2017 (10) TMI 1449 - AT - Income Tax

Benefit of tax treatment provided u/s 44BB - receipt from rental of vessels received from non-production sharing companies (i.e. second leg contracts) - royalty under section 9(1)(vi) or it is a receipt chargeable to tax under section 44 BB - CIT(A) has erred in holding that no distinction can be made between receipts from Production Sharing Contract Participants ( PSC partners ) and Non-Production Sharing Contract entities (Non PSC Partners) and between services rendered by first-leg and second-leg vendors - HELD THAT - Services and facilities provided by the assessee along with plant and machinery are used in offshore drilling operations i.e. the activity of prospecting for or extraction or production of mineral oils. Consequently the requirements of section 44BB are satisfied in the present case. There is no merit in the contentions of the revenue that the assessee is not an eligible assessee under section 44BB since it has not directly entered into contract with the ONGC and it is not undertaking the activities specified in section 44BB itself and being second leg contractors they are not eligible under section 44BB. On the issue of operation of the amendment to section 44BB and 44DDA the CIT-(A) has observed that considering the interpretation contained in OHM LTD. 2012 (12) TMI 422 - DELHI HIGH COURT the position of the case would not change specially when the services are squarely covered in consonance with what is envisaged under section 44BB of the Act. We find that the Tribunal in 2016 (2) TMI 921 - ITAT DELHI has also held the services rendered as envisaged under section 44BB of the Act. The Ld. CIT-(A) has followed the decision of the jurisdictional High Court on the issue in dispute and thus we do not find any error in the finding of the ld. CIT-A. Charging of interest under section 234B - HELD THAT - Interest u/s 234B 234C is not chargeable since assessee is a nonresident and as such tax is to be deducted at source by Indian party. The Hon ble High Court in the case of DIT Vs. NGC Network Asia 2009 (1) TMI 174 - BOMBAY HIGH COURT and in the case of DIT Vs. Clifford Chance LLP 2009 (7) TMI 1215 - BOMBAY HIGH COURT has decided issue in favour of assessee.

Summary

Issues Involved:
1. Taxability of receipts from rental of vessels from non-Production Sharing Contract (non-PSC) companies.
2. Applicability of interest under section 234B of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Taxability of Receipts from Rental of Vessels from Non-PSC Companies:

The Revenue contended that the receipts from non-PSC partners for supplying plant and machinery on hire (equipment rental) should be taxed under section 9(1)(vi) as royalty or under section 44DA, not under section 44BB of the Income Tax Act, 1961. The Commissioner of Income-tax (Appeals) [CIT(A)] had held that no distinction could be made between receipts from PSC partners and non-PSC partners, and that the receipts were not in the nature of royalty under section 9(1)(vi) but were eligible for treatment under section 44BB.

The Tribunal examined the provisions of section 44BB, which applies to non-residents engaged in providing services or facilities in connection with, or supplying plant and machinery on hire used in, the prospecting for, or extraction or production of, mineral oils. It was noted that section 44BB does not require a direct contract with the person engaged in oil production. The Tribunal referred to the decision in SBS Marine Limited v ADIT, which held that second-leg contracts (contracts with companies providing services to oil companies) are also eligible for the concessional tax treatment under section 44BB.

The Tribunal upheld the CIT(A)'s decision, concluding that the receipts from non-PSC partners for equipment rental are chargeable to tax under section 44BB, not as royalty under section 9(1)(vi) or under section 44DA. The Tribunal also noted that the amendment to section 44BB and 44DA brought by the Finance Act, 2010, effective from 01.04.2011, did not alter this position.

2. Applicability of Interest under Section 234B of the Income Tax Act, 1961:

The Revenue argued that interest under section 234B should be charged, relying on the case of M/s Mitsubishi, which suggested that the role of the assessee in inducing non-deduction or short-deduction of tax needs to be considered.

The Tribunal referred to its own decision in the case of the assessee, where it was held that interest under section 234B is not chargeable for non-residents whose income is subject to tax deduction at source under section 195. The Tribunal cited the decisions in DIT v. NGC Network Asia and DIT v. Clifford Chance LLP, where it was established that non-residents are not liable to pay advance tax if their entire income is subject to tax deduction at source.

The Tribunal upheld the CIT(A)'s decision that interest under section 234B is not chargeable in this case, dismissing the Revenue's grounds on this issue.

Conclusion:

The appeal by the Revenue was dismissed, with the Tribunal affirming the CIT(A)'s decision that receipts from non-PSC partners for equipment rental are taxable under section 44BB and that interest under section 234B is not chargeable. The decision was pronounced in the open court on 31st October 2017.