2025 (3) TMI 1424 - AT - Income Tax

ITAT allows presumptive taxation under Section 44BB for mineral oil exploration over Section 115A technical services

The ITAT Delhi ruled in favor of the assessee regarding the application of presumptive taxation under section 44BB versus Fee for Technical Services under ... Presumptive taxation scheme of section 44BB v/s Fee for Technical Services (FTS) u/s 115A - services related to well engineering and other related activities - HELD THAT:- 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 of exploration etc. of mineral oils which is not even doubted by the both learned lower authorities in their respective findings. This being the clinching factual backdrop, it is noticed that in Oil & Natural Gas Corporation Ltd [2015 (7) TMI 91 - SUPREME COURT] has already settled the instant issue in assessee’s favour. As per CBDT Circular No. 1862, dated 22.10.1990 to conclude that the learned lower authorities have erred in law and on facts in rejecting the assessee’s impugned claim seeking assessment under section 44BB of the Act in very terms. Assessee appeal allowed. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment include:1. Whether the receipts amounting to INR 7,17,98,077 from Adani Welspun Exploration Limited (AWEL) for services related to well engineering and other related activities should be taxed as Fee for Technical Services (FTS) under section 115A or under the presumptive taxation scheme of section 44BB of the Income-tax Act, 1961.2. Whether the lower authorities erred in not following the precedent set by the Supreme Court in ONGC Vs. CIT and the relevant CBDT Circular regarding the taxation of such services.3. Whether the computation of taxable income was correctly assessed, specifically the inclusion of INR 15,07,75,962.4. Whether the interest charged under sections 234A and 234B of the Act was justified.5. Whether the initiation of penalty proceedings under section 270A was appropriate.ISSUE-WISE DETAILED ANALYSIS1. Taxability of Receipts as Fee for Technical Services vs. Section 44BB:- Relevant Legal Framework and Precedents: Section 44BB provides a special provision for computing profits and gains related to the business of exploration of mineral oils, while section 115A deals with taxation of FTS. The Supreme Court in ONGC Vs. CIT and CBDT Circular No. 1862 clarify that services directly connected with mining operations should be taxed under section 44BB.- Court's Interpretation and Reasoning: The Tribunal found that the services rendered by the assessee were directly linked to the prospecting, extraction, or production of mineral oils, thereby qualifying for taxation under section 44BB. The Tribunal relied on the Supreme Court's interpretation that such services are not to be classified as FTS.- Key Evidence and Findings: The Tribunal noted the nature of services rendered, which included well engineering, design, planning, and supervision, aligning with the activities specified under section 44BB.- Application of Law to Facts: The Tribunal applied the Supreme Court's test of 'pith and substance' to determine that the dominant purpose of the agreements was related to mining operations, thus falling under section 44BB.- Treatment of Competing Arguments: The Revenue argued for classification under FTS based on section 9(1)(vi) and the India-Denmark DTAA. The Tribunal rejected this, emphasizing the Supreme Court's ruling and the CBDT Circular.- Conclusions: The Tribunal concluded that the lower authorities erred in taxing the receipts as FTS and should have applied section 44BB.2. Incorrect Computation of Taxable Income:- Relevant Legal Framework: The correct computation of taxable income is governed by the provisions of the Income-tax Act, ensuring all inclusions and deductions are accurately applied.- Findings and Conclusions: The Tribunal did not find it necessary to address this issue in detail as the primary issue's resolution rendered other pleadings academic or consequential.3. Levy of Interest under Sections 234A and 234B:- Relevant Legal Framework: Sections 234A and 234B impose interest for defaults in furnishing return of income and payment of advance tax, respectively.- Findings and Conclusions: The Tribunal did not provide a detailed analysis of this issue, as the primary issue's resolution made other issues academic.4. Initiation of Penalty Proceedings under Section 270A:- Relevant Legal Framework: Section 270A deals with penalties for under-reporting and misreporting of income.- Findings and Conclusions: The Tribunal did not address this issue in detail due to the resolution of the primary issue.SIGNIFICANT HOLDINGS- The Tribunal held that the services provided by the assessee were directly connected to the exploration and production of mineral oils, thus qualifying for taxation under section 44BB, not as FTS under section 115A.- The Tribunal emphasized the Supreme Court's ruling in ONGC Vs. CIT and the CBDT Circular No. 1862, which clarified the scope of section 44BB.- The Tribunal's decision effectively set aside the lower authorities' orders, allowing the appeal in favor of the assessee.'We accordingly conclude in the light of their lordships' above detailed discussion as well as the CBDT Circular No. 1862, dated 22.10.1990 (supra) to conclude that the learned lower authorities have erred in law and on facts in rejecting the assessee's impugned claim seeking assessment under section 44BB of the Act in very terms.'The Tribunal's decision underscores the importance of adhering to established legal precedents and the specific provisions of the Income-tax Act when determining the taxability of receipts related to mineral oil exploration services.