2015 (2) TMI 899 - AT - Income Tax

Income from provision of seismic survey vessels on hire to CGG Services (erstwhile Compagnie General De Geophysique (CGG) / CGG Marine) - taxable under the provision of section 44BB of the Income Tax Act, 1961 OR as royalty under section 9(1 )(vi) of the Act - DRP held that the income earned from provision of seismic survey vessel is also taxable as royalty under Article 13 of India-France DTAA - Held that - On no stretch of imagination can we hold that the nature of receipts on account of provision of supply of vessels on hire basis can have character of fees for technical services within the meaning of Expln. 2 to s. 9(1)(vii). The services required by CGG (Hirer) are rendered by the assessee by lending the vessels on hire cannot bear the character of fees for technical services. The assessee's income no doubt is derived from letting out the plant/ship which is used for prospecting for or extraction or production of mineral oil, therefore, the second limb of sec. 44BB is clearly attracted in the instant case. The non-resident assessee in our opinion satisfies the requirement stipulated by sec. 44BB and thus, qualifies its income earned thus to be treated and taxed as per the special provision and not otherwise as contended by the Revenue. We could not find any restriction or fetter in section 44BB as contended by the Revenue to disqualify the assessee in applying the said section to compute its tax. We cannot read what is not said in sec. 44BB and add words in sec. 44BB to bring in a restricted interpretation as contended by the Revenue to the effect that only direct contract with the oil producing company would only qualify. It is nobody's case that assessee is not a non-resident nor it has not given on hire its ship for the purpose of prospecting for or extracting or production of mineral oils. So the assessee falls in the special provision meant for computing profits and gain in connection with the business of exploration etc. of mineral oils; and its income has to be computed as per the said provision unless and otherwise the assessee claims lower profits and gains as stipulated under sub-section (3) of section 44BB. Also we take note of the fact that in A.Y. 2004-05, the AO accepted the claim of the assessee that the income need to be taxed u/s 44BB and in A.Y. 2006-07 the DRP also directed that the income of the assessee to be taxed as per sec. 44BB of the Act. No changes in facts or circumstances were pointed out by the ld. DRP in the instant assessment year. See Commissioner of Income-Tax Versus Rajeev Grinding Mills.(2003 (4) TMI 7 - DELHI High Court ). Thus on the principle of consistency too no deviation was warranted. - Decided in favour of assessee.

Summary

Issues Involved:

1. Applicability of Section 44BB of the Income Tax Act, 1961.
2. Taxability of income as "Royalty" under Section 9(1)(vi) and Article 13 of the DTAA between India and France.
3. Levy of interest under Section 234B of the Act.
4. Principle of consistency in tax assessments.

Issue-wise Detailed Analysis:

1. Applicability of Section 44BB of the Income Tax Act, 1961:

The primary issue was whether the income earned by the assessee from providing seismic survey vessels on hire to CGG Services is taxable under Section 44BB of the Act. Section 44BB provides a special provision for computing profits and gains in connection with the business of exploration, etc., of mineral oils. The assessee argued that the vessels were used for seismic surveys, which are integral to the exploration of mineral oils, and thus should be taxed under Section 44BB. The DRP, however, held that the benefit of Section 44BB does not extend to sub-hirers and that the assessee's income should be taxed as "royalty" under Section 9(1)(vi) of the Act. The Tribunal, after examining the contract and relevant case laws, concluded that the vessels were indeed used for geophysical prospection, which is part of the exploration activities for mineral oils. Therefore, the income should be taxed under Section 44BB, not as royalty.

2. Taxability of Income as "Royalty" under Section 9(1)(vi) and Article 13 of the DTAA:

The DRP and AO classified the income from leasing the vessels as "royalty" under Section 9(1)(vi) of the Act and Article 13 of the DTAA between India and France. The Tribunal, however, noted that the provisions of Section 44BB exclude amounts covered under Section 9(1)(vi). The Tribunal further observed that the vessels were provided for seismic surveys, which are part of the exploration operations for mineral oils. Therefore, the income should be taxed under Section 44BB, which is a special provision and takes precedence over the general provisions of Section 9(1)(vi) and Article 13 of the DTAA.

3. Levy of Interest under Section 234B of the Act:

The DRP upheld the levy of interest under Section 234B of the Act. The assessee contended that this issue is covered in its favor by various High Court decisions, which state that interest under Section 234B is not applicable in cases where the income is subject to tax deduction at source. The Tribunal agreed with the assessee, citing decisions from the Delhi and Uttarakhand High Courts, and held that the levy of interest under Section 234B is not applicable.

4. Principle of Consistency in Tax Assessments:

The assessee argued that in previous assessment years (AY 2004-05 and AY 2006-07), the income was taxed under Section 44BB, and there was no change in facts and circumstances to warrant a different treatment in the current year. The Tribunal upheld this argument, citing the principle of consistency as established by the Supreme Court in Radhasoami Satsang and the Delhi High Court. The Tribunal emphasized that unless there is a material change in facts, the Revenue should not depart from its previous decisions.

Conclusion:

The Tribunal concluded that the income earned by the assessee from leasing seismic survey vessels should be taxed under Section 44BB of the Act, not as "royalty" under Section 9(1)(vi) and Article 13 of the DTAA. The levy of interest under Section 234B was also held to be not applicable. The principle of consistency was upheld, and the appeal of the assessee was allowed.