TaxTMI 
TaxTMI 
2012 (6) TMI 601
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....s could not have been taxed either under Section 115A or 44DA of the Act. 3. Without prejudice to Ground 1, the amount of Rs. 133,69,28,675/- received by the Appellant from rental of equipments is in any case taxable under Section 44BB of the Act. 4. The Ld. Assessing Officer has erred on facts and in law in including Rs. 7,23,59,963/- received by the Appellant as reimbursements (towards customs duty, insurance etc.) for determining the taxable income of the Appellant. 5. The Ld Assessing Officer has erred on facts and in law in levying interest under Section 234B and 234D of the Act upon the Appellant. 6. The Ld. Assessing Officer has erred on facts and in law in initiating penalty proceedings under Section 271B of the Act. The Appellant craves leave to add or amend the above grounds of appeal." 3. The assessee is a foreign company incorporated in the Hongkong, filed its return of income on 31.10.2007 reporting revenues chargeable to tax u/s. 44BB at Rs. 1,08,17,38,034/-. Assessee during the previous year received revenue from 59 contracts which were offered for taxation u/s. 44BB. Assessee company is engaged in the business of wire line logging, perforation and ....
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....profession." Provided that this sub-section shall not apply in a case where the provisions of section 41 or section 44D or section 115A or section 293A apply for the purposes of computing profits or gains or any other income referred to in those sections." 4.1 Referring to the above proviso to section 44BB(1) it was held that it clearly stipulates that this section does not apply in cases where section 115A or section 44D is applicable. For taxation of income which was taxable by virtue of special provisions for computing income by way of royalties etc. in the case of foreign companies u/s. 44D, Section 44DA was brought on the statute. DRP noted that provisions of section 44BB and 44DA have been amended w.e.f. 1st April, 2011. However, it held that these amendments are clarificatory in nature as is evident from the relevant para of Finance Bill 2010. 5. Against the above order the assessee is in appeal before us. 6. The submissions of the assessee are summarized as under:- "1. The Appellant is part of the Schlumberger Group engaged in business of oilfield since more than seventy years. The Appellant company is incorporated under the laws of Hong Kong and has been ope....
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....h depth in one axis. This is delivered to the E&P Companies. Analysis of these logs for various exploratory wells, geologists and engineers of the E&P Company can determine the geo-physical characteristics of formations in and around the exploratory well, which aids their decisions in their exploratory or extraction process. Logging while drilling (LWD)I Measurement while Drilling (MWD) In this activity, automated equipments (that include acoustic, density and neutron porosity tools) are deployed to 'log' or 'measure' the geophysical properties 'while drilling' (LWDI MWD). This enhances efficiency by measuring properties of a formation before drilling fluids invade deeply and ensures little or no wellbore alteration or formation invasion. LWD data are transmitted . t6 the surface by mud pulse telemetry and stored in memory for later retrieval on the surface. Cementing This activity constitutes specialized construction work unique to exploratory and extracting oil field activities. After drilling successive stages of an oil well, the drill pipe is removed from the hole and a steel casing or liner is run into the bottom hole. During casing, a large....
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....f. 01.04.1983 and the Appellant has been assessed under Section 44BB since A.Y. 1983 consistently till A Y 2006-07. For the Assessment Year 2007-08 the Appellant had also sought its assessment under Section 44BB. However by the impugned Assessment Order passed in pursuance of directions of the Dispute Resolution Panel ('DRP') it has been held that the activities undertaken by the Appellant are royalty or fee for technical services and thus assessable under Section 115A of the Act and not Section 44BB. Only the activities rental income from equipment leased to companies engaged in production / exploration of oil by themselves has been held as amenable to benefit of Section 44BB by authorities below. In coming to this conclusion, both the Ld. A.O. as well as the Ld. DRP has held that the agreements are not composite and have to be bifurcated. The Appellant is presently in appeal against the said order of Ld. AO. The relevant provisions are reproduced as under; Special provision for computing profits and gains in connection with the business of exploration, etc., of mineral oils. 44BB. (1) Notwithstanding anything to the contrary contained in sections 28 to 41 and sectio....
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....) of sub-section (1) of section 9; (c) "royalty" shall have the same meaning as in Explanation 2 to clause (vi) of sub-section (1) of section 9. Submissions on Grounds of Appeal Ground of Appeal No. 1 (income of the Appellant is taxable under Section 44BB). 3.1 The Appellant submits that it is undisputed position that the income of the Appellant is governed by Section 44BB(1). The only contention of the revenue is that by virtue of the proviso to the said section the case of the Appellant is out of the purview of section 44BB of the Act and is instead governed by Section 115A. 3.2 Further, it is an admitted fact that the Appellant operates in India through a Permanent Establishment (PE) which has earned the income under consideration. The Appellant contends that the exclusion under the proviso to section 44BB does not apply to the Appellant for the year under consideration in as much as Section 115A is not application for the Appellant earns income through a PE and section 44DA is effective in the proviso only from AY 2011-12. 3.3 Further, in the case of a group company of the Assessee, the Hon'ble ITAT has concluded the availability of Section 44BB to the act....
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.... It is expressly stated in the latter part of the Explanation that the fees for technical services will not include consideration "for any construction, assembly. mining or like project" undertaken by the assessee. If the case of the assessee falls within the main provision of Sub-section (1) of Section 44BB it is entitled to have its assessment made thereunder and 10% of the receipts win be subjected to income tax at the normal rates. If the case is covered by the proviso. thereto, the assessee will be taxed at the special rates under Section 115A. We have to necessarily find out whether the assessee is engaged in the business of providing services or facilities or supplying plant and machinery in the extraction or production of mineral oil. A perusal of the contracts in the present case indicates that all the incidents that are generally attached to the carrying on of a business are present. The contracts are for conducting wire line services for the explanatory wells of ONGC and OIL. The assessee has the requisite expertise. experience and technical know how in respect of conducting such services. It is useful to refer to the assessee's letter written to the ITO in the cours....
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.... course of activity in rendering such services to various persons engaged in the extraction of oil all over the world. The assessee having engaged itself continuously in the above activity, it must be stated to have engaged itself in such business. Its business is the provision of the facility or service of rendering wire line services and also the provision of personnel to operate wire logging equipment. There is nothing in the agreements to show that such rendering of the services has not been undertaken by the assessee as part of its business activity. The ITO has relied upon the fact that the assessee is rendering technical services and, therefore, the income represents fees for technical services. There is difficulty in accepting this view. The income can be earned by rendering the services continuously and such services may also include technical services of the type rendered by the assessee. That does not mean that the assessee's case is taken out from the main provision of Sub-section (1) of Section 44BB. The enquiry in cases of the present type, in our opinion, has to be whether the services or facilities are rendered or provided in such a manner as to constitute a bus....
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....oided tax under the provisions which existed before 1-6-1976 which was considered to be insufficient or ineffective, that the source rule was brought in the form of Clause (vi) and Clause (vii) of Sub-section (1) of Section 9. This will be clear if reference is made to the Circular (c) T the Board explaining the source rule. In the Circular No. 202, dated 5-7-1976 [105 ITR (Statutes) 25]. 3.4 Further, the Appellant is engaged in the business of providing services or facilities in connection with, or supplying plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of mineral oils and therefore entitled to benefit of Section 44BB as held in the following cases; - Dy. CIT v. Schlumberger Seaco Inc. [1994] 50 ITD 348 (ITAT-Cal). - Micoperi SPA Milano v. Deputy Commissioner of Income-tax, [2002] 82 ITD 369 (Tri. Mum) 11. In the present case, the assessee entered into two agreements with HHI and MDL for transportation, installation and hook-up of certain platforms at Bombay High offshore, The various other services rendered by the assessee are mentioned in detail in the respective agreements with HHI and MDL. The services rendered....
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.... thus overrides even s. 44BB. Though the learned CIT-Departmental Representative contended that s. 44BB is not applicable to the assessee's case if the assessee's case falls under s. 44D, but he did not however elaborate the contention and explain how the assessee's case fell under s. 44D. He however relied on art. XII(3)(a) and (d) of the treaty to contend that the amount received by the assessee under the contract represented consideration for the use of the Geolog software which was a copyright and also represented consideration for the rendering of technical or consultancy services (provision of personnel) which are ancillary and subsidiary to the application of the software. The contention, with respect, seems to overlook the basic principle that there can be no taxation under the double tax treaty. The treaty can come to the aid of the assessee if it is more beneficial or advantageous compared to the domestic law. However, the Revenue has to first demonstrate that the case of the non-resident assessee falls under the domestic law and it is for the assessee to take advantage of any beneficial or advantageous provision in the DTAA. In the present case, no arguments ....
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....ng of Section 44DA(1) and 115A(1)(b) it is clear that the provisions of Section 44DA(1) are applicable in the case of a non-resident assessee who carries on business in India through a permanent establishment, or performs professional services from a fixed place of profession, and fees for technical services. paid under: the contract is effectively connected with such permanent establishment or fixed place of profession in India. In section 115A(1) (b) the Finance Act, 2003 with effect from 1.4.2004 substituted words "a non-resident (not being a company) or a foreign company includes any income by way of royalty or fees for technical services other than income referred to in sub-section (1) of section 44DA" for words "a foreign company, includes any income by way of royalty or fees for technical services". Therefore, w.e.f. 1.4.2004 fee for technical services which is not connected with permanent establishment of business or fixed place of profession in India, will be taxable u/s 115A(1)(b) of the Act. As observed earlier section 44DA was inserted in proviso to section 44BB(1) by the Finance Act, 2010 with effect from 1.4.2011 and simultaneously inserted second proviso to sectio....
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....or to 01.04.2011 then the income will be assessed under Section 44BB if the income is effectively connected with the permanent establishment. Further, Section 115A applies only to case of income in the nature of 'fee for technical services' if no Permanent Establishment is involved. 3.8 This is also supported by the decision of jurisdictional High Court in the case of Appellant itself in Schlumberger Asia Services Ltd. v ACIT Writ Petition No 2510 of 2010 wherein it has been held that the amendment by Finance Act, 2010, excluding the application of Section 44BB in cases where Section 44DA applies, is prospective and applies from assessment year 2011-12. In Schlumberger Asia Services (supra) the Hon'ble High Court has inter alia held as under; As stated earlier, the combined effect of the provisions of Section 44BB, 44DA and 115A of the Act will not have a bearing to the cases in hand in as much as the Explanatory Note to the Finance Bill, 2010 clearly indicates that the amendments proposed in Section 44BB and 44DA of the Act would take effect from 1st April, 2011 and would apply in relation to the assessment year 2011-2012 and subsequent years. The amendment is pr....
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....er the Act does not include "reimbursement of expenses". There is no element of profit and gains in the reimbursements received by the Assessee, which has incurred expenses for and on behalf of other companies. Contractually the liability to incur these expenses was with those companies. Therefore the amounts towards reimbursement cannot be considered as income of the Assessee. 4.1 The Ld. Assessing Officer has also erred on facts and in law in not following the decision of the jurisdictional High Court of Uttarakhand in Assessee's own cases DIT v. Schlumberger Asia Services Limited [2009] 317 ITR 156 and CIT v. Schlumberger Asia Services Limited [ITA No. 58 of 2006, Order dated 26-10-2007], which have held that such reimbursement does not constitute income. These decisions have also been followed by the Hon'ble Tribunal in Assessee's own case ACIT v. Schlumberger Asia Services Limited, ITA No. 4180(Del)/2006 Order dated 13-04-2007. 4.2 In Schlumberger Asia Services Limited [2009] 317 ITR 156 it has been inter alia held as under; 7. Learned Counsel for the respondent submitted that for import of the machinery or equipment; liability to pay the custom duty was o....
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.... v. Madras Fertilizers Ltd, [1984] 149 ITR 703 (Mad) (f) M.M. Ratnam v. Income-tax Officer, [1997] 62 ITD 21 (ITAT-MUM)." 6. The contention of the Revenue are summarized as under "1. The decisions rendered in CGG Veritas Services SA v Addl Director of Income Tax (Int Tax)(ITAT, Delhi), ITA 4653 of 2010 (Del ITAT) dt.25.01.2012, has a binding precedent on various matters relating to taxability of FTS in general. However, it is not a binding precedent as regards the taxability of an assessee having a PE, since it was rendered specifically for an assessee which does not have a PE. Any reference to taxability of an assessee having PE is only obiter. 2. BJ Services Company Middle East ltd. & Others v. DDIT(Int Tax) (Utt He) & DClT v. Chlumberger Seaco Inc. (ITAT, Kolkata) dt 14 .02.1994 cited by the assessee, are not binding precedents for the present case. 3. The legislative history of the Sections 9, 115A, 44D, 44BB and 44DA shows that FTS, whether or not PE is present, and regardless of the fact the assessee is rendering services in connection with prospecting/exploration/extraction of mineral oil, are not taxable in u/s 44BB. This is specifically supported by the bind....
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.... in the current assessment year, instead of perpetuating a mistake. The principle of consistency does not operate against law. 13. The assessee's claim that its activities, being similar to that of another assessee in the decision rendered by ITAT Kolkata in DClT v Schlumberger Seaco 50 ITD 348(1994), A.O. should have followed that decision is without basis, since the reasoning in that decision has not found favour with in subsequent decisions of the Delhi High court and ITAT, Delhi. 14. The CBDT instruction no 1862 dt 22.10.1990 is of no help to the assessee. The Instruction cannot be applied to take a case out of the ambit of S. 115A and place it in S.44BB. 15. Sec 44BB is not a specific provision. On the contrary, Sec 44DA, which is a specific provision, and is not overruled by S.44BB. 16. Interest u/s 234D is mandatorily leviable. 17. Appeal does not lie against mere initiation of penalty proceedings u/s 271B " 7. We have heard the rival contentions in light of the material produced and precedent relied upon. We find that section 44BB was introduced in the Income Tax Act, 1961 vide Finance Act, 1987 w.e.f. 01.04.1983 and the assessee has been assessed unde....
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....action or production of mineral oils and therefore entitled to benefit of Section 44BB as held in several cases laws. It has further been the contention of the assessee that the activities of the assessee are not affected by the proviso to section 44BB. This is on account of the following reasons; (a) Section 42 is applicable to those assesses who are themselves engaged in prospecting/production of mineral oil and hence not applicable to Appellant being a service provider. (b) Section 44D is not applicable since the contracts entered into by Appellant are after 1st April 2003 [Please refer Page 6A to 6D] (c) Section 293A is not applicable since no notification has been issued in this regard. (d) Section 115A is not applicable since the Appellant is carrying on its activities through a Permanent Establishment in India. (e) Even section 44DA is not applicable for the year under Appeal as the same is applicable only from AY 2011-12. We find ourselves in agreement with the assessee's contention as above. 7.3 It has further been the contention of the ld. counsel of the assessee that the appeal is covered in the favor of the assessee by the decision of CGG Verita....
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.... Establishment is involved. 7.6 Further, the Hon'ble Jurisdictional High Court in the case of the assessee itself in Schlumberger Asia Services Ltd. v ACIT [Writ Petition No 2510 of 2010] wherein it has been held that the amendment by Finance Act, 2010, excluding the application of Section 44BB in cases where Section 44DA applies, is prospective and applies from assessment year 2011-12. Thus, in as much as in the present appeal the assessment year is 2007-08 is involved and admittedly the income earned by the assessee is effectively connected with the permanent establishment, even if the income is indeed in the nature of 'fee for technical services', still assessment cannot be made under Section 115A of the Act. Further, the Assessment Year being 2007-08, Section 44DA is also not applicable. For this reason alone, the impugned Assessment Order which has assessed the income under Section 115A of the Act is liable to be set aside. 7.7 It has further been noted that the A.O. has included a sum of Rs. 7,23,59,963/- received by the Assessee as reimbursements of certain expenses being customs duties paid by the Assessee on behalf of its clients, equipments lost in hole ....
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.... principle of law that where it is the duty of the non-resident foreign company, who engaged the individual assessee, who is non resident foreign company, to deduct the tax at source, the individual assessee cannot be made liable to pay the interest under Section 234B for default on the part of the company who engaged or employed such individual. 7.10 We find that it is the revenue's contention that the decision rendered in CGG Veritas Services SA (supra) is not applicable. As it has been contended that the said decision is binding precedent on various matters relating to taxability of an assessee having a PE, since it was rendered specifically for an assessee which does not have a PE. Any reference to taxability of an assessee having PE is only obiter. We do not agree with these submission of the revenue. We find that the exposition of the tribunal in that case are very much applicable in the present case and it cannot be said to be obiter dicta. 7.11 It has further been the contention of the revenue that the amendments vide Finance Act 2010, inserting mutually exclusionary clauses in s. 44BB and s.44DA are clarificatory, and hence are retrospective in operation, w.e.f. ....