2005 (12) TMI 46 - HC - Income Tax

ONGC as an agent of assessee, a non-resident assessee had entered into a contract with ONGC for providing technical expertise to ONGC ONGC paid technical fee to assessee as per explanation 2 to sec. 9(1)(vii) it is clear that fee for technical services will not include the consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration, it will be income of the recipient chargeable under the head Salaries u/s 44D with section 115A

Summary

Issues:
1. Appeal under section 260A of the Income-tax Act, 1961 against the judgment and order dated October 29, 1993, passed by the Income-tax Appellate Tribunal.
2. Determination of taxable income for the assessment years 1985-86 and 1986-87.
3. Interpretation of the contract between ONGC and the assesses-company as a contract for technical services or a work contract.
4. Application of sections 44D and 115A of the Income-tax Act to the payments received by the assesses-company.

Analysis:

Issue 1:
The appeal was made under section 260A of the Income-tax Act against the judgment and order passed by the Income-tax Appellate Tribunal, where the Tribunal dismissed the appeal of the Revenue regarding the taxable income for the assessment years 1985-86 and 1986-87.

Issue 2:
The Assessing Officer determined the taxable income of the assesses-company based on the payments received from ONGC for technical services, applying the provisions of section 44D of the Income-tax Act. The Commissioner (Appeals) and the Income-tax Appellate Tribunal both allowed the appeal of the assesses-company, holding that the payments should be taxed under section 44BB, not section 44D read with section 115A of the Act.

Issue 3:
The key question was whether the contract between ONGC and the assesses-company was for technical services or a work contract. The contract detailed the provision of expatriate supervisory staff with expertise in rig operation and management. The clauses of the contract were analyzed to determine the nature of the services provided under the agreement.

Issue 4:
The court examined the contract clauses and the affidavit filed by ONGC to establish that the assesses-company was providing technical services, not engaged in construction or similar projects. The court referred to Explanation 2 to section 9(1)(vii) of the Income-tax Act to define fees for technical services and concluded that the assesses-company received fees for rendering technical services, making them liable to pay tax under section 44D read with section 115A of the Act.

In conclusion, the court set aside the judgments of the Income-tax Appellate Tribunal and the Commissioner (Appeals), affirming the decision of the assessing authority regarding the tax liability of the assesses-company. The substantial question of law was answered in favor of the Revenue and against the assesses.