2016 (5) TMI 1586 - AT - Income Tax

Applicability of section 44BB - services provided by NRC s (non resident company) to ONGC - TDS u/s 195 - CIT-A held that since the activity pertains to mining, it is out of the purview of section 9(1)(vii) of the Act - HELD THAT - The issue is no more res integra. The Hon ble Supreme Court in the case of Oil and Natural Gas Corporation Ltd. 2015 (7) TMI 91 - SUPREME COURT the assesee s own case, held that the pith and substance of each of the contracts/agreements is inextricably connected with prospecting, extraction or production of mineral oil. The dominant purpose of each of such agreement is for 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 assesses 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. Appeal of revenue dismissed.

Summary

Issues:
1. Application of section 44BB of the Income Tax Act to payments made by ONGC to non-resident companies for services related to mineral oil prospecting.
2. Interpretation of the definition of "Fees for Technical Services" under section 9(1)(vii) of the Act.
3. Applicability of presumptive provisions of section 44BB and its interaction with other sections like 44DA and 115A.
4. Consideration of the proviso to section 44DA as clarificatory in nature and its retrospective application.

Issue 1: Application of section 44BB of the Income Tax Act
The appeals by the revenue were directed against orders of the Commissioner of Income Tax, Dehradun, regarding payments made by ONGC to non-resident companies for services related to mineral oil prospecting. The Tribunal noted that the contracts were primarily connected with prospecting, extraction, or production of mineral oils. Citing the judgment in the case of Oil and Natural Gas Corporation Ltd. vs. CIT, the Tribunal held that payments made by ONGC to non-residents under such contracts were assessable under section 44BB, not section 44D of the Act. Consequently, the Tribunal upheld the order of the first appellate authority, dismissing the revenue's appeals.

Issue 2: Interpretation of "Fees for Technical Services" under section 9(1)(vii)
The Commissioner of Income Tax (Appeals) held that services provided by non-resident companies to ONGC for mineral oil prospecting fell under section 44BB of the Act, not section 9(1)(vii). The Commissioner relied on the judgment in the case of R & B Falcon Drilling Co. and concluded that the payments by ONGC to non-resident companies were subject to tax at 10% of the gross profit under section 44BB. The Tribunal affirmed this interpretation, emphasizing that the dominant purpose of the contracts was mineral oil prospecting, justifying the application of section 44BB.

Issue 3: Applicability of presumptive provisions and interaction with other sections
The revenue raised concerns regarding the application of presumptive provisions under section 44BB and its interaction with sections 44DA and 115A. The Tribunal, based on the judgment mentioned earlier, held that section 44BB applied to the payments made by ONGC to non-resident companies for services related to mineral oil prospecting. The Tribunal dismissed the revenue's appeals, upholding the order of the first appellate authority.

Issue 4: Retrospective application of the proviso to section 44DA
The revenue contested the applicability of the proviso to section 44DA, arguing for a retrospective application based on the Finance Act of 2011. However, the Tribunal, following the judgment in the case of Oil and Natural Gas Corporation Ltd. vs. CIT, maintained that the payments made by ONGC to non-residents for mineral oil prospecting were appropriately assessable under section 44BB. The Tribunal dismissed the revenue's appeals, aligning with the view taken by the first appellate authority.

This detailed analysis of the judgment addresses the issues raised by the revenue regarding the taxation of payments made by ONGC to non-resident companies for services related to mineral oil prospecting. The Tribunal's decision, supported by legal precedents and interpretations of relevant sections of the Income Tax Act, clarifies the applicability of section 44BB and upholds the order of the first appellate authority.