(1.) The captioned appeals, preferred by different assessees, involve common issues for adjudication. Facts of the case being identical, all these appeals were heard together and are being disposed of by this composite order for the sake of convenience. ITA No. 5283/Del/2012 in the case of Baker Hughes Asia Pacific Ltd., for A.Y. 2007 -08 is made the leading case, facts and circumstances of the case being same, the result of the issues adjudicated in this appeal would follow on similar issues in other appeals.
2. The assessee has filed return of income declaring total income of Rs. 3,31,25,447/ -. Assessing officer noticed that assessee had filed its return of income u/s. 44BB(1) on the ground that it was engaged in the providing of services and facilities in connection with, or supply plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of mineral oils. Assessing officer observed that the address of the company, as given in the return of income, was "852, 5th Floor, Chakala, Andheri -Ghatkopar Link Road, Andheri (East), Mumbai". He further observed that assessee had, in its return, admitted that there was a permanent establishment ("PE" in short) in India. Assessing officer in para 4 has given details of various contracts undertaken by the assessee to be divided into three parts i.e. supply, rental and services. The assessing officer required the assessee to file reply to the following queries:
(i) What is the basis of claim the benefits of Sec. 44BB.
(ii) Furnish the copies of all contracts entered by you through which revenue has been earned during the year.
(iii) Details of revenue earned but not offered for taxation and the basis for the same;
(iv) Copies of accounts submitted to RBI for F.Y. 2006 -07;
(v) Detailed note on the type of services rendered;
(vi) Reply to all the queries raised in earlier notices issued by the DDIT (Int. Tax), Dehradun;
(vii) Certificate of Incorporation of the Company abroad for claiming the status of non -resident;
(viii) Submit the details of payments on which tax has been deducted at source together with copies of TDS returns.
(ix) Details of supplies made during the year.
(x) Revenue reconciliation with TDS certificates.
3. The assessing officer noticed that as per the revenue reconciliation the assessee had, inter alia, earned revenue as under:
4. The assessing officer observed that assessee had not offered revenue from Hindustan Oil Exploration Co. Ltd. amounting to Rs. 98,11,830/ - for supplies and Rs. 93,99,885/ - from ONGC.
5. The assessing officer observed that the equipment taken on rental were to be taxed under the head "royalty" and the revenue earned from services was to be taxed as "fees for technical services" u/s. 9(1)(vi) and sec. 9(1)(vii) of the I.T. Act respectively and for this provisions of sec. 44BB would not apply. The assessing officer observed as under:
From the scope of work of all the above contract it is clear that the assessee has earned revenue from rental of certain tools. A close perusal of Sec. 44BB clarifies that the section is applicable for two streams of revenue one is for services which are in connection with prospecting, exploration or production of mineral oil and the second stream is for rental of equipment used or to be used for prospecting, exploration and production of mineral oil, The proviso to Sec. 44BB excludes technical service from the purview of Sec. 44BB. It is evident that for services the legislature has used the work 'in connection with', which is of wider connotation. Whereas for equipment rental the equipment either be used for prospecting or exploration or production of mineral oil. If equipment is used for any other service which is in connection with the above the benefit of Sec. 44BB will not be applicable in those cases. In view of this the payment received by the assessee on rental of tools is not covered u/s. 44BB as the same are either fishing tools or linear hanger tools etc., which are used not for prospecting, exploration and production of mineral oil but for the other services.
6. The assessing officer examined the provisions of sec. 9(1)(vi) and pointed out that the payments received by the assessee were covered under the exclusion clause of Explanation (iv -a) of sec. 9(1)(vi). He pointed out that the assessee's receipts were taxable u/s. 44DA as the assessee was rendering services through its PE. Since the assessee had not given any details of expenses, the revenue received by it from rendering of various services and rental receipts was to be taxed @ 25% of the total receipts.
7. As regards the receipts from ONGC, the assessing officer observed that as per contract with ONGC the bidding document was procured by the Indian office of the assessee NRC where Mr. C.K. Pathak was the Manager. He pointed that Mr. C.K. Pathak had signed the Bond Application Request also and the contract was signed on 2 -8 -2006 in India by Mr. C.K. Pathak. He further noted that in the contract the address of the assessee was the same as Mumbai office address noted earlier and the supplies were made in India and the equipment supplied had been put to use by the contractor. He further noted that in the scope of work it had been mentioned that the contractor would deliver the goods at NHAVA Supply Base for transportation to worksite. He further noted that regarding delivery of goods the following clause was inserted:
The goods shall be delivered as per the delivery schedule hereunder:
8. Assessing officer further noted from the invoice and Airway Bill submitted by assessee that the same mentioned the consignee as Baker Hughes Asia Pacific Ltd., Mumbai India (assessee). In view of these facts he concluded that the income of the assessee was taxable in India u/s. 5 of the I.T. Act as the same accrued in India u/s. 5 of the I.T. Act.
9. As regards the contract with Hindustan Oil Exploration Co. Ltd., the assessing officer observed that Mr. C.K. Pathak, country manager, was negotiating and concluding the contract on behalf of Baker Hughes Asia Pacific Ltd. ("BHAPL") which was evident from the correspondence with Hindustan Oil Exploration Ltd., and the assessee.
10. He further noted that the purchase order was issued to Baker Hughes Asia Pacific Ltd., Mumbai. The place of delivery of goods was Chennai Sea Port in India and it was CIF Chennai and as per the agreement, the title in goods was to be passed in India. Therefore, he concluded that the income from this contract also accrued in India as the sale was getting concluded in India and, therefore, taxable in India. As the assessee had not furnished any details about the cost of material purchased, the profit of the assessee was estimated at 25% of the gross receipts which amounted to Rs. 2,72,04,168/ -.
11. Being aggrieved with the draft assessment order, the assessee filed objections before the ld. DRP, which was disposed of vide order dated 28 -9 -2010, upholding the AO's action.
12. The assessing officer passed the assessment order consequent to the directions of DRP on 22 -10 -2010 against which assessee is in appeal before us and has taken following grounds of appeal:
Based upon the facts of the case, the assessee respectfully submits the following grounds which are without prejudice to and independent of each other:
Addition qua breakup of revenue against consolidated contract into equipment rental and services
(2.) THAT the assessing officer erred on facts and in law in holding that the provision of equipment, personnel, and supply of consumables under consolidated contracts were independent of each other; That the assessing officer erred on facts and in law in holding that the contractual revenues were to be bifurcated into 'equipment rental', 'service charges' and 'sale of consumables' and brought to tax independently and separately;
(3.) THAT the assessing officer erred on facts and in law in not accepting that the contracts executed by the assessee were in the nature of 'mining or like projects' as referred to in the Explanation to section 9(1)(vii) of the I.T. Act, 1961.;