AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2017 (12) TMI 183
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.... 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 was wholly incurred for the purpose of cementing services and construction....
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....BB 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 more specific in the facts of the instant case shall be applicable. 4. In support of its contention that the services u....
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.... (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 Operator. However, the number of wells may also vary and Company's decision in this regard will be final and binding. 4.0 Description of work The scope of work involved equipment required as well ....
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....lars 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 Contract shall be in respect of GAIL's six well drilling programme in the RJ-ONN-2004/1 Block in Western India. Contractor shall provide all necessary management, administrative and technical support to fully support the work for the first three wells and contract is extendable for remaining three wells, if required. Additionally, Contractor shall prepare and submit c....
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....ce 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 [email protected]% 125,433.51 C=A+B Total inclusive of Service Tax 1,343,234.60 INR @ Rs. 45.36/USD 60,929,121.56 11. On review of above scope of work and related payment under the two contracts, it is noted that under contract with OIL, the assessee company was required to provide cementing services in relation to about 18-19 exploratory as well as development wells which have been planned to be drilled during the contractual period in various NELP Blocks in Rajasthan where OIL is the Operator. Simila....
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....to 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 * Resist chemical deterioration of cement * Confine abnormal pore pressure * To increase the possibility to hit the target * Permanently shut off water penetration into the well * Seal the annulus after a casing string has been run in a wellbore * Seal a lost circulation zone, or an area where there is a reduction or absence of flow within the well. * To plug a well 16. Here, it would be relevant to refer to the judgement of the Hon'ble Supreme Court in ONGC vs. CIT (supra) wherein the following question of law came up for consideration: 'Whether the amounts ....
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....t 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 (Regulation and Development) Act, 1948. Reading Section 2(j) and 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 drilling operations for the purpose of production of petroleum would clearly amount to a mining activity or a mining operation. Viewed thus, it is the proximity of the works contemplated under an agreement, executed with a non-resident assessee or a foreign company, with mining activity or mining operations that w....
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....avy 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. 15. 6174 Analysis of data of wells to prepare a job design. 16. 1517 Geological study of the area and analysis of seismic information reports to design 2 dimensional seismic surveys. 17. 7226 Opinion on hydrocarbon resources and foreseeable potential. 18. 7227 Opinion on hydrocarbon resources and foreseeable potential. 19. 7230 Opinion on hydrocarbon resources and foreseeable potential. 20. 6016 Opinion on hydrocarbon resources and foreseeable potential. 21. 6008 Evaluation of ultimate resource potential and presentations outside India in connection with promotional activities for Joint Venture Exploration program. 22. 1531 Review of sub-surface well data, provide repair plan of wells and supervise repairs. ....
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....d 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 thus laid down by the Hon'ble Supreme Court is as follows: 1) Fees for technical services, by virtue of the explanation 2 to section 9(1)(vii) will not include payments made in connection with a mining project. 2) The Income Tax Act does not define the expressions "mines" or "minerals". As per Section 2(j) and 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, drilling operations for the purpose of production of petroleum would clearly amount to a mining activity or a mining operation. 3) It is the proximity of the works contemplated under an agreement, executed with a non-resident assessee or a foreign company, with mining activity or mining operations that would be crucial for the determination of the question whether the payments made under such an agree....
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....ade 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 Bench during the course of hearing, the ld AR submitted that the circular issued by the CBDT no. 1862 dated 22.10.1990 continues to be operative and has not been withdrawn by the CBDT. In light of the same, in our considered view, the above decision of the Hon'ble Supreme Court continues to hold the field, even in the amended legislative regime, post amendment by the Finance Act 2010 in section 44BB and section 44DA and is clearly applicable and supports the case of the assessee company for the impunged assessment year 2012- 20. In light of the above discussions, the consideration for provision of comprehensive cementing services through equipment, material and personnel will qualify for exclusion from fee for technical services under Explanation 2 to section 9(1)(vii) of the Act. 21. In view of our decision that the consideration for services rendered by the assessee company under the two contracts cannot be construed as "fees for technical services", the s....
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....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 taxation provisions of section 44BB. In order to remove doubts and clarify the distinct scheme of taxation of income by way of fee for technical services, it is proposed to amend the proviso to section 44BB so as to exclude the applicability of section 44BB of the Income which is covered under section 44DA. Similarly, section 44DA is also proposed to be amended to provide that provisions of section 44BB shall not apply to the income covered under section 44DA. These amendments are proposed to take effect from 1st April, 2011 and will, accordingly, apply in relation to the assessment year 2011-12 and subsequent years." 25. It was contended by the ld DR that the claim of the assessee relates to assessment years 2012-13 and has therefore to be considered in light of the amendment brought-in by the Finance Act, 2010. Before the amendments, as a result of decision in Geofizyka and other cases, the expression "in connection with" has been widely misunderstood and the benefits of section 44BB(1) ext....
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....tion 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 profession or in respect of amounts, if any, paid by the permanent establishment to its head office or to any of its other offices. Under section 44BB one does not find any reference to a permanent establishment in India. The type of services contemplated by the provision is more specific than what is contemplated by Section 44DA. Section 44BB refers specifically to "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". Revenues earned by the non-resident from rendering such specific services are covered by Section 44BB. It is a well settled rule of interpretation that if a special provision is made respecting a certain matter, that matter is excluded from the general provision under the rule which is expressed by the maxim "Generallia specialibus non derogant". It is again a well-settled rule of construction that when, in an enactment two provisions exist, which cannot be reconciled with ea....
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....section (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 read harmoniously and in such a manner that neither of them becomes a useless lumber then the only way in which the provisos can be given effect to is to understand them as referring only to the computation of profits, and to understand the amendments as having been inserted only to clarify the position. So understood, the proviso to sub-section (1) of Section 44BB can only mean that the flat rate of 10% of the revenues cannot be deemed to be the profits of the non-resident where the services are of the type which do not fall under that section, but are more general in nature so as to fall under Section 44DA. Similarly, the second proviso to sub-section (1) of Section 44DA can only be interpreted to mean that where the services are general in nature and fall under the sub-section read with Explanation 2 to Section 9(1)(vii) of the Act, then an assessee rendering such services as provided in Section 44BB cannot claim the benefit of being assessed on the basis that 10% of the revenues will be deemed to be the ....