ADIT Intl. Taxation, Dehradun V. M/s Tidewater Marine Intl. Inc., Dehradun

ITA 592/DEL/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 6865 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-02-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 07-12-2015
• Assessment Year: 2004-2005
• Appeal Filed On: 31-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: ANUJ KUMAR ARORA
• Keywords: Reopening of assessment; Recovery proceedings; Business income; Depreciation; Rectification of order; Double taxation relief; Tangible material; Difference of opinion; Reason to believe; Change of opinion; Reassessment proceedings
• Section: 143(3); 234B; 147; 148; 154

Judgement Text

53S INCOME TAX APPELLATE TRIBUNAL DELHI BENCH H: NEW DELHI BEFORE SHRI I.C.SUDHIR, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NOS. 592 /DEL/2013 (ASSESSMENT YEAR: 2004 - 05) ITA NO. 746 /DEL/2013 (ASSESSMENT YEAR: 2009 - 10) ITA NO. 1810 /DEL/2013 (ASSESSMENT YEAR: 2009 - 10) ADIT INTL. TAXATION, 13A - SUBHASH ROAD, AYAKAR BHAWAN, DEHRADUN VS. TIDEWATER MARINE INTL. INC., C/O. NANGIA & CO. 75/7, RAJPUR ROAD, DEHRADUN PAN:AAACT7573Q (APPELLANT) (RESPONDENT) C.O. NO.63/DEL/2013 IN ITA NOS. 592 /DEL/2013 (ASSESSMENT YEAR: 2004 - 05) ITA NOS. 5289 /DEL/2010 (ASSESSMENT YEAR: 2007 - 08) ITA NOS. 5775 /DEL/2011 (ASSESSMENT YEAR: 2008 - 09) TIDEWATER MARINE INTL. INC., C/O. NANGIA & CO. 75/7, RAJPUR ROAD, DEHRADUN PAN:AAACT7573Q VS. ADIT INTL. TAXATION, 13A - SUBHASH ROAD, AYAKAR BHAWAN, DEHRADUN [TYPE HERE] 2 | P A GE (APPELLANT) (RESPONDENT) DATE OF HEARING 09 /12/2016 DATE OF PRONOUNCEMENT 07/ 02/2016 ASSESSEE BY: SH. ANUJ KUMAR ARORA, CIT DR REVENUE BY: SH. AMIT ARORA, CA O R D E R PER PRASHANT MAHARISHI, A. M. 1 . CAPTIONED APPEALS ARE BUNCH OF 6 APPEALS FOR AY 2004 - 05 TO 2009 - 10 OUT OF WHICH 4 APPEALS ARE PERTAINING TO A SINGLE ISSUE OF TAXABILITY OF CERTAIN RECEIPTS U/S 44BB OF THE ACT. ONE APPEAL ITA NO 1810/DEL/2013 IS PREFERRED BY DEPARTMENT AGAINST THE ISSUE OF CHARGEABILITY OF INTEREST U/S 234B OF THE ACT. IT INCLUDES ONE CROSS OBJECTION AGAINST REOPENING OF ASSESSMENT U/S 147 OF THE ACT FOR AY 2004 - 05 PREFERRED BY ASSESSEE. 2 . FOR THE SAKE OF CLARITY THESE APPEALS ARE TABULATED AS UNDER : - ITA NO PREFERRED BY A.Y REVENUE OF SECOND LEG CONTRACT WH ETH ER INTE REST U/S 234 B IS CHA LLEN GED ? MOBILISATION ADVANCE 592/DEL/2013) REVENUE 2004 - 05 18,03,35,319 YES N.A. 263/DEL/2013 ASSESSEE 2004 - 05 AGAINST REOPENING OF ASSESSMENT 5289/DEL/2010 ASSESSEE 2007 - 08 30,04,25,130 Y ES [TYPE HERE] 3 | P A GE 5775/DEL/2011 ASSESSEE 2008 - 09 3,70,49,514 YES N.A. 746/DEL/2013 REVENUE 2009 - 10 99,24,572 13477470 1810/DEL/2013) REVENUE 2009 - 10 NA YES NA 3 . WE FIRST TAKE UP THE CROSS OBJECTION FILED BY ASSESSEE IN ITA NO 592/DEL/2013 FOR AY 2004 - 05 I.E. CO. NO 63/ DEL/2013 WHICH IS AGAINST REOPENING OF THE ASSESSMENT FOR AY 2004 - 05 RAISING FOLLOWING GROUNDS : - I . THAT THE LD. COMMISSIONER OF INCOME - TAX, APPEALS - 11, DEHRADUN [CIT(A)] ERRED IN NOT HOLDING THAT THE REASSESSMENT PROCEEDINGS WERE BAD IN LAW BECAUSE IN THE ABSENCE OF ANY NEW MATERIAL, THE ASSESSING OFFICER COULD NOT HAVE FORMED ANY REASON TO BELIEVE THAT INCOME HAD ESCAPED ASSESSMENT. II . THAT THE LD. CIT ( A) ERRED IN NOT HOLDING THAT THE REASSESSM ENT PROCEEDINGS WERE BAD IN LAW BECAUSE IN THE ABSENCE OF ANY TANGIBLE NEW MATERIAL WHICH CAN POSSIBLY JUSTIFY THE REOPENING OF ASSESSMENT UNDER SECTION 148. III . THAT THE LD. CIT ( A) ERRED IN NOT HOLDING THAT THE NOTICE UNDER SECTION 148 WAS BAD IN LAW AND HEN CE THE RESULTANT REASSESSMENT PROCEEDINGS WERE VOID AB - INITIO. [TYPE HERE] 4 | P A GE 4 . BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY EXISTING UNDER THE LAWS OF PANAMA ENGAGED IN THE BUSINESS OF THE PROVIDING OFFSHORE SUPPLY OF VEHICLES AND ASSOCIATED SERVICES TO TH E OIL AND GAS INDUSTRY. DURING THE YEAR IT HAS RECEIVED REVENUE OF RS.461251558/ - AND OFFERED SAME TO TAX U/S 44BB OF THE INCOME TAX ACT, 1961. NOTICE U/S 148 WAS ISSUED ON 28.03.2011 U/S 147 OF THE ACT AND SUBSEQUENTLY AN ORDER U/S 143(3) READ WITH SECT ION 147 WAS PASSED ON 07 TH FEBRUARY 2012. IN THIS ORDER THE AO HAS HELD THAT THE REVENUE RECEIVED BY THE ASSESSEE FROM VARUN SHIPPING COMPANY LTD. OF RS.3931625/ - , SUBTEC MIDDLE EAST OF RS.15842689/ - AND J. RAY MCDERMOTT EASTERN HEMISPHERE LTD. OF RS.16056 1005/ - ARE IN THE NATURE OF ROYALTY AS THEY PERTAIN TO SECOND LEG CONTRACTS NOT ELIGIBLE FOR PREFERENTIAL TREATMENT U/S44BB OF THE INCOME TAX ACT AND THEREFORE ARE IN THE NATURE OF ROYALTY U/S 9(1 ) ( VI) OF THE ACT AND THEY ARE THEREFORE CHARGEABLE TO TAX @25%. 5 . THE ASSESSEE AGGRIEVED WITH THIS ORDER PREFERRED AN APPEAL BEFORE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS). THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE HOLDING THAT THE SERVICE HAVE BEEN RENDERED ON EQUIPMENT HIRE ARE FOR THE PURPOSE OF EXTRACTING MINERAL OIL. FOLLOWING THE DECISION OF CGG VERITAS IN IT A NO.4653/DEL/2010 DATED 25.01.2012 HELD THAT THIS INCOME ARE CHARGEABLE TO TAX NOT AS ROYALTY BUT U/S 44BB OF THE ACT. REGARDING CHARGEABILITY OF INTE REST U/S 234 OF THE ACT FOLLOWING [TYPE HERE] 5 | P A GE THE DECISION OF MAERSK COMPANY LTD. 334 ITR 79 HELD THAT IT IS NOT CHARGEABLE. THEREFORE REVENUE IS IN APPEAL ON THE LIMITED ISSUE THAT THE INCOME OF THE ASSESSEE FROM NON - PSC VENDORS IS CHARGEABLE TO TAX AS ROYALTY. 6 . THE ASSESSEE IS A SUB - CONTRACTOR ENGAGED IN RENTAL OF VESSELS. REVENUE CONTESTED THAT DECISION OF CGG VERITAS (SUPRA) HAS NOT BEEN ACCEPTED BY THE REVENUE AND THOUGH APPEAL HAS NOT BEEN FILED BEFORE THE HONBLE HIGH COURT BUT A MISCELLANEOUS APPLICATION IS PE NDING BEFORE THE TRIBUNAL. REGARDING THE ISSUE OF LEVY OF INTEREST U/S 234B IT IS CONTESTED THAT REVENUE HAS FILED SPECIAL LEAVE PETITION BEFORE THE SUPREME COURT AGAINST THE CASE OF JACOB CIVIL INCORPORATED ON SIMILAR ISSUE. THE ASSESSEE HAS CHALLENGED TH E ISSUE OF REOPENING BEFORE US. 7 . ON THE ISSUE OF REOPENING THE LD. AR SUBMITTED THAT ORIGINAL ORDER HAS BEEN FRAMED IN THE CASE OF THE ASSESSEE U/S 143(1) AND REASSESSMENT NOTICE U/S 147 HAS BEEN ISSUED ON 28 TH MARCH 2011 AND APPROVAL IS ALSO GRANTED BY THE SUPERVISORY AUTHORITY. HE SUBMITTED THAT THERE IS CHANGE OF OPINION ON THAT ASPECT. 8 . AGAINST THIS THE LD. DR SUBMITTED THAT THERE IS FAILURE ON THE PART OF THE ASSESSEE IN OFFERING THE ENTIRE REVENUE U/S 44BB OF THE ACT WHICH IS NOT CORRECT AS THE ASS ESSEE IS ONLY PROVIDING SUPPORTING VESSELS WHICH USED FOR LOGISTIC PURPOSE AND THESE VESSELS ARE NOT [TYPE HERE] 6 | P A GE USED FOR DRILLING OR EXPLORATION PURPOSES AND THEREFORE IT IS MERELY RENT FOR THE VESSELS IT IS NOT COVERED U/S 44BB OF THE ACT. HE FURTHER SUBMITTED THAT THERE IS AN AMENDMENT IN THE FINANCE BILL 2010 W.E.F. 01.04.2011 COUPLED WITH THE DECISION OF FORAMER FRANCE PROVIDES ENOUGH TANGIBLE MATERIAL FOR FORMATION OF BELIEF TO THE AO FOR REOPENING OF THE ASSESSMENT. 9 . WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTE NTION AND NOTE THAT NOTICE FOR REASSESSMENT HAS BEEN ISSUED TO THE ASSESSEE ON 28 TH MARCH 2011 AND ORIGINAL RETURN WAS PROCESSED U/S 143(1) ON 24.01.2005. IN RESPONSE TO THAT NOTICE ON 13 TH APRIL 2011 THE ASSESSEE SUBMITTED THAT RETURN FILED ORIGINALLY ON 25 TH OCTOBER 2004 MAY BE TREATED AS RETURN IN RESPONSE TO NOTICE U/S 148. REASONS FOR REOPENING WERE PROVIDED. FURTHER THE ASSESSEE DID NOT FILE ANY OBJECTION AGAINST THE REASONS RECORDED FOR REOPENING. 10 . ON PERUSAL OF THE ORDER OF CIT (A) WE COULD NOT FIND THAT GROUND CHALLENGING THE REOPENING OF THE ASSESSMENT HAS BEEN RAISED BEFORE HIM. HOWEVER AS THE ASSESSEE HAS RAISED THIS LEGAL GROUND WHICH ACCORDING TO ESTABLISHED LEGAL PROPOSITION ASSESSEE CAN RAISE AT ANY TIME OF THE PROCEEDINGS. NO FURTHER FACTS ARE ALSO REQUIRED TO BE OBTAINED ON THIS ISSUE, THEREFORE WE DO NOT SET ASIDE THIS ISSUE TO THE FILE OF CIT (A) BUT ADJUDICATE IT. 11 . O RIGINAL AS SESSMENT IS FRAMED U/S 143(1) ON 28.01.2004 THERE CANNOT BE ANY CHANCE BEFORE THE AO OF APPLICATION OF MIND AND [TYPE HERE] 7 | P A GE FRAMING OF OPINION AND THEREFORE WE REJECT THE CONTENTION OF THE ASSESSEE THAT THERE IS CHANGE OF OPINION. IT IS AN ADMITTED FACT THAT FOR EARL IER YEARS ASSESSEE HAS TAKEN THE VIEW WHICH IS BEING CONTESTED BY REVENUE IN THIS YEAR. HOWEVER AS THE ORIGINAL ASSESSMENT IS JUST A PROCESSING OF RETURN OF INCOME U/S 143(1 ), THERE IS NO APPLICATION OF MIND BY AO AT THAT TIME THEREFORE THERE CANNOT BE ANY CHANGE OF OPINION. FOR THIS PROPOSITION ASSESSEE HAS RELIED ON THE DECISION OF HONOURABLE HIGH COURT OF UTTARAKHAN D IN B J SERVICE COMPANY MIDDLE E AST LTD & OTHERS V DCIT (INTL. TAXATION) 339 ITR 169. WE HAVE CAREFULLY PE RUSED THIS DECISION WHERE IN ACCORDING TO THE FACTS OF THE CASE ORIGINAL ASSESSMENT WAS FRAMED U/S 143(3) OF THE ACT AND THEREFORE HONOURABLE HIGH COURT HAS HELD THAT 52. TO RECAPITULATE, THE REASONS GIVEN FOR INITIATING PROCEEDING UNDER SECTION 148 OF THE ACT IS : (A) THAT TH E SERVICES RENDERED ARE TECHNICAL IN NATURE AND IS LIABLE TO BE TAXED AS A FEE FOR TECHNICAL SERVICES IN VIEW OF THE DECISION OF THE UTTARANCHAL HIGH COURT IN THE CASE OF CIT V. O. N. G. C. [2008] 299 ITR 438 (UTTARANCHAL) ; AND (B) THE EXPLANATORY NOTES TO THE FINANCE BILL INDICATING THAT THE COMBINED EFFECT OF THE PROVISIONS OF SECTIONS 44BB, 44DA AND 115A IS THAT THE INCOME OF A NON - RESIDENT IS IN THE NATURE OF FEE FOR TECH NICAL SERVICES, AND THAT IT IS TAXABLE UNDER THE PROVISIONS OF SECTION 44DA OR [TYPE HERE] 8 | P A GE SECTION 115A IRRESPECTIVE OF THE BUSINESS TO WHICH IT RELATES. 53. IN VIEW OF THE DECISION OF THE DELHI HIGH COURT IN BHAI SUNDER DASS AND SONS CO. P. LTD. V. CIT [2003] 259 ITR 33 (DELHI) AND THAT OF THE GUJARAT HIGH COURT IN AUSTIN ENGINEERING CO. LTD. V. JOINT CIT [2009] 312 ITR 70 (GUJ), THIS COURT IS OF THE VIEW THAT SUBSEQUENT PRONOUNCEMENT BY A COURT OR A SUPERIOR COURT DOES NOT ENTITLE THE ASSESSING OFFICER TO REOPEN THE ASSESSMENT PROCEEDINGS ON THE GROUND THAT THE ASSESSING OFFICER HAS REASONS TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT OR THAT THE ASSESSEE HAS NOT FULLY AND TRULY DISCLOSED ALL THE MATERIAL FACTS. THE CLAIM OF THE ASSESSEE COULD NOT BE TERMED TO BE EITHER LACKING IN MATERIAL PARTICULARS NOR COULD IT BE TERMED TO BE UNTRUE. THE ASSESSEE HAS DI SCLOSED ALL MATERIAL FACTS AND NO FALSE FACTS HAVE BEEN STATED. THE REASONS RECORDED SHOWS THAT THE ASSESSING OFFICER HAS REASONS TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT ON THE BASIS OF A SUBSEQUENT DECISION RENDERED BY THIS COURT. IN THE OPINION OF THE COURT, THIS REASONING AMOUNTS TO A CHANGE OF OPINION BY THE ASSESSING OFFICER. FURTHER, THERE IS NO FAILURE ON THE PART OF THE ASSESSEE IN DISCLOSING FULLY AND TRULY ALL MATERIAL FACTS. 54. IN SO FAR AS THE SECOND REASON IS CONCERNED, THE COURT FINDS T HAT THE PRIMARY FACTS HAD BEEN DISCLOSED BY THE [TYPE HERE] 9 | P A GE PETITIONER, NAMELY, THE AGREEMENT/ CONTRACTS WERE PLACED BEFORE THE ASSESSING OFFICER. THE COURT FURTHER FINDS THAT THE ASSESSING OFFICER HAD DISCUSSED THE CONTRACTS IN THE ASSESSMENT ORDER PASSED UNDER SECTI ON 143(3) OF THE ACT. THE COURT FINDS THAT THE ASSESSING OFFICER HAD APPLIED HIS MIND, MADE NECESSARY ENQUIRY AND UPON VERIFICATION OF FACTS REJECTED THE STAND OF THE REVENUE AND CONCLUDED THAT THE INCOME WAS LIABLE TO BE CHARGED UNDER SECTION 44BB OF THE ACT AND NOT UNDER SECTION 44D READ WITH EXPLANATION 2 TO SECTION 9(1)(VII) OF THE ACT. THE ASSESSING OFFICER WAS OF THE OPINION THAT THE SERVICES PROVIDED BY THE PETITIONER FALLS UNDER SECTION 44BB OF THE ACT. THE FULL BENCH OF THE DELHI HIGH COURT IN THE CASE OF KELVINATOR [2002] 256 ITR 1 (DELHI) HAS HELD THAT WHERE AN ASSESSMENT ORDER HAS BEEN PASSED UNDER SECTION 143(3) OF THE ACT, A PRESUMPTION CAN BE DRAWN THAT SUCH AN ORDER HAD BEEN PASSED ON DUE APPLICATION OF MIND . BECAUSE IN CASE OF THE ASSESSEE ORIGINAL ASSESSMENT IS NOT U/S 143(3) BUT MERELY RETURNS WERE PROCESSED U/S 143(1) OF THE ACT, RELIANCE ON ABOVE DECISION IS MISPLACED. 12 . HONOURABLE SUPREME COURT HAS HELD IN CASE OF DCIT V ZUARI ESTATE DEVELOPMENT AND INVESTMENT COMPANY LIMITED 373 ITR 661 ( SC) THAT [TYPE HERE] 10 | P A GE 2. AFTER GOING THROUGH THE DETAILED ORDER PASSED BY THE HIGH COURT, WE FIND THAT THE MAIN ISSUE WHICH IS INVOLVED IN THIS CASE IS NOT AT ALL ADDRESSED BY T HE HIGH COURT. A CONTENTION WAS TAKEN BY THE APPELLANT - DEPARTMENT TO THE EFFECT THAT SINCE THE ASSESSEE'S RETURN WAS ACCEPTED UNDER SECTION 143(1) OF THE INCOME - TAX ACT, THERE WAS NO QUESTION OF 'CHANGE OF OPINION' INASMUCH AS WHILE ACCEPTING THE RETURN UN DER THE AFORESAID PROVISION NO OPINION WAS FORMED AND, THEREFORE, ON THIS BASIS, THE NOTICE ISSUED WAS VALID. WE FIND THAT THIS ASPECT IS SQUARELY COVERED BY THE JUDGMENT OF THIS COURT IN ASST. CIT V. RAJESH JHAVERI STOCK BROKERS PRIVATE LTD. [2008] (14) S CC 208* IN THE FOLLOWING MANNER : 'IN THE SCHEME OF THINGS, AS NOTED ABOVE, THE INTIMATION UNDER SECTION 143(1)(A) CANNOT BE TREATED TO BE AN ORDER OF ASSESSMENT. THE DISTINCTION IS ALSO WELL BROUGHT OUT BY THE STATUTORY PROVISIONS AS THEY STOOD AT DIFFERE NT POINTS OF TIME. UNDER SECTION 143(1)(A) AS IT STOOD PRIOR TO APRIL 1, 1989, THE ASSESSING OFFICER HAD TO PASS AN ASSESSMENT ORDER IF HE DECIDED TO ACCEPT THE RETURN, BUT UNDER THE AMENDED PRO VISION, THE REQUIREMENT OF PASSING OF AN ASSESSMENT ORDER HAS BEEN DISPENSED WITH AND INSTEAD AN INTIMATI ON IS REQUIRED TO BE SENT. VARI OUS CIRCULARS SENT BY THE CENTRAL BOARD OF DIRECT TAXES SPELL OUT THE INTENT OF THE LEGISLATURE, I.E., TO MINIMISE THE DEPARTMENTAL WORK TO SCRUTINISE EACH AND EVERY RETURN AND TO C ONCENTRATE ON [TYPE HERE] 11 | P A GE SELECTIVE SCRUTINY OF RETURNS. THESE ASPECTS WERE HIGHLIGHTED BY ONE OF US (D. K. JAIN J.) IN APOGEE INTERNATIONAL LTD. V. UNION OF INDIA**. IT MAY BE NOTED ABOVE THAT UNDER THE FIRST PROVISO TO THE NEWLY SUBSTITUTED SECTION 143(1), WITH EFFE CT FROM JUNE 1, 1999, EXCEPT AS PROVIDED IN THE PROVISION ITSELF, THE ACKNOWLEDGMENT OF THE RETURN SHALL BE DEEMED TO BE AN INTIMATION UNDER SECTION 143(1) WHERE (A) EITHER NO SUM IS PAY ABLE BY THE ASSESSEE, OR (B) NO REFUND IS DUE TO HIM. IT IS SIGNIFICA NT THAT THE ACKNOWLEDGMENT IS NOT DONE BY ANY ASSESSING OFFICER, BUT MOSTLY BY MINISTERIAL STAFF. CAN IT BE SAID THAT ANY 'ASSESSMENT' IS DONE BY THEM ? THE REPLY IS AN EMPHATIC 'NO'. THE INTIMATION SECTION 143(1)(A) WAS DEEMED TO BE A NOTICE OF DEMAND UND ER SECTION 156, FOR THE APPARENT PURPOSE OF MAKING MACHINERY PROVISIONS RELATING TO RECOVERY OF TAX APPLICABLE. BY SUCH APPLICATION ONLY RECOVERY INDICATED TO BE PAYABLE IN THE INTIMATION BECAME PERMISSIBLE. AND NOTHING MORE CAN BE INFERRED FROM THE DEEMIN G PROVISION. THEREFORE, THERE BEING NO ASSESSMENT UNDER SECTION 143(1)(A), THE QUESTION OF CHANGE OF OPINION, AS CONTENDED, DOES NOT ARISE.' 3. THE OFFSHOOT OF THE AFORESAID DISCUSSION IS TO HOLD THAT THE JUDGMENT OF THE HIGH COURT IS ERRONEOUS AND WARRANT S TO BE SET ASIDE. WE ALLOW THIS APPEAL SETTING ASIDE THE IMPUGNED JUDGMENT OF THE HIGH COURT. [TYPE HERE] 12 | P A GE 13 . THEREFORE WE HOLD THAT AS THE ORIGINAL RETURNS WERE ACCEPTED U/S 143(1) OF THE ACT THERE CANNOT BE ANY CHANGE OF OPINION AND THEREFORE REOPENING IS VALID . REOPE N ING IS NOT CHALLENGED BEFORE US ON ANY OTHER GROUND. HENCE WE DISMISS THE CO OF THE ASSESSEE ACCORDINGLY. 14 . NOW WE CO ME TO THE APPEAL S OF THE REVENUE FOR AY 2004 - 05 ( ITA NO 592/DEL/2013) 15 . THE REVENUE HAS FILED THIS APPEAL AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) - II, DEHRADUN DATED 08.11.2012 FOR THE ASSESSMENT YEAR 2004 - 05 RAISING THE FOLLOWING GROUNDS OF APPEAL: - (I) WHETHER CIT(A) HAS ERRED IN HOLDING THAT RECEIPTS OF THE ASSESSEE AS A SUBCONTRACTOR ENGAGED IN RENTAL OF VES SELS IS NOT ROYALTY U/S 9(I)(VI) OF THE ACT. (II) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN HOLDING THAT THE RECEIPTS ON ACCOUNT OF HIRE OF MARINE OFFSHORE SUPPLY VESSEL WAS NOT IN THE NATURE OF ROYALTY U/S 9(I)(VI) OF TH E IT. ACT, 1961 AND ELIGIBLE FOR 44BB. (III) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE CIT (A) HAS ERRED IN HOLDING THAT THE ASSESSEE WAS ELIGIBLE FOR SEC. 44BB EVEN THOUGH THE NATURE OF SERVICES RENDERED BY THE ASSESSEE WAS EQUIPMENT HIRE REJ ECTING THE DISTINCTION BETWEEN FIRST LEG AND SECOND LEG AND PSC VS. NON PSC [TYPE HERE] 13 | P A GE VENDORS MADE BY AO, PURELY ON THE GROUNDS THAT IT HAD NO JUDICIAL PRECEDENT. (IV) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE CIT (A) HAS ERRED IN IGNORING THE DISTINCT SCHEME OF TAXATION OF ROYALTY/FTS AND HOLDING THAT THE INCOME OF THE ASSESSEE WAS TAXABLE UNDER THE PRESUMPTIVE PROVISIONS OF SEC. 44BB, DISREGARDING THE INSERTION OF PROVISO IN SECTION 44BB/44DA/115A AND THE RATIONALE BEHIND THE INTRODUCTION OF SAID CLARI FICATORY PROVISO'S IN THE FINANCE BILL 2010. (V) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE CIT (A) HAS ERRED IN RELYING ON THE DECISION OF THE ITAT IN THE CASE OF M/S CGG VERITAS IN HOLDING THAT THE INCOME OF THE ASSESSEE COMPANY WAS COVERED UNDER THE PROVISIONS OF SECTION 44BB GIVEN AO'S FINDING REGARDING PE IGNORING THAT THE SAID DECISION OF THE ITAT HAS NOT BEEN ACCEPTED BY THE DEPARTMENT, AND A MA HAS BEEN FILED, WHILE APPEAL WAS NOT FILED PURELY ON ACCOUNT OF TAX. (VI) WHETHER ON THE FACT S AND CIRCUMSTANCES OF THE CASE THE CIT (A) HAS ERRED IN HOLDING THAT INTEREST U/S 234 - B WAS NOT CHARGEABLE IN THIS CASE BY RELYING UPON THE DECISION OF HON'BLE UTTRAKHAND HIGH COURT IN THE CASE OF MAERSK (334 ITR 79) WHEREAS THE DEPARTMENT HAS CONTESTED T HE ISSUE AND HAS FILED SIP BEFORE THE APEX COURT AGAINST IN THE CASE OF JACOBS CIVIL INCORPORATED/ MITSUBISHI INVOLVING SIMILAR ISSUE. [TYPE HERE] 14 | P A GE (VII) WHETHER ON THE FACTS AND CIRCUMSTANCE OF THE CASE CIT(A) HAS NOT APPRECIATED THAT ASSESSEE HAS FAILED TO DISTINGUI SH THE CASE OF ONGC VS. IAC 29 ITD 422 WHICH CLEARLY STATES THAT SECTION 44BB WILL NOT APPLY TO THE CASE OF A MERE TRANSPORT VESSEL, AND THAT THE FACILITY HIRED OUT HAS TO BE INTIMATELY CONNECTED WITH THE PROSPECTING FOR OILS ETC. 16 . FOLLOWING BROAD ISSUES THAT EMERGES FOR THE ADJUDICATION ARE: - A . RECEIPT OF THE ASSESSEE IS RENTAL OF VESSELS RECEIVED FROM NON - PRODUCTION SHARING COMPANIES (I.E. SECOND LEG CONTRACTS) AND THEREFORE REVENUE CONTENDS THAT IT IS ROYALTY US./ 9 (1) (VI) OF THE INCOME TAX ACT AND THEREFORE PROVISIONS OF SECTION 44BB DOES NOT APPLY TO IT. AGAINST THIS ASSESSEE IS SUBMITTING THAT IT IS CHARGEABLE TO TAX U/S 44BB OF THE ACT. B . INTEREST U/S 234B OF THE ACT IS CHARGEABLE ACCORDING TO REVENUE WHEREAS ASSESSEE CONTENDS THAT SAME IS NOT CHARGEABLE IN VIEW OF THE DECISION OF HONOURABLE JURISDICTIONAL HIGH COURT. 17 . BEFORE US REVENUE CONTENDED BY WRITTEN SUBMISSIONS AS UNDER : - A ) IN TERMS OF THE PROVISIONS OF SECTION 44BB, THE RECEIPT OF ONLY SUCH NON - RESIDENT ASSESSEE WHO HAS SUPPLIED PLANT AND MACHINERY ON HIRE USED FOR THE PURPOSES OF 'PROSPECTING FOR, OR EXTRACTION OR PRODUCTION, OF MINERAL OILS' SHALL BE ELIGIBLE FOR THE BENEF IT UNDER SECTION 44BB [TYPE HERE] 15 | P A GE OF THE ACT. IT IS NOTABLE THAT THE PHRASE 'USED OR TO BE USED IS USED IN S 44BB IS IN CONTEXT OF 'SUPPLYING PLANT AND MACHINERY ON HIRE'. THIS IS IN CONTRAST WITH THE PHRASE 'IN CONNECTION WITH' APPLIED FOR 'PROVIDING SERVICES OR FAC ILITIES' IN THE SAME SECTION. THE PHRASE 'USED OR TO BE USED' IS USED IN CONTEXT OF PLANT AND MACHINERY AND IS IN CONJUNCTION WITH THE TERM 'PROSPECTING FOR, OR EXTRACTION OR PRODUCTION, OF MINERAL OILS'. THUS, THE LEGISLATURE NEVER INTENDED TO INCLUDE FOL LOWING RECEIPTS UNDER THE PURVIEW OF SECTION 44BB: ( I ) RECEIPTS RELATING TO VESSELS / SHIPS USED FOR TRANSPORTATION SIMPLICITOR; ( II ) RECEIPTS OF SUB - HIRING. B ) HE FURTHER RELIED ON FOLLOWING DECISIONS A . ITAT IN ACIT V. INTEROCEAN SHIPPING (I) (P.) LTD. [1994] 51 ITD 5 82 (DELHI) (PARA 8) B . GEOFIZYKA TORUN SP.ZO.O, IN RE, [2010] 186 TAXMAN 213 (AAR), C . ITAT IN ONGC V INSPECTING ASSISTANT COMMISSIONER [1989] 29 ITD 422 (DELHI) (1989) 33 TTJ 606 D . HON'BLE SUPREME COURT IN THE CASE OF UNION OF INDIA V. GOSALIA SHIPPING (P.) LTD. [19781 113 ITR 307 [TYPE HERE] 16 | P A GE E . SUPREME COURT IN CIT V. AJAX PRODUCTS LTD (55 ITR 741) ONE HAS TO LOOK MERELY AT WHAT IS CLEARLY SAID. C ) IT IS HUMBLY SUBMITTED THAT THE COURT NEED NOT READ ANYTHING INTO A STATUTORY PROVISION WHICH IS PLAIN AND UNAMBIGUOUS (CASUS OMISSUS RULE - HON'BLE SUPREME COURT IN PRAKASH NATH KHANNA & ANR. VS. COMMISSIONER OF INCOME TAX & ANR. (2004) 266 ITR 1 (SC)). D ) IN THE END HE SUBMITTED THAT THE FOLLOWING RECEIPTS OF THE ASSESSEE ARE NOT COVERED WITHIN THE BENEFICIAL PROVISIONS OF S 44BB: (A) RECEIPTS FROM SUPPLYING ON HIRE OF A MERE TRANSPORTATION VESSELS / SHIPS; AND / OR (B) RECEIPTS WHEN THE ASSESSEE IS THE SECOND (OR FURTHER) LEG SUPPLIER OF PLANT AND MACHINERY E ) IT IS HIS FURTHER SUBMISSION THAT ONCE THE HIRE RECEIPTS ARE EXCLUDED FROM S 44BB, THEY HAVE BEEN BROUGHT TO TAX BY THE AO AS EQUIPMENT ROYALTY AS RECEIPTS FROM INDUSTRIAL / COMMERCIAL VESSELS / SHIPS U/S 9(1) ( VI) OF THE ACT. HE DEFENDED THAT AO TREATED ALL HIRING RECEIPTS AS 'ROYALTY' INCOME WITHIN THE MEANING OF 9(1)(VI) AND PR OCEEDED TO TAX IT AS BUSINESS INCOME SINCE APPLICABILITY OF DTAA HAS NOT BEEN CLAIMED. HOWEVER, SINCE NO BOOKS OF ACCOUNT WERE MAINTAINED / PRODUCED BY THE ASSESSEE, THE [TYPE HERE] 17 | P A GE AO ESTIMATED BUSINESS INCOME @25% OF GROSS RECEIPTS, AND TAXED IT ACCORDINGLY. F ) REGARDI NG RELIANCE BY ASSESSEE ON SBS MARINE LIMITED ( ITAT ) HE SUBMITTED THAT IT IS DISTINGUISH ABLE ON FACTS THE MAIN ISSUE THEREIN IS RESTRICTED TO SBS MARINE BEING A SECOND (OR FURTHER) LEG SUPPLIER. IN THE PRESENT CASE OF THE ASSESSEE, TIDEWATER, THE MAIN ISSUE IS THAT THE VESSELS SUPPLIED MERE TRANSPORTATION VESSELS, USED FOR 'TRANSPORTING GOODS, SUPPLIES OR EQUIPMENT IN SUPPORT OF EXPLORATION OR PRODUCTION OF OFFSHORE MINERAL AND ENERGY SOURCES'. G ) HE FURTHER SUBMITTED THAT THE CONTRASTING PHRASES 'IN CONNE CTION WITH' AS AGAINST 'USED, OR TO BE USED1 ARE BEING APPROPRIATELY EMPHASIZED AND CONTRASTED / COMPARED NOW. THE SBS MARINE DECISION IS SILENT ON THIS CRITICAL ASPECT. H ) REGARDING DECISIONS OF SWIBER OFFSHORE MARINE PTE LTD. ITA NO. 5652 / DEL / 2011 AY 2 005 - 06: SWIBER WAS WORKING UNDER A COMPOSITE CONTRACT HAVING NUMBER OF ELEMENTS OF WHICH ONLY ONE ASPECT COVERED TRANSPORTATION. IN THE PRESENT CASE OF THE ASSESSEE, TIDEWATER, THE CONTRACTS ARE DISTINCTLY / PURELY TRANSPORTATION SIMPLICITOR CONTRACTS. 18 . LD. AR CONTENDED THAT THE ISSUE IS NOW SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY NUMBER OF TRIBUNAL DECISION. HE [TYPE HERE] 18 | P A GE PARTICULARLY RELIED ON THE DECISION OF ITAT IN CASE OF SBS MARINE LIMITED WHICH HAS BEEN UPHELD BY HONOURABLE HIGH COURT RELYING ON DE CISION OF HONOURABLE SUPREME COURT. LD A R ALSO MADE WRITTEN SUBMISSION DEALING WITH THE ABOVE DECISION AS WELL AS PUTTING HIS SUBMISSION ON ISSUES RAISED BY LD. DR. THE MAIN ARGUMENTS OVER AND ABOVE THE CL IN CHING ARGUMENT OF THE AR WERE : - A ) THE REVENUE IS TAKING DIFFERING STAND IN AY 2003 - 04 THESE ALL PAYMENTS WERE CONSIDERED U/S 44BB OF THE ACT THEREFORE ON THE GROUND OF CONSISTENCY THIS ISSUES BY DECIDED IN FAVOUR OF THE ASSESSEE. B ) THAT THE EXPLANATION TO SECTION 44B SAYS THAT 'PLANT' INCL UDES SHIPS, AIRCRAFT, VEHICLES, DRILLING UNITS, SCIENTIFIC APPARATUS AND EQUIPMENT, USED FOR THE PURPOSES OF THE SAID BUSINESS; IT IS PERTINENT TO MENTION THAT THE AIRCRAFT AND VEHICLES SPECIFIED IN THE DEFINITION OF PLANT AND MACHINERY CAN ONLY BE USED FO R TRANSPORTATION OF MEN, MATERIAL AND EQUIPMENTS FROM ONSHORE TO OFFSHORE. IT IS FURTHER SUBMITTED THAT THE PLANT & MACHINERY COVERED UNDER SECTION 44BB OF THE ACT ARE EXCLUDED FROM THE DEFINITION OF TERM ROYALTY. C ) HE RELIED ON FOLLOWING DECISIONS TO SUP PORT HIS VIEWS ON THIS ISSUE. A . LOUIS DREYFUS ARMATEURES SAS IN ITA NO. 5814/DEL/2010 DATE OF PRONOUNCEMENT 17 - 02 - 2015 [TYPE HERE] 19 | P A GE B . ADIT VS. BAKER HUGHES SINGAPORE PTE. LTD ITA NO.744/DEL/2013 DATE OF PRONOUNCEMENT 20 - 04 - 2015 C . PRIDE OFFSHORE INTERNATIONAL LLC VS. ADIT IN ITA NO. 5406/DEL/2012 D ) ON RET R OS PECTIVE APPLICABILITY OF SECTION 44BB AND 44 DA BY THE FINANCE ACT 2010 HE RELIED ON OUR SUBMISSIONS IN RESPECT OF ARGUMENT NO. 1 I.E. AMENDMENT IN SECTION 44BB AND 44DA SHOULD BE READ AS RETROSPECTIVE E ) THEREAFTER HE SUBMITT ED THAT HOW CASE LAWS RELIED UP ON BY THE LD DR DOES NOT APPLY TO THE FACTS OF THE CASE. 19 . WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS . WE TAKE UP THE FIRST GROUND OF APPEAL OF REVENUE WHICH IS AGAINST THE ISSUE OF CHARGEABILITY OF TAX ON THE RECEIPT OF RENTAL INCOME FROM NON PSC COMPANIES OFFERED FOR TAXATION U/S 44BB OF THE ACT BY ASSESSEE. WE HAVE PERUSED AND CONSIDERED ALL THE D ECISION CITED BEFORE US WHICH WE CONSIDERED AS RELEVANT FOR DECIDING THE ISSUE. 20 . PROVISIONS OF SECTION 44BB ARE AS UNDER : - SPECIAL PROVISION FOR COMPUTING PROFITS AND GAINS IN CONNECTION WITH THE BUSINESS OF EXPLORATION, ETC., OF MINERAL OILS (1) NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN SECTIONS 28 TO 41 AND SECTIONS 43 AND 43A, IN THE CASE OF AN [TYPE HERE] 20 | P A GE ASSESSEE BEING A NON - RESIDENT ENGAGED IN THE BUSINESS OF PROVIDING SERVICES OR FACILITIES IN CONNECTION WITH, OR SUPPLYING PLANT AND MACH INERY ON HIRE USED, OR TO BE USED, IN THE PROSPECTING FOR, OR EXTRACTION OR PRODUCTION OF, MINERAL OILS, A SUM EQUAL TO TEN PER CENT. OF THE AGGREGATE OF THE AMOUNTS SPECIFIED IN SUB - SECTION (2) SHALL BE DEEMED TO BE THE PROFITS AND GAINS OF SUCH BUSINESS CHARGEABLE TO TAX UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION': PROVIDED THAT THIS SUB - SECTION SHALL NOT APPLY IN A CASE WHERE THE PROVISIONS OF SECTION 42 OR SECTION 44D OR SECTION 44DA OR SECTION 115A OR SECTION 293A APPLY FOR THE PURPOSE S OF COMPUTING PROFITS OR GAINS OR ANY OTHER INCOME REFERRED TO IN THOSE SECTIONS. (2) THE AMOUNTS REFERRED TO IN SUB - SECTION (1) SHALL BE THE FOLLOWING, NAMELY: -- (A) THE AMOUNT PAID OR PAYABLE (WHETHER IN OR OUT OF INDIA) TO THE ASSESSEE OR TO ANY PERSON ON HIS BEHALF 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, MINERAL OILS IN INDIA; AND (B) THE AMOUNT RECEIV ED OR DEEMED TO BE RECEIVED IN INDIA BY OR ON BEHALF OF THE ASSESSEE 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 PRODUCTIO N OF, MINERAL OILS OUTSIDE INDIA. (3) NOTWITHSTANDING ANYTHING CONTAINED IN SUB - SECTION (1), AN ASSESSEE MAY CLAIM LOWER PROFITS AND GAINS THAN THE PROFITS [TYPE HERE] 21 | P A GE AND GAINS SPECIFIED IN THAT SUB - SECTION, IF HE KEEPS AND MAINTAINS SUCH BOOKS OF ACCOUNT AND OTHER D OCUMENTS AS REQUIRED UNDER SUB - SECTION (2) OF SECTION 44AA AND GETS HIS ACCOUNTS AUDITED AND FURNISHES A REPORT OF SUCH AUDIT AS REQUIRED UNDER SECTION 44AB, AND THEREUPON THE ASSESSING OFFICER SHALL PROCEED TO MAKE AN ASSESSMENT OF THE TOTAL INCOME OR LOS S OF THE ASSESSEE UNDER SUB - SECTION (3) OF SECTION 143 AND DETERMINE THE SUM PAYABLE BY, OR REFUNDABLE TO, THE ASSESSEE. 21 . THEREFORE ACCORDING TO THE SECTION IT APPLIES TO ( I ) A NON RESIDENT WHO IS ENGAGED IN THE BUSINESS OF PROVIDING FACILITIES OF OR SER VICES IN CONNECTION WITH OR ( II ) IS SUPPLYING PLANT MACHINERY OR HIRE USED IN ( III ) PROSPECTING FOR OR EXTRACTION OR PRODUCTION OF MINERAL OILS ( IV ) THEN 10 % OF SPECIFIED AMOUNT SHALL BE CHARGEABLE TO TAX. ( V ) IT WOULD BE CHARGED TO TAX UNDER THE HEAD PROFITS AND GA INS OF THE BUSINESS. ( VI ) SPECIFIED AMOUNT IS SPECIFIED U/S 44BB (2) OF THE ACT. ( VII ) THERE ARE TWO EXPLANATIONS TO THE SECTION WHICH DEFINES WHAT PLANT IS AND WHAT IS MINERAL OIL. 22 . THERE IS NO DISPUTE ON APPLICABILITY OF THIS SECTION TO THE BUSINESS OF THE ASSESS EE. ONLY LIMITED ISSUE BEFORE US IS WHETHER SUPPLYING PLANT OR MACHINERY ON HIRE TO A COMPANY WHICH IN [TYPE HERE] 22 | P A GE TURNS PROVIDES SERVICES OR FACILITY TO THE COMPANY WHICH IS ENGAGED IN THE SPECIFIED BUSINESS IS ELIGIBLE FOR CLAIM OF CONCESSIONAL RATE OF TAXATIO N U/S 44BB OF THE ACT OR NOT. THIS IS IN COMMON PARLANCE REFERRED TO AS SECOND LEG CONTRACTS. THE PLANT SUPPLIED BY THE ASSESSEE ARE VESSELS AND THEREFORE THEY COVER IN THE DEFINITION OF PLANT WHICH IS ALSO NOT IN DISPUTE. 23 . COORDINATE BENCH OF ITAT IN SBS MARINE LIMITED V ADIT [ ITA 107/DEL/2012 DATED 13.2.2015 ] AFTER CONSIDERING THE DECISIONS OF HONOURABLE SUPREME COURT IN CASE OF UOI V GOSALIA SHIPPING P VT. LIMITED [113 ITR 307] & POOMPHUR SHIPPING CORPORATION LIMITED V ITO [360 ITR 257] , BOTH OF WHICH ARE HEAVILY RELIED BY THE REVENUE HAS DECIDED THIS ISSUE. FURTHER THIS DECISION OF COORDINATE BENCH HAS ALSO BEEN UPHELD BY HONOURABLE UTTARAKHAN D HIGH COURT VIDE ORDER DATED 6.8.2015 IN I TA NO 36/2015 APPLYING JUDGEMENT OF HONOURABLE S UPREME COURT IN CASE OF OIL AND NATURAL G AS COORP. LIMITED V CIT [ 376 ITR 306 ( SC) ] . THERE IS NO CONTRADICTORY DECISION OF ANY HIGH COURT PLACED BEFORE US. THEREFORE WE ARE DUTY BOUND TO FOLLOW THE DECISION APPROVED BY HONOURABLE UTTARAKHAND HIGH COU RT. COORDINATE BENCH HAS HELD AS UNDER : - 23. FURTHER, THERE IS NO REQUIREMENT OF A DIRECT CONTRACT OR AGREEMENT WITH THE PERSON ACTUALLY ENGAGED IN PROSPECTING FOR, OR EXTRACTION OR PRODUCTION OF, MINERAL OILS AS CANVASSED BY THE REVENUE FOR THE APPLICABILITY OF SECTION 44BB. ONE MAY REFER OTHER PROVISIONS OF THE STATUE WHICH INSISTS ON AN [TYPE HERE] 23 | P A GE AGREEMENT. FOR INSTANCE, SECTION 42 DEALS WITH ALLOWANCES ALLOWABLE IN COMPUTING THE PROFITS OR GAINS OF ANY BUSINESS CONSISTING OF THE PROSPECTING FOR OR EXTRA CTION OR PRODUCTION OF MINERAL OILS IN RELATION WHICH THE CENTRAL GOVT. HAS ENTERED INTO AN AGREEMENT. SECTION 80IA(4)(I)(B) PROVIDES THAT THE ENTERPRISE CARRYING ON THE BUSINESS OF DEVELOPING, OPERATING AND MAINTAINING ANY INFRASTRUCTURE FACILITY HAS TO E NTER INTO AN AGREEMENT WITH THE CENTRAL GOVERNMENT OF A STATE GOVT. OR A LOCAL AUTHORITY ETC. IN THE ABSENCE OF ANY REQUIREMENT IN SECTION 44BB THAT THE PERSON PROVIDING SERVICES, FACILITIES OR PLANT AND MACHINERY ON HIRE SHOULD HAVE DIRECTLY ENTERED INTO A CONTRACT OR AGREEMENT WITH THE PERSON ACTUALLY ENGAGED IN PROSPECTING FOR OR EXTRACTION OR PRODUCTION OF, MINERAL OILS, ONE CANNOT CURTAIL THE SCOPE OR APPLICABILITY OF SECTION 44BB TO SECOND LEG CONTRACTORS WHOSE CONTRACTS OR AGREEMENTS ARE WITH FIRST L EG CONTRACTORS BUT WHOSE SERVICES OR FACILITIES OR PLANT AND MACHINERY ARE USED IN CONNECTION WITH PROSPECTING FOR OR EXTRACTION OR PRODUCTION OF, MINERAL OILS AS REQUIRED UNDER SECTION 44BB. THE HON'BLE SUPREME COURT IN ICDS LTD V CIT [2013] 350 ITR 527 H ELD THAT THE ASSESSEE LEASING THE VEHICLES TO OTHERS WHO USE THE SAID VEHICLES IN THEIR BUSINESS OF RUNNING THEM ON HIRE IS ENTITLED FOR HIGHER RATE OF DEPRECIATION ON THE VEHICLES GIVEN ON LEASE. IT WAS HELD BY THE HON'BLE SUPREME COURT THAT THE LESSOR NE ED NOT HIMSELF USE THE VEHICLES IN THE BUSINESS OF RUNNING THEM ON HIRE. THE RATIONALE OF THE [TYPE HERE] 24 | P A GE AFORESAID DECISION OF THE SUPREME COURT MAY BE APPLIED IN THE CONTEXT OF SECTION 44BB IN AS MUCH AS SECTION 44BB DOES NOT MANDATE THAT THE ASSESSEE SHOULD DIRECTL Y ENTER INTO CONTRACT WITH THE PERSON ENGAGED IN THE BUSINESS OF PROSPECTING FOR OR EXTRACTION OR PRODUCTION OF, MINERAL OILS OR THE SERVICES OR FACILITIES OR PLANT AND MACHINERY ON HIRE SHOULD BE DIRECTLY PROVIDED TO THE SAID PERSON ALONE. WE HAVE ALREADY GIVEN A FINDING OF FACT THAT THE SERVICES AND FACILITIES PROVIDED BY THE ASSESSEE ALONG WITH PLANT AND MACHINERY ARE USED IN OFFSHORE DRILLING OPERATIONS I.E., THE ACTIVITY OF PROSPECTING FOR OR EXTRACTION OR PRODUCTION OF MINERAL OILS. CONSEQUENTLY, THE REQUIREMENTS OF SECTION 44BB ARE SATISFIED IN THE PRESENT CASE. 24. IN VIEW OF THE ABOVE, THERE IS NO MERIT IN THE CONT ENTIONS OF THE REVENUE THAT THE A SSESSEE IS NOT AN ELIGIBLE ASSESSEE UNDER SECTION 44BB SINCE IT HAS NOT DIRECTLY ENTERED INTO CONTRACT W ITH THE ONGC AND IT IS NOT UNDERTAKING THE ACTIVITIES SPECIFIED IN SECTION 44BB ITSELF AND BEING SECOND LEG CONTRACTORS THEY ARE NOT ELIGIBLE UNDER SECTION 44BB. 24 . THEREFORE IN VIEW OF THE DECISION OF SBS MARINE LIMITED V ADIT (SUPRA ) WE HOLD THAT EVEN SECOND LEG CONTRACTS ARE ALSO ELIGIBLE FOR THE BENEFIT OF TAX TREATMENT PROVIDED U/S 44BB OF THE ACT. 25 . SECOND CONTENTION RAISED WAS THAT AMENDMENT IN SECTION 44BB AND 44DA SHOULD BE READ AS RETROSPECTIVE . HONOURABLE [TYPE HERE] 25 | P A GE UTTARAKHAND HIGH COURT IN ASSESSEES OWN CASE IN 339 ITR 169 HAS HELD THAT AS STATED EARLIER, THE COMBINED EFFECT OF THE PROVISIONS OF SECTIONS 44BB, 44DA AND 115A OF THE ACT WILL NOT HAVE A BEARING TO THE CASES IN HAND INASMUCH AS THE EXPLANATORY NOTE TO THE FINANCE BILL, 2010 CLEARLY INDICATES THAT THE AMENDMENTS PROPOSED IN SECTION 44BB AND 44DA OF THE ACT WOULD TAKE EFFECT FROM 1ST APRIL, 2011 AND WOULD APPLY IN RELATION TO THE ASSESSMENT YEAR 2011 - 12 AND SUBSEQUENT YEARS. THE AMENDMENT IS PROSPECTIVE IN NATURE AND WOULD NOT APPLY TO THE CASES IN HAND WHICH IS OF THE EARLIER ASSESSMENT YEARS. HENCE WE REJECT THIS ARGUMENT OF THE REVENUE. 26 . AS WE HAVE ALREADY HELD THAT RECEIPT OF THE ASSESSEE IS CHARGEABLE TAX PERTAINING TO SECOND LEG CONTRACTS ALSO U/S 44BB OF THE I NCOME TAX ACT, CONSEQUENTLY WE REJECT THE ARGUMENT OF THE REVENUE THAT IT IS EQUIPMENT ROYALTY CHARGEABLE U/S 9(1) (VI) OF THE AND CONSEQUENTLY LIABLE TO TAX @ 25 % ON GROSS BASIS U/S 115A OF THE INCOME TAX ACT. IN VIEW OF ABOVE GROUND NO (1) TO (V ) OF APPEAL OF REVENUE ARE DISMISSED. 27 . FURTHER GROUND NO (VII) OF THE APPEAL IS ALSO DISMISSED AS WE HAVE FOLLOWED THE DECISION OF HONOURABLE HIGH COURT OF UTTARAKHAND WHICH HAS BEEN DECIDED PLACING RELIANCE ON THE DECISION OF HONOURABLE SUPREME COURT. [TYPE HERE] 26 | P A GE 28 . G ROUND NO (V I ) OF THE APPEAL IS AGAINST THE CHARGING OF INTEREST U/S 234B OF THE ACT. 29 . THE ONLY ARGUMENT OF THE LD DR IS THAT IT IS CONSEQUENTIAL AND RELIED ON THE DECISION OF 45 TAXMANN.COM 422 (DELHI HC) ALCATEL LUCENT USA, INC. 30 . LD AR AGAINST THIS SUBMITTED THAT APPELLANT BEING A NON - RESIDENT, IS NOT LIABLE TO PAY ANY ADVANCE TAX UNDER THE ACT, AS ITS ENTIRE INCOME IS SUBJECT TO DEDUCTION OF TAX AT SOURCE. ACCORDINGLY, THE APPELLANT CANNOT BE HELD LIABLE TO PAY INTEREST U/S 234B. FURTHER THE APPELLANT HAS SUBMITTED THAT LEVY OF INTEREST UNDER S. 234B IS UNWARRANTED AS THE MATTER STANDS SQUARELY COVERED BY THE DECISION OF THE HON'BLE HIGH COURTS OF UTTARAKHAND AND DELHI IN THE FOLLOWING CASES: DIT VS. GE PACKAGED POWER INC (DELHI HIGH COURT), ITA 352/2014, DECIDED ON : 12.01.2015 DIT (INTL. TAX) VS. MAERSK CO. LTD. 334ITR 79 (UTTARAKHAND) FULL BENCH DIT VS. JACOBS CIVIL INCORPORATED 330 ITR 578 (DELHI) CIT VS. SEDCO FOREX INTERNATIONAL DRILLING CO. LTD. 264 ITR 320 (UTTARAKHAND) CI T VS. HALLIBURTON OFFSHORE SERVICES INC. 271 ITR 395 (UTTARAKHAND) DIT (INTERNATIONAL TAXATION) VS. NGC NETWORK ASIA LLC 313 ITR 187 ( BOM) DIT (INTERNATIONAL TAXATION) VS. CLIFFORD CHANCE LLP IN ITA NO. 2883 OF 2008 ( BOOM ) 31 . WE HAVE CAREFULLY CONSIDERED T HE RIVAL CONTENTIONS . WE HAVE CAREFULLY CONSIDERED THE ABOVE ARGUMENT WHICH IS MAINLY THAT IN A CASE OF A NON - RESIDENT WHOSE ENTIRE INCOME WAS SUBJECT TO TAX DEDUCTION AT SOURCE UNDER S. 195 INTEREST U/S 234 B IS NOT CHARGEABLE. THERE ARE CONFLICTING DECISION OF HONOURABLE DELHI HIGH COURT ON THE ISSUE AS ITS IS EVIDENT FROM THE DECISIONS [TYPE HERE] 27 | P A GE RELIED UP ON BY ASSESSEE AS WELL AS LD DR. IN THE CASE CITED BY LD AR REASONING OF THE HON'BLE COURT WAS THAT ONCE THE ENTIRE INCOME OF THE ASSESSEE WAS SUBJECT TO TAX DEDUCTION AT SOURCE UNDER S. 195, THE ASSESSEE WAS NOT LIABLE TO PAY ANY 'ADVANCE TAX' IN TERMS OF SECTION 209(L)(D) AND HENCE, COULD NOT BE FAULTED FOR SHORTFALL IN PAYMENT OF ADVANCE TAX. HOWEVER IN THE CASE CITED BY LD DR IT IS THAT WHEN THE IN COME IS CHARGEABLE TO TAX IN INDIA OF NON RESIDENT U/S 195 THEY CANNOT ESCAPE THE LIABILITY OF INTEREST U/S 234B OF THE ACT. IT HAS COME TO OUR NOTICE THAT SLP FILED BEFORE THE HONOURABLE SUPREME COURT IN CASE OF DIT (INTERNATIONAL TAXATION) VS. CLIFFORD CHANCE LLP IN ITA NO. 2883 OF 2008 (BOM) HAS BEEN DISMISSED AS STATED IN ITA NO.5823/DEL /2011 ASSESSMENT YEAR : 2008 - 09 IN FUGRO GEOTEAM AS V ADDL. DIRECTOR OF INCOME TAX LEVY OF INTEREST 8. INTEREST U/S 234B & 234C IS NOT CHARGEABLE, SINCE ASSESSEE IS A NON - RESIDENT AND AS SUCH TAX IS TO BE DEDUCTED AT SOURCE BY INDIAN PARTY. THE HONBLE HIGH COURT IN THE CASE OF DIT VS. NGC NETWORK ASIA (SUPRA) AND IN THE CASE OF DIT VS. CLIFFORD CHANCE LLP (SUPRA) HAS DECIDED ISSUE IN FAVOUR OF ASSESSEE. THE SLP FI LED FROM THE JUDGMENT OF THE HONBLE UTTRAKHAND HIGH COURT IN THE CASE OF DIT VS. CLIFFORD CHANCE LLP WAS DISMISSED BY THE HONBLE SUPREME COURT. THEREFORE, WE HOLD INTEREST U/S 234B & 234C IS NOT CHARGEABLE. 32 . HENCE WE DISMISS THE GROUND NO (V) OF THE APP EAL OF THE REVENUE. 33 . IN THE RESULT APPEAL OF THE REVENUE IS DISMISSED. 34 . NOW WE COME TO APPEAL OF THE ASSESSEE FOR AY 2007 - 08[ ITA NO 5289/DEL/2010] WHERE IN GROUND NO 1 TO 5 WERE AGAINST THE INCOME OF SECOND LEG CONTRACT INCOME CHARGEABLE U/S 44BB OF [TYPE HERE] 28 | P A GE THE ACT OR AS EQUIPMENT ROYALTY U/S 9(1) (VI) OF THE INCOME TAX ACT. BOTH THE PARTIES AGREED THAT FACTS OF THIS CASE WERE IDENTICAL TO CASE HEARD FOR AY 2004 - 05 IN REVENUES APPEAL. 35 . WE HAVE ALREADY DECIDED THAT ISSUE IN GROUND NO (I) TO (V) & (VII) THE CASE OF THE APPEAL OF REVENUE FOR AY 2004 - 05. THEREFORE WE ALSO HOLD IN THE CASE OF THE ASSESSEE FOR AY 200 7 - 08 THAT ASSESSEE IS ENTITLED TO THE PREFERENTIAL TAX TREATMENT U/S 44BB OF THE INCOME TAX ACT ON SECOND LEG CONTRACTS. HENCE GROUND NO 1 TO 5 OF THE APPEAL OF THE ASSESSEE IS ALLOWED. 36 . ANOTHER GROUND NO 6 OF APPEAL OF THE ASSESSEE WAS AGAINST THE CHARGING OF INTEREST U/S 234B OF THE ACT WHICH IS IDENTICAL TO GROUND NO (VI) DECIDED BY US IN THE APPEAL OF THE REVENUE FOR AY 2004 - 05 TO WHICH BOTH THE PARTIES AGREED . THEREFORE WE ALLOW THIS GROUND OF APPEAL OF THE ASSESSEE. 37 . IN THE RESULT APPEAL NO 5289/DEL/2010 FOR A Y 200 7 - 08 FILED BY THE ASSESSEE IS ALLOWED. 38 . NOW WE COME TO APPEAL OF THE ASSESSEE FOR AY 2008 - 09[ ITA NO 5775/DEL/2001 1 ] WHERE IN GROUND NO 1 TO 5 WERE AGAINST THE INCOME OF SECOND LEG CONTRACT INCOME CHARGEABLE U/S 44BB OF THE ACT OR AS EQUIPMENT ROYALTY U/S 9(1) ( V I ) OF THE INCOME TAX ACT. BOTH THE PARTIES AGREED THAT FACTS OF THIS CASE WERE IDENTICAL TO CASE HEARD FOR AY 2004 - 05 IN REVENUES APPEAL. 39 . WE HAVE ALREADY DECIDED THAT ISSUE IN GROUND NO (I) TO (V) & (VII) THE CASE OF THE APPEAL OF REVENUE FOR AY 2004 - 05. THEREFORE WE ALSO HOLD IN THE CASE OF THE ASSESSEE FOR AY 2008 - [TYPE HERE] 29 | P A GE 09 THAT ASSESSEE IS ENTITLED TO THE PREFERE NTIAL TAX TREATMENT U/S 44BB OF THE INCOME T AX A CT ON SECOND LEG CONTRACTS. HENCE GROUND NO 1 TO 5 OF THE APPEAL OF THE ASSESSEE IS ALLOWED. 40 . ANOTHER GROUND OF APPEAL OF THE ASSESSEE WAS AGAINST THE CHARGING OF INTEREST U/S 234B OF THE ACT WHICH IS IDENTI CAL TO GROUND NO (VI) DECIDED BY US IN THE APPEAL OF THE REVENUE FOR AY 2004 - 05 TO WHICH BOTH THE PARTIES AGREED . THEREFORE WE ALLOW THIS GROUND OF APPEAL OF THE ASSESSEE. 41 . IN THE RESULT APPEAL NO 5775/DEL/2011 FOR A Y 2008 - 09 FILED BY THE ASSESSEE IS AL LOWED. 42 . NOW WE COME TO APPEAL NO 746 /DE L /201 3 FIELD BY THE REVENUE AGAINST THE ORDER OF CIT (A) HOLDING THAT SECOND LEG CONTRACTS ARE ALSO ELIGIBLE FOR PREFERENTIAL TAX TREATMENT U/S 44BB OF THE INCOME TAX ACT. IN ALL ASSESSEE HAS RAISED 11 GROUNDS OF THE APPEAL HOWEVER ALL THE GROUNDS ARE ON THE ISSUES WHICH WE HAVE ALREADY DECIDED IN THE APPEAL OF THE REVENUE FOR AY 2004 - 05. BOTH THE PARTIES ALSO AGREED TO THAT. IN THAT APPEAL WE HAVE HELD THAT ASSESSEE IS ENTITLED TO PREFERENTIAL TR EATMENT ON THE SECOND LEG CONTRACT RECEIPTS U/S 44BB OF THE INCOME TAX ACT. THEREFORE WE DISMISS THIS APPEAL OF THE REVENUE. 43 . NOW WE COME TO APPEAL NO 1810/DEL/2013 FOR AY 2009 - 010 WHICH IS FILED BY THE REVENUE AGAINST THE RECTIFICATION ORDER PASSED BY C IT (A) WHERE IN IT IS HELD THAT INTEREST U/S234B IS NOT [TYPE HERE] 30 | P A GE CHARGEABLE. REVENUE HAS NOT CHALLENGED THE APPLICABILITY OF SECTION 154 ON THE ISSUE BUT HAS CHALLENGED THE CHARGEABILITY OF INTEREST. THIS GROUND OF APPEAL IS IDENTICAL TO THE ISSUE DECIDED BY US IN AY 2004 - 05 IN GROUND NO (VI) OF THE APPEAL OF THE REVENUE WHERE IN WE HAVE DECIDED THAT INTEREST U/S 234B IS NOT CHARGEABLE IN THE FACTS AND CIRCUMSTANCES OF THE CASE. HENCE WE DISMISS THIS APPEAL OF THE REVENUE. 44 . IN THE RESULT , WE HAVE DECIDED ALL THESE APPEAL AS UNDER : - ITA NO PREFERRED BY A.Y RESULT 592/DEL/2013) REVENUE 2004 - 05 DISMISSED 263/DEL/2013 ASSESSEE 2004 - 05 DISMISSED 5289/DEL/2010 ASSESSEE 2007 - 08 ALLOWED 5775/DEL/2011 ASSESSEE 2008 - 09 ALLOWED 746/DEL/2013 REVENUE 2009 - 10 DISMISSED 1810/DEL/2013) REVENUE 2009 - 10 DISMISSED ORDER PRONOUNCED IN THE OPEN COURT ON 07 .02.2016. - SD/ - - SD/ - (I.C.SUDHIR) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 07 /02/2016 A K KEOT COPY FORWARDED TO 1 . APPLICANT 2 . RESPONDENT 3 . CIT 4 . CIT (A) 5 . DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI