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TMI Blog2012 (6) TMI 111X X X X Extracts X X X X X X X X Extracts X X X X ..... or of Income-tax erred in setting aside the matter on this ground. - IT Appeal No. 2268 (Delhi) of 2009 - - - Dated:- 30-4-2012 - R.P. Tolani, K.G. Bansal, JJ. Ajay Vohra and Rohit Garg for the Appellant. D.K. Gupta for the Respondent. ORDER K.G. Bansal, Accountant Member This appeal is directed against the order of Director of Income-tax, International Taxation-II, New Delhi, passed on 26.3.2009, in which the assessment order passed by the AO in the case of the assessee for assessment year 2005-06 was held to be erroneous in so far as it is prejudicial to the interest of revenue. Consequently the order was set aside to the file of the AO with a direction to follow Instruction No. 3/2003 of the CBDT and the decision of the Hon'ble Delhi High Court in the case of Sony India (P.) Ltd. v. CBDT [2007] 288 ITR 52/[2006] 157 Taxman 125. The AO was also directed to examine the applicability of section 44D and pass fresh order in accordance with law after giving the assessee a due opportunity of being heard. 2. Briefly speaking, the assessee is incorporated under the laws of Norway and it is engaged in the business of providing equipment and services in co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the AO on 31.12.2010. However, the ld. Dispute Resolution Penal-II, New Delhi ('DRP' for short), in order dated 21.09.2011 directed the AO to delete the proposed adjustment. Consequently, the adjustment was not made in the final order passed on 28.10.2011. Therefore, the corresponding grounds have become infructuous. 5. In regard to the taxation of the receipts as royalty, the facts are that the assessee had given vessels on hire to the CGG who used it for the purpose of collecting seismic data on behalf of ONGC Ltd. In paragraph no. 6 of the impugned order, it is mentioned that the assessment records and provisions contained in section 44BB and section 9(1)(vi), Explanation-2 thereto, have been perused. The observation of the AO that the assessee is engaged in the business of providing equipments or services or facilities in connection with prospecting or extraction or production of mineral oil is not based on proper analysis of facts. The AO has not examined whether the consideration received by the assessee will be taxable as royalty. If it is so, the provisions of section 44D will be applicable and not section 44BB. In paragraph no. 10 it has been mentioned that there i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5(2) dated 03.03.2004 by the Assessing Officer permitting the payer to deduct tax after applying deemed profit rate of 12%. The contract has been placed in the paper book between page nos. 74 to 97 in respect of two ships. On the basis of these documents, it is argued that the revenue had accepted the case of the assessee regarding applicability of section 44BB, there is no change in the facts or law in this year, therefore, the ld. Director of Income-tax erred in passing the order by ignoring the rule of consistency. 6. In reply, the ld. CIT, DR submitted that in spite of binding instruction from the Board to refer the matter to the TPO for valuation of the international transactions, the AO did not do so. Therefore, the order of assessment is clearly erroneous and prejudicial to the interest of revenue in this matter. 6.1 Further, on perusal of the record of the Assessing Officer, the ld. DIT found that no enquiry whatsoever had been made whether the provisions contained in section 9(1)(vi) are applicable or the income has to be assessed on a presumptive basis u/s 44BB. In a notice u/s 142(1) dated 07.03.2006, the AO had called for a copy of the contract under which reven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o as to ascertain the mode and method of computation of income and levy of tax thereon. However, for exercising jurisdiction u/s 263, the DIT has also come to the conclusion that the order was prejudicial to the interest of revenue, i.e., it leads to loss of revenue. If there are two views possible in a matter, then an order cannot be held to be prejudicial to the interest of revenue if the AO chooses to follow one view for the simple reason that that is also acceptable in law. For this proposition, reliance has been placed on the decision in the case of Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83/109 Taxman 66 (SC) and CIT v. Max India Ltd. [2007] 295 ITR 282/[2008] 166 Taxman 188 (SC). There is no opposition to this proposition by the ld. CIT, DR. We also find that both the conditions have to be satisfied concurrently for invoking jurisdiction u/s 263. The only thing we find is that in the case of Max India Ltd. ( supra ) it has also been held that the CIT has to look at the state of law as it exists on the date of passing revisionary order. Therefore, we have to see as to whether the order passed by the AO was prejudice to the interest of revenue as per state ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts. It was awarded three-year contract by the ONGC Ltd. for 3-D seismic data acquisition and onboard processing. It has been submitted that seismic surveys are a method of investigating subterranean structure conducted to reduce the risk involved in exploration and to gather data to understand size and location of oil fields. For the purpose of executing the contract with the ONGC Ltd., the applicant had entered into a contract with PF Thor, a company incorporated in Faroe Islands and India-Denmark tax treaty is applicable to Faroe Islands. The PF Thor provides a chase vessel on a time charter basis which enables the applicant to undertake the scope of work under the contract for ONGC Ltd. One of the questions was-whether, the income derived by PF Thor ought to be computed in accordance with provisions of section 44BB of the Act? Another question was-whether, if consideration for services provided by PF Thor is considered to be in the nature of "royalty" or "fee for technical services" under article 13 of the Double Taxation Avoidance Agreement between India and Denmark, nevertheless the income chargeable to tax ought to be computed having regard to computational mechanism u/s 44BB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... examined the record of the assessee and found the order to be erroneous and prejudicial to the interest of revenue on a prima facie basis. Therefore, a notice dated 09.03.2009 was issued. In the show cause notice it was mentioned that the receipts have been taxed on a presumptive basis u/s 44BB, whereas the same has to be taxed u/s 44D as royalty. After examining the record and the reply of the assessee, the ld. DIT mentioned that the observation of the AO that the assessee is engaged in the business of providing equipment and services or facilities in connection with prospecting for or extraction or production of mineral oil is not based on proper analysis of the facts. The AO has not examined whether the consideration received by the assessee will be taxable as royalty. In that case, the provisions of section 44D will be applicable. Due to carving out provision in proviso to section 44BB(1), the provision of section 44BB will not be applicable. This issue has not been examined by the AO. In this connection, reliance has been placed on the decision of Hon'ble Delhi High Court in the case of Gee Vee Enterprises ( supra ), Jagdish Kumar Gulati v. CIT [2004] 269 ITR 71/139 Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was a direct contract of the oil producing company or not. It may be mentioned here that the ruling of the AAR is not a binding precedence and it is applicable only in respect of the facts of the case of that particular applicant. Nonetheless, the AAR is an authority under the Act competent to furnish ruling on question of facts and law for which a valid application is made to it. When we look to the facts of this case, it can be said that an enquiry was made by the AO when he requisitioned the agreement under which revenues were received. This enquiry may or may not be sufficient but fact remains that the enquiry was made. Therefore, as per decision in the case of D.G. Housing Projects Ltd. (supra), it falls in the latter category where AO conducts enquiry but finding recorded is erroneous and which is also prejudicial to the interest of revenue. In such a case, the CIT has to give a definite finding and he cannot set aside the assessment for examination of the AO to decide whether his earlier decision was right or wrong. In fact, nothing prevented the ld. Director of Income-tax to give a finding that the case did not fall u/s 44BB but fell u/s 44D as the relevant agreement was o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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