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Income Tax Appellate Tribunal, DELHI BENCH ‘E’ : NEW DELHI
Before: SHRI N.K. SAINI & SHRI KULDIP SINGH
PER KULDIP SINGH, JUDICIAL MEMBER :
Appellant, Assistant Director of Income Tax, International Taxation, Dehradun (hereinafter referred to as ‘the revenue’), by filing the present appeal sought to set aside the impugned order dated 18.10.2012 passed by the Commissioner of Income-tax (Appeals)-II, Dehradun qua the assessment year 2009-10 on the grounds inter alia that :-
“1. Whether on the facts and circumstances of the case, the CIT(A) has erred in bringing to tax the receipts of the non-resident from supply chain for 10 Blow Out Prevents, train ONGC shop labour, cleaning of equipment, ONGC shop labour on paint, assembly and testing of equipment u/s 44BB of the Act instead of FTS (Fees for Technical Services) as covered under section 9(1 )vii of the Act and duly taxed as such by the AO.
2. Whether on the facts and circumstances of the case the 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 in the nature of FTS for a project not undertaken by the assessee, which is squarely covered under section 44DA and corroborated by clarificatory proviso to sec. 44BB and sec 44DA.
Whether on the facts and circumstances of the case, the CIT(A) has erred in accepting the claim of assessee regarding existence of PE in appeal when the assessee had failed to declare this in his return or before the Assessing Officer, to prevent proper enquiry and avoid higher rate of tax u/s 44DA.
4. Whether on the facts and circumstances of the case the CIT (A) has erred in admitting the ground that as per Singapore DT AA the maximum rate would be 10% and assessee cannot claim piecemeal benefit from both the Statute and the Treaty by claiming lower tax rate under the Treaty and exemption under the Act, as per its Income Tax Return.
5. Whether on the facts and circumstances of the case the CIT (A) has erred in holding that reading of retrospectivity cannot be supported without appreciating the fact that proviso, to section 44DA brought in by the Finance Act 2011 was clarificatory and its application has to be red into the Statute in view of Apex Court decision in Sedco Forex international Drilling v/s CIT.
6. Whether on the facts and circumstances of the case the CIT (A) has erred in relying on the case of Global Industries pacific Pte Limited, which is distinguishable on fact ignoring that AAR Rulings are case and fact specific.
7. Whether on the facts and circumstances of the case the CIT(A) has erred in relying upon the decision of the ITAT in the case of M/s CGG VERITAS Services, SA in which has not been accepted by the department and against which appeal to the Hon'ble Uttrakhand High Court is being filed.
8. Without prejudice, whether on the facts and circumstances of the case the CIT(A) has erred in relying upon the decision of the ITA T in the case of M/s CGG VERITAS for allowing 44BB but ignored the rationale that the nature of services provided by the assessee for a project not undertaken by it are clearly FTS.
9. Whether on the facts and circumstances of the case the CIT (A) has erred in holding that interest u/s 234B was not chargeable in this case by relying upon the decision of Hon'ble Uttrakhand High court in the case of Maersk (334 ITR 79) where as the department has contested the issue and has filed SLP before the APEX Court against in the case of Jacobs Civil Incorporated/ Mitsubishi involving similar issue.
10. The appellant prays for leave to add, amend, modify or alter any grounds of appeal at the appeal.”
Briefly stated the facts of the case are : during the scrutiny proceedings conducted by the revenue on the basis of return of income filed by the assessee on 29.09.2009 declaring income at Rs.21,34,860/- qua the assessment year 2009-10. Notice under section 142(1) of the Income-tax Act, 1961 (hereinafter ‘the Act’) along with questionnaire was issued and in response thereto, Shri Kaveesh Syal, Deputy Manager (F&A) and Shri B.S. Rawat, Finance and Accounts Officer appeared and filed requisite details.
Assessee earned the revenue of Rs.2,04,83,587/- on account of contract no.CW/BDA/MM/CAMERON/SERVICES/01/2006-07 dated 20.12.2007. During the year under assessment, assessee was called upon to show cause as to why the revenue received by the assessee be not treated as fee from technical services, to which the assessee filed comprehensive reply dated 31.10.2011. AO, by invoking instruction no.1862 dated 22.10.1990 issued by CBDT and Explanation 2 to section 9(1)(vii) of Act, came to the conclusion that operations for prospecting for extraction or production of mineral oil are mining operation and that the expressions mining project or like project would cover rendering of services like imparting of training and carrying of drilling operation for exploration or exploitation of oil and natural gas and further came to the conclusion that the payment for such services to a foreign company will be income chargeable to tax under the provisions of section 44BB of the Act and not under the provisions for taxation of fees for technical services contained u/s 115A read with section 44D are applicable in this case. Consequently, the AO made the addition on the total income of Rs.2,90,01,410/- in accordance with the provisions contained u/s 143(3) read with section144C(3)(b) of the Act.
Assessee carried the matter before the ld. CIT (A) who has partly allowed the same. Feeling aggrieved, the revenue came up in appeal before the Tribunal by way of filing the present appeal.
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.
Grounds No.1 to 8 raised by the revenue in this case lead to the sole question to 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 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)?”
Ld. DR for the revenue challenging the impugned order relied upon the order 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.
Undisputedly, the non-resident assessee/foreign company was engaged by Oil & 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.
Assessee company categorically claimed that the work carried out by the non-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(1)(vii) of the Act and charged the same to tax under amended Proviso to section 44BB and u/s 44D of the Act.
Hon’ble Apex Court in the judgment in Oil & Natural Gas Corporation Ltd. (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 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 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 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 Work covered under the contract Appeal No
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. 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 implementation of Cyclic Steam Stimulation in Heavy Oil Wells. 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.
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. 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 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 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 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.”
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 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 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, 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.
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 ld. CIT (A), hence grounds no.1 to 8 are determined against the revenue. 12. Ground No.9 qua charging of interest u/s 234B of the Act being consequential in nature needs no findings, hence the same is also determined against the revenue.
In view of what has been discussed above, the present appeal filed by the revenue is hereby dismissed.
Order pronounced in open court on this 24th day of May, 2016.