUCTION OF MINERAL OILS. THE CONSIDERATION FIXED UNDER THE CO NTRACT BETWEEN THE PARTIES AS THE SUM TO BE PAID HAS TO BE TAKEN AS THE AMOUNT BASED ON WHICH THE FICTIONAL INCOME HAS TO BE ASCERTAINED. THERE IS N OTHING IN THE SECTION WHICH SPEAK ABOUT ANY DEDUCTION IN THAT BEHALF. IT IS OP EN TO THE ASSESSEE WHO WANT TO CLAIM EXEMPTIONS AND EXCLUSIONS IN ASSESSMENT TO NOT TO OPT FOR SECTION 44BB (1) OF THE ACT. IN OUR CONSIDERED VIEW, THERE IS NO SCOPE FOR ANY CALCULATION OR RECALCULATION OF THE AMOUNT SHOWN AS PAYABLE IN THE CONTRACT. THE VERY OBJECTION OF INTRODUCING THE FICTION OF IN COME U/S 44BB IS TO AVOID ALL COMPLICATIONS IN DETERMINING THE LIABILITY OF A N ASSESSEE COMING UNDER THAT PROVISION. IF AN EXERCISE IS TO BE CONDUCTED IN EA CH ASSESSEES CASE TO ASCERTAIN THE LIABILITY OF TAXATION, THEN THE VERY PURPOSE OF THE SECTION WILL BE DEFEATED. IN OUR CONSIDERED VIEW, NO SUCH EXERCISE IS WARRANTED OR PERMISSIBLE IN THE SCHEME OF SECTION 44BB OF THE AC T. IN OUR CONSIDERED VIEW, THERE WAS NO TWO VIEWS POSSIBLE ON THIS ISSUE AND THE ASSESSING OFFICER HAS COMMITTED A MISTAKE WHICH HAS RENDERED THE ORDE R ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. WE ARE ALS O IN AGREEMENT WITH THE DIT THAT PROVISIONS OF SECTION 197 AND 195 ARE INTERIM AND PROVISIONAL PROCEEDINGS IN NATURE. THESE ARE ONLY FOR THE PURP OSE OF MAKING WITHHOLDING ITA NO.2456/DEL./2011 7 TAXES. THE REAL TAXABILITY OF THE RECEIPTS OR ANY SUM ON WHICH THE TAX HAS BEEN DEDUCTED CAN BE DETERMINED ONLY IN REGULAR ASSESSME NT PROCEEDINGS. IN OUR CONSIDERED VIEW, THE DIT HAS NOT SUBSTITUTED HIS OW N VIEW TO THE ASSESSING OFFICERS VIEW. THE ASSESSING OFFICER HAS NOT APPL IED HIS MIND IN VIEW OF THE PROVISION OF LAW. ASSESSING OFFICER HAD MADE A WRO NG PRESUMPTION OF FACT AS WELL OF LAW WHILE MAKING ORDER U/S 143(3) OF THE IN COME-TAX ACT. THE ASSESSEE ITSELF HAS OPTED FOR CALCULATING THE TAXAB LE INCOME AS PER THE PROVISIONS OF SECTION 44BB (1) AND IT IS INCUMBENT UPON THE ASSESSING OFFICER TO EXAMINE THE APPLICABILITY OF THE PROVISIONS IN T HE CORRECT PERSPECTIVE. THE FACTS OF THE CASE LAWS RELIED UPON BY THE ASSESSEE ARE AT VARIANCE TO THE FACTS OF THE ASSESSEES CASE, THEREFORE, THE RATIO LAID D OWN IN THOSE CASES COULD NOT BE APPLIED TO THE FACTS OF ASSESSEES CASE. FROM A LL THESE FACTS, WE FIND NO FAULT IN THE ORDER OF THE DIT, INTERNATIONAL TAXATI ON-II, NEW DELHI IN CANCELLING THE ORDER MADE BY THE ASSESSING OFFICER AND DIRECTING TO MAKE A FRESH ASSESSMENT AFTER PROVIDING OPPORTUNITY TO THE ASSESSEE. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THIS 11 TH DAY OF MAY, 2012. SD/- SD/- (RAJPAL YADAV) (B.C. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : THE 11 TH DAY OF MAY, 2012 TS ITA NO.2456/DEL./2011 8 COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.DIT, INTERNATIONAL TAXATION-II, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.