BOURBON OFFSHORE, NEW DELHI V. DDIT (IT) 3(2), MUMBAI

ITA 2938/MUM/2014

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2975 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 29-04-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: NEERAJ AGRAWAL
• Section: 234B; 260A

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B, MUMBAI , , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NO.2938/MUM/2014 ASSESSMENT YEAR 2010-11 M/S BOURBON OFFSHORE, C/O-NANGIA & COMPANY, SUITE-4A, PLAZA M-6, JASOLA NEW DELHI-110025 / VS. DEPUTY DIRECTOR OF INCOME TAX, INTERNATIONAL TAXATION-3(2), MUMBAI ( !' # /ASSESSEE) ( $ / REVENUE) PAN. NO. AADCB7150J !' # / ASSESSEE BY SHRI NEERAJ AGRAWAL $ / REVENUE BY SHRI RANDHIR GUPTA-DR $% & # ' / DATE OF HEARING : 21/10/2015 & # ' / DATE OF ORDER: 21/10/2015 / O R D E R PER JOGINDER SINGH (JUDICIAL MEMBER) THE ASSESSEE IS AGGRIEVED BY THE IMPUGNED ORDER DA TED 02/01/2014 OF THE LD. FIRST APPELLATE AUTHORITY, MU MBAI, UPHOLDING THE AGGREGATE AMOUNTS OF RS.40,721,042/- RECEIVED BY THE ASSESSEE, ON ACCOUNT OF MOBILIZATIO N OF THE TRANSPORT OF VESSELS OUTSIDE INDIAN TERRITORIAL WAT ERS, WHICH IS M/S BOURBON OFF SHORE ITA NO.2938/MUM/2014 2 TO BE INCLUDED IN THE GROSS RECEIPT U/S 44BB OF THE INCOME TAX ACT, 1961 (HEREINAFTER THE ACT). 2. DURING HEARING OF THIS APPEAL, THE LD. DR, SHRI RANDHIR GUPTA, AT THE OUTSET, CLAIMED THAT THE IMPU GNED ISSUE IS COVERED AGAINST THE ASSESSEE BY THE ORDER OF THE HONBLE UTTARAKHAND HIGH COURT IN 200 ITR 265 (UK) AND ALSO IN THE CASE OF CIT VS TRANS OCEAN OFFSHORE INC . (2008) 299 ITR 248 (UK). THIS FACTUAL MATRIX WAS NOT CONTR OVERTED BY THE LD. COUNSEL FOR THE ASSESSEE, SHRI NEERAJ AG RAWAL. 2.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN VIEW O F THE ABOVE, WE ARE REPRODUCING HEREUNDER THE RELEVANT PO RTION FROM THE AFORESAID ORDER DATED 08/10/2007 IN THE CA SE OF TRANS OCEAN OFFSHORE INC. FOR READY REFERENCE:- THIS INCOME-TAX APPEAL HAS BEEN FILED UNDER SECTIO N 260A OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS ' THE ACT' ) CHALLENGING THE ORDER DATED SEPTEMBER 23, 2005, PAS SED BY THE INCOME-TAX APPELLATE TRIBUNAL, DELHI BENCH ' D', NE W DELHI (FOR SHORT, THE ITAT) IN I.T. A. NO. 3922/DEL./2000 FOR THE ASSESSMENT YEAR 1997-98, WHEREBY THE INCOME-TAX APPELLATE TRIB UNAL HAS MODIFIED THE ORDER PASSED BY THE ASSESSING OFFICER AND AFFIRMED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) ON TWO ISSUES, FIRSTLY, THAT THE AMOUNT WORTH RS. 5,88,30,840 WAS TAKEN TO BE THE BASIS FOR DETERMINING THE DEEMED PROFITS AND GA INS UNDER SUB-SECTION (1) OF SECTION 44BB OF THE ACT AT 1 PER CENT. IN VIEW OF THE CIRCULAR NO. 1767 ISSUED BY THE CENTRAL BOARD O F DIRECT TAXES AS THIS AMOUNT WAS RECEIVED BY THE ASSESSEE AS MOBI LIZATION CHARGES FOR MOBILIZING THE VESSEL WITH A WELL EQUIP PED RIG TO ENRON OIL AND GAS (INDIA) LTD., AN INDIAN COMPANY. THEREF ORE, THE M/S BOURBON OFF SHORE ITA NO.2938/MUM/2014 3 MOBILIZATION CHARGES WERE FOR THE ACTIVITIES CARRIE D ON OUTSIDE INDIA. 2. SECONDLY, THE INTEREST LEVIED BY THE ASSESSING O FFICER UNDER SECTION 234B OF THE ACT WOULD BE CONSEQUENTIAL TO T HE DECISION THAT ONLY 1 PER CENT OF THE MOBILIZATION CHARGES FO R TRANSPORTATION OF THE VESSEL OUTSIDE THE TERRITORIAL WATERS OF IND IA WOULD BE TAXABLE. 3. THE ASSESSEE, A NON-RESIDENT COMPANY, EXECUTED A CONTRACT WITH ENRON OIL AND GAS (INDIA) LTD. (HEREINAFTER RE FERRED TO AS 'ENRON', AS REFERRED IN THE IMPUGNED JUDGMENT) FOR PROVISION OF A WELL EQUIPPED RIG AND PERFORMING DRILLING OPERATION S IN CONNECTION WITH OIL AND GAS EXPLORATION IN THE TAPTI BASIN ARE A IN INDIA. THE RETURN FOR THE ASSESSMENT YEAR 1997-98 WAS FILED BY THE ASSESSEE-COMPANY SHOWING TOTAL GROSS REVENUES AND T AXABLE INCOME EARNED BY THE ASSESSEE AS UNDER : XXXXXXXXXXXXXXXXXXX 4.THE ASSESSEE FILED AN APPEAL BEFORE THE COMMISSIO NER OF INCOME-TAX (APPEALS), WHICH WAS DISMISSED AND THE O RDER OF THE ASSESSING OFFICER WAS AFFIRMED. 5. FEELING AGGRIEVED BY THE AFORESAID ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS), THE ASSESSEE PREFERRED A S ECOND APPEAL BEFORE THE INCOME-TAX APPELLATE TRIBUNAL AND THE IN COME-TAX APPELLATE TRIBUNAL ALLOWED THE APPEAL OF THE ASSESS EE IN THE TERMS STATED ABOVE. 6. IN THE AFORESAID FACTS AND CIRCUMSTANCES, THE FO LLOWING QUESTIONS ARISE FOR CONSIDERATION BY THIS COURT : ' (I) WHETHER THE INCOME-TAX APPELLATE TRIBUNAL WAS LEGALLY JUSTI FIED IN LAW AND ON FACTS IN HOLDING THAT MOBILIZATI ON CHARGES SHOULD NOT BE TAXED AT 10% AS PROVIDED UNDER SECTIO N 44BB ? (II) WHETHER THE INCOME-TAX APPELLATE TRIBUNAL WAS LEGALLY JUSTIFIED IN LAW AND ON FACTS IN TAKING COGNIZANCE OF INSTRUCTION NO. 1767 DATED JULY 1, 1987, WHEN IT HAD NO APPLICA BILITY FOR THE ASSESSMENT YEAR UNDER CONSIDERATION ? (III) WHETHER THE INCOME-TAX APPELLATE TRIBUNAL WAS LEGALLY JUSTI FIED IN LAW AND ON FACTS IN HOLDING THAT INTEREST U NDER SECTION 234B WAS NOT LEVIABLE WHEN THERE WAS NO DEBATABLE I SSUE AT ALL ?' M/S BOURBON OFF SHORE ITA NO.2938/MUM/2014 4 7. IN INCOME-TAX APPEAL NO. 280 OF 2001 (SEDCO FORE X INTERNATIONAL INC. V. CIT [2008] 299 ITR 238 , A DIVISION BENCH OF THIS COURT HAVE HELD THAT MOBILIZATION CHARGES ARE LIABLE TO BE TAKEN INTO AC COUNT AS AMOUNT REFERRED UNDER SUB-SECTION (2) OF SECTION 44 BB OF THE ACT AND OF THE SAID AMOUNT, 10 PER CENT. SHALL BE THE D EEMED INCOME FOR LEVY OF TAX. 8. THE INCOME-TAX APPELLATE TRIBUNAL HAS WRONGLY AP PLIED CIRCULAR NO. 1767 ISSUED BY THE CENTRAL BOARD OF DIRECT TAXE S ON JULY 1, 1987, FOR TWO REASONS, FIRSTLY, AS THE CIRCULAR HAD A FIXED LIFE OF THREE YEARS FROM THE ASSESSMENT YEAR 1987-88, WHICH EXPIRED IN THE ASSESSMENT YEAR 1990-91. SECONDLY, THE TENURE O F THE SAID CIRCULAR OF THE CENTRAL BOARD OF DIRECT TAXES IS RE LATING TO ACTIVITY OF PURCHASES MADE BY THE INDIAN COMPANY OUTSIDE IND IA BY WAY OF PLATFORM, RIG OR OTHER FACILITY FABRICATED BY TH E FOREIGN CONTRACTOR AS PER THE SPECIFIC REQUIREMENT OF THE I NDIAN COMPANY ORGANIZATION OUTSIDE INDIA. IT DOES NOT REFER TO MO BILIZATION CHARGES. 9. A PERUSAL OF THE CIRCULAR SHOWS THAT THE CENTRAL BOARD OF DIRECT TAXES HAD PROVIDED THAT 1 PER CENT. OF THE RECEIPT BY THE FOREIGN COMPANY ON PURCHASE OF EQUIPMENTS BY WAY OF PLATFOR M, RIG OR ANY OTHER FACILITY FABRICATED OUTSIDE INDIA SHALL B E APPLIED TO DETERMINE THE DEEMED PROFITS AND GAINS UNDER SECTIO N 44BB OF THE ACT. 10. THE CENTRAL BOARD OF DIRECT TAXES IS COMPETENT TO ISSUE THE CIRCULARS UNDER SECTION 119 OF THE ACT IN THE FORM OF GUIDELINES OR PRINCIPLES OR PROCEDURES TO BE FOLLOWED BY THE INCO ME-TAX AUTHORITIES RELATING TO ASSESSMENT OR CALCULATION O F REVENUE. THE CENTRAL BOARD OF DIRECT TAXES EXERCISES THE DELEGAT ED POWER WHICH HAS BEEN DESCRIBED UNDER SECTION 119 OF THE A CT. THE CENTRAL BOARD OF DIRECT TAXES HAS NOT BEEN EMPOWERE D TO FIX THE PERCENTAGE FOR CALCULATING THE DEEMED PROFIT UNDER SECTION 44BB OF THE ACT. SECTION 44BB ITSELF PROVIDES THAT THE A GGREGATE OF THE AMOUNTS REFERRED TO UNDER ITS SUB-SECTION (2) SHALL BE TAKEN INTO ACCOUNT AND 10 PER CENT. THEREOF SHALL BE THE DEEME D INCOME ON WHICH TAX SHALL BE LEVIED. THUS, THE CIRCULAR SUFFE RS FROM VICE AND EXCESSIVE DELEGATION AND IS VOID. (RELIANCE IS PLAC ED BY US ON THE PRINCIPLES LAID DOWN BY THE HON' BLE APEX COURT IN STATE BANK OF TRAVANCORE V. CIT REPORTED IN [1986] 158 ITR 102 WHEREIN IT HAS BEEN HELD THAT CIRCULARS WHICH ARE EXECUTIVE IN CHA RACTER CANNOT ALTER THE PROVISIONS OF THE ACT.) M/S BOURBON OFF SHORE ITA NO.2938/MUM/2014 5 11. THUS, THE FINDING RECORDED BY THE INCOME-TAX AP PELLATE TRIBUNAL THAT ONE PER CENT. SHALL BE THE DEEMED PRO FITS AND GAINS OF THE AMOUNT WORTH RS. 5,88,30,840 PERTAINING TO O UTSIDE INDIA ACTIVITY IS LIABLE TO BE SET ASIDE AND IS HEREBY SE T ASIDE. THE ASSESSING OFFICER AS WELL AS THE COMMISSIONER OF IN COME-TAX (APPEALS) HAS RIGHTLY CALCULATED THE DEEMED PROFITS AND GAINS AT 10 PER CENT. OF MOBILIZATION CHARGES AT RS. 5,88,30 ,840 AND THE SAME IS UPHELD. 12. THEREFORE, THE FINDING OF THE INCOME-TAX APPELL ATE TRIBUNAL TO LEVY THE INTEREST AS A CONSEQUENCE TO ITS DECISION ONLY ON THE ONE PER CENT. AMOUNT OF THE MOBILIZATION CHARGES IS ALS O SET ASIDE AND THE ORDER OF THE ASSESSING OFFICER AND THE COMMISSI ONER OF INCOME-TAX (APPEALS) ARE AFFIRMED ON THIS POINT ALS O. ACCORDINGLY, THE APPEAL IS ALLOWED. ALL THE THREE QUESTIONS ARE ANSWERED IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE. 2.2. IF THE TOTALITY OF FACTS ARE ANALYZED BY KEEP ING THEM IN JUXTAPOSITION WITH THE AFORESAID DECISION FROM H ONBLE HIGH COURT OF UTTARAKHAND, WE NOTE THAT WHILE COMIN G TO A PARTICULAR CONCLUSION, THE HONBLE COURT DULY CONSI DERED THE DECISION IN THE CASE OF SEDCO FOREX INTERNATIONAL I NC VS CIT (2008) 299 ITR 238 (UTTARAKHAN) AND STATE BANK OF TRAVANCORE VS CIT (1986) 158 ITR 102 (SC) (PARA-10) , BY HOLDING THAT CIRCULARS CANNOT ALTER PROVISIONS OF T HE ACT (CIRCULAR NO.1767 DATED 01/07/1987). IT WAS HELD T HAT THE CBDT HAS NOT EMPOWERED TO FIX THE PERCENTAGE FOR CALCULATING THE DEEMED PROFIT U/S 44BB OF THE ACT A ND DECLARED THE AFORESAID CIRCULAR VOID. IT IS ALSO NO TED THAT SECTION 44BB OF THE ACT, ITSELF PROVIDES THAT AGGRE GATE OF THE AMOUNT REFERRED TO UNDER ITS SUB-SECTION (2) SHALL BE TAKEN INTO ACCOUNT AND 10%, THEREOF, SHALL BE DEEMED INCO ME ON WHICH TAX SHALL BE LEVIED. IN THE PRESENT APPEAL AL SO, THE ASSESSEE ENGAGED IN THE BUSINESS OF PROVIDING FACIL ITIES AND M/S BOURBON OFF SHORE ITA NO.2938/MUM/2014 6 SERVICES IN CONNECTION WITH EXPLORATION, EXPLOITATI ON AND PRODUCTION OF MINERAL OIL IN INDIA. THE GROUND RAIS ED BEFORE US ARE ALSO WITH RESPECT TO MOBILIZATION CHARGES, R ECEIVED BY THE ASSESSEE, WHICH IS CLAIMED TO BE NOT CHARGEABLE TO TAX AND OFFERED THE AMOUNT UNDER THE PROVISION OF SECTI ON 44BB OF THE ACT. THE LD. COUNSEL FOR THE ASSESSEE FAIRL Y AGREED THAT THE FACTS AND THE ISSUE INVOLVED IN THE PRESENT APP EAL IS IDENTICAL. IN VIEW OF THE ABOVE, THE APPEAL OF THE ASSESSEE IS DISMISSED. FINALLY, THE APPEAL OF THE ASSESSEE IS DISMISSED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF LD. REPRESENTATIVES FROM BOTH SIDES AT THE CONCLUSION OF THE HEARING ON 21/10/2015. SD/- SD/- ( RAJESH KUMAR ) (JOGINDER SINGH) '# / ACCOUNTANT MEMBER $# / JUDICIAL MEMBER % MUMBAI; ( DATED : 21/10/2015 F{X~{T? P.S/. . . %$&'()(*& / COPY OF THE ORDER FORWARDED TO : 1. *+,- / THE APPELLANT 2. ./,- / THE RESPONDENT. 3. 0 0 1# ( *+ ) / THE CIT, MUMBAI. 4. 0 0 1# / CIT(A)- , MUMBAI 5. 3$4 .# , 0 *+' * 5 , % / DR, ITAT, MUMBAI 6. 6! 7% / GUARD FILE. / BY ORDER, /3+# .# //TRUE COPY// / (DY./ASSTT. REGISTRAR) , % / ITAT, MUMBAI.