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2021 (12) TMI 1360 - AT - Income TaxTaxable income to tax u/s 44BB v/s Section 44DA read with section 9(l)(vii) - services provided by the assessee in respect of core pressure wellbore studies, post stack inversion studies, data processing maintenance services etc which are prima facie backend activities in the nature of technical services - Assessee argued as Activities are in the nature of mining or like project and thus not in the nature of fees for technical services. The services provided by the appellant, were used in the exploration/exploitation of mineral oils - HELD THAT - As respectfully relying upon the decision of Hon ble Supreme Court in the case of ONGC 2015 (7) TMI 91 - SUPREME COURT it is held that the receipts of the Assessee on account of post-stack inversion study, core pressure and wellbore study, data processing and maintenance services were taxable under section 44 BB of the Act. Contention of the revenue that the amounts have to be taxable u/s 44DA - We hold that to invoke the provisions of Section 44DA, the revenue has to prove that the receipts are indeed or in the nature of FTS taxable u/s 9(1)(vii). Reimbursement of equipment lost in hole - revenue or capital receipt - HELD THAT - As the name signifies lost in hole means destruction and loss of capital assets like drilling equipment which are provided by the assessee to oil exploration and. production companies. Therefore, the revenue received on account of loss of equipment does not form income in the hands of the assessee rather it is a mere reimbursement of the cost of equipment destroyed in the process of oil extraction. As reliance on the decision of the Hon ble Uttarakhand High Court in the own case of the assessee 2009 (7) TMI 51 - UTTARAKHAND HIGH COURT wherein the Hon ble Court held that the receipts on account of equipment lost in hole being in the nature of capital receipts cannot, be included in the revenues chargeable to lax u/s 44BB - We find considerable cogency in assessee's submission as above. Hence, we hold that the Assessing Officer has erred in including the sum received by the assessee as reimbursements for determining the taxable income of the assessee. - Decided against revenue.
Issues Involved:
1. Applicability of amended provisions of sections 9(1)(i), 9(1)(vii), 44AB, 44DA, and 44BB of the Income Tax Act, 1961. 2. Reliance on the judgment of the Hon’ble Supreme Court in the case of ONGC vs. CIT. 3. Taxability of services under section 44DA vs. section 44BB. 4. Nature of activities and scope of work provided by the assessee. 5. Eligibility of receipts as "Fees for Technical Services" (FTS) under section 9(1)(vii). 6. Dominant nature of backend technical services. 7. Inclusion of the amount received for 'equipment lost in hole' in gross revenue. 8. Inclusion of service tax receipts in gross revenue. 9. Self-contained nature of section 44BB for computation of profit. 10. Applicability of the judgment in the case of M/s Chowringhee Sales Bureau (P) Ltd. Detailed Analysis: 1. Applicability of Amended Provisions: The Revenue argued that the CIT(A) erred by not considering the amended provisions of sections 9(1)(i), 9(1)(vii), 44AB, and 44DA, which were applicable to the assessment year under consideration. The services provided by the assessee, such as core pressure and wellbore studies, were considered backend activities in the nature of technical services. 2. Reliance on ONGC vs. CIT Judgment: The Revenue contended that the CIT(A) wrongly relied on the Supreme Court's judgment in ONGC vs. CIT, which did not address the issue of taxability under section 44BB vs. 44DA but under section 44BB vs. 44D. The case pertained to the AY 1985-86, which was not relevant to the current assessment year. 3. Taxability under Section 44DA vs. Section 44BB: The Revenue argued that the Memorandum to Finance Bill 2010 clarified that services falling within the ambit of section 44DA should be assessed under section 44DA, even if they are connected with prospecting, extraction, or production of mineral oils as stipulated in section 44BB. The CIT(A) failed to note this distinction. 4. Nature of Activities and Scope of Work: The Revenue asserted that the nature of activities and scope of work provided by the assessee, such as core pressure and wellbore studies, post-stack inversion studies, and data processing, indicated that the receipts were in the nature of FTS under section 9(1)(vii). The CIT(A) ignored this aspect. 5. Eligibility as "Fees for Technical Services" (FTS): The Revenue contended that the assessee's backend technical services did not involve any construction, assembly, mining, or like project, and thus did not fall under the exclusion clause of section 9(1)(vii). The CIT(A) overlooked this distinction, which was different from the lead case of Foramer covered by the Supreme Court in the ONGC case. 6. Dominant Nature of Backend Technical Services: The Revenue argued that the dominant nature of the backend technical services rendered by the assessee was not related to prospecting, extraction, or production of mineral oil, and therefore, should not fall under section 44BB. 7. Amount Received for 'Equipment Lost in Hole': The Revenue contended that the CIT(A) erred in holding that the amount received for 'equipment lost in hole' was not includible in the gross revenue for the purpose of computation of profits under section 44BB. The Revenue argued that this amount was a reimbursement of expenses and should be included in the gross revenue as per the judgment of the Uttarakhand High Court in CIT Vs. Halliburton Offshore Services Inc. 8. Inclusion of Service Tax Receipts: The Revenue argued that the CIT(A) erred in holding that service tax receipts were not includible in the gross revenue for the purpose of computation of profits under section 44BB. The Revenue cited the judgment in the case of M/s Chowringhee Sales Bureau (P) Ltd., where the Supreme Court held that sales tax collected by an assessee forms part of its business receipts. 9. Self-contained Nature of Section 44BB: The Revenue contended that section 44BB is a self-contained code providing for computation of profit at a fixed percentage of gross receipts, and all deductions and exclusions from the gross receipts are deemed to have been allowed to the assessee. The CIT(A) failed to appreciate this aspect. 10. Applicability of M/s Chowringhee Sales Bureau (P) Ltd. Judgment: The Revenue argued that the CIT(A) ignored the ratio of the judgment in the case of M/s Chowringhee Sales Bureau (P) Ltd., where the Supreme Court held that sales tax collected by an assessee forms part of its business receipts. The Revenue contended that the same principle should apply to service tax receipts. Conclusion: The Tribunal upheld the CIT(A)'s order, holding that the receipts from post-stack inversion study, core pressure and wellbore study, data processing, and maintenance services were taxable under section 44BB of the Act, as they were integral to the exploration of mineral oil. The Tribunal also held that the reimbursement for 'equipment lost in hole' was in the nature of capital receipts and not includible in the gross revenue for the purpose of computation of profits under section 44BB. The appeal of the Revenue was dismissed.
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