Commissioner Income Tax and Another vs ONGC Ltd. (No. 2)

Prafulla C. Pant, J.—This appeal, preferred u/s 260A of the Income Tax Act, 1961, is directed against the judgment and order dated October 16, 2006, passed by the Income Tax Appellate Tribunal, Delhi Bench "G" (hereinafter referred as "the ITAT"), whereby the order dated January 27, 2004, passed by the Commissioner of Income Tax (Appeals), Dehradun (hereinafter referred as "the CIT(A)"), is affirmed. The Commissioner of Income Tax (Appeals) allowed the appeal of the assessee and set aside the assessment order passed by the Assessing Officer u/s 143(3) of the Income Tax Act, 1961.

Heard learned Counsel for the parities.

The brief facts of the case are that Oil and Natural Gas Commission Limited (hereinafter referred as "the ONGC") is representative of the nonresident company (hereinafter referred as NRC) respondent-assessee in the case. The assessee has rendered its services to ONGC for the purposes of exploration, extraction and production of mineral oils. During the assessment year 2001-02, the assessee-NRC rendered the following services to ONGC:

(a) for retrofit/upgradation of instrumentation of solar "Saturn and Cantaur" pac at BHN and BHF offshore platforms.

(b) for carrying out zero hour overhaul of Solar Mars Gas Turbine ; and

(c) for commissioning of Solar Engine and horoscope inspection of Solar engine at Neelam Complex.

The case of the assessee is that tax is to be charged on the income of the assessee u/s 44BB of Income Tax Act, 1961, while that of the Revenue/present appellant is that the assessee has rendered the technical services for which it has been paid fee and its case is covered u/s 115A read with Section 44D of the Act.

The question of law involved in this appeal is that whether in respect of the receipts for the aforementioned three services rendered by the NRC, the tax is chargeable u/s 44BB of the Income Tax Act, 1961, or u/s 115A read with Section 44D of the Act ?

Before further discussions, we think it just and proper to quote the relevant provision of law referred by the parties. Sub-section (1) of Section 44BB of the Income Tax Act, 1961, reads as under:

44BB. (1) Notwithstanding anything to the contrary contained in Sections 28 - 41 and Sections 43 and 43A, in the case of an assessee, being a non-resident, engaged in the business of providing 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, a sum equal to ten per cent, of the aggregate of the amounts specified in Sub-section (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 profession'':

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.

The above Sub-section (1) of Section 44BB of the Act contains the proviso quoted above which provides that the Sub-section would not apply where the provisions of Section 42, 44D, 115A or 293A are applicable in computing the profits and gains or income of the assessee. Learned Counsel for the appellants has argued that since the assessee has only rendered technical services for which it has been paid the fee as such its case is covered u/s 115A read with Section 44D of the Income Tax Act, 1961. Section 44D contains a special provision for computing income by way of royalties or fee for technical services, in the case of foreign companies. Section 115A of the Act provides the rates of tax on dividends, royalties and technical service fee in the case of foreign companies. In both the sections an Explanation has been added clarifying that the expression "fees for technical services" shall have the same meaning as in the case of Explanation 2 to Clause (vii) of Sub-section (1) of Section 9 of the Act. The said Explanation 2 to Clause (vii) of Sub-section (1) of Section 9 reads as under:

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 of 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''.

Learned Counsel for the respondent argued that the services rendered by the assessee relate to upgradation of plant and machineries for the purposes of drilling and oil exploration. However, it is not the case of the respondent that the plant and machineries were supplied by it during the assessment year, as such the services rendered by the NRC-assessee were nothing but the technical services rendered by it in the work of oil exploration for which it has charged the fee.

In the above circumstances, we do not agree with the view taken by the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal in the matter, and uphold the view taken by the Assessing Officer whereby the assessee as a technical service provider has been directed to pay tax at the rate of 15 per cent, u/s 44D read with Section 115A of the Income Tax Act, 1961, instead of 10 per cent, chargeable u/s 44BB of the Act.

The appeal is allowed. The impugned orders passed by the Income Tax Appellate Tribunal and the Commissioner of Income Tax (Appeals) are set aside. The substantial question of law accordingly stands answered.