2017 (6) TMI 3 - AT - Income Tax

Revision u/s 263 - A.O has not made proper enquiries to determine the nature of services rendered by the assessee - as per CIT-A assessee being a second-leg contractor is only providing technical services to Aker and any sum in the nature of fees for technical services, for a project not undertaken by the recipient is outside the scope of section 44BB - Held that - Proposition that the provision of section 44BB of the Act are held to be applicable to the tax payer being a second leg contractor/sub-contractor. Further, it has been held in various decisions including the decision of the Hon ble Delhi High Court in the case of DIT Vs. OHM Ltd. 2012 (12) TMI 422 - DELHI HIGH COURT that the services rendered in relation to extraction and production of mineral oil are taxable u/s 44BB of the Act. So far as the receipts of out-country services as taxable in India is concerned, we find in terms of section 90(2) of the Act, provisions of the Act are over ridden by the provisions of DTAA to the extent more beneficial to the non-resident assessee. Article 7(1) and 7(2) of the Indo-UK DTAA provides that profits attributable to PE in India shall be only profits arising from activities carried out by the PE in India. Therefore, we find merit in the submission of the ld. counsel for the assessee that assessee s income taxable in India shall only be so much of profits under contract as is attributable to the PE in India. See Carborandum Co vs CIT 1977 (4) TMI 2 - SUPREME Court Since in the instant case the A.O after considering the various submissions made by the assessee from time to time and has taken a possible view, therefore, merely because the DIT does not agree with the opinion of the A.O, he cannot invoke the provisions of section 263 to substitute his own opinion. It has further been held in several decisions that when the A.O has made enquiry to his satisfaction and it is not a case of no enquiry and the DIT/CIT wants that the case could have been investigated/ probed in a particular manner, he cannot assume jurisdiction u/s 263 of the Act. In view of the above discussion, we hold that the assumption of jurisdiction by the DIT u/s 263 of the Act is not in accordance with law. We, therefore, quash the same and grounds raised by the assessee are allowed

Summary

Issues Involved:
1. Validity of revisionary proceedings under section 263 of the Income-tax Act, 1961
2. Applicability of section 44BB of the Income-tax Act, 1961
3. Taxability of both in-country and out-country receipts

Detailed Analysis:

1. Validity of Revisionary Proceedings under Section 263:
The DIT initiated revisionary proceedings under section 263 on the grounds that the AO's order was erroneous and prejudicial to the interest of the Revenue. The assessee argued that the AO had conducted proper inquiries and applied his mind before passing the assessment order. The DIT, however, was not satisfied and believed that the AO had made a wrong application of law, specifically regarding the nature of services rendered by the assessee and the applicability of section 44BB. The DIT concluded that the AO's order was erroneous and prejudicial to the interest of the Revenue, thereby justifying the revision under section 263.

2. Applicability of Section 44BB:
The DIT argued that section 44BB, which provides a presumptive basis of taxation for non-residents engaged in the business of providing services or facilities in connection with the prospecting for, or extraction or production of mineral oils, does not cover 'second-leg' contracts. According to the DIT, the assessee was providing technical services to a contractor (Aker) and not directly engaged in oil extraction or production, thus making the income taxable under section 44DA and not section 44BB. The assessee countered that section 44BB applies to second-level contractors as well and cited various judicial precedents supporting this view. The Tribunal agreed with the assessee, noting that section 44BB does not distinguish between main contractors and sub-contractors.

3. Taxability of Both In-Country and Out-Country Receipts:
The DIT contended that the AO erred in not taxing the out-country receipts, which should have been brought to tax under section 44BB. The assessee argued that out-country receipts were not taxable in India under Article 13 of the India-UK DTAA, as these services did not make available any technical knowledge, experience, skill, or know-how to Aker. The Tribunal supported the assessee's view, emphasizing that only the profits attributable to the Permanent Establishment (PE) in India should be taxed, as per Article 7 of the India-UK DTAA. The Tribunal also highlighted that the AO had duly examined the contract and the nature of services before concluding that section 44BB was applicable.

Conclusion:
The Tribunal found merit in the assessee's arguments and held that the AO had conducted adequate inquiries and taken a possible view. It emphasized that the DIT cannot invoke section 263 merely because he disagrees with the AO's opinion. The Tribunal concluded that the AO's order was neither erroneous nor prejudicial to the interest of the Revenue and quashed the DIT's order under section 263, allowing the assessee's appeal.