ADIT Vs Saipem SPA (ITAT Dehradun)
Rig Hire Receipts Eligible for Section 44BB Taxation: ITAT Dismisses Revenue’s Appeal in Saipem Case
The Dehradun Bench of the Income Tax Appellate Tribunal has upheld the applicability of Section 44BB to receipts earned by Saipem SPA from hiring out a rig under a contract with Jindal Drilling & Industries Limited. The Tribunal rejected the Revenue’s contention that the receipts should instead be assessed as royalty.
The Bench also rejected the Department’s arguments concerning retrospective application of statutory amendments and levy of interest under Section 234B.
The order was pronounced on 11 November 2026 by Judicial Member Satbeer Singh Godara and Accountant Member Naveen Chandra in ADIT, International Taxation v. Saipem SPA, ITA No.750/Del/2013, concerning Assessment Year 2004-05.
Background of the Dispute
The Revenue’s appeal arose from the CIT(A), Dehradun’s order dated 5 November 2012, passed in connection with assessment proceedings under Sections 147, 143(3) and 144C of the Income-tax Act, 1961.
The dispute concerned receipts of ₹1,26,37,749 earned by the non-resident assessee under a contract for hiring a rig to Jindal Drilling & Industries Limited.
The assessee offered the receipts under the presumptive computation mechanism in Section 44BB, applying the prescribed 10% basis for determining taxable business income.
The Assessing Officer, however, treated the receipts as royalty. The CIT(A) accepted the assessee’s claim, leading to the Department’s appeal before the Tribunal.
Revenue Relied on the Contractor’s Non-PSC Status
The Department argued that the assessee supplied the rig or vessel to an entity that was not itself a party to a Production Sharing Contract.
Its grounds sought to distinguish between first-leg and second-leg contractors, as well as between PSC and non-PSC vendors.
According to the Revenue, hiring equipment to an intermediary for use by another person engaged in oil-related activities did not justify taxation under Section 44BB.
It also relied on the separate statutory framework governing royalty and fees for technical services, contending that the receipts fell within that framework.
The central question was therefore whether the contractual arrangement prevented the assessee from accessing Section 44BB despite the rig’s connection with mineral-oil operations.
Statutory Language Supported Section 44BB Treatment
The Tribunal rejected the Department’s principal objection.
It referred to the language of Section 44BB covering a non-resident engaged in providing services or facilities in connection with, or supplying plant and machinery on hire used or to be used in, prospecting for, extracting or producing mineral oils.
The Bench emphasised that the provision does not employ the restrictive expression “derived from”, found in certain other statutory schemes.
On the facts before it, the Tribunal found no basis to introduce an additional limitation that would exclude the rig-hire receipts merely because of the contractual chain or the recipient’s non-PSC status.
It consequently upheld the CIT(A)’s conclusion that the income qualified for computation under Section 44BB.
Oil-Related Activities and Judicial Guidance
The order referred to the Supreme Court’s decision in ONGC Limited v. CIT, reported at 376 ITR 306, and the relevant CBDT guidance concerning activities connected with mineral-oil operations.
These references supported the approach of examining the substance and connection of the activities for which the receipts arose.
The Tribunal ultimately confirmed the relief on the statutory language governing services, facilities and hired machinery used or intended for use in mineral-oil exploration, extraction or production.
Its conclusion concerned the rig-hire arrangement under examination. The order does not establish that every equipment-hire receipt earned by a non-resident automatically qualifies for Section 44BB.
Retrospective Amendment Argument Rejected
The Revenue also argued that the relevant amendments affecting the interaction between Section 44BB and the royalty or technical-services provisions were clarificatory and should apply retrospectively.
The Tribunal rejected this contention by referring to BJ Services Company v. DDIT, reported at 339 ITR 169, and DIT v. OHM Limited, reported at 352 ITR 406.
It recorded that the relevant amendments had been held to operate prospectively.
Accordingly, the Department’s retrospective-application argument did not justify disturbing the treatment of receipts for Assessment Year 2004-05.
Section 234B Interest Also Disallowed
The remaining substantive issue concerned interest under Section 234B for default in payment of advance tax.
The Tribunal relied on DIT v. GE Packaged Power Inc., reported at 373 ITR 65, in rejecting the Department’s ground.
It accepted that Section 234B interest was not chargeable in the circumstances described in the order, where the non-resident’s entire income had been subjected to tax deduction under Section 195.
This finding was tied to the withholding position and assessment year involved.
Revenue’s Appeal Dismissed
The Tribunal dismissed the Revenue’s appeal, preserving the assessee’s eligibility for Section 44BB computation and the relief concerning Section 234B interest.
The decision highlights the importance of the statutory connection between hired equipment and mineral-oil activities when examining Section 44BB eligibility. The Department’s reliance on intermediary contracting arrangements and retrospective amendments did not succeed on the facts of this case.
Cases Discussed
- ONGC Limited v. CIT — (2015) 376 ITR 306 (Supreme Court)
- BJ Services Company v. DDIT — 339 ITR 169 (Uttarakhand High Court)
- DIT v. OHM Limited — (2013) 352 ITR 406 (Delhi High Court)
- DIT v. GE Packaged Power Inc. — 373 ITR 65 (Delhi High Court)
- CGG Veritas — ITAT decision referred to in Revenue’s grounds; full citation not specified
- Sedco Forex International Drilling v. CIT — Supreme Court decision referred to in Revenue’s grounds; full citation not specified
- Maersk — 334 ITR 79 (Uttarakhand High Court), as cited in Revenue’s grounds
- Jacobs Civil Incorporated / Mitsubishi — Referred to in Revenue’s grounds; precise citation not specified
FULL TEXT OF THE JUDGMENT/ORDER OF DEHRADUN HIGH COURT
This Revenue’s appeal for assessment year 2004-05 arises against the Commissioner of Income Tax (Appeals)-II (for short, “CIT(A)”), Dehradun’s order no. 253/CIT(A)-II/2011-12 dated 05.11.2012, involving proceedings u/s 147/143(3)/144C(3)(b) of the Income Tax Act, 1961; hereinafter referred to as, “the Act”.
Heard both the parties. Case file perused.
2. The Revenue pleads the following substantive grounds in the instant appeal:
1. Whether CIT(A) has erred in holding that receipts of assessee as a sub-contractor for rental of vessels is not Royalty under section 9(1)(vi) of the act.
2. Whether on the facts and circumstances of the case, the CIT(A) has erred in holding that the receipts on account of hire of vessel to a non-PSC member for use by a third party engaged in activities specified in 44BB was not in the nature of Royalty under section 9(1)(vi) of the I.T. Act, 1961 and eligible for 44BB.
3. Whether on the facts and circumstances of the case, the CIT(A) has erred in holding that the income of the assessee was taxable under the provision of sec. 44BB even though the nature of services rendered by the assessee were providing Jack Up Rig on hire and has failed to recognized that the A.O. has resorted to the distinction between first leg and second leg and PSC Venders Vs. Non PSC vendors.
4. Whether on the facts and circumstances of the case, the CIT(A) has erred in ignoring the distinct scheme of taxation of FTS/Royalty and holding that the income of the assessee was taxable under the presumptive provisions of sec 44BB disregarding the insertion of proviso in section 44BB/44DA/115A and the rationale behind the introduction of said clarificatory proviso’s in the Finance Bill 2010.
5. Whether on the facts and circumstances of the case, the CIT(A) has erred in referring to the decision of the ITAT in the case of M/s CGG Veritas in holding that the income of the assessee company was covered under the provisions of section 44BB ignoring that the said decision of the ITAT has not been accepted by the department and a MA has been filed, while appeal was not filed purely on account of tax effect consideration.
6. Whether the CIT(A) has erred in not appreciating that proviso to Section 44BB is not inserted per majorem cautelam but explains and clarifies the main provision as the term services or facilities used therein are not defined and the two terms used are too general in nature and thus once the payments are characterized as Royalty u/s 9(1)(vi), they go outside the purview of Section 44BB and have to be taxed as Royalty.
7. Whether the CIT(A), has erred in not appreciating that assessees reliance on Jindal drilling is misplaced since 44DA being the special provision for taxation of income in the nature of royalties and FTS where these are effectively connected with a PE, then if a special provision is made respecting a certain matter it not matter is excluded from the general provision under the rule of “Generallia specialibus non derogant”.
8. Whether on the facts and circumstances of the case, the CIT(A) has erred in not appreciating that the proviso to section 44DA brought about by the Finance Act 2011 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 in to effect in view of the decision of the Hon’ble Supreme Court in the case of Sedco Forex International Drilling vs. CIT.
9. Whether the facts and circumstances of the case, the CIT(A) has failed to adjudicate on this issue that interest u/s 234B was not chargeable in this case by relying upon the decision of Hon’ble Uttarakhand High Court in the case of Maersk (334 ITR 79) where as the department has contested the issue and has filed SLP before the APEX Court against in the case of Jacobs Civil incorporated /Mitsubishi involving similar issue.
10. The appellant prays for leave to add, amend, modify or alter any grounds of appeal at the time of before the hearing of the appeal.
3. It next transpires during the course of hearing with very able assistance coming from both the parties that the Revenue’s first substantive issue sought to be canvassed in its grounds no. 1 to 5 hereinabove seeks to reverse the learned CIT(A)’s action holding the assessee’s 3 income derived from the execution of contract for hire of rig with M/s Jindal Drilling & Industries Limited as royalty u/s 9(1)(vi) of the Act. We wish to emphasize here that the assessee’s stand from day one offered its gross income amounting to Rs. 1,26,37,749/- @ 10% u/s 44BB of the Act whereas the Revenue’s case all along in light of the learned Assessing Officer’s assessment findings is that given the fact that it had received the same on account of hiring of rig vessel/equipment to a non-PCS “Production Sharing Contract”, its aforesaid receipt sought to be assessed as royalty only. Learned CIT(A) has admittedly accepted the assessee’s case in light of hon’ble apex courts’ landmark decision in ONGC Limited vs CIT (2015) 376 ITR 306(SC) quoting the CBDT’s circular no. 1862 dated 12.10.1990 that all incomes involving production, exploration, assembly or mining or alike projects of a foreign company, shall be chargeable u/s 44BB that u/s 115A r.w.s. 44D of the Act.
3. It is in this factual backdrop that the Revenue vehemently contents that the learned CIT(A) herein has erred in law and on facts in holding the assessee eligible for the above presumptive scheme of taxation u/s 44BB of the Act qua its oil rig equipment royalty income. We find no merit in the Revenue’s instant first and foremost substantive grievance as not only section 44B of the Act stipulates such 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” is eligible thereunder but also the legislature has nowhere used the statutory expression “derived from” as incorporated in other deduction schemes, so as to take us to different conclusion than that under challenge. We thus conclude that the learned CIT(A) impugned lower appellate order reversing the Assessing Officer’s assessment action treating the assessee’s income from hiring of oil rig/equipment(s) eligible u/s 44BB herein does not warrant any interference on our part. The same stands confirmed therefore.
4. We are next informed that the Revenue’s fourth/fifth to seventh substantive grounds raise retrospectively issue of proviso to section 44D of the Act inserted in the Finance Act, 2011. Learned counsel quotes BJ Services Company vs DDIT 339 ITR 169 (Uttarakhand) and DIT vs OHM Limited (2013) 352 ITR 406 (Del.) that the same has already been held as prospective in nature. Rejected accordingly.
5. The Revenue’s ninth substantive ground raised hereinabove is regarding applicability of section 234B interest provision. We are informed that case law DIT vs GE Packaged Pwer Inc (2013) 373 ITR 65(Del.) has settled the issue that the same is not chargeable in a non- resident’s case whose entire income has already been subjected to section 195 TDS deduction. Rejected accordingly.
No other ground or argument has been pressed.
6. This Revenue’s appeal is dismissed.
Order pronounced in the open court on 11.11.2026
