Baker Hughes Asia Pacific Ltd.,, ... vs Department Of Income Tax

I.T.A. No: 744, /Del/13 and CO No. 72 /Del/13 Page 1 of 6

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI A BENCH, NEW DELHI [Coram: Pramod Kumar AM and C. M. Garg JM]

I.T.A. No.: 1507 /Del/13 Assessment year2004-05

Additional Director of Income Tax (International Taxation), Dehradun ......................Appellant

Vs.

Baker Hughes Asia Pacific Limited UK ..................Respondent [PAN: AAACCB3714F]

Appearances by:

Poonam Khaira Sidhu, for the appellant Amit Arora, for the respondent

Date of concluding the hearing : January 22, 2015 Date of pronouncing the order : April 20, 2015

O R D E R

Per Pramod Kumar:

1. By way of this appeal, correctness of learned CIT(A)'s order dated 28 th December 2012, in the matter of assessment under section 143(3) of the Income Tax Act 1961 for the assessment year 2004-05, has been called into question.

2. The assessee has raised as many as ten grounds of appeal, but the two short issues that we are really required to adjudicate on this appeal is whether or not the learned CIT(A) was justified in holding that the pro visions of Section 44BB of the Act, and whether or not the learned CIT(A) was justified in holding that the interest under section 234B cannot be levied on the facts of this case.

Learned representatives fairly agree on this aspect. As for the second issue, the issue is covered, in favour of the assessee, by a full bench decision of Hon'ble jurisdictional High Court in the case of DIT Vs Maersk Co Ltd [ (20111) 334 ITR 79 (Uttarakhand)] and the CIT(A) has merely followed the said decision, but yet the Assessing Officer is aggrieved that, as this decision has been I.T.A. No: 744, /Del/13 and CO No. 72 /Del/13 Page 2 of 6

challenged in appeal before Hon'ble Supreme Court, the CIT(A) ought not to have followed the same. Such a plea can only be stated and rejected. The mere fact that a binding judicial precedent has be en challenged before a higher forum does not dilute, curtail or otherwise affect its binding nature. Once Hon'ble jurisdictional High Court has expressed a considered view on an issue, all the lower authorities in the judicial hierarchy, including this Tribunal as indeed the CIT(A), have to loyally follow this. There is no scope for deviating from this solemn duty. On this aspect of the matter, thus, the stand of the CIT(A) cannot be faulted. As for the first issue, i.e. whether the provisions of Section 44BB will apply to the facts or whether Section 44DA will be applicable on the facts of this case, we find that the issue is covered, by our order of even date in the case of ADIT VSs Baker Hughes Singapore Pte Ltd, wherein we have decided this issue in favo ur of the assessee by observing, inter alia, as follows:

5. To adjudicate on this grievance, only a few material facts need to be taken note of. The assessee before us is a non-resident company, and, as it appears from the details furnished in the return of income, it has an office at Midas Sahar Plaza, Kondivita, Andheri (East), Mumbai. During the relevant financial period, the assessee has earned revenues of Rs 68,24,70,607 from the following contracts:

1. Contract No. : 2001/KGD6L-E2-DR-G-170-MB with Reliance Industries Limited for provision of DKD unit and filtration unit.

2. Contract No. : 2001/GENL/E1-DR-O-60MAC with Reliance Industries Limited for provision of mud services and Drilling unit.

3. Contract No. : OG3/3136992 with Reliance Industries Limited.

4. Contract No. : 2001/GENL/E1-DR-O-270-MAC with Reliance Industries Limited for down hole mud motors for Drilling, Directional Drilling and Side track package.

5. Contract No. : 2001/GENL/E1-DR-O-63E-MAC with Reliance Industries Limited for provision of DMM, Directional Drilling and Sidetrack Package.

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6. Contract No. : SU4C0438 with Niko Resources.

7. Contract No. : HAZ-34232 with Niko Resources.

8. Contract No. : 2003/B/G/D/597 with BG Exploration & Production India Limited for extended reach drilling in Tapti and Panna areas - feasibility study.

9. Contract No. : RJ2Cb5001 with Cairn Energy India Pty Limited for provision of mud chemicals, technical services and laboratory equipments.

10. Contract No. : RJCB5028 with Cairn Energy India Pty Limited for provision of directional drilling services.

11. Contract No. : KG4CA000011A with Cairn Energy India Pty Limited for provision of directional/MWD/LWD Services.

12. Contract No. : CBCA000013A with Cairn Energy India Pty Limited for provision of directional/MWD/LWD Equipment Services.

13. Contract No. : CB3CA000016A with Cairn Energy India Pty Limited for Wireline Logging and TCP Services.

14. Contract No. : CB3A000017A with Cairn Energy India Pty Limited for VSP Equipment & Services."

5. There is no dispute that the income earned by the assessee is from hiring of equipment and from rendering of services to the entities engaged in oil exploration work. There is also no dispute that t he income so earned by the assessee was offered by the assessee to tax, on presumptive profits @ 10% under section 44BB of the Act. The point of dispute is confined to whether or not the provisions of Section 44BB will apply to the facts of this case. While contention of the assessee is that the provisions of Section 44 BB for taxability of income on presumptive basis @ 10% will apply to the taxability of income so earned by the assessee, the Assessing Officer has held that the income from rendering of these services in India, through a PE- as has been claimed to be the fact situation, will be taxable as normal business income in India, as is mandated by Section 44 DA of the Act, which, in the absence of any books of accounts, has been estimated at 25% of gross receipts. The CIT(A) has, following the decision of a coordinate bench in the case of CGG Veritas (ITA No. 4653/Del/2010; order dated 25 th January 2012) and noting that the assessee has a PE in India and that the case pertains to assessment year prior to 2011-12), upheld the contention of the assessee, and has, accordingly, held that the income is liable to tax@ 10% under section 44 BB of the Act, and, aggrieved by the stand so taken by the CIT(A), the Assessing Officer is in appeal before us. .

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6. We have heard the rival contentions at considerable length, perused the material on record and duly considered facts of the case in the light of the applicable legal position.

7. Learned Commissioner (DR) has, even while accepting that the same issue came up for consideration before coordinate benches in the cases of Baker Hughes Asia Pacific & Ors Vs ADIT [34 ITR (Trib) 192] and Baker Hughes Asia Pacific Limited Vs ADIT (ITA No. 6476/Del/12; order dated 5 th September 2014) and this issue was decided in favour of the assesse, contended that "no case can be held to be covered, standing as it does on own facts which are distinguishable". She has elaborate arguments in support of the stand of the Assessing Officer and urged us to take an independent view of the matter. Her line of reasoning, i n broad terms, is like this. It is pointed out that the payments for use and hire of equipment and personnel is equipment royalty/ fees for technical services, and that the income being in nature of royalty/ FTS, and not for a project undertaken by the appellant, is not eligible for benefit of Section 44BB as it would be contrary to the decisions of Hon'ble jurisdictional High Court in the cases of Foamer France and Rolls Royce. It is contended that the provisions of Section 44DDA, as in force with effect from 1 st April 2011, are clarificatory in nature and have to be read into the provisions of the Act.

Its her contention that the provisions of Section 44BB are meant for the first leg contractors engaged in prospecting, extracting and producing mineral oil s, and that the benefit of these provisions cannot be extended to the vendors and suppliers of such first leg contractors. It is submitted that doing so would amount to base erosion and profit shifting from developing countries. A reference is then made Heydon's rule and submitted that the amendments in the scheme of Section 44BB and 44DA, vide Finance Act 2010, though stated to be effective from assessment year 2011 -12 must be treated as clarificatory in nature. A reference is made to the decision of Hon'ble Supreme Court, in the case of Union of India Vs Gosalia Shipping Pvt Ltd (113 ITR 307) for the proposition that when payment is made to a shipping company for time charter, its payment for hire of shipment and not for the purpose of carrying goods, and by the same logic, when payment is made by the first leg contractor to the supplier of equipment or personnel, the payment is for such equipment or personnel and not for the purposes in which the equipment or personnel are put to use.

It is then submitted that the decision of PGS Geophysical AS Vs ADIT (269 CTR 433) contradicts the findings in the earlier Hon'ble Delhi High Court decision in the case of DIT Vs OHM Ltd (352 ITR 406), based on which the coordinate bench has decided this issue in favour of the assesse. It is submitted that the decision of the coordinate bench in the case of Baker Hughes Asia Pacific Ltd (supra), by which this issue in appeal is stated to be covered in favour of the assesse, did not take account the binding judicial precedent s in the cases of PGS Geophysical (supra) and Gosalia Shipping (supra) as also many other relevant decisions, we should not be guided by the same.

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8. Learned counsel for the assessee, on the other hand, submits that as the issue is squarely covered in favour of the assessee by decisions of the coordinate benches and these decisions are not yet overturned by the Hon'ble Courts above, there is no occasion to deviate from the same. We are thus urged to confirm the findings of the CIT(A) and decline to interfe re in the matter.

9. We have noted that the issue is directly covered by the decisions of the coordinate benches and there are no direct decisions on the issue by any higher forums. The meticulous research done by the learned Commissioner (DR), as also her erudite arguments, are of not of any practical effect at this stage. As for the BEPS considerations, as so strenuously argued by the learned counsel, base erosion and profit shifting is a tax policy consideration which is relevant for the process of law making, but it cannot have a role in the judicial decision making process because judicial process will infringe neutrality if it is to be swayed by such policy consideration. The judicial neutrality must not only be neutral vis-à-vis the party but also value neutral vis-à-vis competing ideologies. Judicial authorities are to interpret the law as it exists and not as it ought to be in the light of certain underlying value notions. As for the legal arguments advanced by the learned Commissioner (DR), as was laid down by Hon'ble Supreme Court in the case of Ambika Prasad Mishra vs. State of UP AIR 1980 SC 1762 : (1980) 3 SCC 719 (p. 1764 of AIR 1980 SC), "Every new discovery nor argumentative novelty cannot undo or compel reconsideration of a binding precedent... A decision does not lose its authority merely because it was badly argued, inadequately considered or fallaciously reasoned....". Similarly, in the case of Kesho Ram & Co. vs. Union of India (1989) 3 SCC 151, Hon'ble Supreme Court had observed that "(t)he binding effect of a decision of this Court does not depend upon whether a particular argument was considered or not, provided the point with the reference to which the argument is advanced subsequently was actually decided in the earlier decision....." In view of these discussions, we see no reason to take any other view of the matter than the view taken by the coordinate benches and respectfully following the views of the coordinate bench, we approve the conclusions arrived at by the learned CIT (A) and decline to interfere in the matter.

3. We see no reasons to take any other view of the matter than the view so taken by us in the above case, which was argued alongwith this appeal and in which common arguments were advanced by the parties.

4. Respectfully following the views so expressed, and respectfully following the views of the coordinate benches, we approve the conclusions arrived at by the CIT(A) and decline to interfere in the matter.

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5. In the result, the appeal is dismissed. Pronounced in the open court today on 20 th day of April, 2015.

Sd/xx Sd/xx

C M Garg Pramod Kumar (Judicial Member) (Accountant Member)

New Delhi, the 20 th day of April , 2015

Copies to: (1) The appellant (2) The respondent (3) Commissioner (4) CIT(A) (5) Departmental Representative (6) Guard File By order etc

Assistant Registrar Income Tax Appellate Tribunal Delhi benches, New Delhi