2016 (1) TMI 134 - AT - Income Tax

Chargeability of the income arising from performance of associated drilling activity through the provision of oilfield equipment on hire along with operating personnel - Held that - Keeping in view the ratio laid down by the Hon ble Apex Court in the aforesaid referred to case of Oil & Natural Gas Ltd. Vs CIT & Anr. 2015 (7) TMI 91 - SUPREME COURT set aside the impugned order and direct the AO to accept the claim of the assessee that its Revenue is chargeable to tax u/s 44BB of the Act and not u/s 115A of the Act. AO was not justified in holding that the income of the assessee arising from performance of associated drilling activity through the provisions of oil field equipment on hire along with operating personnel, used the exploration/prospecting/extraction of mineral oil were fees for technical services under Section 9(1)(vii) of the Act and was chargeable to tax @ 20% of the gross revenue u/s 115A of the Act and not taxable u/s 44BB of the Act. - Decided in favour of assessee

Summary

Issues Involved:
1. Addition regarding hiring of equipment used in connection with exploration/prospecting/extraction of mineral oil.
2. Addition regarding revenue not received.
3. Addition regarding taxability under section 115A.
4. Levy of interest under section 234B.

Detailed Analysis:

1. Addition regarding hiring of equipment used in connection with exploration/prospecting/extraction of mineral oil:
The primary issue was whether the income arising from the performance of associated drilling activity through the provision of oilfield equipment on hire along with operating personnel should be treated as "fees for technical services" under section 9(1)(vii) of the Income-tax Act, 1961, or be chargeable to tax under section 44BB of the Act. The assessee argued that the income should be taxed under section 44BB, which deals specifically with the taxation of non-residents engaged in the business of providing services or facilities in connection with the extraction or production of mineral oils. The Assessing Officer (AO) and the Dispute Resolution Panel (DRP) had rejected this claim, treating the income as fees for technical services. However, the ITAT referred to the Supreme Court's judgment in the case of Oil & Natural Gas Corporation Ltd. vs. CIT & Anr., which established that payments for services directly associated with the prospecting, extraction, or production of mineral oils should be taxed under section 44BB. The Tribunal directed the AO to accept the assessee's claim that its revenue is chargeable to tax under section 44BB and not under section 115A.

2. Addition regarding revenue not received:
The assessee contended that the AO erred in including revenue not received by the appellant in the gross taxable receipts. The Tribunal did not provide a separate detailed analysis on this issue but implicitly resolved it in favor of the assessee by directing the AO to tax the income under section 44BB, which inherently considers the actual revenue received for services rendered.

3. Addition regarding taxability under section 115A:
The AO had held that the revenue was chargeable to tax at 20% of the gross revenue under section 115A, which deals with the taxation of income in the nature of royalties and fees for technical services. The assessee argued that section 115A was not applicable because it had a Permanent Establishment (PE) in India, and even if the revenue was considered as fees for technical services, it should be taxed under section 44DA, which applies to non-residents with a PE in India. The Tribunal, referencing the Supreme Court's judgment, concluded that the income should be taxed under section 44BB and not under section 115A, thereby resolving the issue in favor of the assessee.

4. Levy of interest under section 234B:
The assessee challenged the levy of interest under section 234B, arguing that there was no liability to pay advance tax under section 209(1)(d). The Tribunal noted that both parties agreed this issue was consequential in nature. Therefore, the resolution of the primary issue regarding the correct section under which the income should be taxed would determine the applicability of interest under section 234B. Since the Tribunal ruled in favor of the assessee on the primary issue, the levy of interest would be adjusted accordingly.

Conclusion:
The Tribunal allowed the appeal of the assessee, setting aside the AO's order and directing that the income from the performance of associated drilling activities through the provision of oilfield equipment on hire along with operating personnel should be taxed under section 44BB of the Income-tax Act, 1961. The Tribunal also noted that the issue of levying interest under section 234B is consequential and should be adjusted based on the primary ruling.