Precision Energy Services Ltd., New Delhi V. Addl. DIT, Dehradun

ITA 5822/DEL/2011

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 8094 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 4 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 01-02-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 28-12-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ANUJ ARORA
• Keywords: Question of law
• Section: 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F NEW DELHI BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER ITA NO. 5822/DEL/2011 AY: 20 08-09 PRECISION ENERGY SERVICES LTD., VS ADDL. DIT, C/O NANGIA & COMPANY, CA INTERNATIONAL TAXATION , SUITGE-4A, PLAZA M-6, SUBHASH ROAD, JASOLA, NEW DELHI-110025 DEHRDUN-248001 (PAN: AAACC9172E) (APPELLANT) (RESPOND ENT) APPELLANT BY : SHRI AMIT ARORA, CA RESPONDENT BY : SHRI ANUJ ARORA, CIT DR ORDER PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSES SEE FOR THE ASSESSMENT YEAR 2008-09. 2. THE ASSESSEE IS A NON-RESIDENT COMPANY AND WAS E NGAGED DURING THE YEAR UNDER APPEAL IN THE BUSINESS OF PRO VIDING EQUIPMENT AND OPERATING PERSONNEL IN CONNECTION WIT H EXPLORATION AND EXPLOITATION OF MINERAL OIL WORLDWI DE. THE ASSESSEE HAD FILED RETURNS OF INCOME DECLARING TOTA L INCOME OF RS. 124,730,694/- U/S 44BB OF THE INCOME TAX ACT, 1 961 (HEREINAFTER CALLED THE ACT). DRAFT ORDER U/S 14 4C OF THE ACT WAS PASSED PROPOSING CERTAIN VARIATIONS TO THE INCOME O F THE ASSESSEE I.T.A. NO. 5822/DEL/2011 ASSESSMENT YEAR 2008-09 2 WHO THEN APPROACHED THE DISPUTES RESOLUTION PANEL ( DRP) ON THE FOLLOWING ISSUES:- (1) DEPARTMENTS PROPOSAL TO DENY THE BENEFIT OF SECTI ON 44BB OF THE ACT AND TAX THE INCOME OF THE ASSESSEE FROM VARIOUS CONTRACTS U/S 9(1)(VII) OF THE ACT INSTEAD. (2) DEPARTMENTS PROPOSAL TO TAX THE REVENUE NOT RECEI VED BY THE ASSESSEE ON ACCOUNT OF DEDUCTIONS AGGREGATING T O RS. 20,064,921/- AS FEE FOR TECHNICAL SERVICES (FTS). (3) DEPARTMENTS PROPOSAL TO CHARGE INTEREST U/S 234B A ND 234C OF THE ACT. 3. ON THE ISSUE OF TAXING THE RECEIPTS U/S 44BB INS TEAD OF SECTION 9(1)(VII) OF THE ACT, THE DRP GAVE THE FOLL OWING DIRECTIONS:- THE PANEL HAS NOTED THAT A SIMILAR ISSUE CAME UP FOR THE CONSIDERATION OF THIS PANEL IN THE A.Y. 2007-08 IN ASSESSEES CASE. THE ASSESSEES OBJECTION IN THAT Y EAR WAS THAT THE A.O ERRED IN HOLDING THAT THE PROVISIO NS OF SEC. 44BB DID NOT APPLY TO INCOME FROM THE ASSESSEE S CONTRACT WITH SELAN EXPLORATION TECHNOLOGY LTD. AND NIKO RESOURCES LTD. THE PANEL NOTICED THAT THE ASSE SSEE HAD UNDERTAKEN TWO TYPES OF CONTRACTS: ONE FOR DIRECTIONAL DRILLING AND THE OTHER FOR WIRELINES SE RVICES AND PERFORATING SERVICES. THE A.O DID NOT ALLOW THE BENEFIT U/S 44BB TO THE CONTRACTS FOR WIRELINE LOGG ING AND PERFORATING EQUIPMENTS AND HELD THAT INCOME FRO M THESE WAS FEES FOR TECHNICAL SERVICES. THIS PANEL A FTER CONSIDERING THE FACTS OF THE CASE CONFIRMED THE STA ND TAKEN BY THE A.O AND HELD THAT THE INCOME FROM CONT RACT WITH SELAN AND NIKO RESOURCES WAS OF THE NATURE OF FEES FOR TECHNICAL SERVICES. AS THE CONSIDERATION ALSO A ND THE I.T.A. NO. 5822/DEL/2011 ASSESSMENT YEAR 2008-09 3 FACTS OF THE CASE ARE SIMILAR THIS PANEL CONFIRMS T HAT THE REVENUE FROM THE CONTRACT WITH SELAN WILL BE TAXED AS FEES FOR TECHNICAL SERVICES. ............. THE A.O IS DIRECTED TO TAX THE REVENUES FROM THE CONTRACTS OTHER THAN THE CONTRACT WITH SELAN AS INCOME U/S 44BB AND NOT AS FEES FOR TECHNICAL SERVICES. AS FOR THE REVENUE F ROM SELAN, AS DISCUSSED EARLIER, IT WOULD BE TAXED AS FEES FOR TECHNICAL SERVICES. 4. THE ISSUE OF CHARGING TO TAX, REVENUES NOT RECEI VED BY THE ASSESSEE WAS RESTORED TO THE FILE OF THE ASSESSING OFFICER TO VERIFY WHETHER THE ASSESSEE WAS CONSISTENTLY FOLLOW ING THE CASH SYSTEM OF ACCOUNTING AND ALLOW ASSESSEES CLAIM ACC ORDINGLY. 4.1 ON THE ISSUE OF LEVY OF INTEREST U/S 234B AND 234C, THE DRP REFUSED TO INTERFERE. 5. NOW, THE ASSESSEE HAS APPROACHED THE TRIBUNAL AND HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- BASED UPON THE FACTS OF THE CASE, THE ASSESSEE RESPECTFULLY SUBMITS THE FOLLOWING GROUNDS WHICH AR E WITHOUT PREJUDICE TO AND INDEPENDENT OF EACH OTHER: 1. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN COMPLETING ASSESSMENT UNDER SECTION 144C/143(3) OF THE INCOME-TAX ACT, 1961 (THE ACT) AT AN INCOME O F RS. 132,266,253/- AS AGAINST THE INCOME OF RS. 124,730,690/- RETURNED BY THE APPELLANT. 2. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN HOLDING THAT WHILE REVENUES FROM ALL CONTRACTS QUALIFIED FOR TAXATION U/S 44BB OF THE I.T. ACT, 19 61, REVENUES AGAINST CONTRACTS WITH SELAN EXPLORATION TECHNOLOGY LIMITED WERE IN THE NATURE OF FEES FOR TECHNICAL SERVICES IN TERMS OF SECTION 9(1)(VII) O F THE I.T. I.T.A. NO. 5822/DEL/2011 ASSESSMENT YEAR 2008-09 4 ACT, 1961. 3. THAT THE ASSESSING OFFICER ERRED ON FACTS AND I N LAW IN NOT ACCEPTING THAT THE CONTRACTS EXECUTED BY THE ASSESSEE WERE IN THE NATURE OF MINING OR LIKE PROJ ECTS AS REFERRED TO IN THE EXPLANATION TO SECTION 9(1)(V II) OF THE I.T. ACT, 1961. 4. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LA W IN ASSESSING REVENUE OF RS. 8,372,843/- ARISING FROM SERVICES RENDERED BY THE APPELLANT IN CONNECTION WI TH EXPLORATION/PROSPECTING/EXTRACTION OF MINERAL OIL U NDER SECTION 9(1)(VII) OF THE ACT AS OPPOSED TO SECTION 44BB OF THE ACT. 5. THAT THE ASSESSING OFFICER ERRED ON FACTS AND I N LAW IN LEVYING INTEREST UNDER SECTION 2341 AND 234C OF THE ACT ESPECIALLY WHEN THERE WAS NO LIABILITY ON THE ASSES SEE TO PAY ADVANCE TAX UNDER SECTION 209(1)(D) OF THE INCO ME- TAX ACT, 1961. THE APPELLANT CRAVES LEAVE TO ADD TO, ALTER, AMEN D OR VARY FROM THE ABOVE GROUNDS OF APPEAL AT OR BEFORE THE TIME OF HEARING. 6. THE LD. AR SUBMITTED THAT THE ISSUE OF APPLICABILIT Y OF SECTION 44BB HAS ALREADY BEEN DECIDED IN FAVOUR OF THE ASSE SSEE IN ASSESSMENT YEAR 2007-08 IN I.T.A. NO. 5286/DEL/2010 BY THE C BENCH OF ITAT, NEW DELHI IN ITS ORDER DATED 11.7.20 14 WHEREIN IT HAS BEEN HELD THAT THE EQUIPMENT AND SERVICE PROVID ED BY THE ASSESSEE FALLS WITHIN THE AMBIT OF PROVISION OF SEC TION 44BB OF THE ACT IN PARA 224 OF THE PRONOUNCEMENT WHICH READ S AS UNDER: I.T.A. NO. 5822/DEL/2011 ASSESSMENT YEAR 2008-09 5 224. GROUND NOS. 1 TO 6 RELATE TO ADDITION QUA EQUIPMENT RENTAL, SERVICE CHARGES AND SALE OF CONSUMABLES AND SERVICES RENDERED BY ASSESSEE IN CONNECTION WITH EXPLORATION/ PROSPECTING/ EXTRACTIO N OF MINERAL OIL. FOR THE DETAILED REASONS GIVEN IN ITA NO. 5283/DEL/2010, WE HOLD THAT THE INCOME ARISING ON ACCOUNT ROYALTY/ FTS, LETTING OUT OF EQUIPMENT ETC. WAS TO BE TAXED U/S 44BB. ADOPTING THE SAME REASONS, WE ALLOW GROUND NOS. 1 TO 6 IN FAVOUR OF THE ASSESSEE. 7. IT WAS SUBMITTED THAT THE ABOVE ORDER OF ITAT WAS AFFIRMED BY THE HON'BLE UTTARAKHAND HIGH COURT BY D ISMISSING THE APPEAL OF REVENUE AT THE VERY THRESHOLD VIDE ORDER DATED 06- 08-2015 IN ITA NO. 75/2014. IT WAS FURTHER SUBMITTED THAT WHILE DISPOSING THE APPEAL OF THE APPEAL OF THE REV ENUE IN HIGH COURT, THE HON'BLE COURT HAS RELIED UPON THE DECISI ON OF APEX COURT IN CASE OF ONGC LIMITED IN ITA NO. 731 OF 2007 (DATE OF PRONOUNCEMENT JULY 1 ST 2015). 8. ON THE ISSUE OF CHARGING OF INTEREST U/S 234B AND 234C, THE LD. AR SUBMITTED THAT THIS ISSUE ALSO HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE IN PARA 225 OF TH E ORDER OF THE TRIBUNAL AS AFOREMENTIONED WHICH READS, GROUND NO. 7 RAISED BY THE ASSESSEE RELATES TO CHARGING OF INTER EST U/S 234B/D. FOR THE REASONS GIVEN IN ITA NO. 5283/DEL/2 010, WE HOLD THAT THE ASSESSEE WAS NOT LIABLE TO PAY INTERE ST U/S 234B. ACCORDINGLY, GROUND IS DECIDED IN FAVOUR OF T HE I.T.A. NO. 5822/DEL/2011 ASSESSMENT YEAR 2008-09 6 ASSESSEE. 9. THE LD. DR RELIED ON THE ORDER OF THE ASSESSIN G OFFICER AND THE DRP. 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE AL SO PERUSED THE RECORD. IT IS SEEN THAT BOTH THE ISSUE S HAVE BEEN DECIDED IN ASSESSMENT YEAR 2007-08 IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE COORDINATE C BEN CH OF THE TRIBUNAL IN I.T.A. NO. 5286/DEL/2010. THE ISSUE OF ASSESSABILITY OF AMOUNT UNDER SECTION 44BB OF THE A CT WAS ALSO AFFIRMED BY THE HON'BLE HIGH COURT OF UTTARAKH AND IN I.T.A. NO. 75 OF 2014. THE R ELEVANT OBSERVATIONS OF THE HON'BLE HIGH COURT ARE AS UNDER:- 4. IN THE LIGHT OF THE JUDGMENT OF THE HON'BLE APE X COURT IN CIVIL APPEAL NO. 731 OF 2007 AND CONNECTED CASES (OIL & NATURAL GAS CORPORATION LIMITED VS. COMMISSIONER OF INCOME TAX & ANOTHER), THE SUBSTANTIAL QUESTIONS OF LAW RELATING TO THE ASSESSABILITY OF THE AMOUNTS UNDER SECTION 44BB HAV E TO BE ANSWERED AGAINST THE APPELLANT/REVENUE. ACCORDINGLY, WE ANSWER THE SAID QUESTIONS OF LAW AGAINST THE REVENUE IN THE LIGHT OF THE AFORESAID JUDGMENT OF THE HON'BLE APEX COURT. 5 ............. 6. IN SUCH CIRCUMSTANCES, THE APPEALS ARE DISPOSED OF AS FOLLOWS: I.T.A. NO. 5822/DEL/2011 ASSESSMENT YEAR 2008-09 7 (I) WE ANSWER THE QUESTIONS OF LAW RELATING TO THE ASSESSABILITY OF THE AMOUNTS UNDER SECTION 44BB AGA INST THE REVENUE. 11. A REFERENCE CAN ALSO BE MADE TO THE DECISION OF THE HONBLE APEX COURT IN ONGC VS. CIT & ANR. IN CIVIL APPEAL N O 731 OF 2007 WHEREIN THE HONBLE APEX COURT IN ITS ORDER DA TED 01/07/2015 HAS ALLOWED THE APPEAL OF ONGC ON THE S UBSTANTIAL QUESTION OF LAW FRAMED WHICH READS AS , WHETHER THE AMOUNTS PAID BY THE ONGC TO THE NON-RESIDENT ASSESSES/FOREI GN COMPANIES FOR PROVIDING VARIOUS SERVICES IN CONNECTION WITH P ROSPECTING, EXTRACTION OR PRODUCTION OF MINERAL OIL IS CHARGEAB LE TO TAX AS FEES FOR TECHNICAL SERVICES UNDER SECTION 44D READ WITH EXPLANATION 2 TO SECTION 9(1)(VII) OF THE INCOME TAX ACT OR WILL SUC H PAYMENTS BE TAXABLE ON A PRESUMPTIVE BASIS UNDER SECTION 44BB O F THE ACT? 12. THE HONBLE APEX COURT HAS ANSWERED THE QUEST ION AS UNDER, VIEWED THUS, IT IS THE PROXIMITY OF THE WORKS CONT EMPLATED UNDER AN AGREEMENT, EXECUTED WITH A NON-RESIDENT AS SESSEE OR A FOREIGN COMPANY, WITH MINING ACTIVITY OR MINING OPE RATIONS THAT WOULD BE CRUCIAL FOR THE DETERMINATION OF THE QUEST ION WHETHER THE PAYMENTS MADE UNDER SUCH AN AGREEMENT TO THE NON-RE SIDENT ASSESSEE OR THE FOREIGN COMPANY IS TO BE ASSESSED U NDER SECTION 44BB OR SECTION 44D OF THE ACT. THE TEST OF PITH AN D SUBSTANCE OF I.T.A. NO. 5822/DEL/2011 ASSESSMENT YEAR 2008-09 8 THE AGREEMENT COMMENDS TO US AS REASONABLE FOR ACCE PTANCE. EQUALLY IMPORTANT IS THE FACT THAT THE CBDT HAD ACC EPTED THE SAID TEST AND HAD IN FACT ISSUED A CIRCULAR AS FAR AS 22 .10.1990 TO THE EFFECT THAT MINING OPERATIONS AND THE EXPRESSIONS MINING PROJECTS OR LIKE PROJECTS OCCURRING IN EXPLANATION 2 TO SE CTION 9(1) OF THE ACT WOULD COVER RENDERING OF SERVICE LIKE IMPARTING OF TRAINING AND CARRYING OUT DRILLING OPERATIONS FOR EXPLORATION OF AND EXTRACTION OF OIL AND NATURAL GAS AND HENCE PAYMENTS MADE UNDER S UCH AGREEMENT TO A NON-RESIDENT/FOREIGN COMPANY WOULD BE CHARGEABLE TO TAX UNDER THE PROVISIONS OF SECTION 4 4BB AND NOT SECTION 44D OF THE ACT. WE DO NOT SEE HOW ANY OTHER VIEW CAN BE TAKEN IF THE WORKS OR SERVICES MENTIONED UNDER A PA RTICULAR AGREEMENT IS DIRECTLY ASSOCIATED OR INEXTRICABLY CO NNECTED WITH PROSPECTING, EXTRACTION OR PRODUCTION OF MINERAL OI L. 13. HOWEVER, THE ISSUE OF CHARGING INTEREST U/S 23 4B WAS REMITTED BY THE HON'BLE UTTARAKHAND HIGH COURT TO T HE FILE OF THE ASSESSING OFFICER TO CONSIDER WHETHER THERE IS ANY LIABILITY UNDER SECTION 234B ON THE BASIS THAT THE AMOUNTS IN QUEST ION WOULD BE ASSESSED UNDER SECTION 44BB OF THE ACT. 14. RESPECTFULLY FOLLOWING THE JUDGMENT OF THE UT TARAKHAND HIGH COURT (WHICH IS ALSO THE JURISDICTIONAL HIGH COURT FOR THE ASSESSEE) I.T.A. NO. 5822/DEL/2011 ASSESSMENT YEAR 2008-09 9 WE HOLD THAT THE ENTIRE RECEIPTS OF THE ASSESSEE WI LL BE CHARGEABLE TO TAX UNDER SECTION 44BB OF THE ACT. AS FAR AS TH E ISSUE OF CHARGING OF INTEREST U/S 234B AND 234C IS CONCERNED , KEEPING IN LINE WITH THE DIRECTIONS OF THE HONBLE JURISDICTIO NAL HIGH COURT IN THIS REGARD, WE REMIT BACK THE MATTER TO THE FILE O F THE ASSESSING OFFICER TO GIVE A SPECIFIC FINDING AS TO WHETHER AN Y LIABILITY WOULD ARISE U/S 234B AND 234C OF THE ACT SINCE ALL THE RE CEIPTS ARE TO BE ASSESSED U/S 44BB OF THE ACT. 15. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS P ARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 29TH APRIL, 2016. SD/- SD/- (N.K. SAINI) (SUDHANSHU SRIVASTAVA) ACCOUNTANT MEMBER JUDICI AL MEMBER DATED: THE 29TH OF APRIL, 2016 GS COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 4. DR, ITAT BY ORDER ASSTT. REGISTRAR