Delhi High Court
Pgs Geophysical As vs Income Tax Department, International … on 20 February, 2026
Author: V. Kameswar Rao
Bench: V. Kameswar Rao
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment Reserved on: 02.12.2025
Judgment delivered on: 20.02.2026
Judgment uploaded on: As per Digital Signature~
+ W.P.(C) 9678/2025
PGS GEOPHYSICAL AS .....Petitioner
versus
INCOME TAX DEPARTMENT, INTERNATIONAL
TAX CIRCLE 2(2)(2) NEW DELHI & ANR. .....Respondents
Advocates who appeared in this case
For the Petitioner : Mr. Salil Kapoor, Ms. Soumya Singh, Ms.
Ananya Kapoor, Mr. Sumit Lalchandani and
Ms. Sakshi Rustagi, Advocates
For the Respondents : Mr. Gaurav Gupta, SSC, Mr.Shivendra
Singh, Mr. YojitPareek, JSCs, Mr Surya
Jindal, Advocate.
CORAM:
HON'BLE MR. JUSTICE V. KAMESWAR RAO
HON'BLE MR. JUSTICE VINOD KUMAR
JUDGMENT
V. KAMESWAR RAO, J.
1. The present petition has been filed seeking directions to quash a
certificate and order dated 01.05.2025 (impugned order) passed by the
respondent No.1/the Revenue under Section 197 of the Income Tax Act,
1961 (the Act) in the case of the petitioner for the Financial Year (FY) 2025-
26, relevant to Assessment Year (AY) 2026-27, whereby a withholding tax
of 7% of gross receipts has been imposed on the petitioner.
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2. At the outset, we may narrate a brief factual background of the
present controversy, as borne out from the petition. The petitioner is a non-
resident company and is incorporated in Norway. It is engaged in the
business of providing geophysical services to oil and gas industry. It
conducts seismic surveys and provides offshore seismic data acquisition and
other associated services such as processing and interpretation of such data.
On 20.11.2024, the petitioner received a Letter of Award (LOA) from the
Oil and Natural Gas Commission (ONGC) bearing
no.DLI/2024/BB4SEC/1311217/ZV5AC24001 for hiring its services for 2D
and 3D broadband seismic data acquisition, pursuant to which, the parties
viz., the petitioner and ONGC entered into a contract on 27.12.2024 bearing
no.DLI/2024/BB4SEC/1311217/ZV5AC24001/9010039479 whereby the
petitioner is to provide services in relation to 2D and 3D Broadband seismic
data for acquisition at the eastern offshore of India.
3. Since the petitioner was to receive $22,905,098 (equivalent to
₹206,14,58,790) pursuant to the aforesaid LOA in relation to 2D &3D
Broadband seismic data acquisition in the FY 2024-25, relevant to AY
2025-26, it applied for a certificate under Section 197 of the Act, requesting
the Revenue to grant a lower Tax Deductible at Source (TDS) at the rate of
3.125% by application dated 23.12.2024. In the application, while conceding
that as the contract arises in India, the activities of the petitioner are taxable
in India, the petitioner contended that since the activities are integral to
extraction of oil and gas, the same are liable be taxable as per the provision
of Section 44BB of the Act, by relying upon the judgment of the Supreme
Court in the case of ONGC v. CIT, [2015] 376 ITR 306, wherein the Court,
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after examining a bundle of services, including seismic survey services held
that that the profits should be computed in accordance with the provisions of
Section 44BB of the Act which is a specific provision for computing income
of non-resident from provision of services or facilities in connection with or
supplying plant and machinery on hire used, to be used in prospecting or
extraction or production of mineral oil in India. Reliance was also placed on
the judgment dated 08.04.2016 of this Court in the petitioners’ own case in
respect of AY 2008-09, titled PGS Exploration (Norway) AS v. Additional
Director of Income Tax, 2016:DHC:2949-DB wherein it was held that the
activity of 2D/3D seismic survey carried on by the petitioner in connection
with exploration of oil, was not in the nature of ‘Fees For Technical
Services’ (FTS) in terms of Explanation 2 to Section 9(1)(vii) of the Act.
Accordingly, the petitioner requested for issuance of a certificate under
Section 197 of the Act at the rate of 3.125% as per its calculation,
reproduced below:
S.No. Particulars Amount (in
INR)
1 Gross contractual receipts 184,05,88,200
2 GST at the rate of 12% in respect 22,08,70,590
of contractual receipts
3 Total receipts 206,14,58,790
(A)
4 Total tax Liability (excluding 6,44,20,587
surcharge and applicable (B)
education cess) as per section 44B
of the
Act(184,05,88,200*10%*35%)
5 Average tax rate applicable 3.125%
(excluding surcharge and
applicable education
cess)(B/A*100)
4. Pursuant to the filing of the said application, the petitioner filed
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another clarification letter dated 03.01.2025 wherein it provided all the other
documents requisitioned by the Revenue, including the copy of the contract,
tax residency certificate, etc. The Revenue, considering that the services
rendered by the petitioner are taxable under section 44BB of the Act, issued
the certificate and order for AY 2025-26 dated 22.01.2025 wherein it
directed TDS to be deducted at the rate of 3.5% on the payment to be
received by the petitioner from ONGC.
5. As the contract was continuing for the FY 2025-26, the petitioner
filed an application dated 12.03.2025 for renewal of the certificate for the
year under consideration, i.e., A.Y. 2026-27 requesting lower rate of
withholding tax on the estimated receipt of $5,18,91,522 (equivalent to
₹451,45,62,414). In the said application, the petitioner categorically pointed
that the application is regarding the same contract and the same fact patterns
as for immediately preceding A.Y. 2025-26 for which the Revenue issued
the certificate and order dated 22.01.2025 for TDS to be deducted at the rate
of 3.5% of the payment to be received by the petitioner. It also provided the
clarification/information sought by the Revenue.
6. Thereafter, the Revenue issued a letter dated 26.04.2025 calling upon
the petitioner to show cause as to why the provisions of Section 44DA of the
Act are not applicable to the receipts which are to be received by the
petitioner in place of Section 44BB of the Act. In response to the said letter,
the petitioner filed detailed submissions through letter dated 28.04.2025 on
the non-applicability of provisions of Section 44DA in the facts of the case
and also submitted that the receipts would be taxable under Section 44BB of
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the Act, as held by this Court in the case of the petitioner for AY 2008-09.
7. The Revenue then passed the impugned certificate and order dated
01.05.2025 under Section 197 of the Act, whereby it summarily held that the
receipts of the petitioner amounts to Royalty/FTS liable to be taxed under
Section 44DA of the Act. For computing the rate of TDS, the Revenue
assumed profit at rate of 20% and directed that TDS be deducted at the rate
of 7%.
8. The petitioner sent a letter dated 19.05.2025 seeking re-evaluation of
the certificate and order, but since there was no action taken pursuant to the
same, the petitioner withdrew the letter. On account of revision in the
estimated receipt for the year under consideration, the petitioner filed an
additional application dated 17.06.2025 under Section 197 of the Act,
seeking a certificate for AY 2026-27.
9. Mr. Salil Kapoor, learned counsel for the petitioner submitted that the
certificate and order passed by the respondent/Revenue under Section 197 of
the Act for TDS at the rate of 7% is illegal, bad in law, unreasonable, and
inconsistent with the certificate and order issued under Section 197 of the
Act at the rate of 3.5% for the preceding year.
10. He stated that the Revenue grossly erred in not appreciating that even
if 3.125% withholding tax rate as sought by the petitioner is not granted, in
the absence of any change in the facts and circumstances of the case, the
Revenue could not have taken a contrary view from that of the immediately
preceding year and arbitrarily increased the rate of withholding tax
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certificate/order from 3.5% to 7%, more so when the contract for such
imposition remains the same. The respondent also failed to appreciate that
the application for the year under consideration was not a fresh application
requesting a lower withholding certificate for the FY 2025-26, but merely
for the renewal of the certificate and order already issued for FY 2024-25.
11. His contention is that the Revenue having accepted the basis of
computation of above 3.5% for the immediately earlier FY, that the receipts
are taxable under Section 44BB of the Act and therefore, deemed
profitability of 10% with profit attribution at the rate of 35%, which would
be taxable at 10%, ought not to have resiled from that position without there
being any change in facts. The rule of consistency in income tax proceedings
cannot be ignored. If a view has been taken in the proceedings for earlier
year, then the Revenue is estopped from taking a different view in the
subsequent year unless there is some rational and reasonable cause for the
same. In this regard, he has referred to the decision of this Court in Prem
Kumar Chopra v. ACIT W.P.(C) 12104/2022. Further reliance is placed on
the judgments in the cases of RadhasoamiSatsang v. CIT, (1992) 193 ITR
321 (SC); Commissioner of Income Tax v. Excel Industries, 2014 13 SCC
459; Lufthansa Cargo AG v. DCIT, W.P.(C) 91361/2019; Tata
Teleservices (Maharashtra) Ltd. v. DCIT, (2018) 402 ITR 384;
Commissioner of Income Tax v. ARJ Security Printers, 264 ITR 276;
Commissioner of Income Tax v. Neo Poly Pack Pvt. Ltd., 245 ITR 492 and
Commissioner of Income Tax v. Dalmia Promoters Developers Pvt. Ltd.,
2006 SCC OnLine Del 83.
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12. Mr. Kapoor has submitted that the Revenue has erred on facts and in
law in not appreciating that the income of the petitioner, being intrinsically
linked to the business of exploration of mineral oils, is taxable only under
the provisions of Section 44BB of the Act, as accepted by the Revenue
while issuing the certificate and order for AY 2025-26 and held so by this
Court in the case of the petitioner itself for the AY 2008-09.The services
being rendered pursuant to the contract are precisely the same as those
provided by the petitioner during AY 2008-09 before this Court. He has
endeavored to demonstrate the similarities between the two cases in a
tabulated form in his written submissions. Reliance is also placed on the
decision of this Court in the case of Director of Income-tax-II v. OHM Ltd.,
[2013] 352 ITR 406 (Delhi).
13. It was submitted that the Revenue also failed to appreciate that the
applicable GST rate of 12% on the services under consideration, being a
statutory liability, does not have any element of profit and hence, the same
could not be included in gross receipts for the purpose of taxability under
section 44BB of the Act. Reliance in this regard is placed on CBDT
Circular No. 23/2017 dated 17.07.2017 issued in the context of tax
withholdings under Chapter XVII-B of the Act which provides that
wherever as per the terms of the agreement/ contract between the payer and
the payee, the GST component comprised in the amount is indicated
separately, tax shall be deducted at source under Chapter XVII-B of the Act
on the amount paid/payable without including such GST component.
Though the said circular was issued in respect of payments to resident
payees, according to Mr. Kapoor, an analogy can be drawn from the same
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that GST element should not be included while withholding the taxes.
14. He stated that it is settled law that service tax is not to be included in
gross receipts for the purpose of taxability under Section 44BB of the Act
which would apply mutatis mutandis to GST component also. Reference in
this regard is made to the judgments in the cases of Director of Income Tax
v. Mitchell Drilling International Pvt. Ltd., (2016) 380 ITR 130
(Delhi);Director of Income-tax (International Taxation) v. Schlumberger
Asia Services Ltd., [2019] 414 ITR 1 (Uttarakhand) (FB); CIT
(International Taxation) v. B.J. Services Co. Me Ltd. [2023] 457 ITR 80
(Uttarakhand); Commissioner of Income-tax (International Taxation) v.
Schlumberger Asia Services Ltd., [2024] 297 Taxmann 1 (SC);
Commissioner of Income-tax v. Vantage International Management Co.
[2024] 296 Taxman 160 (SC); Commissioner of Income-tax v. Transocean
Offshore International Ventures Ltd., [2023] 459 ITR 609 (SC).
15. Mr. Kapoor also submitted that the Revenue has arbitrarily
characterised the receipts of the petitioner as Royalty/FTS without providing
any reasons. The scope of work of the petitioner under the contract is
confined to supplying 2D and 3D broadband seismic data acquisition of the
eastern offshore of India, receipts whereof would not amount to
Royalty/FTS as per the provisions of the Act. Further, the Revenue has not
even stated as to whether the receipts of the petitioner would amount to
Royalty or FTS, which are two completely different and mutually exclusive
categories, and the receipts of the petitioner certainly cannot be both.
16. In support of his submission that the receipts of the petitioner would
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not fall under FTS, he has relied on the following:
16.1 Explanation 2 to Section 9(1)(vii) of the Act, which categorically
excludes receipts in relation to mining or like projects from its ambit
and therefore, provision of 2D and3D broadband seismic data
acquisition, being integral to extraction of Oil and gas, does not
amount to FTS.
16.2 Central Board of Direct Taxes (CBDT) Instructions No. 1862 dated
22.10.1990, where the CBDT interpreted the question whether
prospecting for, or extraction or production of mineral oil are mining
operations, and instructed to include even services from imparting of
training to drilling activity within ‘mining or like project’. The
relevant extract from the Instructions reads as under:
“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
‘likeproject’ occurring in Explanation 2 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 tax 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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16.3 The order of this Court in ITA 612/2012, for AY 2008-09, wherein it
was held that the activity of 2D/3D seismic survey carried on by the
petitioner in connection with exploration of oil, was not in the nature
of FTS in terms of Explanation 2 to Section 9(1)(vii) of the Act. The
argument is that the services being rendered pursuant to the contract
in the present case are precisely the same as those provided in the AY
2008-09.
16.4 The decision of the third member of the ITAT in the case of Wester
Geco International Ltd. v. DDIT, Dehradun dated 15.07.2022 in ITA
No. 6436/DEL/2016, wherein it was held that services of seismic data
acquisition, planning and carrying out of pre-survey study, software
maintenance/upgradation, are not in the nature of FTS and that these
services are covered by the exclusion provided in Explanation 2 to
Section 9(1)(vii), being consideration for ‘mining or like projects’
and hence, are not taxable under Section 44DA of the Act, but under
Section 44BB by relying on Supreme Court ruling in Oil and
Natural Gas Corporation Limited (supra).
17. He has also submitted that the services provided by the petitioner
would also not fall within the definition of Royalty as provided in
Explanation 2 to Section 9(1)(vi) of the Act, which provides as under:
“Explanation 2.–For the purposes of this clause, “royalty”
means consideration (including any lump sum consideration
but excluding any consideration which would be the income of
the recipient chargeable under the head “Capital gains”) for–
(i) the transfer of all or any rights (including the granting of a
licence) in respect of a patent, invention, model, design, secret
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formula or process or trade mark or similar property ;
(ii) the imparting of any information concerning the working of,
or the use of, a patent, invention, model, design, secret formula
or process or trade mark or similar property ;
(iii) the use of any patent, invention, model, design, secret
formula or process or trade mark or similar property ;
(iv) the imparting of any information concerning technical,
industrial, commercial or scientific knowledge, experience or
skill;
(iva) the use or right to use any industrial, commercial or
scientific equipment but not including the amounts referred to
in section 44BB;
(v) the transfer of all or any rights (including the granting of a
licence) in respect of any copyright, literary, artistic or
scientific work including films or video tapes for use in
connection with television or tapes for use in connection with
radio broadcasting; or
(vi) the rendering of any services in connection with the
activities referred to in sub-clauses (i) to (iv), (iva) and (v).”
18. According to Mr. Kapoor, the CBDT Instruction No.1862 dated
22.10.1990, clarifies that services such as imparting of training, not limited
to carrying out drilling operations, are squarely covered within the meaning
of a mining or similar project. Pertinently, the term ‘drilling operation’ does
not appear in the text of Section 9(1)(vii) Explanation 2, the CBDT circular,
or Section 44B of the Act.He has relied upon the judgment of the Supreme
Court in Oil and Natural Gas Corporation Ltd (supra) to contend that the
test of pith and substance, i.e., namely, whether the works contemplated or
services to be rendered under the agreement is directly and inextricably
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linked with the prospecting, extraction or production of mineral oil, is an
acceptable test to determine whether the services fall under the exclusion
provided in the definition of FTS in Explanation 2 to Section 9(1)(vii) of the
Act. He has illustrated some examples of the scope of works that are
regarded as activities connected with prospecting or exploration of mineral
oil under the Act, as provided in the judgment, which demonstrate that the
essential nature of seismic-related services lies in analysis, assessment,
study, design etc., and not in physical interaction with the subsurface. The
illustration provided is reproduced as below:
↓
↓
↓
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↓↓
19. Mr. Kapoor has submitted that the statutory language of Section
44BB uses the phrase “engaged in the business of providing services or
facilities in connection with prospecting for, or extraction or production of,
mineral oils (including petroleum and natural gas)”which contemplates a
wide array of services and facilities related to prospecting, extraction, or
production of mineral oil. Hence, there is no requirement that such services
must necessarily involve physical operations like drilling; even purely
technical or intellectual services, such as imparting training, are covered so
long as they are in connection with the relevant activities. Therefore, any
attempt to assign a restricted meaning to these provisions, to exclude simple
services which do not involve drilling operations, as contended by theSignature Not Verified
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Revenue, is contrary to both the clarification provided by the CBDTand the
legislative intent. All services, whether they involve drilling or not, are very
much covered under Section 44BB, provided they are in connection with the
prospecting, extraction, or production of mineral oil.
20. Mr. Gaurav Gupta, learned Senior Standing Counsel for the Revenue
would state that pursuant to the application under Section 197 of the Act for
FY 2025-26, some clarifications were sought from the assessee, asking them
to produce inter alia their global financials for FY 2024-25, documentary
evidence with regard to a potential Permanent Establishment (PE) in India,
and justifications as to why the provisions of Section 44DA are not
applicable to the receipts to be received, in place of Section 44BB of the
Act. According to him, the assessee filed its response on 28.04.2025,
wherein it admitted that it has a project office in India, and that its activities
will be carried on for more than 30 days, thereby conceding that it has a PE
in India.
21. He has referred to the decision of this Court in the case of the assessee
itself in ITA 612/2021, wherein it was observed as under:
“19. Thus, after 01.04.2011, income falling within the scope of
Section 44DA(1) of the Act would be excluded from the scope of
Section 44BB of the Act. … …
20. Having stated the above, we must clarify that the income falling
within Section 115A(1)(b) of the Act which does not fall within the
four corners of Section 44DA(1) of the Act would also not be taxable
under Section 44BB(1) of the Act, for the reason that by virtue of
proviso to Section 44BB(1) of the Act, the same is excluded.
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the assessee had a PE in India during the relevant period; and (b) if
so, whether the contracts entered into by the appellant with BG and
RIL were effectively connected with the appellant’s PE in India. It is
only, if the AO finds that the said two conditions were satisfied, that
the income of the assessee would be computed under Section 44BB(1)
of the Act. However, if such conditions are not satisfied then the
income tax payable by the appellant would be computed in
accordance with Section 115A(1)(b) of the Act.”
22. A reference is also made to the judgment of this Court in Paradigm
Geophysical Pty Ltd. v. CIT : W.P.(C)1370/2019.
23. He also submitted that real nature of income and taxability can be
determined only after examination of actual functions carried on by the
assessee during the previous year relevant to impugned assessment year.
Further, the issuance of certificate under Section 197 of the Act, does not
preclude/ bind the Petitioner to adopt a different position and file its return
of income on that basis.
24. He stated that that considering the position of law and the fact that the
assessee failed to provide the proposed financials relating to its project
office, profit was reasonably and tentatively determined at the rate of 20%
on the gross receipts of the petitioner in India, on which 35% tax was
applied and accordingly, a certificate under Section 197 of the Act was
issued.
25. That apart, it is stated that the certificate under Section 197 being
provisional, tentative and interim, is not conclusive proof or final
determination of the tax liability of the assessee, and as such the principle of
res-judicata shall not apply the determination of TDS rate. In tax matters
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pertaining to a subsequent assessment year involving the same issue as a
previous year, the court is not bound by the earlier decision and may depart
from it if the subsequent case is distinguishable on facts or if the prior ruling
was rendered per incuriam. In this regard, reliance is placed on the
judgments in the cases of H.A. Shah and Co. v. CIT, [1956] 30 ITR 618
(Bom.), Amalgamated Coalfields v. Janapada Sabha, AIR 1964 SC 1013,
Bharat Sanchar Nigam Ltd. v. Union of India, [2006] 3 STT 245, and
MeerajEstate Developers v. CIT, [2019] 418 ITR 681 (Allahabad).
26. Mr. Kapoor, in rejoinder to the submissions of Mr. Gupta would state
that for ascertaining the taxability of receipts, and to see whether the same
would be taxable under Section 44BB or 44DA of Act, it is the nature of
receipts that must be determined and the presence of PE has no relevance.
27. He has controverted the reliance placed by Mr. Gupta on the decision
of this Court in ITA 612/2012, by stating that the decision was recalled by
this Court vide order dated 01.05.2015 in Review Petition 388/2014. The
appeal was later heard afresh and disposed of vide order dated 08.04.2016
wherein it was held that receipts of the petitioner do not amount to FTS, and
the services provided by the petitioner in relation to acquiring and
processing of 3D seismic data with respect to the offshore block in India
were taxable under Section 44BB of the Act.
28. He has also stated that the judgment in Paradigm Geophysical Ltd.
(supra) only reaffirms the position that unless the receipts amount to FTS or
royalty, it cannot be taxed under Section 44DA of the Act. Further, the
company in that case was engaged in the business of developing and
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providing customised software enabled solutions and annual maintenance
services, which is not the case herein.
29. He has also controverted the submission of the learned counsel for the
Revenue that the petitioner is yet to undertake the functions and operations
and therefore taxability of receipts can only be decided upon examination of
such activities yet to be undertaken, by stating that during the year under
consideration, the activities of the petitioner pertain to the contract dated
27.12.2024, which was the same contract pursuant to which the Revenue
had issued the certificate and order for AY 2025-26. He has also challenged
the stand of the Revenue that the petitioner failed to provide its proposed
financials, by stating that that vide letter dated 23.04.2025, the petitioner had
submitted global financials in response to the clarifications sought by the
Revenue.
30. In sur-rejoinder, Mr. Gupta has reiterated his contention that the
certificate under Section 195 / 197 of the Act, is only provisional and
tentative, which may or may not be in strict compliance with actual tax
liability of the assessee. In other words, at the stage of issuance of certificate
under Sections 195 / 197, the assessing officer has to determine the quantum
of TDS, and not the real/actual tax liability of the assessee from the said
transaction. Thus, at the time of insurance of certificate under Section 195 /
197 of the Act, the Assessing Officer determines tentative quantum of tax
that is required to be deducted based on his individual satisfaction /
estimates, and the same doesn’t operate as an estoppel against the Revenue
to take a completely different position, as to taxability of such income, in the
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course of regular assessment. Reference in this regard is made to a decision
of the High Court of Madras in the case of Ansaldo Engersia SPA v. ITO,
[2003] 261 ITR 476 (Mad.)and of this Court in Areva T&D, SA v. Assistant
Director of Income-tax : 349 ITR 127 (Del).
31. That apart, he has submitted that the scope of judicial review of the
decision to grant lower rate of withholding tax vis-a-vis the statutory rate of
deduction is extremely narrow, as such decision for issue of certificate are
interim in nature and only reflect a tentative/estimated opinion. If ultimately,
the assessee is found to be eligible for refund, the same shall be granted to
the assessee with applicable statutory interest. Referring to the judgments of
this Court in National Petroleum Construction Co. v. DCIT, International
Taxation, Delhi, (2020) 421 ITR 24, and Manpower group Services India
Pvt. Ltd. v. CIT, (2021) 430 ITR 399, he contended that the scope of judicial
review in present case shall be restricted to the procedure followed by the
assessing officer while arrive at the conclusion for issuance of certificate
under Section 197 of the Act, which cannot be faulted at all.
32. Mr. Gupta further stated that the definition of FTS as provided under
Explanation 2 to Section 9(1)(vii) of the Act excludes consideration for
certain activities from its ambit, viz. consideration for construction,
assembly, mining or like project. However for such exclusion the
“consideration” should be “for construction, assembly, mining or like
project” and not “in connection” or “relatable to” such project. In other
words, there should be direct nexus and not some remote connection with
construction, assembly, and mining or like projects. To buttress this
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argument, he has referred to the CBDT Instruction No. 1862 and also the
judgment in ITO v. SMS Schloemann Siemag Aktiengesellshaft
Dusseldorf, (57 ITD 254), wherein it was held that mere ‘supervisory
services’ would not amount to undertaking construction or assembly for
exclusion from FTS under Explanation 2 to Section 9(1)(vii) of the Act. In
this regard, reference is also made to the decisions in Director of Income-
tax v. Rio Tinto Technical Services, [2012] 17 taxmann.com 70 (Delhi)
and Clouth Gummiwerke Akrineqesellschaft v. Commissioner of Income-
tax[1999] 103 Taxman 280 (Andhra Pradesh).
33. He has provided the following table to highlight the distinction in the
language employed by Section 44BB and Explanation 2 to Section 9
(1)(vii) of the Act:
34. According to him, from a perusal of the aforesaid, it would become
apparent that the provisions of Section 44BB are attracted on all the services
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or facilities which are provided in connection with prospecting for, or
extraction or production of, mineral oils. Thus, the scope of services covered
within the ambit of Section 44BB of the Act, is much wider and not
restricted to the activities which are directly in the nature of prospecting for,
or extraction or production of, mineral oils. However, on the other hand, the
scope of exclusion from the ambit of FTS is very narrow. Therein, the
recipient has to inter-alia demonstrated that amount receipt is consideration
for undertaking construction, assembly, and mining or like project. In other
words, there has to be direct-link between consideration and activities of
construction, assembly or mining, for the purpose of exclusion from scope
of FTS.
35. It is his submission that prior to the amendment brought in by the
Finance Act, 2010, such distinction between the scope of Section 44BB and
Explanation 2 to Section 9(1)(vii) of the Act, did not impact taxability of
receipts which were received in connection with prospecting for extraction
or production of mineral oils, since Section 44BB was specific provision for
taxability of receipts arising on account of services / facilities in relation to /
in connection with extraction and prospective of mineral oil. However,
pursuant to amendment brought in by Finance Act, 2010 (under Section
44DA of the Act), the said distinction shall be pertinent to decide the
taxability of such consideration. Thus, it would be potent to examine the
nature of such receipt, even though they may still qualify within ambit of
Section 44BB of the Act, however, their taxability shall be as governed by
Section44DA of the Act (if they are in the nature of FTS / Royalty), unless,
it is demonstrated that the same falls outside the ambit of Explanation 2 to
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Section 9(1)(vii) and 9(1)(vi) of the Act.
36. As per the contract dated 27.12.2024, the scope of work of the
petitioner is ‘2D and 3D broadband seismic data acquisition in Eastern
Offshore India’. It is submitted that offshore seismic surveys are like
ultrasounds of the earth that help scientists “see” below the ocean floor.
Seismic survey is conducted by a vessel towing a compressed air gun which
fires in regular intervals and a large array of sound sensors that record how
long it takes for the sound to bounce back from the layers of rock under the
sea floor from the recorded data detailed three-dimensional maps are
produced these provide engineers the information they need to develop a
production plan in order to tap the highest yield reserves. During the process
of Offshore Seismic Survey, no construction, mining, assembly or any
similar activities take place. Thus, such offshore seismic surveys and data
acquisition does not fall under exceptions carved out from Explanation 2 to
Section 9(1)(vii) of the Act. He also stated that if the offshore seismic
surveys and data acquisition is coupled with mining or drilling operation,
then it may fall outside the scope of FTS.
37. Mr. Gupta has also drawn our attention to Clause 3 and Appendix-C
of the contract dated 27.12.2024, to submit that apart from providing for
Offshore Seismic Surveys and Data Acquisition, the contract also identifies
the vessels [MV Ramform Sovereign] and various equipments to be deployed
by the petitioner for the said purpose. The contract further stipulates that “if
the CONTRACTOR intends to deploy additional seismic vessel(s) not from
the shortlisted vessels, but conforming to contract specifications, permission
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shall be required from CORPORATION before deployment.” In view of the
aforesaid covenants, it is apparent that the said contract was for carrying out
Offshore Seismic surveys and Data acquisition but only through specific and
identified vessels /equipment. Thus, the consideration payable under the
contract also bears character of royalty for use of industrial, commercial or
scientific equipment. Thus, the same may also qualify as ‘Royalty’ under
Explanation 2 to Section 9(1)(vi) of the Act.
38. Yet another submission of Mr. Gupta is that prior to the amendment
introduced by the Finance Act, 2010, taxability of FTS / Royalty arising on
account of services / activities in connection with business of exploration,
etc., of mineral oils, was governed by provisions of Section 44BB of the
Act, viz., special provision for computing profits and gains in connection
with the business of exploration, etc., of mineral oils. This is particularly so
because, although proviso to Section 44BB(1) provides that the said
subsection shall not apply in a case where the provisions of Sections 42,
44D, 115A or 293A apply for the purposes of computing profits or gains or
any other income referred to in those sections, however, there was no
corresponding provision under Section 44D of the Act, to override the
specific provisions of Section 44BB of the Act.
39. While adjudicating ONGC (supra), the Supreme Court attempted to
harmonise the scope of specific provision vis-a-vis the general provisions for
taxability of Royalty/FTS. The question before the Court was, whether the
amounts paid by ONGC to the non-resident assessees/ foreign companies for
providing various services in connection with prospecting, extraction or
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production of mineral oil is chargeable to tax as FTS under Section 44D read
with Explanation 2 to Section 9(1)(vii) of the Act or under Section 44BB of
the Act. While examining this, the Court primarily held that income from
any activity which has proximity with or is in relation to mining for or
exploration of mineral oil, shall be taxable under the provisions of Section
44BB of the Act. Mr. Gupta stated that however, the Court had neither
examined nor given any finding as to nature of receipt arising from solitary
function of ‘2D/3D Offshore Seismic Survey’ and whether the same would
qualify as FTS, or Royalty, particularly when the specific vessels as well as
equipment are identified in the said contract for carrying out such work.
40. He has submitted that however, after the amendment introduced by
Finance Act, 2010, FTS/Royalty even though arising on account of
services/activities in connection with business of exploration, etc., of
mineral oils, shall be taxable as per provisions of Section 44DA of the Act,
since, the amendment expressly and clearly overrides ‘Special provision for
computing profits and gains in connection with the business of exploration,
etc., of mineral oils’, by introduction of Second Proviso to Section 44DA(1)
of the Act, which reads, “Provided further that the provisions of section
44BB shall not apply in respect of the income referred to in this section.”To
decipher such correlation between Sections 44BB and 44DA of the Act, he
has placed reliance on the decision of this Court in the case of Paradigm
Geophysical Pty Ltd. (supra) wherein, scheme of the Act has been
elaborated, for classification of receipts (relating to exploration of mineral
oil) under different provisions for the purposes of its taxability. He stated
that the judgment provides a harmonious construction of Section 44BB vis-
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à-vis Section 44DA and 115A, and to showcase the same, has tabulated the
summary of the judgment as under:
Particulars Section 44BB (Special Section 115A Tax on Section 44DA (Special
provision for business dividends, royalty and provision for royalty
of mineral oil technical service fees and FTS for non-
exploration) in the case of foreign residents with PE in
companies (without India)
PE)
Applicability Applies to a nonresident Applies to nonresident Applies to non-resident
engaged in providing / foreign company / foreign company
services/facilities or earning royalty or fees earning royalty or fees
supplying plant for technical services for technical services
&machinery on hire for (FTS) from Govt. or (FTS) from Govt. or
prospecting, extraction or Indian concern and not Indian concern and
production of mineral covered under 44DA of having a PE or fixed
oils. the Act, i.e., No PE. place of profession in
India.
Nature of Income from services, Royalty or FTS Royalty or FTS
Income Covered facilities, or plant & received from Indian effectively connected
machinery used in Concern of GoI - non- with the PE in India.
relation to mining of PE
mineral oil etc.
Computation 10%of specified amounts Gross receipt is Income Income computed under
Mechanism received/ receivable. however Tax Rate normal provisions of
@20% onsuch Gross "Profits and gains
Receipt. business or profession."
subject to exclusion
specified under said
section.
Permissible Noseparatedeductions-- No Deduction. Deductions allowed
Deductions 10%deemed in Gross amount is only for expenditure
comereplaces them. deemed as Income wholly &exclusively
incurred for PE;
No deduction for
payments to head
office/other offices
except reimbursement.
Exclusion 44BB does not apply if Second proviso states
Clause after 44DAapplies(explicit that44BB shall not
2010 exclusion). apply to income
referred in 44DA.
Example of Gross Receipt - 100Cr. Gross Receipt - 100Cr. Gross Receipt - 100 Cr.
computation Income@10%- 10Cr. Tax Rate @ 20% Expenses - xxx
Tax Rate @ 35% Income - (100 Cr -
xxx)
Tax Rate - 35%
Tax amount :: 3.5 Cr. Tax amount ::20 Cr. (in present case: Income
[i.e., 3.5% of Gross [i.e., 20% of Gross estimated @ 20% of
Receipt] Receipt] Receipt Tax amount ::
100 Cr. x 20% x
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35% = 7 Cr.
[i.e., 7% of Receipt in
this case
ANALYSIS AND CONCLUSION
41. Having heard the learned counsel for the parties, and perused the
record, the issue which arises for consideration is whether the AO is justified
in issuing the certificate and order dated 01.05.2025 under Section 197 of
the Act in the case of the petitioner for the FY 2025-26 relevant to AY 2026-
27 whereby withholding tax at the rate of 7% on gross receipts has been
imposed upon the petitioner.
42. The order which has been issued by the AO is reproduced below:-
“Sub: ORDER UNDER SECTION 197 OF THE INCOME
TAX ACT, 1961
An application u/s 197 from M/s PGS Geophysical AS
(hereafter referred to as the ‘applicant’) vide request
no.708797 regarding issuance of certificate u/s 197 of the
Income-tax Act for withholding tax at 3.12% for FY 2025-26
in respect of receipts of Rs.477,40,19,980/- receivable from
M/s Oil and Natural Gas Corporation Limited under the
terms of contract between PGS Geophysical AS and Oil and
Natural Gas Corporation Limited (‘ONGC’) bearing
contract no.
DLI/2024/BB4SEC/1311217/ZV5AC24001/9010039479
dated 27 Dec 2024 for providing geophysical services to oil
and gas industry.
2. The applicant M/s PGS Geophysical AS is a company
incorporated in Norway and conducts seismic surveys &
provides off shoreseismic data acquisition and other
associated services such as processing and interpretation of
such data. The applicant has furnished copy of certificate of
incorporation of the company. On 20 November 2024, PGS
has been received letter of award by ONGC. Further, as perSignature Not Verified
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contact dated 27.12.2024 the total amount of contract is
USD 7,47,96,619.52/-. During the FY 2025-26, PGS is
expected to receive USD 5,18,91,522 (equivalent to INR
477,40,19,979/-) for the said contract in relation to 2D &
3D broad bandseismic data acquisition of Eastern offshore,
India.
3. In the instant case, the hiring services for 2D &3D
Broadband seismic data acquisition are taxable in India.
The applicant has claimed that the activities undertaken by
PGS are integral to extraction of Oil and Gas, the same
shall be taxable as per the provision of section 44BB of the
Act. The applicant has a project office in India. The services
provided by the applicant are in the nature of Royalty/ FTS
and hence, the income from these activities is covered under
section 44DA of the Act.
“44DA. Special provision for computing income by
way of royalties, etc., in case of nonresidents.–
(1) The income by way of royalty or fees for
technical services received from Government or an
Indian concern in pursuance of an agreement made
by a non-resident (not being a company) or a
foreign company with Government or the Indian
concern after the31st day of March, 2003, where
such non-resident (not being a company) or a
foreign company carries on business in India
through a permanent establishment situated therein,
or performs professional services from a fixed place
of profession situated therein, and the right,
property or contract in respect of which the
royalties or fees for technical services are paid is
effectively connected with such permanent
establishment or fixed place of profession, as the
case may be, shall be computed under the head
“Profits and gains of business or profession” in
accordance with the provisions of this Act
……………….”
4. The applicant has not provided financials for the project
office.
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Moreover, the applicant has assumed USD exchange rate of
I USD = 92 INR which is not correct. The average dollar
rate during the year 2025 is 1USD= 86.40 INR. Therefore,
the exchange rate of 1 USD = 87 INR may be allowed to the
assessee. The calculations the revenue to be received is as
follows:
The applicant is expected to receive USD 5,18,91,522/-.
Considering the exchange rate of Rs. 87 the amount
expected to be received is USD 5,18,91,522/- * 87 = Rs.
4,51,45,62,414/-.
5. Therefore, the profit rate of 20 percent is being assumed.
197 is a very premature stage for determining income for
AY 2026-27 and assessment is not possible at this very point
of time, hence, in order to protect the interest of revenue,
taking into account the rate of tax on business income
@35%, we may issue certificate u/s 197 directing the buyer
to deduct tax at source @ 7% (excluding surcharge and
cess) on the payment of Rs.4,51,45,62,414/- for reporting
purpose only. Such certificate would be provisional in
nature and subject to final assessment.
6. The certificate is provisional and shall remain in force
for the aforesaid payments only unless it is modified or
cancelled for F.Y. 2025-26. The facts of cancellation or
modification, if required will be intimated. This certificate is
issued for limited purpose of lower deduction u/s 197. This
shall not cater any further benefit/claim under the provision
of Income Tax Act, 1961 to the applicant.”
43. A perusal of the aforesaid order would reveal that the petitioner had
made a request for issuance of a certificate under Section 197 of the Act for
withholding tax at the rate of 3.5% for the FY 2025-26 in respect of the
receipts by the petitioner from ONGC pursuant to the contract executed on
27.12.2024. For the FY 2024-25, in respect of the same contract dated
27.12.2024, the AO had issued the certificate dated 13.12.2024 for
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withholding tax at the rate of 3.5%. However, for the FY 2025-26, there is a
clear departure in as much as the tax which has been directed to be withheld
is 7%. The case of the petitioner is primarily that the receipts shall be
taxable as per provisions of Section 44BB of the Act; whereas the AO came
to the conclusion that the services/receipts provided by the petitioner are in
the nature of the FTS/Royalty and hence income from these activities is
covered under Section 44DA of the Act.
44. The interplay between the provisions of Sections 44BB and 44DA and
their applicability to non-residents carrying on the business of exploration
etc. of mineral oils had come up for consideration before a co-ordinate
bench of this Court in Paradigm Geophysical Pty Ltd. (supra), wherein it
was observed as under:
“ANALYSIS & CONCLUSION:
LEGAL POSITION VIZ. SECTION 44BB AND SECTION 44DA
AFTER AMENDMENT INTRODUCED UNDER FINANCE ACT,
2010.
11. The pivotal controversy in the present case surrounds the
interpretation of Section 44BB and 44DA of the Act. These
provisions have undergone amendments over the years, the last
one being introduced by the Finance Act, 2010. Since assessee has
argued at length that this legal position remains unaltered, we feel
that this aspect in law needs to be clarified as it would also be
germane for the decision in the present case. It is, thus, imperative
to first examine the effect and consequence of the said
amendments, particularly to determine if the legal position has
undergone any change with respect to the applicability of the
provisions, after the effective date i.e. April 01, 2011 since the
return of income filed by the Petitioner pertains to the assessment
year 2012-13…..
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***** ***** *****
The interplay between Section 44DA(1) and 44BB(1) of the Act has
been a subject matter of several judgments. We need not engage
ourselves with an elaborate analysis of the said provisions, as they
existed prior to amendments, and it would suffice to note that the
conflict between the two provisions has been noticed in several
decisions. Revenue has always maintained its stand that both set of
provisions are special in nature which operate in their own clearly
defined spheres; once a particular receipt of income takes on the
character of Royalty/FTS as defined in section 9(1) (vi)/ 9(1) (vii),
it cannot be considered for treatment under Section 44BB and has
to be taxed under Section 115A/44DA of the Act. That being said,
there are several judgments of this court, wherein it has been held
that Section 44BB is a specific provision and incase the income
falls within the ambit of Section 44DA(1) of the Act, it would be
liable to be taxed under Section 44BB(1) of the Act, provided it
was in connection with extraction or production of mineral oils.
This conflict or inconsistency now stands resolved by virtue of the
amendments introduced under the Finance Act, 2010. Though the
insertions are stated to be clarificatory, however the rationale
behind the introduction of the amendments has to be examined to
appreciate the legislative intent envisioned under the Finance Act,
2010.
13. Section 44 BB is a special provision for computing profits and
gains of a non-resident from 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, including petroleum and natural gas.
Section 44DA is broader and more general in nature and provides
for assessment of the income of the nonresident by way of royalty
or fees for technical services, where such nonresident carries on
business in India through a permanent establishment situated
therein, or performs services from a fixed place of profession
situated in India and the right, property or contract in respect of
which the royalties or fees for technical services are paid is
effectively connected with the permanent establishment or fixed
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place of profession situated in India. One more distinction between
sections 44 DA and 44 BB is that, in section 44 BB one does not
find any reference to a permanent establishment in India and the
services contemplated therein are more specific than what is
contemplated in section 44 DA. Thus, Section 44BB is a special
provision in so far as it relates to the applicability of the provision
in the context of the specified services. Section 44DA applies
where such non-resident carries on business in India through a
permanent establishment stipulated therein or performs services
from a fixed place of profession, such income shall be computed
under the head “profit and gains of business or profession” in
accordance with the provisions of the Act, subject to the condition
that no deduction shall be allowed in respect of any expenditure or
allowance which is not wholly or exclusively incurred for the
business of such permanent establishment or fixed place of
profession in India or in respect of amounts, if any, paid by the
permanent establishment to its head office or to any of its other
offices. Section 115A of the Act provides the rate of taxation in
respect of income of a non-resident, in the nature of royalty or fees
for technical services, other than the income referred in Section
44DA i.e. income in the nature of royalty and fees for technical
services which is not connected with the permanent establishment
of the non-resident.
14. There is another Section that needs to be referred, for the sake
of comprehensive understanding i.e. Section 44D of the Act,
inserted in the first place vide Finance Act, 19766 for taxability of
income in the nature of royalty and fee for technical services.
Later, a special provision was introduced by way of Section 44BB
vide Finance Act, 1987. However, even when 44D was appearing
in the statute book, Section 44BB contained a proviso which
excluded applicability of Section 44BB to cases that were covered
by Section 44D. However, it is pertinent to note that there was no
similar proviso appearing under Section 44D.
***** ***** *****
16. Keeping in mind the legislative history of amendments in the
two provisions, the aforesaid amendments are significant and
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changed the position with respect to the applicability of the said
provisions. A taxing statute is to be construed strictly. The position
that existed prior to the amendments was different. There was no
proviso which restricted the applicability of Section 44BB in
respect of the income falling within the scope of Section 44DA (1)
of the Act. However, now that the proviso has been inserted, it has
fundamentally restricted the applicability of section 44BB. This
proviso has to be given due consideration and a meaning,
recognizing the legislative intent. A plain reading of section 44BB
(1) shows that it applies to an assessee who is engaged in the
business of providing services or facilities in connection with, or
supplying plant and machinery on hire use, or to be used, in the
prospecting for, or extraction or production of mineral oils.
However, the proviso thereto carves out an exception that the sub-
section shall not apply in a case where the provisions of section
44DA apply for the purpose of computing profits or gains or any
other income referred to in those sections. Further, a reading of
section 44DA makes it clear that it applies to the character of
income which is in the nature of royalty or fees for technical
services. The legislative intent behind the amendment is also
evident from the memorandum to the Finance Bill 2010 which
reads as under:
“Under the existing provisions contained in section 44BB(1)
of the Income-tax Act, income of a non-resident taxpayer
who is 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 is computed
at ten per cent of the aggregate of the amounts paid.
Section 44DA provides the procedure for computing income
of a non-resident, including a foreign company, by way of
royalty or fee for technical services, in case the right,
property or contract giving rise to such income are
effectively connected with the permanent establishment of
the said non-resident. This income is computed as per the
books of account maintained by the assessee. Section 115ASignature Not Verified
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provides the rate of taxation in respect of income of a non-
resident, including a foreign company, in the nature of
royalty or fee for technical services, other than the income
referred to in section 44DA i.e., income in the nature of
royalty and fee for technical services which is not connected
with the permanent establishment of the non-resident.
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 and other facilities relating to exploration activity
which are not in the nature of technical services. However,
owing to judicial pronouncements, doubts have been raised
regarding the scope of section 44BB vis-a-vis section 44DA
as to whether fee for technical services relating to the
exploration sector would also be covered under the
presumptive taxation provisions of section 44BB.
In order to remove doubts and clarify the distinct scheme of
taxation of income by way of fee for technical services, it is
proposed to amend the proviso to section 44BB so as to
exclude the applicability of section 44BB to the income
which is covered under section 44DA. Similarly, section
44DA is also proposed to be amended to provide that
provisions of section 44BB shall not apply to the income
covered under section 44DA. These amendments are
proposed to take effect from 1st April 2011 and will,
accordingly, apply in relation to the assessment year 2011-
12 and subsequent years.”
This proviso reinforces the legislative intent to carve out an
exception to the character of the income referred to in this section
i.e. royalty and fees for technical services. The principles relating
to interpretation of statute, emphatically lay down that statute
should be interpreted to preserve the legislative intent. A reading
of the overall scheme of section 44BB and 44DA leaves no
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manner of doubt that section 44BB applies if the assessee is
engaged in the business of providing services or facilities in the
prospecting for, or extraction or production of minerals oils.
However, if income earned by such assessee takes the color of
royalty or FTS, then the computation for the purposes of
determining “profits and gains of business or profession” is to
be done as per the provisions of section 44DA of the Act.
Therefore, now in the current scenario if the income of the
assessee is Royalty or FTS, then the same would be taxed under
Section 9(1)(vi)/(vii) read with Section 115A or 44DA, as the case
may be.”
(emphasis supplied)
45. It is clear from the above that after the amendment introduced by the
Finance Act, 2010, FTS/ Royalty arising out of activities in connection with
the exploration etc. of mineral oils shall be taxable as per Section 44DA of
the Act by virtue of the second proviso to Section 44DA(1). However, for
the said provision to apply, the income/receipts at the hand of the assessee
necessarily need to be in the nature of FTS/Royalty. As such, to decide the
controversy in the present case, it is necessary to examine whether the
consideration received by the petitioner amount to FTS/Royalty.
46. The issue regarding FTS in respect of this very petitioner has been
settled by this Court in PGS Exploration (Norway) AS (supra) wherein the
Court considering the activities of 2D/3D seismic survey carried out by the
petitioner in connection with exploration of oil held that the income received
pursuant to the contract with ONGC would not amount to FTS. Mr Kapoor,
in particular has relied upon the paragraphs 21 to 23 of this decision, which
are being reproduced as under:-
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“21. In this view, the primary issue to be addressed is
whether the consideration received by the Assessee for
providing Geophysical services would fall within the
exclusion provided in Explanation 2 to Section 9(1)(vii)
of the Act. In our view, the aforesaid question is no
longer res integra and is squarely covered by the
decision of the Supreme Court in Oil and Natural Gas
Corporation Limited (supra). The said decision was
rendered in a batch of matters concerning several non-
resident assessees who claimed that their service fell
within the expression “mining or like projects” and thus,
the consideration received by them for such services
stood excluded from the scope of ‘fees for technical
services’. The said assessees classified the contracts
entered into by them under eight heads which are
reproduced 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
3. Services for prospecting for exploration of oil and or
gas.
4. Planning and supervision of repaid 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.”
22. In its judgment, the Supreme Court referred to a
Circular No.1862dated 22.10.1990 which in turn
referred to the Attorney General’s opinion that
prospecting for or extraction or production of mineral oil
could be termed as ‘mining operations’ and consequently
provided that expression “mining projects” or like
projects” as occurring in Explanation 2 to
Section9(1)(vii) of the Act would also cover “rendering of
services like imparting of training and carrying out
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drilling operations for exploration or exploitation of oil
and natural gas”. And, after examining various contracts
involved in the appeals before it, the Supreme Court held
that the contracts were inextricably connected with
prospecting, extraction or production of mineral oil and,
accordingly, proceeded on the basis that consideration
for such services was not fees for technical services. The
Supreme Court held that even though there may be
certain ancillary works contemplated under the contracts
in question but since the dominant purpose of each of
such contract is for prospecting, extraction or production
of mineral oils, the income from such services were to be
computed under Section 44BB of the Act.
23. In view of the above, the first question – Whether on
the facts and circumstances of the case, the Tribunal
erred in law in holding that the activity of 2D/3D seismic
survey carried on by the appellant in connection with
exploration of oil, was in the nature of “fees for technical
services” in terms of Explanation 2 to section 9(1)(vii) of
the Act – must be answered the affirmative, that is, in
favour of the Assessee and against the Revenue.”
(Emphasis supplied)
47. The above judgment was rendered pursuant to a review filed by the
petitioner, praying that the issue whether the income of the petitioner would
amount to FTS was not considered by the Court in its initial judgment. The
Court then examined the issue in detail and concluded that prospecting for
or extraction or production of mineral oil could be termed as mining
operations, and consequently, provided that the expression ‘mining projects
or like projects’ as occurring in Explanation 2 of Section 9(1)(vii) of the
Act would also cover rendering of services like imparting or training and
carrying out drilling operation for exploration or exploration of oil and
natural gas. As such, it was held that the consideration for the activity of
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2D/3D seismic survey in connection with exploration of oil, carried out by
the petitioner herein cannot be construed as FTS. Nothing has been brought
before us to show that the said judgment has been taken in appeal or set
aside.
48. We find that though the AO had not considered the above judgment
for the FY 2024-25, he issued the certificate withholding tax @ 3.5% under
the same contract. However, in the impugned order / certificate, there is a
clear departure from the earlier FY as the AO has stated that the income
from the activities of the petitioner is FTS/Royalty, covered under Section
44DA of the Act.
49. The submission of Mr Gupta is that offshore seismic surveys are like
ultrasounds of the earth that help scientists see below the ocean floor.
Seismic survey is conducted by a vessel towing a compressed air gun which
fires in regular intervals and a large array of sound sensors that record how
long it takes for the sound to bounce back from the layers of rock under the
sea floor. From the recorded data detailed three-dimensional maps are
produced which provide engineers the information they need to develop a
production plan in order to tap the highest yield reserves. In other words,
offshore seismic survey has no construction, mining, assembly or any
similar activity; thus, offshore seismic surveys and data acquisition does not
fall under exceptions carved out from Explanation 2 to Section 9(1)(vii) of
the Act. He stated that if the offshore seismic surveys and data acquisition is
coupled with mining or drilling operation, then it may fall outside the scope
of FTS.
50. In the impugned order, the AO has merely stated that the services are
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in the nature of FTS/Royalty; hence the activities are covered under Section
44DA of the Act. There is no reason provided as to why there is a deviation
from the earlier FY, wherein the receipts of the petitioner were held to be
covered under Section 44BB of the Act. Further, the order does not specify
as to whether the receipts (or parts thereof), are in the nature of FTS or in the
nature of Royalty, to be covered under Section 44DA of the Act.
51. Be that as it may, the finding of the AO with respect to FTS cannot be
sustained in view of the decision in PGS Exploration (Norway) AS (supra)
wherein this Court had held to the contrary in the case of the petitioner itself,
albeit before the amendment was introduced. As such, the stand of the
Revenue that the income of the petitioner would amount to FTS and would
be taxable as per Section 44DA prima facie cannot be accepted.
52. Insofar as the element of Royalty is concerned, we note that though
no stand was taken by the Revenue in its reply and surrejoinder that the
receipts of the petitioner would amount to Royalty, Mr. Gupta in his Written
Submissions has stated that since the contract identifies the vessel and the
equipments used by the petitioner, the receipts thereof would also entail
income in the nature of Royalty. This position is contested by Mr. Kapoor
by stating that the services provided by the petitioner do not in any manner
fall under the definition of Royalty provided in Explanation 2 to Section
9(1)(vi) of the Act. In any case, the order of the AO provides no reasoning
as to how the receipts would fall within the nature of Royalty to be covered
by Section 44DA of the Act.
53. In the facts of this case, as the impugned order does not show that the
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AO had considered the judgment of this Court rendered in the case of
petitioner itself being PGS Exploration (Norway) AS (supra) and has also
not given any reasoning insofar as the conclusion arrived at that the receipts
are in the nature of Royalty, appropriate shall be that the impugned order
and certificate under Section 197 of the Act be set aside and the matter be
remanded back to the AO for him to consider the law laid down by the
Supreme Court in the case of ONGC (supra) as also this Court in PGS
Exploration (Norway) AS (supra) as well as the issue with regard to the
element of Royalty and then pass a fresh order under Section 197 of the Act.
This exercise shall be carried out by the AO within a period of three weeks
from the date of receipt of copy of this order. It is ordered accordingly.
54. The writ petition is allowed on the above terms.
V. KAMESWAR RAO, J
VINOD KUMAR, J
FEBRUARY 20, 2026
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