These two appeals filed by the Revenue pertaining to two different assessees are directed against the two separate orders of the learned ClT(A)-XXXI, Mumbai pertaining to asst. yr. 2005-06. As common issues are involved in both these appeals. they were heard together and disposed of by this common order for the sake of convenience and brevity.
ITA No. 700/Mum/2009
2. The Revenue has raised 3 substantive grounds of appeal which read as under:
"1. On the facts and in the circumstances of the case and in law. the learned ClT(A) erred in directing the AO to assess the total receipts of Rs. 16.22.01,626 under s. 44BB of the IT Act. 1961 holding that:
(i) where the consideration for composite contract containing various terms of work at various stages of completion cannot be apportioned in part and therefore. the total consideration of such indivisible contract has to be held as income within the meaning of s. 44BB of the Act.
(ii) the consideration paid for a project involving installation. assembly or the like would be the price paid for such project and cannot be termed as 'fees for technical services'.
(iii) the sub-contract agreement is being under consideration is a composite one and the income of the assessee is taxable under s. 44BB of the Act.
2. On the facts and in the circumstances of the case and in law, the learned ClT(A) erred in directing the AO the receipts of Rs. 11.19.02.560 treated as 'fees for technical services' be included as part of total consideration of sub-contract receipt and to be assessed as per the provisions of s. 44BB of the Act and also the other receipts of Rs. 3.24,40.325 being 20 per cent of Rs. 16.22.01.626 to be considering. as part of total consideration.
3. On the facts and in the circumstances of the case and in law, the learned ClT{A) erred in holding that since the entire income of the assessee was liable for deduction of tax at source under s. 195 of the Act, no advance-tax was payable and consequently, interest under s. 234B could not be charged."
3. The assessee is a non-resident company engaged in the business of providing technical/ engineering services. During the year under consideration, the assessee executed the contract with Engineers India Ltd. for laying/installation of pipelines for three pipeline projects in Mumbai High North field. In the return of income, the assessee claimed to be a foreign company incorporated in Abu Dhabi (UAE). The assessee, also claimed to be governed by the provisions of Double Taxation Avoidance Agreement (DTAA) between India and UAE. The AO carefully considered the DTAA and came to the conclusion that the assessee is not eligible to claim the benefits of the agreement for avoidance of double taxation executed between India and UAE. Therefore, the assessee would be governed by Domestic Indian Taxation Law Le. IT Act, 1961.
3.1 During the course of the assessment proceedings, the AO noticed that the assessee has received payments amounting to US$ 62,54,591 Le. Rs. 27,41,04,186. These payments were received under various heads such as material, mobilization, installation etc. The AO considered these payments received by the assessee in the light of the agreement of the assessee with Engineers India Ltd., as also to the original bidding documents of ONGC. The AO also observed that the assessee has claimed that its income is taxable under S. 44BB of the Act. However, the AO was of the opinion that considering the various clauses of the agreement relating to the scope of services rendered by the assessee, the assessee is also providing technical services. The AO further observed that the claim of deduction for mobilization, demobilization expenses by the assessee is not tenable in law as per the recent decision of the Hon'ble Uttarakhand High Court in the case of Sedco Forex International Inc us. CIT in ITA No. 99 of 1999 (new No. 434 of 2001) [reported at (2008) 214 CTR (Uttarakhand) 192 : (2008) 1 DTR (Uttarakhand) 113-Ed.]. The AO went on to compute the income by bifurcating the total payments received by the assessee under two heads (a) deemed income under s. 44BB @ 10 per cent of Rs. 12,97,61,300 computed the taxable income under this head as Rs. 12,97,61,30 and (b) fees for technical services Rs. 14,43,42,885.
4. The assessee strongly agitated this action of the AO before the learned CIT(A). It was strongly contended before the learned CIT(A) that the assessee company, resident of UAE was entitled to be governed by the provisions of DTAA and revenue earned was offered for tax under art. 5 of the DTAA. Under art. 7 of the DTAA, the business profits of the assessee could be taxed in India only if it has a PE in India within the meaning of art. 5 of the DTAA. It was argued before the learned CIT(A) that the agreement has not been interpreted by the AO properly. The agreement should have been read as a whole. It was pointed out that the AO has cherry-picked certain clauses of the contract and ignored the other relevant clauses thereby wrongly interpreting, understanding and appreciating the true nature of the contract. It was pointed out that the main intention/purpose of the association between the assessee and Engineers India Ltd. was to install offshore pipelines, risers and risers clamps, testing etc. To achieve this main purpose, the assessee had undertaken various activities which are listed down in the various articles of the contract. It was strongly contended that these activities were incidental to the main job and were integral part of the contract to ensure that all the pipelines are successfully installed, commissioned, tested and comply with the standards set out in the contract. The assessee relied upon various judicial decisicms which have been incorporated by the learned CIT(A) in his order. The main contention of the assessee is that there was no separate independent service provided by the assessee. The consideration under the contract was a lump sum amount and no separate amount has been identified for technical services.
4.1 Mter considering the facts and the submissions, the learned CIT(A) observed that the AO has considered part of the income of the assessee as fees for technical services. The learned CIT(A) further observed that the assessee has entered in'the sub-contract agreement with Engineers India Ltd., as a turnkey contract with lump sum consideration. It was a composite contract in which terms, consideration for work and part of contract are indivisible. The learned CIT(A) was convinced that the decision of the Hon'ble Delhi High Court in the case of CIT us. Mitsui Engg. & Ship Building Co. Ltd. (2002) 174 CTR (Del) 66 : (2003) 259 ITR 248 (Del) squarely applies on the facts of the assessee's case. The learned CIT(A) was also convinced that the consideration received in lieu of the execution of turnkey project would fall under the provisions of s. 44BB of the Act. The learned CIT(A) discussed certain judicial decisions and came to the conclusion that the receipt of Rs. 11,19,02,560 treated as fee for technical service by the AO should be included as part of total consideration of sub-contract receipt and deserves to be assessed as per provisions of s. 44BB of the Act and the balance receipt is also to be assessed under s. 44BB of the Act.
5 Aggrieved by this, Revenue is before us.
6. The learned Departmental Representative strongly supported the findings of the AO. The learned Departmental Representative drewcour attention to the scope of work as provided in the sub-contract work between Engineers India Ltd. and the assessee. It is the say of the learned Departmental Representative that work as provided under cl. (i) a, b, c, d and e onwards is nothing but providing of technical services and therefore the AO has rightly treated part of the payment as fee for technical services. It is the say of the learned Departmental Representative that provisions of s. 9(I)(vii) would prevail over s. 44BB of the Act.
7. Per contra, the learned counsel for the assessee strongly supported the findings of the learned CIT(A) and filed a paper book of decisions relied upon by him which contains decisions of the Co-ordinate Benches of the Tribunal a~ exhibited from pp, I to 37 of the paper book. Pointing out to the decision of the Hon'ble Delhi High Court in the case of Director of IT vs. Jindal Drilling & Industries Ltd. (2009) 17 DTR (Del) 402 : (2010) 320 ITR 104 (Del), the learned counsel for the assessee submitted that in this case, the Hon'ble Delhi High Court on identical facts has held that provision of presumptive tax would apply and not s. 9(I)(vii). Similar decision has been taken by the Tribunal, Delhi Bench in the case of G&T Resources (Europe) Ltd. vs. Dy. Director of IT (International Taxation) (2011) 139 TTJ (Del) 568 : (2011) 55 DTR (Del)(Trib) 321.
9. We have considered the rival submissions and carefully perused the orders of the lewer' authorities and the material evidences brought on record. The entire dispute revolves around whether part of the payment received by the assessee can be considered as fee for technical services and whether the other part would be assessed under the presumptive tax of s. 44BB of the Act. It is not in dispute that by sub-contract agreement between Engineers India Ltd. and the assessee, the assessee was given a turnkey project for laying and installation of pipelines. It is a settled proposition of law that when a contract consists of a number of terms and conditions, each condition does not form separate contract. The contract has to be read as a whole as laid down by the Hon'ble Supreme .Court in the case of Chaturbz.y Vallabhdas AIR 1954 SC 236.
9.1 A careful perusal of the various clauses of the contract in the light of the provisions of s. 44BB which read as under :
"44BB. (1) Notwithstanding anything to the contrary contained in ss. 28 to 41 and ss. 4.3 and 43A in the case of an assessee, (being a nonresident,) 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, a sum equal to ten per cent of the aggregate of .the amounts specified in sub-so (2) shall be deemed to be the profits and gains of such business chargeable to tax under the head 'Profits and gains of business or profession' :
Provided that this sub-section shall not apply in a case where the provisions of s. 42 or s. 44D or s. 115A or s. 293A apply for the purposes of computing profits or gains or any other income referred to in those sections.
(2) The amounts referred to in sub-so (1) shall be the following. namely: (a) the amount paid or payable (whether in or out of India) to the assessee or to any person on his behalf 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) the amount received or deemed to be received in India by or on behalf of the assessee 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. _
(3) Notwithstanding anything contained in sub-so (1), an assessee may claim lower profits and gains than the profits and gains specified in that sqb-section. if he keeps and maintains such books of account and other documents as required under sub-so (2) of s. 44AA and gets his accounts audited and furnishes a report of such audit as required under s. 44AB. and !hereupon the AO shall proceed to make an assessment of the total income or loss of the assessee under sub-so (3) of S. 143 and determine the sum payable by. or refundable to. the assessee.
Explanation.-For the purposes of this section.-
(i) 'plant' includes ships. aircraft. vehicles. drilling units. scientific apparatus and equipment, used for the purposes of the said business;
(ii) 'mineral oil' includes petroleum and natural gas."
It clearly shows that the assessee is engaged in the business of providing services or facilities in connection with its business. therefore. provisions of S. 44BB clearly apply to the facts of the case. The AO has grossly erred in considering part _of the income of the assessee' as fee for technical services without pointing out which part relates to fee for technical services. The learned CIT(A) has rightly considered the entire income to be taxed under s. 44BB of the Act.
10. A careful perusal of the various decisions relied upon by the assessee shows that the work/services done by the assessee do not come within the purview of S. 9(1)(vii) of the Act. Respectfully following the decisions of the Tribunal. we do not find any reason to interfere with the findings of the learned CIT(A). Order of the learned CIT(A) is confirmed. Ground Nos. 1 and 2 are accordingly dismissed.
11. Ground No. 3 relates to the charge of interest under S. 234B of the Act. Though the levy of interest is mandatory but in the instant case. since the income of the assessee was liable for deduction of tax at source under s. 195 of the Act, decision of the Hon'ble jurisdictional High Court in Director of IT (International Taxation) us. NGC Network Asia LLC (2009) 222 CTR (Born) 86 : (2009) 18 DTR (Born) 203 : (2009) 313 ITR 187 (Born) would apply. The learned Departmental Representative strongly placed reliance on the decision of the Delhi High Court in the case of Director of IT (International Taxation) us. Alcatel Lucent USA, Inc. [reported at (2013) 95 DTR (Del) 345-Ed.] wherein the Hon'ble High Court has clearly held that assessee would be liable for paying interest under s. 234B of the Act. However, since we are governed by the jurisdictional High Court decision, we do not find any reason to interfere with the findings of the learned CIT(A). Needless to mention in the instant case the levy of interest would be, in any case, consequential. Ground NO.3 is accordingly dismissed.
lTANo.701/Mum/2009
12. The Revenue has raised following grounds of appeal:
"1. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in directing the AO to assess the total receipts of Rs. 1,30,43,214 under s. 44BB of the IT Act, 1961 holding that the subcontract agreement (with L&T for offshore installation work under consideration) is being a composite one and the income of the assessee is taxable under s. 44BB of the Act.
2. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in directing the Ao the receipts of Rs. 32,91,361 treated as 'fees for technical services' be included as part of total consideration of sub-contract receipt and to be assessed as per the provisions of s. 44BB of the Act.
3. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in holding that since the entire income of the assessee was liable for deduction of tax at source under s. 195 of the Act, no advance-tax was payable and consequently, interest under s. 234B could not be charged."
13. Identical grievances of the Reyeriue have· been considered by us in the case of Valentine Maritime (Gulf) LLC (VMGL) in ITA No. 700/Murn/2009 for asst. yr. 2005-06. As facts and issues involved in this appeal are identical with the facts and issues considered by us in the case of Valentine Maritime (Gulf) LLC (VMGL) in ITA No. 700/Mum/2009, following our own finding in the aforesaid case, the appeal of the Revenue is dismissed.
14. In the result, the appeals filed by the Revenue are dismissed.