2012 (6) TMI 111 - AT - Income Tax

Tax Appeal Decision: Transfer Pricing, Royalty Taxability & Jurisdiction under Income-tax Act

The Tribunal partly allowed the appeal in a tax case involving issues of transfer pricing, taxability of receipts as royalty, and jurisdiction under ... Application of section 44D or section 44BB - revision u/s 263 - providing equipment and services in connection with prospecting and extraction or production of mineral oil. - Leasing of seismic vessel to to the CGG - CGG used the vessel for collecting seismic data for the ONGC Ltd. - held that:- In fact, nothing prevented the ld. Director of Income-tax to give a finding that the case did not fall u/s 44BB but fell u/s 44D as the relevant agreement was on record. Further, on the basis of ruling in the case of Wavefield Inseis ASA, In re (2009 (12) TMI 5 (AAR)), it can be said that two views are possible in the matter, as the view taken by the ld. AAR in similar circumstances is that the provisions contained in section 44BB are applicable. In such a situation also, the order cannot be said to be erroneous and prejudicial to the interest of revenue as following one permissible course of action rather than the other does not lead to an order which is erroneous and prejudicial to the interest of revenue. Accordingly, it is held that the ld. Director of Income-tax erred in setting aside the matter on this ground. Issues Involved:1. Failure to refer the valuation of international transactions to the Transfer Pricing Officer (TPO).2. Taxability of receipts as royalty under section 9(1)(vi) versus business income under section 44BB.3. Jurisdiction under section 263 of the Income-tax Act for revision of the assessment order.Detailed Analysis:Issue 1: Failure to Refer to TPOThe Director of Income-tax (DIT) found that the Assessing Officer (AO) failed to refer the valuation of international transactions exceeding Rs. 5 crore to the TPO as mandated by Instruction No. 3/2003 of the CBDT and the decision in Sony India (P.) Ltd. v. CBDT. The AO's failure to do so led to the assessment order being considered erroneous and prejudicial to the interest of revenue. However, subsequent to the DIT's direction, the TPO suggested an upward revision, which was later deleted by the Dispute Resolution Panel (DRP). Consequently, this ground became infructuous as the AO accepted the assessee's computation of arm's length price.Issue 2: Taxability of Receipts as RoyaltyThe AO accepted the assessee's claim that the receipts from leasing a vessel to CGG Marine SAS, France, used for collecting seismic data for ONGC Ltd., were taxable under section 44BB. The DIT, however, argued that the AO did not properly analyze whether the receipts should be taxed as royalty under section 9(1)(vi), which would invoke section 44D instead of section 44BB. The DIT found the AO's assessment lacked proper enquiry, rendering it erroneous and prejudicial to the interest of revenue.The assessee contended that section 44BB, which includes ships in the definition of 'plant,' should apply as it overrides other provisions from sections 28 to 41 and 43 to 43A. The assessee also argued that the AO's acceptance of section 44BB was a plausible view, consistent with previous assessments and supported by the principle of consistency.Issue 3: Jurisdiction Under Section 263The DIT invoked section 263, setting aside the assessment order for fresh examination on the grounds of inadequate enquiry and potential misapplication of tax provisions. The assessee argued that the DIT did not conclusively establish that the assessment order was prejudicial to the interest of revenue, merely suspecting it. The DIT should have provided a definite finding rather than directing the AO to re-examine the case.The Tribunal referenced the case of ITO v. D.G. Housing Projects Ltd., highlighting that an order is not erroneous unless the Commissioner records why it is erroneous. The Tribunal also considered the ruling in Wavefield Inseis ASA, where the AAR held that section 44BB applies to vessels hired for seismic data collection, supporting the assessee's position that two views were possible.Conclusion:The Tribunal concluded that the AO's failure to refer the matter to the TPO had been rectified, rendering the corresponding grounds infructuous. Regarding the taxability of receipts, the Tribunal found that the AO had conducted some enquiry, albeit insufficient. However, the DIT did not conclusively prove the assessment order was erroneous and prejudicial to the interest of revenue. The Tribunal held that since two views were possible, the DIT's direction to re-examine the case was unwarranted. Consequently, the Tribunal allowed the appeal in part, setting aside the DIT's order on the ground of taxability of receipts as royalty.Result:The appeal was partly allowed.