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TMI Blog2023 (7) TMI 1420X X X X Extracts X X X X X X X X Extracts X X X X ..... e company does not have PE and not taxable in India as per the DTAA between India and Singapore, the assessee is not liable to deduct any tax in India under section 195 of the Act. Therefore, no disallowance for the expenditure under section 40(a)(1) of the Act is warranted. Under the above facts and circumstances, we set aside the orders of authorities below and delete the addition made by the Assessing Officer and confirmed by the ld. DRP. Thus, the appeal filed by the assessee is allowed. X X X X Extracts X X X X X X X X Extracts X X X X ..... 44BB(1) of the Act. 13. The Appellant may, add or alter or amend or modify or substitute or delete and/or rescind all or any of the grounds of appeal at any time before or at the time of hearing of the appeal. 2. Brief facts the case are that the assessee M/s. Aban Singapore Pte Ltd. is non-resident company incorporated in Singapore, which is engaged in the business of providing services and facilities relating to exploration and exploitation of mineral oil and natural gas and filed its return of income for the assessment year 2019-20 on 30.11.2019 admitting losses of ₹.6,50,42,976/- under section 44BB of the Income Tax Act, 1961 ["Act" in short] by claiming the TDS credit of ₹.5,65,88,931/-. M/s. Deep Drilling 8 Pte Ltd. (DD8PL) is resident of Singapore, i.e., nonresident in India. The assessee has filed its return of income under section 44BB of the Act, which is a non-obstante clause that excludes the application of other provision of section 28 to 41 and section 43 and 43A of the Act [i.e., section 40(a)(i) of the Act is not applicable). The DD8PL is a non-resident company accruing business income in Singapore and does not have PE in India, no TDS was applicable. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls comes with the purview of section 44BB of the Act, it cannot come again under the purview of the other parts of the Act which are specifically excluded i.e., provision of section 40(a)(i) of the Act has no application. When section 44BB of the Act operates, it operates to exclude altogether the incidence of tax on profit and gains of business or profession which would otherwise be incident on the basis of other sections apart from section 44BB of the Act. 4. The ld. Counsel for the assessee has further submitted that in the present case, the payment being made by ASPL to DD8PL, DDP4PL is for the hire of rig DD8 and rig DD4 on bareboat charter basis. Therefore, the income which DD4PL and DD8PL earns from the charter hire contract is for the providing its rig to ASPL for exclusive use, and such income is independent of whether the rig is actually deployed by ASPL or not and independent of where the rig is deployed. Merely by virtue of ASPL bringing DD4PL's asset DD4 and DD8PL's asset DD8 in India cannot be the sole basis for extending the scope of Indian taxes to income earned by DDP4PL and DD8PL and not liable for withholding tax in India. It was also submitted that a lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce to Indian Accounting standards and they have maintained the Books of account as per section 44AA of the IT Act. 3. Whether it was subjected to Audit u/s 44AB? Ans: Yes, their books of accounts were subjected to audit us 44AB and the audit details were given in page 2 of the ITR.4. 4. What is the business of the assessee? 4.1 The appellant's business activities were given at page no. 5 of the ITR where they have mentioned that they are engaged in service activities incidental to Oil and gas extraction excluding survey". The contract work was carried out in the territorial waters of India. 4.2 It is for these reasons Vedanta Limited, Hindustan Oil Exploration Company Limited and ONGC gave the contract during the relevant AY for a total sum of Rs. 90,45,76.927- and deducted tax us 195 for a sum of Rs 5,65,88,963/-. 4.3 This entire contract revenue of Rs. 90,45,76,927/- was duly admitted as Revenue from Operations in the ITR in page no. 24. 4.4 Various expenditures were debited against this gross revenue and the company declared net loss of Rs. 6,50,42,976/- at page no. 28 of the return of Income. The expenses debited against the revenue was duly reported b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 43 and 43A are not applicable. This argument is devoid of any merit and baseless. Appellant chosen to declare their business loss by maintaining and auditing their books of accounts as per section 44AA and 44AB of the IT Act. They paid hire charges to the subsidiary. When the appellant complied to the TDS provisions us 195 of the IT Act for a sum of Rs. 4.58,31,205/- reported at column 34a, they ought to have deducted tax on boat higher charge of Rs. 40,81,84,000/- paid to the fellow subsidiary. On account of such wilful failure to deduct Tax the AO disallowed this higher charge payment u/s 40a(i) of the It Act. B. Other documentary evidences from the paper book are listed below: 1. Page No. 114 is the Bareboat Charter Agreement entered on 16-01-2018 between the assessee and its subsidiary. Attention is drawn to the address of both the companies. Both of them were at the same address in Singapore i.e. 9, Temesak Boulevard, #19-02, Sunte Tower tow, Singapore 038989. 2. Assessee's project office is at "Janpriya Crest", 113, Pantheon Road. Egmore, Chennai which is a PE as per the assessee's declaration 3. As per the agreement, owner (subsidiary company) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... declaring net loss of Rs. 3,15,48,560/-. Attention is drawn to page no. 2 and 36 of their return where it was categorically declared that no income was admitted u/s 44BB of the IT Act. If it was not a case of 44AB, they cannot admit loss. It is evident from the returns of income that the appellant has been providing services constantly to major companies like Vedanta Limited, ONGC, and Hindustan Oil Exploration Company Limited since March 2018. These receipts were duly reflected in all their 26AS statement. Those receipts are claimed as exempt in AY 2018-19 and from subsequent AY onwards it was duly offered to tax. D. Payment of hire charges to deep drilling 8 Pte Ltd and TDS liability: In the AY 2019-20 a sum of Rs. 40,81,84,000 was paid as bareboat hire charges the Deep drilling -8 Pte Limited. It is recorded that this subsidiary has rendered service for more than 183 days in the territorial waters of India and hence even the income of the subsidiary is accrued in India. The appellant already declared that they had PE in the relevant AY 2019-20 and also get their accounts audited u/s 44AB by complying various TDS provisions. Hence, as per subsection (3) of section 44BB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount specified in sub-section (2) is deemed to be the profits and gains of such business chargeable to tax under the head "profits and gains of business or profession". It is because the provision of section 44BB of the Act has quantified the deemed income of the non-resident assessee at 10%, it has opened with the clause "Notwithstanding anything to the contrary" contained in sections 28 to 41 and sections 43 and 43A of the Act. The aggregate amounts are quantified in sub-section (2) of section 4BB of the Act to be the amount paid or payable, received or deemed to be received etc. As per the sub-section (3) of section 44BB of the Act, the nonresident can claim a lower profit. It is for the purpose of claiming lower profits that the non-resident must file a return and prove the same with support of his regular books of accounts and other documents and by complying with other conditions specified therein ie., 44AA, 44AB and 143(3) of the Act. In this regard the assessee relied upon the following judicial precedent: i. Decision in case of Frontier Offshore Exploration (India) Ltd vs. DCIT Central Circle (1). Chennai vide ITA No 200/Mds/2009 where in it is held as "6. This is w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny and the company does not having PE and not taxable in India. Based on the facts and circumstances, the provisions of section 195(1) of the Act is not applicable as the income is not chargeable to tax in India. In this regard, the assessee relied upon the following judicial precedent: i. Decision of Hon'ble Supreme Court of India in case of Transmission Corporation of AP Ltd. vs. CIT vide citation [1999] 105 Taxmann 742 (SC) wherein held - "Section 195 of the Income-tax Act, 1961 - Deduction of tax at source - Other sums - Whether scheme of tax deduction at source applies not only to amount paid which wholly bears 'income' character such as salaries, dividends, interest of securities, etc., but also to gross sums, whole of which may not be income or profits of recipient, such as payment to contractors and subcontractors and payment of insurance commission -Held yes - Whether expression 'any other sum chargeable under the provisions of this Act' would mean 'sum' on which income-tax is leviable - Held yes- Whether expression 'any other sum chargeable under the provisions of this Act' would include cases where any sum payable to the non-resident is a trading receipt whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e charges paid to NR would be liable to be taxed in the U.K. In view of the provisions contained in article 7, since the hire charges was not subjected to Indian taxation, the question of deducting any tax from the hire charges payable to NR did not arise. The order of the Commissioner (Appeals) cancelling this order of the Assessing Officer was, therefore, upheld." 7. Having heard and examined the case and. basing on the judgements, it is clearly established that the payment of bareboat charter by ASPL to DD8PL does not liable to tax India as per the Article 7 read with Article 5 of the India Singapore DTAA and ASPL is not liable to deduct any withholding tax under section 195 of the Act as income earned by DD8PL is not chargeable to tax in India. 8. Thus, the assessee has exercised the option available under section 44BB of the Act by maintaining regular books of accounts and got the book audited and thus, the payment done to DD8PL are bareboat charter are business receipts for the Singapore Company and the company does not have PE and not taxable in India as per the DTAA between India and Singapore, the assessee is not liable to deduct any tax in India under section 195 o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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