Seismic Survey Income Not Automatically ‘FTS’ or ‘Royalty’: Delhi HC Sets Aside 7% TDS Order [Read Order]

The Delhi High Court held that the Assessing Officer must reconsider whether the income from offshore 2D and 3D seismic survey services should be taxed as Fees for Technical Services or Royalty which applies to oil exploration services. The court set aside an order which directed deduction of tax at source at 7% on payments made to PGS Geophysical AS.

PGS Geophysical AS is a company based in Norway and it provides offshore seismic data services to the oil and gas industry. It had entered into a contract with ONGC for carrying out 2D and 3D broadband seismic surveys in the eastern offshore of India. For the previous financial year under the same contract, the Income Tax Department had allowed lower TDS at 3.5% under Section 44BB.

For the next financial year, the company applied again for lower TDS. But this time, by order dated 01 May 2025, the Assessing Officer treated the income as Royalty or Fees for Technical Services and applied Section 44DA. The officer assumed 20% profit and directed TDS at 7% on the gross amount.

The company’s counsel argued that there was no change in facts or in the contract. They said that the Department cannot take a different stand from the earlier year without proper reason.

The counsel also argued that in its own earlier case, the Delhi High Court had already held that 2D and 3D seismic survey services connected with oil exploration are not Fees for Technical Services because they fall under mining or like projects.

The Revenue counsel argued that after the 2010 amendment in law, if income is Royalty or Fees for Technical Services, then it must be taxed under Section 44DA if the company has a permanent establishment in India. The Department’s counsel also said that seismic survey does not involve actual mining work and may also include use of vessels and equipment, so it can be treated as Royalty.

The Division Bench comprising Justice V. Kameswar Rao and Justice Vinod Kumar examined the law and observed that after the 2010 amendment, Royalty or Fees for Technical Services is taxable under Section 44DA. But the Court pointed out that first it must be clearly shown that the income is actually Royalty or Fees for Technical Services.

The court explained that in the company’s earlier case, it was already held that seismic survey services connected with oil exploration are not Fees for Technical Services. The court also observed that the present order did not give proper reasons and did not explain why a different view was taken.

The High Court set aside the 7% TDS order and sent the matter back to the Assessing Officer to pass a fresh order after considering earlier judgments properly. The writ petition was allowed.

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