R&B Falcon Pte. Ltd., New Delhi V. Addl. DIT, Dehradun

ITA 505/DEL/2013

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 69174 (ITAT-DELHI)
• Duration Of Justice: 6 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-08-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 25-07-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 28-01-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: POONAM KHAIRA SIDHU
• Keywords: Double taxation relief; Deemed to accrue or arise in india; Permanent establishment

Judgement Text

ITA NO.505/DEL/2013 ASSTT.YEAR: 2009-10 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH `F NEW DELHI BEFORE SHRI B.C.MEENA, ACCOUNTANT MEMBER AND SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER I.T.A.NO.505/DEL/2013 ASSESSMENT YEAR : 2009-10 R & B FALCON PTE. LTD., VS ADDL. DIT, C/O NANGIA & COMPANY, INTERNATIONAL TAXATION, SUITE 4A, PLAZA M-6, JASOLA, INCOME TAX OFFICE, NEW DELHI. SUBHASH ROAD, DEHRADUN. (PAN: AACCR5345Q) (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI AMIT ARORA RESPONDENT BY : MS POONAM KHAIRA SIDHU O R D E R PER CHANDRAMOHAN GARG, JUDICIAL MEMBER THIS APPEAL HAS BEE PREFERRED BY THE ASSESSEE AGAI NST THE ORDER OF THE COMMISSIONER OF INCOME TAX(A)-II, DEHRADUN DATED 05 .11.2012 IN APPEAL NO. 286/C.I.T.-II/2011-12 FOR AY 2009-10. 2. THE SOLE GROUND RAISED BY THE ASSESSEE IN THIS R EADS AS UNDER:- THAT THE LD. COMMISSIONER OF INCOME TAX(A) HAS ERRED ON FACTS AND IN LAW IN AFFIRMING THE ACTION O F THE A.O. IN HOLDING THAT THE AMOUNTS AGGREGATING TO RS.249,969,275/- RECEIVED BY THE APPELLANT FROM ITS CUSTOMERS AS REIMBURSEMENT OF ACTUAL EXPENSES INCUR RED BY THE APPELLANT ON THEIR BEHALF, IS TO BE INCLUDED IN THE ITA NO.505/DEL/2013 ASSTT.YEAR: 2009-10 2 GROSS RECEIPTS U/S 44BB OF THE INCOME TAX ACT, 1961 (THE ACT). 3. AT THE OUTSET OF THE ARGUMENT, LD. DR SUBMITTED A COPY OF THE JUDGMENT OF ITAT F BENCH IN ASSESSEES OWN CASE F OR AY 2008-09 WHEREIN THE ISSUE INVOLVED IN THE AFOREMENTIONED SO LE GROUND OF THE ASSESSEE HAS BEEN DECIDED IN FAVOUR OF THE REVENUE AND AGAIN ST THE ASSESSEE WITH FOLLOWING OBSERVATIONS:- 2. ADVERTING FIRST TO GROUND NOS.1 AND 2 IN THE AP PEAL, FACTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THAT E- RETURN DECLARING INCOME OF RS.32,00,13,901/- FILED ON29TH SEPTEMBER, 2008 BY THE ASSESSEE, AN AUSTRALIAN COMP ANY ENGAGED IN THE BUSINESS OF DRILLING RIGS AND ASSOCI ATED SERVICES AND FACILITIES FOR EXPLORATION AND EXPLORA TION OF MINERAL OILS WORLDWIDE, WAS SELECTED FOR SCRUTINY W ITH THE SERVICE OF A NOTICE U/S 143(2) OF THE INCOME-TAX AC T, 1961 (HEREINAFTER REFERRED TO AS THE ACT) ISSUED ON 1ST SEPTEMBER, 2009. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER (A.O. IN SHORT) NOTICED THAT THE ASSESSEE HAD A PERMANENT ESTABLISHMENT (PE ) IN INDIA THROUGH WHICH IT WAS CARRYING ON BUSINESS ACTIVITIES IN INDIA. SINCE THE ASSESSEE DID NOT CLA IM ANY BENEFIT UNDER THE RELEVANT DTAA NOR SUBMITTED ANY T AX RESIDENCY CERTIFICATE, THE AO ASSESSED THE INCOME O F THE ASSESSEE UNDER THE RELEVANT PROVISIONS OF THE ACT. THE ASSESSING OFFICER NOTICED, INTER ALIA, THAT THE ASS ESSEE RECEIVED CERTAIN REIMBURSEMENTS ON ACCOUNT OF FUEL RECHARGES BUT DID NOT INCLUDE THE SAME IN THE GROSS RECEIPTS FOR THE PURPOSE OF COMPUTATION OF TAX LIAB ILITY IN TERMS OF PROVISIONS OF SECTION 44BB OF THE ACT. TO A QUERY BY THE AO, THE ASSESSEE THOUGH SUBMITTED RELE VANT DETAILS OF REIMBURSEMENT BUT DID NOT REPLY AS TO WH Y THESE REIMBURSEMENTS WERE NOT INCLUDED IN THE GROSS RECEIPTS. HOWEVER, THE ASSESSEE PLEADED THAT THEIR INCOME ITA NO.505/DEL/2013 ASSTT.YEAR: 2009-10 3 WAS TO BE DETERMINED IN TERMS OF PROVISIONS OF SECT ION 44BB OF THE ACT. SINCE THE REIMBURSEMENT OF EXPENSE S WAS INEXTRICABLY LINKED TO THE SERVICES/ WORK RENDE RED BY THE ASSESSEE, THE AO TREATED THESE AMOUNTS AS PART OF THE TAXABLE GROSS RECEIPTS TOWARDS FEE FOR TECHNICAL SE RVICES. ACCORDINGLY, THE AO WHILE RELYING DECISION OF UTTARAKHAND. HIGH COURT IN THE CASE OF CIT VS. HALLIBURTON OFFSHORE SERVICES INC.,300 ITR 265 AND REFERRING TO VARIOUS OTHER DECISIONS; COMMISSIONER OF INCOME TAX VS. ATWOOD OCEANICS PACIFIC LTD.,2010-TI I- 12-HC-UTTARAKHAND,CIT VS. R & B FALCON DRILLING CO. (UTTRAKHAND HIGH COURT) (2009) TII-20-HC-UKHAND- INTL DATED APRIL 24, 2009; CIT VS. M/S SUNDOWNER OFFSHORE INTERNATIONAL BURMUDA LTD.(UTTRAKHAND HIGH COURT) 2009-TII-07-UKHAND-INTL) DATED FEBRUARY 16, 2009; CIT VS. M/S B.J. SERVICE CO. (UTTRAKHAND HIGH COURT) (2007-TII-05-HC-UKHAND- INTL) DATED OCTOBER 8, 2007; CIT VS. TRANS OCEAN OFFSHORE INCORPORATION (HIGH COURT OF UTTRAKHAND) (2007-TII-13-HC-UKHAND- INTL) DATED OCTOBER 8, 2007; M/S SEDCO FOREX INTERNATIONAL INC. VS. CIT, MEERUT (UTTRAKHAND HIGH COURT (2007)TII-02-HC-UKHAND-INTL) DATED SEPTEMBER 28, 2007 AND CIT VS. M/S HALLIBURTON OFFSHORE SERVI CE INC (UTTRAKHAND HIGH COURT) (2007-TII-04-HC-UKHAND- INTL) DATED SEPTEMBER 20, 2007, INCLUDED THE AMOUNT OF REIMBURSEMENTS TOWARDS FTS WHILE DETERMINING TAX LIABILITY OF THE ASSESSEE VIDE DRAFT ORDER DATED 30THDECEMBER, 2010. 3. THEREAFTER, THE ASSESSEE APPROACHED DRP CONTENDI NG, INTER ALIA, THAT THE AO ERRED IN HOLDING THAT PROVI SIONS OF SECTION 44BB OF THE ACT WERE NOT APPLICABLE IN THEI R CASE TO THE EXTENT THE ASSESSEE PROVIDED INTEGRATED SERV ICES FOR DRILLING OPERATIONS ON THE RIGS AND THAT REIMBURSEM ENT OF FUEL RECHARGE AGGREGATING TO RS. 257,840,586/- WAS NOT IN THE NATURE OF FEE FOR TECHNICAL SERVICES. INTER ALIA THE ASSESSEE FILED DETAILED WRITTEN SUBMISSIONS. AFTER CONSIDERING THE OBJECTIONS OF THE ASSESSEE, THE DRP VIDE THEIR ORDER DATED 12 TH SEPTEMBER, 2011 WHILE HOLDING THAT RECEIPTS UNDER DRILLING CONTRACT WERE TAXABLE U/S 4 4BB OF ITA NO.505/DEL/2013 ASSTT.YEAR: 2009-10 4 THE ACT AND NOT AS FEE FOR TECHNICAL SERVICES, CONC LUDED ON THE ISSUE OF INCLUSION OF REIMBURSEMENTS TOWARDS FUEL RECHARGES, AS UNDER:- 5.OBJECTION NO.2: THIS GROUND RELATES TO ASSESSING OFFICERS PROPOSAL TO TAX THE REIMBURSEMENT OF FUEL AND MATER IAL RECHARGE ASFEES FOR TECHNICAL SERVICE. THE PANEL HAS CO NSIDERED THE SUBMISSIONS MADE. IT IS NOTED THAT THIS ISSUE HAS B EEN DECIDED INFAVOUR OF THE DEPARTMENT BY THE JURISDICTIONAL HI GH COURT IN THECASE OF HALLIBURTON OFFSHORE SERVICE INC (300 IT R 265) WHEREIN IT HAS BEEN HELD THAT REIMBURSEMENT OF EXPE NDITURE IS INCLUDIBLE IN THE TAXABLE INCOME U/S 44BB. IT HAS B EEN STATED BY THE ASSESSEE THAT SUBSEQUENT TO THE ABOVE DECISION THE UTTARKHAND HIGH COURT HAS DECIDED THE MATTER IN FAV OUR OF THE ASSESSEE IN THE CASE OF SCHLUMBERGER ASIA SERVICES LTD. (317 ITR 156). HOWEVER AS THE APPEALS OF THE ASSESSEE AN D DEPARTMENT ARE PENDING IN ABOVE CASES BEFORE THE SU PREME COURT THE VARIATION PROPOSED BY THE ASSESSING OFFIC ER ON THIS ISSUE IS CONFIRMED. HOWEVER, AS IT HAS BEEN HELD AB OVE THAT THE INCOME OF THE ASSESSEE IS TO BE TAXED U/S 44BB AND NOT UNDER THE HEAD FEES FOR TECHNICAL SERVICES THE REIMBURSEM ENT OF EXPENSES IS TO BE TAXED AT THE RATE OF 10% OF THE G ROSS RECEIPTS U/S 44BB. 3.1 IN THE LIGHT OF AFORESAID DIRECTIONS OF THE DRP , THE AO FINALIZED THE ASSESSMENT VIDE ORDER DATED 21.10. 2011. 4. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAIDFINDINGS OF THE AO IN THE LIGHT OF THE DIR ECTIONS OF THE DRP IN GROUND NOS.1 AND 2 OF THE APPEAL. AT THE OUTSET, BOTH THE PARTIES AGREED THAT THE ISSUE IS S QUARELY COVERED BY THE DECISION OF HONBLE JURISDICTIONAL H IGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. HALLIBURTON OFFSHORE SERVICES INC. ,300 ITR 265(UTTARAKHAND). 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THECASE. WE FIND THAT HONBLE JURISDICTION AL HIGH COURT IN THEIR AFORESAID DECISION HALLIBURTON OFFSH ORE ITA NO.505/DEL/2013 ASSTT.YEAR: 2009-10 5 SERVICES INC. (SUPRA) WHILE ADJUDICATING AN IDENTIC AL ISSUE CONCLUDED AS UNDER:- 5. SEC. 44BB PROVIDES THAT THE DEEMED PROFITS AND GAINS UNDER SUB-S. (1) SHALL BE @ 10 PER CENT OF THE AGGREGATE AMOUNT SPECIFIED IN SUB-S. (2). WE PROCEED TO ANALYZE SUB- S. (2). CLAUSE (A) OF SUB-S. (2) REFERS TO THE AMOUNTS, (A) PAID TO THE ASSESSEE (WHETHER IN OR OUT OF INDIA) ON ACCOUNT OF THE PROVISION OF SERVICES AND FACILITIES IN CONNECTION WITH, OR SUPPLY OF PLANT AND MACHINERY ON HIRE USED, OR TO BE USED, IN THE PROSPECTING FOR, OR EXTRACTION OR PRODUCTION OF, MI NERAL OILS IN INDIA, AND (B) PAYABLE TO THE ASSESSEE (WHETHER IN OR OUT OF INDIA) ON ACCOUNT OF THE PROVISION OF SERVICES AND FACILITIES IN CONNECTION WITH, OR SUPPLY OF PLANT AND MACHINERY O N HIRE USED, OR TO BE USED, IN THE PROSPECTING FOR, OR EXTRACTIO N OR PRODUCTION OF, MINERAL OILS IN INDIA. CLAUSE (B) OF SUB-S. (2) REFERS TO THE AMOUNTS, (A) RECEIVED BY ASSESSEE IN INDIA ON ACCOU NT OF THE PROVISION OF SERVICES AND FACILITIES IN CONNECTION WITH, OR SUPPLY OF PLANT AND MACHINERY ON HIRE USED, OR TO BE USED, IN THE PROSPECTING FOR, OR EXTRACTION OR PRODUCTION OF, MI NERAL OILS OUTSIDE INDIA, AND (B) DEEMED TO BE RECEIVED BY THE ASSESSEE IN INDIA ON ACCOUNT OF THE PROVISION OF SERVICES AN D FACILITIES IN CONNECTION WITH, OR SUPPLY OF PLANT AND MACHINERY O N HIRE USED, OR TO BE USED, IN THE PROSPECTING FOR, OR EXTRACTIO N OR PRODUCTION OF MINERAL OILS OUTSIDE INDIA. 6. THUS, IT IS CLEAR FROM THE PERUSAL OF S. 44BB TH AT ALL THE AMOUNTS EITHER PAID OR PAYABLE (WHETHER IN INDIA OR OUTSIDE INDIA) OR RECEIVED OR DEEMED TO BE RECEIVED(WHETHER IN INDIA OR OUTSIDE INDIA) ARE MUTUALLY INCLUSIVE. THIS AMOUNT IS THE BASIS OF DETERMINATION OF DEEMED PROFITS AND GAINS OF THE ASSESSEE @ 10 PER CENT. THEREFORE, IN OUR VIEW, THE TRIBUNAL FELL INTO ERROR IN NOT APPRECIATING THE DIFFERENCE BETWEEN THE AMOU NT AND THE INCOME. AMOUNT PAID OR RECEIVED REFERS TO THE TOTAL PAYMENT TO THE ASSESSEE OR PAYABLE TO THE ASSESSEE OR DEEMED T O BE RECEIVED BY THE ASSESSEE, WHEREAS INCOME HAS BEEN D EFINED UNDER S. 2(24) OF THE IT ACT AND S. 5 AND S. 9 DEAL WITH THE INCOME AND ACCRUED INCOME AND DEEMED INCOME. SEC. 4 IS THE CHARGING SECTION OF THE IT ACT AND DEFINITION AS WE LL AS THE INCOMES REFERRED IN SS. 5 AND 9 ARE FOR THE PURPOSE OF IMPOSING ITA NO.505/DEL/2013 ASSTT.YEAR: 2009-10 6 THE INCOME-TAX UNDER S. 143 (3). SEC. 44BB IS A COM PLETE CODE IN ITSELF. IT PROVIDES BY A LEGAL FICTION TO BE THE PROFITS AND GAINS OF THE NON-RESIDENT ASSESSEE ENGAGED IN THE BUSINES S OF OIL EXPLORATION @ 10 PER CENT OF THE AGGREGATE AMOUNT S PECIFIED IN SUB-S. (2). IT IS NOT IN DISPUTE THAT THE AMOUNT HA S BEEN RECEIVED BY THE ASSESSEE COMPANY. THEREFORE, THE AO ADDED THE SAID AMOUNT WHICH WAS RECEIVED BY THE NON-RESID ENT COMPANY RENDERING SERVICES AS PER PROVISIONS OF S. 44BB TO THE ONGC AND IMPOSED THE INCOME-TAX THEREON. 5.1 MOREOVER, A CO-ORDINATE BENCH IN THEIR DECISION DATED 13.12.2010 IN THE ASSESSEES OWN CASE IN CO NO.251/DEL./2010 WHILE ADJUDICATING AN IDENTICAL IS SUE IN RELATION TO REIMBURSEMENTS TOWARDS HELICOPTER RECHA RGE, FOLLOWED THE DECISION OF HONBLE UTTARAKHAND HIGH COURT IN SEDCO FOREX INTERNATIONAL INC. VS. CIT,299 ITR 238 AND DISMISSED THE CO FILED BY THE ASSESSEE WHIL E UPHOLDING THE FINDINGS OF THE LD. CIT(A) THAT THE REIMBURSEMENTS TOWARDS HELICOPTER RECHARGE IS EXIGI BLE TO TAX IN TERMS OF PROVISIONS OF SEC. 44B OF THE AC T. 5.2 IN THE LIGHT OF VIEW TAKEN BY THE HONBLE JURISDICTIONAL HIGH COURT IN THEIR AFORESAID DECISI ONS, ESPECIALLY WHEN THE LD. AR ACCEPTED THE POSITION TH AT THE ISSUE IS SQUARELY COVERED BY THE AFORESAID DECISION WHILE NO OTHER CONTRARY DECISION WAS BROUGHT TO OUR NOTIC E NOR THE LD. AR PLACED ANY MATERIAL BEFORE US, CONTROVER TING THE AFORESAID FINDINGS OF THE DRP AND THE AO, WE HA VE NO HESITATION IN UPHOLDING THE FINDINGS OF THE AO I N THE LIGHT OF DIRECTIONS OF THE DRP IN PARA 5 OF THEIR O RDER DATED 12TH SEPTEMBER, 2011. IN VIEW THEREOF, GROUND NOS. 1 & 2 IN THE APPEAL ARE DISMISSED. 4. THE ASSESSEES REPRESENTATIVE SUBMITTED THAT THE ASSESSEE HAS PREFERRED AN APPEAL BEFORE THE JURISDICTIONAL HIGH COURT OF U TTARAKHAND IN THIS REGARD BUT HE FAIRLY CONCEDED THAT THE ORDER OF COORDINATE BENCH OF THE TRIBUNAL STILL HOLDS FIELD BECAUSE THE SAME HAS NOT BEEN SET ASIDE OR MODIFIED BY THE ITA NO.505/DEL/2013 ASSTT.YEAR: 2009-10 7 HONBLE HIGHER APPELLATE FORUM TILL DATE. IN VIEW OF ABOVE, WE OBSERVE THAT THE PRESENT CASE IS ALSO SQUARELY COVERED BY THE AB OVE JUDGMENT OF ITAT DELHI F BENCH DATED 27.4.2012 IN ITA NO. 5287/DEL /2011 FOR AY 2008-09 (SUPRA) AND THE SOLE GROUND OF THE ASSESSEE DESERVE S TO BE DECIDED AGAINST THE ASSESSEE. THE ASSESSEES REPRESENTATIVE HAS PL ACED HIS RELIANCE ON THE JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT OF UTTARAKHAND I N THE CASE OF HALIBURTON OFFSHORE SERVICE INC (2008) 300 ITR 265 (UTTARAKHAND) WHEREIN IT HAS BEEN HELD THAT THE AGGREGATE AMOUNT RECEIVED BY NON-RESIDENT ASSESSEE IS CHARGEABLE TO TAX U/S 4 4BB OF THE ACT AT 10% WITHOUT ANY DEDUCTION LIKE FREIGHT AND TRANSPORTATI ON CHARGES. THE LD. DR CONTENDED THAT THE HONBLE HIGH COURT OF UTTARAKHAN D HAS CONSIDERED THE SCHEME OF PRESUMPTIVE DETERMINATION U/S 44BB OF THE ACT AND HAS HELD THAT THIS SECTION IS A COMPLETE CODE IN ITSELF AND PROVI DES FOR TAXATION OF ALL RECEIPTS WHETHER ARISING IN INDIA OR OUTSIDE. THUS , FOR THE PURPOSE OF PRESUMPTIVE DETERMINATION OF ASSESSEES PROFITS, QU ANTUM OF AMOUNT RECEIVED BY IT FROM ITS CUSTOMERS AGAINST ITS REIMB URSEMENT OF FUEL AND MATERIAL RECHARGE, WHICH ARE INTRICATELY LINKED TO THE SERVICES WERE RENDERED BY THE ASSESSEE AND INCURRED BY IT, HAS TO BE CONSI DERED AS A PART OF THE RECEIPT FOR THE PURPOSES OF COMPUTATION OF INCOME U /S 44B OF THE ACT. ITA NO.505/DEL/2013 ASSTT.YEAR: 2009-10 8 5. IN THE LIGHT OF DISCUSSIONS MADE HEREINABOVE AND WHEN THE LD. AR ACCEPTED THE POSITION THAT THE ISSUE IS SQUARELY CO VERED BY THE AFORESAID DECISION WHILE NO OTHER CONTRARY DECISION WAS BROUG HT TO OUR NOTICE NOR LD. AR PLACED ANY CONTRARY MATERIAL BEFORE US CONTROVER TING THE AFORESAID FINDINGS OF THE ASSESSING OFFICER, WE HAVE NO HESIT ATION IN UPHOLDING THE FINDINGS OF THE ASSESSING OFFICER. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DIS MISSED. DECISION PRONOUNCED IN THE OPEN COURT ON 16/8/13. SD/- SD/- ( B.C. MEENA ) (CHANDRA MOHAN GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER DT. 16TH AUGUST 2013 GS COPY FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR BY ORDER DEPUTY REGISTRAR