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2016 (5) TMI 1171 - ITAT AHMEDABAD

2016 (5) TMI 1171 - ITAT AHMEDABAD - [2016] 48 ITR (Trib) 533 - TDS u/s 195 - assessee in default - withholding of tax - A.O in treating the assessee as an assessee in default for not deducting tax at source on remittances made to M/s. RPS Energy Ltd., U.K. - India-UK DTAA - Activity of carrying out the 3D Seismic interpretation including basin modeling, culminating in prospect generate along with GRV calculations, play fairway mapping and risking of prospects for exploratory drilling. The A.O f .....

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cal services” as compared with the definition prescribed in Article 13 of Indo-UK treaty. But the settled law is that the provisions of DTAA overrides the provisions of IT Act in the matter of ascertainment of taxability under the Income Tax Act. At this juncture, it is worth to mention the decision of the Hon’ble Supreme Court in the case of GE India Technology Centre Pvt. Ltd. [2010 (9) TMI 7 - SUPREME COURT OF INDIA] wherein the Hon’ble Apex Court has decided that there was no obligation for .....

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provided by the assessee. Nor it has been proved that the assessee can apply independently and without assistance and undertake such survey independently excluding RPS Energy Ltd. in future.

Assuming that M/s. RPS Energy Ltd., rendered services as defined u/s. 9(1)(vii) Explanation 2 of the Act, yet it does not satisfy the requirement of technical services as contained in India-UK DTAA. We set aside the findings of the ld. CIT(A) and direct the A.O to delete the impugned addition. - D .....

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upholding of the order of the A.O made u/s. 201(1) & 201(1A) and r.w.s 195 of the Act. 3. It is the claim of the assessee that the A.O erred and the ld. CIT(A) further erred in confirming the action of the A.O in treating the assessee as an assessee in default for not deducting tax at source on remittances made to M/s. RPS Energy Ltd., U.K. as per the provisions of the law. 4. The Assessing Officer (International Taxation)-II, Ahmedabad while scrutinizing records of the assessee noticed tha .....

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ore the assessee ought to have deducted tax in accordance with Section 195 of the Act. 6. Assessee was served a show cause notice to explain why it should not be treated as an assessee in default within the meaning of section 201(1) and why tax deductible should not be recovered with interest u/s. 201(1A) of the Act. 7. Vide submission dated 16.01.2013, assessee filed a detailed reply in the light of the provisions of Section 4, section 5 and section 90 of the Act. The main contention of the ass .....

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es are liable for tax deduction as per the Act and also in the light of Tax treaty with UK. Drawing support from the provisions of Section 9(1)(vii) read with Explanation 2 of the Act, the A.O strengthen his view that services rendered by RPS Energy Ltd. are in the nature of technical services. The A.O further rubbished the contention of the assessee that RPS Energy Ltd did not make available technical knowledge, skill and know-how to the assessee. 9. After considering various clauses of the agr .....

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ration in the Block MB-OSN-20-5/2. The A.O further observed that the report contains number of Maps, designs, Seismic Data charts and figures. 10. The Officer was convinced that the report of RPS Energy Ltd., consist of the development and transfer of a technical plan or technical design and is therefore, well covered by Article 13(4)(c) of the India- UK DTAA and, therefore, the remittance is covered by the provisions of Section 9(1)(vii) of the Act. 11. The A.O finally concluded by holding the .....

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he services rendered by M/s. RPS Energy Ltd are of the nature of technical services. The report submitted by M/s. RPS Energy Ltd enabled the assessee company to take crucial decision in exploration of oil out of the vast area of 1191 sq. km. 13. Aggrieved by this, the assessee is before us. The ld. counsel for the assessee reiterated what has been stated before the lower authorities. . The ld. counsel took us to the various relevant clauses of the agreement between the assessee and RPS Energy Lt .....

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ave heard the rival contentions, carefully perused the orders of the authorities below and have given a thoughtful consideration to the agreement between the assessee and M/s. RPS Energy Ltd. We have also gone through the relevant Article of the Indo-UK DTAA. 15. The assessee has made a remittance of ₹ 1,09,61,353/- during the year under consideration to RPS Energy Ltd., UK. The said remittances had been made for providing 3D Seismic Data Interpretation Services. The assessee has availed t .....

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ts for exploratory drilling. 16. Before proceeding further, let us first see the scope of agreement with relevant covenants which read as under:- The outline Scope of Work was defined in the AWEL Tender Reference No. : AWEL/MBOSN- 2005/2/2009/TB003 (as detailed below). The proposed scope was then defined in further detail in RPS Energy Limited Techno-Commercial Proposal dated 19 January 2010 (reference ECC 09-1912). Following the Award of this Contract with effect from date of issuance of LOA da .....

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block MB-OSN-2005/2 acquired and processed (PSTM) by Western Geco using Q marine technology. The Contractor, with his own Personnel, Hardware & Software, shall carry out the interpretation as per details provided below and as specified hereunder with professional competence and in an efficient manner, adopting best standards of work customarily provided by reputed contractors to oil companies. The Contractor will deploy latest interpretation systems comprising of state of the art hardware a .....

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nd efficient manner. The selected bidder will be solely responsible for the quality for all aspects of the data interpretation. However, all technical co-ordination including Quality Control (QC) check etc., shall be done by the QC team of Company. The Contractor shall submit a detailed interpretation report in triplicate (print as well as soft copy on USB hard Drive and DVD) in respect of each data set. All deliverables (USB Drives, DVD, paper plots etc.) must confirm to the highest industry st .....

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rpreted data at Company's designated premises. The processed data will be provided in the following formats and storage media: a) 3D seismic data in SEG -Y format. b) All relevant information on CD /DVD/ USB Drive c) All other geo-scientific data / information available for interpretation. Representative of Company may be associated with the interpretation jobs periodically during the execution of the work. All technical co-ordination including Quality Control (QC) check etc., shall be done .....

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uantum : -1200 SQ KM 3D Seismic Data 6.3 Interpretation Work Flow And Deliverables a) Identification and mapping of key horizons in time and depth. b) Identification faults and their correlation using advanced techniques such as coherency and semblance analysis. c) Preparation of isochron maps of key horizons. d) Preparation of depth maps of key horizons. e) Preparation of Isopach Maps. f) Preparation of Palaeo reconstruction maps at key stratigraphic levels. g) Preparation of Palaeo structural .....

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hales. There are expected to be over pressure as has been reported in nearby areas. 1) Attribute analysis and their interpretation with specific reference to subtle stratistructural traps which will necessarily include but not be limited to the following. • Sweetness-attributes in conjunction with coherency for channel facies & isolated /stacked sand body identification • Spectral decomposition for delineating thin sandstone reservoirs embedded in shales deposited in shallow marine .....

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te: The Contractor can also propose an alternate workflow based on experience of interpretation in similar geological regimes to comprehensively evaluate the block bringing out drillable prospects. Finally integrating 3D seismic data interpretation and other Geoscientific data, a final interpretation will include: • Structural Model of the block vis-a- vis regional structural setting. • Geological Model of the block vis-a- vis regional geological setting. • Velocity Model. • .....

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eserve Calculations with the help of the parameters from neighboring wells in three different scenarios. (c) Risk Weighted Economic Analysis for each identified prospect, risk-weighted economic analysis needs to be carried out by the selected bidder using the cost parameters to be provided by the Company using both NPV & IRR methods 6.4 Deliverables 6.4.1. Interpretation Report: The comprehensive interpretation will include, but not be limited to, the following: a) Introduction and data base .....

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rt along with a summary montage b) Well prognosis of drillable prospects c) Large scale plots of maps and sections as hard copies 6.4.2. Other Deliverables: a) xyz data e.g. Horizon, Fault contour data file. b) Any other intermediate data file generated for final report. c) Interpretation project file in appropriate format. d) Velocity estimates. e) All lime and depth maps generated during the course of the study in 'cgm' or similar format. f) Back up of database + work flows + data sets .....

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etic medium (tape, disk or other) will be passed through, or otherwise come into the vicinity of, any form of magnetic device during transport of the Data. Prior to the transport of any Data by the Contractor, the Contractor shall advise the Company's Representative of the shipping and packing details. 12.2 Ownership of Data 12.2.1 All Data shall be the property of the Company from the date of its creation or development. No Data created or developed by the Contractor under this Contract sha .....

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as part of the Services. 17. A perusal of the above clauses clearly shows that the initial data were provided by the assessee itself, it has to be understood that 3D Seismic is an exploration technique used in the search for oil and gas underground structures. This technique is in analogous to ultra sound technology used in the medical field. Sound from a shot hole is recorded from geophones and interpreted to give a picture of the underlying structures within the earth. 18. It appears that the .....

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by the A.O. The maps provided by RPS are merely a manner in which 3D Seismic data provided by the assessee company are interpreted. The payment made by the assessee to RPS Energy Ltd., is for providing the analysis of data and conclusion provided by RPS and not for procuring such maps and pictures. The fact that the processed data has been provided to M/s. RPS Energy Ltd. Further fortifies the plea that the plan or design as envisaged in the Article 13(4)(c) of the treaty is not developed by M/ .....

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arry on his business without reference to the service provider, if he is able to carry on his business in future without the technical service of the service provider in respect of services rendered then, it would be said that technical knowledge is made available." The facts of the case and observations made by the Hon'ble Karnataka HC are as under: (Para 18) In terms of the contract entered into with Fugro, they have given the data, photographs and maps. But they have not made availab .....

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ave not made available the technical knowledge with which they rendered technical service. There is no transmission of technical knowledge, expertise, skill, etc., from Fugro along with technical services rendered by them. The assessees are completely kept in dark about the process and the technologies which the Fugro adopted in arriving at the information/data which is passed on to the assessees as technical service. The assessee is unable to make use of the said technical knowledge by itself i .....

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vice provider also makes available the technology which they used in rendering services, then it falls with the definition of fee for technical services as contained in DTAA. However if the technology is not made available along with the technical services and what is rendered is only technical services and the technical knowledge is with-held, then, such a technical service would not fall within the definition of technical services in DTAA and not liable to tax. (Para 26) In the background of t .....

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ake the very same survey independently excluding Fugro in future. Therefore that technical services which is rendered by Fugro is not of enduring in nature. It is a case specific. That information pertains to 8 blocks. The assessees can make use of the data supplied by way of technical services and put its experience in identifying the locations where the diamonds are found and carrying on its business. But the technical services which is provided by Fugro will not enable the assesses to indepen .....

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sessees and against the Revenue. (Para 27) Therefore the assessees not being possessed with the technical know how to conduct this prospecting operations and reconnaissance operations, engaged the services of Fugro which is expert in the field. By way of technical services Fugro delivered to the assessees the data and information after such operations. The said data is certainly made use of by the assessees. Not only the said data and information was furnished in the digital form, it is also pro .....

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the assessees by way of technical services in the digital form is also given in the form of maps. Therefore the case on hand does not fall in the second part of the aforesaid clause dealing with development and transfer of plans and designs. Therefore the second substantial question of law is also answered in favour of the assessees and against the Revenue. Conclusion Though Fugro rendered technical services as defined under Section 9(1)(vii) Explanation 2, it does not satisfy the requirement of .....

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same will get equipped with that knowledge or expertise and be able to make use of it in future, independent of the service provider. So when the expertise in running the industry run by the group is provided to the Indian entity in the group to be applied in running the business, the employees of the Indian entity get equipped, to carry on that business model or service mode! on their own without reference to the service provider, when the service agreement comes to and end. It is not as if for .....

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