2016 (7) TMI 563 - AT - Income Tax

Denial of benefit of Section 44BB - assessee has not entered into an agreement directly with Central Government but is only a second leg contractor - Held that - We find this issue to be covered in favour of the assessee by the decision of ITAT in the case of SBS Marine Ltd. Vs. Additional DIT 2015 (3) TMI 147 - ITAT DELHI where held section 44BB does not mandate that the assessee should directly enter into contract with the person engaged in the business of prospecting for or extraction or production of, mineral oils or the services or facilities or plant and machinery on hire should be directly provided to the said person alone. Thus there is no merit in the contentions of the revenue that the assessee is not an eligible assessee under section 44BB - Decided in favour of assessee Service tax collected by the assessee will not form part of receipt for the purpose of computing income u/s 44BB. See DIT Vs. Schlumberger Asia Services Ltd 2009 (7) TMI 51 - UTTARAKHAND HIGH COURT Amount received on account of reimbursement of freight and transportation charges - amount actually incurred in respect of equipment was not includible while computing its income under section 44BB - Held that - It was not in dispute that the amount had been received by the assessee. Therefore, the Assessing Officer correctly added the said amount which was received by the non-resident company rendering services under the provisions of section 44BB to the ONGC and imposed the income-tax thereon. He was justified in doing so

Summary

Issues Involved:
1. Distinction between receipts from PSC and Non-PSC partners under Section 44BB.
2. Effect of the amendment brought by Finance Act, 2010 on the scope of Section 44BB.
3. Applicability of Section 44BB to income from technical services and equipment rental.
4. Consideration of reimbursement of service tax in gross receipts under Section 44BB.
5. Chargeability of interest under Section 234B of the IT Act, 1961.

Issue-wise Detailed Analysis:

1. Distinction between receipts from PSC and Non-PSC partners under Section 44BB:
The Revenue contended that the CIT(A) erred in holding that no distinction can be made between receipts from PSC and Non-PSC partners for equipment rental and technical services, arguing that contracts with Non-PSC partners should not be treated under Section 44BB. The Tribunal found this issue in favor of the assessee, referencing the ITAT decision in SBS Marine Ltd. Vs. Additional DIT, which stated that Section 44BB does not require a direct contract with the person engaged in oil production. The services provided by second-leg contractors used in connection with oil prospecting or extraction satisfy Section 44BB requirements. The Tribunal upheld the CIT(A)’s order, rejecting Revenue’s ground.

2. Effect of the amendment brought by Finance Act, 2010 on the scope of Section 44BB:
The Revenue argued that the CIT(A) ignored the amendment effective from 01.04.2011, which excluded income covered by Section 44DA from Section 44BB. The Tribunal noted that the issue was covered by the Supreme Court’s decision in the assessee’s favor, which emphasized that payments connected with mining operations, including oil drilling, fall under Section 44BB. The Tribunal upheld the CIT(A)’s order, rejecting Revenue’s grounds 2 to 5.

3. Applicability of Section 44BB to income from technical services and equipment rental:
The Tribunal referenced the Supreme Court’s judgment, which clarified that payments for services or facilities connected with oil prospecting, extraction, or production are assessable under Section 44BB. The Tribunal upheld the CIT(A)’s order, affirming that the assessee’s income from technical services and equipment rental from Non-PSC partners falls under Section 44BB.

4. Consideration of reimbursement of service tax in gross receipts under Section 44BB:
The Revenue contended that CIT(A) erred in excluding service tax reimbursements from gross receipts for computing income under Section 44BB. The Tribunal cited the Delhi High Court’s decision in DIT Vs. Mitchell Drilling International Pvt. Ltd., which held that service tax collected does not form part of gross receipts for Section 44BB purposes, as it is merely collected to be passed on to the government. The Tribunal upheld the CIT(A)’s order, rejecting Revenue’s ground 6.

5. Chargeability of interest under Section 234B of the IT Act, 1961:
The Revenue argued that the CIT(A) erred in holding that interest under Section 234B was not chargeable, relying on the Maersk case. The Tribunal found that the CIT(A) correctly followed the jurisdictional High Court’s decision in DIT and Another Vs. Maersk Co. Ltd., which held that interest under Section 234B is not chargeable when the employer fails to deduct tax at source. The Tribunal upheld the CIT(A)’s order, rejecting Revenue’s ground 7.

Assessee’s Cross-Objection:
The assessee’s cross-objection regarding the inclusion of reimbursement of expenditure in receipts for Section 44BB purposes was rejected, as it was covered against the assessee by the jurisdictional High Court’s decision in CIT and Another Vs. Halliburton Offshore Services Inc.

Conclusion:
The Tribunal dismissed both the Revenue’s appeal and the assessee’s cross-objection, upholding the CIT(A)’s order on all points. The decision was pronounced in the open Court on 08.07.2016.