PRODUCTION TESTING SERVICES INC, MUMBAI V. DCIT (IT) 3(3)(2), MUMBAI

ITA 2306/MUM/2017

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 7926 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-09-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: L
• Assessment Year: 2013-2014
• Appeal Filed On: 31-03-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH L, MUMBAI BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NO.2306/M/2017 ASSESSMENT YEAR: 2013-14 M/S. PRODUCTION TESTING SERVICES, INC, USA C/O MADHAV JOSHI & ASSOCIATES, 801/B, HERITAGE PLAZA, 8 TH FLOOR, B WING, TELI GALLI CROSS ROAD, ANDHERI (EAST), MUMBAI 400 021 PAN: AAFCP5834R VS. DY. CIT(IT)-3(3)(2), ROOM NO.1603, 16 TH FLOOR, AIR INDIA BUILDING, NARIMAN POINT, MUMBAI - 400021 (APPELLANT) (RE SPONDENT) PRESENT FOR: ASSESSEE BY : MS. MALLIKA DEVENDRA, A.R. SHRI HITESH SHAH, A.R. REVENUE BY : SHRI SAMUEL DARSE, D.R. DATE OF HEARING : 04.09.2018 DATE OF PRONOUNCEMENT : 17.09.2018 O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSES SEE AGAINST THE ORDER DATED 16.12.2016 OF THE DISPUTE R ESOLUTION PANEL [HEREINAFTER REFERRED TO AS THE DRP] RELEVANT TO ASSESSMENT YEAR 2013-14. 2. THE ONLY ISSUE RAISED IN THE MAIN GROUND OF APPE AL BY THE ASSESSEE IS AGAINST THE DIRECTION OF THE DRP UPHOLD ING THE ACTION OF THE AO THAT INCOME RECEIVED BY THE ASSESS EE ITA NO.2306/M/2017 M/S. PRODUCTION TESTING SERVICES, INC, USA 2 CONSTITUTED FEE FOR TECHNICAL SERVICES AND IS COVER ED UNDER SECTION 115A OF THE ACT INSTEAD OF APPLYING PROVISI ON OF SECTION 44BB OF THE ACT WHICH IS A SPECIAL PROVISION FOR CO MPUTING THE PROFIT AND GAINS FROM THE BUSINESS OF EXPLORATION E TC. OF MINERAL OIL. 3. THE FACTS IN BRIEF ARE THAT THE ASSESSEE COMPANY IS INCORPORATED IN SCOTLAND AND WORK PLACE AT HOUSTON, TEXAS, USA AND IS ENGAGED IN THE BUSINESS OF PROVIDING FRA CTURING FLOW BACK SERVICES TO OIL COMPANIES. THE ASSESSEE E NTERED INTO AN AGREEMENT WITH M/S. B.J. SERVICES COMPANY (M IDDLE EAST) LTD. A COMPANY INCORPORATED IN DUBAI TO CARRY OUT FRACTURING FLOW BACK SERVICES FOR THEIR VESSEL VEST FROHN. DURING THE YEAR, THE ASSESSEE HAS FILED THE RETURN O F INCOME ON 22.09.2013 DECLARING TOTAL INCOME AT RS.26,27,949/-. THE COMPANY HAS CLAIMED INCOME OF RS.2,62,79,489/- TO BE TA XED ON PRESUMPTIVE BASIS UNDER SECTION 44BB AND ACCORDI NGLY OFFERED RS.26,27,949/- FOR TAXATION. THE AO TREATED THE SAME AS INCOME FROM FEE FOR TECHNICAL SERVICES AND ASSE SSED THE SAME UNDER SECTION 115A OF THE ACT ASSESSING THE TO TAL INCOME AT RS.2,62,79,489/-. THE ORDER OF AO WAS ALSO AFFIR MED BY THE DRP. 4. AT THE OUTSET, THE LD. COUNSEL OF THE ASSESSEE SU BMITTED BEFORE THE BENCH THAT THE ISSUE INVOLVED IN THE PRE SENT CASE IS FULLY COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDE R OF THE CO- ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CA SE PASSED IN ITA NO.1782/M/2016 A.Y. 2011-12 VIDE ORDER DATED ITA NO.2306/M/2017 M/S. PRODUCTION TESTING SERVICES, INC, USA 3 27.10.2017 AND THEREFORE FOLLOWING THE SAME THE APPEA L OF THE ASSESSEE SHOULD BE ALLOWED. 5. THE LD. D.R., ON THE OTHER HAND, ADMITTED FAIRLY TH AT THE ISSUE IS DECIDED BY THE CO-ORDINATE BENCH OF THE TR IBUNAL IN FAVOUR OF THE ASSESSEE, HOWEVER, RELIED HEAVILY ON THE ORDER OF DRP AND AO. 6. AFTER HEARING THE RIVAL SUBMISSIONS AND PERUSING THE MATERIAL ON RECORD INCLUDING THE IMPUGNED ORDER AND THE DECISION OF THE CO-ORDINATE BENCH OF THE TRIBUNAL I N ASSESSEES OWN CASE, WE FIND THAT THE IDENTICAL ISSUE WAS DECI DED BY THE CO-ORDINATE BENCH OF THE TRIBUNAL IN FAVOUR OF THE ASSESSEE HOLDING THAT THE SERVICES RENDERED BY THE ASSESSEE AS FRACTURING FLOW BACK SERVICES IN CONNECTION WITH EX TRACTION OR PRODUCTION OF MINERAL OIL WOULD BE COVERED BY THE P ROVISIONS OF SECTION 44BB OF THE ACT AND NOT AS PER THE PROVISIO N OF SECTION 115A OF THE ACT. THE OPERATIVE PART OF THE DECISIO N IS REPRODUCED AS UNDER: 9. WE HAVE HEARD THE AUTHORISED REPRESENTATIVES FO R BOTH THE PARTIES, PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL AV AILABLE ON RECORD. WE FIND THAT THE ASSESSEE ,VIZ. PRODUCTION TESTING SERVICES INC. , TEXAS, USA, WHICH IS A FOREIGN COMPANY INCORPORATED IN USA, IS ENGAGED IN PROVIDIN G FRACTURING FLOW BACK SERVICES TO OIL COMPANIES. WE FIND THAT B.J SERVICES COMPANY (MIDDLE EAST) LTD., A COMPANY INCORPORATED IN SCOTLAND AND HAVING A PROJECT OFFIC E IN MUMBAI WAS AWARDED A CONTRACT FOR FRACTURING FLOW BACK SERVICES BY OIL A ND NATURAL GAS COMMISSION (FOR SHORT 'ONGC'). THAT B.J SERVICES COMPANY (MIDDLE EA ST) LTD. IN TURN AWARDED THE CONTRACT TO THE ASSESSEE, VIDE AGREEMENT DATED. 15. 07.2007. WE FIND THAT THE ASSESSEE PURSUANT TO THE SUB-CONTRACT AWARDED BY B. J SERVICES COMPANY (MIDDLE EAST) LTD. HAD RENDERED FRACTURING FLOW BACK SERVIC ES AND VARIOUS OPERATIONS AT THE OIL RIGS. WE HAVE DELIBERATED ON THE TERMS OF THE C ONTRACT BETWEEN ONGC AND B.J SERVICES COMPANY (MIDDLE EAST) LTD., AND AFTER PERU SING PAGE 23-24 - PARA 35 OF THE SAID CONTRACT FIND THAT THE CONTRACTOR, VIZ. B.J SE RVICES COMPANY (MIDDLE EAST) LTD. WAS SOLELY RESPONSIBLE FOR THE MANNER IN WHICH THE WORK ASSIGNED TO IT WAS PERFORMED. WE ARE PERSUADED TO BE IN AGREEMENT WITH THE LD. A.R THAT AS THE CONTENTS OF THE AFORESAID CONTRACT CLEARLY STATED T HAT IF ANY SUB- CONTRACTOR WAS ITA NO.2306/M/2017 M/S. PRODUCTION TESTING SERVICES, INC, USA 4 ENGAGED BY THE CONTRACTOR FOR PERFORMING THE CONTRA CT, THEN HE SHALL BE UNDER THE COMPLETE CONTROL OF THE CONTRACTOR AND THERE SHALL BE NO CONTRACTUAL RELATIONSHIP BETWEEN ANY SUCH SUB- CONTRACTOR AND THE COMPANY, V IZ. ONGC. WE THUS, ARE OF THE CONSIDERED VIEW THAT IN THE BACKDROP OF THE AFORESA ID CLEAR TERMS OF THE CONTRACT, NOW WHEN THE ASSESSEE WHO WAS ENGAGED AS A SUB- CON TRACTOR BY B.J SERVICES COMPANY (MIDDLE EAST) LTD HAD NOTHING TO DO WITH TH E COMPANY, VIZ. ONGC, THEREFORE, THE A.O/DRP WERE WRONG IN CONCLUDING THA T THE AMOUNT RECEIVED BY THE ASSESSEE FROM B.J SERVICES COMPANY (MIDDLE EAST) LT D FOR RENDERING FRACTURING FLOW BACK SERVICES WERE INDIRECTLY RECEIVED FROM ONGC. W E THUS SET ASIDE THE AFORESAID OBSERVATIONS OF THE A.O/DRP AND HOLD THAT THE AMOUN T UNDER CONSIDERATION WAS RECEIVED BY THE ASSESSEE FROM B.J SERVICES COMPANY (MIDDLE EAST) LTD. 10. WE FURTHER FIND THAT PURSUANT TO THE JUDGMENT O F THE HON'BLE SUPREME COURT IN THE CASE OF ONGC VS. CIT (2015) 376 ITR 306 (SC), I T STANDS SETTLED AS ON DATE THAT PROSPECTING FOR EXTRACTION OR PRODUCTION OF MINERAL OIL IS NOT TO BE TREATED AS TECHNICAL SERVICES FOR THE PURPOSE OF EXPLANATION 2 OF SEC. 9(1)(VII), AND WOULD RATHER BE COVERED BY SEC. 44BB OF THE 'ACT'. WE ARE OF THE CONSIDERED VIEW THAT AFTER THE AFORESAID JUDGMENT OF THE HON'BLE SUPREME COURT, THE ISSUE THAT PROSPECTING FOR EXTRACTION OR PRODUCTION OF MINERAL OIL IS NOT TO BE TREATED AS TECHNICAL SERVICES FOR THE PURPOSE OF EXPLANATION 2 OF SEC. 9(1)(VII) STANDS SETTLED AND IS NO MORE FOUND TO BE RES INTEGRA. WE ARE OF T HE CONSIDERED VIEW THAT SEC. 115A(B) CLEARLY PRESUPPOSES EXISTENCE OF 'FEES FOR TECHNICAL SERVICES', WHICH FURTHER AS PER THE EXPLANATION (A) CONTEMPLATED THEREIN REF ERS TO EXPLANATION 2 OF SEC. 9(1)(VII). THAT NOW WHEN PURSUANT TO THE JUDGMENT O F THE HON'BLE SUPREME COURT IN THE CASE OF ONGC VS. CIT (2015) 376 ITR 306 (SC), THE ISSUE THAT PROSPECTIN G FOR OR EXTRACTION OR PRODUCTION OF MINERAL OIL IS NOT TO B E TREATED AS TECHNICAL SERVICES FOR THE PURPOSE OF EXPLANATION 2 OF SEC. 9(1)(VII), THE REFORE, IT CAN SAFELY BE CONCLUDED THAT THE PAYMENTS RECEIVED BY THE ASSESSEE FROM REN DERING OF FRACTURING FLOW BACK SERVICES FOR EXTRACTION OR PRODUCTION OF MINERAL OI L WOULD NOT FALL WITHIN THE REALM OF 'FEES FOR TECHNICAL SERVICES'. WE THUS, ARE OF T HE CONSIDERED VIEW THAT AS THE PRECONDITION FOR INVOKING OF SEC. 115A IS IN ITSELF FOUND TO BE MISSING, THEREFORE, THE SAME WOULD NOT BE ATTRACTED TO THE CASE OF THE ASSE SSEE. WE HAVE FURTHER GIVEN A THOUGHTFUL CONSIDERATION TO THE CONTENTION OF THE A SSESSEE THAT AS IT HAD RECEIVED THE AMOUNTS FOR RENDERING THE SERVICES OF FRACTURIN G FLOW BACK SERVICES FROM B.J SERVICES COMPANY (MIDDLE EAST) LTD., WHICH ITSELF W AS A FOREIGN COMPANY, VIZ. A COMPANY INCORPORATED IN SCOTLAND ,THEREFORE, THE SA ID SUMS NOT HAVING BEEN RECEIVED BY THE ASSESSEE FROM GOVERNMENT OR AN INDI AN CONCERN, THEREFORE, FOR THE SAID REASON ALSO EXCLUDED THE APPLICABILITY OF THE PROVISIONS OF SEC. 115A AND SEC. 44DA. WE ARE OF THE CONSIDERED VIEW THAT AS OBSERVE D BY US HEREINABOVE, THE ASSESSEE HAD RECEIVED THE AMOUNT FROM B.J SERVICES COMPANY (MIDDLE EAST) LTD. AND NOT FROM ONGC, THEREFORE, THE AFORESAID CONTENT ION OF THE LD. A.R CARRIES SUBSTANTIAL FORCE. WE THUS, ALSO ON THE SAID COUNT THAT THE ASSESSEE HAD NOT RECEIVED THE AMOUNT FOR RENDERING OF SERVICES OF FR ACTURING FLOW BACK SERVICES IN EXTRACTION OR PRODUCTION OF MINERAL OIL FROM THE GO VERNMENT OR AN INDIAN CONCERN, THEREFORE, HOLD THAT THE APPLICABILITY OF THE PROVI SIONS OF SEC.115A AND SEC. 44DA TO THE FACTS OF THE CASE OF THE PRESENT ASSESSEE WOULD STAND EXCLUDED. 11. WE THUS, IN THE BACKDROP OF OUR AFORESAID OBSER VATIONS SET ASIDE THE ORDER OF THE A.O ASSESSING THE AMOUNT OF RS. 2,65,46,753/- R ECEIVED BY THE ASSESSEE FROM B.J ITA NO.2306/M/2017 M/S. PRODUCTION TESTING SERVICES, INC, USA 5 SERVICES COMPANY (MIDDLE EAST) LTD. FOR RENDERING O F FRACTURING FLOW BACK SERVICES AT THE OIL RIGS TO TAX AS PER THE PROVISIONS OF SEC . 115A OF THE 'ACT'. WE ARE PERSUADED TO BE IN AGREEMENT WITH THE LD. A.R THAT NOW WHEN SEC. 44BB CONTEMPLATES SPECIAL AND SPECIFIC PROVISIONS FOR CO MPUTING PROFITS AND GAINS OF A NON-RESIDENT IN CONNECTION WITH THE BUSINESS OF PRO VIDING 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 MINE RAL OILS, THEREFORE, THE FRACTURING FLOW BACK SERVICES RENDERED BY THE ASSESSEE IN CONN ECTION WITH EXTRACTION OR PRODUCTION OF MINERAL OIL WOULD SQUARELY BE COVERED BY THE PROVISIONS OF SEC. 44BB. WE THUS, SET ASIDE THE ORDER OF THE A.O AND DIRECT HIM TO ASSESS THE AMOUNT OF AMOUNT OF RS. 2,65,46,753/- RECEIVED BY THE ASSESSE E FROM B.J SERVICES COMPANY (MIDDLE EAST) LTD AS PER THE PROVISIONS OF SEC. 44B B. THE GROUNDS OF APPEAL NO. 1 TO 6 RAISED BY THE ASSESSEE BEFORE US ARE ALLOWED IN T ERMS OF OUR AFORESAID OBSERVATIONS. THE GROUND OF APPEAL NO. 7 BEING GENE RAL IS DISMISSED AS NOT PRESSED. 7. WE, THEREFORE, MAINTAINING THE CONSISTENCY WITH THE EARLIER YEAR AND RESPECTIVELY FOLLOWING THE ORDER O F THE CO- ORDINATE BENCH OF THE TRIBUNAL HOLD THAT THE SERVIC ES RENDERED BY THE ASSESSEE IN THE FORM OF FRACTURING FLOW BACK SERVICES IN CONNECTION WITH EXTRACTION AND PRODUCTION OF MINERA L OIL ARE COVERED UNDER THE PROVISIONS OF SECTION 44BB OF THE ACT. ACCORDINGLY, WE ALLOW THE APPEAL OF THE ASSESSEE AN D AO IS DIRECTED ACCORDINGLY. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 17.09.2018. SD/- SD/- (JOGINDER SINGH) (RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 17.09.2018. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI ITA NO.2306/M/2017 M/S. PRODUCTION TESTING SERVICES, INC, USA 6 THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY /ASSTT. REGISTRAR, ITAT, MUMBAI.