AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2016 (5) TMI 1341
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..... IOCL has established a grass root refinery complex at Paradip in Orissa. IOCL is a Government of India undertaking registered under the Companies Act, 1956 and is engaged in the business of prospecting, extraction and production of mineral oil. Its business operations also include production and marketing of various products derived in the course of refining the crude oil and gas. Paradip refinery produces distillates such as Liquefied Petroleum Gas (LPG), Naphtha, Motor Spirit (MS or Petrol/Gasoline), Jet Fuel, Kerosene, Diesel and other speciality products. Certain intermediate petrochemical feedstock is also generated at the refinery. 2. With a view to enhance the crude handling capability at the Paradip port, IOCL is setting up an integrated offshore crude oil unloading facility for the said refinery complex. Under the contract, the applicant had to construct two SPMs (SPM-II &III) in addition to one existing SPM-I and then connect all the three SPMs with the proposed refinery complex. Further, as per the contract, the applicant had to lay and install submarine pipelines for carrying crude oil from the offshore SPMs to the refinery complex on- shore. The crude oil shall be....
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....nection with, or supplying plant and machinery on hire used, or to be used, in the prospecting for ; or extraction or production of, mineral oils, a sum equal to ten per cent. of the aggregate of the amounts specified in sub-section (2) shall be deemed to be the profits and gains of such business chargeable to tax under the head 'Profits and gains of business or profession' : Provided that this sub-section shall not apply in a case where the provisions of section 42 or section 44D or section 44DA or section 115A or section 293A apply for the purposes of computing profits or gains or any other income referred to in those sections. (2) The amounts referred to in sub-section (1) shall be the following, namely :- (a) the amount paid or payable (whether in or out of India) to the assessee or any person on his behalf on account of the provisions of services and facilities in connection with, or supply of plant and machinery on hire used ; or to be used, in the prospecting for ; or extraction or production of mineral oils in India ; and (b) the amount received or deemed to be received in India by or on behalf of the assessee on account of the pr....
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....on therewith, but only where such site, project or activities continue for a period of more than nine months. 7(3) In the determination of the profits of a permanent establishment, there shall be allowed as deductions expenses which are incurred for the purposes of the permanent establishment including executive and general administrative expenses so incurred whether in the State in which the permanent establishment is situated or elsewhere, which are allowed under the provisions of the domestic law of the Contracting State in which the permanent establishment is situated. 12(5) The provisions of paragraphs 1, 2 and 3 shall not apply if the beneficial owner of the interest being a resident of a Contracting State, carries on business in the other Contracting State in which the interest arises, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the debt-claims in respect of which the interest is paid is effectively connected with such permanent establishment or fixed base. In such cases, the provisions of article 7 or article 15, as the case may be, shall apply." ....
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....e use of the expression "exploitation of mineral oils" clearly brings out the intention of the Legislature that production of mineral oil like diesel, naphtha, etc., by exploiting crude petroleum is covered by section 44BB. This circular reads as under (see [1987] 168 ITR (St.) 87, 98) : "New provisions for computing of taxable income from activities connected with exploration of mineral oils : 21.1 A number of complications are involved in the computation of taxable income of a taxpayer engaged in the business of providing services and facilities in connection with the supply of plant and machinery on hire, used or to be used in the exploration for and exploitation of mineral oils. With a view to simplifying the provisions, the Amending Act has inserted a new section 44BB which provides for the determining of the income of such taxpayers at 10 per cent., of the aggregate of certain amounts which have been specified. This amount will include the amounts received or due to be received in India on account of such services or facilities or supply of plant and machinery." 8. The applicant has further relied on the following case law : (i) CIT v. Venkateswa....
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....;prospecting and extraction' and that will have to be given a restrictive meaning analogous to the associated words. The word prospecting, extraction and production of mineral oil are therefore to be read together. Similarly, as per the principle of ejusdem generis which means of the same kind where a law lists specific classes of person or things and then refers to them in general, the general statement only applies to the same kind of person or things specifically listed. (d) The Department has brought our attention to the heading of Circular No. 495 of 1987, dated September 22, 1987 with regard to the introduction of section 44BB which reads as under : 'New provisions for computing taxable income from activities connected with exploration of mineral oil.' Similarly, the heading of section 44BB reads as under : 'Special provision for computing profit and gains in connection with the business of exploration, etc., of mineral oils.' The Department has contended that the meaning of production used under section 44BB of the Act is to be understood with the con text of business of prospecting/exploration/extraction of mi....
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....on between "production of mineral oil" and "refining of mineral oil". Relying on the provisions of section 80-IB(9), the Revenue contends that the business of refining of petroleum is distinct from that of prospecting extraction of production of "petroleum". (h) The Department of Revenue relies on the following rulings of the hon'ble Authority for the proposition that mineral oil means crude oil or petroleum only : (i) Worleyparsons Services Pty. Ltd., In re [2008] 301 ITR 54 (AAR) ; (ii) Global Industries Asia Pacific Pte. Ltd., In re [2012] 343 ITR 253 (AAR) ; (iii) ONGC Ltd. v. CIT [2015] 376 ITR 306 (SC). 10. The Department has analyzed the scope of work in the contract and concluded that there is also a great element of supply of technical manpower/skilled personnel as part of execution of the work contract and, therefore, fee for technical service is involved in the contract. 11. According to the Department the assessee's case is not covered under section 44BB of the Income-tax Act and the proviso to the sub-section (1) of section 44BB says that these sub-sections shall not apply in a case where the provisions of section 42 or....
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....ion List but, however, mineral oil and oil field are not included in the State list. 14. The applicant has further relied on the judgment of the hon'ble Supreme Court in the case of ONGC Ltd. v. CIT [2015] 376 ITR 306 (SC). In this case, the hon'ble Supreme Court has decided the question as to whether the consideration received by the non-resident for providing supervisory experts to ONGC for operation and management of drilling rigs for extraction of Petroleum was taxable as fee for technical service and therefore under section 44D ; or as business income under section 44BB of the Act. The hon'ble Supreme Court held that the non-resident received the consideration in connection with mining or like projects and, therefore, it fell under the exclusionary clause of Explanation (ii) to section 9(1)(vi). The hon'ble Supreme Court held that (page 318 of 376 ITR) : "Reading section 2(j) and section 2(jj) of the Mines Act, 1952 ; which define mines and minerals and the provisions of the Oil Fields (Regulation and Development) Act, 1948, specifically relating to prospecting and exploration of mineral oils, exhaustively referred to earlier, it is abundantly clear that dri....
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....h products of petroleum, which in commercial and in ordinary parlance are understood to be 'mineral oil'. V. As regards the report of the Indian Institute of Petroleum, Dehradun filed by the Department of Revenue, the applicant has stated that the term 'mineral oil' is an elastic term and is not a term of science, which a chemist would use. It is a term employed in a commercial world and, therefore, a Scientific Research Institute like Indian Institute of Petroleum cannot be taken as an authority for the meaning of the term 'mineral oil'. VI. As regards reliance of the Revenue on the provisions of section 80-IB(9), the applicant has stated that section 44BB starts with a non obstante clause and has a special provision containing a self contained code for taxing payment received by a non-resident in connection with activities described in that section. VII. The applicant has further submitted that the hon'ble AAR has held in OHM Ltd., In re [2011] 335 ITR 423 (AAR) that section 44BB, being a self- contained provision especially dealing with the taxability of non-resident for providing services in connection with production of mi....
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....uch consideration does not remain relevant. Accordingly, the central issue to be decided in this case is applicability of section 44BB to the payments received by the applicant in respect of a contract with IOCL for executing the work of Installation of SPM system, offshore and onshore pipelines and associated facilities for integrated offshore crude oil unloading facilities at Paradip in Orissa. IOCL has a refinery complex at Paradip and the major products produced at Paradip refinery include liquefied petroleum gas (LPG), Naptha, Motor Spirit (MS or Petrol/Gasoline), Jet Fuel, Kerosene, Diesel etc. The applicability of provisions of section 44BB would revolve around the fact whether the above mentioned products of IOCL at Paradip refinery are covered under the meaning of "mineral oils" and whether facilities and services provided to IOCL are in connection with production of "mineral oils" by IOCL. 17. The Department contends that the term "mineral oils" in connection with section 44BB would mean only crude oil and the word "production" used in section 44BB would take colour from the associated words an expression, i.e., prospecting for and extraction of. Accordingly the Dep....
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....both exploration and exploitation and therefore the Department of Revenue is not correct in saying that section 44BB should be restricted to upstream activities of oil sector only (i.e. activities only up to the production of crude oil). The word exploitation means that all products derived from crude oil would be included. When the Central Board of Direct Taxes has taken such unambiguous stand on the wider meaning of mineral oils, we cannot give a restricted meaning to the same and be guided by the definition of 'mineral oils' given by the Institute of Petroleum or in the Petroleum Guide cited by the Revenue. 19. The Bombay High Court in the case of Burmah Shell Refineries Ltd., (supra) had considered the matter relating to meaning of the expression 'mineral oil' and after considering the dictionary meaning including the petroleum dictionary and products manual, the High Court observed as under (page 502 of 61 ITR) : "We have referred to the meaning given to the terms 'mineral oil' and 'crude oil' in the aforesaid dictionaries, which indicate that the crude oil means petroleum in its raw form as it comes from the ground, and the expressi....