DEEP DRILLING 5 PTE LIMITED., CHENNAI V. DCIT, INTL, TAX 1(1), CHENNAI

ITTPA 17/CHNY/2021

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 5260 (ITAT-CHENNAI)
• Duration Of Justice: 9 month(s) 17 day(s)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 06-02-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2017-2018
• Appeal Filed On: 20-04-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: APPELLANT IS A
• Keywords: Business income; Double taxation relief; Permanent establishment; Question of law; Tax effect; TDS; Set aside; Capital Gains; FORM 26AS
• Section: 90; 195; 44BB; 9(1); 115A; 9(1); 9(1); 44DA

Judgement Text

IT (TP) A No.17/Chny/2021 िनधा रणवष /Assessment Year: 2017-18 M/s.Deep Drilling 5 PTE Ltd., C/o. P.Murali& Co., Chartered Accountants, 6-3-655/2/3, Somajiguda, Hyderabad-500 082. v. The Dy. Commissioner of Income Tax, International Taxation-1(1), Chennai. [PAN: AAFCD 9063 N] (अपीलाथ /Appellant) ( यथ /Respondent) अपीलाथ क ओर से/ Appellant by : Mr.P. Murali Mohan Rao, CA यथ क ओर से /Respondent by : Mr.AR.V.Sreenivasan, Addl.CIT सुनवाईक तारीख/Date of Hearing : 17.11.2021 घोषणाक तारीख /Date of Pronouncement : 07.02.2022 आदेश / O R D E R PER G. MANJUNATHA, ACCOUNTANT MEMBER: This appeal filed by the assessee is directed against final Assessment Order passed by the AO u/s.143(3) r.w.s.144C(13) of the Income Tax Act, 1961 dated 22.02.2021, in pursuant to directions of the Dispute Resolution Panel-2, Bengaluru, u/s.144C(5) of the Income Tax Act, 1961 dated 08.02.2021 and pertains to AY 2017-18. आयकर अपीलीय अिधकरण, ’डी’ यायपीठ, चे ई। IN THE INCOME TAX APPELLATE TRIBUNAL ‘D’ BENCH: CHENNAI ीवी. दुगा राव, ाियकसद एवं ीजी. मंजूनाथा, , लेखासद के सम BEFORE SHRI V. DURGA RAO, HON’BLE JUDICIAL MEMBER AND SHRI G. MANJUNATHA, HON’BLE ACCOUNTANT MEMBER IT (TP) A No.17/Chny/2021 ::2 :: 2. The grounds raised by the assessee are as under: Sl.No. Grounds of appeal Tax Effect 1 The Final assessment order passed by the by the Dy. Commissioner of Income Tax, INTL TAX 1(1), Chennai (herein after referred to as ' AO') is bad both in the eye of law and on facts. General ground 2 The Ld.AO erred in making an addition for an amount of Rs.24,58,68,872/- towards income computed as equipment royalty/ fee for technical services without appreciating the facts and circumstances of the case. Rs.24,58,68,872/- 3 The Ld.AO ought to have appreciated the fact that the assessee company is a non-resident and doesn't have PE in India for the year under consideration. Rs.24,58,68,872/- 4 The Ld. AO ought to appreciate the fact that the assessee company's income is not liable to tax in India as per the provisions of the Act and DTAA. Rs.24,58,68,872/- 5 The Ld.AO ought to have appreciated the fact that the liability for taxability of business income in India in respect to foreign company would arise only when such entity has Permanent Establishment in India. Rs.24,58,68,872/- 6 The Ld.AO ought to have appreciated the fact that the assessee's presence in India is less than the period of 183 days as it required for considering as service PE in relation to FTS. Rs.24,58,68,872/- 7 The Ld.AO ought to have appreciated the fact that the provisions of the DTAA or ITA as per the section 90 of the Act, which are more beneficial to the assessee shall be taken into consideration for the purpose of tax liability. Rs.24,58,68,872/- 8 The Ld.AO ought to have appreciated the fact that the tax treaty provisions are more beneficial to the assessee and thus, treatyprovisions would override the provisions of ITA. Rs.24,58,68,872/- 9 The Ld.AO ought to have appreciated the fact that the assessee company is governed by the Article 7 read with Article 5 of India- Singapore tax treaty with respect to taxation of business income and not by the Article 12/ Article 13. Rs.24,58,68,872/- 10 Without prejudice to above, the Ld.AO erred in appreciating the fact that the mining activity not covered in the explanation to section 9(l)(vii) of the Act and payment in relation to mining activity is covered under section 44BB and not under section 115A r.w.s. 44D of the Act. Rs.24,58,68,872/- 11 The Ld. AO ought to appreciate that the payments to a foreign company for services in relation to prospecting for, or extraction or production of, mineral oil will be income chargeable to tax under the provisions of Sec. 44BB of the Income-tax Act, 1961. Rs.24,58,68,872/- 12 The Ld. AO ought to appreciate the fact that the Section 44BB of the Act is specific in nature which overrides the other general provision of the Act. Rs.24,58,68,872/- 13 The Ld.AO erred in not appreciating the fact that only 10% of the aggregate receipts during the year will be chargeable to tax as business income. Rs.24,58,68,872/- 14 The Appellant may, add or alter or amend or modify or substitute or delete and/or rescind all or any of the grounds of appeal at any time before or at the time of hearing of the appeal. General Ground IT (TP) A No.17/Chny/2021 ::3 :: 3. The brief facts of the case are that the assessee M/s. Deep Drilling 5 Pte. Ltd., is a non-resident company in India and also is a tax resident of Singapore. The assessee is engaged in the business of providing deep drilling rig named “deep driller-5” used in oil exploration. The assessee had entered into a contract with M/s. CAIRN India Ltd. (Vedanta) to carry out drilling work of well drilling at off-shore location designed by CAIRN in PR-OSN-2004/1 PalarPennar Block on the east coast of India. As per the said agreement between the parties, the assessee deployed its equipment “mainly the drilling rig and other incidental equipment” and the personnel to carry out the well drilling operations. Further, as per the said agreement, the nature of equipments to be provided by the assessee, relevant materials required for drilling and also personnel required for the work has been specified, as per which, the drilling rig and other incidental equipments, necessary materials and other equipments and further, personnel required for carrying out the work shall be provided by the assessee. The assessee has mobilized the drilling rig to carry out the contract from Batam, Indonesia and said drilling rig entered into India in the month of February, 2017 and thereafter, it is commenced its operations in February, 2017. In the said agreement, it was further stated that duration of the work as per the contract with CAIRN is for two wells and one additional well to last till 30.04.2017 and hence, the period of operations in India for the FY 2016-17 would be only 45 days. IT (TP) A No.17/Chny/2021 ::4 :: 4. The assessee has filed return of income as Project Office of the assessee in India declaring NIL taxable income for the AY 2017-18 on 31.10.2017 as per Sec.44BB(3) of the Act and claimed TDS credit of Rs.1,06,36,301/-, as there is no Permanent Establishment (in short “PE") in India because of the presence of the assessee company in India only for 53 days (i.e. from 07.02.2017 to 31.03.2017). The assessee claimed that it is covered under Article-7 r/w Article-5 of the India Singapore Tax Treaty dealing with the taxation of business income and claimed that in terms of Article-7 of DTAA between India and Singapore, business of profit of enterprise of Singapore is not taxable in India unless the enterprise of Singapore carries a business in India through a PE situated in India. 5. The case was taken up for scrutiny and during the course of assessment proceedings, the Assessing officer after considering the above submissions of the appellant, held that the appellant's contention that provisions of Article 7(1) r/w Article 5(5) of India Singapore DTAA is applicable is not accepted. The Assessing officer held that the appellant has received income from hiring drilling equipment which is nothing but equipment hire charges and hence, falls under the purview of Equipment Royalty as per Article 12 of India Singapore DTAA. The Assessing officer, placing his reliance on clause 3(b) of the Article 12 of India Singapore tax treaty which defines the term Royalty as to be the payments of any kind received as a consideration for the use of, or the right to use any IT (TP) A No.17/Chny/2021 ::5 :: industrial, commercial or scientific equipment, other than payments derived by an enterprise from activities described in paragraph 4(b) or 4(c) of Article 8, held that the hire charges received by the appellant from hiring the deep drilling equipment to an Indian entity in India as an income accruing and arising in India of the nature Royalty and thus, brought the same to tax at 10% of the gross amount received. The AO on the basis of information submitted by the assessee and also considering the Article-12 of India Singapore Tax Treaty, opined that consideration received by the assessee in pursuance to contract with CAIRN for off-shore drilling work is in the nature of royalty as defined u/s.9(1) of Income Tax Act, 1961 and Article-12 of the India Singapore Tax Treaty(DTAA) and thus, HE opined that income of the assessee is assessable as equipment royalty taxable at 10% of the total income. The AO had discussed the issue at length in the light of the provisions of Article-7(1) r/w Article-5(5) of India Singapore Tax Treaty and observed that as claimed by the assessee Article-7 r/w Article-5 of India Singapore Tax Treaty is not applicable, because the assessee has received income from hiring the drilling equipment which is nothing but equipment hire charges and hence falls under the purview of equipment royalty as per Article-12 of the India Singapore Tax Treaty DTAA. Therefore, the AO placing reliance on the Clause-3(b) of Article-12 of India Singapore Tax Treaty which covers royalty and fee for technical services observed that consideration received by the assessee is for use of, or the right to sue of IT (TP) A No.17/Chny/2021 ::6 :: any industrial, commercial or scientific equipment other than payments derived by the enterprise from activities described in paragraph 4(b) or 4(c) of Article-8 and thus, opined that hire charges received by the assessee from hiring deep drilling equipments to an India entity is an income accruing and arising in India of the nature of the royalty and hence, brought to tax income of the assessee @10% of gross amount received. The relevant findings of the AO are as under: 2. On verification of the details filed it is found that the assessee is engaged in hiring of deep drilling rig named "Deep drillers' and has received hiring charges from M/s.Vedanta Limited which has paid Rs.24,58,68,723/- during the year 2016-17 and deducted TDS U/s.195 amount to Rs.1,06,36,301/-. The income earned by the assessee as reported in the Form 26AS is treated as income accrued and arising in India under section 9(1) of the Income Tax Act from Indian operations. The assessee has filed online Form26AS, Independent Auditor's report, profit and loss account and balance sheet of project office for the year 2016-17 relevant to AY 2017-18. In the profit and loss account filed the income shown is nil and various expenses are claimed and loss is arrived at Rs.4,45,43,997/-. In notes to financial statements it is mentioned that the period of contract was less than 183 days during the year 2016-17 and therefore as per the provisions of Article 7(1) read with 5(5) of the DTAA between the Government of the Republic of India and the Government of the Republic of Singapore the assessee does not form a permanent establishment in India and hence not liable to income tax in India (Note X). The assessee has not submitted any reason for not accounting the revenue in the profit and loss account. No written submission is also filed for showing the taxable income as Nil despite having receipts as reported in Form 26AS. 3 The assessee's submission in the 'Note attached to and forming Part of the accounts' is perused. The assessee's contention that provisions of Article 7(1) read with 5(5) of the DTAA is applicable is not accepted. The assessee has received income from hiring the drilling equipment which falls under the purview of equipment and hire charges received is nothing but royalty. It is held that the income tax Act read with Article 12 of the India-Singapore DTAA which is reproduced as under: ARTICLE 12 ROYALTIES AND FEES FOR TECHNICAL SERVICES 1. Royaltiesand fees for technical services arising in a Contracting State and paid to a resident of theother Contracting State may be taxed in that other State. 2. However, such royalties and fees for technical services may also be taxed in theContracting State in which they arise and according to the laws of that IT (TP) A No.17/Chny/2021 ::7 :: Contracting State, butif the recipient is the beneficial owner of the royalties or fees for technical services, the tax socharged shall not exceed 10 per cent. 3. The term “royalties” as used in this Article means payments of any kind received as aconsideration for the use of, or the right to use: (a) any copyright of a literary, artistic or scientific work, including cinematograph film orfilms or tapes used for radio or television broadcasting, any patent, trade mark, design ormodel, plan, secret formula or process, or for information concerning industrial,commercial or scientific experience, including gains derived from the alienation of anysuch right, property or information; (b) any industrial, commercial or scientific equipment, other than payments derived by anenterprise from activities described in paragraph 4(b) or 4(c) of Article 8. 4. The term “fees for technical services” as used in this Article means payments of any kindto any person in consideration for services of a managerial, technical or consultancy nature(including the provision of such services through technical or other personnel) if suchservices: (a) are ancillary and subsidiary to the application or enjoyment of the right, property orinformation for which a payment described in paragraph 3 is received; or (b) make available technical knowledge, experience, skill, know-how or processes, whichenables the person acquiring the services to apply the technology contained therein; or (c) consist of the development and transfer of a technical plan or technical design, butexcludes any service that does not enable the person acquiring the service to apply thetechnology contained therein. For the purposes of (b) and (c) above, the person acquiring the service shall be deemed toinclude an agent, nominee, or transferee of such person. 5. Notwithstanding paragraph 4, “fees for technical services” does not include payments: (a) for services that are ancillary and subsidiary, as well as inextricably and essentiallylinked, to the sale of property other than a sale described in paragraph 3(a); (b) for services that are ancillary and subsidiary to the rental of ships, aircraft, containers orother equipment used in connection with the operation of ships or aircraft ininternational traffic; (c) for teaching in or by educational institutions; (d) for services for the personal use of the individual or individuals making the payment; (e) to an employee of the person making the payments or to any individual or firm ofindividuals (other than a company) for professional services as defined in Article 14; IT (TP) A No.17/Chny/2021 ::8 :: (f) for services rendered in connection with an installation or structure used for theexploration or exploitation of natural resources referred to in paragraph 2(j) of Article 5; (g) for services referred to in paragraphs 4 and 5 of Article 5. 6. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the royaltiesor fees for technical services, being a resident of a Contracting State, carries on business inthe other Contracting State in which the royalties or fees for technical services arise, througha permanent establishment situated therein, or performs in that other State independentpersonal services from a fixed base situated therein, and the right, property or contract inrespect of which the royalties or fees for technical services are paid is effectively connectedwith such permanent establishment or fixed base. In such case, the provisions of Article 7 orArticle 14, as the case may be, shall apply. 7. Royalties and fees for technical services shall be deemed to arise in a Contracting Statewhen the payer is that State itself, a political sub-division, a local authority, a statutory bodyor a resident of that State. Where, however, the person paying the royalties or fees fortechnical services, whether he is a resident of a Contracting State or not, has in a ContractingState a permanent establishment or a fixed base in connection with which the liability to paythe royalties or fees for technical services was incurred, and such royalties or fees fortechnical services are borne by such permanent establishment or fixed base, then suchroyalties or fees for technical services shall be deemed to arise in the State in which thepermanent establishment or fixed base is situated. 8. Where, by reason of a special relationship between the payer and the beneficial owner orbetween both of them and some other person, the amount of royalties or fees for technicalservices paid exceeds the amount which would have been paid in the absence of suchrelationship, the provisions of this Article shall apply only to the last-mentioned amount. Insuch case, the excess part of the payments shall remain taxable according to the laws of eachContracting State, due regard being had to the other provisions of this Agreement. 1. Submitted by Notification No. SO 1022(E), Dated 18-07/2005. 4. The assessee is incorporated in 15.02.2015 and this is the project office in India for which return of income is filed. The assessee has received hire charge from hiring the deep drilling equipment to Indian entity in India and received income which is taxable under section 9(1) of the Income Tax Act since the same is accrued or arising in India. Therefore, it is held that the income accruing and arising in India as reported in Form 26 AS is taxable under section 9(1) of the Income Tax Act. applying the provisions of section 9(1) of Income Tax Act and Article 12 of the India-Singapore DTAA, the income is treated as equipment and royalty taxable at 10% of the hire charge received. 5. On counter checking of the TDS amount made by the deductor i.e. M/s Vedanta limited which is engaged in the business of oil exploration, it is found that the TDS amount is computed applying the provisions of selection 44BB of the Income Tax Act which is a presumptive tax levied to non-residents engaged in field of oil, exploration. Science there is no such claim made by the assessee in the return filed, the applicability of this provision is not considered for this assessment order. IT (TP) A No.17/Chny/2021 ::9 :: 6. Based on the above observation, the receipts of the assessee which is reported in Form 26AS is held to be income taxable in India as equipment royalty and applying the provisions of selection 9(1) read with Article 12 of India Singapore DTAA, the Income is computed as under: Computation of Income Total income returned Nil Add: Income computed as equipment royalty to be taxed @10% Rs.24,58,68,723/- Total income assessed Rs.24,58,68,723/- 6. The assessee, without prejudice to its arguments that, income received from drilling operations in India is not taxable has made an alternative argument in the light of the provisions of Sec.44BB of the Income Tax Act, 1961 and argued that if at all, income is liable for taxation in India, then the nature of work carried out by the assessee in India is squarely covered under the provisions of Sec.44BB of the Income Tax Act, 1961 and as per the said provision, 10% of gross receipt is attributable as income from operations. Therefore, requested the AO to compute income by applying provisions of Sec.44BB of the Income Tax Act, 1961. The AO rejected arguments of the assessee on the ground that no such claim was made by the assessee in the return of income filed and hence, unless a claim is made in the return of income, then such claim cannot be entertained by the AO. Thus, the AO has rejected alternative claim of the assessee. 7. being aggrieved by the draft assessment order, the assessee has filed objections before the DRP against the draft Assessment Order and challenged the additions made by the AO towards income as Royalty within the meaning of Sec.9(1)(vii) of Income Tax Act, 1961 and also IT (TP) A No.17/Chny/2021 ::10 :: Article-12 of India Singapore Tax Treaty. The assessee had also made an alternative argument without prejudice to the first argument of non- taxability of income in India, in that case, income is liable to tax in India then it should be computed in accordance with the provisions of Sec.44BB of the Income Tax Act, 1961. 8. The DRP after considering the relevant submissions of the assessee and also on analyzing various clauses of the agreement between the parties concluded that the activity of the assessee in providing deep driller 5 for drilling activities will come under the definition of the royalty as defined under Article-12 of India Singapore Tax Treaty and further, the provisions of Sec.9(1)(vii) of the Income Tax Act, 1961. The DRP had also rejected argument of the assessee in the light of the provisions of Sec.44BB of the Income Tax Act, 1961 on the ground that the activities carried out by the assessee will not come under the provisions of Sec.44BB of the Income Tax Act, 1961 and hence, applicability of the said provisions and computing income as per said provisions does not arise. Therefore, rejected the arguments taken up by the assessee and sustained the additions made by the AO. The relevant findings of the DRP are as under: 3.1 Panel: The assessee's submission has been pursued and considered. The assessee is a non-resident company incorporated in Singapore, and is engaged in the business of Deep drilling rig "Deep Driller 5" used for Oil exploration. It has received hiring chargesM/s.Vedanta Ltd of Rs.24,58,68,723/-. A TDS u/s 195 amounting to Rs.1,63,36,301/-was deducted.The return was filed as a project office of the assessee disclosing Nil taxable income and claiming TDS credit of Rs.1,06,36,301/-. The Assessee claim thatthe assessee is not governed by Article 7 read with Article 5 of India-Singapore Tax Treaty, Since, the operation was IT (TP) A No.17/Chny/2021 ::11 :: carried on 45 days during the Financial Year, it would not have a permanent establishment in India for F.Y 2016-17. The AO relied on section 9(l)of the Income Tax Act read with Article 12 of the India-Singapore DTAA for charging the sum as equipment royalty during the year. 3.2 The Company entered into an agreement with Vedanta Ltd (Cairn India Ltd), dated 28.10.2016. Few relevant extracts are being re-produced below: - "C The company requires the Contractor to provide an offshore drilling rig, together with associated equipment and personnel to perform certain work in accordance with the directions issued by the Company", "D The Contractor has agreed to provide such drilling rig, equipment and/or personnel to the Company to perform such work on the terms and condition set out in this Contract" NOW THEREFORE IT IS HEREBY AGREED as follows: 1. The Contractor agrees to provide the Drilling Unit, the other Contractor's Equipment and the Contractor's Personnel and lo perform the Work in accordance with the terms and conditions of this Contract and, in consideration of its provision of the Drilling Unit, the other Contractor's Equipment and the Contractor's Personnel and the performance of the work, the Company agree to pay the Contractor according to the rates, terms and conditions herein contained. 4. The Drilling unit shall be DEEP DRILLER 5 5. The Operating Area shall be PR-OSN-2004/1 (PALAR-PENNAR) BLOCK 3.3 In Explanation 2 (iv a) to section 9(1) (vi) royalty has been defined as follows: - “the use or right to use, any industrial, commercial or scientific equipment buy not including the amounts referred to in section 44BB" 3.4 Article 12 of the India-Singapore DTAA defined royalty and Fees for Technical services. As per clause 3(b) of Article 12. the term royalty includes payments of any kind received as a consideration for the use of, or the right to use any industrial, commercial or scientific equipment other than payments derived by an enterprise from activities described in para 4 (b) and 4(c) of Article 8. 3.5 From the plain reading of the above provisions of the Income Tax Act and DTAA between India and Singapore, it can be seen that any sums received for use or right to use any industrial, commercial or scientific equipment would be taxable in India. 3.6 The assessee has entered into a contract for providing Deep Driller 5 for deep drilling activities of Vedanta Ltd. The Deep Driller 5 will come under the definition of the any Industrial, commercial or scientific equipment as per Explanation 2(iva) to the Section 9(1) (vi)and also as per the definition of Royalty as per Article 12 (3)(b), Therefore, the action of the AO is upheld and the ground of objection is rejected. 3.7 The assessee has without prejudice to the above, sought to be covered under Section 44BB of the Act for the sum received. The AO in the draft Assessment IT (TP) A No.17/Chny/2021 ::12 :: Order had rejected the assessee's claim by stating that he had not claimed the same while filing the Return so it cannot be entertained. 3.8 Section 44BB is a special provision for computing profits and gains in connection with the business of exploration, etc., of mineral oils. In the present case, the assessee is not in the business of exploration, etc., as it does not have permanent establishment due to fact that it has operated only for 45 days during the financial year. Article 7 read with Article 5 deals with the taxation of business income of an entity having a permanent establishment situated in India. Since the assessee does not fulfill the conditions laid in the Article of it being treated as business income, therefore, the assessee will not come under section 44BB of the Income Tax Act. The assessee would also not come under fee for technical services covered under the special provision 115A read with section 44D of the Income Tax Act. The AO has correctly treated it as equipment royalty as per section 9(l)(vi) read with Article 12 of the DTAA between India and Singapore. Therefore, the action of the AO is upheld and the ground of objection is rejected. 9. The Ld.AR for the assessee submitted that the ld.DRP is erred in sustaining additions made by the AO towards computation of income by applying Article-12 of India Singapore Tax Treaty and the provisions of Sec.9(1)(vii) of Income Tax Act, 1961, to treat income of the assessee as Royalty which is taxable @10% of gross receipts without appreciating the fact that the assessee is squarely covered under Article-7 r/w Article-5 of DTAA between India and Singapore and as per the said Article, business profit of an enterprise of Singapore is not liable to tax in India, unless the enterprise of Singapore carries on a business in India through a PE. The Ld.AR further referring to the provisions of Sec.44BB of the Income Tax Act, 1961 submitted that, provisions of section 44BB deal with taxation of non-resident involved in oil exploration business. If you go through the nature of activity carried out by the assessee in terms of agreement between the assessee and CAIRN, the assessee has carried out deep drilling work for exploration of oil, as a contractor which involves providing required drilling and other equipments, materials required for IT (TP) A No.17/Chny/2021 ::13 :: the said work and also necessary manpower requiring for carry out the work. Therefore, from the scope of work, it is very clear that the assessee is in the business of exploration of mineral or oil which falls under the provisions of Sec.44BB of the Income Tax Act, 1961. Once, the nature of the activity falls under the provisions of Sec.44BB of the Income Tax Act, 1961 in terms of Tax Treaty between India and Singapore, the assessee can adopt beneficial provisions as per which Article-7 r/w Article-5 income of a non-resident in India and tax resident of Singapore is liable to be taxed in residence country and thus, income received by the assessee is not taxable in India. The AR, further, referring to Certificate issued by the AO u/s.197 dated 25.01.2017, submitted that the AO had allowed the payer of the assessee for deduction of TDS at lower rate and has fixed TDS @4.3% including Education Cess and Surcharges and further, said rate has been determined as per the provisions of Sec.44BB of the Income Tax Act, 1961. The AO as well as the DRP without appreciating the facts simply assessed the income of the assessee as per Sec.9(1)(vii) and Article-12 of India Singapore Tax Treaty and taxed @10% on total receipts. Therefore, he submitted that the additions made by the AO should be deleted. In this regard, he also relied upon the following judicial precedent: 1. UOI vs. AzadiBachaoAndolan reported in 263 ITR 706 (SC) 2. CIT vs. Visakhapatnam Port Trust reported in 144 ITR 146 (AP) 3. Dy. Director of Income Tax vs. Serum Institute of India Ltd. reported in 40 ITR (T) 684 [Pune-Tribunal] 4. DCIT vs. Infosys BPO Ltd. reported in 154 ITD 816 [Bangalore-Tribunal] IT (TP) A No.17/Chny/2021 ::14 :: 10. The Ld. DR, on the other hand, strongly supporting the order of the AO as well as the DRP submitted that the DRP has rightly sustained the additions made by the AO towards assessment of income of the assessee in terms of Sec.9(1)(vii) and Article-12 of India Singapore Tax Treaty and thus, there is no merit in arguments of the Ld.AR for the assessee that income is not liable for tax in India. The Ld. DR has filed detailed Written Submissions on this issue in light of facts brought out by the AO, arguments taken up by the assessee in the light of agreement between the parties and also provisions of Sec.9(1)(vii) and Sec.44BB of the Income Tax Act, 1961 and Article-7 of India Singapore Tax Treaty. The ld. DR has framed ‘3’ questions to be answered by the Tribunal and she had filed her Written Submissions on each question of law and the same has been reproduced below for better understanding: During the course of assessment, the Assessing officer after considering the above submissions of the appellant, held that the appellant’s contention that provisions of Article 7(1) r.w. Article 5(5) of India Singapore DTAA is applicable is not accepted. The Assessing officer held that the appellant has received income from hiring the drilling equipment which is nothing but equipment and hire charges and hence falls under the purview of Equipment Royalty as per Article 12 of India Singapore DTAA. The Assessing officer placing reliance on the clause 3(b) of the Article 12 of India Singapore which defines the term Royalty as to be the payments of any kind received as a consideration for the use of, or the right to use any industrial, commercial or scientific equipment, other than payments derived by an enterprise from activities described in paragraph 4(b) or 4(c) of Article 8, held that the hire charges received by the appellant from hiring the deep drilling equipment to an Indian entity in India as an income accruing and arising in India of the nature Royalty and brought the same to tax at 10% of the gross amount received. The Appellant filed objections before the Hon’ble DRP. The Hon’ble DRP after considering the appellant submissions and analysing the various clauses of the agreement of the appellant with Cairn India concluded that the activity of the appellant in providing Deep Driller 5 for deep drilling activities will come under the definition of any industrial, commercial or scientific equipment and hence Royalty. IT (TP) A No.17/Chny/2021 ::15 :: The Assessing officer passed the final assessment order in conformation with the directions of DRP and hence the present appeal of the appellant before the Hon’ble Tribunal. The appellants argument before the Tribunal are on the following lines viz., The Assessing Officer failed to appreciate that the provisions of DTAA or the Act, as per section 90 of the Act, whichever is beneficial to the appellant are to be applied. The Assessing officer failed to appreciate that as per India Singapore DTAA the appellant does not have a PE in India and thus treaty provisions being more beneficial would be applicable in the case of appellant(Ground Nos). Without prejudice the above, the appellant also argues that the payments to a foreign company for services in relation to prospecting for, or extraction or production of, mineral oil will be income chargeable to tax under the provisions of sec 44BB of the Income Tax Act and appeals that only 10% of the aggregate receipts during the year is to be charged to tax as business income in India(Ground Nos 10-13). Now the questions raised before the Hon’ble Tribunal can be phrased as follows: Qn 1 Whether the income received by the appellant in the nature of hire charges for use of drilling rig and other associated equipment and the services of the personnel constitute a Royalty as held by the Assessing Officer. Qn 2 Without prejudice to the above whether the income received by the appellant in the nature of hire charges for drilling rig and other associated equipment and the services of the personnel is in the nature of business income and hence to qualify to be taxed in India, the appellant should have carried out its operations in India for more than 183 days in the Financial year and if so the entire profits earned are to be taxed in India. Q 3 Without prejudice to the above, whether the business income of the appellant is to be taxed as per section 44BB of the Act and hence 10% of the gross receipts are to be deemed as the profits of the business of the appellant. A detailed analysis on each of the above questions is provided as under: Qn 1 Whether the income received by the appellant in the nature of hire charges for use of drilling rig and other associated equipment and the services of the personnel constitute a Royalty as held by the Assessing Officer The name of the present contract under consideration is a Block PR-OSN-2004/1 Contract for provision of a Drilling Unit for drilling operations offshore India. There are various heads under which an income of a foreign company can be taxed in India as per various treaties and section 9 of the Income Tax Act. The India Singapore DTAA describes Royalty as to include Article 12 Royalties and Fee for Technical Services 3. The term "royalties" as used in this Article means payments of any kind received as a consideration for the use of, or the right to use: (a)............. IT (TP) A No.17/Chny/2021 ::16 :: (b) any industrial, commercial or scientific equipment, other than payments derived by an enterprise from activities described in paragraph 4(b) or 4(c) of Article 8. While as per the the Income Tax Act the clause (iva) to Explanation 2 of section 9(1)(vi) of the Act defines the Royalty as For the purposes of this clause, "royalty" means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head "Capital gains") for— (iva) the use or right to use any industrial, commercial or scientific equipment but not including the amounts referred to in section 44BB; i.e. the Act as well as DTAA defines the Royalty in same terms except that the Act provides a specific exclusion to incomes covered u/s 44BB of the Act from the definition of Royalty, which the appellant seeks to take advantage of. Now the question is whether the definition as given in the DTAA is to be followed or that given in the Act. In this regard it would be pertinent to quote the Board circular no.333 dated April 2, 1982, which states as follows: "'The correct legal position is that where a specific provision is made in the Double Taxation Avoidance Agreement, that provision will prevail over the general provisions contained in the Income-tax Act, 1961. In fact, the Double Taxation Avoidance Agreements which have been entered into by the Central Government under section 90 of the Income-tax Act, 1961, also provide that the laws in force in either country will continue to govern the assessment and taxation of income in the respective country except where provisions to the contrary have been made in the Agreement. Thus, where a Double Taxation Avoidance Agreement provided for a particular mode of computation of income, the same should be followed, irrespective of the provisions in the Income-tax Act. Where there is no specific provision in the Agreement, it is the basic law, i.e, the Income-tax Act, that will govern the taxation of income.' It is evident that the conclusion is inescapable that in case of inconsistency between the terms of the Agreement and the taxation statute, the Agreement alone would prevail. Reliance in this regard is also placed on the decision of Hon’ble SC in the case of Union of India vs AzadiBachaoAndolan [2003] 132 Taxmann 373 (SC), wherein the Hon’ble court has made a specific emphasis by describing in detail the purpose and consequence of Double Taxation Avoidance Convention. To quote the interpretation made by the Hon’ble court on the above, “the judicial consensus in India has been that section 90 is specifically intended to enable and empower the Central Government to issue a notification for implementation of the terms of a double taxation avoidance agreement. When that happens, the provisions of such an agreement, with respect to cases to which where they apply, would operate even if inconsistent with the provisions of the Income-tax Act. If it was not the intention of the Legislature to make a departure from the general principle of chargeability to tax under section 4 and the general principle of ascertainment of total income under section 5 of the Act, then there was no purpose in making those sections "subject to the provisions of the Act". The very object of grafting the said two sections with the said clause is IT (TP) A No.17/Chny/2021 ::17 :: to enable the Central Government to issue a notification under section 90 towards implementation of the terms of the DTAs which would automatically override the provisions of the Income-tax Act in the matter of ascertainment of chargeability to income tax and ascertainment of total income, to the extent of inconsistency with the terms of the DTAC. [Para 26] The contention of the respondents, which weighed with the High Court, viz., that the impugned circular No. 789, is inconsistent with the provisions of the Act, is a total non sequitur. Circular No. 789 is a circular within the meaning of section 90; therefore, it must have the legal consequences contemplated by sub-section (2) of section 90. In other words, the circular shall prevail even if inconsistent with the provisions of Income-tax Act, 1961 insofar as appellants covered by the provisions of the DTAC are concerned. There was no merit in the contention that the delegate of a legislative power cannot exercise the power of exemption in a fiscal statute. [Paras 27 & 29] The conclusion that emerges from the above judgement is that when the provisions of DTAA which applies in the case of appellant is considered the same would operate even if the same is inconsistent with the provisions of the Act. Relying on the above it is contended that the action of the AO in holding the payments received by the appellant towards hiring of drilling and other associated equipment and personnel is to be held as Royalty by following the definition of Royalty as per the DTAA only as DTAA overrides the Act to an extent that the same prevails over even the charging sections and hence also the section 9 of the Act. Qn 2 Without prejudice to the above whether the income received by the appellant in the nature of hire charges for drilling rig and other associated equipment and the services of the personnel is in the nature of business income and hence to qualify to be taxed in India, the appellant should have carried out its operations in India for more than 183 days in the Financial year and if so the entire profits earned are to be taxed in India Our first and foremost submission is that the presence in India of the appellants activities for more than 183 days is purely a finding of fact on which the observations of the Assessing Officer are as under: “On counterchecking of the TDS amount made by the deductori.e M/s Vedanta Limited which is engaged in the business of oil exploration, it is found that the TDS amount is computed by applying the provisions of section 44BB of the Income Tax Act which is a presumptive tax levied to non-residents engaged in field of oil exploration. Since there is no such claim made by the appellant in the return filed, the applicability of this provision is not considered for this assessment order” i.e. the Assessing Officer never looked into the aspect of Business Income. The Hon’ble DRP also while upholding the income to be Royalty, has not gone into detail on the business income aspect of the receipts, but just w.r.to the specific request of the appellant to be considered u/s 44BB of the Act, mentioned as follows: “Section 44BB is a special provision for computing profits and gains in connection with the business of exploration etc., of mineral oils. In the present case, the appellant is not in the business of exploration etc., as it does not have permanent IT (TP) A No.17/Chny/2021 ::18 :: establishment due to fact that it has operated only for 45 days during the financial year. Article 7 read with Article 5 deals with the taxation of business income of an entity having a permanent establishment situated in India. Since the appellant does not fulfil the conditions laid in Article of it being treated as business income, therefore the appellant will not come under section 44BB of the Act.” Now it is to be noted that the above observation of DRP is made in the context of claim u/s 44BB of the Act, without appreciating the fact that for the purposes of section 44BB the presence of a permanent establishment is not material. A detailed analysis of the above contention is provided in reply to question number 3. Our contention regarding the observations of the DRP on these lines is that the facts relating to the question of PE is a pure matter of fact which requires detailed examination of the contract in question, actual conduct, the presence of appellants personnel to India etc., which the DRP has failed to do so. The DRP has simply reproduced the appellant contention on presence in India and have come to the conclusion in a different context. Given the above, w.r.to the question before us in the absence of examination by the AO and the DRP, the Hon’ble ITAT being ultimate and final fact authority and given the fact that the first and foremost of the appeal of the appellant being on the presence or otherwise of the appellants business activities in India for 183 days or more, it is imperative on the part of Hon’ble ITAT to go into the facts involved in detail. Hence as it is the duty cast on the Departmental Representative to present the appropriate facts before the Hon’ble Tribunal to make an informed and fair decision, herewith I endeavor to present certain facts relating to the contract which would prove otherwise the contention of the appellant. To quote the Contract for Provision of a Drilling Unit for Drilling Operations Offshore India between Cairn India Limited and Deep Drilling 5 Pte Ltd Contract No 4600007146, Block PR-OSN-2004/1, Provision of Independent Leg Jack up Drilling Unit, Schedule II-Scope of Work. 2. PROPOSED DRILLING SCHEDULE Likely commencement date 1 st Feb 2017 to 15 th Feb 2017 Likely duration of Program 2 Firm wells (71 days) + 1 Optional well (31 days) Logistical support / supply Base To be confirmed (Krishnapatnam/Chennai/Kakinada) Helibase To be confirmed (Chennai/Tirupati) Excerpts from Schedule-II Scope of Work Annexure-2, Description of Services 1.4CONTRACTOR'S BASE Office: To be established in Gurgaon, State of Haryana, to enable CONTRACTOR'S Management to liaise directly with COMPANY, Operating Base: To be established by Contractor preferably near company supply base, COMPANY may provide space within its Supply Base or Port Facility, 1.5 SITES IT (TP) A No.17/Chny/2021 ::19 :: The Sites are the DRILLING UNIT, Drilling Locations, COMPANY'S Supply Base, COMPANY'S Port Facility and CONTRACTOR'S Operating Base. 2.2.2 DEPLOYMENT CONTRACTOR shall carry out a desktop study on the feasibility of deployment of the DRILLING UNIT at the locations specified by COMPANY. The feasibility study shall be submitted to the COMPANY the tender. The findings of the feasibility study shall include but not be limited to; • The expected leg penetration at the specified location; • Confirmation that punch-through or similar events shall not occur; and • Confirmation that seabed scouring around and below the spud cans shall not lead to excessive splaying or other deformation of the legs nor shall it otherwise compromise the stability and position of the DRILLING UNIT 2.4.4 CONTRACTOR'S EQUIPMENT CONTRACTOR shall at its cost provide all transportation for CONTRACTOR'S EQUIPMENT: • Between its Point of Origin and the CONTRACTOR'S Operating Base; and • Between the CONTRACTOR'S Operating Base and the COMPANY'S Port Facility, Helicopter Base or any other mutually agreed location, COMPANY shall provide transportation for CONTRACTOR'S EQUIPMENT between COMPANY'S Port Facility or Helicopter Base and the DRILLING UNIT, 2.4.3 CONTRACTOR'S SUPPLIES CONTRACTOR shall at Its cost provide all transportation for CONTRACTOR'S Supplies: • Between their Point(s) of Origin and the CONTRACTOR'S Operating Base; and • Between the CONTRACTOR'S Operating Base and the COMPANY'S Port Facility, Helicopter Base or any other mutually agreed location. All Supplies, Materials, Tools and other Equipment are required to be labelled and packaged or containerized in a pre-slung condition. COMPANY shall provide transportation for CONTRACTOR'S Supplies between COMPANY'S Port Facility or Helicopter Base and the DRILLING UNIT. 13.4 NUMBER AND CATEGORIES PERSONNEL CONTRACTOR shall have available, from the COMMENCEMENT DATE, sufficient personnel to perform the SERVICES. This shall include as a minimum the number and categories of personnel as specified herein. 13.4.1 ONSHORE PERSONNEL • Rig Manager permanent resident position based in Gurgaon. (Rig managers are not allowed on rotational shift) • Logistics Manager- permanent or rotational position based in Gurgaon or Operating Base. IT (TP) A No.17/Chny/2021 ::20 :: • Warehouseman - permanent or rotational position based in Operating Base. • Office support staff (e.g. accountants, secretaries, etc.) as required. 4.4 HSE BRIDGING DOCUMENT Prior to the COMMENCEMENT DATE, a Bridging Document shall be prepared linking COMPANY'S and CONTRACTOR'S HSE Management Systems. This Bridging Document shall govern all operations and procedures on board the DRILLING UNIX in the CONTRACTOR'S Operating Base or otherwise under the CONTRACTOR'S control. 5.5 OPERATIONAL FACILITIES 5.5.1 OPERATING BASE CONTRACTOR shall set: up for its use office(s), warehousing and shore-based equipment storage and handling facilities, hereinafter collectively referred to as the "Operating Bam", Such Operating Base Should preferably be located near to the proposed area of operations and either within or with access to COMPANY'S own Supply Base or Port facility, COMPANY reserves the right to provide space within its own supply base, CONTRACTOR'S Operating Base should be capable of storing, maintaining, inspecting, overhauling, repairing and refurbishing CONTRACTOR'S equipment. CONTRACTOR shall provide at its cost all specialized equipment, materials, spare parts and tools as may be required for the maintenance, overhaul, inspection, repair or refurbishment of CONTRACTOR'S EQUIPMENT stored at the Operating Base. CONTRACTOR shall have appropriate personnel at such Operating Base sufficiently in advance of the COMMENCEMENT DATE in order to ensure smooth and timely start-up of the SERVICES and thereafter shall have sufficient operating personnel at such location throughout the duration of the SERVICES arid for the entire Term of this CONTRACT. All costs for the accommodation, including board, lodging and personal transportation of CONTRACTOR'S PERSONNEL assigned to the Operating Base shall be to CONTRACTOR'S account A perusal of the above contents of the appellant’s agreement with Cairn India Limited clearly confirms the fact that apart from the offshore drilling unit which appellant claims to have brought inside the country in the month of January 2017, there was another permanent base called ‘Operating Base’ available to the appellant onshore located close to the proposed area of operations along with the office premises at Gurgaon. In this regard it would be relevant to note the fact as per audited accounts of the project office prepared by the appellant Note 7 Notes attached to and forming part of the accounts “In order to provide service a Jack up drilling rig of the company was brought into the country and a project office was established in India. As required under the Companies Act 2013, the accounts relating to the operations in India for the period 07th February 2017 to 31st March 2017 covering the Financial Year 2016- 17 is being presented based on the following significant accounting policies” IT (TP) A No.17/Chny/2021 ::21 :: In this regard it is to be noted that while the above disclosure in the accounts mentions about the project office, it does not mention about the date of establishment of the Office and the Operating base in India and has simply mentioned about the dates involved with the drilling rig. Given the above facts it is the submission of revenue that presence in India for 183 days or more and hence an existence of PE or otherwise for appellant is a matter of fact which can be deduced only after going through the various aspects of the contract, the actual conduct of the parties involved, how the tender was participated, whether tender was prepared by appellant’s personnel in India, the appellants directors in India were the same as that of the holding company Aban Offshore Limited directors and whether there exists any business connection in them for appellant etc., Incidentally all these facts were never examined by both the Assessing Officer and the DRP as both the authorities went on the sole premise of treating the receipts as Royalty. Now given the prime ground of the appellant before the Hon’ble Tribunal being that on the fact of nonexistence of PE for appellant in India which facts were not available with the Assessing Officer at the first place, it is the plea of the revenue that for adjudicating the above ground of the appellant further facts need be ascertained and hence the matter need to be set aside to the file of the AO for examining the facts relating to the presence or otherwise of PE for appellant in India. Without prejudice to the above, it is submitted that the mandate of 183 days is not a watertight requirement. Even if the presence in India in respect of number of days less than 183 days, a PE can still be constituted. Reliance in this regard is placed on the decision of the Hon’ble SC in the case of Formula One World Championship Limited vs Commissioner of Income Tax CIVIL APPEAL NO. 3849 OF 2017 Supreme court. which held as follows: ....... existence of PE has to be examined considering that even though the race was conducted only three days in the year, FOWC has full access to the circuit for the entire duration of the Event (including two weeks prior and a week succeeding the Event). In this regard, the SC quoted following observations of the HC – – At all material times FOWC had exclusive access to the circuit and places where teams were located, whereas Jaypee’s capacity, whilst designated as promoter of the Event, was extremely restricted. – The nature of activity, i.e., racing and exploitation of rights vested with FOWC in the capacity of commercial rights holder, implied a moving and shifting presence. With such activity, whilst there may not be substantiality in an absolute sense with regard to the time period, both the exclusive nature of access and the period for which it is accessed, creates a ‘fixed’ presence as contemplated in Article 5(1) of the India-UK tax treaty. Q 3 Without prejudice to the above, whether the business income of the appellant is to be taxed as per section 44BB of the Act and hence 10% of the gross receipts are to be deemed as the profits of the business of the appellant This is an alternative plea of the appellant, wherein appellant itself agrees to the fact of its liability to tax in India u/s 44BB of the Act even in the absence of a Permanent Establishment for appellant in India. In this regard it would be pertinent to draw the distinction between section 44BB, section 44DA and section 115A as brought out in the judgement of Hon’ble Delhi HC in the case of IT (TP) A No.17/Chny/2021 ::22 :: Paradigm Geophysical Pty Ltd. Vs CIT (Delhi High Court) W.P.(C) No. 1370 of 2019 Section 44 BB is a special provision for computing profits and gains of a non- resident from business of providing services or facilities in connection with, or supplying plant and machinery on hire, used or to be used in the prospecting for or extraction or production of mineral oils, including petroleum and natural gas. Section 44DA is broader and more general in nature and provides for assessment of the income of the non-resident by way of royalty or fees for technical services, where such non-resident carries on business in India through a permanent establishment situated therein, or performs services from a fixed place of profession situated in India and the right, property or contract in respect of which the royalties or fees for technical services are paid is effectively connected with the permanent establishment or fixed place of profession situated in India. One more distinction between sections 44 DA and 44 BB is that, in section 44 BB one does not find any reference to a permanent establishment in India and the services contemplated therein are more specific than what is contemplated in section 44 DA. Thus, Section 44BB is a special provision in so far as it relates to the applicability of the provision in the context of the specified services. In this regard it is pertinent to rely on the legislative intent embodied in the memorandum to the Finance Bill 2010 which is as follows: The legislative intent behind the amendment is also evident from the memorandum to the Finance Bill 2010 which reads as under: “Under the existing provisions contained in section 44BB(1) of the Income-tax Act, income of a non-resident taxpayer who is engaged in the business of providing services or facilities in connection with, or supplying plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils is computed at ten per cent of the aggregate of the amounts paid. Section 44DA provides the procedure for computing income of a non-resident, including a foreign company, by way of royalty or fee for technical services, in case the right, property or contract giving rise to such income are effectively connected with the permanent establishment of the said non-resident. This income is computed as per the books of account maintained by the appellant. Section 115A provides the rate of taxation in respect of income of a non-resident, including a foreign company, in the nature of royalty or fee for technical services, other than the income referred to in section 44DA i.e., income in the nature of royalty and fee for technical services which is not connected with the permanent establishment of the non-resident. From the above it is evident the legislature in its wisdom while stipulating the requirement of permanent establishment for taxing the incomes of the non- residents of the nature Royalties and Fee for Technical Services, for the purposes of section 44BB of the act doesn’t have a mention of permanent establishment which fact has also been well appreciated by the appellant as well, while raising grounds without prejudice acceding to the taxability of income u/s 44BB of the Act @ 10% of the profits earned. The same plea has been raised by the appellant both before the AO and the ld.DRP, the AO while not adjudicating on the same, the DRP has failed to appreciate the nuances of the provision in this respect. Hence without prejudice to our arguments on the payments under consideration being in the nature of Royalty or business income under Article 7 of DTAA, it is IT (TP) A No.17/Chny/2021 ::23 :: submitted that the income under consideration are clearly covered by the provisions of section 44BB of the Act and 10% of the gross receipts need to be brought to tax as income in India. 11. We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. We have also carefully considered detailed Written Submissions filed by the Revenue in light of certain judicial precedents. The assessee is engaged in the business of providing deep drilling rig driller-5 used in oil exploration. The assessee had entered into an agreement with M/s. CAIRN India Ltd. (Vedanta) to carry out certain activities including well drilling at off-shore location designed by CAIRN in PR-OSN-2004/1 Palar-Pennar Block on the east coast of India. As per the agreement between the assessee and M/s. CAIRN India Ltd., if you go through the scope of work, the assessee shall deploy equipments necessary for drilling work including drilling rig and other incidental equipments and also necessary supplies, materials and tools required for the said work. The assessee shall also provide necessary manpower including Rig Manager, Logistic Manager, warehouse man, Office supporting staff and sufficient personnel to perform the services. From the scope of work as referred to in the agreement between the parties, it is undoubtedly clear that it is not a case of simple hiring of drilling rig with other equipment, but a comprehensive contract for drilling work with all men and materials to be provided by the assessee. Further, said agreement was remain in force till the contract completes and as per the facts available on record, the assessee was present in India only for 53 days (i.e. from 07.02.2017 to 31.03.2017). IT (TP) A No.17/Chny/2021 ::24 :: 12. In the light of above factual back ground, if you examine the reasons given by the AO to treat consideration received by the assessee for carrying out drilling work for M/s. CAIRN India Ltd., one has to examine the reasons given by the AO to bring said payments within the definition of royalty as defined u/s.9(1) of the Act, r/w Article-12 of the India Singapore Tax Treaty. The provisions of Sec.9(1) defines the term royalty, as per which, royalty means consideration (including with lump sum consideration but excluding any consideration which would be income of the recipient chargeable under the head ‘capital gains’) for the use or right to use an industrial, commercial or scientific equipment but not including amounts referred to in Sec.44BB of the Income Tax Act, 1961. Similarly, Article-12 of the India Singapore Tax Treaty (DTAA) defines the term royalty, as per which, payments of any kind received as a consideration for the use of, or the right to use an industrial, commercial or scientific equipment other than payment derived by an enterprise from activities described in paragraph 4(b) & 4(c) of Article-8 of the India Singapore Tax Treaty. Similarly, the provisions of Sec.44BB of the Act, deals with computation of profit & gains in connection with the business of exploration, etc., of mineral oils. As per the said provisions, in the case of the assessee being a non-resident engaged in the business providing services or facilities in connection with or supplying plant & machinery on hire, used or to be used in the prospecting for or extraction or production of mineral oils, than income shall be computed as per the IT (TP) A No.17/Chny/2021 ::25 :: provisions of Sec.44BB of the Income Tax Act, 1961. Therefore, to decide the impugned dispute of taxability of income received by the assessee, one has to examine the receipts in the light of the definition of royalty as per the Income Tax Act, 1961 and also Article-12 of the India Singapore Tax Treaty. 13. The definition of royalty as per Sec.9(1) and Article-12 of the India Singapore Tax Treaty DTAA is one and the same. As per which, consideration for the use or right to use industrial, commercial or scientific equipment but not including the amounts referred to Sec.44BB of the Act. In the present case, if you consider the nature of work undertaken by the assessee with M/s. CAIRN India Ltd., there is no doubt that work carried out by the assessee which falls under the provisions of Sec.44BB of the Act as business receipts. Further, the scope of work as per the agreement clearly indicates that it is not a case of simple hiring of the equipments for drilling work but a comprehensive contract for drilling work which involves machine, materials and men required for the said work. Therefore, we are of the considered view that consideration received by the assessee from M/s. CAIRN India Ltd., is not a equipment hiring charges which can be treated as royalty in terms of Sec.9(1)(vi) of the Act rws Article-12 of the India Singapore Tax Treaty. 14. Having said so, let us examine the issue in the light of the provisions of Sec44BB of the Act. As we have already stated in the earlier paragraphs, provisions of Sec.44BB deals with special provision for IT (TP) A No.17/Chny/2021 ::26 :: computing profit and gains in connection with the business exploration of mineral oils, etc. As per the said provisions, any consideration received for providing services or facilities in connection with, plant and machinery on hire used or to be used in the prospecting for extraction, production of mineral oils, then income should be computed as per the said provisions. In the present case, there is no dispute with regard to the nature of work carried out by the assessee which falls under the special provisions of Sec.44BB of the Act. Therefore, it is necessary to examine the taxability of income of the assessee in the light of the provisions of Sec.44BB of the Act and also Article-7 r/w Article-5 of the India Singapore Tax Treaty, which deals with taxation of business profits of an enterprise. 15. The assessee is a tax resident of Singapore and therefore, it is entitled to apply the provisions of the India Singapore Tax Treaty for determination of its tax liability in India. It is also settled position of law that, to the extant tax treaty provisions are more beneficial to a tax payer, then tax payer can adopt treaty provisions which is beneficial and further, treaty provisions would override the provisions of Income Tax Act, 1961. This legal principle is supported by the decision of Hon’ble Supreme Court, in the case of Union of India v. Azadi Bachao Andolan (2003) 263 ITR 706 (SC) and other host of cases. In this case, there is no doubt that, the assessee activity falls under the provisions of Sec.44BB of the Act, and Article-7 r/w Article-5 of the India Singapore Tax Treaty. Therefore, we are of the considered view that the findings recorded by the IT (TP) A No.17/Chny/2021 ::27 :: lower authorities that the activities carried out by the assessee are not coming under the provisions of Sec.44BB of the Act and Article-7 r/w Article-5 of the India Singapore Tax Treaty DTAA is incorrect and unfounded under law. 16. As regards, taxation of income of the assessee, it is an admitted fact that the assessee is a tax resident of Singapore and as per Article-7 r/w Article-5, the profits of an enterprise of a contract in state shall be taxable in that state unless the enterprise carries on business in the other contracting state through a Permanent Establishment situated therein. Article-5 defines, the concept of PE and as per the said Article, it includes mines, oil or gas well, quarry and other place of extraction of natural resources and further an installation or structure used for the exploration or exploitation of natural resources, but only if so used for a period of more than 120 days in any financial year. Therefore, it is very clear that from Article-7 r/w Article-5 of the India Singapore Tax Treaty, business income of an enterprise of a contracting state is taxable in other contracting state, if the enterprise has a PE in other contracting state. In the case of an installation or structure used for exploration of natural resources, the existence of PE will come into play, only such installation or structure is used for a period of more than 120 days in any financial year. In the present case, the assessee carried out the work in India only for a period of 53 days and hence, as per Article-7 r/w Article-5 of the India Singapore Tax Treaty, business profits of the assessee is not liable to tax IT (TP) A No.17/Chny/2021 ::28 :: in India, because the assessee does not have a Permanent Establishment situated in India. In absence of Permanent Establishment (PE), business profits of Singapore Tax Resident cannot be taxed in India, if such profits are in the nature of business profits as per Article-7 rws Article 5 of the India Singapore Tax Treaty. In the present case, there is no doubt with regard to the nature of receipts of the assessee which falls under the category of business profits and thus, same cannot be taxed in India because it is taxable only in residence country. In the present case, the stay of the assessee in India is less than 120 days, which is not disputed by the AO. As per the AO, the assessee stayed in India only for 53 days. Further, the assessee has furnished Tax Residency Certificate, as per which, the assessee will be regarded as resident in Singapore for Income Tax purpose for the impugned Asst. Year. Moreover, the assessee has obtained a Certificate from the AO u/s.197 dated 25.01.2017, wherein, the AO has issued lower rate of tax deduction at source on income of the assessee which is based on the provisions of Sec.44BB of the Act, which taxes income sum equal to 10% of aggregate amount received by the assessee from the said business. From the above, it is very clear that, income of the assessee is in the nature of business profits which can be dealt with as per article 7 r/w article 5 of the India Singapore tax treaty, but not royalty as considered by the AO as well as the ld. DRP under section 9(1) and article 12 of the India Singapore tax treaty. IT (TP) A No.17/Chny/2021 ::29 :: 17. In this view of the matter and considering the facts and circumstances of the case, we are of the considered view that consideration received by the assessee for providing rig services to M/s. CAIRN India Ltd., is not liable to tax in India as royalty u/s.9(1)(vi) and Article-12 of the India Singapore Tax Treaty. Further, income of the assessee is also not taxable as business profits in terms of the provisions of Sec.44BB of the Act, because business profits of an enterprise of a contracting state shall be taxable only in that state unless such enterprise is carried out its business in other contracting state through a Permanent Establishment. Since, there is no Permanent Establishment in the case of the assessee the question of taxation of business profits in India does not arise. Therefore, we are of the considered view that the AO as well as the ld. DRP completely erred in taxing income of the assessee in India. Hence, we direct the AO to delete the addition made towards income of the assessee in terms of Sec. 9(1) and Artlce-12 of the India Singapore Tax Treaty. 18. In the result, the appeal filed by the assessee is allowed. Order pronounced on the 07 th day of February, 2022, in Chennai. Sd/- (वी. दुगा राव) (V. DURGA RAO) याियकसद य/JUDICIAL MEMBER Sd/- (जी.मंजूनाथा) (G. MANJUNATHA) लेखासद य/ACCOUNTANT MEMBER IT (TP) A No.17/Chny/2021 ::30 :: चे ई/Chennai, !दनांक/Dated: 07 th February, 2022. TLN, Sr.PS आदेशक ितिलिपअ&ेिषत/Copy to: 1. अपीलाथ /Appellant 4. आयकरआयु'/CIT 2. यथ /Respondent 5. िवभागीय ितिनिध/DR 3. आयकरआयु' (अपील)/CIT(A) 6. गाड फाईल/GF