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2024 (6) TMI 981 - AT - Income TaxTDS u/s 195 - sub contract charges paid to Deep Drilling 8 Pte Ltd. Singapore being bareboat charges - Disallowance u/s. 40(a)(ia) towards non-deduction of TDS - assessee is a Non-Resident company incorporated in Singapore and engaged in the business of drilling of oil wells in off shore territories and provision and facilities relating to exploration and exploitation of mineral oils and natural resources - assessee argued as relying on its own case 2023 (7) TMI 1420 - ITAT CHENNAI assessee is covered under the provisions of Section 44BB of the Act and therefore, the assessee is not liable to deduct TDS u/s. 195 HELD THAT - We are of the view that first of all, the assessee is covered and assessed u/s. 44BB of the Act and moreover, the party M/s. Deep Drilling 8 Pte Ltd., Singapore, does not have PE in India in term of DTEE between India and Singapore and hence, the same are not taxable in India. Accordingly, the assessee is not liable for deduction of TDS u/s. 195 of the Act. Therefore, the provisions of Section 40(a)(i) cannot be pressed for making disallowance of sub contract charges paid by the assessee to M/s. Deep Drilling 8 Pte Ltd., Singapore. In view of the above discussions made in the preceding para, the addition made by the Assessing Officer in the Assessment Order u/s. 143(3) read with section 144C(13) of the Act dated 05.01.2023 u/s 40(a)(i), relying upon the directions of the DRP is hereby deleted. Appeal of the assessee is allowed.
Issues Involved:
1. Applicability of Section 40(a)(i) for non-deduction of TDS on sub-contract charges. 2. Taxability of payments made to a non-resident company under Section 44BB. 3. Determination of Permanent Establishment (PE) status under the India-Singapore DTAA. 4. Relevance of judicial precedents and DRP's interpretation. Issue-Wise Detailed Analysis: 1. Applicability of Section 40(a)(i) for Non-Deduction of TDS on Sub-Contract Charges: The primary issue revolves around the disallowance under Section 40(a)(i) of the Income Tax Act for non-deduction of TDS on payments made to Deep Drilling 8 Pte Ltd., Singapore. The Assessing Officer (A.O) noted that the assessee did not deduct TDS on sub-contract charges amounting to Rs. 55,12,69,200/-. The A.O issued a show cause notice and subsequently disallowed the amount, invoking Section 40(a)(i). The assessee argued that no income accrued or deemed to accrue in India for Deep Drilling 8 Pte Ltd., and hence, TDS was not required. However, the A.O disagreed, stating that the drilling rig was in Indian territorial waters for more than 183 days, making the income taxable in India. 2. Taxability of Payments Made to a Non-Resident Company Under Section 44BB: The Dispute Resolution Panel (DRP) held that the income from the bareboat charter was taxable in India under Section 44BB, which deals with profits and gains from the business of exploration of mineral oils. The DRP rejected the assessee's claim that the payments were not taxable in India, emphasizing that the rig was in India for more than 183 days, thus constituting a business connection. The DRP also dismissed the relevance of the Supreme Court judgment in Puma Sports India Pvt Ltd., stating that the facts were different. 3. Determination of Permanent Establishment (PE) Status Under the India-Singapore DTAA: The assessee contended that Deep Drilling 8 Pte Ltd. did not have a Permanent Establishment (PE) in India as per the India-Singapore DTAA. The Tribunal agreed, referencing its own decision in the assessee's case for the previous year, where it was held that the payments were not taxable in India due to the absence of a PE. The Tribunal also noted that the provisions of Section 44BB were applicable, and the assessee had complied with the necessary conditions, including maintaining regular books of accounts and getting them audited. 4. Relevance of Judicial Precedents and DRP's Interpretation: The Tribunal examined various judicial precedents, including the decisions in Frontier Offshore Exploration (India) Ltd. vs. DCIT and Deep Drilling 5 Pte Ltd vs. DCIT. These cases supported the assessee's position that the payments were not taxable in India and that Section 44BB was a special provision that excluded the general provisions of Sections 28 to 41 and 43 and 43A. The Tribunal also referenced the Supreme Court's decisions in Transmission Corporation of AP Ltd. vs. CIT and GE India Technology Cen. (P) Ltd. vs. CIT, which clarified the conditions under which TDS is applicable. Conclusion: The Tribunal concluded that the payments made to Deep Drilling 8 Pte Ltd. were not taxable in India due to the absence of a PE and the applicability of Section 44BB. Therefore, the assessee was not required to deduct TDS under Section 195, and the disallowance under Section 40(a)(i) was not warranted. The Tribunal set aside the orders of the lower authorities and allowed the appeal in favor of the assessee. Order Pronounced on 29th May, 2024.
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