ONGC as representative assessee of Dewey & LeBoeuf International Company LLC, USA, Dehradun V. ITO, Dehradun

ITA 5584/DEL/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 2677 (ITAT-DELHI)
• Duration Of Justice: 6 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-05-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 03-03-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 05-11-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: AMRIT LAL
• Assessee Lawyers: KAVISH SYAL
• Keywords: Double taxation relief
• Section: 143(3)

Judgement Text

1 ITA NO. 5584/DEL/2012 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: E NEW DELHI BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEM BER AND SMT SUCHITRA KAMBLE , JUDICIAL MEMBER I.T.A .NO.- 5584/DEL/2012 (ASSESSMENT YEA R-2009-10) ONGC AS REPRESENTATIVE ASSESSEE OF DEWEY & LEBOEUF INTERNATIONAL COMPANY LLC, USA DGM-HEAD, CORPORATE TAX, OIL AND NATURAL GAS CORPORATION LTD. ROOM NO. 244, OLD SECRETARIAT BUILDING, TEL BHAWAN, DEHRADUN AAACO1598A (APPELLANT) VS ITO INTERNATIONAL TAXATION, AAYAKAR BHAWAN, 13A, SUBHASH ROAD DEHRADUN (RESPONDENT) APPELLANT BY SH. KAVISH SYAL, ADV RESPONDENT BY SH. AMRIT LAL, SR. DR ORDER PER SUCHITRA KAMBLE, JM THIS APPEAL IS FILED BY ASSESSEE AGAINST THE ORDER DATED 21/09/2012 THE ORDER PASSED BY CIT(A)-II, DEHRADUN. DATE OF HEARING 03.02.2016 DATE OF PRONOUNCEMENT 19.04.2016 2 ITA NO. 5584/DEL/2012 2. THE GROUNDS OF APPEAL ARE AS FOLLOWS:- 1. THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-II , DEHRADUN, HAS ERRED IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE CASE IN UPHOLDING THE ORDER PA SSED BY THE ASSESSING OFFICER WHEREIN IT WAS HELD THAT THE RECEIPTS OF DEWEY & LEBOEUF INTERNATIONAL COMPANY L LC, USA, ARE TAXABLE AS FEES FOR TECHNICAL SERVICES U NDER THE PROVISIONS OF THE INCOME-TAX ACT, 1961. 2. THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-II, DEHRADUN, HAS ERRED IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE CASE IN NOT HOLDING THAT THE R ECEIPTS OF DEWEY & LEBOEUF INTERNATIONAL COMPANY LLC, USA, WERE NOT TAXABLE IN INDIA AS PER THE INDIA-USA DOUB LE TAXATION AVOIDANCE AGREEMENT. 3. THE NON-RESIDENT LAW FIRM WAS ENGAGED TO PROVIDE LEGAL ASSISTANCE TO M/S ONGC LTD. BEFORE RUSSIAN COURTS I N REGARD TO THE LITIGATION BETWEEN AMUR SHIPBUILDING YARD AND O NGC. CERTAIN DISPUTES AROSE BETWEEN AMUR SHIPBUILDING YARD AND O NGC IN RESPECT OF A CONTRACT WHICH ONGC HAD AWARDED TO AMU R SHIPBUILDING YARD FOR CONSTRUCTION OF SEISMIC SURVE Y VESSEL. SEISMIC SURVEY VESSEL ARE USED IN EXPLORING FOR OIL DEPOSITS, IN THIS PARTICULAR CASE THE NEXUS WITH OIL EXPLORATION WAS FAIRLY REMOVED AS FAR AS THE CASE OF THE ASSESSEE IS CONCERNED. THE NON-RESIDENT PARTY WAS MERELY PROVIDING LEGAL ASSISTANCE IN THE LITIGA TION INVOLVING THE CONSTRUCTION OF A SHIP WHICH WOULD EVENTUALLY BE UT ILIZED IN EXPLORING FOR OIL DEPOSITS. DURING THE COURSE OF A SSESSMENT PROCEEDINGS THE AR OF THE ASSESSEE RELIED UPON THE CASE ON AGLAND INVESTMENT SERVICES INC. REPORTED IN 22 TAXMAN 9 (D ELHI-TRIB) TO 3 ITA NO. 5584/DEL/2012 CANVASS THE VIEW THAT THE ACTIVITY ATTRIBUTABLE TO THE ASSESSEE WAS A STEP-IN-AID TO THE CONSTRUCTION OF THE SEISMIC VESS EL. THUS IT HAS BEEN CONTENDED THAT THE NEXUS WITH ACTIVITIES MENTI ONED IN SECTION 44BB OF THE I.T ACT, 1961 WAS ESTABLISHED. THIS CA SE LAW HAS BEEN CAREFULLY PERUSED. IT IS SEEN THAT THE PROVISIONS OF SEC 9(1) (VII) OF THE I.T ACT, 1961 HAVE BEEN INTERPRETED BY A BENCH OF COORDINATE STRENGTH IN THE CASE OF HOTEL SCOPERVISTA LTD. VS. ACIT REPORTED IN 18 SOT 183(DELHI) TO ARRIVE AT THE CONCLUSION THAT CONSIDERATION FOR CONSTRUCTION PROJECT MEANS CONSIDERATION FOR A CTUAL CONSTRUCTION ACTIVITIES UNDERTAKEN AND NOT FOR ANY SERVICES IN CONNECTION WITH CONSTRUCTION PROJECT. IN THE PRESE NT CASE ALSO THE ASSESSEE IS NOT CARRYING OUT THE CONSTRUCTION ACTIV ITY ITSELF BUT MERELY PROVIDING THE LEGAL ASSISTANCE/CONSULTANCY T O THE ONGC. THE ACTUAL CONSTRUCTION AS BEING CARRIED OUT BY AMU R SHIPBUILDING YARD IN RUSSIA. SIMILARLY, ON FACTS, IN THE CASE O F ADITYA BIRLA NUVO LTD. VS. ADIT (INTL. TAX.) REPORTED IN 44 SOT 601 ( MUMBAI) THIS SECTION HAS BEEN INTERPRETED TO MEAN THAT ONLY ACTU AL CONSTRUCTION ACTIVITY IS EXCLUDED FROM THE PURVIEW OF SEC 9(1) ( VII) OF THE I.T. ACT, 1961. THE CONTENTION OF THE AR OF THE ASSESSEE FOR CLAIMING COVERAGE UNDER THE EXCLUSION CLAUSE OF SEC 9(1) (VI I) OF THE I.T. ACT, 1961 WAS NOT ACCEPTED BY THE ASSESSING OFFICER. THE ASSESSING OFFICER WHILE DECIDING THE ASSESSMENT PROCEEDINGS O BSERVED THAT THERE WAS A NEXUS WITH ACTIVITIES MENTIONED IN SECT ION 44BB OF THE INCOME-TAX ACT 1961 WAS REMOTE & THE ASSESSEES CAS E CANNOT BE COVERED U/S 44BB OF THE INCOME-TAX ACT 1961. THE AS SESSMENT WAS ACCORDINGLY PROPOSED TO BE MADE AFTER GROSSING UP O F TAX ON A TOTAL 4 ITA NO. 5584/DEL/2012 INCOME OF RS.1,11,88,750/- AS PER PROVISIONS OF SEC 143(3) R.W.S. 144C(1) OF THE INCOME TAX ACT, 1961. 5. THE CIT(A) HELD THAT THE ASSESSEES ACTIVITIES W ERE COVERED UNDER FEES FOR TECHNICAL SERVICES AND DUE TO THE OP ERATION OF EXPLANATION 2 TO THE SEC. 9(1) (VII) OF THE I.T. AC T, 1961, ALL RECEIPTS EMANATING FROM THE CONTRACT UNDER CONSIDERATION HAS TO BE TAXED IN INDIA. THE CIT(A) WHILE RELYING ON VARIOUS JUDGMENT S HELD THAT THE PAYMENTS TO THE LAW FIRM HAS TO BE HELD AS TECHNICA L FEES FOR SERVICE AND DISMISSED THE ASSESSEES APPEAL. 6. THE LD. AR SUBMITTED THAT AS PER THE LETTER DATE D 16/6/2008 FOR ENGAGING THE DEWEY & LEBOEUF INTERNATIONAL COMP ANY L.L.C, (THE FIRM) TO ADVISE R.S. PRABHU & CO. LAW OFFICE S (THE CLIENT) AND REPRESENT OIL & NATURAL GAS CORPORATION (ONGC ) IN THE COURTS OF THE RUSSIAN FEDERATION ON THE AMUR SHIPBUILDING YARD MATTER, AND SUCH OTHER MATTERS AS MAY BE AGREED FROM TIME T O TIME. THE SAME WAS ONLY FOR THE REPRESENTATION AND THE LEGAL PROFESSIONAL SERVICES ENGAGED BY THE ASSESSEE. THEREFORE, THERE IS NO QUESTION OF OBTAINING ANY FEES FOR TECHNICAL SERVICES. THE LD. AR ALSO WITH THE HELP OF THE JUDGMENT IN THE CASE OF DIT INTERNATION AL TAXATION VS. PANALFA AUTOELEKTRIK LTD. (2014) 49 TAXMAN.COM 412 WHEREIN HONBLE DELHI HIGH COURT HELD THAT THE TECHNICAL SE RVICES CONSISTS OF SERVICES OF TECHNICAL NATURE, WHEN SPECIAL SKILLS O R KNOWLEDGE 5 ITA NO. 5584/DEL/2012 RELATING TO TECHNICAL FIELD ARE REQUIRED FOR THEIR PROVISION, MANAGERIAL SERVICES ARE RENDERED FOR PERFORMING MAN AGEMENT FUNCTIONS AND CONSULTANCY SERVICES RELATE TO PROVIS ION OF ADVICE BY SOMEONE HAVING SPECIAL QUALIFICATION THAT ALLOW HIM TO DO SO. THE HONBLE HIGH COURT FURTHER OBSERVED THAT TECHNICAL, MANAGERIAL AND CONSULTANCY SERVICES MAY OVERLAP AND IT WOULD NOT B E PROPER TO VIEW THEM IN WATERTIGHT COMPARTMENTS. THE LD. AR ALSO R ELIED UPON THE CASE OF LINKLATERS LLP VS. ITO (2011) 9 ITR 217 OF MUMBAI TRIBUNAL. 7. THE LD. DR RELIED UPON THE ORDERS OF THE ASSESSI NG OFFICER AND THE CIT (A). THE LD. DR FURTHER SUBMITTED THAT THE ASSESSEES ACTIVITIES ARE COVERED UNDER FEES FOR TECHNICAL SER VICES AND DUE TO THE OPERATION OF EXPLANATION 2 TO THE SEC. 9(1) (VI I) OF THE I.T. ACT, 1961, ALL RECEIPTS EMANATING FROM THE CONTRACT UNDE R CONSIDERATION HAS TO BE TAXED IN INDIA. 8. WE HAVE PERUSED ALL THE RECORDS AND HEARD BOTH T HE PARTIES. THE PECULIAR QUESTION WHETHER THE SERVICES RENDERED BY THE ASSESSEE WAS OF TECHNICAL NATURE OR PROFESSIONAL HA S TO BE LOOKED INTO. IN THE PRESENT CASE, THE ASSESSEE DID NOT SEE K/OPTED ANY TYPE OF MANAGERIAL, TECHNICAL OR CONSULTANT SERVICES BUT SOUGHT ONLY PROFESSIONAL SERVICE. THE SAID PROFESSIONAL SERVICE WAS RENDERED BY THE ASSESSEE OUTSIDE INDIA. THEREFORE, THIS IS NOT FEES FOR TECHNICAL 6 ITA NO. 5584/DEL/2012 SERVICES (FTS). SECTION 9(1)(VII) OF THE ACT CANNO T BE GIVEN WIDER MEANING. TO APPLY SECTION 9(1)(VII), IT IS NECESSAR Y THAT THE SERVICES ARE NOT ONLY BE UTILIZED WITHIN INDIA, BUT ARE ALSO BE RENDERED IN INDIA OR HAVE A LIVE LINK WITH INDIA. THEN ONLY THE ENTIRE INCOME FROM FTS AS ENVISAGED IN ARTICLE 12 OF THE DTAA BEC OMES TAXABLE IN INDIA. THE ASSESSEES CLAIM WAS THAT THE SERVICES R ENDERED BY THE DEWY & LEVOEUF INTERNATIONAL COMPANY TO ONGC WAS RE LATED TO THE PROFESSIONAL SERVICES IN RESPECT OF LEGAL ASSISTANC E AND LEGAL REPRESENTATION IN RELATION TO THE LITIGATION WHICH WAS GOING ON OUTSIDE INDIA. IN THIS PARTICULAR CASE, THE ASSESS EE HAS RENDERED LEGAL ADVICE IN RESPECT OF LITIGATION GOING ON OUTS IDE INDIA FOR THE CONTRACT WHICH WAS PERFORMED OUTSIDE INDIA. IN T HIS PARTICULAR CASE, THE LEGAL SERVICES RENDERED BY THE ASSESSEE, A NON-RESIDENT, OUTSIDE INDIA WILL NOT COME UNDER THE PURVIEW OF SE CTION 9(1)(VII). THE LD. AR ALSO POINTED OUT THAT UNDER THE DTTA AGR EEMENT THIS SPECIFIC FEE IS NOT TAXABLE IN INDIA. THUS, THE FEE S GIVEN TO THE FOREIGN ENTITY FOR PROFESSIONAL ASSISTANCE IS A PRO FESSIONAL FEES AND NOT FTS UNDER THE ACT. 9. IN RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 19 TH OF APRIL, 2016. SD/- SD/- (J. SUDHAKAR REDDY) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 19/04/2016 7 ITA NO. 5584/DEL/2012 R. NAHEED * COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT R EGISTRAR ITAT NEW DELHI DATE 1. DRAFT DICTATED ON 03.02.2016 PS 2. DRAFT PLACED BEFORE AUTHOR 03.02.2016 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 03.2016 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 1 9 .04.2016 PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK 1 9 .04.2016 PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER. 8 ITA NO. 5584/DEL/2012