Pride Offshore International LLC (Presently known as Ensco Offshore International LLC), New Delhi V. Addl. DIT, Dehradun

ITA 5406/DEL/2012

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0057 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 6 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-05-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 17-02-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 23-10-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJEEV SHARMA
• Assessee Lawyers: VIDUR PURI CA SHR I BALDEV RAJ
• Keywords: Advance ruling
• Section: 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH A: NEW DELHI) BEFORE SHRI I. C. SUDHIR, JUDICIAL MEMBER AND SHRI T. S. KAPOOR, ACCOUNTANT MEMBER ITA NO.5406/DEL/ 2012 (ASSESSMENT YEAR: 2008-09) PRIDE OFFSHORE INTERNATIONAL LLC VS. ADDL. DIT (PRESENTLY KNOWN AS ENSCO OFFSHORE INTERNATIONAL TAXATION, INTERNATIONAL LLC), AAYAKAR BHAWAN, 13A, C/O S.P. PURI & CO. SUBHASH ROAD, 4/18, ASAF ALI ROAD, DEHRADUN. NEW DELHI. (PAN AAECP6665P) (APPELLANT) (RESPONDENT) ASSESSEE BY :SHRI VIDUR PURI, CA, SHR I BALDEV RAJ, CA REVENUE BY : SHRI SANJEEV SHARMA, CIT. DR DATE OF HEARING: 25. 03.2015 DATE OF PRONOUNCEMENT: 22.05.20 15 ORDER PER I. C. SUDHIR, JUDICIAL MEMBER: THE ASSESSEE HAS QUESTIONED ASSESSMENT ORDER ON TH E FOLLOWING GROUNDS:- 1. THE LEARNED ASSESSING OFFICER ERRED IN LAW AND ON FACTS IN HOLDING THAT THE ASSESSEE IS NOT ELIGIBLE FOR BENEFIT OF SE CTION 44BB OF THE INCOME TAX ACT AND TREATED THE PAYMENT RECEIVED BY THE ASSESSEE FROM LEASING OF OIL DRILLING RIG AS ROYALTY AS PER ARTICLE 12 OF INDIA- USA DOUBLE TAX AVOIDANCE TREATY. ITA NO. 5406/DEL/2012 2 2. THE LEARNED ASSESSING OFFICER ERRED IN LAW IN CHARG ING INTEREST U/S 234B & 234C, WHEN THERE WAS NO OBLIGATION FOR ADVAN CE TAX ,AS INCOME RECEIVED BY THE ASSESSEE WAS SUBJECT TO TAX DEDUCTION AT SOURCE AND TAX WAS ALSO DEDUCTED IN ACCORDANCE WITH ORDER PASSED UNDER SECTION 195 OF THE INCOME TAX ACT. 3. THE LEARNED ASSESSING OFFICER ERRED IN LAW BY CHARG ING SURCHARGE AND EDUCATION CESS ON INCOME TAX RATE IN EXCESS OF THE MAXIMUM RATE OF TAX PRESCRIBED UNDER ARTICLE 12 OF INDIA-US A DOUBLE TAX AVOIDANCE TREATY. 4. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, MODIFY, D ELETE AND OR CHANGE ALL OR ANY OF THE GROUND ON OR BEFORE THE DA TE OF HEARING. THE LEARNED ASSESSING OFFICER ERRED IN LAW AND ON FACTS IN NOT ALLOWING TDS CREDIT OF RS. 5,75,40,691. 2. WE HAVE HEARD AND CONSIDERED THE ARGUMENTS A DVANCED BY THE PARTIES IN VIEW OF ORDERS OF THE AUTHORITIES BELOW, MATERIA L MADE AVAILABLE ON RECORD AND THE DECISIONS RELIED UPON. GROUND NO. 1 3. THE ISSUE RAISED THIS GROUND IS AS TO WHETHE R ASSESSEE IS ELIGIBLE FOR BENEFIT OF SECTION 44BB OF THE I.T. ACT ON THE PAYM ENT RECEIVED BY IT FROM LEASING OF OIL DRILLING RIG AS ROYALTY ? 4. THE RELEVANT FACTS ARE THAT THE ASSESSEE C OMPANY INCORPORATED IN USA IS PRIDE GROUP ENTITY. THE ASSESSEE IS IN THE BUSI NESS OF PROVIDING DRILLING RIG, SERVICES AND FACILITIES IN CONNECTION WITH PROSPECT ING PRODUCTION AND EXTRACTION OF MINERAL OIL UNDER THE CONTRACT WITH P RIDE FORAMER AS ACCEPTED BY OIL AND NATURAL GAS COMMISSION (ONGC). THE ASSESSEE PROVIDED OFFSHORE DRILLING REGARDING PRIDE HAWAI.T HE ASSESSEE EXEC UTED A CHARTER AGREEMENT ITA NO. 5406/DEL/2012 3 AND DELIVERED THE RIG OUTSIDE INDIA TO PRIDE FORAME R . PRIDE FORAMER SAS IS A FRENCH COMPANY WHICH IS ENGAGED IN DRILLING ACTIVIT IES IN INDIA FOR ONGC IN BOMBAY OFFSHORE REGION. IN ITS RETURN FOR YEAR, THE ASSESSEE DECLARED INCOME U/S 44BB(1) OF THE ACT ON THE GROUND THAT IT WAS SU PPLIED PLANT AND MACHINERY ON HIRE TO BE USED IN PROSPECTING FOR OR EXTRACTION OR PRODUCTION OF MINERAL OIL AND WAS THUS TAXABLE U/S 44BB(1) OF THE ACT. THE AO PASSED A DRAFT ORDER IN WHICH HE PROPOSED TO TAX THE ASSESEE S INCOME AS ROYALTY U/S 9(1)(VI) (ARTICLE 12) OF THE INDIA USA DTA AGREEMEN T @ 10% AS AGAINST THE DEMAND PROFIT RATE OF 10% OF REVENUE AS ADOPTED BY THE ASSESEE U/S 44BB(1) OF THE ACT. THE ASSESSEE RAISED OBJECTION AGAINST T HE PROPOSAL BEFORE THE LD. DRP BUT COULD NOT SUCCEED. BEING AGGRIEVED THE ASSE SSEE HAS PREFERRED PRESENT APPEAL BEFORE US. 5. AT THE OUTSET OF HEARING LD. AR POINTED OUT THAT IN THE ASSESSMENT YEAR 2009-10 THE LD. DRP IN THE CASE OF ASSESSEE IT SELF WHO IS PRESENTLY KNOWN AS ENSCO OFFSHORE INTERNATIONAL LLC, VIDE O RDER DATED 27.12.2013 HAS HELD THAT THE INCOME DERIVED BY THE ASSESSEE A RE TO BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 44BB (1) OF THE ACT. THE LD. AR SUBMITTED FURTHER THAT AN IDENTICAL ISSUE HAS ALSO BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE ADVANCE RULING AUTHORITY, TRIBU NAL AND HONBLE HIGH COURT IN THE FOLLOWING CASES :- FRONTIER OFFSHORE EXPLORATION (INDIA) LTD. VS. DCIT (2012) 13 ITR (TRIB) 168/(2011)10 TAXMANN.COM 250 (CHENNAI) ITA NO. 5406/DEL/2012 4 DIRECTOR OF INCOME-TAX-II VS. OHM LTD. (2012) 26 TA XMANN.COM 120 (DELHI)/(2013)352 ITR 406 STUMPP, SCHUELE AND SOMAPPA LTD. VS. CIT (1991) 190 ITR 152 (KAR) MICROPERI S.P.A. MILANO VS. DCIT (2002) 321 ITR 369 (MUMB.) CGC MARINE RESOURCES VS. DCIT (2012) 21 TAXMAN. COM 502 (DEL) WAVEFIELD INSEIS ASA 320 ITR290, 322 ITR 645 (AR) 6. THE LD. AR REFERRED PROVISIONS LAID DOWN U/S 44BB(1) OF THE I.T. ACT WITH THIS SUBMISSION THAT THE ASSESSEE FULFILS ALL THE CONDITIONS PROVIDED THEREIN TO CLAIM ELIGIBILITY OF BENEFIT AVAILABLE F OR IT U/S 44BB(1) OF THE ACT. HE SUBMITTED THAT THERE IS NO DISPUTE THAT THE ASSESSE E, BEING A NON RESIDENT IS ENGAGED IN THE BUSINESS OF PROVIDING SERVICES AND F ACILITIES IN CONNECTION WITH OR SUPPLYING PLANT AND MACHINERY ON HIRE USED OR TO BE USED IN THE PROSPECTING FOR OR EXTRACTION OF PRODUCTION OF MIN ERAL OIL . THE LD. AR ALSO REFERRED CONTENTS OF PARA NO. 1.5.1 TO 1.6 AT PAGE NOS. 20 & 21 OF THE PAPER BOOK WHICH IS EXTRACT OF CONTRACT BETWEEN PRIDE FOR AMER AND ONGC FOR PROVIDING THE SERVICES FOR DRILLING RIG PRIDE HAWA I. HE SUBMITTED FURTHER THAT IN PARA NO. 1 PAGE NO. 1 OF THE ASSTT. ORDER AND IN PARA NO. 4.4 AT PAGE NO. 3 OF THE ASSTT. ORDER THE AO HAS WRONGLY INSERTED THE WORD DIRECTLY GOING BEYOND THE PROVISIONS LAID DOWN U/S 44BB(1) OF THE ACT. SHE WAS THUS NOT CORRECT IN SAYING THAT THE WORD USED WERE NOT DIR ECTLY APPLIED TO THE ACTIVITIES IN CONNECTION WITH PROSPECTING, EXPLORAT ION AND PRODUCTION OF MINERAL OIL ETC. LD. AR ALSO REFERRED PARA NO. 3 AT PAGE NO. 5 OF THE ASSTT. ITA NO. 5406/DEL/2012 5 ORDER WITH THIS SUBMISSION THAT THE ASSESSMENT HAS BEEN FINALIZED AT THE INSTRUCTION OF LD. DRP MAKING IT CLEAR THAT THE INT ENTION OF THE LEGISLATURE WAS NOT TO INCLUDE THE RECEIPT OF SUB HIRING WITHIN THE SCOPE OF SECTION 44BB OTHERWISE THE WORDS IN CONNECTION WITH WOULD HAVE BEEN EMPLOYED FOR THE ACTIVITY OF SUPPLYING PLANT & MACHINERY ON HIRE AS WELL. THE LD. AR ALSO REFERRED PAGE 26 OF THE PAPER BOOK I.E. LETTER ISSU ED BY THE OFFICE OF THE DEPUTY COMMISSIONER OF INCOME TAX ON 7.8.2007 TO M/ S. PRIDE FORAMER SAS MAKING IT CLEAR BY MENTIONING NATURE OF SERVICES F OR CHARTER HIRE OF M/S. PRIDE FORAMER SAS FOR DRILLING OPERATIONS FOR A COMPANY W ITH ONGC. 7. LD. CIT(DR) ON THE OTHER HAND SUBMITTED THA T THERE IS NO ANY DIRECT DECISION ON THE ISSUE BY THE TRIBUNAL. THE ORDER DA TED 27.12.2013 OF THE DRP IN SUBSEQUENT YEAR 2009-10 ALLOWING THE ELIGIBILITY OF THE ASSESSEE FOR THE BENEFIT OF SECTION 44BB(1) OF THE ACT HAS NOT BECOM E FINAL. TAKING ASSISTANCE OF THE CONTENTS OF THE PAGE NO. 1 OF THE AGREEMENT DATED 31.3.2007 BETWEEN THE ASSESSEE AND M/S. PRIDE FORAMER SAS MADE AVAILA BLE AT PAGE 1 TO 16 OF THE PAPER BOOK, THE LD. CIT(DR) SUBMITTED THAT THE SERVICES AND EQUIPMENTS WERE HIRED FROM THE ASSESEE AS A SUB CONTRACTOR. HE ALSO REFERRED CONTENTS OF PAGE NO. 17 AND 18 OF THE EXTRACT OF CONTRACT DATED 22.1.06 OF M/S. PRIDE FORAMER SAS AND ONGC FOR PROVIDING SERVICES THROUGH DRILLING UNIT M/S. PRIDE FORAMER SAS MADE AVAILABLE AT PAGE NOS. 17 TO 21 OF THE PAPER BOOK. WHILE CONCLUDING HIS ARGUMENTS THE LD.CIT(DR) POINTED OUT THAT THE DELHI BENCH OF ITA NO. 5406/DEL/2012 6 THE ITAT IN THE CASE OF SIEM OFFSHORE A.S. & ORS. V S. ADIT ITA NO. 1295/DEL/2013 (A.Y. 2008-09) AND ORS. VIDE ORDER DA TED 09.09.2014 IN VIEW OF THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF PGS GEOPHYSICAL A.S. VS. ADIT ITA NOS. 612 OF 2012, ORDER DATED 0 9.07.2014 HAS SET ASIDE THE MATTER TO THE FILE OF THE ASSESSING OFFICER TO VERIFY THE VARYING NATURE OF THE CONTRACT TO DECIDE THE ISSUE AFRESH REGARDING T HE ELIGIBILITY OF ASSESEE FOR THE BENEFIT MADE AVAILABLE U/S 44BB OF THE ACT. LEA RNED CIT(DR) SUBMITTED THAT THE HON'BLE DELHI HIGH COURT IN THE CASE OF PG S GEOPHYSICAL A.S. (SUPRA) HAS BEEN PLEASED TO HOLD THAT THE RECEIPT OF THE AS SESSEE CAN BE TAXED UNDER SEC. 44BB ONLY IF THE ASSESSEE HAS A PE IN INDIA DUR ING THE RELEVANT PERIOD AND THE CONTRACT ENTERED INTO BY THE ASSESSEE IN IN DIA WAS EFFECTIVELY CONNECTED WITH THE PE IN INDIA. 8. THE LEARNED AR REJOINED WITH THE SUBMISSION THAT THE RATIO OF PGS GEOPHYSICAL A.S. (SUPRA) IS NOT APPLICABLE IN THE C ASE OF THE ASSESSEE AS THE ASSESSEE IS ANOTHER NON-RESIDENT AND SECTION 44DA I S NOT APPLICABLE IN THE CASE OF A NON-RESIDENT. HE POINTED OUT FURTHER THAT IN ITS RECENT DECISION DATED 17.2.2015, THE DELHI BENCH OF THE ITAT IN THE CASE OF LOUIS DREYFUS ARMADEURES SAS VS. ADIT (2015) 54 TAXMANN.COM 366 (DELHI TRIB) HAS DECIDED AN IDENTICAL ISSUE IN FAVOUR OF THE ASSESSE E. HE SUBMITTED THAT AS PER THE SAID DECISION OF THE ITAT WHERE THE PROVISION U NDER SEC. 44BB OF THE ACT DOES NOT CREATE ANY DISCRIMINATION BETWEEN THE PERS ON WHO ACTUALLY DOES THE ITA NO. 5406/DEL/2012 7 ACTIVITY OF PROSPECTING FOR OR EXTRACTION OF PRODUC TION, AND THE PERSON WHO SUPPLIES THE PLANTS AND MACHINERY, THE NARROW INTER PRETATION OF THE PROVISIONS IS NOT PERMITTED. 9. CONSIDERING THE ABOVE SUBMISSION WE FIND TH AT THE ESSENCE OF PROVIDING BENEFIT U/S 44BB OF THE ACT IS THAT BESIDES THE FOR EMOST CONDITION OF ASSESSEE BEING A NON-RESIDENT THE ASSESEE SHOULD BE, (A) FIRST LIMB, ENGAGED IN THE BUSINESS OF PR OVIDING SERVICES OR FACILITIES IN CONNECTION WITH THE PROSPECTING PRODUCT ION AND EXTRACTION OF MINERAL OIL, (B) SECOND LIMB, ENGAGED IN THE BUSINESS OF S UPPLYING OF PLANT AND MACHINERY ON HIRE USED OR TOBE USED IN THE PROSPECTING, OR EXTRACTION OF MINERAL OILS. THUS WE FIND THAT FOR SECOND LIMB THE CONDITIONS ARE :- I) SUPPLY OF PLANT AND MACHINERY ON HIRE II) AND THAT PLANT AND MACHINERY ARE USE OR TO BE USED FOR PROSPECTING FOR EXTRACTION OR PRODUCTION OF MINERAL OILS. THE EMPHASIS IS ON USE FOR AND NOT USE BY. 10. THE CONTENTION OF THE ASSESSEE REMAINED THA T THE SECOND LIMB OF SECTION 44BB IS ATTRACTED IN THE CASE OF THE PRESEN T ASSESSEE ON THE FOLLOWING GROUNDS :- ITA NO. 5406/DEL/2012 8 A) THE ASSESSEE IS A NON-RESIDENT ENGA GED IN THE BUSINESS OF PROVIDING THE DRILLING RIG ON HIRE. B) THE RIG IS A PLANT AND MACHINERY C) THE RIG HAS BEEN TAKEN ON HIRE BY THE PRIDE FORAM ER FOR THE PURPOSE OF ENABLING THE PRIDE FORAMER TO CARRY ON THE PROVIDE THE DRILL ING OPERATION SERVICES UNDER THE CONTRACT WITH ONGC AND RIG IS THE KEY PLANT AND MACHINERY FOR PROSPECTING AND EXTRACTION OF MINERAL OIL. D) THE REQUIREMENT OF SUB-SECTION (1) OF SECTION 44 BB IS THAT THE PLANT AND EQUIPMENT MUST BE USED IN THE PROSPECTING FOR OR EXTRACTION OF MINERAL OILS. . E) WITHOUT THE UTILITY OF RIG NO DRILLING OPERATION CAN BE CARRIED OUT FOR EXTRAC TION OR PROSPECTING OF MINERAL OI L F) THE SECOND PART OF SECTION 44BB(1) IS TRIGGERED AS DEPLOYMENT OF THE RIG IN T HE EXTRACTION/ PROSPECTING OP ERATIONS IS CONSIDERED TO BE INTEGRAL PART OF SUCH OPERATIONS. G) WHETHER THE RIG IS DEPLOY ED IN THE PROSPECTING ACTIVITIES PURSUANT TO A DIRE CT CONTRACT WITH THE OIL PROD UCING COMPANY OR PURSUANT TO A CONTRACT WITH SUB- CONTRACTOR IS NOWHERE THE CONDITION OR ANY MANDATO RY PROVISION OF SECTION 44BB AND THUS IT IS IMMATERIAL WHETHER IT IS DIREC TLY OR THROUGH SUB-CONTRACTOR. THE ONLY ESSENCE IS THAT IT IS USED IN THE PROSPEC TING FOR OR EXTRACTION OF MINERAL OILS. 11. THE CONTENTION OF THE AO AGAINST THE CLAI MED BENEFIT BY THE ASSESSEE REMAINED THAT THE DRILLING UNIT IS NOT DIRECTLY I N USE BY ONGC. AS PER HIM, SECOND LIMB OF THE PROVISION LAID DOWN U/S 44BB OF THE ACT IS NOT ATTRACTED SINCE THE RIG IS SUPPLIED NOT BY ENTERPRISE HAVING A DIRECT CONTRACT WITH ONGC BUT BY SUB CONTRACTOR. THE STAND OF THE AO WAS THA T FOR OIL RELATED ACTIVITIES, RIG HIRE IS NOT APPLICABLE FOR SUB-CONTRACTOR. 12. HAVING GONE THROUGH THE DECISIONS RELIED UPON, WE FIND THAT MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF M/S. M ICROPERI S.P.A MILANO VS. DCIT (SUPRA) HAS HELD THAT SECTION 44BB DOES NOT MA KE ANY DISTINCTION BETWEEN THE MAIN CONTRACTOR AND SUB-CONTRACTOR AS R EGARDS ITS APPLICABILITY . THE ADVANCE RULING AUTHORITY IN THE CITED CASES (SU PRA) HAVE ALSO HELD THAT TAXABILITY U/S 44BB UNDER CIRCUMSTANCES WHERE A SEI SMIC VESSEL WAS PROVIDED ITA NO. 5406/DEL/2012 9 TO THE CONTRACTOR. IN THE CASE OF WAVEFIELD INSEIS ASA (SUPRA) BEFORE THE AUTHORITIES FOR ADVANCE RULING (SUPRA) FOR THE PURP OSE OF EXECUTING CONTRACT WITH ONGC, THE APPLICANT HAS ENTERED INTO A CONTRAC T WITH THE PF FROM THE COMPANY INCORPORATED IN FAROE ISLANDS WHICH HAD PRO VIDED A CHASE VESSEL ON TIME CHARTER BASIS. UNDER AGREEMENT, ENTIRE OPERATI ONS, NAVIGATION AND MANAGEMENT OF VESSEL PROVIDED ON HIRE WILL BE IN EX CLUSIVE COMMAND AND CONTROL OF VESSEL OWNER AND VESSEL WILL BE IN EXCL USIVE COMMAND AND CONTROL OF VESSEL OWNER AND VESSEL WILL BE OPERATED AND SE RVICES WILL BE RENDERED AS AND WHEN REQUIRED BY APPLICANT. THE ISSUE BEFORE TH E AUTHORITY WAS AS TO WHETHER SECOND LIMB OF SECTION 44BB IS ATTRACTED IN THAT CASE AND THEREFORE INCOME DERIVED BY PF OUGHT TO BE COMPUTED IN ACCORD ANCE WITH THE PROVISIONS OF SECTION 44BB. THE FURTHER ISSUE RAISE D WAS AS TO WHETHER AS AMOUNTS FALLING U/S 44BB HAS BEEN EXCLUDED FROM PUR VIEW OF DEFINITION OF ROYALTY, CONSIDERATION FOR SERVICES PROVIDED BY PF CANNOT BE CONSTRUED TO BE IN NATURE OF ROYALTY U/S 9(1)(VI). AFTER DISCUSSING IN DETAIL THE AUTHORITY HAVE ANSWERED BOTH THE ISSUES IN AFFIRMATIVE. SIMILAR VI EW HAS BEEN EXPRESSED IN OTHER CITED DECISIONS BY THE HONBLE AUTHORITY. THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF CGG MARINE RESOURCES VS. D CIT (SUPRA) HAS OBSERVED IN PARA NO. 8.4 THAT AAR IN THE CASE OF W AVEFIELD INSEIS ASA HAS CLEARLY DECIDED THAT IT IS IMMATERIAL WHETHER THERE WAS A DIRECT CONTRACT OF THE OIL PRODUCING COMPANY OR NOT. THE CASE OF THE ASSES SEE CANNOT BE MORE DIRECT AS THE OIL DRILLING OPERATIONS AND CONTRACT CANNOT BE EXECUTED WITHOUT ITA NO. 5406/DEL/2012 10 THE DRILLING UNIT. THE HONBLE DELHI HIGH COURT IN THE CASE OF DIRECTOR OF INCOME TAX VS. OHM LTD. (2013) 352 ITR 406 (DELHI ) REFERRING A DIVISION BENCH DECISION IN THE CASE OF DIRECTOR OF INCOME TA X VS. JINDAL DRILLING AND INDUSTRIES LTD. (2010) 320 ITR 104 (DELHI) HAS GONE TO CONFIRM THAT SERVICES RENDERED BY A SUB-CONTRACTOR AT THE OFFSHORE RIGS O F A CONTRACTOR IS PART AND PARCEL OF ACTIVITIES ENGAGED BY THE RIGS SET UP FOR EXTRACTION, PROSPECTING AND PRODUCTION OF MINERAL OIL. 13. BESIDES, THE LD. DRP IN THE CASE OF ASSES SEE ITSELF FOR THE ASSTT. YEAR 2009-10 FOLLOWING DECISIONS OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF MICOPERI S.P.A. MILANO VS. DCIT (SUPRA), THE HONBL E AUTHORITY OF ADVANCE RULLING IN THE CASE OF WAVEFIELD INSERTS ASA (SUPRA ) AND BOURBON OFFSHORE ASIA PTE LTD. 337 ITR 122 , HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF DCIT VS. OHM LTD. (SUPRA) AS WELL AS THE DECISION O F AUTHORITY FOR ADVANCE RULING IN THE CASE OF SPECTRUM GEO LTD. (2012) 209 TAXMAN 397 HAS COME TO THE CONCLUSION THAT THE AMOUNTS RECEIVED BY THE ASS ESSEEE DURING THE YEAR UNDER CONSIDERATION ON ACCOUNT OF HIRE CHARGES OF T HE DRILLING RIG SHOULD BE BROUGH TO TAX BY APPLYING THE DEEMED PROFIT RATIO O F 10% U/S 44BB OF THE ACT. THE LD. DRP HAS ACCORDINGLY DIRECTED THE AO T O DECIDE THE ISSUE AS SUCH WHILE ALLOWING THE OBJECTION RAISED BY THE ASSESEE. THE LEARNED CIT(DR) HAS REPRODUCED THE RELEVANT PARA NO. 12 OF THE DECISION OF THE HONBLE AUTHORITY OF ADVANCE RULING IN THE CASE OF SPECTRUM GEO LTD. AS UNDER :- ITA NO. 5406/DEL/2012 11 '12. THE INQUIRY NOW IS WHETHER THE INCOME DERIVED BY. THE APPLICANT FROM PERFORMING ITS CONTRACT WITH THE UAE COMPANY W OULD BE ASSESSABLE TO TAX AS, FEES FOR TECHNICAL SERVICES U NDER SECTION 440, 44DA, OR 115A OF THE ACT. ADMITTEDLY, THE INCOME DE RIVED BY THE APPLICANT IS FROM A UAE COMPANY AND NOT FROM THE GO VERNMENT OR AN INDIA CONCERN. IN OTHER WORDS, INCOME DERIVED BY THE APPLICANT IS FROM A NON-RESIDENT COMPANY OF FOREIGN COMPANY. ON THE WORDING OF THESE SECTIONS, THE INCOME CANNOT BE BROUGHT WITHIN THEIR PURVIEW, BECAUSE THEY ONLY SPEAK OF INCOME BY WAY OF FEES FO R TECHNICAL SERVICES RECEIVED FROM GOVERNMENT OR AN INDIAN CONC ERN. ON THIS SHORT GROUND, THE CONTENTION OF THE REVENUE THAT TH E INCOME DERIVED BY THE APPLICANT IS INDEPENDENTLY ASSESSABLE UNDER SECTION 115A OR 44DA OF THE ACT, HAS TO BE REJECTED. SINCE, INCOME DERIVED BY THE APPLICANT, IS FROM AN ACTIVITY IN CONNECTION WITH T HE PROSPECTING FOR MINERAL OILS AND FROM A FOREIGN COMPANY, THE APPLIC ANT WOULD BE ENTITLED TO CLAIM TO BE ASSESSED UNDER SECTION 44BB (1) OF THE ACT. THE RULING; THEREFORE, ON QUESTION NO 3 IS THAT THE INCOME DERIVED BY THE APPLICANT ARE TO BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 44 BB (1) OF THE ACT.' (EMPHASIS SUPPLIE D). 14. AS DISCUSSED ABOVE, THE HON'BLE DELHI BENC H OF THE ITAT IN THE CASE OF LOUIS DREYFUS ARMATEURES SAS VS. ADIT (SUPRA) HA S DECIDED AN IDENTICAL ISSUE IN FAVOUR OF THE ASSESSEE HAS OBSERVED THAT I F THE LEGISLATURE INTENTION AS CONTENDED BY THE REVENUE WAS TO RESTRICT THE BEN EFIT OF SEC. 44BB OF THE ACT ONLY TO THE MAIN CONTRACTOR OR ONGC THEN THE WO RDS AFTER THE ASSESSEE ENGAGED IN THE BUSINESS OF SUPPLYING PLANTS AND MAC HINERY ON HIRE OR PROVIDING SERVICES OR FACILITIES OUGHT TO HAVE BE EN OMITTED. HENCE, WHERE THE PROVISION DOES NOT CREATE ANY DISCRIMINATION BE TWEEN THE PERSON WHO ACTUALLY DOES THE ACTIVITY OF PROSPECTING FOR OR EX TRACTION OR PRODUCTION, AND THE PERSON WHO SUPPLIES THE PLANTS AND MACHINERY, T HE NARROW INTERPRETATION OF THE PROVISIONS IS THUS NOT PERMITTED. IT HAS BEE N HELD THAT THE BASIC ITA NO. 5406/DEL/2012 12 CONDITION TO BE SATISFIED IN THE SAID PROVISION IS THAT THE PLANT OR MACHINERY SUPPLIED OR LENTED ON HIRE BY THE ASSESSEE, A NON-R ESIDENT SHOULD BE USED IN THE PROSPECTING FOR OR EXTRACTION OR PRODUCTION OF MINERAL OILS OR WHERE EQUIPMENT HAS BEEN SUPPLIED, SUCH EQUIPMENT SHOULD HAVE BEEN USED FOR THE PURPOSES OF PROSPECTING FOR OR EXTRACTION OR PRODUC TION OF MINERAL OILS. THE ITAT THUS CAME TO THE CONCLUSION THAT THE FETTER AS SUMED BY THE AUTHORITIES BELOW WHILE INTERPRETING THE PROVISIONS OF SEC. 44B B OF THE ACT ARE MANIFESTLY ABSENT AND THERE IS NOTHING IN THE SAID PROVISIONS SO AS TO DISENTITLED A SUB- CONTRACTOR FROM INVOKING THE SAID PROVISIONS. THE I TAT THUS DID NOT FIND ANY FAULT IN THE CLAIM OF THE ASSESSEE THAT REVENUE REC EIVED UNDER THE CHARTERED AGREEMENTS WITH CGG FOR PROVIDING TWO SEISMIC SURVE Y VESSELS ARE IN CONSIDERATION WITH PROSPECTING FOR EXTRACTION OR PR ODUCTION OF MINERAL OILS AND, THEREFORE, TAXABLE UNDER SEC. 44BB OF THE ACT. 15. WE, HOWEVER, FIND THAT THE DECISION DATE D 09.07.2014 OF HON'BLE DELHI HIGH COURT IN THE CASE OF PGS GEOPHYSICAL A.S . VS. ADIT (SUPRA) HAS NOT BEEN CITED BEFORE THE ITAT IN THE CASE OF LOUIS DRE YFUS ARMATEURES SAS VS. ADIT (SUPRA). HON'BLE DELHI HIGH COURT IN THE CASE OF PGS GEOPHYSICAL A.S. VIDE PARA NO. 20 OF THE JUDGMENT HAS BEEN PLEASED T O HOLD THAT THE RECEIPT OF THE ASSESSEE CAN BE TAXED UNDER SEC. 44BB OF THE IN COME-TAX ACT, 1961 ONLY (I) IF THE ASSESSEE HAS A PE IN INDIA DURING THE REL EVANT PERIOD AND (II) THE CONTRACT ENTERED INTO BY THE ASSESSEE IN INDIA WAS EFFECTIVELY CONNECTED WITH ITA NO. 5406/DEL/2012 13 THAT PE IN INDIA. IN THE PRESENT CASE BEFORE US, THE ASSESSING OFFICER AT PAGE NO. 4 PARA NO.5 HAD HIMSELF NOTED THAT THE ASSESSEE HAD GOT PE IN INDIA, THUS, FIRST CONDITION OF GETTING BENEFIT UNDER SEC. 44BB OF THE ACT AS LAID DOWN BY THE HON'BLE HIGH COURT IN THE ABOVE SITED CASE I S FULFILLED. SO FAR AS THE SECOND CONDITION THAT THE CONTRACT ENTERED INTO BY THE ASSESSEE IN INDIA WAS EFFECTIVELY CONNECTED WITH THAT PE IN INDIA IS CONCE RNED, THE DISPUTE IN THIS REGARD REMAINED THAT THE ASSESSEE BEING SUB-CONTRAC TOR AS PER THE AUTHORITIES BELOW WAS NOT ELIGIBLE FOR THE BENEFIT OF SECTION 4BB OF THE ACT. THE DELHI BENCH OF THE ITAT IN THE CASE OF LOUIS DR EYFUS ARMATEURES SAS VS. ADIT (SUPRA) AFTER DISCUSSING THE ISSUE IN DETAIL H AS HELD THAT THE PROVISION DOES NOT CREATE ANY DISCRIMINATION BETWEEN THE PERS ONS WHO ACTUALLY DOES THE ACTIVITY OF PROSPECTING FOR OR EXTRACTION OR PR ODUCTION AND THE PERSON WHO SUPPLIES THE PLANTS AND MACHINERY, THE NARROW INTER PRETATION OF THE PROVISIONS IS THUS NOT PERMITTED. IT HAS BEEN HELD THAT THE BA SIC CONDITION TO BE SATISFIED IN THE SAID PROVISION IS THAT THE PLANT OR MACHINER Y SUPPLIED OR LENTED ON HIRE BY THE ASSESSEE, A NON-RESIDENT SHOULD BE USED IN T HE PROSPECTING FOR OR EXTRACTION OR PRODUCTION OF MINERAL OIL OR WHERE EQ UIPMENT HAS BEEN SUPPLIED, SUCH EQUIPMENT SHOULD HAVE BEEN USED FOR THE PURPOS E OF PROSPECTING FOR OR EXTRACTION OR PRODUCTION OF MINERAL OIL. THUS, WE FIND THAT THERE IS NO DISPUTE THAT THE CONTRACT ENTERED INTO BY THE ASSESSEE IN I NDIA WAS EFFECTIVELY CONNECTED WITH THAT PE IN INDIA AND THE DISPUTE AS T O WHETHER LETTING OUT DRILLING RIG, SERVICES AND FACILITIES BY THE ASSESS EE IN CONNECTION WITH ITA NO. 5406/DEL/2012 14 PROSPECTING PRODUCTION AND EXTRACTION OF MINERAL OI L UNDER THE CONTRACT WITH PRIDE FORAMER AS ACCEPTED BY ONGC IS A SUB-CONTRACT AND HENCE THE ASSESSEE IS NOT ENTITLED TO HAVE BENEFIT OF TAXABIL ITY UNDER SEC. 44BB OF THE ACT HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY T HE CO-ORDINATE BENCH OF THE ITAT IN THE CASE OF LOUIS DREFUS ARMATEURES SAS VS. ADIT (SUPRA). SINCE BOTH THE CONDITIONS AS POINTED OUT BY THE HON'BLE D ELHI HIGH COURT IN THE CASE OF PGS GEOPHYSICAL AS VS. ACIT (SUPRA) HAVE BEEN FU LFILLED IN THE PRESENT CASE, WE ARE OF THE VIEW THAT THE ASSESSEE IS VERY MUCH ELIGIBLE FOR THE BENEFIT AVAILABLE UNDER SEC. 44BB OF THE ACT TOWARD S THE HIRE CHARGES OF THE DRILLING RIG BY APPLYING THE DEEMED PROFIT RATIO OF 10% UNDER THE SAID PROVISIONS. IT IS HELD ACCORDINGLY WITH DIRECTION T O THE ASSESSING OFFICER TO COMPUTE THE TAX AS SUCH BY ALLOWING THE BENEFIT OF THE PROVISIONS LAID DOWN UNDER SEC. 44B OF THE ACT. GROUND NO.1 IS ACCORDING LY ALLOWED. GROUND NO. 2 & 3 16. IN THESE GROUNDS ASSESSEE HAS RAISED ISSUE OF CHARGEABILITY OF INTEREST U/S 234 B AND 234C OF THE ACT ON THE BASIS THAT WH EN THERE WAS NO OBLIGATION FOR ADVANCE TAX AS INCOME RECEIVED BY TH E ASSESSEE WAS SUBJECT TO TAX DEDUCTION AT SOURCE AND TAX WAS ALSO DEDUCTED I N ACCORDANCE WITH ORDER PASSED U/S 195 OF THE ACT AND FURTHER THAT THE AO H AS ERRED IN LAW BY CHARGING SURCHARGE AND EDUCATION CESS ON INCOME TAX RATE IN EXCESS OF THE MAXIMUM RATE OF TAX PRESCRIBED UNDER ARTICLE 12 OF THE INDIA USA DOUBLE ITA NO. 5406/DEL/2012 15 TAX AVOIDANCE TREATY. THESE ISSUES ARE CONSEQUENTIA L IN NATURE TO THE ISSUE RAISED IN GROUND NO. 1 ADJUDICATED HEREIN ABOVE. TH ESE GROUNDS THUS DO NOT NEED INDEPENDENT ADJUDICATION. GROUND NO. 4 17. IN THIS GROUND THE ACTION OF THE AO IN NOT ALLOWING TDS CREDIT OF RS. 5,75,40,691/- HAS BEEN QUESTIONED. AT THE TIME OF H EARING THE LD AR SUBMITTED THAT THE ASSESSEE / APPELLANT DOES NOT WI SH TO PRESS THIS GROUND. THE GROUND IS ACCORDINGLY REJECTED AS WITHDRAWN. 18. CONSEQUENTLY APPEAL IS ALLOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 22.05.2015. SD/- SD/- (T.S. KAPOOR) ( I.C . SUDHIR ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 22 /05/2015 *MOHAN LAL* COPY OF ORDER FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR ASSISTANT REGISTRAR, ITAT