Deputy Commissioner of Income-tax, New Delhi V. PGS Geophysical AS, Gurgaon

ITA 1401/DEL/2015

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 7357 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 10 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-01-2019
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: I
• Assessment Year: 2010-2011
• Appeal Filed On: 10-03-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: G K DHALL
• Assessee Lawyers: AMIT BABLANI
• Keywords: Transfer pricing; Double taxation relief; Principle of natural justice; Permanent establishment; Wholly owned subsidiary
• Section: 143(3)

Judgement Text

ITA NO.- 1401/DEL/2015. M/S PGS GEOPHYSICAL AS. PAGE 1 OF 34 IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH: F: NEW DELHI) BEFORE SHRI K.N. CHARY, JUDICIAL MEMBER AND SHRI ANADEE NATH MISSHRA, ACCOUNTANT MEMBER ITA NO:- 1401/DEL/2015 ( ASSESSMENT YEAR: 2010-11) DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 2(2) (2), INTERNATIONAL TAXATION, NEW DELHI. VS. M/S PGS GEOPHYSICAL AS, STRADEVIEN 4, P.O. BOX 290 N-1326 LYSAKER, NORWAY, C/O BMR & ASSOCIATES, 22 ND FLOOR, BUILDING NO. 5, TOWER- A DLF CYBER CITY, DLF PHASE III, GURGAON-122002. PAN NO: AACCP3237B APPELLANT RESPONDENT REVENUE BY : SHRI G.K. DHALL, CIT(DR), ASSESSEE BY : SHRI AMIT BABLANI, CA AND SHRI SAHIL GUPTA, CA ORDER PER: ANADEE NATH MISSHRA, AM THIS IS AN APPEAL FILED BY REVENUE. THE ASSESSEE IS REGISTERED AS A COMPANY IN NORWAY AND IS A 100% SUBSIDIARY OF PETROLEUM GEO-SE RVICES ASA. THE COMPANY OPERATES VESSELS WHICH ARE PROVIDED ON TIME CHARTER BASIS TO PGS GROUP ENTITIES. AS PART OF CHARTER HIRE, THE ASSESSEE PROVIDES OPERATIONAL AND VESSEL MANAGEMENT SERVICES WHICH INCLUDE MARITIME MANAGEMENT SERVICES, HEALTH, SECUR ITY AND ENVIRONMENT AND ACCOUNTING ITA NO.- 1401/DEL/2015. M/S PGS GEOPHYSICAL AS. PAGE 2 OF 34 SERVICES. IT IS ALSO ENGAGED IN CONDUCTING GEOPHYSI CAL SURVEYS OFFSHORE WITH SPECIAL EMPHASIS 3D COLLECTION OF SEISMIC DATA, PROCESSING AND SALE OF SUCH DATA, AND OTHER ACTIVITIES OF SIMILAR NATURE. DURING THE YEAR THE ASSESSEE PROVIDED VESSELS ON HIRE TO PGS EXPLORATION (NORWAY) AS (PGS NORWAY, FOR SHORT) AN D PETROLEUM GEO-SERVICES ASIA PACIFIC PTE LTD (PGS SINGAPORE, FOR SHORT). PGS NORWAY AND PGS SINGAPORE WERE IN CONTRACT WITH INDIA ENTITIES LIKE OIL & NATURAL GAS CORPORATION (ONGC, FOR SHORT) AND RELIANCE INDUSTRIES LIMITED (RIL, FOR SHORT) FOR THE PURPOSE OF UNDERTAKING SEISMIC DATA ACQUISITION AND ON BOARD PROCESSING. THE ASSESSEE OPTED TO OFFER INCOME @ 10% OF GROSS RECEIPT AS PER SECTION 44BB OF INCOME TAX ACT , 1961 (I.T. ACT, FOR SHORT). VIDE DRAFT ASSESSMENT ORDER DATED 25.03.2014, THE ASSESS ING OFFICER (AO, FOR SHORT) DID NOT AGREE WITH ASSESSEES CLAIM OF APPLICABILITY OF SEC TION 44BB OF I.T. ACT. THE AO PROPOSED TO INVOKE RULE 10 OF INCOME TAX RULES, 1962 (I.T. RULES, FOR SHORT) AND PROPOSED TO DETERMINE ASSESSEES INCOME @ 15% OF THE GROSS RECE IPT BY APPLYING RULE 10 OF I.T. RULES. THE ASSESSEE FILED OBJECTIONS BEFORE DISPUT E RESOLUTION PANEL (DRP, FOR SHORT). VIDE ORDER DATED 02.12.2014, DRP HELD THAT, THE AMO UNT RECEIVED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION ON ACCOUNT OF HIRE CHA RGES OF THE VESSELS SHOULD BE BROUGHT TO TAX BY APPLYING THE DEEMED PROFIT RATIO OF 10%, U/S 44BB OF THE I.T. ACT. ACTING ON THE DIRECTIONS OF THE DRP, THE AO PASSED ASSESSMENT ORDER DATED 12.01.2015 U/S 144C(13) READ WITH SECTION 143(3) OF I.T. ACT WHERE IN THE ASSESSEES INCOME DETERMINED THAT 10% OF THE GROSS RECEIPTS U/S 44BB OF I.T. ACT . AGGRIEVED, THE REVENUE HAS FILED THIS APPEAL IN INCOME TAX APPELLATE TRIBUNAL (ITAT , FOR SHORT), WITH THE FOLLOWING GROUNDS OF APPEAL ARE AS UNDER: ITA NO.- 1401/DEL/2015. M/S PGS GEOPHYSICAL AS. PAGE 3 OF 34 I. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE HONBLE DISPUTE RESOLUTION PANEL (DRP) HAS ERRED IN DIREC TING THE ASSESSING OFFICER TO APPLY THE DEEMED PROFIT RATE OF 10% U/S 44BB OF THE INCOME TAX, 1961 (THE ACT) ON THE REVENUES EARNED BY ASS ESSEE ON ACCOUNT OF PROVIDING VESSELS ON HIRE TO BE USED FOR UNDERTA KING SEISMIC DATA ACQUISITION AND ONBOARD PROCESSING, AS AGAINST THE PROPOSED ACTION OF THE AO TO BRING THE REVENUE TO TAX AS ROYALTY U/S 9 (1 )(VI) OF THE ACT AT AN ESTIMATED NET INCOME @15% OF GROSS RECEIPTS R.W. S 44DA OF THE ACT. 1.1 WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE, THE HON'BLE DRP HAS ERRED IN NOT APPRECIATING THAT THE TERMS SERVIC ES 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 ROYALTY AS DEFINED U/S 9(L)(VI), THEY GO OUTSIDE THE PURVIEW O F SECTION 44BB AND HAVE TO BE TAXED AT RATES APPLICABLE TO ROYALTY U/S 115A/44DA OF THE ACT. 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE THE HON'BLE DRP HAS ERRED IN ITS INTERPRETATION OF THE LEGISLATIVE INTE NT BEHIND THE SCHEME OF TAXATION ENVISAGED IN 9(L)(VI)/9(L)(VII) READ WITH SECTIONS 115A/44DA AND 44BB , IGNORING THE DECISIONS IN THE CASES OF M/S R OLLS 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. 2.1 WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE, HONBLE DRP HAS ERRED IN NOT APPRECIATING THE FACT THAT PROVISO TO SECTION 44DA BROUGHT ABOUT BY THE FINANCE ACT 2011 WAS ONLY CLARIFICATOR Y IN NATURE AND 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 HONBLE SUPREME COURT IN THE CASE OF SEDCO FOREX IN TERNATIONAL DRILLING V/S CIT. 2.2 WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE, 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 (DEL HI)] CITED BY IT, THE PROVISIONS OF SECTION 44BB ARE NOT APPLICABLE WHERE THE SCOPE OF THE SERVICES/FACILITIES PROVIDED BY AN ASSESSEE IS GENE RAL IN NATURE FALLING UNDER SECTION 115A/44DA OF THE ACT. 2.3 THE HON'BLE DRP HAS ERRED IN MECHANICALLY FOLL OWING 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/FACILITIE S RENDERED UNDER THE CONTRACTS IS NOT GENERAL IN NATURE AND THEREFORE, D OES NOT QUALIFY AS ROYALTY U/S 9(L)(VI) OF THE ACT AND TAXABLE UNDER S ECTION 44DA OF THE ACT READ WITH SECTION 7 OF THE DTAA. 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE, 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 TH E PROVISIONS OF SECTION ITA NO.- 1401/DEL/2015. M/S PGS GEOPHYSICAL AS. PAGE 4 OF 34 9(L)(VI) READ WITH SECTIONS 115A/44DA OF THE ACT, N OT APPRECIATING THE FACT THAT BOTH SET OF PROVISIONS ARE SPECIAL IN NAT URE WHICH OPERATE IN THEIR OWN CLEARLY DEFINED SPHERES AND THEREFORE, ON CE A PARTICULAR RECEIPT OR INCOME TAKES ON THE CHARACTER OF ROYALTY/FTS AS DEFINED IN SECTION 9(L)(VI)/9(L)(VII), IT CANNOT BE CONSIDERED FOR TRE ATMENT U/S 44BB AND HAS TO BE TAXED U/S 115A/44DA OF THE ACT 4. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE HON'BLE DRP HAS ERRED,IN HOLDING THAT SECTIONS 115A AND 44D A 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 O R AN INDIAN CONCERN AND WHERE AN INCOME IS RECEIVED BY A NON-RE SIDENT FROM ANOTHER NONRESIDENTS, THE PROVISIONS OF SECTION 115 A/44DA DO NOT APPLY. 4.1 WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE HON'BLE DRP HAS ERRED IN NOT APPRECIATING THE FACT THAT SEC TIONS 44DA/115A ENSHRINE THE SOURCE RULE OF TAXATION AND IS INTENDE D TO COVER ALL THE PAYMENTS IN THE FORM OF ROYALTIES/FTS ETC. WHERE TH E SOURCE OF SUCH PAYMENTS LIES IN INDIA. 4.2 WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E 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 ENTIT Y IN RESPECT OF CONTRACTS BEING EXECUTED BY IT IN INDIA AND THEREFO RE THE SOURCE OF THE PAYMENTS AS WELL AS THE SITUS OF THE ACTIVITY TO WH ICH THESE PAYMENTS PERTAIN LIES IN INDIA. 4.3 WHETHER THE HON'BLE DRP HAS ERRED IN NOT APPRECIAT ING THE FACT THAT THE PHRASE INDIAN CONCERN' IN SECTIONS 115A/44DA HAVIN G NOT BEEN DEFINED, IT HAS TO BE GIVEN A PURPOSIVE CONSTRUCTION AND, TH EREFORE, A NON- RESIDENT ENTITY EXECUTING CONTRACTS IN INDIA AND MA KING PAYMENTS IN RESPECT OF SERVICES AVAILED FOR EXECUTION OF SUCH C ONTRACTS IN INDIA SHOULD BE TREATED AS INDIAN CONCERN FOR THE PURPOSE OF THE SECTION 115 A/44 DA OF THE ACT. 5. THE APPELLANT PRAYS FOR LEAVE TO ADD, AMEND, MOD IFY OR ALTER ANY GROUNDS OF APPEAL AT THE TIME OR BEFORE THE HEARING OF THE APPEAL. (2) IN THE COURSE OF APPELLATE PROCEEDINGS IN ITAT, AS SESSEE FILED PAPER BOOKS DATED 15 TH MAY, 2018 AND 16 TH OCTOBER, 2018 CONTAINING THE FOLLOWING PARTICULARS : 1. COPY OF DECISION OF THE SUPREME COURT IN THE CASE O F ONGC VS. CIT [2015] 376 ITR 306 (SC) ITA NO.- 1401/DEL/2015. M/S PGS GEOPHYSICAL AS. PAGE 5 OF 34 2. COPY OF DECISION OF THE DELHI HIGH COURT IN THE CAS E OF PGS EXPLORATION (NORWAY) AS VS ADIT [2016] 383 ITR 178 (DELHI) 3. COPY OF DECISION OF DELHI HIGH COURT IN THE CASE OF DIT VS OHM LIMITED (2012) (212 TAXMAN 440) (DEL) 4. COPY OF THE DECISION OF THE UTTRAKHAND HIGH COURT I N THE CASE OF CGG VERITAS SERVICES SA VS CIT (ITA NO 08 OF 2012) 5. COPY OF DECISION OF THE UTTRAKHAND HIGH COURT IN TH E CASE OF CIT VS M/S EXPRO GULF LIMITED & OTHERS (ITA NO 34 OF 2015) (HIGH COURT) 6. COPY OF THE DECISION OF THE DELHI ITAT IN THE CASE OF LOUIS DREYFUS ARMATEURES SAS VS ADIT (2015) (153 ITD 579) (DELHI-TRIB) 7. COPY OF DECISION OF THE UTTRAKHAND HIGH COURT IN TH E CASE OF BJ SERVICES CO MIDDLE EAST (SPECIAL APPEAL NO. 316 AND 317 OF 2012) 8. COPY OF DECISION OF THE UTTRAKHAND HIGH COURT IN TH E CASE OF M/S WESTERN GECO INTERNATIONAL LIMITED (ITA NO 39 OF 2012) 9. COPY OF THE DECISION OF THE DELHI ITAT IN THE CASE OF SCHLUMBERGER ASIA SERVICES LTD VS ADIT (ITA NO 6063 OF 2010) 10. COPY OF THE RULING OF AAR IN CASE OF BOURBON OFFSHO RE ASIA PTE LTD VS DIT (2011) (337 ITR 122) (AAR) 11. COPY OF THE RULING OF AAR IN CASE OF WAVEFIELD INSE IS ASA (2010) (230 CTR 106) (AAR) 12. COPY OF THE DECISION OF DELHI ITAT IN THE CASE OF S WIBER OFFSHORE MARINE PTE LTD VS ADIT (ITA NO 5652/DEL/2011)\ 13. COPY OF THE DECISION OF DELHI ITAT IN THE CASE OF A DIT VS BAKER HUGHES SINGAPORE PTE LTD (2015) (41 ITR (T) 212) (DELHI-TRIB) 14. COPY OF THE DECISION OF THE DELHI BENCH OF THE ITAT IN THE CASE OF BAKER HUGHES ASIA PACIFIC LTD VS ADIT (2014) (34 ITR (T) 192) ( DELHI TRIB.) 15. COPY OF THE RULING OF AAR IN CASE OF SPECTURN GEO L IMITED VS DIT (2012) (346 ITR 422) (AAR) 16. COPY OF DECISION OF THE SUPREME COURT IN THE CASE O F DIT VS MORGAN STANLEY INC AND CO (2007) (292 ITR 416) (SC) 17. FORM 35A 18. ANNEXURE TO FORM 35A ITA NO.- 1401/DEL/2015. M/S PGS GEOPHYSICAL AS. PAGE 6 OF 34 19. CERTIFIED TRUE COPY OF THE TRANSFER PRICING ORDER D ATED DECEMBER 3, 2013 PASSED BY THE TRANSFER PRICING OFFICER UNDER SECTION 92CA(3) OF THE INCOME-TAX ACT, 1961 (ACT) 20. CERTIFIED TRUE COPY OF THE DRAFT ASSESSMENT ORDER D ATED MARCH 25, 2014 PASSED BY THE ASSESSING OFFICER (AO) UNDER SECTION 144C (1) /143(3) OF THE ACT 21. COPY OF THE RETURN OF INCOME FOR THE SUBJECT YEAR A LONG WITH COMPUTATION 22. COPY OF THE RELEVANT PAGES OF THE CONTRACTS ENTERED INTO BY PGS EXPLORATION (NORWAY) AS (PGSEN) AND PETROLEUM GEO-SERVICES AS IA PACIFIC PTE LTD (PGSAP) WITH OIL & NATURAL GAS CORPORATION AND RELIANCE IND USTRIES LIFMITED (RIL) RESPECTIVELY EVIDENCING THAT THE ACTIVITIES OF SEIS MIC DATA ACQUISITION AND PROCESSING WERE CARRIED ON BY PGSAP AND PGSEN 23. COPY OF THE SUBMISSION DATED APRIL 27, 2012 FILED B EFORE THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS 24. COPY OF THE SUBMISSIONS DATED FEBRUARY 24, 2014 FIL ED BEFORE THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS 25. COPY OF SUBMISSIONS DATED MARCH 7,2014 FILED BEFORE THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS 26. COPY OF SUBMISSION DATED MARCH 12, 2014 FILED BEFOR E THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS ALONG WITH THE FOLLOWING ANN EXURES: COPY OF THE CONTRACT ENTERED INTO BETWEEN THE ASSES SEE AND PGSEN FOR THE HIRE OF VESSELS. COPY OF RELEVANT EXTRACT OF THE CONTRACT ENTERED IN TO PGSEN WITH RIL FOR RENDERING SEISMIC DATA ACQUISITION AND PROCESSING S ERVICES. COPY OF THE SNAPSHOT FROM THE WEBSITE OF DIRECTORAT E GENERAL OF FOREIGN TRADE DEPICTING THE IMPORT-EXPORT CODE OF PGSEN COPY OF MOBILIZATION AND DEMOBILIZATION CERTIFICATE S DULY CERTIFIED BY PGSEN AND RIL COPY OF INVOICES RAISED BY THE ASSESSEE ON PGSEN FO R THE HIRE OF VESSELS. COPY OF THE INVOICES RAISE BY THE VENDORS ON PGSEN FOR RENDERING CUSTOM CLEARANCE SERVICES, SUPPLY O FOOD ITEMS AND OTHER C ONSUMABLES FOR CONSUMPTION OF VESSELS IN INDIA, SUPPLY OF SPARES FOR THE PURPO SE OF OPERATION IN INDIA ETC. ITA NO.- 1401/DEL/2015. M/S PGS GEOPHYSICAL AS. PAGE 7 OF 34 27. CERTIFIED TRUE COPY OF THE DIRECTIONS DATED DECEMBE R 2,2014 ISSUED BY THE HONBLE DISPUTE RESOLUTION PANEL II (DRP) UNDER SECTION 144C(5) OF THE ACT. 28. CERTIFIED TRUE COPY OF THE FINAL ASSESSMENT ORDER D ATED JANUARY 12, 2015 PASSED BY THE AO UNDER SECTION 144C(13)/143(3) OF THE ACT. 29. TEXT OF SECTION 44BB AND SECTION 9 OF THE ACT. 30. COPY OF THE TAX RESIDENCY CERTIFIED ISSUED BY THE N ORWEGIAN FISCAL AUTHORITIES FOR AY 2010-11. (2.1) DURING APPELLATE PROCEEDINGS IN ITAT, LD. COMMISSI ONER OF INCOME TAX (DEPARTMENTAL REPRESENTATIVE), [CIT(DR), FOR SHOR T], FILED WRITTEN SUBMISSIONS, RELEVANT PORTION OF WHICH IS REPRODUCED AS UNDER: SUBMISSIONS IN THE ABOVE CASE, IT IS HUMBLY SUBMITTED THAT THE FOLLOWING DECISIONS MAY KINDLY BE CONSIDERED WITH REGARD TO APPLICABILITY OF SECTION 44BB 1. ONGC LTD VS. CIT (2015) F2015-TII-03-SC-INTLJ(SC| IN THAT CASE, THE FACTS AS DISCUSSED BY HONBLE SUP REME COURT WERE THAT '6. THE APPELLANT-ONGC AND A NON RESIDENT/FOREIGN C OMPANY ONE M/S. FORAMER FRANCE HAD ENTERED INTO AN AGREEMENT BY WHICH THE N ON-RESIDENT COMPANY HAD AGREED TO MAKE AVAILABLE SUPERVISORY STAFF AND PERS ONNEL HAVING EXPERIENCE AND EXPERTISE FOR OPERATION AND MANAGEMENT OF DRILLING RIGS SAGAR JYOTI AND SAGAR PRAGATI FOR THE ASSESSMENT YEAR 1985-86 AND T HE DRILLING RIG SAGAR RATNA FOR THE ASSESSMENT YEAR 1986-87. FACED WITH THE DIF FERENT VIEWS TAKEN BY THE AUTHORITIES UNDER THE ACT, AS MENTIONED ABOVE, THE HIGH COURT PROCEEDED TO ANALYSE THE DIFFERENT CLAUSES OF THE CONTRACT BETWE EN THE PARTIES. A CONSIDERATION OF SUCH ANALYSIS MADE BY THE HIGH COU RT WOULD GO TO SHOW THAT IT HAD COME TO LIGHT BEFORE THE HIGH COURT THAT THE CONTRACT BETWEEN THE PARTIES VISUALIZED OPERATION OF THE OIL RIGS INCLUD ING DRILLING OPERATIONS BY THE PERSONNEL MADE AVAILABLE UNDER THE CONTRACTS /AGREEMENTS, WHICH FACT WAS FURTHER STATED ON AFFIDAVIT BEFORE THE HIGH COU RT BY AN AUTHORIZED OFFICIAL OF THE ONGC IN THE FOLLOWING TERMS . 'THAT UNDER THE SAID AGREEMENT, FORAMER WAS REQUIRE D, THROUGH ITS PERSONNEL LISTED IN EXHIBIT-A TO THE SAID AGREEMENT, TO CARRY OUT INTER-ALIA THE DRILLING OPERATIONS SPECIFIED IN CLAUSE 4.3 TO 4.10 OF THE SAID AGREEME NT.' ITA NO.- 1401/DEL/2015. M/S PGS GEOPHYSICAL AS. PAGE 8 OF 34 DESPITE THE ABOVE, THE HIGH COURT TOOK THE VIEW THA T UNDER THE AGREEMENT PAYMENT TO M/S. FORAMER FRANCE WAS REQUIRED TO BE M ADE AT THE RATE OF 3450 USD PER DAY AND THAT THE CONTRACT CLEARLY CONTEMPLA TED RENDERING OF TECHNICAL SERVICES BY PERSONNEL OF THE NON-RESIDENT COMPANY. SPECIFICALLY, TAKING THE VIEW THAT THE CONTRACT DID NOT MENTION THAT THE PERSONNE L OF THE NON-RESIDENT COMPANY WAS ALSO CARRYING OUT THE WORK OF DRILLING OF WELLS AND AS THE COMPANY HAD RECEIVED FEES FOR RENDERING SERVICE THE PAYMENT S MADE WERE LIABLE TO BE TAXED UNDER THE PROVISIONS OF SECTION 44D OF THE AC T. /IS ALREADY NOTICED, IN THE REST OF THE APPEALS BEFORE THE HIGH COURT THE AFORE SAID DECISION DATED 15.12.2005 PASSED IN L.T.A. NO. 239 OF 2001 WAS FOL LOWED ON THE BASIS THAT THE FACTS IN ALL THE APPEALS WERE SIMILAR TO THOSE INVO LVED IN I.T.A. NO. 239 OF 2001' (EMPHASIS PROVIDED) THE HONBLE SUPREME COURT HELD THAT - 13. THE INCOME TAX ACT DOES NOT DEFINE THE EXPRESS IONS 'MINES' OR 'MINERALS'. THE SAID EXPRESSIONS ARE FOUND DEFINED AND EXPLAINE D 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 B E 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 MU ST 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 PARLI AMENT HAS EXCLUSIVE JURISDICTION UNDER ENTRY 53 OF LIST I OF THE 7TH SC HEDULE 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, 19 52 WHICH DEFINE MINES AND MINERALS AND THE PROVISIONS OF THE OIL FIELDS (REGU LATION AND DEVELOPMENT) ACT, 1948 SPECIFICALLY RELATING TO PROSPECTING AND EXPLO RATION OF MINERAL OILS, EXHAUSTIVELY REFERRED TO EARLIER, IT IS ABUNDANTLY CLEAR THAT DRILLING OPERATIONS FOR THE PURPOSE OF PRODUCTION OF PETROLEUM WOULD CL EARLY 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 WOUL D BE CRUCIAL FOR THE DETERMINATION OF THE QUESTION WHETHER THE PAYMENTS MADE UNDER SUCH AN AGREEMENT TO THE NONRESIDENT ASS ESSEE 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 COMMEND S 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' ITA NO.- 1401/DEL/2015. M/S PGS GEOPHYSICAL AS. PAGE 9 OF 34 OCCURRING IN EXPLANATION 2 TO SECTION 9(1) OF THE A CT WOULD COVER RENDERING OF SERVICE LIKE IMPARTING OF TRAINING AND CARRYING OUT DRILLING OPERATIONS FOR EXPLORATION OF AND EXTRACTION OF OIL AND NATURAL GA S AND HENCE PAYMENTS MADE UNDER SUCH AGREEMENT TO A NON-RESIDENT/FOREIGN COMP ANY 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 W ORKS OR SERVICES MENTIONED UNDER A PARTICULAR AGREEMENT IS DIRECTLY ASSOCIATED OR INEXTRICABLY CONNECTED WITH PROSPECTING, EXTRACTION OR PRODUCTION OF MINER AL OIL. KEEPING IN MIND THE ABOVE PROVISION, WE HAVE LOOKED INTO EACH OF THE CONTRACTS INVOLVED IN THE PRESENT GROUP OF CASES AND FIND THAT THE BRIEF DESCRIPTION OF THE WORK COVERED UNDER EACH OF THE SAID CONTRACTS AS CULLED OUT BY THE APPELLANT AND PLACED BEFORE THE COURT IS CORRECT. THE SAID DETAI LS ARE SET OUT BELOW: S.NO. CIVIL APPEAL NO. WORK COVERED UNDER THE CONTRACT 1. 4321 DRILLING OF EXPLORATION WELLS AND CARRYING OUT SEISMIC SURVEYS FOR EXPLORATORY DRILLING 2. 740 DRILLING, FURNISHING PERSONNEL FOR MANNING, MAINTENANCE AND OPERATION OF DRILLING RIG AND TRAINING OF PERSONNEL. 3. 731 DRILLING, FURNISHING PERSONNEL FOR MANNING, MAINTENANCE AND OPERATION OF DRILLING RIG AND TRAINING OF PERSONNEL. 4. 1722 FURNISHING SUPERVISORY STAFF WITH EXPERTISE IN OPERATION AND MANAGEMENT OF DRILLING UNIT. 5. 729 CAPPING INCLUDING SUBDUING OF WELL, FIRE FIGHTING. 6. 738 CAPPING INCLUDING SUBDUING OF WELL, FIRE FIGHTING. 7. 1528 ANALYSIS OF DATA TO PREPARE JOB DESIGN, PROCEDURE FOR EXECUTION AND DETAILS REGARDING MONITORING. 8. 1532 STUDY FOR SELECTION OF ENHANCED OIL RECOVERY PROCESSES AND CONCEPTUAL DESIGN OF PILOT TESTS. 9. 1520 ENGIN EERING AND TECHNICAL SUPPORT TO ONGC IN IMPLEMENTATION OF CYCLIC STEAM STIMULATION IN HEAVY OIL WELLS. 10. 2794 ASSESSMENT AND PROCESSING OF SEISMIC DATA ALONG WITH ENGINEERING AND TECHNICAL SUPPORT IN IMPLEMENTATION OF CYCLIC STEAM STIMULATION. 11. 1524 CONDUCTING RESERVOIR STIMULATION STUDIES IN ASSOCIATION WITH PERSONNEL OF ONGC 12. 1535 LABORATORY TESTING UNDER SIMULATED RESERVOIR CONDITIONS 13. 1514 CONSULTANCY FOR OPTIMAL EXPLOITATION OF HYDROCARBON RESOURCES. ITA NO.- 1401/DEL/2015. M/S PGS GEOPHYSICAL AS. PAGE 10 OF 34 14. 2797 CONSULTANCY FOR ALL ASPECTS OF COAL BED METHANE 15. 6174 ANALYSIS OF DATA OF WELLS TO PREPARE A JOB DESIGN 16. 1517 GEOLOGICAL STUDY OF THE AREA AND ANALYSIS OF SEISMIC INFORMATION REPORTS TO DESIGN 2 DIMENSIONAL SEISMIC SURVEYS. 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. 6061 OPINION ON HYDROCARBON RESOURCES AND FORESEEABLE POTENTIAL 21. 6008 EVALUATION OF ULTIMATE RESOURCE POTENTIAL AND PRESENTATIONS OUTSIDE INDIA IN CONNECTION WITH PROMOTIONAL ACTIVITIES FOR JOINT VENTURE EXPLORATION PROGRAM. 22. 1531 REVIEW OF SUB - SURFACE WELL DATA, PROVIDE REPAIR PLAN OF WELLS AND SUPERVISE REPAIRS. 23. 733 REPAIR OF G AS TURBINE, GAS CONTROL SYSTEM AND INSPECTION OF GAS TURBINE AND GENERATOR. 24. 741 REPAIR AND INSPECTION OF TURBINES. 25. 737 REPAIR, INSPECTION AND OVERHAULING OF TURBINES 26. 736 INSPECTION, ENGINE PERFORMANCE EVALUATION, INSTRUMENT CALIBRATION AND INSPECTION OF FAR TURBINES. 27. 1522 REPLACEMENT OF CHOKE AND KILL CONSOLES ON DRILLING RIGS. 28. 1521 INSPECTION OF GAS GENERATORS 29. 1515 INSPECTION OF RIGS. 30. 2012 INSPECTION OF GENERATOR. 31. 1240 INSPECTION OF EXISTING CONTROL SYSTEM AND DEPUTING ENGINEER TO ATTEND TO ANY PROBLEM ARISING IN THE MACHINES. 32. 1529 INSPECTION OF DRILLING RIG AND VERIFICATION OF RELIABILITY OF CONTROL SYSTEMS IN THE DRILLING RIG. 33. 2008 EXPERT ADVICE ON THE DEVICE TO CLEAN INSIDES OF A PIPELI. 34. 2795 F EASIBILITY STUDY OF RIG TO ASSESS ITS REMAINING USEFUL LIFE AND TO CARRY OUT STRUCTURAL ALTERATIONS. 35. 925 ENGINEERING ANALYSIS OF RIG. 36. 1519 IMPARTING RAINING ON CASED HOLD PRODUCTION LOG EVALUATION AND ANALYSIS. 37. 1533 TRAINING ON WELL CONTROL. ITA NO.- 1401/DEL/2015. M/S PGS GEOPHYSICAL AS. PAGE 11 OF 34 38. 1518 TRAINING ON IMPLEMENTATION OF SIX SIGMA CONCEPTS. 39. 1 516 TRAINING ON IMPLEMENTATION OF SIX SIGMA CONCEPTS. 40. 6023 TRAINING ON DRILLING PROJECT MANAGEMENT. 41. 2796 TRAINING IN SAFELY RATING SYSTEM AND ASSISTANCE IN DEVELOPMENT AND AUDIT OF SAFETY MANAGEMENT SYSTEM. 42. 1239 TO DEVELOP TECHNICAL SPECIFICATION FOR 3D SEISMIC API MODULES OF WORK AND TO PREPARE BID PACKAGES. 43 1527 SUPPLY SUPERVISION AND INSTALLATION OF SOFTWARE WHICH IS USED FOR ANALYSIS OF FLOW RATE OF MINERAL OIL TO DETERMINE RESERVOIR CONDITIONS. 44. 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 MIN ERAL OILS THOUGH THERE MAY BE CERT AIN ANCILLARY WORKS CONTEMPLATED THERE UNDER. IF THAT BE SO, WE WILL H AVE NO HESITATION IN HOLDING THAT THE PAYMENTS MADE BY ONG C AND RECEIVED BY THE NON-RESIDENT ASSESSEES OR FOREIGN COMPANIES UNDER T HE SAID CONTRACTS IS MORE APPROPRIATELY ASSESSABLE UNDER THE PROVISIONS OF SE CTION 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 OR DERS 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 L EARNED TRIBUNAL.' (EMPHASIS SUPPLIED) AS EVIDENT FROM THE ABOVE, THE ENTIRE OBSERVATION I S WITH RESPECT OF 'DRILLING' I.E. WHETHER 'DRILLING' WOULD AMOUNT TO A 'MINING O PERATION' AND THE PROXIMITY OF WORKS CONTEMPLATED UNDER THE CONTRACT TO 'DRILLING' . THE HON'BLE SC HAS BEEN REPEATEDLY EMPHASIZING A FEW EXPRESSIONS AND TERMS LIKE - PROXIMITY OF THE WORKS DIRECTLY AND INEXTRICABLY LINKED DIRECT ASSOCIATED INEXTRICABLY CONNECTED DOMINANT PURPOSE PITH & SUBSTANCE ITA NO.- 1401/DEL/2015. M/S PGS GEOPHYSICAL AS. PAGE 12 OF 34 TO HIGHLIGHT THE TESTS AND DEGREE OF ASSOCIATION TH AT IS NEEDED TO BRING A TRANSACTION UNDER THE PURVIEW OF SECTION 44BB. IN T HE WORDS OF HONBLE SC, THERE MAY BE CERTAIN ANCILLARY WORKS' BUT WHAT MA TTERS IS WHETHER THE 'DOMINANT PURPOSE' IS PROSPECTING, EXTRACTION OR PR ODUCTION OF MINERAL OIL THE ABOVE INTENTION OF THE HONBLE APEX COURT IS CLEARL Y DISCERNABLE FROM THE SAMPLE OF WORK COVERED UNDER AGREEMENTS WHICH ARE DIRECTLY AND INEXTRICABLY ASSOCIATED WITH DRILLING, RIG OPERATION & MANAGEMEN T OF DRILLING RIGS & DRILLED WELLS AND OTHER SUCH ACTIVITIES RELATED TO PROSPECT ING, EXTRACTION OR PRODUCTION OF MINERAL OILS. THIS INTENTION OF HONBLE SUPREME COURT TO DISTINGUISH ACTIVITIES WHICH ARE DIRECTLY ASSOCIATED AND INEXTR ICABLY CONNECTED WITH THE PROSPECTING, EXTRACTION OR PRODUCTION OF M INERAL OILS FROM OTHERS HAS BEEN CLEARLY SPELT OUT AGAIN BY THE VERY SAME BENCH IN THEIR ORDER OF THE SAME DATE IN THE CASE OF THE SAME APPELLANT I.E . ONGC WHILE DECIDING A RELATED BUNCH OF APPEALS RELATING TO THE PROVISIONS OF COMPANIES (PROFITS) SURTAX ACT, 1964. (ORDER DT. 1-7-15 IN CIVIL APPEAL NOS.73 0 OF 2007) THE ISSUE IN QUESTION WAS THE TRUE AND CORRECT PURP ORT AND EFFECT OF EXEMPTION NOTIFICATION BEARING NO. GSR 307(E) DT. 31.03.1983 UNDER SECTION 24AA OF THE SURTAX ACT. SECTION 24AA OF THE SURTAX ACT, MUCH LI KE THE PROVISIONS OF SECTION 44BB OF THE INCOME TAX ACT, IS A BENEFICIAL PROVISI ON THAT EMPOWERS THE GOVT, TO MAKE EXEMPTIONS ETC. IN RELATION TO PARTICIPATIO N IN THE BUSINESS OF PROSPECTING FOR EXTRACTION ETC. OF MINERAL OIL. IT DISTINGUISHES BETWEEN TWO TYPES OF FOREIGN PARTICIPATION IN THE BUSINESS OF PROSPEC TING OR EXTRACTION OR PRODUCTION OF MINERAL OILS I.E. SEC. 24AA (2) (A) FOREIGN COMPANIES WITH WHOM THE CENTRAL GOVT HAS E NTERED INTO AGREEMENTS FOR THE ASSOCIATION OR PARTICIPATION OF THAT GOVT, OR ANY PERSON AUTHORIZED BY THAT GOVT IN ANY BUSINESS CONS ISTING OF THE PROSPECTING OR EXTRACTION OR PRODUCTION OF MINERAL OILS; AND (B) FOREIGN COMPANIES WITH WHOM THE CEN TRAL GOVT HAS ENTERED INTO AGREEMENT FOR THE ASSOCIATION OR PARTICIPATION OF T HAT GOVT. OR ANY PERSON AUTHORIZED BY THAT GOVT . PROVIDING ANY SERVICES OR FACILITIES OR SUPPLYING ANY SHIP, AIRCRAFT, MACHINERY OR PLANT (W HETHER BY WAY OF SALE ON HIRE) IN CONNECTION WITH ANY BUSINESS CONSI STING OF IN ANY BUSINESS CONSISTING OF THE PROSPECTING OR EXTRACTIO N OR PRODUCTION OF MINERAL OIL CARRIED ON BY THAT GOVT. OR ANY PERSON SPECIFIED BY THAT GOVT. THE HONBLE SUPREME COURT DID NOT ACCEDE TO THE CON TENTIONS OF THE APPELLANT THAT- ITA NO.- 1401/DEL/2015. M/S PGS GEOPHYSICAL AS. PAGE 13 OF 34 ...APPLICABILITY SHOULD BE UNDERSTOOD WITH REFEREN CE TO THE EXISTENCE OF AGREEMENT WITH FOREIGN COMPANIES RATHER THAN THE IM MEDIATE PURPOSE OF SUCH AGREEMENT (BENEFICIARIES SHOULD ALSO) INCLUDE FOREIGN COMPANIES WITH WHOM THE ONGC HAS NO DIRECT AGREEMEN T THOUGH SUCH FOREIGN COMPANIES MAY NEVERTHELESS BE PROVIDIN G SIMILAR SERVICES, MAY BE, ON THE STRENGTH OF SEPARATE AGREE MENTS WITH THE FOREIGN COMPANIES WITH WHOM THE ONGC HAS EXECUTED A N AGREEMENT.... (EMPHASIS AND CLARIFICATIONS ADDED) THE HONBLE SC HELD THAT ...THE POWER TO GRANT EXE MPTION IS TWOFOLD AND COVERS AGREEMENTS DIRECTLY ASSOCIATED WITH THE PROSPECTING OR EXTRACTION OR PRODUCTION OF MINERAL OILS OR CONTRACTS FACILITATING OR MAKING AVAILABLE SERVICES IN CONNECTION WITH SUCH A BUSINE SS. THUS, THE ABOVE TERMS I.E. PROXIMITY OF THE WORKS, 'DIRECTLY AND INEXTR ICABLY LINKED', DIRECTLY ASSOCIATED, INEXTRICABLY CONNECTED, 'DOMINANT PU RPOSE', PITH & SUBSTANCE AS USED BY HONBLE SUPREME COURT MUST BE UNDERSTOOD AND GIVEN EFFECT TO IN THE CONTEXT IN WHICH THEY HAVE BEEN USED. THIS APPR OACH HAS ALSO BEEN FOLLOWED BY HONBLE ITAT IN THE CASE OF ONGC AS REP RESENTATIVE ASSESSEE OF UNIVERSITY OF CALGARY VS. ADIT (2017) (ITANO.4877/D EL/2013 & 1327/DEL/2016) (COPY ENCLOSED) IN VIEW OF THE ABOVE, SINCE THE ACTIVITIES OF THE A SSESSE ARE NOT DIRECTLY ASSOCIATED OR INTRINSICALLY LINKED WITH TH E PROSPECTING, EXTRACTION OR PRODUCTION OF MINERAL OILS IT IS NOT ELIGIBLE FOR TAXATION U/S 44BB OF THE ACT. EVEN ASSUMING (WITHOUT ADMITTING) THAT THE ABOVE DE CISION OF HONBLE SUPREME COURT UNDER THE PROVISIONS OF COMPANIES (PROFITS) S URTAX ACT, 1964 SHOULD NOT BE IMPORTED/USED TO INTERPRET THE PROVISIONS OF INC OME TAX ACT, IT MAY BE SEEN THAT THE HON'BLE SUPREME COURT IN THEIR ORDER IN TH E CASE OF ONGC UNDER INCOME TAX ACT (2015-TII-C3-SC-INTL) HAVE CLEARLY I DENTIFIED ACTIVITIES WHICH ARE DIRECTLY RELATED TO DRILLING AND EXPLORATION. T HUS, ACTIVITIES LISTED/DESCRIBED IN THE TABLE IN PARA-13 OF THE ORDER CAN BE DESCRIB ED UNDER THE FOLLOWING HEADS- SR. NO. IN TABLE ACTIVITY 1 DRILLING & SEISMIC SURVEYS FOR EXPLORATORY DRILLING 2 - 4 PROVISION OF MANPOWER OF TO DRILLING RIG 5,6 CAPPING AND FIREFIGHTING OF OIL WELLS 7,8,15 STUDY, ANALYSIS AND DESIGNING 9 - 12 & 16 STIMULATION STUDIES & SEISMIC SURVEYS 13 - 21 & 33 - 35 CONSULTANCY, ADVICE, OPINION, ANALYSIS & STUDIES ON RESOURCES POTENTIAL 22 REPAIR OF WELLS 23 - 26 REPAIR OF TURBINES & GENERATORS 27 REPLACEMENT OF CONSOLES ON DRILLING RIGS 28 - 32 INSPECTION OF OIL RIGS & GAS GENERATORS 36 - 41 TRAINING 42 - 44 SOFTWARE ITA NO.- 1401/DEL/2015. M/S PGS GEOPHYSICAL AS. PAGE 14 OF 34 THE ACTIVITIES OF THE ASSESSEE ARE NOT COVERED UNDE R ANY OF THE ABOVE ACTIVITIES . THE ASSESSEE PROVIDED VESSELS ON HIRE ON TIME CHART ER BASIS' TO NON-RESIDENT COMPANIES [DRP, PARA-2] THE BUSINESS O F SUCH HIRERS OR WHETHER AND TO WHAT EXTENT SUCH HIRERS DEPLOYED THE HIRED V ESSELS IN THEIR BUSINESS HAS NO EFFECT ON THE TAXABILITY OF THE INCOME RECEIVED BY THE ASSESSEE. IN THE ANNEXURE TO ITS OBJECTIONS BEFORE DRP, THE ASSESSEE DESCRIBED ITS BUSINESS AS UNDER THE ASSESSEE. OPERATES VESSELS WHICH ARE PROVIDED ON TIME CHARTER BASIS ..AS PART OF CHARTER HIRE, THE ASSESSEE PROVIDES O PERATIONAL AND VESSELS MANAGEMENT SERVICES WHICH INCLUDE MARITIME MANAGEME NT SERVICES, HEALTH, SECURITY AND ENVIRONMENT AND ACCOUNTING SERVICES. IT IS ALSO ENGAGED IN CONDUCTING GEOPHYSICAL SURVEYS OFFSHORE WHITH SPECIAL EMPHASIS ON 3D COLLECTION OF SEISMIC DATA, PROCESSING AND SALE OF SUCH DATA AND OTHER ACTIVITIES OF SIMILAR NATURE. [P.3 APPEA L SET] IN OTHER WORDS, THE ASSESSEE IS ENGAGED IN TWO TYPE S OF ACTIVITIES I.E. INCOME FROM THE OPERATION OF VESSELS ON CHARTER HIR E BASIS AND INCOME FROM PROCESSING AND SALE OF SEISMIC DATA & G EOPHYSICAL SURVEYS. AS HAS BEEN CLAIMED BEFORE LOWER AUTHORITIES, THE THE ASSESSEE PROVIDED VESSELS ON HIRE ON TIME CHARTER BASIS TO NON-RESIDENT COMPANIES. [DRP. PARA-2] ] THE BUSINESS OF SUCH HIRERS OR WHETHER AN D TO WHAT EXTENT SUCH HIRERS DEPLOYED THE HIRED VESSELS IN THEIR BUSINESS HAS NO EFFECT ON THE TAXABILITY OF THE INCOME RECEIVED BY THE ASSESSEE. THE HONBLE SU PREME COURT HAS HELD THE PROXIMITY AND INTRINSIC CONNECTION OF THE ACTIVI TIES CARRIED ON BY THE ASSESSEE AS THE DETERMINING FACTOR. IT IS NOT THE CLAIM OF T HE ASSESSEE THAT IT IS PROVIDING SERVICES IN THE NATURE OF SEISMIC STUDIES AS DESCRI BED IN S. NOS. 1,9-12 & 16 OF THE ORDER OF THE HONBLE SUPREME COURT. THE AO AND DRP CONFIRMED THAT THE INCOME RECEIVED BY THE ASSESSEE IS FROM THE HIRING OF THE VESSELS ONLY. YET. THE HONBLE DRP ERRED IN HOLDING THAT THE INCOME IS TAXABLE U/S 44BB OF T HE ACT IN VIEW OF THE ABOVE, THE ORDER OF THE AO MAY BE CONFI RMED. (2.2) THE LD. COUNSEL FOR ASSESSEE FILED SYNOPSIS, THE R ELEVANT PORTION OF WHICH IS REPRODUCED AS UNDER: THE ASSESSEE, A COMPANY INCORPORATED UNDER THE LAWS OF NORWAY, IS ENGAGED IN PROVIDING EQUIPMENTS, SERVICES AND FACIL ITIES IN CONNECTION WITH PROSPECTING FOR OR EXTRACTION OR PRODUCTION OF MINE RAL OILS. DURING THE RELEVANT PREVIOUS YEAR, THE ASSESSEE ENT ERED INTO A CONTRACT WITH ITA NO.- 1401/DEL/2015. M/S PGS GEOPHYSICAL AS. PAGE 15 OF 34 PGS EXPLORATION (NORWAY) AS ('PGSEN') AND PETROLEUM GEO-SERVICES PACIFIC PTE LTD ('PGSAP') FOR PROVIDING VESSELS ON HIRE TO BE USED FOR UNDERTAKING SEISMIC DATA ACQUISITION AND ONBOARD PROCESSING IN PURSUANCE OF THEIR RESPECTIVE CONTRACTS WITH OIL AND NATURAL GAS CORPO RATION ('ONGC') AND RELIANCE INDUSTRIES LIMITED ('RIL'). COPY OF THE CO NTRACTS IS ATTACHED AT PAGES 159-174 OF THE PAPERBOOK. IN THE RETURN OF INCOME, THE ASSESSEE HAD OFFERED I TS REVENUES (AMOUNTING TO INR 786,887,676) EARNED BY IT TO TAX AS PER THE PROVISIONS OF SECTION 44BB OF THE INCOME-TAX ACT, 1961 ('THE ACT') AND DE CLARED TAXABLE INCOME OF INR 78,688,767. COPY OF THE RETURN OF INCOME ALO NG WITH COMPUTATION OF INCOME IS ATTACHED AT PAGES 55-81 OF THE PAPERBOOK. THE ASSESSMENT PROCEEDINGS WERE INITIATED BY THE AS SESSING OFFICER ('AO') UNDER SECTION 143(2) OF THE ACT. THE MATTER WAS ALS O REFERRED TO THE TRANSFER PRICING OFFICER ('TPO') AND THE TPO VIDE O RDER DATED DECEMBER 3, 2013, COMPLETED THE TRANSFER PRICING ASSESSMENT BY ACCEPTING THE ARM'S LENGTH PRICE DETERMINED BY THE ASSESSEE AND DID NOT MAKE ANY ADVERSE INFERENCE IN THE CASE OF THE ASSESSEE. COPY OF THE ORDER PASSED BY TPO IS ATTACHED AT PAGES 35-36 OF THE PAPERBOOK. IN THE DRAFT ASSESSMENT ORDER (DATED MARCH 25, 2014 ), THE AO PROPOSED TO DENY THE APPLICABILITY OF SECTION 44BB TO THE INCOM E RECEIVED BY THE ASSESSEE BY HOLDING THAT THE PLANT AND MACHINERY SU PPLIED TO PGSEN AND PGSAP WERE IN TURN SUPPLIED TO THIRD PARTY CONTRACT ORS LIKE ONGC AND RIL. THEREFORE, THE FIRST LEG CONTRACTORS, IE PGSEN AND PGSAP MAY BE JUSTIFIED IN AVAILING THE BENEFIT OF SECTION 44BB OF THE ACT, BU T NOT THE ASSESSEE. CONSEQUENTLY, THE AO HELD THAT SUCH INCOME WOULD QU ALIFY AS 'ROYALTY' AND PROPOSED TO TAX THE AFORESAID INCOME AS PER THE PRO VISIONS OF SECTION 28 OF THE ACT READ WITH RULE 10 OF THE INCOME TAX RULES ( 'RULES'), 1962. THE AO ARBITRARILY PROPOSED TO ATTRIBUTE 15 PER CENT OF TH E GROSS REVENUES AS PROFITS OF THE ASSESSEE BY APPLYING RULE 10 OF THE RULES AN D THE TOTAL INCOME WAS PROPOSED TO BE ASSESSED AT INR 118,033,105 (EFFECTI VE RATE OF TAX BEING 6.335 PERCENT). COPY OF THE DRAFT ASSESSMENT ORDER IS ATTACHED AT PAGES 37-54 OF THE PAPERBOOK. AGGRIEVED WITH THE DRAFT ASSESSMENT ORDER, ASSESSEE FILED OBJECTIONS BEFORE THE DISPUTE RESOLUTION PANEL - II, NEW DELHI ('DRP' ). THE DRP ISSUED DIRECTIONS AND HELD THAT THE AMOUNT RECEIVED BY ASS ESSEE DURING THE YEAR UNDER CONSIDERATION ON ACCOUNT OF HIRE CHARGES OF V ESSELS SHOULD BE BROUGHT TO TAX BY APPLYING THE DEEMED PROFIT RATIO OF 10 PE R CENT UNDER SECTION 44BB OF THE ACT (COPY OF DRP DIRECTIONS ENCLOSED AT PAGES 218-231 OF THE PAPERBOOK). OUR SUBMISSIONS ROYALTY HAS BEEN DEFINED UNDER EXPLANATION TO SECTI ON 9(L)(VI) OF THE ACT TO INTER-ALIA INCLUDE CONSIDERATION FOR THE USE OR RIGHT TO USE ANY INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EQUIPMENT BUT NOT INCLUDIN G THE AMOUNTS REFERRED TO ITA NO.- 1401/DEL/2015. M/S PGS GEOPHYSICAL AS. PAGE 16 OF 34 IN SECTION 44BB OF THE ACT. IT IS, THUS, CLEAR THAT THE DEFINITION OF ROYALTY S PECIFICALLY EXCLUDES THE CONSIDERATION PAID FOR THE USE OF INDUSTRIAL, COMME RCIAL OR SCIENTIFIC EQUIPMENT WHERE SUCH CONSIDERATION IS TAXABLE AS PE R THE PROVISIONS OF SECTION 44BB OF THE ACT. IN THE INSTANT CASE, FOR THE REASONS ELABORATED HER EINAFTER, THE ASSESSEE IS GOVERNED BY THE PROVISIONS OF SECTION 44BB OF THE A CT AND ACCORDINGLY, THE PROVISIONS OF SECTION 9(L)(VI) OF THE ACT FOR TAXAT ION OF ROYALTY WOULD NOT BE APPLICABLE. SECTION 44BB OF THE ACT PROVIDES FOR THE DEEMED PRO FIT REGIME IN CASE OF INCOME EARNED BY NON-RESIDENTS ENGAGED IN THE BUSIN ESS OF: PROVIDING SERVICES OR FACILITIES IN CONNECTION WITH PROSPECTING FOR, OR EXTRACTION, OR PRODUCTION OF MINERAL OILS (FIRST LI MB); OR SUPPLYING PLANT AND MACHINERY ON HIRE USED, OR TO BE USED, IN THE PROSPECTING FOR, OR EXTRACTION, OR PRODUCTION OF MI NERAL OIL (SECOND LIMB). APPLICABILITY OF SECOND LIMB OF SECTION 44BB OF THE ACT IN THE INSTANT CASE THE EXPLANATION TO SECTION 44BB OF THE ACT PROVIDES THAT THE TERM 'PLANT' WOULD INCLUDE SHIPS, AIRCRAFT, VEHICLES, DRILLING UNITS, SCIENTIFIC APPA RATUS AND EQUIPMENT USED FOR THE PURPOSES OF THE SAID BUSINES S. AS PER THE ABOVE PROVISIONS, IT IS CLEAR THAT THE SUPPLY OF PLANT AN D MACHINERY ON HIRE TO BE USED IN THE PROSPECTING FOR, EXTRACTION AND PRODUCT ION OF MINERAL OIL WOULD BE LIABLE TO TAX UNDER THE PROVISIONS OF SECTION 44 BB OF THE ACT. ALSO, THE TERM 'PLANT AND MACHINERY' WOULD INCLUDE SHIPS. IN THE CASE OF THE ASSESSEE, THE VESSELS WERE PROVI DED ON HIRE FOR THE PURPOSE OF PROSPECTING FOR, EXTRACTION AND PRODUCTI ON OF MINERAL OIL. IT IS BEYOND DOUBT THAT THE VESSELS USED FOR PROSPE CTING FOR, EXTRACTION AND PRODUCTION OF MINERAL OIL WOULD BE CONSIDERED AS SH IPS. RELIANCE IN THIS REGARD IS PLACED ON THE FOLLOWING DECISIONS: - SEDCO FOREX INTERNATIONAL DRILLING INC VS ACIT (1996) (5 8 ITD 177) (DEL) - ACIT VS INTEROCEAN SHIPPING INDIA PRIVATE LIMITED (1994 ) (51 ITD 582) (DEL) - WAVEFIELD INSEIS ASA VS DIT (2009) (320 ITR 290) (AAR ) - SEABIRD EXPLORATION FZ LLC UAE (2010) (326 ITR 558) (AAR) WITHOUT PREJUDICE TO THE ABOVE, THE DELHI BENCH OF ITAT IN THE CASE OF ACIT VS INTEROCEAN SHIPPING INDIA PRIVATE LIMITED (1994) (51 ITD 582) (DEL) HAS ALSO HELD THAT THE SHIPS SHOULD BE CONSIDERED A S MACHINERY THEREBY, ELIGIBLE TO BE CATEGORIZED / COVERED UNDER SECTION 44BB OF THE ACT IN THE INSTANT CASE, THE SHIP / VESSEL PROVIDED BY THE ASSESSEE IS USED FOR THE PURPOSE OF PROSPECTING FOR MINERAL OIL PURSUANT TO THE PRODUCTION ITA NO.- 1401/DEL/2015. M/S PGS GEOPHYSICAL AS. PAGE 17 OF 34 SHARING CONTRACT ('PSC') ENTERED INTO BY ONGC, RIL ETC WITH THE GOVERNMENT OF INDIA. IT IS ALSO TO BE NOTED THAT FO R ANY OIL AND GAS EXPLORATION ACTIVITY, SEISMIC SURVEY IS THE FIRST I MPORTANT STEP AND IN ORDER TO UNDERTAKE SEISMIC OPERATIONS, THE COMPANIES ENGAGED IN SUCH ACTIVITIES WOULD NEED SUPPORT OF SEISMIC VESSEL WHICH HAS SPEC IALIZED EQUIPMENTS FOR USE IN SEISMIC DATA ACQUISITION AND PROCESS. THEREF ORE, THERE IS NO DISPUTE THAT THE SEISMIC ACTIVITIES ARE INSEPARABLE PART OF PROSPECTING OF MINERAL OIL AND THE SEISMIC SURVEY VESSEL PLAYS A CRUCIAL ROLE IN SUCH OPERATIONS. THE SEISMIC VESSEL PROVIDED BY THE ASSESSEE IS UNIQUE I N NATURE AND CAN BE UTILIZED ONLY FOR THE PURPOSE OF UNDERTAKING SEISMI C ACTIVITIES, BEING INTEGRAL TO PROSPECTING OF MINERAL OIL AND ACCORDINGLY, HIRE CHARGES RECEIVED WOULD BE CHARGEABLE TO TAX AS PER THE PROVISIONS OF SECTION 44BB OF THE ACT. APPLICABILITY OF FIRST LIMB OF SECTION 44BB OF THE ACT IN THE INSTANT CASE WITHOUT PREJUDICE TO THE ABOVE, IN THE INSTANT CASE , THE PROVISION OF VESSELS ON HIRE BY THE ASSESSEE TO FOR CONDUCTING OF SEISMI C ACTIVITIES, SHALL BE REGARDED AS PROVISION OF A 'FACILITY' 'IN CONNECTIO N WITH' PROSPECTING FOR OR EXTRACTION OR PRODUCTION OF MINERAL OIL, THEREBY LI ABLE TO TAX AS PER THE PROVISIONS OF SECTION 44BB OF THE ACT. IN ABSENCE OF A DEFINITION UNDER THE ACT, THE SAME WOULD NEED TO BE UNDERSTOOD BY PLACING RELIANCE ON ITS ORDINARY AND NORMAL MEANING AS PER VARIOUS DICTIONARIES. ADVANCED LAW LEXICON (BOOK 2; PAGE NO 1749) 'THE QUALITY OF BEING EASILY PERFORMED; ABSENCE OF DIFFICULTY; DEXTERITY; EASE IN PERFORMANCE; THAT WHICH PROMOTES THE EASE OF ANY ACTION' CONCISE OXFORD ENGLISH DICTIONARY (INDIAN EDITION; PAGE 509) 'A BUILDING, SERVICE, OR PIECE OF EQUIPMENT PROVIDE D FOR A PARTICULAR PURPOSE; ABSENCE OR DIFFICULTY OR EFFORT' SINCE THE TERM 'FACILITY' HAS WIDE CONNOTATION AND INCLUDES ANY ACTIVITY THAT EASES THE PERFORMANCE OF AN ACTION BY ANOTHER, THE PROVISION OF A VESSEL BY THE ASSESSEE (FOR THE PURPOSES OF 'PROSPECTING' THR OUGH ACQUISITION AND PROCESSING OF SEISMIC DATA) WOULD BE CONSTRUED AS A FACILITY IN CONNECTION WITH THE PROSPECTING ETC OF MINERAL OILS. THUS, THE PROVISION OF SEISMIC VESSELS ON HIRE BY T HE ASSESSEE CLEARLY CONSTITUTES A 'FACILITY' PROVIDED 'IN CONNECTION WI TH' PROSPECTING FOR, OR EXTRACTION OR PRODUCTION OF, MINERAL OIL', AND HENC E, WOULD SATISFY THE CONDITIONS STIPULATED UNDER THE FIRST LIMB OF SECTI ON 44BB OF THE ACT. THE EXPRESSION 'IN CONNECTION WITH' HAS NOT BEEN DE FINED IN THE ACT AND THUS, RELIANCE IS PLACED ON THE DECISION OF THE APEX COURT IN THE CASE OF DOYPACK SYSTEMS (P) LTD VS UOI AND ORS, NATIONAL TE XTILE CORPN AND ANR, SWADESHI MINING AND MFG CO LTD (1988) (36 ELT 201) (SC). THE INTERPRETATION OF THE TERM 'IN CONNECTION WITH' AS EMERGING FROM ABOVE ITA NO.- 1401/DEL/2015. M/S PGS GEOPHYSICAL AS. PAGE 18 OF 34 DECISION SUGGESTS THAT THE EXPRESSION INCLUDES MATT ER OCCURRING PRIOR TO AS WELL AS SUBSEQUENT TO SO LONG AS THESE ARE RELATED TO THE PRINCIPAL THING. JUDICIAL PRECEDENTS, IN THE CONTEXT OF SECTION 44BB OF THE ACT HAVE GIVEN A WIDE INTERPRETATION OF THE EXPRESSION SO AS TO INCL UDE WITHIN ITS AMBIT SERVICES OR FACILITIES WHICH ARE CLOSELY CONNECTED TO THE ACTIVITIES OF PROSPECTING FOR, OR EXTRACTION OR PRODUCTION OF MIN ERAL OIL SUCH AS HELICOPTER SERVICES FOR TRANSPORTING MEN TO THE AREA WHERE EXP LORATION ACTIVITIES ARE UNDERTAKEN AND SEISMIC DATA PROCESSING ACTIVITIES [LLOYD HELICOPTERS INTERNATIONAL PTY LTD (2001) (249 ITR 162) (AAR)]. ATTENTION IS ALSO INVITED TO THE DECISION OF THE DE LHI BENCH OF THE ITAT IN THE CASE OF ACIT VS PARADIGM GEOPHYSICAL PRIVATE LIMITED (2008) (117 TTJ 812) (DEL), WHEREIN, THE ASSESSEE HAD ENTERED INTO A CONTRACT W ITH RIL FOR UNDERTAKING SEISMIC DATA PROCESSING ACTIVITIES. ON THE ISSUE OF DETERMINING WHETHER THE ACTIVITIES WOULD BE COVERED BY THE PROVISIONS OF SECTION 44BB OF THE ACT, THE ITAT HELD THAT ANY CON SIDERATION OF WHATEVER NATURE RECEIVED IN CONNECTION WITH PROSPECTING FOR, OR EXTRACTION OR PRODUCTION OF MINERAL OIL WOULD BE TAXED ON A PRESU MPTIVE BASIS AS PER SECTION 44BB OF THE ACT. THE SCOPE OF SECTION 44BB OF THE ACT IS VERY WIDE AND WOULD COVER ALL KINDS OF SERVICES INCLUDING SER VICES IN THE NATURE OF MANAGERIAL, TECHNICAL OR CONSULTANCY. THIS DECISION OF THE ITAT HAS BEEN AFFIRMED BY THE UTTARAKHAND HIGH COURT. THEREFORE, FROM A PLAIN READING OF THE ABOVE, IT CA N BE REASONABLY CONCLUDED THAT THE ASSESSEE IS RENDERING SERVICES ' IN CONNECTION WITH' (THROUGH PROVISION OF VESSEL ON HIRE) PROSPECTING E TC OF MINERAL OILS. FURTHER, IT IS RESPECTFULLY SUBMITTED THAT THE DECI SION OF UTTARAKHAND HIGH COURT IN CASE OF CIT VS ONGC AS AN AGENT OF M/S FORAMER FRANCE (2005) (299 ITR 438) (UTTARAKHAND HC) RELIED ON BY THE REVENUE AUTHORITIES IN GROUND OF APPEAL NO 2 HAS BEEN OVERR ULED BY THE HON'BLE SUPREME COURT OF INDIA IN CASE OF ONGC VS CIT [2015] 376 ITR 306 (SC) (COPY OF THE DECISION IS ENCLOSED ON PAGES 1-23 OF THE PAPERBOOK). THE SUPREME COURT HELD THAT WHERE THE PITH AND SUBS TANCE OF EACH OF THE CONTRACTS/AGREEMENTS IS INEXTRICABLY CONNECTED WITH PROSPECTING, EXTRACTION OR PRODUCTION OF MINERAL OILS, THE INCOME FROM SUCH CONTRACTS WOULD BE TAXABLE UNDER THE PROVISIONS OF SECTION 44BB OF THE ACT. IN ITS DECISION, THE SUPREME COURT DID NOT DISTINGU ISH BETWEEN FIRST AND SECOND LEG CONTRACTORS WHILE ALLOWING THE BENEFIT O F SECTION 44BB OF THE ACT. ADDITIONALLY, THE SUPREME COURT ALLOWED THE BENEFIT OF SECTION 44BB TO 44 DIFFERENT CONTRACTS INCLUDING CONTRACTS FOR TRAININ G, INSPECTION, REPAIR AND SUPPLY OF SOFTWARE FOR PROCESSING SEISMIC DATA. FRO M A PERUSAL OF THE SUPREME COURT DECISION, IT IS ABUNDANTLY CLEAR THAT THE SUPREME COURT HAS INTERPRETED THE SCOPE OF SECTION 44BB IN A VERY WID E MANNER AND NOT LIMITED IT ONLY TO FIRST LEG CONTRACTORS AS ALLEGED BY THE AO. FOLLOWING THE SUPREME COURT DECISION, THE DELHI HIG H COURT IN CASE OF ASSESSEE'S OWN CASE PGS EXPLORATION (NORWAY) AS VS ADIT [2016] 383 ITR 178 (DELHI) (COPY OF THE DECISION IS ENCLOSED ON PAGES 24-37 OF THE PAPERBOOK) AND UTTARAKHAND HIGH COURT IN CASE OF CIT VS M/S EXPRO GULF LIMITED & OTHERS (ITA NO 34 OF 2015) (UTTARAKH AND HIGH COURT) (COPY OF THE DECISION IS ENCLOSED ON PAGES 49-52 OF THE ITA NO.- 1401/DEL/2015. M/S PGS GEOPHYSICAL AS. PAGE 19 OF 34 PAPERBOOK) HAVE ALLOWED THE BENEFITS OF SECTION 44BB OF THE AC T TO NON- RESIDENT TAXPAYERS. FURTHER, THIS BENCH HAS ALSO FO LLOWED THE SUPREME COURT DECISION IN THE FOLLOWING CASES: - DDIT VS RPS ENERGY PTY LTD (2018) (92 TAXMANN.COM 77) (DELHI-TRIB) - BJ SERVICES COMPANY MIDDLE EAST LTD VS ADIT (2017 ) (77 TAXMANN.COM 218) (DELHI-TRIB) - ACIT VS LANDMARKS GRAPHICS CORP (2017) (87 TAXMAN N.COM 311) (DELHI TRIB) - VIKING MARITIME INC VS DCIT (2016) (69 TAXMANN.CO M 303) (DELHI - TRIB) - WESTERN GECO INTERNATIONAL LTD VS ACIT (2016) (71 TAXMANN.COM 166) (DELHI -TRIB) THE FOLLOWING RECENT CASE LAWS HAVE FOLLOWED THE SU PREME COURT DECISION: - SEABIRD EXPLORATION FZ LLC (2018) (92 TAXMANN.COM 3 28) (AAR) - NATIONAL OIL WELL MAINTENANCE COMPANY VS DCIT (2018 ) (89 TAXMANN.COM24) (JAIPUR - TRIB) - PRODUCTION TESTING SERVICES INC VS DCIT (2018) (89 TAXMANN.COM 416) (MUMBAI -TRIB) FIRST LEG VERSUS SECOND LEG CONTRACT IN THE DRAFT ASSESSMENT ORDER, THE AO HELD THAT THE PROVISIONS OF SECTION 44BB OF THE ACT IS APPLICABLE ONLY TO FIRST LEG CON TRACTORS AND IT DOES NOT COVER THE SECOND LEG CONTRACTORS. IN THIS REGARD, I T IS SUBMITTED THAT THE PROVISIONS OF THIS SECTION DOES NOT MAKE ANY DIFFER ENCE BETWEEN FIRST LEG AND SECOND LEG CONTRACTORS AS LONG AS THE NON-RESIDENT IS ENGAGED IN PROVIDING SERVICES OR FACILITIES IN CONNECTION WITH PROSPECTI NG, EXTRACTION OR PRODUCTION OF MINERAL OILS OR PROVIDING PLANT AND MACHINERY US ED OR TO BE USED IN PROSPECTING ETC OF MINERAL OILS. ATTENTION IS INVITED TO THE DECISION OF DELHI BENC H OF ITAT IN THE CASE OF LOUIS DREYFUS ARMATEURES SAS VS ADIT (2015) (153 IT D 579) (DELHI-TRIB) (COPY OF THE DECISION IS ENCLOSED ON PAGES 53-80 OF THE PAPERBOOK), WHEREIN IT WAS HELD THAT SECTION 44BB DOES NOT DIST INGUISH BETWEEN THE MAIN CONTRACTOR OR A SUB-CONTRACTOR. TH E PROVISION CLEARLY ENVISAGES THE NONRESIDENT ASSESSEE TO BE ENGAGED IN THE BUSINESS OF SUPPLYING PLANT AND MACHINERY ON HIRE. THE ONLY CON DITION IMPOSED IS THAT, SUCH PLANT AND MACHINERY HAS TO BE USED OR SHOULD B E USED, FOR THE PURPOSES OF PROSPECTING FOR, OR EXTRACTION OR PRODU CTION OF MINERAL OILS. THE BASIC CONDITION TO BE SATISFIED IN THE SAID PROVISI ONS IS THAT THE PLANT AND MACHINERY SUPPLIED OR LET ON HIRE BY THE ASSESSEE, NON-RESIDENT SHOULD BE USED IN PROSPECTING FOR OR EXTRACTION OR PRODUCTION OF MINERAL OILS, OR WHERE THE EQUIPMENT HAS BEEN SUPPLIED, SUCH EQUIPMENT SHO ULD HAVE BEEN USED FOR THE PURPOSES OF PROSPECTING FOR OR EXTRACTION O R PRODUCTION OF MINERAL ITA NO.- 1401/DEL/2015. M/S PGS GEOPHYSICAL AS. PAGE 20 OF 34 OILS. IN THIS REGARD, RELIANCE IS ALSO PLACED ON THE FOLL OWING JUDICIAL PRECEDENTS: - MICOPERI SPA MILANO VS DCIT (2002) (82 ITD 369) (MU M); - MCDERMOTT INTERNATIONAL INC VS DCIT (1994) (49 ITD 590) (DEL) - BOURBON OFFSHORE ASIA PTE LTD (2011) (337 ITR 122) (AAR); - SPECTRUM GEO LTD (2012) (346 ITR 422) (AAR); - WAVEFIELD INSEIS ASA (2010) (230 CTR 106) (AAR); - LLOYD HELICOPTERS PTY LTD (2001) (249 ITR 162) (AAR ) - PRIDE OFFSHORE INTERNATIONAL LLC VS ADIT (2015) ( 59 TAXMANN.COM 23) (DELHI - TRIB) - VALENTINE MARITIME GULF LLC VS ADIT (2017) (163 ITD 32) (MUMBAI- TRIB) - TECHNIP UK LIMITED VS DIT (2017) (81 TAXMAN 311) (DELHI-TRIB) - SAIPEM PORTUGAL COMMERCIO MARITIMO VS DCIT (ITA N O 2071/2016) (DELLHI-TRIB) FURTHER, THE AO HELD THAT THE VESSELS PROVIDED ON H IRE BY THE ASSESSEE TO PGSEN AND PGSAP WERE IN TURN LET OUT TO ONGC AND RI L WHICH IS NOT A TRUE FACT. THE VESSELS WERE USED BY PGSEN AND PGSAP FOR CONDUCTING SEISMIC DATA ACQUISITION AND PROCESSING IN PURSUANCE OF THE CONTRACT ENTERED INTO WITH ONGC / RIL. AS MENTIONED ABOVE, THE VESSELS, IN THE INSTANT CA SE, ARE BEING USED BY PGSEN AND PGSAP FOR RENDERING SEISMIC DATA ACQUISIT ION AND PROCESSING SERVICES WHICH IS THE FIRST STEP OF PROSPECTING OF MINERAL OIL. THUS, EVEN FOR SAKE OF ARGUMENT, IF THE CONTENTION OF THE AO BE AC CEPTED THAT THE PROVISIONS OF SECTION 44BB OF THE ACT IS APPLICABLE ONLY TO FIRST LEG CONTRACTORS, THE PROVISIONS OF THE AFORESAID SECTIO N WOULD BE APPLICABLE TO THE ASSESSEE AS IT IS PROVIDING FACILITIES / PLANT AND MACHINERY FOR PROSPECTING OF MINERAL OIL ONLY. THE WORDS '....USED OR TO BE USED FOR THE BUSINESS OF PROSPECTING FOR, OR EXTRACTION OR PRODUCTION OF, MINERAL OILS...' CLEAR LY SIGNIFIES THAT THE PLANT OR MACHINERY SUPPLIED ON HIRE FOR THE AFORESAID ACTIVI TIES WOULD FALL WITHIN THE AMBIT OF SECTION 44BB. SECTION 44DA OF THE ACT NOT APPLICABLE SECTION 44DA READ WITH SECTION 9(L)(VI) OF THE ACT PROVIDES THAT 'INCOME FROM ROYALTY RECEIPTS' WOULD BE TAXABLE AS 'BUSINESS PRO FITS' IN INDIA IF SUCH RECEIPTS ARE RECEIVED FROM GOVERNMENT OR AN INDIAN CONCERN IN PURSUANCE OF AN AGREEMENT MADE BY A NON-RESIDENT WI TH GOVERNMENT OR THE INDIAN CONCERN AFTER MARCH 31, 2003, HAVING A PERMA NENT ESTABLISHMENT IN INDIA. HOWEVER, THE PROVISIONS OF SECTION 44DA HAVE BEEN INCLUDED IN THE PROVISO TO SECTION 44BB WITH EFFECT FROM APRIL 1, 2011 I .E. APPLICABLE ONLY FROM AY 2011-12 ONWARDS. IN THIS REGARD, RELIA NCE IS PLACED UPON THE FOLLOWING: ITA NO.- 1401/DEL/2015. M/S PGS GEOPHYSICAL AS. PAGE 21 OF 34 - MEMORANDUM TO THE FINANCE BILL 2010, WHICH PROVIDES THAT THE APPLICATION OF SECTION 44DA OF THE ACT I N THE PROVISO TO SECTION 44BB IS PROSPECTIVE IN NATURE. - PGS EXPLORATION (NORWAY) AS VS ADIT (SUPRA ) - B J SERVICES CO MIDDLE EAST (SPECIAL APPEAL NO 316 AND 317 OF 2012) C OPY OF THE DECISION IS ENCLOSED ON PAGES 81-82 OF THE PAPER BOOK) - UTTARAKHAND HIGH COURT IN THE CASE OF DIT VS M/S WESTERN GECO INTERNATIONAL LIMITED (ITA NO 39 OF 2012) (COPY OF THE DECISION IS ENCLOSED ON PAGES 83-84 OF THE PAPERBOOK) - CGG VERITAS SERVICES SA VS ADDL DIT (2012) (50 SO T 335) (DELHI-TRIB) (COPY OF THE DECISION IS ENCLOSED ON PAGES 48 OF THE PAPERBOOK) - SCHLUMBERGER ASIA SERVICES LTD VS ADIT (INTERNATI ONAL TAX) (ITA NO 6063 (DELHI) OF 2010) (COPY OF THE DECISIO N IS ENCLOSED ON PAGES 85-103 OF THE PAPERBOOK) FURTHER, SECTION 44DA AND SECTION 115A OF THE ACT A RE NOT APPLICABLE TO TRANSACTIONS BETWEEN TWO NON-RESIDENTS. THEREFORE, THE ASSESSEE CANNOT BE TAXED UNDER THE PROVISIONS OF SECTION 44DA AND 115A OF THE ACT AND THE SAME HAS ALSO BEEN ACCEPTED BY THE AO IN THE DRAFT ASSESSMENT ORDER. RELIANCE IN THIS REGARD IS PLACED ON THE RULING OF THE AAR IN THE CASE OF SPECTRUM GEO LIMITED VS DIT (2012) (346 ITR 422) (A AR) (COPY OF THE RULING IS ENCLOSED ON PAGES 193-198 OF THE PAPERBOOK). REBUTTAL OF THE DECISIONS QUOTED IN THE GROUNDS OF APPEAL RELIANCE HAS BEEN PLACED ON THE DECISION OF CIT VS ONGC AS A REPRESENTATIVE ASSESSEE OF M/S ROLLS ROYCE PVT LTD ( 2007) (TII-03) (UTTARAKHAND HC) WHEREIN IT HAS BEEN HELD THE ADVICE GIVEN WAS PUREL Y TECHNICAL IN NATURE AND HELD THAT THE SERVICE RENDE RED WAS A TECHNICAL SERVICE. ON A PERUSAL OF THE DECISION IN THE CASE O F ONGC (SUPRA), IT WILL BE NOTED THAT THE FACTS OF THAT CASE AND, PARTICULARLY , THE NATURE OF ACTIVITIES INVOLVED ARE ENTIRELY DIFFERENT FROM THE ACTIVITIES UNDERTAKEN BY THE ASSESSEE IN THE PRESENT CASE. THE SERVICES RENDERED IN THAT CASE AND THOSE RENDERED BY THE ASSESSEE HEREIN ARE TABULATED AND CONTRASTED AS UNDER PARTICULARS ONGC (AS REPRESENTATIVE ASSESSEE OF ROLLS ROYCE, SINGAPORE) ASSESSEE ITA NO.- 1401/DEL/2015. M/S PGS GEOPHYSICAL AS. PAGE 22 OF 34 NATURE OF ACTIVITIES INSPECTION OF THE EXISTING CONTROL SYSTEM AND UTILIZING SERVICES OF ENGINEERS FOR Y2K ROLL OVER TIME AT OFFSHORE INSTALLATION PROVIDING VESSELS ON HIRE TO BE USED BY ANOTHER COMPANY FOR THE PURPOSE OF UNDERTAKING SEISMIC DATA, ACQUISITION AND ON BOARD PROCESSING IN PURSUANCE OF CONTRACT FOR EXPLORATION, PROSECUTING AND PRODUCTION OF MINERAL OIL ENTERED INTO BY ONGC COUNTER PARTY TO THE CONTRACT ONGC (INDIAN RESIDENT) PGS GAS (NON - RESIDENT) ADHOC ATTRIBUTION OF THE PROFITS THE AO HAS APPLIED DEEMED PROFIT OF 15 PERCENT ON T HE GROSS RECEIPTS RECEIVED BY THE ASSESSEE FROM SUPPLYING PLANT AND M ACHINERY TO PGSEN AND PGSAP. THE APPLICATION OF DEEMED PROFIT RATE OF 15 PERCENT IS BASED ON CONJECTURES AND SURMISES. THE ASSESSEE, AS PER THE PROVISIONS OF SECTION 44BB, IS NOT REQUIRED TO MAINTAIN BOOKS OF ACCOUNTS AND OTHER DOCUMENTS. THEREFORE, THE ACTION OF THE AO IN DEEMING A PROFIT RATE OF 15 PERCENT ON THE GROSS RECEIPTS FROM PGSEN AND PGSAP, IN THE ABSENCE OF BOOKS OF ACCOUNTS, IS INCORRECT AND DESERVES TO BE DELETED. IN THIS RE GARD KIND ATTENTION IS DRAWN ON RULE 10 OF THE INCOME-TAX RULES, 1962: 'DETERMINATION OF INCOME IN THE CASE OF NON-RESIDEN TS. 10. IN ANY CASE IN WHICH THE ASSESSING OFFICER IS OF OP INION THAT THE ACTUAL AMOUNT OF THE INCOME ACCRUING OR ARISING TO ANY NON -RESIDENT PERSON WHETHER DIRECTLY OR INDIRECTLY, THROUGH OR FROM ANY BUSINES S CONNECTION IN INDIA OR THROUGH OR FROM ANY PROPERTY IN INDIA OR THROUGH OR FROM ANY ASSET OR SOURCE OF INCOME IN INDIA OR THROUGH OR FROM ANY MONEY LEN T AT INTEREST AND BROUGHT INTO INDIA IN CASH OR IN KIND CANNOT BE DEFINITELY ASCERTAINED, THE AMOUNT OF SUCH INCOME FOR THE PURPOSES OF ASSESSMENT TO IN COME-TAX MAY BE CALCULATED (I) AT SUCH PERCENTAGE OF THE TURNOVER SO ACCRUING OR ARISING AS THE ASSESSING OFFICER MAY CONSIDER TO BE REASONABLE, O R (II) ON ANY AMOUNT WHICH BEARS THE SAME PROPORTION TO THE TOTAL PROFITS AND GAINS OF THE BUSINESS OF SUCH PERSON (SUCH PROF ITS AND GAINS BEING COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THE A CT), AS THE RECEIPTS SO ACCRUING OR ARISING BEAR TO THE TOTAL RECEIPTS OF T HE BUSINESS, OR (III) IN SUCH OTHER MANNER AS THE ASSESSING OFFICER MAY DEEM SUITABLE. FROM A PERUSAL OF THE ABOVE, IT IS EVIDENT THAT FOR INVOKING RULE 10 OF THE RULES, A PRECONDITION IS THAT INCOME OF THE NON-RES IDENT WHICH IS ACCRUING OR ITA NO.- 1401/DEL/2015. M/S PGS GEOPHYSICAL AS. PAGE 23 OF 34 ARISING IN INDIA SHOULD BE UNASCERTAINABLE. IN THE INSTANT CASE, IT IS SUBMITTED THAT THE RECEIPTS EARNED FROM OPERATIONS IN INDIA HAVE BEEN PROPERLY DOCUMENTED AND OFFERED TO TAX BY THE ASSES SEE. COPY OF THE INVOICES RAISED BY THE ASSESSEE DURING THE SUBJECT YEAR WERE DULY SUBMITTED TO THE AO VIDE SUBMISSIONS DATED APRIL 27, 2012. FU RTHER, ALL THE OTHER INFORMATION / DOCUMENTS CALLED FOR BY THE AO WERE D ULY SUBMITTED BY THE ASSESSEE. THEREFORE, IT CANNOT BE IN ANY WAY SAID THAT THE I NCOME ACCRUING OR ARISING TO ASSESSEE IN INDIA CANNOT BE ASCERTAINED. HENCE, PRECONDITION FOR INVOKING RULE 10 OF THE RULES IS NOT SATISFIED IN THE INSTAN T CASE AND THEREFORE, NO FURTHER PROFIT ATTRIBUTION CAN BE MADE THAN WHAT HA S ALREADY BEEN OFFERED TO TAX BY THE ASSESSEE UNDER SECTION 44BB OF THE ACT. WITHOUT PREJUDICE TO THE ABOVE, IT IS SUBMITTED THA T THE ASSESSEE HAS EARNED ITS ENTIRE INCOME DURING THE SUBJECT YEAR FROM ITS ASSOCIATED ENTERPRISES AND THE SAME HAS BEEN SUBJECTED TO TRANSFER PRICING PRO VISIONS. IN THIS REGARD, IT IS SUBMITTED THAT THE ASSESSEE HAS BEEN DULY REMUNE RATED AT ARM'S LENGTH PRICE WHICH HAS BEEN APPROVED BY THE TRANSFER PRICI NG OFFICER (PLEASE REFER PAGES 35-36 OF THE PAPERBOOK). ACCORDINGLY, NO FURTHER PROFITS CAN BE ATTRIBUTED TO ASSESSEE'S PERMANENT ESTABLISHMENT (' PE') IN INDIA AS PER THE DECISION OF THE SUPREME COURT IN THE CASE OF DIT VS MORGAN STANLEY INC AND CO (2007) (292 ITR 416) (SC) (COPY OF THE DECISION IS ENCLOSED ON PAGES 199-214 OF THE PAPERBOOK ). (3) AT THE TIME OF HEARING BEFORE US, THE LD. CIT(DR) R ELIED ON HIS WRITTEN SUBMISSIONS AS WELL AS ON THE AFORESAID DRAFT ASSESSMENT ORDER DATED 25.03.2014. IN HIS ORAL SUBMISSIONS, THE LD. CIT(DR) CONTENDED THAT THE ASS ESSEE HAS TWO TYPES OF ACTIVITIES: FIRSTLY, IT HAS INCOME FROM THE OPERATION OF VESSEL S ON CHARTER HIRE BASIS AND SECONDLY, IT HAS INCOME FROM PROCESSING AND SALE OF SEISMIC DATA & GEOPHYSICAL SURVEYS. THE LD. CIT(DR) CONTENDED THAT THE INCOME FROM THE FORMER A CTIVITIES I.E. FROM OPERATION OF VESSELS ON CHARTER HIRE BASIS DOES NOT FALL WITHIN THE SCOPE OF SECTION 44BB OF I.T. ACT, BECAUSE IT HAS NO PROXIMITY OR INTRINSIC CONNE CTION WITH ACTIVITY OF PROSPECTING FOR, OR EXTRACTION OR PRODUCTION OF MINERAL OILS, WITHIN TH E MEANING OF SECTION 44BB OF I.T. ACT. THE LD. CIT(DR) CONTENDED THAT THE BUSINESS OF PGS NORWAY AND PGS SINGAPORE, TO ITA NO.- 1401/DEL/2015. M/S PGS GEOPHYSICAL AS. PAGE 24 OF 34 WHOM VESSELS WERE HIRED BY THE ASSESSEE HAS NO EFFE CT ON THE TAXABILITY OF THE INCOME RECEIVED BY THE ASSESSEE. HE CONTENDED THAT, IT IS ONLY THE INCOME OF THE ASSESSEE FROM THE LATTER ACTIVITIES, NAMELY FROM PROCESSING AND S ALE OF SEISMIC DATA & GEOPHYSICAL SERVICES WHICH CAN BE CONSIDERED FOR SECTION 44BB O F I.T. ACT, PROVIDED IT WAS IN CONNECTION WITH PROSPECTING FOR, OR EXTRACTION OR P RODUCTION OF MINERAL OILS, IF OTHER CONDITION U/S 44BB OF I.T. ACT ARE MET. HE CONTEND ED THAT THERE WAS NOTHING ON RECORD TO SHOW THAT THE INCOME OF THE ASSESSEE CONSISTED O F INCOME FROM PROCESSING AND SALE OF SEISMIC DATA & GEOPHYSICAL SERVICES. HE DREW OUR A TTENTION TO THE FACTS THAT BOTH DRP AND AO CONFIRMED THAT INCOME OF THE ASSESSEE WAS FR OM HIRING OF VESSELS ONLY. HE ALSO CONTENDED THAT THERE WAS NOTHING ON RECORD TO SHOW THAT SHIPPING VESSELS GIVEN TO PGS NORWAY AND PGS SINGAPORE ON HIRE BASIS BY THE ASSES SEE, HAD NECESSARY EQUIPMENTS, OR TECHNICAL CAPACITY FOR PROCESSING OF SEISMIC DATA O R FOR GEOPHYSICAL SERVICES. IT IS QUITE POSSIBLE THAT PGS NORWAY AND PGS SINGAPORE MIGHT HA VE INSTALLED SUCH EQUIPMENTS AND / OR ACQUIRED TECHNICAL CAPACITY FOR THE VESSELS, EIT HER BY THEMSELVES, OR THROUGH SOME OTHER PARTIES, TO FULFILL THEIR CONTRACT WITH ONGC AND RIL; THE LD. CIT(DR) CONTENDED. ON THE OTHER SIDE, THE LD. COUNSEL FOR ASSESSEE DREW O UR ATTENTION TO THE DECISION OF THE DELHI ITAT IN THE CASE OF LOUIS DREYFUS ARMATEURES SAS VS ADIT (2015) (153 IT D 579) (DELHI-TRIB) AND ALSO THE DECISION OF DELHI ITAT IN THE CASE OF ADIT VS BAKER HUGHES SINGAPORE PTE LTD (2015) (41 ITR(T) 212) (DE LHI-TRIB) . THE LD. COUNSEL FOR ASSESSEE ALSO REFERRED TO THE DECISION OF THE D ELHI HIGH COURT IN ASSESSEES OWN CASE REPORTED AT PGS EXPLORATION (NORWAY) AS VS. ADIT [2016] 383 ITR 178 (DELHI) BUT ADMITTED FORTHWITH THAT FACTS WERE DISTINGUISHA BLE BECAUSE THE ORDER OF HONBLE DELHI ITA NO.- 1401/DEL/2015. M/S PGS GEOPHYSICAL AS. PAGE 25 OF 34 HIGH COURT WAS IN RELATION TO SERVICES OF DIFFERENT NATURE. THE LD. COUNSEL ALSO TOOK US THROUGH THE PAPER BOOKS TO SUPPORT THE CASE OF THE ASSESSEE. THE LD. COUN SEL FOR ASSESSEE PLACED RELIANCE ON THE PAPER BOOKS FILED B Y THE ASSESSEE AND THE SYNOPSIS FILED BY THE LD. COUNSEL. IN REBUTTAL, THE LD. CIT(DR) C ONTENDED THAT THE RELIANCE PLACED BY THE LD. COUNSEL OF THE ASSESSEE, ON LOUIS DREYFUS ARMATEURES SAS (SUPRA) AND BAKER HUGHES SINGAPORE PTE LTD (SUPRA) IS WRONG BECAUSE T HE FACTS ARE DISTINGUISHABLE. IN THE CASE OF LOUIS DREYFUS ARMATEURES SAS (SUPRA) IT WAS NOT IN DISPUTE THAT THE SHIPPING VESSELS PROVIDED ON HIRE BY THE ASSESSEE WERE SEISM IC SURVEY VESSELS WHEREAS IN THE CASE BEFORE US THIS FACT IS DISPUTED, THE LD. CIT(DR) SU BMITTED. HE FURTHER SUBMITTED THAT IN THE CASE OF BAKER HUGHES SINGAPORE PTE LTD (SUPRA) ALSO IT WAS NOT IN DISPUTE THAT THE EQUIPMENTS GIVEN ON HIRE WERE FOR RENDERING SERVICE S TO ENTITIES ENGAGED IN OIL EXPLORATION WORK WHEREAS IN THE CASE BEFORE US, THIS FACT IS IN DISPUTE. THE LD. CIT(DR) ALSO SUBMITTED THAT THE ORDER OF HONBLE DELHI HIGH COURT DOES NOT ADVANCE THE CASE OF THE ASSESSEE, BECAUSE ADMITTEDLY, THE ORDER OF HON BLE DELHI HIGH COURT WAS ADMITTEDLY IN RELATION TO SERVICES OF DIFFERENT NATURE. HE FU RTHER DREW ATTENTION TO THE INVOICES OF THE ASSESSEE, COPIES WHEREOF WERE FILED BY ASSESSEE IN THE PAPER BOOK , TO MAKE THE POINT THAT ON ITS PERUSAL IT CANNOT BE SAID WITH CERTAINT Y THAT THE VESSEL GIVEN ON HIRE BY THE ASSESSEE TO PGS NORWAY AND PGS SINGAPORE HAD THE NE CESSARY EQUIPMENTS, OR TECHNICAL CAPACITY FOR PROCESSING OF SEISMIC DATA OR FOR GEOP HYSICAL SERVICES. (4) WE HAVE HEARD BOTH SIDES PATIENTLY. WE HAVE PERUS ED MATERIALS ON RECORD CAREFULLY. WE HAVE CONSIDERED THE JUDICIAL PRECEDE NTS BROUGHT TO OUR ATTENTION, AT THE TIME OF HEARING BEFORE US, OR REFERRED TO IN THE WR ITTEN SUBMISSIONS / SYNOPSIS FILED BY ITA NO.- 1401/DEL/2015. M/S PGS GEOPHYSICAL AS. PAGE 26 OF 34 THE TWO SIDES OR MENTIONED IN THE ORDERS OF THE LOW ER AUTHORITIES NAMELY THE AO AND DRP. ALTHOUGH SEVERAL GROUNDS OF APPEAL HAVE BEEN TAKEN BY THE REVENUE IN THE PRESENT APPEAL BEFORE US, IN ESSENCE ALL THE GROUND S OF APPEAL PERTAIN TO THE ISSUE WHETHER SECTION 44BB OF I.T. ACT HAS APPLICATION IN THE CASE OF THE ASSESSEE. FOR EASE OF REFERENCE, THE PROVISIONS OF SECTION 44BB OF I.T . ACT ARE REPRODUCED AS UNDER: (1) NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAI NED IN SECTION 28 TO 41 AND SECTION 43 AND 43A, IN THE CASE OF AN ASSESS EE [, BEING A NON-RESIDENT,] ENGAGED IN THE BUSINESS OF PROVIDING SERVICES OR FA CILITIES IN CONNECTION WITH, OR SUPPLYING PLANT AND MACHINERY ON HIRE USED, OR TO B E 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-SECTI ON (2) SHALL BE DEEMED TO BE THE PROFITS AND GAINS OF SUCH BUSINESS CHARGEABLE T O TAX UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' : PROVIDED THAT THIS SUB-SECTION SHALL NOT APPLY IN A CASE WH ERE THE PROVISIONS OF SECTION 42 OR SECTION 44D OR [SECTION 44DA OR] S ECTION 115A OR SECTION 293A APPLY FOR THE PURPOSES OF COMPUTING PROFITS OR GAIN S OR ANY OTHER INCOME REFERRED TO IN THOSE SECTIONS. (2) THE AMOUNTS REFERRED TO IN SUB-SECTION (1) SHAL L BE THE FOLLOWING, NAMELY : (A) THE AMOUNT PAID OR PAYABLE (WHETHER IN OR OUT O F INDIA) TO BE ASSESSEE OR TO ANY PERSON ON HIS BEHALF ON ACCOUNT OF THE PROVISION OF SERVICES AND FACILITIES IN CONNECTION WITH, OR SUP PLY OF PLANT AND MACHINERY ON HIRE USED, OR TO BE USED, IN PROSPECTI NG FOR, OR EXTRACTION OR PRODUCTION, OF MINERAL OILS IN INDIA; AND (B) THE AMOUNT RECEIVED OR DEEMED TO BE RECEIVED IN INDIA BY OR ON BEHALF OF THE ASSESSEE ON ACCOUNT OF THE PROVISION OF SERVICES AND FACILITIES IN CONNECTION WITH, OR SUPPLY OF PLANT A ND MACHINERY ON HIRE USED, OR TO BE USED, IN THE PROSPECTING FOR, OR EXT RACTION OR PRODUCTION OF, MINERAL OILS OUTSIDE INDIA. [(3) NOTWITHSTANDING ANYTHING CONTAINED IN SUB-SECT ION (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 AC COUNT 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 REQ UIRED UNDER SECTION 44AB, AND THEREUPON THE ASSESSING OFFICER SHALL PROCEED T O MAKE AN ASSESSMENT OF THE TOTAL INCOME OR LOSS OF THE ASSESSEE UNDER SUB-SECT ION (3) OF SECTION 143 AND DETERMINE THE SUM PAYABLE BY, OR REFUNDABLE TO, THE ASSESSEE.] EXPLANATION.FOR THE PURPOSES OF THIS SECTION, ITA NO.- 1401/DEL/2015. M/S PGS GEOPHYSICAL AS. PAGE 27 OF 34 (I) PLANT INCLUDES SHIPS, AIRCRAFT, VEHICLES, DRILLIN G UNITS, SCIENTIFIC APPARATUS AND EQUIPMENT, USED FOR THE PURPOSES OF T HE SAID BUSINESS; (II) MINERAL OIL INCLUDES PETROLEUM AND NATURAL GAS. (4.1) ON CAREFUL PERUSAL OF SECTION 44BB OF I.T. ACT IT I S FOUND THAT THE SECTION IS APPLICABLE ONLY FOR SUCH AMOUNTS, WHICH ARE EITHER ON ACCOUNT OF PROVISION OF SERVICES AND FACILITIES IN CONNECTION WITH PROSPECTING FOR OR EXTRACTION OR PRODUCTION OF MINERAL OILS; OR WHICH ARE ON ACCOUNT OF SUPPLY OF PLANT AND MACHINERY ON HIRE USED, OR TO BE USED, IN THE PROSPECTING FOR, OR EXTRACTION OR PRODUCTION OF, MINERAL OILS . IT IS NOT THE CASE OF THE ASSESSEE THAT THE ASSESSEE ITSELF HAS PROVIDED SERVICES AND FACIL ITIES IN CONNECTION WITH PROSPECTING FOR OR EXTRACTION OR PRODUCTION OF MINERAL OILS . TO THIS EXTENT, THERE IS NO DISPUTE BETWEEN THE TWO SIDES. THERE IS ALSO NO DISPUTE BETWEEN THE TWO SIDES THAT THE ASSESSEE HAS TWO TYPES OF BUSINESS ACTIVITIES; FIRSTLY, IT HAS I NCOME FROM THE OPERATION OF VESSELS ON CHARTER HIRE BASIS AND SECONDLY, IT HAS INCOME FROM PROCESSING AND SALE OF SEISMIC DATA & GEOPHYSICAL SURVEYS. THE ASSESSEE HAS CLAIMED AP PLICABILITY OF SECTION 44BB OF I.T. ACT, IN RESPECT OF INCOME FROM VESSELS HIRED BY THE ASSESSEE TO PGS NORWAY AND PGS SINGAPORE ON CHARTER HIRE BASIS; AND NOT ON INCOME FROM PROCESSING AND SALE OF SEISMIC DATA & GEOPHYSICAL SURVEYS ON ITS OWN . THE CLAIM OF THE ASSESSEE U/S 44BB OF I.T. ACT IS BASED ON THE CONTENTION THAT IT HAS SUPPLIED PLA NT AND MACHINERY ON HIRE USED, OR TO BE USED, IN THE PROSPECTING FOR, OR EXTRACTION OR P RODUCTION OF, MINERAL OILS. THE ASSESSEE HAS CLAIMED THAT RECEIPTS FROM PROVIDING V ESSELS ON HIRE TO PGS NORWAY AND PGS SINGAPORE IS TO BE TREATED AS RECEIPTS FROM SUP PLY OF PLANT AND MACHINERY ON HIRE ITA NO.- 1401/DEL/2015. M/S PGS GEOPHYSICAL AS. PAGE 28 OF 34 USED, OR TO BE USED, IN THE PROSPECTING FOR, OR EXT RACTION OR PRODUCTION OF, MINERAL OILS; AND INCOME THEREFROM IS TO BE ASSESSED U/S 44BB OF I.T. ACT. THIS CLAIM OF THE ASSESSEE IS DISPUTED BY REVENUE. IT IS IN DISPUTE BETWEEN THE TWO SIDES WHETHER INCOME FROM OPERATION OF VESSELS HIRED TO PGS NORWA Y AND PGS SINGAPORE ON CHARTER HIRE BASIS CAN BE SAID TO BE ON ACCOUNT OF SUPPLY OF PLANT AND MACHINERY ON HIRE USED, OR TO BE USED, IN THE PROSPECTING FOR, OR EXTRACTIO N OR PRODUCTION OF, MINERAL OILS. (4.2) WE ARE OF THE VIEW THAT IN THE CASE BEFORE US, IT IS ONLY WHEN THE VESSELS GIVEN ON HIRE BY THE ASSESSEE ARE FITTED WITH NECES SARY EQUIPMENTS, AND HAS THE TECHNICAL CAPACITY FOR USE IN THE PROSPECTING F OR, OR EXTRACTION OR PRODUCTION OF, MINERAL OILS; THAT ASSESSEE CAN LEGI TIMATELY CLAIM APPLICABILITY OF SECTION 44BB OF I.T. ACT. THE AFORESAID EQUIPMEN TS AND TECHNICAL CAPACITY CAN BE IN THE AREA OF SEISMIC DATA & GEOPHYSICAL SE RVICES OR IN ANY OTHER AREA USEFUL IN THE PROSPECTING FOR, OR EXTRACTION OR PRO DUCTION OF, MINERAL OILS. HOWEVER, IT IS NECESSARY FOR THE CLAIM OF THE ASSESSEE FOR A PPLICABILITY OF SECTION 44BB OF I.T. ACT TO SUCCEED, THAT THE VESSE LS GIVEN ON HIRE BY THE ASSESSEE ARE SHOWN TO BE FITTED WITH NECESSARY EQUI PMENTS, AND HAVING THE TECHNICAL CAPACITY FOR USE IN THE PROSPECTING FOR, OR EXTRACTION OR PRODUCTION OF, MINERAL OILS. IN ADDITION, IT IS ALSO NECESSARY FOR ASSESSEES C LAIM U/S 44BB OF I.T. ACT TO SUCCEED, THAT THE VESSELS USED BY PGS NORWAY AND PGS SINGAPORE FOR THEIR CONTRACT WITH ONGC AND RIL WERE THE SAME VESSELS (F ITTED WITH NECESSARY EQUIPMENTS, AND HAS THE TECHNICAL CAPACITY FOR USE IN THE PROSP ECTING FOR, OR EXTRACTION OR PRODUCTION OF, MINERAL OILS) THAT WERE TAKEN ON HIRE BY PGS NO RWAY AND PGS SINGAPORE FROM THE ITA NO.- 1401/DEL/2015. M/S PGS GEOPHYSICAL AS. PAGE 29 OF 34 ASSESSEE. ON PERUSAL OF THE AFORESAID ORDER DATED 02.12.2014 OF DRP, WE FIND THAT THERE IS NO MENTION IN THE ORDER OF THE DRP THAT TH ESE REQUIREMENTS ARE FULFILLED IN THE CASE OF THE ASSESSEE. THE ORDER OF DRP IS SILENT O N THE CRUCIAL FACTS AS TO WHETHER THE VESSELS HIRED BY THE ASSESSEE TO THESE COMPANIES I. E PGS NORWAY AND PGS SINGAPORE ARE FITTED WITH NECESSARY EQUIPMENTS, AND HAS THE T ECHNICAL CAPACITY FOR USE IN THE PROSPECTING FOR, OR EXTRACTION OR PRODUCTION OF, MI NERAL OILS; AND WHETHER THE VESSELS USED BY PGS NORWAY AND PGS SINGAPORE FOR THEIR CONT RACT WITH ONGC AND RIL WERE THE SAME VESSELS (FITTED WITH NECESSARY EQUIPMENTS, AND HAVING THE TECHNICAL CAPACITY FOR USE IN THE PROSPECTING FOR, OR EXTRACTION OR PRODUC TION OF, MINERAL OILS) THAT WERE TAKEN ON HIRE BY PGS NORWAY AND PGS SINGAPORE FROM THE AS SESSEE. WHEN A STATUTORY ORDER LACKS IN ADEQUATE DISCUSSION OF THE CRUCIAL F ACTS NECESSARY FOR DECIDING QUESTION OF FACT; IT SUFFERS FROM THE DEFECT OF FAC TLESSNESS AND IS LIABLE TO BE SET ASIDE. A STATUTORY ORDER SHOULD BE ENDOWED WIT H FACTFULNESS IN THE SENSE THAT IT SHOULD CONTAIN A DISCUSSION ON THE RELEVANT FACTS ON WHICH THE DECISION ON THE QUESTION OF FACT IS BASED. IN VIEW OF THE FOREGOING, WE FIND THAT THE ORDER OF DRP LACKS FACTFULNESS AND SUFFERS FROM FACTLESSNESS. (5) WHILE THE ORDER OF THE DRP IS FOUND TO BE SUFFERING FROM THE DEFECT OF FACTLESSNESS AND LACKING IN FACT FULNESS, AS MENTIONED EARLIER; YET WE HAVE ATTEMPTED TO FIND FROM THE RECORDS AVAILABLE T O US WHETHER THE AFORESAID CRUCIAL FACTS IN SUPPORT OF ASSESSEES CLAIM FOR APPLICABIL ITY OF SECTION 44BB OF I.T. ACT CAN BE DISCOVERED FROM SOURCES OTHER THAN THE ORDER OF THE DRP. HOWEVER, WE FIND THAT THESE FACTS DO NOT EMERGE EITHER FROM THE ORDERS OF THE L OWER AUTHORITY (NAMELY THE AO) OR ITA NO.- 1401/DEL/2015. M/S PGS GEOPHYSICAL AS. PAGE 30 OF 34 FROM THE PAPER BOOKS FILED BY THE ASSESSEE. IN THI S CONNECTION, WE HAVE CAREFULLY PERUSED THE ASSESSEES CONTRACTS FOR HIRING OF SHIP PING VESSELS, COPY THEREOF WAS FILED VIDE PAGES 159-174 OF PAPER BOOK DATED 15 TH MAY, 2018. FIRSTLY, THE PERIOD OF HIRE STATED IN THE DOCUMENTS IS 1 ST JANUARY, 2008 TO 10 TH JUNE, 2008 WHICH IS NOT IN CORRESPONDENCE WITH THE FINANCIAL YEAR (I.E. 2009-1 0) RELEVANT FOR ASSESSMENT YEAR 2010-11 TO WHICH THIS APPEAL PERTAINS. EVEN THEN, T HERE IS NOTHING IN THE DOCUMENT TO CONCLUSIVELY ESTABLISH THAT THE SHIPPING VESSELS HI RED BY THE ASSESSEE TO PGS NORWAY AND PGS SINGAPORE ARE FITTED WITH NECESSARY EQUIPME NTS, AND HAS THE TECHNICAL CAPACITY FOR USE IN THE PROSPECTING FOR, OR EXTRACTION OR PR ODUCTION OF, MINERAL OILS; AND THAT THE SHIPPING VESSELS USED BY PGS NORWAY AND PGS SINGAPO RE FOR THEIR CONTRACT WITH ONGC AND RIL WERE THE SAME VESSELS (FITTED WITH NECESSAR Y EQUIPMENTS, AND HAVING THE TECHNICAL CAPACITY FOR USE IN THE PROSPECTING FOR, OR EXTRACTION OR PRODUCTION OF, MINERAL OILS) THAT WERE TAKEN ON HIRE BY PGS NORWAY AND PGS SINGAPORE FROM THE ASSESSEE. IN FACT, VESSELS SPECIFICATION (PAGES 161-162 OF THE PAPER BOOK DATED 15 TH MAY, 2018) IS BLANK IN THE SENSE THAT INFORMATION REGARDING VESSE LS SPECIFICATION IS NOT FILLED UP AT ALL. PERUSAL OF PAGE 164 OF PAPER BOOK DATED 15 TH MAY, 2018 SHOWS THAT THE SHIPPING VESSELS WERE TO BE DELIVERED BY THE OWNERS FREE OF CARGO AND WITH CLEAN TANKS SUGGESTING THAT THE SHIPPING VESSELS MIGHT HAVE BEE N OIL TANKERS AND /OR CARGO VESSELS INSTEAD OF BEING VESSELS FITTED WITH NECESSARY EQUI PMENTS, AND HAVING THE TECHNICAL CAPACITY FOR USE IN THE PROSPECTING FOR, OR EXTRACT ION OR PRODUCTION OF, MINERAL OILS. WE HAVE ALSO PERUSED WHAT HAS BEEN TERMED BY THE ASSES SEE TO BE THE COPIES OF THE INVOICES (VIDE PAGES 198-217 OF PAPER BOOK DATED 15 TH MAY, 2018) FILED BY THE ITA NO.- 1401/DEL/2015. M/S PGS GEOPHYSICAL AS. PAGE 31 OF 34 ASSESSEE. FROM THE DISCERNIBLE DESCRIPTION ON SOME OF THESE INVOICES, IT IS FOUND THAT EXPENSES ARE ACCOUNT OF OVER-TIME OF CABIN CREW, BA GGAGE CLEARANCE FOR CREW, FOOD ALLOWANCE, MOBILE RECHARGE, LASHING CHARGES, SONY L CD TV, COKE CANS, MILK, SUGAR, EGGS, AMUL CREAM, PRAWNS, FRENCH FRIES, WHITE VINEGA R, FRUIT JUICE, TOAST BREAD SLICED, TOMATOES, CUCUMBER, CAULIFLOWER, ONIONS, RADISH, SP RING ONION, GREEN BELL PAPER, PAPAYA, MINERAL WATER, PINEAPPLE, PAPER CUPS, MUSHR OOM IN TIN, CURRY LEAVES, PEPPER GREEN, PEPPER READ, LETTUCE INCEBERG, CELERY, CHINE SE CABBAGE, ADOCADA, COCONUT FRESH, GRAPES RED IMPORTED, KIWI FRUIT IMPORTED, LE MON BIG, HONEY DEW MELON ,CHOCOLATE BISCUIT BRITANNIA, CASHEW NUTS, PEANUTS FRESH ROASTED LOCAL, POTATO CHIPS ASSORTED PRINGLES, MILK CHOCOLATE WITH NUT, ETC. W E FIND NOTHING IN THE DESCRIPTION AND INFORMATION CONTAINED IN THESE INVOICES TO CONCLUSI VELY ESTABLISH THAT THE SHIPPING VESSELS HIRED BY THE ASSESSEE TO PGS NORWAY AND PGS SINGAPORE ARE FITTED WITH NECESSARY EQUIPMENTS, AND HAS THE TECHNICAL CAPACIT Y FOR USE IN THE PROSPECTING FOR, OR EXTRACTION OR PRODUCTION OF, MINERAL OILS; AND THAT THE SHIPPING VESSELS USED BY PGS NORWAY AND PGS SINGAPORE FOR THEIR CONTRACT WITH ON GC AND RIL WERE THE SAME VESSELS (FITTED WITH NECESSARY EQUIPMENTS, AND HAS THE TECH NICAL CAPACITY FOR USE IN THE PROSPECTING FOR, OR EXTRACTION OR PRODUCTION OF, MI NERAL OILS) THAT WERE TAKEN ON HIRE BY PGS NORWAY AND PGS SINGAPORE FROM THE ASSESSEE. MO REOVER, WE HAVE ALSO PERUSED COPIES OF INVOICES RAISED BY THE ASSESSEE (VIDE PAG ES 182 TO 197 OF THE PAPER BOOK DATED 15 TH MAY 2018). THE DESCRIPTION ON THESE INVOICES IS C HARTER HIRE SHIP PROF, AND STD. VESSEL COST. FROM THE DESCRIPTION OF THE AMO UNTS CHARGED BY THE ASSESSEE AS PER THESE INVOICES, WE FIND NOTHING TO FIRMLY ESTABLISH THAT THE AMOUNTS CHARGED BY THE ITA NO.- 1401/DEL/2015. M/S PGS GEOPHYSICAL AS. PAGE 32 OF 34 ASSESSEE PERTAINED TO PROVIDING SERVICES OR FACILIT IES 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; OR THAT THE VESSELS HIR ED BY THE ASSESSEE TO PGS NORWAY AND PGS SINGAPORE ARE FITTED WITH NECESSARY EQUIPMENTS, AND HAS THE TECHNICAL CAPACITY FOR USE IN THE PROSPECTING FOR, OR EXTRACTION OR PRODUC TION OF, MINERAL OILS; OR THAT THE SHIPPING VESSELS USED BY PGS NORWAY AND PGS SINGAPO RE FOR THEIR CONTRACT WITH ONGC AND RIL WERE THE SAME VESSELS (FITTED WITH NECESSAR Y EQUIPMENTS, AND HAS THE TECHNICAL CAPACITY FOR USE IN THE PROSPECTING FOR, OR EXTRACT ION OR PRODUCTION OF, MINERAL OILS) THAT WERE TAKEN ON HIRE BY PSG NORWAY AND PSG SINGAPORE FROM THE ASSESSEE. IN THE ABSENCE OF ANY CATEGORICAL FINDINGS BY DRP ON THESE CRUCIAL ISSUES OF FACTS; AND IN THE ABSENCE OF ANYTHING ON RECORD TO CONCLUSIVELY ESTAB LISH RELEVANT FACTS AS AFORESAID; IT IS NOT POSSIBLE FOR US TO UPHOLD THE ORDER OF DRP. (6) ALTHOUGH BOTH SIDES HAVE RELIED ON JUDICIAL PRECED ENTS TO SUPPORT THEIR RESPECTIVE POSITIONS ON ASSESSEES CLAIM FOR APPLICABILITY OF SECTION 44BB OF I.T. ACT; WE FIND THAT THE CRUCIAL FACTS WHETHER THE SHIPPING VESSELS HIRE D BY THE ASSESSEE TO PGS NORWAY AND PGS SINGAPORE ARE FITTED WITH NECESSARY EQUIPMENTS, AND HAS THE TECHNICAL CAPACITY FOR USE IN THE PROSPECTING FOR, OR EXTRACTION OR PRODUC TION OF, MINERAL OILS; AND WHETHER THE SHIPPING VESSELS USED BY PGS NORWAY AND PGS SINGAPO RE FOR THEIR CONTRACT WITH ONGC AND RIL WERE THE SAME VESSELS (FITTED WITH NECESSAR Y EQUIPMENTS, AND HAS THE TECHNICAL CAPACITY FOR USE IN THE PROSPECTING FOR, OR EXTRACT ION OR PRODUCTION OF, MINERAL OILS) THAT WERE TAKEN ON HIRE BY PGS NORWAY AND PGS SINGAPORE FROM THE ASSESSEE; ARE NOT AVAILABLE ON OUR RECORD. FURTHER, IN THE ABSENCE O F CRUCIAL FACTS, THE ORDER OF DRP IS ITA NO.- 1401/DEL/2015. M/S PGS GEOPHYSICAL AS. PAGE 33 OF 34 DEFECTIVE AS IT SUFFERS FROM FACTLESSNESS, AS HELD BY US EARLIER, AND IS LIABLE TO BE SET ASIDE. WE HAVE ALREADY HELD IN FOREGOING PARAGRAPH (4.2) OF THIS ORDER THAT WHEN A STATUTORY ORDER LACKS IN ADEQUATE DISCUSSION OF THE CRUCIAL FACTS NECESSARY FOR DECIDING THE QUESTION OF FACT; IT SUFFERS FROM THE DEFECT OF FACTLESSNESS; AND THAT A STATUTORY ORDER SHOULD BE ENDOWED WITH FACTFULNESS IN THE SEN SE THAT IT SHOULD CONTAIN A DISCUSSION ON THE RELEVANT FACTS ON WHICH THE DECIS ION ON QUESTION OF FACTS IS BASED. WE ARE OF THE VIEW THAT THE ISSUE REQUIRES FRESH CONSI DERATION BY DRP SO THAT THERE IS PROPER MARSHALLING OF FACTS. THEREFORE, WE SET ASID E THE ORDER OF DRP AND RESTORE THE DISPUTED ISSUE TO THE FILE OF THE DRP FOR FRESH ORD ER. THE DRP IS DIRECTED TO PASS A DENOVO ORDER, WHICH SHOULD BE A SPEAKING ORDER, CON TAINING PROPER DISCUSSION OF RELEVANT FACTS; IN ACCORDANCE WITH LAW AND IN ACCOR DANCE WITH PRINCIPLES OF NATURAL JUSTICE. THE AO IS DIRECTED TO PASS FRESH ASSESSMEN T ORDER IN ACCORDANCE WITH FRESH DIRECTIONS OF DRP CONTAINED IN DENOVO ORDER OF DRP PURSUANT TO THIS ORDER. (7) IN THE RESULT, APPEAL OF THE REVENUE IS PARTLY ALL OWED FOR STATISTICAL PURPOSES. ORDER PRONOU NCED IN THE OPEN COURT ON 15 TH DAY OF JANUARY, 2019. SD/- SD/- (K.N. CHARY) (ANADEE NATH MISSHRA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 15.01.2019 POOJA/- COPY FORWARDED TO: ITA NO.- 1401/DEL/2015. M/S PGS GEOPHYSICAL AS. PAGE 34 OF 34 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI DATE OF DICTATION DRAFT DICTATED ON COMPUTER ON 14/1/19 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 15.01.19 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. PS/PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER