TaxTMI 
TaxTMI 
2023 (9) TMI 1723
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....n, Circle-2, Dehradun for AY 2014-15 and 16.01.2018 by the ACIT, International Taxation, Circle-2, Dehradun (hereinafter referred to as 'Id. AO'). 2. Identical issues are involved in all these appeals and hence they are taken up together and disposed of by this common order for the sake of convenience. 3. Both the parties mutually pleaded that the appeals for Asst Year 2015-16 to be taken as the lead year and the decision rendered thereon would apply with equal force for Asst Year 2014-15 also, except with variance in figures. 4. The Ground Nos. 1 to 4 raised by the assessee and Ground Nos. 1 to 7 raised by the revenue are regarding the taxability of services includible in the revenue chargeable to tax u/s 44BB of the Act. 4.1. We have heard the rival submissions and perused the materials available on record. The assessee is incorporated in and under the laws of Hongkong and accordingly a tax resident of Hongkong . The assessee had set up a Project office in India for execution of the contracts, which is the Permanent Establishment (PE) of the assessee in India. The return of income for the Asst Year 2015-16 was filed by the assessee on 30.09.2015 declaring tota....
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....oviding annual maintenance contract for software supplied and for software maintenance. Accordingly, the ld. AO estimated the profits of the PE for Contracts mentioned in Serial Numbers 216 to 231 at 25% of gross receipts i.e Rs 4,33,41,255/- (25% of Rs 17,33,89,023/-) and completed the assessment. The ld. AO further observed that the following receipts were not considered as part of gross contractual receipts by the assessee :- a) Service tax receipts amounting to Rs. 241,32,45,767/- b) Lost in Hole amounting to Rs. 80,68,19,422/- c) Reimbursement amounting to Rs. 10,84,47,712/ -. 4.5. The ld. AO held that the service tax receipts mentioned in a) above should be included as part of gross contractual receipts taxable u/s 44BB of the Act. As far as amount received towards Lost in Hole, the ld. AO by following the decision of Hon'ble Supreme Court in the case of Sedco Forex Intl. Inc. vs CIT in Civil Appeal No .. 4906 of 2012 dated 30.10.2017 held to be not taxable. As far as reimbursement is concerned, the ld. AO held that reimbursements are to be treated as part of gross contractual receipts taxable u/s 44BB of the Act. 4.6. We find that the ass....
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.... the ld. CIT(A) observed as under :- "Adjudication 5.9 Since in Ground No. 1 it has been considered that the except the services for subsurface sample transfer and shipping services and supply of materials for controlling Mud loss, all other provision for services Le fluid analysis, sample services, MR scanner data processing, diagnostics and optimization along with operating personnel, ELAN multi model analysis, provision of geo-mechanical modeling and wellbore stability studies, pre stack inversion studies for heavy oil bearing and provision of services for consultancy study for assessment of gas availability and feel development plan are inextricably linked with exploitation of oil and gas are taxable under section 44 BB of the Act, this Ground of Appeal becomes infructuous to that extent. 5.10 In regard to the services for subsurface sample transfer and shipping services and supply of materials for controlling Mud loss for which it is held that the same are taxable U/s 44 DA of the Act, I do not see any infirmity in the reasoning of the assessing officer to tax the same at 25%. In view of the above discussion, the ground of appeal is partly allowed." ....
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....rt in the case of ONGC Ltd vs CIT reported in 59 taxmann.com 1 (SC). We find lot of force in the argument of the ld. AR that once the sample is extracted from mine, they are to be tested and hence sent through transport. This, in our considered opinion, would be an activity inextricably linked with extraction and hence would be covered u/s 44BB of the Act. We have gone through the decision of the Hon'ble Supreme Court in the case of ONGC Ltd and are convinced that the services rendered by the assessee squarely fall within the list of services listed out by the Hon'ble Supreme Court in the aforesaid case. The relevant observations of the Hon'ble Apex Court are reproduced below :- "10. Before us the opinion of the learned Attorney General has been placed by the learned counsel for the appellants at great length to contend that the views expressed by the learned Attorney which had been accepted by the CBDT were based on an exhaustive consideration of the provisions of the Mines Act, 1952 and the Mines and Minerals (Regulation and Development) Act, 1957 read with the relevant Entries in the Union and the State List in the 7th Schedule to the Constitution of India. ....
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....ecessary for full enjoyment of the PML. On the said basis it is argued that rendering any service in connection with prospecting and extraction is an integral part of mining and that the expression "mining" in the Explanation 2 to Section 9(1) of the Income Tax Act, in the absence of any definition under the Income Tax Act, has to be understood as per the provisions of the Oil Fields (Regulation and Development) Act, 1948 read with the Petroleum and Natural Gas Rules, 1959. 12. Opposing the contentions advanced on behalf of the appellants, Shri Gurukrishna Kumar, learned senior counsel for the Revenue has urged that the opinion of the Attorney General relied upon and the CBDT Circular has no relevance to the present case inasmuch as the agreements between ONGC and the non-resident companies made it abundantly clear that what is paid to the non- resident company are fees for technical services rendered. Though such services may have some connection with the prospecting, extraction or production of mineral oil, the primary service rendered by the non-resident companies on the basis of the agreements is not for prospecting, extraction or production of mineral oil but various ....
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....d had in fact issued a circular as far back as 22.10.1990 to the effect that mining operations and the expressions "mining projects" or "like projects" occurring in Explanation 2 to Section 9(1) of the Act would cover rendering of service like imparting of training and carrying out drilling operations for exploration of and extraction of oil and natural 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. (emphasis supplied by us) S. No. Civil Appeal No. Work covered under the contract 1. 4321 Drilling of ex....
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....bines. 26. 736 Inspection, engine performance evaluation, instrument calibration and inspection of far turbines. 27. 1522 Replacement of choke and kill consoles on drilling rigs. 28. 1521 Inspection of gas generators. 29. 1515 Inspection of rigs. 30. 2012 Inspection of generator. 31. 1240 Inspection of existing control system and deputing engineer to attend to any problem arising in the machines. 32. 1529 Inspection of drilling rig and verification of reliability of control systems in the drilling rig. 33. 2008 Expert advice on the device to clean insides of a pipeline. 34. 2795 Feasibility study of rig to assess its remaining useful life and to carry out structural alterations. 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 ....
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....upreme Court in the case of ONGC Ltd referred supra. Hence we hold that the receipts of the assessee would be liable to be taxed only u/s 44BB of the Act and not u/s 44DA of the Act. 6.3. It is also pertinent to note that the entire gamut of the dispute raised in Ground Nos. 1 to 3 of the assessee and Ground Nos. 1 to 7 of the revenue, we find that the co-ordinate bench of this tribunal in assessee's own case for the Asst Year 2013-14 in ITA No. 6172/Del2017 dated 07.12.2021 by following the decision of Hon'ble Supreme Court in the case of ONGC Ltd supra, among other decisions, had held as under :- "12. In the said order the Hon'ble Court had examined the contracts involved in the group of cases and summarized the brief description of the works covered under each of the said contracts in a table between pg 19-21 of the said order. In view of the ratio of the above judgment, it is to be seen whether the receipts under the head "post-stack inversion study, core pressure and well-bore study, data processing and maintenance services" is covered within the scope of work under the contracts examined by the Hon'ble Supreme court in the said order. It is the sco....
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....y much in connection with exploration of mineral oil. 17. Similarly, serial no. 10, 15, 22 and 44 of the table inserted in the ONGC Ltd. case (supra) covers the services of data processing given by the assessee with the scope of work involved, in the contracts examined by the Hon'ble Supreme court in the above said order. 18. In the decision of Ld. ITAT, Delhi in the case of Paradigm Geophysical Pty limited (ITA No. 2753/Del/ 2016) wherein the activities of the assessee in regard to maintenance support has been considered as activities falling within the ambit of section 44BB of the Act. The relevant portion of the decision is reproduced below: "7. Further, we find, that in the case of ONGC vs CIT (supra) the Hon'ble Supreme Court held that if the pith and substance of each contracts/ agreement is inextricably connected with prospecting, extraction or production of mineral oil, then payment received by the non-resident assessee or foreign companies under the said contract is more appropriately assessable under the provisions of section 44BB and not u/s 44D of the Act. The list of contracts, in the said appeal before the Supreme Court included foll....
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....vided by the assessee to oil exploration and. production companies. Therefore, the revenue received on account of loss of equipment does not form income in the hands of the assessee rather it is a mere reimbursement of the cost of equipment destroyed in the process of oil extraction. 24. The assessee wishes to place reliance on the decision of the Hon'ble Uttarakhand High Court in the own case of the assessee (CIT vs. Schlumberger Asia Services Ltd) wherein the Hon'ble Court held that the receipts on account of equipment lost in hole being in the nature of capital receipts cannot, be included in the revenues chargeable to lax u/s 44BB of the Act. Adjudication of the ld. CIT(A) 5.24 The averments of the appellant have been critically examined in light of the decision in the case of CIT vs. Schlumberger Asia Services Ltd (supra), wherein Hon'ble Uttarakhand High Court has endorsed the view of Hon'ble ITAT and held that no question of law arises to be answered in this appeal. It is further gathered from the decision of the Hon'ble ITAT, Delhi in the case Schlumberger Asia Services Ltd(ITA NO. 6063/Del/2010) for the assessment year 2007- 2....
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....appeal of the Revenue is dismissed." 6.4. With regard to taxability of reimbursement of expenses, it was argued that the reimbursement of expenses do not constitute any income and hence the same cannot be taxed at all. We find that this issue is directly covered in favour of the assessee by the decision of Hon'ble Jurisdictional High Court in assessee's own case reported in 317 ITR 156 (Uttarakhand) for Asst Year 2002-03 ; decision of Delhi Tribunal in assessee's own case for Asst Year 2007-08 in ITA No. 6063/Del/2010 dated 18.05.2012 ; for Asst Year 2011-12 in ITA Nos. 6437 & 6439 / Del/ 2014 dated 05/05/2022 and for Asst Year 2012-13 in ITA No. 79/Del/2017 dated 01.07.2021 . 6.5. In view of the above observations and respectfully following the judicial precedents relied upon hereinabove, the Ground Nos. 1 to 4 raised by the assessee for the Asst Year 2015-16 are allowed and Ground Nos. 1 to 7 raised by the revenue for the Asst Year 2015-16 are dismissed. 7. The Ground Nos. 8 and 9 raised by the revenue before us are to be dismissed in limine in view of the fact that the said issue was decided by the ld. AO himself in favour of the assessee and accordingly, th....
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....able only if there is a debt in foreign currency. The ld. AO held that the income tax refund is nether a debt and nor is it incurred in foreign currency. The ld. AO further observed that the claim of section 115A(1)(a)(ii) of the Act was not made by the assessee in the return of income and hence by following the ratio laid down by the Hon'ble Supreme Court in the case of Goetze India Ltd vs CIT reported in 284 ITR 323 (SC), the same need not be entertained at the assessment stage. Accordingly, this new claim of the assessee was held to be not tenable by the ld. AO in the assessment. 10.2. The ld. CIT(A) at the outset observed that the assessee though had not made this claim in the return of income is entitled to make a fresh claim and since the matter is pending before the appellate authority, the same could be entertained and started adjudicating the same on merits of the issue. The ld. CIT(A) upheld the findings of the ld. AO that income tax refund cannot be arising out of a debt and further observed that the assessee had not established how income tax refund could become a debt so as to fall under the provisions of section 115A(1)(a)(ii) of the Act . Accordingly, the l....
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....NAL DEHRADUN BENCHES IN THE MATTER OF SCHLUMBERGER ASIA SERVICES LTD. ASSESSMENT YEARS 2014-15 AND 2015-16 ITA Nos .: 6126/Del/2017 and 6173/Del/2017 5223/Del/2018 and 5305/Del/2018 REBUTTALS TO THE ARGUMENTS MADE BY THE DEPARTMENTAL REPRESENTATIVE [DR] VIDE A NOTE DATED 26 JUNE 2023-copy received by the assessee on 10 July 2023 1. On the issue raised in by the DR in Para 2 of the Note i.e. the assessee has offered the 'income from interest on income-tax refund' in its the return of income for both the years under the head 'business income, and that the claim of taxability of the said income under the head income from other sources' was only made before the Assessing Officer / appellate authorities: In this connection it is submitted that the issue vis-à-vis raising a fresh claim before the appellate authorities, which was not made in the return of income, is settled in the favour of the assessee by the decision of the Bombay High Court in the case of Pruthvi Stock Brokers and Shareholders Pvt. Ltd. [2012] 349 ITR 336 (copy enclosed) wherein it has been held that the appellate authority certainly has power and jurisdi....
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....venue" is actually a perfect statement of law. It is certainly a theorem, but not Euclid's theorem. Therefore, the law as we see is well settled to the effect that what was due as a refund and what was payable as interest on such refund are debt claims within the meaning of Article 12.4. As a consequence, they satisfy the parameters of Article 12.3(a). Hence, the first question of law is answered in favour of the appellant. Consequently, the second question of law does not arise for consideration. The appeal stands allowed. There will be no order as to costs." (emphasis supplied) It is submitted that the ratio laid down in the aforesaid decision in the case of Ansaldo Engineering SPA (supra) has not been rebutted by the DR during the course of the hearing or in the Note submitted. 3. On the issue raised by the DR in Para 4(b) and (c) of the Note viz. the CBDT Circular No. 473 dated 29 October 1986 cannot be applied to the facts of the instant case as the same was in the context of deposit in NRE and FCNR bank accounts and deposits in public limited companies: In this connection it is submitted, as was argued during the course of the hearing o....
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.... at 15% under the relevant DTAA. In this connection, it is pointed out that the decision of the Special Bench in the case of Clough Engineering Ltd. (supra) (copy enclosed) was referred to by the assessee during the course of the hearing to demonstrate that interest on income- tax refund cannot be said to be effectively connected with the Permanent Establishment and hence, would be subject to tax under the head income from other sources' relevant extracts given hereunder: "11.4 Thus, we are again left with the fundamental question as to whether the debt-claim in this case can be said to be effectively connected with the PE. We have already held that the claim is connected with the PE in the sense that it has arisen on account of tax deduction at source from the receipts of the PE. However, it is also a fact that payment of tax is the responsibility of the foreign company. The same is determined after computation of its income and the tax forms not an expenditure for earning the income but an item of appropriation of profit. Therefore, even if the debt is connected with the receipts of the PE, it cannot be said to be effectively connected with such receipts bec....
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....ngkong and therefore, the DTAA provisions are not applicable. Further, taxability of interest u/s. 9 of the Income- tax Act, 1961 does not have a clause similar to Article 12(6) of the India-UK DTAA, and therefore, it is once again submitted that the aforesaid decision in case of B.J. Services Co. Middle East Ltd. will not apply to the facts of the instant case. The only issue that arises for consideration is whether the interest earned has to be assessed at the rate provided for under the relevant Finance Act or in section 115A. Further, it would not be out of place to mention here that the question of taxability of the interest income u/s. 115A was not raised before the High Court, and therefore the said decision is not applicable on that count too. In addition to the above it is submitted that, the Tribunal after the decision of the Uttarakhand High Court in B.J. Services Co. Middle East Ltd. (supra), held that interest on income-tax refund is not effectively connected with the Permanent Establishment in the following cases: ● Dehradun Bench of the Tribunal in the case of Baker Hughes Singapore Pte. Ltd. vs. ACIT [ITA No. 5337/DDN/2018] dated 08 ....
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....now statutorily adopted by fiscal legislation to ensure that the aforesaid amount of tax which has been duly paid in prescribed time and provisions in that behalf form part of the recovery machinery provided in a taxing Statute. Refund due and payable to the assessee is debt-owed and payable by the Revenue. The Government, there being no express statutory provision for payment of interest on the refund of excess amount/tax collected by the Revenue, cannot shrug off its apparent obligation to reimburse the deductors lawful monies with the accrued interest for the period of undue retention of such monies. The State having received the money without right, and having retained and used it, is bound to make the party good, just as an individual would be under like circumstances. The obligation to refund money received and retained without right implies and carries with it the right to interest. Whenever money has been received by a party which ex ae quo et bono ought to be refunded, the right to interest follows, as a matter of course. (emphasis supplied by us)" 10.6.1. Hence it is very clear that any amount retained by the Government is a debt owed by the Government to an assesse....
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....made entitled to receive in addition to any amount of refund that has become due to him, simple interest calculated in the manner provided therein. Subsection (1) of Section 244-A uses two important expressions, namely (i) becomes due, and (ii) be entitled to. The expression "becomes due" is a clear indication that an assessee will be entitled to the benefit of Section 244-A only if the refund of any amount has become due. If a refund has become due, interest on the refund is also automatic subject to the satisfaction of other conditions. Anything that is due and which a person is entitled to collect, is naturally in the nature of a debt claim. Therefore, we do not think that the Supreme Court made a very stray observation in paragraph 38 of its decision in Tata Chemicals Ltd.'s case (supra) without realising what they were actually indicating. The statement found in paragraph 38 of the decision in Tata Chemicals Ltd.'s case (supra) to the effect "refund due and payable to the assessee is debtowed payable by the revenue" is actually a perfect statement of law. It is certainly a theorem, but not Euclid's theorem. Therefore, the law as we see is well settled to the effect....
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....customers in US Dollars. Hence this Circular would be relevant to drive home the point that what is crucial is how the remittance come to the assessee. The case of the ld AR is that the remittance in assessee's case came in US Dollars and the refund arose due to TDS on such remittances. Hence it would be debt in foreign currency. 10.8. In order to make the provisions of section 115A(1)(a)(ii) of the Act applicable, two conditions should be cumulatively satisfied :- a) First, there should be a debt owed by the Government - This is already satisfied in the instant case as per the decision of Hon'ble Supreme Court and Hon'ble Madras High Court supra b) Second, the debt should be in foreign currency - In this regard, it is pertinent to note that the income tax department had not made any borrowings in foreign currency. No doubt the refund due to TDS might occur to the assessee out of foreign remittances from customers. But that is the transaction in foreign currency between payer and payee and income tax department has no role to play in the same. Hence it could be safely concluded that though there is a debt owed, but that debt owed is not in foreign c....
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....w of the decision of the Hon'ble Supreme Court in the case of NTPC Ltd reported in 229 ITR 383 (SC), the additional ground raised by the assessee is admitted and taken up for adjudication. 13.1. The issue raised in Additional Ground is already decided by us hereinabove for the Asst Year 2015-16 vide original ground no. 5 thereon. Hence the decision rendered by us for Asst Year 2015-16 shall apply with equal force for the Additional Ground in Asst Year 2014-15 also. 14. In the result, the appeal of the assessee for Asst Year 2014-15 is partly allowed and that of the revenue is dismissed. 15. To sum up, both the appeals of the assessee are partly allowed and both the appeals of the revenue are dismissed. Order pronounced in the open court on 15/09/2023. ============= Document 1 कारà¥à¤¯à¤¾à¤²à¤¯ संयà¥à¤•à¥à¤¤ आयकर आयà¥à¤•à¥à¤¤, अंतरà¥à¤°à¤¾à¤·à¥à¤Ÿà¥à¤°à¥€à¤¯ कराधान, देहरादून OFFICE OF THE JOINT COMMISSIONER OF INCOME TAX. INTE....