2016 (8) TMI 255 - AT - Income Tax

Taxability of income - revenues received by the assessee, on account of the provision of slick-line services, wire-line services, well-testing services etc., including provision of technical personnel, to various entities was taxable u/s 44BB or Section 44DA read with Section 9(l)(vii) - Held that - As decided in assessee s own case AO was not justified in holding that the income of the assessee arising from performance of A1 Mansoori Specialized Engineering associated drilling activity through the provisions of oilfield equipment on hire along with operating personnel, used the exploration/prospecting/extraction of mineral oil were fees for technical services under Section 9(1)(vii) of the Act and was chargeable to tax @ 20% of the gross revenue u/s 115A of the Act and not taxable u/s 44BB of the Act . Thu the income of the assessee taxable u/s 44BB - Decided against revenue

Issues Involved:
1. Taxability of revenues under Section 44BB versus Section 44DA read with Section 9(1)(vii) of the Income Tax Act, 1961.
2. Effect of the amendment brought by the Finance Act, 2010 on the applicability of Section 44BB.
3. Distinct taxation schemes for Fee for Technical Services (FTS) and Royalty.
4. Applicability of Section 44BB in light of the judgment in OHM Ltd.
5. Determination of income eligibility under the exclusionary proviso to Section 9(1)(vii).
6. Ignoring jurisdictional High Court decisions.
7. Reversal of the Assessing Officer's action on income estimation.
8. Chargeability of interest under Section 234B.

Detailed Analysis:

1. Taxability of Revenues:
The primary issue was whether the revenues received by the assessee for providing slick-line services, wire-line services, well-testing services, etc., including technical personnel, should be taxed under Section 44BB or Section 44DA read with Section 9(1)(vii) of the Income Tax Act, 1961. The CIT(A) held that these revenues were taxable under Section 44BB, which was contested by the revenue. The Tribunal noted that the issue was settled by the Supreme Court in ONGC vs. CIT, where it was held that services directly associated with the extraction or production of mineral oil should be taxed under Section 44BB.

2. Effect of the Finance Act, 2010 Amendment:
The revenue argued that the amendment effective from 01.04.2011 excluded income covered by Section 44DA from the scope of Section 44BB. However, the Tribunal found that the Supreme Court's decision in ONGC vs. CIT, which considered the nature of services and their direct nexus with oil extraction, was applicable, thereby supporting the CIT(A)'s decision to tax under Section 44BB.

3. Distinct Taxation Schemes for FTS and Royalty:
The revenue contended that the CIT(A) ignored the distinct taxation schemes for FTS and Royalty. The Tribunal, referencing the Supreme Court's decision, reiterated that services directly connected to oil extraction should be taxed under Section 44BB, not as FTS under Section 44DA.

4. Applicability of Section 44BB in Light of OHM Ltd. Judgment:
The revenue argued that the CIT(A) mechanically followed the OHM Ltd. decision without assessing whether the services were general in nature. The Tribunal upheld the CIT(A)'s decision, noting that the services had a direct nexus with oil extraction, thus falling under Section 44BB.

5. Determination of Income Eligibility under Exclusionary Proviso:
The revenue claimed that the CIT(A) failed to consider the exclusionary proviso to Section 9(1)(vii), which pertains to "a project undertaken by the recipient." The Tribunal found that the services provided by the assessee were directly related to oil extraction projects, thus qualifying for taxation under Section 44BB.

6. Ignoring Jurisdictional High Court Decisions:
The revenue argued that the CIT(A) ignored decisions of the jurisdictional High Court. The Tribunal, however, emphasized the Supreme Court's ruling in ONGC vs. CIT, which took precedence and supported the CIT(A)'s decision.

7. Reversal of Assessing Officer's Action on Income Estimation:
The Assessing Officer had estimated the income at a 25% profit rate due to the absence of books of accounts. The CIT(A) reversed this, favoring the presumptive tax scheme under Section 44BB. The Tribunal upheld this reversal, aligning with the Supreme Court's interpretation.

8. Chargeability of Interest under Section 234B:
The revenue contended that the CIT(A) erred in holding that interest under Section 234B was not chargeable, relying on the Maersk case. The Tribunal noted that the issue was not pressed by the assessee and dismissed the revenue's appeal on this ground.

Conclusion:
The Tribunal dismissed both the revenue's appeal and the assessee's cross objection, affirming that the assessee's income from the specified services should be taxed under Section 44BB of the Income Tax Act, 1961, in line with the Supreme Court's decision in ONGC vs. CIT. The Tribunal emphasized the direct nexus of the services with oil extraction activities, thus supporting the CIT(A)'s decision.

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