Revenue from seismic and marine data services taxed under section 44BB, not as technical fees under section 44DA

The ITAT Delhi (LB) held that revenue received by a non-resident assessee for provision of seismic data acquisition, pre-survey studies, marine data collection, and software maintenance is not fees for technical services under section 44DA due to the exclusion in Explanation 2 to section 9(1)(vii), as these services relate to mining or like projects. Accordingly, such revenue is taxable under section 44BB. Additionally, amounts received as reimbursement of service tax are not includible in gross turnover for computing taxable income under section 44BB, following the Uttarakhand HC precedent. The cross appeals were decided in favor of the assessee.

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Issues Involved:
1. Taxability of revenue received by the assessee under section 44BB or section 44DA read with section 9(1)(vii) of the Income-tax Act.
2. Inclusion of reimbursement of service tax in gross turnover for computing taxable income under section 44BB.

Summary:

Issue 1: Taxability of Revenue under Section 44BB or Section 44DA

The primary issue was whether the revenue received by the assessee for providing facilities and services such as seismic data acquisition, pre-survey studies, marine data collection, and software maintenance should be taxed under section 44BB or section 44DA read with section 9(1)(vii) of the Income-tax Act. The assessee claimed that these services were inextricably linked to oil extraction and thus should be taxed under section 44BB, which applies to services connected with the prospecting for or extraction of mineral oils. The Assessing Officer, however, treated the income as "fees for technical services" (FTS) under section 9(1)(vii) and taxed it under section 44DA.

The Tribunal, after considering the nature of services and relevant judicial precedents, including the Supreme Court's decision in ONGC Ltd. v. CIT, held that the services provided by the assessee were indeed connected with the prospecting for or extraction of mineral oils. Therefore, the income from these services was not in the nature of FTS and should be taxed under section 44BB. The Tribunal emphasized that the amendments to sections 44BB and 44DA by the Finance Act, 2010, did not alter the fundamental nature and applicability of section 44BB for services connected with mining or like projects.

Issue 2: Inclusion of Reimbursement of Service Tax in Gross Turnover

The second issue was whether the amount received as reimbursement of service tax should be included in the gross turnover for computing taxable income under section 44BB. The Tribunal, agreeing with the decisions of the Uttarakhand High Court and the Delhi High Court, held that service tax collected by the assessee is not part of the income and should not be included in the gross receipts for the purpose of computing income under section 44BB. This is because the service tax collected is a statutory liability and does not form part of the consideration for the services provided.

Conclusion:

The Tribunal concluded that the revenue received by the assessee for the services provided should be taxed under section 44BB, not section 44DA, and that the reimbursement of service tax should not be included in the gross turnover for computing taxable income under section 44BB.

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