Income Tax Appellate Tribunal – Delhi
Dcit, Circle- 2, Intl. Taxation, … vs Schlumberger Asia Services Ltd., … on 7 December, 2021 IN THE INCOME TAX APPELLATE TRIBUNAL
DEHRADUN BENCH, DEHRADUN
Before Sh. Amit Shukla, Judicial Member
Dr. B. R. R. Kumar, Accountant Member
(Through Video Conferencing)
ITA No. 6172/Del/2017 : Asstt. Year : 2013-14
DCIT, Vs M/s Schlumber Asia Services Ltd.,
Circle-2, Intl. Taxation C/o Nangia & CO, 3rd Floor, NCR
Dehradun-248001 Plaza, Municipal No. 24A, New
Cantt. Road, Dehradun
(APPELLANT) (RESPONDENT)
PAN No. AADCS1107J
Assessee by : Sh. Salil Kapoor, Adv.
Revenue by : Sh. Narendra Singh J., CIT DR
Date of Hearing: 09.11.2021 Date of Pronouncement: 07.12.2021
ORDER
Per Dr. B. R. R. Kumar Accountant Member:
The present appeal has been filed by the Revenue against
the order of ld. CIT(A)-2, Noida dated 18.07.2017.
2. Following grounds have been raised by the Revenue:
“(i) Whether on the facts and in the circumstances of
the case and in law, the CIT (A) has erred in allowing
the appeal of the assessee by completely overlooking
the amended provisions of section 9(l)(i), 9(l)(vii),
44AB, 44DA of the Act which were applicable to the AY
under consideration for the services provided by the
assessee in respect of core pressure & wellbore studies,
post stack inversion studies, data processing &
maintenance services etc which are prima facie back-
end activities in the nature of technical services.
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(ii) Whether on the facts and In the circumstances of
the case and in law, the CIT(A) has erred in placing
reliance on the judgment of the Hon’ble Supreme Cour t
in the case of ONGC vs. CIT (Civil Appeal No. 731 of
2007) by failing to appreciate that the issue of
taxability u/s 44BB vs. 44DA of the Act was not there
before the Apex Court, and that the case before the
Apex Court pertained to the AY 1985-86, and involved
the issue of taxability u/s 44BB vs. 44D of the Act.
(iii) Whether on the facts and in the circumstances of
the case and in law, the CIT (A) has erred in failing to
note that the Memorandum to Finance Bill 2010 makes
it clear that any service which falls within the ambit of
44DA, even if it is in connection with prospecting for, or
extraction or production of mineral oils as stipulated in
section 44BB, has to be assessed u/s 44DA of the Act.
(iv) Whether on the facts and in the circumstances of
the case and in law, the CIT’ (A) has erred in ignoring
the nature of activities and scope of work in respect of
the core pressure & wellbore studies, post stack
inversion studies, data processing & maintenance
services etc provided by the assessee lead to the
infallible conclusion that the receipts of the assessee
were in the nature of FTS u/s 9(1)(vii) of the Act.
(v) Whether the CIT (A) has erred in overlooking
that the assessee, in respect of the abovementioned
back-end technical services, was not engaged in any
construction, assembly, mining or like project and had
only provided ancillary services, and thus did not fall in
the exclusion clause of section 9(1)(vii) of the Act, in
distinction to the lead case of Foramer inter alia
covered by the Hon’ble Apex Court in ONGC case supra
where the dominant purpose of the contract being
prospecting, extraction or production of mineral oil, the
ancillary works were held to be covered by the
exclusion provided in Explanation to section 9(1)(vii) of
the Act.
(vi) Whether the CIT (A) has erred in overlooking
that the receipts of the assessee were not only in the
nature of FTS u/s 9(1)(vii) of the Act, but were also not
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eligible to be excluded under Explanation 2 to section
9(1)(vii) since the “recipient” of FTS, the assessee in
this case had not undertaken any construction,
assembly, mining or like project.
(vii) Whether the CIT (A) has erred in overlooking
that the dominant nature of the backend technical
services rendered by the assessee was not prospecting,
extraction or production of mineral oil so as to fall
under purview of Section 44BB of the Act.
(viii) Whether the CIT (A) has erred, on the facts and
in the circumstances of the case, In holding that the
amount received by the assessee on account of
‘equipment lost in hole’ is not includible in the gross
revenue for the purpose of computation of profits under
the presumptive provisions of section 44BB of the Act,
when the said provisions are a complete code of
taxation in themselves and do not distinguish between
revenue and capital receipts having made allowance for
expenditure including depreciation on capital assets to
the extent of 90% of gross revenue.
(ix) Whether the CIT (A) has erred in not
appreciating the fact that the amount received by the
assessee on account of ‘equipment lost in hole’ is infact
the reimbursement of expenses and hence includible in
the gross revenue for the purpose of computation of
profits as per the provisions of section 44BB of the Act
in accordance with the spirit of the ratio of the
judgment of Hon’ble Uttarakhand High Court in the case
of CIT Vs. Halliburton offshore Services Inc. (300 ITR
265).
(x) Whether on the facts and in the circumstances of
the case and in law, the CIT (A) has erred in holding
that receipts on account of service tax are not
includible in gross revenue of the assessee for the
purpose of computation of profits under the provisions
of section 44BB of the I.T. Act, 1961.
(xi) Whether the CIT (A) has erred in not
appreciating the fact that section 44BB of the Act is a
self-contained code providing for computation of profit
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at a fixed percentage of gross receipts of the assessee
and all the deductions and exclusions from the gross
receipts are deemed to have been allowed to the
assessee.
(xii) Whether the CIT (A) has erred in not
appreciating the fact that once the receipts are offered
to tax u/s 44BB of the Act which provides for
computation of profits on gross basis, there is no scope
for computing or re-computing the profits by excluding
any part of the receipts from the total turnover as the
same would amount to defeating the, very purpose of
providing for a presumptive scheme of taxation u/s
44BB of the Act and obviating the need for maintaining
accounts for individual receipts, payments etc.
(xiii) Whether the CIT (A) has erred in ignoring the
ratio of the judgment in the case of M/s Chowringhee
Sales Bureau (P) Ltd. (82 ITR 542, SC) wherein the
Hon’ble Apex Court has held that the Sales Tax
collected by an assessee in the ordinary course of its
business forms part of its business receipts. Owing to
the inherent similarity in the nature of sales tax and
service tax, the ratio of the judgment in the said case
is directly applicable to the instant case.”
3. The facts have been taken from the order of the ld. CIT(A)
who has diligently examined the issue of controversy between
applicability of provisions of Section 44BB and Section 44DA of
the Income Tax Act, 1961. We have heard the arguments of
both the parties and refrain to interfere with the order of the ld.
CIT(A). For the sake of ready reference, the discussion on the
issue as brought out by the first appellate authority is pointed
out as under:
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4. Brief facts of the case on this issue are that the AO has
held that the revenues in respect of provision of service relating
to post-stack inversion study, core pressure and well-bore
study, data processing and maintenance services are in the
nature of fees for technical services u/s 9(1)(vii) of the Act
wherein the appellant submits that the activities are
inextricably linked with the oil and gas exploration and
production activities and in view of the judgment of Supreme
Court of India in the case of Oil and Natural Gas Corporation
Ltd. Vs CIT the same cannot be categorized as FTS.
5. The gist of the submission of the assessee is as below:
• Activities are in the nature of ‘mining or like project’ and
thus not in the nature of ‘fees for technical services. The
services provided by the appellant, were used in the
exploration/exploitation of mineral oils.
• The Ld. AO has not given any reasoning for excluding such
services from the ambit of Section 44BB of the Income Tax
Act, 1961 and has made a cursory remark that these
activities cannot be considered to be relating to mining
activity.
• Supreme Court’s decision in the case of Oil & Natural Gas
Corporation Limited v. Commissioner of Income Tax is
relied upon.
• The appellant has relied upon other judicial precedents
wherein interpretation studies has been held to be
includible in the revenue chargeable to tax u/s 44BB of the
Act.
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• The appellant wishes to submit that the seismic survey is
the nature of ‘mining or like project’ and squarely covered
within the ambit of section 44BB of the Act. The appellant
places reliance on the following judicial precedents wherein
the revenue from seismic survey activity has been held to
be includible in the revenue chargeable to tax u/s 44E5B of
the Act:
Adjudication
6. The appellant has entered into several contracts earning
revenues, details of which is tabulated between Sl. no. 1 to 121
of the table inserted between page 1 to 10 of the assessment
order. The assessing officer accepted the revenue mentioned
between SI No. 1 to 9 and 11 to 112 as taxable u/s 44BB of the
Act. The revenue in respect of the contracts mentioned at serial
number 113 to 121 in respect of post-stack inversion study,
core pressure and well-bore study, data processing and
maintenance services were considered by the AO in the nature
of fees for technical services u/s 9(1)(vii) of the Act. The
Assessing Officer treated these receipts as per provisions of
section 44DA of the Act as ‘fees for technical services’ as
defined in section 9(1) (vii) of the Act. It was observed by the
Assessing Officer that the services cannot be considered as any
activity relating to “mining activity” and basically in these
activities assessee is providing technical and consultancy
services. It was considered that the post-stack inversion study,
core pressure and well-bore study, data processing and
maintenance services are covered under the definition of FTS as
per the provision of section9 (1) (vii) of the Act.
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7. The issue under dispute is the section under which the
receipts from ‘post-stack inversion study, core pressure and
well-bore study, data processing and maintenance services’
ought to be brought to tax. The AO has treated receipts in the
nature of fee for technical services and taxed the same u/s
44DA of the Act. On the other hand, the Appellant is of view
that its receipts should have been brought to tax under section
44 BB of the Act. The Appellant has primarily relied upon the
judgment of the Apex Court passed in the case of ONGC (Civil
Appeal No.731 of 2007) to support its contention.
8. Combined effect of the provisions of sections 44BB, 44DA
and 115A is that if the income of a non-resident is in the nature
of fee for technical services, it shall be taxable under the
provisions of either section 44DA or section 115A irrespective of
the business to which it relates. Section 44BB applies only in a
case where consideration is for 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, mineral oils.
9. Memorandum to the Finance Bill, 2010 clarifies that it is
not the kind of business which is material but it is the nature of
services which is of importance to determine whether receipts
are taxable as fee for technical services under section 44 DA of
the Act or under section 44 BB of the Act. In order to ascertain
the aforesaid, it would be pertinent to have a look at the
contractual agreements and scope of work as provided in the
contract.
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10. The Assessing officer at para 7.1 of the assessment order
has observed that these services cannot be considered as any
activity relating to mining activity and basically in these
activities assessee is providing technical and consultancy
services and therefore covered under the definition of FTS as
per provision of section 9 (1)(vii) of the Act.”
11. On perusal of the judgment of Hon’ble Supreme court of
India in civil appeal number 731 of 2007 in the case of ONGC
Ltd vs. CIT and others it is found that the issue before the
Hon’ble court was to decide whether certain services in
connection with prospecting, extraction or production of mineral
oil is chargeable to tax as “fees for technical services” under
section 44D read with Explanation 2 to Section 9(1)(vii) of the
Income Tax Act or will such payments be taxable on a
presumptive basis under section 44BB of the Act”? The relevant
portion of the judgment is reproduced as below:
“8. A careful reading of the aforesaid provisions of the Act
goes to show that under Section 44BB (1) in case of a non-
resident providing services or facilities in connection with or
supplying plant and machinery used or to be used in
prospecting, extraction or production of mineral oils the profit
and gains from such business chargeable to tax is to be
calculated at a sum equal to 10% of the aggregate of the
amounts paid or payable to such non-resident assessee as
mentioned in Sub-section (2). On the other hand, Section 44D
contemplates that if the income of a foreign company with
which the government or an Indian concern had an agreement
executed before 1.4.1976 or on any date thereafter the
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computation of income would be made as contemplated under
the aforesaid Section 44D. Explanation (a) to Section 44D
however specifies that “fees for technical services” as
mentioned in Section 44D would have the same meaning as in
Explanation 2 to Clause (vii) of Section 9(1). The said
explanation as quoted above defines “fees for technical
services” to mean consideration for rendering of any
managerial, technical or consultancy services. However, the
later part of the explanation excludes from consideration for the
purposes of the expression i.e. “fees for technical services” any
payment received for construction, assembly, mining or like
project undertaken by the recipient or consideration which
would be chargeable under the head “salaries”. Fees for
technical services, therefore, by virtue of the aforesaid
explanation will not include payments made in connection with a
mining project.
9. Before the High Court, a Circular No. 1862 dated
22.10.1990 having a bearing on the subject was placed for
consideration by the assessee. The aforesaid instruction may be
reproduced herein below.
“Subject: Definition of ‘fees for technical services” in
Explanation to Section 9(1) (vii) of the Income Tax Act, 1961
whether prospecting for or extraction of production of mineral
oil are “mining” operations-clarification regarding.
The expression “fees for technical services” has been defined in
Explanation 2, to Section 9(1) (vii) of the Income Tax Act, 1961
as under:
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“Explanation 2. – For the purposes of this clause, “fees for
technical services” means any consideration (including any lump
sum consideration) for the 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”.
2. The question whether prospecting for, or extraction or
production of, mineral oil can be termed as ‘mining operations,
was referred to the Attorney General of India for his opinion.
The Attorney General has opined that such operations are
mining operations and the expressions ‘mining project’ or ‘like
projects’ occurring in Explanation 2 to Section 9 (1) (ii) of the
Income Tax. Act would cover to Section 9(1) (vii) of the Income
Tax Act would cover rendering of services like imparting of
training and 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-tax
Act, 1961. Payments for such services to a foreign company,
therefore, will be income chargeable to tax under the provisions
of section 44BB of the Income-tax Act, 1961 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.
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4. A copy of the statement of the case dated 16.3.1990
(without annexures) and a copy of the Attorney General’s
opinion dated 13.5.90 are enclosed.
5. These instructions may brought to the notice of all the
officers in your region.
[F. No. 500/6/89-FTD dt.22.10.90 from CBDT]”
10. Before us the opinion of the learned Attorney General has
been placed by the learned counsel for the appellants at great
length to contend that the views expressed by the learned
Attorney which had been accepted by the CBDT were based on
an exhaustive consideration of the provisions of the Mines Act,
1952 and the Mines and Minerals (Regulation and Development)
Act, 1957 read with the relevant Entries in the Union and the
State List in the 7th Schedule to the Constitution of India. It is
urged that the eventual test is one of pith and substance of the
agreement, namely, whether the works contemplated or
services to be rendered under the agreement is directly and
inextricably linked with the prospecting, extraction or
production of mineral oil. It is submitted on behalf of the
appellants that the agreements in question satisfy the above
test for-.which purpose the appellants have categorized the
different contracts under 8 heads which may be conveniently
set out at this stage herein below.
1. Carrying out seismic surveys and drilling for oil and gas
2. Services starting/re-starting/enhancing production of oil
and gas from, wells
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3. Services for prospecting for exploration of oil and or gas
4. Planning and supervision of repair of wells
5. Repair, Inspection or Equipment used in the exploration,
extraction or production of oil and gas
6. Imparting Training
7. Consultancy in regard to exploration of oil and gas
8. Supply, Installation, etc. of software used for oil and gas
exploration”
11. It is also urged on behalf of the appellants that the
instruction/Circular dated 22.10.1990 issued by the CBDT was
binding on the primary authority on the ratio of the decision of
this Court in K.P. Varghese Vs. Income Tax Officer, Emakulam
and Others. It has been further pointed on behalf of the
appellants that even under the provisions of Section 3D of the
Oil Fields (Regulation and Development) Act 1948 a mining
lease means a lease granted for the purposes of searching for,
winning, working, getting, making merchandisable, carrying
away or disposing of mineral oils or for the purpose connected
therewith and such a lease includes an exploring or prospecting
lease. Reference has also been made to the Petroleum and
Natural Gas Rules, 1959 Framed under Section 5 of the
aforesaid Act. Under Rule 4 of the said Rules no person can
prospect for petroleum except pursuant to a Petroleum
Exploration License (PEL) granted under the Rules and no
person can mine petroleum except in pursuance of a Petroleum
Mining License (PML) granted under the Rules. It is pointed, out
that under Rule 7 of the Rules of 1959 a petroleum mining
license (PML) entitles the licensee to carry out construction and
maintenance in and on such land, works, buildings, plants,
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waterways, roads, pipelines etc. as may be necessary for full
enjoyment of the PML. On the said basis it is argued that
rendering any service in connection with prospecting and
extraction is an integral part of mining and. that the expression
“mining” in the Explanation 2 to Section 9(1) of the Income Tax
Act, in the absence of any definition under the Income Tax Act,
has to be understood as per the provisions of the Oil Fields
(Regulation and Development) Act, 1948 read with the
Petroleum and Natural Gas Rules, 1959.
12. Opposing the contentions advanced, on behalf of the
appellants, Shri. Gurukrishna Kumar, learned senior counsel for
the Revenue has urged, that the opinion of the Attorney General
relied upon and the CBDT Circular has no relevance to the
present case inasmuch as the agreements between ONGC and
the non-resident companies made it abundantly clear that, what
is paid, to the non-resident company are fees for technical
services rendered. Though such services may have some
connection with the prospecting, extraction or production of
mineral oil, the primary service rendered by the non-resident
companies on the basis of the agreements is not for
prospecting, extraction or production of mineral oil but various
ancillary services like training of personnel etc. which may have
a somewhat remote connection with the business of
prospecting, exploration or production of mineral oils. Learned
Counsel for the revenue has even suggested that if it is held
that the High Court ought to have examined each agreement or
contract to find out its real purpose and intent the revenue
would have no objection if the matters are remanded for a
complete exercise to be made on the above basis.
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13. The Income Tax Act does not define the expressions
“mines” or “minerals”. The said expressions are found defined
and explained 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
be 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 must 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 Parliament has exclusive gas and
petroleum in respect of which Parliament has exclusive
jurisdiction under Entry 53 of List I of the 7th Schedule and had
enacted and earlier legislation i.e. Oil Fields (Regulation and
Development) Act, 1948. Reading Section 2(j) and 2(jj) of the
Mines Act, 1952 which define mines and minerals and the
provisions of the Oil Fields (Regulation and Development) Act,
1948 specifically relating to prospecting and exploration of
mineral oils, exhaustively referred to earlier, it is abundantly
clear that drilling operations for the purpose of production of
petroleum would clearly 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 would be crucial for the determination of
the question whether the payments made under such an
agreement to the non-resident assessee or the foreign company
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is to be assessed und.er Section 44BB or Section 44D of the
Act. The test of pith and substance of the agreement commends
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” occurring in Explanation 2 to, Section 9(1) of the Act
would cover rendering of service like imparting of training and
carrying out drilling operations for exploration of and extraction
of oil and natural gas and hence payments made under such
agreement to a non-resident/foreign company would be
chargeable to tax under the provisions of Section 44BB and not
Section 44D of the Act. We do not see hour any other view can
be taken if the works or services mentioned under a particular
agreement is directly associated or inextricably connected with
prospecting, extraction or production of mineral oil. Keeping in
mind the above provision, we have looked into each of the
contracts as culled, out by the appellants and placed before the
Court is correct. The said details are set out below.
S. Civil Work cover ed under the contract
No. Appeal
No.
1. 4321 Drilling of expl oration wells and carrying out seismic
surveys for explora tory drilling.
2. 740 Drilling, furnishing personnel for manning, maintenance
and operation, of d rilling 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 operati on
and management of Drill ing unit.
5. 729 Capping including subduing of well, fir e fighting.
6. 738 Capping including subduing of well, fir e fighting.
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7. 1528 Analysis of data t o prepare j ob des ign, procedure for
execution and deta ils regarding monitoring.
8. 1532 Study for selection of enhanced Oil Recov ery processes
and conceptual design of Pil ot Tests.
9. 1520 Engineering and technical support to ONGC in
implementation of Cyclic St eam Stimulation.
10. 2794 Assessment and processing of seismic data along with
engineering and. technical support in implementation of
Cyclic St eam Stimulation.
11. 1524 Conducting reservoir stimulation studies in association
with personnel of O NGC.
12. 1535 Laboratory testing under simulated reservoir conditi ons.
13. 1514 Consultancy for optimal exploitation of hydrocarbon
resources.
14. 2797 Consultancy for all aspects of Coa l Bed Methane.
15. 6174 Analysis of data of wells to prepare a j ob design.
16. 1517 Geol ogical 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. 6016 Opinion on hydrocarbon resources and foreseeable
potential.
21. 6008 Evaluation of ultimate resource potential an d
presentations outside India in connection with
promotional activi ties for Joint V enture Exploration
program.
22. 1531 Review of sub-surface well data, provide repair plan of
wells and supervise repairs.
23. 733 Repair of gas turbine, gas control system and inspection
of gas turbine and generator.
24. 741 Repair and inspection of turbines.
25. 737 Repair, inspecti on and overhauling of turbines.
26. 736 Inspection, engine performance evaluation, instrument
calibration and inspection of far turbines.
27. 1522 Replacement of choke and kill consol es on drilling rigs.
28. 1521 Inspection of gas generators.
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29. 1515 Inspection of rigs.
30. 2012 Inspection of gener ator.
31. 1240 Inspection of exi sting control system and deputing
engineer to atten d to any problem arising in the
machines.
32- 1529 Inspection of drilli ng rig and verification of reliabi lity of
control systems in the drilling rig.
33. 2008 Expert advice on the device to c lean insides of a
pipeline.
34. 2795 Feasibility study of rig to assess its remaining useful lif e
4 and to carry out structural alterations.
35. 925 Engineering analysis of rig.
36. 1519 Imparting training on cased hol d production log
evaluation and analysis.
37. 1533 Training on well c ontrol.
38. 1518 Training on implementation of Si x Sig ma, concepts.
39. 1516 Training on implementation of Si x Sig ma concepts.
40. 6023 Training on Drilling project management.
41. 2796 Training in Safety Rating System and assistance in
devel opment and audit of Safety Mana gement System.
42. 1239 To dev elop techni cal specificati on for 3D Seismic AP I
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 d etermine
reservoir conditi ons.
44. 1523 Supply, installation and familiarizati on of software f or
processing seismic data.
The above facts would indicate that the pith and substance of
each of the contracts/agreements is inextricable connected with
prospecting, extraction or production of mineral oil. The
dominant purpose of each of such agreement is for prospecting,
extraction or production of mineral oils though there may be
certain ancillary works contemplated, thereunder. If that be so,
we will have no hesitation in holding that the payments made
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by ONGC and received by the non-resident assessees or foreign
companies under the said contracts is more appropriately
assessable under the provisions of Section 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 orders 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 learned Tribunal.
14. Consequently, all the appeals are allowed with no order as
to the casts.”
12. In the said order the Hon’ble Court had examined the
contracts involved in the group of cases and summarized the
brief description of the works covered under each of the said
contracts in a table between pg 19-21 of the said order. In view
of the ratio of the above judgment, it is to be seen whether the
receipts under the head “post-stack inversion study, core
pressure and well-bore study, data processing and maintenance
services” is covered within the scope of work under the
contracts examined by the Hon’ble Supreme court in the said
order. It is the scope of work and nature of service that
determines taxability under section 44 BB and 44DA of the Act.
13. On examination of several sources available on the public
domain it was found that post-Stack inversion transforms a
single seismic data volume into acoustic impedance through
integration of the assessment data, well data and a basic
stratigraphic interpretation. The data input to the post stack
inversion project typically consists of a set of wells containing
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sonic and density logs, optional check shots, formation markers
and aviation service, a series of interpreted horizons and a
seismic data volume. It generates acoustic impedance volumes
from 2D or 3D seismic.
14. On perusal of the material on wellborn analysis it is found
that “Wellbore study” is done to avoid drilling related failures.
Many drilling related failures are caused by unstable boreholes,
poor hole cleaning or stuck BHA and casing, Wellbore study
identifies the wellbore instability, along with the mode of failure
and is critical in correcting and reducing the cost associated
with it. A range of measures based on wellbore acoustics and
seismic as well as laboratory measurements assess the
significance of the surroundings and reduces the risk.
15. Similarly, core pressure study is part of the Core Analysis
which is done in course of Oil exploration to study the rock
samples yield data basic to the evaluation of the productive
potential of the hydrocarbon reservoir. Unbroken pieces of
reservoir rock are obtained through coring techniques, either
from the bottom during drilling or from the site of the borehole
walls after drilling.
16. It is clear from features of the post-stack inversion study,
core pressure and well-bore study that all the services are
integral to exploration of mineral oil. It is clear enough form the
description of work at serial no. 1,10,11,12,13,15,16, 17 and 22
of the table inserted in the ONGC Ltd case (supra) that the
purpose of the services given by the assessee is squarely
covered with the scope of work involved in the contracts
examined by the Hon’ble Supreme court in the above said order.
20 ITA No. 6172/Del/2017
Schlumberger Asia Services Ltd.
The scope of work does not indicate that the services provided
were exclusively in the nature of technical, consultancy and
managerial in nature as per section 9(1) (vii) of the Act. The
services provided by the Assessee were very much in connection
with exploration of mineral oil.
17. Similarly, serial no. 10, 15, 22 and 44 of the table
inserted in the ONGC Ltd. case (supra) covers the services of
data processing given by the assessee with the scope of work
involved, in the contracts examined by the Hon’ble Supreme
court in the above said order.
18. In the decision of Ld. ITAT, Delhi in the case of Paradigm
Geophysical Pty limited (ITA No. 2753/Del/ 2016) wherein the
activities of the assessee in regard to maintenance support has
been considered as activities falling within the ambit of section
44BB of the Act. The relevant portion of the decision is
reproduced below:
“7. Further, we find, that in the case of ONGC vs CIT (supra)
the Hon’ble Supreme Court held that if the pith and substance
of each contracts/agreement is inextricably connected with
prospecting, extraction or production of mineral oil, then
payment received by the non-resident assessee or foreign
companies under the said contract is more appropriately
assessable under the provisions of section 44BB and not u/s
44D of the Act. The list of contracts, in the said appeal before
the Supreme Court included following contracts:
“1. Contract of supply, installation and familiarization of
software for processing seismic data.
21 ITA No. 6172/Del/2017
Schlumberger Asia Services Ltd.
2. Contract of supply, supervision and installation of
software which is used for analysis of flow rate of mineral oil to
determine reservoir conditions.
…………………..
8. In the case in hand also the software is supplied and
maintained were related to various activities of exploration
including for reservoir navigator, up-gradation of the Geo log
multimin etc.
9. In view of the above, respectfully following the decision of
the Hon’ble Supreme Court, in the case of ONGC versus CIT
(supra) and the decision of the Tribunal (supra) in the case of
the assessee itself, we hold that the services provided with
assessee falls within the ambit of section 44BB of the Act.”
19. In view of the above discussion and respectfully relying
upon the decision of Hon’ble Supreme Court in the case of
ONGC versus CIT (supra) and the decision of Ld ITAT, Delhi in
the case of Paradigm Geophysical Pty limited (ITA No.
2753/Del/ 2016) it is held that the receipts of the Assessee on
account of post-stack inversion study, core pressure and well-
bore study, data processing and maintenance services were
taxable under section 44 BB of the Act.
20. In the result, the appeal of the revenue on this ground is
dismissed.
21. With regard to the contention of the revenue that the
amounts have to be taxable u/s 44DA, we hold that to invoke
the provisions of Section 44DA, the revenue has to prove that
the receipts are indeed or in the nature of FTS taxable u/s
9(1)(vii).
22 ITA No. 6172/Del/2017
Schlumberger Asia Services Ltd.
22. With regard to the reimbursement of “equipment lost in
hole” amounting to Rs.11,01,66,066/- as includible in the gross
receipts as opposed to the claim of the assessee that the same
being is a capital receipt are not chargeable to tax. The
assessee has relied upon the decision of the Hon’ble
Uttarakhand High Court in the case of CIT Vs Schlumberger Asia
Services Limited (ITA No. 58 of 2006).
Submission
23. The reimbursement of equipment lost in hole is in the
nature of capital receipts and therefore, same could not be
included, in the revenue chargeable to tax u/s 44BB of the Act.
As the name signifies lost in hole means destruction and loss of
capital assets like drilling equipment which are provided by the
assessee to oil exploration and. production companies.
Therefore, the revenue received on account of loss of equipment
does not form income in the hands of the assessee rather it is a
mere reimbursement of the cost of equipment destroyed in the
process of oil extraction.
24. The assessee wishes to place reliance on the decision of
the Hon’ble Uttarakhand High Court in the own case of the
assessee (CIT vs. Schlumberger Asia Services Ltd) wherein the
Hon’ble Court held that the receipts on account of equipment
lost in hole being in the nature of capital receipts cannot, be
included in the revenues chargeable to lax u/s 44BB of the Act.
Adjudication of the ld. CIT(A)
5.24 The averments o f the appellant have been critically examined in
light o f the decision in the case of CIT vs. Schlumberger Asia
23 ITA No. 6172/Del/2017
Schlumberger Asia Services Ltd.
Service s Ltd (supra), where in Ho n’ ble Uttarakhand High Court has
endorse d the view of Hon’ ble ITAT and he ld that no questio n of law
arises to be answered in this appeal. It is further gathered from the
decision of the Hon’ble ITAT, Delhi in the case Schlumberger Asia
Service s Ltd(ITA NO. 6063/ Del/ 2010) for the assessment ye ar 2007-
2008 that the issue of re imbursement received on account of
equipment lost in hole is decided in favour o f the assessee by
conside ring the earlie r decisions. Ld ITAT has o bserved as belo w:
“7.7 I t has furthe r been no ted that the A.O. has included a sum of
Rs. 7,23,59,963/- received by the Assessee as reimbursements of
certain e xpenses being customs duties paid, by the Assessee on
behalf of its clie nts, equipments lost in ho le etc. It has been
submitted that the inclusio n of this amount within the scope o f
receipts fo r purpose of dete rmining income of the Assessee is
contrary to the se ttle d law on the issue and decisions in the case of
the Assessee itself. Income tax is leviable only o n those receipts,
which constitute ‘income’. “Income” as contemplated unde r the A ct
does not include “reimbursement of expenses”. There is no element
of pro fit and. gains in the reimburse ments received by the Assessee,
which has incurre d expenses for and on behalf of other companies.
Contractually the liability to incur these e xpe nses was with those
companies. The refore the amounts towards re imburse ment cannot be
conside red as income of the Assessee. Furthe rmore, we note that
assessee’s contention is that that Ld. Assessing Officer has also
erred on facts and in law in no t following the decision o f the
jurisdictio nal High Court o f Uttarakhand in Assessee’s own cases DIT
v. S chlumberge r A sia Se rvices Limited [2009] 317 ITR 156/ and CIT
v. Schlumberger Asia Se rvices Lim ited (ITA No. 58 of2006, Order
date d 26-10- 2007, in which it was held, that such reimbursement
does not co nstitute income. These decisions have also been fo llo wed
by the Hon’ ble Tribunal in Assessee’s own case ACIT ITA NO.
6063/ Del./ 2010 v. Schlumberger Asia Services Limited, ITA No.
24 ITA No. 6172/Del/2017
Schlumberger Asia Services Ltd.
4180( Del)/ 2006 Orde r dated 13- 04- 2007. We find conside rable
cogency in assessee’s submission as abo ve. Hence , we hold that the
Assessing Officer has erred in including Rs.72359963/- receive d by
the assessee as reimbursements fo r determining the taxable income
of the assessee .”
5.25 Respectfully fo llowing the decision of the Jurisdictional
Tribunal and Ho n’ble High Co urt.
25. Since, the order of the ld. CIT(A) is relied on the order of
the ITAT and the Hon’ble Jurisdictional High Court, we decline
to interfere with the order of the ld. CIT(A).
26. In the result, the appeal of the Revenue is dismissed.
Order Pronounced in the Open Court on 07/12/2021.
Sd/- Sd/-
(Amit Shukla) (Dr. B. R. R. Kumar)
Judicial Member Accountant Member
Dated: 07/12/2021
*Subodh Kumar, Sr. PS*
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
ASSISTANT REGISTRAR
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