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PER CHANDRA MOHAN GARG, JUDICIAL MEMBER
Both these appeals filed by Revenue pertaining to different but connected assessees are directed against the order of the Dispute Resolution Panel-II, New Delhi dated 18.12.2013 for A.Y 2009-10. Since both these appeals were heard together and involve common issue, these are being disposed off by this common order for the sake of convenience and brevity.
The assessee has raised as many as 14 grounds of appeal. However, the only effective grievance of the Revenue has been mentioned in Ground No. 1 which reads as under:
“1. Whether on the facts and the circumstances of the case the Hon’ble Dispute Resolution Panel (‘DRP’) has erred in directing the Assessing Officer to apply the deemed profit rate of 10% u/s 44BB of the Income Tax Act, 1961 (‘The Act’) on the revenues earned by the assessee from a non-resident company on account of provision of technical personnel for executing contracts with M/s. ONGC.” 2
We have heard the rival contentions and have perused the relevant material on record. The ld AR submitted that the issue is squarely covered in favour of the assessee by the order of the Hon’ble Supreme Court in the case of ONGC VS. CIT reported at 376 ITR 306 [SC] wherein it has been held that the payments for providing various services in connection with prospecting, extraction and production of oil would be assessed u/s 144BB and not u/s 44DA of the Act.
Per contra, the ld. CIT-DR strongly supported the impugned order and vehemently contended that the DRP was not justified in directing the AO to apply the deemed profit rate of 10% u/s 44BB of the Act. However, the ld. CIT-DR further submitted that if the assessee is contending that the issue is covered in favour of the assessee, then the ld. AR should be directed to file a chart showing which ground of the Revenue is covered by which order of the Hon’ble Supreme Court, High Court or the Tribunal.
On careful consideration of the above submissions, first of all, we may point out that the main grievance of the Revenue is that the DRP directed the AO to apply deemed profit rate of 10% u/s 44BB of the Act on the Revenue earned by the assessee from non-resident company on account of provision of technical, personal for executing contracts with ONGC. In this situation, the other grounds raised by the Revenue are argumentative, irrelevant and for which we do not find it necessary to direct the ld. AR to file a detailed chart showing how these issues are covered in favour of the assessee. Thus, the request of the ld. CIT-DR for directing the assessee is rejected.
Further, from the order of the DRP dated 18.12.2013 passed u/s 144C(5) of the Act, we observe that the DRP granted relief to the assessee with the following observations and conclusion:
“ 4.3 On careful consideration of the mat e I we find that under the provisions of section 44BB of the Act the presumptive rate of taxation is applicable to a non- resident engaged in 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" (emphasis supplied).The activities being performed by the assessee cannot be said to be not 'in connection with' prospecting etc of mineral oil as it is an integral part of the drilling operation for prospecting etc of mineral oil. In fact, the assessee provided key technical personnel for conducting actual drilling operation under its contract with Pride Foramer, viz senior tool pusher, barge manager, rigs superintendent, chief electrician, rigs safety training advisor, The contract with ONGC also recognized the oil drilling activity which was carried out, required crew and the rig had to be managed by the technical personnel. The list of personnel and crew are available in the contract in Annexure B, Therefore the operation of highly specialized offshore of personnel provided by the assessee, In view of the above, the activities are an integral part of the drilling operation in connection with prospecting etc of mineral oil. This view has also been confirmed by the Hon'ble AAR in the case of Bourbon Offshore Asia Pte Ltd. (2011) 200 Taxman 408.
4.3.1 The provisions of section 44BB also do not contain any thing to support the AO's contention regarding the so-called 'second leg contract' so as to deny the applicability of the section to the assessee.
What is required under the section is that the services/ facilities provided by the assessee should be "in connection with" prospecting etc of mineral oil. No where it is mandated that the services should be provided directly by the party who is engaged in prospecting etc. of mineral oil or is directly a member of the Production Sharing Contract as is sought to be made out by the AO. The above view has been confirmed by the Hon'ble ITAT Mumbai in Micoperi S.P.A. Milano vs. Oy. CIT (2002) 82 ITO 369. The legislature u/s 44BB inserted w.e.f. 01.04.1983 has provided a special provision of deemed profit in connection with the business of exploration of mineral oils considering the special nature of the business, which should not be denied to the assessee on grounds which are extraneous to the said section.
4.3.2 As pointed out by the Ld. AR, the case of the assessee is covered under Instruction No. 1862 dated 22.11.1990 wherein on the basis of the opinion of the Attorney General of India, it was instructed that the exclusion from the definition of FTS in respect of 'mining end like project' appearing in Explanation 2 to section 9(1) (vii) of the Act would cover rendering of services like imparting of training and carrying out drilling operations for exploration or exploitation of oil and natural gas. As such, these activities would be outside the ambit of FTS u/s 9( 1 )(vii). The relevant part of the instruction is reproduced hereinbelow:
"2. The question whether prospecting for or extraction 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 project' occurring in Explanation 2 to section 9 (1) (vii) of Income tax Act would cover rendering of services like importing of training and carrying out drilling operations for exploration or exploitation of oil and natural gas.
3. In view of the above opinion, and cases of Scan Drilling Co.Dy. Commissioner of Income Tax Vs. Schlumberger Seaco Inc. (1994) 50 ITD 348 (Col) the consideration for rig management services was not be treated as fees for technical services and for the purpose of Explanation 2 to section 9( 1) (vii) of the Income Tax Act, 1961."
4.3.3 Further, as submitted by the Ld. AR, sections 44DA and 115A apply to a case where the income earned by a non-resident or foreign company by way of royalty or FTS is received from Govt. or an Indian concern, whereas in the case of the assessee, the payments have been received from another non- resident company and hence cannot be brought under the purview of section 44DA of the Act. In fact, on identical facts the Hon'ble AAR in Spectrum Geo Ltd., In re (2012) 209 Taxman 397 held that the income derived by the applicant from an activity in connection with prospecting etc for mineral oil from another foreign company would be subject to tax u/s 4488 and not under section 44DA/ 115A of the Act. The relevant portion of the ruling is extracted below:
"12. The inquiry now is whether the income derived by the applicant from performing its contract with the UAE Company would be assemble to tax as, fees for technical services under section 440, 440A, or 11SA of the Act. Admittedly, the income derived by the applicant is from a UAE company and not from the Government or an India concern. In other words, income derived by the applicant is from a non- resident company of foreign company. On the wording of these sections, the income cannot be brought within their purview, because they only speak of income by way of fees for technical services received from Government or an Indian concern. On this short ground, the contention of the Revenue that the income derived by the applicant is independently assessable under section 11SA or 44DA of the Act, has to be rejected. Since, income derived by the applicant, is from an activity in connection with the prospecting for mineral oils and from a foreign company, the applicant would be entitled to claim to be assessed under section 4488(1) of the Act. The ruling, therefore, on question no 3 is that the income derived by the applicant are to be computed in accordance with the provisions of section 44 BB (1) of the Act." (Emphasis supplied).
4.3.4 Further, as pointed out by the Ld. AR, the AO's reliance on CIT vs. Rolls Royce Pvt. Ltd. 170 Taxman 563 (Uttarakhand High Court) wherein it was held that FTS is outside the purview of section 4488 of the Act does not apply to the facts of the assessee's case as in the above cited case the counter party to the contract was ONGC (an Indian resident), while in the case of the assessee the counter of party is Pride Foramer, a French company ( non- resident in India).
4.3.5 As submitted by the Ld. AR, the Hon'ble Jurisdictional High Court in DIT vs. OHM Ltd. (2012) 212 Taxman 440 (Delhi) has held that section 4488 of the Act being a more specific provision shall prevail over the general provisions of the Act and that the services rendered by the sub-contractor at the off- shore rigs of a contractor is part and parcel of activities for extraction etc of mineral oils and would be covered u/s 4488 of the Act.
4.3.6 In view of the above, considering the facts of this case, the statutory provisions and clear legal pronouncements of the Hon'ble ITAT/ AAR/ High Court on the matter, the DRP is of the considered opinion that the amount received by the assessee during the year under consideration on account of services rendered should be brought to tax by applying the deemed profit ratio of 10% u/s 4488 of the Act. The AO is directed to do accordingly. The assessee's grounds no. 1.1 and 1.2 are accordingly disposed of.”
In view of the above, we observe that the DRP after considering the relevant decisions of the Hon’ble High Court including the decision of the Jurisdictional High Court of Delhi in the case of DIT Vs. OHM Ltd [supra] held that section 44BB of the Act being a more specific provision shall prevail over the general provisions of the Act and that the services rendered by the Sub- contractor at the off shore rigs of a contractor is part and parcel of activities for extraction etc of mineral oils and would be covered u/s 44BB of the Act. We respectfully note that in the case of ONGC [supra], speaking for the Hon’ble Apex Court, their Lordships categorically held that payments for providing various services in connection with prospecting, extraction or production of mineral oil would be assessed u/s 44AB and not u/s 44D of the Act. On the basis of aforesaid discussion, we are inclined to hold that the issue is squarely covered in favour of the assessee and the DRP was not justified and correct in directing the AO to assess income of the assessee from non-resident company on account of provision of technical person for executing contract with ONGC shall be taxed applying due profit rate of 10% u/s 44BB of the Act.
Finally, in the light of above noted discussion, we have no hesitation to hold that there is no ambiguity, perversity or any other valid reason to interfere with the impugned order of the DRP and thus we uphold the same. Consequently, the sole effective ground of the Revenue being devoid of merits in both the appeals is dismissed.
In the result, both the appeals of the Revenue stand dismissed.
Order pronounced in the open court on 11.07.2016.