TaxTMI 
TaxTMI 
2022 (6) TMI 833
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....led its return of income on 18.07.2012 declaring total taxable income of Rs.145,32,98,837/- to tax u/s 44BB of the IT Act. The AO completed the assessment u/s 143(3)/144C(3)(a) of Income Tax Act, 1961 determining the total income of the assessee at Rs.260,74,25,630/- after making the following adjustments/disallowances:- i. Bifurcated income between production sharing contractors ('PSC') and Non-PSC contractors for income from rental of equipment treating the same as Royalty under section 9(l)(vi) of the Act and taxing income from non-PSC contractors under section 44DA of the Act. ii. Further, income from provision of various services has been treated as fees for technical services ('FTS') under 9(l)(vii) of the Act, applying estimated profit rate of 25% as against said income offered to tax under section 44BB of the Act in the ROI; iii. Receipts on account of reimbursement of service tax from PSC and Non-PSC included in the revenue chargeable to tax (under section 44BB and section 44DA respectively depending on the stream of income) as opposed to not chargeable to tax claimed in the ROI; and iv. Receipts on account of reimbursement of expenditur....
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....o the appeal filed with your office and in continuation to our submission filed on August 21, 2014, we would like to submit as under. The appellant requests that the below mentioned submissions may please be read in conjunction with the submissions filed on August 21, 2014.The below mentioned submissions are independent to each other and without prejudice to the submissions filed earlier. Without prejudice to the claim of the appellant that the receipts are not in the nature of 'FTS', the appellant claims that specific provision (Section 44BB) overrides general provisions (Section 44DA) 1.1. The assessee wishes to place reliance on the decision of the Hon'ble Delhi High Court in the case of Director of Income Tax -II vs. OHM Limited1 wherein the Hon'ble Court upheld the ruling of the AAR that specific provision (section 44BB) overrides general provision (section 44DA). 1.2. The interplay between section 44BB and section 44DA has been examined in detail by the Hon 'ble Delhi High Court in the case of OHM Limited (supra). The Hon'ble Court has relied upon the well settled rule of interpretation that if a special provision is made for a cert....
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.... & gas E&P and the usage of the equipment has never been disputed by the Ld. AO in the entire assessment proceedings. The copy of the ECs, on sample basis, were also enclosed with our earlier submission; • Your goods elf in own case of appellant mentioned that the services are clearly connected with extraction of mineral oils and thus would be covered for the application of section 44BB of the Act. • the oilfield equipment provided by the appellant are used in India in the respective contract areas awarded under the respective Production Sharing Contracts (PSCs). This fact is on record and is also verifiable from the contracts. 3. Delhi High Court in the case of PGS Geophysical AS2 upheld its earlier ruling in the case of OHM Ltd. (supra) In the instant case, the assessee was engaged in the business of providing geophysical services including acquisition and processing of seismic data. In the appeal, the taxpayer did not agitate that the scope of work executed by it was not fees for technical services as defined in section 9(l)(vii) of the Act. Under these circumstances, the Court proceeded on the basis that the income of the ass....
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....d by the Hon'ble Delhi High Court in a subsequent decision in the case of PGS Geophysical (supra); In view of all of the foregoing, the appellant submits that the revenue is includible in the revenue chargeable to tax under section 44BB of the Act. Furthermore, the summarized grounds vis-a-vis the grounds raised and adjudicated in the earlier year(s) is also enclosed herewith as Exhibit-2. 5.2. The findings of ld. AO and the averments of ld. ARs have been carefully considered. It is not in doubt that all the services rendered by the Appellant (as detailed in the extract above) had a direct nexus with oil extraction or exploration. Thus following the detailed reasoning given and interpretation of law in the Ohm Ltd. case (supra) it is held that the Appellant's case deserves to be dealt with u/s 44BB of the Act for the entire quantum of income. These grounds are accordingly allowed. 6. Ground no.6 challenges the inclusion of Service Tax reimbursement in the turnover for the purposes of computing income u/s 44BB of the Act or as royalty/FTS. This ground is allowed following the case of Precision Energy Services Ltd. [ITANo.5609/Del/2012], 7....
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....ntered into with companies not directly engaged in Oil Production and Exploration and, therefore liable to tax as Royalty u/s 9(l)(vi) read with section 44DA, and not eligible for treatment u/s 44BB of the Act. 3. Whether on the facts and in the circumstances of the case, the Ld CIT(A) has erred in ignoring the effect of the amendment brought in vide Finance Act, 2010 w.e.f. 01.04.2011, in terms of which income covered by section 44DA has been specially excluded from the scope of section 44BB for Asstt Years 2011-12 (the year under consideration) onwards. 3.1 Whether on the facts and circumstances of the case, the Ld CIT(A) has erred in ignoring the distinct scheme of taxation of Fees for Technical Services ('FTS') and Royalty and disregarding the insertion of proviso in section 44BB /44DA/115A and the rationale behind the introduction of said amendment in the Finance Bill 2010 in holding that the income of the assessee from the above services was covered under the presumptive provisions of section 44BB. 3.2 The Ld CIT(A) has erred in not appreciating the fact that even in terms of ratio of the judgment in the said case of OHM Ltd [352, ITR 406 (Delhi)] c....
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....ll and are not includible in gross turnover even for the purpose of computing taxable income u/s 44BB. a. The Ld. CIT(A) has erred in not appreciating the fact the provisions of section 44BB are a self-contained code providing for computation of profits at a fixed percentage of gross receipts of the assessee and all the deductions and exclusions from income are deemed to have been allowed to the assessee. b. Whether the Ld. CIT(A) has erred in not appreciating the fact that once the receipts held as taxable u/s 44BB of the Act, there is no scope for computing or re-computing the profits by excluding any element of the receipts from the total turnover as the same would amount to defeating the very purpose of providing for a scheme of simpler mode of computation of profits u/s 44BB of the Act and obviating the need for accounting for individual receipts and payments etc. c. Whether the Ld. CIT(A) has erred in ignoring the ratio of the judgment in the case of M/s Chowringhee Sales Bureau (P) Ltd. (82 ITR 542, SC) wherein the Hon'ble Apex Court has held that the Sales Tax Collected by an assessee in the ordinary course of its business forms part of its busine....
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....th M/s Transocean Offshore Deepwater Drilling Inc. (TODDI) is liable to be taxed in the status of Association of Persons in respect of revenues on account of provision of Deepwater Drilling rigs along with integrated services to ONGC under a contract undertaken by the assessee as consortium with TODDI. 10. The appellant prays for leave to add, amend, modify or alter any grounds of appeal at the time or before the hearing of the appeal." Assessee's Appeal (ITA No.6437/Del2014) "Based on the facts and circumstances of the case, Schlumberger Asia Services Limited (hereinafter referred to as 'SASL' or the 'Appellant') respectfully craves leave to prefer an appeal against the order dated 04 September 2014 passed by the Commissioner of Income Tax (Appeals) - II [hereinafter referred to as the 'learned CIT(A)'] under section 250(6) of the Income-tax Act, 1961 (hereinafter referred to as the 'Act') (received by the Appellant on 29 September 2014) on the following grounds: Ground No.1 - Taxability of reimbursement of expenses The learned CIT(A) has erred on facts and in law in holding that receipts on account of reimbursement of various expenses ....
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.... services, coring services, completion services, cementing services, liner hanger services, drill stem testing services, AMC for software in relation to oil and gas exploration and production etc. The income from rental of equipment and provision of services were offered to tax under section 44BB of the Act. However, in respect of income from rental of equipment to Non-PSC contractors and various services, the AO for various reasons mentioned in the assessment order held that income from services are to be taxed as FTS/ Royalty under section 9(1 )(vi)/ 9(1 )(vii) of the Act. The profit from this income was estimated at 25% and offered to tax at 40% plus applicable taxes as against income offered to tax under section 44BB of the Act ie profit being 10% of gross receipts. We find the ld.CIT(A) held that income from services and equipment of rentals involved have direct nexus with oil exploration or production. Accordingly, bifurcation of income between PSC and Non-PSC is to be deleted and held that income from the aforesaid streams are to be taxed under section 44BB of the Act. 7.1 We do not find any infirmity in the order of the CIT(A) on this issue. We find, the AO himself in su....
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....Act. The Appellant has primarily relied upon the judgment of the Apex Court passed in the case of ONGC (Civil Appeal No.731 of 2007) to support its contention. 8. Combined effect of the provisions of sections 44BB, 44DA and 115A is that if 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 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. 9. Memorandum to the Finance Bill, 2010 clarifies that it is not the kind of business which is material but it is the nature of services which is of importance to determine whether receipts are taxable as fee for technical services under section 44 DA of the Act or under section 44 BB of the Act. In order to ascertain the aforesaid, it would be pertinent to have a look at the contractual agreements and scope of work as provided in the contract. 10. The Assessing officer at para 7.1 o....
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....nical services, therefore, by virtue of the aforesaid explanation will not include payments made in connection with a mining project. 9. Before the High Court, a Circular No. 1862 dated 22.10.1990 having a bearing on the subject was placed f or consideration by the assessee. The aforesaid instruction may be reproduced herein below. "Subject: Definition of 'fees f or technical services" in Explanation to Section 9(1) (vii) of the Income Tax Act, 1961 whether prospecting for or extraction of production of mineral oil are "mining" operations-clarification regarding. The expression "fees for technical services" has been defined in Explanation 2, to Section 9(1) (vii) of the Income Tax Act, 1961 as under: "Explanation 2. - For the purposes of this clause, "fees for technical services" means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recip....
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....gorized the different contracts under 8 heads which may be conveniently set out at this stage herein below. 1. Carrying out seismic surveys and drilling for oil and g as 2. Services starting/re-s tar ting/enhancing production of oil and gas from, wells 3. Services f or prospecting f or exploration of oil and or g as 4. Planning and supervision of repair of wells 5. Repair, Inspection or Equipment used in the exploration, extraction or production of oil and gas 6. Impar ting Training 7. Consultancy in regard to exploration of oil and gas 8. Supply, Installation, etc. of software used for oil and gas exploration" 11. It is also urged on behalf of the appellants that the instruction/Circular dated 22.10.1990 issued by the CBDT was binding on the primary authority on the ratio of the decision of this Court in K.P. V arghese Vs. Income Tax Officer, Emakulam and Others. It has been further pointed on behalf of the appellants that even under the provisions of Section 3D of the Oil Fields (Regulation and Development) Act 1948 a mining lease means a lease gr anted for the purposes of searching for, winning, wor....
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....objection if the matters are remanded f or a complete exercise to be made on the above basis. 13. The Income T ax 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 miner al 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 gas and petroleum in respect of which Parliament h as exclusive jurisdiction under Entry 53 of List I of the 7th Schedule and had enacted and 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....
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....duing 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. 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. 722....
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....pith and substance of each of the contracts/agreements is inextricable connected with prospecting, extraction or production of mineral oil. The dominant purpose of each of such agreement is f or 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. 14. Consequently, all the appeals are allowed with no order as to the casts." 12. In the said order the Hon'ble Court had examined the contracts involved in the group of cases and summarized the brief description of the works covered under each of the said contracts in a table between pg 19-21 of the sai....
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....f work involved in the contracts examined by the Hon'ble Supreme court in the above said order. The scope of work does not indicate that the services provided we re exclusively in the nature of technical, consultancy and managerial in nature as per section 9(1) (vii) of the Act. The services provided by the Assessee were very much in connection with exploration of mineral oil. 17. Similarly, serial no. 10, 15, 22 and 44 of the table inserted in the ONGC Ltd. case (supra) covers the services of data processing given by the assessee with the scope of work involved, in the contracts examined by the Hon'ble Supreme court in the above said order. 18. In the decision of Ld. ITAT, Delhi in the case of Paradigm Geophysical Pty limited (ITA No. 2753/Del/ 2016) wherein the activities of the assessee in regard to maintenance support has been considered as activities falling within the ambit of section 44BB of the Act. The relevant portion of the decision is reproduced below: "7. Further, we find, that in the case of ONGC vs CIT (supra) the Hon'ble Supreme Court held that if the pith and substance of each contracts/agreement is inextricably connected with prospecting....
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.... 23. The reimbursement of equipment lost in hole is in the nature of capital receipts and therefore, same could not be included, in the revenue chargeable to tax u/s 44BB of the Act. As the name signifies lost in hole means destruction and loss of capital assets like drilling equipment which are provided by the assessee to oil exploration and. production companies. Therefore, the revenue received on account of loss of equipment does not form income in the hands of the assessee rather it is a mere reimbursement of the cost of equipment destroyed in the process of oil extraction. 24. The assessee wishes to place reliance on the decision of the Hon'ble Uttarakhand High Court in the own case of the assessee (CIT vs. Schlumberger Asia Services Ltd) wherein the Hon'ble Court held that the receipts on account of equipment lost in hole being in the nature of capital receipts cannot, be included in the revenues chargeable to lax u/s 44BB of the Act. Adjudication of the ld. CIT(A) 5.24 The averments of the appellant have been critically examined in light of the decision in the case of CIT vs. Schlumberger Asia Services Ltd (supra), wherein Hon'ble Uttarakhand ....
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....e decision of the Jurisdictional Tribunal and Hon'ble High Court. 25. Since, the order of the ld. CIT(A) is relied on the order of the ITAT and the Hon'ble Jurisdictional High Court, we decline to interfere with the order of the ld. CIT(A)." 8. We further find the Dehradun Bench of the Tribunal in the case of Smith International Inc., vide ITAs No.4561/Del/2013 and 3824/Del/2014, order dated 10.11.2021 has held as under:- "10. We have perused the record before us and the rationale of the Id. CIT(A). The Id. CIT(A) held that the distinction between PSC and non-PSC partners for deciding whether a receipt would be assessed u/s 44BB or as FTS or Royalty does not have the support of law or for that matters any judicial authority. Thus such a distinction has to be rejected as an artificial construct devoid of merit. Secondly, it also cannot be accepted that similar kinds of services can be taxed u/s 44BB of the Act if rendered to a PSC and thereafter, sought to be taxed as FTS or royalty if rendered to a non-PSC partner. The plethora of case laws cited by the Id. ARs and especially the case of CGG Veritas (50 SOT 335) makes it clear that once a PE is known or admitte....
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.... are covered by the exclusion in section 9(1)(vii), they do not qualify as FTS for invoking section 44DA of the Act. 17. Accordingly we hold that not only receipt of accounts of services which has been accepted by the Ld. CIT (A) was also other scope of work relating to attending meetings but also the other activities are inextricably linked with the contract of design and engineering of submarine pipeline. Therefore the entire receipts for the ONGC as well as Leighton India are taxable u/s 44BB. Accordingly the appeal of the assessee is allowed." 10. Respectfully following the above decisions, we do not find any infirmity in the order of the CIT(A) on this issue. Accordingly the grounds raised by the revenue are dismissed. 11. So far as ground of appeal 6.c. by the Revenue is concerned, we find during the year under consideration, the assessee charged service tax on services rendered to various customers which was paid to the Government of India as per Service Tax Law. The said service tax was reimbursed to the Assessee by its customers as the same was paid on behalf of customers. We find, the CIT(A) following the decision of the Tribunal in the case of Precision En....
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....nue that Section 234B should be read in isolation without reference to the other provisions of Chapter XVII. The liability for payment of interest as provided in Section 234B is for default in payment of advance tax. While the definition of "assessed tax" under Section 234B pertains to tax deducted or collected at source, the pre-conditions of Section 234B, viz. liability to pay advance tax and nonpayment or short payment of such tax, have to be satisfied, after which interest can be levied taking into account the assessed tax. Therefore, Section 209 of the Act which relates to the computation of advance tax payable by the assessee cannot be ignored while construing the contents of Section 234B. As we have already held that prior to the financial year 2012-13, the amount of income-tax which is deductible or collectible at source can be reduced by the assessee while calculating advance tax, the Respondent cannot be held to have defaulted in payment of its advance tax liability. We uphold the view adopted in the impugned judgement of the Delhi High Court in Civil Appeal No. 1262 of 2016 as well as by the Madras High Court in the Madras Fertilizers case (supra), that the Revenue is no....
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....ible in the gross receipts. The case of the assessee is that the said receipt is of capital in nature and hence not chargeable to tax. This issue has been decided by the Hon'ble Uttarakhand High Court in asessee's own case which has been confirmed by the Hon'ble Supreme Court in 399 ITR 1. The relevant findings of the Hon'ble Supreme Court read as under :- 51. In this batch of appeals, Civil Appeal No. 3695 of 2012 is the solitary appeal which is preferred by the Director in Income Tax, New Delhi (Revenue) against the judgment of the High Court of Uttarakhand. The computation of income of the assessee was done under Section 44BB of the Act. However, the amount which was sought to be taxed was reimbursement of cost of tools lost in hole by ONGC. It is, thus, clear that this was not the amount which was covered by sub-section (2) of section 44BB of the Act as ONGC had lost certain tools belonging to the assessee, and had compensated for the said loss by paying the amount in question. On thses facts, conclusion of the High Court is correct. Even otherwise, the tax effect is Rs. 15,12,344/-. Therefore, Civil Appeal No. 3695 of 2012 filed by the Revenue is dismissed. 8....