Income Tax Appellate Tribunal - Delhi
Ddit, New Delhi vs M/S. Rps Energy Pty Ltd., on 16 March, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES: 'F', NEW DELHI
BEFORE SHRI N.S.SAINI, ACCOUNTANT MEMBER
AND SMT. BEENA A PILLAI, JUDICIAL MEMBER
ITA No. 45/Del/2015
A.Y. 2011-12
Dy.DIT, Circle 2(1) M/s RPS Energy Pty Ltd.
International Taxation vs. 38, Station Street
New Delhi Subiaco Wa 6008
Post Box 465
Western Australia
(Appellant) (Respondent)
Appellant by Sh. GK Dhall, CIT, DR
Respondent by Sh. Ved Jain, Adv. &
Ms. Devina Sharma,
Date of Hearing 14.03.2018
Date of Pronouncement 16.03.2018
ORDER
PER BEENA PILLAI, JUDICIAL MEMBER
The present appeal has been filed by Revenue against the final assessment order passed by DCIT, Circle 3(1)(1), International Taxation, New Delhi under section 143(3) read with sec.144C (13) of the Income Tax Act, 1961 (the Act) on the following grounds of appeal:
ITA 45/Del/2015 A.Y.:2011-12 DDIT vs. RPS Energy Pty Ltd.
1. Whether on the facts and circumstances of the case, the Hon'ble Dispute Resolution Panel ('DRP') has erred in directing the Assessing Officer to apply the deemed profit rate of 10% u/s 44BB of the Income Tax Act, 1961 ('the Act') on the revenues earned by the assessee on account of provision of geophysical and geological services for processing of 2D/3D seismic data, as against the proposed action of the AO to bring the revenue to tax u/s 115A of the Act. 1.1 Whether on the facts and circumstances of the case, the Hon'ble DRP has erred in not appreciating that the terms services or facilities used therein are not defined and the two terms used are general in nature and therefore, once the payments take the character of FTS as defined u/s 9(1)(vii), they go outside the purview of section 44BB and have to be taxed at rates applicable to FTS u/s 115A/44DA of the Act.
1.2 Whether on the facts and in the circumstances of the case, the Hon'ble DRP has erred in holding that the revenues earned by the assessee on account of provision of services were in connection with prospecting etc of mineral oil and hence eligible for treatment u/s 44BB of the Act, without adjudicating the aspect of eligibility in terms of second limb of the exclusionary proviso (Explanation to section 9(1)(vii) of the IT Act, 1961) i.e. "for a project undertaken by the recipient" in terms of the proposition confirmed by Hon'ble Delhi High Court in CIT V Rio Tinto Technical Services [2012-TII-01-HC- DEL- INTL] 1.3 Whether on the facts and circumstances of the case, the Hon'ble DRP has erred in holding that the case of the assessee is covered by 2 ITA 45/Del/2015 A.Y.:2011-12 DDIT vs. RPS Energy Pty Ltd.
CBDT's Instruction No. 1862 dated 22.11.1990, not appreciating the fact that the said Instruction No. 1862 was not issued u/s 44BB but was issued to clarify the expression "mining or like project" in Expn 2 below section 9(1)(vii)(b) of the Act and the second limb of the exception ("for a project undertaken by the recipient") was not the subject matter of the said Instruction.
2. Whether on the facts and circumstances of the case the Hon'ble DRP has erred in its interpretation of the legislative intent behind the scheme of taxation envisaged in 9(1)(vi)/9(l)(vii) read with sections 115A/44DA and 44BB , ignoring the decisions in the cases of M/s Rolls Royce Pvt Ltd [2007-TII-03-HC-UKHAND-INTL] and M/s ONGC As Agent of M/s Foramer France [(2008) 299 ITR 438 Uttarakhand]
3. Whether on the facts and circumstances of the case, the Hon'ble DRP has erred in disregarding the proviso to section 44BB, which specifically excludes receipts covered by section 115A, in holding that the income of the assessee from the above services was covered under the presumptive provisions of section 44BB. 3.1 The Hon'ble DRP has erred in not appreciating the fact that even in terms of ratio of the judgment in the said of OHM Ltd [[352, ITR 406 (Delhi)] cited by it, the provisions of section 44BB are not applicable where the scope of the services/facilities provided by an assessee is general in nature falling under section 115A/44DA of the Act.
3.2 The Hon'ble DRP has erred in mechanically following the decision in the case of M/s OHM Ltd without first adjudicating upon the issue as to whether and how the scope of the services/facilities rendered 3 ITA 45/Del/2015 A.Y.:2011-12 DDIT vs. RPS Energy Pty Ltd.
under the contracts is not general in nature and therefore, does not qualify as FTS u/s 9(1)(vii) of the Act taxable under section 115A.
4. Whether on the facts and circumstances of the case, the Hon'ble DRP has erred in holding that the provisions of section 44BB of the Act are more special provisions which shall prevail over the provisions of section 9(1)(vii) read with sections 115A/44DA of the Act, not appreciating the fact that both set of provisions are special in nature which operate in their own clearly defined spheres and therefore, once a particular receipt or income takes on the character of Royalty/FTS as defined in section 9(1)(vi)/9(1)(vii), it cannot be considered for treatment u/s 44BB and has to be taxed u/s 115A/44DA of the Act.
4.1 Whether on the facts and in the circumstances of the case, the Hon'ble DRP has erred in not appreciating that since sections 115A/44DA are special provisions for taxation of income in the nature of Royalties and FTS and if a special provision is made respecting a certain matter that matter is excluded from the general provision under the rule of "Generallia specialibus non derogant".
5. Whether on the facts and in the circumstances of the case, the Hon'ble DRP has erred in holding that sections l1SA and 44DA apply only to cases where the income by way of Royalty or FTS is earned by a non-resident by way of royalty or FTS from Government or an Indian Concern and where an income is received by a non-resident from another non-resident, the provisions of section 115A/44DA do not apply.
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5.1 Whether on the facts and in the circumstances of the case, the Hon'ble DRP has erred in not appreciating the fact that sections 44DA/11SA enshrine the source rule of taxation and is intended to cover all the payments in the form of Royalties/FTS etc. where the source of such payments lies in India.
5.2 Whether on the facts and in the circumstances of the case, the Hon'ble DRP has erred in not appreciating the fact that the payments in the present case have been made by a non resident entity in respect of contracts being executed by it in India and therefore the source of the payments as well as the situs of the activity to which these payments pertain lies in India.
5.3 Whether the Hon'ble DRP has erred in not appreciating the fact that the phrase 'Indian Concern' in sections 115A/44DA having not been defined, it has to be given a purposive construction and, therefore, a Non-Resident entity executing contracts in India and making payments in respect of services availed for execution of such contracts in India should be treated as Indian Concern for the purpose of the section 115A/44DA of the Act.
6. The appellant prays for leave to add, amend, modify or alter any grounds of appeal at the time or before the hearing of the appeal.
2. Brief facts of the case are as under.
Assessee filed its return of income declaring a total income of Rs.48,85,392/-on 29/08/11. The case was selected for scrutiny and statutory notices were issued to assessee in response to which Representatives of assessee attended assessment proceedings.
5ITA 45/Del/2015 A.Y.:2011-12 DDIT vs. RPS Energy Pty Ltd.
2.1. Ld. AO observed that assessee is a foreign company, incorporated in Australia and had entered into a contract with M/s Reliance Industries Ltd (RIL) and BHP Billiton Petroleum (International Exploration) Pty Ltd. (BHP) a company incorporated in Australia to provide personnel for carrying on geophysical and geological services for reprocessing of seismic data in respect of proprietary gravity and magnetic acquisition QC, merging, enhancement and mapping to be used in petroleum operation namely prospecting for mineral oils. Ld. AO observed that assessee in the return had considered deemed profit and gains of Rs.48,85,392/-, against gross receipt of Rs.4,88,53,923/-from business, under section 44 BB of the Act at 10% and no accounts was maintained by it.
2.2. Ld. AO in the draft assessment order came to the conclusion that assessee is a contractor to RIL and BHP are rendering services in the nature of FTS as per provisions of 115 A, read with section 9 (1) (vii) of the Act.
2.3. Against the draft assessment order assessee raised objections before the DRP. It was contended by assesse before DRP that the income earned by assessee was in respect of services in connection with prospecting for or extraction or production of mineral oils and has to be taxed under the special provisions as envisaged under section 44 BB of the Act. It was also submitted by assesse that the provisions of section 44 DA and 115 A, would apply to a case where the income earned by a non-resident or a foreign company by way of royalty or FTS received from Government or any Indian concerns.
6ITA 45/Del/2015 A.Y.:2011-12 DDIT vs. RPS Energy Pty Ltd.
Whereas in case of assessee under the contract with BHP payments have been received from another non-resident company and hence cannot be brought under the purview of section 44 DA. 2.4. DRP while dealing with the objections decided the issue in favour of assessee by holding that the income received by assessee during the year under consideration, on account of services rendered should be brought to tax by applying deemed profit rate of 10% under section 44 BB of the Act.
2.5. Ld. AO accordingly passed final assessment order as per the directions of DRP, against which the revenue is in appeal before us now.
2.6. Before us, Ld. CIT DR submitted that services rendered by assessee is not directly associated or even intrinsically linked with prospecting, extraction or production of mineral oils and therefore are not eligible for taxation by applying deemed profit rate of 10% under section 44 BB of Act. He submitted that assessee is carrying on with rendering of services to RIL and BHP and is providing services of reprocessing of seismic data in respect of proprietary gravity and magnetic acquisition. It has been submitted by Ld. CIT DR that decision of Hon'ble Supreme Court in the case of ONGC Ltd vs. CIT reported in (2015) 59 Taxmann.com 01 deals with those activities which are directly and intrinsically linked with prospecting and extraction or production of mineral oils. It has been submitted by Ld. CIT DR that the Works which could be considered to be directly linked with the prospecting and exploration activities have been enlisted by Hon'ble Supreme Court and the services 7 ITA 45/Del/2015 A.Y.:2011-12 DDIT vs. RPS Energy Pty Ltd.
rendered by assessee before us do not fall into any of those categories and therefore cannot be considered to be covered by the decision of Hon'ble Supreme Court. He thus vehemently submitted that the services rendered by assessee are purely in the nature of FTS and has to be taxed as per the provisions of section 9 (1) (vii) of the Act.
3. We have perused the submissions advanced by both the sides in the light of the records placed before us.
3.1. Section 44 BB is a special provision for computing profits and gains of a non-resident in connection with 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, including petroleum and natural gas.
3.2. Section 44 DA applies to non-residents only, however it is broader and more general in nature and provides for assessment of income of a non-resident by way of royalty or fees for technical services where such non-resident carries on business in India through a permanent establishment situated therein or performs services from a fixed place of profession situated in India and the right, property or contract in respect of which the royalties or fees for technical services are paid is effectively connected with the permanent establishment or fixed place of profession. 3.3. One more peculiar difference between section 44 DA and 44 BB is that, in section 44 BB one does not find any reference to a permanent establishment in India and the services contemplated 8 ITA 45/Del/2015 A.Y.:2011-12 DDIT vs. RPS Energy Pty Ltd.
therein are more specific than what is contemplated in section 44 DA.
3.4. The submissions advanced by Ld.AR is that the income received by assessee represented income for rendering of services in the nature, as more particularly described in section 44 BB of the Act, whereas Ld. CIT DR advocated that income received would represent "fees for technical services", within the meaning of Explanation 2 to Section 9 (1) (vii) of the Act. It is observed that it is not the case of revenue that assessee has a permanent establishment in India and therefore in our considered opinion section 44 DA would not be of any relevance.
3.5. Now coming to the applicability of Explanation 2 to section 9 (1) (vii) of the Act which defines 'fees for technical services' to mean any consideration received for rendering of any managerial, technical or consultancy services including the provision of services of technical or other personnel but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient. In our considered view this issue has been addressed at length by Hon'ble Supreme Court in the case of Oil and Natural Gas Corporation Ltd vs. CIT (supra) wherein Hon'ble court observed as under:
"13. 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 9 ITA 45/Del/2015 A.Y.:2011-12 DDIT vs. RPS Energy Pty Ltd.
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 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 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 particular agreement is directly associated or inextricably connected with prospecting, extraction or production of mineral oil. Keeping in mind the above provision, we have looked into each of the contracts 10 ITA 45/Del/2015 A.Y.:2011-12 DDIT vs. RPS Energy Pty Ltd.
involved in the present group of cases and find that the brief description of the works covered under each of the said contracts as culled out by the appellants and placed before the Court is correct. The said details are set out below.
|S. No. |Civil |Work covered under the contract |
| |Appeal | |
| |No. | |
| |4321 |Drilling of exploration wells and carrying |
| | |out seismic surveys for exploratory drilling.|
| |740 |Drilling, furnishing personnel for manning, |
| | |maintenance and operation of drilling rig and|
| | |training of personnel. |
| |731 |Drilling, furnishing personnel for manning, |
| | |maintenance and operation of drilling rig and|
| | |training of personnel. |
| | | |
| |1722 |Furnishing supervisory staff with expertise |
| | |in operation and management of Drilling unit.|
| |729 |Capping including subduing of well, fire |
| | |fighting. |
| |738 |Capping including subduing of well, fire |
| | |fighting. |
| |1528 |Analysis of data to prepare job design, |
| | |procedure for execution and details regarding|
| | |monitoring. |
| |1532 |Study for selection of enhanced Oil Recovery |
| | |processes and conceptual design of Pilot |
| | |Tests. |
| |1520 |Engineering and technical support to ONGC in |
| | |implementation of Cyclic Steam Stimulation in|
| | |Heavy Oil Wells. |
| |2794 |Assessment and processing of seismic data |
| | |along with engineering and technical support |
| | |in implementation of Cyclic Steam |
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DDIT vs. RPS Energy Pty Ltd.
| | |Stimulation. |
| |1524 |Conducting reservoir stimulation studies in | | | |association with personnel of ONGC. | | |1535 |Laboratory testing under simulated reservoir | | | |conditions. | | |1514 |Consultancy for optimal exploitation of | | | |hydrocarbon resources. | | |2797 |Consultancy for all aspects of Coal Bed | | | |Methane. | | |6174 |Analysis of data of wells to prepare a job | | | |design. | | | | | | |1517 |Geological study of the area and analysis of | | | |seismic information reports to design 2 | | | |dimensional seismic surveys. | | |7226 |Opinion on hydrocarbon resources and | | | |foreseeable potential. | | |7227 |Opinion on hydrocarbon resources and | | | |foreseeable potential. | | |7230 |Opinion on hydrocarbon resources and | | | |foreseeable potential. | | |6016 |Opinion on hydrocarbon resources and | | | |foreseeable potential. | | |6008 |Evaluation of ultimate resource potential and| | | |presentations outside India in connection | | | |with promotional activities for Joint Venture| | | |Exploration program. | | |1531 |Review of sub-surface well data, provide | | | |repair plan of wells and supervise repairs. | | |733 |Repair of gas turbine, gas control system and| | | |inspection of gas turbine and generator. | | |741 |Repair and inspection of turbines. | | |737 |Repair, inspection and overhauling of | | | |turbines. | | |736 |Inspection, engine performance evaluation, | | | |instrument calibration and inspection of far | 12 ITA 45/Del/2015 A.Y.:2011-12 DDIT vs. RPS Energy Pty Ltd.
| | |turbines. | | |1522 |Replacement of choke and kill consoles on | | | |drilling rigs. | | |1521 |Inspection of gas generators. | | |1515 |Inspection of rigs. | | |2012 |Inspection of generator. | | |1240 |Inspection of existing control system and | | | |deputing engineer to attend to any problem | | | |arising in the machines. |
| |1529 |Inspection of drilling rig and verification | | | |of reliability of control systems in the | | | |drilling rig. | | |2008 |Expert advice on the device to clean insides | | | |of a pipeline. | | |2795 |Feasibility study of rig to assess its | | | |remaining useful life and to carry out | | | |structural alterations. | | |925 |Engineering analysis of rig. | | |1519 |Imparting training on cased hold production | | | |log evaluation and analysis. | | |1533 |Training on well control. | | |1518 |Training on implementation of Six Sigma | | | |concepts. | | |1516 |Training on implementation of Six Sigma | | | |concepts. | | |6023 |Training on Drilling project management. | | |2796 |Training in Safety Rating System and | | | |assistance in development and audit of Safety| | | |Management System. | | |1239 |To develop technical specification for 3D | | | |Seismic API modules of work and to prepare | | | |bid packages. | | |1527 |Supply supervision and installation of | | | |software which is used for analysis of flow | | | |rate of mineral oil to determine reservoir | | | |conditions. | 13 ITA 45/Del/2015 A.Y.:2011-12 DDIT vs. RPS Energy Pty Ltd.
| |1523 |Supply, installation and familiarization of | | | |software for processing seismic data. | 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 thereunder. If that be so, we will have no hesitation in holding that the payments made by ONGC and received by the non- resident assessees 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."
3.6. In the facts of the present case it has not been disputed by authorities below that activities carried on by assessee are not directly associated with prospecting, extraction or production of mineral oils. In fact the DRP very categorically observed as under: "4.3. On careful consideration of the matter, we find that under the provisions of section 44 BB of the Act the presumptive rate of taxation is applicable to 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 prospecting for, or extraction or production of, mineral oils"(emphasis supplied). The activities being performed by assessee cannot be said to be not 'in connection with' prospecting etc. Of mineral oil as it is an integral 14 ITA 45/Del/2015 A.Y.:2011-12 DDIT vs. RPS Energy Pty Ltd.
part of the operation for prospecting etc. of mineral oil. In fact, it is noted by A.O. in draft assessment order that assessee is engaged in providing services to RIL and BHP relating to oil field related services for exploratory drilling operation etc. This view has also been confirmed by Hon'ble AAR in case of Bourbon Offshore Asia Pte Ltd. (2011) 200 Taxman 408."
3.7. It is observed that Ld. AO taxed assessee at 10% of the gross receipt under section 115 A of the Act. However on a combined reading of sections 44 BB, 44DA and 115 A of the Act, we are of the considered view that all these sections relating to royalty/FTS operate in different fields. Where assessee is imparting services which could be a simple royalty or FTS then the same would be taxed under section 9(1)(vi)/(vii) read with 115A, but where assessee is imparting any services in relation to exploration of mineral oil then the royalties/FTS would be taxable under section 44 BB of the Act. As section 44 BB are specific provisions in relation to specific services, it would prevail over the other provisions dealing with royalties/FTS. Further from the list of services considered by Hon'ble Supreme Court while deciding the issue in the case of ONGC vs. CIT (supra) the activity carried on would indicate that pith and substance of each of the contracts/agreements is connected with prospecting, extraction or production of mineral oil. And the assessee before us is also rendering services which is connected with similar activities of prospecting, extraction or production of mineral oil.
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3.8. Under such circumstances we have no hesitation in holding that the payments received by assessee have to be assessed under the specific provision of section 44 BB and not 115 A of the Act. 3.9. Accordingly grounds raised by revenue stand dismissed.
4. In the result appeal filed by the revenue stands dismissed. Order pronounced in the open court on 16.03.2018.
Sd/- Sd/-
(N.S.SAINI) (BEENA PILLAI)
Accountant Member Judicial Member
Dated: 16th March, 2018.
· mv
Copy of the Order forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR
6. Guard File
By Order
Asst. Registrar
ITAT, Delhi Benches, New Delhi
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