AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2022 (6) TMI 833
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....ing 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 expenditure (equipment lost in hole, customs duty etc.) from PSC and Non-PSC totali....
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....uld 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 certain matter, that matter is excluded from the general provision under the rule which is expressed by the maxim "Generalliaspecialibus ....
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....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 assessee was within the definition of fees for technical services. The question as to whether not the services were specific and essential for the oil & gas E&P operations or were general fees for technical services was never considered by the Court. In view of the above facts, the High Court ruled that - ....
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....s 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. Ground no.5 challenges the inclusion of certain general reimbursements in the computation of income, both u/s 44BB of the Act or as FTS/Royalty. Following the decision in AY 2010-11 (Supra) this ground is rejected but the ld. AO is directed to consider these expenses only u/s 44BB of the Act. 8. Ground no. 7 protests the treatment of consortium between the Appellant and SASL as an AOP-. This ground is identical to the one adjudicated in AY 20....
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....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)] cited by him, the provisions of section 44BB are not applicable where the scope of the services/facilities provided by an assessee is general in nature falling under section 44DA(1) of the Act. 3.3 The Ld CIT(A) has erred in mechanically following the decisions in the case of M/s OHM Ltd. without first adjudicating upon the issue as to whether and how the scope of the services/facilities rendered under the contracts is not general in nature and therefore, does not qualify as FTS u/s 9(l)(vii) of the Act taxable under section....
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....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 business receipts. Owing to the inherent similarity in the nature of the sales tax and service tax, the ratio of the judgment in the said case is directly applicable in the facts of the instant case. 7. Whether on the facts and circumstances on the facts, the Ld. CIT(A) has erred in reversing the action of the AO who, having held that the assessee's revenues on account of aforesaid services under Contracts with various entities are liable to be taxed u/s 44DA, rightly estimated the income of the assessee by applying 25% rate of profit on gross receipts in the absence of books of accounts and....
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....espectfully 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 amounting to Rs 32,23,63,873 are to be included in computing the gross receipts for the purpose of the estimation of income under section 44BB of the Act as opposed to Appellant's claim for non-taxability of such receipts ignoring the orders of the jurisdictional High Court and Hon'ble Income Tax Appellate Tribunal in Appellant's own case." 6. So far as the grounds of appeal filed by the Revenue are concerned, the ld. DR heavily relied on the order of the AO. The ld. Counsel, on the other hand, submitted that the AO himself in subsequent years i.e., AY 2012-13 and onwards has accepted that the revenue earned by the assessee on account of rental on equipme....
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....le 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 subsequent years i.e., 2012-13 and onwards has accepted that revenues earned by the assessee on account of rental of equipments and provision of services are in the nature of section 44BB of the Act even in cases where such revenues were received from same contracts as AY 2011-12. We find for certain other streams of services in assessee's own case for AY 2013-14, the AO did not accept that the services are covered u/s 44BB. We find, the Tribunal vide ITA No.6172/Del/2017, order dated 7th December, 2021 for AY 2013-14, held that income from provision of services having nexus with oil exploration or production should be taxed u/s 44BB of the Act. The relevant observa....
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.... 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 of the assessment order has observed that these services cannot be considered as any activity relating to mining activity and basically in these activities assessee is providing technical and consultancy services and therefore covered under the definition of FTS as per provision of section 9 (1)(vii) of the Act." 11. On perusal of the judgment of Hon'ble Supreme court of India in civil appeal number 731 of 2007 in the case of ONGC Ltd vs. CIT and others it is found that the issue before the Hon'ble court was to decide whether certain services in connection with prospecting, extraction or production of mineral oil is chargeable to tax as "fees for technical services" under section 44D read with Exp....
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....planation 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 recipient chargeable under the head "Salaries". 2. The question whether prospecting for, or extraction or production of, mineral oil can be termed as 'mining operations, was ref erred to the Attorney General of India for his opinion. The Attorney General has opined that such operations are mining operations and the expressions 'mining project' or 'like projects' occurring in Explanation 2 to Section 9 (1) (ii) of the Income Tax. Act would cover to Section 9(1) (vii) of the Income Tax Act would cover rendering of services like imparting of training and carrying out drilling operations for exploration or exploitation of oil and natural gas. 3. In view of the above opinion, the consideration for such services will not be treated as fees for te....
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.... 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, working, getting, making merchandisable, carrying away or disposing of mineral oils or f or the purpose connected therewith and such a lease includes an exploring or prospecting lease. Reference h as also been made to the Petroleum and Natural G as Rules, 1959 Framed under Section 5 of the aforesaid Act. Under Rule 4 of the s aid Rules no person can prospect f or petroleum except pursuant to a Petroleum Exploration License (PEL) granted under the Rules and no person can mine petroleum except in pursuance of a Petroleum Mining License (PML) granted under the Rules. It is pointed, out that under Rule 7 of the Rules of 1959 a petroleum mining license (PML) entitles the licensee to carry out construction and maintenance in and on such land, works, buildings, plants, waterways, roads, pipelines etc. as may be necessary for full enjoyment of the PML. ....
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....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 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 would be crucial for the determination of the question whether the payments made under such an agreement to the non-resident assessee or the foreign company is to be assessed und.er Section 44BB or Section 44D of the Act. The test of pith and substance of the agreement commends to us as reasonable f or acceptance. Equally important is the f act that the CBDT had....
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....is 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. 23. 733 Repair of gas turbine, gas control system and inspection of gas turbine and generator. 24. 741 Repair and inspection of turbines. 25. 737 Repair, inspection and overhauling of turbines. 26. 736 Inspection, engine performance evaluation, instrument calibration and inspection of far turbines. 27. 1522 Replacement of choke and kill consoles on drilling 28. 1521 rigs. Inspection of gas generators. 29. 1515 Inspection of ....
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.... and summarized the brief description of the works covered under each of the said contracts in a table between pg 19-21 of the said order. In view of the ratio of the above judgment, it is to be seen whether the receipts under the head "post-stack inversion study, core pressure and well-bore study, data processing and maintenance services" is covered within the scope of work under the contracts examined by the Hon'ble Supreme court in the said order. It is the scope of work and nature of service that determines taxability under section 44 BB and 44DA of the Act. 13. On examination of several sources available on the public domain it was found that post-Stack inversion transforms a single seismic data volume into acoustic impedance through integration of the assessment data, well data and a basic stratigraphic interpretation. The data input to the post stack inversion project typically consists of a set of wells containing sonic and density logs, optional check shots, formation markers and aviation service, a series of interpreted horizons and a seismic data volume. It generates acoustic impedance volumes from 2D or 3D seismic. 14. On perusal of the material on wellborn analysis....
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.... substance of each contracts/agreement is inextricably connected with prospecting, extraction or production of mineral oil, then payment received by the nonresident assessee or foreign companies under the said contract is more appropriately assessable under the provisions of section 44BB and not u/s 44D of the Act. The list of contracts, in the said appeal before the Supreme Court included following contracts: "1. Contract of supply, installation and familiarization of software for processing seismic data. 2. Contract of supply, supervision and installation of software which is used for analysis of flow rate of mineral oil to determine reservoir conditions. ....................... 8. In the case in hand also the software is supplied and maintained were related to various activities of exploration including for reservoir navigator, up-gradati on of the Geo log multimin etc. 9. In view of the above, respectfully following the decision of the Hon'ble Supreme Court, in the case of ONGC versus CIT (supra) and the decision of the Tribunal (supra) in the case of the assessee itself, we hold that the services provided with assessee falls within the ambit of section 44BB of the Ac....
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....dorsed the view of Hon'ble ITAT and held that no question of law arises to be answered in this appeal. It is further gathered from the decision of the Hon'ble ITAT, Delhi in the case Schlumberger Asia Services Ltd(ITA NO. 6063/Del/2010) f or the assessment year 2007-2008 that the issue of reimbursement received on account of equipment lost in hole is decided in favour of the assessee by considering the earlier decisions. Ld ITAT has observed as below: "7.7 It has further been noted that the A.O. has included a sum of Rs. 7,23,59,963/- received by the Assessee as reimbursements of certain expenses being customs duties paid, by the Assessee on behalf of its clients, equipments lost in hole etc. It has been submitted that the inclusion of this amount within the scope of receipts f or purpose of determining income of the Assessee is contrary to the settled law on the issue and decisions in the case of the Assessee itself. Income tax is leviable only on those receipts, which constitute 'income'. "Income" as contemplated under the Act does not include "reimbursement of expenses". There is no element of profit and. gains in the reimbursements received by the Assessee, which has ....
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.... to be assessed u/s 44BB of the Act more so because the equipment supplied and services rendered are for the purposes of extraction or production of mineral oils. Thirdly, treating of supply of skilled personnel to operate equipment supplied by the assessee cannot be viewed in isolation since the activity of supplying such manpower is part and parcel of the supply of equipment to be used for extraction or production of mineral oils. For this reason also, the income has to be assessed u/s 44BB of the Act only." 9. We further find the co-ordinate Bench of the Tribunal in the case of INTECSEA Asia Pacific Sdn. Bhd vs. ACIT, vide ITA No.5577/Del/2018, order dated 8th October, 2021 for AY 2015- 16, while deciding an identical issue has observed as under:- "15. From the perusal of the services and the nature of scope of work, we find that duties carried out by the appellant on contract with ONGC in fact has mining activity which was excluded from the definition of FTS u/s 9(1)(vii) as they are essential to the development and exploration of the oil and gas fields of ONGC. These services ostensibly is to be regarded as exclusion to FTS under section 9(1)(vii) and such activities need n....
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..... We find, the issue stands decided in favour of the assessee by the decision of the Hon'ble Uttarakhand High Court (Full Bench) in Assessee's own case and Others reported in 414 ITR 1 wherein the Hon'ble High Court has held that amount reimbursed to the Assessee by ONGC representing service tax paid earlier by Assessee to the Government of India and not "on account of provision of services in connection with exploration and production of mineral oil", would not form part of aggregate taxable amount as referred under section 44BB. We find, the Tribunal in assessee's own case for AY 2012-13 vide ITA 79 of 2017 has also followed the above decision of the Hon'ble High Court. Since the decision of the Hon'ble High Court was not challenged before the Hon'ble Supreme Court by the Revenue, a statement made by the ld. Counsel for the assessee at the Bar and not controverted by the ld. DR, therefore, the said issue, in our opinion, has reached finality. Once the Revenue has accepted a position in Assessee's own case, the same, in our opinion, needs to be followed and applied in the year under consideration. In view of the above discussion, the ground of appeal No.6.c. by the Revenue is dism....
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....ainst the payer who has defaulted in deducting tax at source. There is no doubt that the position has changed since the financial year 2012-13, in view of the proviso to Section 209 (1) (d), pursuant to which if the assessee receives any amount, including the tax deductible at source on such amount, the assessee cannot reduce such tax while computing its advance tax liability." 12.1 Accordingly, ground No.8 filed by the Revenue is dismissed. 13. So far as the appeal filed by the assessee is concerned, we find, the assessee, during the impugned assessment year, has received an amount of Rs.32,23,63,873/- on account of reimbursement of various expenses which include equipment lost in hole, reimbursement of customs duty, reimbursement of hotel cost, insurance cost, etc. The detailed break-up of the expenses are as under:- Sr no. Nature of reimbursement Amount (Rs) 1 Equipment lost in hole 27,87,39,161 2 Reimbursement of Customs Duty 3,77,70,682 3 Hotel reimbursement 37,20,022 4 Insurance Premium Cost 3,34,432 5 Reimbursement of Transportation Charges 7,59,919 6 Reimbursement of Freight 4,35,532 7 Others 6,04,124 Total 32,23,63,873 1....