M/S ENI SPA,GURGAON vs. DCIT (INTERNATIONAL TAXATION), NEW DELHI

PER O.P. KANT, A.M.: This appeal by the assessee is directed against the final assessment order dated 27/11/2015 passed by the Deputy Commissioner of Income-tax, Circle-Gurgaon, International Taxation [hereinafter referred to as ‘the Assessing Officer’] for assessment year 2011-12 in compliance to the direction of the Ld. Dispute Resolution Panel (DRP). The grounds of appeal raised by the assessee are reproduced as under:

2 ITA No.395/Del/2016 1. That on the facts and circumstances of the case and in law, the assessing officer/ dispute resolution panel (“AO” / “DRP”) erred in completing the assessment at an income of INR 59,081,838, as against the income of INR 23,632,735, returned by the Appellant. 2. Disallowance of claim of section 44BB of the Act 2.1 That on the facts and circumstances of the case and in law, the AO / DRP has erred in holding that provisions of section 44BB of the Income tax Act, 1961 (“Act”) are not applicable to the services rendered by the Appellant to Eni India. 2.2 That on the facts and circumstances of the case and in , the AO/ DRP has erred in not following the decision of Supreme Court in the case of ONGC vs CIT [(2015) (59 Taxmann.com) 1]. 2.3 That on the facts and circumstances of the case and in law, the AO / DRP has erred in holding that the consideration received by the Appellant qualify as fee for technical services (“FTS”) as defined in section 9(1 )(vii) of the Act. 2.4 Without prejudice to the above, the AO / DRP has erred in not appreciating the fact that even if income earned by Appellant is considered in the nature of FTS, the provisions of section 44BB(1) would still apply as the income was earned by Appellant from another non-resident and therefore the proviso to section 44BB(1) would not apply. 2.5 That on the facts and circumstances of the case and in law, the AO / DRP has erred in computing income arbitrarily at deemed profit rate of 25 percent of gross receipts as business income within the provisions of section 28 to 43C of the Act, which is based on mere conjectures and surmises. 2.6 That on the facts and circumstances of the case and in law, the AO / DRP has erred in not accepting the fact that services were rendered by the Appellant to Eni India on a cost to cost basis and thus no actual profit was earned by the Appellant from rendering of such services. 2.7 That on the facts and circumstances of the case and in law, the AO has erred in not applying the rule of consistency by not following his earlier year’s order (AY 2009-10) in the case of Appellant wherein the claim of section 44BB of the Act was accepted on similar facts and circumstances. 3 Incorrect credit of taxes and levy of interest

3 ITA No.395/Del/2016 3.1 That on the facts and circumstances of the case and in law, the AO has erred in only granting a credit of taxes amounting to INR 7,850,206, as against a credit of INR 10,479,115 claimed in the return of income. 3.2 That on the facts and circumstances of the case and in law, the AO has erred in levying interest amounting to INR 556,212 under section 234D of the Act, despite the fact that no refund was granted to the Appellant. 3.3 That on facts and circumstances of the case and in law, the AO / DRP has erred in proposing to apply the applicable interest as per the provisions of the Act and initiating penalty proceedings under section 271(1)(c) of the Act in the case of the Appellant. The appellant craves leave to add, alter, amend or withdraw any ground of appeal at or before the time of hearing.

4 ITA No.395/Del/2016 being objection filed by the assessee before the Ld. DRP, it is held that the assessee itself has not undertaken any exploration project but it has provided services to the company who had taken the exploration project. Thus, according to the Ld. DRP, provisions of section 44BB are not applicable and the services rendered are in the nature of receipt as fee for technical services and should be taxable under the provisions of either section 44DA or section 115A of the Act. The assessee is aggrieved with the above direction of the Ld. DRP, incorporated by the Assessing Officer in the impugned order. 3. The ground No. 1 of the appeal is being general in nature, we are not adjudicating upon specifically and dismissed as infructuous. 3. In ground No. 2, the assessee has raised the issue of disallowance of claim under section 44BB of the Act. 3.1 With reference to ground, the Ld. counsel of the assessee before us, submitted that issue in dispute in the instant case is covered by the decision of the Tribunal in ITA No.1669/12/2015 in the case of the assessee itself for assessment year 2010-11, wherein the Tribunal has held that assessee is entitled to benefit of section 44BB of the Act. 3.2 The Ld. DR, on the other hand, relied on the order of the lower authorities. 3.3 We have heard the rival submissions and perused the relevant material of record. The dispute between the parties is on the issue whether the services rendered by the assessee to M/s “Eni SpA India Ltd.” qualify for assessment under the provision of section 44BB of the Act. The services provided by the assessee in

5 ITA No.395/Del/2016 assessment year 2010-11 are identical to the services provided in the year under consideration. There is no dispute on this issue between the parties. We have noted that the coordinate bench of the Tribunal in ITA No. 1669/Del/2015 in the case of the assessee for assessment year 2010-11 has adjudicated the issue in dispute as under:

“8. We have heard the rival submissions and have given thoughtful consideration to the orders of the authorities below. We have carefully perused the service agreement which is exhibited at pages 218 to 262 of the paper book. The bone of contention is that the Assessing Officer did not consider the case of the assessee u/s 44BB of the Act on the ground that section 44BB of the Act is not applicable to second level contractors. A similar issue was considered by the co- 7 ordinate bench in the case of Technip UK Ltd [supra]. The relevant findings read as under: “17. The second contention of the Revenue is that section 44BB of the Act is not applicable to second level contractors. 18. A plain reading of section 44BB of the Act envisages a non- resident service provider not merely engaged in the business of providing services or facilities in connection with prospecting, extraction or production of mineral oils but providing such services / facilities to a person / entity engaged in such activities. The said section does not distinguish between the main contractor or a sub- contractor. If the intention of the Legislature was to restrict the benefit of section 44BB of the Act to the main contractor only, then, the words after ‘the assessee engaged in the business of ‘providing services or facilities in connection therewith’ or ‘supplying plant and machinery on hire' ought to have been omitted. Hence, where the provision does not create any discrimination between the person who actually does the activity of prospecting for or extraction or production, and the person who renders services in connection therewith, the section cannot be narrowly construed.” 19. It would not be out of place to refer to the decision of the coordinate bench in assessee’s own case in ITA No. 4284/DEL/2013. Though the said decision of the co-ordinate bench was in respect of the order framed u/s 263 of the Act, but the findings are very much relevant to the case in hand. The relevant extract of the said decision of the coordinate bench reads as under:

6 ITA No.395/Del/2016 “In the instant case, ground for which the DIT assumed jurisdiction u/s 263 of the Act are that provisions of section 44BB of the Act does not cover second leg contract and the said section is not application to sub-contracts engaged in providing technical services to contractors for those undertaking projects in oil exploration, that income received by the assessee was clearly covered u/s 44DA of the Act and hence not taxable u/s 44BB of the Act and that the A.O has not taxed out country receipts and that contract was a composite one and the A.O in the order did not discuss the taxability of the total receipts with regard to the admitted PE of the assessee in India. 57. From the various decisions filed by the assessee in the paper book, we find it has been held in various decisions that section 44BB of the Act are applicable to second level contractor/sub- contractor. We find the Delhi Bench of the Tribunal in the case of Louis Dreyfus Armateures SAS [supra] has held as under: “60. A reading of the aforesaid judicial precedence clarify that sec. 44BB does not distinguish between the main contractor or a sub- contractor as has been interpreted by the AO and the DRP. The conclusions of the A.0 and the DRP are erroneous on account of the reason that the provision clearly envisages the non-resident assessee to be engaged in the business of supplying plant and machinery on hire. The only condition imposed, to say. is that such plant and machinery has to be used or should be used for the purposes of prospecting or extraction or production of mineral oils. The 9 language in section 44BB in our view is clear so also the Legislative intention. It is a trite law that has already held by the Hon'ble Supreme Court in B. Parmannand v.Mohan Koikal [2011] 4 SCC 266 that "the language employed in a statute is the determinative factor of the Legislative intend. It is well settled principle of law that the Court cannot read anything into a statutory vision which is plan and unambiguous". If the legislatures intention as contended by the Revenue was to restrict the benefit of sec. 44BB only to the main contractor or ONGC, then the words after 'the assessee engaged in the business of supplying plant and machinery on hire' or 'providing services or facilities' ought to e been omitted. Hence, where the provision does not create any discrimination between the person who actually does the activity of prospecting for or extraction or production, and the person who supplies the plants and machinery, the narrow interpretation of the provision is thus not permitted. The basic condition to satisfied in the said provision is that the plant or machinery supplied or lented on hire by the assessee, non-resident should be used in the prospecting for or extraction or production of minerals oils or where equipment has been supplied, such equipment should have been used for the purposes of prospecting for or extraction or fiction of mineral oils. Having regard to the above we are of the considered opinion that the

7 ITA No.395/Del/2016 fetter assumed by authorities below while interpreting the provisions of Section 44BB of the Act are manifestly it and there is nothing in the said provision so as to disentitle a sub-contractor from invoking the said provision. Accordingly we do not find any fault in the claim of the assessee that revenues received under the charter agreements with CGG for providing two seismic survey vessels 10 are in consideration with prospecting extractions or production of mineral oils and therefore taxable u/s 44BB of the Act.” 58. The various other decisions relied on by the ld. counsel for the assessee also support the proposition that the provision of section 44BB of the Act are held to be applicable to the tax payer being a second leg contractor/sub-contractor. Further, it has been held in various decisions including the decision of the Hon'ble Delhi High Court in the case of DIT Vs. OHM Ltd. reported in 352 ITR 406 that the services rendered in relation to extraction and production of mineral oil are taxable u/s 44BB of the Act.” 9. Respectfully following the findings of the co-ordinate bench, we hold that the assessee’s case comes within the purview of section 44BB of the Act. 10. In so far as the services rendered by the assessee making it eligible to come within the purview of section 44BB of the Act, it has been decided by the Hon'ble Supreme Court in the case of ONGC [supra] wherein the Hon'ble Supreme Court held that each contract must be considered to find the brief description of the works covered under each contract. The Hon'ble Supreme Court set out the details of 11 the work covered eligible to fit in the provisions of section 44BB of the Act. The relevant work read as under: 16. Geological study of the area and analysis of seismic information reports to design 2 dimensional seismic surveys “34. Feasibility study of rig to assess its remaining useful life and to carry out structural alterations. 35. Engineering analysis of rig. 36. Imparting training on cased hold production log evaluation and analysis. 37. Training on well control. 38. Training on implementation of Six Sigma concepts. 39. Training on implementation of Six Sigma concepts. 40. Training on Drilling project management. 41. Training in Safety Rating System and assistance in development and audit of Safety Management System. 42. To develop technical specification for 3D Seismic API modules of work and to prepare bid packages. 43. Supply supervision and installation of software which is used for analysis of flow rate of mineral oil to determine reservoir conditions.

8 ITA No.395/Del/2016 44. Supply, installation and familiarization of software for processing seismic data. 11. In the light of the above, a perusal of the service contract mentioned elsewhere clearly shows that the appellant had rendered similar services to ENI India Ltd for which services it received the revenue which it offered u/s 44BB of the Act. Considering the facts of the case in totality, in the light of judicial decisions discussed hereinabove, we are of the opinion that the assessee’s case comes within the purview of section 44BB of the Act and its income should be taxed accordingly. First substantive grievance is accordingly allowed.”

3.4 Respectfully, following the above decision we are of the opinion that Revenue earned from the services rendered during the year under consideration falls within the purview of section 44BB of the Act and the income should be taxed accordingly as per the provisions of section 44BB of the Act. The ground of the appeal is accordingly allowed. 4. In ground No. 3.1 the assessee has raised the issue of not providing credit of the taxes claimed in the return of income. In ground No. 3.2, the assessee has raised the issue of levying interest under section 234D of the Act on the premise that refund was granted to the assessee. But before us, the Ld. counsel of assessee claimed that no refund was granted to the assessee. In our opinion, both the issue of credit of the taxes paid and interest under section 234D corresponding to the quantum of refund granted, are matter of the verification at the end of the Assessing Officer. Accordingly, we restore the issues to the file of the Assessing Officer for verifying from records and decide accordingly after providing opportunity of being heard to the assessee. In the result both these grounds are allowed for statistical purposes.

9 ITA No.395/Del/2016 5. In the result, appeal of the assessee is allowed for statistical purposes.

Order pronounced in the open court on 7th March, 2019.

Sd/- Sd/- [H.S. SIDHU] [O.P. KANT] JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 7th March, 2019. RK/-[d.t.d.s] Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR

Asst. Registrar, ITAT, New Delhi