Oil and Natural Gas Corporation Ltd., Dehradun V. ITO, Dehradun

ITA 1522/DEL/2012

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 7623 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 1 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-05-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 04-02-2016
• Assessment Year: misc
• Appeal Filed On: 02-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANUJ ARORA
• Assessee Lawyers: GAURAV JAIN BHAVATA KUMAR
• Keywords: Double taxation relief; Permanent establishment

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : E NEW DELHI BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER AND MS. SUCHITRA KAMBLE, JUDICIAL MEMBER ITA NO: 1522/DEL/2012 AY : - 2012-13 OIL AND NATURAL GAS CORPORATION LIMITED VS. IT O, DGM-HEAD, CORPORATE TAX, INTERNATIONAL TAXATION, OIL AND NATURAL GAS CORPORATION LTD., AAYAKAR BHAWAN, 13-A ROOM NO. 244, OLD SECRETARIAT BUILDING, SUBHASH ROAD, TEL BHAWAN, DEHRADUN 248003 DEHRADUN 248001 PAN AAACO1598A (APPELLANT) (RESPONDENT) ITA NO: 1600/DEL/2012 AY : - 2012- 13 ITO VS. OIL AND NATURAL GAS CORPORATION LIMITED INTERNATIONAL TAXATION AS REPRESENTATIVE ASSESSEE OF DEGOLYER & 13-A, SUBHASH ROAD, MCNAUGHTEN, ONGC LTD., CORPOR ATE TAX AAYAKAR BHAWAN, DIVISION, ROOM NO. 244, TEL BHAWA N, DEHRADUN. DEHRADUN (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI GAURAV JAIN, ADVOCATE, BHAVATA KUMAR, ADVOCATE DEPARTMENT BY : SHRI ANUJ ARORA, CIT DR O R D E R PER J.SUDHAKAR REDDY, ACCOUNTANT MEMBER THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER OF THE CIT(A)-II, DEHRADUN DATED 16.1.2012 FOR THE ASSTT. YEAR 2012-13. 2. FACTS IN BRIEF :- OIL AND NATURAL GAS CORP ORATION LIMITED (ON GC) HAD, AGAINST CONTRACT NO. EXPLIMML903/2011-12/ZA4CS11005/5010063 252 DATED 19-04-2011, ITA NO. 1522/DEL/2012 AND ITA NO. 1 600/DEL/2012 2 20X5 MADE A PAYMENT OF USD 4,25,000/- TO DEGOLYER AND MA CNAUGHTON, USA (NON- RESIDENT) TOWARDS THIRD PARTY CERTIFICATION OF ULTI MATE RESERVES AND RESERVES OF 62 FIELDS OF ONGC. THE NON-RESIDENT IS A TAX RESIDENT OF UNITED STATES OF AMERICA (USA) AND DOES NOT HAVE A PERMANENT ESTABLISHMENT (PE) IN INDIA IN TERMS OF DOUBLE TAXATION AVOIDANCE AGREEMENT (DT AA) BETWEEN INDIA AND USA. CERTIFICATION WORK INVOLVES REVIEW OF WIRE LINE LOGS, CONVENTIONAL COR ES AND PVT ANALYSIS RESULTS, PRESSURE-PRODUCTION HISTORY, GEOLOGICAL CORRELATION S/SECTIONS AND OTHER RELATED RESERVOIR ENGINEERING, GEOLOGICAL AND PRODUCTION EN GINEERING DATA. THE REPORT HAS TO CERTIFY PROVED, PROVED + PROBABLE, AND PROVED + PRO BABLE AND POSSIBLE ULTIMATE RESERVES OF OIL, CONDENSATE, ASSOCIATED GAS AND FRE E GAS AS ON 01- 04-2011. THE CERTIFICATION SERVICES WERE RENDERED BY THE NON-RES IDENT FROM OUTSIDE INDIA. THE REPRESENTATIVES OF THE NON-RESIDENT HAD, HOWEVER, V ISITED INDIA ONLY FOR TWO DAYS JUST FOR COLLECTION OF DATA REQUIRED FOR CERTIFICAT ION SERVICES RENDERED BY THE NON- RESIDENT. ONGC APPLIED FOR AN ORDER UNDER SECTION 1 95(2) OF THE INCOME TAX ACT, 1961 (ACT) VIDE APPLICATION DATED 16.5.2011 TO THE INCOME TAX OFFICER (INTERNATIONAL TAXATION), DEHRA DUN (ITO). THE ITO, VIDE ORDER DAT ED 30.5.2011 AND CORRIGENDUM THERETO DATED 4.7.2011, DIRECTED ONGC TO DEDUCT TAX @ 10% PLUS SURCHARGE AND EDUCATION CESS ON THE GROSS CONTRACTUAL PAYMENTS IN CLUDING THE PAYMENTS ARISING ON ACCOUNT OF ALL TYPES OF EXPENDITURES TO BE MADE TO THE NON-RESIDENT, CONSIDERING THE PAYMENTS TO BE MADE UNDER THE CONTRACT AS FEES FOR TECHNICAL SERVICES. THE INDIAN TAX LIABILITY OF THE NON-RESIDENT HAS BEEN BORNE BY ONGC AS PER THE CONTRACT WITH THE NON-RESIDENT. ACCORDINGLY, TAX AMOUNTING TO RS. 22, 51,135/- ON THE PAYMENT OF USD 4,25,000/- RELEASED TO THE NON-RESIDENT ON 20.6.201 1, WAS DEPOSITED BY ONGC IN GOVERNMENT ACCOUNT ON 7.7.2011. ITA NO. 1522/DEL/2012 AND ITA NO. 1 600/DEL/2012 3 20X5 3. THEREAFTER ONGC FILED AN APPEAL BEFORE THE LD. C IT(A). THE FIRST APPELLATE AUTHORITY GRANTED PART RELIEF. THE LD. CIT(A)-II H ELD THAT NRC (NON RESIDENT COMPANY) IS PROVIDING AN INDEPENDENT CERTIFICATION OF OIL RESERVES IN 62 FIELDS MANAGED BY M/S. ONGC AND THAT THIS ACTIVITY WOULD N OT AMOUNT TO PASSING ON OF ANY TECHNICAL KNOWLEDGE OR EXPERIENCE OR SKILL TO ONGC, FOR THE ACTIVITY TO QUALIFY AS FTS. HE HELD THAT SECTION 44BB OF THE ACT APPLIES SQUARE LY ON THE FACTS OF THIS CASE. HE HELD THAT THE ENTIRE PAYMENT BY ONGC TO NRC SHOULD BE SUBJECTED TO TAX @ 10% OF THE GROSS PAYMENT AS AMENDED U/S 44BB(1) OF THE ACT . AGGRIEVED BOTH ASSESSEE AS WELL AS THE REVENUE ARE IN APPEAL BEFORE US. 4. THE GROUNDS TAKEN BY THE ASSESSEE ARE AS FOLLOW S :- 1. THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-II , DEHRA DUN, HAS ERRED IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE CASE IN REJECTING THE CONTENTION OF THE APPELLANT REGARDING NON-TAXAB ILITY OF THE RECEIPTS OF DEGOLYER AND MACNAUGHTON, USA. 2. THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-II , DEHRA DUN, HAS ERRED IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE CASE IN NOT DIRECTING THAT THE TAX DEPOSITED BY THE APPELLANT O N THE SUMS PAYABLE TO DEGOLYER AN MACNAUGHTON, USA, BE REFUNDED TO IT. 5. AFTER HEARING RIVAL CONTENTIONS WE HOLD AS FOLLOWS :- 6. THE FUNCTION OF NRC IS TO PROVIDE THIRD PA RTY CERTIFICATION OF OIL RESERVES AT 62 FIELD OWNED OR MANAGED BY M/S. ONGC. IF THE PAYMEN T HAS TO BE TREATED AS FTS AS HAS BEEN HELD BY AO, IT WOULD HAVE TO BE EXCLUDED F ROM THE PURVIEW OF MINING AS MENTIONED IN EXPLANATION 2 TO SEC. 9 (1) (VII) OF THE ACT. THE PERTINENT ISSUE FOR CONSIDERATION IS WHETHER AT ALL, THE WORK PERFORMED BY THE NRC, HAS A PROXIMATE NEXUS WITH THE EXTRACTION OF MINERAL OILS. ITA NO. 1522/DEL/2012 AND ITA NO. 1 600/DEL/2012 4 20X5 7. THE LD. CIT(A) HELD AS FOLLOWS : IT IS SEEN THA T THE NRC IS PROVIDING AN INDEPENDENT CERTIFICATION OF OIL RESERVES IN 62 FIE LDS MANAGED BY M/S. ONGC. THIS ACTIVITY WOULD NOT AMOUNT TO PASSING ON ANY TECHNIC AL KNOWLEDGE OR EXPERIENCE OR SKILL TO ONGC FOR THE ACTIVITY TO QUALIFY AS FTS. W HAT EMERGES MOST CLEARLY ON A READING OF THE CONTRACT IS THAT THE SERVICES PROVID ED BY THE NRC TO ONGC ARE TO BE USED EXCLUSIVELY FOR THE PURPOSES OF PROSPECTING FO R OR EXPLORATION OF MINERAL OILS. THUS SECTION 44BB OF THE ACT APPLIES SQUARELY ON TH E FACTS OF THIS CASE. THIS ALSO SIMULTANEOUSLY PUTS THIS CASE OUT OF PURVIEW OF SEC TION 9(1)(VII) OF THE ACT SINCE THE ACTIVITIES PERTAIN TO MINING. SINCE IT IS HELD TH AT THAT SERVICES ARE AS DEFINED U/S 44BB OF THE ACT, THE JUDGMENT IN THE CASE OF R & B FALCON DRILLING CO. REPORTED IN 181 TAXMAN 62 (UK) HAS TO BE FOLLOWED AS IN PARA 6 OF THIS JUDGMENT IT HAS BEEN LAID DOWN THAT THE SUM PAID OR PAYABLE, WHETHER I N OR OUTSIDE INDIA TO THE ASSESSEE OR TO ANY PERSON ON HIS BEHALF ON ACCOUNT OF PROVISIONS OF SERVICES AND FACILITIES IN CONNECTION WITH............ THIS CAS E FOLLOWS THE RULING GIVEN IN THE CASE OF SEDCO FOREX INTL. INC. REPORTED IN 299 ITR 238 (UK) . FURTHERMORE, IN A CASE BEFORE THE AAR [WESTERN GECO INTL. LTD. REPORTED IN 201 TA XMAN 101 (AAR-DELHI) IT HAS BEEN HELD, FOLLOWING THE TWO CASE LAW OF THE HONBL E UTTARAKHAND HIGH COURT, THAT ONCE AN ASSESSEE OPTS TO COME U/S 44BB(1) OF THE AC T, THE PROVISION ITSELF DEEMS ITS PROFITS AND GAINS AS 10% OF AGGREGATE OF AMOUNTS SP ECIFIED IN SUB-SECTION 2 OF SECTION 44BB OF THE ACT, I.E. AMOUNT PAYABLE OR PAI D WHETHER IN OR OUT OF INDIA. IN VIEW OF THESE RULINGS, THE ENTIRE PAYMENTS BY ONGC TO THE NRC MAY BE SUBJECTED TO TAX @ 10% OF THE GROSS PAYMENTS AS MANDATED U/S 44B B OF THE ACT. ITA NO. 1522/DEL/2012 AND ITA NO. 1 600/DEL/2012 5 20X5 THIS DECISION THAT THE LD. CIT(A) IS CHALLENG ED BY THE REVENUE. BEFORE GOING INTO THE MERITS OF THE REVENUE IN APPEAL, WE TAKE UP THE ASSESSEES APPEAL. 8. IT IS NOT IN DISPUTE THAT THE SERVICES IN Q UESTION WERE RENDERED OUTSIDE INDIA. THE PAYMENT IN QUESTION CANNOT BE CONSTRUED AS FEES FOR TECHNICAL SERVICES UNDER INDIA-USA DTAA, AS NO TECHNICAL KNOWLEDGE, SKILL, KNOW HOW ETC. WAS MADE AVAILABLE TO THE ASSESSEE. THE ISSUE IN QUESTION IS NO MORE RES INTEGRA IN VIEW OF THE FOLLOWING JUDGMENTS :- 1. DIT VS. GUY CARPENTER & CO. LTD. (2012) 346 ITR 50 4 2. CIT VS. DE BEERS INDIA MINERALS (P) LTD. 346 ITR 46 7 9. THUS THE AMOUNT PAID BY ONGC TO THE NRC CAN BE BROUGHT TO TAX ONLY UNDER ARTICLE 7 OF THE INDO-USA DTAA AS BUSINESS PROFIT, PROVIDED THE NRC HAS A PERMANENT ESTABLISHMENT (PE) IN INDIA AND THE PROFI T IN QUESTION IS ATTRIBUTABLE TO SUCH PE. ADMITTEDLY NRC DOES NOT HAVE PE IN INDIA. UNDER THESE CIRCUMSTANCES THE RECEIPT OF THE NON RESIDENT CANNOT BROUGHT TO TAX I N INDIA UNDER THE INDO-USA DTAA. HENCE THIS GROUND OF THE ASSESSEE HAS TO BE ALLOWED . 10. IN THE RESULT GROUND NO. 1 IS ALLOWED. 11. GROUND NO. 2 IS CONSEQUENTIAL. THE AMOUNT DEPOSITED BY THE ASSESSEE ON THE SUMS PAYABLE TO DEGOLYER AND MACNAUGHTON, USA SHOU LD BE REFUNDED. 12. GROUND NO. 3 IS GENERAL IN NATURE. 13. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLOWED. ITA NO. 1522/DEL/2012 AND ITA NO. 1 600/DEL/2012 6 20X5 14. COMING TO THE REVENUES APPEAL, IN VIEW OF OUR DECISION IN THE ASSESSEES APPEAL, THE REVENUES APPEAL BECOMES INFRUCTUOUS. HENCE THE SAME IS DISMISSED. 15. IN THE RESULT THE APPEAL OF THE ASSESSEE IS AL LOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 16/5/2016. SD/- SD/- (SUCHITRA KAMBLE) (J. SUDHAKAR REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: THE 16/5/2016 VEENA COPY OF THE ORDER FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR 6. GUARD FILE BY ORDER DY. REGISTRAR