ADIT, Dehradun V. M/s. Midland Valley Exploration Ltd., Gurgaon

ITA 31/DEL/2012

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 4182 (ITAT-DELHI)
• Duration Of Justice: 6 year(s) 9 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 22-05-2017
• Assessment Year: 2006-2007
• Appeal Filed On: 03-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHIMA NEB
• Assessee Lawyers: HEMLATA RANGA; ABHMANYU JHAMBA
• Keywords: Principle of natural justice; Services rendered outside India; Permanent establishment

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E , NEW DELHI BEFORE SH. N. K. SAINI, HON BLE VICE PRESIDENT AND SH. K. N. CHARY , J UDICIAL M EMBER ITA NO. 31 /DEL/201 2 : ASSTT. YEAR : 2006 - 200 7 ASSTT. DIREC TOR OF INCOME TAX, INTERNATIONAL TAXATION, DEHRADUN VS MIDLAND VALLEY EXPLORATION LTD., UK, C/O S.R. BATLIBOI & CO., GOLF VIEW, CORPORATE TOWER B , SECTOR - 42, SECTOR ROAD, GURGAON - 122002 (APPELLANT) (RESPONDENT) PAN NO. A A ECM8477A ASSESSEE BY : SH. ABHMANYU JHAMBA , ADV. & MS. HEMLATA RANGA, ADV. REVENUE BY : MS. ASHIMA NEB, SR. DR DATE OF HEARING : 18 .10 .201 8 DATE OF PRONOUNCE MENT : 31 .10 .201 8 ORDER PER N. K. SAINI, VICE PRESIDENT : THIS IS AN APPEAL BY THE DEPARTMENT AGAINST THE ORDER DATED 03.10.2011 OF LD. CIT(A) - I I , DEHRADUN . 2. FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS APPEAL: I. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN HOLDING THAT THE INCOME EARNED BY THE ASSESSEE FROM SUPPLY OF SOFTWARE WAS NOT TAXABLE AS 'ROYALTY' IN TERMS OF THE PROVISIONS OF S ECTION 9(1 )(VI) OF THE ACT WHEN THE PAYMENT WAS MADE FOR THE USE OF SOFTWARE WHOSE COPY RIGHT WAS HELD BY THE A SSESSEE ESPECIALLY WHEN HE HAD ARRIVED AT THE FINDINGS THAT ONGC WAS USING THE SAID SOFTWARE (PARA 5.1) WHICH CAME WITHIN THE AMBIT OF 'USE' SIMPLICITOR OR 'RIGHT TO ITA NO . 31 /DE L/201 2 MIDLAND VALLEY EXPLORA TION LTD. 2 USE' ANY INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EQUIPMENT AS PER EXPLANATION 2 TO SECTION 9( 1 )(VI) OF THE ACT. II. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN HOLDING THAT THE SOFTWARE SUPPLIED BY THE ASSESSEE WAS A COPYRIGHTED SOFTWARE AND THAT WAS NO INDICATION THAT THE SOURCE CODE WAS TRANSFERRED TO M/S ONGC WH ICH IS CONTRARY TO THE FACTS OF THE CASE. III. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT (A) HAS ERRED IN HOLDING THAT THE INCOME OF THE ASSESSEE WAS TAXABLE UNDER THE PRESUMPTIVE PROVISIONS OF SEC 44BB AND IGNORING THE FACT THAT TAXABIL ITY UNDER SECTION 44BB SHALL NOT APPLY IN RESPECT OF INCOME REFERRED TO IN SECTION 44D/44DA OR WHERE PROVISIONS OF SECTION 115A OR 293 A APPLIED, IN VIEW OF THE CLARIFICATORY PROVISO TO SEC 44 BB AND SEC 44DA. IV. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN NOT APPRECIATING THE FACT THAT PROVISO TO SECTION 44DA BROUGHT ABOUT BY THE FINANCE ACT 2011 WAS ONLY CLARIFICATORY IN NATURE AND ITS APPLICATION HAS TO BE READ INTO MAIN PROVISIONS WITH EFFECT FROM TIME TO TIME THE MAIN PROVISION CAME IN TO EFFECT IN VIEW OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF SEDCO FOREX INTERNATIONAL DRILLING V/S COMMISSIONER OF INCOME - TAX . V. THE APPELLANT PRAYS FOR LEAVE TO ADD, AMEND, MODIFY OR ALTER ANY GROUNDS IF APPEAL AT THE TIME OR BEFORE THE HEARING OF THE APPEAL. 3. FROM THE ABOVE GROUNDS, IT IS GATHERED THAT THE ONLY ISSUE RAISED BY THE DEPARTMENT RELATES TO THE INCOME EARNED BY THE ASSESSEE FROM SUPPLY OF SOFTWARE. ITA NO . 31 /DE L/201 2 MIDLAND VALLEY EXPLORA TION LTD. 3 4. DURING THE COURSE OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE AT THE VERY OUTSET STATED THAT THIS ISSUE IS COVERED VIDE ORDER DATED 16.03.2018 OF THE ITAT DELHI BENCH F , NEW DELHI IN THE CASE OF DDIT, CIRCLE - 2(1), INTERNATIONAL TAXATION VS RPS ENERGY PTY. LTD. REPORTED AT (2018) 92 TAXMANN.COM 77 (COPY OF THE SAID ORDER WAS FURNISHED WHICH IS PLACED ON RECORD). IT WAS ALSO STATED THAT IN THE AFORESAID REFERRED TO CASE, THE JUDGMENT OF THE HON BLE SUPREME COURT IN THE CASE OF ONGC VS CIT REPORTED AT 376 ITR 306 WAS FOLLOWED AND THAT THE FACTS OF THE PRES ENT CASE ARE IDENTICAL TO THE FACTS INVOLVED IN THE AFORESAID REFERRED TO CASE OF RPS ENERGY PTY. LTD. 5. IN HER RIVAL SUBMISSIONS , THE LD. SR. DR ALTHOUGH SUPPORTED THE ORDER OF THE AO BUT COULD NOT CONTROVERT THE AFORESAID CONTENTION OF THE LD. COUNSEL F OR THE ASSESSEE. 6 . AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE PARTIES AND THE MATERIAL ON RECORD, IT IS NOTICED THAT THE LD. CIT(A) WHILE DECIDING THE ISSUE IN FAVOUR OF THE ASSESSEE OBSERVED IN PARA S 5 TO 7.1 AS UNDER: 5. THE ASSESSMENT ORDER AND I D. AR'S SUBMISSIONS HAVE BEEN CAREFULLY PERUSED. RIGHT AT THE OUTSET WHAT EMERGES MOST CLEARLY IS THAT THE SAID SOFTWARE HAS BEEN OBTAINED BY M/S ONGC FOR THE PURPOSES OF PROSPECTING FOR OR EXPLORATION OF MINERAL OILS. THERE IS A PROXIMATE NEXUS WITH THE A PPLICATION OF THE SOFTWARE SUPPLIED BY THE APPELLANT WITH MINERAL OILS EXPLORATION AS ENVISAGED U/S 44BB OF THE ACT. 5.1 IT IS ALSO OBSERVED FROM A READING OF THE CONTRACT DOCUMENTS THAT THE INSTANT SOFTWARE IS A HIGHLY SPECIALIZED TOOL FOR THE PROSPECTIN G OF MINERAL OILS WHOSE COPYRIGHT IS HELD BY THE APPELLANT. THERE IS NO INDICATION THAT THE 'SOURCE CODE' OF THE SOFTWARE IS TRANSFERRED TO ITA NO . 31 /DE L/201 2 MIDLAND VALLEY EXPLORA TION LTD. 4 M/S ONGC, RATHER THEY ARE MERELY ITS USERS. THUS, THE RECEIPTS CANNOT BE TERMED AS 'ROYALTY ' WITHIN THE MEANING OF S EC. 9(1 )(VI) OF THE ACT. THUS, TO THIS EXTENT THE APPELLANT'S CONTENTION IS ACCEPTABLE. THIS FINDING DISPOSES OF GROUND NUMBERS 2 AND 4 IN FAVOUR OF THE APPELLANT. 6. GROUND NO.3 CHALLENGES THE ORDER OF ID. AO ON THE GROUND THAT THE ID. AO NEVER REVEALED A NY INTENTION OF TREATING THE RECEIPTS AS ROYALTY. THUS, IT IS CONTENDED THAT THERE WAS DENIAL OF THE PRINCIPLES OF NATURAL JUSTICE. HOWEVER, THIS GROUND BECOMES ACADEMIC ONLY SINCE THE ID. AR HAS GOT AMPLE OPPORTUNITY TO CANVASS HIS POINT OF VIEW DURING AP PELLATE PROCEEDINGS. THUS, THIS GROUND DOES NOT SURVIVE AT THIS STAGE. 7. HOWEVER, IT IS SEEN TH AT THROUGH GROUND OF APPEAL NO. 1 THE APPELLANT HAS SPLIT THE RECEIPTS INTO TWO PARTS: - I ) FOR SERVICES RENDERED OUTSIDE INDIA; AND II ) FOR SERVICES RENDERED INSIDE INDIA. 7.1 HERE IT MAY BE MENTIONED THAT ONCE IT IS SEEN THAT THE SERVICES RENDERED OR GOODS SUPPLIED FALL WITHIN THE AMBIT OF SECTION 44BB OF THE ACT, THEN THE INTERPRETATION OF THIS SECTION BY THE HON'BLE JURISDICTIONAL HIGH COURT MUST BE FOLLOWED. THU S IN THE CASE OF CIT VS. R&B FALCON DRILLING CO. REPORTED IN 181 TAXMAN 62 (UK) IN PARA 6 OF THIS JUDGEMENT IT HAS BEEN HELD THAT THE AMOUNTS REFERRED TO IN 44BB(1) OF THE ACT ARE EXPLAINED IN 44BB(2) OF THE ACT AS THE SUM PAID OR PAYABLE, WHETHER IN OR OU TSIDE INDIA TO THE ASSESSEE OR TO ANY PERSON ON HIS BEHALF ON ACCOUNT OF PROVISION OF SERVICES AND FACILITIES IN CONNECTION WITH OR SUPPLY OF PLANT AND MACHINERY USED ON HIRE, OR TO BE USED IN THE PROSPECTING FOR OR EXTRACTION OR PRODUCTION OF MINERAL OILS IN INDIA. THIS CASE FOLLOWS THE RULING GIVEN IN THE CASE OF SEDCO FOREX INTL. INC. [299 ITR 238(UK)]. ALSO IN A RECENT CASE BEFORE THE HON'BLE AAR - NEW DELHI IN THE CASE OF WESTERN GECO INTERNATIONAL LTD. [AAR NO.938 OF 2010, JULY 25, 2011] IT HAS BEEN HE LD, FOLLOWING THE ABOVE MENTIONED CASE LAWS, THAT ONCE AN ASSESSEE OPTS TO COME UNDER SEC. 44BB(1) OF THE ACT, THE PROVISION ITSELF DEEMS ITS PROFITS AND GAINS AS 10% OF AGGREGATE OF AMOUNTS SPECIFIED IN SUBSECTION 2 OF 44BB OF THE ACT, I.E. AMOUNT PAID OR PAYABLE WHETHER IN OR OUT OF INDIA. THIS RULING HAS TREMENDOUS PERSUASIVE VALUE FOR THE MATTER AT HAND AND THUS FOLLOWING THE TWO CASE LAWS OF THE JURISDICTIONAL HIGH COURT AND ALSO ITA NO . 31 /DE L/201 2 MIDLAND VALLEY EXPLORA TION LTD. 5 THE AAR RULING CITED SUPRA, IT IS HELD THAT THE PROVISIONS OF SEC. 44BB O F THE ACT SHALL APPLY ON THE ENTIRE QUANTUM RECEIPTS EMANATING FROM THE CONTRACTS IN QUESTION ENTERED INTO BY M/S ONGC WITH THE APPELLANT, WHETHER PAID FOR SERVICES OR GOODS SUPPLIED IN INDIA OR OUTSIDE. 7 . FROM THE AFORESAID OBSERVATIONS, IT IS CLEAR TH AT THE LD. CIT(A) DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY FOLLOWING THE JUDGMENT, THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS R&B FALCON DRILLING CO. (SUPRA). 8. IT IS ALSO NOTICED THAT A SIMILAR ISSUE WAS ALSO A SUBJECT MATTER OF T HE DEPARTMENTAL APPEAL IN THE CASE OF DDIT, CIRCLE - 2(1), INTERNATIONAL TAXATION, NEW DELHI VS RPS ENERGY PTY. LTD. (SUPRA) WHEREIN VIDE PARAS 3 TO 3.3 , IT HAS BEEN HELD AS UNDER: 3. WE HAVE PERUSED THE SUBMISSIONS ADVANCED BY BOTH THE SIDES IN THE LIGHT O F THE RECORDS PLACED BEFORE US. 3.1 SECTION 44BB IS A SPECIAL PROVISION FOR COMPUTING PROFITS AND GAINS OF A NON - RESIDENT IN CONNECTION WITH BUSINESS OF PROVIDING SERVICES OR FACILITIES IN CONNECTION WITH, OR SUPPLYING PLANT AND MACHINERY ON HIRE, USED OR TO BE USED, IN THE PROSPECTING FOR OR EXTRACTION OR PRODUCTION OF MINERAL OILS, INCLUDING PETROLEUM AND NATURAL GAS. 3.2 SECTION 44DA APPLIES TO NON - RESIDENTS ONLY, HOWEVER IT IS BROADER AND MORE GENERAL IN NATURE AND PROVIDES FOR ASSESSMENT OF INCOME OF A NON - RESIDENT BY WAY OF ROYALTY OR FEES FOR TECHNICAL SERVICES WHERE SUCH NON - RESIDENT CARRIES ON BUSINESS IN INDIA THROUGH A PERMANENT ESTABLISHMENT SITUATED THEREIN OR PERFORMS SERVICES FROM A FIXED PLACE OF PROFESSION SITUATED IN INDIA AND THE RIGHT, PROPERTY OR CONTRACT IN RESPECT OF WHICH THE ROYALTIES OR FEES FOR TECHNICAL SERVICES ARE ITA NO . 31 /DE L/201 2 MIDLAND VALLEY EXPLORA TION LTD. 6 PAID IS EFFECTIVELY CONNECTED WITH THE PERMANENT ESTABLISHMENT OR FIXED PLACE OF PROFESSION. 3.3 ONE MORE PECULIAR DIFFERENCE BETWEEN SECTION 44DA AND 44BB IS THAT, IN SECTION 44 BB ONE DOES NOT FIND ANY REFERENCE TO A PERMANENT ESTABLISHMENT IN INDIA AND THE SERVICES CONTEMPLATED THEREIN ARE MORE SPECIFIC THAN WHAT IS CONTEMPLATED IN SECTION 44DA. 9. SINCE, THE FACTS OF THE PRESENT CASE ARE SIMILAR TO THE FACTS INV OLVED IN THE AFORESAID REFERRED TO CASE OF M/S RPS ENERGY PTY LTD. S O, RESPECTFULLY FOLLOWING THE SAID ORDER , WE DO NOT SEE ANY MERIT IN THIS APPEAL OF THE DEPARTMENT. 10 . IN THE RESULT, THE APPEAL OF THE DEPARTMENT IS DISMISSED. (ORDER PRON OU NCED IN T HE COURT ON 31 /10 /2018) SD/ - SD/ - ( K. N. CHARY ) (N. K. SAINI) JUDICIAL MEMBER VICE PRESIDENT DATED: 31 /10 /2018 *SUBODH* COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(APPEALS) 5 . DR: ITAT ASSISTANT REGISTRAR