TaxTMI 
TaxTMI 
2017 (1) TMI 1208
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....instead of Business Income under Article 7 of DTAA between India & U.A.E. Even though CIT(A) held that Valentine Maritime (Gulf) LLC is entitled to tax benefits and since the assessee did not have PE in India the same is not taxable. 2. The learned CIT(A) has erred in taxing the revenues earned from Leighton Contractor (I) Private Limited for Time Charter Hire Tug Boat JU 251 as "Royalty" under section 9(1)(vi) of the Act instead of Business Income under Article 7 of DTAA between India & U.A.E, Even though CIT(A) held that Valentine Maritime (Gulf) LLC is entitled to tax benefits and since the assessee did not have PE in India the same is not taxable." ITA No. 9239/Mum/2010 (Revenue's appeal) "1. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in directing the deletion of interest u/s 234B. 2. The Appellant prays that the order of the ld. CIT(A) on the above ground be set aside and that of the Assessing Officer restored." 3. Notably, in this case assessee as well as Revenue have preferred additional Grounds of appeal also, which are as under :- Assessee's additional Ground of appeal :- "The ....
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....s. Aracadia Shipping Ltd. for the period 25.12.2006 to 31.3.2007 (contract continued till 7.5.2007) against which it received a sum of Rs. 2,40,47,846/- as hire charges. The said boat was used by M/s. Aracadia Shipping Ltd. in the Mumbai High Offshore Field (Bassein field) for the purpose of topside modification of ONGC platform. The third vessel, namely Barge JU-251 was also given on hire to one M/s. Leigthton Contractors India Pvt. Ltd. for the period 10.11.2006 to 31.3.2007 (contract continued upto 6.6.2007), against which it received hire charges of Rs. 11,77,55,535/-. This barge was used for offshore accommodation/construction activities near Jamnagar, Gujarat. In the return of income filed, the total sum of Rs. 15,69,92,381/- earned by assessee on hiring out of aforesaid two boats and one barge was claimed as exempt in terms of Article 7 read with Article 5 of the Double Taxation Avoidance Agreement (DTAA) between India and UAE. Even in the assessment proceedings, assessee claimed that aforesaid earnings were by way of contractual receipts, which are in the nature of 'business profits' covered by Article 7 of DTAA between India and UAE and, therefore, in the absence of any Pe....
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....aforesaid earnings by way of hire charges as payments received by assessee for use of its commercial equipment as Royalty within the meaning of Sec. 9(1)(vi) of the Act. Accordingly, the receipts of Rs. 15,69,92,381/- was taxed as Royalty @ 10% in terms of Sec. 115A of the Act. 6. The aforesaid assessment was carried in appeal before the CIT(A) on various Grounds. Firstly, the assessee canvassed that the Assessing Officer was not justified in denying the applicability of India-UAE DTAA while determining the tax liability. With regard to the revenue earned from M/s. Aracadia Shipping Ltd. for hiring of tug boat Valentine III and Zakher King, assessee contended that the Assessing Officer erred in denying the benefits of DTAA and alternatively contended that the income ought to have been assessed in terms of Sec. 44BB of the Act and not as Royalty within the meaning of Sec. 9(1)(vi) of the Act. With regard to the action of Assessing Officer in taxing the earnings from M/s. Leigthton Contractors India Pvt. Ltd. for the time charter hire of barge JU-251, assessee contended that the Assessing Officer erred in denying the benefits of DTAA of India-UAE and that such income was wrongly a....
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....sion of CIT(A) has been assailed by Revenue before us by way of additional Ground of appeal no. 2 stated above. 8. Now, insofar as the earning received by the assessee from M/s. Leigthton Contractors India Pvt. Ltd. for lease of barge JU-251 amounting to Rs. 11,77,55,535/- is concerned, the CIT(A) held that assessee was not able to prove that the same was actually used by the hirer in connection with prospecting for or extraction or production of mineral oils in Jamnagar. According to the CIT(A), the barge was used for offshore accommodation of the employees of M/s. Leigthton Contractors India Pvt. Ltd. and was not directly involved in connection with prospecting of mineral oil. For the said reasons, he affirmed the stand of Assessing Officer to deny the taxation of such receipts in terms of Sec. 44BB of the Act. Instead, he upheld the stand of Assessing Officer that the income earned from hiring out of barge JU-251 fell within the scope of Article 12(3) of the DTAA between India and UAE and amounted to Royalty. It was also noticed by CIT(A) that since the tax liability under the DTAA and the domestic law would remain the same as Royalty, the action of Assessing Officer of taxin....
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....n this regard he referred to the decision of Tribunal dated 19.3.2015 (supra) wherein the earlier decision of Tribunal for Assessment Year 2005-06 has been followed. Of course, it is seen that the said decision of Tribunal was rendered in connection with the income earned from laying and installation of pipelines in Bombay High North field. The incomes in the instant year are by way of hiring of vessels for use by the hirer in the business of prospecting for or extraction or production of mineral oils. It is pointed out that the CIT(A) made no mistake in treating the earnings from hiring of tug boats to M/s. Aracadia Shipping Ltd. as being eligible for taxation in terms of Sec. 44BB of the Act. In fact, as per the assessee, even the earnings from M/s. Leigthton Contractors India Pvt. Ltd. for hire of barge JU-251 should also be eligible for taxation in terms of Sec. 44BB of the Act. In this context, the learned representative pointed out that in the subsequent Assessment Year of 2008-09, vide assessment finalised u/s 144C(3) r.w.s 143(3) of the Act dated 22.2.2011, the Assessing Officer has himself accepted that the earnings from hiring of vessels to M/s. Aracadia Shipping Lt....
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....used in prospecting for or extraction or production of mineral oils. In the instant, the case set-up by the assessee is that it has hired out two tug boats and a barge to M/s. Aracadia Shipping Ltd. and M/s. Leigthton Contractors India Pvt. Ltd. respectively to be used in the prospecting for or extraction or production of mineral oils. At pages 9 and 10 of Paper Book assessee has placed certificates issued by M/s. Aracadia Shipping Ltd., wherein it is confirmed that the two tug boats hired from the assessee have been used for the anchor handling operations at Bombay High Offshore field (basin field) and at Bombay High Offshore field (D1). In the context of the use of barge JU-251 hired out to M/s. Leigthton Contractors India Pvt. Ltd. at Jamnagar, assessee has furnished a Naval Security Clearance Certificate dated 17.1.2007, copy of which has been placed at page 78 of the Paper Book. The Naval clearance prescribes that barge JU-251 at Jamnagar is cleared for operations relating to pipeline laying and SPM installation, pre-commissioning and commissioning work. On the basis of the aforesaid, the case of assessee is that all the three vessels hired out have been used in the business o....
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.... Helicopters International Pty Ltd., 249 ITR 162 (AAR) wherein even the income derived from providing of helicopter to facilitate operation of extraction and production of mineral oil was held to be eligible for assessment Sec. 44BB of the Act. In the instant case, it is not in dispute that the assessee is indeed engaged in the business activity of providing facilities and/or services in connection with prospecting for or extraction or production of mineral oils and, therefore, hiring of barge JU-251 is done in the course of such business by the assessee. The ratio of the decision of Delhi Bench of Tribunal in the case of M/s. SBS Marine (supra), which has been relied upon by the assessee before us is also to the same effect. In this context, we may reproduce hereinafter the relevant discussion in the order of Tribunal dated 13.2.2015 (supra) :- "20. Be that as it may, even if one were to consider that the assessee was engaged in simple hiring of vessels, the same, in our opinion, would still be covered by the second limb of section 44BB which deals with supplying plant and machinery on hire used or to be used in the prospecting for or extraction or production of mineral o....
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....ing for or extraction or production of, mineral oils. There is no requirement under section 44BB that the services or facilities or supplying of plant and machinery should be provided only to the main person who is engaged in prospecting for or extraction or production of, mineral oils i.e., ONGC in the present case. In other words, the applicability of section 44BB is not only restricted to the assessee (first leg contractors) who has directly entered into a contract with the person who is engaged in prospecting for or extraction or production of, mineral oils i.e., ONGC in the present case. The revenue's argument is that the words 'used or to be used' are used in terms of the 'Plant and Machinery' and not to specify the person who shall use it, i.e. the clause 'used, or to be used' is in conjunction with the clause 'in the prospecting for, or extraction or production of, mineral oils'. This argument actually support the case of the assessee since what really matters is the activity for which the plant and machinery is used i.e., prospecting for or extraction or production of, mineral oils irrespective of who uses the plant and machinery whether (it is used) by first leg contracto....
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....ve already given a finding of fact that the services and facilities provided by the assessee along with plant and machinery are used in offshore drilling operations i.e., the activity of prospecting for or extraction or production of mineral oils. Consequently, the requirements of section 44BB are satisfied in the present case. 24. In view of the above, there is no merit in the contentions of the revenue that the assessee is not an eligible assessee under section 44BB since it has not directly entered into contract with the ONGC and it is not undertaking the activities specified in section 44BB itself and being second leg contractors they are not eligible under section 44BB." Therefore, following the aforesaid precedent and the phraseology of Sec. 44BB of the Act, in our considered opinion, even the earnings from hiring of barge JU-251 to M/s. Leigthton Contractors India Pvt. Ltd. are eligible for assessment u/s 44BB of the Act. In coming to such a conclusion, we are also conscious of the stand of Assessing Officer as manifested in the assessment order for Assessment Year 2008-09, wherein hiring receipts from M/s. Leigthton Contractors India Pvt. Ltd. on account of hire....