ITAT DELHI BENCH ‘E’
M-I Overseas Ltd.
Director of Income-tax, International Taxation
IT Appeal No. 2456 (Delhi) of 2011- Assessment Year 2006-07
Date of Pronouncement – 11.05.2012
B.C. Meena, Accountant Member
This appeal filed by the assessee emanates from the order of the Director of Income Tax, International Taxation-II, New Delhi dated 28.03.2011 for the assessment year 2006-07.
2. The return of income was filed on 30.03.2007 declaring income of Rs. 6,18,35,432/-. During the year, assessee has received the gross revenue of Rs. 1,58,93,17,996/-. Out of which the assessee has offered a sum of Rs. 61,83,54,322/- under section 44BB (1) of the Income-tax Act, 1961 (hereinafter referred as ‘the Act’). The assessee is engaged in the business of providing equipments of services or facilities in connection with prospecting for extraction or production of mineral oils. The assessee has considered the receipt of Rs. 40,20,380/- on account of reimbursement of revenue and Rs. 96,69,43,294/- on account of imported material supplied. The Assessing Officer included the reimbursement receipt of Rs.40,20,380/- for computing the taxable income under section 44BB of the Act in view of the Hon’ble Uttarakhand High Court decision in the case of CIT v. Halliburton Offshore Services Inc.  300 ITR 265/169 Taxman 138. In respect of the receipts relating to material supplied imported from outside India, the Assessing Officer held that assessee is having a permanent establishment in India. Material supplies imported from outside India and title over the goods passed on toe the purchaser outside India. The goods are sold on account of permanent establishment in India, hence brought to tax at the deemed profit rate of 2% in view of the provisions of section 9(1)(i) of the Act. Assessment was finalized on 24.12.2008. Director of Income-tax (International Taxation) passed an order u/s 263 of I.T. Act by cancelling the order to make afresh assessment.
3. The assessee has come on appeal before us by taking the following grounds :-
“Based upon the facts of the case, the assessee respectfully submits the following grounds which are without prejudice to and independent of each other:
Ground no. 1
That on the facts and circumstances of the case and in law the order dated 28.03.2011 passed by the Director of Income-tax, International Taxation – II, New Delhi (‘DI’) under section 263 of the Income Tax Act, 1961 (‘the Act’) directing the AO to make a fresh assessment is beyond jurisdiction, bad in law and void ab initio.
Ground no. 2
That on the facts and circumstances of the case and in law the DI erred in seeking to substitute his own reasoning and opinion as against that adopted by the AO at the time of framing the assessment order. The Ld. DI has failed to appreciate that a change of opinion is not permissible under the provisions of section 263 of the Act.
That on the facts and circumstances of the case and in law, the Ld. DI erred in not appreciating that when the AO allowed the claim of the assessee after detailed examination in a scrutiny assessment, it can not be presumed that all the relevant issues were not considered.
Ground no. 4
That on the facts and circumstances of the case and in law the DI erred in holding that the assessment order dated 24.12.2008 passed under section 143(3) of the Act was erroneous and prejudicial to the interest of Revenue and in directing the Assessing Officer to modify the same, by holding that the profits from the offshore supplies was to be computed by applying a profit rate of 10 per cent as against 2 per cent as done by the Assessing Officer at the time of framing the assessment.
Ground no. 5
That on the facts and circumstances of the case and in law the DI erred in holding that the assessment order dated 24.12.2008 passed under section 143(3) of the Act was erroneous and prejudicial to the interest of Revenue and in directing the Assessing Officer to modify the same, by holding that the revenue from M/s Dolphin Drilling Limited & M/s Schlumberger Asia Services should have been taxed as fees for technical services under section 9(1)(vii) and not under section 44BB as done by the assessing officer at the time of framing the assessment.
That on the facts and circumstances of the case and in law the DI erred in exercising jurisdiction under section 263 of the Act in respect of the above issues, without appreciating that the said issues where two views are possible thereby ousting jurisdiction under the said section.
That the DI erred on facts and in law in not appreciating that the twin conditions under section 263 of the Act, viz., assessment order being (i) erroneous as well as (ii) prejudicial to the interest of Revenue, were not satisfied, in as much as, no prejudice is caused to the Revenue in respect of the impugned issues as highlighted in ground nos. 4 and 5 above.
The appellant craves leave to add, alter, amend or vary any of the above grounds of appeal before or at the time of hearing.”
4. The assessee has challenged the order of the Director of Income-tax, International Taxation-II, New Delhi on the ground that it was beyond jurisdiction, bad in law and void ab initio. The assessee has also challenged that on the basis of the change of opinion, action u/s 263 is not permissible. The assessee has also challenged that Assessing Officer has made detailed examination in the scrutiny assessment. Assessee had also challenged order of DIT that profit on off shore supplies is to be calculated @ 10% instead of 2%. The assessee has also challenged order of DIT on the ground that order made by Assessing Officer was erroneous and prejudicial to the interest of revenue. The assessee has also challenged that the DIT was not justified in holding that the revenue from M/s. Dolphin Drilling Limited & M/s. Schlumberger Asia Services should have been taxed as fee for technical services under the provisions of section 9(1)(vii) of the Act and not under section 44BB as done by the Assessing Officer. The order of the DIT also challenged on the issue that when two views are possible then DIT has no jurisdiction u/s 263 of the Act to set aside the view taken by Assessing Officer. Finally, assessee has prayed that for invoking the provisions of section 263 of the Act, two conditions, i.e. one order should be erroneous and second it should be prejudicial to the interest of revenue were not specified.
5. We have heard both the sides in detail. The assessee entered into a composite contract with ONGC to provide complete Mud Engineering Services which have been termed as “Mud Services & supply Mud-Chemicals” to ONGC in the contract. Both the services as well as the material required to provide such services is a composite and integral part of the contract. The assessee specialized in providing these services along with specialized chemicals required for the purpose. Thus, both these aspects are composite and cannot be segregated in part. This was a case of composite work contract which cannot be considered in parts for the purpose of taxation. The assessee has opted for working out the taxable income as per the provisions of section 44BB of the Act. Section 44BB of the Act provides for ascertainment of fictional income for the purpose of taxation. It is fixed at 10% of the amount paid or payable for the service rendered or facility provided in connection with the prospecting for or extraction or production of mineral oils. The consideration fixed under the contract between the parties as the sum to be paid has to be taken as the amount based on which the fictional income has to be ascertained. There is nothing in the section which speak about any deduction in that behalf. It is open to the assessee who want to claim exemptions and exclusions in assessment to not to opt for section 44BB(1) of the Act. In our considered view, there is no scope for any calculation or recalculation of the amount shown as payable in the contract. The very objection of introducing the fiction of income u/s 44BB is to avoid all complications in determining the liability of an assessee coming under that provision. If an exercise is to be conducted in each assessee’s case to ascertain the liability of taxation, then the very purpose of the section will be defeated. In our considered view, no such exercise is warranted or permissible in the scheme of section 44BB of the Act. In our considered view, there was no two views possible on this issue and the Assessing Officer has committed a mistake which has rendered the order erroneous and prejudicial to the interest of revenue. We are also in agreement with the DIT that provisions of sections 197 and 195 are interim and provisional proceedings in nature. These are only for the purpose of making withholding taxes. The real taxability of the receipts or any sum on which the tax has been deducted can be determined only in regular assessment proceedings. In our considered view, the DIT has not substituted his own view to the Assessing Officer’s view. The Assessing Officer has not applied his mind in view of the provision of law. Assessing Officer had made a wrong presumption of fact as well of law while making order u/s 143(3) of the Income-tax Act. The assessee itself has opted for calculating the taxable income as per the provisions of section 44BB(1) and it is incumbent upon the Assessing Officer to examine the applicability of the provisions in the correct perspective. The facts of the case laws relied upon by the assessee are at variance to the facts of the assessee’s case, therefore, the ratio laid down in those cases could not be applied to the facts of assessee’s case. From all these facts, we find no fault in the order of the DIT, International Taxation-II, New Delhi in cancelling the order made by the Assessing Officer and directing to make a fresh assessment after providing opportunity to the assessee.
6. In the result, the appeal of the assessee stands dismissed.