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Income Tax Appellate Tribunal, DEHRADUN BENCH, DEHRADUN
Before: Sh. Amit ShuklaDr. B. R. R. Kumar
Per Dr. B. R. R. Kumar Accountant Member:
The present appeal has been filed by the Revenue against the order of ld. CIT(A)-2, Noida dated 18.07.2017.
Following grounds have been raised by the Revenue:
“(i) Whether on the facts and in the circumstances of the case and in law, the CIT (A) has erred in allowing the appeal of the assessee by completely overlooking the amended provisions of section 9(l)(i), 9(l)(vii), 44AB, 44DA of the Act which were applicable to the AY under consideration for the services provided by the assessee in respect of core pressure & wellbore studies, post stack inversion studies, data processing & maintenance services etc which are prima facie back- end activities in the nature of technical services.
ITA No. 6172/Del/2017 2 Schlumberger Asia Services Ltd. (ii) Whether on the facts and In the circumstances of the case and in law, the CIT(A) has erred in placing reliance on the judgment of the Hon’ble Supreme Court in the case of ONGC vs. CIT (Civil Appeal No. 731 of 2007) by failing to appreciate that the issue of taxability u/s 44BB vs. 44DA of the Act was not there before the Apex Court, and that the case before the Apex Court pertained to the AY 1985-86, and involved the issue of taxability u/s 44BB vs. 44D of the Act.
(iii) Whether on the facts and in the circumstances of the case and in law, the CIT (A) has erred in failing to note that the Memorandum to Finance Bill 2010 makes it clear that any service which falls within the ambit of 44DA, even if it is in connection with prospecting for, or extraction or production of mineral oils as stipulated in section 44BB, has to be assessed u/s 44DA of the Act.
(iv) Whether on the facts and in the circumstances of the case and in law, the CIT' (A) has erred in ignoring the nature of activities and scope of work in respect of the core pressure & wellbore studies, post stack inversion studies, data processing & maintenance services etc provided by the assessee lead to the infallible conclusion that the receipts of the assessee were in the nature of FTS u/s 9(1)(vii) of the Act.
(v) Whether the CIT (A) has erred in overlooking that the assessee, in respect of the abovementioned back-end technical services, was not engaged in any construction, assembly, mining or like project and had only provided ancillary services, and thus did not fall in the exclusion clause of section 9(1)(vii) of the Act, in distinction to the lead case of Foramer inter alia covered by the Hon’ble Apex Court in ONGC case supra where the dominant purpose of the contract being prospecting, extraction or production of mineral oil, the ancillary works were held to be covered by the exclusion provided in Explanation to section 9(1)(vii) of the Act.
(vi) Whether the CIT (A) has erred in overlooking that the receipts of the assessee were not only in the nature of FTS u/s 9(1)(vii) of the Act, but were also not
ITA No. 6172/Del/2017 3 Schlumberger Asia Services Ltd. eligible to be excluded under Explanation 2 to section 9(1)(vii) since the “recipient” of FTS, the assessee in this case had not undertaken any construction, assembly, mining or like project.
(vii) Whether the CIT (A) has erred in overlooking that the dominant nature of the backend technical services rendered by the assessee was not prospecting, extraction or production of mineral oil so as to fall under purview of Section 44BB of the Act.
(viii) Whether the CIT (A) has erred, on the facts and in the circumstances of the case, In holding that the amount received by the assessee on account of ‘equipment lost in hole’ is not includible in the gross revenue for the purpose of computation of profits under the presumptive provisions of section 44BB of the Act, when the said provisions are a complete code of taxation in themselves and do not distinguish between revenue and capital receipts having made allowance for expenditure including depreciation on capital assets to the extent of 90% of gross revenue.
(ix) Whether the CIT (A) has erred in not appreciating the fact that the amount received by the assessee on account of ‘equipment lost in hole’ is infact the reimbursement of expenses and hence includible in the gross revenue for the purpose of computation of profits as per the provisions of section 44BB of the Act in accordance with the spirit of the ratio of the judgment of Hon’ble Uttarakhand High Court in the case of CIT Vs. Halliburton offshore Services Inc. (300 ITR 265).
(x) Whether on the facts and in the circumstances of the case and in law, the CIT (A) has erred in holding that receipts on account of service tax are not includible in gross revenue of the assessee for the purpose of computation of profits under the provisions of section 44BB of the I.T. Act, 1961.
(xi) Whether the CIT (A) has erred in not appreciating the fact that section 44BB of the Act is a self-contained code providing for computation of profit
ITA No. 6172/Del/2017 4 Schlumberger Asia Services Ltd. at a fixed percentage of gross receipts of the assessee and all the deductions and exclusions from the gross receipts are deemed to have been allowed to the assessee.
(xii) Whether the CIT (A) has erred in not appreciating the fact that once the receipts are offered to tax u/s 44BB of the Act which provides for computation of profits on gross basis, there is no scope for computing or re-computing the profits by excluding any part of the receipts from the total turnover as the same would amount to defeating the, very purpose of providing for a presumptive scheme of taxation u/s 44BB of the Act and obviating the need for maintaining accounts for individual receipts, payments etc.
(xiii) Whether the CIT (A) has erred in ignoring the ratio of the judgment in the case of M/s Chowringhee Sales Bureau (P) Ltd. (82 ITR 542, SC) wherein the Hon’ble Apex Court has held that the Sales Tax collected by an assessee in the ordinary course of its business forms part of its business receipts. Owing to the inherent similarity in the nature of sales tax and service tax, the ratio of the judgment in the said case is directly applicable to the instant case.”
The facts have been taken from the order of the ld. CIT(A) who has diligently examined the issue of controversy between applicability of provisions of Section 44BB and Section 44DA of the Income Tax Act, 1961. We have heard the arguments of both the parties and refrain to interfere with the order of the ld. CIT(A). For the sake of ready reference, the discussion on the issue as brought out by the first appellate authority is pointed out as under:
ITA No. 6172/Del/2017 5 Schlumberger Asia Services Ltd. 4. Brief facts of the case on this issue are that the AO has held that the revenues in respect of provision of service relating to post-stack inversion study, core pressure and well-bore study, data processing and maintenance services are in the nature of fees for technical services u/s 9(1)(vii) of the Act wherein the appellant submits that the activities are inextricably linked with the oil and gas exploration and production activities and in view of the judgment of Supreme Court of India in the case of Oil and Natural Gas Corporation Ltd. Vs CIT the same cannot be categorized as FTS.
The gist of the submission of the assessee is as below:
• Activities are in the nature of ‘mining or like project’ and thus not in the nature of ‘fees for technical services. The services provided by the appellant, were used in the exploration/exploitation of mineral oils. • The Ld. AO has not given any reasoning for excluding such services from the ambit of Section 44BB of the Income Tax Act, 1961 and has made a cursory remark that these activities cannot be considered to be relating to mining activity. • Supreme Court’s decision in the case of Oil & Natural Gas Corporation Limited v. Commissioner of Income Tax is relied upon. • The appellant has relied upon other judicial precedents wherein interpretation studies has been held to be includible in the revenue chargeable to tax u/s 44BB of the Act.
ITA No. 6172/Del/2017 6 Schlumberger Asia Services Ltd. • The appellant wishes to submit that the seismic survey is the nature of ‘mining or like project’ and squarely covered within the ambit of section 44BB of the Act. The appellant places reliance on the following judicial precedents wherein the revenue from seismic survey activity has been held to be includible in the revenue chargeable to tax u/s 44E5B of the Act:
Adjudication
The appellant has entered into several contracts earning revenues, details of which is tabulated between Sl. no. 1 to 121 of the table inserted between page 1 to 10 of the assessment order. The assessing officer accepted the revenue mentioned between SI No. 1 to 9 and 11 to 112 as taxable u/s 44BB of the Act. The revenue in respect of the contracts mentioned at serial number 113 to 121 in respect of post-stack inversion study, core pressure and well-bore study, data processing and maintenance services were considered by the AO in the nature of fees for technical services u/s 9(1)(vii) of the Act. The Assessing Officer treated these receipts as per provisions of section 44DA of the Act as ‘fees for technical services’ as defined in section 9(1) (vii) of the Act. It was observed by the Assessing Officer that the services cannot be considered as any activity relating to “mining activity” and basically in these activities assessee is providing technical and consultancy services. It was considered that the post-stack inversion study, core pressure and well-bore study, data processing and maintenance services are covered under the definition of FTS as per the provision of section9 (1) (vii) of the Act.
ITA No. 6172/Del/2017 7 Schlumberger Asia Services Ltd.
The issue under dispute is the section under which the receipts from ‘post-stack inversion study, core pressure and well-bore study, data processing and maintenance services’ ought to be brought to tax. The AO has treated receipts in the nature of fee for technical services and taxed the same u/s 44DA of the Act. On the other hand, the Appellant is of view that its receipts should have been brought to tax under section 44 BB of the Act. The Appellant has primarily relied upon the judgment of the Apex Court passed in the case of ONGC (Civil Appeal No.731 of 2007) to support its contention.
Combined effect of the provisions of sections 44BB, 44DA and 115A is that if the income of a non-resident is in the nature of fee for technical services, it shall be taxable under the provisions of either section 44DA or section 115A irrespective of the business to which it relates. Section 44BB applies only in a case where consideration is for 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.
Memorandum to the Finance Bill, 2010 clarifies that it is not the kind of business which is material but it is the nature of services which is of importance to determine whether receipts are taxable as fee for technical services under section 44 DA of the Act or under section 44 BB of the Act. In order to ascertain the aforesaid, it would be pertinent to have a look at the contractual agreements and scope of work as provided in the contract.
ITA No. 6172/Del/2017 8 Schlumberger Asia Services Ltd. 10. The Assessing officer at para 7.1 of the assessment order has observed that these services cannot be considered as any activity relating to mining activity and basically in these activities assessee is providing technical and consultancy services and therefore covered under the definition of FTS as per provision of section 9 (1)(vii) of the Act.”
On perusal of the judgment of Hon’ble Supreme court of India in civil appeal number 731 of 2007 in the case of ONGC Ltd vs. CIT and others it is found that the issue before the Hon’ble court was to decide whether certain services in connection with prospecting, extraction or production of mineral oil is chargeable to tax as “fees for technical services” under section 44D read with Explanation 2 to Section 9(1)(vii) of the Income Tax Act or will such payments be taxable on a presumptive basis under section 44BB of the Act”? The relevant portion of the judgment is reproduced as below:
“8. A careful reading of the aforesaid provisions of the Act goes to show that under Section 44BB (1) in case of a non- resident providing services or facilities in connection with or supplying plant and machinery used or to be used in prospecting, extraction or production of mineral oils the profit and gains from such business chargeable to tax is to be calculated at a sum equal to 10% of the aggregate of the amounts paid or payable to such non-resident assessee as mentioned in Sub-section (2). On the other hand, Section 44D contemplates that if the income of a foreign company with which the government or an Indian concern had an agreement executed before 1.4.1976 or on any date thereafter the
ITA No. 6172/Del/2017 9 Schlumberger Asia Services Ltd. computation of income would be made as contemplated under the aforesaid Section 44D. Explanation (a) to Section 44D however specifies that “fees for technical services” as mentioned in Section 44D would have the same meaning as in Explanation 2 to Clause (vii) of Section 9(1). The said explanation as quoted above defines “fees for technical services” to mean consideration for rendering of any managerial, technical or consultancy services. However, the later part of the explanation excludes from consideration for the purposes of the expression i.e. “fees for technical services” any payment received for construction, assembly, mining or like project undertaken by the recipient or consideration which would be chargeable under the head “salaries”. Fees for technical services, therefore, by virtue of the aforesaid explanation will not include payments made in connection with a mining project.
Before the High Court, a Circular No. 1862 dated 22.10.1990 having a bearing on the subject was placed for consideration by the assessee. The aforesaid instruction may be reproduced herein below.
“Subject: Definition of ‘fees for technical services” in Explanation to Section 9(1) (vii) of the Income Tax Act, 1961 whether prospecting for or extraction of production of mineral oil are “mining” operations-clarification regarding. The expression “fees for technical services” has been defined in Explanation 2, to Section 9(1) (vii) of the Income Tax Act, 1961 as under:
ITA No. 6172/Del/2017 10 Schlumberger Asia Services Ltd. “Explanation 2. - For the purposes of this clause, “fees for technical services” means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head “Salaries”.
The question whether prospecting for, or extraction or production of, mineral oil can be termed as ‘mining operations, was referred to the Attorney General of India for his opinion. The Attorney General has opined that such operations are mining operations and the expressions ‘mining project’ or ‘like projects’ occurring in Explanation 2 to Section 9 (1) (ii) of the Income Tax. Act would cover to Section 9(1) (vii) of the Income Tax Act would cover rendering of services like imparting of training and carrying out drilling operations for exploration or exploitation of oil and natural gas.
In view of the above opinion, the consideration for such services will not be treated as fees for technical services for the purpose of Explanation 2 to Section 9(1) (vii) of the Income-tax Act, 1961. Payments for such services to a foreign company, therefore, will be income chargeable to tax under the provisions of section 44BB of the Income-tax Act, 1961 and not under the special provision for the taxation of fees for technical services contained in section 115A read with section 44D of the Income- tax Act, 1961.
ITA No. 6172/Del/2017 11 Schlumberger Asia Services Ltd.
A copy of the statement of the case dated 16.3.1990 (without annexures) and a copy of the Attorney General’s opinion dated 13.5.90 are enclosed.
These instructions may brought to the notice of all the officers in your region.
[F. No. 500/6/89-FTD dt.22.10.90 from CBDT]”
Before us the opinion of the learned Attorney General has been placed by the learned counsel for the appellants at great length to contend that the views expressed by the learned Attorney which had been accepted by the CBDT were based on an exhaustive consideration of the provisions of the Mines Act, 1952 and the Mines and Minerals (Regulation and Development) Act, 1957 read with the relevant Entries in the Union and the State List in the 7th Schedule to the Constitution of India. It is urged that the eventual test is one of pith and substance of the agreement, namely, whether the works contemplated or services to be rendered under the agreement is directly and inextricably linked with the prospecting, extraction or production of mineral oil. It is submitted on behalf of the appellants that the agreements in question satisfy the above test for-.which purpose the appellants have categorized the different contracts under 8 heads which may be conveniently set out at this stage herein below.
Carrying out seismic surveys and drilling for oil and gas 2. Services starting/re-starting/enhancing production of oil and gas from, wells
ITA No. 6172/Del/2017 12 Schlumberger Asia Services Ltd. 3. Services for prospecting for exploration of oil and or gas 4. Planning and supervision of repair of wells 5. Repair, Inspection or Equipment used in the exploration, extraction or production of oil and gas 6. Imparting Training 7. Consultancy in regard to exploration of oil and gas 8. Supply, Installation, etc. of software used for oil and gas exploration”
It is also urged on behalf of the appellants that the instruction/Circular dated 22.10.1990 issued by the CBDT was binding on the primary authority on the ratio of the decision of this Court in K.P. Varghese Vs. Income Tax Officer, Emakulam and Others. It has been further pointed on behalf of the appellants that even under the provisions of Section 3D of the Oil Fields (Regulation and Development) Act 1948 a mining lease means a lease granted for the purposes of searching for, winning, working, getting, making merchandisable, carrying away or disposing of mineral oils or for the purpose connected therewith and such a lease includes an exploring or prospecting lease. Reference has also been made to the Petroleum and Natural Gas Rules, 1959 Framed under Section 5 of the aforesaid Act. Under Rule 4 of the said Rules no person can prospect for petroleum except pursuant to a Petroleum Exploration License (PEL) granted under the Rules and no person can mine petroleum except in pursuance of a Petroleum Mining License (PML) granted under the Rules. It is pointed, out that under Rule 7 of the Rules of 1959 a petroleum mining license (PML) entitles the licensee to carry out construction and maintenance in and on such land, works, buildings, plants,
ITA No. 6172/Del/2017 13 Schlumberger Asia Services Ltd. waterways, roads, pipelines etc. as may be necessary for full enjoyment of the PML. On the said basis it is argued that rendering any service in connection with prospecting and extraction is an integral part of mining and. that the expression “mining” in the Explanation 2 to Section 9(1) of the Income Tax Act, in the absence of any definition under the Income Tax Act, has to be understood as per the provisions of the Oil Fields (Regulation and Development) Act, 1948 read with the Petroleum and Natural Gas Rules, 1959.
Opposing the contentions advanced, on behalf of the appellants, Shri. Gurukrishna Kumar, learned senior counsel for the Revenue has urged, that the opinion of the Attorney General relied upon and the CBDT Circular has no relevance to the present case inasmuch as the agreements between ONGC and the non-resident companies made it abundantly clear that, what is paid, to the non-resident company are fees for technical services rendered. Though such services may have some connection with the prospecting, extraction or production of mineral oil, the primary service rendered by the non-resident companies on the basis of the agreements is not for prospecting, extraction or production of mineral oil but various ancillary services like training of personnel etc. which may have a somewhat remote connection with the business of prospecting, exploration or production of mineral oils. Learned Counsel for the revenue has even suggested that if it is held that the High Court ought to have examined each agreement or contract to find out its real purpose and intent the revenue would have no objection if the matters are remanded for a complete exercise to be made on the above basis.
ITA No. 6172/Del/2017 14 Schlumberger Asia Services Ltd.
The Income Tax Act does not define the expressions “mines” or “minerals”. The said expressions are found defined and explained in the Mines Act, 1952 and the Oil Fields (Development and Regulation) Act 1948. While construing the somewhat pari materia expressions appearing in the Mines and Minerals (Development and Regulation) Act 1957 regard must be had to the provisions of Entries 53 and 54 of List I and Entry 22 of List II of the 7th Schedule to the Constitution to understand the exclusion of mineral oils from the definition of minerals in Section 3(a) of the 1957 Act. Regard must also be had to the fact that mineral oils is separately defined, in Section 3(b) of the 1957 Act to include natural gas and petroleum in respect of which Parliament has exclusive gas and petroleum in respect of which Parliament has exclusive jurisdiction under Entry 53 of List I of the 7th Schedule and had enacted and earlier legislation i.e. Oil Fields (Regulation and Development) Act, 1948. Reading Section 2(j) and 2(jj) of the Mines Act, 1952 which define mines and minerals and the provisions of the Oil Fields (Regulation and Development) Act, 1948 specifically relating to prospecting and exploration of mineral oils, exhaustively referred to earlier, it is abundantly clear that drilling operations for the purpose of production of petroleum would clearly amount to a mining activity or a mining operation. Viewed thus, it is the proximity of the works contemplated under an agreement, executed with a non- resident assessee or a foreign company, with mining activity or mining operations that would be crucial for the determination of the question whether the payments made under such an agreement to the non-resident assessee or the foreign company
ITA No. 6172/Del/2017 15 Schlumberger Asia Services Ltd. is to be assessed und.er Section 44BB or Section 44D of the Act. The test of pith and substance of the agreement commends to us as reasonable for acceptance. Equally important is the fact that the CBDT had accepted the said, test and had in fact issued a circular as far back as 22.10.1990 to the effect that mining operations and the expressions “mining projects” or “like projects” occurring in Explanation 2 to, Section 9(1) of the Act would cover rendering of service like imparting of training and carrying out drilling operations for exploration of and extraction of oil and natural gas and hence payments made under such agreement to a non-resident/foreign company would be chargeable to tax under the provisions of Section 44BB and not Section 44D of the Act. We do not see hour any other view can be taken if the works or services mentioned under a particular agreement is directly associated or inextricably connected with prospecting, extraction or production of mineral oil. Keeping in mind the above provision, we have looked into each of the contracts as culled, out by the appellants and placed before the Court is correct. The said details are set out below.
S. Civil Work covered under the contract No. Appeal No. 1. 4321 Drilling of exploration wells and carrying out seismic surveys for exploratory drilling. 2. 740 Drilling, furnishing personnel for manning, maintenance and operation, of drilling rig and training of personnel. 3. 731 Drilling, furnishing personnel for manning, maintenance and operation of drilling rig and training of personnel. 4. 1722 Furnishing supervisory staff with expertise in operation and management of Drilling unit. 5. 729 Capping including subduing of well, fire fighting. 6. 738 Capping including subduing of well, fire fighting.
ITA No. 6172/Del/2017 16 Schlumberger Asia Services Ltd. 7. 1528 Analysis of data to prepare job design, procedure for execution and details regarding monitoring. 8. 1532 Study for selection of enhanced Oil Recovery processes and conceptual design of Pilot Tests. 9. 1520 Engineering and technical support to ONGC in implementation of Cyclic Steam Stimulation. 10. 2794 Assessment and processing of seismic data along with engineering and. technical support in implementation of Cyclic Steam Stimulation. 11. 1524 Conducting reservoir stimulation studies in association with personnel of ONGC. 12. 1535 Laboratory testing under simulated reservoir conditions. 13. 1514 Consultancy for optimal exploitation of hydrocarbon resources. 14. 2797 Consultancy for all aspects of Coal Bed Methane. 15. 6174 Analysis of data of wells to prepare a job design. 16. 1517 Geological study of the area and analysis of seismic information reports to design 2 dimensional seismic surveys. 17. 7226 Opinion on hydrocarbon resources and foreseeable potential. 18. 7227 Opinion on hydrocarbon resources and foreseeable potential. 19. 7230 Opinion on hydrocarbon resources and foreseeable potential. 20. 6016 Opinion on hydrocarbon resources and foreseeable potential. 21. 6008 Evaluation of ultimate resource potential and presentations outside India in connection with promotional activities for Joint Venture Exploration program. 22. 1531 Review of sub-surface well data, provide repair plan of wells and supervise repairs. 23. 733 Repair of gas turbine, gas control system and inspection of gas turbine and generator. 24. 741 Repair and inspection of turbines. 25. 737 Repair, inspection and overhauling of turbines. 26. 736 Inspection, engine performance evaluation, instrument calibration and inspection of far turbines. 27. 1522 Replacement of choke and kill consoles on drilling rigs. 28. 1521 Inspection of gas generators.
ITA No. 6172/Del/2017 17 Schlumberger Asia Services Ltd. 29. 1515 Inspection of rigs. 30. 2012 Inspection of generator. 31. 1240 Inspection of existing control system and deputing engineer to attend to any problem arising in the machines. 32- 1529 Inspection of drilling rig and verification of reliability of control systems in the drilling rig. 33. 2008 Expert advice on the device to clean insides of a pipeline. 34. 2795 Feasibility study of rig to assess its remaining useful life 4 and to carry out structural alterations. 35. 925 Engineering analysis of rig. 36. 1519 Imparting training on cased hold production log evaluation and analysis. 37. 1533 Training on well control. 38. 1518 Training on implementation of Six Sigma, concepts. 39. 1516 Training on implementation of Six Sigma concepts. 40. 6023 Training on Drilling project management. 41. 2796 Training in Safety Rating System and assistance in development and audit of Safety Management System. 42. 1239 To develop technical specification for 3D Seismic API modules of work and. to prepare bid packages. 43. 1527 Supply supervision and installation of software which is used for analysis of flow rate of mineral oil to determine reservoir conditions. 44. 1523 Supply, installation and familiarization of software for processing seismic data.
The above facts would indicate that the pith and substance of each of the contracts/agreements is inextricable connected with prospecting, extraction or production of mineral oil. The dominant purpose of each of such agreement is for prospecting, extraction or production of mineral oils though there may be certain ancillary works contemplated, thereunder. If that be so, we will have no hesitation in holding that the payments made
ITA No. 6172/Del/2017 18 Schlumberger Asia Services Ltd. by ONGC and received by the non-resident assessees or foreign companies under the said contracts is more appropriately assessable under the provisions of Section 44BB and not Section 44D of the Act. On the basis of the said conclusion reached by us, we allow the appeals under consideration by setting aside the orders of the High. Court, passed, in each of the cases before it and restoring the view taken by the learned Appellate Commissioner as affirmed by the learned Tribunal.
Consequently, all the appeals are allowed with no order as to the casts.”
In the said order the Hon’ble Court had examined the contracts involved in the group of cases and summarized the brief description of the works covered under each of the said contracts in a table between pg 19-21 of the said order. In view of the ratio of the above judgment, it is to be seen whether the receipts under the head “post-stack inversion study, core pressure and well-bore study, data processing and maintenance services” is covered within the scope of work under the contracts examined by the Hon’ble Supreme court in the said order. It is the scope of work and nature of service that determines taxability under section 44 BB and 44DA of the Act.
On examination of several sources available on the public domain it was found that post-Stack inversion transforms a single seismic data volume into acoustic impedance through integration of the assessment data, well data and a basic stratigraphic interpretation. The data input to the post stack inversion project typically consists of a set of wells containing
ITA No. 6172/Del/2017 19 Schlumberger Asia Services Ltd. sonic and density logs, optional check shots, formation markers and aviation service, a series of interpreted horizons and a seismic data volume. It generates acoustic impedance volumes from 2D or 3D seismic.
On perusal of the material on wellborn analysis it is found that “Wellbore study” is done to avoid drilling related failures. Many drilling related failures are caused by unstable boreholes, poor hole cleaning or stuck BHA and casing, Wellbore study identifies the wellbore instability, along with the mode of failure and is critical in correcting and reducing the cost associated with it. A range of measures based on wellbore acoustics and seismic as well as laboratory measurements assess the significance of the surroundings and reduces the risk.
Similarly, core pressure study is part of the Core Analysis which is done in course of Oil exploration to study the rock samples yield data basic to the evaluation of the productive potential of the hydrocarbon reservoir. Unbroken pieces of reservoir rock are obtained through coring techniques, either from the bottom during drilling or from the site of the borehole walls after drilling.
It is clear from features of the post-stack inversion study, core pressure and well-bore study that all the services are integral to exploration of mineral oil. It is clear enough form the description of work at serial no. 1,10,11,12,13,15,16, 17 and 22 of the table inserted in the ONGC Ltd case (supra) that the purpose of the services given by the assessee is squarely covered with the scope of work involved in the contracts examined by the Hon’ble Supreme court in the above said order.
ITA No. 6172/Del/2017 20 Schlumberger Asia Services Ltd. The scope of work does not indicate that the services provided were exclusively in the nature of technical, consultancy and managerial in nature as per section 9(1) (vii) of the Act. The services provided by the Assessee were very much in connection with exploration of mineral oil.
Similarly, serial no. 10, 15, 22 and 44 of the table inserted in the ONGC Ltd. case (supra) covers the services of data processing given by the assessee with the scope of work involved, in the contracts examined by the Hon’ble Supreme court in the above said order.
In the decision of Ld. ITAT, Delhi in the case of Paradigm Geophysical Pty limited (ITA No. 2753/Del/ 2016) wherein the activities of the assessee in regard to maintenance support has been considered as activities falling within the ambit of section 44BB of the Act. The relevant portion of the decision is reproduced below:
“7. Further, we find, that in the case of ONGC vs CIT (supra) the Hon’ble Supreme Court held that if the pith and substance of each contracts/agreement is inextricably connected with prospecting, extraction or production of mineral oil, then payment received by the non-resident assessee or foreign companies under the said contract is more appropriately assessable under the provisions of section 44BB and not u/s 44D of the Act. The list of contracts, in the said appeal before the Supreme Court included following contracts:
“1. Contract of supply, installation and familiarization of software for processing seismic data.
ITA No. 6172/Del/2017 21 Schlumberger Asia Services Ltd. 2. Contract of supply, supervision and installation of software which is used for analysis of flow rate of mineral oil to determine reservoir conditions. ………………….. 8. In the case in hand also the software is supplied and maintained were related to various activities of exploration including for reservoir navigator, up-gradation of the Geo log multimin etc. 9. In view of the above, respectfully following the decision of the Hon’ble Supreme Court, in the case of ONGC versus CIT (supra) and the decision of the Tribunal (supra) in the case of the assessee itself, we hold that the services provided with assessee falls within the ambit of section 44BB of the Act.”
In view of the above discussion and respectfully relying upon the decision of Hon’ble Supreme Court in the case of ONGC versus CIT (supra) and the decision of Ld ITAT, Delhi in the case of Paradigm Geophysical Pty limited (ITA No. 2753/Del/ 2016) it is held that the receipts of the Assessee on account of post-stack inversion study, core pressure and well- bore study, data processing and maintenance services were taxable under section 44 BB of the Act.
In the result, the appeal of the revenue on this ground is dismissed.
With regard to the contention of the revenue that the amounts have to be taxable u/s 44DA, we hold that to invoke the provisions of Section 44DA, the revenue has to prove that the receipts are indeed or in the nature of FTS taxable u/s 9(1)(vii).
ITA No. 6172/Del/2017 22 Schlumberger Asia Services Ltd. 22. With regard to the reimbursement of “equipment lost in hole” amounting to Rs.11,01,66,066/- as includible in the gross receipts as opposed to the claim of the assessee that the same being is a capital receipt are not chargeable to tax. The assessee has relied upon the decision of the Hon’ble Uttarakhand High Court in the case of CIT Vs Schlumberger Asia Services Limited (ITA No. 58 of 2006).
Submission
The reimbursement of equipment lost in hole is in the nature of capital receipts and therefore, same could not be included, in the revenue chargeable to tax u/s 44BB of the Act. As the name signifies lost in hole means destruction and loss of capital assets like drilling equipment which are provided by the assessee to oil exploration and. production companies. Therefore, the revenue received on account of loss of equipment does not form income in the hands of the assessee rather it is a mere reimbursement of the cost of equipment destroyed in the process of oil extraction.
The assessee wishes to place reliance on the decision of the Hon’ble Uttarakhand High Court in the own case of the assessee (CIT vs. Schlumberger Asia Services Ltd) wherein the Hon’ble Court held that the receipts on account of equipment lost in hole being in the nature of capital receipts cannot, be included in the revenues chargeable to lax u/s 44BB of the Act.
Adjudication of the ld. CIT(A)
5.24 The averments of the appellant have been critically examined in light of the decision in the case of CIT vs. Schlumberger Asia
ITA No. 6172/Del/2017 23 Schlumberger Asia Services Ltd. Services Ltd (supra), wherein Hon’ble Uttarakhand High Court has endorsed the view of Hon’ble ITAT and held that no question of law arises to be answered in this appeal. It is further gathered from the decision of the Hon’ble ITAT, Delhi in the case Schlumberger Asia Services Ltd(ITA NO. 6063/Del/2010) for the assessment year 2007- 2008 that the issue of reimbursement received on account of equipment lost in hole is decided in favour of the assessee by considering the earlier decisions. Ld ITAT has observed as below:
“7.7 It has further been noted that the A.O. has included a sum of Rs. 7,23,59,963/- received by the Assessee as reimbursements of certain expenses being customs duties paid, by the Assessee on behalf of its clients, equipments lost in hole etc. It has been submitted that the inclusion of this amount within the scope of receipts for purpose of determining income of the Assessee is contrary to the settled law on the issue and decisions in the case of the Assessee itself. Income tax is leviable only on those receipts, which constitute 'income'. "Income" as contemplated under the Act does not include "reimbursement of expenses". There is no element of profit and. gains in the reimbursements received by the Assessee, which has incurred expenses for and on behalf of other companies. Contractually the liability to incur these expenses was with those companies. Therefore the amounts towards reimbursement cannot be considered as income of the Assessee. Furthermore, we note that assessee's contention is that that Ld. Assessing Officer has also erred on facts and in law in not following the decision of the jurisdictional High Court of Uttarakhand in Assessee's own cases DIT v. Schlumberger Asia Services Limited [2009] 317 ITR 156/ and CIT v. Schlumberger Asia Services Limited (ITA No. 58 of2006, Order dated 26-10-2007, in which it was held, that such reimbursement does not constitute income. These decisions have also been followed by the Hon'ble Tribunal in Assessee's own case ACIT ITA NO. 6063/Del./2010 v. Schlumberger Asia Services Limited, ITA No.
ITA No. 6172/Del/2017 24 Schlumberger Asia Services Ltd. 4180(Del)/2006 Order dated 13-04-2007. We find considerable cogency in assessee's submission as above. Hence, we hold that the Assessing Officer has erred in including Rs.72359963/- received by the assessee as reimbursements for determining the taxable income of the assessee.”
5.25 Respectfully following the decision of the Jurisdictional Tribunal and Hon’ble High Court.
Since, the order of the ld. CIT(A) is relied on the order of the ITAT and the Hon’ble Jurisdictional High Court, we decline to interfere with the order of the ld. CIT(A).
In the result, the appeal of the Revenue is dismissed. Order Pronounced in the Open Court on 07/12/2021.
Sd/- Sd/- (Amit Shukla) (Dr. B. R. R. Kumar) Judicial Member Accountant Member Dated: 07/12/2021 *Subodh Kumar, Sr. PS* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR