ONGC as Representative assessee of, V. JCIT, Spl.Range,

ITA 785/DEL/2000

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 3484 (ITAT-DELHI)
• Duration Of Justice: 10 year(s) 5 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-07-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 10-11-2009
• Assessment Year: 1997-1998
• Appeal Filed On: 18-02-2000
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Double taxation relief
• Section: 28

Judgement Text

(FIT FOR PUBLICATION) SD/-AM .SD/-JM IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH E DELHI) BEFORE SHRI A.D. JAIN AND SHRI K.G. BANSAL ITA NO. 785(DEL)2000 ASSESSMENT YEAR: 1997-98 ONGC AS REPRESENTATIVE ASSESSEE OF JT.COMMI SSIONER OF INCOME TAX, ALBERTA RESEARCH COUNCIL, CANADA. V. SPL. RANG E, DEHRADUN. (APPELLANT) (RESPONDENT) APPELLANT BY: S/SHRI AJAY VOHRA & SACHIT JOLLY RESPONDENT BY: SMT. YAG YASAINI KAKKAR, SR. DR ORDER PER A.D. JAIN, J.M . THIS IS ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 1 997-98 FILED BY ONGC IN THE CAPACITY OF REPRESENTATIVE ASSESSEE OF THE NON-RESIDENT COMPANY, ALBERTA RESEARCH COUNCIL, CANADA. 2. WHILE DICTATING THE ORDER, IT WAS SEEN THAT THE TRIBUNAL, IN ITS ORDER DATED 23.2.07, IN ITA NO. 2145(DEL)04 IN ONGCS CAS E FOR ASSTT.YEAR 98-99 (RELIED ON BY THE ASSESSEE), HAS REFERRED TO ITS DE CISION IN ONGCS CASE FOR ASSTT.YEAR 97-98, TITLED ONGC AS REPRESENTATIVE AS SESSEE OF M/S. MARINE MARATHON ENGINEERING, GERMANY. NO COPY OF THE SA ID LATTER DECISION WAS, HOWEVER, FOUND PLACED ON RECORD. IT WAS, THEREFORE , THAT THE CASE WAS REFIXED, FOR THIS LIMITED PURPOSE. ON BEHALF OF TH E ASSESSEE, COPIES OF THE SAID ORDER WERE FILED. THE HEARING STOOD CONCLUDE D EARLIER, THE REPRESENTATIVES OF BOTH THE PARTIES HAVING BEEN HEA RD AT LENGTH. HENCE, THE ITA 785(DEL)2000 2 COPIES OF THE AFORESAID TRIBUNAL ORDER WERE TAKEN O N RECORD IN THE ABSENCE OF THE LD. DR, WHO WAS ON LEAVE. 3. THE FOLLOWING SOLE GROUND HAS BEEN RAISED IN TH IS APPEAL: THE LD. COMMISSIONER OF INCOME TAX(APPEALS), DEHRA DUN HAS ERRED IN LAW AND ON THE FACTS AND CIRCUMSTANCES OF THE CA SE IN REJECTING THE APPELLANTS CONTENTION THAT THE RECEIPTS OF ALBERTA RESEARCH COUNCIL, CANADA WERE TAXABLE U/S 44BB OF THE INCOME TAX ACT, 1961 AND NOT AS FEES FOR TECHNICAL SERVICES U/S 44D READ WITH SECTION 115A OF THE INCOME TAX ACT, 1961. 4. AS PER THE STATEMENT OF FACTS FILED BEFORE THE L D.CIT(A), ONGC HAD ENGAGED THE SERVICES OF M/S. ALBERTA RESEARCH COUNC IL, CANADA, (ARC FOR SHORT), VIDE WORK ORDER DATED 1.9.95, FOR CARRYING OUT A FEASIBILITY STUDY ON IMPLEMENTATION OF CYCLIC STEAM STIMULATION ( CSS, FOR SHORT) IN LANWA FIELDS, MEHSANA, INDIA. AS AN AGENT OF THE SAID NO N-RESIDENT, THE ASSESSEE ONGC FILED A RETURN OF INCOME CLAIMING THE RECEIPT S OF THE NON-RESIDENT FOR ARC HAVING RENDERED THE AFORESAID SERVICE OF CARRYI NG OUT OF FEASIBILITY STUDY ON IMPLEMENTATION OF CSS, AS TAXABLE U/S 44 B B OF THE I.T. ACT. A TOTAL INCOME OF RS.2,90,810/- WAS DECLARED. 5. IN THE PROCEEDINGS BEFORE THE AO, THE ASSESSEE CONTENDED THAT IN VIEW OF EXPLANATION 2 TO SEC. 9(1)(VII) OF THE ACT, INSTRUCTION NO. 1862 DATED 22.10.90, ISSUED BY THE CBDT AND SEVERAL DECI SIONS OF THE TRIBUNAL, ITA 785(DEL)2000 3 THE RECEIPTS OF THE NON-RESIDENT SHOULD BE BROUGHT TO TAX ONLY U/S 44BB OF THE ACT. 6. THE AO, HOWEVER, REJECTED THE ASSESSEES CONTENT IONS AND VIDE ASSESSMENT ORDER DATED 26.7.99, BROUGHT THE RECEIPT S OF THE NON-RESIDENT TO TAX AS FEES FOR TECHNICAL SERVICES (FTS, FOR SHOR T), AS PER SECTION 44 D READ WITH SECTION 115 A OF THE ACT, THEREBY ASSESSING A TOTAL INCOME OF RS. 27,56,530/-. THE AO CALCULATED THE TAX @ 20% OF T HIS TOTAL INCOME, AS PER THE DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA, FO R SHORT) BETWEEN INDIA AND CANADA. 7. BY VIRTUE OF THE IMPUGNED ORDER, THE LEARNED CIT (A) UPHELD THE ASSESSMENT ORDER AND DISMISSED THE ASSESSEES APPEA L. THIS BRINGS THE ASSESSEE BEFORE US, IN FURTHER APPEAL. 8. CHALLENGING THE IMPUGNED ORDER, THE LEARNED COU NSEL FOR THE ASSESSEE HAS CONTENDED THAT THE ASSESSEE IS A NON-RESIDENT COMPANY WHICH HAD OFFERED ITS RECEIPTS FROM CARRYING OUT A FEASIBILIT Y STUDY FOR IMPLEMENTATION OF CSS, FOR TAXATION U/S 44BB OF THE ACT; THAT THI S WAS SO, SINCE THE SERVICE HAD BEEN RENDERED IN CONNECTION WITH EXPLORATION OF MINERAL OIL; THAT THE AO, HOWEVER, HELD THAT THE AFORESAID RECEIPTS WERE FOR RENDERING TECHNICAL SERVICES AS ENVISAGED U/S 9(1)(VII) OF THE ACT; THA T THE LD. CIT(A) ERRED IN UPHOLDING THE ORDER OF THE AO; THAT THE FEASIBILITY STUDY CARRIED OUT BY THE ITA 785(DEL)2000 4 ASSESSEE WAS IN CONNECTION WITH EXPLORATION OF MINE RAL OIL; THAT CSS HELPS IN IMPROVING RECOVERY OF OIL FROM OIL FIELDS BY THINNI NG OF OIL, SO THAT THE OIL MOVES FROM THE FORMATION TO THE WELL BORE; THAT WIT HOUT CSS, THE IMPLEMENTATION OF WHICH WAS THE SUBJECT MATTER OF T HE FEASIBILITY STUDY CARRIED OUT BY THE ASSESSEE, SOME PART OF THE OIL W OULD REMAIN BELOW THE SURFACE OF THE EARTH AND WOULD REMAIN UNEXTRACTED; THAT THEREFORE, THE FEASIBILITY STUDY WAS SOLELY IN CONNECTION WITH THE EXPLORATION OF MINERAL OIL, WHICH IS THE REQUIREMENT OF SECTION 44BB OF THE ACT ; THAT SECTION 44BB(1) TALKS OF PROVIDING OF SERVICES OR FACILITIES IN CO NNECTION WITH THE EXTRACTION OF MINERAL OIL; THAT ALL RECEIPTS FROM PROVIDING OF SERVICES OR FACILITIES IN CONNECTION WITH EXTRACTION OF MINERAL OIL ARE TAXAB LE U/S 44BB OF THE ACT; THAT THE CASE OF THE ASSESSEE ALSO DOES NOT FALL WI THIN THE PROVISO TO SECTION 44BB(1), WHICH PROVIDES THAT SECTION 44BB(1) SHALL NOT APPLY WHERE THE PROVISIONS OF, INTER ALIA, EITHER SECTION 44D, OR S ECTION 115 A OF THE ACT APPLY FOR THE PURPOSES OF COMPUTING PROFITS OR GAIN S OR ANY OTHER INCOME REFERRED TO IN THOSE SECTIONS; THAT FTS, ON THE OTH ER HAND, IS ENVISAGED BY EXPLANATION 2 TO SECTION 9(1)(VII) OF THE ACT, WHIC H DEFINES FTS TO MEAN ANY CONSIDERATION FOR RENDERING OF ANY MANAGERIAL, TECH NICAL OR CONSULTANCY SERVICES, BUT NOT TO INCLUDE CONSIDERATION FOR ANY CONSTRUCTION, ASSEMBLY, MINING OR LIKE PROJECT UNDERTAKEN BY THE RECIPIENT, OR CONSIDERATION WHICH ITA 785(DEL)2000 5 WOULD BE CHARGEABLE AS SALARY; THAT THE RECEIPTS OF THE ASSESSEE DO NOT FALL UNDER ANY OF THE COMPONENTS MENTIONED AS MEANING FT S UNDER EXPLANATION 2 TO SECTION 9(1)(VII) OF THE ACT, SINCE EXTRACTIO N OF MINERAL OIL AND ACTIVITIES IN CONNECTION THEREWITH WOULD BE COVERED WITHIN MI NING OR LIKE PROJECT, AS REFERRED TO IN THE SAID EXPLANATION; THAT AS PER I NSTRUCTION NO. 1862 DATED 28.2.98 ISSUED BY THE CBDT, MINING PROJECT OR LIKE PROJECT WOULD INCLUDE RENDERING OF SERVICES LIKE IMPARTING TRAINING FOR C ARRYING OUT DRILLING OPERATION IN CONNECTION WITH EXTRACTION OF MINERAL OIL; THAT AN IDENTICAL ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE IN DCIT V. SCHLUMBERGER SEACO, 50 ITD 348; THAT IN THE ASSESSEES OWN CASE TOO, A SIMILAR VIEW HAS BEEN TAKEN BY THE TRIBUNAL FOR ASSESSMENT YEAR 1998 -99 IN ITA NO. 2145(DEL)04, ONGC LTD. AS REPRESENTATIVE OF ALBERT A RESEARCH COUNCIL, CANADA V. DCIT AND FOR ASSESSMENT YEAR 2002-03 IN ITA NO. 5103(DEL)04, ONGC LTD. AS REPRESENTATIVE OF ALBERTA RESEARCH CO UNCIL, CANADA, V. ACIT; THAT IN ACIT V. PARADIGM GEOPHYSICAL, 117 TTJ 812 ALSO, A SIMILAR VIEW WAS CONSIDERED BY THE TRIBUNAL, HOLDIN G THAT INSPITE OF THE PROVISO TO SECTION 44 BB OF THE ACT, THE SERVICES I N RELATION TO EXPLORATION OF AND PROSPECTING FOR MINERAL OIL WERE TAXABLE U/S 44 BB AND NOT U/S 9(1)(VII) OF THE ACT. ITA 785(DEL)2000 6 9. THE LD. DR, ON THE OTHER HAND, HAS STRONGLY SUPP ORTED THE IMPUGNED ORDER. FURTHER, SHE HAS PLACED RELIANCE ON CIT V . ONGC AS REPRESENTATIVE OF ROLLS ROYCE, 214 CTR 135(DEL) AND CIT V. ONG C, 299 ITR 438 (DEL) AND THE DECISION OF THE DELHI BENCH OF THE TRIBUNAL IN ITA NOS. 124 TO 126(DEL)06, IN HOTEL SCOPEVISTA LTD. V. ACIT. WRITTEN SUBMISSIONS HAVE ALSO BEEN FILED, WHEREIN, AS IN THE ORAL ARGUM ENTS, IT HAS BEEN URGED THAT THE TRIBUNAL DECISIONS IN THE ASSESSEES OWN CASE F OR THE ABOVE YEARS (SUPRA) BE NOT FOLLOWED. 10. IN REJOINDER, THE LEARNED COUNSEL FOR THE ASSES SEE HAS CONTRADICTED THE APPLICABILITY OF ANY OF THE ABOVE THREE DECISIONS C ITED BY THE LD. DR, TO THE PRESENT CASE, BESIDES REITERATING THE AFOREMENTIONE D ARGUMENTS. 11. WE HAVE HEARD BOTH THE PARTIES AND HAVE PERUSED THE WRITTEN SUBMISSIONS AND OTHER MATERIAL ON RECORD. THE ISSU E BEFORE US IS AS TO WHETHER THE RECEIPTS OF THE ASSESSEE ARE ASSESSABLE TO TAX U/S 44BB OF THE ACT, OR IF THEY COMPRISE FEES FOR TECHNICAL SERVI CES OR FTS U/S 9(1)(VII) OF THE ACT AND ARE TAXABLE AS SUCH. 12. THE RECEIPTS HAVE ADMITTEDLY BEEN EARNED BY ARC FOR CARRYING OUT A FEASIBILITY STUDY ON IMPLEMENTATION OF CYCLIC STEA M STIMULATION, OR CSS. THIS STUDY WAS CARRIED OUT BY ARC IN PURSUANCE OF A CONTRACT WITH ONGC. ITA 785(DEL)2000 7 13. IT IS THE ASSESSEES CASE THAT SANS THE STUDY C ARRIED OUT BY IT, ONGC WOULD HAVE REMAINED UNABLE TO MAKE FULL RECOVERY OF MINERAL OIL FROM THE OIL FIELDS. THIS, ACCORDING TO THE ASSESSEE, IS S O, BECAUSE IT IS THE STUDY CARRIED OUT BY IT WHICH MADE IMPLEMENTATION OF CYCL IC STEAM STIMULATION OR CSS FEASIBLE. CSS THINS THE OIL BELOW THE SURFACE OF THE EARTH. APPLICATION OF CSS STIMULATES THE SUB TERRANEAN OIL TO MOVE TO THE SURFACE OF THE EARTH. WITHOUT CSS, THUS, SOME PART OF THE MINERAL OIL WOU LD NECESSARILY REMAIN VISCOUS AND BY VIRTUE THEREOF UNSTIMULATED TO MOV E TO THE EARTHS SURFACE. AS SUCH, THIS PART OF THE OIL WOULD REMAIN UNABLE T O BE EXTRACTED. 14. AS PER CONTRACT AGREEMENT NO. GGM/WR/CONSUL-ARC /95-96 DATED 1.9.95 (COPY AT PAGES 1-20 OF THE ASSESSEES PAPER BOOK, APB, FOR SHORT), ONGC DESIRED TO ENGAGE AN INTERNATIONALLY REPUTED AGENCY FOR CARRYING OUT THE FEASIBILITY STUDIES FOR IMPLEMENTA TION OF THE CYCLIC STEAM STIMULATION (CSS) IN 12 WELLS IN HEAVY OIL DEPOSITS OF LANWA, MEHSANA, INDIA. SUCH STUDIES ARE REFERRED TO IN THE AGREEM ENT AS PROJECT SERVICES. ARC REPRESENTED TO HAVE THE WILLINGNESS AND NECESSA RY ABILITY AND EXPERTISE TO PERFORM SUCH PROJECT SERVICES WITH THE STANDARD EFFICIENCY, PROFESSIONAL SKILL AND ACCEPTED INTERNATIONAL PRACTICES OF THE I NDUSTRY. IT WAS, THEREFORE, THAT THE AGREEMENT WAS ENTERED INTO. 15. AS PER THE AGREEMENT: ITA 785(DEL)2000 8 IN THIS CONTRACT THE FOLLOWING DEFINED TERMS HAVE THE MEANINGS INDICATED THEREIN. 1.3. PROJECT SERVICES MEANS THE RESEARCH AND RELA TED WORK SET OUT AND DESCRIBED IN APPENDIX A. 1.4. COMMENCEMENT DATE MEANS THE DATE ON WHICH ARCS TWO EXPERTS ARRIVE FOR DISCUSSION AND COLLECTION OF DAT A AT IRS AHMEDABAD IN INDIA AFTER SIGNING OF THE CONTRACT. 2.0. WORK SCOPE, TIME SCHEDULE AND PERSONNEL. 2.1. TWO EXPERTS ONE HAVING BACKGROUND IN RESERVOIR AND ANOTHER IN PROCESS SHALL BE DEPUTED BY ARC FOR DISCUSSION A ND COLLECTION OF DATA AS REQUIRED UNDER THE SCOPE OF THE CONTRACT. 2.2. THE WORK TO BE PERFORMED BY ARC UNDER THE CONT RACT IS DESCRIBED IN APPENDIX-A HERETO. ANNEXURE A TO THE AGREEMENT (APB 16-18) DEFINES THE PROJECT SERVICES THUS:- THE PROJECT SERVICES 1. STUDY OBJECTIVE: ARC WILL WORK FOR THE OBJECTIVE FOR TRIAL IMPLEMENT ATION OF THE CYCLIC STEAM STIMULATION (CSS) IN 12 SELECTED WELLS OF LAN WA FIELD UNDER THE FOLLOWING WORK PROGRAMME. 2. DELIVERABLES UNDER THE WORK PROGRAMME : THE FOLLOWING WILL BE INCLUDED IN A COMPREHENSIVE F INAL REPORT: WELL COMPLETIONS : REVIEW OF RELEVANT ONGC REPORTS INCLUDING DRILLING RECORDS DESCRIBING THE EXISTING TYPE OF CASING AND CONNECTI ONS AND DETAILS ON WELL COMPLETIONS; DIRECTIONAL SURVEYS FOR THE WELLS ; CEMENTING REPORTS; GEOLOGIC SUMMARIES INCLUDING RESISTIVITY AND OPEN-H OLE LOGS; GEOLOGIC DESCRIPTIONS OF OVERLYING AND UNDERLYING F ORMATIONS ESPECIALLY AQUIFERS AND UP-HOLE GAS ZONES; GOR; ANT ICIPATED ITA 785(DEL)2000 9 INJECTION/PRODUCTION ZONES; SIEVE ANALYSIS IF THE H EAVY OIL RESERVOIR IS AN UN CONSOLIDATED SAND; WELLHEAD DESIGN; EXISTING LIFT ON THE WELLS; AND A LIST OF NORTH AMERICAN VENDORS FOR MATERIALS AND SUPPLIES RELATING TO WELL COMPLETIONS AND ARTIFICIAL DAYS. PREPARATION OF DETAILED RECOMMENDATIONS INCLUDING SPECIFICATIONS O F THE DOWN HOLE EQUIPMENT REGARDING WELL COMPLETIONS AND ARTIFICIAL LIFT FOR TWELVE WELLS AND REPORT PREPARATION. RESERVOIR ENGINEERING AND TROUBLESHOOTING : REVIEW OF RELEVANT ONGC REPORTS INCLUDING THOSE REP ORTS DESCRIBED IN WELL COMPLETIONS RELATING TO THE RESERVOIR; INTER PRETED LOGS; CORE DATA; PRIMARY PRODUCTION HISTORY, WELL TEST RESULTS ; FORMATIONS WATER AND OIL CHEMISTRY (PARTICULARLY GAS COMPOSITION IN THE OIL AND ASPHALTING CONTENT AND SOLUBILITY); SOURCE WATER CH EMISTRY RESERVOIR MINERALOGY; DESCRIPTION OF MODELING CONDUCTED TO DA TE. OPINION OF THE ARC ON THE POSSIBLE GAINS OF THE CYC LIC STEAM STIPULATION (CSS) IN LANWA AS PROPOSED BY ONGC. B) FORMATION DAMAGE DUE TO ASPHALTING PRECIPITATIO N: I) EVALUATION OF ASPHALTING PRECIPITATION POTENTIAL IN ITIAL CHARACTERIZATION OF A TYPICAL ONGC OIL INCLUDING GR AVITY, VISCOSITY ASPHALTING CONTENT AND COMPONENT TYPE ANA LYSIS BY COLUMN CHROMATOGRAPHY. COMPARISON WILL BE MADE TO A CANADIAN HEAVY OIL, E.G. LYOLYDMINSTEER CRUDE. II) DETERMINATION OF POTENTIAL FOR ASPHALTING PRECIPITA TION BY A SERIES OF ONSET MEASUREMENTS ON THE ONGC OIL UTILI ZING THE NEAR UNFRAMED (NTR)FIBER OPTICS LIGHT SCATTERING AP PARATUS UNDER AMBIENT CONDITIONS, BY TITRATION WITH A SOLVE NT SUCH AS PENTANE. COMPARISON WILL BE MADE TO THE SAME CANA DIAN HEAVY OIL AS ABOVE USING THE SAME TITRATION SOLVENT . III) QUANTIFICATION OF RESERVOIR DAMAGE: ONSET MEASUREMENTS WILL BE CARRIED OUT WITH THE NIR APPARATUS ON THE ONGC OIL BY INCREASING IN TURN THE PRESSURE AND TEMPERATURE FROM AMBIENT UPTO CSS CONDITIONS UNTIL ASPHALTING ITA 785(DEL)2000 10 ONSET IS OBSERVED. THIS WILL DETERMINE IF ASPHAL TING PRECIPITATION WILL BE A POTENTIAL PROBLEM IN THE RE SERVOIR. IF IT IS DETERMINED THAT ASPARTAMES ARE PRECIPITATED UNDER H E ABOVE CONDITIONS, A CORE FLOOD EXPERIMENT WILL BE CARRIED OUT UNDER CSS CONDITIONS TO DETERMINE THE EXTENT OF ASPHALTIN G DAMAGE. A SYNTHETIC CORE WOULD BE PREPARED USING AN AGREED UPON SAND MATERIAL AND THE ONGC OIL . THE REDUCTION IN PERM EABILITY UNDER CSS CONDITIONS WOULD BE DETERMINED AND BE CAR RIED OUT TO QUANTIFY THE AMOUNT OF ASPHALTING DEPOSITION. IV). RECOMMENDATIONS: ONSET EXPERIMENTS WILL BE CARRIED OUT WITH THE NIR APPARATUS USING GENERAL ASPHALTING DISPERSANTS IN THE ONGC OI L AT THE CSS CONDITIONS. COMPARISONS WILL BE MADE TO THE P URE OIL RESULTS OBTAINED EARLIER. IMPROVEMENTS IN THE ONS ET CONDITIONS WITH A PARTICULAR DISPERSANT WILL LEAD TO ITS RECOM MENDATION FOR MINIMIZING FORMATION DAMAGES. C) CORROSIONS: QUALITATIVE ASSESSMENT OF TYPES OF INTERACTIONS THA T CAN OCCUR BETWEEN FORMATION MINERALOGY AND THE INJECTED STEAM WATER AND ALSO TO PREDICT THE CHEMISTRY OF THE PRODUCED WATER AND THE POSSIBILITY OF THE CORROSION AND SCALING OF THE PRO DUCTION EQUIPMENT. IN CASE OF THE REACTIVE MATERIAL IN THE RESERVOIR AND THE FORMATION AND THE INJECTED WATER APPEARS TO BE INCOMPACTABLE A LIMITED AMOUNT OF THE GEOCHEMICAL MODEL SOLNTENO WILL BE RUN UNDER STANDARD PRACTICES USED IN THE CANADIAN ALL FIELDS TO ACCOMMODATE THE PREDICTED WA TER CHEMISTRY AT LANWA SHALL BE PROVIDED. 2.3 SURFACE FACILITIES ENGINEERING : I) REVIEW OF EXISTING ENGINEERING DOCUMENTS AND QUALITATIVE ASSESSMENT OF PLANNING APPROACH AND METHODOLOGY ASSESSMENT OF FACILITIES AND RECOMMENDATIONS (IF REQUIRED) FOR DETAILED ENGINEER ING. ITA 785(DEL)2000 11 II) REVIEW OF THE DETAILED SPECIFICATIONS OF THE SURFAC E INJECTION FACILITIES AND THE ASSOCIATED EQUIPMENT. III) BUDGETARY ESTIMATES OF THE INJECTION AND ALLIED EQUIPMENTS REQUIRED FOR SUCCESSFUL IMPLEMENTATION O F THE PROJECT. 2.4 ECONOMIC EVALUATION WITH SENSITIVITY ANALYSIS : BASED ON ONGCS EVALUATION METHODS BEING FOLLOWED. ALL THE ACTIVITIES ARE OPTIONAL ACTIVITIES TO BE TA KEN UP ONLY AFTER DUE APPROVAL OF THE ONGC. 16. A PERUSAL OF THE ABOVE CONTENTS OF ANNEXURE A T O THE AGREEMENT SHOWS THAT ONGC PROPOSED TO IMPLEMENT CSS IN ITS 12 SELECTED OIL WELLS IN LANWA OIL FIELDS IN MEHSANA, INDIA. A FEASIBILITY STUDY FOR IMPLEMENTATION OF CSS WAS REQUIRED TO BE CARRIED OUT BEFORE IMPLEM ENTING IT. IT WAS SUCH STUDY WHICH WAS CARRIED OUT BY ARC, FOR WHICH IT EA RNED THE RECEIPTS IN QUESTION. 17. IT REMAINS UNCHALLENGED THAT THESE STUDIES OR PROJECT SERVICES WERE INDEED CARRIED OUT BY ARC. THE ISSUE IS AS TO WHE THER THEY COMPRISE CONSULTANCY SERVICES WITHIN SECTION 9(1)(VII) OF TH E ACT, GIVING RISE TO FTS WITHIN EXPLANATION 2 TO SECTION 9(1)(VII), OR THEY AMOUNT TO SERVICES RENDERED IN CONNECTION WITH EXPLORATION OF MINERAL OIL TAXABLE UNDER SECTION 44BB. ITA 785(DEL)2000 12 18. THE FIRST POINT ARGUED BY THE LEARNED COUNSEL F OR THE ASSESSEE IS THAT THE SERVICE RENDERED BY ARC IS IN CONNECTION WITH EXPLORATION OF MINERAL OIL WITHIN THE MEANING OF SECTION 44 BB(1) OF THE ACT. SECTION 44BB READS AS FOLLOWS:- 44 BB (1) NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN SECTIONS 28 TO 41 AND SECTIONS 43 AND 43A, IN TH E CASE OF AN ASSESSEE, BEING A NON-RESIDENT, ENGAGED IN THE BUS INESS OF PROVIDING SERVICES OR FACILITIES IN CONNECTION WITH, OR SUPPL YING PLANT AND MACHINERY ON HIRE USED, OR TO BE USED, IN THE PROSP ECTING FOR OR EXTRACTION OR PRODUCTION OF, MINERAL OILS, A SUM E QUAL TO TEN PER CENT OF THE AGGREGATE OF THE AMOUNTS SPECIFIED IN SUB-SE CTION (2) SHALL BE DEEMED TO BE THE PROFITS AND GAINS OF SUCH BUSINESS CHARGEABLE TO TAX UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PR OFESSION. PROVIDED THAT THIS SUB-SECTION SHALL NOT APPLY IN A CASE WHERE THE PROVISIONS OF SECTION 42 OR SECTION 44D OR SECTION 115A OR SECTION 293A APPLY FOR THE PURPOSES OF COMPUTING PROFITS OR GAINS 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 THE ASSESSEE OR TO ANY PERSON ON HIS BEHALF ON ACCOUNT OF THE PROVISION OF SERVICES AND FACILITIES IN CONNECTION WITH, OR SUPP LY OF PLANT AND MACHINERY ON HIRE USED, OR TO BE USED, IN THE PROSP ECTING 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-SECTI ON(1), AN ASSESSEE MAY CLAIM LOWER PROFITS AND GAINS THAN THE PROFITS AND GAINS SPECIFIED ITA 785(DEL)2000 13 IN THAT SUB-SECTION, IF HE KEEPS AND MAINTAINS SUCH BOOKS OF ACCOUNT 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 REQUIRED UNDER SECTION 44AB, AND THEREUPON THE ASSESSING OFFICER SHALL PROCEED TO MAKE AN ASSESSMENT OF THE TOTAL INCOME OR LOSS OF THE ASSESSEE UNDER SUB-SECTION (3) OF SECTI ON 143 AND DETERMINE THE SUM PAYABLE BY, OR REFUNDABLE TO, THE ASSESSEE. EXPLANATION: FOR THE PURPOSES OF THIS SECTION, - (I) PLANT INCLUDES SHIPS, AIRCRAFT, VEHICLES, DRI LLING UNITS, SCIENTIFIC APPARATUS AND EQUIPMENT, USED FOR THE PURPOSES OF T HE SAID BUSINESS; (II) MINERAL OIL INCLUDES PETROLEUM AND NATURAL G AS. 19. SECTION 44 BB(1) PROVIDES FOR TAXATION IF THE A SSESSEE IS ENGAGED IN THE BUSINESS OF PROVIDING SERVICES OR FACILITIES IN CONNECTION WITH, OR SUPPLYING PLANT AND MACHINERY ON HIRE USE OR TO BE USED, IN THE PROSPECTING FOR OR EXTRACTION OR PRODUCTION OF MINERAL OIL. T HE PROVISO TO SECTION 44BB(1) STATES THAT THE SAID SECTION SHALL NOT AP PLY WHERE THE PROVISIONS OF, INTER ALIA, SECTION 44D OR SECTION 115A OF THE ACT APPLY FOR THE PURPOSES OF COMPUTING PROFITS OR GAINS OR ANY OTHER INCOME REFERRED TO IN THOSE SECTIONS. 20. AS PER THE ASSESSEE, THE FEASIBILITY STUDY CARR IED OUT BY ARC IS UNDOUBTEDLY IN CONNECTION WITH PROSPECTING FOR/EXTR ACTION OR PRODUCTION OF MINERAL OILS IN INDIA AND THAT THEREFORE, THE RECEI PTS OF ARC WERE CORRECTLY OFFERED FOR TAX U/S 44BB OF THE ACT. 21. IN THIS REGARD, THE AO HAS HELD AS FOLLOWS:- ITA 785(DEL)2000 14 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS ASS ESSEE REPRESENTATIVES HAVE ARGUED THAT THE ACTIVITIES CAR RIED OUT BY THE N.R. COMPANY WILL NOT BE CONSIDERED AS TECHNICAL SERVICE S BY VIRTUE OF EXCEPTION PROVIDED IN EXPLANATION 2 TO SEC. 9(1)(VI I). ACCORDING TO THE ASSESSEES CLAIM, CONSIDERATION FOR ANY CONSTRU CTION, ASSEMBLY, MINING OR LIKE PROJECT WILL NOT BE INCLUDED IN THE DEFINITION OF FEES FOR TECHNICAL SERVICES. THEY ARGUED THAT NATURE OF SE RVICES PERFORMED BY THE N.R.C. IS A MINING ACTIVITY AND THEREFORE DESER VE TO BE EXCLUDED FROM THE DEFINITION OF TECHNICAL SERVICES. IT HAS BEEN CLAIMED THAT SINCE EXTRACTION OF OIL IS AN ACTIVITY OF MINING, T HE REVENUES RECEIVED BY THE ASSESSEE EVEN FOR THE ABOVE REFERRED ACTIVIT IES, WILL NOT BE ASSESSED AS FEE FOR TECHNICAL SERVICES ALTHOUGH THE SE ACTIVITIES MAY BE TECHNICAL IN NATURE. ASSESSEES CONTENTION AS ABO VE, IS NOT FOUND CONVINCING. SERVICES PERFORMED BY THE NRC CANNOT BE TERMED AS MINING ACTIVITIES. MINING REQUIRES CERTAIN OPERATI ONS INSIDE THE CRUST OF EARTH. IN THE MINING PROCESS TOP SURFACE OF THE EARTH IS REMOVED AND SOME OPERATION IS CARRIED OUT BENEATH ITS SURFA CE. CERTAINLY WHAT ASSESSEE HAS PERFORMED UNDER THE CONTRACT IS N OT A MINING ACTIVITY AND THE CONSIDERATION RECEIVED BY IT IS NO T FOR PERFORMING MINING ACTIVITIES. IN THIS CASE ASSESSEE HAS PERFO RMED TECHNICAL SERVICES WHICH DO NOT GET EXCLUDED BY THE EXCEPTION CONTAINED IN EXPLANATION 2 TO SEC. 9(1)(VII) . ACCORDINGLY, TH E CLAIM OF THE ASSESSEE THAT PROVISIONS OF SEC. 44BB OF THE ACT AR E APPLICABLE IN THE PRESENT CASE, IS NOT SUSTAINABLE AND HENCE REJECTED . 22 . THE LD. CIT(A) HELD AS FOLLOWS:- 6. IN THE WRITTEN SUBMISSION THE APPELLANT HAS STA TED THAT THE PAYMENT WAS MADE TO THE N.R.C. FOR CARRYING OUT FEA SIBILITY STUDY ON IMPLEMENTATION OF CSS (CYCLIC STEAM STIMULATION) I N LANWA FIELDS. SINCE THE WORK WAS IN THE NATURE OF CONSULTANCY SER VICE THE ARGUMENT OF THE AO THAT IT WAS UNDER EXPLANATION 2 TO SECTIO N 9(1)(VII) AS FEES FOR TECHNICAL SERVICES APPEARS TO BE JUSTIFIED. THE FACTS OF THIS CASE ARE THEREFORE, DISTINGUISHABLE FROM THE FACTS OF TH E DECISIONS OF HONBLE ITAT AND DECISIONS OF CIT(A), DEHRADUN CITE D BY THE APPELLANT IN ITS WRITTEN SUBMISSIONS. IN THE CIRCU MSTANCES THE CONTENTION OF THE APPELLANT THAT THE CONSULTANCY SE RVICES RENDERED BY ITA 785(DEL)2000 15 THE N.R.C. WAS ASSESSABLE UNDER SECTION 44BB CANNOT BE ACCEPTED. THE CLAIM OF THE APPELLANT IS, THEREFORE, BEING REJ ECTED. 23. AT FIRST BLUSH, THE REASONING ADOPTED BY THE AU THORITIES BELOW APPEARS TO BE WELL JUSTIFIED. BUT IS IT SO? ONE HAS TO DELVE A BIT DEEPER TO ASCERTAIN THE REALITY. FIRST OFF, NOT ALL OPERATIONS CONCER NING EXTRACTION OF MINERAL OIL MUST NECESSARILY BE PHYSICAL OPERATIONS INSIDE THE CRUST OF THE EARTH. AN ACCEPTED MODE OF SUCH EXPLORATION IS A PROCEDURE KNOWN AS DIVINING. ONE OF THE MEANINGS OF THE WORD DIVINE, GIVEN IN THE CHAMBERS 20 TH CENTURY DICTIONARY (1983 EDITION) IS TO SEARCH FOR (UNDERGROUND WATER, ETC.), ESPECIALL Y WITH A DIVINING ROD. SUCH PROCEDURE DOES NOT INVOLVE ANY PHYSICAL OPERAT IONS UNDER THE SURFACE OF THE EARTH. FOR OUR PRESENT PURPOSES, HOWEVER, T HE NORMAL DIGGING OPERATIONS UNDER THE SURFACE OF THE EARTH ARE WHAT THE AUTHORITIES BELOW HAVE CONSIDERED TO BE EXTRACTION OF MINERAL OIL. TH US, AS PER THE AUTHORITIES BELOW, IN ORDER TO BE TAXABLE U/S 44 BB OF THE ACT, THE ASSESSEE OUGHT TO HAVE CARRIED OUT SOME SUCH OPERATIONS UNDER THE SUR FACE OF THE EARTH. IT IS SEEN, HOWEVER, THAT SECTION 44BB(1) DOES NOT TALK O F EXTRACTION OF MINERAL OIL SIMPLICITOR. IT PREFIXES THE PHRASE IN CONNE CTION WITH TO THE EXPRESSION EXTRACTION OF MINERAL OIL. THIS SHOWS THAT THE SECTION, BY VIRTUE OF THE PHRASE IN CONNECTION WITH, IS TALKING OF SOMETHIN G OTHER THAN PHYSICAL ITA 785(DEL)2000 16 OPERATIONS BELOW THE SURFACE OF THE EARTH. IT IS, THROUGH THIS PHRASE, CONSIDERING THE SERVICES OR FACILITIES IN CONNECTIO N WITH EXTRACTION OF MINERAL OIL. THE LEGISLATURE, IT CANNOT BE GAINSAID, CHOO SES ITS WORDS WITH UTMOST CARE. 24. INCIDENTALLY, CONNECTED WITH HAS BEEN HELD BY THE HONBLE ALLAHABAD HIGH COURT IN BASUDEV V. REX, AIR 1949 ALLAHABAD 513 (FB), TO IMPLY A SUBSTANTIAL OR DIRECT CONNECTION AND NOT A FANCIFUL OR HIGHLY PROBLEMATIC CONNECTION. IN THE PRESENT CASE, THE S TUDY CARRIED OUT BY ARC, AS SEEN, WAS A STUDY SUBSTANTIALLY AND DIRECTLY CON NECTED WITH THE EXTRACTION OF MINERAL OIL, SUB-SERVING THE PURPOSES OF THE PHR ASE IN CONNECTION WITH THE EXTRACTION OF MINERAL OIL AS USED IN SECTION 4 4BB(1). 25. THE STUDY CARRIED OUT BY ARC WAS A FEASIBILITY STUDY FOR IMPLEMENTATION OF CSS. UNDENIABLY, CSS HELPS IN IM PROVING RECOVERY OF OIL FROM OIL FIELDS BY THINNING OF OIL, REDUCING IT S VISCOSITY OR DENSITY OR SPECIFIC GRAVITY, SO THAT THE OIL MOVES FROM THE OI L FORMATION TO THE BORE OF THE OIL WELL. WITHOUT IMPLEMENTING CSS, AS SUCH, SOME PORTION OF THE OIL WOULD NORMALLY REMAIN VISCOUS, WOULD KEEP LYING BEL OW THE SURFACE OF THE EARTH, UNMOVED TO THE WELL BORE AND WOULD HENCE RE MAIN UNEXTRACTED . THE FEASIBILITY STUDY CARRIED OUT BY ARC WAS UNDISPUTED LY SOLELY IN CONNECTION WITH THE IMPLEMENTATION OF CSS. HENCE, THIS STUDY WAS SOLELY IN ITA 785(DEL)2000 17 CONNECTION WITH EXTRACTION OF MINERAL OIL. THAT BEING SO, IT SQUARELY MEETS THE REQUIREMENT OF SECTION 44BB(1). 26. THE NEXT CONTENTION OF THE ASSESSEE IS THAT THE SERVICE RENDERED BY ARC FALLS WITHIN THE EXCLUSION OF EXPLANATON 2 TO SECTION 9(1)(VII) INASMUCH AS THE SAID EXPLANATION EXCLUDES FROM THE PURVIEW OF FTS, CONSIDERATION FOR, INTER ALIA, MINING OR LIKE PROJ ECT UNDERTAKEN BY THE RECIPIENT. 27. IN THIS CONNECTION, THE LEARNED COUNSEL FOR THE ASSESSEE HAS REFERRED TO CBDT INSTRUCTION NO. 1862 DATED 22.10.1990, WHEREIN , MINING OR LIKE PROJECT AS EMPLOYED IN EXPLANATION 2 TO SECTION 9( 1)(VII) HAS BEEN TAKEN TO INCLUDE SERVICES LIKE IMPARTING OF TRAINING AND CAR RYING OUT DRILLING OPERATIONS FOR EXPLORATION OR EXTRACTION OF OIL AND NATURAL GAS. 28. THE ASSESSEE HAS SOUGHT TO DRAW AN ANALOGY OF T HE SERVICES RENDERED BY ARC WITH SUCH SERVICES AS CONSIDERED IN THE AFOR ESAID CBDT INSTRUCTION NO. 1862 OF 22.10.1990, I.E., SERVICES LIKE IMPARTI NG OF TRAINING AND CARRYING OUT DRILLING OPERATIONS FOR EXPLORATION OR EXPLOITA TION OF OIL AND NATURAL GAS. 29. IT IS SEEN THAT THE CBDT ISSUED INSTRUCTION NO. 1862 DATED 22.10.1990, STATING THAT MINING OR LIKE PROJECT, AS REFERRED IN EXPLANATION 2 TO SECTION 9(1)(VII) OF THE ACT WOULD INCLUDE RENDE RING OF SERVICES LIKE IMPARTING OF TRAINING FOR CARRYING OUT DRILLING OPE RATIONS IN CONNECTION WITH ITA 785(DEL)2000 18 EXTRACTION OF MINERAL OIL. IT WOULD BE APPOSITE TO REPRODUCE HEREUNDER, THE SAID INSTRUCTION (RELEVANT PORTION):- THE EXPRESSION FEES FOR TECHNICAL SERVICES HAS B EEN DEFINED IN EXPLANATION 2 TO SECTION 9(1)(VII) OF THE INCOME TA X ACT, 1961 AS UNDER: EXPLANATION 2: FOR THE PURPOSE OF THIS CLAUSE, FE ES FOR TECHNICAL SERVICES MEANS ANY CONSIDERATION (INCLUDING ANY LU MP SUM CONSIDERATION) FOR THE RENDERING OF ANY MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES(INCLUDING THE PROVISION OF SER VICES OF TECHNICAL OR OTHER PERSONNEL) BUT DOES NOT INCLUDE CONSIDERAT ION FOR ANY CONSTRUCTION, ASSEMBLY, MINING, OR LIKE PROJECT UND ERTAKEN BY THE RECIPIENT OF CONSIDERATION WHICH WOULD BE INCOME OF THE RECIPIENT CHARGEABLE UNDER THE HEAD SALARIES. 2. THE QUESTION WHETHER PROSPECTING FOR, OR EXTRACT ION OR PRODUCTION OF, MINERAL OIL CAN BE TERMED AS MINING OPERATION S, WAS REFERRED TO THE ATTORNEY GENERAL OF INDIA FOR HIS OPINION. TH E ATTORNEY GENERAL HAS OPINED THAT SUCH OPERATIONS ARE MINING OPERATIO NS AND THE EXPRESSIONS MINING PROJECT OR LIKE PROJECT OCCU RRING IN EXPLANATION 2 TO SECTION 9(1)(VII) OF THE INCOME TA X ACT WOULD COVER RENDERING OF SERVICES LIKE IMPARTING OF TRAINING AN D CARRYING OUT DRILLING OPERATIONS FOR EXPLORATION OR EXPLOITATION OF OIL AND NATURAL GAS. 3. IN VIEW OF THE ABOVE OPINION, THE CONSIDERATION FOR SUCH SERVICES WILL NOT BE TREATED AS FEES FOR TECHNICAL SERVICES FOR THE PURPOSE OF EXPLANATION 2 TO SECTION 9(1)(VII) OF THE INCOME TA X ACT, 1961. PAYMENTS FOR SUCH SERVICES TO A FOREIGN COMPANY, TH EREFORE, WILL BE INCOME CHARGEABLE TO TAX UNDER THE PROVISIONS OF SE CTION 44BB OF THE INCOME TAX ACT, 1961 AND NOT UNDER THE SPECIAL PROV ISION FOR THE TAXATION OF FEES FOR TECHNICAL SERVICES CONTAINED I N SECTION 115A READ WITH SECTION 44D OF THE INCOME TAX ACT, 1961. 30. FROM THE ABOVE INSTRUCTION, IT IS EVIDENT THAT PROSPECTING FOR, OR EXTRACTION OR PRODUCTION OF, MINERAL OIL HAVE BEEN TAKEN TO BE OPERATIONS ITA 785(DEL)2000 19 WHICH ARE MINING OPERATIONS. THE EXPRESSION MINI NG OR LIKE PROJECT AS OCCURRING IN EXPLANATION 2 TO SECTION 9(1)(VII) OF THE ACT HAS BEEN TAKEN TO COVER SERVICES LIKE IMPARTING OF TRAINING AND CARRY ING OUT DRILLING OPERATIONS FOR EXPLORATION OR EXPLOITATION OF OIL AND NATURAL GAS. THE CONSIDERATION FOR SUCH SERVICES IS NOT TO BE TREATED AS FEES FOR TECH NICAL SERVICES FOR THE PURPOSE OF EXPLANATION 2 TO SECTION 9(1)(VII) OF TH E ACT. RATHER, SUCH CONSIDERATION HAS BEEN TAKEN TO BE INCOME CHARGEABL E TO TAX UNDER THE PROVISIONS OF SECTION 44BB OF THE ACT AND NOT UNDER SECTION 115A READ WITH SECTION 44D OF THE ACT. 31. IN INSTRUCTION NO. 1862, THE CBDT HAS ACCEPTED THE OPINION OF THE ATTORNEY GENERAL OF INDIA THAT THE EXPRESSION MINI NG OR LIKE PROJECT OCCURRING IN EXPLANATION 2 TO SECTION 9(1)(VII) WOU LD COVER RENDERING OF SERVICES LIKE IMPARTING OF TRAINING AND CARRYING OU T DRILLING OPERATIONS FOR EXPLORATION OR EXPLOITATION OF OIL AND NATURAL GAS. NOW, THE NEAREST ANALOGY WHICH THE ASSESSEE CAN SEEK TO DRAW FROM THE AFORES AID INSTRUCTION IS THAT THEREIN, IMPARTING OF TRAINING HAS BEEN TAKEN TO B E MINING OR LIKE PROJECT. THE TRAINING BEING TALKED OF IN THE INSTRUCTION IS OBVIOUSLY TRAINING CONNECTED WITH EXPLORATION OR EXPLOITATION OF OIL A ND NATURAL GAS. ITA 785(DEL)2000 20 32. INSTRUCTION NO. 1862 (SUPRA), AS CONTENDED, HAS BEEN DEALT WITH IN DCIT V. SCHLUMBERGER SEACO INC., 50 ITD 348(CAL). THEREIN, APROPOS THE ISSUE AT HAND, IT HAS BEEN HELD AS FOLLOWS:- THE OPINION OF THE ATTORNEY GENERAL DATED 13.5.90 ON A REFERENCE MADE OF THE CBDT ON THE QUESTION WHETHER PETROLEU M AND NATURAL GAS ARE MINERAL OILS AND WHETHER THE ACTIVITY OF P ROSPECTING FOR OR EXTRACTION OF THE SAME CAN BE CONSIDERED MINING ACT IVITY WAS CLEARLY IN FAVOUR OF THE ASSESSEE. THE ATTORNEY GENERAL W AS OF THE OPINION THAT PETROLEUM AND NATURAL GAS ARE MINERAL OILS AND , THEREFORE, THEY ARE MINERALS AND MINES AND, CONSEQUENTLY, WILL FALL WITHIN THE EXPRESSION MINING AS CONTEMPLATED BY EXPLANATION 2 TO SECTION 9(1)(VII). THE ATTORNEY GENERAL HAD ALSO OPINED T HAT EVEN ASSUMING THAT THE OPERATIONS CARRIED OUT BY THE ASSESSEE DID NOT DIRECTLY RELATE TO MINING, THEY RELATED TO A PROJECT SIMILAR TO MIN ING WHICH COULD BE CALLED LIKE PROJECT WITHIN THE MEANING OF EXPLANA TION 2 TO SECTION 9(1)(VII). THEREFORE, ANY CONSIDERATION RECEIVED F OR CARRYING OUT SUCH OPERATION WHICH WAS EITHER A MINING PROJECT OR A LI KE PROJECT MUST BE CONSIDERED TO FALL OUTSIDE THE DEFINITION OF THE WO RDS FEES FOR TECHNICAL SERVICES AS CONTAINED IN THAT EXPLANATIO N AND, CONSEQUENTLY, OUTSIDE THE PROVISIONS OF SECTION 115 A. 33. THE CASE BEFORE US IS STILL BETTER. THE SERVI CE RENDERED BY ARC IS A SERVICE DIRECTLY AND SUBSTANTIALLY CONNECTED WITH T HE EXTRACTION OF MINERAL OIL. IT, THEREFORE, IS DEFINITELY RELATED TO A PRO JECT LIKE A MINING PROJECT. 34. VIDE ORDER DATED 23.2.2007, IN THE ASSESSEES O WN CASE IN ITA NO. 2145(DEL)04 FOR ASSESSMENT YEAR 98-99 (COPY PLACED ON RECORD), THE DELHI BENCH OF THE TRIBUNAL AGAIN CONSIDERED CBDT INSTRU CTION NO. 1862(SUPRA). IT WAS HELD AS FOLLOWS:- ITA 785(DEL)2000 21 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED TH E ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RE CORD. THE NON- RESIDENT COMPANY WAS ENGAGED BY THE ONGC FOR RENDER ING CONSULTANCY SERVICES FOR EVALUATION OF SEISMIC DATA TO DETERMINE GAS HYDRATE POTENTIAL AND FOR IMPLEMENTATION OF CYCLIC STEAM STIMULATION. THE CBDT INSTRUCTION NO. 1862 OF 22 ND OCTOBER, 1990 PROVIDES THAT EXPLANATION 2 TO SECTION 9(1)(VII) CO VERS RENDERING OF SERVICES LIKE IMPARTING TRAINING AND CARRYING OUT D RILLING OPERATIONS FOR EXPLORATION OR EXPLOITATION OF OIL AND NATURAL GAS. THEREFORE, SUCH SERVICES WILL NOT BE TREATED AS FEES FOR TECH NICAL SERVICES FOR THE PURPOSE OF EXPLANATION 2 TO SECTION 9(1)(VII) O F THE INCOME TAX ACT, 1961. PAYMENTS FOR SUCH SERVICES TO A FOREIGN COMPANY WILL BE CHARGEABLE TO TAX UNDER PROVISIONS OF SECTION 44BB OF THE INCOME TAX ACT, 1961 AND NOT UNDER SPECIAL PROVISIONS OF THE T AXATION OF FEES FOR TECHNICAL SERVICES CONTAINED IN SECTION 115A READ WITH SECTION 44D OF THE INCOME TAX ACT, 1961. THE DELHI BENCH OF T HE TRIBUNAL IN THE CASE OF ONGC AS REPRESENTATIVE ASSESSEE OF M/S. MAR ATHON MARINE ENGINEERING, GERMANY ITA NO. 2143/D/2004 ASSESSMENT YEAR 1997- 98 ORDER DATED 31.1.2006 WHEREIN IT WAS HELD THAT WORK ORDER FOR SERVICES FOR PREPARATION OF BID DOCUMENTS FOR 3D SE ISMIC API (ACQUISITION, PROCESSING AND INTERPRETATION)PROJECT ON BOMBAY HIGH FIELD AND TECHNICAL EVALUATION OF 3D SEISMIC API TE NDER ON BOMBAY HIGH FIELD WAS RELATED TO MINING AND HENCE OUTSIDE THE DEFINITION OF THE WORDS FEES FOR TECHNICAL SERVICES CONTAINED I N EXPLANATION 2 TO SECTION 9(1)(VII), AND CONSEQUENTLY OUTSIDE THE PRO VISIONS OF SECTION 115A AND HELD THAT THE CONSIDERATION RECEIVED FOR C ARRYING OUT SUCH OPERATION WAS TO BE TAXED UNDER THE PROVISIONS OF S ECTION 44BB AND NOT UNDER SECTION 44D READ WITH SECTION 115A OF THE ACT. FACTS BEING IDENTICAL AND IN THE ABSENCE OF ANY DISTINGUISHING FEATURES POINTED OUT BY THE LD. DR, RESPECTFULLY FOLLOWING THE PRECEDENT , WE SET ASIDE THE ORDERS OF THE AO AND THE CIT(A) AND HOLD THAT THE R ECEIPTS OF THE ASSESSEE NON-RESIDENT COMPANY ARE TO BE TAXED U/S 4 4BB AND NOT U/S 44D READ WITH SECTION 115A OF THE ACT. CONSEQUENT LY, THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 35. THUS, IN THE ASSESSEES CASE FOR ASSESSMENT YEA R 98-99, THE TRIBUNAL FOUND THE FACTS TO BE IDENTICAL TO THOSE IN THE CAS E OF ONGC AS REPRESENTATIVE ASSESSEE OF M/S. MARATHON MARINE ENGINEERING, GERMA NY FOR ASSESSMENT ITA 785(DEL)2000 22 YEAR 1997-98 WHEREIN, THE TRIBUNAL HAD HELD THAT WO RK ORDER FOR SERVICES FOR PREPARATION OF BID DOCUMENTS FOR 3D SEISMIC API (AC QUISITION, PROCESSING AND INTERPRETATION) PROJECT ON BOMBAY HIGH FIELD AN D TECHNICAL EVALUATION OF 3D SEISMIC API TENDER ON BOMBAY HIGH FIELD WAS R ELATED TO MINING AND HENCE, OUTSIDE THE DEFINITION OF FTS WITHIN EXPLAN ATION 2 TO SECTION 9(1)(VII). 36. HEREIN, AGAIN, THE SITUATION IS SIMILAR, IF NOT IDENTICAL. THERE, THE SERVICES WERE OF PREPARATION OF BID DOCUMENTS FOR 3 D SEISMIC API PROJECT AND TECHNICAL EVALUATION OF 3D SEISMIC API TENDER O N BOMBAY HIGH FIELD. THE SERVICE, THUS, IN THAT CASE ALSO, WAS NOT A PHY SICAL OPERATION BELOW THE SURFACE OF THE EARTH. IT WAS HELD TO BE RELATED T O MINING. IN THE PRESENT CASE, AS CONSIDERED ABOVE, THE STUDY CARRIED OUT BY ARC I S DIRECTLY RELATED TO THE EXTRACTION OF MINERAL OIL. IN THAT YEAR, THE SERV ICE OF ARC HAD BEEN ENGAGED BY ONGC FOR RENDERING CONSULTANCY SERVICE FOR EVALU ATION OF, INTER ALIA, IMPLEMENTATION OF CSS. 37. AGAIN, IN THE ASSESSEES CASE FOR ASSESSMENT YE AR 2002-03, IN ITA NO. 5103(DEL)04, VIDE ORDER DATED 4.2.2007 (COPY PLACED ON RECORD), THE DELHI BENCH OF THE TRIBUNAL CONSIDERED CBDT INSTRUCTION NO. 1862 (SUPRA) AND DIRECTED THE AO TO COMPUTE THE INCOME UNDER THE PRO VISIONS OF SECTION 44 BB. ITA 785(DEL)2000 23 38. DCIT V. SCHLUMBERGER SEACO INC. (SUPRA), WAS FOLLOWED BY THE TRIBUNAL IN ITA NO. 5103(DEL)04(SUPRA). THEREIN A LSO, THE AUTHORITIES HAD HELD THAT THE SERVICES OF ARC WERE IN THE NATURE O F CONSULTANCY SERVICES AND TECHNICAL EVALUATION. 39. IN ACIT V. PARADIGM GEOPHYSICAL (SUPRA)(COPY PLACED ON RECORD), THE ISSUE BEFORE THE TRIBUNAL WAS AS TO WHETHER INC OME FROM IMPARTING TRAINING TO EMPLOYEES FOR OPERATION OF A SOFTWARE U SED IN THE BUSINESS OF EXTRACTION OF MINERAL OIL WOULD BE TAXABLE U/S 9(1 )(VII), OR WHETHER IT WOULD BE TAXABLE U/S 44 BB. TAKING NOTE OF CBDT INSTRUC TION NO. 1862 (SUPRA), THE TRIBUNAL OBSERVED AS FOLLOWS:- WE NOW PROCEED TO EXAMINE THE CONTENTION OF THE LE ARNED CIT DR BASED ON THE PROVISO TO SECTION 44BB(1). IT SAYS THAT THE SECTION SHALL NOT APPLY IF THE PROVISIONS OF SECTION 44D ARE APPL ICABLE. SECTION 44D MAKES SPECIAL PROVISIONS FOR COMPUTING THE INCO ME BY WAY OF ROYALTIES ETC. IN THE CASE OF FOREIGN COMPANIES. I T HAS OVERRIDING EFFECT AND IS APPLICABLE NOTWITHSTANDING ANYTHING TO THE C ONTRARY CONTAINED IN SECTIONS 28 TO 44C. IT THUS OVERRIDES EVEN SECT ION 44BB. THOUGH THE LD. CIT DR CONTENDED THAT SECTION 44BB IS NOT A PPLICABLE TO THE ASSESSEES CASE IF THE ASSESSEES CASE FALLS UNDER SECTION 44D, BUT HE DID NOT HOWEVER ELABORATE THE CONTENTION AND EXPLAI N HOW THE ASSESSEES CASE FELL U/S 44D. HE, HOWEVER, RELIED ON ARTICLE XII(3)(A) AND (D) OF THE TREATY TO CONTEND THAT THE AMOUNT RE CEIVED BY THE ASSESSEE UNDER THE CONTRACT REPRESENTED CONSIDERATI ON FOR THE USE OF THE GEOLOG SOFTWARE WHICH WAS A COPYRIGHT AND ALSO REPRESENTED CONSIDERATION FOR THE RENDERING OF TECHNICAL OR CON SULTANCY SERVICES (PROVISION OF PERSONNEL) WHICH ARE ANCILLARY AND SU BSIDIARY TO THE APPLICATION OF THE SOFTWARE. THE CONTENTION, WITH RESPECT, SEEMS TO OVERLOOK THE BASIC PRINCIPLE THAT THERE CAN BE NO T AXATION UNDER THE DOUBLE TAX TREATY. THE TREATY CAN COME TO THE AID OF THE ASSESSEE IF IT ITA 785(DEL)2000 24 IS MORE BENEFICIAL OR ADVANTAGEOUS COMPARED TO THE DOMESTIC LAW. HOWEVER, THE REVENUE HAS TO FIRST DEMONSTRATE THAT THE CASE OF THE NON-RESIDENT ASSESSEE FALLS UNDER THE DOMESTIC LAW AND IT IS FOR THE ASSESSEE TO TAKE ADVANTAGE OF ANY BENEFICIAL OR ADV ANTAGEOUS PROVISION IN THE DOUBLE TAX AVOIDANCE AGREEMENT. I N THE PRESENT CASE, NO ARGUMENTS WERE ADVANCED BY THE LD. CIT DR TO SHOW HOW THE ASSESSEE IS COVERED BY SECTION 44D AND HOW THE REVE NUES UNDER THE CONTRACT CAN BE TREATED AS ROYALTY WITHIN THE MEA NING OF THE ABOVE SECTION READ WITH EXPLANATION 2 TO SECTION 9(1)(VI) OF THE INCOME TAX ACT. THE INSTRUCTION NO. 1862 ISSUED BY THE BOARD ALSO RULES OUT THE APPLICABILITY OF SECTION 44D READ WITH SECTION 115 A OF THE ACT. THEREFORE, THERE IS NO NEED OR LEGAL JUSTIFICATION TO EXAMINE THE APPLICABILITY OF ARTICLE XII (3)(A) OR (D) OF THE TREATY BETWEEN INDIA AND AUSTRALIA. WE HAVE ALREADY HELD THAT THE PROV ISIONS OF SECTION 44BB ARE MORE APPROPRIATE TO THE PRESENT CASE. AC CORDINGLY, WE HOLD THAT THE ASSESSEE WAS RIGHT IN CONTENDING AND THE CIT (APPEALS) WAS RIGHT IN ACCEPTING THE CONTENTION THAT THE REVE NUES UNDER THE CONTRACT ARE ASSESSABLE IN INDIA UNDER SECTION 44BB OF THE INCOME TAX ACT. WE CONFIRM HIS DECISION ON THIS POINT AN D DISMISS THE GROUND. 40. IT WAS THUS HELD THAT INSTRUCTION NO. 1862 RULE S OUT THE APPLICABILITY OF SECTION 44D READ WITH SECTION 115A TO THE SERVICE O F IMPARTING TRAINING TO EMPLOYEES FOR OPERATION OF SOFTWARE USED IN THE BUS INESS OF EXTRACTION OF MINERAL OIL. IT WAS HELD THAT INSPITE OF THE PROVI SO TO SECTION 44BB, SERVICES IN RELATION TO EXPLORATION OF AND PROSPECTING FOR M INERAL OIL WERE TAXABLE U/S 44BB, RATHER THAN U/S 9(1)(VII). ONCE AGAIN, THE SITUATION IS SQUARELY APPLICABLE TO THE FACTS OF THE PRESENT CASE. REC EIPTS FOR IMPARTING TRAINING TO EMPLOYEES FOR OPERATION OF SOFTWARE USED IN THE BUSINESS OF EXTRACTION OF MINERAL OIL ATTRACT SECTION 44BB. THE FEASIBILIT Y STUDY CARRIED OUT BY ARC , ITA 785(DEL)2000 25 AS SUCH, CANNOT BE CONSIDERED TO BE ON A DIFFERENT FOOTING. IT HAS NOT BEEN DEMONSTRATED OTHERWISE. 41. THUS, WE HOLD THAT THE SERVICE RENDERED BY ARC FALLS WITHIN THE EXCLUSION CLAUSE OF EXPLANATION 2 TO SECTION 9(1)(V II), THE CONSIDERATION FOR WHICH IS CONSIDERATION FOR MINING OR LIKE PROJECT UNDERTAKEN BY THE RECIPIENT ARC. SUCH CONSIDERATION IS SPECIFICALLY EXCLUDED FROM FTS WITHIN THE MEANING OF EXPLANATION 2 TO SECTION 9(1)(VII). 42. IN CIT V. ONGC 299 ITR 438(DEL) (COPY PLACED ON RECORD), RELIED ON BY THE DEPARTMENT, THE ISSUE BEFORE THE HONBLE HIGH COURT WAS ENTIRELY DIFFERENT. THE QUESTION WAS AS TO WHETHER THE REV ENUES RECEIVED BY THE NON- RESIDENT CONTRACTOR, BEING IN THE NATURE OF SALARY, WERE NOT TAXABLE AS FTS UNDER EXPLANATION 2 TO SECTION 9(1)(VII). IT WAS , ON THE FACTS OF THAT CASE, HELD THAT SUCH REVENUES WERE NOT IN THE NATURE OF S ALARIES AND WERE MORE APPROPRIATELY TO BE TAXED U/S 9(1)(VII). AS STATE D, THERE WAS NO ISSUE IN THAT CASE WITH REGARD TO THE SERVICES RENDERED BEING COV ERED WITHIN SECTION 44BB AND EXCLUDED FROM FTS AS ENVISAGED BY EXPLANATION 2 TO SECTION 9(1)(VII). THEREFORE, EVIDENTLY, ONGC (SUPRA), IS NOT APPLIC ABLE. 43. IN CIT & ANOTHER V. ONGC 214 CTR UTTARAKHAND 135 (COPY PLACED ON RECORD), IT HAS BEEN HELD THAT TECHNICAL SERVICES COVERED U/S 44D READ WITH SECTION 115A ARE SPECIFICALLY EXCLUDED FR OM THE PURVIEW OF SECTION ITA 785(DEL)2000 26 44BB BY VIRTUE OF THE PROVISO TO SECTION 44BB(1); AND THAT THEREFORE, SUCH SERVICES ARE NOT TAXABLE U/S 44BB OF THE ACT. PER TINENTLY, THE SERVICES CONSIDERED THEREIN INVOLVED INSPECTION OF THE CONTR OL SYSTEM OF THE GAS GENERATOR AND CARRYING OUT REPAIRS OF SUCH GENERATO R. IT WAS HELD: THE NON-RESIDENT COMPANY R, REPRESENTED BY ONGC IN TERMS OF THE CONTRACT WITH ONGC , INSPECTED THE EXISTING CONTROL SYSTEM OF THREE UNITS RR AVON GAS GENERATOR DRIVEN PROCESS GAS COMPRESSOR AT SHP PLATFORM AND FOR UTILIZING SE RVICES OF ENGINEER FOR Y2K ROLL OVER TIME AT OFFSHORE INSTALL ATION IN INDIA. IT IS ALSO NOT IN DISPUTE THAT THE INSPECTORS WERE WELL TRAINED TECHNICAL HANDS WHO INSPECTED THE PLANTS AND GAVE T HEIR ADVICE TO THE ONGC AND RECEIVED THE PAYMENT AS FEE. THUS , THE SERVICE WAS OBVIOUSLY A TECHNICAL SERVICE WITHIN TH E MEANING OF EXPLANATION 2 APPENDED TO CLAUSE (VII) TO SUB-SEC.( 1) OF S.9 WHICH HAS BEEN ADOPTED BY REFERENCE UNDER S. 44D AN D S. 115A AND PROVISO APPENDED TO S. 44BB(1) CLEARLY EXCLUDES THE APPLICATION OF S. 44BB WHERE S.42 OR S.44D OR S. 11 5AOR S. 293A APPLIES. IN VIEW OF THE ADMITTED FACT THAT TH E COMPANY HAS RECEIVED FEE AS CONSIDERATION FOR THE SERVICES REND ERED WHICH WERE TECHNICAL IN NATURE AND WHICH COULD NOT BE REN DERED BY ANYONE ELSE WHO DOES NOT HAVE THE TECHNICAL EXPERTI SE OF THAT RR AVON GAS GENERATOR DRIVEN PROCESS GAS COMPRESSOR OR Y2K ROLL OVER TIME AT OFFSHORE INSTALLATION AS HE C OULD NOT BE ABLE TO INSPECT AND GIVE ADVICE. THEREFORE, THE AD VICE GIVEN WAS PURELY TECHNICAL IN NATURE AND ACCORDINGLY THE SERVICE RENDERED WAS A TECHNICAL SERVICE SQUARELY COVERED U NDER EXPLANATION 2 APPENDED TO CL.(VII) TO SUB-SEC.(1) O F S.9 WHICH HAS BEEN ADOPTED BY REFERENCE UNDER S. 44D AND S.11 5A. THE AO RIGHTLY TAXED RS. 10,53,310 @ 15 PER CENT AS PER THE DTAA BETWEEN INDIA AND SINGAPORE UNDER S. 44D R/W S.115A TREATING THAT SERVICE RENDERED BY THE NON-RESIDENT COMPANY W AS TECHNICAL SERVICE. THE TRIBUNAL WAS NOT JUSTIFIED IN UPSETTING THE ORDER OF THE AO AND HOLDING THAT IT WAS A SERVI CE RENDERED IN CONNECTION WITH THE PRODUCTION OF OIL AND, THERE FORE, THE ASSESSMENT COULD BE MADE UNDER S. 44BB. ITA 785(DEL)2000 27 44. IN ROLLS ROYCE(SUPRA), IT IS SEEN, THE HONBL E HIGH COURT OF UTTARAKHAND DID NOT HAVE ANY OCCASION TO CONSIDER T HE ISSUE RAISED IN THE APPEAL AT HAND, I.E., AS TO WHETHER THE SERVICES RE NDERED WERE SERVICES IN CONNECTION WITH EXTRACTION OF MINERAL OIL. ON FACT S, THE SERVICES RENDERED THEREIN WERE HELD TO BE TECHNICAL SERVICES. IT ALS O WAS NOT TAKEN INTO CONSIDERATION THERE THAT INSTRUCTION NO. 1862 (SUPR A) COVERED THE SERVICES SO AS TO EXCLUDE THE AMOUNTS RECEIVED FROM THE AMBIT O F FTS. 45. IN THE FACTS OF THE PRESENT CASE, AS DELIBERATE D UPON IN THE PRECEDING PARAGRAPHS, THE CONSIDERATION RECEIVED BY ARC LIES OUTSIDE FTS AS DEFINED IN EXPLANATION 2 TO SECTION 9(1)(VII), ATTRACTING T AXABILITY U/S 44BB. WERE IT OTHERWISE, OBVIOUSLY, THERE WOULD BE NO APPLICABILI TY OF SECTION 44BB, AS SECTION 44D READ WITH SECTION 115A WOULD COME INTO PLAY. 46. THE DEPARTMENT HAS ALSO PLACED RELIANCE ON THE HONBLE DELHI BENCH TRIBUNAL DECISION DATED 28.8.2007 IN ITA NOS. 124 T O 126(DEL)06, FOR ASSESSMENT YEAR 2006-07, IN THE CASE OF M/S. HOTEL SCOPEVISTA LTD. V. ACIT (COPY PLACED ON RECORD). THE ISSUE THEREIN, IT IS SEEN, IS AGAIN ENTIRELY DIFFERENT. THE QUESTION IN THAT CASE WAS AS TO WHETHER CONSULTANCY SERVICES RENDERED IN CONNECTION WITH A CONSTRUCTION PROJECT COULD BE EXCLUDED FROM THE AMBIT OF FTS AS PROVIDED IN EXPLA NATION 2 TO SECTION 9(1)(VII). DECIDING THE ISSUE AGAINST THE ASSESSE E IN THAT CASE, THE TRIBUNAL ITA 785(DEL)2000 28 HELD THE EXCLUSIONARY CLAUSE TO BE NOT APPLICABLE T O CONSULTANCY SERVICES RENDERED IN CONNECTION WITH A CONSTRUCTION PROJECT. THE ISSUE DOING THE ROUNDS BEFORE US IN THE APPEAL AT HAND, ON THE CON TRARY, IS ENTIRELY DIFFERENT FROM THAT IN SCOPEVISTA (SUPRA). HEREIN, AS DISC USSED HEREINABOVE, THE CONSIDERATION RECEIVED BY ARC WAS FOR MINING OR LI KE PROJECT UNDERTAKEN BY ARC. 47. FURTHER, SCOPEVISTA(SUPRA), HAS BEEN TAKEN AN D DULY CONSIDERED IN PARADIGM GEOPHYSICAL (SUPRA), WHEREIN, IT WAS OBS ERVED AS FOLLOWS:- THE INSTRUCTION NO. 1862 WAS ISSUED IN CONNECTION WITH EXPLANATION 2 TO SECTION 9(1)(VII) OF THE ACT AS RIGHTLY POINTE D OUT BY THE LD. CIT DR AND IT EXPLAINS THE EXPRESSION MINING PROJECT AND LIKE PROJECT OCCURRING IN THE AFORESAID EXPLANATION. THE ASSESSEE OBVIOUSLY CANNOT RELY ON THE BOARDS INSTRUCTION TO CONTEND THAT THE CONSIDERATION HAS BEEN RECEIVED BY IT FOR ANY MININ G OR LIKE PROJECT FOR THE SIMPLE REASON, WHICH WE HAVE ALREADY NOTICE D WHILE DISPOSING OF GROUND NO.1, THAT SUCH PROJECT HAS NOT BEEN UNDE RTAKEN BY IT. IT FOLLOWS FROM THIS THAT THE CONTROVERSY PRECISELY IS WHETHER THE ASSESSEES CASE IS COVERED BY SECTION 9(1)(VII)(B) OR BY SECTION 44BB. IT IS IN THIS CONNECTION THAT THE ORDER OF THE DELH I BENCH OF THE TRIBUNAL IN HOTEL SCOPEVISTA LTD. (SUPRA) HAS TO BE NOTICED. THE DIFFERENCE BETWEEN THE TWO SECTIONS HAS BEEN NOTICE D IN THIS ORDER IN PARAGRAPH 4.5 WHICH IS REPRODUCED BELOW: 4.5. THE LD. AR FOR THE ASSESSEE HAS REFERRED TO CERTAIN DECISIONS OF THE TRIBUNAL AS MENTIONED IN PARA 3.1 OF THIS ORDER EARLIER WHICH RELATE TO PROVISIONS OF SECTION 44BB BUT WE FIND THAT THE PROVISIONS CONTAINED IN SECTION 44BB WHICH RELATE TO COMPUTATION OF PROFIT AND GAIN IN CONNECTION WITH B USINESS OF EXPLORATION ETC. OF MINERAL OIL HAVE BEEN DIFFERENT LY WORDED. AS PER THESE PROVISIONS, SERVICES AND FACILITIES PR OVIDED IN CONNECTION WITH PROSPECTING FOR OR EXTRACTION OR PR ODUCTION OF ITA 785(DEL)2000 29 MINERAL OILS ARE COVERED FOR SEPARATE COMPUTATION O F INCOME U/S 44BB. IT WAS BECAUSE OF THE WORDS USED SERVIC ES OR FACILITIES PROVIDED IN CONNECTION WITH THAT IN THE DECISIONS OF THE TRIBUNAL CITED, VARIOUS SERVICES PROVIDED IN CO NNECTION WITH EXPLORATION OF MINERAL OIL SUCH AS COMPREHENSIVE GE OLOGICAL AND GEOPHYSICAL STUDIES, SUPPLY OF SUPERVISORY STAF F AND PERSONNEL HAVING EXPERTISE IN OPERATION AND MANAGEM ENT OF DRILLING RIGS, IMPARTING TRAINING ETE. WERE HELD TO BE COVERED UNDER THE PROVISIONS OF SECTION 44BB AND NOT SEPARA TELY CONSIDERED AS FEES FOR TECHNICAL SERVICES. BUT TH E WORDS USED IN EXPLANATION 2 OF SECTION 9(1)(VII) ARE DIFFEREN T. THE EXPLANATION 2 DOES NOT EXCLUDE THE CONSIDERATION FO R PROVIDING SERVICES IN CONNECTION WITH THE CONSTRUCTION PROJEC T. INSTEAD, IT EXCLUDES CONSIDERATION FOR CONSTRUCTION PROJECT WHI CH MEANS THAT EXCLUSION IS ONLY IN RESPECT OF CONSIDERATION PAID FOR ACTUAL CARRYING ON CONSTRUCTION ACTIVITIES. THE CLARIFIC ATION GIVEN BY THE CBDT REGARDING THE LEGISLATIVE INTENTION BEHIND INSERTING THE EXPLANATION 2 IS ALSO ON THE SAME LINES. WE A RE, THEREFORE, OF THE VIEW THAT THE VARIOUS MANAGERIAL TECHNICAL A ND CONSULTANCY SERVICES PROVIDED BY THE FOREIGN CONTRA CTOR FROM THE FOREIGN COUNTRY IN CONNECTION WITH THE CONSTRUC TION PROJECT WITHOUT ACTUALLY TAKING UP ANY SUCH ACTIVITIES IN I NDIA, WILL NOT BE COVERED WITHIN THE MEANING OF THE WORDS USED IN THE EXPLANATION 2 TO SECTION 9(1)(VII). IN OTHER WORDS , WE AGREE WITH THE VIEW TAKEN BY THE AUTHORITIES BELOW THAT P AYMENTS MADE FOR VARIOUS SERVICES PROVIDED FROM ABROAD BY T HE FOREIGN CONTRACTOR WILL BE TAXABLE AS INCOME IN THE HANDS O F THE RECIPIENT UNDER THE PROVISIONS OF THE ACT AND ACCOR DINGLY THE PAYMENTS MADE BY THE ASSESSEE TO THE FOREIGN CONTRA CTOR ARE LIABLE FOR THE DEDUCTION OF TAX AT SOURCE. ACCORD INGLY, WE UPHOLD THE ORDERS OF THE CIT(A) AND DISMISSED THE A PPEALS FILED BY THE ASSESSEE. IN OUR OPINION, SECTION 44BB WOULD BE THE MORE APPR OPRIATE SECTION APPLICABLE TO THE CASE SINCE THE ASSESSEE IS RENDER ING TECHNICAL SERVICES TO RIL AND SUCH SERVICES WERE RENDERED IN CONNECTION WITH THE PROSPECTING FOR OR EXTRACTION OR PRODUCTION OF MINERAL OIL. IT IS HERE THAT THE BOARDS INSTRUCTION NO. 1862 SEEMS TO SUPPORT THE ASSESSEES CASE. AFTER REFERRING TO THE OPINION O F THE ATTORNEY GENERAL THAT OPERATIONS FOR PROSPECTING FOR OR THE EXTRACTION OR ITA 785(DEL)2000 30 PRODUCTION OF MINERAL OILS CAN BE TERMED AS MINING OPERATIONS FOR THE PURPOSE OF EXPLANATION 2 BELOW SEC. 9(1)(VII)(B ), IN PARAGRAPH 3 THE INSTRUCTION GOES ON TO SAY THAT IN VIEW OF THE ABOVE OPINION, THE CONSIDERATION FOR SUCH SERVICES WILL NOT BE TREATED AS FEES FOR TECHNICAL SERVICES FOR THE PURPOSE OF EXPLANATION 2 TO SECTION 9(1)(VII) OF THE INCOME TAX ACT, 1961. PAYMENTS FOR SUCH SER VICES TO A FOREIGN COMPANY, THEREFORE, WILL BE INCOME CHARGEABLE TO TA X UNDER THE PROVISIONS OF SECTION 44BB OF THE INCOME TAX ACT, 1 961 AND NOT UNDER THE SPECIAL PROVISION FOR THE TAXATION OF FEES FOR TECHNICAL SERVICES CONTAINED IN SECTION 115A, READ WITH SECTION 44D OF THE INCOME TAX ACT, 1961. IN VIEW OF THE CLEAR INSTRUCTION OF TH E BOARD THAT CONSIDERATION FOR SERVICES RENDERED BY A NON-RESIDE NT IN CONNECTION WITH THE PROSPECTING FOR MINERAL OIL IN INDIA WILL BE TAXED UNDER SECTION 44BB, THE ASSESSEE IS RIGHT IN OFFERING THE REVENUES UNDER THE CONTRACT FOR TAX UNDER THIS SECTION. THE APPLICAB ILITY OF THIS SECTION DOES NOT DEPEND UPON THE EXISTENCE OF ANY PE OF THE NON-RESIDENT IN INDIA. THEREFORE, EVEN THOUGH THE ASSESSEE HAS NO PE IN INDIA, THE RECEIPT UNDER THIS CONTRACT IS ASSESSABLE UNDER SEC TION 44BB. 48. IN VIEW OF THE ABOVE, HOTEL SCOPEVISTA IS OF NO AID TO THE DEPARTMENT. 49. FOR THE ABOVE DISCUSSION, WE HOLD THAT: - SECTION 44BB(1) IS DIRECTLY ATTRACTED TO THE RECE IPTS EARNED BY ARC, AS THE SERVICE RENDERED BY ARC IN THE SHAPE OF THE FEASIBILITY STUDY CARRIED OUT BY IT, WAS IN CONNECTION WITH EXTRACTIO N OF MINERAL OIL; - THE SERVICE COMES WITHIN MINING OR LIKE PROJECT AS ENVISAGED BY EXPLANATION 2 TO SECTION 9(1)(VII) AND, THEREFORE, THE EXCLUSIONARY CLAUSE OF EXPLANATION 2 TO SECTION 9(1)(VII) IS ATT RACTED; - THE PROVISO TO SECTION 44B(1) IS NOT APPLICABLE; - THE AUTHORITIES BELOW CLEARLY ERRED IN HOLDING TH E REVENUES RECEIVED BY ARC TO BE TAXABLE U/S 9(1)(VII). ITA 785(DEL)2000 31 50. IN SUM, THE GRIEVANCE OF THE ASSESSEE IS FOUND TO BE JUSTIFIED AND IS ACCEPTED AS SUCH. 51. RESULTANTLY, THE APPEAL OF THE ASSESSEE IS ALLO WED. ORDER PRONOUNCED IN THE OPEN COURT ON 23.07.2010. SD/- SD/- (K.G. BANSAL) (A.D. JAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 23 .07.2010 *RM COPY FORWARDED TO: 1. ONGC AS REPRESENTATIVE ASSESSEE OF ALBERTA RESEARCH COUNCIL, CANADA. 2. JCIT, SPL. RANGE, DEHRADUN. 3. CIT 4. CIT(A) 5. DR TRUE COPY BY ORDER DEPUTY REGISTRAR