TaxTMI 
TaxTMI 
2022 (7) TMI 1507
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....y. As stated by the Assessing Officer, assessee is primarily engaged in engineering, procurement and construction business for oil production- off-shore and on-shore, refining petrochemicals, fertilizers, chemical fertilizers, non-conventional energy and submarine pipelines etc. The assessee had entered into contracts with two Indian entities viz. Oil and Natural Gas Corporation (ONGC) and RIL. During the year under consideration, the assessee has earned income from both the contracts. However, insofar as receipt from ONGC contract is concerned, there is no dispute between the assessee and the Revenue. The dispute is only with regard to the receipts from contract entered with RIL. 4. As could be seen from the facts on record, as per the scope of work under the contract with RIL, the assessee was entrusted with the work in connection with remedial action on well A5 in the Krishna Godawari (KG block), which involved retrieval of the installed X Mas Tree (XMT), and installation of XMT. The process further involved retrieval of the Jumper, disconnection of umbilicals, re-installation of Jumper and stabbing of umbilicals, once the new XMT is installed. 5. Before the Assessing Officer,....
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.... of the assessee has to be taxed by applying the presumptive rate as per section 44BB of the Act. 7. Sh. Sanjay Kumar, learned Departmental Representative, strongly relying upon the observations of the Assessing Officer, submitted that the assessee itself is not engaged in the business of prospecting for or extraction or production of mineral oils. He submitted, the activity of prospecting for, or extraction or production of mineral oil was actually performed by RIL. He submitted, RIL engaged the assessee as a second line contractor for providing certain services in relation to repair/replacement of certain parts of plants/machineries used in prospecting for or extraction of mineral oils. Therefore, the provisions of section 44BB of the Act would not be applicable to the assessee. In this context, he drew our attention to the scope of work as envisaged in the contract between the assessee and RIL. 8. Drawing our attention to the decision of the Hon'ble Supreme Court in case of ONGC Ltd. Vs. CIT, 376 ITR 306, learned Departmental Representative submitted that what is to be examined is, whether the dominant purpose of the contract is prospecting for or extraction or production of m....
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.... does not impose any 'make available' condition. Thus, he submitted, even under the treaty provision, the services rendered by the assessee would qualify as FTS. In support of his submission, he relied upon the following decisions: 1. Paradigm Geophysical Pty. Ltd. Vs. CIT, WP(C) No. 1370 of 2019, dated 13.03.2020 2. University of Calgary Vs. ADIT, (2017) (ITA No. 4877/Del/2013 & 1327/Del/2016) 10. Sh. Ajay Vohra, learned Senior Counsel appearing for the assessee submitted, the services rendered by the assessee cannot be regarded as FTS, either under section 9(1)(vii) of the Act or under Article 13 of Indian - France Treaty. Drawing our attention to the agreement between the assessee and RIL, learned counsel submitted, while RIL has been entrusted with the work of drilling and exploration of oil at KG Basin, a part of the work was subcontracted to the assessee by RIL. He submitted, due to some issues relating to a particular oil well in a block, RIL intended to carry on remedial action. He submitted, the services rendered by the assessee were in connection with prospecting for, extraction and production of mineral oil. Therefore, the assessee computed its income under section ....
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.... operation or to take away the separate identity of section 44BB of the Act. Thus, relying upon the ratio laid down in these decisions, learned counsel submitted, mining/oil exploration projects are not restricted to carrying out mining simpliciter. The said projects comprise of amalgam of activities where each of such activities are indispensable to the completion of the project. Therefore, considered in that context, the activities performed by the assessee are services in connection with prospecting for, extraction or production of mineral oils, hence would be covered under section 44BB. 12. He submitted, section 44DA of the Act provides that income by way of royalty or FTS earned by a non-resident assessee in pursuance to an agreement with the Government or an Indian concern shall be computed under the head 'profit and gains from business or profession', in case, the non-resident assessee carries out its business in India through a Permanent Establishment (PE) situated therein and the right, property or contract in respect of which the royalty or FTS paid is effectively connected with such PE. He submitted, since, the assessee had no PE in India under the India - France DTAA, ....
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....0 ITR 286 8. Wavefield Inseis Asa [2009] 320 ITR 290 9. McDermott International Inc. Vs. DCIT [1994] 49 ITD 590 (Delhi) 10. Oil and Natural Gas Corporation Ltd. VS. CIT, 376 ITR 306 (SC) 11. Louis Dreyfus Armateures SAS Vs. ADIT, 54 taxmann.com 366 (Delhi) 12. Pride Offshore International LLC Vs. ADIT, 59 taxmann.com 23 (Delhi) 13. ADIT Vs. International Technical Services LLC, 71 taxmann.com 351 (Delhi) 14. Iranian Offshore Engineering & Construction Company Vs. ADIT, 76 taxmann.com 95 (Delhi) 15. Micoperi S.P.A. Milano Vs. DCIT [2002] 82 ITD 369 (Mumbai) 16. Bourbon Offshore Asia Pte Ltd. [2011] 337 ITR 122 (AAR) 17. Spectrum Geo Ltd. [2012] 346 ITR 422 (AAR) 18. ADIT Vs. International Technical Services LLC, 159 ITD 958 (Delhi) 19. ADIT vs. M.B. Petroleum Services LLC.: 63 SOT 63 (Del.) 20. ADIT vs. TDI Brooks Intl. Inc: 64 taxmann.com 390 (Del.) 21. Viking Maritime Inc. vs. DCIT: 69 taxmann.com 303 (Del.) 22. Fugro Geoteam vs. ADIT: 37 ITR(T) 46 (Del.) 23. ADIT vs. International Technical Services LLC: 71 Taxmann.com 361 (Del.) 24. ADIT vs. Western Geco International Limited: 71 Taxmann.com 166 (Del.) 25. Siem Offshore Crewing AS vs. ADIT: 68....
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....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"; 17. A reading of Explanation 2 to section 9(1)(vii) would make it clear that it carves out an exception by excluding consideration received for any construction, assembly, mining or like projects and, off course, any income which is chargeable under the head "salary" from the term 'FTS'. The meaning of expression "mining or like projects" as used in Explanation 2 to section 9(1)(vii) of the Act has been clarified by the CBDT in instruction no. 1862, dated 22.10.1990 as under: "INSTRUCTION NO. 1862, DATED 22-10-1990 1. 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 purpose of this clause, 'fees ....
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....ried out is in the nature of mining activity or a mining operation, the Hon'ble Supreme Court propounded that it is the proximity of work contemplated under an agreement executed with a non-resident assessee with mining activity or mining operation, that would be crucial for determining, whether the payment made under such an agreement to the non-resident is to be assessed under section 44BB or section 44D of the Act. Thus, Hon'ble Apex Court observed that test of pith and substance of the agreement would be the factor to decide, whether the amount received would be in the nature of profit earned for rendering services or facilities in connection with prospecting for mineral oils etc. While so observing, the Hon'ble Supreme Court also referred to CBDT Instruction No. 1862, dated 22.10.1990. Thus, what follows from the observations of Hon'ble Supreme Court in case of Oil and Natural Gas Corporation (supra) is, the expression 'mining or like projects' would also encompass activities in relation to prospecting and exploration of minerals oils. 19. At this stage, we need to examine the contract entered between the assessee and RIL on 6th March, 2010, a copy of which is placed at page ....
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....fied 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" 22. On a careful reading of the aforesaid provision makes it clear that profits earned by a non-resident engaged in 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 would be taxable at the rate of 10% of the aggregate amount as specified in sub-section (2). Off course, the proviso to sub-section (1) of section 44BB carves out an exception by providing that the provision would not apply in a case where provision of section 42 or section 44D or section 44DA or section 115A or section 293A would apply for computing profits and gains of the business. In the facts of the present case, admittedly, entire case of the Revenue is, assessee's income is to be computed under section 44DA. However, we have already held that the amount received not being in the nature of royalty or FTS, section 44DA would not apply. 23. Reverting back to the issue of applicability of section 44BB of the A....
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....fession 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 Ad, 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 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 ismore specific than what is contemplated by Section 44DA.Section 44BB refers specifically to "services or facilities inconnection 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 nonresident from rendering such specific services are covered by Section 44....
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....e revenues received by the nonresident. 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 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 subsection (I) of Section 44BB can only mean that the fiat rate of 10% of the revenues cannot be deemed to be the profits of the nonresident 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 ....
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.... company would be chargeable to tax under the provisions of Section 44BB and not Section 44D of the Act. We do not see how any other view can be taken if the works or services mentioned under a particular agreement is directly associated or inextricably connected with prospecting, extraction or production of mineral oil. Keeping in mind the above provision, we have looked into each of the contracts involved in the present group of cases and find that the brief description of the works covered under each of the said contracts as culled out by the appellants and placed before the Court is correct.........." 26. From the details of works covered under the contract enumerated in the aforesaid observations of the Hon'ble Supreme Court, it can be well appreciated that wide spectrum of services in the nature of analysis of data of wells to prepare a job design, review of sub-surface well data, providing repair plan of wells and supervise repairs, repair of gas turbine, gas control system and inspection of gas turbine and generator, repair and inspection of turbines, repair, inspection and overhauling of turbines, expert advice on the device to clean insides of a pipeline, feasibility stu....
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....ssee's own case in ITA No. 4284/DEL/2013. Though the said decision of the co-ordinate bench was in respect of the order framed u/s 263 of the Act, but the findings are very much relevant to the case in hand. The relevant extract of the said decision of the co-ordinate bench reads as under: "In the instant case, ground for which the DIT assumed jurisdiction u/s 263 of the Act are that provisions of section 44BB of the Act does not cover second leg contract and the said section is not application to sub-contracts engaged in providing technical services to contractors for those undertaking projects in oil exploration, that income received by the assessee was clearly covered u/s 44DA of the Act and hence not taxable u/s 44BB of the Act and that the A.O has not taxed out country receipts and that contract was a composite one and the A.O in the order did not discuss the taxability of the total receipts with regard to the admitted PE of the assessee in India. 57. From the various decisions filed by the assessee in the paper book, we find it has been held in various decisions that section 44BB of the Act are applicable to second level contractor/sub-contractor. We find the Delhi Be....
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.... find any fault in the claim of the assessee that revenues received under the charter agreements with CGG for providing two seismic survey vessels are in consideration with prospecting extractions or production of mineral oils and therefore taxable u/s 44BB of the Act." 58. The various other decisions relied on by the ld. counsel for the assessee also support the proposition that the provision of section 44BB of the Act are held to be applicable to the tax payer being a second leg contractor/sub-contractor. Further, it has been held in various decisions including the decision of the Hon'ble Delhi High Court in the case of DIT Vs. OHM Ltd. reported in 352 ITR 406 that the services rendered in relation to extraction and production of mineral oil are taxable u/s 44BB of the Act. 59. So far as the receipts of out-country services as taxable in India is concerned, we find in terms of section 90(2) of the Act, provisions of the Act are over ridden by the provisions of DTAA to the extent more beneficial to the non-resident assessee. Article 7(1) and 7(2) of the Indo-UK DTAA provides that profits attributable to PE in India shall be only profits arising from activities carried out ....
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....hether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between "lack of inquiry" and "inadequate inquiry". If there was any inquiry, even inadequate that would not by itself give occasion to the CIT to pass orders under s. 263 of the Act, merely because he has different opinion in the matter. It is only in cases of "lack of inquiry" that such a course of action would be open. In Gabriel India Ltd. (supra), law on this aspect was discussed in the following manner: "........From a reading of sub-s. (1) of section, it is clear that the power of suomotu revision can be exercised by the CIT only if, on examination of the records of any proceedings under this Act, he considers that any order passed therein by the ITO is 'erroneous insofar as it is prejudicial to the interests of the Revenue'. It is not an arbitrary or unchartered power. It can be exercised only on fulfilment of the requirements laid down in sub-s. (1). The consideration of the CIT as to whether an order is erroneous insofar as it is prejudicial to the interes....
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....lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed. ............... We may now examine the facts of the present case in the light of the powers of the CIT set out above. The ITO in this case had made enquiries in regard to the nature of the expenditure incurred by the assessee. The assessee had given detailed explanation in that regard by a letter in writing. All these are part of the record of the case. Evidently, the claim was allowed by the ITO on being satisfied with the explanation of the assessee. Such decision of the ITO cannot be held to be 'erroneous' simply because in his order he did not make an elaborate discussion in that regard.........." 13. When we examine the matter in the light of the aforesaid principle, we find that the AO had called for explanation on this very item, from the assessee and the assessee had furnished his explanation vide letter dt. 26th Sept., 2002. This fact is even taken note of by the CIT himself in para 3 of his order dt. 3rd Nov., 2004. This order also reproduces the reply of the respondent in para ....
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....s to record a finding that order sought to be revised was erroneous and prejudicial to the interest of the Revenue. [See Seshasayee Paper (supra)]. No basis for this is disclosed. In sum and substance, accounting practice of the assessee is questioned. However, that basis of the order vanishes in thin air when we find that this very accounting practice, followed for number of years, had the approval of the IT authorities. Interestingly, even for future assessment years, the same very accounting practice is accepted. 62. We find the Hon'ble Delhi High Court in the case of CIT Vs. Anil Kumar reported in 335 ITR 83 has held that where it was discernible from record that the A.O has applied his mind to the issue in question, the ld. CIT cannot invoke section 263 of the Act merely because he has different opinion. Relevant observation of the High Court reads as under: 63. We find the Hon'ble Delhi High Court in the case of Vikas Polymer reported in 341 ITR 537 has held as under: "We are thus of the opinion that the provisions of s. 263 of the Act, when read as a composite whole make it incumbent upon the CIT before exercising revisional powers to : (i) call for and examine....