Case Law Details

Case Name : EMGS Project Office Vs Deputy Director of Income-tax, International Taxation (ITAT Delhi)
Appeal Number : IT Appeal No. 306 (DELHI) OF 2012
Date of Judgement/Order : 21/09/2012
Related Assessment Year : 2006-07


EMGS Project Office


Deputy Director of Income-tax, International Taxation



SEPTEMBER 21, 2012


A.D. Jain, Judicial Member

This is an appeal filed by the assessee for Assessment Year 2006-07 against the order dated 01.11.2011 passed by the CIT(A)-II, Dehradun. The grievance of the assessee in this case is that the Ld. CIT(A) has erred in confirming the order passed by the Assessing Officer with respect to taxability of mobilization revenue attributable to the operation of the vessel beyond 200 nautical miles from the Indian costline.

2. The facts as available from the concerned orders are that the assessee (“EMGS” for short) is a non-resident company showing revenues from a contract dated 30.12.2005 with ONGC. It offered its revenues u/s 44BB (1) of the IT Act to assess, under the said contract, undertook for offshore activities in the nature of seismic data acquisition (i.e., sea bed logging/electro-magnetic imaging), processing and interpretation, for which activities, the vessel Sasha was used, in connection with prospecting of oil and natural gas. The assessee, for managing the said contract, had established a project office in India. The assessee took the stand before the Assessing Officer that mobilization revenue attributable to the operation of the vessel beyond 200 nautical miles from the Indian costline was not liable to tax in India, as per the provisions of the Act and also according to the DTAA between India and Norway, the country in which the assessee company is incorporated.

3. The Assessing Officer, however, refused to accept the aforesaid stand taken by the assessee. She held that the mobilization fee received by the assessee under the contract was to be included as receipts for computing taxable income u/s 4BB of the Act, at 10% on a deemed profit basis. She placed reliance on Sedco Forex International Inc. v. CIT [2008] 299 ITR 238 (Uttarakhand).

4. The Ld. CIT(A), by virtue of the impugned order, confirmed the aforesaid action of the Assessing Officer.

5. Aggrieved, the assessee is in further appeal before us.

6. Challenging the impugned order, the ld. counsel for the assessee has contended, as also supported by the synopsis filed, that mobilization fee is the amount paid to a contractor like the assessee company, by its customers, for movement of material and equipments from one operating area to another; that when a vessel is mobilized from outside India, a substantial portion of the operations are performed outside India; that in the present case the vessel Sasha operated outside the territorial jurisdiction of India and so, no income with regard to the mobilization charges has either accrued or can be deemed to have accrued in India, as is also clear from the engineer’s certificate and the details of mobilization revenue, which were filed before the authorities below (filed as annexures ‘A’ and ‘B’ to the synopsis before us); that “Sedco Forex International Inc. (supra) has wrongly been applied, since in that case the mobilization was from outside India to inside India; that as per the Indo-Norway DTAA, business profits for foreign enterprise would be taxable in India only where the enterprise has a permanent establishment in India, and that too only to the extent of such profits are attributable to the PE; that in the present case, no profits are attributable to the assessee’s project office, since the project office of the assessee did not have any role to play in the mobilization of the vessel; that as held in Saipem S.P.A. v. Dy. CIT [2004] 88 ITD 213 (Delhi) (TM), where the mobilization charges pertained to the activities undertaken outside India, they do not accrue or arise in India or deemed to accrue or arise in India and so they are not taxable in India; that the mobilization charges do not form part of total income as defined u/s 5 (2) of the Act; that Section 44BB (2) of the Act also does not include the mobilization charges; that there being no economic or territorial nexus of the mobilization in Indian waters in India even otherwise the mobilization charges are not taxable in India.

7. The Ld. DR, on the other hand, has placed strong reliance on the assessment order, contending that Sedco Forex International Inc. (supra) is directly applicable squarely to the facts of the present case and it has rightly been applied by the authorities below; that the assessee is trying to make futile attempt to bring out its case from the purview of Sedco Forex International Inc. even though the assessee has failed miserably show as to how his case is any different from that in Sedco Forex International Inc. (supra).

8. We have heard the parties and have perused the material available on record. In Sedco Forex International Inc. (supra), it was held that the payment made to the assessee was made outside India and the mobilization charges paid to the assessee had no nexus with the actual amount incurred by the assessee for transportation of drilling units of rigs to these specified drilling locations in India; that thus, the mobilization charges were re-imbursement of expenditure; that the payer was liable to pay a fixed sum as stipulated in the contract, regardless of the actual expenditure which might be incurred by the assessee for the purpose; that in view of the fictional taxing provision contained in Section 44BB of the IT Act, the Assessing Officer was right in adding the amount received by the assessee towards mobilization charges for the purpose of imposing income-tax; and that the Ld. Commissioner (Appeals) and the Tribunal were also right in upholding the order of the Assessing Officer.

9. In the present case, the Assessing Officer made the addition by observing as follows:-

“The plea of the assessee is not tenable in view of the decision of Hon’ble High Court of Uttarakhand in the case of M/s Sedco Forex International Inc. wherein it has been held that the revenues on account of mobilization are required to be brought to tax in India. ………”

10. The Ld. CIT(A) confirmed the Assessing Officer’s action by making the following observations:-

“3. The first ground challenges the taxing of mobilization revenue. It is seen that the ld. A.O. relied on the case of Sedco Forex Intl. Inc. reported in 170 Taxman 459 (UK) to tax the mobilization revenues u/s 44BB of the Act. The ld. AR has strongly contested the A.O.’s action through averments which are a reiteration of what was stated before the ld. A.O. (as recorded on pages 2, 3 and 4 of the impugned order). For the sake of brevity, the same are not repeated here.

3.1 The case of Sedco Forex International Inc. (supra) has been the subject matter of analysis and review in the case of DIT v. Schlumberger Asia Services Ltd. reported in 186 Taxman 436 (UK). In this case it has been held that customs duty, being a statutory levy, cannot form part of receipts of assessee for determining his income u/s 44BB of the Act. The other findings in the case of Sedco Forex have not been distinguished or differed with. Considering the express finding of the Hon’ble jurisdictional High Court on the issue of taxability of mobilization revenues, this ground of the appellant deserves to be dismissed.”

11. A reading of Sedco Forex International Inc. (supra), makes it clear that revenues on account of mobilization are to be brought to tax in India. Sedco Forex International Inc. (supra) has been rendered by the Hon’ble Uttarakhand High Court, which happens to be the jurisdictional High Court in the present case. Sedco Forex International Inc. (supra), therefore, is squarely applicable to this case. No decision to the contrary has been brought to our notice. Sedco Forex International Inc. (supra), as such, is binding on us. Both the authorities below have concurrently followed this decision while deciding against the assessee. That being so, finding no error therein, the order under appeal, passed by the Ld. CIT(A) confirming that of the Assessing Officer, is hereby upheld.

12. As such, finding no force therein, the grievance sought to be raised before us by the assessee is rejected.

13. In the result, the appeal filed by the assessee is dismissed.

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