Mineral oil services connected with oil-well remedial work were taxed under section 44BB, not as technical fees.

Receipts from remedial work on an oil well were held to be taxable on a presumptive basis under section 44BB because the services were directly and inextricably connected with prospecting for, or extraction or production of, mineral oil. Applying the pith and substance test and the wide meaning of "in connection with," the work, including retrieval and installation of the XMT, fell within the oil exploration activity covered by section 44BB. The receipts were therefore not assessable as fees for technical services under section 9(1)(vii) or section 44DA, and the fact that the assessee was a second-line contractor did not exclude section 44BB.

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Issues: Whether the receipts from services rendered for remedial work on an oil well were chargeable as fees for technical services under section 9(1)(vii) and section 44DA of the Income-tax Act, 1961, or assessable on presumptive basis under section 44BB of the Income-tax Act, 1961 as services in connection with prospecting for, or extraction or production of, mineral oils.

Analysis: The contractual work was found to be directly connected with remedial operations on an oil well in the KG Basin, including retrieval and installation of the XMT and related operations. Explanation 2 to section 9(1)(vii) excludes consideration for construction, assembly, mining or like projects from the definition of fees for technical services, and the CBDT instruction clarified that prospecting for, or extraction or production of, mineral oil falls within the mining or like project exception. Applying the pith and substance test and the wide amplitude of the words "in connection with", the work was held to be inextricably linked with mineral oil operations. The provision of section 44BB was held applicable even though the assessee was a second-line contractor, since the section does not distinguish between main contractors and subcontractors and covers services or facilities rendered in connection with such oil exploration activity.

Conclusion: The receipts were not taxable as fees for technical services under section 9(1)(vii) or section 44DA, and were assessable under section 44BB of the Income-tax Act, 1961.

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