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Income Tax Appellate Tribunal, DELHI BENCH ‘A’, NEW DELHI
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘A’, NEW DELHI Before Sh. N. K. Saini, AM And Sh. Kuldip Singh, JM ITA No. 5868/Del/2011 : Asstt. Year : 2005-06 A1 Mansoori Specialized Vs Asstt. Director of Income-tax, Engineering LLC, C/o Nangia & International Taxation, Subhash Company Chartered Accountants, Road, Dehradun-248001 Suite-4a, Plaza M-6, Jasola, Uttarakhand New Delhi-110025 (APPELLANT) (RESPONDENT) PAN No. AAACA9529M Assessee by : Sh. Rakesh Nangia, Anil Arora & Suraj Nangia, CAs Revenue by : Sh. Anuj Arora, CIT DR Date of Hearing : 05.10.2015 Date of Pronouncement : 30.12.2015 ORDER PER N. K. Saini, AM:
This is an appeal by the assessee against the order dated 12.10.2011 of the AO.
Following grounds have been raised in this appeal:
“Addition qua hiring of equipment used in connection with exploration/prospecting/extraction of mineral oil 1. That the assessing officer erred on facts and in law in completing assessment under section 144C/143(3) of the Income-tax Act, 1961 (‘the Act’)at an income of
ITA No. 5868/Del/2011 2 A1 Mansoori Specialized Engineering Rs.79,657,020/- as against the income of Rs.7,523,009/- returned by the appellant. 2. That the assessing officer erred on fact and in law in holding that revenues of Rs.75,657,020/- arising from performance of associated drilling activity through the provision of oilfield equipment on hire along with operating personnel, used the exploration/prospecting/extraction of mineral oil were ‘fees for technical services’ under section 9(1)(vii) of the Act as opposed to revenues chargeable to tax in terms of section 44BB of the Act. Addition qua revenue not received 1. That the assessing officer erred on facts and in law in including revenue not received by the appellant to the gross taxable receipts. 2. That the assessing officer erred on facts and in law in holding that income from the aforesaid revenues to be in the nature of “fees for technical services”. Addition qua taxability under section 115A 1. Without prejudice to our claim that the entire revenue is chargeable to tax under section 44BB of the Income-tax, 1961, the assessing officer erred on facts and in law in holding the revenue to be chargeable to tax @ 20% of the gross revenue under section 115A of the Income-tax Act, 1961. 2. That the assessing officer erred on facts and in law in applying section 115A of the Income-tax Act, 1961 to the appellant, without appreciating that the section
ITA No. 5868/Del/2011 3 A1 Mansoori Specialized Engineering is not applicable to the appellant as the appellant has a Permanent Establishment in India. 3. Without prejudice to our claim that the entire revenue is chargeable to tax under section 44BB of the Income-tax Act, 1961, in the event it is held that the revenue earned by the appellant is in the nature of “fees for technical services”, the same would be taxable under section 44DA and not section 115A of the Income-tax Act, 1961 as the appellant has a Permanent Establishment in India. 4. That the assessing officer, similar cases, held the revenue to be chargeable to tax under section 44DA and estimated the income to be taxable applying a deemed profit rate of 25%. 5. That in the unlikely event the revenue is held to be in the nature of “fees for technical services”, the assessing officer be directed to estimate the income under section 44DA applying a deemed profit rate of 25%. Levy of interest 1. That the assessing officer erred on facts and in law in levying interest under section 234B of the Act especially when there was no liability on the assessee to pay advance tax under section 209(1)(d) of the Income-tax Act, 1961. The appellant craves leave to add to, alter, amend or vary from the above grounds of appeal at or before the time of hearing.”
ITA No. 5868/Del/2011 4 A1 Mansoori Specialized Engineering 3. From the above grounds it is noted that only grievance of the assessee relates to the chargeability of the income arising from performance of associated drilling activity through the provision of oilfield equipment on hire along with operating personnel.
Facts of the case in brief are that the assessee filed the return of income on 29.07.2006 declaring an income of Rs.75,23,009/- which was processed u/s 143(1) of the Income Tax Act, 1961 (hereinafter referred to as the Act). Thereafter the notice u/s 148 of the Act dated 31.03.2010 was issued to the assessee, inconsequence to the same a draft assessment order dated 30.12.2010 was passed and issued to the assessee. The AO worked out the total income at Rs.8,06,65,358/- chargeable to tax as per Section 115A r.w.s. 9(1)(vii) of the Act. Thereafter the assessee filed objection with the Dispute Resolution Panel (DRP). As regards to the rejection of assessee’s claim to be taxed u/s 44BB of the Act and in treating the receipts as fee for technical services, the DRP observed that the issue as to whether “Wireline and Slickline” services were covered by Section 44BB of the Ace came up for consideration of the DRP in the case of M/s Precision Energy Services Ltd. for the assessment year 2007-08 wherein the stand taken by the AO that income for providing Wireline services was taxable as fee for technical service and not taxable under Section 44BB of the Act. Accordingly, the objection of the assessee was rejected. The AO consequently rejected the claim of the assessee.
ITA No. 5868/Del/2011 5 A1 Mansoori Specialized Engineering 5. Now the assessee is in appeal. The ld. Counsel for the assessee submitted that the issued is covered in favour of the assessee by the judgment of the Hon’ble Supreme Court in the case of Oil & Natural Gas Corporation Ltd. Vs CIT & Anr. in Civil Appeal No. 731 of 2007 order dated 01.07.2015. It was further stated that the said judgment has been followed by the Hon’ble Uttarakhand High Court in the case of CIT Vs Precision Energy Services Ltd. in ITA No. 75/2014. It was emphasized that the ld. CIT(A) by following his earlier decision in the case of M/s Precision Energy Services Ltd. (supra) for the assessment year 2007-08 had disallowed the claim of the assessee. However, the said decision was reversed and claim of the assessee was allowed in ITA No. 5286/Del/2010 vide order dated 11.07.2014 by the ITAT and the appeal against the said order by the department in ITA No. 75/2014 was dismissed vide order dated 06.08.2015 by the Hon’ble Uttarakhand High Court.
In his rival submissions the ld. DR supported the order of the AO and further submitted that the Hon’ble Supreme Court has not specifically considered the amendment to Sections 44BB/44DA of the Act while deciding the case of Oil & Natural Gas Corporation Ltd. (supra). It was further submitted that the entire receipts of the assessee were in the nature of receipts for services and that the provision contained in Section 115A of the Act are special provision for taxation of income in the nature of fee for technical services/royalty and as the
ITA No. 5868/Del/2011 6 A1 Mansoori Specialized Engineering assessee received the amount for use of the equipment. Therefore, the receipts of the assessee were clearly not a consideration for a mining or like project undertaken by the assessee. Therefore, the benefit of Section 44BB of the Act was not available to the assessee. The reliance was placed on the following case laws:
� PGS Geophysical AS Vs Additional Director of Income-tax (2015) 55 taxmann.com 394 (Del.) 7. We have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, it is not in dispute that the assessee received the hiring charges from M/s BG Exploration & Production India Ltd. on account of Slickline services to be performed in the drilled oil wells located in the Panna/Mukta oilfield, from M/s Cairn Energy India Pty Ltd. for the slickline services to be performed in Rajasthan and from M/s Oil & Natural Gas Corporation for the provision of Wireline and Gas Lift Services. The claim of the assessee was that its income was taxable u/s 44BB of the Act. The said claim of the assessee was denied by the AO.
Now this issue has been settled by the Hon’ble Apex Court in the case of Oil & Natural Gas Corporation Ltd. Vs CIT & Anr. in Civil Appeal No. 731/2007 vide order dated 01.07.2015. In the said case it has been held as under:
ITA No. 5868/Del/2011 7 A1 Mansoori Specialized Engineering “13. The Income Tax Act does not define the expressions “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 materia 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 Page 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”
ITA No. 5868/Del/2011 8 A1 Mansoori Specialized Engineering 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. Civil Work covered under the contract No. Appeal No. 1. 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.
ITA No. 5868/Del/2011 9 A1 Mansoori Specialized Engineering 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 in 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.
ITA No. 5868/Del/2011 10 A1 Mansoori Specialized Engineering 20. 6016 Opinion on hydrocarbon resources and foreseeable potential. 30. 2012 Inspection of generator. 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. 24. 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. 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.
ITA No. 5868/Del/2011 11 A1 Mansoori Specialized Engineering 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
ITA No. 5868/Del/2011 12 A1 Mansoori Specialized Engineering 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.” 9. We, therefore, by keeping in view the ratio laid down by the Hon’ble Apex Court in the aforesaid referred to case of Oil & Natural Gas Ltd. Vs CIT & Anr., set aside the impugned order and direct the AO to accept the claim of the assessee that its Revenue is chargeable to tax u/s 44BB of the Act and not u/s 115A of the Act.
It is also relevant to point out that in the case of M/s Precision Energy Services Ltd. which was relied by the DRP while deciding the issue against the assessee was subject matter of adjudication before the Hon’ble Uttarakhand High Court in ITA No. 75/2014 wherein their lordships in para 4 of the order dated 06.08.2015 held as under:
“4. In the light of the judgment of the Hon’ble Apex Court in Civil Appeal No. 731 of 2007 and connected cases (Oil & Natural Gas Corporation Ltd. Vs Commissioner of Income Tax & Another), the substantial questions of law relating to the assessability of the amounts under Section 44BB have to be answered against the appellant/revenue. Accordingly, we answer the said questions of law against the revenue in the light of the aforesaid judgment of the Hon’ble Apex Court.” 11. We, therefore, by considering the totality of the facts as discussed hereinabove are of the confirmed view that the AO was not justified in holding that the income of the assessee arising from performance of
ITA No. 5868/Del/2011 13 A1 Mansoori Specialized Engineering associated drilling activity through the provisions of oilfield equipment on hire along with operating personnel, used the exploration/prospecting/extraction of mineral oil were fees for technical services under Section 9(1)(vii) of the Act and was chargeable to tax @ 20% of the gross revenue u/s 115A of the Act and not taxable u/s 44BB of the Act.
Another issue agitated by the assessee relates to the levying of interest u/s 234B of the Act. As regards to this issue, it was a common contention of both the parties that it is consequential in nature. We order accordingly.
In the result, the appeal of the assessee is allowed. (Order Pronounced in the Court on 30/12/2015)
Sd/- Sd/- (Kuldip Singh) (N. K. Saini) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 30/12/2015 *Subodh* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5.DR: ITAT ASSISTANT REGISTRAR