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TMI Blog1998 (10) TMI 91X X X X Extracts X X X X X X X X Extracts X X X X ..... ONGC for supply of supervisory staff and personnel having expertise in operation and management of drilling rigs "Sagar Jyoti" and "Sagar Pragati" in assessment year 1985-86 and for operation and management of drilling rig "Sagar Ratna" in assessment year 1986-87. The Assessing Officer relying upon the findings given in the assessment order for preceding year 1984-85 held that assessment of the said non-resident company should be completed as per provisions of section 44D, as the non-resident company had provided technical services to the ONGC. The payments received by the non-resident company from ONGC are in the nature of fees for technical services. The Assessing Officer accordingly computed the taxable income of the assessee on the amount paid by ONGC to the non-resident company after excluding the amount claimed to have been paid on account of reimbursement charges for the supply of material etc. Thus, the tax was levied on the amount of net receipts of the foreign company in accordance with section 44D of the Income-tax Act, 1961. The taxable income was thus determined in assessment year 1985-86 at Rs. 1,11,30,010 and at Rs. 1,68,93,120. Tax @ 40 percent was charged on the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ig and they not only agreed to provide the services of their expatriate personnels but also provided the facilities of use of their Jack-Up rig for such drilling operations to ONGC. 4.3 Shri Bhargava submitted that a plain reading of section 44B of the Act indicates that the said section applies only in cases of those non-residents who are engaged in the business of providing services or facilities in connection with or supplying Plant Machinery on hire, use or to be used in the prospecting for, or extraction or production of mineral oils. In the case of the assessee, so far as income derived by them under a service and maintenance contract is concerned, the provisions of section 44BB cannot be applied. Because the F.F. was not engaged in carrying on any such business inIndiaof providing the services or facilities contemplated in the service and maintenance contract, ONGC is the owner of the rigs. M/s. F.F. had only provided the services of expatriate personnels and technicians f or operating and maintaining the drilling rigs. This cannot be treated as any business carried on by M/s. F.F. inIndia. Therefore, section 44BB is not at all applicable on the facts of the present case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cians employed by M/s. F.F. under section 10(6)(vi) of the Act. One of the conditions prescribed in the said section is that the foreign enterprise of which the technician is employed should not be engaged in trade or business inIndia. The Tribunal after considering the entire relevant material, gave its findings in para 8 at page 14 that the foreign enterprise itself being in the business of offshore drilling operations acquired the expertise and was able to furnish expatriate supervisory staff and personnel in operation and management of Jack-up rigs. Under the Agreement, they had provided personnel who were well trained in operation and management of jack-up rigs. It is thus clear that the foreign enterprise was only providing technical services and it is difficult to agreewith the view expressed by the Department that the foreign enterprise was engaged in the business of offshore drilling operations inIndia. Shri Bhargava contended that in the case of the aforesaid employees of the same foreign company who were engaged for carrying out the work of operation and management of jack-up rigs pursuant to the same agreement, it has been held that M/s. F.F. was only providing technica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of oil and gas off-shore in India. He submitted that three contracts relating to ONGC and FF relating to operation and management of jack-up rigs "Sagar Joyti", "Sagar Pragati" and "Sagar Ratna" are almost identical. A perusal of the various clauses of the said agreement clearly indicate that these contracts cannot be termed as merely a contract for providing the services of their technicians. It was a contract made for carrying out the drilling operations efficiently and profitably. He submitted a copy of Agreement dated8-2-1985executed between ONGC and F.F. for operation of the jack-up rig "Sagar Ratna". He pointed out that clause 4 requires the contractor, F.F. to impart training to the personnel of ONGC in off-shore drilling. Clause 4.3 stipulates that the contract will provide transfer of drilling technology by way of seminars, group discussions and exchange of literature etc. The contractor agreed to develop and submit formal programmes of the seminars, group discussions etc. at their institute or institute of international repute, every year free of cost to ONGC personnel. Clause 6 specifies the various duties and responsibilities of the employees deployed for the drilling w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the agreement which FF had executed with ONGC for ensuring proper maintenance and management and running of the Jack-up rigs in the course of exploration of oil and gas in the Indian waters. Apart from this, the provisions of section 245-S clearly provides that the advance ruling pronounced by the Authority under section 245R shall be binding only on the applicant who had sought it in respect of the transaction in relation to which the ruling had been sought. That decision cannot be applied in respect of any other transaction entered into by the same party. Hence question at applying that decision in the case of a different assessee in relation to an agreement of entirely different nature does not arise at all. 5.2 The learned counsel further submitted that the provisions of section 44BB nowhere prescribe that the non-resident assessee should be engaged any such business inIndia. The decision of the Tribunal in the case of the employees/technicians of FF relied upon by the learned Commissioner (Appeals) (DR) relating to claim of exemption under section 10(6)(vi) is not at all relevant for deciding the present issue. The provisions of section 10(6)(vi) clearly require that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing types, namely:--- (i) Any consideration received for any construction, assembly, mining or like project undertaken by the recipient. Such consideration has been excluded from the definition on the ground that such activities virtually amount to carrying on business in India for which considerable expenditure will have to be incurred by a non-resident and accordingly, it will not be fair to tax such consideration in the hands of a foreign company on gross basis or the restrict the expenditure incurred for earning the to 20 per cent of the gross amount as provided in new section 44D of that Act. Consideration for any construction, assembly, mining or like project will, therefore, be chargeable to tax on net basis, i.e., after allowing deduction in respect of costs and expenditure incurred for earning the same and charged to tax at the rates applicable to the ordinary income of the non-resident as specified in the relevant Finance Act. (ii) Consideration which will be chargeable to tax in the hands of the recipient under the head "Salaries"." 5.5 The learned counsel once again invited our attention towards various clauses in the Agreement executed between ONGC and F.F. which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Contract dated 25-8-1983 for providing services of expatriate supervisory staff and personnel with expertise and experience in operation and management of "Sagar Jyoti" Jack-up Rig will be assessable under the provisions of section 44BB of the Act. Such activities will amount to activities of participating for or extractions or production of mineral oils, which can be termed as mining operations. The expression "Mining Project" or "Like Project" occurring in Explanation 2 to section 9(1)(vii) of Income-tax Act would cover rendering of services like imparting training and carrying out drilling operations for explorations or exploitation of oil and natural gas. It was opined that payments made by ONGC to the Contractor are not "fees for technical services" as defined in section 9(1)(vii) Explanation 2 of the Act, and these payments are chargeable to income-tax under section 44BB of the Act. The learned counsel further drew our attention towards Board's Instruction No. 1862 dated22-11-1990, a copy whereof has been placed at page 1 of the Paper Book. The opinion of the Attorney General has been referred to in the said Instruction dated22-11-1990. The relevant extract of the said Circu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of income by way of royalties or fees for technical services received by the nonresident foreign companies from an Indian concern. 6.2 In order to examine whether the provisions of section 44D read with section 115A on the facts of the present case supersedes and overrides the provisions of section 44BB, it will be necessary to examine the nature of amount received by the foreign company pursuant to the relevant Agreements executed with ONGC. It will have to be ascertained whether the amounts received by the FF are in the nature of "fees for technical services" defined in Explanation 2 to section 9(1)(vii) of the Act. 6.3 Explanation 2 to section 9(1)(vii) of the Act is reproduced hereunder:--- "Explanation 2 - For the purposes of this clause, 'fees for technical services' means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provisions of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head 'Sala ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the scope of section 44BB will not, therefore, render section 44BB otiose or redundant, as suggested." 6.5 It is, therefore, clear that section 44BB will continue to apply to several types of cases in relation to the prospecting for or extraction or production of mineral oils which fall within the excluded category and may not amount to "royalty" or "fees for technical services" within the scope of the definition in Explanation 2 to section 9(1)(vii). The facts of that case clearly reveal that the appellant company in that case has not done any job of mining nor has it provided any equipment or crew for carrying out the work of mining or like project. The facts of the present case, as is evident from the various clauses of the respective Agreements elaborately discussed hereinbefore, clearly indicate that the aforesaid decision of the Authority for Advance Rulings is clearly distinguishable on facts. 6.6 The learned CIT(DR) had also placed reliance on the decision of the Tribunal in the case of employees/technicians of M/s. F.F. in ITA No. 7438/Del/89 Ors. That was a decision dealing with the nature of the receipt in the case of the employees of the foreign company and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssioner (Appeals) accepted the assessee's contention and held that provisions of section 44D is not applicable and the income of the assessee is assessable under section 44BB as business income. The revenue's appeal against the said order in assessee's own case for assessment year 1984-85 in ITA No. 5032/Del/89 has been dismissed by order dated16-3-1995. The aforesaid point is, therefore, fully and squarely covered in favour of the assessees by the above referred decision of the Tribunal in assessee's own case for assessment year 1984-85. The view taken by the Tribunal is also fully supported by the various other decisions in similar matters, as have been referred to by the learned counsel for the assessee. We have gone through the copies of all those decisions of the Tribunal rendered in other cases involving consideration of exactly similar point based on identical facts. We do not find any merit in the contention of the learned CIT(DR) that the matter requires a fresh look and reconsideration. The rule of consistency has received judicial recognition in various judgments such as the one Dhansiram Agarwalla v. CIT [1996] 217 ITR 4 (Gauhati). The above referred earlier decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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