TaxTMI 
TaxTMI 
2014 (7) TMI 601
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....cated in this appeal would follow on similar issues in other appeals. 2. The assessee has filed return of income declaring total income of Rs. 3,31,25,447/-. Assessing officer noticed that assessee had filed its return of income u/s 44BB(1) on the ground that it was engaged in the providing of services and facilities in connection with, or supply plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of mineral oils. Assessing officer observed that the address of the company, as given in the return of income, was "852, 5th Floor, Chakala, Andheri-Ghatkopar Link Road, Andheri (East), Mumbai". He further observed that assessee had, in its return, admitted that there was a permanent establishment ("PE" in short) in India. Assessing officer in para 4 has given details of various contracts undertaken by the assessee to be divided into three parts i.e. supply, rental and services. The assessing officer required the assessee to file reply to the following queries: (i) What is the basis of claim the benefits of Sec. 44BB. (ii) Furnish the copies of all contracts ....
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....rview of Sec. 44BB. It is evident that for services the legislature has used the work 'in connection with', which is of wider connotation. Whereas for equ9ipment rental the equipment either be used for prospecting or exploration or production of mineral oil. If equipment is used for any other service which is in connection with the above the benefit of Sec. 44BB will not be applicable in those cases. In view of this the payment received by the assessee on rental of tools is not covered u/s 44BB as the same are either fishing tools or linear hanger tools etc., which are used not for prospecting, exploration and production of mineral oil but for the other services." 6. The assessing officer examined the provisions of sec. 9(1)(vi) and pointed out that the payments received by the assessee were covered under the exclusion clause of Explanation (iv-a) of sec. 9(1)(vi). He pointed out that the assessee's receipts were taxable u/s 44DA as the assessee was rendering services through its PE. Since the assessee had not given any details of expenses, the revenue received by it from rendering of various services and rental receipts was to be taxed @ 25% of the total receipts. 7.....
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....s about the cost of material purchased, the profit of the assessee was estimated at 25% of the gross receipts which amounted to Rs. 2,72,04,168/-. 11. Being aggrieved with the draft assessment order, the assessee filed objections before the ld. DRP, which was disposed of vide order dated 28-9-2010, upholding the AO's action. 12. The assessing officer passed the assessment order consequent to the directions of DRP on 22-10-2010 against which assessee is in appeal before us and has taken following grounds of appeal: "Based upon the facts of the case, the assessee respectfully submits the following grounds which are without prejudice to and independent of each other: Addition qua breakup of revenue against consolidated contract into equipment rental and services 1. That the assessing officer erred on facts and in law in holding that the provision of equipment, personnel, and supply of consumables under consolidated contracts were independent of each other; 2. That the assessing officer erred on facts and in law in holding that the contractual revenues were to be bifurcated into 'equipment rental', 'service ch....
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....ying a presumptive profit rate of 25 per cent on gross revenues in this regard, as opposed to section 44BB of the Act. Addition qua income from offshore sales 10. That the assessing officer erred on facts and in law holding that the revenue on account of offshore sales was Rs. 107,513,715 as against Rs. 1,92,11,715 as reported by the assessee in its return of income. 11. That the assessing officer erred on facts and in law holding that income arising from offshore sales concluded entirely outside India was to be assessed to tax at a slim of Rs. 26,878,428/- applying a presumptive profit rate of 25 per cent on gross revenues of Rs. 107,513,715 in this regard, as opposed to the revenues being exempt from taxation in India. Levy of interest 12. That the assessing officer erred on facts and in law in levying interest under section 234B of the Act when no such levy of interest had been mentioned in the assessment order. 13. That the assessing officer has erred on facts and in law in levying interest under section 234B especially when there was no liability on the assessee to pay advance tax under section 209( 1)( d) of the Income-tax Act, 1961. 13. At the time of hearing, ld. Cou....
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.... for deciding whether sec. 44DA is prospective or retrospective in nature. He submitted that one should not go merely by date of insertion of section but the object with which the section has been incorporated. 21. Ld. DR has filed detailed written submissions which are placed on record. The same are reproduced hereunder: Subject: Written submissions on the issue regarding applicability of sec 44DA in the case of ( ITA No 5283/10/0el) AY 2007-08 and other cases The important issue involved in the appeal is whether amendments made in section 440A and in proviso to section 44BB(1) by the Finance Act, 2010 are retrospective or not. The department's view is that these are retrospective. In this connection it will be useful to see the background of the relevant provisions. 2. Section 44D and 115A were inserted wef 1-6-1976 by the Finance Act, 1976. The heading of section 44D is "Special provisions for computing income by way of royalties, etc., in the case of foreign companies". This section provided gross basis of taxation of royalty....
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....o clear from the proviso to section 44BB(1) which excludes the cases falling u/s. 44D, 115A, etc. The exceptions provided in the aforesaid proviso clearly shows that the legislature never intended to tax FTS u/s 44BB(1) but u/s. 44D or 115A or 44DA as the case may be. It is important to note that when section 44D was inserted there was no section 44BB which is a later insertion. This further shows that FTS was always taxable under the special provisions viz. u/s. 44D etc. 8. In some of the decisions [e.g. Geofizyka 320 ITR 268(AAR)] distinction has been drawn between section 44D and 44DA on the ground that while section 44D contains non obstante clause that provisions of section 28 to 44C would not apply, section 44DA does not contain such non obstante clause. On this basis it has been held that while section 44D will have overriding effect over section 44BB, section 44DA shall not have such overriding effect. In my humble opinion, this distinction is not correct. The non obstante clause in section 44D is there as under this section the income is to be computed on gross basis and hence no deduction is to be allowed u/s 28 to 4....
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....ral oils is computed at ten per cent. of the aggregate of the amounts paid. Section 44DA provides the procedure for computing income of a non-resident/ including a foreign company/ by way of royalty or fee for technical services/ in case the right/ property or contract giving rise to such income are effectively connected with the permanent establishment of the said non-resident. This income is computed as per the books of account maintained by the assessee. Section 115A provides the rate of taxation in respect of income of a non- resident/ including a foreign company/ in the nature of royalty or fee for technical services/ other than the income referred to in section 44DA i.e., income in the nature of royalty and fee for technical services which is not connected with the permanent establishment of the non-resident. Combined effect of the provisions of sections 44BB, 44DA and 115A is that if the income of a non-resident is in the nature of fee for technical services, it shall be taxable under the provisions of either section 44DA or section 115A irrespective of the business to which it relates. Section 44BB applies only in a case where consideration is for services and other facil....
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....ions such retrospective operations has to be inferred by way of implication. (a) CIT v. Gold Coin Health Foods [304 ITR 308 (SC} (Larger Bench)]: In this case the issue involved was whether amendment made in Explanation 4 to section 271(1)(c) by the Finance Act, 2002 was retrospective or not. In this amendment the effective date mentioned in the Finance Act was 1-4-2003. Reversing the decision of the two judges bench, the Supreme Court held that even if the effective date was 1-4-2003, the amendment shall have retrospective operation as the same was clarificatory in nature and had made the implicit provisions explicit. The Hon'ble Supreme Court observed "As noted by this court in CIT v. Podar Cement P. Ltd. [1997] 5 SCC 482 the circumstances under which the amendment was brought in existence and the consequences of the amendment will have to be taken care of while deciding the issue as to whether the amendment was clarificatory or substantive in nature and, whether it will have retrospective effect or it was not so. The court referred to the following observation of the Supreme Court in the case of Zile Singh ....
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....ts may be called upon to construe the provisions and answer the question whether the Legislature had sufficiently expressed that intention giving the statute retrospectivity. Four factors are suggested as relevant: (i) general scope and purview of the statute; (ii) the remedy sought to be applied; (iii) the former state of the law; and (iv) what it was the Legislature contemplated. The rule against retrospectivity does not extend to protect from the effect of a repeal, a privilege which did not amount to accrued right. " The above being the position, the inevitable conclusion is that Explanation 4 to section 271(l)(c) is clarificatory and not substantive. The view expressed to the contrary in Virtual's case [2007] 9 SCC 665 is not correct. 1/ (b) K.Govindan & Sons v. CIT 247 ITR 192 (SC): In this case the issue was whether amendment made in section 139(8) by the Taxation Laws (Amendment) Act, 1984 was retrospective as the effective date mentioned therein was 1-4-1985. The Hon'ble Supreme Court held as under: "The view taken by us that a first or initial assessment under section 147 of the Act is a "....
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....section and is required to be read into the section to give the section a reasonable interpretation, requires to be treated as retrospective in operation, so that a reasonable interpretation can be given to the section as a whole. " (e) Sedco Forex v. CIT 279 ITR 310 (SC): In this case the issue involved was whether the amendment made in Explanation to section 9(1)(ii) by the Finance Act, 1999 wef 1-4-2000, had retrospective operation or not. The Court did not accept the department's plea that it had retrospective operation. However, while deciding the issue the Court referred to Reliance Jute and Industries Ltd. v. CIT [1979] 120 ITR 921 (SC) wherein the following observations were made: "An Explanation to a statutory provision may fulfil the purpose of clearing up an ambiguity in the main provision or an Explanation can add to and widen the scope of the main section. If it is in its nature clarificatory then the Explanation must be read into the main provision with effect from the time that the main provision came into force. But if it changes the law it is not presumed to be retrospective irrespective of th....
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....t of Sec. 148 and, therefore, the said decision is not applicable, ld. Counsel submitted that Hon'ble Uttarakhand High Court considered the merits also in the case of B.J. services (supra) and held that the amendment to the proviso to section 44BB was prospective in nature. In this regard ld. Counsel referred to reasons recorded for reopening of assessment in the case of B.J. Services (supra) and pointed out that one of the reasons recorded for reopening was as under: "That in view of the Explanatory Note to the Finance Bill, 2010, indicating that the combined effect of the provisions of sections 44BB, 44DA and 115A of the Act is that if the income of a non-resident is in the nature of a fee for technical services, in that event, it would be taxable under the provisions of section 44DA or under section 115A and that section 44BB would only apply in a case where the consideration is for the services and other facilities relating to exploration activity which was not in the nature of technical services." 24. Ld. Counsel further referred to page 187 of the said decision and pointed out that Hon'ble High....
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....ovides that income by way of fees for technical services payable by a Government or a person shall be deemed to accrue or arise in India. Expln. 2 provides that "fees for technical services" means any consideration for the rendering of any managerial, technical or consultancy services, including the provision of services of technical or other personnel but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "salaries". 43. Sec. 115A(1)(b)(B) of the Act provides that where the total income of a foreign company includes any income by way of royalty or fees for technical services, the amount of income-tax calculated on the income by way of fees for technical services, would be at the rate of thirty percent if such fees is received in pursuance of an agreement made on or before 31st May, 1997 and 20 per cent where such fees for technical services are received in pursuance of an agreement made after 31st May, 1997. 44. Under the existing provisions contained ....
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....4DA or s. 115A r/w Expln. 2 to s. 9(1)(vii) irrespective of the business to which it relates and that s. 44BB would apply only in a case where consideration was for services and other facilities relating to exploration activity which are not in the nature of technical services. 49. In spite of the insertion of s. 44DA in the Act, a grey area remained regarding the scope of s. 44BB and s. 44DA, namely, whether the fee for technical services relating to the exploration sector would be covered under s. 44BB of the Act. In order to remove the grey area, s. 44DA and 44BB was amended w.e.f. 1st April, 2011 so as to exclude the applicability of s. 44BB to the income which is covered under s. 44DA. The aforesaid was provided in the Explanatory Note to the Finance Bill, 2010, which was ultimately amended in the relevant ss. 44BB and 44DA w.e.f. 1st April, 2011. 50. In the light of the aforesaid, the contention of the Revenue is, that the services contemplated under s. 44BB are services other than those coming within the purview of Expln. 2 to s. 9(1)(vii) of the Act. The services extend....
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....ct, whereas section 44DA is residual section. 26. Ld. Counsel pointed out that no contrary intention has been given in the provisions of section 44BB as the specific date viz. 1-4-2011 has been mentioned. 27. Ld. Counsel also relied on following decisions: Schlumberger Asia Services Ltd. v. ADIT 6063/2010; Western Geo International Ltd. v. Addl. CIT 5977/Del/2010. PGS Exploration Norvey AS v. DIT 4056/Del/2011. 28. Ld. Counsel further submitted that now this issue has also been considered by Hon'ble Delhi High Court in the case of DIT v. OHM Ltd. as under: "11. We do not think that there is any error in the view taken by AAR. Basically the rule that the specific provision excludes the general provision has been applied. Section 44BB is a special provision for computing the profits and gains of a non-resident in connection with the business of providing services or facilities in connection with, or supplying plant and machinery on hire, used or to be used, in th....
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....t would reduce section 44BB to a useless lumber or dead letter and such a result would be opposed to the very essence of the rule of harmonious construction. In South India Corporation (P) Ltd. v. Secretary, Board of Revenue Trivandrum, AIR 1964 SC 207 it was held that a familiar approach in such cases is to find out which of the two apparently conflicting provisions is more general and which is more specific and to construe the more general one as to exclude the more specific. 12. The second proviso to sub-section (1) of Section 44DA inserted by the Finance Act, 2010 w. e. f. 01.04.2011 makes the position clear. Simultaneously a reference to Section 44DA was inserted in the proviso to sub-section (1) of section 44BB. It should be remembered that section 44DA also requires that the non-resident or the foreign company should carry on business in India through a permanent establishment situated therein and the right, property or contract in respect of which the royalty or fees for technical services is paid should be effectively connected with the permanent establishment. Such a requirement has not been spelt out in Section 44BB; moreover, a flat rate of 10% of the revenues received....
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....not, therefore, see how these amendments can assist the Revenue's contention in the present case, put forward by the learned Senior Standing Counsel. We, therefore, agree with the AAR that in the present case the profits shall be computed in accordance with the provisions of section 44BB of the Act and not section 44DA. 13. In the result the writ petition fails and is dismissed with no order as to costs. 29. Ld. Counsel further referred to the order of the ITAT Delhi Bench 'B' dated 25-1-2012 in the case of M/s CGG Veritas Services SA v. Addl. DIT rendered in ITA no. 4653/Del/2010 ( pages 127 to 202 of the PB ) and referred to page 185 of the PB wherein the ITAT has examined the scheme of the Act in this regard, as under: "43. Now next question arises as to whether the consideration received for fee for technical services rendered by the assessee is assessable u/s 44BB(1) of the Act or u/s 115A of the act? The legislature has employed word 'services' in section 44BB (1) of the Act. The word 'services' will include both technical and non technical services. Proviso to section 44BB(....
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....s the fitness test, referred to in sub-regulation (2), may be dispensed with; Provided that the persons, whose services are dispensed with may, in the discretion of the Corporation, be offered alternative jobs." Interpreting the above proviso attached to the Regulation 17(3), Hon'ble Supreme Court observed as under: "The proviso with which we are concerned in regulation 17(3) does not carve out an exception from the general rule contained in the first branch. It is an independent and substantial provision providing discretion to the Corporation to offer an alternative job to the retrenched driver. This offer is to be made after the exercise of power under the first branch of regulation 17(3). There is, therefore, no doubt that the second branch of regulation17(3) is a substantial provision and not in the nature of a proviso to the first branch thereof." Examining the contents of proviso to section 44BB (1) in the light of above legal propositions, we are of the view that the proviso to section 44BB(1) can neither be ignored nor can be construed as an independent provision. If it is ignored, the consideration ....
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....for or extraction or production of mineral oil though effectively connected with PE or fixed place of profession will fall not under section 44BB(1) and will be assessable under section 44DA of the Act. To make it more clear the fee for technical services can be divided in following categories: (i) Fee for technical services rendered in connection with prospecting for or extraction or production of mineral oil having business PE or fixed place of profession - (section 44DA); (ii) Fee for technical services rendered in connection with prospecting for or extraction or production of mineral oil without having business PE or fixed place of profession - (section 115A); (iii) Other fee for technical services having business PE or fixed place of profession - (section 44DA); (iv) Other fee for technical services without business PE or fixed place of profession - (section 115A); Thus it is abundantly clear that with effect from assessment year 2011-12 fee for technical servic....
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....hat in the case of Schlumberger v. DIT 6063/Del/10 (supra) the ITAT relying on the decision of CGG Veritas has held that income in connection with the business of exploration of mineral oils in the assessment year prior to 1-4-2011 will be assessed u/s 44BB. In para 7.11 the ITAT has observed as under: "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. AY 2004-05. We find that this contention is not at all correct as the said provision of the Act cannot be said to be clarificatory and hence retrospective in operation. In this regard in the case of CGG Veritas Services comes to the rescue of the assessee. Furthermore, the 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 case where section 44DA applies, is prospective and applies from assessment year 2011-12." 33. Ap....
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....oresaid receipts were taxed u/s 44DA by the assessing officer. The assessing officer taxed the entire receipts of assessee @ 25%. The assessing officer held that the simultaneous amendment made by Finance Act 2010 w.e.f. 1-4-2011 in section 44DA and proviso to section 44BB of the Act, being clarificatory in nature, are retrospective in operation and was, thus, applicable to the year under consideration. The assessee's contention was that its receipts were taxable u/s 44BB because they were in connection with exploration of oils and minerals and the provisions of section 44DA were not applicable for the years under consideration. 38. Before interpreting these sections it is necessary to first refer to the scheme of the Act regarding taxability issue of 'royalty' and "fees for technical services". 39. In order to properly appreciate the controversy, it is necessary first to consider various sections dealing with Royalty, FTS and their fields of operation. 40. The Finance Act, 1976 effected three basic changes as regards assessment of non-residents. (a) It inserted clauses (v), (vi) and (vii) in Section 9(1) deeming interest, royalty and technical fees to accrue or ari....
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....or mining was excluded from section 9(1)(vii), provided the same was undertaken by assessee itself. 45. From the above exclusionary clause it is evident that the Royalty and FTS in respect of incomes contemplated u/s 44BB were taxable u/s 9(1)(vi) and 9(1)(vii) till the date of insertion of exclusionary clauses. Thus, the royalty and FTS which was for the nature of services contemplated u/s 44BB were excluded from sections 9(1)(vi) and 9(1)(vii) and brought under section 44BB which is a special provision for computing profits and gains in connection with the business of exploration etc. of mineral oils. Section 44BB was inserted by the Finance Act 1987 with retrospective effect from 1-4-1983. 46. The legislative intent, as rightly pleaded by ld. CIT(DR), from the very beginning is not to bring within the ambit of section 44BB, the incomes in the nature of FTS and royalty contemplated u/s 44D/115A. But then what is the answer to Explanation (iva) to section 9(1)(vi) and Explanation 2 to section 9(1)(vii). In order to find reasonable answer, we proceed to analyse various provisions dealing with Royalty and FTS apart from the basic sections being section 9(1)(vi) and 9(1)(vii). 47.....
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....section 9, to have been made before the 1st day of April, 1976.] 48. Noticeable features of this section are as under:- (a) It is special provision for computation of income by way of royalty or fees for technical services. Thus a computation provision. (b) Applicable to only that portion of royalty which consists of lump sum consideration for the transfer outside India, or for imparting of information outside India in respect of any data, documentation, drawing or specification relating to patent, invention, model, design, secret formula or process or trade mark or similar property. Thus, it primarily deals with considerations paid as royalty for transfer of IPR outside India even if IPR was with respect to oil exploration. (c) The operation of this section was up to 31-3-2003. It follows, therefore, that royalty/ FTS received by a non-resident for transfer of intellectual property rights contemplated u/s 44D, if paid for the nature of services contemplated u/s 44BB after 31-3-2003, would be taxable u/s 44BB. 49. Section 44DA, inserted by the Finane Act, 2003, w.e.f. 1-4-2004, reads as under: [Special provision for computing income by way of royalties, etc., in case o....
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....ms professional services from a fixed place of profession in India. (d) Right, property or contract in respect of which the royalty/ FTS are paid is effectively connected with such PE/ fixed place of profession. (e) Taxable under profits and gains of business or profession. (Note) [Therefore, if royalty/ FTS is received by a non-resident who is engaged in the business of providing services or facilities in connection with, or supplying P&M on hire used, or to be used, in the prospecting for, or extraction or production of mineral oils then this will be taxed u/s 44BB but if it is received on account of having PE/ fixed place in India then it will be taxed u/s 44DA from 1-4-2011 onwards. It is noticeable that there is no requirement of PE in section 44BB and, therefore, if the payment of royalty/FTS to non-resident has no nexus with PE and is paid for the nature of activities contemplated u/s 44BB, the same would continue to be taxable u/s 44BB. .] 51. Section 115A, substituted by Finance Act, 1994 w.e.f. 1-4-1995, reads as under: [Tax on dividends, royalty and technical service fees in the case of foreign companies. 115A. [(1) Where the total income of - "(b) [a non-resident....
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.... under: (i) 30% if in pursuance to agreement made after 31/3/76 to 31/5/97; (ii) 20% if in pursuance to agreement made between 1-6-97 to 31/5/2005; (iii) 10% if in pursuance to agreement made on 1-6-2005 or thereafter. (c) No deduction is allowable in respect of any expenditure or allowance u/ss 28 to 44C and 57. 53. Section 44BB inserted by the Finance Act, 1987 with retrospective effect from 1-4-1983 reads 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 sections 43 and 43A, in the case of an assessee [, being a non-resident,] 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, a sum equal to ten per cent of the aggregate of the amounts specified in subsection (2) shall be deemed to be the profits and gains of such business chargeable to tax under the head "Profits and gains of business or profession" : Provided that this sub-section shall not apply....
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....nserted in this proviso by Finance Act 2010 w.e.f. 1-4-2011. 55. From the combined reading of these sections it is evident that all the sections relating to royalty/FTS operate in different fields and that is the reason for insertion of proviso to sections 44BB/44DA/115A. Where the assessee was imparting services which entitled it to royalty or FTS simpliciter then the same continues to be assessed u/s 9(1)(vi)/(vii) read with section 115A but where the assessee is imparting services in relation to oil exploration the Royalty/ FTS would be taxable u/s 44BB. 56. Specific services are contemplated only under section 44BB and, therefore, that being special provision will prevail over all other provisions dealing with royalty/ FTS. In no other section dealing with royalty/ FTS specific services are provided. A grey area after 1-4-2011 would be where services contemplated u/s 44BB are carried out through PE - whether to be taxed u/s 44BB or u/s 44DA but between 1-4-2004 to 31-3-2011 the same is to be taxed u/s 44BB only. As rightly submitted by ld. AR, section 44DA is residual section. 57. When section 44DA was introduced w.e.f. 1-4-2004, to cover the case of royalty and FTS, in case....
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....it is possible to do so, it must be done to construe the provisions which appear to conflict so that they harmonise. It should not be lightly assumed that Parliament had given with one hand what it took away with the other. The statute must be read as a whole and one provision of the Act should be construed with reference to other provision in the same Act so as to make the consistent enactment of the whole statute." 61. A question arises as to why such an amendment was necessitated. 62. The international tax policy adopted by a country is always driven by economic and social objectives. If the country's economic objectives are achieved by a lower impost on the income derived by a resident of other contracting state from the source in the contracting state under consideration then the sourcing state will adopt lower impost in achieving its broader objectives. The international tax policy is determined whether a country is net capital importing country i.e. it is dependent on investment by foreigners for its economy to grow or it is net capital exporting country (developed country). 63. There is no gain saying that oil exploration is the pressing need of the Indian economy an....
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....tting out equipment, used in connection with the exploration/ prospecting/ extraction of mineral oil taxed u/s 9(1)(vi) by assessing officer is concerned, we are of the opinion that in view of explanation (iv-a), the income is to be assessed u/s 44BB. 67. Accordingly, ground nos. 1 to 8 are allowed. 68. Ground no. 9: Brief facts apropos ground no. 9 are that contract with Cairn Energy Pty Ltd. was entered into with assessee for providing various consumables by assessee like fishing tools and services etc. Assessing officer had taxed these revenue receipts by applying a presumptive profit rate of 25% in gross revenues. 69. The DRP noticed that assessee had raised separate invoices in respect of consumables and the same could not be included as services in any circumstances. DRP pointed out that assessee itself had mentioned in the summary of revenues received from Cairn Energy Pty Ltd. for invoice no. 92100260 that the same were sales. It further observed that invoice no. CY1C68010 raised on Hindustan Oil Exploration Company was for sale. Similarly, sales were made to ONGC and Reliance also. The DRP pointed out that assessee could not give any reason as to how it was asking for t....
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....r pointed out that income arose or accrued to the assessee u/s 5(2) for the following reasons: (i) Mr. C.K. Pathak, the Country Manager, was negotiating and concluding the contract on behalf of Baker Hughes Asia Pacific Ltd., which was evident from the correspondence with the Hindustan Oil Exploration Co. Ltd. and the assessee. (ii) The purchase order was issued to Baker Hughes Asia Pacific Ltd., Mumbai; (iii) The place of delivery of goods was Chennai Sea Port in India and it was CIF Chennai and as per the agreement, the title in goods passed in India. 73. Ld. DRP confirmed the AO's action by observing that provisions of section 44BB were restricted to providing services or facilities and where there was a mention of supply of plant and machinery it had to be on hire basis. Section 44BB does not talk about the sale of goods. 74. Ld. DRP confirmed the AO's action after considering the terms of the contract and held that the supplies were made in India only. Ld. DRP upheld the AO's action of estimating profits at 25% of gross receipts. 75. In r....
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....ng after the time of delivery are transferred from the seller to the buyer." 81. He referred to the details contained in the invoice ( at page 558 of the PB) and pointed out that commercial invoice shall, inter alia, contain details of total price CIF from which-ever port the materials will be imported into India. Nevertheless the CIF rates shall include the transit insurance upto the company's warehouse in India. Transportation from the port to warehouse shall be company's responsibility. 82. Ld. counsel, accordingly submitted that in accordance with the Incoterm under CIF, the title in the goods was transferred by BHAPL to ONGC at the port of shipment i.e. Singapore. This is evident from the invoice copy as well as the bill of lading enclosed in Annexure 'C'. As per the Incoterm CIF, the risk was also transferred to ONGC at the time of shipment. 83. Ld. Counsel submitted that the risk passes when the goods cross the shipment port and with the passing of risk the title also passes simultaneously. 84. Ld. Counsel referred to the decision of Hon'ble Supreme Court in the case of Ishikawajima Harima Heavy Industries Ltd. 288 ITR 408 to submit that place of sign....
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....ssign the whole or part of the contract to an independent contractor, subject to approval of PGCL. In view of this provision the applicant requested PGCI to award the offshore contract to itself and the on-shore supply and service contract to be performed in India to L&T of India. PGCI awarded to the applicant the off-shore contract covering all works to be performed outside India including supply of all offshore equipment and material on c.i.f. Indian Port of embarkation basis. The Authority ruled: (i) That none of the stipulation in the contract gave rise to the formation of an association of persons in the matter of the execution of the contract which was a mere collaboration and overall responsibility assumed by the applicant for the successful performance of the project. PGCI awarded separate aspects of the contract to the applicant and L&T, each performing the obligations separately and receiving the amounts payable therefore independent of each other. The individual identity of each party in doing that part of the work entrusted to it was preserved and it could not be said that the applicant and L&T had promoted a joint enterprise. (ii) That the instructions issued by the....
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....the profits of the assessee under the agreement at 20 percent of the gross receipts and taxed 2 per cent of the contract revenue in Korean operations. The Commissioner (Appeals) held that the contract was indivisible for the purposes of attributing the profits to the permanent establishment in India and held that though the actual receipt on fabrication operations in Korea was not taxable, the work of designing and engineering of platforms was taxable under the Convention read with section 9(1) of the Income-tax Act, 1961 and directed that the profits be computed at one per cent of the receipts in respect of the Korean operations and at 10 per cent of the receipts relating to the Indian operations in terms of the CBDT Instruction No. 1767 dated July 1, 1987. Tribunal, on appeal, held that: (i) the contract was divisible, (ii) no part of the income attributable to Korean operations could be taxed in India as before the coming into existence of the permanent establishment in India the work of fabrication was completed in Korea and the fabricated platform handed over to the ONGC there, and (iii) the profits from the Indian operations had to be worked out at 3 per cent and not at 10 pe....
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....the only consequence would be that the Cellular Operator would be entitled to call upon the assessee to cure the defect by repairing or replacing the defective part. If there was delay caused due to the acceptance test not being complied with, Article 19 of the Supply Contract provided for damages. Thus, the taxable event took place outside India with the passing of the property from seller to buyer and acceptance test was not determinative of this factor. The position might have been different if the buyer had the right to reject the equipment on the failure of the acceptance test carried out in India. In Skoda Export (supra), the Andhra Pradesh High Court dealt with this issue in the following manner:- "We may also mention that learned standing counsel for the Department challenged the finding of the Tribunal that the sale of machinery was completed outside India; According to him, the sale was completed only in India, inasmuch as the assessee was entitled to inspect and satisfy itself about the quality and standard of the machinery supplied. We do not see any substance in this contention. The various....
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....ted in respect of operations which were carried out outside India. 93. Ld. DR referred to the decision of Hon'ble Supreme Court in the case of Kanchanjunga Sea Foods Ltd. (Civil Appeal no. 3844-3847 of 2003 dated 7-7-2010). 94. Ld. DR referred to the agreement with HOEC vide agreement no. PY1L6A060, contained at pages 539 onwards of the paper book. He referred to page 540 and pointed out that the address of the assessee company was as under: "852, 5th Floor, Building No. 8, Solitaire Corporate Park, Andheri- Ghatkopar Link Road, Chakala, Andheri (East), Mumbai-400093" 95. He referred to delivery terms contained at page 541 of the paper book and pointed out that the same were "CIF (Cost Insurance and Freight) Chennai Sea Port " and, accordingly, the insurance was to be paid by assessee from the port of shipment to the port of delivery (Chennai Sea Port) and, thereafter, insurance from Chennai to company's supply base at Cauvery Basin was responsibility of the company viz. HOEC. 96. Ld. DR further referred to : - delivery documents - Title of supply (clause 17 section 1) - Time of payment - Invo....
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....f the case. In ordinary case obviously payment must be made promptly on the tender of the documents with the invoice. As the essential feature of a contract of sale CIF is that performance is satisfied by delivery of documents and not by the actual physical delivery of the goods, it follows that all that the buyer can call for is the delivery of the documents we have mentioned. This represents the measure of the buyer's right and the extent of the vendor's duty. The buyer cannot refuse the documents and ask for the actual goods nor can the vendor withhold the documents and tender the goods they represent." 101. Ld. DR submitted that as per CIF contract, sale of goods is complete when documents are tendered and the same is not linked with supply of goods. He submitted that transfer of risk is different from transfer of title. Risk is only of loss or damage. 102. Ld. DR referred to a note on CIF contract and pointed out that CIF contract is not a sale of goods itself but sale of documents relating to goods. It was observed in the said note that effectiveness of the CIF contract depends on the transfer of the documents which give the buyer control, and a right of disposal of....
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....department's contention that in a CIF contract the sale is of documents and the title passes when the documents are delivered and the payment is made by buyer. He submitted that decisions relied on by the assessee, pertaining to sales, which took place on FOB basis, are not applicable to the facts of the case. 106. In regard to the contract with ONGC, contained at pages 656 onwards of the paper book, ld. DR referred to following clauses: 2.0 Scope of work/ contract: Scope of contract shall be as defined in the contract, specifications, drawings and annexure thereto at Annexure-III. 4.3. Contractor's local address: Baker Hughes Asia Pacific Limited 851, 5th Floor, Bldg No. 8, Solitiare Corporate Park, Chakala, Andheri (East) Mumbai0400063. Fax: 56976835 &....
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....the supplier the rejection without prejudice to ONGC other rights and remedies to recover from the supplier any loss which the ONGC may be put to, also reserving the right to forfeit the performance security/ performance Bond if any, made for the due fulfillment of the contract. The goods shall be removed by the supplier and if not removed within 14 days of the date of communication of the rejection ONGC will be entitled to dispose of the same on account and at the risk of the supplier and after recovering the storage charges at the rate of 5% of the value of goods for each month or part of a month and the loss and expense if any caused to ONGC, pay balance to the supplier." 27. Packing & Marking. 27.1. The supplier shall consign/ship the materials in sea worthy/ Air worthy packing conforming to the international norms of packing/ prescribed standards in force to withstand air/ ocean/ land journey and ensuring the safety of cargo en-route and also arrival of materials at ultimate destination in good condition. Hazardous/ dangerous cargo ordered alongwith other material, against a particular supply order, the hazardous/ dangerous cargo should be packed in a separate box to avoid p....
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....oods passes when parties intend to pass the title. He submitted that in the present case the overall intention of the parties is to be seen and it is self evident from the terms of the contract that the parties' intention was to complete sale in India. He submitted that since title passed in India the tax is also payable in India. 108. Ld. DR submitted that in the case of contract with ONGC there is no mention where title would pass and, therefore, section 19 of the Sale of Goods Act will apply and, accordingly, the intention of the party when the title passes assumes significance. In this regard he referred to para 667 of the paper book wherein clause 7 dealing with "remuneration and terms of payment" is contained, as reproduced earlier, and pointed out that invoice was raised in the name of sister concern. 109. He further referred to para 7.4 of the agreement and pointed out that invoice could be raised only on completion of job. 110. As per para 8.3 read with para 8.4.2, the custom duty was also paid by assessee. 111. As per para 11, import clearance was to be done by assessee and as per para 16 read with section 27, insurance was done by assessee. 112. Ld. DR further r....
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.... bank. Accordingly, with the delivery of the bill of lading to the bank, the property in the goods stood transferred to PGCIL. The cargo insurance policy was obtained by the respondent-assessee and it named the PGCIL as coinsurer. Clause 31.2 of the contract unequivocally clarified that the respondent-assessee and the PGCIL intended to transfer the title/property in the goods as soon as the goods were loaded on to the ship at the port of shipment and the shipping documents were handed over to the nominated bank where the letter of credit was opened. The sale was complete and unequivocal. There is no condition in the contract which empowers the respondent to keep control of the goods and/or to repossess the same. With the completion of this sale the income accrued outside India. There was neither any material to show that accrual of such income was attributable to any operations carried out in India nor any material to show that the PE of the respondent-assessee had any role to play in the offshore supply of the equipments." 117. Ld. DR pointed out that in view of above facts it was held that the title to goods passed outside India. 118. With reference to the decision in the case ....
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....ut of India or not. In support of his contention ld. DR referred to page 419 of the decision wherein the contention of assessee's counsel was that authority misconstrued and mis-interpreted the contract in arriving at a conclusion that the amounts received from company for off shore services was liable to be taxed in India because a bare perusal of the contract shows that the payments were made in US $ in respect of "off shore" supply and "offshore services" and furthermore title of goods passed on to Petronet outside the territory of India and services had also been rendered outside India. In this regard ld. DR referred to page 425 of the report, wherein clause 22.1, dealing with one of his title to the goods was reproduced: "22.1. Title to equipment and materials and contractor's equipment: The contractor agrees that title to all equipment and materials shall pass to the owner from the suppli4er or subcontractor pursuant to section E of exhibit H (general project requirements and procedures). Contractor shall, however, retain care, custody, and control of such equipment and materials and exerc....
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.... regarding passing of title. 128. Ld. DR further referred to the decision in the case of LS cable Ltd., wherein it was, inter alia, observed as under: "The clauses in the offshore supply contract agreement regarding the transfer of ownership, the payment mechanism in the form of letter of credit, which ensures the credit of the amount in foreign currency to the applicant's foreign bank account on receipt of shipment advice and insurance clause, would go to establish that the transaction of sale and the title took place outside the Indian territory." 129. He, Thus, submitted that as per the terms of the contract it was found that sale and the transfer of title took place outside India. 130. Ld. DR Shri Sanjeev Sharma in his written submissions dated 11th February 2014, inter alia, submitted as under: "6. To understand the scope of sale of goods the contract with HOEC is discussed. Contract dated 19th April 2006 is issued to Indian office of the assessee (page 540 of the PB) and accepted by its country manager in India (page ....
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..... If the goods are not sold these will remain as an inventory and no profits/income an be realized, The sale of goods is an essential part of the business of the assessee and no income can be realized till the same are sold. Operations in regard to sale of gold have taken place in India. In any event (not in present case), even if the risk of loss or damage to the goods passes outside India the income deemed to accrue or arise in India due to operations carried out in India is taxable in India (Explanation (a) to Section 9(1)(i) of the Act). Various parts constitute a whole and undoubtedly operations in regard to sale have been carried out in India. Reliance in this regard is placed on the following authorities: CIT v Ahmedbhai Umarbhai and Company [1950] 18 ITR 472 (SC). Anglo French Textile Company Limited v CIT [1954] 25 ITR 27 (SC) Hukam Chand Mills Ltd. v. CIT, Bombay 103 ITR 548(SC) Rolls Royce Pic (113 TIJ 446-ITAT Delhi) Rolls Royce Pic Vs DIT 339 ITR 147(Delhi) ....
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....ontract to the contrary. 139. INCO Terms define the responsibilities of the buyers and sellers but it does not define/ convey title of the goods. INCO Terms are not a law but a set of rules that are prevalent for the industry only. 140. Therefore, before examining the contracts in detail it is necessary to examine certain terms in regard to CIF contract. On this discussion we refer to the Commentary on Sale of Goods Act by Pollock & Mulla. At page 163 of this commentary it is pointed out that ..... 141. Section 39 of the Sale of Goods Act deals with delivery of goods to carrier or wharfinger. Section 39(1) reads as under: 39(1). Where, in pursuance of a contract of sale, the seller is authorized or required to send the goods to the buyer, delivery of the goods to a carrier, whether named by the buyer or not, for the purpose of transmission to the buyer, or delivery of the goods to a wharfinger for safe custody, is prima facie deemed to be a delivery of the goods to the buyer. 142. The usual contracts of sale which involve the carriage of goods by sea are three, namely, c.i.f, f.o.b and ex-ship. In all the contr....
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....refore, it is an essential part of the contract that the seller should tender the document. If the seller tenders the documents, the buyer's obligation is to take them and on his taking them, he is bound to pay the price according to the terms of the contract; and he is not discharged from his obligation by the act that the goods are lost or for some other reason cannot be delivered; or that he had no opportunity to examine them. In sum and substance the property in goods does not pass until the documents have been taken up by the buyer. In case of FOB contract, the contract is for sale of goods to be delivered free on board of a ship. The buyer must name a ship upon which they are to be delivered and the seller must put them safely on board, meet the cost of doing so, and for the buyer's protection give possession of them to the ship only upon the terms of a reasonable and ordinary bill of lading or other contract of carriage; there the contractual liability of the seller as seller ceases and the delivery to the buyer is complete as far as he is concerned. The goods are then at the risk of the buyer, he is responsible for the freight, and subject to the seller reserving th....
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....ensation schedule section 2; and scope of supply section 3. According to terms and conditions clause (e), the delivery terms were as per terms and that was CIF (cost, insurance and freight Chennai Sea Port). However, the insurance from Chennai to company's supply base at Kaveri Basin shall be of companies responsibility. 152. Ld. Counsel has referred to page 113 wherein the definition of CIF as per International Chamber of Commerce, has been given. This is again being reproduced: "The International Chamber of Commerce defines 'CIF' as under- "CIF (named port of destination); "Cost, Insurance & freight" means that a seller delivers when the goods pass the ship's rail in the port of shipment. The seller must pay the costs and freight necessary to bring the goods to the named port of destination BUT the risk of loss or damage to the goods, as well as any additional costs due to events occurring after the time of delivery are transferred from the seller to the buyer." 153. A bare perusal of this definition makes it clear that port of destination has to be given in terms of this contract, which has been specified as Chennai Sea Port. 154. Ld. Counsel's main th....
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....f equipment for purchase, wherein also delivery at CIF Chennai base, March 2006 has been mentioned. 157. The notices to contractors were to be sent at Mumbai address. The dispatch instruction no. 4 clearly contemplates that once the supplies are ready for dispatch, the contractor is required to send commercial invoice and bill of lading to India for HOEC Ltd. This makes it clear that the delivery of documents has taken place in India. 158. The packing and marking as per clause 3 of Dispatch instruction I (Appendix 3 to section 1) makes it clear that though as per CIF terms risk passes at the port of shipment but the contractor will be held liable for damages or brokerage to the supply due to defective or insufficient packing as well as for corrosion due to insufficient surface protection. 159. The total price in commercial invoice is to be on the basis of CIF for whichever part and the CIF rates also include the transit insurance up to the company's warehouse in India (page 558 P.B.). However, the transportation from the port to warehouse is to be at company's responsibility. This makes it clear that CIF price should be taken up to the port of destination. 160. As per t....
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....gnment was to be comprehensively ensured against all risks by the supplier from contractor's warehouse to ultimate consignee's warehouse base. The additional conditions that were supplied are contained from pages 660 onwards and clause 1.16 makes it clear that FOR/Ex-works/FOB/FAS/C&F/CIF shall mean the terms as explained in INCO terms. The contractor was required to deliver the goods at NAHAVA supply base for transportation to work center. 164. The supplier was responsible for shifting/ transfer of the material up to destination. Thus, it is evident from the terms of the contract that goods were to be supplied in India and thereafter payment was to be made. The ONGC had right to rejection of the goods if the goods supplied were not in accordance with the specification and other conditions stated in the order. Thus, applying the test of preponderance as laid down by Hon'ble Andhra Pradesh High Court in the case of Addl. CIT v. Skoda Exports (supra), it is clear that both the parties intended for transfer of title in goods in India. We, accordingly, hold that title to goods passed in India in respect of contracts with HOEC and ONGC and, therefore, income from such sale ....
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....s and tried to demonstrate that the decision there was based purely on the applicability of Section 42(3) of the Indian Income tax Act, but for the applicability of which, according to his submission, there was no room for the apportionment of the income, profits or gains of the business in the manner contended by the appellant. We do not accept this contention of the respondent. Section 4A(c)(b) is concerned with the income arising in the taxable territories in a particular year exceeding the income arising without the taxable territories in that year and the very words of the section are capable of being construed as also contemplating a state of affairs where there may have to be a division or apportionment between the income arising in the taxable territories and the income arising without the taxable territories in the particular year. The whole of the argument urged before us on behalf of the respondent was aimed at establishing that the scheme of the Indian Income tax Act was not to tax the source of income but the income, profits or gains from whatever source derived which were received or were deemed to be received in the taxable territories or which accrued or arose or we....
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.... India. 168. In the result, ground nos. 11 & 12 are partly allowed for statistical purposes. 169. Now we come to ground no. 12 regarding levy of interest u/s 234B. The assessee's contention is that assessing officer erred in charging interest u/s 234B especially when there was no liability to pay advance tax in view of provisions contained u/s 209(1)(d) of the Act. 170. Ld. DR has relied on the decision of Hon'ble Delhi High Court in the case of DIT (International Taxation) v. Alcatel Lucent USA, Inc. (2013-TII-44-HC-DEL-INTL dated Nov. 07,2013) wherein it was held that where non-resident assessee initially does not accept liability to tax in India but does not challenge at the appellate stage, the ratio of the decision of the Hon'ble Supreme Court in the Jacob's case cannot be applied. In this case it was held by Hon'ble Supreme Court that where tax was deductible by the payers then no interest would be chargeable u/s 234B from the payee assessee. 171. In this case the assessee denied its liability to tax in India on the ground that it did not have taxable presence in India and the equipments were sold outside India. The Hon'ble Delhi High Court observe....
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....e income is not chargeable to tax and hence did not deduct the tax, then assessee cannot take plea of not paying interest u/s 234B on the assessed tax. The assessee was required to pay advance tax u/s 207 read with section 208 and its computation has to be made u/s 209. The assessee's claim is that u/s 209(1)(d), the amount of income tax which was deductible at source during the said financial year under the provisions of this Act, from any income, which has been taken into account for computing the current income, the same is to be deduced from computing the advance tax payable. This plea cannot be accepted because assessee's claim from the beginning was that it was a case of off shore supply in case of HOEC and ONGC contracts which has not been found to be correct. 174. Interest u/s 234B is essentially compensatory in nature for the period for which the sums due to government are withheld by assessee. 175. Considering the entirety of facts, we direct the assessing officer not to charge interest u/s 234B in respect of all contracts entered into by the assessee with various organizations in India except with respect to the contracts entered into with HOEC and ONGC. As far....
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....rvices was to be taxed u/s 44BB. Adopting the same reasons, we allow ground no. 3 in favour of the assessee. 184. Ground no. 4 & 5 relates to taxability of reimbursement and grossing up receipts. Having heard both the parties we hold that u/s 44BB gross receipts are to be considered, which will include reimbursement also. Therefore, these grounds are dismissed. 185. Ground no. 6 relates to charging of interest u/s 234B. For the reasons given in ITA no. 5283/Del/2010, we hold that the assessee was not liable to pay interest u/s 234B. Accordingly, ground is decided in favour of the assessee. 186. Ground no. 7 relating to levy of penalty u/s 271B is premature and requires no adjudication at this stage. 187. In the result, appeal is partly allowed. ITA no. 5632/Del/2010 (SIEM offshore AS A.Y. 2007-08): 188. Ground no. l is general in nature and requires no adjudication. 189. Ground no. 2 relates to taxability of "fees for technical services". While deciding ITA no. 5283/Del/2010, after elaborate discussion therein we have held that where assessee was imparting services in relation to oil exploration, the income arising on account fee for technical services was to be taxed u/s 44....
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....dered. Therefore, this grounds is dismissed. 201. Ground no. 6 is as under: "That the assessing officer erred on facts and in law in not allowing credit of tax deducted at source of Rs. 14,639,206/- as claimed by the assessee in its return of income." 202. Having heard the parties, we direct the assessing officer to examine the claim of the assessee and adjudicate the issue in accordance with law after affording an opportunity of being heard to the assessee. Ground is allowed for statistical purposes only. 203. Ground no. 7 relates to charging of interest u/s 234B/D. For the reasons given in ITA no. 5283/Del/2010, we hold that the assessee was not liable to pay interest u/s 234B. Accordingly, ground is decided in favour of the assessee. 204. In the result, appeal is partly allowed for statistical purposes. ITA nos. 165/Del/2012 (Smith International Inc. A.Y. 2008-09): 205. Ground nos. l to 4 relate to taxability of royalty/fees for technical services. While deciding ITA no. 5283/Del/2010, after elaborate discussion therein we have held that where assessee was imparting services in relation to oil ....
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..... A.Y. 2007-08): 215. Ground nos. 1 to 7 relate to addition qua equipment rental, service charges and sale of consumables and services rendered by assessee in connection with exploration/ prospecting/ extraction of mineral oil. For the detailed reasons given in ITA no. 5283/Del/2010, we hold that the income arising on account royalty/ FTS, letting out of equipment etc. was to be taxed u/s 44BB. Adopting the same reasons, we allow ground nos. 1 to 7 in favour of the assessee. 216. Ground no. 8 relates to addition qua supply of consumables. For the detailed reasons given in ITA no. 5283/Del/2010, we hold that receipt on account of supply of consumables is taxable u/s 44BB. Ground is allowed. 217. Ground no. 9 & 10 raised by the assessee relate to charging of interest u/s 234B/D. For the reasons given in ITA no. 5283/Del/2010, we hold that the assessee was not liable to pay interest u/s 234B. Accordingly, grounds are decided in favour of the assessee. 218. In the result, appeal is allowed. ITA no. 5824/Del/2011 (Baker Hughes Singapore Pte. A.Y. 2008-09): 219. Ground nos. 1 to 7 relate to addition qua equipment rental, service charges and sale of consumables and services rendered....