TaxTMI 
TaxTMI 
2017 (12) TMI 183
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....ection of Dispute Resolution Panel Delhi u/s 144C erred in rejecting the income declared u/s 44BB and the income was wrongly assessed u/s 44DA of the I.T. Act 1961 for the cementing services and construction of mineral oil and gas wells. (3) Under the facts and circumstances of the case and in law, the ld. AO disallowed the payment of transportation expenses of Rs. 1,51,900/-made directly to the transporter's Bank A/c u/s 40A(3A). The payment was covered under exceptions under Rule 6DD r.w.s. 40A (3A) of I.T. Act, 1961. (4) Under the facts and circumstances of the case and in Law, the learned AO disallowed the payment of transportation expenses of Rs. 13,09,476/- which was part of "Contract for sales" made to Shree Digvijay Cement, u/s 40(a) (ia) on account of non-deduction of TDS. The aforesaid transaction was 'contract for sale' and covered under Circular no. 681 dated 08/03/1994 and also covered by the Proviso to section 194C. (5) Under the facts and circumstances of the case and in law, the Learned AO disallowed u/s 44DA(1) and 40(a) (ia) the payment made against ERP Cost and Training Expenses of Rs. 1,18,560/- and Rs. 1,90,252/- respectively, which w....
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....12-13, the assessee company has challenged the action of the Assessing Officer in rejecting the income offered u/s 44BB of the Act by the assessee in its return of income and wrongly assessing the same u/s 44DA of the Act in respect of cementing services undertaken by the assessee company during the impunged assessment year 2012-13. 3. The principle contention raised by the ld. AR is that cementing services provided by the assessee company are not in the nature of technical services and falls under the exclusion clause as provided under explanation to section 9(1)(vii) of the Act. It was further contended that the cementing services are part of construction of mineral oil and gas wells and are inextricably linked with prospecting for or extraction or production of mineral oil and the revenue from such services have been duly offered to tax u/s 44BB of the Act. It was further contended that since cementing services does not qualify as technical services u/s 9(1)(vii), the provisions of section 44DA are not applicable in the instant case. It was further contended that even if it was held that provisions of section 44DA are equally applicable, the provisions of section 44BB being m....
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....f gas fields of Jaisalmar Basin where 40 wells in the depth range of 1050- 4500m and heavy oil field or Baghewala in Bikaner Nagaur Basin where 12 wells (630-1400m) have so far been drilled. 3.0 AREA OF OPERATION 3.1 Topography The proposed area of operation will be based at Jaisalmer the district headquarters, and is the major town falling within Jaisalmer Basin and Bikaner/Bikampur for Bikaner-Nagaur Basin. The area of operation is a desert (Thar Desert) covered with sand dunes varying in size from a few meters to dunes running in kilometres. The general elevation of the area varies between 80 to 120m above mean sea level. 3.2 ..... 3.3 ..... 3.4 ..... 3.5 .... 3.6 No. of wells & Target Depths (TD): A total of about 18-19 exploratory as well as development wells have been planned to be drilled during the contractual period of initial twenty one months for which the Contractor will be required to provide the Cementing services as per terms. The target depths (TD) of the wells will vary between 1200-1950 mtrs. These wells are proposed to be drilled in various NELP Blocks in Rajasthan, India, where Oil is the Op....
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.... work which is provided in section IV of the above contract with OIL, and the relevant provisions reads as under:- "1.0 MOBILISATION CHARGES: US$ 12,000.00 (US Dollars Twelve Thousand only) 2.0 DEMOBILISATION CHARGES : NIL 3.0 RENTAL CHARGES FOR EQUIPMENT: US $ 14,500.00 per Month (US Dollars Fourteen Thousand Five Hundred only) 4.0 PERSONNEL CHARGES: US $ 27,965.00 per Month per Engineer (US Dollars Twenty Seven Thousand Nine Hundred Sixty Five only) 5.0 OPERATIONAL CHARGES: US$ 95.00 per job (US Dollars Ninety Five only) 6.0 INTERLOCATION MOVE CHARGES: US$ 6.00 per KM (US Dollars Six only) 7.0 CHARGES FOR ADDITIONAL SERVICES (AS & WHEN REQUIRED BASIS): (a) MOB-DEMOB CHARGES FOR TWO BATCH MIXERS (b) RENTAL CHARGES FOR BATCH MIXERS (c) PERSONNEL CHARGES FOR CASING PRE-STRESSING JOB" 9. The contract with Gail (India) Ltd. dated 06.04.2011 available at APB pages 116 to 186 is again for hire of cementing services and the scope of work is contained in section VI and the relevant provisions reads as under: 1.0 General The Equipment and Services to be provided during the term of the Contrac....
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....VICES: Contractor shall provide a comprehensive Cementing service in support of GAIL's drilling program in the Rajasthan area for the drilling of first three exploratory wells. The services need to be extended to remaining three wells if required." 10. It would be equally relevant to note the schedule of rates for the above scope of work which is provided in letter of acceptance issued by GAIL dated 6.4.2011 and the relevant provisions reads as under:- Schedule of Rates Tender No.: GAIL/IND/E&P -C&P/RJW27 ETENDER NO 8000002800 Job: Hiring of Cementing Services & Accessories M/s National Oil Well Services S. No. Name of the Section Quoted Price ($) 1 Part A- Rental Equipments 199,700.00 2 Part B- Personnel Charges 87,917.00 3 Part C- Cement and Additive 397,565.59 4 Part D- Isolation Equipments 73,020.00 5 Part E- Float Equipments 371,982.00 6 Part F- Casing Accessories 87,616.40 A Total for Cementing Services & Accessories 1,217,801.09 B Service Ta....
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.... assists to support the casing pipe with the side walls and protects the well from any unwanted fluid influxes from the formation. The bottom part of the cement assists to guide the Drill bit through drilling of the well. 14. It was further explained that the well cementing consists of two principal operations - primary cementing and remedial cementing. Primary cementing is the process of placing a cement sheath in the annulus between the casing and the formation. Remedial cementing occurs after primary cementing, when engineers inject cement into strategic well locations for various purposes, including well repair and well abandonment. 15. It was further explained that the cementing services are part of the drilling activity without which the well construction is not possible and it was submitted that the role of cementing services in mineral oil exploration and production can be appreciated as under:- * To support the vertical and radial loads applied to the casing * Isolate porous formations from the producing zone formations * Exclude unwanted sub-surface fluids from the producing interval * Protect casing from corrosion ....
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....received for construction, assembly, mining or like project undertaken by the recipient or consideration which would be chargeable under the head "salaries". Fees for technical services, therefore, by virtue of the aforesaid explanation will not include payments made in connection with a mining project." "13. The Income Tax Act does not define the expressions "mines" or "minerals". The said expressions are found defined and explained in the Mines Act, 1952 and the Oil Fields (Development and Regulation) Act 1948. While construing the somewhat pari materia expressions appearing in the Mines and Minerals (Development and Regulation) Act 1957 regard must be had to the provisions of Entries 53 and 54 of List I and Entry 22 of List II of the 7th Schedule to the Constitution to understand the exclusion of mineral oils from the definition of minerals in Section 3(a) of the 1957 Act. Regard must also be had to the fact that mineral oils is separately defined in Section 3(b) of the 1957 Act to include natural gas and petroleum in respect of which Parliament has exclusive jurisdiction under Entry 53 of List I of the 7th Schedule and had enacted an earlier legislation i.e. Oil Fields....
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....nel. 3. 731 Drilling, furnishing personnel for manning, maintenance and operation of drilling rig and training of personnel. 4. 1722 Furnishing supervisory staff with expertise in operation and management of Drilling unit. 5. 729 Capping including subduing of well, fire fighting. 6. 738 Capping including subduing of well, fire fighting. 7. 1528 Analysis of data to prepare job design, procedure for execution and details regarding monitoring. 8. 1532 Study for selection of enhanced Oil Recovery processes and conceptual design of Pilot Tests. 9. 1520 Engineering and technical support to ONGC in implementation of Cyclic Steam Stimulation in Heavy Oil Wells. 10. 2794 Assessment and processing of seismic data along with engineering and technical support in implementation of Cyclic Steam Stimulation. 11. 1524 Conducting reservoir stimulation studies in association with personnel of ONGC. 12. 1535 Laboratory testing under simulated reservoir conditions. 13. 1514 Consultancy for optimal exploitation of hydrocarbon resources. 14. 2797 Consultancy for all aspects of Coal Bed Methane. ....
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....527 Supply supervision and installation of software which is used for analysis of flow rate of mineral oil to determine reservoir conditions. 44. 1523 Supply, installation and familiarization of software forprocessing seismic data. The above facts would indicate that the pith and substance of each of the contracts/agreements is inextricably connected with prospecting, extraction or production of mineral oil. The dominant purpose of each of such agreement is for prospecting, extraction or production of mineral oils though there may be certain ancillary works contemplated thereunder. If that be so, we will have no hesitation in holding that the payments made by ONGC and received by the non-resident assessees or foreign companies under the said contracts is more appropriately assessable under the provisions of Section 44BB and not Section 44D of the Act. On the basis of the said conclusion reached by us, we allow the appeals under consideration by setting aside the orders of the High Court passed in each of the cases before it and restoring the view taken by the learned Appellate Commissioner as affirmed by the learned Tribunal." 17. The legal proposition....
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....onnected with prospecting, extraction or production of mineral oil. The dominant purpose of each of these contracts is for prospecting, extraction or production of mineral oils. The payments under the two contracts will thus fall in the exclusion from "Fees for technical services", by virtue of the explanation 2 to section 9(1)(vii) which doesn't not include payments made in connection with a mining project for prospecting, extraction or production of mineral oils. 19. We are conscious of the fact that above decision of the Hon'ble Supreme Court has been rendered in the context of Section 44D read with Explanation 2 to Section 9(1)(vii) of the Income Tax Act and in the instant case, the AO has invoked provisions of section 44DA of the Act. At the same time, we find that both under section 44D as well as under section 44DA, fees for technical services has been defined as per explanation 2 to section 9(1)(vii) of the Act. Though there have been amendments made to section 44BB and section 44DA by the Finance Act 2010, there has been no amendment that has been made by the legislature to the said definition of fees for technical services. Further, on pointed question raised by the Be....
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.... Delhi High Court had considered the amendment which has been brought in by the Finance Act 2010 in section 44BB as well as section 44DA of the Act. 24. Per contra, the contention of the ld DR is that by the Finance Act, 2010, the amendments have been made in section 44BB as well as section 44DA of the Act and the rational for the said amendments was explained in memorandum explaining the provisions of the Finance Bill, 2010 which reads as under:- "Combined effect of the provisions of sections 44BB, 44DA and 115A is that * In the income of a non-resident is in the nature of fee for technical services, it shall be taxable under the provisions of either section 44DA or section 115A irrespective of the business to which it relates. * Section 44BB applies only in a case where consideration is for services and other facilities relating to exploration activity which are not in the nature of technical services. * However, owing to judicial pronouncements, doubt were raised regarding the scope of section 44BB vis-a-vis section 44DA as to whether fee for technical services relating to the exploration sector would also be covered under the presumptive taxa....
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....in connection with 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 including petroleum and natural gas. Section 44DA is also a provision which applies to non-residents only. It is, however, broader and more general in nature and provides for assessment of the income of the non-resident by way of royalty or fees for technical services, where such non-resident carries on business in India through a permanent establishment situated therein or performs services from a fixed place of profession situated in India and the right, property or contract in respect of which the royalties or fees for technical services are paid is effectively connected with the permanent establishment or fixed place of profession. Such income would be computed and assessed under the head "business" in accordance with the provisions of the Act, subject to the condition that no deduction would be allowed in respect of any expenditure or allowance which is not wholly or exclusively incurred for the business of such permanent establishment or fixed place of professio....
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....connected with the permanent establishment. Such a requirement has not been spelt out in Section 44BB; moreover, a flat rate of 10% of the revenues received by the non-resident for the specific services rendered by it are deemed to be profits from the business chargeable to tax in India under Section 44BB, whereas under Section 44DA, deduction of expenditure or allowance wholly and exclusively incurred by the non-resident for the business of the permanent establishment in India and for expenditure towards reimbursement of actual expense by the permanent establishment to its head office or to any of its other offices is allowed from the revenues received by the non-resident. Because of the different modes or methods prescribed in the two sections for computing the profits, it apparently became necessary to clarify the position by making necessary amendments. That perhaps is the reason for inserting the second proviso to sub-section (1) of Section 44DA and a reference to section 44DA in the proviso below subsection (1) of Section 44BB. A careful perusal of both the provisos shows that they refer only to computation of the profits under the sections. If both the sections have to be re....