2019 (3) TMI 1030 - AT - Income Tax

Tribunal directs income assessment under Section 44BB for service provider

The Tribunal allowed the appeal, directing the income to be assessed under Section 44BB of the Income Tax Act, 1961. It found that the appellant's income ... Fees for technical services - assessment u/s 44BB or 115A - amounts received by the assessee from B.J Services Company (Middle East) Ltd. for rendering of Fracturing Flow Back Services in connection with extraction or production of mineral oil - order passed by the A.O under Sec. 143(3) r.w.s 144C(13)- computing the profit and gains of 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 - HELD THAT:- As perused the observations of the Tribunal and find that the issue involved in the present case is squarely covered by the order passed by the Tribunal in the assesses own case for A.Y 2011- 12, A.Y 2012-13 and A.Y 2013-14. [2018 (2) TMI 1859 - ITAT MUMBAI] In the said preceding years, it was observed by the tribunal that the amount received by the assessee from M/s B.J Services Company (Middle East) Ltd. for rendering of Fracturing Flow Back Services was rightly offered by the assessee for tax as per the provisions of Sec. 44BB of the I.T Act. We thus finding ourselves to be in agreement with the view therein taken by the Tribunal, are thus of the considered view that the assessee during the year under consideration had rightly offered the amount for tax under Sec. 44BB of the I.T Act. In the backdrop of our aforesaid observations the order passed by the A.O under Sec. 143(3) r.w.s. 144C(13) is set aside. - Decided in favour of assessee. Issues Involved:1. Classification of income received by the appellant as fees for technical services under Section 115A versus applicability of Section 44BB of the Income Tax Act, 1961.2. Determination of whether the appellant performed services indirectly for ONGC.3. Applicability of Section 44BB as a special provision overriding other sections of the Income Tax Act.4. Applicability of Section 115A to a non-resident company providing services to another non-resident company.5. Verification of the agreement between B.J. Services and ONGC.6. Consideration of confirmation issued by B.J. Services regarding the nature of the contract.7. Assessment based on the agreement between B.J. Services and the appellant.8. Applicability of Section 115A when income is not received from an Indian concern or the Government.9. Consideration of the Supreme Court decision in ONGC v. CIT.10. General applicability of Section 44BB for assessment.Detailed Analysis:1. Classification of Income:The primary issue was whether the income received by the appellant constitutes fees for technical services under Section 115A or should be computed under Section 44BB, which is a special provision for computing profits and gains in connection with the business of exploration of mineral oils. The Assessing Officer (A.O.) held that the income constituted fees for technical services, while the appellant argued that Section 44BB should apply.2. Indirect Performance for ONGC:The A.O. concluded that the appellant was indirectly performing services for ONGC, as B.J. Services Company (Middle East) Ltd. was performing Fracturing Flow Back Services at oil rigs under a contract with ONGC. The appellant contested this, stating that it had no direct contract with ONGC and that payments were made by B.J. Services.3. Applicability of Section 44BB:The appellant contended that Section 44BB, being a special provision, overrides other sections of the Income Tax Act. The section specifically applies to entities engaged in the business of prospecting for, or extraction or production of mineral oils.4. Non-Resident Company Services:The appellant, a non-resident company, argued that Section 115A does not apply since it provided services to another non-resident company, B.J. Services, and not directly to an Indian concern or the Government.5. Verification of Agreement:The Dispute Resolution Panel (DRP) requested the agreement between B.J. Services and ONGC to verify the nature of the services. The appellant could not produce this agreement, arguing it had no control over third-party documents.6. Confirmation by B.J. Services:The appellant produced a confirmation from B.J. Services stating that it did not have any direct contract with ONGC. The A.O. disregarded this confirmation, maintaining that services were indirectly performed for ONGC.7. Agreement Terms:The appellant submitted that the agreement with B.J. Services was produced before both the DRP and the A.O., but their observations were not based on a correct appreciation of the facts and law.8. Income Source:The appellant argued that Section 115A applies only when income for technical fees is received from the Government or an Indian concern. Since the income was not received from an Indian concern or the Government, Section 115A was not applicable.9. Supreme Court Decision:The appellant cited the Supreme Court decision in ONGC v. CIT, which held that prospecting for or extraction or production of mineral oil is not to be treated as technical services for the purpose of Explanation 2 of Section 9(1)(vii). The A.O. did not consider this decision.10. General Applicability of Section 44BB:The appellant argued that the assessment should be made under Section 44BB, which specifically covers services related to the extraction or production of mineral oils.Tribunal's Findings:1. Delay in Filing Appeal: The Tribunal condoned the delay of 232 days in filing the appeal, attributing it to an inadvertent omission by the appellant's chartered accountant due to preoccupation with GST compliance and other deadlines.2. Merits of the Case: The Tribunal found that the issue was covered by its earlier decisions in the appellant's own case for preceding years (A.Y. 2011-12, A.Y. 2012-13, and A.Y. 2013-14). It was held that the amounts received by the appellant for rendering Fracturing Flow Back Services were to be taxed under Section 44BB and not Section 115A.3. Indirect Services for ONGC: The Tribunal noted that the contract terms between B.J. Services and ONGC clearly stated that any subcontractor engaged by B.J. Services would be under its control, and there would be no contractual relationship with ONGC. Therefore, the appellant was not indirectly performing services for ONGC.4. Supreme Court Decision: The Tribunal reiterated the Supreme Court's ruling that prospecting for or extraction or production of mineral oil is not technical services under Explanation 2 of Section 9(1)(vii), thus supporting the applicability of Section 44BB.5. Income Source: The Tribunal agreed that the income was received from a non-resident company (B.J. Services) and not from an Indian concern or the Government, further excluding the applicability of Section 115A.6. Assessment under Section 44BB: The Tribunal concluded that the appellant had rightly offered the income for tax under Section 44BB, and the A.O.'s order was set aside.Conclusion:The appeal was allowed, and the income was directed to be assessed under Section 44BB of the Income Tax Act, 1961.