TaxTMI 
TaxTMI 
2016 (5) TMI 258
X X X X Extracts X X X X
X X X X Extracts X X X X
....ons of sec 44DA r.w.s. 115 of the Act, 1961, even though the provisions of sec 44DA r.w.s. 115A of the Act, 1961, even though the nature of services rendered by the assessee were technical in nature and were not for a project undertaken by the assessee, as required by explanation 2 to section 9(1 )(vii). 3. Whether on the facts and circumstances of the case, theCIT(A) has erred in holding thatthe income of the assessee was taxable under the presumptive provisions of sec 44BB and ignoring the fact that taxability u/s 44BB shall not apply in respect of income referred to in section 44DA in view of the clarificatory proviso to sec. 44BB and sec 44DA. 4. 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, 2011 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 in to effect in view of the decision of the Hon'ble Supreme Court in the case of Sedco Forex International Drilling v/sCIT, delivered on 17.11.2005. 5. Whether on the facts and circumstances of the case....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lization charges/fees as receivable towards technical charges and liable for tax under section 9(1)(vii) of the Act, and accordingly he applied the provisions of section 115A of the Act and taxed the income at the rate of 10% on gross basis. 4. Aggrieved, the assessee filed appeal before the learned Commissioner of Income-tax(Appeals), who held that looking to the nature of activities of the assessee as per contract, the assessee was within the purview of section 44BB of the Act and not within section 44DA/115A(b) of the Act. He also held that for the purpose of section 44BB gross revenue/receipt basis is to be taken and mobilization revenue cannot be apportioned based on the voyage done within and outside the territorial water of India. 5. Aggrieved, the Revenue is in appeal and the assessee filed cross objections to the appeal, before the Tribunal. 6. At the outset of hearing, the Ld. Commissioner of Income Tax (Departmental Representative) [in short 'CIT(DR)'] submitted that ground No. 1 to 5 of the appeal were covered against the Revenue by the decision of the Tribunal, Delhi Bench in the case of CGG Veritas Services, SA Vs. Additional Director of Income Tax, Internati....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cable from assessment year 2011-12 according to which provisions of section 44BB (1) will not be applicable in respect of income referred to this section. On combined reading of proviso to section 44BB (1) and second proviso to section 44DA it is clear that the fee for technical services rendered in connection with prospecting 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sessee's paper book and drawn our attention to the clause no. 7.3.1 of the contract agreement, which contained provision for lower or no withholding tax by the 'Cairn' on production of lower or no withholding tax certificate by the assessee. 7.2 On the other hand, learned Authorized Representative of the assessee relied on the recent judgment of the Hon'ble High Court of Delhi in the case of Director of Income Tax, International Taxation Vs. GE Packaged Power Inc. reported in (2015) 56 taxmann.com 190 (Delhi), wherein it is held that where the assessee were non-resident companies and entire tax was to be deducted at source on payments made by payee to it and there was no question of payment of advance tax by the assessee, it would not be permissible for the Revenue to charge any interest under section 234B of the Act from the assessee. 7.3 We have heard the rival submissions and perused the material on record. The Hon'ble Delhi High Court in the case of GE Packaged Power Inc. (supra) has considered the judgment in the case of Jacabs Civil Incorporated/Mitsubishi Corporation (supra) and the judgment in the case of Alcatel Lucent USA Inc (supra) and held that in the case of Alc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t the payer as an assessee-in-default for failure to deduct tax at source, under Section 201.This Court is thus in agreement with the position of law in Jacabs Civil Incorporated/Mitsubishi Corporation (supra), that the obligation of the payer to deduct tax is absolute 17. The implication of an absolute obligation upon the payer to deduct tax at source under Section 195(1) is that it becomes the responsibility of the payer to determine the amount it ought to deduct from the remittance to be paid to the assessee, towards tax. This determination would depend directly on the income of the assessee that is taxable in India on account of being attributable to its PE in India. That this determination is the responsibility of the payer is provided for, in the statute, in Section 195(2), which reads: '(2) Where the person responsible for paying any such sum chargeable under this Act other than salary to a non-resident considers that the whole of such sum would not be income chargeable in the case of the recipient, he may make an application to the Assessing Officer to determine, by general or special order, the appropriate proportion of such sum so chargeable, and upo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....magine that the Indian telecom equipment dealers of the assessee would have failed to deduct tax at source except on being prompted by the assessee. It may be true that the general rule is that equity has no place in the interpretation of tax laws. But we are of the view that when the facts of a particular case justify it, it is open to the court to invoke the principles of equity even in the interpretation of tax laws. Tax laws and equity need not be sworn enemies at all times. The rule of strict interpretation may be relaxed where mischief can result because of the inconsistent or contradictory stands taken by the assessee or even the revenue. Moreover, interest is, inter alia, compensation for the use of the money. The assessee has had the use of the money, which would otherwise have been paid as advance tax, until it accepted the assessments at the first appellate stage. Where the revenue has been deprived of the use of the monies and thereby put to loss for no fault on its part and where the loss arose as a result of vacillating stands taken by the assessee, it is not expected of the assessee to shift the responsibility to the Indian payers. We are not to be understood as pass....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n-resident, any interest (not being interest on securities) or any other sum (not being dividend) chargeable under the provisions of the I.T. Act, to deduct income tax at the rates in force unless he is liable to pay income tax thereon as an agent. Payment to nonresidents by way of royalty and payment for technical services rendered in India are common examples of sums chargeable under the provisions of the I.T. Act to which the aforestated requirement of tax deduction at source applies. The tax so collected and deducted is required to be paid to the credit of Central Government in terms of Section 200 of the I.T. Act read with Rule 30 of the I.T. Rules, 1962. Failure to deduct tax or failure to pay tax would also render a person liable to penalty under Section 201 read with Section 221 of the I.T. Act. In addition, he would also be liable under Section 201(1A) to pay simple interest at 12 per cent per annum on the amount of such tax from the date on which such tax was deductible to the date on which such tax is actually paid. The most important expression in Section 195(1) consists of the words "Chargeable under the provisions of the Act". A person paying interest or any other sum....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ct to obtain a NOC from the Department that no tax was due. That certificate was required to be given to RBI for making remittance. It was held in the case of Czechoslovak Ocean Shipping International Joint Stock Company v. ITO [1971] 81 ITR 162 (Calcutta) that an application for NOC cannot be said to be an application under Section 195(2) of the Act. Which deciding the scope of Section 195(2) it is important to note that the tax which is required to be deducted at source is deductible only out of the chargeable sum. This is the underlying principle of Section195. Hence, apart from Section 9(1), Sections 4, 5, 9, 90, 91 as well as the provisions of DTAA are also relevant, while applying tax deduction at source provisions. Reference to ITO (TDS) under Section 195(2) or 195(3) either by the non-resident or by the resident payer is to avoid any future hassles for both resident as well as non-resident. In our view, Sections 195(2) and 195(3) are safeguards. The said provisions are of practical importance. This reasoning of ours is based on the decision of this Court in Transmission Corporation (supra) in which this safeguard. From this it follows that where a person responsible for ded....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n of the expression "sum chargeable under the provisions of the Act" from Section 195(1). While interpreting a Section one has to give weightage to every word used in that section. While interpreting the provisions of the Income Tax Act one cannot read the charging Sections of that Act de hors the machinery Sections. The Act is to be read as an integrated code. Section 195 appears in Chapter XVII which deals with collection and recovery. As held in the case of C.I.T v. Eli Lilly & Co. (India) (P.) Ltd. [2009] 312 ITR 225 (SC) the previsions for deduction of TAS which is in Chapter XVII dealing with collection of taxes and the charging provisions of the I.T Act form one single integral, inseparable Code and, therefore, the provisions relating to TDS applies only to those sums which are "chargeable to tax" under the I.T. Act. It is true that the judgment in Eli Lilly (supra) was confined to Section 192 of the I.T. Act. However, there is some similarity between the two. If one looks at Section 192 one finds that it imposes statutory obligation on the payer to deduct TAS when he pays any income "chargeable under the head salaries". Similarly, Section 195 imposes a statutory obligation ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sidents. In other words, according to the Department Section 195(2) is a provision by which payer is required to inform the Department of the remittances he makes to the non-residents by which the Department is able to keep track of the remittances being made to non-residents outside India. Section 195(1)uses the expression "sum chargeable under the provisions of the Act". We need to give weightage to those words. Further, Section 195 uses the word 'prayer' and not the word "assessee". The payer is not an assessee. The payer becomes an assessee-in-default only when he fails to fulfil the statutory obligation under Section 195(1). If the payment does not contain the element of income the payer cannot be made liable. He cannot be declared to be an assessee-in-default. The above mentioned contention of the Department is based on an apprehension which is ill founded. The payer is also an assessee under the ordinary provisions of the I.T. Act. When the payer remits an amount to a nonresident out of India he claims deduction or allowances under the Income Tax Act for the said sum as an "expenditure". Under Section 40(a)(i), inserted vide Finance Act, 1988 w.e.f. 1.4.89, payment i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d. Therefore, the dispute between the revenue and the respondent in these cases is whether payments made by the respondent to the nonresident would constitute 'royalty' or 'Income from Business' and if it is to be treated as 'Income from Business', whether the non-resident is required to have a permanent establishment in India. Further, in the absence of any permanent establishment of the non resident in India, is there no obligation on the part of the payee, the respondent herein to deduct tax at source under Section 195 of the Act. Therefore, the fact that the payments made by the payee, the respondent herein to the non-resident would constitute income of the non-resident is indisputable. However, the dispute is as to whether such income in the hands of the non-resident is to be treated as sale and income from business covered under Article 7 of the DTAA with respective countries or whether the payments would amount to royalty in the hands of the non-resident, for which no permanent establishment is required for making payment in India. There is also no dispute that if the payments made by the respondent are held to be royalty and not 'Income from Busi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ask is to unravel the legislative intent, if it is not discernable. Where, however, the provisions are clear, the Court's duty is to administer the law in its terms. It is bound to adhere to its precedents; yet its devotion to a previous holding cannot blind it to the clear terms of the statute, wherever found. If Alcatel Lucent USA Inc(supra) is correct and is to be applied in all situations, there would be dissimilar and asymmetrical results entirely dependent on the facts presented in each case. It is unclear what would be the outcome where the payee is, in fact, under the bona fide belief that it does not have a PE, or how the payer is to discern that a payee's assertion is intended to defeat the law. This Court therefore, notes that this precise question was addressed in Samsung Electronics Co. Ltd. (supra) by the Supreme Court, while remitting the matter for reconsideration by the High Court. The Court perceptively held that: "Hence, apart from Section 9(1), Sections 4, 5, 9, 90, 91 as well as the provisions of DTAA are also relevant, while applying tax deduction at source provisions. Reference to ITO (TDS) under Section 195(2) or 195(3) either by the non-res....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Court in the case of GE Packaged Power Inc, we are of the opinion that the assessee cannot be held responsible for lower or no withholding tax and consequent responsibility of interest under section 234B of the Act for non-payment of advance tax on its income. Accordingly, we uphold the finding of the learned Commissioner of Income-tax(Appeals) on the issue and the ground of the Revenue is dismissed. 8. The ground No. 7 of the appeal being general in nature, not required to adjudicate upon by us. 9. In the result, appeal of the Revenue is dismissed. C.O. No. 59/Del/2013 10. Now, we take up the cross objection of the assessee in C.O. No. 59/Del/2013, raising following grounds: 1. Whether on the facts and circumstances of the case, the CIT(A) has erred inholding that the Professional charges received by the assessee were not in the nature of fees for technical services as defined in sec. 9(1 ){vii) of the Act. 2. Whether on the facts and circumstances of the case, the CIT{A) has erred in holding that the income of the assessee was not taxable under the provisions of sec 44DA r.w.s. 115 of the Act, 1961, even though the provisions of sec 44DA r.w.s. 115A....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... that the coordinate bench of the Tribunal, Delhi in the case of WesternGeco International Ltd. Vs. ADIT (supra) after considering the submissions of the rival parties held that entire mobilization charges are to be considered for estimating income from the contract activity carried out in India. The relevant part of the decision is reproduced as under: 8. On ground no.5 and 6 the submissions of Ld. Counsel for the assessee are as follows. "2. Taxability of mobilization/demobilization revenues Nature of mobilization/demobilization activities Mobilization/demobilization activities include all the activities involved in movement of equipment from one operating area to another. In the Oil and Gas sector as a normal practice, customers generally compensate a contractor for such movements known as mobilization/demobilization fee. Further, when drilling equipment is mobilized from outside India and the same is demobilized from India, substantial portion of operations are actually performed outside India. Definition of the term 'India' The definition of 'India' for the purposes of levying income tax includes exclusiv....
X X X X Extracts X X X X
X X X X Extracts X X X X
....a, only such portion of the income as is reasonably attributable to the operations carried out in India is deemed to accrue or arise in India and hence, taxable in India. In view of the above, mobilization/ demobilization revenues should be apportioned on the basis of total journey undertaken by the equipment in Indian territories. Accordingly, mobilization/ demobilization revenues taxable in India should be restricted only to the revenues attributable to the distance travelled in the Indian territorial waters as compared to the total distance travelled. Legal precedents in support of non-taxability of mobilization/demobilization revenues attributable to distance travelled outside India As submitted before the lower authorities also the revenues from mobilization! demobilization attributable to distance travelled outside India should not be taxable, the Appellant placed reliance on the following judicial precedents: * Rand B Falcon Drilling Co vs. ACIT [(2007) 14 SOT 281(Delhi ITAT)] * Saipem S.P.A. vs Deputy Commissioner of Income Tax [(2003) 86 ITD 572 (Delhi ITAT)] * Assistant Commissioner of Income Tax vs Jindal Drilling Lea....
X X X X Extracts X X X X
X X X X Extracts X X X X
....4, 5 and 9 and the decision of Ishikawajima Harima Heavy Industries Ltd, in the instant case, it was submitted that only the mobilization/ demobilization income attributable to distance travelled in India should be taxable in India. * The measure of tax cannot also be assumed to extend beyond the very scope of charging section. As unlike in case of Sedco Forex the Appellant is not seeking a deduction from taxable income on the ground of reimbursement but is contending that a portion of the revenue cannot form part of income at all. By reference to the facts in the Sed co Forex decision it was submitted that the dispute considered by Hon'ble HC therein was whether reimbursement could be excluded for purposes of section 44BB of the Act. The Hon'ble He did not have to deal with the factual aspects, as involved in present case or the legal disputes arising in present case. Based on the above arguments, the He ruling of Sedco Forex is not applicable to the facts of Appellant's case. The Departmental representative other submission was that even payments made outside India are includable for purposes of Section 44BB. Reference was made to Section 44BB(2)(a) ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....de India. The main arguments of the assessee are dealt below: * Provisions of Section 5(2)(b) applies to the assessee being a non-resident. It referred to Clause(a) of Explanation to Section 9(1)(i) of the Act to claim that only such portion of revenue as is reasonable attributable to the operations carried out in India is deemed to accrue or arise in India and accordingly revenue taxable in India should be restricted only to the revenue attributable to the distance travelled in the Indian territorial waters as compared to the total distance travelled. This claim of the assessee is not proper and unacceptable for the following reasons: Section 28 defines the scope of profits and gains of the business or profession. Section 28(i) deals with the profits and gains of any business or profession which was carried on by the assessee at any given time during the previous year. Therefore, what is important is the business or profession carried out by the assessee. Section 44BB overrides Sections 28 to 41 and sections 43 and 43A. Here emphasis is on the business carried out by the assessee. Mobilization and Demobilization are activities in connection with the business of t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Noble Denton clarifying that distance are travelled cannot be any basis to decide the taxability as the certificate only certify the movements of ship in Indian water or out of Indian water. It does not justify that these are different operations. The movements whether in Indian water or out of Indian water are for the purpose of business in India? The assessee need to appreciate that ship started moving of its present location for carrying out the work in India. The movement itself is not a separate operation. * The claim that measure of tax cannot assumed to extend beyond the very scope of charging section and portion of the revenue is not taxable. This is again unacceptable proposition, as all receipts are taxable as per the provisions of section 5 and 9 of the Act. Further, Section 44 BB (2) explicitly defines the chargeable amounts. * The claim that in the case of Sedco the issue was of reimbursements. It does not change the issue because the reimbursement was also a receipt. * The proposition advanced by the assessee if applied to Section 44B (similar deeming/presumptive section) will lead to absurd results as then only amounts proportionate to dist....