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Income Tax Appellate Tribunal, MUMBAI BENCH “L”, MUMBAI
Before: SHRI JOGINDER SINGH & SHRI RAJESH KUMAR
Per Rajesh Kumar, Accountant Member:
The present appeal has been preferred by the assessee against the order dated 16.12.2016 of the Dispute Resolution Panel [hereinafter referred to as the DRP] relevant to assessment year 2013-14.
The only issue raised in the main ground of appeal by the assessee is against the direction of the DRP upholding the action of the AO that income received by the assessee
2 M/s. Production Testing Services, Inc, USA constituted fee for technical services and is covered under section 115A of the Act instead of applying provision of section 44BB of the Act which is a special provision for computing the profit and gains from the business of exploration etc. of mineral oil.
The facts in brief are that the assessee company is incorporated in Scotland and work place at Houston, Texas, USA and is engaged in the business of providing fracturing flow back services to oil companies. The assessee entered into an agreement with M/s. B.J. Services Company (Middle East) Ltd. a company incorporated in Dubai to carry out fracturing flow back services for their vessel vest Frohn. During the year, the assessee has filed the return of income on 22.09.2013 declaring total income at Rs.26,27,949/-. The company has claimed income of Rs.2,62,79,489/- to be taxed on presumptive basis under section 44BB and accordingly offered Rs.26,27,949/- for taxation. The AO treated the same as income from fee for technical services and assessed the same under section 115A of the Act assessing the total income at Rs.2,62,79,489/-. The order of AO was also affirmed by the DRP.
At the outset, the Ld. Counsel of the assessee submitted before the Bench that the issue involved in the present case is fully covered in favour of the assessee by the order of the co- ordinate bench of the Tribunal in assessee’s own case passed in A.Y. 2011-12 vide order dated
The Ld. D.R., on the other hand, admitted fairly that the issue is decided by the co-ordinate bench of the Tribunal in favour of the assessee, however, relied heavily on the order of DRP and AO.
After hearing the rival submissions and perusing the material on record including the impugned order and the decision of the co-ordinate bench of the Tribunal in assessee’s own case, we find that the identical issue was decided by the co-ordinate bench of the Tribunal in favour of the assessee holding that the services rendered by the assessee as fracturing flow back services in connection with extraction or production of mineral oil would be covered by the provisions of section 44BB of the Act and not as per the provision of section 115A of the Act. The operative part of the decision is reproduced as under: “9. We have heard the authorised representatives for both the parties, perused the orders of the lower authorities and the material available on record. We find that the assessee ,viz. Production Testing Services Inc., Texas, USA, which is a Foreign company incorporated in USA, is engaged in providing fracturing flow back services to oil companies. We find that B.J Services Company (Middle East) Ltd., a company incorporated in Scotland and having a project office in Mumbai was awarded a contract for Fracturing Flow Back Services by Oil and Natural Gas Commission (for short 'ONGC'). That B.J Services Company (Middle East) Ltd. in turn awarded the contract to the assessee, vide agreement dated. 15.07.2007. We find that the assessee pursuant to the sub-contract awarded by B.J Services Company (Middle East) Ltd. had rendered Fracturing Flow Back Services and various operations at the Oil rigs. We have deliberated on the terms of the contract between ONGC and B.J Services Company (Middle East) Ltd., and after perusing Page 23-24 - Para 35 of the said contract find that the contractor, viz. B.J Services Company (Middle East) Ltd. was solely responsible for the manner in which the work assigned to it was performed. We are persuaded to be in agreement with the ld. A.R that as the contents of the aforesaid contract clearly stated that if any Sub- contractor was 4 M/s. Production Testing Services, Inc, USA engaged by the contractor for performing the contract, then he shall be under the complete control of the contractor and there shall be no contractual relationship between any such Sub- contractor and the company, viz. ONGC. We thus, are of the considered view that in the backdrop of the aforesaid clear terms of the contract, now when the assessee who was engaged as a Sub- contractor by B.J Services Company (Middle East) Ltd had nothing to do with the company, viz. ONGC, therefore, the A.O/DRP were wrong in concluding that the amount received by the assessee from B.J Services Company (Middle East) Ltd for rendering Fracturing Flow Back Services were indirectly received from ONGC. We thus set aside the aforesaid observations of the A.O/DRP and hold that the amount under consideration was received by the assessee from B.J Services Company (Middle East) Ltd.
We further find that pursuant to the judgment of the Hon'ble Supreme Court in the case of ONGC Vs. CIT (2015) 376 ITR 306 (SC), it stands settled as on date that prospecting for extraction or production of mineral oil is not to be treated as technical services for the purpose of Explanation 2 of Sec. 9(1)(vii), and would rather be covered by Sec. 44BB of the 'Act'. We are of the considered view that after the aforesaid judgment of the Hon'ble Supreme Court, the issue that prospecting for extraction or production of mineral oil is not to be treated as technical services for the purpose of Explanation 2 of Sec. 9(1)(vii) stands settled and is no more found to be res integra. We are of the considered view that Sec. 115A(b) clearly presupposes existence of 'fees for technical services', which further as per the Explanation (a) contemplated therein refers to Explanation 2 of Sec. 9(1)(vii). That now when pursuant to the judgment of the Hon'ble Supreme Court in the case of ONGC vs. CIT (2015) 376 ITR 306 (SC), the issue that prospecting for or extraction or production of mineral oil is not to be treated as technical services for the purpose of Explanation 2 of Sec. 9(1)(vii), therefore, it can safely be concluded that the payments received by the assessee from rendering of Fracturing Flow Back Services for extraction or production of mineral oil would not fall within the realm of 'fees for technical services'. We thus, are of the considered view that as the precondition for invoking of Sec. 115A is in itself found to be missing, therefore, the same would not be attracted to the case of the assessee. We have further given a thoughtful consideration to the contention of the assessee that as it had received the amounts for rendering the services of Fracturing Flow Back Services from B.J Services Company (Middle East) Ltd., which itself was a foreign company, viz. a company incorporated in Scotland ,therefore, the said sums not having been received by the assessee from Government or an Indian concern, therefore, for the said reason also excluded the applicability of the provisions of Sec. 115A and Sec. 44DA. We are of the considered view that as observed by us hereinabove, the assessee had received the amount from B.J Services Company (Middle East) Ltd. and not from ONGC, therefore, the aforesaid contention of the ld. A.R carries substantial force. We thus, also on the said count that the assessee had not received the amount for rendering of services of Fracturing Flow Back Services in extraction or production of mineral oil from the Government or an Indian concern, therefore, hold that the applicability of the provisions of Sec.115A and Sec. 44DA to the facts of the case of the present assessee would stand excluded.
We thus, in the backdrop of our aforesaid observations set aside the order of the A.O assessing the amount of Rs. 2,65,46,753/- received by the assessee from B.J
5 M/s. Production Testing Services, Inc, USA Services Company (Middle East) Ltd. for rendering of Fracturing Flow Back Services at the oil rigs to tax as per the provisions of Sec. 115A of the 'Act'. We are persuaded to be in agreement with the ld. A.R that now when Sec. 44BB contemplates special and specific provisions for computing profits and gains of a non-resident in connection with the business of providing 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, therefore, the Fracturing Flow Back Services rendered by the assessee in connection with extraction or production of mineral oil would squarely be covered by the provisions of Sec. 44BB. We thus, set aside the order of the A.O and direct him to assess the amount of amount of Rs. 2,65,46,753/- received by the assessee from B.J Services Company (Middle East) Ltd as per the provisions of Sec. 44BB. The Grounds of appeal No. 1 to 6 raised by the assessee before us are allowed in terms of our aforesaid observations. The Ground of appeal No. 7 being general is dismissed as not pressed.”
We, therefore, maintaining the consistency with the earlier year and respectively following the order of the co- ordinate bench of the Tribunal hold that the services rendered by the assessee in the form of fracturing flow back services in connection with extraction and production of mineral oil are covered under the provisions of section 44BB of the Act. Accordingly, we allow the appeal of the assessee and AO is directed accordingly.
In the result, appeal of the assessee is allowed.
Order pronounced in the open court on 17.09.2018.