Appeal Allowed: Fees for Technical Services Not Taxable under India-USA Agreement

Oil and Natural Gas Corporation Ltd. Versus ITO, International Taxation, Dehradun

Oil and Natural Gas Corporation Ltd. Versus ITO, International Taxation, Dehradun - TMI Issues Involved:
1. Non-taxability of the receipts of DeGolyer and MacNaughton, USA.
2. Taxability of receipts under section 44BB of the Income-tax Act, 1961.
3. Refund of tax deposited by the appellant on sums payable to DeGolyer and MacNaughton, USA.

Detailed Analysis:

Issue 1: Non-taxability of the Receipts of DeGolyer and MacNaughton, USA

The appellant contested the taxability of payments made to DeGolyer and MacNaughton, USA, under the India-USA Double Tax Avoidance Agreement (DTAA). The Assessing Officer directed ONGC to deduct tax at 15% on the gross contractual payment, asserting that the services provided were technical in nature and thus taxable under Article 12 of the DTAA. The Ld. CIT(A) upheld this view, stating that the services involved technical knowledge, experience, skill, know-how, or processes, making the receipts taxable under section 9(1)(vii) of the Income Tax Act and Article 12 of the DTAA. However, the Tribunal found that no technical knowledge, skill, or know-how was made available to ONGC, and thus, the payments could not be classified as fees for technical services under the DTAA. The Tribunal referenced prior decisions in similar cases (ITA No. 1522/Del/2012 and ITA No. 1332/Del/2016), which supported the appellant's position, leading to the conclusion that the receipts were not taxable under the DTAA.

Issue 2: Taxability of Receipts under Section 44BB of the Income-tax Act, 1961

The appellant alternatively argued that if the receipts were taxable, they should fall under section 44BB, which deals with the computation of profits and gains from the business of exploration, etc., of mineral oils. The Ld. CIT(A) analyzed sections 44BB, 44D, 44DA, and 115A, concluding that section 44BB would not apply if sections 44D or 44DA were applicable. Given that the services were technical and related to the exploration of mineral oils, the Ld. CIT(A) held that they were taxable under section 115A. However, since the Tribunal resolved the primary issue in favor of the appellant by determining that the receipts were not taxable as fees for technical services, the alternative argument under section 44BB was not adjudicated.

Issue 3: Refund of Tax Deposited

The appellant sought a refund of the tax deposited on sums payable to DeGolyer and MacNaughton, USA. Given the Tribunal's decision that the receipts were not taxable under the DTAA, the appellant was entitled to a refund of the tax deposited. The Tribunal allowed the appellant's appeal on this ground as well.

Conclusion

The Tribunal allowed the appeal of the assessee, determining that the receipts were not taxable as fees for technical services under the India-USA DTAA. Consequently, the appellant was entitled to a refund of the tax deposited. The alternative argument regarding the applicability of section 44BB was not addressed, as the primary issue was resolved in favor of the appellant. This decision was pronounced in the Open Court on 19th December 2018.