DDIT, DEHRADUN vs. M/S. ONGC AS REPRESENTATIVE ASSESSEE OF M/S. CAMERON SINGAPORE PTE LTD., SINGAPORE, DEHRADUN

PER R.K. PANDA, AM:

establishment set up for repair of Blow Out Preventers (BOPs) at central work shop, ONGC, Baroda. The scope of the aforesaid work includes identification of machines, equipments, tools and machines required for installation, testing and commissioning of all machines/equipment required for repair of BOPs, identification and development of vendors base for performing BOP repairs etc. and the assessee has not offered any revenues to tax in India in the return filed.

1 Whether on the facts and in the circumstances of the case, the Ld CIT(A) has erred in holding that the scope of work executed by the assessee under Contracts with ONGC for establishment of set-up for repair of Blow Out Preventors (BOPs) at Baroda ('services') was not in the nature of Fee for Technical Services ('FTS') squarely covered u/s 9(l)(vii) of the IT Act, 1961 ('the Act')

1.1 The Ld CIT(A) failed to appreciate that the scope of the work under the contract included, inter alia, not only establishing/ managing/ supervising a supply chain for BOPs, and identification & development of vendor base for performing BOPs, but also imparting training to ONGC Personnel for assembly, testing, installation/commissioning, repairs of BOPs and therefore the payments qualified as Fee for Technical Services under the Act read with the DTAA

Whether on the facts and in the circumstances of the case, the Ld CIT (A) has erred in holding that the income of the assessee was taxable under the presumptive provisions of sec 44BB and ignoring the fact that taxability u/s 44BB shall not apply in respect of income referred to in section 44DA in view of the clarifiactory proviso to sec. 44BB and sec 44DA of the Act.

CIT M/s ONGC As Agent of M/s Foramer France [(2008) 299 ITR 438 Uttarakhand]

7) Whether on the facts and in the circumstances of the case and in law , the Ld CIT(Appeals) has erred in holding that the assessee is not liable to pay interest u/s 234B of the Act and in observing that the issue is covered in favour of the assessee by decision in the case of M/s Maersk [334 ITR 79, Uttarakhand]

7.1 The Ld CIT(Appeals) has erred in not appreciating the fact that the case of M/s Maersk was distinguishable on facts wherein the employer failed to deduct tax at source despite the specific mandatory provisions of the Act stipulating the employer being liable to deduct tax on the salary paid to the employee, thereby holding that an employee is not liable to pay advance tax on salary. The ITAT has erred in relying upon this decision as the case does not lay down a general proposition of law that interest u/s 234B is not chargeable in all cases, particularly in cases where the Non-Resident assessee/payee/deductee has played a role in inducing non-deduction or short-deduction on the part of the payer/deductor. 7.2 The Ld CIT(Appeals) has erred in failing to take note of the observations of the Hon'ble High Court in the case of M/s Mitsubishi [330 ITR 578, Del]that the role of the assesse/payee/deductee in short- 4

deduction or non-deduction of tax needs to be ascertained before claim regarding non-liability to interest u/s 234B of the Act is accepted, a proposition affirmed subsequently in the case of M/s Alcatel Lucent (judgement of Delhi High Court dated 7.11.2013 in ITA No. 327 &Ors of 2012)

“5. We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case.

be determined by the Tribunal is, “as to whether revenue of Rs.2,04,83,587/- earned by

the assessee/ foreign company from supply chain for 10 Blow Out Prevents, train ONGC 5

shop labour, cleaning of equipment, ONGC shop labour on paint, assembly and testing of

equipment was taxable under presumptive provisions u/s 44BB of the Act or is to be

taxed under Proviso to section 44BB and section 44DA as income in the nature of FTS

(fee for technical services)?”

passed by the AO. However, on the other hand, the ld. AR for the assessee by relying

upon the law laid down by Hon’ble Supreme Court in judgment cited as Oil & Natural

Gas Corporation Ltd. vs. CIT - (2015) 376 ITR 306 (SC) contended the issue in

controversy is squarely covered.

& Natural Gas Corporation Ltd. vide contract dated 20.12.2007 to deploy expert to help

establish the supply chain for 10 Blow Out Preventers (BOPs), (ii) train ONGC shop

labour for dis-assembly and cleaning of equipment, train machinist at vendors for rough

out and finish machine, train ONGC welders and impart training to ONGC shop labour

on paint, assembly and testing of equipment. BOPs are essential equipment for safe

production of mineral oil as they help control formation pressure to prevent any blow-

outs.

resident is in connection with the exploration, extraction and production of mineral oils

and gas and as such, is to be taxable under the presumptive provisions contained u/s

44BB of the Act and not as fees for technical services. However, AO considered the

payment to carry out the aforesaid work by a non-resident company as fee for technical

services and invoked the provisions of section 9(l)(vii) of the Act and charged the same to

tax under amended Proviso to section 44BB and u/s 44D of the Act.

(supra) decided the identical issue in assessee’s own case in favour of the assessee and

operative part thereof is reproduced as under for ready reference :- “13. The income Tax Act does not define the expression “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 material 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 ll ofthe 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 jurisdiction under Entry 53 of List I of the 7th Schedule and had enacted an 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 is to be assessed under 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 how 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 7

production of mineral oil. Keeping in mind the above provision, we have looked into each of the contracts involved in the present group of cases and find that the brief description of the works covered under each of the said contracts as culled out by the appellants and placed before the Court is correct. The said details are set out below.

S.No. Civil Appeal Work covered under the contract No.

4321 Drilling of exploration wells and carrying out seismic surveys for exploratory 1. drilling.

1532 Study for selection of enhanced Oil Recovery processes and 8. conceptual design of Pilot Tests.

1524 Conducting reservoir stimulation studies in association with 11. personnel of ONGC.

1535 12. Laboratory testing under simulated reservoir conditions.

7227 18. Opinion on hydrocarbon resources and foreseeable potential.

1531 Review of sub-surface well data, provide repair plan of wells and 22. supervise repairs.

analysis.

The above facts would indicate that the pith and substance of each of the contracts/agreements is inextricably 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 by ONGC and received by the non-resident assessees or foreign companies under the said contracts is assessable under the provisions of section 44BB and not 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.” 11. AO proceeded to treat the revenue receipt under consideration as FTS by applying the amendment to section 44BB and 44DA retrospectively whereas it came into force w.e.f. 1.4.2011, applicable to AY 2011-12. However, Hon’ble 11

Supreme Court in the judgment in Oil & Natural Gas Corporation Ltd. (supra) set the controversy at rest by holding that the services rendered by the non-resident company to the Oil & Natural Gas Corporation Ltd. as referred in para 8 of this order vide contract dated 20.12.2007, viz., to deploy expert to help establish the supply chain for 10 Blow Out Preventers (BOPs), (ii) train ONGC shop labour for dis-assembly and cleaning of equipment, train machinist at vendors for rough out and finish machine, train ONGC welders and impart training to ONG C shop labour on paint, assembly and testing of equipment. BOPs are essential equipment for safe production of mineral oil as they help control formation pressure to prevent any blow-outs, squarely fall in the category of the work held to be inextricably connected with prospecting extraction or production of mineral oil and not FTS as treated by the AO. 12. So, the assessee’s case is squarely covered by the judgment cited as Oil & Natural Gas Corporation Ltd. (supra) rendered by the Hon’ble Supreme Court and as such, we are of the considered view that the services rendered by the non- resident company fall within the purview of presumptive provisions of section 44BB of the Act. So, there is no ground to interfere into the findings returned by the Id. CIT (A), hence grounds no.l to 8 are determined against the revenue.” 11. Since the Ld. CIT(A) while allowing the appeal filed by the assessee has followed his order for the preceding assessment year and since the order of the CIT(A) for the preceding assessment year has been upheld by the Tribunal and the appeal filed by the revenue has been dismissed, therefore, in absence of any contrary material brought to our notice, the order of the CIT(A) is upheld and the grounds raised by the revenue are dismissed. 12. In the result, the appeal filed by the revenue is dismissed.

Sd/- Sd/- (DIVA SINGH) (R.K PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER *Neha* Date:-11.02.2019 Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI 12

Date of dictation 03.01.2019 Date on which the typed draft is placed before the dictating Member Date on which the approved draft comes to the Sr.PS/PS Date on which the fair order is placed before the Dictating Member for Pronouncement Date on which the fair order comes back to the Sr. PS/ PS Date on which the final order is uploaded 11.02.2019 on the website of ITAT Date on which the file goes to the Bench Clerk Date on which file goes to the Head Clerk. The date on which file goes to the Assistant Registrar for signature on the order Date of dispatch of the Order