2016 (10) TMI 1053 - AT - Income Tax

Tax Tribunal affirms CIT(A)'s decision on mineral oil income taxation, valid reassessment, and expense disallowances

Iranian Offshore Engineering & Construction Company Versus ADIT, (International Taxation), New Delhi

The Tribunal upheld the CIT(A)'s findings, confirming that income from services related to the prospecting, extraction, or production of mineral oils is ... Income on deemed basis under section 44BB - Held that:- To the facts of the present case for the year under consideration, the gross receipts of assessee are taxable u/s. 44BB because, insertion of section 44DA in the proviso to sec. 44BB is w.e.f. 1.4.2011, and has been held to be prospective in nature. Ld. AO has given specific finding of permanent establishment of assesses being there 'in India. CGG Veritas Services SA v. Addl. CIT [2012 (4) TMI 280 - ITAT DELHI] said with effect from assessment year 2011-12 fee for technical services whether rendered in connection with prospecting for or extraction or production of mineral oil or otherwise will be assessable either u/s. 44DA or section 115A of the Act depending on fact whether such receipts are effectively connected with PE or fixed place of profession, or not However, for assessment years 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. Reopening of assessment - Held that:- A.O. had reason to believe that income has escaped assessment. Second proviso to section 147 of the Act allows the Ld. A.O. to assess or reassess such income other than the income involving matters which either subject matters of any appeal, reference revision, which is chargeable to tax and has escaped assessment. In our view the reopening of the assessment has been carried on by the assessing officer to reassess the income that has been alleged to have been received outside India, which was not included while computing the taxable income. In such a scenario-'we held the reopening to be valid. This ground of appeal raised by the assessee stands dismissed. Revenue alleged to have been earned outside India which were not offered to tax by the assessee, as the same were attributable to activity outside India - Held that:- This view of the assessee cannot be accepted as the entire payment was received by the assessee for execution of the contract in India. We agree with the findings of the Ld. CIT(A) that the issue now stands settled with the decision in the case of Sedco Forex Intl. Inc. v. CIT [2007 (9) TMI 196 - UTTARAKHAND HIGH COURT] It is neither the case of the assessee that separate payments are being made for various services rendered by the assessee, nor is the case that separate parts of the contract are executed at different places, as it was in the case of Ishikawajma Harima Heavy Industries Ltd. v. DIT [2007]. We are therefore of the considered view that the ratio laid down by Hon'ble Supreme Court in Ishikawajma Harima Heavy Industries Ltd. (supra) cannot be applied to the facts of the present case before us. As we have held while deciding the appeal raised by the revenue that the entire receipts accruing to the assessee on behalf of the contract with ONGC shall be treated as receipts for the purpose of computing income under section 44BB of the Act, we dismiss this ground raised by the assessee. Issues Involved:1. Taxability of services under Section 44BB vs. Section 44DA and 115A.2. Validity of reassessment under Section 148.3. Taxation of income earned from outside India operations.4. Disallowance of material costs and other expenses.5. Applicability of interest under Section 234B.Detailed Analysis:Issue 1: Taxability of Services under Section 44BB vs. Section 44DA and 115A- Revenue's Appeal (A.Y. 2005-06): The CIT(A) held that the nature of services provided by the assessee were not in the nature of fees for technical services as defined in Section 9(1)(vii) of the Act and were taxable under Section 44BB, not Section 44DA or 115A. The Tribunal upheld this finding, stating that Section 44BB deals with income from services related to prospecting, extraction, or production of mineral oils, and applies to non-residents without a permanent establishment in India. The insertion of the proviso to Section 44BB(1) by the Finance Act, 2010, effective from 1st April 2011, was held to be prospective. The Tribunal referred to the Supreme Court's decision in ONGC Ltd. v. CIT, which clarified that payments for services connected with mineral oils are taxable under Section 44BB, not Section 44D or 44DA.- Assessee's Appeal (A.Y. 2005-06): The Tribunal dismissed the assessee's claim that income from outside India operations was not taxable under Section 44BB, citing the Uttarakhand High Court's decision in Sedco Forex Intl. Inc. v. CIT. The Tribunal found that the entire payment was for the execution of the contract in India, and thus taxable under Section 44BB.Issue 2: Validity of Reassessment under Section 148- Assessee's Appeal (A.Y. 2005-06): The Tribunal upheld the reopening of the assessment, stating that the AO had reason to believe that income had escaped assessment. The reassessment was deemed valid as it aimed to reassess income alleged to have been received outside India but not included in the taxable income.Issue 3: Taxation of Income Earned from Outside India Operations- Assessee's Appeal (A.Y. 2005-06): The Tribunal dismissed the assessee's claim that income earned from outside India operations was not taxable. It held that the entire payment received for the contract with ONGC was for services rendered in connection with the prospecting, extraction, or production of mineral oils and thus taxable under Section 44BB.Issue 4: Disallowance of Material Costs and Other Expenses- Revenue's Appeal (A.Y. 2008-09): The Tribunal dismissed the revenue's appeal against the deletion of disallowances by the CIT(A). The CIT(A) had deleted the disallowance of Rs. 15,31,71,991/- out of material costs and Rs. 72,24,55,059/- without examining the correctness of TDS made. The Tribunal upheld the CIT(A)'s decision, relying on the discussions and arguments considered for A.Y. 2005-06.Issue 5: Applicability of Interest under Section 234B- Revenue's Appeal (A.Y. 2008-09): The Tribunal upheld the CIT(A)'s decision that interest under Section 234B was not chargeable, referencing the Uttarakhand High Court's decision in Maersk (334 ITR 79).Conclusion:The Tribunal upheld the CIT(A)'s findings across all appeals, confirming that the income from services related to the prospecting, extraction, or production of mineral oils is taxable under Section 44BB. The reassessment under Section 148 was deemed valid, and the disallowances of material costs and other expenses were properly deleted by the CIT(A). Interest under Section 234B was not applicable. Consequently, all appeals filed by the assessee and the revenue for the respective assessment years were dismissed.