2015 (1) TMI 571 - AT - Income Tax

Offshore supply of material Chargeability u/s 44BB - Whether the CIT(A) erred in not appreciating that even if any part of the transaction of offshore supply of material was executed in India only such profits could be held taxable in India as were attributable to the Indian permanent establishment of the appellant and not the entire receipts Held that - Following the decision in Baker Hughes Asia Pacific Ltd. C/o Nangia & Co. and others Versus Addl. Director of Income-tax International Taxation Dehradun 2014 (7) TMI 601 - ITAT DELHI - section 44BB is applicable in the case of the assessee and they restored the matter to the file of the AO for attributing the income out of two contracts to the extent of operations relating to sales carried out in India thus the matter is to be remitted back to the AO for recomputation of income Decided in favour of assessee. Determination of income u/s 44BB Inclusion of service tax in the gross receipts Held that - Following the decision in M/s Sedco Forex International Drilling Inc C/o Nangia & Company Versus Assistant Director of Income Tax International Taxation 2014 (1) TMI 1322 - ITAT DELHI - service tax being a statutory liability would not involve any element of profit and accordingly the same could not be included in the total receipts for determining the presumptive income thus service tax paid by the assessee could not form part of amount for the purpose of deemed profits u/s 44BB unlike the other amounts received towards reimbursement Decided in favour of assessee. Chargeability of interest u/s 234B Held that - Following the decision in Baker Hughes Asia Pacific Ltd. C/o Nangia & Co. and others Versus Addl. Director of Income-tax International Taxation Dehradun 2014 (7) TMI 601 - ITAT DELHI The AO is directed not to charge interest u/s 234B in respect of all contracts entered into by the assessee with various organizations in India except with respect to the contracts entered into with HOEC and ONGC - as far as income taxable u/s 44BB in respect of various contracts are concerned the assessee itself has accepted the liability from the very beginning - it cannot be inferred that assessee would have made any representation which would have influenced the deductor companies for not deducting the tax - as far as contract with HOEC and ONGC are concerned income arose in India thus Following DIT-I International Taxation Versus Alcatel Lucent USA Inc. Alcatel Lucent World Services Inc. 2013 (11) TMI 734 - DELHI HIGH COURT the interest u/s 234B is leviable Decided partly in favour of Assessee.

Summary

Issues involved:
1. Taxability of offshore supply of material under section 44BB.
2. Inclusion of service tax receipts in gross receipts for determining income under section 44BB.
3. Taxability of hire of equipment and personnel under sections 9(1)(vi) and 9(1)(vii).
4. Bifurcation of revenues in FTS and Royalty for tax purposes.
5. Applicability of presumptive provisions of section 44BB.
6. Chargeability of interest u/s 234-B.

Issue 1: Taxability of offshore supply of material under section 44BB:
The assessee contended that income from offshore supply accrued outside India and should not be taxed in India. The ITAT set aside the issue based on a previous decision in the assessee's own case for AY 2007-08 and 2008-09, directing the Assessing Officer to attribute income from operations in India. The matter was to be recomputed in line with the ITAT's directions.

Issue 2: Inclusion of service tax receipts in gross receipts under section 44BB:
The ITAT ruled in favor of the assessee, following a precedent where service tax was deemed a statutory liability and not part of deemed profits under section 44BB. The Assessing Officer was directed to exclude service tax from gross receipts for income determination under section 44BB.

Issue 3: Taxability of hire of equipment and personnel under sections 9(1)(vi) and 9(1)(vii):
The CIT(A) held that the hire of equipment and personnel did not fall under FTS or Royalty as per sections 9(1)(vi) and 9(1)(vii). The nature of services rendered by the assessee was considered for taxation under section 44BB, not for a specific project.

Issue 4: Bifurcation of revenues in FTS and Royalty for tax purposes:
The AO's bifurcation of revenues in FTS and Royalty was challenged, emphasizing that if services were FTS or Royalty, they should be excluded from section 44BB. The CIT(A) was directed to consider the special taxation scheme for FTS and Royalty.

Issue 5: Applicability of presumptive provisions of section 44BB:
The CIT(A) erred in holding the income taxable under section 44BB despite services being FTS or Royalty. The ITAT directed a reconsideration based on the nature of services provided by the assessee.

Issue 6: Chargeability of interest u/s 234-B:
The ITAT decided not to charge interest u/s 234B for contracts except with specific organizations, aligning with the compensatory nature of the interest. The Assessing Officer was directed to recompute the deduction under section 234B based on the ITAT's findings in AY 2007-08 and 2008-09.

The appeals of both the assessee and the Revenue were partly allowed, with the cross-objection deemed infructuous and rejected. The decision was pronounced on 5th September 2014.