CORE LABORATORIES INTERNATIONAL BV BRANCH OFFICE, MUMBAI V. DCIT (IT) 2(1)(1), MUMBAI

ITA 7073/MUM/2016

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 1504 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-11-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2012-2013
• Appeal Filed On: 05-12-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Presumptive income
• Section: 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES I, MUMBAI BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NO.7073/MUM/2016 ASSESSMENT YEAR : 2012-13 CORE LABORATORIES INTERNATIONAL BV BRANCH OFFICE, MUMBAI [PAN : AACCC 9121 B] VS. DEPUTY COMMISSIONER OF INCOME TAX, INTERNATIONAL TAXATION-2(1)(1), MUMBAI ( APPELLANT ) (RESPONDENT) APPELLANT B Y : SHRI NEERAJ A GARWA LA RESPONDENT B Y : MS. POOJA SWAROOP, SR.DR DATE OF HEARING : 1 4 - 11 - 201 8 DATE OF PRONOUNCEMENT : 27 - 11 - 201 8 O R D E R PER MAHAVIR SINGH, JUDICIAL MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-5 6, MUMBAI, IN APPEAL NO. CIT(A)-56/DCIT(IT)-2(1)(1)/15-16/97-C , DATED 25-08-2016. THE ASSESSMENT WAS FRAMED BY THE DY.CIT (INTERNATIONAL TAXATION)-2(1)(1), MUMBAI U/S. 143(3 ) READ WITH ITA NO.7073/MUM/2016 2 SECTION 144C(3) OF THE INCOME TAX ACT, 1961 [HEREIN AFTER REFERRED TO AS ACT] FOR THE AY 2012-13 VIDE HIS ORDER DATE D 25-05-2015. 2. THE FIRST ISSUE IN THIS APPEAL OF ASSESSEE IS AG AINST THE ORDER OF CIT(A), CONFIRMING THE ACTION OF THE AO IN MAKING ASSESSMENT BY HOLDING THE RECEIPTS IN THE NATURE OF FEE FOR TECHNICAL SERVICES AS PER THE PROVISIONS OF SECTION 9(1)(VII) OF THE ACT AND TAXED THE SAME U/S 44DA OF THE ACT. FOR TH IS ASSESSEE HAS RAISED THE FOLLOWING GROUND NO. 1: 1. THE LD.CIT(A) HAS ERRED ON FACTS AND IN LAW BY AFFIRMING THE ACTION OF THE AO AND DENYING THAT THE APPELLANT IS ENGAGED IN THE BUSINESS OF PROVIDING SERVICES IN CONNECTION WITH PROSPECTING F OR, OR PRODUCTION OF MINERAL OILS. FURTHER, THE LD. CIT(A) ERRED ON FACT S AND IN LAW DETERMINING THAT THE INCOME OF THE APPELLANT IS IN THE NATURE OF FEES TECHNICAL SERVICES AS PER THE PROVISIONS OF SECTION 9(1)(VII) AND TAXING THE SAME UNDER SECTION 44DA 3. BRIEF FACTS OF THE CASE ARE THAT, THE ASSESSEE-C OMPANY IS INCORPORATED UNDER THE LAWS OF NETHERLANDS AND ENGA GED IN THE BUSINESS OF CORE HANDLING AND CORE ANALYSIS. THE A O NOTICED DURING THE COURSE OF ASSESSMENT PROCEEDINGS THAT TH E ASSESSEE- COMPANY EARNED REVENUE FROM BG EXPLORATION AND PROD UCTION INDIA LTD., RELIANCE INDUSTRIES LTD., CAIRN ENERGY INDIA PTY LTD., GUJARAT STATE PETROLEUM CORPORATION LTD., ETC., IN CONNECTION WITH CONTRACTS RELATED TO OIL EXPLORATION ACTIVITIE S. ASSESSEE ITA NO.7073/MUM/2016 3 EARNED REVENUE TO THE EXTENT OF 14,15,95,093/- AND OFFERED THE SAME AS INCOME IN TERMS OF THE PROVISIONS OF SECTIO N 44BB(1) OF THE ACT. ACCORDING TO AO, A NEW PROVISION IS INSERT ED BY THE FINANCE ACT, 2010 WITH EFFECT FROM 01-04-2011 I.E., SECTION 44DA AND TO THE ASSESSEE THE PROVISIONS OF SECTION 44BB OF THE ACT ARE NOT APPLICABLE AND THE PROVISIONS OF SECTION 44DA O F THE ACT ARE APPLICABLE. ACCORDINGLY, HE NOTED THAT THE SERVICE S PROVIDED BY ASSESSEE WOULD NOT COME WITHIN THE EXPLANATORY PART OF THE EXPLANATION 2 TO SECTION 9(1)(VII) OF THE ACT AS NO MINING OR LIKE PROJECT IS UNDERTAKEN BY THE ASSESSEE. ACCORDINGLY, THE AO TREATED THE DEEMED PROFIT @25% AS GROSS RECEIPT OF THE BUSINESS AS PER THE PROVISIONS OF SECTION 44DA OF THE ACT. A GGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A), WHO ALSO CONFIRMED THE ACTION OF AO, BY STATING AS UNDER: I HAVE CAREFULLY PERUSED THE FACTS OF THE CASE, TH E CONTENTIONS OF THE AO & WRITTEN SUBMISSIONS OF THE APPELLANT. IT CAN BE OBSERVED THAT THE APPELLANT IS PROVIDING SERVICES IN NATURE OF RESERV OIR CORE ANALYSIS SERVICES TO THE OIL AND GAS INDUSTRY. AS RIGHTLY P OINTED OUT BY THE AO IN HIS ASSESSMENT ORDER, SINCE THE APPELLANT IS NOT UN DERTAKING ANY MINING OR LIKE PROJECT IT IS NOT BENEFITTED BY TH E EXCEPTIONS IN EXPLANATION 2 TO SECTION 9(1)(VII). THUS, THE SAID INCOME IS TAXABLE AS FEES FOR TECHNICAL SERVICES U/S. 9(1)(VII) OF THE A CT. SINCE, THE APPELLANT IS RENDERING SERVICES THROUGH ITS PE IN INDIA, THE PROVISIONS OF SECTION 44DA OF THE ACT ARE SQUARELY APPLICABLE TO THE APPE LLANT. FURTHER, IT ALSO PERTINENT TO NOTE THAT THE FACTS OF THE CASE LAWS Q UOTED BY THE APPELLANT ARE SUBSTANTIALLY DIFFERENT FROM THAT OF THE APPELL ANT. IN VIEW OF THE SAME, THE PROVISIONS OF SECTION 44BB WOULD NOT BE A PPLICABLE TO THE APPELLANT. ITA NO.7073/MUM/2016 4 AGGRIEVED, ASSESSEE CAME IN SECOND APPEAL BEFORE TH E ITAT. 4. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. BEFORE US, ASSESSEE CONTENDED THAT IT WAS ENGAGED IN THE BUSINESS OF PROVIDING RE SERVOIR CORE ANALYSIS SERVICES TO THE OIL AND GAS INDUSTRY. IT WAS EXPLAINED THAT RESERVOIR CORE ANALYSIS IS CONDUCTED ON THE PO ROSITY AND PERMEABILITY OF THE ROCK TO DETERMINE THE RESERVOIR STORAGE CAPACITY AND ABILITY OF FLUIDS TO FLOW THROUGH ROCK . THESE MEASUREMENTS ARE USED TO DETERMINE HOW MUCH OIL AND GAS ARE PRESENT IN A RESERVOIR AND THE RATES AT WHICH THE O IL AND GAS CAN BE PRODUCED. LD. COUNSEL STATED THAT THE ISSUE NOW IS COVERED BY THE DECISION OF HON'BLE SUPREME COURT IN THE CAS E OF OIL & NATURAL GAS CORPORATION LIMITED VS CIT & ANR CIVIL APPEAL NOS. 729 OF 2007 AND OTHERS DATED 01-07-2015, WHEREIN TH E HON'BLE SUPREME COURT CONSIDERING EXPLANATION-2 TO CLAUSE-V II OF SECTION 9(1) OF THE ACT AND THE PROVISIONS OF SECTI ON 44BB AND 44D OF THE ACT INCLUDING SECTION 44DA OF THE ACT AN D FINALLY HELD IN PARA 13 AS UNDER: 13. THE INCOME TAX ACT DOES NOT DEFINE THE EXPRESSI ONS MINES OR MINERALS. THE SAID EXPRESSIONS ARE FOUND DEFINED AND EXPLAINED IN THE MINES ACT, 1952 AND THE OIL FIELDS (DEVELOPMENT ANDREGULATION) ACT 1948. WHILE CONSTRUING THE SOMEWHAT PARI MATERI A EXPRESSIONS APPEARING IN THE MINES AND MINERALS (DEVELOPMENT AN D REGULATION) ITA NO.7073/MUM/2016 5 ACT 1957 REGARD MUST BE HAD TO THE PROVISIONS OF EN TRIES 53 AND 54 OF LIST I AND ENTRY 22 OF LIST II OF THE 7TH SCHEDULE TO THE CONSTITUTION TO UNDERSTAND THE EXCLUSION OF MINERAL OILS FROM THE D EFINITION OF MINERALS IN SECTION 3(A) OF THE 1957 ACT. REGARD MUST ALSO B E HAD TO THE FACT THAT MINERAL OILS IS SEPARATELY DEFINED IN SECTION 3(B) OF THE 1957 ACT TO INCLUDE NATURAL GAS AND PETROLEUM IN RESPECT OF WHI CH PARLIAMENT HAS EXCLUSIVE JURISDICTION UNDER ENTRY 53 OF LIST I OF THE 7TH SCHEDULE AND HAD ENACTED AN EARLIER LEGISLATION I.E. OIL FIELDS (REGULATION AND DEVELOPMENT) ACT, 1948. READING SECTION 2(J) AN D 2(JJ) OF THE MINES ACT, 1952 WHICH DEFINE MINES AND MINERALS AND THE PROVISIONS OF THE OIL FIELDS (REGULATION AND DEVELOPMENT) ACT, 19 48 SPECIFICALLY RELATING TO PROSPECTING AND EXPLORATION OF MINERAL OILS, EXHAUSTIVELY REFERRED TO EARLIER, IT IS ABUNDANTLY CLEAR THAT DR ILLING OPERATIONS FOR THE PURPOSE OF PRODUCTION OF PETROLEUM WOULD CLEARLY AM OUNT TO A MINING ACTIVITY OR A MINING OPERATION. VIEWED THUS, IT IS THE PROXIMITY OF THE WORKS CONTEMPLATED UNDER AN AGREEMENT, EXECUTED WIT H A NON- RESIDENT ASSESSEE OR A FOREIGN COMPANY, WITH MINING ACTIVITY OR MINING OPERATIONS THAT WOULD BE CRUCIAL FOR THE DETERMINAT ION OF THE QUESTION WHETHER THE PAYMENTS MADE UNDER SUCH AN AGREEMENT T O THE NON- RESIDENT ASSESSEE OR THE FOREIGN COMPANY IS TO BE A SSESSED UNDER SECTION 44BB OR SECTION 44D OF THE ACT. THE T EST OF PITH AND SUBSTANCE OF THE AGREEMENT COMMENDS TO US AS REASON ABLE FOR ACCEPTANCE. EQUALLY IMPORTANT IS THE FACT THAT THE CBDT HAD ACCEPTED THE SAID TEST AND HAD IN FACT ISSUED A CIRCULAR AS FAR BACK AS 22.10.1990 TO THE EFFECT THAT MINING OPERATIONS AND THE EXPRESSIONS MINING PROJECTS OR LIKE PROJECTS OCCURRING IN E XPLANATION 2 TO SECTION 9(1) OF THE ACT WOULD COVER RENDERING OF SERVICE LI KE IMPARTING OF TRAINING AND CARRYING OUT DRILLING OPERATIONS FOR E XPLORATION OF AND EXTRACTION OF OIL AND NATURAL GAS AND HENCE PAYMENT S MADE UNDER SUCH AGREEMENT TO A NON-RESIDENT/FOREIGN COMPANY WOULD B E CHARGEABLE TO TAX UNDER THE PROVISIONS OF SECTION 44BB AND NOT SE CTION 44D OF THE ACT. WE DO NOT SEE HOW ANY OTHER VIEW CAN BE TAKEN IF THE WORKS OR SERVICES MENTIONED UNDER A PARTICULAR AGREEMENT IS DIRECTLY ASSOCIATED OR INEXTRICABLY CONNECTED WITH PROSPECTING, EXTRACT ION OR PRODUCTION OF MINERAL OIL. KEEPING IN MIND THE ABOVE PROVISION, W E HAVE LOOKED INTO EACH OF THE CONTRACTS INVOLVED IN THE PRESENT GROUP OF CASES AND FIND THAT THE BRIEF DESCRIPTION OF THE WORKS COVERED UND ER EACH OF THE SAID CONTRACTS AS CULLED OUT BY THE APPELLANTS AND PLACE D BEFORE THE COURT IS CORRECT. .. AND FINALLY, HONBLE SUPREME COURT HELD AS UNDER:- THE ABOVE FACTS WOULD INDICATE THAT THE PITH AND S UBSTANCE OF EACH OF THE CONTRACTS/AGREEMENTS IS INEXTRICABLY CONNECTED WITH PROSPECTING, EXTRACTION OR PRODUCTION OF MINERAL OIL. THE DOMINA NT PURPOSE OF EACH OF ITA NO.7073/MUM/2016 6 SUCH AGREEMENT IS FOR PROSPECTING, EXTRACTION OR PR ODUCTION OF MINERAL OILS THOUGH THERE MAY BE CERTAIN ANCILLARY WORKS CO NTEMPLATED THEREUNDER. IF THAT BE SO, WE WILL HAVE NO HESITATI ON IN HOLDING THAT THE PAYMENTS MADE BY ONGC AND RECEIVED BY THE NON-RESID ENT ASSESSEES OR FOREIGN COMPANIES UNDER THE SAID CONTRACTS IS MO RE APPROPRIATELY ASSESSABLE UNDER THE PROVISIONS OF SECTION 44BB AND NOT SECTION 44D OF THE ACT. ON THE BASIS OF THE SAID CONCLUSION REACHED BY US, WE ALLOW THE APPEALS UNDER CONSIDERATION BY SETTING AS IDE THE ORDERS OF THE HIGH COURT PASSED IN EACH OF THE CASES BEFORE IT AN D RESTORING THE VIEW TAKEN BY THE LEARNED APPELLATE COMMISSIONER AS AFFI RMED BY THE LEARNED TRIBUNAL. 5. LD. CIT-DEPARTMENTAL REPRESENTATIVE, HOWEVER, OP POSED THE ARGUMENT OF LD. COUNSEL AND STATED THAT THE LOW ER AUTHORITIES HAVE RIGHTLY ASSESSED THE INCOME U/S. 4 4DA OF THE ACT. HOWEVER, LD. CIT-DEPARTMENTAL REPRESENTATIVE C OULD NOT CONTROVERT OR NOT BROUGHT TO THE NOTICE OF THE BENC H ANY ADVERSE JUDGMENTS AS AGAINST THE JUDGMENT CITED BY THE LD. COUNSEL I.E., OIL & NATURAL GAS CORPORATION LIMITED VS CIT & ANR (SUPRA) OF HONBLE SUPREME COURT. 6. AFTER HEARING BOTH THE SIDES AND GOING THROUGH T HE FACTS OF THE CASE, WE FIND THAT THE ISSUE IS SQUARELY COVERE D BY THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F OIL & NATURAL GAS CORPORATION LIMITED VS CIT & ANR (SUPRA ). RESPECTFULLY FOLLOWING THE SAME, WE DELETE THE ADDI TION. 7. THE SECOND ISSUE IN THIS APPEAL OF ASSESSEE IS A GAINST THE ORDER OF CIT(A), CONFIRMING THE ACTION OF AO IN HOL DING THAT THE ITA NO.7073/MUM/2016 7 AMOUNT RECEIVED BY ASSESSEE ON ACCOUNT OF SERVICE T AX IS TO BE INCLUDED IN THE GROSS RECEIPTS WHILE COMPUTING INCO ME U/S. 44BB OF THE ACT. FOR THIS, ASSESSEE HAS RAISED THE FOLLOWING GROUND NO. 2: 2. THE LD.CIT(A) HAS ERRED ON FACTS AND IN LAW BY AFFIRMING TO THE ACTION OF THE AO AND HOLDING THAT THE AMOUNTS RECEI VED BY THE APPELLANT ON ACCOUNT OF SERVICE TAX, IS TO BE INCLUDED IN THE GROSS RECEIPTS U/S. 44BB OF THE INCOME TAX ACT, 1961. 8. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THIS IS SUE IS ALSO COVERED BY THE DECISION OF THE HON'BLE DELHI HIGH C OURT IN THE CASE OF DIRECTOR OF INCOME TAX VS. MITCHELL DRILLIN G INTERNATIONAL PVT. LTD., IN ITA NO. 403/2013, DATED 28-09-2015, W HEREIN IT IS HELD THAT SERVICE TAX PAID CANNOT BE CONSIDERED FOR THE PURPOSE OF COMPUTING INCOME AND CANNOT BE INCLUDED IN THE T OTAL TURNOVER. THE HON'BLE DELHI HIGH COURT IN THE CASE OF DIRECTOR OF INCOME TAX VS. MITCHELL DRILLING INTERNATIONAL PVT. LTD., IN ITA NO. 403/2013, DATED 28-09-2015 IN PARA 17 AND 18 HE LD AS UNDER: 17. THE COURT ACCORDINGLY HOLDS THAT FOR THE PURP OSES OF COMPUTING PRESUMPTIVE INCOME OF THE ASSESSEE FOR THE PURPOS ES OF SECTION 44 BB OF THE ACT, THE SERVICE TAX COLLECTED BY THE ASSESS EE ON THE AMOUNT PAID TO IT FOR RENDERING SERVICES IS NOT TO BE INCLUDED IN THE GROSS RECEIPTS IN TERMS OF SECTION 44BB(2) READ WITH SECTION 44BB(1). THE SERVICE TAX IS NOT AN AMOUNT PAID OR PAYABLE, OR RECEIVED OR DEEME D TO BE RECEIVED BY ITA NO.7073/MUM/2016 8 THE ASSESSEE FOR THE SERVICES RENDERED BY IT. THE ASSESSEE IS ONLY COLLECTING THE SERVICE TAX FOR PASSING IT ON TO THE GOVERNMENT. 18. THE COURT FURTHER NOTES THAT THE POSITION HAS B EEN MADE EXPLICIT BY THE CBDT ITSELF IN TWO OF ITS CIRCULARS. IN CIRCUL AR NO. 4/2008 DATED 28 TH APRIL 2008 IT WAS CLARIFIED THAT SERVICE TAX PAID BY THE TENANT DOESNT PARTAKE THE NATURE OF INCOME OF THE LANDLORD. TH E LANDLORD ONLY ACTS AS A COLLECTING AGENCY FOR GOVERNMENT FOR COLLECTIO N OF SERVICE TAX. THEREFORE, IT HAS BEEN DECIDED THAT TAX DEDUCTION A T SOURCE) UNDER SECTION 194-I OF INCOME TAX ACT WOULD BE REQUIRED T O BE MADE ON THE AMOUNT OF RENT PAID/PAYABLE WITHOUT INCLUDING THE S ERVICE TAX. IN CIRCULAR NO. 1/2014 DATED 13 TH JANUARY 2014, IT HAS BEEN CLARIFIED THAT SERVICE TAX IS NOT TO BE INCLUDED IN THE FEES FOR P ROFESSIONAL SERVICES OR TECHNICAL SERVICES AND NO TDS IS REQUIRED TO BE MAD E ON THE SERVICE TAX COMPETENT UNDER SECTION 194J OF THE ACT. 8.1. AS THE ISSUE IS SQUARELY COVERED BY THE HON'BL E DELHI HIGH COURT DECISION IN THE CASE OF DIRECTOR OF INCOME TA X VS. MITCHELL DRILLING INTERNATIONAL PVT. LTD., (SUPRA) AND HENCE WE DIRECT THE AO TO EXCLUDE THE SERVICE TAX FROM THE GROSS RECEIP TS WHILE COMPUTING TAXABLE INCOME U/S. 44BB OF THE ACT. WE DIRECT THE AO ACCORDINGLY. 9. IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH DAY OF NOVEMBER, 2018 SD/- SD/- (RAJESH KUMAR) (MAHA VIR SINGH) ACCOUNTANT MEMBER JUDICI AL MEMBER MUMBAI; DATED: 27 TH NOVEMBER, 2018 TNMM ITA NO.7073/MUM/2016 9 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A),MUMBAI 4. THE CIT 5. DR, I BENCH, ITAT, MUMBAI BY ORDER, #TRUE COPY # ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI