2015 (5) TMI 582 - AT - Income Tax

Tribunal confirms tax treatment for non-resident company under Income Tax Act

The Tribunal upheld the CIT(A)'s decision to tax the non-resident company's income under Section 44BB rather than Section 44DA of the Income Tax Act, ... Applicability of provisions of section 44BB - interpretation of the legislative intent behind the scheme of taxation envisaged in 9(1)(vii) rw 44DA and 44BB - whether the provisions of Section 44BB will apply to the facts or whether Section 44DA will be applicable on the facts of this case? - whether hire of equipment and personnel was not in the nature of FTS and equipment Royalty squarely covered u/s 9(1)(vii)? - Held that:- The CIT(A) following the decision of a coordinate bench in the case of CGG Veritas (2012 (4) TMI 280 - ITAT DELHI ) and noting that the assessee has a PE in India and that the case pertains to assessment year prior to 2011-12), correctly upheld the contention of the assessee, and has, accordingly, held that the income is liable to tax@ 10% under section 44 BB of the Act - Decided in favour of assessee. Interest under section 234B - CIT(A) deleted interest levy - Held that:- The issue is covered, in favour of the assessee, by a full bench decision of DIT Vs Maersk Co Ltd [2011 (4) TMI 886 - Uttarkhand High Court ] and the CIT(A) has merely followed the said decision, but yet the Assessing Officer is aggrieved that, as this decision has been challenged in appeal before Hon’ble Supreme Court, the CIT(A) ought not to have followed the same. Such a plea can only be stated and rejected. The mere fact that a binding judicial precedent has been challenged before a higher forum does not dilute, curtail or otherwise affect its binding nature. Once Hon’ble jurisdictional High Court has expressed a considered view on an issue, all the lower authorities in the judicial hierarchy, including this Tribunal as indeed the CIT(A), have to loyally follow this. There is no scope for deviating from this solemn duty. On this aspect of the matter, thus, the stand of the CIT(A) cannot be faulted - Decided in favour of assessee. Inclusion of service tax in the gross receipts for determining income under section 44BB - Held that:- Learned consel’s defence consists only of the decision of a coordinate bench of this Tribunal, in the case of Sedco Forex International Drilling Inc Vs ADIT (2012 (7) TMI 250 - ITAT, DELHI) but then in this case, the earlier binding precedent in the case of DDIT Vs Technic Offshore Contracting BV (2009 (1) TMI 533 - ITAT DELHI) was not brought to their notice. Such a decision, in view of the Hon’ble Andhra Pradesh High Court Full Bench decision in the case of CIT Vs BR Construction (1992 (6) TMI 13 - ANDHRA PRADESH High Court ), is per incurium and not a binding precedent - Decided against assessee. Issues Involved:1. Applicability of Section 44BB vs. Section 44DA of the Income Tax Act, 1961.2. Levy of interest under Section 234B.Detailed Analysis:1. Applicability of Section 44BB vs. Section 44DA:The primary issue in the appeal was whether the income of the assessee, a non-resident company, should be taxed under the presumptive provisions of Section 44BB or under the normal provisions of Section 44DA of the Income Tax Act, 1961. The assessee earned revenues from contracts related to the hiring of equipment and rendering of services to entities engaged in oil exploration work. The income was offered to tax on a presumptive basis at 10% under Section 44BB. The Assessing Officer (AO) contended that the income should be taxed as normal business income under Section 44DA, estimated at 25% of gross receipts due to the absence of books of accounts.The CIT(A) upheld the assessee's contention, relying on a coordinate bench decision in the case of CGG Veritas, and noted that the case pertained to an assessment year prior to 2011-12. The Tribunal found that the issue was covered by its order in the case of SDIT vs. Baker Hughes Singapore Pte Ltd, where it was decided in favor of the assessee. The Tribunal observed that the income earned was from hiring equipment and rendering services to entities engaged in oil exploration, and thus, the provisions of Section 44BB were applicable.The Tribunal rejected the AO's argument that the amendments to Section 44BB and 44DA, effective from the assessment year 2011-12, should be treated as clarificatory and applicable retrospectively. The Tribunal emphasized that judicial authorities must interpret the law as it exists and not be swayed by policy considerations like base erosion and profit shifting. It concluded that the CIT(A)'s decision to tax the income under Section 44BB was correct and declined to interfere.2. Levy of Interest under Section 234B:The second issue was whether the CIT(A) was justified in holding that interest under Section 234B could not be levied. The AO argued that the CIT(A) should not have followed the decision of the Hon'ble Uttarakhand High Court in the case of DIT vs. Maersk Co Ltd, as it was challenged before the Hon'ble Supreme Court. The Tribunal rejected this plea, stating that the binding judicial precedent must be followed until overturned by a higher court. The Tribunal upheld the CIT(A)'s decision that interest under Section 234B was not chargeable.Other Observations:The Tribunal noted that the CIT(A) had followed the decision of the coordinate bench in the case of CGG Veritas and that the assessee had a PE in India. It also observed that the AO's reliance on the decision of PGS Geophysical AS vs. ADIT and Union of India vs. Gosalia Shipping Pvt Ltd was misplaced, as these decisions did not directly apply to the facts of the case.Conclusion:The Tribunal dismissed the appeal filed by the AO and upheld the CIT(A)'s decision to tax the income under Section 44BB. It also dismissed the appeal filed by the assessee regarding the inclusion of service tax in gross receipts under Section 44BB and the cross-objection filed by the assessee. The Tribunal's decision was pronounced in the open court on April 20, 2015.