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TMI Blog2015 (12) TMI 367X X X X Extracts X X X X X X X X Extracts X X X X ..... 3/-. The case was processed under section 143(1). The case was selected under scrutiny by CASS. Accordingly notice under section 143(2) was issued on 06.08.2012 and served upon the assessee. Subsequently notice under section 142(1) was issued on 20.11.2012 alongwith questionnaire. Further notice under section 142(1) was issued on 06.02.2013. In pursuance to the various notices and due opportunities of hearing, the authorized representative of the assessee, Shri R.P. Easwaran, FCA and Shri Itesh Dodhi, CA from Nangia & Co. attended the proceedings from time to time and submitted written replies dated 29.11.2012; 12.12.2012 & reply dt.08.03.2013. The submissions of the assessee were carefully perused and the case was heard." 2.1 During the year under consideration, the assessee had entered into two contracts with Oil and Natural Gas Corporation Ltd. for the acquisition and processing of seismic data in respect of which the work was executed during the relevant assessment year. The AO has gone through the contracts entered into by the assessee and has reproduced the scope and object of the work to be performed in respect of the contracts in his order, which are reproduced as under : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d personnel necessary to conduct the Gravity-Magnetic survey. The main objectives of the survey(s) are: * To maximize visibility of the offshore horizons from 5000-2500 msecs * To maximize image quality of the faults and inter compart mentalization within the main horizon. * To retain the maximum bandwidth of the recorded data. * To deliver good quality, high fold data with few coverage gaps. 2.1.1 Contractor is to provide the seismic vessel, all support vessels e.g. minimum two Chase Boats/Guard Vessels and the crews including all necessary personnel, equipment and supplies, as more specifically detailed herein, to perform the survey." 2.2 During the year, assessee had offered gross receipts of Rs. 228,52,78,062/- from the said contracts with M/s. ONGC Limited and M/s Petrogas E&P LLC and had applied provisions of 44BB thereon and computed income at DPR of 10% thereby arriving at income of Rs. 22,85,27,806/- along with interest income of Rs. 11,09,727/-. Before the AO, it was submitted that the nature of the services performed under both the above contracts clearly showed that assessee had carried out Geophysical Seismic Survey along with data interpretation of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e not been prepared by the assessee and accordingly not produced therefore, income of the assessee from the contract is to be estimated at 25% of gross receipts under the contract. The PE of the assessee in India is not disputed as the assessee has filed the return under section 44BB offering its income as taxable in India. Moreover assessee has also provided equipment and material along with services of carrying out 3D/2D Seismic Data through presence of its vessels in India and therefore has a PE in India. The assessee has in its written submission also accepted that it has a PE in India." The AO further observed that the assessee had not filed its objections against the said draft order before the Dispute Resolution Panel. Accordingly, the AO completed the assessment under section 143(3) read with section 144C(3)(b) of the Act at total income of Rs. 57,24,29,240/-. 3. The assessee filed an appeal before the first appellate authority against the order of the AO. The ld. CIT (A), after going through the submissions made by the ld. AR for the assessee, allowed the appeal of the assessee as under :- "3.2 The findings of ld. AO and the averments of Ld. ARs have been considered. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the rationale behind the introduction of said clarificatory provisos in the Finance Bill 2010. 6. Whether on the facts and in the circumstances of the case, the CIT(A) has erred in relying on the decision of the ITAT in the case of M/s CGG Veritas Services, SA in ITA No.4653/Del/2010 (on the issue that once a PE is established to be in place then the income has to be treated as business profits and assessable u/s 44BB). 7. Whether on the facts and circumstances of the case, the CIT(A) has erred in not appreciating the fact that proviso to section 44DA brought about by the Finance Act 2010 was only clarificatory in nature and 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. 8. Whether on the facts and circumstances of the case, CIT(A) has erred in reversing the action of the AO who, having held that the assessee's revenues on account of services rendered under the Contracts are liable to be taxed u/s 44DA, rightly estimated the income of the assessee by applying 25% rate of profit on gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bench)] b. K.Govindan & Sons v. CIT [2001] 247 ITR 192 (SC) c. CIT v. Shelly P. Products 261 ITR 367 (SC) d. Allied Motors v. CIT [1997] 224 ITR 677 (SC) e. Commissioner of Income-tax v. Apar Industries Ltd 323 ITR 411 (Bom.) 4. The Hon'ble Supreme Court in the case of Sedco Forex International Drilling vs. CIT [2005] 279 ITR 310 (SC) observed: "An Explanation to a statutory provision may fulfil the purpose of clearing up an ambiguity in the main provision or an Explanation can add to and widen the scope of the main section. If it is in its nature clarificatory then the Explanation must be read into the main provision with effect from the time that the main provision came into force. But if it changes the law it is not presumed to be retrospective irrespective of the fact that the phrase used are 'it is declared' or 'for the removal of doubts". [Para 20] 5. Perusal of the above referred extracts from the Finance Bill 2010 show that, even before the amendment was introduced, the intention of the Legislature was to exclude income in the nature of Fees for Technical Services or Royalties from the purview of section 44BB irrespective of the busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e recipient" as confirmed in CGG Veritas (supra). Also decision of DIT V Jindal Drilling and Industries Ltd. (2010) 320 ITR 104, pertained to AYs 2000-01, 2001-02 and did not contain any reference to section 44DA as the said provision came on the Statute w.e.f., 1.4.2004. Judgement of Hon'ble Supreme Court in ONGC v CIT (2015) 59 Taxmann.com 1 (SC) dated 01.07.2015 10. The issue that arose for consideration (pertaining to AY 1985-86 / 1986-87) may be summarized as follows: "whether the amounts paid by the ONGC to the non-resident assesses/foreign companies for providing various services in connection with prospecting, extraction or production of mineral oil is chargeable to tax as "fees for technical services" under section 44D read with Explanation 2 to section 9(1)(vii) of the Income Tax Act or will such payments be taxable on a presumptive basis under section 44 BB of the Act ?" 11. The Hon'ble Supreme Court has held at para 13 that: "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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g, 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 ......." "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 oil though there may the certain ancillary works contemplates 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 provision of section 44 BB and not section 44 D of the Act." 12. Perusal of the above decision will show that the Hon'ble Supreme Court has held that drilling operations for the purpose of production of petroleum would amount to a mining activity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t duty of the payee/assessee, the question of payment of any interest would not arise as it cannot be said, in such circumstances, that the assessee is in default for the purposes of section 234B of the Act. No doubt, as per the judgment in the case of Anjum M.H. Ghaswala (supra), if there is a default in making the payment of advance tax, the consequence which is to follow is that the interest becomes payable under section 234B of the Act. But in the instant case, the provisions of section 234 B of the Act would not be attracted at all." [Para 6]" The ld. DR, on the basis of assessment order and the above submissions, prayed that the order of the ld. CIT (A) be reversed and that of the AO be restored. 7. On the other hand, the ld. AR reiterated the submissions made in the order of the ld. CIT (A) and also relied on the order of the ld. CIT (A). He also submitted a written submission and the same are reproduced hereunder :- "Brief facts of the case: The assessee is foreign company incorporated under the laws of Norway. It is engaged in the activities relating to acquisition and processing of 3D seismic data under contracts with ONGC and Petrogas E & P LLC. For the year under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Hon'ble Apex Court. 5 ..... 6. In such circumstances, the appeals are disposed of as follows: (i) We answer the questions of law relating to the assessability of the amounts under Section 44BB against the Revenue. It is submitted that while disposing the appeal of the appeal of the revenue in High Court, the Hon'ble Court has relied upon the decision of Apex Court in case of ONGC Limited in ITA No. 731 of 2007 date of pronouncement July 1st, 2015.Relevant observation of the pronouncement is as under: 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 /I 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 Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out seismic surveys for exploratory drilling. 2. ..... 3. ..... 4 . ..... 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. It is further submitted that the ld. Departmental Representative has taken following arguments during the course of hearing on 12-10-2015: 1. Amendment in section 44BB and 44DA should be read as r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gly, exercised power under Section 148 of the Income Tax Act. By the judgment under appeal, the learned Judge has pointed out that there was no just reason for doing the same, inasmuch as, the distinction referred to above, according to the Income Tax Act, applies only since 1st April. 2011. 4. We, accordingly, refuse to admit the appeals. They are dismissed." It is submitted that the Hon'ble Delhi High Court in case of OIT vs. OHM Limited 352 ITR 406 has given a similar finding as of decision of BJ Services Middle East limited (Supra). Relevant observations of the Hon'ble High Court are as under: "12. The second proviso to sub-section (1) of Section 44DA inserted by the Finance Act, 2010 w.e.f 01.04.2011 makes the position clear. Simultaneously a reference to Section 44DA was inserted in the proviso to sub-section (1) of section 44B8. It should be remembered that section 44DA also requires that the non-resident or the foreign company should carry on business in India through a permanent establishment situated therein and the right, property or contract in respect of which the royalty or fees for technical services is paid should be effectively connected with the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acing the fundamental nature of both the provisions and their respective spheres of operation or to take away the separate identity of Section 44BB. We do not, therefore, see how these amendments can assist the Revenue's contention in the present case, put forward by the learned Senior Standing Counsel. We, therefore, agree with the AAR that in the present case the profits shall be computed in accordance with the provisions of section 44BB of the Act and not section 44DA." The above proposition has been followed in the case of Baker Hughes Asia Pacific Limited vs ADIT 167 TTJ 304 where in it has been held as under: 64. When viewed in the back drop of this objective, we find that section 44BB has been couched in such a manner so as to encompass within its ambit all services connected with oil exploration within its ambit. If a nonresident is engaged in the business of providing services or facilities in connection with or supplying plant or machinery on hire used, or to be used, in the prospecting for extraction or production of mineral oil then 10% of the aggregate of the amounts specified in subsection (2) is deemed to be the profits and gains of such business chargeable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e person providing services, facilities or plant and machinery on hire should have directly entered into a contract or agreement with the person actually engaged in prospecting for or extraction or production of mineral oils, one cannot curtail the scope or applicability of section 4488 to second leg contractors whose contracts or agreements are with first leg contractors but whose services or facilities or plant and machinery are used in connection with prospecting for or extraction or production of, mineral oils as required under section 44BB.The Hon'ble Supreme Court in ICDS Ltd v CIT [2013) 350 ITR 527 = 2013-TIOL-06- SC-IT held that the assessee leasing the vehicles to others who use the said vehicles in their business of running them on hire is entitled for higher rate of depreciation on the vehicles given on lease. It was held by the Hon'ble Supreme Court that the lessor need not himself use the vehicles in the business of running them on hire. The rationale of the aforesaid decision of the Supreme Court may be applied in the context of section 44BB in as much as section 44BB does not mandate that the assessee should directly enter into contract with the person engag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on account of carriage of goods does not arise. The issue, that arises, is whether the assessee is rendering a service, providing a facility or giving a plant on hire. In fact, the Supreme Court observes at page-311 that one must have regard to the substance of the matter and, if necessary, tear the veil in order to see whether the true character of a payment is something other than what, by a clever device of drafting, it is made to appear. On a whole reading of the agreement entered into by the assessee with the charterers, we have already given a finding of fact that the assessee was providing services or facilities in connection with the activity of prospecting for or extraction or production of mineral oils. The revenue's reliance of the above decision of the Supreme Court is therefore misplaced. 31. The judgment of the Hon'ble Madras High Court in Poompuhar Shipping Corporation Ltd. vs. ITO, 360 ITR 257 =2013- TI/-37-HCMAD- INTL is not applicable since the said decision does not deal with the applicability or otherwise of section 44BB.The revenue's reliance on section 9(l)(vi) to categorize the assessee's income for hire of vessels as 'royalty' is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve been omitted. Hence, where the provision does not create any discrimination between the person who actually does the activity of prospecting for or extraction or production, and the person who supplies the plants and machinery, the narrow interpretation of the provision is thus not permitted. The basic condition to be satisfied in the said provision is that the plant or machinery supplied or lented on hire by the assessee, non-resident should be used in the prospecting for or extraction or production of minerals oils or where equipment has been supplied, such equipment should have been used for the purposes of prospecting for or extraction or production of mineral oils. Having regard to the above we are of the considered opinion that the fetter assumed by authorities below while interpreting the provisions of Section 44BB of the Act are manifestly absent and there is nothing in the said provision so as to disentitle a sub-contractor from invoking the said provision. Accordingly we do not find any fault in the claim of the assessee that revenues received under the charter agreements with CGG for providing two seismic survey vessels are in consideration with prospecting for, extra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hipping company for time charter, its payment for hire of shipment and not for the purpose of carrying goods, and by the same logic, when payment is made by the first leg contractor to the supplier of equipment or personnel, the payment is for such equipment or personnel and not for the purposes in which the equipment or personnel are put to use. It is then submitted that the decision of PGS Geophysical AS Vs ADIT (269 CTR 433) = 2014-TII-35-HC-OELINTL contradicts the findings in the earlier Hon'ble Delhi High Court decision in the case of DIT Vs OHM Ltd (352 ITR 406), based on which the coordinate bench has decided this issue in favour of the assessee. It is submitted that the decision of the coordinate bench in the case of Baker Hughes Asia Pacific Ltd (supra), by which this issue in appeal is stated to be covered in favour of the assessee, did not take account the binding judicial precedents in the cases of PGS Geophysical (supra) and Gosalia Shipping (supra) as also many other relevant decisions, we should not be guided by the same. 8. Learned counsel for the assessee, on the other hand, submits that as the issue is squarely covered in favour of the assessee by decisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'ble Delhi High Court in case of PGS Geophysical AS It is submitted that the decision of Hon'ble High Court in case of PGS geophysical AS 369 ITR 27 has recently been recalled by the Hon'ble Court vide order dated 01-05-2015.Relevant observations of the court are as under: "Learned Senior Counsel points out the relevant parts of the Assessing Officer's (AO) order, submissions made before the Income Tax Appellate Tribunal (ITAT), as well as the grounds of appeal to show that the consistent case of the appellant was that the services in question were excluded from the description of "technical services" by virtue of Section 9(1)(vii) Explanation 2 of the Income Tax Act, 1961. We have heard learned counsel for the parties and are of the opinion that since this question framed was part of the two questions originally framed but was subsequently recast, it would be appropriate in the interest of justice that the judgment disposing of the appeal dated 09.07.2014 is recalled; directed accordingly. ITA 612/2012 List the appeal on 17.07.2015 for further hearing on the substantial questions of law as formulated on 08.01.2013." Thus, the Ld. AR prayed that the or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The amendment is prospective in nature and would not apply to the cases in hand which is of the earlier assessment years." 11. It was further brought to our notice by the Ld. AR, that against the aforesaid order of the Hon'ble High Court S.L.P. was preferred by the Revenue which was dismissed by observing as under: "whereas section 44BB deals with a non-resident assessee providing, amongst others, services or facilities in connection with prospecting for, or extraction or production of, mineral oils, the sections mentioned in the proviso, referred to above, deal with fees received by nonresident assessees for providing, amongst others, services or facilities. Therefore, by adding the proviso with effect from 1st April, 2011, a clear cut distinction has been made between those non- resident assessees, who are engaged in the business of providing, amongst others, services or facilities in connection with prospecting for, or extraction or production of, mineral oils and other kind of non-resident assessees, who get fees for providing services or facilities. The Assessing Officer felt that, by reason of insertion of the said proviso, he can look into those completed assessments f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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