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TMI Blog2025 (3) TMI 1424X X X X Extracts X X X X X X X X Extracts X X X X ..... d. Dispute Resolution Panel ("Ld. DRP) is bad in law, unlawful and unjust. Taxability of receipt amounting to INR 7.17.08.077 from Adani Welspun Exploration Limited (AWEL) earned on account of rendering/provision of services relating to prospecting for, or extraction or production of, mineral oils India as Fee for Technical Services (CFTS'). 2. On the facts and circumstances of the case and in law, the Ld. AO/Ld. DRP has erred in holding that the receipt of INR 7,17,98,077 from AWEL on account of provision of services in the nature of well engineering, well design, well planning, supervision of drilling project management and testing services in relation to prospecting for, or extraction or production etc. of mineral oil is taxable as FTS disregarding the details furnished by the Appellant and without providing any cogent reasons for doing 50. 2.1. The Ld. AO/Ld. DRP has not appreciated the fact that services provided by the Appellant are specifically covered under the provisions of section 44BB of the Act and the same cannot be taxed as FTS as per the provisions of the Act. 2.2. The Ld. AO/DRP (majority view) has not followed the principle of judicial discipline i.e. n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces relating to well engineering, well design, well planning, supervision of drilling project management and testing operations in relation to prospecting for, or extraction or production of, mineral oils in India, as Fee for Technical Services "FTS" @ 10% on gross basis plus search cess going by section 115A thereby rejecting its case seeking assessment thereof under the presumptive scheme under section 44BB. 5. That being the sole substantive issue herein, learned CIT(DR) vehemently supports both the lower authorities' action on the ground that the assessee's case does not fall under section 44BB of the Act since its receipts in question have to be assessed under section 9(1)(vi) as well as under article 13 of India - Denmark Double Taxation Avoidance Agreement (DTAA). 6. We have given our thoughtful consideration to the assessee's and Revenue's foregoing vehement rival submissions. We find no reason to accept the Revenue's stand in question rejecting the assessee's claim seeking assessment under section 44BB of the Act. We make it clear first of all that section 44BB is indeed in the nature of a special provision for computing profits and gains in connection with the business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts in all the appeals were similar to those involved in I.T.A. No. 239 of 2001. 7. It will be convenient and in fact necessary for the purposes of present adjudication to take a careful note of the provisions of Sections 44BB, 44D and also clause (vii) of Explanation 2 to Section 9(1) of the Income Tax Act, 1961 (hereinafter for short the 'Act'). "44BB. Special provision for computing profits and gains in connection with the business of exploration, etc., of mineral oils.- (1) Notwithstanding anything to the contrary contained in sections 28 to 41 and sections 43 and 43A, in the case of an assessee, being a non-resident, engaged in the business of providing services or facilities in connection with, or supplying plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils, a sum equal to ten per cent of the aggregate of the amounts specified in sub-section (2) shall be deemed to be the profits and gains of such business chargeable to tax under the head "Profits and gains of business or profession" : Provided that this sub-section shall not apply in a case where the provisions of section 42 or section 44D or [se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss amount of such royalty as consists of lump sum consideration for the transfer outside India of, or the imparting of information outside India in respect of, any data, documentation, drawing or specification relating to any patent, invention, model, design, secret formula or process or trade mark or similar property; (b) no deduction in respect of any expenditure or allowance shall be allowed under any of the said sections in computing the income by way of royalty or fees for technical services received [from Government or an Indian concern in pursuance of an agreement made by the foreign company with Government or with the Indian concern] after the 31st day of March, 1976 [but before the 1st day of April, 2003]; (c) [***] (d) [***] Explanation.-For the purposes of this section,- (a) "fees for technical services" shall have the same meaning as in [Explanation 2] to clause (vii) of sub-section (1) of section 9; (b) "foreign company" shall have the same meaning as in section 80B; "royalty" shall have the same meaning as in Explanation 2 to clause (vi) of sub-section (1) of section 9; (d) royalty received [from Government or an Indian concern in pursuance of an agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he meaning of the Government of India Act, 1935, continues to serve on or after the commencement of the Constitution as a Judge in India. [Explanation.-For the removal of doubts, it is hereby declared that for the purposes of this section, income of a non-resident shall be deemed to accrue or arise in India under clause (v) or clause (vi) or clause (vii) of sub-section (1) and shall be included in the total income of the non- resident, whether or not,- (i) the non-resident has a residence or place of business or business connection in India; or (ii) the non-resident has rendered services in India.]" 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 plant and machinery used or to be used in prospecting, extraction or production of mineral oils the profit 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 wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'mining project' or 'like projects' occurring in Explanation 2 to Section 9(1) (ii) of the Income Tax Act would cover rendering of services like imparting of training and carrying out drilling 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 for the purpose of Explanation 2 to Section 9(1) (vii) of the Income-tax Act, 1961. Payments for 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 placed by the learned counsel for the appellants at great lengt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mining License (PML) granted under the Rules. It is pointed out that under Rule 7 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 said 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 Tax 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 for technical services re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 of the agreement commends to us as reasonable for acceptance. Equally important is the fact that the CBDT had accepted the said test and had in fact 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 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 cases and find that the brief description of the works cov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r and inspection of turbines. 25. 737 Repair, inspection and overhauling of turbines. 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. 30. 2012 Inspection of generator. 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 device to clean insides of a pipeline. 34. 2795 Feasibility study of rig to assess its remaining useful life and to carry out structural alterations. 35. 925 Engineering analysis of rig. 36. 1519 Imparting training on cased hold production log evaluation and analysis. 37. 1533 Training on well control. 38 1518 Training on implementation of Six Sigma concepts. 39. 1516 Training on implementation of Six Sigma concepts. 40. 6023 Training on Drilling project management. 41. 2796 Training in Safety Rating System and assistance in de ..... 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