Director of Income Tax Vs. Jindal Drilling and Industries Ltd. - Court Judgment

Badar Durrez Ahmed, J.

1. These two appeals arise out of the common order dated 21.4.2006 passed in IT Appeal Nos 3416 and 3417/Del/2003 in respect of financial years 2000-01 and 2001-02, respectively. The sole issue sought to be raised in these appeals is whether the services rendered by the non-resident company Noble Denton and Associates Ltd, (NDAL), UAE for the transportation and jacking up of rigs, review of design and issuance of suitability certificate is covered under Section 9(1)(vii) read with Explanation 2 thereto or under Section 44-BB of the Income Tax Act, 1961. This is in connection with deduction of tax at source.

2. The Tribunal concluded that a reading of the provisions of Section 44-BB as well as Explanation 2 to Section 9(1)(vii) of the said Act clearly showed that the consideration in question paid or payable by the assessee to NDAL for the services rendered was covered by the provisions of Section 44-BB and not by Section 9(1)(vii) of the Act.

3. This conclusion of the Tribunal is based on the finding that the nature of services rendered by NDAL to the assessee at its off-shore rigs on the high seas were part and parcel of the activities engaged in by the assessee at the off shore rigs set up for exploration, prospecting and production of mineral oil from the sea bed. The Tribunal found as a fact that the movement of the rigs from one well to another was a very technical and cumbersome process requiring technical expertise which was provided by NDAL. This involved various processes starting with soil testing and evaluation of available data, after which the foreign technical personnel assessed the risk involved and certified as to whether the rig could be moved from one site to another. The services provided were, therefore, considered as being in connection with exploration or prospecting or production of mineral oil. Section 44-BB clearly involves the services rendered by a non-resident in connection with the prospecting or extraction or production of mineral oils. The Tribunal found as a fact that the nature of services rendered by NDAL to the assessee were covered under this expression. It is also to be noted that the nature of services rendered by the NDAL to the assessee were specifically excluded by Explanation (2) to Section 9(1)(vii) of the said Act which expressly uses the following words but does not include consideration for any construction, assembly, mining or like project undertaken by the resident.

4. So, the sums of money received by the NDAL from the assessee were not includable in the definition of fees for technical services as provided in Section 9(1)(vii) read with Explanation 2 thereto. Such receipts were, however, specifically provided for in Section 44-BB of the said Act. Both, the Commissioner of Income Tax (Appeals) and the Tribunal have also arrived at this conclusion. We fully agree with their conclusion. No substantial question of law arises for our consideration. The appeals are dismissed.