Case Number: ITA 661/DEL/2021
Appellant: Pacific Crest Pte Ltd, Noida
Respondent: DCIT Circle-2(2)(2) International Taxation, New Delhi
Assessment Year: 2012-13
Case Filed On: 2021-06-07
Order Type: Final Tribunal Order
Date of Order: 2023-03-31
Pronounced On: 2023-03-31
This article provides a detailed analysis of the case ITA No. 661/DEL/2021, where Pacific Crest Pte Ltd, Noida, filed an appeal against DCIT Circle-2(2)(2) International Taxation, New Delhi, concerning the assessment year 2012-13. The appeal was allowed due to jurisdictional issues regarding the application of Section 44BB and the nature of receipts as royalty.
Pacific Crest Pte Ltd, a non-resident corporate entity incorporated under the laws of Singapore, is a tax resident of Singapore. During the assessment year 2012-13, the Assessing Officer (AO) noticed that the appellant had received payments from Larson & Toubro Ltd. and Polarcus DMCC, on which tax under Section 195 of the Income Tax Act, 1961, was withheld. However, the appellant did not file any return of income, leading the AO to reopen the assessment under Section 147 of the Act.
The AO issued a notice under Section 148 of the Act, but the appellant did not file any return of income in response. The AO proceeded to complete the assessment by treating the receipts of Rs.23,85,90,034/- as royalty/fee for technical services (FTS) and brought it to tax by applying the provisions of Section 115A of the Act.
The appellant raised objections before the DRP, submitting that the vessels (ships) were given on hire to Larson & Toubro Ltd. and Polarcus DMCC for use in prospecting for, or exploration or production of mineral oils. The appellant argued that the receipts should be taxable under Section 44BB of the Act on a presumptive basis. However, the DRP held that the receipts were in the nature of royalty as per Explanation 2(iva) to Section 9(1)(vi) of the Act and directed the AO to complete the assessment accordingly.
The appellant, represented by Shri Amit Arora, CA, and Shri Vishal Misra, CA, reiterated the arguments made before the DRP. They contended that the receipts were for giving on hire vessels for use in prospecting for, or exploration or production of mineral oils, and should be taxed under Section 44BB of the Act. The appellant relied on several judicial precedents supporting their claim.
The respondent, represented by Ms. Rashmita Jha, CIT(DR), strongly supported the DRP’s observations and argued that the receipts were rightly treated as royalty under Explanation 2(iva) to Section 9(1)(vi) of the Act.
The tribunal, comprising Shri G.S. Pannu, Hon’ble President, and Shri Saktijit Dey, Judicial Member, reviewed the case and found that the DRP had treated the receipts as royalty without considering the exception provided in the second limb of Explanation 2(iva) to Section 9(1)(vi) of the Act. The tribunal noted that once the receipts are covered under Section 44BB of the Act, they are excluded from the definition of royalty.
Income Tax Appellate Tribunal, Delhi Bench ‘D’, New Delhi
Before: Shri G.S. Pannu, Hon’ble President & Shri Saktijit Dey, Judicial Member
Order:
This appeal filed by the assessee for the assessment year 2012-13 is directed against the order of the Dispute Resolution Panel (DRP), New Delhi dated 10.04.2021. The grounds raised by the assessee are centered around the treatment of receipts as royalty instead of business profits under Section 44BB of the Income Tax Act, 1961.
After hearing the arguments of both parties and perusing the material available on record, the tribunal found that the DRP had overlooked the exception provided in Explanation 2(iva) to Section 9(1)(vi) of the Act. The tribunal emphasized that the receipts in dispute were for giving on hire vessels for use or to be used in prospecting for, or exploration or production of mineral oils, which is an activity covered under Section 44BB of the Act.
The tribunal relied on several judicial precedents, including the decisions in Valentine Maritime (Gulf) LLC vs. ADIT, Larsen & Toubro Ltd., and Western Geco International Ltd., which supported the view that receipts from hiring vessels for activities related to mineral oil exploration and production are covered under Section 44BB of the Act.
The tribunal quashed the DRP’s order treating the receipts as royalty and directed the AO to tax the receipts under Section 44BB of the Act. Additionally, the tribunal addressed the issue of double counting of revenue and directed the AO to verify the appellant’s claim and allow credit of TDS in accordance with law.
Order Pronounced and Signed in Open Court on 31st March 2023.
Signed:
Shri G.S. Pannu, President
Shri Saktijit Dey, Judicial Member
Date: 31st March 2023
This case underscores the importance of proper jurisdictional application in tax assessments and the necessity for tax authorities to base their decisions on substantial evidence rather than general observations.
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