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TMI Blog2017 (12) TMI 302X X X X Extracts X X X X X X X X Extracts X X X X ..... ties mentioned in section 44B a special provision i. e. 44BB was introduced. The ships were hired by the user for transporting men/machines to locations where it was doing exploration/production of mineral oil. Thus it was not a case of transporting goods or livestock by ships simplicitor. The activity was directly and closely related with ‘services’rendered by plant and machinery and the ships for the purpose of section 44BB have been treated as plant. As the services were rendered 'in connection with' prospecting for and exploration activities so in our opinion the income arising out of such activities has to be assessed u/s. section 44BB and not u/s. 44B of the Act. Gross receipts for the purpose of computing the presumptive income of the assessee u/s. 44BB - service tax collection addition - Held that:- Service tax collected by the assessee has to be deposited in the government by all the service-tax-collectors. On behalf of the State they collect the tax and deposit in the treasury. There is element of income in it. We hold that the order of the FAA does not suffer from any legal or factual infirmity. So confirming the same we decide the effective ground of appeal against t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. He referred to the Agreements entered into by the assessee with the hirers and held that the vessels had been specifically supplied by the assessee to the co-ventures on hire that the vessels were to be used in activities related to exploration and production of mineral oil that the owner had not earned any income from carriage of passengers/goods/mail/livestock through the vessels that the charterer of the vessel was not using the vessels in its business activities. Finally he held that income of the assessee was to be assessed u/s. 44BB of the Act and not u/s. 44B of the Act. 2. 1. Aggrieved by the order of the AO the assessee preferred an appeal before the First Appellate Authority(FAA) and made detailed submissions. After considering the available material he held that the assessee had given special type of vessels known as anchor handling /tug supply vessels on charter that those vessels were self propelling small ships used for various jobs at sea ports and off shore that they would carry equipments like cranes winches and long steel wires on boats for use in the sea that vessels were used to pull other vessels to push big ships or to assist them in turning for be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the activities related to the exploration and production of mineral oils that even if man and the goods so transported were used by the hirer in the activities of extraction/production of mineral oil section 44BB would not be applicable to it that the provisions of section 44B would be applied as the assessee was engaged in shipping business. He relied upon the cases of Schlumberger Asia Services Ltd. (317 ITR 156) Manglore Refineries and Petrochemicals Ltd. (225taxman58)and Mitchell Drilling Internation -al(P. )Ltd. (380 ITR 130). He further argued that assessee could opt for lower taxes by opting for application of the provisions of section 44B. In that regard he referred to the case of Bosotto Brothers Limited(8 ITR 41). The DR supported the order of the FAA and argued that the ships were used for activities related with exploration/production of mineral oil that the AO had rightly taxed the assessee u/s. 44BB of the Act. He relied upon the case of Halliburton offshore Service Inc. (300 ITR 265). 2. 3. We have heard the rival submissions and perused the material before us. We have gone through the cases relied upon by the AR and DR. We have also perused the case of ONGC as ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or deemed to be received in India by or on behalf of the assessee on account of the carriage of passengers livestock mail or goods shipped at any port outside India. 38. It should be noted that the new s. 44B override the provisions of ss. 28 to 43A only and accordingly other provisions (including those relating to aggregation of income and set off or carry forward and set off of losses) will continue to apply in the case of non-residents deriving profits from shipping business. In this connection it may be mentioned that unabsorbed depreciation allowance is carried forward under s. 32(2) of the IT Act and the unabsorbed depreciation allowance of earlier years is treated as part of the depreciation allowance admissible in the relevant previous year. Since the provisions of s. 32 are specifically overriden by the new s. 44B the unabsorbed depreciation for earlier years will not be allowed in determining the profits and gains for the asst. yr. 1976-77 and subsequent years. Losses incurred in earlier years other than the losses due to depreciation will however be allowed to be set off against the profits for the asst. yr. 1976-77 and subsequent years subject to the fulfilment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions become inescapable. The first conclusion is that 10% of the receipts by the foreign resident is chargeable to tax and the other conclusion is that 90% of the receipts of that foreign resident as well as receipts or gains other than those mentioned in the section is not chargeable to tax. ii. It would be logically fallacious to use the taxability of 10% which is expressly provided in section 44BB and to pass over or fail to recognise the exemption from tax as to the balance 90% of the receipts and 100% of other profits and gains which is also provided for in section 44BB by necessary and inescapable conclusion. iii. The section provides for taxation with reference to pre-ordained criteria which are mentioned in provision itself-amounts received or payable to an assessee-non-resident whether in India or outside India had to be included for purpose of calculating income u/s. 44 BB. iv. There is no compelling reason to assign a narrow and restricted meaning to the expression 'services' in section 44BB and confine it to services other than technical consultancy or managerial services. In the absence of any words of limitation or exclusion the word 'services' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature of business and it is that factor which serves as an indicator to apply one of the two sections. If the business is of the specific nature envisaged by section 44BB the computation provisions therein would prevail over the computation provisions in section 44DA. In other words the income received by a non-resident entity for the technical services provided in relation to prospecting and extraction of mineral oil will be wholly governed by section 44BB for the purposes of computation. vii. Explanation appended to section 44BB provides that for the purpose of this section plant includes ships aircrafts apparatus and equipments used for the purpose of said business and mineral oils include petroleum and natural gas. Thus the amount received by the assessee on account of supply of spare parts of ships aircrafts apparatus and equipments used for the purpose of the business is squarely covered u/s. 44BB. viii. If an assessee does not claim benefit of section 44BB(3) it cannot claim that amount which it receives by way of mobilization advance outside India should not be included for purpose of calculating income u/s. 44BB. ix. Services provided by non-resident in connecti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... losely related with services rendered by plant and machinery and the ships for the purpose of section 44BB have been treated as plant. As the services were rendered 'in connection with' prospecting for and exploration activities so in our opinion the income arising out of such activities has to be assessed u/s. section 44BB and not u/s. 44B of the Act. 2. 3. 5. Now we will deal with argument of opting of lower tax rates by an assessee. We are of the humble opinion that no choice has been given to the assessees for opting a particular section under which they can offer their taxable income as far section 44B and 44BB are concerned. Like section 90(2)of the Act which gives an option to the assessee to prefer for lower tax rates sections 15-17 22-57 of the Act do not provide that the assesee can opt for a preferential treatment for particular income. i. e. claiming lower rate of tax. Income arising from particular activities has to be assessed under particular manner and at a particular rate. Because of the international treaties tax-payers have been given choice to opt for a beneficial provision but same concession is not available to the assessees who are not having inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and when the liability arose that it acted as a trustee for the Government for the service tax collected and paid that the same could not be included in the gross receipts of the assessee for computing its income chargeable to tax. The AO had relied on the decision of the Delhi Bench of the Tribunal in the Technip Offshore Contracting (ITA No. 4613/D/07) dated 16. 01. 2009 and held that such service tax receipts would be a part of the gross receipts of the assessee chargeable to tax u/s. 44BB of the Act. 4. 1. In the appellate proceedings the FAA referred to the order of the Mumbai Bench of the Tribunal in the case of Islamic Republic of Iran Shipping Lines (11 taxmann. com 349) wherein it was held that the Delhi Bench of the Tribunal in the Technip case had not taken note of the Bombay High Court decision in the case of Sudharshan Chemical Industries. The Mumbai Bench of the Tribunal further noted that the Uttarakhand High Court in the case of Schlunberger Asia Services Ltd. (317 ITR 156) had held that customs duty unlike amounts received towards reimbursement would not be includible in the total turnover for computing profits u/s. 44BB of the Act. He further held that in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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