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M/s Sedco Forex International Drilling Inc., C/o Nangia & Co., CA, Suite no. 4A, Plaza M-6, Jasola, New Delhi Vs. Additional DIT, International Taxation,Subhash Road, Dehradun
July, 02nd 2012
       IN THE INCOME TAX APPELLATE TRIBUNAL DELHI `G' BENCH
        BEFORE HON'BLE VICE PRESIDENT SHRI G.C. GUPTA AND
           HON'BLE ACCOUNTANT MEMBER SHRI A.N. PAHUJA


                              ITA no.5284/Del./2011
                            Assessment year: 2008-09

M/s Sedco Forex International Vs. Additional DIT, International
Drilling Inc., C/o Nangia &        Taxation,Subhash Road,
Co., CA, Suite no. 4A, Plaza       Dehradun
M-6, Jasola, New Delhi
                       (PAN AACCS 9208 D )
(Appellant)                                 (Respondent)

              Assessee by           S/Shri Amit Arora &
                                    Ashutosh Jain, ARs
              Revenue by            Shri Sanjay Bahadur, DR

                 Date of hearing                 07-06-2012
                 Date of pronouncement           29-06-2012




                                  ORDER

A.N.Pahuja:- This appeal filed on 28.11.2011 by the assessee against an order
dated 18.10.2011 of the Addl. DIT, International Taxation, Dehradun read with
order dated 02.09.2011 of the Dispute Resolution Panel-II, Delhi[DRP in short],
raises the following grounds:-


      1)     "That the Assessing Officer erred on facts and in law in completing
             assessment u/s 144C/143(3) of the Income-tax Act, 1961, (`the
             Act') at an income of ``304,474,660/- as against the income of
             ``282,441,512/- returned by the appellant.

      2)     That the Assessing Officer erred on facts and in law in adding a
             sum of ``123,163,495/- to the gross receipts of the appellant to be
             taxed u/s 44BB without appreciating that the said amount
             represented reimbursement of actual expenses incurred by the
             appellant.


      3)     That the Assessing Officer erred on facts and in law in adding a
             sum of ``97,167,971/- to the gross receipts of the appellant to be
                                         2                ITA no.5284/Del./2011


              taxed u/s 44BB without appreciating that the said amount
              represented service tax.
              Levy of Interest
               1.That the assessing officer erred on facts and in law in levying
              interest under section 234B of the Act especially when there was
              no liability on the assessee to pay advance tax under section
              209(1)(d) of the Income-tax Act,1961.

              The appellant craves leave to add to, alter, amend or vary from the
              above grounds of appeal at or before the time of hearing."


2.            Adverting first to ground no.1 in the appeal , facts, in brief, as per
relevant orders are that e-return declaring income of ``28,24,41,510/- filed on
29.09.2008    by   the   assessee,   a   foreign   company     having   permanent
establishment in India, was selected for scrutiny with the service of a notice u/s
143(2) of the Income-tax Act, 1961 (hereinafter referred to as the Act), issued on
31st August, 2009. During the course of assessment proceedings, the Assessing
Officer (A.O. in short) noticed that the assessee reflected income u/s 44BB of the
Act in terms of two contracts with ONGC. While referring to memorandum of
understanding entered in to between Transocean Offshore Deepwater Drilling
Inc. and Sedco Forex International Drilling Inc. offering additional services on an
integrated basis, along with the Jack-up- Rig "Trident II" to ONGC Ltd. for their
drilling campaign in offshore India, the AO observed that the integrated services
on the rig are not intricately linked to the hired rig while equipments and
personnel were not part of the rig , but acquired from other NRC's. Since the
assessee was not found to be the owner of equipments and integrated services,
the AO was of the opinion that the receipts could not be brought to tax u/s 44BB
of the Act and have to be treated as fee for technical services u/s 9(1)(vii) of the
Act. Further, while referring to decisions in CIT Vs. Halliburton Offshore Service
Inc.,300 ITR 265(Uttarakhand); CIT Vs. Schlumberger Asia Services Ltd. (317
ITR 156); CIT & another & Atwood Oceanics Pacific Ltd. ,2010-TII-12-HC-
Ukhand-Intl dated May 19, 2010; CIT Vs. R & B Falcon Drilling Co.,2009-TII-20-
HC-Ukhand-INTL dated April 24, 2009; CIT Vs. M/s Sundowner Offshore
International Burmuda Ltd.,2009-TII-07-Ukhand-INTL dated February 16, 2009;
                                       3                ITA no.5284/Del./2011


CIT Vs. M/s B.J. Service Co.,2007-TII-05-HC-Ukhand-Intl dated October 8, 2007;
CIT Vs. Trans Ocean Offshore Incorporation,2007-TII-13-HC-Ukhand-Intl dated
October 8, 2007; M/s Sedco Forex International Inc. Vs. CIT, 2007-TII-02-HC-
Ukhand-Intl dated September 28, 2007; and CIT Vs. M/s Halliburton Offshore
Service Inc.,2007-TII-04-HC-Ukhand-Intl dated September 20, 2007, the AO
bought to tax reimbursement of fuel recharge and service tax, aggregating to
`220,331,466/- in terms of provisions of sec. 44BB of the Act vide draft order
dated 28.12.2010.


3.           Thereafter, the assessee approached DRP and raised a number of
objections.. After considering the objections of the assessee, the DRP vide their
order dated 2nd September, 2011 concluded on the issue of inclusion of
reimbursements towards fuel recharge & service tax , as under :-


      "3.    Objection No.3: This objection relates to the proposal to tax
      the reimbursement of fuel recharge and service tax aggregating to
      `22,031,466/- under the provisions of section 44BB. It is submitted
      that under clause 4.4 of the contract ONGC is required to
      reimburse the expenditure incurred on actual usage of diesel which
      is termed as fuel recharge in computation of income. This
      expenditure was incurred by the assessee on behalf of ONGC and
      it was later reimbursed by ONGC to the assessee. The Assessing
      Officer proposed to tax these receipts u/s 44BB. The assessee has
      made detailed submissions and cited a number of decisions to
      support the argument that fuel recharge and service tax
      reimbursement have no element of income.

      3.2    The Panel has considered the submissions made. It is
      noted that this issue has been decided in favour of the department
      by the Jurisdictional High Court in the case of Halliburton Offshore
      Service Inc. (300 ITR 265) wherein it has been held that
      reimbursement of expenditure is includible in the taxable income
      u/s 44BB. It has been stated by the assessee that subsequent to
      the above decision the Uttarkhand High Court has decided the
      mater in favour of the assessee in the case of Schlumberger Asia
      Services Ltd. (317 ITR 156). However, as the appeals of the
      assessee and department are pending in above cases before the
      Supreme Court this Panel is of the view that it would not interfere
                                           4             ITA no.5284/Del./2011


       on this issue at this stage. The Assessing Officer is therefore
       directed to make the addition as proposed by her in the draft order."




4.           The assessee is now in appeal before us against the aforesaid
findings of the ld. CIT(A).At the outset, the ld. AR on behalf of the assessee
conceded that reimbursement of fuel recharge to the extent of ``123,163,493/-
has rightly been taxed u/s 44BB in view of the decision of Hon'ble Jurisdictional
High Court in the case of CIT Vs. Halliburton Offshore Services Inc.,300 ITR
265(Uttarakhand). Regarding reimbursement of service tax, the ld. AR pointed
out that though the ITAT Delhi Bench in their decision in the case of DDIT
(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 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-TII-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
also the aforesaid decisions relied upon by the ld. AR.. We find that Hon'ble
jurisdictional High Court in their aforesaid decision Halliburton Offshore Services
                                         5                 ITA no.5284/Del./2011


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 sub-s. (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.

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
                                         6                ITA no.5284/Del./2011


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 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 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
                                           7                 ITA no.5284/Del./2011


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 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. Therefore, ground no.3 in
the appeal is allowed.


7.            Ground relating to levy of interest u/s 234B of the Act was not
pressed before us while ground no.1 in the appeal being general in nature, does
not require any separate adjudication nor any submissions were made before us
on this ground, accordingly, both these grounds are dismissed.


8.        No other plea or argument was made before us.


9.          In the result, appeal is partly allowed.
                     Order pronounced in open Court

        Sd/-                                             Sd/-
  (G.C. GUPTA)                                     (A.N. PAHUJA)
VICE PRESIDENT                                 ACCOUNTANT MEMBER
                                   8             ITA no.5284/Del./2011


NS

Copy of the Order forwarded to:-

1.   Assessee
2.   Addl. DIT, International Taxation, Subhash Road, Dehradun
3.   DRP-II, Delhi
4.   CIT concerned.
5.   DR, ITAT,'G' Bench, New Delhi
6.   Guard File.
                                                       By Order,

                                                   Deputy/Asstt.Registrar
                                                       ITAT, Delhi
 
 
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