2019 (3) TMI 1024 - AT - Income Tax

Income accrued in India - Taxability of the receipts of non-resident in India - fees for technical services as per the provisions of the DTAA or as per the provisions of section 44BB - India and DTAA with Netherlands, Australia, USA & Russia - authorities below treated the aforesaid payments as in the nature of Fee for Technical Services (FTS) within the meaning of section 9(1)(vii) read with section 115A of the Act and held that such payments were taxable in India - proof of existence of PE in India - scope of make available clause Payment to vendors in Netherlands - Held that - the services rendered by the vendors to the ONGC in this matter are onetime job performed by the vendors and their job ends with the submission of the investigation report. - the impugned payment does not satisfy the tests of, firstly, for the services which are ancillary and subsidiary to the application for enjoyment of any right, property or information under Article 12(5)(a) of the DTAA, and secondly, the make available clause within the meaning of Article 12(5)(b) of the DTAA between India and Netherlands. We accordingly hold that the payment in question does not fall within the scope and ambit of Article 12 of the DTAA between India and Netherlands. It follows that inasmuch as there is no permanent establishment for the services rendered in India, the receipts are not taxable under Article 7 also. Payment of Australian Company - tax protected work order - hiring of export services for feasibility of jack-up/FPSO for BHN well platform. - Held that - in view of our finding in the preceding paragraphs while dealing with the make available clause, for the reasons which are applicable equally to this case also, we hold that for non-satisfaction of the make available clause within the meaning of article 12(3)(g) of the DTAA between India and Australia the impugned payment does not fall within the scope and ambit of royalty/FTS under Article 12 thereof and cannot be brought to tax in India. Payment to USA company - blowout control services - Held that - There is no denial of the fact that in assessee s own case, while respectfully following the decision of the Hon ble Apex Court in the case of OIL & NATURAL GAS CORPORATION LIMITED VS CIT 2015 (7) TMI 91 - SUPREME COURT , the coordinate benches of this tribunal had taken a consistent view that the impugned receipts have to be taxed only under section 44BB of the Act and not otherwise. Facts being similar, rule of consistency demands that a coordinate bench cannot take a different view from the one that was taken for the earlier years in assessee s own case. Nature of services rendered by Russian vendors - services in connection with Underground Coal Gasification (UCG) - Held that - services rendered by the vendors are in the nature of mining and like project and therefore, such services will not fall within the ambit and scope of Fee for Technical Services (FTS), as contemplated in Explanation 2 of Section 9(1)(vii) of the Act and in view of the judgement of the Hon ble Apex Court in the case of ONGC (supra), such services shall be construed to have rendered in relation to prospecting, extraction and production of mineral oil falling within the meaning of mining, The above observations of the Hon ble Apex Court in the case in hand and while respectfully following the same we hold that the receipts of National Mining Research Centre, Russia from ONGC are taxable only under section 44BB of the Act.

Issues Involved:
1. Taxability of receipts of non-residents in India as fees for technical services (FTS) under the Double Taxation Avoidance Agreement (DTAA) or section 44BB of the Income-tax Act, 1961.
2. Application of the 'make available' clause in DTAA.
3. Classification of services under section 9(1)(vii) and section 115A of the Income-tax Act.
4. Applicability of section 44BB for services related to mining and mineral oil extraction.

Issue-wise Detailed Analysis:

1. Taxability of Receipts of Non-Residents as FTS or under Section 44BB:
The primary issue across all appeals was whether the payments made by ONGC to various non-residents for technical services should be taxed as FTS under the DTAA or under the presumptive taxation scheme of section 44BB of the Income-tax Act, 1961. The authorities below had treated these payments as FTS under section 9(1)(vii) of the Act read with section 115A, thereby excluding them from the purview of section 44BB.

2. Application of the 'Make Available' Clause:
The 'make available' clause in the DTAA was crucial in determining whether the services rendered by the non-residents qualified as FTS. The argument from the assessee was that the services did not 'make available' technical knowledge, skill, or know-how to ONGC, thus not fulfilling the conditions under the DTAA for FTS. The Tribunal referred to decisions such as DIT vs. Guy Carpenter & Co. Ltd and CIT vs. De Beers India Minerals (P.) Ltd, which clarified that for services to 'make available' technical knowledge, the recipient should be able to apply the knowledge independently in the future.

3. Classification under Section 9(1)(vii) and Section 115A:
The authorities argued that the services rendered were technical in nature and thus taxable under section 9(1)(vii) read with section 115A. However, the Tribunal found that the services provided, such as feasibility studies, accident investigations, and blowout control, did not impart technical knowledge or skills that ONGC could use independently in the future. Therefore, these did not meet the criteria for FTS under the DTAA.

4. Applicability of Section 44BB:
The Tribunal examined whether the services fell under the scope of section 44BB, which applies to services related to the prospecting, extraction, or production of mineral oil. Referring to the Supreme Court's decision in ONGC vs. CIT, the Tribunal concluded that the services provided by the non-residents were closely related to mining operations and thus should be taxed under section 44BB. This was consistent with previous Tribunal decisions in similar cases involving ONGC.

Case-specific Judgments:

ITA 5863/Del/2010 (Shell International Exploration & Production BV):
The Tribunal held that the services rendered by Shell were one-time consultancy services that did not 'make available' technical knowledge to ONGC. Therefore, the payments did not qualify as FTS under the DTAA between India and the Netherlands. The receipts were not taxable under Article 12 of the DTAA or section 9(1)(vii) and section 115A of the Act.

ITA 5864/Del/2010 (JP Kenny Pty. Ltd):
The Tribunal found that the services provided by JP Kenny Pty. Ltd did not 'make available' technical knowledge to ONGC. Hence, the payments did not fall under the scope of FTS as per the DTAA between India and Australia. The receipts were not taxable under Article 12 of the DTAA or section 9(1)(vii) and section 115A of the Act.

ITA 4982/Del/2011 (Boots & Coots International Well Control Inc):
The Tribunal followed previous decisions in ONGC's own cases and the Supreme Court's ruling, concluding that the services related to blowout control were directly associated with the extraction of mineral oil. Therefore, the receipts were taxable under section 44BB and not as FTS under section 9(1)(vii) and section 115A.

ITA 441/Del/2012 (National Mining Research Centre, Russia):
The Tribunal held that the services rendered by the National Mining Research Centre were related to the prospecting and extraction of mineral oil. Following the Supreme Court's decision, the receipts were taxable under section 44BB and not as FTS under section 9(1)(vii) and section 115A.

Conclusion:
The Tribunal allowed the appeals of the assessee in ITA Nos. 5863/Del/2010, 5864/Del/2010, and 441/Del/2012, holding that the receipts were not taxable as FTS but under section 44BB. The revenue's appeal in ITA No. 4982/Del/2011 was dismissed, affirming that the receipts were taxable under section 44BB.

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