TaxTMI 
TaxTMI 
2015 (12) TMI 367
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....0.09.2011 declaring total income of Rs. 22,96,37,533/-. The case was processed under section 143(1). The case was selected under scrutiny by CASS. Accordingly notice under section 143(2) was issued on 06.08.2012 and served upon the assessee. Subsequently notice under section 142(1) was issued on 20.11.2012 alongwith questionnaire. Further notice under section 142(1) was issued on 06.02.2013. In pursuance to the various notices and due opportunities of hearing, the authorized representative of the assessee, Shri R.P. Easwaran, FCA and Shri Itesh Dodhi, CA from Nangia & Co. attended the proceedings from time to time and submitted written replies dated 29.11.2012; 12.12.2012 & reply dt.08.03.2013. The submissions of the assessee were carefully perused and the case was heard." 2.1 During the year under consideration, the assessee had entered into two contracts with Oil and Natural Gas Corporation Ltd. for the acquisition and processing of seismic data in respect of which the work was executed during the relevant assessment year. The AO has gone through the contracts entered into by the assessee and has reproduced the scope and object of the work to be performed in respect of the con....
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....along the 3D seismic survey. Contractor will provide the instruments together with minimum two skilled personnel necessary to conduct the Gravity-Magnetic survey. The main objectives of the survey(s) are: * To maximize visibility of the offshore horizons from 5000-2500 msecs * To maximize image quality of the faults and inter compart mentalization within the main horizon. * To retain the maximum bandwidth of the recorded data. * To deliver good quality, high fold data with few coverage gaps. 2.1.1 Contractor is to provide the seismic vessel, all support vessels e.g. minimum two Chase Boats/Guard Vessels and the crews including all necessary personnel, equipment and supplies, as more specifically detailed herein, to perform the survey." 2.2 During the year, assessee had offered gross receipts of Rs. 228,52,78,062/- from the said contracts with M/s. ONGC Limited and M/s Petrogas E&P LLC and had applied provisions of 44BB thereon and computed income at DPR of 10% thereby arriving at income of Rs. 22,85,27,806/- along with interest income of Rs. 11,09,727/-. Before the AO, it was submitted that the nature of the services performed under b....
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....DA of I.T. Act and therefore income is to be computed as per the provisions of sec. 28 to 43C of I.T. Act. Since books of accounts have not been prepared by the assessee and accordingly not produced therefore, income of the assessee from the contract is to be estimated at 25% of gross receipts under the contract. The PE of the assessee in India is not disputed as the assessee has filed the return under section 44BB offering its income as taxable in India. Moreover assessee has also provided equipment and material along with services of carrying out 3D/2D Seismic Data through presence of its vessels in India and therefore has a PE in India. The assessee has in its written submission also accepted that it has a PE in India." The AO further observed that the assessee had not filed its objections against the said draft order before the Dispute Resolution Panel. Accordingly, the AO completed the assessment under section 143(3) read with section 144C(3)(b) of the Act at total income of Rs. 57,24,29,240/-. 3. The assessee filed an appeal before the first appellate authority against the order of the AO. The ld. CIT (A), after going through the submissions made by the ld. AR for the asse....
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....ircumstances of the case, the Ld CIT(A) has erred in ignoring the distinct scheme of taxation of FTS and disregarding the insertion of provisos in section(s) 44BB/44DA/115A and the rationale behind the introduction of said clarificatory provisos in the Finance Bill 2010. 6. Whether on the facts and in the circumstances of the case, the CIT(A) has erred in relying on the decision of the ITAT in the case of M/s CGG Veritas Services, SA in ITA No.4653/Del/2010 (on the issue that once a PE is established to be in place then the income has to be treated as business profits and assessable u/s 44BB). 7. Whether on the facts and circumstances of the case, the CIT(A) has erred in not appreciating the fact that proviso to section 44DA brought about by the Finance Act 2010 was only clarificatory in nature and its application has to be read into the main provisions with effect from the time the main provision came into effect in view of the decision of the Hon'ble Supreme Court in the case of Sedco Forex International Drilling v/s CIT. 8. Whether on the facts and circumstances of the case, CIT(A) has erred in reversing the action of the AO who, having held that t....
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....ure specifically mentions about the retrospective operation of an amendment and in some situations such retrospective operations has to be inferred by way of implication. a. CIT v. Gold Coin Health Foods [304 ITR 308 (SC)] (Larger Bench)] b. K.Govindan & Sons v. CIT [2001] 247 ITR 192 (SC) c. CIT v. Shelly P. Products 261 ITR 367 (SC) d. Allied Motors v. CIT [1997] 224 ITR 677 (SC) e. Commissioner of Income-tax v. Apar Industries Ltd 323 ITR 411 (Bom.) 4. The Hon'ble Supreme Court in the case of Sedco Forex International Drilling vs. CIT [2005] 279 ITR 310 (SC) observed: "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 the fact that the phrase used are 'it is declared' or 'for the removal of doubts". [Para 20] 5. Perusal of ....
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.... Geofizyka Torun sp Z.O.O, In re [2010] 320 ITR 268/186 Taxman 213 (AAR - New Delhi), relied upon by Delhi High Court in DIT v. OHM Ltd. ([2012] 28 taxmann.com 120/[2013] 212 Taxman 440 (Delhi)), did not adjudicate the aspect of eligibility in terms of second limb of the exclusionary proviso i.e. "for a project undertaken by the recipient" as confirmed in CGG Veritas (supra). Also decision of DIT V Jindal Drilling and Industries Ltd. (2010) 320 ITR 104, pertained to AYs 2000-01, 2001-02 and did not contain any reference to section 44DA as the said provision came on the Statute w.e.f., 1.4.2004. Judgement of Hon'ble Supreme Court in ONGC v CIT (2015) 59 Taxmann.com 1 (SC) dated 01.07.2015 10. The issue that arose for consideration (pertaining to AY 1985-86 / 1986-87) may be summarized as follows: "whether the amounts paid by the ONGC to the non-resident assesses/foreign companies for providing various services in connection with prospecting, extraction or production of mineral oil is chargeable to tax as "fees for technical services" under section 44D read with Explanation 2 to section 9(1)(vii) of the Income Tax Act or will such payments be taxable on....
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....tural gas and hence payments made under such agreement to a non-resident/foreign company would be chargeable to tax under the provisions of Section 44BB and not Section 44D of the Act. We do not see how any other view can be taken if the works or services mentioned under a particular agreement is directly associated or inextricably connected with prospecting, extraction or production of mineral oil. Keeping in mind the above provision, we have looked into each of the contracts involved in the present group of cases and find that the brief description of the works covered under each of the said contracts as culled out by the appellants and placed before the Court is correct. The said details are set out below ......." "The above facts would indicate that the pith and substance of each of the contracts / agreements is inextricably connected with prospecting, extraction or production of mineral oil. The dominant purpose of each of such agreement is for prospecting, extraction or production of mineral oil though there may the certain ancillary works contemplates thereunder. If that be so, we will have no hesitation in holding that the payments made by ONGC and received by the ....
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....x v. Jacabs Civil Incorporated/ Mitsubishi Corporation: "It is stated at the cost of repetition that the liability to deduct or collect the tax at source is that of the payer. Therefore, for the purposes of section 234B of the Act, the question would be as to whether the payee, i.e., the assessee in this case, had any role in deducting or collecting the tax. Once that is in the negative, and it was not duty of the payee/assessee, the question of payment of any interest would not arise as it cannot be said, in such circumstances, that the assessee is in default for the purposes of section 234B of the Act. No doubt, as per the judgment in the case of Anjum M.H. Ghaswala (supra), if there is a default in making the payment of advance tax, the consequence which is to follow is that the interest becomes payable under section 234B of the Act. But in the instant case, the provisions of section 234 B of the Act would not be attracted at all." [Para 6]" The ld. DR, on the basis of assessment order and the above submissions, prayed that the order of the ld. CIT (A) be reversed and that of the AO be restored. 7. On the other hand, the ld. AR reiterated the submissions made in t....
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....the light of the judgment of the Hon'ble Apex Court in Civil Appeal No. 731 of 2007 and connected cases (Oil & Natural Gas Corporation Limited vs. Commissioner of Income Tax & another), the substantial questions of law relating to the assess ability of the amounts under Section 448B have to be answered against the appellant / revenue. Accordingly, we answer the said questions of law against the revenue in the light of the aforesaid judgment of the Hon'ble Apex Court. 5 ..... 6. In such circumstances, the appeals are disposed of as follows: (i) We answer the questions of law relating to the assessability of the amounts under Section 44BB against the Revenue. It is submitted that while disposing the appeal of the appeal of the revenue in High Court, the Hon'ble Court has relied upon the decision of Apex Court in case of ONGC Limited in ITA No. 731 of 2007 date of pronouncement July 1st, 2015.Relevant observation of the pronouncement is as under: 13. The Income Tax Act does not define the expressions "mines" or "minerals". The said expressions are found defined and explained in the Mines Act, 1952 and the Oil Fields (Development....
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....ted or inextricably connected with prospecting, extraction or production of mineral oil. Keeping in mind the above provision, we have looked into each of the contracts involved in the present group of cases and find that the brief description of the works covered under each of the said contracts as culled out by the appellants and placed before the Court is correct. The said details are set out below. 1. Civil Appeal No. 4321 - Drilling of exploration wells and carrying out seismic surveys for exploratory drilling. 2. ..... 3. ..... 4 . ..... The above facts would indicate that the pith and substance of each of the contracts/agreements is inextricably connected with prospecting, extraction or production of mineral oil. The dominant purpose of each of such agreement is for prospecting, extraction or production of mineral oils though there may be certain ancillary works contemplated thereunder. If that be so, we will have no hesitation in holding that the payments made by ONGC and received by the non-resident assessees or foreign companies under the said contracts is more appropriately assessable under the provisions of Section 44BB and no....
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....fect from 1st April, 2011, a clear cut distinction has been made between those non- resident assessees, who are engaged in the business of providing, amongst others, services or facilities in connection with prospecting for, or extraction or production of, mineral oils and other kind of non-resident assessees, who get fees for providing services or facilities. The Assessing Officer felt that, by reason of insertion of the said proviso, he can look into those completed assessments for the accounting years, which stood closed prior to 1st April, 2011 and, accordingly, exercised power under Section 148 of the Income Tax Act. By the judgment under appeal, the learned Judge has pointed out that there was no just reason for doing the same, inasmuch as, the distinction referred to above, according to the Income Tax Act, applies only since 1st April. 2011. 4. We, accordingly, refuse to admit the appeals. They are dismissed." It is submitted that the Hon'ble Delhi High Court in case of OIT vs. OHM Limited 352 ITR 406 has given a similar finding as of decision of BJ Services Middle East limited (Supra). Relevant observations of the Hon'ble High Court are as under: ....
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....arly, the second proviso to sub-section (1) of Section 44DA can only be interpreted to mean that where the services are general in nature and fall under the sub-section read with Explanation 2 to Section 9(l)(vii) of the Act, then an assessee rendering such services as provided in Section 44BB cannot claim the benefit of being assessed on the basis that 10 percent of the revenues will be deemed to be the profits as provided in Section 44BB. In other words, the amendment made by the Finance Act, 2010 w.e.f. 01.04.2011 in both the sections, cannot have the effect of altering or effacing the fundamental nature of both the provisions and their respective spheres of operation or to take away the separate identity of Section 44BB. We do 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." The above proposition has been followed in the case of Baker Hughes Asia Pacific Limited vs ADIT 167 TTJ 304 where in it ha....
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....may refer other provisions of the statue which insists on an agreement. For instance, section 42 deals with allowances allowable in computing the profits or gains of any business consisting of the prospecting for or extraction or production of mineral oils in relation which the Central Govt. has entered into an agreement. Section 80IA(4)(i)(b) provides that the enterprise carrying on the business of developing, operating and maintaining any infrastructure facility has to enter into an agreement with the Central Government of a State Govt. or a local authority etc. In the absence of any requirement in section 4488 that the person providing services, facilities or plant and machinery on hire should have directly entered into a contract or agreement with the person actually engaged in prospecting for or extraction or production of mineral oils, one cannot curtail the scope or applicability of section 4488 to second leg contractors whose contracts or agreements are with first leg contractors but whose services or facilities or plant and machinery are used in connection with prospecting for or extraction or production of, mineral oils as required under section 44BB.The Hon'ble Supre....
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....at the payment which the charterers had agreed to make to the owners of the ship was in consideration of the carriage of goods. It was observed that if the charterers were liable to pay the amount irrespective of whether they carry the goods or not, it would be difficult to say that the amount was payable on account of carriage of goods. It was held that the character of the payment cannot change according to the use to which the charterers put the ship or according as to whether the ship is loaded with goods in a port in India. 30. In the present case, the issue as to whether the payment made by the assessee's customers was on account of carriage of goods does not arise. The issue, that arises, is whether the assessee is rendering a service, providing a facility or giving a plant on hire. In fact, the Supreme Court observes at page-311 that one must have regard to the substance of the matter and, if necessary, tear the veil in order to see whether the true character of a payment is something other than what, by a clever device of drafting, it is made to appear. On a whole reading of the agreement entered into by the assessee with the charterers, we have already given ....
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....It is a trite law that has already held by the Hon'ble Supreme Court in B. Parmannand vs. Mohan Koikal 2011 (4) see 266 that "the language employed in a statute is the determinative factor of the legislative intend. It is well settled principle of law that the Court cannot read anything into a statutory provision which is plan and unambiguous". If the legislatures intention as contended by the Revenue was to restrict the benefit of see. 44BB only to the main contractor or ONGC, then the words after 'the assessee engaged in the business of 'supplying plant and machinery on hire' or 'providing services or facilities' ought to have been omitted. Hence, where the provision does not create any discrimination between the person who actually does the activity of prospecting for or extraction or production, and the person who supplies the plants and machinery, the narrow interpretation of the provision is thus not permitted. The basic condition to be satisfied in the said provision is that the plant or machinery supplied or lented on hire by the assessee, non-resident should be used in the prospecting for or extraction or production of minerals oils or where equipme....
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....benefit of these provisions cannot be extended to the vendors and suppliers of such first leg contractors. It is submitted that doing so would amount to base erosion and profit shifting from developing countries. A reference is then made Heydon's rule and submitted that the amendments in the scheme of Section 44BB and 440A, vide Finance Act 2010, though stated to be effective from assessment year 2011-12 must be treated as c1arificatory in nature. A reference is made to the decision of Hon'ble Supreme Court, in the case of Union of India Vs Gosalia Shipping Pvt Ltd (113 ITR 307) = 2002-TII-40-SC-LB-INTLfor the proposition that when payment is made to a shipping company for time charter, its payment for hire of shipment and not for the purpose of carrying goods, and by the same logic, when payment is made by the first leg contractor to the supplier of equipment or personnel, the payment is for such equipment or personnel and not for the purposes in which the equipment or personnel are put to use. It is then submitted that the decision of PGS Geophysical AS Vs ADIT (269 CTR 433) = 2014-TII-35-HC-OELINTL contradicts the findings in the earlier Hon'ble Delhi High Court deci....
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.... 3 see 151, Hon'ble Supreme Court had observed that "(t}he binding effect of a decision of this Court does not depend upon whether a particular argument was considered or not, provided the point with the reference to which the argument is advanced subsequently was actually decided in the earlier decision ..... " In view of these discussions, we see no reason to take any other view of the matter than the view taken by the coordinate benches and respectfully following the views of the coordinate bench, we approve the conclusions arrived at by the learned CIT (A) and decline to interfere in the matter. Our submissions in respect of Argument no. 3 i.e. Decision of Hon'ble Delhi High Court in case of PGS Geophysical AS It is submitted that the decision of Hon'ble High Court in case of PGS geophysical AS 369 ITR 27 has recently been recalled by the Hon'ble Court vide order dated 01-05-2015.Relevant observations of the court are as under: "Learned Senior Counsel points out the relevant parts of the Assessing Officer's (AO) order, submissions made before the Income Tax Appellate Tribunal (ITAT), as well as the grounds of appeal to sho....
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....n 44BB of the Act. 10. The next question is whether the Amendment in section 44BB and 44DA should be read as retrospective is also no longer Res-Integra as pointed out by the Ld. AR. In B J service company middle East Ltd vs DCIT 339ITR169by order dated 20.08.2011, the Hon'ble Uttarakhand High Court, the jurisdiction High Court has held as under: "55. As stated earlier, the combined effect of the provisions of s. 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 s. 44BB and 44DA of the Act would take effect from 1st April, 2011 and would apply in relation to the asst. yr. 2011-12 and subsequent years. The amendment is prospective in nature and would not apply to the cases in hand which is of the earlier assessment years." 11. It was further brought to our notice by the Ld. AR, that against the aforesaid order of the Hon'ble High Court S.L.P. was preferred by the Revenue which was dismissed by observing as under: "whereas section 44BB deals with a non-resident assessee providing, amongst others, services or facilities in con....