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TMI Blog2020 (9) TMI 242X X X X Extracts X X X X X X X X Extracts X X X X ..... ts of the present case and from the payment made to HUB International Limited, respondent would be liable to deduct TDS at the rate of 4.2%, under the provisions of Section 44BB of the Act. Amount paid by the respondent to the HUB International Limited would be covered by Section 44BB and not under section 44D r.w.s. 115A of the Act, Question (A) is answered in favour of assessee. - R/Tax Appeal No. 771 of 2008 - - - Dated:- 13-1-2020 - Mr. Justice J.B. Pardiwala And Mr. Justice Bhargav D. Karia For the Appellant(s) : Mr. Varun K. Patel For the Opponent(s) : Mr Tanvish Bhatt, LD. Adv. For M/S Wadiaghandy And Co ORAL ORDER (PER : HONOURABLE MR.JUSTICE BHARGAV D. KARIA) 1. This tax appeal is at the instance of Revenue under Section 260-A of the Income-Tax Act, 1961 (hereinafter referred to as the Act )and is directed against the order dated 19.10.2004, passed by the Income-Tax Appellate Tribunal, A Bench, Ahmedabad in ITA No.2757/Ahd/2003. 2. This Court, by order dated 23rd March, 2009, admitted the appeal and has framed the following substantial questions of law: (A) Whether on the facts and circumstances of the case, Appellate Tribunal i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate of 21% including surcharge. 3.5. The Assessing Officer, while arriving at the aforesaid conclusion, held that as the HUB International Limited has provided drilling supervisor who would supervise the drilling activities and drilling related staffs etc., the services provided to the respondent by HUB International Limited are technical in nature and payment made for the same would be covered by the definition of fees for technical service as per Explanation (a) to Section 9(1)(vii) of the Act. 3.6. The Assessing Officer further held that the respondent is an Indian concern as the payment has been made jointly by the respondent and GSPCL to HUB as per the joint operating agreement between them. The respondent was therefore, directed to deduct the TDS at the rate of 21% and not at the rate of 4.2%. 3.7. The respondent being aggrieved by the order passed by the Assessing Officer, preferred an appeal before the CIT (Appeal), who allowed the appeal holding that the provisions of Section 44D of the Act would not be applicable to the facts of the case and the income received by the HUB International Limited, would be chargeable to tax under Section 44BB of the Act and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be made applicable. The Tribunal in paragraph No.7 of the impugned order has observed as under: 7. On perusal of the provision of section 44 D, it is evident that it is a special provision for computing income by way of royalty in the case of a foreign company and it provides that the deduction admissible u/s. 28 to 44 D in computing the income by way of royalty or fees for technical services received from Govt. or an Indian Company in pursuance of income by way of royalty or fees for technical services received from Govt. or an Indian concern in pursuance of an agreement made by the foreign company with Govt. or with the Indian concern before 1st day of April, 1976, shall not exceed in the aggregate twenty per cent of the gross amount and in other cases, no deduction is to be allowed if the agreement is after 31.03.1976. Admittedly, the assessee has not received any income from the Govt. or from any Indian concern. In the present case, HUB International Ltd. is a Canadian concern and had an agreement with the assessee, a company in corporation in Canada. The fees for technical services are paid directly by the assessee to HUB International. Apparently, therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t even under the provisions of Section 3D of the Oil Fields (Regulation and Development) Act 1948 a mining lease means a lease granted for the purposes of searching for, winning, working, getting, making merchandisable, carrying away or disposing of mineral oils or for the purpose connected therewith and such a lease includes an exploring or prospecting lease. Reference has also been made to the Petroleum and Natural Gas Rules, 1959 framed under Section 5 of the aforesaid Act. Under Rule 4 of the said Rules no person can prospect for petroleum except pursuant to a Petroleum Exploration License (PEL) granted under the Rules and no person can mine petroleum except in pursuance of a Petroleum Mining License (PML) granted under the Rules. It is pointed out that under Rule 7 of the Rules of 1959 a petroleum mining license (PML) entitles the licensee to carry out construction and maintenance in and on such land, works, buildings, plants, waterways, roads, pipelines etc. as may be necessary for full enjoyment of the PML. On the said basis it is argued that rendering any service in connection with prospecting and extraction is an integral part of mining and that the expression mi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opment) Act , 1948. Reading Section 2(j) and 2(jj) of the Mines Act, 1952 which define mines and minerals and the provisions of the Oil Fields (Regulation and Development) Act , 1948 specifically relating to prospecting and exploration of mineral oils, exhaustively referred to earlier, it is abundantly clear that drilling operations for the purpose of production of petroleum would clearly amount to a mining activity or a mining operation. Viewed thus, it is the proximity of the works contemplated under an agreement, executed with a non- resident assessee or a foreign company, with mining activity or mining operations that would be crucial for the determination of the question whether the payments made under such an agreement to the non-resident assessee or the foreign company is to be assessed under Section 44BB or Section 44D of the Act. The test of pith and substance of the agreement commends to us as reasonable for acceptance. Equally important is the fact that the CBDT had accepted the said test and had in fact issued a circular as far back as 22.10.1990 to the effect that mining operations and the expressions mining projects or like projects occurring in Explanati ..... X X X X Extracts X X X X X X X X Extracts X X X X
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