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TMI Blog1994 (3) TMI 151X X X X Extracts X X X X X X X X Extracts X X X X ..... icer, the payment received by the assessee was in the nature of fee for technical services. He, accordingly, imposed the tax on the receipts at 40% as provided under s. 44D/115A. 3. The assessee appealed to the CIT(A) and claimed that in the case of Hughes Services (Far East) ETE Ltd. who had provided cementing and stimulating services to the ONGC, the Assessing Officer has held that the income for providing such services was assessable under s. 44BB. Similarly, in the case of Jeo Services Eastern Inc.,Singaporefor providing services on mud engineering the Assessing Officer has held the income to be assessable under s. 44BB. The assessee had further pleaded that the mud engineering were part and parcel of drilling operations and as such, the income was assessable under s. 44BB and the same did not come within the mischief of Expln. 2 of s. 9 of the IT Act, 1961. The assessee claimed before the CIT(A) that the payment received was for rendering services for the purposes of drilling operations and that the payment was not for technical services. In this connection, reliance was placed upon the decision of the Tribunal in the case of Scan Drilling Co. in ITA No. 6147/Del/1987; asst. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... East CoastKrishnaGodavariBasin. Shri Gupta pointed out that the assessee had undertaken providing engineering services at each rig and the personnel on duty was responsible for planning of mud programmes, according to sub-surface geological conditions and for its successful execution. The assessee's job included preparation of mud, its maintenance and treatment and performing diagnostic tests. The assessee was also required to provide chemicals, and testing equipment. The learned counsel, accordingly, contended that the assessee's case was squarely covered under s. 44BB and not under s. 44D r/w s. 115A. The learned counsel further contended that the Tribunal in the case of Scan Drilling Co. have held that the drilling operations do not fall within the mischief of Expln. 2 to s. 9 of the IT Act, 1961. Placing reliance on another decision of the Tribunal in the case of Agland Investment Services Inc. vs. ITO (1985) 22 Taxman 9 (Del). Shri Gupta contented that whereas fee for technical services is taxable as income, any consideration for construction, assembling, mining or like project is excluded from the purview of assessment and construction, assembling or like project does not inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessee claims it to be the income from business and assessable under s. 44BB whereas the revenue's case is that the income is on account of fee for technical services within the meaning of s. 9(1)(vii) and, accordingly, assessable under s. 44D. The contention raised on behalf of the assessee that s. 44BB is a specific section for purposes of assessment in respect of the income derived from providing services or facilities in connection with extraction of mineral oil and that s. 44D is a general section and, accordingly, will not have preference over s. 44BB has got to be rejected on bare reading of s. 44BB itself. Sec. 44BB reads as under: "44BB(1). Notwithstanding anything to the contrary contained in ss. 28 to 41 and ss. 43 and 43A, in the case of an assessee (being, a non-resident) engaged in the business of providing services or facilities in connection with, or supplying plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils, a sum equal to 10% of the aggregate of the amounts specified in sub-s. (2) shall be deemed to be the profits and gains of such business chargeable to tax under the head "profits and gains o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ged in the business of providing services, the work to be performed by the assessee, in our view, is a crucial factor. We, accordingly, reproduce Art. 1.1 to 1.7 from the agreement: "1.1 The main purpose of this Agreement is that Contractor will provide mud engineering services and personnel for seven rings for exploration and development of 16 offshore and 12 onshore wells to be drilled on East Coast/Krishna Godavari Basin under World Bank Financing for Commission under following general conditions: (i) Drilling of deep wells (4,000-5,000 metres) (ii) High temperature conditions (1500 C and above) (iii) High Pressure Gas water conditions of the order of 10,000 PSI and above. (iv) Drilling through sticky clays and heaving Shales. (v) Drilling of low pressure formations close to high pressure formations. 1.2 The Contractor shall provide services of one mud engineer at each rig wholly responsible for planning of mud programmes according to sub-surface geological conditions and for its successful execution, preparation of mud, its maintenance and treatment after performing diagnostic tests. 1.3 The contractor's mud engineer shall be required to conduct mud checks frequently ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. As per Art. 5 the assessee is required to provide assistance for special purchasing and procurement requirements regarding the services at no extra cost. Art. 7.1 provides that the personnel supplied by the assessee would be the employees of the contractor i.e. the assessee, who are responsible for payment of all compensation to the said personnel including personal taxes and fringe benefits. Art. 7.3 provides that the assessee would furnish to the Commission an irrevocable and unconditional letter of guarantee from a Bank. In the event of assessee failing to honour any commitments as per the agreement, the Commission would have the power to invoke the guarantee equivalent to USD 1,48,000. Art. 7.5 provides that the assessee would participate in Commission's operations, such as, repair, maintenance rework, perform remedial operations or other operations in any well or wells designated by the Commission. This work is accepted to be done by the assessee at no extra cost. Art. 7.7 provides that in the performance of the work in accordance with the provisions of the contract, the assessee would function as an independent contractor having full authority to direct the performance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g on a firm footing. The screen is made of stainless wire. Generally 16 or 12 mesh screen are used. On the modern rigs, double decker shale shakers are used, where coarser mesh screen is put below. The frames are fixed with eccentric shaft. The vibration of screen destroys the thixotropic structure of the mud, besides removing the coarser particle from the fluid. The returning mud acts as a medium of communication with the bottom of the hole. Function of the drilling fluid: (i) To clean the bottom of the hole, removing the cutting and carry them to surface. (ii) To cool and lubricate the drill bit and string. (iii) To continuously build a wall around the inside of the hole which prevents the hole from caving in. (iv) When hydrocarbon accumulations are encountered, the well fluid must be heavy to exert sufficient pressure to prevent the entrance of these into the well bore. (v) To hold cuttings and weight material in suspension, when circulation is stopped. (vi) To support part of the weight of drill pipes and casing. (vii) To transmit hydraulic horsepower to the bit. (viii) To act as medium for electrical well logging." As per the publication of Leo Cook,Londonthe terms u ..... X X X X Extracts X X X X X X X X Extracts X X X X
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