Income Tax Appellate Tribunal - Delhi
Baker Hughes Asia Pacific Ltd.,, New ... vs Assessee on 11 July, 2014
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "C" NEW DELHI
BEFORE SHRI S.V. MEHROTRA : ACCOUNTANT MEMBER
AND
SHRI A.D. JAIN : JUDICIAL MEMBER
ITA No. 5283 /Del/2010 & 420/Del/2012
Asstt. Yrs: 2007-08 & 2008-09
Baker Hughes Asia Pacific Ltd., Vs. Addl. Director of Income-tax,
C/o Nangia & Co., CA International Taxation,
Suite, 4A, Plaza M-6, Jasola, Subhash Road, Dehradun.
New Delhi.
PAN: AACCB 3714 F
AND
ITA No. 5631, 5632/Del/2010
Asstt. Yrs: 2006-07 & 2007-08
Siem Offshore AS Vs. Addl. Director of Income-tax,
C/o Emgee Corporation International Taxation,
st
1 Floor, Babhubali Building Subhash Road, Dehradun.
17/17H, Cawasji Patel Street,
Fort, Mumbai
PAN: AAOCS 0149 M
AND
ITA No. 5633/Del/2010
Asstt. Yr: 2007-08
Siem Offshore Inc. Vs. Addl. Director of Income-tax,
C/o Emgee Corporation International Taxation,
1st Floor, Babhubali Building Subhash Road, Dehradun.
17/17H, Cawasji Patel Street,
Fort, Mumbai
PAN: AAKCS 6466 R
2 ITA nos. 5283/D/2010 & 12 others
Baker Hughes Asia Pacific Ltd. & ors.
AND
ITA No. 5287 /Del/2010 & 165/Del/2012
Asstt. Yrs: 2007-08 & 2008-09
Smith International Inc., Vs. Addl. Director of Income-tax,
C/o Nangia & Co., CA International Taxation,
Suite, 4A, Plaza M-6, Jasola, Subhash Road, Dehradun.
New Delhi.
PAN: AAHCS 3148 R
AND
ITA No. 5562/Del/2011
Asstt. Yr: 2008-09
Hallin Marine UK Ltd., Vs. Addl. Director of Income-tax,
C/o Nangia & Co., CA International Taxation,
Suite, 4A, Plaza M-6, Jasola, Subhash Road, Dehradun.
New Delhi.
PAN: AABCH 9433 L
AND
ITA No. 5288 /Del/2010
Asstt. Yrs: 2007-08
Subsea 7 Singapore Pte., Vs. Addl. Director of Income-tax,
C/o Nangia & Co., CA International Taxation,
Suite, 4A, Plaza M-6, Jasola, Subhash Road, Dehradun.
New Delhi.
PAN: AAICS 2720 C
AND
ITA No. 5282/Del/2010 & 5824/Del/2011
Asstt. Yr: 2007-08 & 2008-09
Baker Hughes Singapore Vs. Addl. Director of Income-tax,
C/o Nangia & Co., CA International Taxation,
Suite, 4A, Plaza M-6, Jasola, Subhash Road, Dehradun.
New Delhi.
PAN: AAACB 8516 F
AND
ITA No. 5286 /Del/2010
Asstt. Yrs: 2007-08
Precision Energy Services Ltd., Vs. Addl. Director of Income-tax,
C/o Nangia & Co., CA International Taxation,
Suite, 4A, Plaza M-6, Jasola, Subhash Road, Dehradun.
New Delhi.
PAN: AAAC 9172 E
3 ITA nos. 5283/D/2010 & 12 others
Baker Hughes Asia Pacific Ltd. & ors.
AND
ITA No. 5290 /Del/2010
Asstt. Yrs: 2007-08
Wealtherford Oil Tools M.E. Ltd., Vs. Addl. Director of Income-tax,
C/o Nangia & Co., CA International Taxation,
Suite, 4A, Plaza M-6, Jasola, Subhash Road, Dehradun.
New Delhi.
PAN: AACCW 1524 G
( Appellant ) ( Respondent )
Appellants by : Shri Ajay Vohra Adv. &
Shri Rohit Garg Adv.
Respondent by : Shri Sanjeev Sharma CIT (DR) &
Shri Vivek Kumar Sr. DR.
Date of hearing : 27-03-2014
Date of order : 11- 07-2014.
ORDER
PER BENCH::
The captioned appeals, preferred by different assessees, involve common issues for adjudication. Facts of the case being identical, all these appeals were heard together and are being disposed of by this composite order for the sake of convenience. ITA no. 5283/Del/2012 in the case of Baker Hughes Asia Pacific Ltd., for A.Y. 2007-08 is made the leading case, facts and circumstances of the case being same, the result of the issues adjudicated in this appeal would follow on similar issues in other appeals.
2. The assessee has filed return of income declaring total income of Rs. 3,31,25,447/-. Assessing officer noticed that assessee had filed its return of income u/s 44BB(1) on the ground that it was engaged in the providing of services and facilities in connection with, or supply plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of 4 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
mineral oils. Assessing officer observed that the address of the company, as given in the return of income, was "852, 5th Floor, Chakala, Andheri- Ghatkopar Link Road, Andheri (East), Mumbai". He further observed that assessee had, in its return, admitted that there was a permanent establishment ("PE" in short) in India. Assessing officer in para 4 has given details of various contracts undertaken by the assessee to be divided into three parts i.e. supply, rental and services. The assessing officer required the assessee to file reply to the following queries:
(i) What is the basis of claim the benefits of Sec. 44BB.
(ii) Furnish the copies of all contracts entered by you through which revenue has been earned during the year.
(iii) Details of revenue earned but not offered for taxation and the basis for the same;
(iv) Copies of accounts submitted to RBI for F.Y. 2006-07;
(v) Detailed note on the type of services rendered;
(vi) Reply to all the queries raised in earlier notices issued by the DDIT(Int. Tax), Dehradun;
(vii) Certificate of Incorporation of the Company abroad for claiming the status of non-resident;
(viii)Submit the details of payments on which tax has been deducted at source together with copies of TDS returns.
(ix) Details of supplies made during the year.
(x) Revenue reconciliation with TDS certificates.
3. The assessing officer noticed that as per the revenue reconciliation the assessee had, inter alia, earned revenue as under:
(a) on account of sale of material from
M/s Cairn Energy India Pte. Ltd. Rs. 12,66,244
(b) M/s Gujarat State Petroleum Corpn. Rs. 36,713
(c) Hindustan Oil Exploration Co. Ltd. Rs. 98,11,830
(d) M/s ONGC Ltd. Rs. 93,99,885
5 ITA nos. 5283/D/2010 & 12 others
Baker Hughes Asia Pacific Ltd. & ors.
4. The assessing officer observed that assessee had not offered revenue from Hindustan Oil Exploration Co. Ltd. amounting to Rs. 98,11,830/- for supplies and Rs. 93,99,885/- from ONGC.
5. The assessing officer observed that the equipment taken on rental were to be taxed under the head "royalty" and the revenue earned from services was to be taxed as "fees for technical services" u/s 9(1)(vi) and sec. 9(1)(vii) of the I.T. Act respectively and for this provisions of sec. 44BB would not apply. The assessing officer observed as under:
"From the scope of work of all the above contract it is clear that the assessee has earned revenue from rental of certain tools. A close perusal of Sec. 44BB clarifies that the section is applicable for two streams of revenue one is for services which are in connection with prospecting, exploration or production of mineral oil and the second stream is for rental of equipment used or to be used for prospecting, exploration and production of mineral oil, The proviso to Sec. 44BB excludes technical service from the purview of Sec. 44BB. It is evident that for services the legislature has used the work 'in connection with', which is of wider connotation. Whereas for equ9ipment rental the equipment either be used for prospecting or exploration or production of mineral oil. If equipment is used for any other service which is in connection with the above the benefit of Sec. 44BB will not be applicable in those cases. In view of this the payment received by the assessee on rental of tools is not covered u/s 44BB as the same are either fishing tools or linear hanger tools etc., which are used not for prospecting, exploration and production of mineral oil but for the other services."
6. The assessing officer examined the provisions of sec. 9(1)(vi) and pointed out that the payments received by the assessee were covered under the exclusion clause of Explanation (iv-a) of sec. 9(1)(vi). He pointed out that the assessee's receipts were taxable u/s 44DA as the assessee was 6 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
rendering services through its PE. Since the assessee had not given any details of expenses, the revenue received by it from rendering of various services and rental receipts was to be taxed @ 25% of the total receipts.
7. As regards the receipts from ONGC, the assessing officer observed that as per contract with ONGC the bidding document was procured by the Indian office of the assessee NRC where Mr. C.K. Pathak was the Manager. He pointed that Mr. C.K. Pathak had signed the Bond Application Request also and the contract was signed on 2-8-2006 in India by Mr. C.K. Pathak. He further noted that in the contract the address of the assessee was the same as Mumbai office address noted earlier and the supplies were made in India and the equipment supplied had been put to use by the contractor. He further noted that in the scope of work it had been mentioned that the contractor would deliver the goods at NHAVA Supply Base for transportation to worksite. He further noted that regarding delivery of goods the following clause was inserted:
"The goods shall be delivered as per the delivery schedule hereunder:
First five sets of items#1: Within 30 days of ONGC Nhava Base from date of firm order.
First 3 sets of items#2. Within 30 days of ONGC Nhava Base from date of firm order.
Second 2 sets of items#2: Within 8 weeks at ONGC Nhava Base from date of firm order."
8. Assessing officer further noted from the invoice and Airway Bill submitted by assessee that the same mentioned the consignee as Baker Hughes Asia Pacific Ltd., Mumbai India ( assessee ). In view of these facts he concluded that the income of the assessee was taxable in India u/s 5 of the I.T. Act as the same accrued in India u/s 5 of the I.T. Act.
9. As regards the contract with Hindustan Oil Exploration Co. Ltd., the assessing officer observed that Mr. C.K. Pathak, country manager, was 7 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
negotiating and concluding the contract on behalf of Baker Hughes Asia Pacific Ltd. ("BHAPL") which was evident from the correspondence with Hindustan Oil Exploration Ltd., and the assessee.
10. He further noted that the purchase order was issued to Baker Hughes Asia Pacific Ltd., Mumbai. The place of delivery of goods was Chennai Sea Port in India and it was CIF Chennai and as per the agreement, the title in goods was to be passed in India. Therefore, he concluded that the income from this contract also accrued in India as the sale was getting concluded in India and, therefore, taxable in India. As the assessee had not furnished any details about the cost of material purchased, the profit of the assessee was estimated at 25% of the gross receipts which amounted to Rs. 2,72,04,168/-.
11. Being aggrieved with the draft assessment order, the assessee filed objections before the ld. DRP, which was disposed of vide order dated 28-9- 2010, upholding the AO's action.
12. The assessing officer passed the assessment order consequent to the directions of DRP on 22-10-2010 against which assessee is in appeal before us and has taken following grounds of appeal:
"Based upon the facts of the case, the assessee respectfully submits the following grounds which are without prejudice to and independent of each other:
Addition qua breakup of revenue against consolidated contract into equipment rental and services I. That the assessing officer erred on facts and in law in holding that the provision of equipment, personnel, and supply of consumables under consolidated contracts were independent of each other;
2. That the assessing officer erred on facts and in law in holding that the contractual revenues were to be bifurcated into 8 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
'equipment rental', 'service charges' and 'sale of consumables' and brought to tax independently and separately;
3. That the assessing officer erred on facts and in law in not accepting that the contracts executed by the assessee were in the nature of 'mining or like projects' as referred to in the Explanation to section 9(1)(vii) of the I.T. Act, 1961.
4. That the assessing officer erred on facts and in law in not accepting that the contractual revenues of the assessee were taxable under section 44BB of the I. C. Act, 1961.
5. That the assessing officer erred on facts and in law in holding that the aggregate revenues of the assessee against services and rentals were Rs. 479,998,930 against the actual revenue of Rs. 329,970,586. The AO in annexure to his own draft assessment order u/s 144C has mentioned that the revenues against equipment rental and services are Rs. 148,725,387 and Rs. 181,245, I 99/- respectively. The AO has erroneously added the service value to the total revenue (mentioned in the draft assessment order) [Rs. 148,725,387 plus Rs. 331,273,543] in arriving at the amount of Rs. 79,998,930.
6. That the assessing officer erred on facts and in law in completing assessment under section 144C/143(3) of the Income-tax Act, 1961 ('the Act') at an income of Rs. 147,203,900/- as against the income of Rs. 33,125,447/- returned by the appellant.
Addition qua services in connection with exploration/prospecting/extraction of mineral oil
7. That the assessing officer erred on facts and in law in assessing income arising from services rendered by the appellant in connection with exploration/prospecting/extraction of mineral oil under section 9(1)(vii) of the Act as opposed to section 4488 of the Act.
Addition qua hiring of equipment used in connection with exploration/ prospecting/ extraction of mineral oil 9 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
8. That the assessing officer erred on facts and in law in assessing income arising from letting out equipment, used in connection with the exploration/prospecting/extraction of mineral oil under section 9(l)(vi) of the Act as opposed to section 44BB of the Act.
Addition qua income from alleged sale of goods
9. That the assessing officer erred on facts and in law holding that revenue of Rs. 1,302,951/- arising from supply of consumables (on consolidated contracts of provision of equipment, services and consumables) was to be assessed to tax by applying a presumptive profit rate of 25 per cent on gross revenues in this regard, as opposed to section 44BB of the Act.
Addition qua income from offshore sales
10. That the assessing officer erred on facts and in law holding that the revenue on account of offshore sales was Rs. 107,513,715 as against Rs. 1,92,11,715 as reported by the assessee in its return of income. /
11. That the assessing officer erred on facts and in law holding that income arising from offshore sales concluded entirely outside India was to be assessed to tax at a slim of Rs. 26,878,428/- applying a presumptive profit rate of 25 per cent on gross revenues of Rs. 107,513,715 in this regard, as opposed to the revenues being exempt from taxation in India.
Levy of interest
12. That the assessing officer erred on facts and in law in levying interest under section 234B of the Act when no such levy of interest had been mentioned in the assessment order.
13. That the assessing officer has erred on facts and in law in levying interest under section 234B especially when there was no liability on the assessee to pay advance tax under section 209( 1)( d) of the Income-tax Act, 1961.
10 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
13. At the time of hearing, ld. Counsel for the assessee did not press ground no. 5 as the necessary correction had been carried out by assessing officer in the proceedings us/ 154.
14. Ld. Counsel submitted that ground nos. 1 to 8 deal with invoking of section 44DA by assessing officer thereby attributing 25% profit to the PE as against 10% of the aggregate of the amount deemed as profits and gains of such business chargeable to tax under the head "profits & gains of business", computed by assessee by applying sec. 44BB of the Act.
15. Ld. Counsel pointed out that sec. 44DA is applicable from A.Y. 2011-
12. He further submitted that assessing officer was not justified in segregating the revenue between royalty, fees for technical services etc., because assessee was imparting composite services and the contract was a consolidated contract for executing a specific scope of work. He pointed out that services and rental were taxed by assessing officer u/s 44DA.
16. Ld. Counsel submitted that in the case of B.J. Services Co. Middle East Ltd. Vs. DDIT 339 ITR 169 (Uttrakhand High Court) (115 to 126 of PB), it has been held by Hon'ble Jurisdictional High Court that sec. 44DA is prospective and not retrospective.
17. Apropos ground no. 9, ld. Counsel submitted that receipts arising out of supply of consumables by assessee was offered by assessee u/s 44BB as that was incidental to supply of machinery and equipment, the income of which was taxable as royalty. However, assessing officer attributed 25% profit to PE.
18. As regards ground nos. 10 & 11, ld. Counsel submitted that the same deals with profits attributed by assessing officer in regard to off shore sales by holding that title to goods passed in India. He further pointed out that ground nos. 12 & 13 deal with charging of interest u/s 234B which was not 11 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
payable since TDS was required to be made. He pointed out that this issue is covered by the ratio of decision of Hon'ble Jurisdictional High in the case of DIT Vs. Mersh Co. Ltd. (2011) 334 ITR 79.
19. Apropos ground nos. 1 to 7, Ld. CIT (DR) submitted that there is no dispute that assessee had PE in India and, therefore, its receipts being in the nature of royalty and FTS were taxable under sec. 44DA the same being retrospective in nature as it is clarificatory.
20. Ld. CIT(DR) pointed out that the decision in the case of B.J. Services was rendered in the context to sec. 148 and not for deciding whether sec. 44DA is prospective or retrospective in nature. He submitted that one should not go merely by date of insertion of section but the object with which the section has been incorporated.
21. Ld. DR has filed detailed written submissions which are placed on record. The same are reproduced hereunder:
Subject: Written submissions on the issue regarding applicability of sec 44DA in the case of ( ITA No 5283/10/0el) AY 2007-08 and other cases The important issue involved in the appeal is whether amendments made in section 440A and in proviso to section 44BB(1) by the Finance Act, 2010 are retrospective or not. The department's view is that these are retrospective. In this connection it will be useful to see the background of the relevant provisions.
2. Section 44D and 115A were inserted wef 1-6-1976 by the Finance Act, 1976. The heading of section 44D is "Special provisions for computing income by way of royalties, etc., in the case of foreign companies". This section provided gross basis of taxation of royalty or fees for technical services (FTS). As per section 115A (1) (b) royalty/FTS was to be taxed at the rate prescribed therein. Section 115A (3) provided 12 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
that no deduction in respect of any expenditure or allowance shall be allowed to the assessee. The heading of Section 115A is "Tax on dividends, royalty and technical fees in the case of foreign companies". Amendment was also made in section 9(1)(vii) whereby Explanation 2 was inserted by the Finance Act, 1977 w.e.f. 1-4-1977.
3. Section 44BB which is a special provision for computing profits and gains in connection with the business of exploration, etc. of mineral oils was inserted by the Finance Act, 1987 with retrospective effect from 1-4-1983.
4. Subsequently, section 44DA was inserted by the Finance Act, 2003 w.e.f 1- 4-2004. The heading of this section is "special provision for computing income by ways of royalties, etc., in case of non-residents." As per this section royalty/ FTS received by a non-resident or a foreign company in pursuance of an agreement made after 31st March, 2003 would be taxable on net basis if such non-resident or foreign company carries on business in India through a permanent establishment(PE). Simultaneously, section 115A (1) (b) was also amended whereby this section was not to apply in cases covered u/s 44DA.
5. By the Finance Act, 2010 second proviso was inserted in section 4DA(1) which stated that the provisions of section 44BB shall not apply in respect of income referred to in section 44DA. Amendment was also made in proviso to section 44BB (1) whereby section 44DA was inserted.
6. From the above, sequence of amendments it may kindly be seen that w.e.f. 1-6-1976 the legislature always intended that royalty/FTS received by a non-resident is to be taxed under the special provisions which were brought on the statute in the form of section 44D (where the agreement was made before 1-4- 2003) or section 44DA ( where agreement was made after 31st March, 2003). This is also evident from the headings of both the sections viz. 44D and 44DA, which is practically the same.
13 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
7. The above intention of the legislature is also clear from the proviso to section 44BB(1) which excludes the cases falling u/s. 44D, 115A, etc. The exceptions provided in the aforesaid proviso clearly shows that the legislature never intended to tax FTS u/s 44BB(1) but u/s. 44D or 115A or 44DA as the case may be. It is important to note that when section 44D was inserted there was no section 44BB which is a later insertion. This further shows that FTS was always taxable under the special provisions viz. u/s. 44D etc.
8. In some of the decisions [e.g. Geofizyka 320 ITR 268(AAR)] distinction has been drawn between section 44D and 44DA on the ground that while section 44D contains non obstante clause that provisions of section 28 to 44C would not apply, section 44DA does not contain such non obstante clause. On this basis it has been held that while section 44D will have overriding effect over section 44BB, section 44DA shall not have such overriding effect. In my humble opinion, this distinction is not correct. The non obstante clause in section 44D is there as under this section the income is to be computed on gross basis and hence no deduction is to be allowed u/s 28 to 44C. From the non obstante it cannot be concluded that the same was to override section 44BB. This is also clear from the fact that the non obstante was there in section 44D right from its insertion, which as stated above had come into operation much prior to insertion of section 44BB in the Act. Also no deduction is contemplated u/s. 44BB or for that matter under any of the presumptive taxation sections like 44AD, 44AF, 44B, 44BBB, etc. Thus the relevance of non- obstante clause in section 44D was only to the extent of non-allowance of deductions otherwise available u/s. 28 to 44C
9. In section 44DA there is no such non-obstante clause for the simple reason that under this section income is to be computed on net basis i.e. after allowing deduction u/s. 28 to 44C Since u/s. 44DA income is to be computed as per the provisions of Act there is no need for having any non-obstante clause. Thus from the absence of non-obstante clause it cannot be inferred that section 44DA shall not have 14 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
overriding effect over 44BB. Section 44D or section 44DA overrides section 44BB not because of presence or absence of non obstante clause but because royalty/FTS was always intended to be taxed under these sections and not u/s 44BB. As section 44DA has replaced section 440 (for the cases having PEl and the heading of both the sections is practically the same, like section 44D, section 44DA shall also override section 44BB from the date when it was inserted in the Act viz. 1-4-2004.
10. Since intention of the legislature was always to tax royalty/FTS under the special provisions contained in section 44D/115A/44DA the clarificatory amendment was brought by the Finance Act, 2010 in 44FA and 44BB. The Explanatory notes to the Finance Bill, 2010 in this regard are re-produced below:-
"Income of a non-resident providing services or facilities in connection with prospecting for, or extraction or production of, mineral oil Under the existing provisions contained in section 44BB(1) of the Income-tax Act, income of a non-resident taxpayer who is engaged in the business of providing services or facilities in connection with, or supplying plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production o], mineral oils is computed at ten per cent. of the aggregate of the amounts paid.
Section 44DA provides the procedure for computing income of a non-resident/ including a foreign company/ by way of royalty or fee for technical services/ in case the right/ property or contract giving rise to such income are effectively connected with the permanent establishment of the said non-resident. This income is computed as per the books of account maintained by the assessee.
Section 115A provides the rate of taxation in respect of income of a non- resident/ including a foreign company/ in the nature of royalty or fee for technical services/ other than the income referred to in section 44DA i.e., income in the nature of royalty and fee for technical 15 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
services which is not connected with the permanent establishment of the non-resident.
Combined effect of the provisions of sections 44BB, 44DA and 115A is that if the income of a non-resident is in the nature of fee for technical services, it shall be taxable under the provisions of either section 44DA or section 115A irrespective of the business to which it relates. Section 44BB applies only in a case where consideration is for services and other facilities relating to exploration activity which are not in the nature of technical services. However/ owing to judicial pronouncements/ doubts have been raised regarding the scope of section 44BB vis-a-vis section 44DA as to whether fee for technical services relating to the exploration sector would also be covered under the presumptive taxation provisions of section 44BB.
In order to remove doubts and clarify the distinct scheme of taxation of income by way of fee for technical services, it is proposed to amend the proviso to section 44BB so as to exclude the applicability of section 44BB to the income which is covered under section 44DA. Similarly/ section 44DA is also proposed to be amended to provide that provisions of section 44BB shall not apply to the income covered under section 44DA.
These amendments are proposed to take effect from 1st April 2011 and will/ accordingly/ apply in relation to the assessment year 2011-12 and subsequent years. n [Clauses 16/ 17J
11. From the above, it is absolutely clear that the legislature always intended to tax FTS u/s 44D/44DA/115A and not u/s 44BB. Precisely for this purpose clarificatory amendments were brought in sections 44DA and 44BB. This being the position, in my opinion, the amendments shall have operation right from the time section 44DA was inserted viz.1-4-2004. Such amendment has to be read in these provisions wef from 1-4-2004.
16 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
12. The ITAT, Delhi in the case of CGG Veritas (ITA No.4653/DeI/2010 dated 25.1.2012) and the Hon'ble Uttarakhand High Court in the case of B.J. services (339 1TR
169) have held that the above amendments are prospective in nature. In my humble opinion, the observations made by the Hon'ble High Court and ITAT were given in the context of their respective cases. Moreover in these decisions the prospective operation of the amendment was held mainly on the ground that the operative date mentioned in the Finance Act, 2010 was 1-4- 2011.
13. In the following decisions the Courts have held that despite a prospective date mentioned in the Finance Act the amendment may have retrospective operation. While holding so the Courts have held that sometimes the legislature specifically mentions about the retrospective operation of an amendment while in some situations such retrospective operations has to be inferred by way of implication.
(a) CIT vs. Gold Coin Health Foods [304 ITR 308 (SC} (Larger Bench)]: In this case the issue involved was whether amendment made in Explanation 4 to section 271(1)(c) by the Finance Act, 2002 was retrospective or not. In this amendment the effective date mentioned in the Finance Act was 1-4-2003. Reversing the decision of the two judges bench, the Supreme Court held that even if the effective date was 1-4-2003, the amendment shall have retrospective operation as the same was clarificatory in nature and had made the implicit provisions explicit. The Hon'ble Supreme Court observed "As noted by this court in ClT v. Podar Cement P. Ltd. [1997} 5 SCC 482 the circumstances under which the amendment was brought in existence and the consequences of the amendment will have to be taken care of while deciding the issue as to whether the amendment was c/arificatory or substantive in nature and, whether it will have retrospective effect or it was not so. The court referred to the following observation of the Supreme Court in the case of Zile Singh v. State of Haryana [2004J 8 SCC 1:
17 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
"13. It is a cardinal principle of construction that every statute is prima facie prospective unless it is expressly or by necessary implication made to have retrospective operation. But the rule in general is applicable where the object of the statute is to affect vested rights or to impose new burdens or to impair existing obligations. Unless there are words in the statute sufficient to show the intention of the Legislature to affect existing rights/ it is deemed to be prospective only- 'nova constitutiofuturis formam imponere debet non praeteritis'-a new law ought to regulate what is to follow/ not the past. It is not necessary that an express provision be made to make a statute retrospective and the presumption against retrospectivity may be rebutted by necessary implication especially in a case where the new law is made to cure an acknowledged evil for the benefit of the community as a whole.
14. The presumption against retrospective operation is not applicable to declaratory statutes ... In determining, therefore, the nature of the Act, regard, must be had to the substance rather than to the form. If a new Act is 'to explain' an earlier Act, it would be without object unless construed retrospectively. An explanatory Act is generally passed to supply an obvious omission or to clear up doubts as to the meaning of the previous Act. It is well-settled that if a statute is curative or merely declaratory of the previous law retrospective operation is generally intended.... An amending Act may be purely declaratory to clear a meaning of a provision of the principal Act which was already implicit.
A clarificatory amendment of this nature will have retrospective effect.
15. Though retrospectivity is not to be presumed and rather there is presumption against retrospectivity, according to Craies (Statute Law/ 7th Edn.}, it is open for the Legislature to enact laws having retrospective operation. This can be achieved by express enactment or 18 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
by necessary implication from the language employed. If it is a necessary implicationfrom the language employed that the Legislature intended a particular section to have a retrospective operation, the courts will give it such an operation. In the absence of a retrospective operation having been expressly given, the courts may be called upon to construe the provisions and answer the question whether the Legislature had sufficiently expressed that intention giving the statute retrospectivity. Four factors are suggested as relevant: (i) general scope and purview of the statute; (ii) the remedy sought to be applied; (iii) the former state of the law; and (iv) what it was the Legislature contemplated. The rule against retrospectivity does not extend to protect from the effect of a repeal, a privilege which did not amount to accrued right. "
The above being the position, the inevitable conclusion is that Explanation 4 to section 271(l)(c) is clarificatory and not substantive. The view expressed to the contrary in Virtual's case [2007J 9 SCC 665 is not correct. 1/
(b) K.Govindan & Sons vs. CIT 247 ITR 192 (SC): In this case the issue was whether amendment made in section 139(8) by the Taxation Laws (Amendment) Act, 1984 was retrospective as the effective date mentioned therein was 1-4-1985. The Hon'ble Supreme Court held as under:
( The view taken by us that a first or initial assessment under section 147 of the Act is a "regular assessment"
within the meaning of section 139(8) of the Act, has been the position of law even before the Explanation in section 139(8) was added by amendment. In that view of the matter the Explanation merely clarified the position taking it beyond the pale of doubt. Parliament thought it necessary to add the Explanation with a view to remove the doubt raised in certain decisions of different High Courts in which a contrary view was taken. Thus, the Explanation is merely a clarificatory provision and has application to the period of assessment in the case, i.e., 19 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
assessment year 1984-85."
(c) CIT vs. Shelly P. Products 261 ITR 367 (SC): In this case the issue involved was whether insertion of proviso ( b) to section 240 by the Finance Act, 1988 and made effective from 1-4-89, had retrospective operation or not. The assessment year involved the Supreme Court was 1976-77. The Supreme Court held that the amendment was retrospective in nature. The Court held as under:
"We have held that even under the unamended section 240 of the Act, the assessee was only entitled to the refund of tax paid in excess of the tax chargeable on the total income returned by the assessee. We have held so without taking the aid of the amended provision. It, therefore, follows that proviso (b) to section 240 is also declaratory. It seeks to clarify the law so as to remove doubts leading to the courts giving conflicting decisions, and in several cases directing the Revenue to refund the entire amount of income- tax paid by the assessee where the Revenue was not in a position to frame a fresh assessment. Being clarificatory in nature it must be held to be retrospective, in the facts and circumstances of the case. It is well settled that the Legislature may pass a declaratory Act to set aside what the Legislature deems to have been a judicial error in the interpretation of the statute. It only seeks to clear a meaning of a provision of the principal Act and make explicit that which was already implicit"
(d) Allied Motors vs. CIT 224 ITR 677 (SC): In this decision the court observed as follows:
"A proviso which is inserted to remedy unintended consequences and to make the provision workable, a proviso which supplies an obvious omission in the section and is required to be read into the section to give the section a reasonable interpretation, requires to be treated as retrospective in operation, so that a reasonable interpretation can be given to the section as a whole. "
20 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
(e) Sedco Forex vs. CIT 279 ITR 310 (SC): In this case the issue involved was whether the amendment made in Explanation to section 9{1}{ii) by the Finance Act, 1999 wef 1-4-2000, had retrospective operation or not. The Court did not accept the department's plea that it had retrospective operation. However, while deciding the issue the Court referred to Reliance Jute and Industries Ltd. v. CIT [1979] 120 ITR 921 (SC) wherein the following observations were made:
"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 phrases used are "it is declared" or "[or the removal of doubts".
As discussed above, the amendment made in section 44DA and 44BB(l) have not changed the law and is clarificatory.
(f) Commissioner of Income-tax v. Apar Industries Ltd 323 ITR 411 (Bom.) The issue involved was whether amendment made in section 234B w.e.f. 1-4-2007 was clarificatory and thus had retrospective operation or not. The High Court held that an amendment which is intended to remove an ambiguity in the interpretation of a section must of necessity be regarded as clarificatory. If it is clarificatory in nature, it is expressive of a position in law which Parliament intended to hold the field at all material times and must consequently be regarded as operating with retrospective effect.
14. Moreover, if it is held that the amendments are prospective and would be applicable from A.Y. 2011-12 onwards it would then mean that in assessment years 2004- 05 to 2010-11 the FTS would be taxed u/s 44BB while in all other, prior or subsequent, years the same would be 21 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
taxable either u/s 44D or 44DA or 115A and not u/s 44BB. Certainly the legislature has not intended so. There are no valid reasons or circumstances to hold that for AY 2004-05 to 2010-11 the legislature wanted to give a different treatment to FTS. Such a situation, in my view, would not be consistent with the above discussed legislative intent.
15. In view of the above discussion and the legal position it is humbly submitted that the amendments made in section 44DA and proviso to section 44BB(l) by Finance Act, 2010 are clarificatory in nature and hence shall have retrospective operation right from the time when section 44DA was inserted in the Act viz. 1-4-2004.
22. As regards ground no. 8 regarding revenue arising from letting out of equipment used in connection with exploration/ prospecting/ extraction of mineral oil, ld. CIT(DR) submitted that assessing officer had not invoked provisions of section 44BB, because the payment simpliciter was in the nature of 'royalty' not covered by sec. 44BB, since plant was not supplied for exploration/ prospecting/ extraction of mineral oil. He submitted that clause (iv-a) to Explanation 2 to sec. 9(1)(vi) is not applicable in this case.
23. In reply to ld. CIT(DR)'s submissions that since the decision in the case of B.J. Services (supra) was rendered in the context of Sec. 148 and, therefore, the said decision is not applicable, ld. Counsel submitted that Hon'ble Uttarakhand High Court considered the merits also in the case of B.J. services (supra) and held that the amendment to the proviso to section 44BB was prospective in nature. In this regard ld. Counsel referred to reasons recorded for reopening of assessment in the case of B.J. Services (supra) and pointed out that one of the reasons recorded for reopening was as under:
22 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
"That in view of the Explanatory Note to the Finance Bill, 2010, indicating that the combined effect of the provisions of sections 44BB, 44DA and 115A of the Act is that if the income of a non-resident is in the nature of a fee for technical services, in that event, it would be taxable under the provisions of section 44DA or under section 115A and that section 44BB would only apply in a case where the consideration is for the services and other facilities relating to exploration activity which was not in the nature of technical services."
24. Ld. Counsel further referred to page 187 of the said decision and pointed out that Hon'ble High Court therein has observed as under:
38. During the period in question, the petitioner had received revenues from Reliance Industries Ltd., Pride Foramer SAS, BG Exploration & Production India Ltd, ONGC, Niko Resources Ltd, etc. on account of providing services and facilities in connection with the Exploration and extraction of and production of mineral oil. The petitioner offered the revenues received from these companies for taxation under s.
44BB of the Act. The AO, after considering the material placed before it and considering other factors and after due verification and enquiry, passed an assessment order dt. 29th Nov., 2005 under s. 143(3) of the Act.
39. Sec. 44BB of the Act provides that where an assessee, being a non-resident, is engaged in the business of providing services or facilities in connection with, or supplying plant and machinery or hire used, or to be used, in prospecting for, or extraction or production of, mineral oils, in which case, a sum equal to ten percent of the aggregate of the amounts specified in sub-s. (2) shall be deemed to be the profits and gains of such business chargeable to tax under the head "profits and gains of business or profession".
40. The proviso to s. 44BB further clarifies that sub-s. (1) of s. 44BB would not apply where the provisions of s. 42, or s. 44D or s. 115A or s. 293A apply for the purposes of computing profits or gains or any other income referred to in these sections.
23 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
41. Sec. 44D is a special provision for computing income by way of royalties and fees for technical services in the case of foreign companies. It starts with a non-obstante clause "notwithstanding anything to the contrary contained in ss. 28 to 44C". Sec. 44D(b) of the Act provides that in the case of an assessee, being a foreign company, no deduction in respect of any expenditure or allowance shall be allowed under any of the said sections in computing the income by way of royalty or fees for technical services received. The Explanation to s. 44D provides that "fees for technical services" shall have the same meaning as in Expln. 2 to cl. (vii) of sub-s. (1) of s. 9.
42. Sec. 9(1)(vii) of the Act provides that income by way of fees for technical services payable by a Government or a person shall be deemed to accrue or arise in India. Expln. 2 provides that "fees for technical services" means any consideration for the rendering of any managerial, technical or consultancy services, including the provision of services of technical or other personnel but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "salaries".
43. Sec. 115A(1)(b)(B) of the Act provides that where the total income of a foreign company includes any income by way of royalty or fees for technical services, the amount of income-tax calculated on the income by way of fees for technical services, would be at the rate of thirty percent if such fees is received in pursuance of an agreement made on or before 31st May, 1997 and 20 per cent where such fees for technical services are received in pursuance of an agreement made after 31st May, 1997.
44. Under the existing provisions contained in s. 44BB, 44D, s. 115A and under Expln. 2 of s. 9 (1)(vii) of the Act, it was open to the AO to tax the petitioner either under s. 44BB or 44D or under s. 9(1)(vii) on the basis of the material produced before him. Relevant and primary facts were placed before the AO. The AO applied its mind to the facts of each case. The AO considered the documents filed by the assessee and after due verification and enquiry, came to the conclusion that the assessee was liable to be taxed under s. 44BB which was accepted by the assessee.
24 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
45. A perusal of the assessment order of the petitioner in Writ Petn. No. 2197 of 2010, indicates that the AO has considered 29 contracts/agreement entered by the petitioner with others relating to providing services and facilities in connection with the exploration and production of mineral oils and the revenues received by the assessee. The AO rejected the stand taken by the Revenue authorities and held that the income of the petitioner was chargeable under s. 44BB of the Act. Once an order is passed under s. 143(3) of the Act, a presumption is raised that such an order has been passed on an application of mind.
46. By the Finance Act 2003, s. 44DA was inserted in the Act w.e.f. 1st April, 2004. This is another special provision for computing income under the head "profits and gains of business or profession" by way of royalty or fees for technical services received by a non-resident or foreign company which carries on a business in India through a permanent establishment. The Explanation to this section provided that "fees for technical services" shall have the same meaning as provided in Expln. 2 to cl. (vii) of sub-s. (1) of s. 9.
47. Sec. 44DA was amended w.e.f. 1st April, 2011 by Finance Act, 2010, and a proviso was added indicating that the provisions of s. 44BB shall not apply in respect of income referred to in this section.
48. After the insertion of s. 44DA in the Act, the combined effect of the provisions of s. 44BB, 44DA, 115A and Expln. 2 of s. 9(1)(vii) of the Act as per the stand of the Revenue is that if the income of a non-resident is in the nature of a fee for technical services, it would be taxable under the provisions of either s. 44DA or s. 115A r/w Expln. 2 to s. 9(1)(vii) irrespective of the business to which it relates and that s. 44BB would apply only in a case where consideration was for services and other facilities relating to exploration activity which are not in the nature of technical services.
49. In spite of the insertion of s. 44DA in the Act, a grey area remained regarding the scope of s. 44BB and s. 44DA, namely, whether the fee for technical services relating to the exploration sector would be covered under s. 44BB of the Act. In order to remove the grey area, s. 44DA and 44BB was amended w.e.f.
25 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
1st April, 2011 so as to exclude the applicability of s. 44BB to the income which is covered under s. 44DA. The aforesaid was provided in the Explanatory Note to the Finance Bill, 2010, which was ultimately amended in the relevant ss. 44BB and 44DA w.e.f. 1st April, 2011.
50. In the light of the aforesaid, the contention of the Revenue is, that the services contemplated under s. 44BB are services other than those coming within the purview of Expln. 2 to s. 9(1)(vii) of the Act. The services extended by the petitioner falls under Expln. 2. Consequently, the income by way of fees for technical services chargeable under s. 9(1)(vii) has to be computed under s. 44DA of the Act.
51. To recapitulate, the reasons given for initiating proceeding under s. 148 of the Act is :
(a) that the services rendered are technical in nature and is liable to be taxed as a fee for technical services in view of the decision of the Uttarakhand High Court in the case of CIT & Anr. vs. ONGC (2008) 299 ITR 438 (Uttrakhand) and
(b) Explanatory Note to the Finance Bill indicating that the combined effect of the provision of s. 44BB, 44DA and 115A is that the income of a non-resident is in the nature of fee for technical services, and that it is taxable under the provision of s. 44DA or s. 115A irrespective of the business to which it relates.
25. With reference to above observations, ld. Counsel submitted that though Hon'ble High Court was considering the issue with reference to sec. 148 but has given a specific finding that sec. 44DA would take effect from 1-4-2011 and would apply in relation to assessment year 2011-12 and subsequent years. He submitted by inserting section 44DA in the proviso to sec. 44BB, w.e.f. 1-4-2011 a substantive amendment has been made as it affects the liability of assessee because u/s 44BB there is presumptive basis of taxation. Ld. Counsel submitted that the amendment brought out by the Finance Act 2010 in section 44BB and 44DA of the Act amounts to substantial change in the scheme of taxation of income arising to non-
26 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
resident engaged in the business of exploration/ prospecting/ extraction of mineral oil. Such a substantial amendment can take effect prospectively and cannot have retrospective operation. In this regard ld. Counsel relied on the decision of Hon'ble Supreme Court in the case of Sedco Forest International Drilling Inc. & others vs. CIT 279 ITR 310, wherein the Hon'ble Court turned down the department's contention and held that amendment in explanation 2 to section 192 made by the Finance Act 1999 would apply prospectively w/.e.f. 1-4-2000 even though the explanation was inserted for the removal of doubts. He further submitted that sec. 44BB is a special provision which has over-riding effect, whereas section 44DA is residual section.
26. Ld. Counsel pointed out that no contrary intention has been given in the provisions of section 44BB as the specific date viz. 1-4-2011 has been mentioned.
27. Ld. Counsel also relied on following decisions:
Schlumberger Asia Services Ltd. Vs. ADIT 6063/2010; Western Geo International Ltd. Vs. Addl. CIT 5977/Del/2010. PGS Exploration Norvey AS Vs. DIT 4056/Del/2011.
28. Ld. Counsel further submitted that now this issue has also been considered by Hon'ble Delhi High Court in the case of DIT Vs. OHM Ltd. as under:
"11. We do not think that there is any error in the view taken by AAR. Basically the rule that the specific provision excludes the general provision has been applied. Section 44BB is a special provision for computing the profits and gains of a non-resident in connection with the business of providing services or facilities in connection with, or supplying plant and machinery on hire, used or to be used, in the prospecting for, or extraction or production of mineral oils including petroleum and natural gas. Section 44DA is also a provision which applies to non-residents only. It is, however, broader and more general in nature and provides for assessment of the income of the non-resident by way of royalty or fees for technical services, where such non-
27 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
resident carries on business in India through a permanent establishment situated therein or performs services from a fixed place of profession situated in India and the right, property or contract in respect of which the royalties or fees for technical services are paid is effectively connected with the permanent establishment or fixed place of profession. Such income would be computed and assessed under the head "business" in accordance with the provisions of the Act, subject to the condition that no deduction would be allowed in respect of any expenditure or allowance which is not wholly or exclusively incurred for the business of such permanent establishment or fixed place of profession or in respect of amounts, if any, paid by the permanent establishment to its head office or to any of its other offices. Under section 44BB one does not find any reference to a permanent establishment in India. The type of services contemplated by the provision is more specific than what is contemplated by Section 44DA. Section 44BB refers specifically to "services or facilities in connection with, or supplying plant and machinery on hire, used or to be used in the prospecting for, or extraction or production of mineral oils". Revenues earned by the non-resident from rendering such specific services are covered by Section 44BB. It is a well settled rule of interpretation that if a special provision is made respecting a certain matter, that matter is excluded from the general provision under the rule which is expressed by the maxim "Generallia specialibus non derogant". It is again a well-settled rule of construction that when, in an enactment two provisions exist, which cannot be reconciled with each other, they should be so interpreted that, if possible, effect should be given to both. This was stated to be the "rule of harmonious construction" by the Supreme Court in Venkataramana Devaru v. State of Mysore, AIR 1958 SC 255. If as contended by the Revenue, Section 44DA covers all types of services rendered by the non-resident, that would reduce section 44BB to a useless lumber or dead letter and such a result would be opposed to the very essence of the rule of harmonious construction. In South India Corporation (P) Ltd. v. Secretary, Board of Revenue Trivandrum, AIR 1964 SC 207 it was held that a familiar approach in such cases is to find out which of the two apparently conflicting provisions is more general and which is more specific and to construe the more general one as to exclude the more specific.
12. The second proviso to sub-section (1) of Section 44DA inserted by the Finance Act, 2010 w. e. f. 01.04.2011 makes the position clear. Simultaneously a reference to Section 44DA was inserted in the proviso to sub-section (1) of section 44BB. It should be remembered that section 44DA also requires that the non-resident or the foreign company should carry on business in India through a permanent establishment situated therein and the right, property or contract in respect of which the royalty or fees for technical services is paid should be effectively connected with the permanent establishment. Such a requirement has not been spelt out in Section 44BB; moreover, a flat rate of 10% of the revenues received by the non-resident for the specific services rendered by it are deemed to be profits from the business chargeable to tax in India under Section 44BB, whereas under Section 44DA, deduction of expenditure or allowance 28 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
wholly and exclusively incurred by the non-resident for the business of the permanent establishment in India and for expenditure towards reimbursement of actual expense by the permanent establishment to its head office or to any of its other offices is allowed from the revenues received by the non-resident. Because of the different modes or methods prescribed in the two sections for computing the profits, it apparently became necessary to clarify the position by making necessary amendments. That perhaps is the reason for inserting the second proviso to sub-section (1) of Section 44DA and a reference to section 44DA in the proviso below sub-section (1) of Section 44BB. A careful perusal of both the provisos shows that they refer only to computation of the profits under the sections. If both the sections have to be read harmoniously and in such a manner that neither of them becomes a useless lumber then the only way in which the provisos can be given effect to is to understand them as referring only to the computation of profits, and to understand the amendments as having been inserted only to clarify the position. So understood, the proviso to sub-section (1) of Section 44BB can only mean that the flat rate of 10% of the revenues cannot be deemed to be the profits of the non-resident where the services are of the type which do not fall under that section, but are more general in nature so as to fall under Section 44DA. Similarly, 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(1)(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% 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 or 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. 13. In the result the writ petition fails and is dismissed with no order as to costs.
29. Ld. Counsel further referred to the order of the ITAT Delhi Bench 'B' dated 25-1-2012 in the case of M/s CGG Veritas Services SA Vs. Addl. DIT rendered in ITA no. 4653/Del/2010 ( pages 127 to 202 of the PB ) and referred to page 185 of the PB wherein the ITAT has examined the scheme of the Act in this regard, as under:
29 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
"43. Now next question arises as to whether the consideration received for fee for technical services rendered by the assessee is assessable u/s 44BB(1) of the Act or u/s 115A of the act? The legislature has employed word 'services' in section 44BB (1) of the Act. The word 'services' will include both technical and non technical services. Proviso to section 44BB(1) carves out an exception according to which the provisions of this sub-section shall not apply in a case where the provisions of section 42 or section 44D or section 115A or section 293A are applicable for the purposes of computing profits or gains or any other income referred to in those sections. We also find that in proviso to section 44BB(1) for the relevant assessment year each of the sections 42, 44D, 115A and 293A are separated by word "or". The word "or" is normally used as disjunctive and has to be read in the alternative. It cannot be read as conjunctive or in other meaning because the result produced will be unintelligible and absurd and against the clear intention of the legislature. It is also a settled law that the legislature does enact a word in the statute which can be said to be redundant. Therefore, literal interpretation has to be followed for existence of word "or" between different sections appearing in proviso to section 44BB (1) of the Act. In proviso to section 44BB(1) section 44DA has been inserted by the Finance Act, 2010 w.e.f. 1.4.2011. Thus in the case of a non-resident assessee where the provisions of section 42 or section 44D or 44DA or section 115A or section 293A are applicable for the purposes of computing profits or gains or any other income referred to in those sections, proviso to section 44BB(1) will be pressed into service.
44. The normal function of a proviso is to except something out of the main enactment or to qualify something enacted therein which but for the proviso would be in the purview of the enactment. It is also a settled law that the main part of a section must not be construed in such a way as to render a proviso to the section redundant (R v. Leeds Prison (Governor) Ex. p. Stafford [1964] 2 QB 625). Proviso sometime clarifies ambiguity in the section to which it is attached to. Sometimes proviso can stand on its own independent of main enactment to which it is attached. Hon'ble Supreme Court in the case of UP State Road Transport Corporation v. Mohd. Ismail (AIR 1991 SC 1099), while interpreting the proviso to the Regulation 17(3) of the UP State Road Transport Corporation has held that sometimes a proviso in effect becomes a substantive provision. Regulation 17(3) reads as follows:
"17(3) The service of a person who fails to pass the fitness test, referred to in sub-regulation (2), may be dispensed with; Provided that the persons, whose services are dispensed with may, in the discretion of the Corporation, be offered alternative jobs."
30 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
Interpreting the above proviso attached to the Regulation 17(3), Hon'ble Supreme Court observed as under:
"The proviso with which we are concerned in regulation 17(3) does not carve out an exception from the general rule contained in the first branch. It is an independent and substantial provision providing discretion to the Corporation to offer an alternative job to the retrenched driver. This offer is to be made after the exercise of power under the first branch of regulation 17(3). There is, therefore, no doubt that the second branch of regulation17(3) is a substantial provision and not in the nature of a proviso to the first branch thereof."
Examining the contents of proviso to section 44BB (1) in the light of above legal propositions, we are of the view that the proviso to section 44BB(1) can neither be ignored nor can be construed as an independent provision. If it is ignored, the consideration in respect of services both technical as well as non-technical will be covered by section 44BB (1) making provisions of sections 42/ 115A / 293A redundant for the year under consideration and also section 44DA w. e. f. assessment year 2011-
12. The proviso cannot also stand on its own as it convey no meaning independent of section 44BB(1) and hence it cannot be construed as an independent provision. In view of above legal position we reject the contention of the ld AR of the assessee that the moment the case falls u/s 44BB (1), its proviso should be ignored. The contention of the assessee is also rejected that when there is no ambiguity in section 44BB(1), there is no need of proviso to it."
30. At page 191 the ITAT summarized its finding in para 46 as under:
46. On combined reading of section 44DA(1) and 115A(1)(b) it is clear that the provisions of section 44DA(1) are applicable in the case of a non-
resident assessee who carries on business in India through a permanent establishment, or performs professional services from a fixed place of profession, and fees for technical services paid under the contract is effectively connected with such permanent establishment or fixed place of profession in India. In section 115A(1)(b) the Finance Act, 2003 with effect from 1.4.2004 substituted words "a non-resident (not being a company) or a foreign company includes any income by way of royalty or fees for technical services other than income referred to in sub-section (1) of section 44DA" for words "a foreign company, includes any income by way of royalty or fees for technical services". Therefore, w.e.f. 1.4.2004 fee for technical services which is not connected with permanent establishment of business or fixed place of profession in India, will be taxable u/s 115A(1)(b) of the Act. As observed earlier section 44DA was 31 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
inserted in proviso to section 44BB (1) by the Finance Act, 2010 with effect from 1.4.2011 and simultaneously inserted second proviso to section 44DA applicable 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 or fixed place of profession - (section 115A);
Thus it is abundantly clear that with effect from assessment year 2011-12 fee for technical services whether rendered in connection with prospecting for or extraction or production of mineral oil or otherwise will be assessable either u/s 44DA or section 115A of the Act depending on fact whether such receipts are effectively connected with PE or fixed place of profession, or not. However, for assessment year 2004-05 to 2010-11 the consideration received for 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 outside the scope of section 44DA and will be assessable under section 44BB (1) of the Act for the simple reason that proviso to section 44BB(1) does not contain section 44DA for these years
31. Ld. Counsel referred to the decision in the case of M/s Geofizyka Totun Sp. Zo. 320 ITR 268 (AAR), wherein the Authority for Advance Ruling, inter alia, observed that in the absence of any words of limitation or exclusion, the word "services" in section 44BB had to be understood in its 32 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
plain and ordinary sense. The word "services" followed by an expansive phrase "in connection with" were relatable to prospecting for and exploration of mineral oils. That meant that all services associated with prospecting for and exploration activities were brought within the scope and reach of section 44BB. He pointed out that the department's contention that the services extended by the assessee came within the purview of Explanation to sec. 9(1)(vii) and income to be computed u/s 44DA was rejected. In this case assessee provided the seismic data acquisition, processing and interpretation services to various oil and gas exploration and production companies in India. The assessee had applied to the Authority for a ruling as to whether its income would fall within the ambit of and should be taxed u/s 44BB of the Ac, which claim of assessee was upheld and it was held that if the non-resident was engaged in the business of providing services in connection with the prospecting etc., of mineral oils, the computation provisions relating to fees for technical services in sec. 44DA had to yield to sec. 44BB. He pointed out that this decision was followed in the case of Ohm Ltd. 335 ITR 423 (AAR), which view has been upheld by Hon'ble Delhi High Court in the case of OHM Ltd. (supra), as noted earlier.
32. Ld. Counsel further pointed out that in the case of Schlumberger Vs. DIT 6063/Del/10 (supra) the ITAT relying on the decision of CGG Veritas has held that income in connection with the business of exploration of mineral oils in the assessment year prior to 1-4-2011 will be assessed u/s 44BB. In para 7.11 the ITAT has observed as under:
"It has further been the contention of the revenue that the amendments vide Finance Act 2010 inserting mutually exclusionary clauses in s. 44BB and s. 44DA are clarificatory and hence are retrospective in operation w.e.f. AY 2004-05. We find that this contention is not at all correct as the said
33 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
provision of the Act cannot be said to be clarificatory and hence retrospective in operation. In this regard in the case of CGG Veritas Services comes to the rescue of the assessee. Furthermore, the jurisdictional High Court in the case of the assessee itself in Schlumberger Asia Services Ltd. v. ACIT Writ petition no. 2510 of 2010 wherein it has been held that the amendment by Finance Act, 2010, excluding the application of section 44BB in case where section 44DA applies, is prospective and applies from assessment year 2011-12."
33. Apropos ground no. 8, ld. Counsel pointed out that fishing tools were used in connection with exploration/ prospecting/ extraction of mineral oil and, therefore, the receipts were covered by the provisions of section 44BB. In this regard ld. Counsel relied on 249 ITR 162.
34. In reply to ld. AR's detailed submissions, Ld. DR submitted that in the case of C.G.G. Veritas (supra) it was held that once there is FTS then the same is to be taxed u/s 44DA/115A only. When there is PE u/s 44DA and if no PE u/s 115A. However, once case falls u/s 115A/44DA, sec. 44BB would not be applicable.
35. As regards the reliance placed on the decision in the case of Geofizyka Totun (supra), ld. DR submitted that since AAR in this decision did not consider the effect of proviso to sec. 44BB(1), reliance on this decision is of no help.
36. As regards the plea of ld. Authorized representative that section 44BB being a special provision has over-riding effect over section 44DA/ 115A ld. CIT(DR) submitted that provisions of sec. 44DA/ 115A are also special provisions. He pointed out that since in the case of CGG Veritas the income was taxed u/s 115A, as it had no PE, the appeal was decided in favour of the department and hence no further appeal was filed by the department before the High Court. In this regard ld. DR filed a letter dated 25-9-2012 from the 34 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
Director of Income-tax (International Taxation), New Delhi. With reference to the decision of Hon'ble Delhi High Court in the case of OHM (supra), ld. DR referred to the decision of Hon'ble Uttrakhand High Court in the case of CIT Vs. ONGC 299 ITR 438 wherein it was held that fees for technical services was assessable u/s 44D read with section 115A and not u/s 44BB.
37. We have considered rival submissions and perused the material on record. Admittedly there were different composite contracts entered into between assessee and Indian companies and the assessing officer had bifurcated the contract receipts between service fee, rental income and sale of equipment. The assessing officer was of the opinion that payment received qua services rendered was in the nature of fees for technical services in terms of sec. 9(1)(vii) and the payments received qua hire of equipment was in the nature of 'royalty' in terms of section 9(1)(vi) of the I.T. Act. It is not disputed that assessee had PE in India and, therefore, the aforesaid receipts were taxed u/s 44DA by the assessing officer. The assessing officer taxed the entire receipts of assessee @ 25%. The assessing officer held that the simultaneous amendment made by Finance Act 2010 w.e.f. 1-4-2011 in section 44DA and proviso to section 44BB of the Act, being clarificatory in nature, are retrospective in operation and was, thus, applicable to the year under consideration. The assessee's contention was that its receipts were taxable u/s 44BB because they were in connection with exploration of oils and minerals and the provisions of section 44DA were not applicable for the years under consideration.
38. Before interpreting these sections it is necessary to first refer to the scheme of the Act regarding taxability issue of 'royalty' and "fees for technical services".
35 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
39. In order to properly appreciate the controversy, it is necessary first to consider various sections dealing with Royalty, FTS and their fields of operation.
41. The Finance Act, 1976 effected three basic changes as regards assessment of non-residents.
(a) It inserted clauses (v), (vi) and (vii) in Section 9(1) deeming interest, royalty and technical fees to accrue or arising in India, making the non-resident/ recipient, chargeable to tax in cases where there was no tax liability under the pre-existing law;
(b) It inserted sections 44C and 44D denying deductions, entirely or in part in respect of expenses wholly and exclusively incurred for the purpose of non-resident business or for earning the royalty or technical fees.
(c) It inserted section 115A, prescribing new rates of tax for dividends, royalty and technical fees in case of foreign company.
41. By Finance Act, 2001 w.e.f. 1-4-2002, in Explanation 2, dealing with definition of 'royalty, clause (iv-a) was inserted in Section 9(1)(vi), which reads as under:
"(iva) the use or right to use any industrial, commercial or scientific equipment but not including the amounts referred to in section 44BB."
"(iv-a) The use or right to use, any industrial, commercial or scientific equipment but not including the amounts referred to in section 44B"
42. Thus, the use or right to use any industrial, commercial or scientific equipment was coming within the ambit of the term 'royalty' taxable u/s 36 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
9(1)(vi). However, if the same was with reference to the amounts, referred to in section 44BB, then the same was excluded from section 9(1)(vi).
43. In section 9(1)(vii), dealing with FTS, Explanation 2 was inserted by the Finance No. 2, Act 1977 w.e.f. 1-4-1977, which defines FTS as under:
"Explanation (2) - For the purposes of this clause, "fees for technical services" means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "salaries".
44. As per CBDT Instruction no. 1862 dated 22-10-1990 [ 165 ITR 161 (St.)], consideration for mining includes rendering of services like imparting of training for carrying out drilling operations in connection with the extraction of mineral oils undertaken by recipient. Thus, the consideration, inter alia, for mining was excluded from section 9(1)(vii), provided the same was undertaken by assessee itself.
45. From the above exclusionary clause it is evident that the Royalty and FTS in respect of incomes contemplated u/s 44BB were taxable u/s 9(1)(vi) and 9(1)(vii) till the date of insertion of exclusionary clauses. Thus, the royalty and FTS which was for the nature of services contemplated u/s 44BB were excluded from sections 9(1)(vi) and 9(1)(vii) and brought under section 44BB which is a special provision for computing profits and gains in connection with the business of exploration etc. of mineral oils. Section 44BB was inserted by the Finance Act 1987 with retrospective effect from 1-4-1983.
37 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
46. The legislative intent, as rightly pleaded by ld. CIT(DR), from the very beginning is not to bring within the ambit of section 44BB, the incomes in the nature of FTS and royalty contemplated u/s 44D/115A. But then what is the answer to Explanation (iva) to section 9(1)(vi) and Explanation 2 to section 9(1)(vii). In order to find reasonable answer, we proceed to analyse various provisions dealing with Royalty and FTS apart from the basic sections being section 9(1)(vi) and 9(1)(vii).
47. Section 44D was inserted in Chapter IV by the Finance Act, 1976 w.e.f. 1-6-1976. This section is reproduced hereunder:
"[Special provisions for computing income by way of royalties, etc., in the case of foreign companies.
44D. Notwithstanding anything to the contrary contained in sections 28 to 44C, in the case of an assessee, being a foreign company,--
(a) the deductions admissible under the said sections in computing the income by way of royalty or fees for technical services received 81[from Government or an Indian concern in pursuance of an agreement made by the foreign company with Government or with the Indian concern] before the 1st day of April, 1976, shall not exceed in the aggregate twenty per cent of the gross amount of such royalty or fees as reduced by so much of the gross amount of such royalty as consists of lump sum consideration for the transfer outside India of, or the imparting of information outside India in respect of, any data, documentation, drawing or specification relating to any patent, invention, model, design, secret formula or process or trade mark or similar property;
(b) no deduction in respect of any expenditure or allowance shall be allowed under any of the said sections in computing the income by way of royalty or fees for technical services received 82[from Government or an Indian concern in pursuance of an agreement made by the foreign company with Government or with the Indian concern] after the 31st day of March, 1976 83[but before the 1st day of April, 2003];84
(c) [***]
85
(d) [***]
Explanation.--For the purposes of this section,--
(a) "fees for technical services" shall have the same meaning as in 86 [Explanation 2] to clause (vii) of sub-section (1) of section 9;
(b) "foreign company" shall have the same meaning as in section 80B;
(c) "royalty" shall have the same meaning as in 87[Explanation 2] to clause (vi) of sub-section (1) of section 9;
38 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
(d) royalty received 88[from Government or an Indian concern in pursuance of an agreement made by a foreign company with Government or with the Indian concern] after the 31st day of March, 1976, shall be deemed to have been received in pursuance of an agreement made before the 1st day of April, 1976, if such agreement is deemed, for the purposes of the proviso to clause (vi) of sub-section (1) of section 9, to have been made before the 1st day of April, 1976.]
48. Noticeable features of this section are as under:-
(a) It is special provision for computation of income by way of royalty or fees for technical services. Thus a computation provision.
(b) Applicable to only that portion of royalty which consists of lump sum consideration for the transfer outside India, or for imparting of information outside India in respect of any data, documentation, drawing or specification relating to patent, invention, model, design, secret formula or process or trade mark or similar property.
Thus, it primarily deals with considerations paid as royalty for transfer of IPR outside India even if IPR was with respect to oil exploration.
(c) The operation of this section was up to 31-3-2003. It follows, therefore, that royalty/ FTS received by a non-resident for transfer of intellectual property rights contemplated u/s 44D, if paid for the nature of services contemplated u/s 44BB after 31-3-2003, would be taxable u/s 44BB.
49. Section 44DA, inserted by the Finane Act, 2003, w.e.f. 1-4-2004, reads as under:
[Special provision for computing income by way of royalties, etc., in case of non-residents.
44DA. (1) The income by way of royalty or fees for technical services received from Government or an Indian concern in pursuance of an agreement made by a non-resident (not being a company) or a foreign company with Government or the Indian concern after the 31st day of March, 2003, where such non-resident (not being a company) or a foreign company carries on business in India through a permanent establishment situated therein, or performs professional services from a fixed place of 39 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
profession situated therein, and the right, property or contract in respect of which the royalties or fees for technical services are paid is effectively connected with such permanent establishment or fixed place of profession, as the case may be, shall be computed under the head "Profits and gains of business or profession" in accordance with the provisions of this Act :
Provided that no deduction shall be allowed,--
(i) in respect of any expenditure or allowance which is not wholly and exclusively incurred for the business of such permanent establishment or fixed place of profession in India; or
(ii) in respect of amounts, if any, paid (otherwise than towards reimbursement of actual expenses) by the permanent establishment to its head office or to any of its other offices.
(2) Every non-resident (not being a company) or a foreign company shall keep and maintain books of account and other documents in accordance with the provisions contained in section 44AA and get his accounts audited by an accountant as defined in the Explanation below sub-section (2) of section 288 and furnish along with the return of income, the report of such audit in the prescribed form duly signed and verified by such accountant.
Explanation.--For the purposes of this section,--
(a) "fees for technical services" shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9;
(b) "royalty" shall have the same meaning as in Explanation 2 to clause (vi) of sub-section (1) of section 9;
(c) "permanent establishment" shall have the same meaning as in clause (iiia) of section 92F.]
50. Noticeable features of section 44 DA are as under:-
(a) covers the cases of royalty and FTS received from 1-4-2003 onwards by non-residents/ foreign co.
(b) non-resident/ foreign co. carries on business in India through a PE situated in India.
(c) Non-resident performs professional services from a fixed place of profession in India.
(d) Right, property or contract in respect of which the royalty/ FTS are paid is effectively connected with such PE/ fixed place of profession.
(e) Taxable under profits and gains of business or profession.
(Note) [Therefore, if royalty/ FTS is received by a non-resident who is engaged in the business of providing services or facilities in connection 40 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
with, or supplying P&M on hire used, or to be used, in the prospecting for, or extraction or production of mineral oils then this will be taxed u/s 44BB but if it is received on account of having PE/ fixed place in India then it will be taxed u/s 44DA from 1-4-2011 onwards. It is noticeable that there is no requirement of PE in section 44BB and, therefore, if the payment of royalty/FTS to non-resident has no nexus with PE and is paid for the nature of activities contemplated u/s 44BB, the same would continue to be taxable u/s 44BB. .]
51. Section 115A, substituted by Finance Act, 1994 w.e.f. 1-4-1995, reads as under:
[Tax on dividends, royalty and technical service fees in the case of foreign companies.
115A. [(1) Where the total income of--
"(b) [a non-resident (not being a company) or a foreign company, includes any income by way of royalty or fees for technical services other than income referred to in sub-section (1) of section 44DA] received from Government or an Indian concern in pursuance of an agreement made by the foreign company with Government or the Indian concern after the 31st day of March, 1976, and where such agreement is with an Indian concern, the agreement is approved by the Central Government or where it relates to a matter included in the industrial policy, for the time being in force, of the Government of India, the agreement is in accordance with that policy, then, subject to the provisions of sub-sections (1A) and (2), the income-tax payable shall be the aggregate of,--
[(A)the amount of income-tax calculated on the income by way of royalty, if any, included in the total income, at the rate of thirty per cent if such royalty is received in pursuance of an agreement made on or before the 31st day of May, 1997 and twenty per cent where such royalty is received in pursuance of an agreement made after the 31st day of May, 1997; (B)the amount of income-tax calculated on the income by way of fees for technical services, if any, included in the total income, at the rate of thirty per cent if such fees for technical services are received in pursuance of an agreement made on or before the 31st day of May, 1997 and twenty per cent where such fees for technical services are received in pursuance of an agreement made after the 31st day of May, 1997; and] (C)the amount of income-tax with which it would have been chargeable had its total income been reduced by the amount of income by way of royalty and fees for technical services.
Explanation.--For the purposes of this section,--
41 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
(a) "fees for technical services" shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9 ;
(c) "royalty" shall have the same meaning as in Explanation 2 to clause (vi) of sub-section (1) of section 9 ;
[(3) No deduction in respect of any expenditure or allowance shall be allowed to the assessee under sections 28 to 44C and section 57 in computing his or its income referred to in sub-section (1).
52. Noticeable features of section 115A are as under:-
Section 115A(b) w.e.f. 1-4-04.
(a) covers the cases of royalty/ FTS other than referred to in section 44DA(1).
(b) Rate of tax is as under:
(i) 30% if in pursuance to agreement made after 31/3/76 to 31/5/97;
(ii) 20% if in pursuance to agreement made between 1-6-97 to 31/5/2005;
(iii) 10% if in pursuance to agreement made on 1-6-2005 or thereafter.
(c) No deduction is allowable in respect of any expenditure or allowance u/ss 28 to 44C and 57.
53. Section 44BB inserted by the Finance Act, 1987 with retrospective effect from 1-4-1983 reads as under:
[Special provision for computing profits and gains in connection with the business of exploration, etc., of mineral oils. 44BB. (1) Notwithstanding anything to the contrary contained in sections 28 to 41 and sections 43 and 43A, in the case of an assessee [, being a non-resident,] engaged in the business of providing services or facilities in connection with, or supplying plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils, a sum equal to ten per cent of the aggregate of the amounts specified in sub-
section (2) shall be deemed to be the profits and gains of such business chargeable to tax under the head "Profits and gains of business or profession" :
Provided that this sub-section shall not apply in a case where the provisions of section 42 or section 44D or section 115A or section 293A 42 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
apply for the purposes of computing profits or gains or any other income referred to in those sections.
(2) The amounts referred to in sub-section (1) shall be the following, namely :--
(a) the amount paid or payable (whether in or out of India) to the assessee or to any person on his behalf 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; and
(b) the amount received or deemed to be received in India by or on behalf of the assessee 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.
[(3) Notwithstanding anything contained in sub-section (1), an assessee may claim lower profits and gains than the profits and gains specified in that sub-section, if he keeps and maintains such books of account and other documents as required under sub-section (2) of section 44AA and gets his accounts audited and furnishes a report of such audit as required under section 44AB, and thereupon the Assessing Officer shall proceed to make an assessment of the total income or loss of the assessee under sub- section (3) of section 143 and determine the sum payable by, or refundable to, the assessee.] Explanation.--For the purposes of this section,--
(i) "plant" includes ships, aircraft, vehicles, drilling units, scientific apparatus and equipment, used for the purposes of the said business;
(ii) "mineral oil" includes petroleum and natural gas.]
54. The basic ingredients of this section are:
(i) that the non-resident assessee is engaged in the business of providing services or facilities in connection with the prospecting or extraction or production of mineral oils.
(ii) Non-resident assessee is engaged in the business of supply plant and machinery on hire used or to be used, in prospecting for or extraction or production of mineral oils.
(iii) The amount being 10% of gross receipts would be assessable as "business income".
43 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
However, a proviso was also inserted which, inter alia, excluded the royalty or FTS contemplated u/s 44D or section 115A. Section 44DA inserted in this proviso by Finance Act 2010 w.e.f. 1-4- 2011.
55. From the combined reading of these sections it is evident that all the sections relating to royalty/FTS operate in different fields and that is the reason for insertion of proviso to sections 44BB/44DA/115A. Where the assessee was imparting services which entitled it to royalty or FTS simpliciter then the same continues to be assessed u/s 9(1)(vi)/(vii) read with section 115A but where the assessee is imparting services in relation to oil exploration the Royalty/ FTS would be taxable u/s 44BB.
56. Specific services are contemplated only under section 44BB and, therefore, that being special provision will prevail over all other provisions dealing with royalty/ FTS. In no other section dealing with royalty/ FTS specific services are provided. A grey area after 1-4-2011 would be where services contemplated u/s 44BB are carried out through PE - whether to be taxed u/s 44BB or u/s 44DA but between 1-4-2004 to 31-3-2011 the same is to be taxed u/s 44BB only. As rightly submitted by ld. AR, section 44DA is residual section.
57. When section 44DA was introduced w.e.f. 1-4-2004, to cover the case of royalty and FTS, in case of non-residents having PE in India, it could be inserted in proviso to section 44BB like section 44D which was inserted in proviso to section 44BB while inserting section 44BB because intention of legislature was not to provide any special treatment to royalty and FTS simpliciter, even if provided with reference to prospecting of mineral oils or exploration of oils. Thus, only such royalty payments or FTS were covered 44 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
u/s 44BB which were provided by a non resident who was actually engaged in the business of providing services or facilties in connection with, or supplying P&M on hire used, or to be used, in the prospecting for, or extraction or production of mineral oils. Thus, the non-resident engagement was necessary. Non insertion of section 44DA may be a case of casus omisus or keeping in view the necessity of oil exploration for the growth of economy deliberately not inserted in the proviso to section 44BB but the insertion in respective provisos to sections 4BB and 44DA cannot be held to be retrospective in nature because it is a substantive amendment eroding on the coffers of assessee's in the form of tax.
58. Therefore, when section 44DA was introduced for FTS and royalty, in cases of non-residents having PE then it was a substantive amendment because earlier such royalty and FTS were covered by section 44BB where the tax impost was low.
59. In view of above discussion, it cannot be held that insretion of section 44DA to proviso to section 44BB is to be considered as only clarificatory in nature and in order to make all the provisions relating to royalty/ FTS workable, harmonious construction was to be placed.
60. In this regard, we may refer to following observations of Hon'ble Supreme Court in the case of CIT Vs. Hindustan Bulk Carrier 259 ITR 449 (SC):
"The court ascertain the intention of the Legislature by directing its attention not merely to the clauses to be construed but to entire statute; it must compare the clause with other parts of the law and the setting in which the clause to be interpreted occurs. Such a construction has the merit of avoiding any inconsistency or repugnancy either within a section or between two different sections or provisions of the same statute. It is the duty of the court to avoid a head on clash 45 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
between two sections of the same Act. Whenever it is possible to do so, it must be done to construe the provisions which appear to conflict so that they harmonise. It should not be lightly assumed that Parliament had given with one hand what it took away with the other. The statute must be read as a whole and one provision of the Act should be construed with reference to other provision in the same Act so as to make the consistent enactment of the whole statute."
61. A question arises as to why such an amendment was necessitated.
62. The international tax policy adopted by a country is always driven by economic and social objectives. If the country's economic objectives are achieved by a lower impost on the income derived by a resident of other contracting state from the source in the contracting state under consideration then the sourcing state will adopt lower impost in achieving its broader objectives. The international tax policy is determined whether a country is net capital importing country i.e. it is dependent on investment by foreigners for its economy to grow or it is net capital exporting country (developed country).
63. There is no gain saying that oil exploration is the pressing need of the Indian economy and, therefore, low impost was adopted by incorporating section 44BB. In this regard we may also refer to section 293A which empowers the Central Government to make exemptions in relation to participation in the business of prospecting for or extraction etc. of mineral oil. In fact separate notifications have been issued by the government in exercise of its power conferred u/s 293A to give relief to the assessee in connection with the business of exploration and extraction of oil. Considering the pressing requirement of oil industry by government sections 42 and 293A were inserted in view of the high expenditure involved in the business of oil exploration.
46 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
64. When viewed in the back drop of this objective, we find that section 44BB has been couched in such a manner so as to encompass within its ambit all services connected with oil exploration within its ambit. If a non- resident is engaged in the business of providing services or facilities in connection with or supplying plant or machinery on hire used, or to be used, in the prospecting for extraction or production of mineral oil then 10% of the aggregate of the amounts specified in sub-section (2) is deemed to be the profits and gains of such business chargeable to tax under the head "Profits and Gains of business or profession".
65. The department's contention is that section 44DA inserted by the Finance Act, 2010 w.e.f. 1-4-2011 in section 44BB is retrospective and, therefore, royalty and fees for technical service should be taxed u/s 44DA and not u/s 44BB. In our opinion, the amendment cannot be held to be retrospective particularly because it brings substantial change in the taxability of assessee. It is well settled law that an amendment to the taxing statute if results in higher tax burden on assessee then it is prospective in nature and not retrospective. We find that this issue has been dealt elaborately by Hon'ble Jurisdictional High Court (Uttrakhand) in B.J. Services (supra). We are not inclined to accept the contentions advanced on behalf of the revenue, reproduced earlier, for the simple reason that the issue is squarely covered by the decision of Hon'ble Jurisdictional High Court, decision of Hon'ble Delhi High Court in the case of OHM (supra) and by the decision of the ITAT in CGG Veritas (supra) and Phonex (supra).
66. As far as ground no. 8 regarding income arising from letting out equipment, used in connection with the exploration/ prospecting/ extraction of mineral oil taxed u/s 9(1)(vi) by assessing officer is concerned, we are of 47 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
the opinion that in view of explanation (iv-a), the income is to be assessed u/s 44BB.
67. Accordingly, ground nos. 1 to 8 are allowed.
68. Ground no. 9: Brief facts apropos ground no. 9 are that contract with Cairn Energy Pty Ltd. was entered into with assessee for providing various consumables by assessee like fishing tools and services etc. Assessing officer had taxed these revenue receipts by applying a presumptive profit rate of 25% in gross revenues.
69. The DRP noticed that assessee had raised separate invoices in respect of consumables and the same could not be included as services in any circumstances. DRP pointed out that assessee itself had mentioned in the summary of revenues received from Cairn Energy Pty Ltd. for invoice no. 92100260 that the same were sales. It further observed that invoice no. CY1C68010 raised on Hindustan Oil Exploration Company was for sale. Similarly, sales were made to ONGC and Reliance also. The DRP pointed out that assessee could not give any reason as to how it was asking for treatment of sale as services. Therefore, the DRP held that assessing officer was justified in taxing the sales separately and estimating the profit at 25%.
70. We have considered the submissions of both the parties. The assessee is a Cayman Island company with which there is no DTAA. Therefore, the provisions of Income-tax Act are applicable and since the consumables were provided in connection with prospecting for extraction or production of mineral oil, it comes within the ambit of providing services, therefore, the receipts were taxable u/s 44BB. It is true that section 44BB is applicable only with respect to Royalty and FTS but since consumables were supplied along with P&M given on hire, therefore, the receipts were taxable u/s 44BB. In the result, ground no. 9 is allowed.
48 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
71. Ground nos. 10 & 11 primarily deal with assessee's claim that sales having taken place outside India, no revenue was taxable on the sales of assessee. The assessee had not offered revenue from HOEC amounting to Rs. 98,11,830/- for supplies and Rs. 93,99,885/- from ONGC. The assessing officer pointed out that the assessee's income with reference to contract with ONGC accrued or arose in India u/s 5 of the I.T. Act, 1961 for the following reasons -
(a) As per the contract with ONGC, the bidding document was procured by the Indian office of the assessee NRC where Mr. C.K. Pathak was the Country Manager. Mr. Pathak had signed the bond application request also and the contract was signed on 2-8-2006 in India and the contract was signed by Mr. Pathak.
(b) In the contract, the address of the assessee was the same as Mumbai office address and the supplies were made in India and the equipment supplied had been put to use by the contractor's personnel.
(c) In the scope of work, it was mentioned "the Contractor shall deliver the goods at NHAVA Supply Base for transportation to worksite". It further mentioned "the goods shall be delivered as per the delivery schedule hereunder"
(d) The invoices submitted by the assessee mentioned consignee as Baker Hughes Asia Pacific Ltd., Mumbai also.
72. With reference to the contract with Hindustan Oil Exploration co. Ltd., the assessing officer pointed out that income arose or accrued to the assessee u/s 5(2) for the following reasons:
(i) Mr. C.K. Pathak, the Country Manager, was negotiating and concluding the contract on behalf of Baker Hughes Asia Pacific 49 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
Ltd., which was evident from the correspondence with the Hindustan Oil Exploration Co. Ltd. and the assessee.
(ii) The purchase order was issued to Baker Hughes Asia Pacific Ltd., Mumbai;
(iii) The place of delivery of goods was Chennai Sea Port in India and it was CIF Chennai and as per the agreement, the title in goods passed in India.
73. Ld. DRP confirmed the AO's action by observing that provisions of section 44BB were restricted to providing services or facilities and where there was a mention of supply of plant and machinery it had to be on hire basis. Section 44BB does not talk about the sale of goods.
74. Ld. DRP confirmed the AO's action after considering the terms of the contract and held that the supplies were made in India only. Ld. DRP upheld the AO's action of estimating profits at 25% of gross receipts.
75. In regard to the invoices raised by ONGC the ld. DRP observed that in the written submissions, the assessee had agreed that the supplies were made in India and the delivery of goods had taken place in India.
76. Ld. DRP observed that assessee could not produce even one document to establish his claim that the title in goods had passed outside India.
77. Ld. DRP observed that the facts of this case are that the contract was signed in India; the supplies were made in India; the assessee had an office in India and the supplies were made through that office and the customs clearance had been done by the assessee in India. Accordingly, it was held that the sales were executed in India and there was no element of principal to principal arrangement.
50 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
78. Ld. Counsel for the assessee submitted that title to the goods had passed outside India, so income could not be brought to tax in India. In this regard ld. Counsel referred to the contract with HOEC contained at pages 539 onwards of the paper book and pointed out that at page 541 of the P.B. (internal page 3) "Delivery terms" are contained which is as per the INCO terms. He, therefore, submitted that the correct import of CIF contract has to be considered with reference to incoterms and not as per the Sale of Goods Act. In this regard he also referred to clause 'F', wherein also it is mentioned that the title of the supply shall pass on to the company in accordance with the Inco terms.
79. Ld. Counsel further referred to clause 17 of the agreement (contained at page 550 of the PB,), stipulating that the ownership and title of all supply under the contract shall transfer from contractor to company as stipulated in the deed. Thus, the transfer of title has to be as per inco terms.
80. Ld. Counsel referred to page 113 of the paper book and pointed out that CIF has been defined under the INCO terms as under:
"The International Chamber of Commerce defines 'CIF' as under-
"CIF (named port of destination);
"Cost, Insurance & freight" means that a seller delivers when the goods pass the ship's rail in the port of shipment.
The seller must pay the costs and freight necessary to bring the goods to the named port of destination BUT the risk of loss or damage to the goods, as well as any additional costs due to 51 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
events occurring after the time of delivery are transferred from the seller to the buyer."
81. He referred to the details contained in the invoice ( at page 558 of the PB) and pointed out that commercial invoice shall, inter alia, contain details of total price CIF from which-ever port the materials will be imported into India. Nevertheless the CIF rates shall include the transit insurance upto the company's warehouse in India. Transportation from the port to warehouse shall be company's responsibility.
82. Ld. counsel, accordingly submitted that in accordance with the Incoterm under CIF, the title in the goods was transferred by BHAPL to ONGC at the port of shipment i.e. Singapore. This is evident from the invoice copy as well as the bill of lading enclosed in Annexure 'C'. As per the Incoterm CIF, the risk was also transferred to ONGC at the time of shipment.
83. Ld. Counsel submitted that the risk passes when the goods cross the shipment port and with the passing of risk the title also passes simultaneously.
84. Ld. Counsel referred to the decision of Hon'ble Supreme Court in the case of Ishikawajima Harima Heavy Industries Ltd. 288 ITR 408 to submit that place of signing of contract is not relevant.
85. Ld. Counsel submitted that in this case, inter alia, it was held that for the profits to be attributed directly or indirectly, the 'shipment' must be involved in the activity giving rise to the profits. It was held that the fact that the contract was signed in India was not material, since all activities in connection with the off shore supply were carried out outside India and, therefore, income could not be deemed to accrue or arise in India. Further, it 52 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
was held that where different operations of a composite contract were performed in different places, the principle of apportionment should be applied. Therefore, in a composite transaction which had some operations in one territory and some in other, it was essential to determine the taxability of various operations depending upon the territorial jurisdiction in which they were carried out.
86. Ld. Counsel submitted that there is no treaty with Cayman Island. No operations were carried out in India in connection with the sale and, therefore, no income could be attributed to assessee in India.
87. Ld. Counsel referred to the decision in the case of Hyundai (page 308 of the pb) Authority for Advance Ruling. In this case the facts were as under:
"The applicant, a non-resident company incorporated in Korea with its registered office in Seoul, was engaged in the business of power stations. In 2005, the Powergrid Corporation of India Ltd. (PGCI) invited bids for execution of works related to Tehri Pooling Station package with Koteshwar Transmission System. The applicant became the successful bidder. As per the terms and conditions of the bid, the foreign bidder was bidder, PGCI agreed to the proposal of the applicant that the work be under three distinct aspects: (a) off-shore supply contract in favour of the applicant for supply of equipment and materials on c.i.f. Indian port of disembarkation basis; (b) on-shore supply of equipment and material on ex-works basis, and (c) on shore service contract for port handling and clearance, inland transportation, insurance, delivery on f.o.r. destination basis, storage, erection including associated civil works, testing and commissioning of all equipment and materials including off- shore equipment. Under the terms of the bid, the foreign bidder was authorized to assign the whole or part of the contract to an independent contractor, subject to approval of PGCL. In view of this provision the applicant requested PGCI to award the off- shore contract to itself and the on-shore supply and service 53 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
contract to be performed in India to L&T of India. PGCI awarded to the applicant the off-shore contract covering all works to be performed outside India including supply of all off- shore equipment and material on c.i.f. Indian Port of embarkation basis.
The Authority ruled:
(i) That none of the stipulation in the contract gave rise to the formation of an association of persons in the matter of the execution of the contract which was a mere collaboration and overall responsibility assumed by the applicant for the successful performance of the project.
PGCI awarded separate aspects of the contract to the applicant and L&T, each performing the obligations separately and receiving the amounts payable therefore independent of each other. The individual identity of each party in doing that part of the work entrusted to it was preserved and it could not be said that the applicant and L&T had promoted a joint enterprise.
(ii) That the instructions issued by the Central Board of Direct Taxes in Circular dated September 21,1989, which was binding on the Department, reiterated the correct legal position. Consideration received by a non-resident under contract for supply of goods by means of transfer outside the territory of India cannot be subjected to tax in India."
88. With reference to this decision ld. Counsel submitted that the supplies made off shore could not be brought to tax in India. In support, ld. Counsel also relied on the ratio of following decisions:
(i) DIT Vs. L.G. Cables Ltd. 237 CTR 438 (SC), observing :
"The equipment was delivered to the shipping company named in the bill of lading and the bill of lading and other documents were handed over to the nominated bank. Accordingly, with the delivery of the bill of lading to the bank, the property in the goods stood transferred to PGCIL.
54 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
(ii) CIT Vs. Hyundai Heavy Industries 291 ITR 482 (SC), observing:
"The assessee, a non-resident Korean company entered into an agreement on March 12, 1985, with the Oil and Natural Gas Corporation (ONGC) for designing, fabrication, hook-up and commissioning of a platform, the South Bassein Field Central Complex Facilities in the Bombay High. The agreement was in two parts, one for fabrication of the structure in Korea the other for its installation and commission. The Assessing Officer held that since the duration of the project extended beyond 9 months, the project constituted a permanent establishment in India in terms of article 5(3) of the Convention for the Avoidance of Double Taxation between India and Korea, in any event the office of he assessee in Bombay constituted the permanent establishment under article 5(2)(c) of the Convention and the profits of the assessee attributable to the permanent establishment were liable to be taxed in India in accordance with article 7 of the Convention. The Assessing Officer also rejected the accounts of the assessee and assessment were made on the basis of receipt for the two assessment years 1987-88 and 1988-89. He treated the fabrication as having a nexus with the installation and treated the income from the Korean operations as taxable in India; and estimated the profits of the assessee under the agreement at 20 percent of the gross receipts and taxed 2 per cent of the contract revenue in Korean operations. The Commissioner (Appeals) held that the contract was indivisible for the purposes of attributing the profits to the permanent establishment in India and held that though the actual receipt on fabrication operations in Korea was not taxable, the work of designing and engineering of platforms was taxable under the Convention read with section 9(1) of the Income-tax 55 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
Act, 1961 and directed that the profits be computed at one per cent of the receipts in respect of the Korean operations and at 10 per cent of the receipts relating to the Indian operations in terms of the CBDT Instruction No. 1767 dated July 1, 1987. Tribunal, on appeal, held that: (i) the contract was divisible, (ii) no part of the income attributable to Korean operations could be taxed in India as before the coming into existence of the permanent establishment in India the work of fabrication was completed in Korea and the fabricated platform handed over to the ONGC there, and (iii) the profits from the Indian operations had to be worked out at 3 per cent and not at 10 percent. An appeal taken to the High Court was summarily dismissed on the ground that no substantial question of law arose. On appeal to the Supreme Court:
Held, (i) that article 7(1) of the Contention laid down that only so much of the profits as attributable to the permanent establishment was taxable. It further laid down that the attributable profits could be determined by apportionment of the total profits of the assessee to its various parts or on the basis of the assumption that the permanent establishment was a distinct and separate enterprise having its own profits. The profits earned by the assessee on supplies of fabricated platforms could not be attributed to the permanent establishment in India as the installation of the permanent establishment emerged only after the contract with the ONGC stood concluded. Therefore, the profits on such supplies of fabricated platforms could not be said to be attributable to the permanent establishment. Further, even assuming that the supplies were necessary for the purpose of installation (an activity of the permanent establishment in India) and was an integral part, yet no profits of such supplies could be attributed to the independent permanent establishment unless it was established by the Department that the supplies were not at arm's length. No allegation was made by the Department 56 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
that the price at which billing was done for the supplies included any element for the services rendered by the permanent establishment. The appellate Tribunal was right in holding that the profits attributable to the Korean operations were not taxable in view of article 7 of the Convention.
89. Ld. Counsel relied on the decision of Hon'ble Delhi High court in the case of DIT Vs. M/s Nokia Networks OY ( ITA no. 512 of 2007 dated 7-9- 2012) (available at p. 537 vol. IV of PB) wherein it has, inter alia, been held that acceptance test does not determine passing of title. He referred to para 17 of the judgment, which reads as under:
17. We find that the terms of contract make it clear that acceptance test is not a material event for passing of the title and risk in the equipment supplied. It is because of the reason that even if such test found out that the system did not conform to the contractual parameters, as per article 21.1 of the Supply Contract, the only consequence would be that the Cellular Operator would be entitled to call upon the assessee to cure the defect by repairing or replacing the defective part. If there was delay caused due to the acceptance test not being complied with, Article 19 of the Supply Contract provided for damages.
Thus, the taxable event took place outside India with the passing of the property from seller to buyer and acceptance test was not determinative of this factor. The position might have been different if the buyer had the right to reject the equipment on the failure of the acceptance test carried out in India. In Skoda Export (supra), the Andhra Pradesh High Court dealt with this issue in the following manner:-
"We may also mention that learned standing counsel for the Department challenged the finding of the Tribunal that the sale of machinery was completed outside India; According to him, the sale was completed only in India, inasmuch as the assessee was entitled to inspect and satisfy itself 57 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
about the quality and standard of the machinery supplied. We do not see any substance in this contention. The various clauses in the agreement referred to above make it clear that the sale of machinery was F. O. B., European port, and the time of fulfillment of delivery was prescribed as the date of the bills of lading. The payment was also to be made outside India. The agreement further makes it clear that the insurance risk during the course of the journey was that of the assessee and it paid for the same : even the freight charges from the European port to the place of destination were paid by the assessee. Thus, judged from any angle, the sale of machinery, which are "goods" within the meaning of the Sale of Goods Act, was completely outside India. A mere provision in the agreement that the assessee is entitled to satisfy itself about the quality and standard of the machinery in India cannot, in the circumstances of this case, detract from the fundamental position that the sale took place outside India. In such a situation, one has to apply the test of predominance and decide where the sale took place ? On a combined reading of the clauses of the agreement, we have no doubt that the sale of machinery did take place outside India."
90. Ld. Counsel submitted that the ITAT Special Bench decision in the case of Motorola Inc. Vs. DCIT 95 ITD 269 (Del.)(SB) has been approved by the Hon'ble High Court.
91. With reference to above mentioned decisions, ld. Counsel submitted that whether the contract is on FOB basis or CIF basis makes no difference.
92. Ld. Counsel further referred to the decision of Hon'ble Andhra Pradesh High Court in the case of Skoda Export v. Addl. CIT (1983) 143 ITR 452), which has been referred to by the Hon'ble Delhi High Court in the 58 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
case of Nokia Networks OY (supra), wherein it has been held that as per Explanation to Section 9(1)(i) in the case of a business of which some operations are carried out in India and some outside India, the income of the business deemed to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India. The explanation contemplates a business comprising several operations some of which are carried out, out of India in such a situation only the operation carried out in India shall be taken into account and a reasonable portion thereof shall be treated as income accruing or arising in India. He, therefore, submitted that no income can be attributed in respect of operations which were carried out outside India.
93. Ld. DR referred to the decision of Hon'ble Supreme Court in the case of Kanchanjunga Sea Foods Ltd. (Civil Appeal no. 3844-3847 of 2003 dated 7-7-2010).
94. Ld. DR referred to the agreement with HOEC vide agreement no. PY1L6A060, contained at pages 539 onwards of the paper book. He referred to page 540 and pointed out that the address of the assessee company was as under:
"852, 5th Floor, Building No. 8, Solitaire Corporate Park, Andheri- Ghatkopar Link Road, Chakala, Andheri (East), Mumbai-400093"
95. He referred to delivery terms contained at page 541 of the paper book and pointed out that the same were "CIF (Cost Insurance and Freight) Chennai Sea Port " and, accordingly, the insurance was to be paid by assessee from the port of shipment to the port of delivery (Chennai Sea Port) and, thereafter, insurance from Chennai to company's supply base at Cauvery Basin was responsibility of the company viz. HOEC.
59 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
96. Ld. DR further referred to :
- delivery documents
- Title of supply (clause 17 section 1)
- Time of payment
- Invoicing instruction
- Dispute resolution (clause 21; section 1)
97. Ld. DR further referred to section 1, containing general conditions of contract, contained at page 544 of the paper book and pointed out that term "contract" has been defined as under:-
"1.1. Contract - means the documents issued by the Company identified as "Contract" with al attachments and all Sections/ Appendices thereto and all documents incorporated by reference therein as originally executed or as it may be from time to time supplemented or amended in accordance with the applicable provisions hereof."
98. With reference to this, ld. DR pointed out that the contract is that of document and the delivery takes place with the acceptance of the document.
99. Ld. DR further referred to terms relating to Packing and Marking:
"The Contractor shall be held liable for damage or breakage to the supply due to defective or insufficient packing a well as for corrosion due to insufficient surface protection. The supply and packing of the supply shall be marked as specified in point # hereunder:
Instruction to contractors and shippers.
Total price CIF for whichever port the materials will be imported into India. Nevertheless the CIF rates shall include the transit insurance up to the company's warehouse in India. Transportation from the port to warehouse shall be company's responsibility."
60 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
100. With reference to above clause, ld. DR submitted that there is no room for doubt that the goods were supplied in India because the delivery of documents took place in India with the acceptance of which the title to property in goods passed to HOEC. He referred to the decision in the case of Phulchand Exports V. Patriot, wherein it was held as under:
"If no place be named in the contract for the tender of the shipping documents, they must prima facie be tendered at the residence or place of business of the buyer. The buyer must be prepared to pay or accept the draft, as the case may be, according to the terms of the contract of sale, within a reasonable time after the shipping documents are tendered to him. What is a reasonable time is a question of fact depending on the circumstances of the case. In ordinary case obviously payment must be made promptly on the tender of the documents with the invoice. As the essential feature of a contract of sale CIF is that performance is satisfied by delivery of documents and not by the actual physical delivery of the goods, it follows that all that the buyer can call for is the delivery of the documents we have mentioned. This represents the measure of the buyer's right and the extent of the vendor's duty. The buyer cannot refuse the documents and ask for the actual goods nor can the vendor withhold the documents and tender the goods they represent."
101. Ld. DR submitted that as per CIF contract, sale of goods is complete when documents are tendered and the same is not linked with supply of goods. He submitted that transfer of risk is different from transfer of title. Risk is only of loss or damage.
102. Ld. DR referred to a note on CIF contract and pointed out that CIF contract is not a sale of goods itself but sale of documents relating to goods. It was observed in the said note that effectiveness of the CIF contract depends on the transfer of the documents which give the buyer control, and a right of disposal of the goods, and rights to recover compensation if they are 61 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
damaged due to the default of the carrier or due to some insured peril it is concluded that this in fact a sale of documents.
103. Under a CIF contract, the seller is responsible for supplying the goods, insuring them and shipping them which signifies cost, insurance and freight. Thus, in CIF contract, the seller not only enters into contract of sale but also at a later date insurance and carriage contract. The seller, therefore, fixes a price to cover all these costs and it is he who carries the risk of fluctuations in insurance and freight costs. The seller undertakes the responsibility for transportation and insurance cover to a named port of destination, while the buyer agrees to pay, not against delivery of the goods but against the tender of the shipping documents. The seller is entitled to demand payment on tender of the documents and he is not required to ensure the arrival of goods to the buyer. Thus, the seller performs the contract by tendering to the buyer the bill of lading, insurance policy and invoice (together with any other documents required by the contract, such as a certificate of quality or origin).These documents represent the goods, and protect the buyer against most risks of loss during transit. They enable him to deal with the goods before they arrive at the port of destination. Transfer of the bill of lading operates as constructive delivery of the goods and may pass to the buyer title to the goods, the right to obtain possession and rights of action against the carrier in the event of loss, delay etc; the policy of insurance gives protection against the perils of the sea.
104. Ld. DR further pointed out that CIF contracts are an exception to the general rule in section 20 of the Sale of Goods Act, which links the passing of risk to the passing of property. Whereas property passes under a CIF contract at the time the buyer pays and takes up the documents, the goods are deemed to be at the buyers risk from the time of shipment.
62 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
105. With regard to the reliance placed by assessee on the decision in the case of Mahabir Commercial Co. Ltd. Vs. CIT 86 ITR 417 (SC), ld. DR pointed out that in this case documents were delivered in Pakistan and this decision confirms that sale is complete with documents' delivery/ tendering and, therefore, this decision primarily supports the department's contention that in a CIF contract the sale is of documents and the title passes when the documents are delivered and the payment is made by buyer. He submitted that decisions relied on by the assessee, pertaining to sales, which took place on FOB basis, are not applicable to the facts of the case.
106. In regard to the contract with ONGC, contained at pages 656 onwards of the paper book, ld. DR referred to following clauses:
2.0 Scope of work/ contract:
Scope of contract shall be as defined in the contract, specifications, drawings and annexure thereto at Annexure-III.
4.3. Contractor's local address:
Baker Hughes Asia Pacific Limited 851, 5th Floor, Bldg No. 8, Solitiare Corporate Park, Chakala, Andheri (East) Mumbai0400063.
Fax: 56976835 7.0 Remuneration and terms of payment.
7.4. Invoices with original supporting documents duly countersigned by the Corporation's representative/ engineer wherever applicable will be submitted on completion of job by the contractor or corporation and payment shall be made within 15 working days from the date of receipt of invoice at the above office. The first payment under the contract shall however be subject to availability of NOC from IT authorities and necessary clearance from RBI.
63 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
8.3 Taxes:- Contractor, unless specified otherwise in the contract, shall bear all tax liabilities, duties, Govt. levies etc., including customs duty, Corporate and personnel taxes levied or imposed on the contractor on account of payments received by it from the Corporation for the work done under this contract. It shall be the responsibility of the contractor to submit to the concerned Indian authorities the returns and all other concerned documents required for this purpose and to comply in all respects with the requirements of the laws in this regard, in time.
Customs duty for import of spares, consumables, accessories etc. shall be borne by the Contractor.
11.0 Import and Import clearance:-
All imports and clearance under this contract shall be done by the contractor and corporation will not provide any assistance in this regard.
16. Insurance:
A) Contractor shall, at his own expense, arrange appropriate insurance to cover all risks assumed by the contractor under this contract in respect of its personnel deputed under this contract as well as contractor's equipment, tools and any other belongings of the contractor or their personnel during the entire period of their engagement in connection with this contract. ONGC will have no liability on this account.
1.16 FOR/Ex-works/FOB/FAS/C&F/CIF Shall mean the terms as explained in INCO terms.
12.0 Rejection If ONGC finds that the goods supplied ae not in accordance with the specification and other conditions stated in the order or its sample(s) are received in damaged condition (of which matters ONGC will be the sole judge), ONGC shall be entitled to reject the whole of the goods or the part, as the case may be, and intimate within 14 days from the date of receipt at site/ store house as per 64 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
terms of Contract to the supplier the rejection without prejudice to ONGC other rights and remedies to recover from the supplier any loss which the ONGC may be put to, also reserving the right to forfeit the performance security/ performance Bond if any, made for the due fulfillment of the contract. The goods shall be removed by the supplier and if not removed within 14 days of the date of communication of the rejection ONGC will be entitled to dispose of the same on account and at the risk of the supplier and after recovering the storage charges at the rate of 5% of the value of goods for each month or part of a month and the loss and expense if any caused to ONGC, pay balance to the supplier."
27. Packing & Marking.
27.1. The supplier shall consign/ship the materials in sea worthy/ Air worthy packing conforming to the international norms of packing/ prescribed standards in force to withstand air/ ocean/ land journey and ensuring the safety of cargo en-route and also arrival of materials at ultimate destination in good condition. Hazardous/ dangerous cargo ordered alongwith other material, against a particular supply order, the hazardous/ dangerous cargo should be packed in a separate box to avoid payment of excess freight and delay in clearance. The consignment shall be comprehensively insured against all risks by the supplier in case of CIF contracts from contractor's ware-house to ultimate consignee's ware house basis and each case/packing shall have on its outer side the following marking in English in indelible ink: ....
29. Short/damaged/defective/non receipt of material:
The supplier is responsible for safe arrival of the material upto destination. Should there be any shortage/breakage/damage of material found, the port consignee, within a period of 15 days from the date of clearance of material at the Port, will lodge claim with the underwriters under intimation to the purchaser and supplier. In case the shortage/ damage of material is found at ultimate destination, then the ultimate consignee, within a period of 30 days of receipt of material at destination, will lodge claim with the carriers and under-writer under intimation to the purchaser, port consignee and supplier. The purchaser in 65 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
question will also take up the mater with the supplier to make good the deficiency."
2.1.1. All equipment required for operations complete in all respects shall be delivered after satisfactory onhire survey of the material & accepted at the specified location viz. ONGC's base at Nhava as per scope of work and specifications of the contract as per delivery schedule mentioned below.
- First five sets of items #1: Within 30 days at ONGC Nhava Base from date of firm order.
- First 3 sets of items #2: Within 30 days at ONGC Nhava Base from date of firm order.
- Second 2 sets of items #2: Within 8 weeks at ONGC Nhava Base from date of firm order.
The contractor shall mobilize contractor's personnel within 5 working days from the date of mobilization notice. The date of mobilization of the contractor's personnel shall be reckoned as the date of their reporting to Well Services, Mumbai.
Contractor shall deliver goods at Nhava Supply Base for transportation to worksite."
107. With reference to above terms of contract, ld. DR submitted that since the right to property in goods passes in India at Nhava supply Base because the intention was to complete the sale in India and, accordingly, the non- resident assessee was liable to tax as per the provisions of section 5. Ld. DR submitted that under section 19 of the Sale of Goods Act, property in goods passes when parties intend to pass the title. He submitted that in the present case the overall intention of the parties is to be seen and it is self evident from the terms of the contract that the parties' intention was to complete sale 66 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
in India. He submitted that since title passed in India the tax is also payable in India.
108. Ld. DR submitted that in the case of contract with ONGC there is no mention where title would pass and, therefore, section 19 of the Sale of Goods Act will apply and, accordingly, the intention of the party when the title passes assumes significance. In this regard he referred to para 667 of the paper book wherein clause 7 dealing with "remuneration and terms of payment" is contained, as reproduced earlier, and pointed out that invoice was raised in the name of sister concern.
109. He further referred to para 7.4 of the agreement and pointed out that invoice could be raised only on completion of job.
110. As per para 8.3 read with para 8.4.2, the custom duty was also paid by assessee.
111. As per para 11, import clearance was to be done by assessee and as per para 16 read with section 27, insurance was done by assessee.
112. Ld. DR further referred to the clause 12 dealing with "rejection" and pointed out that ONGC had right to reject the goods if they were not as per the specified terms of the contract. He pointed out that assessee was responsible for the safe arrival of goods up to the destination and he had to make good the deficiency as per clause 29 of the agreement. He referred to clause 30 of the agreement and pointed out that 100% payment was to be made for the equipment/ goods supplied within 15 working days from the date of receipt of invoices against documentary proof of delivery and proof of satisfactory ON HIRE survey report of the material.
113. Further, he pointed out that delivery was to be made to assessee at NHAVA supply base for transportation to work site as per Annexure 'E' scope of work and specifications to the agreement.
67 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
114. Ld. DR further referred to the 'price schedule' contained at page 705 of the paper book and pointed out that rates were "FOR Destination (Nhava)". With reference to above clause ld. DR pointed out that intention and conduct of parties clearly show that the sale was complete in India.
115. Ld. CIT(DR) pointed out that in the case of Hue Fung Corporation (supra) relied on by the ld. Counsel for the assessee at page 358 it has been observed that it is trite that risk need not pass simultaneously with the title to gods. There could be a special stipulation between the parties in this behalf. He pointed out that at page 357 of the judgment it is noted that the title to the goods passed outside India as the goods were shipped FOB and the documents were presented to the assessee's banker for negotiation to certify that goods were shippped FOB and bill of lading was issued.
116. Ld. DR further referred to the decision in the case of LG Cables Ltd. (supra) and pointed out that at page 453 of the report it has been observed as under:
17. That the offshore supply of equipment related to the supply of specified goods discharged from Korea for which the PGCIL had opened an irrevocable letter of credit in the name of the respondent-assessee with a bank in South Korea. The consignor of the equipment supplied from Korea to Haldia Port was the respondent while the importer was the PGCIL. The equipment was delivered to the shipping company named in the bill of lading and the bill of lading and other documents were handed over to the nominated bank. Accordingly, with the delivery of the bill of lading to the bank, the property in the goods stood transferred to PGCIL. The cargo insurance policy was obtained by the respondent-assessee and it named the PGCIL as coinsurer. Clause 31.2 of the contract unequivocally clarified that the respondent-assessee and the PGCIL intended to transfer the title/property in the goods as soon as the goods were loaded on to the ship at the port of shipment and the shipping documents were handed over to the nominated bank 68 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
where the letter of credit was opened. The sale was complete and unequivocal. There is no condition in the contract which empowers the respondent to keep control of the goods and/or to repossess the same. With the completion of this sale the income accrued outside India. There was neither any material to show that accrual of such income was attributable to any operations carried out in India nor any material to show that the PE of the respondent-assessee had any role to play in the offshore supply of the equipments."
117. Ld. DR pointed out that in view of above facts it was held that the title to goods passed outside India.
118. With reference to the decision in the case of Hyundai Heavy Industries (supra), ld. DR pointed out that the finding in the said decision was that contract was divisible and the work of fabrication was complete in Korea and the fabricated platform was handed over to the company before the PE had come into existence. Therefore, this decision is distinguishable on facts.
119. The other decisions relied on by the Ld. AR primarily deal with the attribution of income having regard to the operations carried out in India in view of Explanation to sec. 9(1)(i). It is not disputed that the issue in the present case is whether the title passed out side India or not.
120. With reference to argument of ld. Counsel for the assessee that acceptance test is not relevant for deciding when the title to the goods passed, ld. DR referring to para 17 in the case of Nokia Networks OY )supra), pointed out that the title had already passed and if the system did not conform to the contractual parameters as per article 21.1 of the supply contract, the only consequence was that cellular was entitled to call upon the assessee to cure the defect by repairing or replacing the defective part. He 69 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
pointed out that it was further observed that the decision might have been different if the buyer had right to reject the equipment on the failure of the acceptance test carried out in India. He, therefore, submitted that acceptance test has to be considered depending upon the terms of the contract.
121. Ld. DR further referred to para 14 of the judgment and pointed out that the Hon'ble High Court referred to section 19 of the Sale of Goods Act and observed that the property in goods passed when the party intends it to pass and the intention was manifested in Article 13 of the Supply contract and the provisions of article 15 in no manner militate against such intention. He submitted that in Nokia case, Ericsson agreement was considered and in Ericsson's case as per Article 13, the title passed outside India. He pointed out that in this context, court held that acceptance test was not material.
122. Ld. DR with reference to the decision in the case of Ishikawajimaharima Heavy Industries Ltd. Vs. DIT 288 ITR 408 (SC), relied upon by the learned counsel for the assessee, pointed out that the issue before the Hon'ble Supreme Court was with regard to composite contract viz a viz bifurcated supply and not whether sale took place out of India or not. In support of his contention ld. DR referred to page 419 of the decision wherein the contention of assessee's counsel was that authority misconstrued and mis-interpreted the contract in arriving at a conclusion that the amounts received from company for off shore services was liable to be taxed in India because a bare perusal of the contract shows that the payments were made in US $ in respect of "off shore" supply and "offshore services" and furthermore title of goods passed on to Petronet outside the territory of India and services had also been rendered outside India. In this regard ld. DR referred to page 425 of the report, wherein clause 22.1, dealing with one of his title to the goods was reproduced:
70 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
"22.1. Title to equipment and materials and contractor's equipment: The contractor agrees that title to all equipment and materials shall pass to the owner from the suppli4er or subcontractor pursuant to section E of exhibit H (general project requirements and procedures). Contractor shall, however, retain care, custody, and control of such equipment and materials and exercise due care thereof until (a) provisional acceptance of the work or (b) termination of this contract, whichever shall first occur. Such transfer of title shall in no way affect the owner's rights under any other provision of this contract".
123. With reference to above clause, ld. DR pointed out that the contract clearly stated, where title would pass and this was made clear at page 430 placitum 34. Therefore, this decision is not applicable.
124. Ld. DR further referred to the decision in the case of Hyundai Heavy Industries Ltd. 291 ITR 482 (SC) and pointed out that in the said decision as noted by the Hon'ble Supreme Court at page 489, the question was as to what was the profits reasonably attributed to the assessee from permanent establishment in India (placitum 7) and not the issue regarding off shore sales. He further referred to page 493 wherein the Hon'ble Supreme Court, inter alia, observed as under:
"In the present case, there was no allegation made by the Department that the permanent establishment came into existence even before the sale took place outside India. Similarly, in the present case, there was no allegation made by the Department that the price at which ONGC was billed/ invoiced by the assessee for supply of fabricated platforms included any element for services rendered by the permanent establishment."
125. Therefore, this decision is also not applicable to the facts of the present case.
71 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
126. Ld. DR further referred to the decision in the case of Sepco III Electric Power Construction Corpn. ( AAR 1008 of 2010 dated 31-1-2012), available at page 238 of PB, and pointed out that in this case the Authority observed as under:
"On behalf of the applicant, the terms of the contract were elaborately referred to. It is pointed out that the Indian company was defined as the 'owner' in the contract and the applicant was defined as the 'contracting counter-party'. With reference to clause 27 of the contract, it was pointed out that the parties had stipulated for the passing of the title to the equipment outside the country. The title passed at the port of loading. Port of loading itself was defined to show that it was outside the country."
127. Thus, there was no issue regarding passing of title.
128. Ld. DR further referred to the decision in the case of LS cable Ltd., wherein it was, inter alia, observed as under:
"The clauses in the offshore supply contract agreement regarding the transfer of ownership, the payment mechanism in the form of letter of credit, which ensures the credit of the amount in foreign currency to the applicant's foreign bank account on receipt of shipment advice and insurance clause, would go to establish that the transaction of sale and the title took place outside the Indian territory."
129. He, Thus, submitted that as per the terms of the contract it was found that sale and the transfer of title took place outside India.
130. Ld. DR Shri Sanjeev Sharma in his written submissions dated 11th February 2014, inter alia, submitted as under:
"6. To understand the scope of sale of goods the contract with HOEC is discussed. Contract dated 19th April 2006 is issued to Indian office of the assessee (page 540 of the PB) and accepted by its country manager in India (page 543). It is not 72 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
the case of the assessee that the persons of the HOEC visited Cayman Islands and the terms of contract were negotiated there. The assessee has a full fledged office in Mumbai and therefore the natural presumption is that full business in India is being looked after by its employees in India. Notices to the assessee need to be sent to its Indian office (page 551). The Governing law is Laws of India and venue for arbitration shall be Mumbai, India (page 543 of the PB). Item 8 of the compensation schedule (page 562) provides for the deployment of line engineer. Page 563 has details of Assembly Make-Up in connection with the supply. Page 564 contains details of 7 Inch Linear Hanger Equipment -Purchase Basis and page 565 contains details of 7 Inch Linear Hanger Equipment Tools- Rental Basis. These tools are on rental basis and used to install the Liner Hanger Equipment. All spares and consumables necessary to run set and retrieve the proposed system on consignment basis (page 566). The Services of Liner Hanger Engineer (page 567). The Scope of Work is stated in Section III (pages 568 to 574). Scope of Supply is stated in item nO.2 on page 569. This includes supply of linear hanger equipment and associated accessories and also supplies qualified, skilled and experienced personnel to plan, supervise and execute liner hanger operations. The responsibilities of Personnel are stated in item nO.4 (page 569 of the PB).
7. The above example of HOEC amply illustrate that the assessee provides a comprehensive set of all equipments (appears that consumables are provided on sale basis and the equipments that can be reused on rental basis) and the services of its personnel so as to carry out fu1l range of activities for the client. The sale of goods (equipments/tools/material) is an essential and integral part of the whole contract of providing comprehensive supply and services. The sale is essential and linked to other parts of the contract. The installation of the equipment is undertaken by the assessee. The claim of the assessee that these are sold offshore is baseless (no where the contract uses the term offshore). The sale of goods is only a part of the whole and comprehensive contract. No doubt the sold goods are Manufactured outside lndia but the income accruing/arising due to sale of these goods in India is taxable in 73 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
India (Section 5(2) (b) of the Act. If the goods are not sold these will remain as an inventory and no profits/income ~an be realized, The sale of goods is an essential part of the business of the assessee and no income can be realized till the same are sold. Operations in regard to sale of gold have taken place in India. In any event (not in present case), even if the risk of loss or damage to the goods passes outside India the income deemed to accrue or arise ~ India due to operations carried out in India is taxable in India (Explanation (a) to Section 9(I)(i) of the Act). Various parts constitute a whole and undoubtedly operations in regard to sale have been carried out in India. Reliance in this regard is placed on the following authorities:
CIT v Ahmedbhai Umarbhai and Company (1950) 18 ITR 472 (SC).
Anglo French Textile Company Limited v CIT [1954] 25 ITR 27 (SC) Hukam Chand Mills Ltd Vs CIT, Bombay 103 ITR 548(SC) Rolls Royce Pic (113 TIJ 446-ITAT Delhi) Rolls Royce Pic Vs DIT 339 ITR 147(Delhi) Hyundai Heavy Industries Limited 2911TR 482 (sq.
8. The claim of the assessee that transactions of sale of equipments/material were concluded outside India is baseless. This issue has been dealt by Shri Gupta in his oral arguments.
131. The submission in sum and substance is that the profit has to be attributed on the basis of business operations carried out in India.
132. We have considered rival submissions and perused the material available on record.
133. The assessee had not offered any revenue from the contracts entered with Hindustan Oil Exploration Company Ltd. (HOEC) and ONGC. The revenue received by the assessee are divided into three parts:
(1) Supply;
(2) Rental;
(3) Services.
74 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
134. In the annexure annexed with the assessment order, the assessing officer has pointed out as under:
Name of Sale offered Sale claimed Rental Service Total Company To tax Exempt HOEC - 9,81,13,830 91,48,971 10,81,689 1,02,30,660 ONGC - 93,99,885 - 7,82,408 7,82,408
135. The assessee is a Cayman Island company with which India does not have a tax treaty. Therefore, the taxability of its income is to be determined as per the provisions of the Income-tax Act. Therefore, if in connection with the contract no operations were carried out in India and the sale concluded outside India then no profit accruing to the non-resident assessee could be taxed in India.
136. Ld. Counsel has relied on various decisions which we have considered but it depends on facts of each case when the title passed to buyer.
137. Ld. Counsel for the assessee has submitted that as per the International Commercial Terms the CIF contract or FOB contract is not relevant. Further, merely because the contract is signed in India it does not follow that the title would also pass in India. His main plank of argument is that since risk was taken over by the company viz. HOEC and ONGC outside India, therefore, the sale concluded outside India.
138. We do not find much substance in this plea of assessee because if the terms of contract contemplate execution of contract on CIF basis then the principles governing the CIF contract would apply mutatis mutandis to international commercial terms also subject to any contract to the contrary.
139. INCO Terms define the responsibilities of the buyers and sellers but it does not define/ convey title of the goods. INCO Terms are not a law but a set of rules that are prevalent for the industry only.
75 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
140. Therefore, before examining the contracts in detail it is necessary to examine certain terms in regard to CIF contract. On this discussion we refer to the Commentary on Sale of Goods Act by Pollock & Mulla. At page 163 of this commentary it is pointed out that .....
141. Section 39 of the Sale of Goods Act deals with delivery of goods to carrier or wharfinger. Section 39(1) reads as under:
39(1). Where, in pursuance of a contract of sale, the seller is authorized or required to send the goods to the buyer, delivery of the goods to a carrier, whether named by the buyer or not, for the purpose of transmission to the buyer, or delivery of the goods to a wharfinger for safe custody, is prima facie deemed to be a delivery of the goods to the buyer.
142. The usual contracts of sale which involve the carriage of goods by sea are three, namely, c.i.f, f.o.b and ex-ship. In all the contracts the parties may vary the usual terms of such contracts or add others to them.
143. CIF contract: This contract is a contract for sale of goods at a price which covers cost, insurance and freight and is normally a contract for the sale of goods to be carried by sea.
144. Under this contract the seller is bound to do following six things:
(i) make out an invoice of the goods sold;
(ii) to ship at the port of shipment goods of the description contained
in the contract
(iii) to procure a contract of affreightment under which the goods will
be delivered at the destination contemplated by the contract.
(iv) To arrange for an insurance upon the terms current in the trade, which will be available for the benefit of the buyer.
(v) With all reasonable dispatch to send forward and tender to the buyer these shippinmg documents, namely, the invoice, bill of lading and policy of assurance, delivery of which to the buyer is symbolical of delivery of the goods purchased, placing the same at the buyer's risk and entitling the seller to payment of their price.
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(vi) If no place be named in the c.i.f. contract for the tender of the shipping documents, they must prima facie be tendered at the residence or place of business of the buyer.
145. Therefore, the right to property in goods in case of CIF contract passes at a place where the documents are delivered including the bill of lading. The bill of lading as per section 2(4) is a document of title of goods entitling the possession of the documents to transfer or receive goods thereby representative.
146. As regards the bill of lading, it must be in such form that the buyer may not only be able to obtain possession of the goods on arrival but also to recover according to its terms from the carrier for loss or damage occurring at any stage of the transit. It must therefore cover the whole transit of the goods from the port of shipment to the port of arrival. Further it must be procured on shipment, be correctly dated; and be for the contractual quantity of the goods. Apart from express agreement, a delivery order or ship's release will not suffice as a substitute for the bill of lading but a bill of lading in the form "received for shipment" instead of "shipped on board" is valid. Even if it is, and the contract provides for shipment by a certain date, this provision must be strictly complied with.
147. Therefore, it is an essential part of the contract that the seller should tender the document. If the seller tenders the documents, the buyer's obligation is to take them and on his taking them, he is bound to pay the price according to the terms of the contract; and he is not discharged from his obligation by the act that the goods are lost or for some other reason cannot be delivered; or that he had no opportunity to examine them. In sum and substance the property in goods does not pass until the documents have been taken up by the buyer. In case of FOB contract, the contract is for sale 77 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
of goods to be delivered free on board of a ship. The buyer must name a ship upon which they are to be delivered and the seller must put them safely on board, meet the cost of doing so, and for the buyer's protection give possession of them to the ship only upon the terms of a reasonable and ordinary bill of lading or other contract of carriage; there the contractual liability of the seller as seller ceases and the delivery to the buyer is complete as far as he is concerned. The goods are then at the risk of the buyer, he is responsible for the freight, and subject to the seller reserving the right of disposal, the property passes to the buyer. Thus, in all the cases it is the terms of the contract signifying the intention of the parties which will determine where the right to property in goods has passed and the crucial test would be as to when the buyer acquires the control of the goods.
148. The decision in the case of Phulchand Exports Vs. Vs. OOO Patriot, considered earlier, relied upon by ld. DR, clearly defined the scope of CIF contracts. The delivery of documents to the buyer is the symbolic delivery of the goods. Once the documents are delivered, the goods are at the buyer's risk and the seller is entitled to the price. If no place is named in the contract for the tender of the shipping documents, they must prima facie be tendered at the residence or place of business of the buyer. CIF contracts are an exception to the general rule in section 20 of the Sale of Goods Act, which links the passing of risk to the passing of property. Whereas property passes under a CIF contract at the time the buyer pays and takes up the documents, the goods are deemed to be at the buyers risk from the time of shipment.
149. In CIF contract, the purchaser is bound to accept the document which represented the goods and honour the draft. He is not entitled to raise at that stage any question as to whether goods are in accordance with the contract or not. If, after taking delivery of the goods, it is found that they are not in 78 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
accordance with the contract, then, of course, the purchaser has a right to reject the goods and to pursue his remedies against the seller. It follows that the purchaser can pursue his remedies only when he has acquired the title in the goods. Thus, the unconditional appropriation of goods took place when the documents were delivered to the purchaser and were accepted by him.
150. In the present case we find that under both the contracts with HOEC and ONGC the documents are delivered in India and therefore the right to property in goods has passed in India as the sale got concluded in India.
151. First we will consider the contract between HOEC and the assessee, which is contained at pages 540 to 574 of the paper book. It is evident from the terms of the contract that the contract comprised of following documents:
(i) The deed of agreement no. PY 1C6A060 dated 19-4-2006 along with general conditions of contract - section 1; compensation schedule section 2; and scope of supply section 3. According to terms and conditions clause (e), the delivery terms were as per terms and that was CIF (cost, insurance and freight Chennai Sea Port).
However, the insurance from Chennai to company's supply base at Kaveri Basin shall be of companies responsibility.
152. Ld. Counsel has referred to page 113 wherein the definition of CIF as per International Chamber of Commerce, has been given. This is again being reproduced:
"The International Chamber of Commerce defines 'CIF' as under-
"CIF (named port of destination);
"Cost, Insurance & freight" means that a seller delivers when the goods pass the ship's rail in the port of shipment.
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The seller must pay the costs and freight necessary to bring the goods to the named port of destination BUT the risk of loss or damage to the goods, as well as any additional costs due to events occurring after the time of delivery are transferred from the seller to the buyer."
153. A bare perusal of this definition makes it clear that port of destination has to be given in terms of this contract, which has been specified as Chennai Sea Port.
154. Ld. Counsel's main thrust of argument is that since the risk has transferred at the port of shipment, therefore, the title also has passed to the company.
155. In our opinion, this argument cannot be accepted because CIF as understood in inco terms, no where contemplates passing of title simultaneously with passing of risk. CIF Chennai Airport implies that up to Chennai Airport, the supply is to be arranged by seller. Seller has to pay cost, insurance, freight and risk during the carriage of goods. However, loss or damage to the goods and risk is to be borne by the purchaser. This does not imply that ownership has also passed to purchaser. It is not correct to say that risk and title pass simultaneously. There can be agreement for passing of risk before passing of title per se. As per sec. 19 of the Sale of Goods Act, it is primarily the intention of the parties when the title to the goods is to pass. The true test is when the buyer gets the right to dispose off the goods i.e. when the buyer acquires the control over the goods. From the contract entered with HOEC, it is clear that the contract was contemplated to be concluded in India only because title of supply as per clause (f) was to pass on to the company in accordance with the inco terms. Clause 17 ( page 550 of the p.b.) deals with transfer of ownership and title which clearly states that the ownership and title of all supply under the contract shall transfer from contractor to company as stipulated in the deed. Therefore, the 80 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
intention is to be gathered from the deed itself. In this regard we find that as per clause H.2 (p.b. page 542) payment is to be made within 30 days from the date of delivery/ supply at Chennai Port. The disputes were to be settled as per the laws of India and the jurisdiction was of the court of Mumbai. The arbitration was to be as per the Arbitration and Consolidation Act, 1996. The agreement was signed in India.
156. As per clause 7 of section 1, dealing with general conditions of contract, the delivery date for the supply is the essence of the contract. The delivery date as per clause e(2) was March, April 2006 on CIF Chennai base, which implies that the goods were to be delivered at Chennai base by April 2006. However, as per Price Table A, contained at page 564, the delivery date at CIF Chennai has been given for various items as 20th March 2006. Similarly, at pages 572 to 574 i.e. details of equipment for purchase, wherein also delivery at CIF Chennai base, March 2006 has been mentioned.
157. The notices to contractors were to be sent at Mumbai address. The dispatch instruction no. 4 clearly contemplates that once the supplies are ready for dispatch, the contractor is required to send commercial invoice and bill of lading to India for HOEC Ltd. This makes it clear that the delivery of documents has taken place in India.
158. The packing and marking as per clause 3 of Dispatch instruction I (Appendix 3 to section 1) makes it clear that though as per CIF terms risk passes at the port of shipment but the contractor will be held liable for damages or brokerage to the supply due to defective or insufficient packing as well as for corrosion due to insufficient surface protection.
159. The total price in commercial invoice is to be on the basis of CIF for whichever part and the CIF rates also include the transit insurance up to the 81 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
company's warehouse in India (page 558 P.B.). However, the transportation from the port to warehouse is to be at company's responsibility. This makes it clear that CIF price should be taken up to the port of destination.
160. As per the compensation schedule, section 11 (page 562 of PB), clause 4, the delivery of all items listed under price tables, is to be at Chennai port and as per clause 5 the company is to take the responsibility for import clearance of purchased items (including obtaining Essentiality Certificate). Thus, until the import clearance is over, the title in goods cannot pass to the company.
161. Thus, all the terms are summarized as under:
(i) The agreement was signed in India.
(ii) The delivery of documents was to be in India.
(iii) Supply was at CIF Chennai Port.
(iv) The payment was to be made within 30 days of receipt of goods in
India.
(v) The risk though passed at the port of shipment but that was also
subject to packing of goods as per the terms of agreement.
(vi) The passing of title was as per the terms of deed.
(vii) The deed does not specify that the title passed outside India and therefore, the intention is to be gathered from the entire terms of agreement as discussed above.
162. It is true that all these aspects when considered independently, may or may not lead to the conclusion that the title passed in India but cumulative consideration of all the terms leads to inescapable conclusion that the only intention of the party was to appropriate the goods in India.
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163. The contract of assessee with ONGC is contained from pages 656 onwards. On page 664 the scope of work has been given which was supply of equipments along with services, as mentioned at page 702 of the paper book. The contractor's local address was at Mumbai. The invoices with original supporting documents, duly counter signed by ONGC representative/ Engineer, wherever applicable, were to be submitted on completion of job by the contractor to corporation and payment was to be made within 15 working days from the date of receipt of invoice. The invoices were not in the name of ONGC but in the name of sister concern. The custom duty was paid by assessee as per para 8.3 and it was to be borne by contractor. Import clearance was to be done by the assessee. Insurance was to be paid by assessee and after due packing and marketing the consignment was to be comprehensively ensured against all risks by the supplier from contractor's warehouse to ultimate consignee's warehouse base. The additional conditions that were supplied are contained from pages 660 onwards and clause 1.16 makes it clear that FOR/Ex- works/FOB/FAS/C&F/CIF shall mean the terms as explained in INCO terms. The contractor was required to deliver the goods at NAHAVA supply base for transportation to work center.
164. The supplier was responsible for shifting/ transfer of the material up to destination. Thus, it is evident from the terms of the contract that goods were to be supplied in India and thereafter payment was to be made. The ONGC had right to rejection of the goods if the goods supplied were not in accordance with the specification and other conditions stated in the order. Thus, applying the test of preponderance as laid down by Hon'ble Andhra Pradesh High Court in the case of Addl. CIT Vs. Skoda Exports (supra), it is clear that both the parties intended for transfer of title in goods in India. We, 83 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
accordingly, hold that title to goods passed in India in respect of contracts with HOEC and ONGC and, therefore, income from such sale has accrued or arisen in India.
165. Now, an incidental question regarding extent of profits taxable in India is to be considered. Ld. Counsel submitted that the profits, if any, be taxed u/s 44BB. We are not inclined to accept this plea because, as rightly observed by ld. DRP, section 44BB deals only with royalty and FTS and not sales. The profit arises out of sales activity of non-residents has to be taxed under normal provisions of income-tax. The next issue is whether entire profits arising out of sales are to be attributed or only to the extent it has nexus with the operations carried out in India in connection with the sale.
166. In this regard Section 5(2) which deals with the scope of total income of a non-resident is relevant. As per this sub-section, the total income of a non-resident includes all income from what-ever source derived which is received or deemed to be received in India in such year by or on behalf of such person or accrues or arises or is deemed to accrue or arise to him in India during such year. The receipt of income refers to the first occasion when the recipient got the money under his own control. No question of apportionment arises in cases where income is received in India and is consequently chargeable u/s 5(2)(a). This was so held by Hon'ble Supreme court in the case of Turner Morrison & Co. Ltd. Vs. CST (1953) 23 ITR
152. However, in the case of the Anglo French Textile Co. Ltd. Vs. CST (1954) 25 ITR 27 the Hon'ble Supreme Court has held as under:
" In regard to Question No. 2 however Shri Porus A. Mehta, learned counsel for the respondent contended before us that the matter was not concluded by the judgment of the majority in Commissioner of Income tax, Bombay v. Ahmedbhai Umarbhai & Co., Bombay, and that the High Court was wrong in the answer which it gave to this question. He contended that the decision in the case of Commissioner of Income tax, 84 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
Bombay v. Ahmedbhai Umarbhai & Co., Bombay, turned on the statutory provisions of the Excess Profits Tax Act read with Section 42(3) of the Indian Income tax Act which was expressly incorporated therein by virtue of Section 21 of the Act and not on any general principles of apportionment of income, profits or gains enunciated therein. He took us in extenso over the portions of the majority judgments and tried to demonstrate that the decision there was based purely on the applicability of Section 42(3) of the Indian Income tax Act, but for the applicability of which, according to his submission, there was no room for the apportionment of the income, profits or gains of the business in the manner contended by the appellant. We do not accept this contention of the respondent. Section 4A(c)(b) is concerned with the income arising in the taxable territories in a particular year exceeding the income arising without the taxable territories in that year and the very words of the section are capable of being construed as also contemplating a state of affairs where there may have to be a division or apportionment between the income arising in the taxable territories and the income arising without the taxable territories in the particular year. The whole of the argument urged before us on behalf of the respondent was aimed at establishing that the scheme of the Indian Income tax Act was not to tax the source of income but the income, profits or gains from whatever source derived which were received or were deemed to be received in the taxable territories or which accrued or arose or were deemed to accrue or arise in the taxable territories during the particular year and that it was immaterial whether the income, profits or gains were derived from business operations carried on in the taxable territories or without the taxable territories. This argument was possible when the decisions which held that income, profits or gains arose or accrued at the places where the sales took place were good law, because then there was no question of apportionment of income, profits or gains arising from the business operations carried on in the taxable territories and income, profits or gains arising from business operations carried on without the taxable territories. The moment however it was held, as it was done in Commissioner of Income tax, Bombay v. Ahmedbhai Umarbhai & Co., Bombay, that though profits may not be realised until a manufactured article was sold, profits were not wholly made by the act of sale and did not necessarily accrue at the place of sale and to the extent profits were attributable to the manufacturing operations profits accrued at the place where business operations were carried on these decisions went by the board. The question whether a particular part of the income, profits or gains arose or accrued within the taxable territories or without the taxable territories would have to be decided having regard to the general principles as to where the income, profits or gains could be said to arise or accrue. Section 42 of the Indian Income tax Act has no relevance to the determination of this question because it is mainly concerned with income which is 85 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
deemed to have arisen or accrued and not with income which actually arises or accrues within the taxable territories. Section 42(3) also is a part of the scheme which is enacted in Section 42 and cannot help in the determination of the question before us. As a matter of fact the use of the words "under Section 42(3)" in Question No. 2 as reframed by us was not appropriate and the only question which should have been sent to the High Court was "If not, should only those profits determined as attributable to the operations carried out in India be taken into account for applying the test laid down in Section 4A(c)(b)?"
167. We, therefore, restore the matter to the file of AO for attributing the income out of these two contracts to the extent of operations relating to sales carried out in India.
168. In the result, ground nos. 11 & 12 are partly allowed for statistical purposes.
169. Now we come to ground no. 12 regarding levy of interest u/s 234B. The assessee's contention is that assessing officer erred in charging interest u/s 234B especially when there was no liability to pay advance tax in view of provisions contained u/s 209(1)(d) of the Act.
170. Ld. DR has relied on the decision of Hon'ble Delhi High Court in the case of DIT (International Taxation) Vs. Alcatel Lucent USA, Inc. (2013- TII-44-HC-DEL-INTL dated Nov. 07,2013) wherein it was held that where non-resident assessee initially does not accept liability to tax in India but does not challenge at the appellate stage, the ratio of the decision of the Hon'ble Supreme Court in the Jacob's case cannot be applied. In this case it was held by Hon'ble Supreme Court that where tax was deductible by the payers then no interest would be chargeable u/s 234B from the payee assessee.
171. In this case the assessee denied its liability to tax in India on the ground that it did not have taxable presence in India and the equipments were sold outside India. The Hon'ble Delhi High Court observed that in such 86 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
a scenario it is impermissible or unreasonable to visualize a situation where, the assessee would have represented to its Indian telecom dealers not to deduct tax from the remittances made to it. It was held that there may not be any direct or positive evidence to show that the assessee did make a representation to its Indian telecom dealers not to deduct tax from the remittances, such a representation or informal communication of the request can be reasonably inferred or presumed.
172. The Hon'ble Delhi High Court further observed that when sales by the non-resident company were claimed to have concluded outside India, it would be a fair and reasonable inference to be drawn that the Indian dealers would have had an interface with the assessee while concluding the sale contracts and on such an occasion it is normal for the parties to finalise all aspects touching oN their relationship including the tax compliances. The Hon'ble High Court held that in a case where non-resident had denied tax liability is to be distinguished from a case where the assessee admits its tax liability right from the beginning to contend that it was the responsibility of the buyer to deduct the tax and if they did not, even then the tax which ought to have been deducted by them should be set off against the assessee's advance tax liability. It was held that where the assessee who accepts the tax liability after initially denying it cannot shift the responsibility to the Indian buyer for not deducting the tax at source from the remittances after leading them to believe that no tax was deductible.
Ld. DR submitted that in the present case also the tax had not been deducted by the HOEC and ONGC as the assessee claimed that the sale concluded outside India, therefore, interest u/s 234B is leviable.
173. Ld. Counsel for the assessee has relied on the decision in the case of Hon'ble Jurisdictional High court in the case of DIT Vs. Max India Ltd. 334 87 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
ITR 79 wherein it has been held that upon failure on the part of the employer to deduct tax at source from salary of the employee, the employee becomes liable to pay the tax directly u/s 191 of the Act and does not become liable to pay interest u/s 234B of the Act. Thus, that default should be attributable to the person liable to deduct tax but if the person liable to deduct tax has been made to believe that the income is not chargeable to tax and hence did not deduct the tax, then assessee cannot take plea of not paying interest u/s 234B on the assessed tax. The assessee was required to pay advance tax u/s 207 read with section 208 and its computation has to be made u/s 209. The assessee's claim is that u/s 209(1)(d), the amount of income tax which was deductible at source during the said financial year under the provisions of this Act, from any income, which has been taken into account for computing the current income, the same is to be deduced from computing the advance tax payable. This plea cannot be accepted because assessee's claim from the beginning was that it was a case of off shore supply in case of HOEC and ONGC contracts which has not been found to be correct.
174. Interest u/s 234B is essentially compensatory in nature for the period for which the sums due to government are withheld by assessee.
175. Considering the entirety of facts, we direct the assessing officer not to charge interest u/s 234B in respect of all contracts entered into by the assessee with various organizations in India except with respect to the contracts entered into with HOEC and ONGC. As far as income taxable u/s 44BB in respect of various contracts are concerned, the assessee itself has accepted the liability from the very beginning and, therefore, it cannot be inferred that assessee would have made any representation which would have influenced the deductor companies for not deducting the tax. However, as far as contract with HOEC and ONGC are concerned, as we have held 88 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
that income arose in India, therefore, in view of decision of Hon'ble Delhi High Court in Alcatel Lucent USA Inc. (2013-TII-44-HC-DEL-INTL dated Nov. 07,2013), the interest u/s 234B is leviable. In the result this ground is partly allowed.
176. In the result, appeal is partly allowed.
ITA NO. 420/Del/2012 ( Baker Hughes Asia Pacific Ltd. A.Y. 2008-09):
177. Ground nos. 1 to 7 raised in this appeal are identical to ground nos. 1 to 7 discussed in ITA no. 5283/Del/2010. After elaborate discussion therein we have decided the grounds in favour of the assessee by holding that where assessee was imparting services in relation to oil exploration, the income arising on account of royalty/ FTS was to be taxed u/s 44BB. Respectfully following the same reasons, we allow ground nos. 1 to 7 in favour of the assessee.
178. Ground nos. 8 & 9 raised by the assessee relates to charging of interest u/s 234B. Respectfully following our findings in ITA no. 5283/Del/2010, we direct the AO not to charge interest u/s 234B in respect of all contracts entered into by the assessee with various organization in India except with respect of contracts entered into with HOEC and ONGC. Accordingly, these grounds are partly allowed.
179. Ground no. 10 relating to levy of penalty u/s 271B is premature and requires no adjudication at this stage.
180. In the result, appeal is partly allowed.
ITA no. 5631/Del/2010 (SIEM offshore AS A.Y. 2006-07):
181. Ground no. l is general in nature and requires no adjudication.
182. Ground no. 2 relates to proceedings u/s 148. At the hearing no arguments were advanced with regard to initiation of reassessment proceedings. Accordingly, ground no. 2 stands dismissed being not pressed.
89 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
183. Ground no. 3 relates to taxability of "fees for technical services". While deciding ITA no. 5283/Del/2010, after elaborate discussion therein we have held that where assessee was imparting services in relation to oil exploration, the income arising on account fee for technical services was to be taxed u/s 44BB. Adopting the same reasons, we allow ground no. 3 in favour of the assessee.
184. Ground no. 4 & 5 relates to taxability of reimbursement and grossing up receipts. Having heard both the parties we hold that u/s 44BB gross receipts are to be considered, which will include reimbursement also. Therefore, these grounds are dismissed.
185. Ground no. 6 relates to charging of interest u/s 234B. For the reasons given in ITA no. 5283/Del/2010, we hold that the assessee was not liable to pay interest u/s 234B. Accordingly, ground is decided in favour of the assessee.
186. Ground no. 7 relating to levy of penalty u/s 271B is premature and requires no adjudication at this stage.
187. In the result, appeal is partly allowed.
ITA no. 5632/Del/2010 (SIEM offshore AS A.Y. 2007-08):
188. Ground no. l is general in nature and requires no adjudication.
189. Ground no. 2 relates to taxability of "fees for technical services". While deciding ITA no. 5283/Del/2010, after elaborate discussion therein we have held that where assessee was imparting services in relation to oil exploration, the income arising on account fee for technical services was to be taxed u/s 44BB. Adopting the same reasons, we allow ground no. 3 in favour of the assessee.
190. Ground no. 3 & 4 relate to taxability of reimbursement and grossing up receipts. Having heard both the parties we hold that u/s 44BB gross 90 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
receipts are to be considered, which will include reimbursement also. Therefore, these grounds are dismissed.
191. Ground no. 5 relates to charging of interest u/s 234B. For the reasons given in ITA no. 5283/Del/2010, we hold that the assessee was not liable to pay interest u/s 234B. Accordingly, ground is decided in favour of the assessee.
192. Ground no. 6 relating to levy of penalty u/s 271B is premature and requires no adjudication at this stage.
193. In the result, appeal is partly allowed.
ITA no. 5633/Del/2010 (SIEM offshore Inc. A.Y. 2007-08):
194. Ground no. l is general in nature and requires no adjudication.
195. Ground nos. 2 & 3 relates to taxability of royalty/fees for technical services. While deciding ITA no. 5283/Del/2010, after elaborate discussion therein we have held that where assessee was imparting services in relation to oil exploration, the income arising on account royalty/ FTS was to be taxed u/s 44BB. Adopting the same reasons, we allow ground no. 3 in favour of the assessee.
196. Ground no. 4 & 5 relate to taxability of reimbursement and grossing up receipts. Having heard both the parties we hold that u/s 44BB gross receipts are to be considered, which will include reimbursement also. Therefore, these grounds are dismissed.
197. Ground no. 6 relates to charging of interest u/s 234B/D. For the reasons given in ITA no. 5283/Del/2010, we hold that the assessee was not liable to pay interest u/s 234B. Accordingly, ground is decided in favour of the assessee.
198. In the result, appeal is partly allowed.
ITA nos. 5287/Del/2010 (Smith International Inc. A.Y. 2007-08):
91 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
199. Ground nos. l to 4 relate to taxability of royalty/fees for technical services. While deciding ITA no. 5283/Del/2010, after elaborate discussion therein we have held that where assessee was imparting services in relation to oil exploration, the income arising on account royalty/ FTS was to be taxed u/s 44BB. Adopting the same reasons, we allow ground nos. 1 to 4 in favour of the assessee.
200. Ground no. 5 relate to taxability of grossing up of receipts. Having heard both the parties we hold that u/s 44BB gross receipts are to be considered. Therefore, this grounds is dismissed.
201. Ground no. 6 is as under:
"That the assessing officer erred on facts and in law in not allowing credit of tax deducted at source of Rs. 14,639,206/- as claimed by the assessee in its return of income."
202. Having heard the parties, we direct the assessing officer to examine the claim of the assessee and adjudicate the issue in accordance with law after affording an opportunity of being heard to the assessee. Ground is allowed for statistical purposes only.
203. Ground no. 7 relates to charging of interest u/s 234B/D. For the reasons given in ITA no. 5283/Del/2010, we hold that the assessee was not liable to pay interest u/s 234B. Accordingly, ground is decided in favour of the assessee.
204. In the result, appeal is partly allowed for statistical purposes. ITA nos. 165/Del/2012 (Smith International Inc. A.Y. 2008-09):
205. Ground nos. l to 4 relate to taxability of royalty/fees for technical services. While deciding ITA no. 5283/Del/2010, after elaborate discussion therein we have held that where assessee was imparting services in relation to oil exploration, the income arising on account royalty/ FTS was to be 92 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
taxed u/s 44BB. Adopting the same reasons, we allow ground nos. 1 to 4 in favour of the assessee.
206. Ground no. 5 to 8 relate to taxability of reimbursement and grossing up receipts. Having heard both the parties we hold that u/s 44BB gross receipts are to be considered, which will include reimbursement also. Therefore, these grounds are dismissed
207. Next ground raised relates to charging of interest u/s 234B/D. For the reasons given in ITA no. 5283/Del/2010, we hold that the assessee was not liable to pay interest u/s 234B. Accordingly, ground is decided in favour of the assessee.
208. In the result, appeal is allowed.
ITA no. 5562/Del/2011 (Hallin Marine UK Ltd. A.Y. 2008-09)
209. Grounds raised in respect to addition qua hiring of equipment in connection with exploration/ prospecting/ extraction of mineral oil; and addition qua activity outside India, for the detailed reasons given in ITA no. 5283/Del/2010, are covered in favour of assessee. Accordingly, we hold that the income arising on account royalty/ FTS, letting out of equipment etc. was to be taxed u/s 44BB. Adopting the same reasons, we allow these grounds in favour of the assessee.
210. Next ground raised relates to charging of interest u/s 234B/D. For the reasons given in ITA no. 5283/Del/2010, we hold that the assessee was not liable to pay interest u/s 234B. Accordingly, ground is decided in favour of the assessee.
211. In the result, appeal is allowed.
ITA no. 5288/Del/2010 (Subsea 7 Singapore Pte. A.Y. 2007-08)
212. Ground nos. 1 to 6 relate to addition qua equipment rental, service charges and sale of consumables and services rendered by assessee in 93 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
connection with exploration/ prospecting/ extraction of mineral oil. For the detailed reasons given in ITA no. 5283/Del/2010, we hold that the income arising on account royalty/ FTS, letting out of equipment etc. was to be taxed u/s 44BB. Adopting the same reasons, we allow ground nos. 1 to 6 in favour of the assessee.
213. Ground no. 9 & 10 raised by the assessee relate to charging of interest u/s 234B/D. For the reasons given in ITA no. 5283/Del/2010, we hold that the assessee was not liable to pay interest u/s 234B. Accordingly, grounds are decided in favour of the assessee.
214. In the result, appeal is allowed.
ITA no. 5282/Del/2010 (Baker Hughes Singapore Pte. A.Y. 2007-08):
215. Ground nos. 1 to 7 relate to addition qua equipment rental, service charges and sale of consumables and services rendered by assessee in connection with exploration/ prospecting/ extraction of mineral oil. For the detailed reasons given in ITA no. 5283/Del/2010, we hold that the income arising on account royalty/ FTS, letting out of equipment etc. was to be taxed u/s 44BB. Adopting the same reasons, we allow ground nos. 1 to 7 in favour of the assessee.
216. Ground no. 8 relates to addition qua supply of consumables. For the detailed reasons given in ITA no. 5283/Del/2010, we hold that receipt on account of supply of consumables is taxable u/s 44BB. Ground is allowed.
217. Ground no. 9 & 10 raised by the assessee relate to charging of interest u/s 234B/D. For the reasons given in ITA no. 5283/Del/2010, we 94 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
hold that the assessee was not liable to pay interest u/s 234B. Accordingly, grounds are decided in favour of the assessee.
218. In the result, appeal is allowed.
ITA no. 5824/Del/2011 (Baker Hughes Singapore Pte. A.Y. 2008-09):
219. Ground nos. 1 to 7 relate to addition qua equipment rental, service charges and sale of consumables and services rendered by assessee in connection with exploration/ prospecting/ extraction of mineral oil. For the detailed reasons given in ITA no. 5283/Del/2010, we hold that the income arising on account royalty/ FTS, letting out of equipment etc. was to be taxed u/s 44BB. Adopting the same reasons, we allow ground nos. 1 to 7 in favour of the assessee.
220. Ground no. 8 relates to addition qua supply of consumables. For the detailed reasons given in ITA no. 5283/Del/2010, we hold that receipt on account of supply of consumables is taxable u/s 44BB. Ground is allowed.
221. Ground no. 9 relates to the taxability of service tax grossing up and ground no. 10 relates to taxability of reimbursement of expenditure. Having heard both the parties we hold that u/s 44BB gross receipts are to be considered, which will include reimbursement also. Therefore, these grounds are dismissed
222. Next ground raised by the assessee relates to charging of interest u/s 234B/D. For the reasons given in ITA no. 5283/Del/2010, we hold that the 95 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
assessee was not liable to pay interest u/s 234B. Accordingly, grounds are decided in favour of the assessee.
223. In the result, appeal is partly allowed.
ITA no. 5286/Del/2010 (Precision Energy Services Ltd. A.Y. 2007-08):
224. Ground nos. 1 to 6 relate to addition qua equipment rental, service charges and sale of consumables and services rendered by assessee in connection with exploration/ prospecting/ extraction of mineral oil. For the detailed reasons given in ITA no. 5283/Del/2010, we hold that the income arising on account royalty/ FTS, letting out of equipment etc. was to be taxed u/s 44BB. Adopting the same reasons, we allow ground nos. 1 to 6 in favour of the assessee.
225. Ground no. 7 raised by the assessee relates to charging of interest u/s 234B/D. For the reasons given in ITA no. 5283/Del/2010, we hold that the assessee was not liable to pay interest u/s 234B. Accordingly, ground is decided in favour of the assessee.
226. In the result, appeal is allowed.
ITA no. 5290/Del/2010 (Weatherford Oil Tools M.E. Ltd. A.Y. 2007-08):
227. Ground nos. 1 to 3 relate to addition qua equipment rental, service charges and sale of consumables and services rendered by assessee in connection with exploration/ prospecting/ extraction of mineral oil. For the detailed reasons given in ITA no. 5283/Del/2010, we hold that the income arising on account royalty/ FTS, letting out of equipment etc. was to be 96 ITA nos. 5283/D/2010 & 12 others Baker Hughes Asia Pacific Ltd. & ors.
taxed u/s 44BB. Adopting the same reasons, we allow ground nos. 1 to 3 in favour of the assessee.
228. Ground no. 4 raised by the assessee relates to charging of interest u/s 234B/D. For the reasons given in ITA no. 5283/Del/2010, we hold that the assessee was not liable to pay interest u/s 234B. Accordingly, ground is decided in favour of the assessee.
229. Appeal is allowed.
230. In the result, all the appeals are decided in the above terms. Order pronounced in open court on 11-07-2014.
Sd/- Sd/- ( A.D. JAIN ) ( S.V. MEHROTRA ) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 11-07-2014. MP Copy to : 1. Assessee 2. AO 3. CIT 4. CIT(A) 5. DR