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TMI Blog2023 (4) TMI 1160X X X X Extracts X X X X X X X X Extracts X X X X ..... n hire to use or ought to be used for the said purpose. In the facts of the present case, undisputedly, the service provided by the assessee to Cairn India is in connection with activity of prospecting for, or extraction, or production of mineral oils. Even, the hiring/leasing of tools/equipments to both Cairn India and ONGC is in connection with the same activity. Merely because the services provided are of technical nature, that by itself, would not make the receipts FTS when there is special provision in the shape of section 44BB engrafted in the Statute to bring such kind of receipts for the purpose of taxation in India under the head profits and gains from business or profession . AO, while concluding that the receipts are in the nature of FTS, has heavily relied upon a decision of the Uttarakhand High Court in case of CIT Vs. ONGC [ 2005 (12) TMI 46 - UTTARANCHAL HIGH COURT] However, we are surprised to note that, while doing so, he has completely ignored the decision of the Hon ble Supreme Court in case of ONGC Vs. CIT [ 2015 (7) TMI 91 - SUPREME COURT] wherein the very same decision of the Hon ble Uttarakhand High Court was reversed. As per SC in above case if t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e facts of the present appeal, the departmental authorities have failed to prove this fact through any cogent material brought on record. The nature of services enumerated earlier would make it clear that these are routine managerial and partly consultancy services to provide business support to the subsidiary. There is nothing on record to suggest that while rendering services, the assessee has made available any technical knowledge, know-how, skill etc. enabling the recipient of service to apply them independently. That being the case, in our considered opinion, the conditions of section 12(4)(b) are not satisfied. Therefore, we hold that the receipts are not in the nature of FTS. This ground is allowed. Addition treating the reimbursement of expenses as FTS - HELD THAT:- An amount on which, the assessee has paid service tax on reverse charge mechanism is actually expenditure incurred by the assessee itself on its own behalf and not in the nature of reimbursement. As it appears, the Assessing Officer has treated this amount as income under factual misconception. Therefore, we are inclined to delete the addition made as FTS. For the balance amount it is the claim of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... FTS). 3.1 Briefly the facts relating to this issue are, the assessee is a non-resident corporate entity incorporated under the laws of Singapore and a tax resident of Singapore. As stated, the assessee is engaged in the business of providing services or facilities of drilling and production systems, valves and measurements, compression system in connection with oil and gas exploration activities to various onshore and offshore drilling contractors/oil and gas producers across the globe. As stated by the Assessing Officer, the assessee is a leading international manufacturer of pressure control equipments for oil and gas drilling and production of onshore, offshore and subsea equipment. The assessee had entered into a contract with Cairn India for installation and commissioning of PCP pump systems. Besides above, the assessee has also given certain tools/equipments on lease/hire basis to ONGC, which are used by the ONGC in connection with exploration of mineral oils in India. Thus, in the year under consideration, as per the version of the assessee, it had taxable income from the aforesaid two sources. The assessee filed its return of income on 13.09.2013, declaring total income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the claim of the assessee. Referring to the definition of FTS under section 9(1)(vii) of the Act, he concluded that the receipts are in the nature of FTS. Further, since, the assessee had a PE in India, the Assessing Officer held that the receipts would be taxable as FTS under section 44DA of the Act. While doing so, he relied upon a decision of the Hon ble Uttarakhand High Court in case of CIT Vs. ONGC, 299 ITR 438 and ultimately applying the provisions of section 44DA of the Act, he determined the profit at the rate of 25% on gross basis. Accordingly, he proposed the draft assessment order. Against the draft assessment order, the assessee raised objections before learned DRP. However, the decision of the Assessing Officer was upheld. 3.3 Before us, learned counsel appearing for the assessee drew our attention to the relevant contracts with Cairn India and ONGC and submitted that the services relating to installation and commissioning of PCP is in connection with extraction or exploration of mineral oil. He submitted, this factual position has not been controverted by the departmental authorities. Further, he submitted, the leasing/hiring of tools/equipments to ONGC is also i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mineral oils and gas. The receipts in question were received in pursuance to contracts executed with Cairn India and ONGC. From the discussions made by the Assessing Officer, it is observed that Cairn India was entrusted with the work of operation of oil blocks in northern fields and southern fields in the state of Rajasthan. As per the contract with Cairn India, the assessee is required to provide equipments and personnel to perform the work in connection with the drilling and exploration of mineral oils. Further, the assessee is required to provide services of PCP system which is a system for extracting mineral oils from oil wells. Additionally, the assessee also supplies tools/equipments, both to Cairn Indian and ONGC to be used in the activity or prospecting, exploration and production of mineral oils. Undisputedly, both the contractees are engaged in the activity of prospecting, exploration and production of mineral oils. Since, the scope of work under the contracts has been elaborately discussed by the Assessing Officer, there is no need to discuss them any further in this order. Suffice to say, the terms of contracts coupled with other materials on record do suggest that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion mining or like projects used in Explanation 2 to section 9(1)(vii) of the Act has observed that prospecting for, extraction or production of mineral oils would come within the expression mining or like project . Thus, once the services related to prospecting, exploration, extraction or production of mineral oils is treated as in the nature of mining or like projects, automatically it will fall out of the ambit of FTS as defined in Explanation 2 to section 9(1)(vii) of the Act, hence, cannot be treated as FTS. It is further relevant to observe, the language used in section 44BB of the Act makes its scope very wide and encompasses not only the services or facilities in connection with prospecting for, or extraction, or production of mineral oils but also supply of plant and machinery on hire to use or ought to be used for the said purpose. In the facts of the present case, undisputedly, the service provided by the assessee to Cairn India is in connection with activity of prospecting for, or extraction, or production of mineral oils. Even, the hiring/leasing of tools/equipments to both Cairn India and ONGC is in connection with the same activity. The materials on record clearl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ility of the receipts from repair services stated to have been rendered directly from head office to Cairn India and ONGC. In the year under consideration, the assessee had the follow additional receipts: (i) Rs.2,31,45,285/- receipt from Cairn India towards provision of services directly from head office, Singapore. (ii) Rs.78,81,832/- receipt towards tools/repair services from ONGC. 4.1 The aforesaid receipts were not offered to tax by the assessee pleading that such services have been rendered from head office at Singapore without involvement of the project office. Hence, such receipts cannot be linked to the PE, therefore, not taxable in India. The Assessing Officer, however, was not convinced with the submission of the assessee. He was of the view that the services rendered are of the nature of technical service, hence, would fall within definition of FTS under section 9(1)(vii) of the Act as well as treaty. Accordingly, he issued show-cause notice to the assessee. In reply, the assessee took the position that the repair services having been rendered from the head office in Singapore without any involvement of the project office, the receipts are not taxable in In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tricably connected with prospecting, extraction or production of mineral oil, hence, such receipt has to be taxed under section 44BB of the Act. We order accordingly. This ground is partly allowed. 5. In ground no. 4, the assessee has challenged the decision of the departmental authorities in treating the receipts from Cameron Manufacturing India (P.) Ltd. (in short Cameron India ) amounting to Rs.21,01,464/- towards business support services as FTS. 5.1 Briefly the facts relating to this issue are, the assessee had entered into an agreement with Cameron India for providing support and management services in the area of international purchasing, international marketing and sales, obtaining international quotations and tenders, coordinating sales, coordinating pricing policies, coordinating marketing strategies, sales administration, support in the area of accounting and finance, complying with standard statements of generally accepted accounting practice, other accounting activities, support in the area of planning, support in the area of tax and legal services, reviewing legal contracts, resolving local disputes and litigation, support in the area of information technology, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. International purchasing Assists in procurement of goods in International market. This includes reference to the vendors Management fees would not make available technical knowledge, experience, skill, knowhow or process to service receiver (CMI) 2. International marketing and sales Assists the group companies to identify potential business opportunities and customers for the products and services Management fees would not make available technical knowledge, experience, skill, knowhow or process to service receiver (CMI) 3. Accounting and finance Assistance in providing support in the field of accounting and finance and reporting requirements of CMI Management fees would not make available technical knowledge, experience, skill, knowhow or process to service receiver (CMI) 4. Tax and legal services Assistance in providing support in the field of tax and legal services and reporting requirements of CMI Management fees would no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct through any cogent material brought on record. The nature of services enumerated earlier would make it clear that these are routine managerial and partly consultancy services to provide business support to the subsidiary. There is nothing on record to suggest that while rendering services, the assessee has made available any technical knowledge, know-how, skill etc. enabling the recipient of service to apply them independently. That being the case, in our considered opinion, the conditions of section 12(4)(b) are not satisfied. Therefore, we hold that the receipts are not in the nature of FTS. This ground is allowed. 6. In view of our decisions in ground nos. 2, 3 and 4, ground nos. 5, 6 and 7 have become consequential or academic, hence, do not require adjudication. ITA No.6/JPR/2017 AY: 2014-15 7. Ground no. 1, being general in nature, does not require adjudication. 8. The issues raised in ground nos. 2, 3.1,4.1, 4.2 and 4.3 are identical to ground no. 2 of ITA No. 1/Jpr./2017 decided by us in the earlier part of the order. Thus, following our decision therein we direct the Assessing Officer to compute the income under section 44BB of the Act. Accord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer again made the addition. 11.3 We have considered rival submissions and perused the materials on record. As could be seen from the materials placed before us, the disputed addition of Rs.7,53,42,991/- comprises of two amounts. An amount of Rs.32,10,271/-, on which, the assessee has paid service tax on reverse charge mechanism is actually expenditure incurred by the assessee itself on its own behalf and not in the nature of reimbursement. As it appears, the Assessing Officer has treated this amount as income under factual misconception. Therefore, we are inclined to delete the addition of Rs.32,10,271/- made as FTS. 11.4 Insofar as the balance amount of Rs.7,21,32,720/- is concerned, it is the claim of the assessee that these are reimbursements from Cameron Indian on cost to cost basis without any markup. The assessee has explained before the Assessing Office that the assessee was expecting to enter into new contracts with Cairn India but Cairn India awarded the contract to Cameron India. The assessee submitted that since the assessee had incurred certain expenses in relation to ongoing work, they were cross charged to Cameron India without any markup on pure cost to cos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he effect that given sufficient time, he will be in a position to submit the agreement between Cairn India and Cameron India. The assessee has also submitted that complete set of invoices relating to reimbursement of expenses from Cameron India would also be furnished. However, it appears form the observations of the Assessing officer in the final assessment order, the assessee had not furnished complete set of evidences. 11.6 Keeping in view the aforesaid factual position, we restore this issue to the Assessing Officer with a direction to examine assessee s claim afresh with reference to evidences already available on record or which the assessee may file in course of proceeding. If the assessee can establish through proper documentary evidences that the amount in dispute represents reimbursement of expenses on cost to cost basis without any markup, then no addition can be made. 11.7 With the aforesaid observations, the ground relating to reimbursement of expenses from Cameron India is restored back to the Assessing Officer. Grounds are partly allowed. 12. Ground no. 6, 6.1 and 7 have become consequential in view of our decision in ground nos. 2, 3, 4 and 5. Accordingly, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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