Income Tax Appellate Tribunal - Dehradun
Dy Commissioner Of Income Tax, Dehradun vs Gaffney Cline & Associates Limited, ... on 15 April, 2026
IN THE INCOME TAX APPELLATE TRIBUNAL,
DEHRADUN BENCH "DB", DEHRADUN
BEFORE SHRI SATBEER SINGH GODARA, JUDICIAL MEMBER
AND
SHRI MANISH AGARWAL, ACCOUNTANT MEMBER
(Through Video Conferencing)
ITA No.197/DDN/2025
Assessment Year: 2021-22
DCIT, Vs. Gaffney Cline & Associates
Dehradun Ltd.,
C/o- Nangia & Company,
First Floor, IDA EC Road,
Dehradun
PAN: AADCG7821R
(Appellant) (Respondent)
Assessee by Sh. Amit Arora, CA
Sh. Vishal Mishra, CA
Department by Sh. Mohan Lal Joshi, Sr. DR
Date of hearing 15.01.2026
Date of pronouncement 15.04.2026
ORDER
PER SATBEER SINGH GODARA, JM:
This Revenue's appeal for assessment year 2021-22, arises against the Commissioner of Income Tax (Appeals) [in short, the "CIT(A)"], Noida's-2 order dated 29.08.2025 having DIN and order no. ITBA/APL/S/250/2025-26/1080180775(1), involving proceedings under section 143(3) r.w.s. 144C of the Income-tax Act, 1961 (hereinafter referred to as 'the Act').
ITA No.197/DDN/2025Heard both the parties. Case file perused.
2. Coming to the Revenue's sole substantive ground raised in the instant appeal, we note at the outset that the Assessing Officer's assessment order dated 27.01.2023 herein had not only treated the assessee's total revenue of Rs.23,42,14,139/- as fee for technical services under section 9(1)(vii) thereby rejecting its stand invoking section 44BB of the Act but also applying section 44BA in the facts of the case which stands reversed in the CIT(A)'s lower appellate discussion, reading as under:
"3. Grounds of Appeal:
As per electronically filed Form No.35, the Grounds of appeal raised are as under:
"Ground - 1 - Revenues in respect of certain services held to be in the nature of Fees for Technical Services.
On the facts and circumstances of the case the Ld. AO erred in holding that the total revenue amounting to INR 234,214,139 be in the nature of fees for technical services under section 9(1)(vii) of the Act without appreciating that the activities are inextricably linked with oil and gas exploration and production activities and should be taxable in terms of Section 44BB of the Act.
Ground - 2 - Determination of Income at an arbitrary rate of twenty- five per cent.
On the facts and circumstances of the case the Ld. AO has erred in law in holding that the income of the Appellant to be chargeable to tax under section 44DA of the Act applying an arbitrary profit rate of twenty-five per cent without any factual or legal basis. In doing so, Ld. AO has failed to appreciate that the estimation of income should be done at ten percent of gross contractual revenues as it is the effective safe harbor estimation rate prescribed by the Income-tax Act for the oil and gas exploration and production service providers. Ground - 3 - Receipts on account of GST incorrectly held chargeable to tax.
On the facts and circumstances of the case, the Ld. AO has erred in holding that the receipts on account of GST amounting to INR12,862,998 are includible in the gross receipts for the purpose of
2|Page ITA No.197/DDN/2025 determination of income under section 9(1)(vii) of the Act as opposed to the claim of the appellant that the same being a statutory levy is not chargeable to tax. In doing so the Ld. AO has ignored the decision of the Honorable High Court of Uttarakhand in the case of Schlumberger Asia Services Ltd vs. Director of Income-tax International Taxation([2019] 104 taxmann.com 353 (Uttarakhand)). Ground - 4 Interest on Income-tax held chargeable to tax at Maximum Marginal Rate of 40 per cent.
On the facts and circumstances of the case, the Ld. AO erred in holding that the receipts aggregating to INR 81,072 on account of interest on Income-tax refund be taxed at Maximum Marginal Rate of 40 per cent as opposed to the claim of appellant that the same be taxable at the rate of15 per cent in terms of Article 11 of India-UK Double Taxation Avoidance Agreement.
Ground - 5 - Incorrect levy of interest On the facts and circumstances of the case the Ld. AO has erred in levying interest totalling INR1,62,940 without mentioning the section under which the said interest is levied.
Ground - 6 - Initiation of penalty proceedings under section 270A of the Act.
On the facts and circumstances of the case, the Ld. AO erred in initiating penalty proceedings under section 270A and of the Act."
4. Submission of the appellant:
During appellate proceedings, various notices u/s 250 of the Act were issued to the appellant. In response to the notices issued, the appellant filed submission on 21.07.2025 and on the same date personal hearing was held with the counsel of the appellant Sh. Amit Arora. The appeal is being decided on merits taking into consideration the submissions of the appellant as per discussion in para 5 below. Appellate findings
1. 1. Ground Nos. 1 & 2
5.1.1 Vide these grounds of appeal, the appellant has contended that on the facts and circumstances of the case the AO has erred in holding that the total revenue amounting to Rs. 23,42,14,139/- is in the nature of fees for technical services under section 9(1)(vii) of the Act without appreciating that the activities are inextricably linked with oil and gas exploration and production activities and should be taxable in terms of Section 44BB of the Act. The appellant has further contended that on the facts and circumstances of the case the AO has erred in law in holding that the income of the appellant is chargeable to tax under section 44DA of the Act by applying an arbitrary profit rate of twenty-five per cent without any factual or legal basis. The appellant has alleged that in doing so, the AO has failed to appreciate that the estimation of income should be done at ten percent of gross contractual revenues as it is the effective safe harbor estimation rate
3|Page ITA No.197/DDN/2025 prescribed by the Act for the oil and gas exploration and production service providers.
5.1.2 Relevant part of the submissions of the appellant on these grounds is reproduced hereunder for better understanding:
"Gaffney Cline & Associates Limited is a non-resident company engaged in the business of providing services and facilities in connection with prospecting for, or extraction or production of mineral oil in India and also in supplying plant and machinery on hire or to be used in prospecting for, or extraction or production of mineral oils. The Appellant wishes to submit that from the scope of work of the contracts as submitted before the Ld. Assessing officer, it is evident that the Appellant is engaged in the business of providing services and facilities in connection with exploration and production of mineral oil in India.
At the very outset, we would like to submit that in the Appellant's own case for A.Y 2014-2015, your predecessor has held that the entire services provided by the Appellant shall clearly fall within the ambit of provision of section 44BB of the Income Tax Act. Relevant extract of the pronounceent is as under:
5.11 In the said order the Hon'ble Court had examined the contracts involved in the group of cases and summarized the brief description of the works covered under each of the said contracts in a table between pg 19-21 of the said order. In view of the ratio of the above judgement, it is to be seen whether the receipts for providing consultancy services for advice on recovery improvement. through further redevelopment and improved reservoir management (in the case of ONGC limited) and for provision of consultancy services for independent opinion on D1/D3 fields for estimation of gas reserves and resources (in the case of Reliance Industries Ltd) are covered within the scope of work under the contracts examined by the Hon'ble Supreme court in the said order. It is the scope of work and nature of service that determines taxability under section 44BB and 44DA of the Act.
5.12 On perusal of the nature of services covered in the table provided at Page 19 - 21 of the said order of Hon'ble Supreme Court (Supra), it is clear enough form the description of work at serial no. 8,13,14,17, 18,19,20,33,34,35 and 42 of the table inserted in the ONGC Ltd case (supra) that the purpose of the consultancy services provided by the appellant is covered with the scope of work involved in the contracts examined by the Hon'ble Supreme court in the above said order. The consultancy services provided by the Appellant on recovery improvement through further redevelopment and improved reservoir management and for estimation of gas reserves and resources were very much in connection with exploration of mineral oil.
5.13 In the decision of ITAT, Delhi in the case of Paradigm Geophysical Pty limited(ITA No. 2753/Del/2016) wherein the activities of the
4|Page ITA No.197/DDN/2025 appellant in regard to maintenance support has been considered as activities falling within the ambit of section 44BB of the Act. The relevant portion of the decision is reproduced below:
"7 Further, we find that in the case of ONGC vs. CIT (supra) the Hon'ble Supreme Court held that if the pith and substance of each contracts/ agreement is inextricably connected with prospecting, exploration or production. of mineral oil, then payment received by the non-resident assessee or foreign companies under the said contract is more appropriately assessable under the provisions of section 44BB and not u/s 44D of the Act. The list of contracts, in the said appeal before the Supreme Court included following contracts:
1. Contract of supply, installation and familiarisation of software for processing seismic data
2. Contract of supply, supervision and installation of software which is used for analysis of flow rate of mineral oil to determine reservoir conditions.
8. In the case in hand also the software is supplied and maintained were related to various activities of exploration including for reservoir navigator, upgradation of the Geolog multimin etc.
9. In view of the above, respectfully following the decision of the Hon'ble Supreme Court 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."
10. 4 In view of the above discussion and respectfully relying upon the decision of Hon'ble Supreme Court in the case of ONGC versus CLT (supra) and the decision of Ld. ITAT, Delhi in the case of Paradigm Geophysical Pty limited (!TA No. 2753/Del/ 2016) it is held that the receipts of the Appellant on account of for providing consultancy services for ad vice on recovery improvement through further redevelopment and improved reservoir management (in the case of ONGC limited) and for provision of consultancy services for independent opinion on D 1 /D3 fields for estimation of gas reserves and resources (in the case of Reliance Industries Ltd) were taxable under section 44BB of the Act. The Ground of Appeal No. 2 is, therefore, allowed.
It is pertinent to mention here that the Hon'ble Delhi ITAT in the case of ITO vs. ONGC Limited (As as representative assessee of M/s. Gaffney Cline & Associates, UK) vide is order dated 16-05-2016 in ITA No. 1596/DEL/2012 has held that the services provided by the assessee company to ONGC are for the purpose of prospecting for or exploration of mineral oils and thus section 44BB of the Act squarely applies to the facts of this case. Since the activity pertains to mining, it is out of the purview of section 9(1)(vii) of the Act. Relevant extract of the pronouncement is as under:
"Ld. CIT(A) in his order has held that, the services provided by NRC's (non resident company) to ONGC are for the purpose of prospecting for
5|Page ITA No.197/DDN/2025 or exploration of mineral oils and thus section 44BB of the Act squarely applies to the facts of this 20x5 case. He held that since the activity pertains to mining, it is out of the purview of section 9(1)(vii) of the Act. He relied on the judgment in the case of R & B Falcon Drilling Co. reported in 181 Taxman 62 (UK) and held that the entire payment by ONGC to the NRC may be subjected to tax @ 10% of the gross profit u/s 44BB of the Act.
4. The revenue is in appeal on the following grounds:-
"l. Whether on the facts and circumstances of the case, the Ld. CIT(A) has erred in not appreciating that the services rendered by the assessee were in the nature of a Technical Services covered under the provisions of section 9( I )(vii) and taxable under the provisions of sec. I ISA read with section 44 D of the Act.
2. Whether on the facts and circumstances of the case the CIT (A) has erred in holding that the services rendered by the assessee, as a contractor for ONGC towards certification of Ultimate Reserves and Reserves of Mumbai High Field of ONGC were excluded from the definition of Fees for Technical Services on the basis of Instruction o. 1862 without appreciating that the said Circular had not considered second limb in the exclusion in Explanation 2 to section 9( I )(vii) of the Act, i.e. the words 'any construction. assembly. mining or like project' in exclusionary clause are qualified in words 'undertaken by the recipient'.
3. Whether on the facts and circumstances of the case the CIT (A) had erred in holding that the income of the assessee was taxable under the presumptive provisions of sec. 44BB, ignoring the fact that the sec. 44BB shall not be apply in the case where 44DA or sec. IISA, applied as corroborated by insertion of clarificatory proviso to sec. 44BB and sec. 44DA to this effect in the Act.
4. Whether on the facts and circumstances of the case the CIT (A) has erred in not appreciating the fact that proviso to sec. 44DA brought about the Finance Act to 2011 being clarificatory in nature, its application has to be read into the main provisions with effect from the time the main provision came into effect in view of the decision of the Hon'ble Supreme Court in the case of Sedco Forex International Drilling v/s CIT. "20x5
5. The issue is no more res integra. The Hon'ble Supreme Court in the case of Oil and Natural Gas Corporation Ltd. vs. CIT (Civil appeal No. 731 of 2007 decided on 1.7.2015) the assesee's own case, held as follows :-
"The above facts would indicate that the pith and substance of each of the contracts/agreements is inextricably connected with prospecting, extraction or production of mineral oil. The dominant purpose of each of such agreement is for prospecting, extraction or production of mineral oils though there may be certain ancillary works contemplated there under. If that be so, we will have no hesitation in holding that the payments made by ONGC and received by the non-
6|Page ITA No.197/DDN/2025 resident assesses or foreign companies under the said contracts is more appropriately assessable under the provisions of section 44BB and not section 44D of the Act. On the basis of the said conclusion reached by us, we allow the appeals under consideration by setting aside the orders of the High Court passed in each of the cases before it and restoring the view taken by the learned Appellate Commissioner as affirmed by the learned Tribunal."
6. Respectfully following the same we uphold the order of the first appellate authority and dismiss all the appeals of the revenue." Similar view is held by the Hon'ble Delhi ITAT in the case of ADIT Vs. ONGC Limited (as representative assessee of Gaffney Cline & Associates, UK, Dehradun) vide is order dated 23-06-2016 in ITA No. 4652/DEL/2013. Relevant extract of the pronouncement is as under:
4.1 In I.T.A.No. 4652/Del/2013, the non-resident / foreign company was engaged in the process of discovering oil and gas fields need to be developed by drilling appropriate number of wells, establishing collection, processing and evacuation facilities, etc. so that optimal production can be taken from the same. Redevelopment is the process of carrying out further development activities in an already producing field to optimize production. The non-resident rendered consultancy services in this regard under contract dated 04.07.2009 and 14.11.2008.
4.2 Ld. A.R. submits that the issue stands covered in favour of the assessee vide order passed by Hon'ble Supreme Court in assessee's own case , reported in (2015) 59 Taxman.com 01/ 376 ITR 306. 4.3 We have perused the orders passed by the authorities below, arguments advanced by both the side and the decision passed by Hon'ble Supreme Court in the assessee's own case. The assessee has received services for the purpose of activities relating to prospecting for or exploration of mineral oils. The only issue that arises from the grounds of appeal filed by the Revenue is in respect of the taxability of the amount paid to the nonresident / foreign companies under the contract was to be assessed u/s 44BB or 44DA of the Act. 4.4 Hon'ble Supreme Court has dealt with the substantial question of law relating to the assessability of the amounts paid to the non-resident u/s 44BB and have answered the questions in favour of the assessee and held as under:
4.5 The Income-tax Act does not define the expressions 'mines' or 'minerals'. The said expressions are found defined and explained in the Mines Act, 1952 and the Oil Fields (Development and Regulation) Act, 1948. While construing the somewhat pari materia expressions appearing in the Mines and Minerals (Development and Regulation) Act, 1957 regard must be had to the provisions of Entries 53 and 54 of List I and Entry 22 of List II of the 7th Schedule to the Constitution to understand the exclusion of mineral oils from the definition of minerals in section 3(a) of the 1957 Act. Regard must also be had to the fact that mineral oils is separately defined in
7|Page ITA No.197/DDN/2025 section 3(b) of the 1957 Act to include natural gas and petroleum in respect of which the Parliament has exclusive jurisdiction under Entry 53 of List I of the 7th Schedule and had enacted an earlier legislation, i.e., Oil Fields (Regulation and Development) Act, 1948. Reading section 2 (j) and 2W) of the Mines Act, 1952 which define mines and minerals and the provisions of the Oil Fields (Regulation and Development) Act, 1948 specifically relating to prospecting and exploration of mineral oils, exhaustively referred to earlier, it is abundantly clear that drilling operations for the purpose of production of petroleum would clearly amount to a mining activity or a mining operation.
4.6 The facts indicate that the pith and substance of each of the contracts/agreements is inextricably' connected with prospecting, extraction or production of mineral oil. The dominant purpose of each of such agreement is for prospecting, extraction or production of mineral oils though there may be certain ancillary works contemplated thereunder. If that be so, we will have no hesitation in holding that the payments made by ONGC and received by the non-
resident assessee's or foreign companies under the said contracts is more appropriately assessable under the provisions of section 44BB and not section 44D.
4.5 Respectfully following the same, we dismiss the grounds raised by the Revenue in this appeal. Accordingly, the appeal filed by the Revenue for Assessment Year 2010-11 stands dismissed. Copy of the orders of Ld. CIT(A) for the A.Y 2014-2015 and orders of Hon'ble ITAT is enclosed herewith as Annexure-1 for your reference and records.
It is pertinent to mention here that the Hon'ble Delhi ITAT in the case of Western Geco International Limited in ITA No. 6536/DEL/2014 vide its order dated 31-05-2023 has held as under:
4.7 The Learned third member ITAT vide order dated 30.09.2022 considered the following questions arising from the difference of opinion between two differing members in this case:-
4.8 Whether, in view of the facts and circumstances of the case and in law, the revenue received by the assessee on account of provision of facilities and services of seismic data acquisition, planning and carrying out of pre-survey study, taking marine data and confirming prospects, maintenance/ upgrading/support of software licenses etc, is taxable as FTS u/s. 44DA r.w.s. 9 (1)(vii) or is taxable under Section 44B of the Income Tax Act, 1961 ('the Act') ? 4.9 Whether, the amount received as reimbursement of 'service tax' includible in gross turnover for the purpose of computing taxable income under Section 44BB of the Act ?"
4. After hearing the arguments of both the sides the Learned third member held as under:-
8|Page ITA No.197/DDN/2025
5. 5. Having regard to all the facts of the case and keeping in view the legal position emanating from the judicial pronouncements as discussed above, I am of the view that the revenue received by the assessee company during the year under consideration on account of provision of facilities and services of seismic data acquisition, planning and carrying out of pre-survey study, taking marine data and confirming prospects, maintenance/ upgradation / support of software licenses, etc, is not in the nature of fees for technical services as the same is covered by the exclusion provided in Explanation (2) to Section 9 (1) (vii) of the Act being consideration received for "mining or like projects" and the same, therefore, is not taxable under Section 44DA of the Act. The said services or facilities provided by the assessee actually are inextricably connected with prospecting for, or extraction or production of, mineral oils as held by the Hon'ble Supreme Court in the case of ONGC (supra) under the similar facts and circumstances and the revenue received for the same accordingly is taxable under Section 44BB of the Act.
36. As regards the issue involved in question No.2, the learned representatives of both the sides have agreed that the same is squarely covered in favour of the assessee by the decision of the Hon'ble Uttarakhand High Court in the case of Director of Income-tax International Taxation Vs. Schlumberger Asia Services Ltd. [2019] 414 ITR 1, wherein it was held that the amount reimbursed to assessee (service provider) by ONGC (service recipient), representing service tax paid earlier by assessee to Government of India, not being an amount paid to assessee on account of providing services and facilities in connection with prospecting for, or extraction or production of mineral oils in India, would not form part of aggregate amount referred to in clauses (a) and (b) of sub-section (2) of Section 44BB of the Act. To the similar effect is the decision of Hon'ble High Court in the case of Director Income-tax Vs. Mitchell Drilling International (P.) Ltd. [2016] 380 ITR 130 (Del.), wherein it was held that the service tax collected by the assessee for passing it on to Government was not to be included in gross receipt in terms of Section 44BB(2) read with Section 44BB (1) of the Act for the purpose of computing presumptive income of the assessee under Section 44BB of the Act. Respectfully following the decision of Hon'ble Jurisdictional High Court in the case of Schlumberger Asia Services Ltd. (supra) as well as that the Hon'ble Delhi High Court in the case of Mitchell Drilling International (P.) Ltd. (supra), I hold that the amount received by the assessee in the present case as reimbursement of service tax is not including in the gross turnover for the purpose of computing taxable income under Section 44BB of the Act.
37. I accordingly agree with the view taken by the learned judicial Member on both the issues and answer both the questions referred under Section 255 (4) of the Act in favour of the assessee."
9|Page ITA No.197/DDN/2025
5. In the light of the decision of the learned third member the captioned cross appeals are decided in favour of the assessee and against the revenue.
(Emphasis Supplied) Copy of the order of Hon'ble ITAT dated 31-05-2023 and 30-09-2022 (order of Hon'ble Third Member) is enclosed herewith as Annexure - 2 for your reference and records. It is respectfully submitted that the above order of Hon'ble Delhi ITAT in the case of Western Geco International Limited has recently been followed by the Hon'ble Dehradun ITAT for the A.Y 2013-2014 wherein the appeal of the tax authorities has been dismissed vide its order dated 21-11-2023.Copy of the order of Hon'ble ITAT for AY 2013-14 is being enclosed herewith as Annexure-3 for your reference and records. Section 44BB of the Act starts with a non-obstante clause, by virtue of which, section 28 of the Act has no application. In terms of the provisions of section 44BB, a sum equal to ten per cent of the aggregate amounts paid in respect of the provision of services/facilities in connection with, or supply of plant and machinery on hire used, or to be used, in the prospecting/extraction/production of mineral oils in India is deemed to be the income of payee non-resident.
The Ld. AO placing reliance on the Appellant's submissions and the ruling of the Supreme Court of India in the case of Oil & Natural Gas Corporation Limited v. Commissioner of Income Tax & Another 376 ITR 306 held the entire revenue to be includible to the revenues chargeable to tax u/s 44BB of the Act except for a few contracts. It is respectfully submitted that a brief technical note is enumerated below to understand the nature of services of the impugned contracts (which are taxed as FTS/Royalty by the Ld. AO) and utilization of said services in oil and gas exploration and production.
1.Contract with Oil and Natural Gas Corporation Limited - Contract No. 9010030146 It is submitted that ONGC has entered into a contract with the assessee wherein, the scope of work awarded to the assessee was for hiring for advice on recovery improvement through further redevelopment, EOR and improved reservoir management of Mumbai High Fields for a period of 30 months. Scope of work is mentioned in the Annexure III as under.
"Brief Scope of Work and Special Conditions Scope of Work: GCA's expert support to the Asset is broadly but not limited to the following proposed key areas.
1. Comprehensive review of Reservoir models • Identify areas for improving reservoir Model • Suggest practically implementable solution for improvement of model • Identify the opportunities for further development 10 | P a g e ITA No.197/DDN/2025 • Review of Depositional pattern and facies distribution of Basal Clastics obtained from high resolution Lumina processed data and suggestions for preparing reservoir model.
1. Critical analysis of Redevelopments so far and assist Asset team to prepare next phase of Production enhancement campaign through IOR & EOR projects mid-term corrections etc with a target toenhance the recovery factor of the field to 40%.
2. Advise on the present state of health of the field and suggest best strategy and option for improved reservoir, well and facility management
3. Short, Medium and Long term strategies for production enhancement and arrest field decline.
1. Advice on Production and injection surveillance through introduction of world class data acquisition techniques for near real time operations. Suggest technologies for improving areal and vertical sweep efficiency
2. Assist in future EOR technologies for Mumbai High. Assist in planning and surveillance of upcoming Low-salinity water injection pilot in Mumbai High
3. EOR options study and appraisal. Low Saline Water Flood (LSWF) to be monitored for midterm corrections for maximizing benefits.
1. Suggest and help implement the key new technologies in area of field development, well intervention, well stimulation and artificial lift optimization etc to improve operational performance • Well subduing or alternate cost effective methods and revival in a healthy way minimizing reservoir damages.
• Assist in getting worldwide best practices for revival of wells after planned shutdowns.
• Identify suitable well stimulations
1. Review of drilling operations with a view to making cost reductions, NPT reduction, minimizing mud loss and borehole collapse during drilling, advice on shallow gas activity control
2. Nodal analysis production facilities for de-bottlenecking
3. Offshore facilities, viz., Well head platforms, process facilities, pipelines and evacuation pipelines
1. Assist in mitigating Reservoir Souring
2. Development of marginal fields and critical review of development schemes
3. Any other advice required by the ONGC.
4. The additional work of profile vetting & process validation of 05fields of Western Offshore is also covered under the scope of work of this NOA."
It is pertinent to mention here that the s.no. 8, 13 & 17 of table mentioned in para 13 of the order of Hon'ble Supreme Court specifically dealt with impugned services. Relevant extract is as under:
11 | P a g e ITA No.197/DDN/2025
5. . 1532 Study for selection of enhanced Oil Recovery processes and conceptual design of Pilot Tests.
13. 1514 Consultancy for optimal exploitation of hydrocarbon resources.
17. 7226 Opinion on hydrocarbon resources and foreseeable potential."
Enhanced Oil Recovery (EOR) techniques, coupled with improved reservoir management strategies, play a crucial role in maximizing oil extraction and potentially leading to the prospecting, extraction, and production of minerals. EOR methods aim to extract more oil from existing reservoirs than conventional methods allow, and advancements in reservoir management enhance the efficiency of these processes. This combination can make previously uneconomical oil reserves viable for extraction, which may also involve the recovery of minerals present within the reservoir.
Enhanced Oil Recovery (EOR):
Purpose:
EOR methods are applied after primary and secondary recovery stages to extract additional oil from reservoirs. Techniques:
EOR encompasses a variety of methods, including: Chemical EOR: Involves injecting chemicals like surfactants or polymers to improve oil displacement.
Thermal EOR: Uses heat to reduce oil viscosity and improve flow. Gas Injection: Injects gases like CO2 or nitrogen to displace oil or reduce its viscosity.
Impact:
can significantly increase the total oil recovery from a reservoir, sometimes doubling or even tripling the amount extracted compared to conventional methods.
Improved Reservoir Management:
Purpose: EOR Optimizes the extraction process by understanding reservoir characteristics and strategically managing injection and production. Techniques:
Includes:
Advanced seismic imaging: Provides detailed subsurface information to identify optimal well placement and injection strategies. Reservoir simulation: Creates computer models to predict reservoir behavior and optimize production strategies. Monitoring and control systems: Allow for real-time adjustments to injection and production rates.
Impact:
Improves sweep efficiency, maximizes recovery, and extends the economic life of oil fields.
Relationship to Mineral Production:
12 | P a g e ITA No.197/DDN/2025 Potential for Mineral Recovery:
In some cases, EOR techniques can also lead to the recovery of minerals present within the oil reservoir. For example, some minerals may be dissolved or mobilized during chemical EOR processes and can be extracted alongside the oil.
Resource Optimization:
By maximizing oil recovery, EOR and improved reservoir management also contribute to the efficient utilization of other valuable resources present in the reservoir, including minerals. Environmental Considerations:
EOR techniques can also have environmental implications. For example, CO2 injection for EOR can potentially be coupled with carbon capture and storage (CCS) to mitigate greenhouse gas emissions. In summary: EOR and improved reservoir management are crucial for maximizing oil production from existing reservoirs and can potentially lead to the recovery of minerals alongside oil. This combination can enhance the economic viability of oil fields and contribute to a more sustainable use of energy resources.
• Source Google Gemini
1. Contract with Hindustan Oil Exploration Company Limited-
Contract No. EL-20¬208000 It is submitted that Hindustan Oil Exploration Company Limited has entered into a contract with the assessee wherein, the scope of work awarded to the assessee was for review and audit existing interpretation, models and projections of futureproductionB-80 Field, located in the Offshore Mumbai Basin, India. Scope of work is mentioned at para 3 of the contract which may be read as under:
"3.1 Scope of Work Gaffney Cline will review and audit existing interpretations, models and projections of future production. Gaffney Cline will focus on cross- checks of the evaluations against the base data in key discipline areas (i.e. geoscience, reservoir and production engineering and field development planning), with particular emphasis on aspects considered to be subject to the greatest uncertainty.
Gaffney Cline's work may include, as appropriate:
• QC of seismic interpretation, velocity model and depth conversion, petrophysical interpretation and well test analysis; • Review of static and dynamic models (Petrel/Eclipse) and the field development plans;
• Review of estimates of hydrocarbons initially in place and recoverable volumes; benchmarking against analogues; • Review low/best/high production profiles, making any adjustments that are deemed necessary;
• Review of planned production facilities and associated costs."
13 | P a g e ITA No.197/DDN/2025 It is pertinent to mention here that the s.no. 22 of table mentioned in para 13 of the order of Hon'ble Supreme Court specifically dealt with impugned services. Relevant extract is as under:
"22. 1531 Review of sub-surface well data, ....."
"Gaffney Cline will indeed review and audit the existing interpretations, models, and future production projections for the B-80 field. This audit will likely involve an independent assessment of the field's potential, considering both the geological and engineering aspects of the production. The goal is to provide an objective evaluation of the current understanding and future outlook of the B- 80 field's production.
This type of audit is common in the oil and gas industry, particularly for complex fields like B-80, where accurate production forecasting is crucial for making informed decisions about development and operations."
The B-80 field is an offshore oil and gas field located in the Mumbai offshore basin, developed by Hindustan Oil Exploration Company (HOEC). It was awarded under the Discovered Small Field Bid Round 2016. HOEC is the operator of the field, with a 50% participating interest, alongside Adbhoot Estates Private Limited. The field is expected to produce 5,000 barrels of oil and 15 million standard cubic feet of gas per day.
• Source Google Gemini
1. Contract with Invenire Petrodyne Limited - Contract No. EL-20- 209900 It is submitted that Invenire Petrodyne Limited has entered into a contract with the assessee wherein, the scope of work awarded to the assessee was to provide reserve and contingent resources assessment for selected assets in India and Indonesia. Scope of work is mentioned at Annexure II of the contract which may be read as under:
""ANNEXURE II- SCOPE OF WORK INTRODUCTION Invenire Group completed its acquisition of Tata Petrodyne (now Invenire Petrodyne Limited) and all of its assets in 2019, and has, in addition, a 25% Working Interest (WI) in the Kharsang Field through its acquisition of JEKPL, a subsidiary of Jubilant Energy. Company also acquired Hardy Exploration & Production (India) Inc. (Hardy) which held an 18% WI in the CY-OS-2 block, from the UK based parent company. Company recently acquired 100% WI in Disaijan, Assam through DSF-2 round of bidding and has requested to include Mercator's operated Jyoti Field (CB-ONN- 2005/9 Block). Tata Petrodyne's assets consist of 6 blocks, 3 in India, 2 in Indonesia and 1 in Tanzania. The assets are a mix of onshore and offshore blocks. Tata Petrodyne is a minority partner and not the operator of any of the assets. The Tanzania asset is not included in the assessment. The Kharsang Field is operated by GeoEnpro (10% WI), 14 | P a g e ITA No.197/DDN/2025 with partners OIL (40% WI), HOEC (25%), and Company(25%). The onshore field in the Kharsang Block has been in production since 1983, with production in 2019 at 675 bopd from 25 wells. The oil is sold to the Digboi refinery.
There are significant complexities in the oil field operations of the Kharsang field including variable crude types, wax, sanding, pressure, and artificial lift requirement."
The assets that will be included in the Contractors assessment as presented in the following Table 1.
Country India Block Location WI Status CB-OS/2 Production offshore 10% CB-OS/1 Offshore 6.67% Development CY-OS-90/1(PY-3) Offshore 21% Re-Development CY-OS-2 Development Offshore 18% Disaijan, Assam Development Onshore 100% Kharsang Onshore 25% Producing CB-ONN-2005/9 Onshore 100% Development Country Indonesia Merangin Onshore 35.4% Production 2.3 Detailed Scope of Work/Methodology
Brief Scope of Work is summarized below the essential components of this Work, and any specific details would be finalised prior to commencement of the work.
2.3.2 Undertaking the Analysis CONTRACTOR will be required to review all the available data provided by Company. CONTRACTOR's approach shall focus on cross checks of the evaluations primarily in key discipline areas as applicable(i.e. geology, petrophysics and reservoir engineering), with particular emphasis on those aspects considered to be subject to the greatest uncertainty. This work will involve a review of the data and interpretations produced by the operator or any third parties. CONTRACTOR will then consider any reservoir models, production forecasts and development plans(approved and/or conceptual) to verify the future production profiles presented by the Operator, followed by a review of the CAPEX, OPEX and ABEX." It is pertinent to mention here that the s.no. 17, 18, 19, 20 of table mentioned in para 13 of the order of Hon'ble Supreme Court specifically dealt with impugned services. Relevant extract is as under:
"17. 7226 Opinion on hydrocarbon resources and foreseeable potential.
18. 7227 Opinion on hydrocarbon resources and foreseeable potential.
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19. 7230 Opinion on hydrocarbon resources and foreseeable potential.
20. 6016 Opinion on hydrocarbon resources and foreseeable potential."
1. Contract with Arch Software Private Limited - Contract No. EL- 20-201200:
It is submitted that Arch Software Private Limited has entered into a contract with the assessee wherein, the scope of work awarded to the assessee was to undertake a rigorous audit of the Reserves, Contingent Resources and Prospective Resources (if applicable) estimates presented by the Arch and the previous operator. Scope of work mentioned in the contract may be read as under:
"Gaffney, Cline & Associates (GCA) is pleased to submit this proposal to Arch Software Pvt. Ltd (Arch) a wholly owned subsidiary company of Antelopus Energy Pvt. Ltd (Antelopus) toprovide an independent reserves and resources audit on the D31 Cluster located offshore Mumbai and the D11 Cluster located offshore Bengal, India. We believe this proposal fully addresses all necessary issues; however, we would be pleased to review it with you, and make any changes that may be required.
1Introduction In 2019 Arch were awarded the D31 and D11 Cluster's respectively from the Discovered Small Fields Bid Round 2 (DSF2). Following the award, Arch have collated and have interpreted the all the available data to submit a Field Development Plan (FOP) for each Cluster to the Directorate General of Hydrocarbon (DGH).
MB/OSDSF/031/2018: The D31 Cluster covers an area of approximately 250 km2seven wells were drilled and there have been five discoveries made to date in the block. Based on the previous operator's well test results, test rates of approximately 3,000 barrels of oil per day(bopd) and 10 million cubic feet of gas (MMscf/d} flowed from these wells. The Cluster was never developed despite close proximity to infrastructure in the Mumbai Basin region.
NEC/OSDSF/011/2018: The D11 Cluster covers an area of approximately 541 km2; six wells were drilled and six discoveries made to date in the block. Based on the previous operator's well test results, test rates of approximately 80 MMscf/d of dry gas flowed from these wells. GAIL are currently constructing a pipeline to connect Dhamra to Paradip which will further enable the Cluster to be developed.
3 Proposed Work Scope and Methodology GCA will undertake a rigorous audit of the Reserves, Contingent Resources and Prospective Resources (if applicable) estimates presented by the Arch and the previous operator. This approach requires that all the following essential information is made available:
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i) the client/operator's own reserve/resource estimates;
ii) all models, base data and calculations on which these estimates are based(sufficient to permit the audit).
iii) will provide all the data to audit the In-Place per reservoir and per field - e.g. seismic screens shot of the interpreted section, time and depth maps with contours and scale bars, las files of logs, CPI pictures, reservoir parameters and properties.
Arch must provide all assumptions/methodology/parameters used to enable GCA to undertake this audit in order to provide an opinion on the accuracy of the reserves/resource estimates with the applicable Geological Chance of Success (GCoS) for volumes classified as Prospective Resources. Should any major discrepancy be identified, GCA will notify Arch in order for the discrepancy to be amended. For any assets that Arch does not provide Reserves/Contingent Resources/Prospective Resources estimates for audit. GCA will to prepare its own estimates. This would require additional work and would be discussed with Arch in advance as it would require additional budget.
It is pertinent to mention here that the s.no. 17, 18, 19, 20 of table mentioned in para 13 of the order of Hon'ble Supreme Court specifically dealt with impugned services. Relevant extract is as under:
"17. 7226 Opinion on hydrocarbon resources and foreseeable potential.
18. 7227 Opinion on hydrocarbon resources and foreseeable potential.
19. 7230 Opinion on hydrocarbon resources and foreseeable potential.
20. 6016 Opinion on hydrocarbon resources and foreseeable potential."
We are attaching herewith copy of impugned orders with aforementioned customers/payers for your reference and records as Annexure - 4.
From the scope of work of the contracts and the technical notes, it is evident beyond any doubt that the activities of the Appellant are used in the exploration, extraction, and production of mineral oils and thus the applicability of Section 44BB is inescapable. Therefore, the activities carried out by the Appellant are an integral part of mining an d it can safely be said that Appellant had undertaken mining.
1. 1. Supreme Court's decision in the case of Oil & Natural Gas Corporation Limited v. Commissioner of Income Tax & Another The Hon'ble Supreme Court in the case of ONGC (supra) has addressed a similar issue. The Hon'ble Supreme Court exhaustively 17 | P a g e ITA No.197/DDN/2025 considered the opinion of the Attorney General of India, the subsequent CBDT Instruction No. 1862, the provisions of Mines and Minerals (Regulation and Development) Act, 1957 and observed that if the "pith and substance" of the contract is inextricably connected with the prospecting, extraction, or production of mineral oil, though they may be ancillary works contemplated thereunder, the same cannot be categorized as "fees for technical services" and have to be included in the revenue chargeable to tax u/s 44BB of the Act:
"The Income Tax Act does not define the expressions "mines" or "minerals". The said expressions are found defined and explained in the Mines Act, 1952 and the Oil Fields (Development and Regulation) Act 1948. While construing the somewhat pari materia expressions appearing in the Mines and Minerals (Development and Regulation) Act 1957 regard must be had to the provisions of Entries 53 and 54 of List I and Entry 22 of List II of the 7th Schedule to the Constitution to understand the exclusion of mineral oils from the definition of minerals in Section 3(a) of the 1957 Act. Regard must also be had to the fact that mineral oils is separately defined in Section 3(b) of the 1957 Act to include natural gas and petroleum in respect of which Parliament has exclusive jurisdiction under Entry 53 of List I of the 7th Schedule and had enacted an earlier legislation i.e. Oil Fields (Regulation and Development) Act, 1948. Reading Section 2(j) and 2(jj) of the Mines Act, 1952 which define mines and minerals and the provisions of the Oil Fields (Regulation and Development) Act, 1948 specifically relating to prospecting and exploration of mineral oils, exhaustively referred to earlier, it is abundantly clear that drilling operations for the purpose of production of petroleum would clearly amount to a mining activity or a mining operation. Viewed thus, it is the proximity of the works contemplated under an agreement, executed with a non-resident Appellant 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 Appellant 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 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 how any other view can be taken if the works or services mentioned under a
18 | P a g e ITA No.197/DDN/2025 particular agreement is directly associated or inextricably connected with prospecting, extraction or production of mineral oil." (Emphasis Supplied) Basis of the Supreme Court Decision in the case of ONGC (supra):
Attorney General of India's opinion and consequent CBDT Instruction on taxability u/s 44BB of the Act The then Attorney General of India's opinion was sought on taxability of payments made by ONGC to its contractor i.e. whether the same is chargeable to tax u/s 44BB of the Act or taxable as 'fees for technical services'. The Ld. Attorney General vide his opinion dated May 13, 1990 gave detailed response to the queries. Thereafter the CBDT vide its Instruction No. 1862 dated October 22, 1990 placing reliance on the opinion of the Ld. Attorney General of India elucidated the correct interpretation of the term "fees for technical services". The CBDT Instruction and the opinion of the Ld. Attorney General of India is summarized as under:
Scan Drilling Company was providing services of expatriate supervisory staff & personnel with expertise and experience in operation and management of the unit "Sagar Jyoti" (Jack-up Rig) which had been deployed by ONGC for drilling and exploration of oil and gas (these facts are in para 5 of the Statement of Case). It was stated in para 4 of the Statement of Case that the issue under consideration revolves on the definition which can be given to the term 'mining' appearing in the definition of 'fees for technical services'. It was mentioned in para 10 of the Statement of Case that the issue under consideration is whether the services rendered by foreign companies by way of providing technical personnel for imparting training and for operating the drilling rigs for exploration or exploitation of oil and natural gas, can be termed as services, mining or like project.
It was also stated that this issue has arisen in the case of a number of foreign companies which have entered into contracts with ONGC and is also likely to arise in future.
In this background, the questions referred for the Attorney General's opinion were-
"i) whether prospecting for or extraction or production of mineral oils can be termed as mining operations
ii) whether the expressions "mining project" or "like project"
occurring in Explanation 2 to section 9(1)(vii) of the IT Act would cover rendering of services like imparting training and carrying out drilling operations for exploration or exploitation of oil and natural gas
iii) whether the provisions of section 44BB will be applicable in respect of services of the type rendered by M/s. Scan Drilling Company Limited; and
iv) Generally."
The Attorney General opined, inter-alia, that-
19 | P a g e ITA No.197/DDN/2025 "In my opinion, having regard to all the provisions of the contract and reading them together and not in isolation, it is apparent that the primary object of the contract, or its pith if one may use that expression, is for offshore drilling and exploration of oil and gas. The operations carried on by the contractor and its personnel in terms of the contract mainly relate to drilling, exploration, etc. of oil and natural gas.
Even assuming that these operations do not directly relate to 'mining' they relate to a project akin to "mining" or like project within the meaning of the said Explanation. Payments made by ONGC to the contractor and its personnel in terms of the contract are therefore "consideration for mining or like operation undertaken by the recipient" as contemplated by the Explanation. Such payments fall within the matters excluded from the definition of "fees for technical services" by the later part of Explanation 2 to section 9(1)(vii) and are not therefore technical services as defined by that Explanation." The Attorney General then answered the questions as follows-
"Qn. i) whether prospecting for or extraction or production of mineral oils can be termed as mining operations; Answer: Yes. Qn. ii) whether the expressions "mining project" or "like project" occurring in Explanation 2 to section 9(1)(vii) of the
1.T. Act would cover rendering of services like imparting training and carrying out drilling operations for exploration or exploitation of oil and natural gas;
Answer: Yes.
Qn. iii) whether the provisions of section 44BB will be applicable in respect of services of the type rendered by M/s. Scan Drilling Company Limited;
Answer: Yes.
Qn. iv) Generally.
Answer: In short, the payment made by the ONGC to the Contractor (the Company) are not "fees for technical services" as defined in section 9(1) (vii) Explanation 2 of the Act, and these payments are chargeable to income under section 44BB of the Act."
As would be noticed in the case referred for the Attorney General's opinion, the services involved imparting training and carrying on certain operations by the contractor's personnel which related to exploration for oil and gas. The Attorney General has given a purposive interpretation by stating that the primary object of the contract in that case was offshore drilling and exploration of oil and gas. The operations carried out in that case were categorically opined to be "mining or like project undertaken by the recipient". Thus, when one reads CBDT's Instruction No. 1862 with the underlying Statement of Case and Opinion of the then Attorney General of India on which the said Instruction is based, it becomes clear that, CBDT Instruction is not only intended to cover cases of actual mining but also activities which aid the mining of mineral oil 20 | P a g e ITA No.197/DDN/2025 such as the activities of providing technical personnel for imparting training and for operating the drilling rigs for exploration or exploitation of oil and natural gas.
The Appellant wishes to submit that the Instructions/Circulars issued by the CBDT are binding on the primary authority on the ratio of the decision of the Hon'ble Supreme Court in the case of K.P. Varghese v. Income Tax Officer, Ernakulam and Others 4 SCC 173. In view of the Attorney General's opinion and the consequent CBDT Instruction, read in light of the operations undertaken by the Appellant under the contracts, the income from the revenue received by it can be computed only under one section - Section 44BB of the Act.
The Appellant wishes to reiterate that the "pith and substance" of the services provided by the Appellant (discussed above) is inextricably linked to the exploration and production of mineral oils and thus, taxable u/s 44BB of the Act.
In view of above judicial pronouncements and as held by the Hon'ble Supreme Court, Hon'ble Uttarakhand High Court, Hon'ble Delhi High Court, Hon'ble ITAT, Ld. CIT(A) (in Appellant's own case), it is humbly prayed before your honour to pass appropriate orders to the effect that the entire receipts from its customers shall clearly falls within the ambit of provision of section 44BB of the Act and should not be treated in nature of Fee for Technical Services and the gross revenue should not be taxed under section 44DA of the Act."
5.1.3 I have carefully gone through the facts of the case, submission of the appellant and judicial precedents. At the outset it is important to discuss the nature and scope of work performed by the appellant with respect to which the receipts of the appellant have been held by the AO to be in the nature of FTS. The same is culled out from the contracts in brief as under:
1. Contract with Oil and Natural Gas Corporation Limited is for advice on recovery improvement through further redevelopment, EOR and improved Reservoir management of Mumbai High fields.
2. Contract with Hindustan Oil Exploration Company Limited is for review and audit of existing interpretation, models and projections of future production in addition to focus on cross-checks of evaluations against the base data in key discipline areas ( i.e. geosciences, reservoir and production engineering and field development planning).
3. Contract with Invenire Petrodyne Limited is for reserves and contingent resources assessment. The assessment report includes an assessment of reserves ( 1P, 2P and 3P), Contingent Resources ( 1C, 2C and 3C) and associated net present values on the reserves, by asset.
4. Contract with Arch software Pvt. Ltd. is for rigorous Audit of reserves, contingent resources and prospective resources which includes reserve/resource estimate, all models, base data and calculations on which these estimates are based and providing of 21 | P a g e ITA No.197/DDN/2025 data to audit the In-place per reservoir and per filed e.g. seismic screens shot of the interpreted section, time and depth maps with contours and scale bars, files of logs, CPI pictures, reservoir parameters and properties.
5. 1.4 Having regard to the facts of the case and nature of services provided by the appellant as discussed in brief in para 5.1.3 above & brought out in detail in the submission of the appellant and keeping in view the legal position emanating from the judicial pronouncements, I am of the view that the said services or facilities provided by the appellant are inextricably connected with prospecting for, or extraction or production of mineral oil. Therefore, the revenue received by the appellant during the year under consideration on account of aforesaid contracts, are held to be not in the nature of fees for technical services as the same are covered by the exclusion provided in Explanation (2) to Section 9(1)(vii) of the Act being consideration received for "mining or like projects" and the same, therefore, are not taxable under Section 44DA of the Act. The said receipts, therefore, deserve to be dealt with in accordance with section 44BB of the Act. The grounds of appeal raised are accordingly allowed."
This is what leaves the assessee aggrieved.
3. We have given our thoughtful consideration to the Revenue's and the assessee's respective vehement stands herein. It is made clear that there is no dispute between the parties that the assessee had derived its impugned revenue from oil and gas exploration/production and activities inextricably linked therewith. And that the payer herein happens to be M/s. ONGC Ltd. There is further no quarrel between the parties that this tribunal in the assessee's case itself (wherein M/s. ONGC Ltd. had acted as its "representative assessee"); has settled the very issue against the department vide order dated 16.05.2016. The same is 22 | P a g e ITA No.197/DDN/2025 indeed coupled with the fact that the CIT(A) has further discussed not only the entire factual matrix at length but also all the relevant judicial precedents having gone in the assessee's favour and against the department so far as its taxability of revenue derived from M/s. ONGC Ltd.; identical in nature, are concerned.
4. Faced with this situation, we hereby adopt judicial consistency to confirm the learned CIT(A)'s detailed discussion accepting the assessee's corresponding substantive grounds contesting its taxability in very terms.
All other remaining pleadings between the parties on merits stand rendered academic.
5. This Revenue's appeal is dismissed.
Order pronounced in the open court on 15th April, 2026 Sd/- Sd/-
(MANISH AGARWAL) (SATBEER SINGH GODARA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 15th April, 2026.
RK/-
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR
Asst. Registrar, ITAT, New Delhi
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