Case Law Details
DDIT Vs Louis Dreyfus Armateures SASn (LDA) (ITAT Delhi)
The assessee is a company incorporated under the laws of France and has earned revenues from providing seismic survey vessels on hire to M/s. CGG Marine, a French company, under a global time charter contracts for use in seismic data acquisition and on board processing for prospecting, extraction and production of mineral oils in terms of contract with ONGC. The assessee has offered the gross revenue of Rs.15,81,38,210/- earned from hire of the above vessels for taxation in its return of income after applying the deemed profit rate of 10% u/s.44BB of the Act. The Assessing Officer has denied the applicability of section 44BB in the draft assessment order on the ground that assessee had supplied the vessel to M/s. CGG Marine which was not a party to the production sharing contract with ONGC, instead he treated the entire receipt as royalty. Learned DRP held that the assessee is providing services or facilities in connection with or supplying plant and machinery on hire use or to be used in the prospecting for, or extraction or production of, mineral oils. There is no provision u/s.44BB to support the Assessing Officer’s interpretation of the so called ‘second leg contract’ so as to deny the applicability of the section to the assessee. Only requirement of the section is plant and machinery is given on hire is used or to be used in the prospecting /extraction/production of mineral oil. Thus the learned DRP upheld the applicability of Section 44BB.
FULL TEXT OF THE ITAT JUDGMENT
The aforesaid appeal has been filed by the Revenue against the final assessment order dated 06.01.2014, passed in pursuance of direction given by the learned DRP-II, New Delhi vide order dated 26.12.2013. In various grounds of appeal, the Revenue has raised the following grounds:
“Grounds of Appeal
1. Whether on the facts and circumstances of the case, the Hon’ble Dispute Resolution Panel (‘DRP’) has erred in directing the Assessing Officer to apply the deemed profit rate of 10% u/s 44BB of the Income Tax Act, 1961 (The Act’) on the revenues earned by the assessee from a non-resident company, M/s CGG Marine (‘CGG’), on account of provision of seismic survey vessels on hire for executing contracts with M/s ONGC.
2. Whether on the facts and in the circumstances of the case, the Hon’ble DRP has erred in holding that the amount received by the assessee from M/s CGG, a French Company, on account of the provision of seismic survey vessels under global time charter contracts was not in the nature of Royalty as defined u/s 9(1)(vi) of the Act and was not taxable under the provisions of sec 44DA w.s. 115A of the Act.
3. Whether on the facts and in the circumstances of the case, the Hon’ble DRP has erred in holding that the revenues earned by the assessee on account of provision of seismic vessels on hire to a non-resident company were in connection with prospecting etc of mineral oil and hence eligible for treatment u/s 44BB of the Act, without adjudicating the aspect of eligibility in terms of second limb of the exclusionary proviso (Explanation to section 9(l)(vii) of the I T Act, 1961) i.e. “for a project undertaken by the recipient” in terms of the proposition confirmed by Hon’ble Delhi High Court in DIT V Rio Tinto Technical Services [2012-TII-01-HC- DEL-INTL].
4. Whether on the facts and in the circumstances of the case, the Hon’ble DRP has erred in not appreciating the fact in the present case the seismic vessels were not provided on hire by the assessee directly to an entity (M/s ONGC) which is engaged in prospecting etc of mineral oil and is directly a member of the Production Sharing Contract.
5. Whether on the facts and circumstances of the case, the Hon’ble DRP has erred in holding that no distinction can be made between receipts from Production Sharing Participants (‘PSC Partners’) and Non-Production Sharing Participants (‘Non-PSC Partners’) and between plant & equipment provided on hire by first-leg and second-leg vendors, ignoring the fact that the receipts from second-leg are in respect of contracts which are entered into with companies not directly engaged in Oil Production and exploration and, therefore, are liable to tax u/s 9( 1 )(vi)/9( 1)(vii) read with section 44DA and not section 44BB of the IT Act, 1961.
6. Whether on the facts and circumstances of the case the Hon’ble DRP has erred in its interpretation of the legislative intent behind the scheme of taxation envisaged in 9(l)(vi) read with sections 44DA and 44BB , ignoring the decisions in the cases of M/s Rolls Royce Pvt. Ltd [200 7-T1I-03-HC-UKHAND-INTL] and M/s ONGC As Agent of M/s Foramer France [(2008) 299 ITR 438 Uttarakhand]
7. Whether on the facts and circumstances of the case, the Hon’ble DRP has erred in ignoring the distinct scheme of taxation of Royalty& Fee for Technical Services and disregarding the insertion of provisos in section 44BB/44DA/ 11 5A and the rationale behind the introduction of said clarificatory provisos in the Finance Bill 2010 in holding that the income of the assessee company was covered under the provisions of section 44BB.
8. Whether on the facts and in the circumstances of the case, the Hon’ble DRP has erred in not appreciating that since sections 44DA/ 11 5A are special provisions for taxation of income in the nature of Royalties and FTS and if a special provision is made respecting a certain matter that matter is excluded from the general provision under the rule of “Generalliaspecialibus non derogant”.
9. Whether on the facts and circumstances of the case, the Hon’ble DRP has erred in holding that the provisions of section 44BB of the Act are more special provisions which shall prevail over the provisions of section 9(l)(vi) read with sections 44DA and 11 5A of the Act, not appreciating the fact that both set of provisions are special in nature which operate in their own clearly defined spheres and therefore, once a particular receipt or income takes on the character of Royalty as defined in section 9(l)(vi), it cannot be considered for treatment u/s 44BB of the Act.
10. Whether on the facts and circumstances of the case, the Hon’ble DRP has erred in holding that sections 44DA and section 11 5A apply only to cases where the income by way of Royalty or FTS is earned by a non-resident from Government or an Indian entity and where an income is received by a non-resident from another non-resident, the provisions of section 44DA/ 11 5A do not apply.
11. Whether on the facts and circumstances of the case, the Hon’ble DRP has erred in not appreciating that proviso to section 44BB is not inserted ‘per majoremcautelam’ but explains and clarifies the main provision as the terms services or facilities used therein are not defined and the two terms used are too general in nature and thus once the payments take the character of Royalty u/s 9(l)(vi), they go outside the purview of section 44BB and have to be taxed as Royalty at rates prescribed for Royalty income under the Act and /or DTAA.
12. Whether on the facts and circumstances of the case, the Hon’ble DRP has erred in not appreciating the fact that proviso to section 44DA brought about by the Finance Act201 1 was only clarificatory in nature and its application has to be read into the main provisions with effect from the time the main provision came into effect in view of the decision of the Hon’ble Supreme Court in the case of Sedco Forex International Drilling v/s CIT.”
2. At the outset, ld. counsel for the assessee submitted that this issue is squarely covered by the decision of the Tribunal in assessee’s own case for the Assessment Year 2007-08 vide ITA No.5184/Del/2010 order dated 02.20 15. Apart from that he has also submitted that now this stand set at rest by the Judgment of Hon’ble Supreme Court in the case of ONGC Ltd. vs. CIT & Anr.
3. Learned Department Representative too admitted that this issue stands covered by the decision of the Tribunal as well as by the Hon’ble Supreme Court.
4. The assessee is a company incorporated under the laws of France and has earned revenues from providing seismic survey vessels on hire to M/s. CGG Marine, a French company, under a global time charter contracts for use in seismic data acquisition and on board processing for prospecting, extraction and production of mineral oils in terms of contract with ONGC. The assessee has offered the gross revenue of Rs.15,81,38,210/- earned from hire of the above vessels for taxation in its return of income after applying the deemed profit rate of 10% u/s.44BB of the Act. The Assessing Officer has denied the applicability of section 44BB in the draft assessment order on the ground that assessee had supplied the vessel to M/s. CGG Marine which was not a party to the production sharing contract with ONGC, instead he treated the entire receipt as royalty. Learned DRP held that the assessee is providing services or facilities in connection with or supplying plant and machinery on hire use or to be used in the prospecting for, or extraction or production of, mineral oils. There is no provision u/s.44BB to support the Assessing Officer’s interpretation of the so called ‘second leg contract’ so as to deny the applicability of the section to the assessee. Only requirement of the section is plant and machinery is given on hire is used or to be used in the prospecting /extraction/production of mineral oil. Thus the learned DRP upheld the applicability of Section 44BB.
5. We find that this Tribunal in assessee’s own case for the Assessment Year 2007-08 has decided this issue in favour of the assessee and held that provision of Section 44BB would be applicable. Now this issue stands settled by the Hon’ble Supreme Court in the case of ONGC vs. CIT (supra), wherein the Hon’ble Apex Court after analyzing the various kinds of contracts by different foreign companies with whom ONGC executed various contracts for services to be rendered in connection with prospecting, extraction or production of mineral oil by ONGC and after detail analysis and discussion, the Hon’ble Apex Court held that any activity relating to exploration, prospecting, extraction, production of mineral oil would be covered u/s.44BB. They have also taken note into account various kinds of works which has been set out in detail in the judgment. Here also the supplying of vessels for the said purposes is inextricably connected with the prospecting, production of mineral oil and therefore, the order of the learned DRP is in consonance with the judgment of the Hon’ble Supreme Court, accordingly, the same is confirmed.
6. In the result, the appeal of the Revenue is dismissed.
Order pronounced in the open Court on 21stJune, 2018.
