DCIT, Dehradun V. M/s. International Technical Services LLC, New Delhi

ITA 795/DEL/2015

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 3352 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-02-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2010-2011
• Appeal Filed On: 10-02-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: VIDUR PURI
• Keywords: Transfer pricing; Double taxation relief; International transaction; Rule of consistency

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL, DELHI BENCH C, NEW DELHI BEFORE : SHRI H.S. SIDHU, JUDICIAL MEMBER & SHRI L.P. SAHU, ACCOUNTANT MEMBER ITA NO. 795/DEL./2015 ASSESSMENT YEAR: 2010-11 D .C.I.T., CIRCLE-1, INTERNATIONAL TAXATION DEHRADUN (APPELLANT) VS. INTERNATIONAL TECHNICAL SERVICES LLC C/O. S.P.PURI & CO. CAS., 4/18, ASAF ALI ROAD NEW DELHI (PAN: AABCI8736K) (RESPONDENT) REVENUE BY NONE ASSESSEE BY SH. VIDUR PURI, CA ORDER PER L.P. SAHU, A.M.: THIS APPEAL FILED BY THE REVENUE DCIT, CIRCLE-1, IN TERNATIONAL TAXATION, DEHRADUN AGAINST THE DIRECTION OF THE DIS PUTE RESOLUTION PENAL II, NEW DELHI U/S 144C(5) OF THE INCOME TAX AC T, 1961 (HEREINAFTER REFERRED TO AS THE ACT) ORDER DATED 14.11.2014 FOR THE ASSESSMENT YEAR 2010-11 ON THE FOLLOWING GROUNDS OF APPEAL :- 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE, THE HONBLE DISPUTE RESOLUTION PANEL (DRP) HAS ER RED IN DIRECTING THE ASSESSING OFFICER TO APPLY THE DEE MED PROFIT RATE OF 10% U/S 44BB OF THE INCOME TAX ACT, 1961 (THE ACT) ON THE REVENUES EARNED BY THE ASSE SSEE FROM A NON-RESIDENT COMPANY ON ACCOUNT OF PROVISION OF DATE OF HEARING 8 .0 2 .201 8 DATE OF PRONOUNCEMENT 15 .0 2 .201 8 ITA NO. 795/DEL./2015 2 TECHNICAL PERSONNEL FOR EXECUTING CONTRACTS WITH ONG C, AS AGAINST THE PROPOSED ACTION OF THE AO TO BRING T HE REVENUE TO TAX U/S 44DA/115A READ WITH SECTION 9(1)(VII) OF THE ACT. 1.1 WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE HONBLE DRP HAS ERRED IN NOT APPRECIATING THAT THE TERMS SERVICES OR FACILITIES USED U/S 44BB ARE NOT DEFINED AND THE TWO TERMS USED ARE GENERAL IN NATURE AND THEREFORE, ONCE THE PAYMENTS TAKE THE CHARACTER OF FTS AS DEFINED U/S 9(1)(VII), THEY GO OUTSIDE THE P URVIEW OF SECTION 44BB AND HAVE TO BE TAXED AT RATES APPLI CABLE TO FTS U/S 115A/44DA OF THE ACT. 1.2 WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE HONBLE DRP HAS ERRED IN HOLDING THAT THE REVENUES EARNED BY THE ASSESSEE ON ACCOUNT OF PROVI SION OF SERVICES WERE IN CONNECTION WITH PROSPECTING ETC OF MINERAL OIL AND HENCE ELIGIBLE FOR TREATMENT U/S 44 BB OF THE ACT, WITHOUT ADJUDICATING THE ASPECT OF ELIGIBI LITY IN TERMS OF SECOND LIMB OF THE EXCLUSIONARY PROVISO (EXPLANATION TO SECTION 9(L)(VII) OF THE I T ACT, 1 961) I.E. 'FOR A PROJECT UNDERTAKEN BY THE RECIPIENT' IN TERMS OF THE PROPOSITION CONFIRMED BY HONBLE DELHI HIGH COURT I N CIT V RIO TINTO TECHNICAL SERVICES [2012-TII-01-HC- DEL - INTL] 1.3 WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE HONBLE DRP HAS ERRED IN HOLDING THAT NO DISTIN CTION CAN BE MADE BETWEEN RECEIPTS FROM PRODUCTION SHARIN G PARTICIPANTS (PSC PARTNERS) AND NON-PRODUCTION SH ARING PARTICIPANTS (NON-PSC PARTNERS) AND BETWEEN SERV ICES RENDERED BY FIRST-LEG AND SECOND-LEG VENDORS, IGNOR ING THE FACT THAT THE RECEIPTS FROM SECOND-LEG ARE IN RESPE CT OF CONTRACTS WHICH ARE ENTERED INTO WITH COMPANIES NOT DIRECTLY ENGAGED IN OIL PRODUCTION AND EXPLORATION AND, THEREFORE, ARE LIABLE TO TAX U/S 44DA READ WITH SEC TION 9(L)(VI)/9(L)(VII AND NOT U/S N 44BB OF THE IT ACT, 1961. 1.4 1.4 WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE HONBLE DRP HAS ERRED IN HOLDING THAT THE CASE ITA NO. 795/DEL./2015 3 OF THE ASSESSEE IS COVERED BY CBDTS INSTRUCTION NO . 1862 DATED 22.11.1990, NOT APPRECIATING THE FACT TH AT THE SAID INSTRUCTION NO. 1862 WAS NOT ISSUED U/S 44 BB BUT WAS ISSUED TO CLARIFY THE EXPRESSION MINING OR LIKE PROJECT IN EXPN 2 BELOW SECTION 9(L)(VII)(B) OF TH E ACT AND THE SECOND LIMB OF THE EXCEPTION ('FOR A PROJECT UNDERTAKEN BY THE RECIPIENT) WAS NOT THE SUBJECT M ATTER OF THE SAID INSTRUCTION. 2 WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CAS E THE HONBLE DRP HAS ERRED IN ITS INTERPRETATION OF THE LEGISLATIVE INTENT BEHIND THE SCHEME OF TAXATION ENVISAGED IN 9(L)(VI)/9(L)(VII) READ WITH SECTIONS 115A/44DA AND 44BB , IGNORING THE DECISIONS IN THE CASES OF M/S ROLLS ROYCE PVT LTD [2007-TII-03-HC- UKHAND-INTL] AND M/S ONGC AS AGENT OF M/S FORAMER FRANCE [(2008) 299 ITR 438 UTTARAKHAND]. 2.1 WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE HONBLE DRP HAS ERRED IN NOT APPRECIATING THE F ACT THAT PROVISO TO SECTION 44DA BROUGHT ABOUT BY THE FINANCE ACT 2011 WAS ONLY CLARIFICATORY IN NATURE A ND ITS APPLICATION HAS TO BE READ INTO THE MAIN PROVISIONS WITH EFFECT FROM THE TIME THE MAIN PROVISION CAME INTO E FFECT IN VIEW OF THE DECISION OF THE HON'BLE SUPREME COURT I N THE CASE OF SEDCO FOREX INTERNATIONAL DRILLING V/S CIT. 2.2 THE HONBLE DRP HAS ERRED IN NOT APPRECIATING THE FACT THAT EVEN IN TERMS OF RATIO OF THE JUDGMENT IN THE SAID OF OHM LTD [[352, ITR 406 (DELHI)] CITED BY IT, THE PROVISIONS OF SECTION 44BB ARE NOT APPLICABLE WHERE THE SCOPE OF THE SERVICES/FACILITIES PROVIDED BY AN ASS ESSEE IS GENERAL IN NATURE FALLING UNDER SECTION 115A/44D A OF THE ACT. 2.3 THE HONBLE DRP HAS ERRED IN MECHANICALLY FOLLOWIN G THE DECISION IN THE CASE OF M/S OHM LTD WITHOUT FIR ST ADJUDICATING UPON THE ISSUE AS TO WHETHER AND HOW T HE SCOPE OF THE SERVICES/FACILITIES RENDERED UNDER THE CONTRACTS IS NOT GENERAL IN NATURE AND THEREFORE, D OES NOT QUALIFY AS FTS U/S 9(1 )(VII) OF THE ACT TAXABLE UN DER SECTION 115 A. ITA NO. 795/DEL./2015 4 2.4 WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE HONBLE DRP HAS ERRED IN HOLDING THAT THE PROVI SIONS OF SECTION 44BB OF THE ACT ARE MORE SPECIAL PROVISI ONS WHICH SHALL PREVAIL OVER THE PROVISIONS OF SECTION 9(L)(VII) READ WITH SECTIONS 115 A/44DA OF THE ACT, NOT APPRECIATING THE FACT THAT BOTH SET OF PROVISIONS A RE SPECIAL IN NATURE WHICH OPERATE IN THEIR OWN CLEARL Y DEFINED SPHERES AND THEREFORE, ONCE A PARTICULAR RE CEIPT OR INCOME TAKES ON THE CHARACTER OF ROYALTY/FTS AS DEFINED IN SECTION 9(L)(VI)/9(L)(VII), IT CANNOT BE CONSIDERED FOR TREATMENT U/S 44BB AND HAS TO BE TAXED U/S 115A/44DA OF THE ACT. 3 WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE HONBLE DRP HAS ERRED IN HOLDING THAT SEC TIONS 115A AND 44DA APPLY ONLY TO CASES WHERE THE INCOME BY WAY OF ROYALTY OR FTS IS EARNED BY A NON-RESIDENT B Y WAY OF ROYALTY OR FTS FROM GOVERNMENT OR AN INDIAN CONCERN AND WHERE AN INCOME IS RECEIVED BY A NON- RESIDENT FROM ANOTHER NONRESIDENT, THE PROVISIONS O F SECTION 115 A/44DA DO NOT APPLY. 3.1 WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE HONBLE DRP HAS ERRED IN NOT APPRECIATING THE FACT THAT SECTIONS 44DA/115A ENSHRINE THE SOURCE RU LE OF TAXATION AND IS INTENDED TO COVER ALL THE PAYMENTS IN THE FORM OF ROYALTIES/FTS ETC. WHERE THE SOURCE OF SUCH PAYMENTS LIES IN INDIA. 3.2 WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE HONBLE DRP HAS ERRED IN NOT APPRECIATING THE FACT THAT THE PAYMENTS IN THE PRESENT CASE HAVE BEE N MADE BY A NON RESIDENT ENTITY IN RESPECT OF CONTRAC TS BEING EXECUTED BY IT IN INDIA AND THEREFORE THE SOU RCE OF THE PAYMENTS AS WELL AS THE SITUS OF THE ACTIVITY T O WHICH THESE PAYMENTS PERTAIN LIES IN INDIA. 3.3 WHETHER THE HONBLE DRP HAS ERRED IN NOT APPRECIATING THE FACT THAT THE PHRASE INDIAN CONCE RN IN SECTIONS 115A/44DA HAVING NOT BEEN DEFINED, IT HAS TO BE GIVEN A PURPOSIVE CONSTRUCTION AND, THEREFORE, A NON- RESIDENT ENTITY EXECUTING CONTRACTS IN INDIA AND MA KING PAYMENTS IN RESPECT OF SERVICES AVAILED FOR EXECUTI ON OF SUCH CONTRACTS IN INDIA SHOULD BE TREATED AS INDIAN CONCERN FOR THE PURPOSE OF THE SECTION 115 A/44DA O F THE ITA NO. 795/DEL./2015 5 ACT. 2. NONE PRESENT ON BEHALF OF THE REVENUE, IT WAS NO TICED THAT REGISTRY OF THE ITAT HAS POINTED OUT DELAY FOR ONE DAY WHICH HAS BEEN DULY COMMUNICATED TO THE APPELLANT BUT NO ANY PLAUSIBLE EXPLANATION HAS BEEN GIVEN BY THE REVENUE. DUE DATE OF FILING OF APPEAL WAS EXPIRES ON 9 TH FEBRUARY, 2015 BUT IT HAS BEEN FILED ON 10 TH FEBRUARY, 2015. THEREFORE, DELAY FOR FILING ONE DA Y IS CONDONED. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FI LED RETURN OF INCOME ON 25 TH SEPTEMBER, 2010 DECLARING TOTAL INCOME OF RS. 1,88,87,769/-. THE CASE WAS SELECTED FOR SCRUTINY AN D THE STATUTORY NOTICES WERE ISSUING TO THE ASSESSEE. DURING THE CO URSE OF SCRUTINY PROCEEDINGS THE LD. ASSESSING OFFICER OBSERVED THAT THE ASSESSEE NRC HAD INTERNATIONAL TAXATION WITH ASSOCIATED ENTER PRISES (AE) DURING THE YEAR AND ACCORDINGLY THE CASE WAS PROPOS ED FOR BEING REFERRED TO THE TPO U/S 92CAI OF THE IT ACT. THE TP O HAS PASSED ORDER U/S 92CA(III) OF THE IT ACT ON 10.01.2014. TH E ASSESSEE FILED OBJECTION REGARDING THE PROPOSED INCOME IS COMPUTED BY THE TPO OF RS. 4,72,19420/- AGAINST THE OBJECTION OF THE ASSES SEE. THE DRP II, NEW DELHI PASSED THE DETAIL ORDERS AS PER HIS ORDER PARA NO. 3 AND 4 WHICH IS READ AS UNDER :- 4.3 ON CAREFUL EXAMINATION OF THE MATTER, WE FI ND THAT IDENTICAL ISSUE OF THE ASSESSEE FOR THE LAST Y EAR, I.E. A.Y. 2009-10, WAS ADJUDICATED UPON BY THE DRP-II, N EW DELHI VIDE DIRECTION U/S 144C(5) OF THE ACT DATED 18.12.2013. IN THE SAID DIRECTION, THE DRP, AFTER DETAILED DISCUSSION OF THE MATTER, HAD HELD THAT TH E ITA NO. 795/DEL./2015 6 AMOUNT RECEIVED BY THE ASSESSEE ON ACCOUNT OF SERVI CES RENDERED AS PER CONTRACT WITH PRIDE FORAMER SHOULD BE BROUGHT TO TAX BY APPLYING THE DEEMED PROFIT RATE O F 10% U/S 44BB OF THE ACT. THE RELEVANT PORTION OF TH E ABOVE DIRECTION IS REPRODUCED BELOW:- 4. 1 AS PER THE FACTS OF THIS CASE, THE ASSESSEE IS A COMPANY INCORPORATED UNDER THE LAWS OF USA. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS EARN ED INCOME FROM PROVIDING MANPOWER SERVICES TO PRIDE FORAMER, A COMPANY INCORPORATED IN FRANCE WHICH HAD EXECUTED CONTRACTS WITH ONGC FOR OFF-SHORE DRILLING OPERATIONS RELATING TO MINERAL OIL IN INDIA THROUGH THE RIGS-PRIDE PENNSYLVANIA AND PRIDE HAWAII. THE ASSESSEE COMPANY HAD ENTERED INTO CONTRACT WITH PRI DE FORAMER FOR PROVISION OF DRILLING RELATED SERVICES FOR EXPLORATION, EXTRACTION AND PRODUCTION OF MINERAL O IL AND NATURAL GAS IN OFF-SHORE AREAS AS PER PRIDE FORAMER S CONFRACT WITH ONGC. THE ASSESSEE PROVIDED SPECIALIZ ED MANPOWER AND CREW WHICH WERE REQUIRED AS PART OF DIRECF DRILLING OPERATIONS AT THE INSTRUCTION OF ON GC. THE ASSESSEE HAS OFFERED FHE GROSS REVENUE OF RS. 18,89,30,930/- EARNED FROM THE SAID CONTRACT FOR TAXATION IN ITS RETURN OF INCOME AFTER APPLYING THE DEEMED PROFIT RATE OF 10% U/S 4488 OF THE ACT. THE SYSTEM OF INVOICING OF THE ASSESSEE WAS TO INVOICE THE COST PLUS OVERHEAD WITH A MARK-UP OF 7.5% AS PER COPIES OF INVOICES FILED WIFH THE AO. THE AO REFERR ED THE ABOVE INTERNATIONAL TRANSACTIONS TO THE TPO AND AS PER THE TPO'S ORDER DATED 29.01.2013 NO ADVERSE INFEREN CE WAS DRAWN IN RESPECT OF THE ABOVE TRANSACTIONS. HOWEVER, THE AO IN THE DRAFT ASSESSMENT ORDER HAS DENIED THE APPLICABILITY OF SECTION 44BB TO THE ASS ESSEE ON THE GROUND THAT THE SERVICES RENDERED BY THE ASSESSED WERE IN THE NATURE OF FTS. THE AO HAS ACCORDINGLY BROUGHT THE GROSS REVENUE TO TAX U/S 9(1)(VII) READ WITH SECTION 115A OF THE ACT. 4.3 4.3 ON CAREFUL CONSIDERATION OF THE MATTER, WE FIND THAT UNDER THE PROVISIONS OF SECTION 44 88 OF THE ACT THE PRESUMPTIVE RATE OF TAXATION IS APPLICABLE TO A NON- ITA NO. 795/DEL./2015 7 RESIDENT ENGAGED IN THE BUSINESS OF PROVIDING SERVICES OR FACILITIES IN CONNECTION WITH OR SUPPLYING PLANT AND MACHINERY ON HIRE USED, OR TO B E USED IN THE PROSPECTING FOR, OR EXTRACTION OR PRODUCTION OF. MINERAL OILS'' (EMPHASIS SUPPLIED). THE ACTIVITIES BEING PERFORMED BY THE ASSESSEE CANNOT B E SAID TO BE NOT IN CONNECTION WITH' PROSPECTING ETC OF MINERAL OIL AS IT IS AN INTEGRAL PART OF THE DRILLI NG OPERATION FOR PROSPECTING ETC OF MINERAL OIL. IN FA CT, THE ASSESSEE PROVIDED KEY TECHNICAL PERSONNEL FOR CONDUCTING ACTUAL DRILLING OPERATION UNDER ITS CONT RACT WITH PRIDE FORAMER, VIZ SENIOR TOOL PUSHER, BARGE MANAGER, RIGS SUPERINTENDENT, CHIEF ELECTRICIAN, RI GS SAFETY TRAINING ADVISOR. THE CONTRACT WITH ONGC ALS O RECOGNIZED THE OIL DRILLING ACTIVITY WHICH WAS CARR IED OUT, REQUIRED CREW AND THE RIG HAD TO BE MANAGED BY THE TECHNICAL PERSONNEL. THE LIST OF PERSONNEL AND CREW ARE AVAILABLE IN THE CONTRACT IN ANNEXURE B. THEREF ORE THE OPERATION OF HIGHLY SPECIALIZED OFFSHORE OIL DR ILLING RIG COULD BE DONE ONLY WITH THE ASSISTANCE OF PERSO NNEL PROVIDED BY THE ASSESSEE. IN VIEW OF THE ABOVE, THE ACTIVITIES ARE AN INTEGRAL PART OF THE DRILLING OPE RATION IN CONNECTION WITH PROSPECTING ETC OF MINERAL OIL. THI S VIEW HAS ALSO BEEN CONFIRMED BY THE HONBLE AAR IN THE C ASE OF BOURBON OFFSHORE ASIA PTE LTD. (2011) 200 TAXMAN 408. 4.3.1 THE PROVISIONS OF SECTION 44BB ALSO DO NOT CONTAIN ANY THING TO SUPPORT THE AO'S CONTENTION REGARDING THE SO-CALLED SECOND LEG CONTRACT SO AS TO DENY THE APPLICABILITY OF THE SECTION TO THE ASSESSEE. WHAT IS REQUIRED UNDER THE SECTION IS THAT THE SERVICES/ FA CILITIES PROVIDED BY THE ASSESSEE SHOULD BE IN CONNECTION W ITH' PROSPECTING ETC OF MINERAL OIL. NO WHERE IT IS MAND ATED THAT THE SERVICES SHOULD BE PROVIDED DIRECTLY BY TH E PARTY WHO IS ENGAGED IN PROSPECTING ETC. OF MINERAL OIL OR IS DIRECTLY A MEMBER OF THE PRODUCTION SHARING CONTRACT AS IS SOUGHT TO BE MADE OUT BY THE AO. THE ABOVE VIEW HAS BEEN CONFIRMED BY THE HONBLE /TAT MUMBAI IN MICOPERI S.P.A. MILANO VS. DY. CIT (2002) 82 ITD 369. THE LEGISLATURE U/S 44BB INSERTED W.E.F. 01.04.1983 HAS PROVIDED A SPECIAL PROVISION OF DEEM ED PROFIT IN CONNECTION WITH THE BUSINESS OF EXPLORATI ON OF MINERAL OILS CONSIDERING THE SPECIAL NATURE OF THE BUSINESS, WHICH SHOULD NOT BE DENIED TO THE ASSESSE E ON GROUNDS WHICH ARE EXTRANEOUS TO THE SAID SECTION . ITA NO. 795/DEL./2015 8 AS POINTED OUT BY THE LD. AR, THE CASE OF THE ASSE SSEE IS COVERED UNDER INSTRUCTION NO. 1862 DATED 22.11.1 990 WHEREIN ON THE BASIS OF THE OPINION OF FHE ATTORNEY GENERAL OF INDIA, IT WAS INSTRUCTED THAT THE EXCLUS ION FROM THE DEFINITION OF FTS IN RESPECT OF MINING AN D LIKE PROJECT' APPEARING IN EXPLANATION 2 TO SECTION 9(I) (VII) OF THE ACT WOULD COVER RENDERING OF SERVICES LIKE IMPA RTING OF TRAINING AND CARRYING OUT DRILLING OPERATIONS FO R EXPLORATION OR EXPLOITATION OF OIL AND NATURAL GAS. AS SUCH, THESE ACTIVITIES WOULD BE OUTSIDE THE AMBIT O F FTS U/S 9(L)(VII). THE RELEVANT PART OF THE INSTRUCTION IS REPRODUCED HEREINBELOW: 2. THE QUESTION WHETHER PROSPECTING FOR OR EXTRACT ION PRODUCTION OF MINERAL OIL CAN BE TERMED AS 'MINING' OPERATIONS, WAS REFERRED TO THE ATTORNEY GENERAL OF INDIA FOR HIS OPINION. THE ATTORNEY GENERAL HAS OPI NED THAT SUCH OPERATIONS ARE MINING OPERATIONS AND THE EXPRESSIONS 'MINING PROJECT' OR 'LIKE PROJECT' OCCU RRING IN EXPLANATION 2 TO SECTION 9(1) (VII) OF INCOME TAX ACT WOULD COVER RENDERING OF SERVICES LIKE IMPARTING OF TRAINING AND CARRYING OUT DRILLING OPERATIONS FOR EXPLORATION OR EXPLOITATION OF OIL AND NATURAL GAS. 3. IN VIEW OF THE ABOVE OPINION, AND CASES OF SCAN DRILLING CO., DY. COMMISSIONER OF INCOME TAX VS. SCHLUMBERGER SEACO INC. (1994) 50 ITD 348 (CAL) THE CONSIDERATION FOR RIG MANAGEMENT SERVICES WAS NOT B E TREATED AS FEES FOR TECHNICAL SERVICES AND FOR THE PURPOSE OF EXPLANATION 2 TO SECTION 9(1) (VII) OF T HE INCOME TAX CT, 1961.' 4.3.2 FURTHER, AS SUBMITTED BY THE LD. AR, SECTIONS 44DA AND 1J5A APPLY TO A CASE WHERE THE INCOME EARNED BY A NON-RESIDENT OR FOREIGN COMPANY BY WAY OF ROYALTY OR FTS IS RECEIVED FROM GOVT, OR AN INDIAN CONCERN, WHEREAS IN THE CASE OF THE ASSESSEE, THE PAYMENTS HAVE BEEN RECEIVED FROM ANOTHER NON-RESIDE NT COMPANY AND HENCE CANNOT BE BROUGHT UNDER THE PURVIEW OF SECTION 44DA OF THE ACT. IN FACT, ON IDE NTICAL FACTS THE FLONBLE AAR IN SPECTRUM GEO LTD., IN RE (2012) 209 TAXMAN 397 HELD THAT THE INCOME DERIVED BY THE APPLICANT FROM AN ACTIVITY IN CONNECTION WITH PROSP ECTING ETC FOR MINERAL OIL FROM ANOTHER FOREIGN COMPANY WO ULD BE SUBJECT TO TAX U/S 44BB AND NOT UNDER SECTION 44DA/ 115A OF THE ACT. THE RELEVANT PORTION OF THE RULING IS EXTRACTED BELOW: ITA NO. 795/DEL./2015 9 12. THE INQUIRY NOW IS WHETHER THE INCOME DERIVED BY THE APPLICANT FROM PERFORMING ITS CONTRACT WITH THE UAE COMPANY WOULD BE ASSEMBLE TO TAX AS, FEES FOR TECHNICAL SERVICES UNDER SECTION 44D, 44DA, OR 115A OF THE ACT. ADMITTEDLY, THE INCOME DERIVED BY THE APPLICANT IS FROM A UAE COMPANY AND NOT FROM THE GOVERNMENT 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 FOR TECHNICAL SERVICES RECEIVED FROM GOVERNMENT OR AN INDIAN CONCERN. ON THIS SHORT GROUND, THE CONTENTION OF THE REVENUE THAT THE 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 THE PROSPECTING FOR MINERAL OILS AND FROM A FOREIGN COMPANY, THE APPLICANT 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 SUPPLIED). 4.3.3 FURTHER, AS POINTED OUT BY THE LD. AR, THE AO'S RELIANCE ON CIT VS. ROLLS ROYCE PVT. LTD. 170 TAXMA N 563 (UTTARAKHAND HIGH COURT) WHEREIN IT WAS HELD THAT FTS IS OUTSIDE THE PURVIEW OF SECTION 4488 OF THE ACT DOES NOT APPLY TO THE FACTS OF THE ASSESSEE'S CASE AS IN THE ABOVE CITED CASE THE COUNTER PARTY TO THE CONTR ACT WAS ONGC (AN INDIAN RESIDENT), WHILE IN THE CASE OF THE ASSESSEE THE COUNTER OF PARTY IS PRIDE FORAMER, A FRENCH COMPANY ( NON- RESIDENT IN INDIA). 4.3.4 AS SUBMITTED BY THE LD. AR, THE HONBLE JURISDICTIONAL HIGH COURT IN DIT VS. OHM LTD. (2012 ) 212 TAXMAN 440 (DELHI) HAS HELD THAT SECTION 44BB O F THE ACT BEING A MORE SPECIFIC PROVISION SHALL PREVA IL OVER THE GENERAL PROVISIONS OF THE ACT AND THAT THE SERV ICES RENDERED BY THE SUB-CONTRACTOR AT THE OFF-SHORE RIG S OF A CONTRACTOR IS PART AND PARCEL OF ACTIVITIES FOR EXT RACTION ETC OF MINERAL OILS AND WOULD BE COVERED U/S 44BB O F ITA NO. 795/DEL./2015 10 THE ACT. 4.3.5 IN VIEW OF THE ABOVE, CONSIDERING THE FACTS OF THI S CASE, THE STATUTORY PROVISIONS AND CLEAR LEGAL PRONOUNCEMENTS OF THE HON'BLE ITAT/ AAR/ HIGH COURT ON THE MATTER, THE DRP IS OF THE CONSIDERED OPINION THAT THE AMOUNT RECEIVED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION ON ACCOUNT OF SEN/ICES RENDERED SHOULD BE BROUGHT TO TAX BY APPLYING THE DEEMED PRO FIT RATIO OF 10% U/S 4488 OF THE ACT. THE AO IS DIRECTED TO DO ACCORDINGLY. THE ASSESSEE'S GROUNDS NO. 1.1 AND 1.2 ARE ACCORDINGLY DISPOSED OF.' 4.4 ON CAREFUL EXAMINATION ON THE MATTER, FOLLOWING THE DETAILED DIRECTION OF THE DRPFOR A.Y. 2009-10 ( AS REPRODUCED ABOVE) AND THE RULE OF CONSISTENCY, WE A RE OF THE CONSIDERED OPINION THAT THE NATURE OF BUSINE SS OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION BEING IDENTICAL TO THAT OF A.Y. 2009-10, THE AMOUNT RECEI VED BY THE ASSESSEE FOR THIS YEAR FROM THE SAID CONTRAC T WITH PRIDE FORAMER SHOULD ALSO BE BROUGHT TO TAX BY APPL YING THE DEEMED PROFIT OF RATE 10% U/S 44BB OF THE ACT. THE AO IS DIRECTED TO DO ACCORDINGLY. THE ABOVE GROUNDS OF OBJECTION ARE ACCORDINGLY DISPOSED OF. 5. IN GROUND NOS. 2.1 AND 2.2, THE ASSESSEE HAS TAK EN AN ALTERNATIVE ARGUMENT 7NGT THE PROVISIONS OF SECT ION 90(2) WOULD BE APPLICABLE IN THE CASE AND AS PER AR TICLE 7 READ WITH ARTICLE 5 OF THE INDIA-USA DTAA THE NET PROFIT ATTRIBUTABLE TO THE PE OF THE ASSESSEE IN IN DIA SHOULD BE BROUGHT TO TAX WHICH IS 7.5%. I.E. LOWER THAN THE DEEMED PROFIT OF 10% OFFERED BY THE ASSESSEE U/ S 44BB. IT IS SUBMITTED THAT THE ABOVE MARK-UP OF 7.5 % HAS BEEN ACCEPTED AS ARMS LENGTH PRICE BY THE TPO. HOWEVER, WE FIND THAT IN VIEW OF THE DIRECTION GIVE N AGAINST GROUND NOS. 1.1 AND 1.2 ABOVE ACCEPTING THE ASSESSEES CLAIM U/S 44BB, THE ABOVE ALTERNATIVE GROUNDS ARE RENDERED INFRUCTUOUS AND HENCE ARE REJECTED. AGGRIEVED BY THE ABOVE ORDER THE REVENUE APPEAL BE FORE THE INCOME TAX APPELLATE TRIBUNAL. ITA NO. 795/DEL./2015 11 4. DURING THE COURSE OF HEARING THE LD. AR SUBMITT ED THAT THE CASE IS COVERED BY THE EARLIER ORDER OF THE TRIBUNA L IN ITA NO. 1156/DEL/2014 FOR THE ASSESSMENT YEAR 2009-10 AND H E ALSO SUBMITTED THAT THE FACTS WERE REMAINED UN-CHANGED A ND HE ALSO RELIED ON THE DECISION OF SUPREME COURT ORDER ONGC VS. CIT ORDER DATED JULY 1, 2015 RECORDED IN ITR 376 ITR 306 (SC) . AFTER HEARING APPEAL OF THE REVENUE, WE OBSERVED THAT THE FACTS O F THE CASE FROM THE ASSESSMENT YEAR 2009-10. NO ANY CHANGES FOUND A ND RESPECTFULLY FOLLOWING THE JUDGMENT OF THE CO-ORDINA TE BENCH IN ITA NO. 1156/DEL/2014 FOR ASSESSMENT YEAR 2009-10. THE FINDING IS AS UNDER :- 7. IN VIEW OF THE ABOVE, WE OBSERVE THAT THE DRP A FTER CONSIDERING THE RELEVANT DECISIONS OF THE HON'BLE H IGH COURT INCLUDING THE DECISION OF THE JURISDICTIONAL HIGH C OURT OF DELHI IN THE CASE OF DIT VS. OHM LTD [SUPRA] HELD THAT SECTION 44BB OF THE ACT BEING A MORE SPECIFIC PROVISION SHALL PREVA IL OVER THE GENERAL PROVISIONS OF THE ACT AND THAT THE SERVICES RENDERED BY THE SUB-CONTRACTOR AT THE OFF SHORE RIGS OF A CONTR ACTOR IS PART AND PARCEL OF ACTIVITIES FOR EXTRACTION ETC OF MINE RAL OILS AND WOULD BE COVERED U/S 44BB OF THE ACT. WE RESPECTFUL LY NOTE THAT IN THE CASE OF ONGC [SUPRA], SPEAKING FOR THE HON'B LE APEX COURT, THEIR LORDSHIPS CATEGORICALLY HELD THAT PAYM ENTS FOR PROVIDING VARIOUS SERVICES IN CONNECTION WITH PROSP ECTING, EXTRACTION OR PRODUCTION OF MINERAL OIL WOULD BE AS SESSED U/S 44AB AND NOT U/S 44D OF THE ACT. ON THE BASIS OF AF ORESAID DISCUSSION, WE ARE INCLINED TO HOLD THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE AND THE DRP WAS N OT JUSTIFIED AND CORRECT IN DIRECTING THE AO TO ASSESS INCOME OF THE ASSESSEE FROM NON-RESIDENT COMPANY ON ACCOUNT OF PROVISION O F TECHNICAL PERSON FOR EXECUTING CONTRACT WITH ONGC SHALL BE TA XED APPLYING DUE PROFIT RATE OF 10% U/S 44BB OF THE ACT . FINALLY, IN THE LIGHT OF ABOVE NOTED DISCUSSION, WE HAVE NO HES ITATION TO HOLD THAT THERE IS NO AMBIGUITY, PERVERSITY OR ANY OTHER VALID REASON TO INTERFERE WITH THE IMPUGNED ORDER OF THE DRP AND THUS ITA NO. 795/DEL./2015 12 WE UPHOLD THE SAME. CONSEQUENTLY, THE SOLE EFFECTIV E GROUND OF THE REVENUE BEING DEVOID OF MERITS IN BOTH THE APPE ALS IS DISMISSED. 5. THE LD. AR ALSO FURTHER SUBMITTED THAT THE ISSUE IS RE-COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE HONB LE SUPREME COURT IN THE CASE OF ONGC VS. CIT REPORTED AT 376 ITR 306 (SC) WHEREIN IT HAS BEEN HELD THAT THE PAYMENTS FOR PROVIDING VARIO US SERVICES IN CONNECTION WITH PROSPECTING EXTRACTION AND PRODUCTIO N OF OIL WOULD BE ASSESSED U/S 144BB AND NOT U/S 44DA OF THE ACT. HELD PORTION OF THE JUDGEMENT IS AS UNDER A CAREFUL READING OF THE PROVISIONS OF SECTION 44BB (1) SHOWS THAT IN CASE OF A NON-RESIDENT PROVIDING SERVICES O R FACILITIES IN CONNECTION WITH OR SUPPLYING PLANT AND MACHINERY US ED OR TO BE USED IN PROSPECTING, EXTRACTION OR PRODUCTION OF MINERAL OILS, THE PROFIT AND GAINS FROM SUCH BUSINESS CHARGEABLE TO TAX IS T O BE CALCULATED AT A SUM EQUAL TO 10 PER CENT OF THE AGGREGATE OF THE AMOUNTS PAID OR PAYABLE TO SUCH NON-RESIDENT ASSESSEE AS MENTIONED IN SUB-SECTION (2). ON THE OTHER HAND, SECTION 44D CONTEMPLATES TH AT IF THE INCOME OF A FOREIGN COMPANY WITH WHICH THE GOVERNMENT OR A N INDIAN CONCERN HAD AN AGREEMENT EXECUTED BEFORE 1-4-1976 O R ON ANY DATE THEREAFTER THE COMPUTATION OF INCOME WOULD BE MADE AS CONTEMPLATED UNDER THE AFORESAID SECTION 44D. EXPLANATION (A) TO SECTION 44D, HOWEVER, SPECIFIES THAT 'FEES FOR TECHNICAL SERVICE S' AS MENTIONED IN SECTION 44D WOULD HAVE THE SAME MEANING AS IN EXPLANATION 2 TO CLAUSE (V/J) OF SECTION 9(1). THE SAID EXPLANATION AS QUOTED ABOVE DEFINES 'FEES FOR TECHNICAL SERVICES' TO MEAN CONSI DERATION FOR RENDERING OF ANY MANAGERIAL, TECHNICAL OR CONSULTAN CY SERVICES. HOWEVER, THE LATER PART OF THE EXPLANATION EXCLUDES FROM CONSIDERATION FOR THE PURPOSES OF THE EXPRESSION, I. E ., 'FEES FOR TECHNICAL SERVICES' ANY PAYMENT RECEIVED FOR CONSTR UCTION, ASSEMBLY, MINING OR LIKE PROJECT UNDERTAKEN BY THE RECIPIENT OR CONSIDERATION WHICH WOULD BE CHARGEABLE UNDER THE HEAD 'SALARIES' . FEES FOR TECHNICAL SERVICES, THEREFORE, BY VIRTUE OF THE AFO RESAID EXPLANATION WILL NOT INCLUDE PAYMENTS MADE IN CONNECTION WITH A MINING PROJECT. [PARA 8] ITA NO. 795/DEL./2015 13 THE INCOME-TAX ACT DOES NOT DEFINE THE EXPRESSIONS 'MINES' OR 'MINERALS'. THE SAID EXPRESSIONS ARE FOUND DEFINED AND EXPLAINED IN THE MINES ACT, 1952 AND THE OIL FIELDS (DEVELOPMENT AND REGULATION) ACT, 1948. WHILE CONSTRUING THE SOMEWHA T PARI MATERIA EXPRESSIONS APPEARING IN THE MINES AND MINERALS (DE VELOPMENT AND REGULATION) ACT, 1957 REGARD MUST BE HAD TO THE PRO VISIONS OF ENTRIES 53 AND 54 OF LIST I AND ENTRY 22 OF LIST II OF THE 7 TH SCHEDULE TO THE CONSTITUTION TO UNDERSTAND THE EXCLUSION OF MINERAL OILS FROM THE DEFINITION OF MINERALS IN SECTION 3(A) OF THE 1 957 ACT. REGARD MUST ALSO BE HAD TO THE FACT THAT MINERAL OILS IS S EPARATELY DEFINED IN SECTION 3(B) OF THE 1957 ACT TO INCLUDE NATURAL GAS AND PETROLEUM IN RESPECT OF WHICH THE PARLIAMENT HAS EXCLUSIVE JURIS DICTION UNDER ENTRY 53 OF LIST I OF THE 7TH SCHEDULE AND HAD ENAC TED AN EARLIER LEGISLATION, I.E., OIL FIELDS (REGULATION AND DEVELOPMENT) ACT, 1948. READING SECTION 2 (/') AND 2 (JJ) OF THE MINES ACT, 1952 WHICH DEFINE MINES AND MINERALS AND THE PROVISIONS OF THE OIL FI ELDS (REGULATION AND DEVELOPMENT) ACT, 1948 SPECIFICALLY RELATING TO PROSPECTING AND EXPLORATION OF MINERAL OILS, EXHAUSTIVELY REFERRED TO EARLIER, IT IS ABUNDANTLY CLEAR THAT DRILLING OPERATIONS FOR THE P URPOSE OF PRODUCTION OF PETROLEUM WOULD CLEARLY AMOUNT TO A M INING ACTIVITY OR A MINING OPERATION. THE FACTS INDICATE THAT THE PITH AND SUBSTANCE OF EACH OF THE CONTRACTS/AGREEMENTS IS INEXTRICABLY CONNECTED WITH PROSPECTING, EXTRACTION OR PRODUCTION OF MINERAL OIL. THE DOMINA NT PURPOSE OF EACH OF SUCH AGREEMENT IS FOR PROSPECTING, EXTRACTI ON OR PRODUCTION OF MINERAL OILS THOUGH THERE MAY BE CERTAIN ANCILLA RY WORKS CONTEMPLATED THEREUNDER. IF THAT BE SO, WE WILL HAV E NO HESITATION IN HOLDING THAT THE PAYMENTS MADE BY ONGC AND RECEIVED BY THE NON- RESIDENT ASSESSEES OR FOREIGN COMPANIES UNDER THE SAID CONTRACTS IS MORE APPROPRIATELY ASSESSABLE UNDER THE PROVISIONS OF SECTION 44BB AND NOT SECTION 44D. 6. AFTER OBSERVING THE SUBMISSIONS OF THE ASSESSEE AND ORDER OF THE AUTHORITIES BELOW AND CASE LAW RELIED BY THE LD. A.R. WE ARE OB SERVED THAT THE FACTS AND CIRCUMSTANCES OF THE CASE ARE REMAINED UNCHANGED FR OM THE LAST YEAR. THE CASE LAWS RELIED BY THE ASSESSEE ARE SQUARELY APPLICABLE IN THE CASE OF THE ASSESSEE FOR THE IMPUGNED ASSESSMENT YEAR. RESPECTFULLY FOLLOWIN G THE JUDGMENT OF HONBLE ITA NO. 795/DEL./2015 14 SUPREME COURT AND IN CASE OF ASSESSEE OWN CASE FOR THE ASSESSMENT YEAR 2009- 10 (SUPRA) OF THE CO-ORDINATE BENCH OF THE TRIBUNAL THE APPEAL FILED BY THE REVENUE IS DISMISSED. IN THE RESULT THE APPEAL OF THE REVENUE IS DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT ON 15.02.2018. SD/- SD/- (H.S.SIDHU) (L.P. SAHU) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 15.02.2018 *BINITA* COPY OF ORDER FORWARDED TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES, NEW DELHI ITA NO. 795/DEL./2015 15 DATE 1. DRAFT DICTATED / (DNS) 0 8 .0 2 .1 8 PS 2. DRAFT PLACED BEFORE AUTHOR 08.0 2 .1 8 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS PS/PS 6. KEPT FOR PRONOUNCEMENT ON 15.02.2018 PS 7. FILE SENT TO THE BENCH CLERK 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.