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2016 (7) TMI 199 - AT - Income TaxTaxability of the amount paid to the non-resident / foreign companies under the contract - assessed u/s 44BB or 44DA - 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 and received by the non-resident assessees or foreign companies under the said contracts is more appropriately assessable under the provisions of section 44BB and not section 44D. See OIL & NATURAL GAS CORPORATION LIMITED Versus COMMISSIONER OF INCOME TAX & ANOTHER 2015 (7) TMI 91 - SUPREME COURT - Decided in favour of assessee
Issues Involved:
1. Taxability of services provided by non-resident companies to ONGC under Section 44BB or Section 44DA of the Income Tax Act. 2. Classification of payments as "fees for technical services" under Section 9(1)(vii) of the Income Tax Act. 3. Applicability of the proviso to Section 44DA and Section 44BB. 4. Deletion of interest under Section 234B. 5. Existence of Permanent Establishment (PE) under the Indo-UK DTAA. Detailed Analysis: 1. Taxability of Services under Section 44BB or Section 44DA: The primary issue in all the appeals was whether the payments made by ONGC to non-resident companies for various services should be assessed under Section 44BB or Section 44DA of the Income Tax Act. The Supreme Court had previously ruled in favor of the assessee, stating that payments made for services connected with prospecting, extraction, or production of mineral oils should be assessed under Section 44BB. This section prescribes a presumptive tax rate of 10% on the gross receipts of non-residents providing such services. The Tribunal followed this precedent and dismissed the Revenue's appeals, holding that the services rendered by the non-resident companies were inextricably linked to the prospecting, extraction, or production of mineral oils, and hence, Section 44BB was applicable. 2. Classification as "Fees for Technical Services": The Revenue argued that the services provided by the non-resident companies constituted "fees for technical services" under Section 9(1)(vii) and should be taxed under Section 44DA. However, the Tribunal, relying on the Supreme Court's interpretation, held that "fees for technical services" do not include payments made in connection with a mining project. Since the services were related to the prospecting, extraction, or production of mineral oils, they did not fall under the definition of "fees for technical services" and were thus taxable under Section 44BB. 3. Applicability of the Proviso to Section 44DA and Section 44BB: The Revenue contended that the proviso to Section 44DA, introduced by the Finance Act 2011, clarified that income referred to in Section 44DA should not be taxed under Section 44BB. The Tribunal, however, noted that the Supreme Court had already addressed this issue, stating that the dominant purpose of the contracts was related to mining activities. Therefore, the proviso did not alter the applicability of Section 44BB to such payments. 4. Deletion of Interest under Section 234B: The Revenue also challenged the deletion of interest under Section 234B by the CIT(A), arguing that the decision relied on by the CIT(A) (Jacabs Civil Incorporation! Mitsubishi Corporation) was not accepted by the Department and was pending before the Supreme Court. The Tribunal did not specifically address this issue in detail but upheld the CIT(A)'s decision, effectively dismissing the Revenue's contention. 5. Existence of Permanent Establishment (PE): The Revenue argued that the CIT(A) erred in accepting the existence of a deemed PE under the Indo-UK DTAA, which would make the income taxable under the presumptive provisions of Section 44BB. The Tribunal, following the Supreme Court's ruling, held that the existence of a PE did not change the nature of the services provided, which were related to the prospecting, extraction, or production of mineral oils. Therefore, the income was still taxable under Section 44BB. Conclusion: The Tribunal dismissed all the appeals filed by the Revenue, upholding the CIT(A)'s orders that the payments made to non-resident companies for services related to the prospecting, extraction, or production of mineral oils were taxable under Section 44BB of the Income Tax Act. The Tribunal relied heavily on the Supreme Court's interpretation and ruling in the assessee's own case, which had settled the legal position on these issues. The appeals for Assessment Years 2009-10 and 2010-11 were thus dismissed, affirming the CIT(A)'s decisions.
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