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2022 (6) TMI 833 - AT - Income TaxTaxable income to tax u/s 44BB v/s Section 44DA read with section 9(l)(vii) - revenue earned by the assessee from various entities on account provision of cementing services, well-testing services, wireline logging services etc. ( technical services ) - Bifurcated income between production sharing contractors ( PSC ) and Non-PSC contractors for income from rental of equipment treating the same as Royalty under section 9(l)(vi) of the Act and taxing income from non-PSC contractors under section 44DA - Receipts on account of reimbursement of service tax from PSC and Non-PSC included in the revenue chargeable to tax (under section 44BB and section 44DA respectively depending on the stream of income - HELD THAT - We find the assessee is engaged in providing various services including equipment on rent connected with exploration, exploitation and prospection of oil and gas to its clients. During the year it has provided certain equipments on rent and provided various services, namely, drilling fluid services, coring services, completion services, cementing services, liner hanger services, drill stem testing services, AMC for software in relation to oil and gas exploration and production etc. The income from rental of equipment and provision of services were offered to tax under section 44BB. As in respect of income from rental of equipment to Non-PSC contractors and various services, the AO for various reasons mentioned in the assessment order held that income from services are to be taxed as FTS/ Royalty under section 9(1 )(vi)/ 9(1 )(vii) of the Act. The profit from this income was estimated at 25% and offered to tax at 40% plus applicable taxes as against income offered to tax under section 44BB of the Act ie profit being 10% of gross receipts. We find the ld.CIT(A) held that income from services and equipment of rentals involved have direct nexus with oil exploration or production. Accordingly, bifurcation of income between PSC and Non-PSC is to be deleted and held that income from the aforesaid streams are to be taxed under section 44BB We do not find any infirmity in the order of the CIT(A) on this issue. We find, the AO himself in subsequent years i.e., 2012-13 and onwards has accepted that revenues earned by the assessee on account of rental of equipments and provision of services are in the nature of section 44BB of the Act even in cases where such revenues were received from same contracts as AY 2011-12. We find for certain other streams of services in assessee s own case for AY 2013-14 2021 (12) TMI 1360 - ITAT DEHRADUN AO did not accept that the services are covered u/s 44BB. Tribunal 2012 (6) TMI 601 - ITAT DELHI held that income from provision of services having nexus with oil exploration or production should be taxed u/s 44BB - Decided against revenue. Assessee charged service tax on services rendered to various customers which was paid to the Government of India as per Service Tax Law - We find, the issue stands decided in favour of the assessee by the decision of the Hon ble Uttarakhand High Court (Full Bench) in Assessee s own case and Others 2019 (4) TMI 1177 - UTTARAKHAND HIGH COURT wherein the Hon ble High Court has held that amount reimbursed to the Assessee by ONGC representing service tax paid earlier by Assessee to the Government of India and not on account of provision of services in connection with exploration and production of mineral oil , would not form part of aggregate taxable amount as referred under section 44BB. We find, the Tribunal in assessee s own case for AY 2012-13 2021 (7) TMI 1356 - ITAT DELHI has also followed the above decision of the Hon ble High Court. Since the decision of the Hon ble High Court was not challenged before the Hon ble Supreme Court by the Revenue, a statement made by the ld. Counsel for the assessee at the Bar and not controverted by the ld. DR, therefore, the said issue, in our opinion, has reached finality. Once the Revenue has accepted a position in Assessee s own case, the same, in our opinion, needs to be followed and applied in the year under consideration. Levy of interest under section 234B - HELD THAT - We find, the issue stands decided in favour of the assessee by the decision of the Hon ble Supreme Court in the case of DIT vs Mitsubishi Corporation 2021 (9) TMI 875 - SUPREME COURT as held that the liability for payment of interest as provided in section 234B is for default in payment of advance tax. While the definition of assessed tax under section 234B pertains to tax deducted or collected at source, the pre-conditions of section 234B viz., liability to pay advance tax and non-payment or short payment of such tax, have to be satisfied, after which interest can be levied taking into account the assessed tax. Therefore, section 209 of the Act which relates to the computation of advance tax payable by the assessee cannot be ignored while construing the contents of section 234B. Amount received reimbursement of various expenses which include equipment lost in hole, reimbursement of customs duty, reimbursement of hotel cost, insurance cost, etc - HELD THAT - We find the coordinate Bench of the Tribunal in the case of ACIT vs Transocean Offshore Deep Water Drilling Inc 2008 (10) TMI 669 - ITAT DELHI has held that reimbursement of custom duty shall be exempt from tax while computing income under section 44BB of the Act. So far as the other reimbursements are concerned, we find the same are decided against the assessee by the decision of the Hon ble Supreme Court in the case of Sedco Forex International Inc 2017 (11) TMI 78 - SUPREME COURT . The grounds raised by the assessee are accordingly partly allowed.
Issues Involved:
1. Bifurcation of income between PSC and Non-PSC contractors. 2. Taxation of income from services as fees for technical services (FTS) under section 9(1)(vii) vs. section 44BB. 3. Inclusion of reimbursement of service tax in revenue chargeable to tax. 4. Inclusion of reimbursement of expenditure in revenue chargeable to tax. 5. Treatment of consortium as an Association of Persons (AOP). 6. Credit for TDS. 7. Levy of interest under section 234B. 8. Initiation of penalty proceedings under sections 271B and 271(1)(c). Detailed Analysis: 1. Bifurcation of Income Between PSC and Non-PSC Contractors: The CIT(A) ruled in favor of the assessee, holding that the activities should be viewed holistically and not be artificially split. This decision was based on the precedent set in the assessee’s own case for AY 2010-11. The Tribunal upheld this view, noting that the AO had accepted similar revenues under section 44BB in subsequent years. 2. Taxation of Income from Services as FTS: The CIT(A) allowed the assessee's appeal, stating that the services rendered had a direct nexus with oil extraction or exploration and should be taxed under section 44BB. The Tribunal supported this, referencing the Supreme Court's decision in ONGC vs. CIT, which clarified that services directly associated with oil exploration should be taxed under section 44BB and not as FTS under section 44DA. 3. Inclusion of Reimbursement of Service Tax: The CIT(A) ruled in favor of the assessee, following the decision in Precision Energy Services Ltd., and the Tribunal upheld this, citing the Uttarakhand High Court's decision in the assessee’s own case, which excluded service tax reimbursement from taxable revenue under section 44BB. 4. Inclusion of Reimbursement of Expenditure: The CIT(A) rejected the assessee's claim that reimbursements should not be included in taxable revenue but directed that they be considered under section 44BB. The Tribunal upheld this decision, except for reimbursements for equipment lost in hole and customs duty, which were deemed non-taxable based on the Supreme Court's ruling in Sedco Forex International Inc. and the Uttarakhand High Court's decision in the assessee's own case. 5. Treatment of Consortium as an AOP: The CIT(A) ruled in favor of the assessee, following the decision in AY 2010-11. The Tribunal upheld this decision, noting that similar treatment had been accepted in subsequent years. 6. Credit for TDS: The CIT(A) directed the AO to give credit for TDS at the time of giving effect to the order. The Tribunal upheld this directive. 7. Levy of Interest Under Section 234B: The CIT(A) ruled in favor of the assessee, following the Supreme Court's decision in Maersk, which held that interest under section 234B is not chargeable when the payer is responsible for TDS. The Tribunal upheld this decision. 8. Initiation of Penalty Proceedings: The CIT(A) dismissed the grounds challenging the initiation of penalty proceedings, stating that mere initiation is not an appellable matter. The Tribunal upheld this decision. Conclusion: The Tribunal largely upheld the CIT(A)'s order, providing relief to the assessee on several grounds, particularly regarding the application of section 44BB over sections 44DA and 9(1)(vii), and the exclusion of certain reimbursements from taxable revenue. The Revenue's appeal was dismissed, and the assessee's appeal was partly allowed.
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