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Income Tax Appellate Tribunal, DELHI BENCHES : “E” NEW DELHI
Before: SHRI J. SUDHAKAR REDDY & MS. SUCHITRA KAMBLE
PER J.SUDHAKAR REDDY, ACCOUNTANT MEMBER
All these appeals are filed by the revenue directed against separate but identical order of the Commissioner of Income Tax (A)-II, Dehradun dated 16.1.2012 as the issues arising for our consideration are identical in all these cases, for the sake of convenience they are heard together and disposed off by way of this common order.
Facts of the case :- Oil and Natural Gas Corporation Limited (ONGC) had, against contract No. MR/MM/MH/JRB/Ultimate Reserves/2010/Y16RS 10001/PB-7007 dated 22.11.2010 made payments of USD 6,50,000/- to Gaffney Cline & Associates Ltd. UK (non-resident) for Certification of Ultimate Reserves and Reserves of Mumbai High field of ONGC. The non-resident is a tax resident of United Kingdom (UK) in and 1597/Del/12, 1598/Del/12 and of CANADA in ITA No. 1599/Del/12.
2.1. The scope of work of the contract in and 1597/Del/12 includes Certification of Proved, Proved + Probable and Proved + Probable and Possible Ultimate Reserves and Reserves of oil, condensate, associated gas and free gas.
2.2. ONGC applied for an order under section 195(2) of the Income Tax Act, 1961 (Act) vide application dated 21.1.2011 to the Income Tax Officer (International Taxation), Dehra Dun (ITO). The ITO, vide order dated 17.2.2011, directed INGC to deduct tax @ 10% plus surcharge and education cess on the gross
2 20x5 contractual payments including the payments arising on account of all type of expenditure to be made to the non-resident, considering the payments to be made under the contract as “fees for technical services”.
2.3. In 3 D seismic data and identified prospects in Mahanadi deep water blocks namely MN- DWN-98/3 (5884 sq km 3D seismic data in 6 volumes) and NEC-DWN-2002/2 (6314 sq. km 3D seismic data acquired in 6 volumes). The scope of work also includes the assessment of play perception based on regional setting as revealed by GXT-2D seismic data and within framework of concepts of sequence stratigraphy. It also includes the identification of Low stand system tracts, geometry of associated play system, identification of possible play types and associated drillable prospects.
2.4. ONGC applied for an order under section 195(2) of the Income Tax Act, 1961 (Act) vide application dated 27.1.2011 to the Income Tax Officer (International Taxation), Dehradun (ITO). The ITO, vide order dated 18.2.2011, directed ONGC to deduct tax @ 10% plus surcharge and education cess on the gross contractual payments including the payments arising on account of all type of expenditure to be made to the non-resident , considering the payments to be made under the contract as “ fees for technical services”. He further directed that if the assessee does not have a Permanent Account Number (PAN) in India, TDS should be deducted as per the provisions of section 206AA of the Act.
Ld. CIT(A) in his order has held that, the services provided by NRC’s (non resident company) to ONGC are for the purpose of prospecting for or exploration of mineral oils and thus section 44BB of the Act squarely applies to the facts of this 3 20x5 case. He held that since the activity pertains to mining, it is out of the purview of section 9(1)(vii) of the Act. He relied on the judgment in the case of R & B Falcon Drilling Co. reported in 181 Taxman 62 (UK) and held that the entire payment by ONGC to the NRC may be subjected to tax @ 10% of the gross profit u/s 44BB of the Act.
The revenue is in appeal on the following grounds :- “
l. Whether on the facts and circumstances of the case, the Ld. CIT(A) has erred in not appreciating that the services rendered by the assessee were in the nature of a Technical Services covered under the provisions of section 9( I )(vii) and taxable under the provisions of sec. I ISA read with section 44 D of the Act.
2. Whether on the facts and circumstances of the case the CIT (A) has erred in holding that the services rendered by the assessee, as a contractor for ONGC towards certification of Ultimate Reserves and Reserves of Mumbai High Field of ONGC were excluded from the definition of Fees for Technical Services on the basis of Instruction o. 1862 without appreciating that the said Circular had not considered second limb in the exclusion in Explanation 2 to section 9( I )(vii) of the Act, i.e. the words 'any construction. assembly. mining or like project' in exclusionary clause are qualified in words 'undertaken by the recipient'.
3. Whether on the facts and circumstances of the case the CIT (A) had erred in holding that the income of the assessee was taxable under the presumptive provisions of sec. 44BB, ignoring the fact that the sec. 44BB shall not be apply in the case where 44DA or sec. IISA, applied as corroborated by insertion of clarificatory proviso to sec. 44BB and sec. 44DA to this effect in the Act.
4. Whether on the facts and circumstances of the case the CIT (A) has erred in not appreciating the fact that proviso to sec. 44DA brought about the Finance Act to 2011 being clarificatory in nature, its application has to be read into the main provisions with effect from the time the main provision came into effect in view of the decision of the Hon'ble Supreme Court in the case of Sedco Forex International Drilling v/s CIT. ”
4 20x5
The issue is no more res integra. The Hon’ble Supreme Court in the case of Oil and Natural Gas Corporation Ltd. vs. CIT (Civil appeal No. 731 of 2007 decided on 1.7.2015) the assesee’s own case, held as follows :-
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 assesses 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.
Respectfully following the same we uphold the order of the first appellate authority and dismiss all the appeals of the revenue.