2016 (9) TMI 201 - AT - Income Tax

Clam of non-taxability of the reimbursement of service tax in computing income u/s 44BB of the Act denied - Held that - Service tax received by the assessee cannot be included in the gross receipt for the purpose of computation of deemed profit. Consequently, this ground is determined in favour of the assessee. Reimbursement of loss of equipment in the well - whether includible in the gross revenue received from M/s. ONGC Limited for the purpose of computation of profits under the presumptive provisions of section 44BB? - Held that - This issue has already been decided against the assessee in assessee s own case cited as ACIT vs. Pride Foramer France SAS 2008 (2) TMI 465 - ITAT DELHI-G qua AY 2002-03 wherein it is categorically decided that reimbursement of the loss of equipment in hole/well forms the part of gross receipts and as such falls within the presumptive provisions of section 44BB of the Act for the purpose of computation of profit. So, consequently ground no.1 is determined in favour of the revenue. Deducution u/s 44BB computation - inclusion of amount received by the assessee on account of Communication Immersat Charges - Held that - This issue has already been decided in assessee s own case 2008 (2) TMI 465 - ITAT DELHI-G qua AY 2002-03 and as such, we hold that reimbursement of Communication Immersat Charges are not in the nature of reimbursement and as such are not liable to be taxed under the provisions contained u/s 44BB of the Act. Eligible for benefit of section 44BB of the Act - Whether assessee is entitled to treat the payment received by the assessee from leasing of oil drilling rig as royalty? - Held that - As relying on assessee s own case for AY 2008-09 grounds raised by the revenue by way of present appeal are not sustainable and the findings returned by the DRP directing the AO to apply the deemed profit rate of 10% u/s 44BB of the Act on the revenue earned by the assessee from a nonresident company, M/s Pride Foramer on account of provision of offshore drilling rig on hire for executing contracts with M/s. ONGC; and treating the amount received by the assessee from M/s. Pride Foramer on account of the provisions of drilling rig under Charter Agreement not in the nature of royalty as defined u/s 9(1)(vi) of the Act and not taxable under the provisions contained u/s 44DA read with section 115A of the Act and that DRP has rightly not applied the distinct scheme of taxation of royalty/fee for technical services while entering the provisions contained u/s 44BB / 44DA / 115A, hence appeal filed by the revenue is hereby dismissed.

Issues Involved:
1. Non-taxability of reimbursement of service tax.
2. Inclusion of "equipment lost in hole" and "Communication Immersat Charges" in gross receipts for computation of profits under section 44BB.
3. Applicability of section 44BB versus section 44DA/115A for revenues earned from non-resident companies for offshore drilling rig hire.

Detailed Analysis:

Issue 1: Non-taxability of Reimbursement of Service Tax
The primary issue was whether the reimbursement of service tax amounting to ?13,82,40,973/- should be excluded in computing income under section 44BB of the Income Tax Act. The Tribunal referenced its earlier decision in the assessee's own case (Pride Foramer SAS vs. Addl. Commissioner of Income-tax) and the case of Sedco Forex Drilling Inc. (139 ITD 188), concluding that service tax, being a statutory liability, does not form part of gross receipts for the purpose of deemed profit under section 44BB. The Tribunal held that service tax received by the assessee cannot be included in the gross receipt for the computation of deemed profit, thereby deciding this issue in favor of the assessee.

Issue 2: Inclusion of "Equipment Lost in Hole" and "Communication Immersat Charges" in Gross Receipts
The Tribunal had to determine if the amounts received for "equipment lost in hole" and "Communication Immersat Charges" should be included in gross receipts for the purpose of computing profits under section 44BB.

1. Equipment Lost in Hole: The Tribunal noted that this issue had been previously decided against the assessee in the case of ACIT vs. Pride Foramer France SAS (AY 2002-03), where it was held that reimbursement for the loss of equipment in the hole forms part of gross receipts under section 44BB. Consequently, this ground was determined in favor of the revenue.

2. Communication Immersat Charges: The Tribunal referenced its earlier decision in ACIT vs. Pride Foramer France SAS (2008) 22 SOT 204 (Delhi) for AY 2002-03, where it was held that such charges do not fall within the ambit of section 44BB as they are not directly related to the activity of prospecting for or extraction or production of mineral oils. The Tribunal upheld this view, deciding that Communication Immersat Charges are not taxable under section 44BB.

Issue 3: Applicability of Section 44BB versus Section 44DA/115A
The Tribunal addressed whether revenues earned by the assessee from a non-resident company for the provision of offshore drilling rig on hire should be taxed under section 44BB or treated as royalty under section 9(1)(vi) and taxed under section 44DA read with section 115A.

The Tribunal referred to its decision in Pride Offshore International LLC vs. Addl. DIT, International Taxation (ITA No.5406/Del/2012 for AY 2008-09), which held that amounts received for the hire of drilling rigs should be taxed under section 44BB. It emphasized that section 44BB applies to revenues earned in connection with the prospecting for or extraction or production of mineral oils, regardless of whether the contract is with a production sharing participant or a non-production sharing participant. The Tribunal further noted that the legislative intent behind section 44BB is to provide a simpler mode of computation for such revenues.

The Tribunal upheld the DRP's direction to apply the deemed profit rate of 10% under section 44BB and rejected the revenue's contention that the receipts should be taxed as royalty under section 9(1)(vi) read with sections 44DA and 115A.

Conclusion:
The Tribunal allowed the assessee's appeal regarding the non-taxability of the reimbursement of service tax, partially allowed the revenue's appeal by including the reimbursement for the loss of equipment in the gross receipts, and dismissed the revenue's appeal regarding the applicability of section 44BB over section 44DA/115A for revenues earned from non-resident companies for offshore drilling rig hire.

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