26 Sections 9, 44BB, 44DA and 115A of the Act – Prospecting for or extraction or production of mineral oil is not technical services – therefore, payments for rendering of services for extraction or production of mineral oil as sub-contractor would not be FTS – since payment was received by non-resident Taxpayer from another non-resident for services in connection with prospecting for extraction or production of mineral oil, such payments would be covered by section 44BB.

Facts       

ONGC had awarded a contract for providing
certain services to a company incorporated in Scotland and having a project
office in Mumbai (“F Co”). F Co, in turn, sub-contracted the work to the
Taxpayer, which was a non-resident. The Taxpayer received certain payments from
F Co. The Taxpayer offered the receipts to tax u/s.44BB of the Act.

The AO held that since F Co was providing
services to ONGC, the Taxpayer who was sub-contracted the said work by F Co was
indirectly performing the services for ONGC. The AO further held that services were
technical services provided by the Taxpayer for prospecting extraction or
production of mineral Oil. The AO also noted that as per the TDS certificates,
tax was withheld u/s. 194J (which, inter alia, applies in case of FTS).
Accordingly, the AO treated the receipts as ‘fees for technical services’
(“FTS”) u/s. 115A of the Act.

DRP upheld the findings of the AO.

Held

–  Perusal
of the contract showed that the contractor was solely responsible for the
performance of the contract. The contract further stated that if the contractor
engaged any sub-contractor for performing the contract, then the sub-contractor
shall be under the complete control of the contractor and that there shall not
be any contractual relationship between such sub-contractor and ONGC.

–   Thus,
the Taxpayer, who was engaged as a sub-contractor, had nothing to do with ONGC.
Therefore, the AO and DRP were wrong in holding that the amount received by the
Taxpayer for rendering services were indirectly received from ONGC. Hence, the
payments were received by the Taxpayer from FCo.

–   In Oil & Natural Gas Corpn. Ltd. vs. CIT
[2015] 376 ITR 306/233 Taxman 495/59 taxmann.com 1, the Supreme Court has
held that prospecting for extraction or production of mineral oil is not to be
treated as technical services for the purpose of Explanation 2 of 9(1)(vii),
and such activity would be covered by section 44BB.

–   Section
115A(b) presupposes existence of FTS, therefore, the payments received for
rendering of services for extraction or production of mineral oil by the
Taxpayer would not fall within the ambit of FTS. Since the pre-condition for
invoking of section 115A is missing, the same would not be attracted.

–   The
contention of the Taxpayer that it had received the payments for rendering the
services from F Co, which was a foreign company, had merit. Since the receipts
of the Taxpayer were from F Co, and not from Government or an Indian concern,
the provisions of section 115A and section 44DA were excluded.

–   Section
44BB has special and specific provisions for computing profits and gains of a
non-resident in connection with 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.
Hence, the services provided by the Taxpayer in connection with extraction or
production of mineral oil were covered by section 44BB. _