Mitchell Drilling International Pty. ... vs Department Of Income Tax

Dy.Director of Income Tax, vsMitchell Drilling International Pvt. Ltd., Circle-3(2), C/o Nangai & Co., International Taxation, Suit 4A, Plaza M-6, Jasola, New Delhi. New Delhi. (PAN: AADCM9904H) (Appellant) (Respondent) Appellant by: Shri Amit Arora CA, Suraj Nangia CA Respondent by: Shri Vivek Kumar, Sr. DR

PER CHANDRAMOHAN GARG, J.M.

This appeal has been filed by the revenue against the order of the CIT(A)-

XXIX, New Delhi dated 10.12.2012 in Appeal No. 118/11-12 for AY 2009-10.

2. The sole ground raised by the revenue reads as under:-

"1.On the facts and in the circumstances of the case, the Ld. CTT (A) has erred in holding that service tax being a statutory liability, would not involve any element of service in terms of section 44BB and accordingly, the same could not be included in the total receipts for determining the presumptive income ignoring thereby provisions of section 44BB of the Act which provides for computation of the taxable income at a fixed percentage of the 'gross receipts' and also ignoring the

1 ITA No.874/Del/2013 Asstt.Year: 2009-10

fact the section 44BB being beneficial provision in itself, it does not envisage any further concessions to the assessee."

3. Briefly stated, the facts giving rise to this appeal are that the assessee

company has been incorporated in Australia and is engaged in the business of

providing equipment on hiring and manpower etc. for exploration and

production of mineral oil and natural gas. During the year under appeal, the

assessee earned gross receipt of Rs. 21,05,89,855 from various clients and

offered a total income of Rs.2,12,90,261 in its return of income in terms of

provisions contained in section 44BB of the Income Tax Act, 1961. The AO

held that the assessee is eligible to be assessed under the said section in so far as

the receipts from M/s Arrow Energy, M/s Essar Oil Limited, M/s Reliance

Industries Limited, M/s Great Eastern Energy Pty. Limited are concerned. The

AO held that an amount of Rs.2,57.20,779 /- collected as service tax by the

assessee from its customer is to be added to its gross receipts to be taxed u/s

44BB of the Act and hence, the AO assessed the taxable income of the assessee

at Rs.2,38,62,338/-.

4. The aggrieved assessee preferred an appeal before the CIT(A) which was

allowed by passing the impugned order. Now, the aggrieved revenue is before

this Tribunal with the sole ground as reproduced hereinabove.

5. We have heard arguments of both the sides and carefully perused the

relevant material placed on record, inter alia, impugned order and the

assessment order. At the outset, ld. Counsel appearing for the assessee 2 ITA No.874/Del/2013 Asstt.Year: 2009-10

submitted a copy of the decision of ITAT "E" Bench, New Delhi in assessee's

own case i.e. ITA No. 698/Del/2012 for AY 2008-09 order dated 31.8.2012 and

submitted that the CIT(A) has granted relief for the assessee for AY 2009-10 by

following the order of the Tribunal (supra). Ld. DR fairly accepted that ITAT

"E" Bench, New Delhi dismissing the appeal of the revenue has upheld the

order of the CIT(A) for AY 2008-09.

6. On careful consideration of above submissions and perusal of the order of

the Tribunal for AY 2008-09 dated 31.8.2012 in assessee's own case in ITA

No.689/D/2012 (supra), we note that the Tribunal upheld the order of the

CIT(A) with following observations and conclusion:-

"8. We have heard both the sides, considered the material on record and find that similar issue arose before 'G' Bench of the tribunal in the case of Sedco Forex International Drilling Inc. vs. Addl. DIT (International Taxation) in ITA No.5284/Del./2011, has decided the issue in favour of the assessee and relevant portion of the decision, which has been dealt with by the tribunal in its order as under:

4. ..............Regarding reimbursement of service tax, the ld. AR pointed out that though the ITAT Delhi Bench in their decision in the case of DIT (International Taxation) Vs. Technip Offshore Contracting BV,29 SOT 33(Delhi) concluded that service tax collected by the assessee being directly in connection with services or facilities or supply specified u/s 44BB of the Act provided by the assessee to ONGC, have to be included in the total receipts for the purpose of determination of presumptive profit u/s 44BB, subsequently, Hon'ble Uttarakhand High Court decision dated 24th July, 2009 in the case of DIT & Anr. Vs. Schlumberger Asia Services Ltd. ,317 ITR 156(Uttarakhand) concluded that reimbursement of custom duty paid by the assessee could not form part of amount for the purpose of deemed profits u/s 44BB unlike the 3 ITA No.874/Del/2013 Asstt.Year: 2009-10

other amounts received towards reimbursement. Following the view in this decision, Mumbai Bench in their decision dated 20.4.2011 in I.T.A.no.8845/Mum/2010 in the case of Islamic Republic of Iran Shipping Lines Vs. DCIT,2011-TOII-77-

MUM-INTL, held that service tax being a statutory liability, would not involve any element of profit and a service provider having collected the amount on behalf of the Government, accordingly, the same could not be included in the total receipts for determining the presumptive income, the ld. AR added. On the other hand, the ld. DR supported the findings of the AO.

5. We have heard both the parties and gone through the facts of the case as alsothe aforesaid decisions relied upon by the ld. AR. We find that Hon'ble jurisdictional High Court in their aforesaid decision Halliburton Offshore Services Inc. (supra) while adjudicating an identical issue relating to reimbursement of freight & transport charges in respect of equipment, concluded as under:-

"5. Sec. 44BB provides that the deemed profits and gains under subs.(1) shall be @ 10 per cent of the aggregate amount specified in sub-s.(2). We proceed to analyze sub-s. (2). Clause (a) of sub-s. (2) refers to the amounts, (A) paid to the assessee (whether in or out of India) on account of the provision of services and facilities in connection with, or supply of plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils in India, and (B) payable to the assessee (whether in or out of India) on account of the provision of services and facilities in connection with, or supply of plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils in India. Clause (b) of sub-s. (2) refers to the amounts, (A) received by assessee in India on account of the provision of services and facilities in connection with, or supply of plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils outside India, and (B) deemed to be received by the assessee in India on account of the provision of services and facilities in connection with, or supply of plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of mineral oils outside India.

4 ITA No.874/Del/2013 Asstt.Year: 2009-10 6. Thus, it is clear from the perusal of s. 44BB that all the amounts either paid or payable (whether in India or outside India) or received or deemed to be received (whether in India or outside India) are mutually inclusive. This amount is the basis of determination of deemed profits and gains of the assessee @ 10 per cent. Therefore, in our view, the Tribunal fell into error in not appreciating the difference between the amount and the income. Amount paid or received refers to the total payment to the assessee or payable to the assessee or deemed to be received by the assessee, whereas income has been defined under s.2(24) of the IT Act and s. 5 and s. 9 deal with the income and accrued income and deemed income. Sec.

4 is the charging section of the IT Act and definition as well as the incomes referred in ss. 5 and 9 are for the purpose of imposing the income-tax under s. 143 (3). Sec.44BB is a complete code in itself. It provides by a legal fiction to be the profits and gains of the non-resident assessee engaged in the business of oil exploration @ 10 per cent of the aggregate amount specified in sub-s. (2). It is not in dispute that the amount has been received by the assessee company. Therefore, the AO added the said amount which was received by the non- resident company rendering services as per provisions of s. 44BB to the ONGC and imposed the income-tax thereon. 5.1 In the light of view taken by the Hon'ble jurisdictional High Court in their aforesaid decision, especially when the ld. AR accepted the position that the issue is squarely covered by the aforesaid decision while no other contrary decision was brought to our notice nor the ld. AR placed any material before us, controverting the aforesaid findings of the DRP and the AO, we have no hesitation in upholding the findings of the AO in the light of directions of the DRP in para 3.2 of their order dated 2nd September, 2011 in respect of reimbursement of amount on account of fuel recharge. In view thereof, ground no. 2 in the appeal is dismissed.

6. As regards reimbursement of amount in respect of service tax, as pointed out by the ld. AR, the ITAT Delhi Bench in their decision in Technip Offshore Contracting BV(supra) concluded that service tax collected by the assessee being directly in connection with services or facilities or supply specified u/s 44BB of the Act provided by the assessee to ONGC, have to be included in the total receipts for the

5 ITA No.874/Del/2013 Asstt.Year: 2009-10

purpose of determination of presumptive profit u/s 44BB of the Act. It is well established that section 44BB of the Act is a special provision, treating 10 per cent of the aggregate amount specified in sub-s. (2) of s.44BB as deemed profits and gains of such non-resident assessee who is engaged in the business of providing services or facilities in connection with, or supplying plant and machinery on higher used, or to be used, in the prospecting for, or extraction or production of, mineral oils. The amount referred in sub-s.(2) of s. 44BB are the amounts (a) paid to the assessee (whether in or out of India) on account of the provision of services and facilities in connection with, or supply of plant and machinery on higher used, or to be used, in the prospecting for, or extraction or production of, mineral oils in India, (b) payable to the assessee (whether in or out of India) on account of the provision of services and facilities in connection with, or supply of plant and machinery on higher used, or to be used, in the prospecting for, or extraction or production of, mineral oils in India, (c) received by the assessee in India on account of the provision of services and facilities in connection with, or supply of plant and machinery on higher used, or to be used, in the prospecting for, or extraction or production of, mineral oils outside India and (d) deemed to be received by the assessee in India on account of the provision of services and facilities in connection with, or supply of plant and machinery on higher used, or to be used, in the prospecting for, or extraction or production of, mineral oils outside India.

The service tax is a statutory liability like custom duty. Hon'ble Uttarakhand High Court in their decision in Schlumberger Asia Services Ltd.(supra) concluded that reimbursement of custom duty paid by the assessee could not form part of amount for the purpose of deemed profits u/s 44BB unlike the other amounts received towards reimbursement. Following the view in this decision, Mumbai Bench in their decision in Islamic Republic of Iran Shipping Lines(supra)held that service tax being a statutory liability, would not involve any element of profit and accordingly, the same could not be included in the total receipts for determining the presumptive income. In the light of view taken by the Mumbai Bench, especially when the ld. DR did not place any material before us, controverting the aforesaid findings of the ld. CIT(A) so as to enable us to take a different view in the matter nor brought to our notice any contrary decision, we are of the opinion that 6 ITA No.874/Del/2013 Asstt.Year: 2009-10

service tax paid by the assessee could not form part of amount for the purpose of deemed profits u/s 44BB unlike the other amounts received towards reimbursement............."

9. Since this issue is covered by earlier decision of ITAT, 'G' Bench, Delhi, which is on similar point and no contrary or any higher courts' precedent has been cited, therefore, while following the said decision, we uphold the order of Ld.CIT(A) and dismiss the present appeal."

7. From operative part of the impugned order of the CIT(A) for AY 2009-

10, we observe that the CIT(A) has granted relief for the assessee with

following determination:-

"Determination:

4.0 The appellant has submitted that service tax collected by the appellant on and for behalf of central government by itself can not be said to have been received in return of providing any services or facilities in terms of section 44BB of the Act. The appellant has further contended that similar issue was involved in AY 2008-09 and then CIT(A) has decided the issue in favour of the appellant. The said order of CIT(A) has since been confirmed by Hon'ble IT AT Delhi vide order dated 31-08-2012 in ITA No. 698?DeI/2012. I have gone through said appellate orders for AY. 2008-09. Since the issue involved is the same as in AY 2008-09, I find no reason to take a different view. In view of above, 1 hold that service tax is not to be included in gross receipts for the purposes of computing taxable income u/s 44BB of the Act. The ground of appeal is accordingly allowed."

8. In view of above, we are inclined to hold that the CIT(A) following the

rule of consistency was justified in granting relief for the assessee by following

the order of the Tribunal dated 31.8.2012 (supra) for AY 2008-09 as service tax

collected by the appellant for and on behalf of the central government by itself

cannot be said to have been received in return of providing any services or

7 ITA No.874/Del/2013 Asstt.Year: 2009-10

facilities in terms of section 44BB of the Act. We are unable to see any valid

reason to take a different view on the same issue which is squarely covered in

favour of the assessee by the order of the Tribunal dated 31.8.2012 (supra) in

assessee's own case for AY 2008-09 which is on similar point and the

department has not shown any contrary view of any Hon'ble higher court.

Hence, respectfully following the decision of the Tribunal dated 31.8.2012, we

are inclined to hold that the CIT(A) granted relief for the assessee by rightly

following the rule of consistency and we are unable to see any ambiguity,

perversity or any other valid reason to interfere with the impugned order.

Accordingly, sole ground of the revenue being devoid of merits is dismissed.

9. In the result, the appeal filed by the revenue is dismissed.

Order pronounced in the open court on 09.01.2015.

Sd/- Sd/-

(G.D. AGRAWAL) (CHANDRAMOHAN GARG) VICE PRESIDENT JUDICIAL MEMBER

DT. 09th JANUARY 2015 'GS' Copy forwarded to:-

1. Appellant 2. Respondent 3. C.I.T.(A) 4. C.I.T. 5. DR By Order

Asstt. Registrar

8