COMMISSIONER OF INCOME TAX V. O.N.G.C.

ITR/3/2007

AI Insights

The case revolves around the classification of services provided by a non-resident company, M/s Western Services, International, to the Oil & Natural Gas Commission (ONGC). The services included providing supervisory staff and personnel with expertise in the operation and management of drilling units. The core legal issue was whether these services constituted 'technical services' under Explanation-2 to Section 9(1)(vii) of the Income Tax Act, 1961, which would subject them to different tax provisions than those applicable under Section 44BB of the Act, specifically designed for the business of exploration, etc., of mineral oils. The Income Tax Appellate Tribunal (ITAT) had previously ruled in favor of the non-resident company, a decision which was contested by the revenue.

• Counselvise Citation: [2009] 140 COUNSELVISE.COM (IT) 730154 (HC-UTTARAKHAND)
• Appeal Type: Others
• Pronouncement Date: 17-07-2009
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income Tax & another versus ONGC as Representative Assessee Of Rolls Royce (P) Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Assessee Lawyers: ARVIND VASHISTH
• Keywords: Income tax appellate tribunal; Non-Resident Company; ONGC; Technical Services; Supervisory staff; Drilling operations
• Section: 44BB; 9(1)(vii); 44D

Judgement Text

"IN THE HIGH COURT OF UTTARAKHAND AT NAINITAL Income Tax Reference No.03 of 2007 The Commissioner of Income Tax, Meerut. ………. Applicant Versus Oil & Natural Gas Commission As agent of M/s Western Services, International, Tel Bhawan, Dehradun. ……… Respondent ……………………. Sri Arvind Vashisth Advocate for the applicant. None for the respondent. Date: July 17, 2009 Coram :- Hon’ble Prafulla C.Pant,J. Hon’ble B.S.Verma,J. [Hon’ble Prafulla C. Pant, J. (Oral)] This reference is made by the Income Tax Appellate Tribunal (for short ITAT), Delhi Bench “D”, New Delhi on Reference Application No.241/Del /97, on following question of law:- Whether, on the facts and in the circumstances of the case, the ITAT was correct in holding that the services of non-resident Company providing supervisory staff and personnel with expertise for carrying out drilling operations with Jack-up Rig owned by Oil & Natural Gas Commission, were not 2 covered under technical services within the meaning of Explanation-2 to Section 9 (1)(vii) of Income Tax Act, 1961 (for short the Act), in view of the order dated 13.05.1991 passed by ITAT in Income Tax Appeal No. 7438/Del/89 in the case of Technicians of M/s Foramer France? 2. Brief facts of the case relating to this reference are that the present assessee is non-resident company, which was engaged by Oil & Natural Gas Commission (for short ONGC) for furnishing supervisory staff and personnel with expertise in operation and management of self-propelled anchor moored Drilling Unit owned by ONGC. The assessee filed the return of income showing therein profit of 7.5% on the ground that the services rendered were in connection with prospecting for, or extraction or production of mineral oil in India, and hence covered under Section 44BB of the Act. The Assessing Officer considered the same as technical fee and assessed them under Section 44D of the Act. When the matter came up before the Commissioner, Income Tax (Appeals) (for short CIT (Appeals)), he accepted the assessee’s stand. Aggrieved by said order passed by CIT (Appeals), revenue approached the ITAT for further adjudication, fromwhere this reference has been made. 3. Before further discussion, we think it proper to quote relevant provision of law. Explanation 2 to Section 9(1)(vii) of the Act reads as under:- “For the purposes of this clause, “fees for technical services’’ means any consideration 3 (including any lump sum consideration) for rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head “Salaries.” 4. It is pertinent to mention here that under Section 44BB of the Act special provision is made under the Act for computing profits and gains in connection with business of exploration, etc., of mineral oils. Proviso to sub Section (1) of said Section provides that it shall not apply where the provisions of Section 44D of the Act are applicable. Section 44D relates to computing income by way of royalties etc. in the case of foreign companies. 5. From the order dated 29.12.1986 passed by the Assessment Officer (for short AO) and order dated 14.02.1990 passed by CIT (Appeals) in the matter shows that ONGC engaged the non-resident company M/s Western Services, International for the Assessment Year 1985-86, for providing and furnishing technical personnel under the contract between them. It is also clear from the impugned orders that the agreement, between ONGC and the non-resident company M/s Western Services, International, executed on 14.09.1983 relates to the drilling operation in offshore in Indian waters. Section 9 of the Income Tax Act, 1961 provides the income which shall be deemed to have accrued or arisen in India which includes income earned by way of 4 fees technical services payable by Government or a resident in respect of services utilized in a business or profession carried on by such person out side India or for the purposes of making or earning any income from any source outside India, or by a person who is a non- resident, where the fees are payable in respect of services utilized in a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India. 6. On hearing Sri Arvind Vashisth, learned counsel for the applicant, we found that similar question arose before another Division Bench of this Court in Income Tax Appeal No. 86 of 2007, Commissioner of Income Tax & another versus ONGC as Representative Assessee Of Rolls Royce (P) Ltd., decided on September 20, 2007, in which this Court held that the services rendered for inspection of control system of RR Avon Gas Operator Driven Gas Compressor and for utilizing services of engineers for Y2K roll over time at offshore installation were rendered by the engineers of non-resident company to ONGC, were held to be technical services (within the meaning of Explanation 2 to Sec. 9 (1) (vii) of the Act). 7. Following the view taken earlier by another Division Bench of this Court, we are of the opinion that since the services rendered by the non-resident company to the ONGC are purely technical in nature, they are covered under Explanation 2 to Section 9 (1)(vii) of the Act. 5 8. Accordingly, the reference question of law stands answered. (B.S. Verma,J.) (Prafulla C. Pant,J.) 17.07.2009 P.Singh "