A. K. Tewary (Member Revenue)-1. The applicant Hyundai Heavy Industries Limited (HHI) is a tax resident of South Korea. It has entered into a contract with M/s. Indian Oil Corporation Limited ("IOCL") on October 28, 2010 for executing work "of installation of single point mooring (spm) system, offshore and onshore pipelines and associated facilities for integrated offshore crude oil unloading facilities located at Paradip, (Orissa) in the East Coast of India". IOCL has established a grass root refinery complex at Paradip in Orissa. IOCL is a Government of India undertaking registered under the Companies Act, 1956 and is engaged in the business of prospecting, extraction and production of mineral oil. Its business operations also include production and marketing of various products derived in the course of refining the crude oil and gas. Paradip refinery produces distillates such as Liquefied Petroleum Gas (LPG), Naphtha, Motor Spirit (MS or Petrol/Gasoline), Jet Fuel, Kerosene, Diesel and other speciality products. Certain intermediate petrochemical feedstock is also generated at the refinery.
2. With a view to enhance the crude handling capability at the Paradip port, IOCL is setting up an integrated offshore crude oil unloading facility for the said refinery complex. Under the contract, the applicant had to construct two SPMs (SPM-II &III) in addition to one existing SPM-I and then connect all the three SPMs with the proposed refinery complex. Further, as per the contract, the applicant had to lay and install submarine pipelines for carrying crude oil from the offshore SPMs to the refinery complex on- shore. The crude oil shall be offloaded from VLCC tanker of up to 320,000 DWT moored to one or from more than one SPM for simultaneous unloading and transported through subsea pipelines (Approx. 21 km long). The scope of work carried out in respect of the contract is construction/installation of SPMs and subsea pipelines for unloading and transportation of crude oil from ships moored offshore to onshore refinery complex. The consideration for the contract is US $ 94,811,291 plus Indian rupees 710,798,440. The contract commenced on October 14, 2010. The scheduled date of completion of the contract was June 13, 2012. The actual date of completion is May 13, 2013.
3. The applicant filed withholding tax application dated January 27, 2011 before the Income-tax Department under section 197 of the Income-tax Act, 1961 ("Act") requesting for withholding tax at the rate of 4.223 per cent. (or a lesser rate as per the projected profit and loss account) because according to them the consideration for work done by the applicant under IOCL contract fell within the scope of section 44BB of the Act. The Assessing Officer passed the order directing IOCL to deduct tax at source at the rounded rate of 5 per cent. on gross basis and remarked that "deemed profit out of total contract receipt to be taken at 10 per cent. in accordance with the provision of section 44BB of the Income-tax Act 1961 . . . for convenience the withholding tax rate is taken at 5 per cent.".
4. The applicant has sought ruling on the following question :
"Whether on the stated facts and in law the profits derived by the installation permanent establishment of the applicant, for executing contract awarded by Indian Oil Corporation Limited (IOCL) for installation of SPM systems, is assessable to tax in India as per the provisions of section 44BB of the Income-tax Act, 1961 ?
5. According to the applicant the consideration received is in the ordinary course of its business of providing services and facilities in connection with exploration, extraction and production of mineral oils and such profits, therefore, is covered by provisions of section 44BB of the Income-tax Act which is as under :
"44BB. (1) Notwithstanding anything to the contrary contained in sections 28 to 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 44DA or section 115A or section 293A apply for the purposes of computing profits or gains or any other income referred to in those sections.
(2) The amounts referred to in sub-section (1) shall be the following, namely :-
(a) the amount paid or payable (whether in or out of India) to the assessee or any person on his behalf on account of the provisions of services and facilities in connection with, or supply of plant and machinery on hire used ; or to be used, in the prospecting for ; or extraction or production of mineral oils in India ; and
(b) the amount received or deemed to be received in India by or on behalf of the assessee on account of the provision of services and facilities in connection with, or supply of plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of mineral oils outside India.
(3) Notwithstanding anything contained in sub-section (1), an assessee may claim lower profits and gains than the profits and gains specified in that sub-section, if he keeps and maintains such books of account and other documents as required under sub-section (2) of section 44AA and gets his accounts audited and furnishes a report of such audit as required under section 44AB, and thereupon the Assessing Officer shall proceed to make an assessment of the total income or loss of the assessee under sub-section (3) of section 143 and determine the sum payable by, or refundable to, the assessee.
Explanation.-For the purposes of this section,-
(i) 'plant' includes ships, aircraft, vehicles, drilling units, scientific apparatus and equipment, used for the purposes of the said business.
(ii) 'mineral oil' includes petroleum and natural gas."
6. The applicant has admitted that it has an installation permanent establishment in India under article 5(3) of Indo-Korea Double Taxation Avoidance Agreement. The applicant has further mentioned that since the applicant has installation cum construction permanent establishment in India, the consideration received from IOCL is chargeable to tax as business income under section 44BB read with articles 5, 12(5) and 7(3) of Indo- Korea Double Taxation Avoidance Agreement. The relevant articles of the double taxation avoidance agreement are as under (see [1987] 165 ITR (St.) 191 ) :
"5(1) for the purposes of this convention, the term 'permanent establishment' means a fixed place of business through which the business of an enterprise is wholly or partly carried on.
(2) The term 'permanent establishment' shall include especially :
(a) a place of management ;
(b) a branch ;
(c) an office ;
(d) a factory ;
(e) a workshop ; and
(f) a mine, an oil or gas well, a quarry or any other place of extraction of natural resources.
(3) The term 'permanent establishment' likewise encompasses a building site, a construction assembly or installation project or supervisory activities in connection therewith, but only where such site, project or activities continue for a period of more than nine months.
7(3) In the determination of the profits of a permanent establishment, there shall be allowed as deductions expenses which are incurred for the purposes of the permanent establishment including executive and general administrative expenses so incurred whether in the State in which the permanent establishment is situated or elsewhere, which are allowed under the provisions of the domestic law of the Contracting State in which the permanent establishment is situated.
12(5) The provisions of paragraphs 1, 2 and 3 shall not apply if the beneficial owner of the interest being a resident of a Contracting State, carries on business in the other Contracting State in which the interest arises, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the debt-claims in respect of which the interest is paid is effectively connected with such permanent establishment or fixed base. In such cases, the provisions of article 7 or article 15, as the case may be, shall apply."
According to the applicant the production of petroleum products by IOCL is done by refining crude oil constitutes production of 'mineral oil' as defined in section 44BB. In this respect the applicant has relied on several judgments including that of the Bombay High Court in the case of Burmah Shell Refineries Ltd. v. G. B. Chand, ITO [1966] 61 ITR 493 (Bom). The applicant has also cited Circular No. 57 of Central Board of Direct Taxes issued on March 23, 1971 See [1971] 80 ITR (St.) 66 on the subject whether the business of refinery of crude oil could be regarded as manufacture/production of mineral oil. Circular No. 57 of 1971 is reproduced as under (see [1971] 80 ITR (St.) 66 ) :
"1. A question has been raised whether a company carrying on the business of refining crude oil into motor spirit, aviation spirit, kerosene and allied articles can be said to be engaged in the manufacture or production of 'mineral oil' for purposes of calculating the super tax rebate under the Finance Act, 1964 and the Finance Act, 1965. The Board have been advised that the term 'mineral oil' covers both crude oil (crude petroleum) and the liquid products derived from crude petroleum which are in the nature of mixtures of hydrocarbons, namely, motor spirit, aviation spirit, kerosene and other allied articles. It, therefore, follows that the profits and gains attributable to the business of refining of crude oil would qualify for higher rebate in respect of super tax available in relation to the profits and gains attributable to the business of manufacture and production of mineral oil under the Finance Act, 1964 and the Finance Act, 1965, provided the other conditions specified in this behalf are fulfilled.
2. On a parity of reasoning, the business of refining of crude oil will be regarded as priority industry for purposes of section 80-I and section 80M of the Income-tax Act, 1961, and also as business of manufacture or production of mineral oil, for purposes of calculating the development rebate in respect of machinery and plant under section 33 of that Act."
7. The applicant has further mentioned that Circular No.495 of 1987 (the year when section 44BB was introduced) clearly states that this section has been inserted with a view to cover business of "exploration for and exploitation of mineral oils". According to the applicant the use of the expression "exploitation of mineral oils" clearly brings out the intention of the Legislature that production of mineral oil like diesel, naphtha, etc., by exploiting crude petroleum is covered by section 44BB. This circular reads as under (see [1987] 168 ITR (St.) 87, 98) :
"New provisions for computing of taxable income from activities connected with exploration of mineral oils :
21.1 A number of complications are involved in the computation of taxable income of a taxpayer engaged in the business of providing services and facilities in connection with the supply of plant and machinery on hire, used or to be used in the exploration for and exploitation of mineral oils. With a view to simplifying the provisions, the Amending Act has inserted a new section 44BB which provides for the determining of the income of such taxpayers at 10 per cent., of the aggregate of certain amounts which have been specified. This amount will include the amounts received or due to be received in India on account of such services or facilities or supply of plant and machinery."
8. The applicant has further relied on the following case law :
(i) CIT v. Venkateswara Hatcheries (P.) Ltd. [1999] 237 ITR 174 (SC) ;
(ii) Padmasundara Rao v. State of Tamil Nadu [2002] 255 ITR 147 (SC) ;
(iii) ONGC Ltd. v. CIT [2015] 376 ITR 306 (SC) ;
(iv) Global Industries Asia Pacific Pte. Ltd., In re [2012] 343 ITR 253 (AAR) ;
(v) Worleyparsons Services Pty. Ltd., In re [2008] 301 ITR 54 (AAR).
9. The Department of Revenue, in its comments, has submitted as under :
(a) According to the Department the applicant has a permanent establishment within the meaning of articles 5(1) and 5(2) of India- Korea Double Taxation Avoidance Agreement because it has a project office in Mumbai which is a fixed place of business through which the business of the applicant is partly or wholly carried on. In view of this the applicant is liable to be taxed as such from all income accruing or arising in India irrespective of the fact whether it has an installation permanent establishment or not. Article 5(3) of the Double Taxation Avoidance Agreement stands on equal footing with article 5(1) and article 5(2) as the wordings include 'likewise' (the term permanent establishment likewise encompasses), in this respect the Department has cited order of the Delhi Income-tax Appellate Tribunal in the case of Samsung Heavy Industries Co. Ltd. v. Addl. DIT (Intnl. Txn.) (I.T.A. No. 5237/Del/2010 - [2011] 11 ITR (Trib) 513 (Delhi)).
(b) The Department is of the view that the activity undertaken by the applicant is not covered under the provisions of section 44BB of the Income-tax Act because the provisions of this section reveal the following facts :-
(i) Income in the nature of upstream activities of the oil sector like prospecting, exploration, extraction or production of mineral oil, i.e., all activities up to the level of oil head are covered under section 44BB of the Act.
(ii) it does not cover the midstream sector involving transportation of crude oil to the gas processing plant.
(iii) It also does not cover the downstream sector where the crude oil undergoes a myriad of processes for getting refined to become gasoline, petroleum gas, jet fuel, diesel fuel, etc.
(c) The Department has further stated that according to the rule of noscitur-a-sociss, the word 'production' in section 44BB would take colour from the associated words and expression, i.e., 'prospecting and extraction' and that will have to be given a restrictive meaning analogous to the associated words. The word prospecting, extraction and production of mineral oil are therefore to be read together. Similarly, as per the principle of ejusdem generis which means of the same kind where a law lists specific classes of person or things and then refers to them in general, the general statement only applies to the same kind of person or things specifically listed.
(d) The Department has brought our attention to the heading of Circular No. 495 of 1987, dated September 22, 1987 with regard to the introduction of section 44BB which reads as under :
'New provisions for computing taxable income from activities connected with exploration of mineral oil.'
Similarly, the heading of section 44BB reads as under :
'Special provision for computing profit and gains in connection with the business of exploration, etc., of mineral oils.'
The Department has contended that the meaning of production used under section 44BB of the Act is to be understood with the con text of business of prospecting/exploration/extraction of mineral oil and nothing else. The Department has relied on the decision of the Income-tax Appellate Tribunal Delhi in the case of ARB Inc. v. Joint CIT in I. T. A. No. 2417/Del/2001- [2005] 277 ITR (AT) 209 (Delhi) wherein it was held that the word "production" would include only production by mining process and would not include production of LPG, propane, butane, etc., as well as CNG by post mining process. The Tribunal held that laying pipelines for transportation of natural gas was not eligible for computation of income under section 44BB.
(e) The Department has relied on the definition of "production operations" or "development operations" as given in the Petroleum Tax Guide 1999 which show that production operations cover the production from the development area, i.e., from the oil well but the activities undertaken by the applicant, i.e., midstream activities for transportation of the oil are covered under "Development Operations".
(f) The Department has further relied on the definition of petroleum and natural gas in the Petroleum Tax Guide which shows that mineral oil means petroleum and natural gas existing in their natural condition and the products obtained after post mining activities do not constitute mineral oil. The Department has also contacted Indian Institute of Petroleum for clarification and they have sent a response saying that refining of crude oil is different from production of crude oil. The Department has further pointed out that as per definition of "minerals" in section 2(jj) of the Mines Act, 1952 :
"Minerals means all substances which can be obtained from the earth by mining, drilling, digging, dredging, hydaulicing, quarrying or by any other operations and includes mineral oils (which in turn include natural gas and petroleum)."
From the above definition, it is concluded by the Department that minerals, which include mineral oil also, are those substances which can be obtained from the earth.
(g) The Department has further brought our attention to the provisions of section 80-IB(9) of the Income-tax Act in context of deduction to undertakings other than infrastructural development undertakings. Clause (i)/(ii) of section 80-IC(9) talks about "commercial production of mineral oil" and clause (iii) talks about the "refining of mineral oil" which shows that there is a clear cut distinction between "production of mineral oil" and "refining of mineral oil". Relying on the provisions of section 80-IB(9), the Revenue contends that the business of refining of petroleum is distinct from that of prospecting extraction of production of "petroleum".
(h) The Department of Revenue relies on the following rulings of the hon'ble Authority for the proposition that mineral oil means crude oil or petroleum only :
(i) Worleyparsons Services Pty. Ltd., In re [2008] 301 ITR 54 (AAR) ;
(ii) Global Industries Asia Pacific Pte. Ltd., In re [2012] 343 ITR 253 (AAR) ;
(iii) ONGC Ltd. v. CIT [2015] 376 ITR 306 (SC).
10. The Department has analyzed the scope of work in the contract and concluded that there is also a great element of supply of technical manpower/skilled personnel as part of execution of the work contract and, therefore, fee for technical service is involved in the contract.
11. According to the Department the assessee's case is not covered under section 44BB of the Income-tax Act and the proviso to the sub-section (1) of section 44BB says that these sub-sections 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 and gains or any other income referred to in those sections. As the contract of the applicant involves work in the nature of royalty/fee for technical service and has its composite contract, it would be covered under section 44DA/115A of the Income-tax Act. In this respect the Department has relied upon the following case law :
(i) CIT v. ONGC [2012] 343 ITR 267 (Uttarakhand) ; and
(ii) CIT v. O. N. G. C [2008] 299 ITR 438 (Uttarakhand).
12. The Department has heavily relied upon the ruling of this Authority in the case of Global Industries Asia Pacific Pte Ltd. (AAR No. 936 of 2010) where the applicant had entered into a contract with IOCL for carrying out offshore construction work in India which involved installation of SPM and another contract with L&T which included pipeline constructions, etc. The Authority bifurcated considerations received from IOCL in two parts, to be taxed as royalty and fee for technical service, but no part of consideration was found to be taxable under section 44BB. According to the Department the nature of contract with IOCL was similar and, therefore, same treatment should be given in the present case also.
13. In its rejoinder the applicant has mentioned that the Circular No. 495 issued by the Central Board of Direct Taxes does not refer to upstream or downstream activities and it talks only of exploration and exploitation of mineral oils, the definition of mineral oil for the purpose of section 44BB, unlike the Petroleum Guide, is an inclusive definition and the Petroleum Guide cannot be used for construing the meaning of expression "mineral oil" in section 44BB. As regards the meaning of "mineral oil" as given in the Mines Act, the applicant has stated that the terms "mineral" or "mineral oil" are elastic terms and the meaning to be given to them will depend on the context in which they have been used in particular provisions of the statute. The applicant has pointed out that the constitution of India also treats "mineral" and "mineral oil" as two distinct and different commodities. Entry 53 of the Union List treats "oil field" and "mineral resources" specifically wherein Entry 54 deals with "mines and mineral". Entry 23 in the State List provides for regulation of mines and minerals subject to Entry 54 of the Union List but, however, mineral oil and oil field are not included in the State list.
14. The applicant has further relied on the judgment of the hon'ble Supreme Court in the case of ONGC Ltd. v. CIT [2015] 376 ITR 306 (SC). In this case, the hon'ble Supreme Court has decided the question as to whether the consideration received by the non-resident for providing supervisory experts to ONGC for operation and management of drilling rigs for extraction of Petroleum was taxable as fee for technical service and therefore under section 44D ; or as business income under section 44BB of the Act. The hon'ble Supreme Court held that the non-resident received the consideration in connection with mining or like projects and, therefore, it fell under the exclusionary clause of Explanation (ii) to section 9(1)(vi). The hon'ble Supreme Court held that (page 318 of 376 ITR) : "Reading section 2(j) and section 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." The hon'ble Supreme Court was not concerned with the question as to whether the term "mineral oil" included its refined derivatives. This question was neither argued nor discussed/decided by the apex court. The hon'ble Supreme Court was only concerned with activities in connection with "drilling operations for the purpose of production of petroleum". Therefore, this judgment is not relevant for deciding the question involved in our application.
15. Other contentions of the applicant, in brief, are as under :
"I. The applicant contends that Noscitur a sociss cannot be applied for construing the words 'extraction' and 'production' employed in section 44BB for the reason that the word 'production' has a well understood meaning independent of the word 'extraction' and it is used in contrast to 'extraction' and user of the disjunctive article 'or' placed between the words 'extraction' and 'production' in section 44BB contra distinguishes the meaning of these two words.
II. The applicant has further argued that inclusive definition of 'mineral oil' controls the whole of section 44BB. The scope of the section cannot be restricted. This will reduce the word 'production' to redundancy, which is impermissible.
III. The applicant has pointed out that as per Concise Oxford Dictionary the meanings of relevant words are as under :
Prospect : search for mineral deposits, especially by means of drillings and excavation.
Extract : v 1. remove, especially by effort or force-obtain (money, information, etc.,) from someone unwilling to give it 2. obtain (a sub stance) from something by a special method.
Extraction : 1 the action of extracting 2. ethnic origin : of polish extraction.
Produce : 1. make, manufacture, or create chemical process. 2. cause to happen or exist.
IV. According to the applicant unlike 'natural gas' the term 'mineral oil' is an elastic term. Its meaning depends on the setting in which it is used. Since the expression 'mineral oil' is defined to include petroleum and natural gas its meaning for the purpose of section 44BB is wider and it includes such products of petroleum, which in commercial and in ordinary parlance are understood to be 'mineral oil'.
V. As regards the report of the Indian Institute of Petroleum, Dehradun filed by the Department of Revenue, the applicant has stated that the term 'mineral oil' is an elastic term and is not a term of science, which a chemist would use. It is a term employed in a commercial world and, therefore, a Scientific Research Institute like Indian Institute of Petroleum cannot be taken as an authority for the meaning of the term 'mineral oil'.
VI. As regards reliance of the Revenue on the provisions of section 80-IB(9), the applicant has stated that section 44BB starts with a non obstante clause and has a special provision containing a self contained code for taxing payment received by a non-resident in connection with activities described in that section.
VII. The applicant has further submitted that the hon'ble AAR has held in OHM Ltd., In re [2011] 335 ITR 423 (AAR) that section 44BB, being a self- contained provision especially dealing with the taxability of non-resident for providing services in connection with production of mineral oil, prevails over the general provision of section 44DA of the Act. This ruling has since been sustained by the Delhi High Court in DIT v. OHM Ltd. [2013] 352 ITR 406 (Delhi).
VIII. As regards the ruling given by this Authority in the case of Global Industries Asia Pacific Pte. Ltd. the applicant has sought to make distinction on facts that Global had no permanent establishment in India, no ruling was sought on applicability of 44BB and the payment for mobilisation and demobilisation of vessels determined the predominant character of payment which was hiring of equipment.
Inferences
16. We have carefully gone through the rival contentions in this case. At the outset it must be said that section 44BB is a special provision and was introduced by the Finance Act, 1987, with retrospective effect from April 1, 1983. Memorandum explaining the provisions (165 ITR 161-62) stated that 'The computation of the taxable income of a taxpayer engaged in the business of providing services and facilities in connection with, or supplying plant and machinery on hire, used or to be used in the exploration for, and exploitation of, mineral oils involves a number of complications. As a measure of simplification, the bill seeks to insert a new section 44BB in the Income-tax Act providing for determination of income of such tax payers at ten per cent. of the aggregate of certain amounts. The amounts in respect of which the provisions will apply would be the amounts paid or payable to the tax payer or to any person on his behalf whether in or out of India, on account of the provision of such services or facilities or supplying plant and machinery for the aforesaid purposes . . . The aforesaid amendment will not, however, apply to any income to which the provisions of section 42, 44D, 115A or 293A of the Income-tax Act apply. "An exception was carved out vide Explanation 2 to section 9(1)(vii) out of the provision in respect of fees for technical services by excluding consideration received for any construction, assembly, mining or like project undertaken by the recipient. Therefore, if the consideration received by the applicant is covered under section 44BB, i.e., the project is in the nature of prospecting for, or extraction or production of, mineral oils, the question relating to taxability of permanent establishment of the applicant in India vis-a-vis such consideration does not remain relevant. Accordingly, the central issue to be decided in this case is applicability of section 44BB to the payments received by the applicant in respect of a contract with IOCL for executing the work of Installation of SPM system, offshore and onshore pipelines and associated facilities for integrated offshore crude oil unloading facilities at Paradip in Orissa. IOCL has a refinery complex at Paradip and the major products produced at Paradip refinery include liquefied petroleum gas (LPG), Naptha, Motor Spirit (MS or Petrol/Gasoline), Jet Fuel, Kerosene, Diesel etc.
The applicability of provisions of section 44BB would revolve around the fact whether the above mentioned products of IOCL at Paradip refinery are covered under the meaning of "mineral oils" and whether facilities and services provided to IOCL are in connection with production of "mineral oils" by IOCL.
17. The Department contends that the term "mineral oils" in connection with section 44BB would mean only crude oil and the word "production" used in section 44BB would take colour from the associated words an expression, i.e., prospecting for and extraction of. Accordingly the Department has taken a stand that the word "production" will have a restrictive meaning and would apply only to the income in the nature of upstream activities of the oil sector and would not cover transportation of crude oil to the refinery which produces petroleum derivatives like Motor Spirit, Diesel, petroleum etc. It is seen that the Central Board of Direct Taxes in Circular No. 495 of 1987 dated September 22, 1987 had clarified that section 44BB applies to provision of services and facilities in connection with "exploration and exploitation of mineral oils", "Exploitation" has been added deliberately in the circular to clarify that extraction of mineral oils and its exploitation both are covered in this section. This circular is consistent with the meaning of "mineral oils" given earlier by the Central Board of Direct Taxes in Circular No. 57 of 1971, reproduced earlier, wherein it was categorically mentioned that the term "mineral oils" cover both crude oil (crude petroleum) and liquid products derived from crude petroleum which are in the nature of mixtures of hydrocarbons, namely, motor spirit, kerosene and other allied articles. We also notice that the Explanation (ii) of section 44BB reads that "mineral oil" includes petroleum and natural gas. The word "includes" used in this Explanation clearly show that "mineral oils" is to be given a wider meaning and cannot be restricted to Petroleum and Natural Gas only. In this respect also Circular No. 57 of 1971 issued by the Central Board of Direct Taxes becomes very relevant irrespective of the fact that this circular was issued on the question as to whether the business of refinery crude oil could be regarded as business of manufacture/production of mineral oil for the purpose of levy of surtax. The meaning of 'mineral oils' would remain same whether it is for the purpose of levy of surtax or for other provisions of the Act.
18. As regards the contention of the Department that the meaning of "mineral oils" should be restricted up to crude oil provided in upstream activities only, it is noticed that when section 44BB was introduced the Central Board of Direct Taxes issued a Circular No. 495 which further clarified that section 44BB applies to provision of services and facilities in connection with "exploration and exploitation of mineral oil". As mentioned earlier, the circular deliberately uses both exploration and exploitation and therefore the Department of Revenue is not correct in saying that section 44BB should be restricted to upstream activities of oil sector only (i.e. activities only up to the production of crude oil). The word exploitation means that all products derived from crude oil would be included. When the Central Board of Direct Taxes has taken such unambiguous stand on the wider meaning of mineral oils, we cannot give a restricted meaning to the same and be guided by the definition of 'mineral oils' given by the Institute of Petroleum or in the Petroleum Guide cited by the Revenue.
19. The Bombay High Court in the case of Burmah Shell Refineries Ltd., (supra) had considered the matter relating to meaning of the expression 'mineral oil' and after considering the dictionary meaning including the petroleum dictionary and products manual, the High Court observed as under (page 502 of 61 ITR) :
"We have referred to the meaning given to the terms 'mineral oil' and 'crude oil' in the aforesaid dictionaries, which indicate that the crude oil means petroleum in its raw form as it comes from the ground, and the expression 'mineral oil' is wide enough to include both petroleum as well as the products produced from petroleum by refining, or the products secured from raw petroleum or crude oil. Prima facie, therefore, the company appears to have been engaged in the business of manufacture or production of 'mineral oil'."
In the case of Addl. CIT v. Distillers Trading Corporation Ltd. [1982] 137 ITR 894 (Delhi) again the question before the High Court was whether Ethyl Alcohol, a derivative product, can be said to be a 'mineral oil'. The High Court noted that Ethyl Alcohol is a product of hydrocarbons which can be derived, which perhaps is usually derived by cracking up petroleum. The High Court observed that there is nothing strange or even incorrect in describing ethyl alcohol as "mineral oil".
We are convinced that the meaning of "mineral oils" given by the courts and by the Central Board of Direct Taxes in Circular No. 57 of 1971 is appropriate and will include liquid products derived from crude petroleum which are being produced by IOCL.
20. The Department has strongly relied upon the rulings given by this Authority in the case of Global Industries Asia Pacific Pte Ltd. (supra) saying that the Authority held that the consideration received for similar nature of contract with IOCL was held to be fee for technical service under article 12(4) of the India-Singapore Double Taxation Avoidance Agreement. We find that in this case the applicant had entered into two separate contracts with IOCL and L&T respectively. As regards contract with IOCL it was noted that the contract was loaded in favour of mobilisation expenses though it was a divisible one segregating the mobilising segments and other segments. It was further noted by the Authority that considering the entire payments, the payment made for the use of equipments, i.e., the barges and stated as mobilisation and demobilisation expenses determined the predominant character and nature of payment was for the use of equipment. As installation was found to be ancillary and subsidiary to the use of equipment or enjoyment of the right for such use, the payment for installation was considered as fee for technical service. However, in the same order the consideration received from L&T for installation of bridges, pipelines, cable installation, etc., for ONGC was held to fall within the ambit of section 44BB. There was no discussion in respect of taxability of consideration received from IOCL contract under section 44BB. The ruling was given on a different premise that the installation was ancillary and subsidiary to the use of equipment. In the present case there is no reason to arrive at similar conclusion. Further the issue relating to the expression "mineral oil" had not come up in this ruling. Therefore, reliance on this ruling will not be of any use in the present case.
21. We may also point out that section 44BB is a special provision and has a self contained code relating to the taxability of non-resident for providing services in connection with prospecting for, extraction of and production of mineral oils and this section prevails over other general provisions including that of section 44DA. The authority has been taking consistently such a view which has been upheld by the hon'ble Delhi High Court also in the case of OHM Ltd. (supra).
22. However, we notice that the question posed by the applicant relates to the profits derived for executing the contract awarded by IOCL. We may point out that the provisions of section 44BB take into consideration the aggregate of amounts paid or payable to the assessee on account of the provisions of services and facilities in connection with, or supply of plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils in India. Therefore, it is the entire consideration received which will be considered for taxability and not the profits derived by the installation of permanent establishment of the applicant. During the course of hearing this fact was pointed out to Shri S.D. Kapila, learned counsel for the applicant and he had agreed to this proposition.
23. In view of the above, we conclude that the entire consideration received by the applicant in respect of contract with IOCL for executing work of installation of SPM System, offshore and onshore pipelines and associated facilities for integrated offshore crude oil unloading facilities located at Paradip would be chargeable to tax under the provisions of section 44BB of the Income-tax Act.