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TMI Blog2016 (5) TMI 258X X X X Extracts X X X X X X X X Extracts X X X X ..... that any such certificate of lower or no withholding tax was ever submitted by the assessee to the ‘Cairn’, and therefore it cannot be said that the assessee played any role in lower or no withholding tax by the payer. Thus, respectfully following the judgment of the Hon’ble High Court in the case of GE Packaged Power Inc,[2015 (1) TMI 1168 - DELHI HIGH COURT] we are of the opinion that the assessee cannot be held responsible for lower or no withholding tax and consequent responsibility of interest under section 234B of the Act for non-payment of advance tax on its income. Accordingly, we uphold the finding of the learned Commissioner of Income-tax(Appeals) on the issue and the ground of the Revenue is dismissed. - Decided in favour of assessee Considering the entire mobilization charges for taxing under section 44BB - Held that:- The entire payment of mobilization charges in question was paid for the purpose of execution of the contract between the assessee and the ‘Cairn’ and therefore the entire sum was liable for taxed under section 44BB of the Act. Accordingly, we uphold the finding of the learned Commissioner of Incometax( Appeals) on the issue in dispute and the ground of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent against which SLP has been filed before the Hon'ble Supreme Court 6. The appellant prays for leave to add, amend, modify or alter any grounds of appeal at the time or before the hearing of the appeal. 2. The facts in brief as culled out from the records are that the assessee company was incorporated in 'Bermuda' and was engaged in business of providing drilling rigs on hire and other drilling related services. During the year under consideration, the assessee entered into a contract dated 30/06/2007 with M/s 'Cairn Energy India Private Limited' (In short 'Cairn') for providing drilling rigs and other related services. The assessee filed return of income on 23rd of March 2009, declaring total income of ₹ 15,58,98,454/-. The income received by the assessee from such hire of rigs as well as connected services was offered to tax under the provisions of section 44BB of the Act. The case of the assessee was selected for scrutiny and notice under section 143(2) of the Act was issued and served upon the assessee within the stipulated period. In the course of scrutiny proceedings, the Assessing Officer (AO) observed from the certificates of tax deducted at source issued by 'C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of its order in the case of CGG Veritas Services, SA (supra) held that in view of the fact that w.e.f. assessment year 2011-12 only the fee for technical services rendered in connection with prospecting for or extraction or production of mineral oil or otherwise will be assessable either under section 44DA or section 115A of the Act depending on the fact whether such receipts are effectively connected with PE or fixed place profession or not, however, for the assessment year 2004-05 to 2010-11 the consideration received for fee for technical services rendered in connection with prospecting for or extraction or production of mineral oil would be assessable under section 44BB(1) of the Act for the simple reason that provision to section 44BB(1) does not contain section 44DA for those years. The relevant part of the decision is reproduced as under: "46. On combined reading of section 44DA(1) and 115A(1)(b) it is clear that the provisions of section 44DA(1) are applicable in the case of a non-resident assessee who carries on business in India through a permanent establishment, or performs professional services from a fixed place of profession, and fees for technical services paid und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act depending on fact whether such receipts are effectively connected with PE or fixed place of profession, or not. However, for assessment year 2004-05 to 2010-11 the consideration received for fee for technical services rendered in connection with prospecting for or extraction or production of mineral oil though effectively connected with PE or fixed place of profession will fall outside the scope of section 44DA and will be assessable under section 44BB (1) of the Act for the simple reason that proviso to section 44BB(1) does not contain section 44DA for these years." 6.2 Respectfully, following the above decision of the Coordinate Bench of the Tribunal, we are of the opinion that income from the services rendered in connection with providing drilling rigs/drilling services to 'Cairn' in India are in the nature of services and facilities in connection with, or supplying plant and machinery on hire which are used in prospecting for extraction or production of mineral oil and the provisions of section 44BB of the Act would apply and the income would be taxable accordingly and not as fee for technical services either under section 44DA or section 115A of the Act. Accordingly, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge after the finance Act, 2012, was that of the payer and the payer will be an assessee in default, on failure to discharge the obligation to deduct tax, under section 201 of the Act. The relevant part of the above judgment is reproduced as under: "15. Apparently, it is this part of the decision that the Revenue seeks to rely upon, in arguing that the view inAlcatel Lucent USA Inc (supra) did not turn on the volte face by the assessee as to its PE status, but instead on the fact that, at the time of assessment, the assessee denied its tax liability altogether. This Court, upon consideration, is of the view that the fact that was central to the decision of this Court in Alcatel Lucent USA Inc (supra) is the assessee's initial denial of PE status, and consequently of its tax liability, that was aggravated by its subsequentvolte face by way of its admission that it was a PE liable to tax in India. This resulted in the Court's view that the assessee had played a role in influencing the payer's non-deduction of tax at source, and was thus required to compensate for such a volte face, by paying interest under Section 234B. 16. This Court respectfully cannot apply the vie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not liable to tax in India, the payer is obliged to apply to the AO to determine what portion, if any, of its remittance to the assessee, is liable to be deducted at source towards tax. 18. The view of this Court finds confirmation in the position of law as it stands at present, after the Finance Act, 2012; should a situation akin to that in Alcatel Lucent USA Inc (supra) arise, the payer would be treated as the assessee-in-default according to Section 201, and the payee/assessee would not be permitted a tax credit under the proviso in Section 209(1)(d). Clearly, the anomaly of an assessee denying tax liability (whether under a bona fide mistake or by deceit), thereby not suffering a tax deduction at source, and still being permitted a tax credit for the tax deductible, is remedied after the Finance Act, 2012. 19. Alcatel Lucent USA Inc (supra), in any event, can be distinguished on the ground that the Court was persuaded to confirm the levy of interest under Section 234B, only on account of the equities that needed to be balanced in those peculiar facts, in favour of taxability. This is evident from the following words of the Court: "26. It further seems to us ineq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bserved earlier, the position of law itself requires that the tax be deducted at source, whatever may be the assessee's stance, failing which the payer is treated as an assessee-in-default under Section 201, and the payee is required to discharge its liability to pay the tax that was not deducted under Section 191. 20. This court also notices that the Madras High Court decision in Madras Fertilizers Ltd. (supra) and that of the Uttarakhand High Court in Sedco Forex International Drilling Co. Ltd. (supra) was considered and affirmed by the Bombay High Court in NGC Network Asia LLC (supra) that "We are clearly of the opinion that when a duty is cast on the payer to pay the tax at source, on failure, no interest can be imposed on the payee-assessee." An important decision is that of the Karnataka High Court in CIT v. Samsung Electronics Co. Ltd. [2012] 345 ITR 494/[2011] 203 Taxman 477/16 taxmann.com 141, which also considered the same issue, i.e. the obligation under Section 195 (1). The High Court in the first instance had rejected the Revenue's appeal; the Supreme Court remitted the matter - for determination as to whether income by way of royalty had been made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be regarded as income under the I.T. Act. It may be noted that Section 195 contemplate not merely amounts, the whole of which are pure income payments, it also covers composite payments which has an element of income embedded or incorporated in them. Thus, where an amount is payable to a non-resident, the payer is under an obligation to deduct TAS in respect of such composite payments. The obligation to deduct TAS is, however, limited to the appropriate proportion of income chargeable under the Act forming part of the gross sum of money payable to the non-resident. This obligation being limited to the appropriate proportion of income flows from the words used in Section 195(1), namely, "chargeable under the provisions of the Act". It is for this reason that vide Circular No. 728 dated October 30, 1995 the CBDT has clarified that the tax deductor can take into consideration the effect of while deducting TAS. It may also be noted that Section 195(1) is in identical terms with Section 18(3B) of the 1922 Act, In CIT v. Cooper Engineering [1968] 68 ITR 457 (Bom.) it was pointed out that if the payment made by the resident to the non-resident was an amount which was not charg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ws: '9. One more aspect needs to be highlighted. Section 195 falls in Chapter XVII which deals with collection and recovery. Chapter XVII-B deals with deduction at source by the payer. On analysis of various provisions of Chapter XVII one finds use of different expressions however, the expression "sum chargeable under the provisions of the Act" is used only in Section 195. For example, Section 194C casts an obligation to deduct TAS in respect of "any sum paid to any resident". Similarly, Sections 194EE and 194F inter alia provide for deduction of tax in respect of "any amount" referred to in the specified provisions. In none of the provisions we find the expression "sum chargeable under the provisions of the Act", which as stated above, is an expression used only in Section 195(1). Therefore, this Court is required to give meaning and effect to the said expression. It follows, therefore, that the obligation to deduct TAS arises only when there is a sum chargeable under the Act. Section 195(2) is not merely a provision to provide information to the ITO(TDS). It is a provision requiring tax to be deducted as source to be paid to the Reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able Code. Hence, the provisions relating to TDS applies only to those sums which are Department that any person making payment to a non-resident is necessarily required to deduct TAS then the consequence would be that the Department that any person making payment to a non-resident is necessarily required to deduct TAS then the consequence would be that the Department would be entitled to appropriate the moneys deposited by the payer even if the sum paid is not chargeable to tax because there is no provision in the I.T. Act by which a payer can obtain refund. Section 237 read with Section 199 implies that only the recipient of the sum. i.e., the payee could seek a refund. It must therefore follow, if the Department is right that the law requires tax to be deducted on all payments. The payer, therefore, has to deduct and pay tax, even if the so-called deduction comes out of his own pocket and he has no remedy whatsoever, even where the sum paid by him is not a sum changeable under the Act. The interpretation of the Department, therefore, not only requires the words "chargeable under the provisions of the Act" to be omitted, it also leads to an absurd consequence. The inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. This provision ensures effective compliance of Section195 of the I.T. Act relating to tax deduction at source in respect of payments outside India in respect of royalties, fees or other sums chargeable under the I.T. Act. In a given case where the payer is an assessee he will definitely claim deduction under the I.T. Act for such remittance and on inquiry if the AO finds that the sums remitted outside India comes within the definition of royalty or fees for technical service or other sums chargeable under the I.T. Act then it would be open to the AO to disallow such claim for deduction. Similarly, vide Finance Act, 2008, w.e.f. 1.4.2008 sub-section (6) has been inserted in Section 195 which requires the payer to furnish information relating to payment of any sum in such form and manner as may be prescribed by the Board. This provision is brought into force only from 1.4.2008. It will not apply for the period with which we are concerned in these cases before us. Therefore, in our view, there are adequate safeguards in the Act which would prevent revenue leakage.' The Karnataka High Court first addressed this question and stated that: "17. It is clear from the scrutin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 195 of the Act, which imposes a statutory right on any person responsible for paying to a nonresident, any interest (not being interest on securities) or any other sum (not being dividend) chargeable under the provisions of the Act, to deduct income-tax at the rates in force unless he is liable to pay income-tax thereon as an agent. Payment to non-residents by way of royalty and payment for technical services rendered in India are common examples of sums chargeable under the provisions of the Act to which the aforestated requirement of TDS applies. The tax so collected and deducted is required to be paid to the credit of Central Government in terms of Section 200 of the Act read with rule 30 of the Income Tax Rules, 1962. Failure to deduct tax or failure to pay tax would also render a person liable to penalty under Section 201 read with Section 221 of the Act. In addition, he would also be liable under Section 201(1A) to pay simple interest at 12 per cent per annum on the amount of such tax from the date on which such tax was deductible to the date on which such tax is actually paid. Therefore, if the amount is held to be royalty, the other consequences as referred to abov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of this Court in Transmission Corporation(supra) in which this safeguard. From this it follows that where a person responsible for deduction is fairly certain then he can make his own determination as to whether the tax was deductible at source and, if so, what should be the amount thereof." 22. This Court, therefore, holds that Jacabs Civil Incorporated/Mitsubishi Corporation (supra) applies in such situations; Alcatel Lucent USA Inc (supra) can be explained as a decision turning upon its facts; its seemingly wide observations, limited to the circumstances of the case. This Court, therefore, holds that the view taken by ITAT was correct; the primary liability of deducting tax (for the period concerned, since the law has undergone a change after the Finance Act, 2012) is that of the payer. The payer will be an assessee in default, on failure to discharge the obligation to deduct tax, under Section 201 of the Act. 23. For the above reasons, this Court finds that no interest is leviable on the respondent assessees under Section 234B, even though they filed returns declaring NIL income at the stage of reassessment. The payers were obliged to determine whether the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred in holding that the income of the assessee was taxable under the presumptive provisions of sec 44BB and ignoring the fact that taxability u/s 44BB shall not apply in respect of income referred to in section 44DA in view of the clarificatory proviso to sec. 44BB and sec 44DA. 4. Whether on the facts and circumstances of the case the CIT(A) has erred in not appreciating the fact that proviso to section 44DA brought about by the Finance Act, 2011 was only clarificatory in nature and its application has to be read into the main provisions with effect from the time the main provision came in to effect in view of the decision of the Hon'ble Supreme Court in the case of Sedco Forex International Drilling v/s CIT, delivered on 17.11.2005. 5. Whether on the facts and circumstances of the case, the CIT(A) has erred in deleting the interest charged u/s 234B by relying upon the decision of the Hon'ble Delhi High Court in the case of Jacabs Civil Incorporation/ Mitsubishi Corporation (2010) ITR 578 (Delhi) which has not been accepted by the department against which SLP has been filed before the Hon'ble Supreme Court 6. The appellant prays for leave to add, amend, modify or alter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ident in any previous year includes all income from whatever source derived which: • is received or is deemed to be received in India; or • accrues or arises or is deemed to accrue or arise in India. During AY 2009-10, WGIL has received revenues amounting to ₹ 53.37 crores in respect of mobilization/ demobilization of vessels. Payment in respect of the mobilization/ demobilization was received by WGIL outside India. Out of the same, WGIL has offered ₹ 6.31 crores to tax on account of mobilization/ demobilization activities attributable to Indian operations for the subject AY under section 44 (BB) of the Act. However, revenues amounting to ₹ 47.06 crores were not offered to tax by WGIL as the same were attributable to activity/ distance travelled outside India. It was clarified that the mobilization/ demobilization consideration is agreed and mentioned separately in the contract as it is separate from the consideration for services for exploration, which are the subject matter of assessment under section 4488 of the Act. It was submitted that as per the charging provisions of sections 4 and 5 of the Act, the mobilization/ demobilization revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax [(2005) 92 ITD 385 (Mumbai ITAT)] • Joint Director of Income-tax (OSD) vs J Ray Mcdermott Eastern Hemisphere Limited - (2010) ITA No 1557/ Mum/2007 It was submitted that even in a case wherein a composite and lump-sum consideration is agreed, the Hon'ble Supreme Court in the case of Ishikawajima and Hyundai Heavy industries clarified that the Revenue authorities are duty bound to determine the portion attributable to taxable activities under the Act and the non-taxable portion. Accordingly, it is submitted that in the instant case for AY 2009-10, out of the total revenues received by WGIL with respect to mobilization! demobilization of vessels amounting to ₹ 53.37 crores, only revenues amounting to ₹ 63.13 crores should be subject to tax (under section 44BB) on account of mobilization/ demobilization activities attributable to Indian operations. Distinguishing the ruling of Sedco Forex Intemational Inc. During the course of the hearing, the Learned Department Representative ('DR') placed reliance on Uttarakhand HC ruling in Sedco Forex Internationallnc ('Sedco Forex') to support Department's contention that the entire amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e cannot be read in a way to subject transactions which are effected outside India and paid outside India and which are clearly outside the scope of charging section of the Act. Prayer We request your Honours to kindly take the above submission on record, consider the same and to allow our appeal in toto. In case your Honours require any clarifications, we would be most willing and feel duty bound to submit the same. 9. The Ld.D.R. on the other hand submitted that the issue in question is squarely covered against the assessee by the judgements of the Uttarakhand High Court in the cases of (a) Sedco Forex International Inc. reported in 299 ITR 238; (b) in the case of Halliburton Offshore Service Inc. reported in 300 ITR 265 and (c) in the case of Trans Ocean Offshore Inc. 299 ITR 248. He further relied upon the order of the Assessing Officer as well as the findings of the D.R.P. He submitted that : "The issue of taxability of these amounts is settled by a number of the decisions of the Hon'ble Uttarakhand High Court. Some of these decisions are: Sedco Forex Internationallnc 2991TR 238; Halliburton Offshore Service Inc 300 ITR 265; and Trans Ocean Offshore Inc 299 ITR 248 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome and not to revenue. Section 9 takes into account situations where a business consists of many operations/activities which are mainly carried out "out of India" by the non-resident and due to some business connection in India in relation to the same business, the income accruing or arising, whether directly or indirectly, is taxable in India. In the case of the assessee the business is being carried out In India. It cannot be the case of the assessee that it is carrying out its main "business" outside India and only income from the operations carried out in India is taxable. The assessee has carried out its business in India and all receipts are taxable in India. In case of the assessee there are no business operations outside India in connection with the payments received by it. The assessee's claim could be justified when the Rig for example was working or used outside India for example also to drill a well in the North Sea for the same client. In that case, some of the operations were carried out outside India and income in relation those operations may not be taxable in India. The movement of Rig from any place was for the purpose of the busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the purpose of execution of the contract in India. Mobilization is a stage payment, as part of the total consideration for execution of the contract. The assessee would be moving its machinery from one place of work to another place of work. Mobilization is paid as an advance for such movement and is generally adjusted against running bills. It is not a case where a separate payment is made for a transportation contract. The submission that the assessee would try to work out, based on some basis, the revenues attributable to the activity of mobilization carried out outside India, cannot be accepted, as such an exercise would amount to estimating income for activities outside India, when the scope of the contract is for execution of the contract in India. Mobilization in our view is an incidental activity to the main activity of carrying out the contract in India. The judgment of the Hon'ble Supreme Court in the case of Ishikawajima and Hyundai Heavy Industries Ltd. vs. DIT, reported in 288 ITR 408 has been discussed by the Hon'ble High Court in the case of Sedco Forex International Inc. (supra). The ratio laid down by the Hon'ble Supreme Court in that case is not applicable here ..... X X X X Extracts X X X X X X X X Extracts X X X X
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