TaxTMI 
TaxTMI 
2017 (1) TMI 1379
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....against 10% deemed income u/s 44BB. 3. That the ld.AO has erred in taxing interest on Income Tax Refund at 41.82% as against 15% as envisaged in Article 12 of DTAA between India and U.K. 4. That the ld.AO has erred in charging interest u/s 234B." Grounds of appeal No. 421/Del./2012 (2008-09): Addition qua services in connection with exploration/prospecting/extraction of mineral 1. That the Ld. AO/DRP erred on facts and in law in completing assessment under section 144C/143(13) of the Income-tax Act, 1961 ('the Act') at an income of Rs. 4,891,233,532/- as against the income of Rs. 481,586,605/- returned by the appellant. 2. The Ld. AO/DRP has erred on the facts and in law in dismissing the claim of the appellant that revenue of Rs. 4,883,904,056 earned from rendering services in connection with prospecting for, extraction or production of mineral oils was covered by the provisions of Section 44BB of the Act. 3. Without prejudice to the claim of the appellant that the entire revenue was chargeable to tax u/s 44BB, the appellant claims that the Ld. AO/DRP erred on facts and in law in not following the directions of the DRP and contrary to the directions of the DRP ....
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....of the assessee was liable to be chargeable to tax u/s 44BB and the assessee was neither required to maintain books of accounts nor get the same audited. Levy of interest 11. That the Ld. AO/DRP erred on facts and in law in levying interest under section 234B of the Act especially when there was no liability on the assessee to pay advance tax under section 209(1 )(d) of the Income-tax Act, 1961. 12. That the Ld. AO/DRP erred on facts and in law in not following the decision of the Hon'ble Jurisdictional High Court of Uttarakhand in the case of DIT vs Maersk Co. Ltd. [240 CTR 218] wherein the Hon'ble High Court held that interest u/s 234B was not chargeable where the entire income is subject to tax deduction at source. 13. That the Ld. AO/DRP erred on facts and in law in levying interest under section 234C as interest under section 234C can be levied only on the returned income and not assessed income. Grounds of appeal No. 4831/Del./2012 (2009-10): Addition with respect to services rendered in connection with Exploration/prospecting/extraction of mineral. 1. That the Ld. AO/DRP erred on facts and in law in completing assessment under section 144C/143(13) of the ....
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.... 234B of the Act especially when there was no liability on the assessee to pay advance tax under section 209(1 )(d) of the Income-tax Act, 1961. That the Ld. AO/DRP erred on facts and in law in not following the decision of the Hon'ble Jurisdictional High Court of Uttarakhand in the case of DIT vs Maersk Co. Ltd.-[240 CTR 218] wherein the Hon'ble High Court held that interest u/s 234B was not chargeable where the entire income is subject to tax deduction at source. 2. Since the issues involved in all these three appeals are identical, therefore, all these appeals are being disposed of by this consolidated order for the sake of convenience and brevity. 3. The brief facts of the cases are that the assessee company was engaged in providing services and facilities in connection with exploration and production of mineral oils and received Revenue against the work executed with different companies, as mentioned in the respective assessment orders. The nature of services rendered for various companies include cementing services, equipment rentals, provision of cementing, consumable and services, hiring of cementing services , provision of cementing equipment, products and ser....
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....th sec. 144C(13) at Rs. 21,59,89,644/-, Rs. 4,89,12,33,530/- and Rs. 62,31,35,555/- respectively for the assessment years 2007-08, 2008-09 and 2009-10. Being aggrieved, the appellant/assessee is in appeals before the Tribunal. 4. From the above narration of facts, and the grounds of appeals raised before us, we find that the major issues, involved in the present appeals are as under : (i) Whether the assessee company is entitled to benefit of section 44BB(1) on the income from contracts of non-PSC companies or such receipts would be taxable u/s. 115A/44DA as per normal provisions of the Act. (ii). Whether VAT & Service Tax received by assessee has to be considered as part of total receipts or it is excludible from the total receipts for the purpose of taxation. (iii). Whether the interest received on Income-tax Refund should be taxed @ 15% under Article 12 of DTAA, treaty with UK or should be taxed @ 40% as per normal provision of the Act. (iv). Whether the reimbursement of actual expenditure is exigble to tax as FTS or not. 5. Adverting to the first issue regarding availability of benefit of section 44BB(1) with respect to receipts from non-PSC contracts, the ld. AR of the a....
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....ils or the services or facilities or plant and machinery on hire should be directly provided to the said person alone. We have 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." This decision of ITAT has been confirmed by Uttaranchal High Court in ITA No. 36 of 2015. The issue is further covered by the decision of Hon'ble Apex Court in the case of ONGC vs. CIT, 376 ITR 306 (SC), wherein the appellant company before us, was also the intervener in Civil Appeal No. 2008 of 2008. The Hon'ble Supreme Court has held as under : "13. The Income Tax Act does not defi....
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....n 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. S. No. Civil Appeal No. Work covered under the contract 1 4321 Drilling of exploration wells and carrying out seismic surveys for exploratory drilling. 2. 740 Drilling, furnishing personnel for manning, maintenance and operation of drilling rig and training of personnel. 3. 731 Drilling, furnishing personnel for manning, maintenance and operation of drilling rig and training of personnel. 4. 1722 Furnishing supervisory staff with expertise in operation and management of Drilling unit. 5. 729 Capping including subduing of well, fire fighting. 6. 738 Capping including subduing of well, fire fighting. 7. 1528 Analysis o....
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....ions. 35. 925 Engineering analysis of rig. 36. 1519 Imparting training on cased hold production log evaluation and analysis. 37. 1533 Training on well control. 38. 1518 Training on implementation of Six Sigma concepts. 39. 1516 Training on implementation of Six Sigma concepts. 40. 6023 Training on Drilling project management. 41. 2796 Training in Safety Rating System and assistance in development and audit of Safety Management System. 42. 1239 To develop technical specification for 3D Seismic API modules of work and to prepare bid packages. 43. 1527 Supply supervision and installation of software which is used for analysis of flow rate of mineral oil to determine reservoir conditions. 44. 1523 Supply, installation and familiarization of software for processing seismic data. 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 w....
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....rom 1st April 2011, are clarificatory in nature and have to be read into the provisions of the Act. Its her contention that the provisions of Section 44BB are meant for the first leg contractors engaged in prospecting, extracting and producing mineral oils, and that the 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 44DA, vide Finance Act 2010, though stated to be effective from assessment year 2011-12 must be treated as clarificatory in nature. A reference is made to the decision of Hon'ble Supreme Court, in the case of Union of India v. Gosalia Shipping (P.) Ltd [1978] 113 ITR 307 for 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 n....
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....r argumentative novelty cannot undo or compel reconsideration of a binding precedent... A decision does not lose its authority merely because it was badly argued, inadequately considered or fallaciously reasoned....". Similarly, in the case of Kesho Ram & Co. v. Union of India [1989] 3 SCC 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." 27. On the basis of the above, following the decision of the coordinate bench we held that the revenue of the second leg contracts are also eligible for benefit of preferential tax treatment provided in section 44BB of the Income Tax Act and therefore, ground No. 8 of the appeal is allowed." 6. The learned....
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....is not to be included in the gross receipts in terms of Section 44 BB (2) read with Section 44 BB (1). The service tax is not an amount paid or payable, or received or deemed to be received by the Assessee for the services rendered by it. The Assessee is only collecting the service tax for passing it on to the government. 8. The learned DR, on the other hand, relied on the order of the lower authorities and he submitted a written synopsis regarding taxability on VAT receipts, which reads as under : 1. The Assessment Order and DRP orders are emphatically relied upon. Following additional submissions are made. 2. Section 44BB makes a special provision for computing profits and gains of the non-resident assessee engaged in the business of exploration, etc., of mineral oils. Sub-section (1) provides that in respect of such an assessee, notwithstanding anything contained in sections 28 to 41 and sections 43 to 43A, an assessee shall be deemed to have earned ten per cent profit on the amount mentioned in sub-section (2) received by him. 3. Section 44BB is a complete code in itself. It provides by a legal fiction to be the profits and gains of the non-resident assessee engaged in t....
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.... government receipts (that were received during the relevant PY) that these are taxable receipts: CITATION TAX / RECEIPT [1997] 228 ITR 112 (All) Jagdish Prasad Nigam Excise Duty [2006] 154 TAXMAN 266 (ALL) Mohan Shramic Udyog Ltd Central Sales Tax and Local Sales Tax [2012] 28 TAXMANN.COM 94 (CAL) Poddar Projects Surcharge is part of Rent [2013] 35 taxmann.com 565 (Allahabad) UP Hotels Luxury Tax [1982] 9 Taxman 173 (Punj_Har) Kunjpura Kiln Royalty (payable to government) [2006] 154 Taxman 274 (Allahabad) Rampur Distillery Export Duty [2015] 58 taxmann.com 206 (Bombay) Ovira Logistics Service Tax 6 Accordingly, the receipt of VAT is definitely connected with the business of of exploration and / or extraction of oil and needs to be included in the aggregate amount to be brought to tax under section 44BB. (It is also notable that VAT 'succeeded / replaced' the sales tax and terefore the principal enunciated in Chowringhee Sales Bureau (P.) Ltd. v. CIT [1973] 87 ITR 542 (SC) applies squarely.) 7. It is submitted that for the purpose of working of deduction u / s 80HHC, the Hon'ble SC in Lakshmi Machine Works [2007] 160 TAXMAN 404 (SC) has held that sales ta....
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....served above. As a result, ground No. 1 for A.Y. 2007-08, grounds Nos. 8 & 9 for A.Y. 2008-09 and grounds Nos. 6 & 7 for A.Y. 2009-10 are allowed for statistical purposes. 10. The third issue is whether the interest received on Income-tax Refund should be taxed @ 15% under Article 12 of DTAA, treaty with UK or should be taxed @ 40% as per normal provision of the Act. In this regard, the ld. AR of the appellant submitted that this issue is covered under Article No. 12 of the DTAA, according to which the interest on refund is taxable @ 15%. Article No. 12 of DTAA reads as under : " 1. Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. 2. However, such interest may also be taxed in the contracting state in which it arises and according to the law of that State, provided that where the resident of the other Contracting State is the beneficial owner of the interest the tax so charged shall not exceed 15% of the gross amount of the interest. Even if para 1 and 2 of Article 12 are read with para 6 thereof, even then interest income has to be taxed at 12% as envisaged by para 2 of Article 12 because of the f....
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....ion or production of, mineral oils in India, and (B) payable to the assessee (whether in or out of India) on account of the provision of services and facilities in connection with, or supply of plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils in India. Clause (b) of sub-s. (2) refers to the amounts, (A) received by assessee in India on account of the provision of services and facilities in connection with, or supply of plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils outside India, and (B) deemed to be received by the assessee in India on account of the provision of services and facilities in connection with, or supply of plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils outside India. 6. Thus, it is clear from the perusal of s. 44BB that all the amounts either paid or payable (whether in India or outside India) or received or deemed to be received (whether in India or outside India) are mutually inclusive. This amount is the basis of determination of deemed profits and gains o....