ORDER
Sudhanshu Srivastava, Judicial Member - This appeal has been preferred by the assessee against the order dated 29th of August 2012 passed by the Ld. Commissioner of Income Tax (A) pertaining to assessment year 2009-10.
2. The return of income was filed on 29/09/2009 showing income at nil by M/s ONGC Ltd in its capacity as the representative assessee of M/s DeGolyer and MaNaughton, USA. During the relevant previous year, ONGC had made payment of Rs. 4,76,10,244/- to M/s DeGolyer and MaNaughton, USA against tax protected contract dated 12/02/2008 and Amendment No. 1 thereto dated 31.03.2008.
3. The assessee was required by the AO to show cause as to why the revenues received by it may not be treated as Fees for Technical Services. The assessee was of the view that the non-resident was engaged by ONGC for auditing/third-party certification of in-place and reserves of 56 fields of ONGC and additional 12 fields. The work was carried out by the non-resident at its workplace Dallas, USA. Also the non-resident did not have any office in India. It was the assessee's contention that the services rendered by the non-resident would be helpful in better understanding of the reserves of oil and gas and thus also aid in their production in an optimal manner. As such, the services rendered by the non-resident were a step-in-aid to the mining for mineral oil. It was submitted before the AO that when even the consideration for services of imparting training are excluded from the term "fees for technical services", it would be incorrect to conclude that the services rendered by the non-resident in the instant case could be brought to tax as "fees for technical services". The assessee further referred to the Memorandum of Understanding (MOU) dated 15/05/1989 between the Governments of India and USA and paragraph 4(b) of Article 12 of the India-USA Double Taxation Avoidance Agreement (DTAA) wherein a reference has been made to technical consultancy services. It was submitted that it was the Indian Government's view that consideration for a technical or consultancy service could be considered as 'Fees for Included Services' only if the same resulted in making the technology available to the person acquiring the service and that the technology would be considered made available when the person acquiring the service is enabled to apply the technology. It was submitted by the assessee before the AO that it was the Indian Government's view that the fact that the provision of service may require technical input by the person providing the service does not, per se, mean that technical knowledge, skills etc. were made available to the person purchasing the service, within the meaning of paragraph 4(b) of India USA Double Taxation Avoidance Agreement. It was the assessee's submission that in the course of rendering services to the ONGC, the non-resident itself may have used its technical knowledge skills etc. However, since ONGC had not been enabled to apply the technology in future on its own without recourse to the non-resident and the knowledge required to carry out similar work had not been made available to the ONGC, the payments made by ONGC to the non-resident cannot be taxed as "Fees for Included Services" under India USA Double Taxation Avoidance Agreement. The assessee also referred to the provisions of section 90 (2) of the Indian Income Tax Act, 1961 wherein it is provided that where the Central government has entered into an agreement with the government of any country outside India under sub-section 1 for granting relief of tax or avoidance of double taxation, then, in relation to the assessee to whom such agreement applies, the provisions of the act shall apply to the extent they are more beneficial to that assessee. Hence, it was the assessee's submission before the AO that receipts for the services rendered by the non-resident were not chargeable to income tax in India.
4. However, the AO was of the opinion that the scope of work mentioned in the contract made it clear that the assessee was not rendering any services relating to the construction, assembly, mining or like project as mentioned in the exclusion clause of explanation 2 to section 9 (1) (vii) of the Income Tax Act, 1961. The AO proceeded to hold that the assessee's activities were covered under 'Fees for Technical Services' and all the receipts emanating from the contract under consideration were to be taxed in India. The AO accordingly proposed to impose tax at total income of Rs. 5,32,30,000/- after grossing up of tax. A draft assessment order was, accordingly, passed on 23/12/2011. Since the assessee did not refer the matter to the Dispute Resolution Panel, the assessment was finalised on 24/02/2012 at a total income of Rs. 5,32,30,000/- under section 143 (3) read with section 144C (3) (b) of the Income Tax Act, 1961.
5. Aggrieved, the assessee preferred an appeal before the First appellate authority wherein the appeal of the assessee was dismissed following the decision of ITAT, Delhi Bench rendered in the case of CGG Veritas Services, SA v. Addl. DIT, International Taxation [2012] 18 taxmann.com 13/50 SOT 335 .
6. Now the assessee is an appeal before us and has raised the following 4 grounds of appeal:—
'1.
Ld. CIT (A)-II Dehra Dun has erred in law and in the facts and circumstances of the case in upholding the order passed by the Assessing Officer wherein it was held that the receipts of DeGolyer & MacNaughten, USA, are taxable as "fees for technical services" under the provisions of the Income-tax Act. 1961.
2.
The Ld. Commissioner of Income Tax (Appeals)-II, Dehra Dun, has erred in law and in the facts and circumstances of the case in not holding that the receipts of DeGolyer & MacNaughten, USA, were not taxable in India as per the India-USA Double Taxation Avoidance Agreement.
3.
Without prejudice to the preceding grounds, the Ld. Commissioner of Income Tax (Appeals)-II. Dehra Dun, has erred in law and in the facts and circumstances of the case in rejecting the alternative contention of appellant that the receipts of DeGolyer & MacNaughten, USA, are taxable u/s. 44BB of the Income-tax Act, 1961.
4.
The appellant craves permission to add, alter and/or amend any ground(s) of appeal before or at the time of hearing.'
7. The learned AR for the assessee submitted that the recent judgement of the Hon'ble Supreme Court, in assessee's own case in Oil & Natural Gas Corpn. Ltd. v. CIT [2015] 59 taxmann.com 1/233 Taxman 495/376 ITR 306 , has held that if the pith and substance of the contracts/agreements is inextricably connected with prospecting, extraction or production of mineral oil, the payments made by ONGC and received by non-resident assessees or foreign companies under the said contracts are more appropriately assessable under the specific provisions of section 44 BB and not under the general provisions of section 44 D of the Act. The Ld. AR submitted that the scope of the work included audit of ONGC's current Proved, Proved and Probable and Proved and Probable and Possible ultimate Reserves and Reserves of oil condensate, associated gas and free gas. The above services were thus related to the activity of prospecting for or exploration of mineral oils, which were covered under the provisions of section 44 BB of the act. Moreover, the test of "Make Available" was not satisfied as the assessee could not derive an enduring benefit and utilise the knowledge or know how on his own in future without the aid of the service provider for carrying out identical activities. There is no transfer of technical knowledge and skills so as to enable the assessee to perform similar activities in future on its own. It was submitted that therefore the payment could not be taxed as fees for technical services. The learned AR placed reliance on the decision of the coordinate bench of this Tribunal in ITA No. 4989/Mum/2012 in the case of Dy. DIT, International Taxation v. ONGC. Reliance was also placed on the decision of the Hon'ble Apex Court in the case of ONGC Ltd. (supra).
8. The Ld. DR placed reliance on the Orders of the AO and the Ld. CIT (A).
9. We have heard the rival contentions and have perused the material on record. It is seen that section 44BB inserted by the Finance Act, 1987 with retrospective effect from 1-4-1983 reads as under:—
'44BB. Special provision for computing profits and gains in connection with the business of exploration, etc., of mineral oils— (1) Notwithstanding anything to the contrary contained in sections 28 to 41 and sections 43 and 43A, in the case of an assessee [being a non-resident] engaged in the business of providing services or facilities in connection with, or supplying plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils, a sum equal to ten per cent of the aggregate of the amounts specified in subsection (2) shall be deemed to be the profits and gains of such business chargeable to tax under the head "Profits and gains of business or profession."
Provided that this sub-section shall not apply in a case where the provisions of section 42 or section 44D or section 115A or section 293A apply for the purposes of computing profits or gains or any other income referred to in those sections.
(2) The amounts referred to in sub-section (1) shall be the following namely:-
(a)
the amount paid or payable (whether in or out of India) to the assessee or to any person on his behalf on account of the provision of services and facilities in connection with, or supply of plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils in India; and
(b)
the amount received or deemed to be received in India by or on behalf of the assessee on account of the provision of services and facilities in connection with, or supply of plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils outside India.
(3) Notwithstanding anything contained in sub-section (1), an assessee may claim lower profits and gains than the profits and gains specified in that sub-section, if he keeps and maintains such books of account and other documents as required under sub-section (2) of section 44AA and gets his accounts audited and furnishes a report of such audit as required under section 44AB, and thereupon the Assessing Officer shall proceed to make an assessment of the total income or loss of the assessee under subsection (3) of section 143 and determine the sum payable by, or refundable to, the assessee.
Explanation. - For the purposes of this section,-
(i)
"plant" includes ships, aircraft, vehicles, drilling units, scientific apparatus and equipment, used for the purposes of the said business;
(ii)
"mineral oil" includes petroleum and natural gas.'
10. The basic ingredients of this section are that the non-resident assessee should be engaged in the business of providing services or facilities in connection with the prospecting or extraction or production of mineral oils. Non-resident assessee should be engaged in the business of supply plant and machinery on hire used or to be used, in prospecting for or extraction or production of mineral oils. The amount being 10% of gross receipts would be assessable as "business income. However, a proviso was also inserted which, inter alia, excluded the royalty or FTS contemplated u/s 44D or section 115A. Section 44DA was inserted by Finance Act 2010 w.e.f. 1.4.2011. From the combined reading of these sections it is evident that all the sections relating to royalty/FTS operate in different fields and that is the reason for insertion of proviso to sections 44BB/44DA/115A. Where the assessee was imparting services which entitled it to royalty or FTS simpliciter then the same continues to be assessed u/s 9(1)(vi)/(vii) read with section 115A of the Act. However, where the assessee is imparting services in relation to oil exploration, the Royalty/FTS would be taxable u/s 44BB. Specific services are contemplated only under section 44BB and, therefore that being special provision, the same will prevail over all other provisions dealing with royalty/FTS. In no other section dealing with royalty/FTS, specific services are provided. In this regard, one may also refer to section 293A of the Act which empowers the Central Government to grant exemptions in relation to participation in the business of prospecting for or extraction etc. of mineral oil. In fact separate notifications have been issued by the Government in exercise of its power conferred u/s 293A to give relief to the assessees in connection with the business of exploration and extraction of mineral oil. Considering the pressing requirement of the oil industry, sections 42 and 293 A were inserted in the Act in view of the high expenditure involved in the business of oil exploration. When viewed in the back drop of this objective, we find that section 44BB has been couched in such a manner so as to encompass within its ambit all services connected with oil exploration. Thus, in our opinion, if a non-resident is engaged in the business of providing services or facilities in connection with the prospecting for extraction or production of mineral oil, then 10% of the aggregate of the amounts received/accrued will be deemed to be the profits and gains of such business chargeable to tax in terms of provisions of section 44BB of the Act. We also concur with the submissions of the Ld. AR that the test of "Make Available" was not satisfied as the assessee could not derive an enduring benefit and utilise the knowledge or know how on his own in future without the aid of the service provider for carrying out identical activities. There is no transfer of technical knowledge and skills so as to enable the assessee to perform similar activities in future on its own. Hence, it is our considered view that the payment could not be taxed as fees for technical services but under the specific provisions of section 44BB.
11. A reference can also be made to the decision of the Hon'ble Apex Court in ONGC Ltd.'s case (supra) wherein the Hon'ble Apex Court in its Order dated 01/07/2015 has allowed the appeal of ONGC on the substantial question of law framed which reads as, " Whether the amounts paid by the ONGC to the non-resident assesses/foreign companies for providing various 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?"
12. The Hon'ble Apex Court has answered the question as under, "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 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 how 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."
13. Thus, on the facts of the case and respectfully following the ratio of the judgment of the Hon'ble Apex Court in ONGC Ltd.'s case (supra), it is our considered opinion that the revenues of the assessee should be taxed under the provision of section 44BB of the Act. Hence, ground no. 3 of the assessee's appeal is allowed.
14. The other question that needs to be addressed is the issue of applicability of the decision of the co-ordinate Bench of this Tribunal rendered in the case of CGG Veritas Services, SA (supra). In this regard, we agree with the contentions of the Ld. AR that the ratio laid down in the above said judgment is not applicable in the instant case because the aforesaid judgment of the co-ordinate Bench brings the receipts of a non-resident for providing geological and geophysical services for exploring mining potential within the ambit of 'fees for technical services' solely on the basis of the provisions of the Act and without considering the Indo-French DTAA. Moreover, the Hon'ble Apex Court has given a very specific ruling on the issue which has been reproduced above and the issue has attained finality.
15. As far as Ground Nos. 1 & 2 are concerned, the same were not pressed. The Bench was informed that in subsequent years, the assessee has itself opted for determination of tax and assessment under the provisions of section 44BB of the Act. Hence, the same are dismissed as not pressed.
16. In the result, the appeal of the assessee is partly allowed.
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