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TMI ID= 332082
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2016 (9) TMI 343 - AUTHORITY FOR ADVANCE RULINGS NEW DELHI

In RE : Corpro Systems Limited, UK

Taxability of considerations received under the Contract - Held that:- All the considerations received under the Contract whether as a Contractor or as a Sub-Contractor by applicant Corpro would be taxable under Section 44BB of the Income Tax Act.

The answer to the Question No. 2 is that the withholding of the tax would be in the spirit of Section 44BB, hence, we dispose of all the 4 applications.

No.- A.A.R. No.1131 & 1133 of 2011 & A.A.R. No. 1415 & 1416 of 2012

Dated.- April 4, 2016

Citations:

  1. OIL & NATURAL GAS CORPORATION LIMITED Versus COMMISSIONER OF INCOME TAX & ANOTHER. - 2015 (7) TMI 91 - SUPREME COURT

V.S. Sirpurkar, Mr. A.K. Tewary and Mr. R.S. Shukla, JJ.

For The Applicant : Shri Abhimanyu Jhamba, FCA, Shri Sanjay Agarwal, FCA, Shri Taranpreet Singh, FCA

For The Department : Ms Nausheen J. Ansari, CIT-DR, AAR, ND, Shri S.K. Chatterjee, JCIT (IT), Shri S. S. Negi, JCIT, DR,AAR

ORAL ORDER

(by Sirpurkar J)

This ruling will cover the AAR Application Nos. 1131, 1133, 1415 & 1416 as a common question is involved in all these four applications. All the four applications have been filed by one Corpro Systems Limited, UK. We shall use the facts in Application No. 1131 only as all the facts about the activity of the applicant are similar, if not identical. It is stated as it is the claim of the applicant company that it is a tax resident of United Kingdom (‘UK’) and is engaged in rendering coring services/providing coring equipments/ and other associated services to global oil & gas companies. It is apparent from the further facts that one Schlumberger Asia Services Limited (‘SASL’), Schlumberger Solutions Private Limited (‘SSPL’) and Dowell Schlumberger International Inc. (‘DSI’) formed a consortium and this consortium has entered into a contract with Oil & Natural Gas Corporation Limited (‘ONGC’ for short). It is further pointed out that out of these three consortium companies, SSPL has entered into sub-contract agreement with Corpro (Sub-Contract agreement # 1603) for provision of coring services. The applicant has provided the agreement as Exhibit- 2 to this application.

2. It is further explained that coring services generally include the removal of sample formation material from a wellbore for further analysis of the said samples. These samples are required to be taken in an undamaged and physically unaltered state. This formation material might be solid rock, friable rock, conglomerates, unconsolidated sands, coal shale’s, gumbos, or clays. These samples are then provided to clients for analysis to examine the presence of oil in the block for exploration purposes. It is on this basis that at least in the present Application No. 1131, the claim is made that all these activities will be covered in the services in connection with in the prospecting for or extraction or production of mineral oils. It is further claimed that even if the applicant company supplies plant and machinery on hire which is used or to be used in prospecting or extraction or production of mineral oils even the income generated from such activity would be covered specifically under Section 44BB. The applicant also points out that the mineral oil “includes” petroleum and natural gas as per the Explanation to Section. The applicant also points out that the term “plant” includes ships, aircraft, vehicles, drilling units, scientific apparatus and equipments, used for the purpose of the said business. The facts in the other three applications are similar, if not identical to the above stated facts. There is no dispute over the nature of service provided by the applicant in all these four applications and it suggests that the said activities are clearly covered under Section 44BB.

The learned counsel Shri Abhimanyu Jhamba points out that the question involved is no more res integra as it is directly covered by the judgment of Hon’ble Supreme Court in Civil Appeal No. 731 of 2007 dated 1.7.2015 in case of ONGC Ltd. Vs. CIT & Another. The learned counsel has taken us through the judgment of the Supreme Court in which the Hon’ble Apex Court has after referring to the question involved and after referring to a circular of the Department No. 1862 dated 22.10.1990 has come to the conclusion that the consideration for the mining services will not be treated as Fees for Technical Services for the purpose of Explanation-2 to Section 9(1)(vii).

3. Further referring to the various services which were divided amongst 8 Heads, the Hon’ble Apex Court has named as many as 44 services in all. The learned counsel points out that out of these 44 services activity at Sl. No. 8 and Sl. No. 20 are as under :-

Sl. No. 8

Civil Appeal

1532

“Study for selection of enhanced Oil Recovery processes and Conceptual design of Pilot Tests.”

Sl. No. 20.

6016

“Opinion on hydrocarbon resources and foreseeable potential”

 

4. The learned counsel points out that these activities would squarely cover the activities undertaken by the applicant in all the four applications.

5. We have gone through the ruling very carefully and we are of the firm opinion that the activities of the applicant are covered specifically in the Supreme Court ruling. In that view, there will be no question of applicability of Section 9(1) (vii) or treating the consideration to be as Fee for Technical Service.

6. We are also of the opinion that the ruling is clear and has excluded application of Section 44D or as the case may be Section 44DA. It is held that only Section which would be applicable will be Section 44BB.

7. At this juncture, we must take note of the objection raised by Shri Chatterjee, the learned representative of the Department. He says that out of the 4 contracts, 2 of the contracts were the sub-contracts and, therefore, they amount to a second level contract and, therefore, there will be no application of the ruling. The objection is clearly unsustainable as the Section 44BB is activity centric and not agreement centric. If under any agreement, whether by a contractor or a sub-contractor an activity covered under Section 44BB is undertaken, the requirement of the application of section 44B is complete, therefore, this objection has no basis.

8. We, therefore, are of the opinion that the questions raised in all 4 applications would be required to be answered in the following manner:-

(i) Our answer to the question No. 1 is that all the considerations received under the Contract whether as a Contractor or as a Sub-Contractor by applicant Corpro would be taxable under Section 44BB of the Income Tax Act.

(ii) The answer to the Question No. 2 is that the withholding of the tax would be in the spirit of Section 44BB, hence, we dispose of all the 4 applications.

 
 
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