TaxTMI 
TaxTMI 
2026 (2) TMI 1144
X X X X Extracts X X X X
X X X X Extracts X X X X
.... controversy, as borne out from the petition. The petitioner is a non-resident company and is incorporated in Norway. It is engaged in the business of providing geophysical services to oil and gas industry. It conducts seismic surveys and provides offshore seismic data acquisition and other associated services such as processing and interpretation of such data. On 20.11.2024, the petitioner received a Letter of Award (LOA) from the Oil and Natural Gas Commission (ONGC) bearing no. DLI/2024/BB4SEC/1311217/ZV5AC24001 for hiring its services for 2D and 3D broadband seismic data acquisition, pursuant to which, the parties viz., the petitioner and ONGC entered into a contract on 27.12.2024 bearing no. DLI/2024/BB4SEC/1311217/ZV5AC24001/9010039479 whereby the petitioner is to provide services in relation to 2D and 3D Broadband seismic data for acquisition at the eastern offshore of India. 3. Since the petitioner was to receive $22,905,098 (equivalent to Rs.206,14,58,790) pursuant to the aforesaid LOA in relation to 2D &3D Broadband seismic data acquisition in the FY 2024-25, relevant to AY 2025-26, it applied for a certificate under Section 197 of the Act, requesting the Revenue to gr....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... taxable under section 44BB of the Act, issued the certificate and order for AY 2025-26 dated 22.01.2025 wherein it directed TDS to be deducted at the rate of 3.5% on the payment to be received by the petitioner from ONGC. 5. As the contract was continuing for the FY 2025-26, the petitioner filed an application dated 12.03.2025 for renewal of the certificate for the year under consideration, i.e., A.Y. 2026-27 requesting lower rate of withholding tax on the estimated receipt of $5,18,91,522 (equivalent to Rs.451,45,62,414). In the said application, the petitioner categorically pointed that the application is regarding the same contract and the same fact patterns as for immediately preceding A.Y. 2025-26 for which the Revenue issued the certificate and order dated 22.01.2025 for TDS to be deducted at the rate of 3.5% of the payment to be received by the petitioner. It also provided the clarification/information sought by the Revenue. 6. Thereafter, the Revenue issued a letter dated 26.04.2025 calling upon the petitioner to show cause as to why the provisions of Section 44DA of the Act are not applicable to the receipts which are to be received by the petitioner in place of Sec....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ble under Section 44BB of the Act and therefore, deemed profitability of 10% with profit attribution at the rate of 35%, which would be taxable at 10%, ought not to have resiled from that position without there being any change in facts. The rule of consistency in income tax proceedings cannot be ignored. If a view has been taken in the proceedings for earlier year, then the Revenue is estopped from taking a different view in the subsequent year unless there is some rational and reasonable cause for the same. In this regard, he has referred to the decision of this Court in Prem Kumar Chopra v. ACIT W.P.(C) 12104/2022. Further reliance is placed on the judgments in the cases of RadhasoamiSatsang v. CIT, (1992) 193 ITR 321 (SC); Commissioner of Income Tax v. Excel Industries, 2014 13 SCC 459; Lufthansa Cargo AG v. DCIT, W.P.(C) 91361/2019; Tata Teleservices (Maharashtra) Ltd. v. DCIT, (2018) 402 ITR 384; Commissioner of Income Tax v. ARJ Security Printers, 264 ITR 276; Commissioner of Income Tax v. Neo Poly Pack Pvt. Ltd., 245 ITR 492 and Commissioner of Income Tax v. Dalmia Promoters Developers Pvt. Ltd., 2006 SCC OnLine Del 83. 12. Mr. Kapoor has submitted that the Revenue has e....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nternational Taxation) v. Schlumberger Asia Services Ltd., [2024] 297 Taxmann 1 (SC); Commissioner of Income-tax v. Vantage International Management Co. [2024] 296 Taxman 160 (SC); Commissioner of Income-tax v. Transocean Offshore International Ventures Ltd., [2023] 459 ITR 609 (SC). 15. Mr. Kapoor also submitted that the Revenue has arbitrarily characterised the receipts of the petitioner as Royalty/FTS without providing any reasons. The scope of work of the petitioner under the contract is confined to supplying 2D and 3D broadband seismic data acquisition of the eastern offshore of India, receipts whereof would not amount to Royalty/FTS as per the provisions of the Act. Further, the Revenue has not even stated as to whether the receipts of the petitioner would amount to Royalty or FTS, which are two completely different and mutually exclusive categories, and the receipts of the petitioner certainly cannot be both. 16. In support of his submission that the receipts of the petitioner would not fall under FTS, he has relied on the following: 16.1 Explanation 2 to Section 9(1)(vii) of the Act, which categorically excludes receipts in relation to mining or like projects from ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd that these services are covered by the exclusion provided in Explanation 2 to Section 9(1)(vii), being consideration for 'mining or like projects' and hence, are not taxable under Section 44DA of the Act, but under Section 44BB by relying on Supreme Court ruling in Oil and Natural Gas Corporation Limited (supra). 17. He has also submitted that the services provided by the petitioner would also not fall within the definition of Royalty as provided in Explanation 2 to Section 9(1)(vi) of the Act, which provides as under: "Explanation 2.-For the purposes of this clause, "royalty" means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head "Capital gains") for- (i) the transfer of all or any rights (including the granting of a licence) in respect of a patent, invention, model, design, secret formula or process or trade mark or similar property ; (ii) the imparting of any information concerning the working of, or the use of, a patent, invention, model, design, secret formula or process or trade mark or similar property ; (iii) the use of any patent....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... ↓ Section 44BB covers services or facilities 'in connection with' prospecting, of mineral oil- a broad scope. ↓ Seismic survey is the very first step in prospection, collecting vital data to determine locations for drilling. ↓ There is no doubt that seismic surveys are prospection activities and clearly fall outside the ambit of section 9(1)(vii) the Act. ↓ Delhi High Court in Petitioner's own case and same offshore / marine seismic survey services and Supreme Court in Oil and Natural Gas Corporation Ltd. (supra) have affirmed that seismic surveys fall within the ambit of Section 44BB and in the exclusion of Explanation 2 to Section 9(1)(vii) of the Act and as such it is not FTS. 19. Mr. Kapoor has submitted that the statutory language of Section 44BB uses the phrase "engaged in the business of providing services or facilities in connection with prospecting for, or extraction or production of, mineral oils (including petroleum and natural gas)" which contemplates a wide array of services and facilities related to prospecting, extraction, or production of mineral oil. Hence, there is no requirement that such services must necessarily i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....at the income of the assessee would be computed under Section 44BB(1) of the Act. However, if such conditions are not satisfied then the income tax payable by the appellant would be computed in accordance with Section 115A(1)(b) of the Act." 22. A reference is also made to the judgment of this Court in Paradigm Geophysical Pty Ltd. v. CIT : W.P.(C)1370/2019. 23. He also submitted that real nature of income and taxability can be determined only after examination of actual functions carried on by the assessee during the previous year relevant to impugned assessment year. Further, the issuance of certificate under Section 197 of the Act, does not preclude/ bind the Petitioner to adopt a different position and file its return of income on that basis. 24. He stated that that considering the position of law and the fact that the assessee failed to provide the proposed financials relating to its project office, profit was reasonably and tentatively determined at the rate of 20% on the gross receipts of the petitioner in India, on which 35% tax was applied and accordingly, a certificate under Section 197 of the Act was issued. 25. That apart, it is stated that the certificate u....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion, the activities of the petitioner pertain to the contract dated 27.12.2024, which was the same contract pursuant to which the Revenue had issued the certificate and order for AY 2025-26. He has also challenged the stand of the Revenue that the petitioner failed to provide its proposed financials, by stating that that vide letter dated 23.04.2025, the petitioner had submitted global financials in response to the clarifications sought by the Revenue. 30. In sur-rejoinder, Mr. Gupta has reiterated his contention that the certificate under Section 195 / 197 of the Act, is only provisional and tentative, which may or may not be in strict compliance with actual tax liability of the assessee. In other words, at the stage of issuance of certificate under Sections 195 / 197, the assessing officer has to determine the quantum of TDS, and not the real/actual tax liability of the assessee from the said transaction. Thus, at the time of insurance of certificate under Section 195 / 197 of the Act, the Assessing Officer determines tentative quantum of tax that is required to be deducted based on his individual satisfaction / estimates, and the same doesn't operate as an estoppel against th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... [1999] 103 Taxman 280 (Andhra Pradesh). 33. He has provided the following table to highlight the distinction in the language employed by Section 44BB and Explanation 2 to Section 9 (1)(vii) of the Act: Section 44BB Explanation 2 to section 9(1)(vii) Notwithstanding anything to the contrary contained in sections 28 to 41 and sections 43 and 43A, in the case of an assessee, being 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, a sum equal to ten per cent of the aggregate of the amounts specified 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" : 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. assem....
X X X X Extracts X X X X
X X X X Extracts X X X X
....entists "see" below the ocean floor. Seismic survey is conducted by a vessel towing a compressed air gun which fires in regular intervals and a large array of sound sensors that record how long it takes for the sound to bounce back from the layers of rock under the sea floor from the recorded data detailed three-dimensional maps are produced these provide engineers the information they need to develop a production plan in order to tap the highest yield reserves. During the process of Offshore Seismic Survey, no construction, mining, assembly or any similar activities take place. Thus, such offshore seismic surveys and data acquisition does not fall under exceptions carved out from Explanation 2 to Section 9(1)(vii) of the Act. He also stated that if the offshore seismic surveys and data acquisition is coupled with mining or drilling operation, then it may fall outside the scope of FTS. 37. Mr. Gupta has also drawn our attention to Clause 3 and Appendix-C of the contract dated 27.12.2024, to submit that apart from providing for Offshore Seismic Surveys and Data Acquisition, the contract also identifies the vessels [MV Ramform Sovereign] and various equipments to be deployed by th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....xamined nor given any finding as to nature of receipt arising from solitary function of '2D/3D Offshore Seismic Survey' and whether the same would qualify as FTS, or Royalty, particularly when the specific vessels as well as equipment are identified in the said contract for carrying out such work. 40. He has submitted that however, after the amendment introduced by Finance Act, 2010, FTS/Royalty even though arising on account of services/activities in connection with business of exploration, etc., of mineral oils, shall be taxable as per provisions of Section 44DA of the Act, since, the amendment expressly and clearly overrides 'Special provision for computing profits and gains in connection with the business of exploration, etc., of mineral oils', by introduction of Second Proviso to Section 44DA(1) of the Act, which reads, "Provided further that the provisions of section 44BB shall not apply in respect of the income referred to in this section." To decipher such correlation between Sections 44BB and 44DA of the Act, he has placed reliance on the decision of this Court in the case of Paradigm Geophysical Pty Ltd. (supra) wherein, scheme of the Act has been elaborated, for class....
X X X X Extracts X X X X
X X X X Extracts X X X X
....x amount: 3.5 Cr. [i.e., 3.5% of Gross Receipt] Tax amount: 20 Cr. [i.e., 20% of Gross Receipt] (in present case: Income estimated @ 20% of Receipt Tax amount: 100 Cr. x 20% x 35% = 7 Cr. [i.e., 7% of Receipt in this case ANALYSIS AND CONCLUSION 41. Having heard the learned counsel for the parties, and perused the record, the issue which arises for consideration is whether the AO is justified in issuing the certificate and order dated 01.05.2025 under Section 197 of the Act in the case of the petitioner for the FY 2025-26 relevant to AY 2026-27 whereby withholding tax at the rate of 7% on gross receipts has been imposed upon the petitioner. 42. The order which has been issued by the AO is reproduced below:- "Sub: ORDER UNDER SECTION 197 OF THE INCOME TAX ACT, 1961 An application u/s 197 from M/s PGS Geophysical AS (hereafter referred to as the 'applicant') vide request no.708797 regarding issuance of certificate u/s 197 of the Income-tax Act for withholding tax at 3.12% for FY 2025-26 in respect of receipts of Rs. 477,40,19,980/- receivable from M/s Oil and Natural Gas Corporation Limited under the terms of contract between PGS Geophysical AS and....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 4. The applicant has not provided financials for the project office. Moreover, the applicant has assumed USD exchange rate of I USD = 92 INR which is not correct. The average dollar rate during the year 2025 is 1USD= 86.40 INR. Therefore, the exchange rate of 1 USD = 87 INR may be allowed to the assessee. The calculations the revenue to be received is as follows: The applicant is expected to receive USD 5,18,91,522/-. Considering the exchange rate of Rs. 87 the amount expected to be received is USD 5,18,91,522/- * 87 = Rs. 4,51,45,62,414/-. 5. Therefore, the profit rate of 20 percent is being assumed. 197 is a very premature stage for determining income for AY 2026-27 and assessment is not possible at this very point of time, hence, in order to protect the interest of revenue, taking into account the rate of tax on business income @35%, we may issue certificate u/s 197 directing the buyer to deduct tax at source @ 7% (excluding surcharge and cess) on the payment of Rs. 4,51,45,62,414/- for reporting purpose only. Such certificate would be provisional in nature and subject to final assessment. 6. The certificate is provisional and shall remain in f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....fter the effective date i.e. April 01, 2011 since the return of income filed by the Petitioner pertains to the assessment year 2012-13..... ***** ***** ***** The interplay between Section 44DA(1) and 44BB(1) of the Act has been a subject matter of several judgments. We need not engage ourselves with an elaborate analysis of the said provisions, as they existed prior to amendments, and it would suffice to note that the conflict between the two provisions has been noticed in several decisions. Revenue has always maintained its stand that both set of provisions are special in nature which operate in their own clearly defined spheres; once a particular receipt of income takes on the character of Royalty/FTS as defined in section 9(1) (vi)/ 9(1) (vii), it cannot be considered for treatment under Section 44BB and has to be taxed under Section 115A/44DA of the Act. That being said, there are several judgments of this court, wherein it has been held that Section 44BB is a specific provision and in case the income falls within the ambit of Section 44DA(1) of the Act, it would be liable to be taxed under Section 44BB(1) of the Act, provided it was in connection with extract....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ome of a non-resident, in the nature of royalty or fees for technical services, other than the income referred in Section 44DA i.e. income in the nature of royalty and fees for technical services which is not connected with the permanent establishment of the non-resident. 14. There is another Section that needs to be referred, for the sake of comprehensive understanding i.e. Section 44D of the Act, inserted in the first place vide Finance Act, 19766 for taxability of income in the nature of royalty and fee for technical services. Later, a special provision was introduced by way of Section 44BB vide Finance Act, 1987. However, even when 44D was appearing in the statute book, Section 44BB contained a proviso which excluded applicability of Section 44BB to cases that were covered by Section 44D. However, it is pertinent to note that there was no similar proviso appearing under Section 44D. ***** ***** ***** 16. Keeping in mind the legislative history of amendments in the two provisions, the aforesaid amendments are significant and changed the position with respect to the applicability of the said provisions. A taxing statute is to be construed strictly. The ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on-resident. 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 and other facilities relating to exploration activity which are not in the nature of technical services. However, owing to judicial pronouncements, doubts have been 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 to 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 44....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d by the Assessee for providing Geophysical services would fall within the exclusion provided in Explanation 2 to Section 9(1)(vii) of the Act. In our view, the aforesaid question is no longer res integra and is squarely covered by the decision of the Supreme Court in Oil and Natural Gas Corporation Limited (supra). The said decision was rendered in a batch of matters concerning several non-resident assessees who claimed that their service fell within the expression "mining or like projects" and thus, the consideration received by them for such services stood excluded from the scope of 'fees for technical services'. The said assessees classified the contracts entered into by them under eight heads which are reproduced below:- "1. Carrying out seismic surveys and drilling for oil and gas. 2. Services starting/re-starting/enhancing production of oil and gas from wells 3. Services for prospecting for exploration of oil and or gas. 4. Planning and supervision of repaid of wells. 5. Repair, Inspection or Equipment used in the exploration, extraction or production of oil and gas. 6. Imparting Training. 7. Consultancy in regar....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rying out drilling operation for exploration or exploration of oil and natural gas. As such, it was held that the consideration for the activity of 2D/3D seismic survey in connection with exploration of oil, carried out by the petitioner herein cannot be construed as FTS. Nothing has been brought before us to show that the said judgment has been taken in appeal or set aside. 48. We find that though the AO had not considered the above judgment for the FY 2024-25, he issued the certificate withholding tax @ 3.5% under the same contract. However, in the impugned order / certificate, there is a clear departure from the earlier FY as the AO has stated that the income from the activities of the petitioner is FTS/Royalty, covered under Section 44DA of the Act. 49. The submission of Mr Gupta is that offshore seismic surveys are like ultrasounds of the earth that help scientists see below the ocean floor. Seismic survey is conducted by a vessel towing a compressed air gun which fires in regular intervals and a large array of sound sensors that record how long it takes for the sound to bounce back from the layers of rock under the sea floor. From the recorded data detailed three-dimens....