2016 (7) TMI 826 - AT - Income Tax

Application of deemed profit rate of 10% u/s 44BB - revenues earned from a non-resident company on account of provision of technical personnel for executing contracts with M/s. ONGC - DRP after considering the relevant decisions held that section 44BB of the Act being a more specific provision shall prevail over the general provisions of the Act and that the services rendered by the Subcontractor at the off shore rigs of a contractor is part and parcel of activities for extraction etc of mineral oils and would be covered u/s 44BB Held that - We respectfully note that in the case of ONGC 2015 (7) TMI 91 - SUPREME COURT , speaking for the Hon ble Apex Court, their Lordships categorically held that payments for providing various services in connection with prospecting, extraction or production of mineral oil would be assessed u/s 44AB and not u/s 44D of the Act. On the basis of aforesaid discussion, we are inclined to hold that the issue is squarely covered in favour of the assessee and the DRP was not justified and correct in directing the AO to assess income of the assessee from non-resident company on account of provision of technical person for executing contract with ONGC shall be taxed applying due profit rate of 10% u/s 44BB of the Act. - Decided against revenue.

Summary

Issues:
- Whether the Dispute Resolution Panel correctly directed the Assessing Officer to apply the deemed profit rate of 10% under section 44BB of the Income Tax Act on revenues earned by the assessee from a non-resident company for providing technical personnel for executing contracts with ONGC for the Assessment Year 2009-10.

Analysis:
1. The appeals filed by the Revenue against the order of the Dispute Resolution Panel were heard together as they involved a common issue regarding the application of the deemed profit rate under section 44BB of the Income Tax Act. The main grievance of the Revenue was that the DRP directed the AO to apply the deemed profit rate on the revenue earned by the assessee from a non-resident company for providing technical personnel for contracts with ONGC.

2. The assessee argued that the issue was favorably covered by a Supreme Court order in the case of ONGC vs. CIT, which held that payments for services related to oil prospecting, extraction, and production should be assessed under section 44BB and not under section 44DA of the Act.

3. The DRP granted relief to the assessee after considering that the services provided by the assessee were integral to drilling operations for oil prospecting, as confirmed by the Hon'ble AAR in a similar case. The DRP concluded that the income should be taxed applying the deemed profit rate of 10% under section 44BB of the Act.

4. The Tribunal upheld the DRP's decision, noting that section 44BB being a specific provision prevailed over general provisions, and the services provided were part of activities for oil extraction. The Tribunal found no ambiguity or reason to interfere with the DRP's order, dismissing the Revenue's appeals.

5. The Tribunal's decision was based on legal pronouncements and statutory provisions, including the Supreme Court's ruling, supporting the application of section 44BB for taxing income from services related to oil prospecting. The Tribunal concluded that the Revenue's grounds lacked merit, upholding the DRP's order to tax the income at the deemed profit rate of 10% under section 44BB.

6. Consequently, both appeals of the Revenue were dismissed, affirming the application of section 44BB for taxing the income earned by the assessee from a non-resident company for providing technical personnel for contracts with ONGC.