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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 ..... f the departmental authorities in holding that receipts from services relating to Progressive Cavity Pump system (PCP) and rental of tools/equipments to Cairn Energy India Pty. Ltd. (in short 'Cairn India') and Oil and Natural Gas Corporation (ONGC) is not in the nature of business profits to be taxed under section 44BB of the Income-tax Act, 1961 (in shoft 'the Act') but is Fee for Technical Services (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 PC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vices or facilities and from lease/hire of plant and machinery to be used in prospecting for, or extraction, or production of mineral oils, they will be covered under section 44BB of the Act. Further, he submitted that since the assessee is a non-resident and the work is rendered through the project office in India, provision of section 44BB would apply. The Assessing Officer, however, did not accept 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessable under section 44BB of the Act or are in the nature of FTS as defined under section 9(1)(vii) of the Act, hence, to be taxed under section 44DA read with section 115A of the Act. As discussed earlier, the assessee specializes in providing services or facilities for drilling and production systems, valves and measurements, compression systems required in connection with exploration of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vii) of the Act makes it clear that any consideration from rendering of any managerial, technical and consultancy services would fall within the ambit of FTS. However, an exception has been provided to the definition of FTS by saying that the consideration for any construction, assembly, mining or like project shall not be regarded as FTS. The CBDT while explaining/clarifying the expression '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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has accepted assessee's claim under section 44BB of the Act. 3.8 In view of the aforesaid, we cannot sustain the decision of the Assessing Officer to treat the receipt as FTS. Accordingly, we direct the Assessing Officer to compute assessee's income under section 44BB of the Act. This ground is allowed. 4. In ground no. 3 and its sub-grounds, the assessee has challenged the taxability 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s considered the entire gamut of work executed under the contract, including repair, training of personnel etc. and held that the pith and substance of each of the contracts is inextricably connected with prospecting, extraction or production of mineral oil. Thus, applying the ratio laid down in the aforesaid decision, we hold that the receipts from repair work is inextricably 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, sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceipts from business support services have no link with PE, hence, its taxability has to be examined separately. In terms with the agreement with Camaron India the assessee is required to provide the following services: S. No. Particulars Description of service Remarks 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 requireme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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. Accordingly, these grounds are allowed. 9. The issues raised in ground nos. 3.2, 3.3, 3.3.1 are identical to ground no. 3, 3.1 and 3.2 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rials 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 cost basis. In principle, we accept assessee's contention that reimbursement of expenses on cost to cost basis without any markup does not have any p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plete 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, these grounds are dismissed. 13. In ground no. 8, the assessee has raised the issue or double addition of an amount of Rs.6,58,19,210/-. 13.1 We have considered rival sub ..... X X X X Extracts X X X X X X X X Extracts X X X X
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