2016 (5) TMI 258 - AT - Income Tax

Tribunal Rules Professional Charges Not Taxable

The Tribunal upheld the CIT(A)'s decision that the professional charges received were not fees for technical services but fell under section 44BB. The ... Presumptive taxation under section 44BB - fee for technical services as per section 9(1)(vii) / taxation under section 115A - temporal application of section 44DA and section 44BB (pre-2011 assessment years) - taxability of mobilization/demobilization receipts as part of contract receipts - obligation of payer under section 195 and assessee-in-default principle - chargeability to interest under section 234B for non-residents where tax is deductible at sourcePresumptive taxation under section 44BB - fee for technical services as per section 9(1)(vii) / taxation under section 115A - temporal application of section 44DA and section 44BB (pre-2011 assessment years) - Whether receipts from provision of drilling rigs and related services to Cairn are taxable under the presumptive scheme of section 44BB or as fees for technical services under section 9(1)(vii)/section 115A. - HELD THAT: - Following the coordinate-bench decision in CGG Veritas Services (reproduced and applied), the Tribunal held that for assessment years prior to the insertion of proviso/section 44DA (i.e., pre-2011-12) consideration received for services and facilities in connection with prospecting for or extraction or production of mineral oil fall within the ambit of section 44BB and not within section 44DA/section 115A. The Tribunal reasoned that section 44DA and the relevant proviso excluding such receipts from section 44BB were introduced with effect from assessment year 2011-12; therefore for AY 2008-09 the assessee's receipts for hiring rigs and connected drilling services are taxable under the presumptive provisions of section 44BB and not as fees for technical services under section 9(1)(vii)/115A. The Tribunal accordingly upheld the CIT(A)'s findings and dismissed Revenue's grounds 1-5. [Paras 6]Receipts from provision of drilling rigs and related services for AY 2008-09 are taxable under section 44BB; not chargeable as fees for technical services under section 9(1)(vii)/section 115A.Taxability of mobilization/demobilization receipts as part of contract receipts - presumptive taxation under section 44BB - Whether mobilization charges received by the assessee are wholly taxable under section 44BB or only the portion attributable to distance travelled within Indian territorial waters is taxable. - HELD THAT: - Relying on the coordinate-bench ruling in WesternGeco (and following the Uttarakhand High Court precedents such as Sedco Forex as applied by the Tribunal), the Tribunal held that mobilization is an integral stage payment for execution of the contract in India and not a separate transport or reimbursable item outside the contract activity. Mobilization/demobilization receipts form part of the receipts from the business carried out in India and, under section 44BB, the entire mobilization consideration paid for execution of the Indian contract is taxable; the assessee's contention for apportionment to distance travelled outside India was rejected. The Tribunal therefore sustained the CIT(A)'s treatment and dismissed the assessee's ground on apportionment. [Paras 11]Entire mobilization charges received for execution of the Indian contract are taxable under section 44BB; apportionment based on distance travelled outside India is not accepted.Chargeability to interest under section 234B for non-residents where tax is deductible at source - obligation of payer under section 195 and assessee-in-default principle - Whether interest under section 234B is leviable on the non-resident assessee whose receipts were liable to TDS by the payer. - HELD THAT: - Applying the reasoning of the Delhi High Court in GE Packaged Power and distinguishing Alcatel Lucent as fact-specific, the Tribunal held that for the period in question the primary statutory obligation to deduct tax at source was on the payer; failure to deduct would make the payer an assessee-in-default under section 201. There was no evidence that the assessee procured or furnished lower/no-withholding certificates or otherwise played a role in the payer's non-deduction. In those circumstances the assessee could not be saddled with interest under section 234B for non-payment of advance tax. The Tribunal therefore upheld the deletion of interest by the CIT(A). [Paras 7]No interest under section 234B is leviable on the assessee for AY 2008-09 where tax deduction was the payer's obligation and there is no proof of the assessee's role in non-deduction.Final Conclusion: For assessment year 2008-09 the Tribunal dismissed the Revenue appeal and partly allowed the assessee's cross-objection: (a) receipts from provision of drilling rigs and related services (including mobilization charges) are taxable under the presumptive regime of section 44BB and not as fees for technical services under section 9(1)(vii)/section 115A; (b) the entire mobilization consideration formed part of taxable receipts under section 44BB; and (c) interest under section 234B was not leviable on the assessee as there was no evidence of the assessee causing non-deduction by the payer. Issues Involved:1. Whether the professional charges received by the assessee were in the nature of fees for technical services under section 9(1)(vii) of the Income Tax Act.2. Whether the income of the assessee was taxable under section 44DA read with section 115A of the Income Tax Act.3. Whether the income of the assessee was taxable under the presumptive provisions of section 44BB of the Income Tax Act.4. Whether the proviso to section 44DA brought by the Finance Act, 2011, was clarificatory in nature and applicable retrospectively.5. Whether the interest charged under section 234B was correctly deleted by relying on the Delhi High Court's decision in Jacobs Civil Incorporation/Mitsubishi Corporation.6. General grounds for adding, amending, modifying, or altering any grounds of appeal.Detailed Analysis:1. Nature of Professional Charges:The CIT(A) held that the professional charges received by the assessee were not in the nature of fees for technical services as defined under section 9(1)(vii) of the Income Tax Act. The Tribunal upheld this finding, noting that the services provided were in connection with the extraction or production of mineral oil, and thus fell under section 44BB of the Act.2. Taxability under Section 44DA read with Section 115A:The CIT(A) determined that the income of the assessee was not taxable under section 44DA read with section 115A of the Act. The Tribunal agreed, stating that for assessment years 2004-05 to 2010-11, fees for technical services related to the extraction or production of mineral oil were assessable under section 44BB(1) of the Act, not under section 44DA or section 115A.3. Taxability under Section 44BB:The Tribunal upheld the CIT(A)'s decision that the income from providing drilling rigs and related services to 'Cairn' in India was taxable under section 44BB of the Act. This section applies to services and facilities in connection with, or supplying plant and machinery on hire for, the extraction or production of mineral oil.4. Clarificatory Proviso to Section 44DA:The Tribunal noted that the proviso to section 44DA, introduced by the Finance Act, 2011, was only applicable from assessment year 2011-12 onwards. Therefore, it did not affect the taxability of income for the assessment year 2008-09.5. Deletion of Interest under Section 234B:The CIT(A) deleted the interest charged under section 234B, relying on the Delhi High Court's decision in Jacobs Civil Incorporation/Mitsubishi Corporation. The Tribunal upheld this decision, citing the Delhi High Court's ruling in GE Packaged Power Inc., which clarified that the primary responsibility for deducting tax at source lies with the payer, not the non-resident payee. The Tribunal found no evidence that the assessee had played any role in the non-deduction of tax by the payer.6. General Grounds:The Tribunal did not find it necessary to adjudicate on the general grounds raised by the appellant.Cross Objection by the Assessee:The assessee's cross objections were partly allowed. The Tribunal held that the entire mobilization charges were taxable under section 44BB, and not apportioned based on the distance traveled within and outside Indian territorial waters. The Tribunal also upheld the CIT(A)'s decision on the non-applicability of interest under section 234B for non-residents whose income is subject to tax deduction at source.Conclusion:The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's cross objections, maintaining the taxability of the income under section 44BB and upholding the deletion of interest under section 234B.