Income Tax Appellate Tribunal - Delhi
Ongc As Representative Assessee Of ... vs Dcit (International Taxation), ... on 28 April, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'E' NEW DELHI
BEFORE SHRI I.C. SUDHIR JUDICIAL MEMBER AND
SHRI B.P. JAIN, ACCOUNTANT MEMBER
ITA No.4877/Del/2013 and 1327/Del/2016
Assessment Year 2010-11 and 2011-12
ONGC as Representative Vs. ADIT, International
Assessee of University of Taxation, Aayakar
Calgary, Alberta, Canada, Bhawan, 13-A Subhash
DGM-Head, Corporate Tax, Road, Dehradun.
Oil and Natural Gas
Corporation Ltd.,
Room No.244, Old
Secretariat Building, Tel
Bhawan, Dehradun
PAN: AAACO 1598A
(Appellant) (Respondent)
Revenue by : Shri Rajesh Kumar, Sr.D.R.
Assessee(s) by : Shri Kavish Syal, CA.
सुनवाई क तार ख/ Dateof Hearing : 03/04/2017
घोषणा क तार ख /Date of Pronouncement: 28/04/2017
ORDER
These two appeals of the assessee arise from the order of learned CIT(A)-II, Dehradun dated 18.06.2013 for the assessment year 2010-11 and from the order of learned CIT(A)-II NOIDA dated 12.01.2016 for the Assessment Year 2011-12. Since the issues in both the appeals are identical, therefore, both the appeals are being taken up by this consolidated order. First of all we take up the appeal of the assessee in ITA No.4877/Del/2013 as under:-
2.The assessee filed its return of income for A.Y. 2010-11 showing income of Rs. Nil by M/s ONGC Ltd. in its capacity as the representative assessee of M/s University of Calgary, Alberta, Canada. The case of the appellant was selected for scrutiny assessment by issuance of notice under section 143(2) ITA No.4877/Del/2013 2 of the Act. ONGC in the relevant A.Y., had made payments of Rs.
95,55,265/- to the M/s University of Calgary, Canada (non-resident) in terms of contract dated 23.06.2008 for long term collaboration, participation, training, maintenance of air injection equipment. The said equipment is used for increasing the recovery of oil.
3.The assessment was completed vide order dated 20.03.2013 and the aforesaid fee was treated as 'fees for technical services' as per the provisions contained in section 9 (l)(vii) of the Act to be taxed on gross basis by applying section 115(A) of the Act. It was further held that the consideration paid is outside the purview of section 44BB of the Act. Accordingly, the total income of the appellant was assessed at Rs. 1,06,83,140/- as per provisions of section 143(3) r.w.s. 144C (l)of the Act.
4.The assessee challenged the aforesaid assessment order before the ClT(A) and vide impugned order dated 18.06.2013, the appeal was dismissed.
5.The assessee is in appeal before us and has raised the following grounds of appeal:
The Ld. Commissioner ofIncome Tax (Appeals)-II, Dehra Dun, has erred in law and in the facts and circumstances of the case in holding that the receipts of University of Calgary, Alberta, Canada, from ONGC were taxable as fees for technical services and in not holding that such receipts were not taxable in India as per the India-Canada Double Taxation A voidance Agreement.
Without prejudice to the preceding ground, the Ld. Commissioner of Income Tax (Appeals)-II, Dehra Dun, has erred in law and in the facts and circumstances of the case in holding that the receipts of University of Calgary, Alberta, Canada, from ONGC were taxable as fees for technical services and in not holding that such receipts were taxable u/s. 44BB of the Income-tax Act, 1961.
6. In Ground No.1, the appellant contends that the receipt of the University of Calgary, Canada could not be treated as 'fees for technical services' as per India - Canada DTAA. The Ld. AR submits that as per section 90(2) of the Act, where a DTAA exists, the provisions of the Act continue to apply to be extent they are more beneficial to the assessee. In the present case, since ITA No.4877/Del/2013 3 the appellant is a non-resident it is entitled to be governed by the provisions of DTAA between India and Canada to the extent they are more beneficial to it. The Ld. AR has referred to Article 12 of India - Canada DTAA dealing with royalties and fees for included services. Article 12(4) of India - Canada DTAA is extracted herein below:
"4. For the purpose of this Article, 'fees for included services' means payments of any kind to any person in consideration for the rendering of any technical or consultancy services (including through the provision of services of technical or other personnel) if such services:
a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received; or
b) make available technical knowledge, experience, skill, know-how, or processes or consist of the development and transfer of a technical plan or technical design."
7.It is the submission of the Ld. AR that it is only in a situation, where either or both of the aforesaid conditions are satisfied, that the payments made to a person in consideration for rendering of any technical or consultancy service can be said to come within the ambit of fees for included services, as contemplated under Article 12 of the DTAA. He further submits that in the present case, admittedly there is no payment of royalties. Furthermore, the services provided by the non-resident appellant do not make available technical knowledge, experience, skill, know how or consist of transfer of technical design. It is argued that since ONGC has not been enabled to apply the technology in future on its own without recourse to the non-resident, the payments made by ONGC cannot be treated as fees for included services under the India - Canada DTAA. The Ld. DR on the other hand has relied upon the orders passed by the AO and CIT(A) to support his submissions.
8.We have heard the rival submissions and perused the record of the case. The Ld. AR has relied upon the phrase (make available' appearing in Article 12(4) of the DTAA. The scope of work under the contract shows that it was ITA No.4877/Del/2013 4 a service agreement and was entered towards collaborative research, participation, training, maintenance and service for the air injection equipment of ONGC in, India. The scope of work as mentioned in the contract is extracted herein below:-
"scope of work-
Two U of CIT(A) professionals well visit IRS, ONGC twice per year for one week and two week periods for equipment maintenance. During two week visit, one CT test will be conducted collaboratively. U and CIT(A) may send additional professionals whenever required.
The cost of the contract for the first two year (from Effective Date of contract) shall be USD 300,000. The total cost of contract for five years shall be USD 816 subject to renewal of existing MOU from April 11, 2009 onwards. The above cost is exclusive of all the taxes, duties & level applicable. Any kind of taxes, duties & levies applicable in India shall be borne by the institute. Note: All costs associated with local transportation, accommodations, meals and miscellanewous expenses, etc for U of CIT(A) profession of India shall be borne by IRS, ONGC and will be additional to the annual quoted above. Additionally costs associated with replacement ports, components, if required, will be invoiced to IRS, ONGC on at cost basis by U of CIT(A) All the costs associated with shipping packaging insurance taxes and customs duties in India shall be paid reimbursed by IRS, ONGC to U of C. List of equipment for maintenance.
A. HPAI 100 mm Diameter Combustion Tube System
1. Combustion Tube
2. pressure Jacket
3. Gas injection System
4. Water Injection System
5. Back Pressure Control Suystem
6. Production system
7. pre test core preparation and core flooding systems
8. Product Gas Analyses System
9. Other Instrumentation and Equipment All the necessary pressure transducers ganges and thermocouples with dual readout (ie. computerized and digital analog),. SCR and Triac heater power controllers, etc.
10. Control and Data Acquisition System......
The project shall be supervised and conducted jointly by both the parties in the following manner.
(a) The portion of the project which is related to the institute and to be performed by it shall be under the direction and supervision of Group General Manager Head, IRS. Dr. R. V. Marathe and General Manager-Heavy Oil Development, Mr. Sidhartha Sur.
(b) The portion of the project which is required to be performed by the University shall be under the direction and supervision Drs. R.G. Moore and SA. Mehta.""
9.We agree with the findings arrived at by the AO and the CIT(A) that the know how possessed by the non-resident appellant has been shared and ITA No.4877/Del/2013 5 made available to the ONGC personnel. The same is evident from clause 1.2 of the scope of project extracted herein above. The contention of the Ld. AR that the technology is not made available to ONGC is incorrect as the agreement not only contemplates participation but also training and collaborative research between the personnel of the non-resident and ONGC. Article 12(4) of the DTAA thus becomes applicable in the present facts and circumstances of the case. In view thereof, Ground No.1 raised by the appellant is dismissed.
10.With respect to Ground No.2, the assessee submits that if the receipts of the non-resident appellant are considered taxable, the same should be taxed under section 44BB of the Act. The Ld. AR submits that the payments were made by the ONGC to the non-resident for maintenance of the air injection equipment used for recovery of oil and since the services rendered being directly associated with extraction and production of mineral oil, the consideration paid would be excluded from the definition of fees for technical services and would be taxable under section 44BB of the Act. Section 44BB of the Act is extracted herein below:-
"44BB. (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 sub-section (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" :
11.Provided that this sub-section shall not apply in a case where the provisions of section 42 or section 44D or section 44DA or section 115A or section 293A apply for the purposes of computing profits or gains or any other income referred to in those sections.
12.(2) The amounts referred to in sub-section (1) shall be the following, namely :--
13.(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
14.(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 ITA No.4877/Del/2013 6 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.
15.(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 sub-section (3) of section 143 and determine the sum payable by, or refundable to, the assessee.
16.Explanation.--For the purposes of this section,--
17. (i) "plant" includes ships, aircraft, vehicles, drilling units, scientific apparatus and equipment, used for the purposes of the said business;
18.(ii) "mineral oil" includes petroleum and natural gas."
The Ld. AR has relied upon the judgment passed by the Apex Court in the case of ONGC Vs. CIT, (2015) 59 Taxmann.com 1 (SC) to support his submission that the receipts are taxable under section 44BB of the Act. The Ld. DR on the other hand submitted that the services were in the nature of fee for technical services and the non-resident was not involved in extraction of oil, minerals and therefore, the provisions contained in Section 44BB of the Act do not apply. .
11.We have heard the submissions. It is pertinent to note here that the appellant has no PE in India. Section 44BB of the Act applies in a case where consideration is for services relating to exploration activity which are not in the nature of technical services. If, the consideration is in the nature of fee for technical services, the provisions of either section 44DA or section 115A will be applicable. The said. position remained same even after the amendment brought by Finance bill 2010. The agreement shows that the personnel of the non-resident are not engaged in extraction or production of mineral oils. The appellant is not receiving any consideration for mining, assembly or other like projects undertaken by it. Thus, the appellant falls within the purview of Explanation 2 of Section 9(1)(vii) of the Act. The judgment of the Apex Court in ONGC Vs. CIT (supra) is not applicable to the ITA No.4877/Del/2013 7 present case as in that case the non-resident recipient of income was engaged in drilling operations. The facts of this case are distinguishable. We agree with the reasoning given by the AO and CIT(A) and in view thereof, Ground no. 2 raised by the appellant is dismissed.
12.Thus, the appeal of the assessee in ITA No.4877/Del/2013 is dismissed.
13.Now, we take up the appeal of the assessee in ITA No.1327/Del/2016. The issues in this appeal are identical to the appeal of assessee in ITA No.4877/Del/2013 as mentioned hereinabove. Therefore, our order in ITA No.4877/Del/2013 is identically applicable in the present appeal except the quantum of amount shall be substituted as is available in orders of authorities below. Thus both the grounds in this appeal are dismissed.
14.In the result, both the appeals of the assessee In ITA No.4877/Del/2013 and ITA No.1327/Del/2016 are dismissed. Order pronounced in the open court on this day 28th April, 2017 Sd/- Sd/-
(I.C. SUDHIR) (B.P. JAIN)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 28/04/2017
Prabhat Kumar Kesarwani, Sr.P.S.
Copy forwarded to:
1.Appellant
2.Respondent
3.CIT
4.CIT(Appeals)
5.DR: ITAT
Asstt. Registrar, ITAT, New Delhi