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A1 Mansoori Specialized Engineering LLC, C/o Nangia & Company Chartered Accountants Versus Asstt. Director of Income-tax, International Taxation

2016 (1) TMI 134 - ITAT DELHI

Chargeability of the income arising from performance of associated drilling activity through the provision of oilfield equipment on hire along with operating personnel - Held that:- 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. [2015 (7) TMI 91 - SUPREME COURT] 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 .....

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assessee - ITA No. 5868/Del/2011 - Dated:- 30-12-2015 - Sh. N. K. Saini, AM And Sh. Kuldip Singh, JM For the Petitioner : Sh. Rakesh Nangia, Anil Arora & Suraj Nangia, CAs For the Respondent : Sh. Anuj Arora, CIT DR ORDER Per N. K. Saini, AM This is an appeal by the assessee against the order dated 12.10.2011 of the AO. 2. 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 .....

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loration/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 .....

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eciating that the section 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 .....

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est 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. 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 equip .....

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ncome at ₹ 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 Precisi .....

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eme 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 o .....

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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 assessee received the amount for use of the equipment. Therefore, the receipts of the assessee were clearly not a consideration for .....

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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. 8. Now this issue has .....

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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 unde .....

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uld 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 .....

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e 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 cas .....

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g 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 o .....

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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 fores .....

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es. 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 .....

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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 .....

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e 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. 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 & .....

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