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TMI Blog2016 (9) TMI 201X X X X Extracts X X X X X X X X Extracts X X X X ..... e. 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 Agre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 5,09,7941- received by the assessee on account of Communication Immersat Charges from gross receipts received from M/s ONGC Limited for the purpose of computation of profits under the presumptive provisions of section 44BB of the Act. 2.1 Whether the Hon'ble DRP has erred in observing that no further appeal has been filed by the Department against the order of the Hon'ble ITAT in assessee's own case for Assessment Year 2002-03 reported in [(2008) 22 SOT 204] wherein the above issue has been decided in favour of the assessee, ignoring the fact that the said order was not accepted by the Department on merits and appeal against the said order was not filed solely on account of the tax-effect being below the threshold monetary limit prescribed in terms of the internal instructions of the Department. 2.2 Whether the Hon'ble DRP has erred in not applying the ratio of the decision in the case of M/s BJ Services Co. Middle East [2008] 170 TAXMAN 286 (UTTARAKHA D) wherein receipts on account of supply of spare parts have been held to be includible as receipts u/s 44BB, particularly in view of the fact that the nature of receipts in the aid case was essent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble under the provisions of section 44DA r.w.s. 115A of the Act. 3. Whether on the facts and in the circumstances of the case, the Hon'ble Dispute Resolution Panel ('DRP') has erred in holding that the revenues earned by the assessee on account of provision of drilling rig on hire to a non-resident company were in connection with prospecting etc of mineral oil and hence eligible for treatment u/s 44BB of the Act, without adjudicating the aspect of eligibility in terms of second limb of the exclusionary proviso (Explanation to section 9(1)(vii) of the IT Act, 1961) i.e. for a project undertaken by the recipient in terms of the proposition confirmed by Hon'ble Delhi High Court in DIT Vs. Rio Tinto Technical Services [2012-TII-OI-HC-DEL-INTL]. 4. Whether on the facts and in the circumstances of the case the Hon'ble Dispute Resolution Panel ('DRP') has erred in not appreciating the fact in the present case the drilling rig was not provided on hire by the assessee directly to an entity (M/s ONGC) which is engaged in prospecting etc of mineral oil and is directly a member of the Production Sharing Contract. 5. Whether on the facts and circumstances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;) has erred in holding that the provisions of section 44BB of the Act are more special provisions which shall prevail over the provisions of section 9(1)(vi) read with sections 44DA and IISA of the Act, not appreciating the fact that both set of provisions are special in nature which operate in their own clearly defined spheres and therefore, once a particular receipt or income takes on the character of Royalty as defined in section 9(1 )(vi), it cannot be considered for treatment u/s 44BB of the Act. 10. Whether on the facts and circumstances of the case, the Hon'ble Dispute Resolution Panel ('DRP') has erred in holding that sections 44DA and section 115A apply only to cases where the income by way of Royalty or FTS is earned by a non-resident from Government or an Indian entity and that the provisions of section 44DA/11l5A do not apply where an income is received by a non-resident from another non-resident. 11. Whether on the facts and circumstances of the case, the Hon'ble Dispute Resolution Panel ('DRP ) has erred in not appreciating that proviso to section 44BB is not inserted 'per majorem cautelam' but explains and clarifies the main provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... correct the figures for computation stated to have been added twice. Feeling aggrieved, the assessee has come up before the Tribunal by way of challenging the order passed by AO as well as DRP denying the claim of non-taxability of reimbursement of service tax of ₹ 13,82,40,973/- in computing the income u/s 44BB of the Act and the revenue also filed the appeal against the order of the DRP. 7. We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case. Brief facts of ITA No.2225/Del/2014 8. Briefly stated fact of this case are : draft assessment order dated 10.02.2014 was passed u/s 143(3) / 144C(13) of the Act assessing the total income at ₹ 13,71,51,706/-. Pursuant to the scrutiny proceedings initiated against the assessee, necessary details were filed by the assessee through Shri Prashant Kochar, CA and Shri Sunny, CA. 9. Assessee company is incorporated in USA and is in the business of providing services and facilities in connection with the prospecting, production and extraction of mine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccount of Communication Immersat Charges from gross receipts received from M/s. ONGC Ltd. for the purpose of computation of profit under the presumptive provisions of section 44BB of the Act by the DRP relied upon the draft order passed by AO. GROUND NO.1 OF ITA NO.1405/DEL/2014 13. Now, the question arises for determination in this case is :- as to whether reimbursement of service-tax amounting to ₹ 13,82,40,973/- is required to be excluded in computing the income u/s 44BB of the Act as alleged by the assessee. 14. Identical issue in assessee s own case has already been dealt with by the Tribunal in case cited as Pride Foramer SAS vs. Addl. Commissioner of Income-tax (supra) qua AY 2008-09 and returned the finding in favour of the assessee by relying upon the case decided by the Tribunal in case of Sedco Forex Drilling Inc. 139 ITD 188 . 15. For ready reference, operative part of the order passed by the coordinate Bench of the Tribunal in assessee s own case cited as Pride Foramer SAS vs. Addl. Commissioner of Income-tax (supra) qua AY 2008-09 is reproduced as under :- 11. As regards ground No.4 regarding receipt of service tax issue, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ility like custom duty. Hon ble Uttarakhand High Court in their decision in Schlumberger Asia Services Ltd.(supra) concluded that reimbursement of custom duty 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. Following the view in this decision, Mumbai Bench in their decision in Islamic Republic of Iran Shipping Lines(supra) held that 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. In the light of view taken by the Mumbai Bench, especially when the ld. DR did not place any material before us, controverting the aforesaid findings of the ld. CIT(A) so as to enable us to take a different view in the matter nor brought to our notice any contrary decision, we are of the opinion that 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. Therefore, ground no.3 in the appeal is allowed. 12. Therefore, following the above, we also hold that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... non obstantive clause which excludes application of sections 28 to 41 and sections 43 and 43A of the Act but at the same time, to assess any sum under that section, the activity must fall within the activity described in sub-section (2) of section 44BB of the Act. Supply of Dry Fruits and recovery of communication expenses specifically do not find mentioned in subsection (2) of section 44BB as these activities have nothing to do with the activity of prospecting for or extraction or production of, mineral oils in India or outside India. So as it relates to reimbursement of cost of equipment, the same also does not fall within the ambit of section (2) of section 44BB as the same apply on supply of plant and machinery on hire and the equipment, 75 per cent cost of which is reimbursed, was not machinery on hire being used in such activity. There is no material on record to show that the said equipment was used on hire either by the assessee or the contractee. Therefore, the reimbursement payments received by the assessee being not coming within the scope of section 44BB of the Act have rightly been' held to be excludible by ld. CIT (A). The case law relied upon by ld. DR have no a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 44BB on the ground that ONGC was liable to pay a fixed sum, as stipulated in the contract regardless of actual expenditure which may be incurred by assessee company for the purpose. It is, therefore, the mobilization fee was considered liable for taxation under section 44BB. In the present case, payments received by the assessee were not a fixed sum as stipulated in the contract. It was based on actual expenditure which has been incurred by the assessee for that very purpose. There was no element of profit. Therefore also provisions of section 44BB could not be applied for present case. 21. Ld. DR has not brought on record any material to depart from the findings returned by the coordinate Bench in assessee s own case cited as ACIT vs. Pride Foramer France SAS qua AY 2002-03 and as such, we hold that reimbursement of Communication Immersat Charges amounting to ₹ 5,09,794/- 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. 22. Remaining grounds no.2.2, 3, 3.1 3.2 are general in nature and as such need no discussion. GROUND NOS.1 TO 13 OF ITA NO.2225/DEL/2014 23. Identi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ices under section 440, 44DA, or 115A of the Act. Admittedly, the income derived by the applicant Is from a UAE company and not from the Government or an India concern. In other words, income derived by the applicant is from a nonresident company of foreign company. On the wording of these sections, the income cannot be brought within their purview, because they only speak of Income by way of fees for technical services received from Government or an Indian concern. On this short ground, the contention of the Revenue that the Income derived by the applicant Is independently assessable under section 115A or 44DA of the Act, has to be rejected. Since, income derived by the applicant, is from an activity in connection with the prospecting for mineral oils and from a foreign company, the applicant would be entitled to claim to be assessed under section 44BB(1) of the Act. The ruling; therefore, on question no 3 is that the Income derived by the applicant are to be computed in accordance with the provisions of section 44 BB (1) of the Act. (Emphasis Supplied). 14. As discussed above, the Hon'ble Delhi Bench of the ITAT in the case of Louis Dreyfus Armateures SAS (supra) has deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in India, thus, first condition of getting benefit under sec. 44BB of the Act as laid down by the Hon'ble High Court in the above cited case is fulfilled. So far as the second condition that the contract entered into by the assessee in India was effectively connected with that PE in India is concerned, the dispute in this regard remained that the assessee being subcontractor as per the Authorities below was not eligible for the benefit of section 4BB of the Act. The Delhi Bench of the ITA T in the case of Louis Dreyfus Armateures SAS (supra) after discussing the issue in detail has held that the provision does not create any discrimination between the persons who actually does the activity of prospecting for or extraction or production and the person who supplies the plants and machinery, the arrow interpretation of the provisions is thus not permitted. It has been held that the basic condition to be satisfied in the said provision is that the plant or machinery supplied or lented on hire by the assessee, a non-resident should be used in the prospecting for or extraction or production of mineral oil or where equipment has been supplied, such equipment should have been used for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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