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TMI Blog2021 (12) TMI 1360X X X X Extracts X X X X X X X X Extracts X X X X ..... d in law, the CIT(A) has erred in placing reliance on the judgment of the Hon'ble Supreme Court in the case of ONGC vs. CIT (Civil Appeal No. 731 of 2007) by failing to appreciate that the issue of taxability u/s 44BB vs. 44DA of the Act was not there before the Apex Court, and that the case before the Apex Court pertained to the AY 1985-86, and involved the issue of taxability u/s 44BB vs. 44D of the Act. (iii) Whether on the facts and in the circumstances of the case and in law, the CIT (A) has erred in failing to note that the Memorandum to Finance Bill 2010 makes it clear that any service which falls within the ambit of 44DA, even if it is in connection with prospecting for, or extraction or production of mineral oils as stipulated in section 44BB, has to be assessed u/s 44DA of the Act. (iv) Whether on the facts and in the circumstances of the case and in law, the CIT' (A) has erred in ignoring the nature of activities and scope of work in respect of the core pressure & wellbore studies, post stack inversion studies, data processing & maintenance services etc provided by the assessee lead to the infallible conclusion that the receipts of the assessee were in the natu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... circumstances of the case and in law, the CIT (A) has erred in holding that receipts on account of service tax are not includible in gross revenue of the assessee for the purpose of computation of profits under the provisions of section 44BB of the I.T. Act, 1961. (xi) Whether the CIT (A) has erred in not appreciating the fact that section 44BB of the Act is a self-contained code providing for computation of profit at a fixed percentage of gross receipts of the assessee and all the deductions and exclusions from the gross receipts are deemed to have been allowed to the assessee. (xii) Whether the CIT (A) has erred in not appreciating the fact that once the receipts are offered to tax u/s 44BB of the Act which provides for computation of profits on gross basis, there is no scope for computing or re-computing the profits by excluding any part of the receipts from the total turnover as the same would amount to defeating the, very purpose of providing for a presumptive scheme of taxation u/s 44BB of the Act and obviating the need for maintaining accounts for individual receipts, payments etc. (xiii) Whether the CIT (A) has erred in ignoring the ratio of the judgment in the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 44BB of the Act. The appellant places reliance on the following judicial precedents wherein the revenue from seismic survey activity has been held to be includible in the revenue chargeable to tax u/s 44E5B of the Act: Adjudication 6. The appellant has entered into several contracts earning revenues, details of which is tabulated between Sl. no. 1 to 121 of the table inserted between page 1 to 10 of the assessment order. The assessing officer accepted the revenue mentioned between SI No. 1 to 9 and 11 to 112 as taxable u/s 44BB of the Act. The revenue in respect of the contracts mentioned at serial number 113 to 121 in respect of post-stack inversion study, core pressure and well-bore study, data processing and maintenance services were considered by the AO in the nature of fees for technical services u/s 9(1)(vii) of the Act. The Assessing Officer treated these receipts as per provisions of section 44DA of the Act as 'fees for technical services' as defined in section 9(1) (vii) of the Act. It was observed by the Assessing Officer that the services cannot be considered as any activity relating to "mining activity" and basically in these activities assessee is providing t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether certain services in connection with prospecting, extraction or production of mineral oil is chargeable to tax as "fees for technical services" under section 44D read with Explanation 2 to Section 9(1)(vii) of the Income Tax Act or will such payments be taxable on a presumptive basis under section 44BB of the Act"? The relevant portion of the judgment is reproduced as below: "8. A careful reading of the aforesaid provisions of the Act goes to show that under Section 44BB (1) in case of a nonresident providing services or facilities in connection with or supplying plant and machinery used or to be used in prospecting, extraction or production of mineral oils the profit and gains from such business chargeable to tax is to be calculated at a sum equal to 10% of the aggregate of the amounts paid or payable to such non-resident assessee as mentioned in Sub-section (2). On the other hand, Section 44D contemplates that if the income of a foreign company with which the government or an Indian concern had an agreement executed before 1.4.1976 or on any date thereafter the computation of income would be made as contemplated under the aforesaid Section 44D. Explanation (a) to Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rilling operations for exploration or exploitation of oil and natural gas. 3. In view of the above opinion, the consideration for such services will not be treated as fees for technical services for the purpose of Explanation 2 to Section 9(1) (vii) of the Income-tax Act, 1961. Payments for such services to a foreign company, therefore, will be income chargeable to tax under the provisions of section 44BB of the Income-tax Act, 1961 and not under the special provision for the taxation of fees for technical services contained in section 115A read with section 44D of the Incometax Act, 1961. 4. A copy of the statement of the case dated 16.3.1990 (without annexures) and a copy of the Attorney General's opinion dated 13.5.90 are enclosed. 5. These instructions may brought to the notice of all the officers in your region. [F. No. 500/6/89-FTD dt.22.10.90 from CBDT]" 10. Before us the opinion of the learned Attorney General has been placed by the learned counsel for the appellants at great length to contend that the views expressed by the learned Attorney which had been accepted by the CBDT were based on an exhaustive consideration of the provisions of the Mines Act, 1952 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 "mining" in the Explanation 2 to Section 9(1) of the Income Tax Act, in the absence of any definition under the Income Tax Act, has to be understood as per the provisions of the Oil Fields (Regulation and Development) Act, 1948 read with the Petroleum and Natural Gas Rules, 1959. 12. Opposing the contentions advanced, on behalf of the appellants, Shri. Gurukrishna Kumar, learned senior counsel for the Revenue has urged, that the opinion of the Attorney General relied upon and the CBDT Circular has no relevance to the present case inasmuch as the agreements between ONGC and the non-resident companies made it abundantly clear that, what is paid, to the non-resident company are fees for technical services rendered. Though such services may have some connection with the prospecting, extraction or production of mineral oil, the primary service rendered by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 Explanation 2 to, Section 9(1) of the Act would cover rendering of service like imparting of training and carrying out drilling operations for exploration of and extraction of oil and natural gas and hence payments made under such agreement to a non-resident/foreign company would be chargeable to tax under the provisions of Section 44BB and not Section 44D of the Act. We do not see hour any other view can be taken if the works or services mentioned under a particular agreement is directly associated or inextricably connected with prospecting, extraction or production of mineral oil. Keeping in mind the above provision, we have looked into each of the contracts as culled, out by the appellants and placed before the Court is correct. The said details are set out below. S. No. Civil Appeal No. Work covered under the contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... instrument calibration and inspection of far turbines. 27. 1522 Replacement of choke and kill consoles on drilling rigs. 28. 1521 Inspection of gas generators. 29. 1515 Inspection of rigs. 30. 2012 Inspection of generator. 31. 1240 Inspection of existing control system and deputing engineer to attend to any problem arising in the machines. 32- 1529 Inspection of drilling rig and verification of reliability of control systems in the drilling rig. 33. 2008 Expert advice on the device to clean insides of a pipeline. 34. 4 2795 Feasibility study of rig to assess its remaining useful life and to carry out structural alterations. 35. 925 Engineering analysis of rig. 36. 1519 Imparting training on cased hold production log evaluation and analysis. 37. 1533 Training on well control. 38. 1518 Training on implementation of Six Sigma, concepts. 39. 1516 Training on implementation of Six Sigma concepts. 40. 6023 Training on Drilling project management. 41. 2796 Training in Safety Rating System and assistance in development and audit of Safety Management System. 42. 1239 To develop technical specifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts, formation markers and aviation service, a series of interpreted horizons and a seismic data volume. It generates acoustic impedance volumes from 2D or 3D seismic. 14. On perusal of the material on wellborn analysis it is found that "Wellbore study" is done to avoid drilling related failures. Many drilling related failures are caused by unstable boreholes, poor hole cleaning or stuck BHA and casing, Wellbore study identifies the wellbore instability, along with the mode of failure and is critical in correcting and reducing the cost associated with it. A range of measures based on wellbore acoustics and seismic as well as laboratory measurements assess the significance of the surroundings and reduces the risk. 15. Similarly, core pressure study is part of the Core Analysis which is done in course of Oil exploration to study the rock samples yield data basic to the evaluation of the productive potential of the hydrocarbon reservoir. Unbroken pieces of reservoir rock are obtained through coring techniques, either from the bottom during drilling or from the site of the borehole walls after drilling. 16. It is clear from features of the post-stack inversion study, core pressure an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt, in the case of ONGC versus CIT (supra) and the decision of the Tribunal (supra) in the case of the assessee itself, we hold that the services provided with assessee falls within the ambit of section 44BB of the Act." 19. In view of the above discussion and respectfully relying upon the decision of Hon'ble Supreme Court in the case of ONGC versus CIT (supra) and the decision of Ld ITAT, Delhi in the case of Paradigm Geophysical Pty limited (ITA No. 2753/Del/ 2016) it is held that the receipts of the Assessee on account of post-stack inversion study, core pressure and wellbore study, data processing and maintenance services were taxable under section 44 BB of the Act. 20. In the result, the appeal of the revenue on this ground is dismissed. 21. With regard to the contention of the revenue that the amounts have to be taxable u/s 44DA, we hold that to invoke the provisions of Section 44DA, the revenue has to prove that the receipts are indeed or in the nature of FTS taxable u/s 9(1)(vii). 22. With regard to the reimbursement of "equipment lost in hole" amounting to Rs.11,01,66,066/- as includible in the gross receipts as opposed to the claim of the assessee that the same being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tute 'income'. "Income" as contemplated under the Act does not include "reimbursement of expenses". There is no element of profit and. gains in the reimbursements received by the Assessee, which has incurred expenses for and on behalf of other companies. Contractually the liability to incur these expenses was with those companies. Therefore the amounts towards reimbursement cannot be considered as income of the Assessee. Furthermore, we note that assessee's contention is that that Ld. Assessing Officer has also erred on facts and in law in not following the decision of the jurisdictional High Court of Uttarakhand in Assessee's own cases DIT v. Schlumberger Asia Services Limited [2009] 317 ITR 156/ and CIT v. Schlumberger Asia Services Limited (ITA No. 58 of2006, Order dated 26-10-2007, in which it was held, that such reimbursement does not constitute income. These decisions have also been followed by the Hon'ble Tribunal in Assessee's own case ACIT ITA NO. 6063/Del./2010 v. Schlumberger Asia Services Limited, ITA No. 4180(Del)/2006 Order dated 13-04-2007. We find considerable cogency in assessee's submission as above. Hence, we hold that the Assessing Of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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