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of <h1>Appeal allowed: Income assessed under Section 44BB, interest levied under Section 234D.</h1> <h3>Schlumberger Asia Services Ltd. Versus Additional Director of Income-tax, (International Tax)</h3> Schlumberger Asia Services Ltd. Versus Additional Director of Income-tax, (International Tax) - TMI Issues Involved:1. Taxability of income under Section 44BB or Section 115A/44DA.2. Taxability of the amount received from other non-resident companies.3. Taxability of rental income from equipment.4. Inclusion of reimbursements for determining taxable income.5. Levy of interest under Section 234B and 234D.6. Initiation of penalty proceedings under Section 271B.Issue-Wise Detailed Analysis:1. Taxability of Income under Section 44BB or Section 115A/44DA:The primary issue was whether the income from activities such as Wireline Logging, Logging/Measurement while Drilling, Perforation/Cementing, and Well Testing should be taxed under Section 44BB or Section 115A/44DA. The assessee, a foreign company operating through a Permanent Establishment (PE) in India, argued that its activities were in connection with prospecting for, or extraction or production of mineral oils, thus falling under Section 44BB. The Assessing Officer (AO) and Disputes Resolution Panel (DRP) disagreed, categorizing the income as royalties or fees for technical services (FTS), taxable under Section 115A. The Tribunal found merit in the assessee's contention, citing precedents like Schlumberger Seaco Inc. and CGG Veritas Services SA, which supported the application of Section 44BB for such services. The Tribunal concluded that for the assessment years prior to 2011-12, income effectively connected with a PE should be taxed under Section 44BB, not Section 115A or 44DA.2. Taxability of Amount Received from Other Non-Resident Companies:The assessee contended that the amount received from other non-resident companies could not be taxed under Section 115A or 44DA. The Tribunal noted that the AO's inclusion of these amounts under Section 115A was incorrect, given the effective connection with the PE. The Tribunal upheld the assessee's argument that such income should be assessed under Section 44BB.3. Taxability of Rental Income from Equipment:The assessee argued that rental income from equipment used in oil and gas exploration should be taxed under Section 44BB. The AO and DRP had bifurcated the agreements, taxing rental income separately. The Tribunal agreed with the assessee, noting that rental income from equipment used in production/exploration of oil should benefit from Section 44BB, as established in previous cases like Schlumberger Seaco Inc.4. Inclusion of Reimbursements for Determining Taxable Income:The AO included reimbursements for customs duty and insurance in the taxable income. The assessee argued that reimbursements do not constitute income. The Tribunal agreed, citing the jurisdictional High Court's decisions in Schlumberger Asia Services Limited, which held that reimbursements, being statutory in nature, cannot form part of taxable income. The Tribunal directed the exclusion of Rs. 7,23,59,963/- received as reimbursements from the taxable income.5. Levy of Interest under Section 234B and 234D:The assessee contended that interest under Sections 234B and 234D should not be levied as the income was subject to TDS under Section 195. The Tribunal upheld this contention, referencing the Uttarakhand High Court's decision in Schlumberger Asia Services Ltd., which established that non-residents whose income is subject to TDS are not liable for interest under Sections 234B and 234D.6. Initiation of Penalty Proceedings under Section 271B:The Tribunal did not adjudicate on the initiation of penalty proceedings under Section 271B, as the appeal was partly allowed on the primary issues.Conclusion:The Tribunal partly allowed the appeal, directing that the income from the activities in question should be assessed under Section 44BB, excluding reimbursements from taxable income and negating the levy of interest under Sections 234B and 234D. The Tribunal affirmed the mandatory levy of interest under Section 234D and did not address the initiation of penalty proceedings under Section 271B.
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