JUDGMENT judgment of court was delivered by Ranjan Gogoi J.-The issue that arise for consideration in this group of appeals is common and may be summarised as follows. "Whether amounts paid by ONGC to non-resident assessees/foreign companies for providing various services in connection with prospecting, extraction or production of mineral oil is chargeable to tax as'fees for technical services' under section 44D read with Explanation 2 to section 9(1)(vii) of Income-tax Act or will such payments be taxable on presumptive basis under section 44BB of Act?" appellant-ONGC has been assessed in representative capacity on behalf of different foreign companies with whom it had executed separate agreements for services to be rendered by such companies in connection with prospecting, extraction or production of mineral oils by ONGC. primary/assessing authority took view that assessments should be made under section 44D of Act and not section 44BB of Income-tax Act (hereinafter referred to as "the Act"). Appellate Commissioner and Income-tax Appellate Tribunal disagreed with views of assessing authorities leading to institution of separate appeals before High Court of Uttarakhand in respect of each of assessments made for years in question. High Court considered facts of Civil Appeal No. 731 of 2007 (Income Tax Appeal No. 239 of 2001 before High Court) as lead case and on grounds and reasons assigned in impugned order dated December 15, 2005, High Court overturned view taken by Appellate Commissioner and learned Tribunal and held payments made to be liable for assessment under section 44D of Act. Aggrieved, ONGC has filed present group of appeals. We have heard Shri Arvind P. Datar, learned senior counsel appearing for appellant and Shri Guru Krishna Kumar, learned senior counsel for Revenue. As facts of Civil Appeal No. 731 of 2007 corresponding to I. T. A. No. 239 of 2001 has been considered in detail by High Court and view expressed in said proceeding have been followed in all other appeals before High Court, it may be necessary to notice in detail said facts arising in appeal in question. appellant-ONGC and non-resident/foreign company one M/s. Foramer France had entered into agreement by which non-resident company had agreed to make available supervisory staff and personnel having experience and expertise for operation and management of drilling rigs Sagar Jyoti and Sagar Pragati for assessment year 1985-86 and drilling rig Sagar Ratna for assessment year 1986-87. Faced with different views taken by authorities under Act, as mentioned above, High Court proceeded to analyse different clauses of contract between parties. consideration of such analysis made by High Court would go to show that it had come to light before High Court that contract between parties visualised operation of oil rigs including drilling operations by personnel made available under contracts/agreements, which fact was further stated on affidavit before High Court by authorised official of ONGC in following terms. "That under said agreement, Foramer was required, through its personnel listed in exhibit-A to said agreement, to carry out, inter alia, drilling operations specified in clauses 4.3 to 4.10 of said agreement." Despite above, High Court took view that under agreement payment to M/s. Foramer France was required to be made at rate of 3450 USD per day and that contract clearly contemplated rendering of Page 443 of 299 ITR. technical services by personnel of non-resident company. Specifically, taking view that contract did not mention that personnel of non- resident company was also carrying out work of drilling of wells and as company had received fees for rendering service payments made were liable to be taxed under provisions of section 44D of Act. As already noticed, in rest of appeals before High Court aforesaid decision dated December 15, 2005, passed in I. T. A. No. 239 of 2001 was followed on basis that facts in all appeals were similar to those involved in I. T. A. No. 239 of 2001. It will be convenient and in fact necessary for purposes of present adjudication to take careful note of provisions of sections 44BB, 44D and also clause (vii) of Explanation 2 to section 9(1) of Income-tax Act, 1961 (hereinafter for short "the Act"). "44BB. Special provision for computing profits and gains in connection with business of exploration, etc., of mineral oils.-(1) Notwithstanding anything to contrary contained in sections 28 to 41 and sections 43 and 43A, in case of assessee, being nonresident, engaged in business of providing services or facilities in connection with, or supplying plant and machinery on hire used, or to be used, in prospecting for, or extraction or production of, mineral oils, sum equal to ten per cent. of aggregate of amounts specified in sub-section (2) shall be deemed to be profits and gains of such business chargeable to tax under head'Profits and gains of business or profession': Provided that this sub-section shall not apply in case where provisions of section 42 or section 44D or section 44DA or section 115A or section 293A apply for purposes of computing profits or gains or any other income referred to in those sections. (2) amounts referred to in sub-section (1) shall be following, namely:- (a) amount paid or payable (whether in or out of India) to assessee or to any person on his behalf on account of provision of services and facilities in connection with, or supply of plant and machinery on hire used, or to be used in prospecting for, or extraction or production of, mineral oils in India; and (b) amount received or deemed to be received in India by or on behalf of assessee on account of provision of services and facilities in connection with, or supply of plant and machinery on hire used, or to be used in prospecting for, or extraction or production of mineral oils outside India. (3) Notwithstanding anything contained in sub-section (1), assessee may claim lower profits and gains than 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 report of such audit as required under section 44AB, and thereupon Assessing Officer shall proceed to make assessment of total income or loss of assessee under sub-section (3) of section 143 and determine sum payable by, or refundable to, assessee. Explanation.-For purposes of this section,- (i)'plant' includes ships, aircraft, vehicles, drilling units, scientific apparatus and equipment used for purposes of said business; (ii)'mineral oil' includes petroleum and natural gas." "44D. Special provision for computing income by way of royalties, etc., in case of foreign companies.-Notwithstanding anything to contrary contained in sections 28 to 44C, in case of assessee, being foreign company,- (a) deductions admissible under said sections in computing income by way of royalty or fees for technical services received from Government or Indian concern in pursuance of agreement made by foreign company with Government or with Indian concern before 1st day of April, 1976, shall not exceed in aggregate twenty per cent. of gross amount of such royalty or fees as reduced by so much of gross amount of such royalty as consists of lump sum consideration for transfer outside India of, or imparting of information outside India in respect of, any data, documentation, drawing or specification relating to any patent, invention, model, design, secret formula or process or trade mark or similar property; (b) no deduction in respect of any expenditure or allowance shall be (b) no deduction in respect of any expenditure or allowance shall be allowed under any of said sections in computing income by way of royalty or fees for technical services received from Government or Indian concern in pursuance of agreement made by foreign company with Government or with Indian concern after 31st day of March, 1976, but before 1st day of April, 2003;... Explanation.-For purposes of this section,- (a)'fees for technical services' shall have same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9; (b)'foreign company' shall have same meaning as in section 80B; (c)'royalty' shall have same meaning as in Explanation 2 to clause (vi) of sub-section (1) of section 9; (d) royalty received from Government or Indian concern in pursuance of agreement made by foreign company with Government or with Indian concern after 31st day of March, 1976, shall be deemed to have been received in pursuance of agreement made before 1st day of April, 1976, if such agreement is deemed, for purposes of proviso to clause (vi) of sub-section (1) of section 9, to have been made before 1st day of April, 1976." "9.(1)(vii) income by way of fees for technical services payable by- (a) Government; or (b) person who is resident, except where fees are payable in respect of services utilised in business or profession carried on by such person outside India or for purposes of making or earning any income from any source outside India; or (c) person who is non-resident, where fees are payable in respect of services utilised in business or profession carried on by such person in India or for purposes of making or earning any income from any source in India: Provided that nothing contained in this clause shall apply in relation to any income by way of fees for technical services payable in pursuance of agreement made before 1st day of April, 1976, and approved by Central Government. Explanation 1.-For purposes of foregoing proviso, agreement made on or after 1st day of April, 1976, shall be deemed to have been made before that date if agreement is made in accordance with proposals approved by Central Government before that date. Explanation 2.-For purposes of this clause,'fees for technical services' means any consideration (including any lump sum consideration) for rendering of any managerial, technical or consultancy services (including provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by recipient or consideration which would be income of recipient chargeable under head'Salaries'. (2) Notwithstanding anything contained in sub-section (1), any pension payable outside India to person residing permanently outside India shall not be deemed to accrue or arise in India, if pension is payable to person referred to in article 314 of Constitution or to person who, having been appointed before 15th day of August, 1947, to be judge of Federal Court or of High Court within meaning of Government of India Act, 1935, continues to serve on or after commencement of Constitution as Judge in India. Explanation.-For removal of doubts, it is hereby declared that for purposes of this section, income of non-resident shall be deemed to accrue or arise in India under clause (v) or clause (vi) or clause (vii) of sub-section (1) and shall be included in total income of non-resident, whether or not,- (i) non-resident has residence or place of business or business connection in India; or (ii) non-resident has rendered services in India." careful reading of aforesaid provisions of Act goes to show that under section 44BB(1) in case of non-resident providing services or facilities in connection with or supplying plant and machinery used or to be used in prospecting, extraction or production of mineral oils profit and gains from such business chargeable to tax is to be calculated at sum equal to 10 per cent. of aggregate of amounts paid or payable to such non-resident assessee as mentioned in sub-section (2). On other hand, section 44D contemplates that if income of foreign company with which Government or Indian concern had agreement executed before April 1, 1976, or on any date thereafter computation of income would be made as contemplated under aforesaid section 44D. Explanation (a) to section 44D, however, specifies that "fees for technical services" as mentioned in section 44D would have same meaning as in Explanation 2 to clause (vii) of section 9(1). said Explanation, as quoted above, defines "fees for technical services" to mean consideration for rendering of any managerial, technical or consultancy services. However, later part of Explanation excludes from consideration for purposes of expression, i.e., "fees for technical services" any payment received for construction, assembly, mining or like project undertaken by recipient or consideration which would be chargeable under head "Salaries". Fees for technical services, therefore, by virtue of aforesaid Explanation will not include payments made in connection with mining project. Before High Court, Circular No. 1862, dated October 22, 1990, having bearing on subject was placed for consideration by appellant- assessee. aforesaid instruction may be conveniently reproduced hereinbelow. "Subject: Definition of'fees for technical services' in Explanation to section 9(1)(vii) of Income-tax Act, 1961, whether prospecting for or extraction of production of mineral oil are'mining' operations-Clarification regarding. expression'fees for technical services' has been defined in Explanation 2 to section 9(1)(vii) of Income-tax Act, 1961, as under: 'Explanation 2.-For purpose of this clause, "fees for technical services" means any consideration (including any lump sum consideration) for rendering of any managerial, technical or consultancy services (including provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by recipient or consideration which would be income of recipient chargeable under head "Salaries".' 2. question whether prospecting for, or extraction or production of, mineral oil can be termed as'mining' operations, was referred to Attorney General of India for his opinion. Attorney General has opined that such operations are mining operations and expressions'mining project' or'like projects' occurring in Explanation 2 to section 9(1)(ii) of 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 above opinion, consideration for such services will not be treated as fees for technical services for purpose of Explanation 2 to section 9(1)(vii) of Income-tax Act, 1961. Payments for such services to foreign company, therefore, will be income chargeable to tax under provisions of section 44BB of Income-tax Act, 1961, and not under special provision for taxation of fees for technical services contained in section 115A read with section 44D of Income-tax Act, 1961. 4. copy of statement of case dated March 16, 1990 (without annexures) and copy of Attorney General's opinion dated May 13, 1990, are enclosed. 5. These instructions may brought to notice of all officers in your region. [F. No. 500/6/89-FTD dated October 22, 1990, from Central Board of Direct Taxes]" Before us opinion of learned Attorney General has been placed by learned counsel for appellants at great length to contend that views expressed by learned Attorney General which had been accepted by Central Board of Direct Taxes were based on exhaustive consideration of provisions of Mines Act, 1952, and Mines and Minerals (Regulation and Development) Act, 1957, read with relevant entries in Union and State Lists in Seventh Schedule to Constitution of India. It is urged that eventual test is one of pith and substance of agreement, namely, whether works contemplated or services to be rendered under agreement is directly and inextricably linked with prospecting, extraction or production of mineral oil. It is submitted on behalf of appellants that agreements in question satisfy above test for which purpose appellants have categorised different contracts under eight heads which may be conveniently set out at this stage hereinbelow. 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 repair of wells. 5. Repair, inspection or equipment used in 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." It is also urged on behalf of appellants that Instruction/Circular dated October 22, 1990, issued by Central Board of Direct Taxes was binding on primary authority on ratio of decision of this court in K. P. Varghese v. ITO. It has been further pointed on behalf of appellants that even under provisions of section 3D of Oil Fields (Regulation and Development) Act, 1948, "mining lease" means lease granted for purposes of searching for, winning, working, getting, making merchandisable, carrying away or disposing of mineral oils or for purpose connected therewith and such lease includes exploring or [1981] 4 SCC 173; [1981] 131 ITR 597 (SC). prospecting lease. Reference has also been made to Petroleum and Natural Gas Rules, 1959, framed under section 5 of aforesaid Act. Under rule 4 of said Rules no person can prospect for petroleum except pursuant to petroleum exploration licence (PEL) granted under Rules and no person can mine petroleum except in pursuance of petroleum mining licence (PML) granted under Rules. It is pointed out that under rule 7 of Rules of 1959, petroleum mining licence (PML) entitles licensee to carry out construction and maintenance in and on such land, works, buildings, plants, waterways, roads, pipelines, etc., as may be necessary for full enjoyment of PML. On said basis it is argued that rendering any service in connection with prospecting and extraction is integral part of mining and that expression "mining" in Explanation 2 to section 9(1) of Income-tax Act, in absence of any definition under Income-tax Act, has to be understood as per provisions of Oil Fields (Regulation and Development) Act, 1948, read with Petroleum and Natural Gas Rules, 1959. Opposing contentions advanced on behalf of appellants, Shri Gurukrishna Kumar, learned senior counsel for Revenue, has urged that opinion of Attorney General relied upon and Central Board of Direct Taxes Circular has no relevance to present case inasmuch as agreements between ONGC and non-resident companies made it abundantly clear that what is paid to non-resident company are fees for technical services rendered. Though such services may have some connection with prospecting, extraction or production of mineral oils, primary service rendered by non-resident companies on basis of agreements is not for prospecting, extraction or production of mineral oil but various ancillary services like training of personnel, etc., which may have somewhat remote connection with business of prospecting, exploration or production of mineral oils. Learned counsel for Revenue has even suggested that if it is held that High Court ought to have examined each agreement or contract to find out its real purpose and intent Revenue would have no objection if matters are remanded for complete exercise to be made on above basis. Income-tax Act does not define expressions "mines" or "minerals". said expressions are found defined and explained in Mines Act, 1952, and Oil Fields (Development and Regulation) Act, 1948. While construing somewhat pari materia expressions appearing in Mines and Minerals (Development and Regulation) Act, 1957, regard must be had to provisions of entries 53 and 54 of List I and Entry 22 of List II of Seventh Schedule to Constitution to understand exclusion of mineral oils from definition of minerals in section 3(a) of 1957 Act. Regard must also be had to fact that mineral oils is separately defined in section 3(b) of 1957 Act to include natural gas and petroleum in respect of which Parliament has exclusive jurisdiction under entry 53 of List I of Seventh Schedule and had enacted earlier legislation, i.e., Oil Fields (Regulation and Development) Act, 1948. Reading section 2(j) and section 2(jj) of Mines Act, 1952, which define mines and minerals and provisions of 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 purpose of production of petroleum would clearly amount to mining activity or mining operation. Viewed thus, it is proximity of works contemplated under agreement, executed with non-resident assessee or foreign company, with mining activity or mining operations that would be crucial for determination of question whether payments made under such agreement to non- resident assessee or foreign company is to be assessed under section 44BB or section 44D of Act. test of pith and substance of agreement commends to us as reasonable for acceptance. Equally important is fact that Central Board of Direct Taxes had accepted said test and had in fact issued circular as far back as October 22, 1990, to effect that mining operations and expressions "mining projects" or "like projects" occurring in Explanation 2 to section 9(1) of Act would cover rendering of service like imparting of training and carrying out drilling operations for exploration of and extraction of oil and natural gas and, hence, payments made under such agreement to non-resident/foreign company would be chargeable under such agreement to non-resident/foreign company would be chargeable to tax under provisions of section 44BB and not section 44D of Act. We do not see how any other view can be taken if works or services mentioned under particular agreement is directly associated or inextricably connected with prospecting, extraction or production of mineral oils. Keeping in mind above provision, we have looked into each of contracts involved in present group of cases and find that brief description of works covered under each of said contracts as culled out by appellants and placed before court is correct. said details are set out below: Civil S. Appeal Work covered under contract No. No. Drilling of exploration wells and carrying out seismic 1. 4321 surveys for exploratory drilling. Drilling, furnishing personnel for manning, 2. 740 maintenance and operation of drilling rig and training of personnel. Drilling, furnishing personnel for manning, 3. 731 maintenance and operation of drilling rig and training of personnel. Furnishing supervisory staff with expertise in 4. 1722 operation and management of drilling unit. 5. 729 Capping including subduing of well, fire fighting. 6. 738 Capping including subduing of well, fire fighting. Analysis of data to prepare job design, procedure 7. 1528 for execution and details regarding monitoring. Study for selection of enhanced oil recovery 8. 1532 processes and conceptual design of pilot tests. Engineering and technical support to ONGC in 9. 1520 implementation of cyclic steam stimulation in heavy oil wells. Assessment and processing of seismic data along 10. 2794 with engineering and technical support in implementation of cyclic steam stimulation. Conducting reservoir stimulation studies in 11. 1524 association with personnel of ONGC. Laboratory testing under simulated reservoir 12. 1535 conditions. Consultancy for optimal exploitation of hydrocarbon 13. 1514 resources. 14. 2797 Consultancy for all aspects of coal bed methane. 15. 6174 Analysis of data of wells to prepare job design. Geological study of area and analysis of 16. 1517 seismic information reports to design 2 dimensional seismic surveys. Opinion on hydrocarbon resources and foreseeable 17. 7226 potential. Opinion on hydrocarbon resources and foreseeable 18. 7227 potential. Opinion on hydrocarbon resources and foreseeable 19. 7230 potential. Opinion on hydrocarbon resources and foreseeable 20. 6016 potential. Evaluation of ultimate resource potential and presentations outside India in connection with 21. 6008 promotional activities for joint venture exploration program. Review of sub-surface well data, provide repair 22. 1531 plan of wells and supervise repairs. Repair of gas turbine, gas control system and 23. 733 inspection of gas turbine and generator. 24. 741 Repair and inspection of turbines. 25. 737 Repair, inspection and overhauling of turbines. Inspection, engine performance evaluation, 26. 736 instrument calibration and inspection of far turbines. Replacement of choke and kill consoles on drilling 27. 1522 rigs. 28. 1521 Inspection of gas generators. 29. 1515 Inspection of rigs. 30. 2012 Inspection of generator. Inspection of existing control system and deputing 31. 1240 engineer to attend to any problem arising in machines. Inspection of drilling rig and verification of reliability 32. 1529 of control systems in drilling rig. Expert advice on device to clean insides of 33. 2008 pipeline. Feasibility study of rig to assess its remaining 34. 2795 useful life and to carry out structural alterations. 35. 925 Engineering analysis of rig. Imparting training on cased hold production log 36. 1519 evaluation and analysis. 37. 1533 Training on well control. 38. 1518 Training on implementation of six sigma concepts. 39. 1516 Training on implementation of six sigma concepts. 40. 6023 Training on drilling project management. Training in safety rating system and assistance in 41. 2796 development and audit of safety management system. To develop technical specification for 3D seismic 42. 1239 API modules of work and to prepare bid packages. Supply supervision and installation of software 43. 1527 which is used for analysis of flow rate of mineral oil to determine reservoir conditions. Supply, installation and familiarization of software 44. 1523 for processing seismic data. above facts would indicate that pith and substance of each of contracts/agreements is inextricably connected with prospecting, extraction or production of mineral oil. dominant purpose of each of such agreement is for prospecting, extraction or production of mineral oils though there may be certain ancillary works contemplated thereunder. If that be so, we will have no hesitation in holding that payments made by ONGC and received by non-resident assessees or foreign companies under said contracts is more appropriately assessable under provisions of section 44BB and not section 44D of Act. On basis of said conclusion reached by us, we allow appeals under consideration by setting aside orders of High Court passed in each of cases before it and restoring view taken by learned Appellate Commissioner as affirmed by learned Tribunal. Consequently, all appeals are allowed with no order as to costs. *** Oil and Natural Gas Corporation Ltd. v. Commissioner of Income-tax