TMI Blog2022 (6) TMI 833X X X X Extracts X X X X X X X X Extracts X X X X ..... ces, completion services, cementing services, liner hanger services, drill stem testing services, AMC for software in relation to oil and gas exploration and production etc. The income from rental of equipment and provision of services were offered to tax under section 44BB. As in respect of income from rental of equipment to Non-PSC contractors and various services, the AO for various reasons mentioned in the assessment order held that income from services are to be taxed as FTS/ Royalty under section 9(1 )(vi)/ 9(1 )(vii) of the Act. The profit from this income was estimated at 25% and offered to tax at 40% plus applicable taxes as against income offered to tax under section 44BB of the Act ie profit being 10% of gross receipts. We find the ld.CIT(A) held that income from services and equipment of rentals involved have direct nexus with oil exploration or production. Accordingly, bifurcation of income between PSC and Non-PSC is to be deleted and held that income from the aforesaid streams are to be taxed under section 44BB We do not find any infirmity in the order of the CIT(A) on this issue. We find, the AO himself in subsequent years i.e., 2012-13 and onwards has accepted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 34B viz., liability to pay advance tax and non-payment or short payment of such tax, have to be satisfied, after which interest can be levied taking into account the assessed tax. Therefore, section 209 of the Act which relates to the computation of advance tax payable by the assessee cannot be ignored while construing the contents of section 234B. Amount received reimbursement of various expenses which include equipment lost in hole, reimbursement of customs duty, reimbursement of hotel cost, insurance cost, etc - HELD THAT:- We find the coordinate Bench of the Tribunal in the case of ACIT vs Transocean Offshore Deep Water Drilling Inc [ 2008 (10) TMI 669 - ITAT DELHI] has held that reimbursement of custom duty shall be exempt from tax while computing income under section 44BB of the Act. So far as the other reimbursements are concerned, we find the same are decided against the assessee by the decision of the Hon ble Supreme Court in the case of Sedco Forex International Inc [ 2017 (11) TMI 78 - SUPREME COURT] . The grounds raised by the assessee are accordingly partly allowed. - ITA No.6437/DEL/2014 And ITA No.6439/DEL/2014 - - - Dated:- 5-5-2022 - Shri R.K. Panda, Acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see s own case for AY 2010-11 in which all the issues were decided in some way or the other. 4. Based on the arguments advanced by the assessee, ld. CIT(A) granted part relief to the assessee by observing as under:- 4. For Ground no.1 challenges the action of Id. AO in bifurcating revenue streams pertaining to PSC and non PSC partners. Thus, the Id. AO has applied different yardsticks for revenues arising from PSC partners (u/s 44BB of the Act) and non-PSC partners (treated as royalty or FTS). The Id. ARs have filed detailed submissions on this point to canvass the view that activities need to be viewed holistically and not be artificially split into various facets. However, this issue is covered in favour of the Appellant through adjudication for AY 2010-11 (supra). This ground is accordingly allowed. 5. Grounds 2,3 and 4 need to be adjudicated jointly since they are interconnected. It may be reiterated that on identical issues, decision has been rendered in favour of the Appellant on the basis of the CGG Veritas case (supra). However, after the CGG Veritas case (supra), the decision in the case of Ohm Ltd. (supra) has put things in better perspective with regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e so interpreted that, if possible, effect should be given to both. Based on the above principles of construction and interpretation, the Hon ble Court held that income from services which are specific to the oil gas E P sector shall be subject to the computation provisions of section 44BB as opposed to section 44DA. 1.3. Furthermore, the appellant wishes to submit that the Hon ble Court held that in the instance the services are general in nature and can be categorized as 'fees for technical service under Explanation 2 to Section 9(l)(viii), the benefit of section 44BB cannot be availed by the assessee. In other words, it has been held that revenue in the nature of fees for technical service and earned from activities in connection with exploration and production of mineral oil are includible in the revenue chargeable to tax under section 44BB of the Act. 2. The activities of the appellant are NOT general in nature and are directly in connection with the oil gas E P 2.1. Based on the scope of work awarded to the appellant, the following activities were performed by the appellant: Cementing Services Drill stem testing s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to hold that even though the income was in the nature of fees for technical services falling within section 44DA, the provisions of section 44BB would nevertheless apply because the taxpayer was engaged in the business of providing services in connection with prospecting for mineral oils. A harmonious construction of the Delhi High Court s decision in the case of OHM Ltd and PGS Geophysical AS would be that income from services which are specific to the oil gas E P sector shall be subject to the computation provisions of section 44BB as opposed to section 44DA. In making the assertion we wish to submit as under: The Hon ble Delhi High Court in the case of PGS Geophysical has nowhere dissented from its earlier judgment in the case of OHM Ltd. On the contrary, the Court has categorically stated that it was following its own judgment in the case of OHM in the present case also; The ruling in the case of PGS Geophysical be thus read in consonance with the ruling in the case of OHM Limited, wherein it has been specifically held that only services which were general in nature would be taxable under section 44DA. For this reason, services which are specific to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... indings given there, it is allowed. 9. Ground No.8 protests the fact that credit for TDS has not been given. The Id. AO must do so at the time of giving effect to this order. 10. Ground no. 9 challenges the levy of interest u/s 234B of the Act. This ground is allowed following the case of Maersk reported in 334 ITR 79 (UK). 11. Ground nos. 10 and 11 challenge the initiation of penalty proceedings u/s 27IB and 271(l)(c) of the Act. These grounds are dismissed on the ground that mere initiation of penalty is not an appellable matter. 12. In the result, this appeal is partly allowed. 5. Aggrieved with such part relief, the assessee as well as the Revenue are in appeal before the Tribunal by raising the following grounds:- Revenue s Appeal (ITA No.6439/Del2014) 1. Whether on the facts and in the circumstances of the case, the Ld CIT(A) has erred in holding that the revenue earned by the assessee from various entities on account provision of cementing services, well-testing services, wireline logging services etc. ( technical services ), was taxable u/s 44BB of the Income Tax Act, 1961 ( the Act ) as opposed to Section 44DA read with sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act taxable under section 44DA. 3.4 The Ld CIT(A) has erred in holding that the income earned by the assessee for imparting of technical services was eligible for treatment u/s 44BB of the Act, without adjudicating the aspect of eligibility under the second limb of the exclusionary proviso (Explanation to Section 9(l)(vii) of the I.T. Act, 1961) i.e. for a project undertaken by the recipient in terms of decisions of Hon ble Delhi High Court in CIT Vs Rio Tinto Technical Services [2012-TII-01 -HC-DEL-INTL]. 3.5 Without prejudice to the forgoing, the Ld CIT(A) has erred in ignoring the ratio of the judgment in the case of M.s CGG Veritas Services [para 46 of the judgment dated 25.01.2012 rendered in ITA No. 4653/Del/2010] wherein the Hon ble IT AT has categorically held that the w.e.f. Asstt. Year 2011-12, FTS, even if rendered in connection with oil exploration, will be assessable u/s 44DA/115A and not u/s 44BB of the Act. 4. Whether on the facts and circumstances of the case, the Ld CIT(A) has erred in ignoring the decisions of jurisdictional High Court in the cases of ONGC as Agent of Foramer France and M/s Rolls Royce Pvt Ltd. [2007- TII-03-HC- UKHAND ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 25% rate of profit on gross receipts in the absence of books of accounts and details of expenses incurred in providing the services. 8. Whether on the facts and in the circumstances of the case and in law, the Ld CIT(A) has erred in holding that interest u/s 234B of the Income Tax Act, 1961 ( the Act ) was not chargeable in this case by relying upon the case of M/s Maersk [334 ITR 79], a. The Ld. CIT(A) has erred in not appreciating the fact that the case of M/s Maersk was distinguishable on facts as it dealt with a case where the employer failed to deduct tax at source despite the specific provisions of the Act in terms of which the employer was mandatorily required to deduct tax from the salary paid to the employee. In the said case, the Hon ble Court held that an employee is not liable to pay advance tax on salary because u/s 192 there is an obligation on the employer to deduct tax at source. The case does not lay down a general proposition of law that interest u/s 234B is not chargeable in all cases, particularly in cases where the Non-resident assessee/payee/deductee has played a role in inducing non-deduction or short-deduction on the part of the payer/deductor. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years i.e., AY 2012-13 and onwards has accepted that the revenue earned by the assessee on account of rental on equipments and provision of services are in the nature of section 44BB of the Act even in cases where such revenues were received from the same contracts as AY 2010-11. Further, for certain stream of services in assessee s own case for AY 2013-14 wherein the AO did not accept that the services are covered u/s 44BB, the Tribunal has held that income from provision of services having nexus with oil exploration or production should be taxed u/s 44BB of the Act. He accordingly submitted that the issue stands covered in favour of the assessee by the decision of the Tribunal in assessee s own case for AY 2013-14. 6.1 He submitted that identical issue had also been decided by the coordinate Bench of the Tribunal in the case of Smith International Inc. Vs. DCIT, vide ITAs No.4561/Del/2013 and 3824/Del/2014 order dated 10.11.2021. He submitted that where the AO has accepted that income from rental of equipment from PSC contractors is taxable u/s 44BB, there should not be any distinction for such revenues from non-PSC contractors. He accordingly submitted that the grounds of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from provision of services having nexus with oil exploration or production should be taxed u/s 44BB of the Act. The relevant observation of the order of the Tribunal reads as under:- 6. The appellant has entered into several contracts earning revenues, details of which is tabulated between Sl. no. 1 to 121 of the table inserted between page 1 to 10 of the assessment order. The assessing officer accepted the revenue mentioned between SI No. 1 to 9 and 11 to 112 as taxable u/s 44BB of the Act. The revenue in respect of the contracts mentioned at serial number 113 to 121 in respect of post-stack inversion study, core pressure and well-bore study, data processing and maintenance services were considered by the AO in the nature of fees for technical services u/s 9(1)(vii) of the Act. The Assessing Officer treated these receipts as per provisions of section 44DA of the Act as fees for technical services as defined in section 9(1) (vii) of the Act. It was observed by the Assessing Officer that the services cannot be considered as any activity relating to mining activity and basically in these activities assessee is providing technical and consultancy services. It was considered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 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 44BB of the Act ? The relevant portion of the judgment is reproduced as below: 8. A careful reading of the aforesaid provisions of the Act goes to show that under Section 44BB (1) in case of a non-resident providing services or facilities in connection with or supplying pl ant and machinery used or to be used in prospecting, extraction or production of miner al oils the prof it and gains from such business chargeable to tax is to be calculated at a sum equal to 10% of the aggregate of the amounts paid or payable to such non-resident assessee as mentioned in Sub-section (2). On the other hand, Section 44D contemplates that if the income of a foreign company with which the government or an Indian concern had an agreement executed before 1.4.1976 or on any date thereafter the computation of income would be made as contemplated under the aforesaid Section 44D. Explanation (a) to Section 44D however specifies t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... illing operations for exploration or exploitation of oil and natural gas. 3. In view of the above opinion, the consideration for such services will not be treated as fees for technical services f or the purpose of Explanation 2 to Section 9(1) (vii) of the Income-tax Act, 1961. Payments f or such services to a foreign company, therefore, will be income chargeable to tax under the provisions of section 44BB of the Income-tax Act, 1961 and not under the special provision for the taxation of fees for technical services contained in section 115A read with section 44D of the Income-tax Act, 1961. 4. A copy of the statement of the case dated 16.3.1990 (without annexures) and a copy of the Attorney General s opinion dated 13.5.90 are enclosed. 5. These instructions may brought to the notice of all the officers in your region. [F. No. 500/6/89-FTD dt.22.10.90 from CBDT] 10. Before us the opinion of the learned Attorney General has been pl aced by the learned counsel for the appellants at great length to contend that the views expressed by the learned Attorney which had been accepted by the CBDT were based on an exhaustive consideration of the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Rules of 1959 a petroleum mining license (PML) entitles the licensee to carry out construction and maintenance in and on such land, works, buildings, plants, waterways, roads, pipelines etc. as may be necessary for full enjoyment of the PML. On the s aid basis it is argued that rendering any service in connection with prospecting and extraction is an integral part of mining and. that the expression mining in the Explanation 2 to Section 9(1) of the Income Tax Act, in the absence of any definition under the Income T ax Act, has to be understood as per the provisions of the Oil Fields (Regulation and Development) Act, 1948 read with the Petroleum and Natural Gas Rules, 1959. 12. Opposing the contentions advanced, on behalf of the appellants, Shri. Gurukrishna Kumar, learned senior counsel for the Revenue has urged, that the opinion of the Attorney General relied upon and the CBDT Circular has no relevance to the present case inasmuch as the agreements between ONGC and the non-resident companies made it abundantly clear that, what is paid, to the non-resident company are fees f or technical services rendered. Though such services may have some connection with the prosp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the non-resident assessee or the foreign company is to be assessed und.er Section 44BB or Section 44D of the Act. The test of pith and substance of the agreement commends to us as reasonable f or acceptance. Equally important is the f act that the CBDT had accepted the said, test and had in f act issued a circular as far back as 22.10.1990 to the effect that mining operations and the expressions mining projects or like projects 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 nonresident/ foreign company would be chargeable to tax under the provisions of Section 44BB and not Section 44D of the Act. We do not see hour 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 as culled, out by the appellants and placed before the Court is correct. The s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 foreseeable potential. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng 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 inextricable connected with prospecting, extraction or production of mineral oil. The dominant purpose of each of such agreement is f or 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rly, core pressure study is part of the Core Analysis which is done in course of Oil exploration to study the rock samples yield data basic to the evaluation of the productive potential of the hydrocarbon reservoir. Unbroken pieces of reservoir rock are obtained through coring techniques, either from the bottom during drilling or from the site of the borehole walls after drilling. 16. It is clear from features of the post-stack inversion study, core pressure and well-bore study that all the services are integral to exploration of mineral oil. It is clear enough form the description of work at serial no. 1,10,11,12,13,15,16, 17 and 22 of the table inserted in the ONGC Ltd case (supra) that the purpose of the services given by the assessee is squarely covered with the scope of work involved in the contracts examined by the Hon ble Supreme court in the above said order. The scope of work does not indicate that the services provided we re exclusively in the nature of technical, consultancy and managerial in nature as per section 9(1) (vii) of the Act. The services provided by the Assessee were very much in connection with exploration of mineral oil. 17. Similarly, serial no. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appeal of the revenue on this ground is dismissed. 21. With regard to the contention of the revenue that the amounts have to be taxable u/s 44DA, we hold that to invoke the provisions of Section 44DA, the revenue has to prove that the receipts are indeed or in the nature of FTS taxable u/s 9(1)(vii). 22. With regard to the reimbursement of equipment lost in hole amounting to Rs.11,01,66,066/- as includible in the gross receipts as opposed to the claim of the assessee that the same being is a capital receipt are not chargeable to tax. The assessee has relied upon the decision of the Hon ble Uttarakhand High Court in the case of CIT Vs Schlumberger Asia Services Limited (ITA No. 58 of 2006). Submission 23. The reimbursement of equipment lost in hole is in the nature of capital receipts and therefore, same could not be included, in the revenue chargeable to tax u/s 44BB of the Act. As the name signifies lost in hole means destruction and loss of capital assets like drilling equipment which are provided by the assessee to oil exploration and. production companies. Therefore, the revenue received on account of loss of equipment does not form income in the hand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T v. Schlumberger Asia Services Limited [2009] 317 ITR 156/ and CIT v. Schlumberger Asia Services Limited ( ITA No. 58 of 2006, Order dated 26-10-2007, in which it was held, that such reimbursement does not constitute income. These decisions have also been followed by the Hon'ble Tribunal in Assessee's own case ACIT ITA NO. 6063/Del./2010 v. Schlumberger Asia Services Limited, ITA No. 4180(Del)/2006 Order dated 13-04-2007. We find considerable cogency in assessee's submission as above. Hence, we hold that the Assessing Officer has erred in including Rs.72359963/- received by the assessee as reimbursements for determining the tax able income of the assessee. 5.25 Respectfully following the decision of the Jurisdictional Tribunal and Hon ble High Court. 25. Since, the order of the ld. CIT(A) is relied on the order of the ITAT and the Hon ble Jurisdictional High Court, we decline to interfere with the order of the ld. CIT(A). 8. We further find the Dehradun Bench of the Tribunal in the case of Smith International Inc., vide ITAs No.4561/Del/2013 and 3824/Del/2014, order dated 10.11.2021 has held as under:- 10. We have perused the record before us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gas. 16. Thus in parting of training is a part of mining activity only carried out by his appellant in his contract to the aforesaid parties. In so far as the reliance placed by the Ld. DR on the decision of Paradigm Geophysical Pty Limited, was on different facts as the assessee therein was involved in providing software services definition of which is covered under section 9(1)(vi) of the Act whereas Appellant s case is that of FTS under section 9(1)(vii) read with section 44DA of the Act. AR further explained that section 44DA of the Act can be applied only if the income in the first-place falls within the definition of FTS under section 9(1)(vii). In the Appellant s case, since the services are covered by the exclusion in section 9(1)(vii), they do not qualify as FTS for invoking section 44DA of the Act. 17. Accordingly we hold that not only receipt of accounts of services which has been accepted by the Ld. CIT (A) was also other scope of work relating to attending meetings but also the other activities are inextricably linked with the contract of design and engineering of submarine pipeline. Therefore the entire receipts for the ONGC as well as Leighton India are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 234B is for default in payment of advance tax. While the definition of assessed tax under section 234B pertains to tax deducted or collected at source, the pre-conditions of section 234B viz., liability to pay advance tax and non-payment or short payment of such tax, have to be satisfied, after which interest can be levied taking into account the assessed tax. Therefore, section 209 of the Act which relates to the computation of advance tax payable by the assessee cannot be ignored while construing the contents of section 234B. The relevant extract of the decision of the Hon ble Supreme Court given at para 20 of the order reads as under:- 20. We do not find force in the contention of the Revenue that Section 234B should be read in isolation without reference to the other provisions of Chapter XVII. The liability for payment of interest as provided in Section 234B is for default in payment of advance tax. While the definition of assessed tax under Section 234B pertains to tax deducted or collected at source, the pre-conditions of Section 234B, viz. liability to pay advance tax and nonpayment or short payment of such tax, have to be satisfied, after which interest can be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 Others 6,04,124 Total 32,23,63,873 14. It is the submission of the ld. Counsel for the assessee that they have not charged and earned any profits from reimbursement of the above expenses and the same merely represents the recovery of costs for the Assessee for which the assessee did not offer the same to tax. So far as the reimbursement on account of equipment lost in hole amounting to Rs 27,87,39,161 is concerned, we find, the Hon ble Supreme Court in the case of Sedco Forex International Inc vs CIT, reported in 399 ITR 1 has held that reimbursement of cost of tools lost in hole shall not be taxed under section 44BB of the Act. We find the coordinate Bench of the Tribunal in assessee s own case, vide ITA No.79/Del/2017, order dated 01.07.2021 for AY 2012-13, has held that reimbursement of amount towards loss of equipment shall not be taxed under section 44BB of the Act. The relevant observations of the Tribunal at paras 7 and 8 of the order reads as under:- 7. The underlying facts in the first issue are that the AO has considered the rece ..... X X X X Extracts X X X X X X X X Extracts X X X X
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