2016 (2) TMI 921 - AT - Income Tax

Reopening of assessment - Held that - As the original returns were accepted u/s 143(1) of the act there cannot be any change of opinion and therefore reopening is valid. Reopening is not challenged before us on any other ground. Hence we dismiss the CO of the assessee accordingly. Royalty us./ 9 (1) (vi) - Receipt of the assessee is rental of vessels received from non-production sharing companies (i.e. Second Leg contracts) - non applicability of provisions of section 44BB - Held that - In view of the decision of SBS Marine Limited V ADIT (2015 (3) TMI 147 - ITAT DELHI ) we hold that even second leg contracts are also eligible for the benefit of tax treatment provided u/s 44BB of the Act. As we have already held that receipt of the assessee is chargeable tax pertaining to second leg contracts also u/s 44BB of the Income tax act, consequently we reject the argument of the revenue that it is equipment royalty chargeable u/s 9(1) (vi) of the and consequently liable to tax @ 25 % on gross basis u/s 115A of the Income tax Act. Interest u/s 234B & 234C is not chargeable

Issues Involved:
1. Reopening of assessment u/s 147.
2. Taxability of receipts under section 44BB.
3. Chargeability of interest u/s 234B.

Issue-wise Detailed Analysis:

1. Reopening of Assessment u/s 147:
The assessee challenged the reopening of the assessment for AY 2004-05 on the grounds that there was no new material to justify the reassessment. The assessee argued that the reassessment was bad in law due to the absence of any new tangible material. The Tribunal noted that the original return was processed u/s 143(1) and not u/s 143(3), implying no opinion was formed initially. The Tribunal referenced the Supreme Court's decision in Zuari Estate Development and Investment Company Limited, holding that there cannot be a change of opinion if no opinion was formed initially. Consequently, the Tribunal upheld the reopening of the assessment as valid.

2. Taxability of Receipts under Section 44BB:
The core issue was whether the receipts from rental of vessels from non-PSC companies (second leg contracts) should be taxed under section 44BB or as royalty under section 9(1)(vi). The Tribunal relied on the decision in SBS Marine Limited, upheld by the Uttarakhand High Court, which allowed the benefit of section 44BB to second leg contracts. The Tribunal emphasized that section 44BB does not mandate a direct contract with the entity engaged in mineral oil extraction. Hence, the Tribunal concluded that the assessee's receipts from second leg contracts are eligible for tax treatment under section 44BB and not as royalty under section 9(1)(vi).

3. Chargeability of Interest u/s 234B:
The revenue contended that interest u/s 234B should be charged, while the assessee argued against it, citing precedents from the High Courts of Uttarakhand and Delhi. The Tribunal noted conflicting decisions on this issue but leaned on the principle that if the entire income is subject to TDS under section 195, the assessee is not liable for advance tax and hence not liable for interest u/s 234B. The Tribunal referenced the Supreme Court's dismissal of the SLP in DIT vs. Clifford Chance LLP, supporting the assessee's position. Consequently, the Tribunal held that interest u/s 234B is not chargeable.

Conclusion:
- Reopening of Assessment: Valid as there was no initial opinion formed under section 143(1).
- Taxability under Section 44BB: Receipts from second leg contracts are taxable under section 44BB and not as royalty under section 9(1)(vi).
- Interest u/s 234B: Not chargeable as the entire income is subject to TDS under section 195.

Judgment Summary:
- Appeals by Revenue (ITA No 592/Del/2013, 746/Del/2013, 1810/Del/2013): Dismissed.
- Appeals by Assessee (ITA No 263/Del/2013, 5289/Del/2010, 5775/Del/2011): Allowed for AY 2007-08 and 2008-09; Dismissed for AY 2004-05 on reopening issue.

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