TaxTMI 
TaxTMI 
2023 (6) TMI 345
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.... I. T. A. No. 6536/Delhi/2014 "1. Whether on the facts and in the circumstances of the case, the learned Commissioner of Income-tax (Appeals) has erred in holding that the revenue received by the assessee, including amounts alleged to be in the nature of 'reimbursements' from various entities (other than revenue from M/s. BHP Billiton covered by the hon'ble Authority for Advance Rulings) on account of the provision of facilities and services of seismic data acquisition, planning and carrying out of presurvey studies, taking marine data and confirming prospects, maintenance/upgradation/support of software licences, etc. ('services') was taxable under section 44BB of the Income-tax Act, 1961 ('the Act') as opposed to section 44DA read with section 9(1)(vii) of the Act. 2. Whether on the facts and in the circumstances of the case, the learned Commissioner of Income-tax (Appeals) has erred in ignoring the effects of the amendment brought in vide Finance Act, 2010 with effect from April 1, 2011, in terms of which income covered by section 44DA has been specially excluded from the scope of section 44BB for the assessment year 2011-12 ....
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....mputing taxable income under section 44BB. (a) The learned Commissioner of Income-tax (Appeals) has erred in not appreciating the fact that the provisions of section 44BB are a self-contained code providing for computation of profits at a fixed percentage of gross receipts of the assessee and all the deductions and exclusions from income are deemed to have been allowed to the assessee. (b) Whether the learned Commissioner of Income-tax (Appeals) has erred in not appreciating the fact that once the receipts held as taxable under section 44BB of the Act, there is no scope for computing or recomputing the profits by excluding any element of the receipts from the total turnover as the same would amount to defeating the very purpose of providing for a scheme of simpler mode of computation of profits under section 44BB of the Act and obviating the need for accounting for individual receipts and payments, etc. (c) Whether the learned Commissioner of Income-tax (Appeals) has erred in ignoring the ratio of the judgment in the case of Chow ringhee Sales Bureau P. Ltd. v. CIT [1973] 87 ITR 542 (SC) ; [1973] 31 STC 254 (SC) wherein the hon'ble apex court has held....
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....as erred in failing to take note of the observations of the hon'ble High Court in the case of DIT v. Mitsubishi Corporation [2011] 330 ITR 578 (Delhi) that the role of the assessees/payee/deductee in short-deduction or non-deduction of tax needs to be ascertained before claim regarding non-liability to interest under section 234B of the Act is accepted a proposition affirmed subsequently in the case of DIT (International Taxation) v. Alcatel Lucent USA Inc. [2014] 2 ITR-OL 276 (Delhi) (judgment of the Delhi High Court dated November 7, 2013 in I. T. A. No. 327 of 2012). 8. The appellant prays for leave to add, amend, modify or alter any grounds of appeal at the time or before the hearing of the appeal." I. T. A. No. 6436/Delhi/2014 "Ground No. 1-Taxability of reimbursement of expenses The learned Commissioner of Income-tax (Appeals) has erred on facts and in law in holding that receipts on account of reimbursement of various expenses amounting to Rs. 9,30,10,042 are to be included in computing the gross receipts for the purpose of the estimation of income under section 44BB of the Act as opposed to the appellant's claim for non-taxability of su....
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.... Provision for marine seismic data reprocessing services 5. BP Exploration (Alpha) Ltd. CON-IND-09-001 18-12-2009 Provision for 2D marine seismic data reprocessing services 6. Calm Energy India Pty. Ltd. 4600001353 27-1-2010 Processing of 3D pre stack time migration and prestrack depth migration 7. Calm Energy Sangu Field Ltd. 5684 20-12-2009 Provision of 3D transition zone and land seismic data processing services 8. Oil and Natural Gas Corporation Ltd. MR/WOB/MM/MM/DW/S/C/60/2009/EB-2156 11-3-2010 To take the defined Q-marine data through a designed workflow of interpretation and confirm prospects through risking/ranking and culminating in drilling recommendations 9. Oil and Natural Gas Corporation Ltd. MR/WOB/MM/Q-Vessel/SC/50/2006/EB-2132 13-7-2007 Planning and carrying out pre-survey studies and executing the acquisition and processing of 3D seismic data using Q-marine technology in different survey areas of western and eastern offshore 10. Oil and Natural Gas Corporation Ltd. MAT/IMP/E-11/2(2739)/AMC-WG/2008-09 4-2-2009 Annual maintenance contract for upgraduation maintenance and support....
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....id or payable (whether in or out of India) to the assessee or to any person on his behalf 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 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 payabl....
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....xplain why all the receipts from these contracts should not be taxed as fees for technical services ("FTS", for short) as defined in section 9(1)(vii) of the Income-tax Act and why the claim of section 44BB should not be disallowed. After considering the reply of the assessee, the Assessing Officer took the view that the assessee was not covered under section 44BB of the Income-tax Act. The relevant portion of the assessment order is as under : "4.1 The assessee has submitted reply vide letter dated March 3, 2014 contending that revenues received from the contracts may be covered under section 44BB and not under fees for technical services or royalty. The reply has been considered. The assessee has contended that activities of the assessee are covered by the term mining as defined in section 9(1)(vii) and has referred to Instruction No. 1862 of Central Board of Direct Taxes. It has been contended that, data processing activities are essential part of seismic survey activities and are connected to exploration of mineral oils and for any oil and gas exploration activity, seismic sur vey is the first step and perhaps the most critical part of the activity. H....
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....le. The receipts cannot be treated as eligible under section 44BB for taxation and considered to be bearing the character of technical services, have to be treated as fees for technical services. The receipts of the assessee are covered by the provisions of section 9(1)(vii) of the Income-tax Act. Sections 5 and 9 of the Income-tax Act are charging sections. In order to bring any income under the taxability of the Income-tax Act, the same needs to be examined under the provisions of these two sections. Sections 28 to 41 are computation sections. Section 44BB is a presumptive section. It is important to analyse that when a presumptive section is introduced, it will start with a non obstante clause with respect to sections 28 to 41 which are the computation sections. In this regard, it is important to analyse the following provisions of the Income-tax Act : Section 44BB of the Income-tax Act, 1961 '44BB. Special provision for computing profits and gains in connection with the business of exploration, etc., of mineral oils.-(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-r....
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....e as that used in section 44BB of the Income-tax Act, 1961. The existence of permanent establishments is covered in the article dealing with royalties and fees for technical services separately and the taxability of permanent establishment by virtue of article 5, paragraph 3 would be covered separately by article 7 of these tax treaties. (iii) The phrase 'in connection with' used in section 44BB only broadens the scope of the section to cover services which are not of technical nature and enacts a special provision for determination of tax liability of persons engaged in providing such services which would be outside the scope of technical services. (iv) Instruction No. 1862, dated October 22, 1990 dealing with the interpretation of the term 'mining or like project' is issued in an entirely different context as can be seen from the statement of the case referred for the opinion of the learned Attorney General and the opinion of the learned Advocate-General. From the context of this instruction, it can be seen that the same would not be applicable to the facts of the case of those applicants who are engaged in carrying out seismic surveys as the ins....
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....e of taxation in respect of income of a non-resident including a foreign company, in the nature of royalty or fees for technical services, other than the income referred to 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. 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 fees 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 fees 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 ....
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....vices or royalties cannot be taxed under presumptive scheme of taxation under section 44BB(1) of the Income-tax Act, 1961. 4.8 The following provisions also need to be mentioned in the context of the assessee's activities : Section 9(1)(vi) of the Income-tax Act, 1961 '(vi) income by way of royalty payable by- (a) the Government ; or (b) a person who is a resident, except where the royalty is payable in respect of any right, property or information used or services utilised for the purposes of a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India ; or (c) a person who is a non-resident, where the royalty is payable in respect of any right, property or information used or services utilised for the purposes of a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India : Provided that nothing contained in this clause shall apply in relation to so much of the income by way of royalty as consists of lump sum consideration for the transfer outside In....
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....k including films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting, but not including consideration for the sale, distribution or exhibition of cinemoto graphic films ; or (vi) the rendering of any services in connection with the activities referred to in sub-clauses (i) to (iv), (iva) and (v). Explanation 3.-For the purposes of this clause, "computer software" means any computer programme recorded on any disc, tape, perforated media or other information storage device and includes any such programme or any customized electronic data ;" Section 9(1)(vii) of the Income-tax Act, 1961 '(vii) income by way of fees for technical services payable by- (a) the Government ; or (b) a person who is a resident, except where the fees are payable in respect of services utilised in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India ; or (c) a person who is a non-resident, where the fees are payable in respect of services utilised in a business or profession carried on by such pe....
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....sions of section 44BB cannot override the provisions of those sections. It is to be understood that if an income is to be taxed under the head royalty or fees for technical services, it will be governed by the provisions of section 9(1)(vi) and 9(1)(vii). Section 28 deals with the chargeability of income under the head 'Profits and gains of business and profession'. The Legislature for abundant caution thus included the proviso to section 44BB to take away the technical services and royalty from the purview of lower tax rate on presumptive basis as envisaged in section 44BB. Both these sections are not overlapping, section 44BB is applicable to those services which are not technical in nature. It is applicable on those equipment which are used for prospecting, exploration or production of mineral oils. 4.11 Further, it is neither the assessee's case that its receipts come within the exclusion part ; nor the facts and circumstances of the case show the assessee's sales/services/rental receipts to be in the nature of mining or like project. Section 9(1)(vii)(b) of the Income-tax Act embodies the 'source rule' introduced from April 1, 1976, implying th....
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....cting section 44BB to income that does not fall within the scope of section 44D ; it is this that is made clear by the proviso to section 44BB(1) which specifically excludes any profits and gains of business or other income falling under section 44D from the purview of section 44BB.' 4.13 As mentioned in above paragraphs, reliance is placed on the decision of the hon'ble Uttarakhand High Court in the case of CIT v. ONGC as an agent of M/s. Foramer France, wherein it has been held that fees for technical services are outside the purview of section 44BB. 4.14 The various case law/decisions have been quoted by the asses see, which are distinguishable on facts from the case of the assessee. 4.15 The assessee has relied upon the judgment of the ruling of the Authority for Advance Rulings in the case of Geofizyka dated December 7, 2009 and has submitted that the services are squarely covered under section 44BB of the Income-tax Act. Since the rulings are not pronounced in the case of the assessee, they are inapplicable to the facts of the assessee's case. The ruling of Geofizyka likewise is not applicable in this case and is distinguishable on facts....
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....stretching the benefits of section 44BB to itself, in order to avoid the payment of tax in India. The procurement of technicians and equipment by the assessee, from its offices in tax havens/other countries, amounts to sourcing of the same from self, for supply to the above operators in India ; whereby on one hand the contractor assessee claims the benefit of paying mere 10 per cent. profit under section 44BB intended for operators and on the other hand is able to manipulate transfer of its expenses/receipts to its head offices abroad, via a huge mesh of interconnected services and reimbursements, avoiding thereby the fulfilment of the accountability required under section 44AB of Income-tax Act, 1961. The assessee is to provide seismic data acquisition and processing services as per the contracts, these services are clearly technical in nature and not involved directly in the activities covered under section 44BB. The case of the assessee is squarely covered by the decision of the hon'ble Uttaranchal High Court in the case of CIT v. ONGC as agent of Foramer France in favour of the Revenue. From the discussion above thus it is clear that rendering of services through p....
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....s and rental receipts is to be taxed at 25 per cent. profit rate. The above propositions and observations and treatment of the contractual receipts of the assessee from providing services has been confirmed by the hon'ble Dispute Resolution Panel to be fees for technical services as per section 9(1)(vii) of the Income-tax Act, in the case of the assessee itself for the assessment years 2007-08, 2009-10 and 2010-11. In view of the above since there being no change in the facts of the case of the assessee with respect to the previous years, following the directions of the Dispute Resolution Panel, receipts are from the various contracts are in the nature of fees for technical services. The receipts are taxed at 25 per cent. profit under section 44DA being effectively connected to the permanent establishment. The assessee during the year has received payments from following non-resident companies in addition to Indian companies mentioned above, viz., ONGC, RIL, etc. (Rs.) (a) ENI 1,05,04,718 (b) BHP 1,21,003 (out of Rs. 93,66,05,253) not covered by AAR (c) BP Exploration 16,90,939 (d) Calm India ....
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....sions of section 9(1)(vii)(c) of the Income-tax Act and taxed at normal rate applicable to foreign companies. However during the course of assessment proceedings the assessee has filed written submission dated March 3, 2014 stating that the assessee has obtained an advance ruling from the Authority for Advance s (A. A. R. No. 938 of 2010) in respect of its contract with BMP Hillton Petroleum (International Exploration) Pty. Ltd. and according to the authorised representative revenues earned in respect of BHP contract should be assessed to tax under section 44BB of the Income-tax Act. The contracts with BHP Billiton were examined with regard to applicability of the AAR ruling to all the contracts. It has been found after considering the written submissions filed by the assessee on this issue vide their letter/reply dated March 14, 2014 that three contracts including the main contract (contract No. 8100003801) are performing the same services and according to the assessee rep resent the same contract, i. e., contract No. 8100003801. Therefore, as per the ruling of the hon'ble Authority for Advance Rulings gross contractual revenues pertaining to these three contracts, i.....
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.... tax. The same is a statutory levy mandated by law. Therefore, it cannot be included in the total receipts for determining presumptive profit under section 44BB of the Act. Further, the assessee has placed reliance on various judicial pronouncements. The contention of the assessee has been carefully perused and not found acceptable. The assessee has not offered to tax, the revenues received on account of reimbursements of service tax, etc., is intricately linked to the services/work rendered by the assessee and arises due to the related receipts, hence it is to be treated as part of taxable gross receipts as discussed in above paragraph. The facts of the case of the assessee are squarely covered by the decision of the hon'ble Uttarakhand High Court in the case of CIT v. Halliburton Offshore Services Inc. [2008] 300 ITR 265 (Uttarakhand) wherein it has been held that reimbursement of expenditure is includible in the revenue as contemplated by section 44BB of the Income-tax Act, 1961. The reimbursements are made for expenses related to the contact for which the gross receipts are reflected by the assessee. By taxing the gross receipts, it is meant that ....
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....ity undertaking the services to the service provider is further examined as under : The term business is generally understood as an active occupation of providing goods or services with a profit motive. A person in course of providing for goods and services incurs various expenses. When he realises the value of his goods or services he earns a profit which is the surplus of the receipt over the expenditure. This is the concept of profit as understood in commercial sense. For purposes of taxation, however, this concept is slightly modified. Thus, an assessee may not get deduction for an expenditure which he actually incurred, (for example disallowance under sections 40A(2), 40A(3), 43B, etc.) and he may get deduction for an expenditure which he did not incur (for example weighted deduction under section 35). On account of such legal adjustments, a case of commercial profit may turn into a loss and vice versa and thus 'profit for purposes of taxation is an artificial concept (even though the concept of real income is kept in mind while determining it). As already stated above, profit in business is a function of the receipt and the expenditure. A prudent businessman trie....
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....ter down the obligation of the service provider or relieve him from being assessed to tax. The liability remains that of service provider. Same view was also enunciated by the Authority for Advance Rulings in its ruling No. 875 of 2010 (reported as Siem Off shore Inc., In re [2011] 337 ITR 207 (AAR)). It is a common knowledge that an indirect tax is actually a levy on the service provider even though he may actually be receiving it from his customer. That is why the argument that the provider of service tax acts as an agent of the Government collecting service tax from the customers and paying it to the Government is misconceived and actually incorrect. A person who deducts tax at source out of payment made to another person acts as an agent of the Government because the Income-tax is actually a levy on the person from whom the tax is deducted and credit is allowed to the latter only against his tax liability. That is the reason Income-tax deducted at source is not treated as income of the deductor. As regards service tax (and other similar indirect taxes) the position of law is absolutely clear. It is received by the service provider in ordinary course of his bus....
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....omputation of his profit under sections 28 to 43C of the Income-tax Act would be more beneficial to it the option is open to him under section 44BB(3) to compute the income in that manner and pay tax only with reference to the profit which is determined thereby. If he has chosen to opt for presumptive determination of his profit it is obvious that such exercise is more beneficial to him. Having chosen it he cannot regret the fact that he has not got a specific deduction which he could have got in a normal computation. The scheme of presumptive determination of profit is a complete package. An assessee has to either take it or leave it. He cannot pick up the advantages of normal as well as presumptive claims selectively. The scheme of presumptive determination was considered by the hon'ble Uttarakhand High Court in the case of CIT v. Halliburton Offshore Services Inc. [2008] 300 ITR 265 (Uttarakhand). The hon'ble court held that it is a complete code in itself. Based on that decision the Income-tax Appellate Tribunal, Delhi in the case of Dy. DIT (International Taxation) v. Technip Off shore Contracting BV [2009] 29 SOT 33 (Delhi) also held that service tax received by the a....
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....fore, a combined reading of the above two clauses shows that they include anything which has nexus with the sale proceeds. Correspondingly, they show that they exclude everything which has no nexus with the sale proceeds. Further, the meaning of export turnover in clause (b) of the Explanation to section 80HHC, therefore, clearly shows that export turnover did not include excise duty and sales tax. The export turnover is the numerator in the above formula whereas total turnover is the denominator. The above formula has been prescribed to arrive at the profits from exports. In the circumstances, the above two items, namely, sales tax and excise duty cannot form part of the total turnover. In fact, if the denominator was to include the above two items and if the numerator excluded the above two items then the formula would become unworkable. In the circumstances, we are of the view that in order to ascertain the export profits, the above two items cannot be introduced to inflate total turn over artificially in order to reduce the benefit which an assessee is entitled to.' Thus the hon'ble High Court had rightly held that the sales tax and excise duty was not to be in....
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....eceipts which has not been offered to tax, and taken into account to determine tax as fees for technical services of the assessee for the year. '5.3 The taxability of receipts of the assessee under the above contracts and similar other contracts wherein same/similar activity had been determined by the Assessing Officer as taxable as fees for technical services, have been confirmed by the Dispute Resolution Panel while attending to the objections of the assessee for the assessment year 2009-10." 2.5 The assessee filed appeal before the learned Commissioner of Income-tax (Appeals), who, vide order dated September 4, 2014 allowed partial relief to the assessee. These cross-appeals now before us are against the aforesaid impugned order dated September 4, 2014 of the learned Commissioner of Income-tax (Appeals). The relevant portion of the impugned order of the learned Commissioner of Income-tax (Appeals) is as under : "3. Right at the outset the learned authorised representatives have filed a copy of first appellate order in this appellant's case for the assessment year 2010-11 (Appeal No. 159/CIT(A)-II/2013-14) in which all the issues raised through the gr....
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....ablishment existing, was restricted to the assessment year 2010-11 only. They have also placed reliance on the case of DIT v. OHM Ltd. reported in [2013] 352 ITR 406 (Delhi), especially para 12 of OHM Ltd. (supra) grounds of appeals 1 and 2 shall be jointly adjudicated. 4. For ground Nos. 1 and 2 it needs to be reiterated that on identical issues a decision has been rendered in favour of the appellant on the basis of the CGG Veritas case (supra). However, the learned authorised representatives have submitted that the hon'ble High Court of Delhi has clarified the issue of applicability of section 44BB vis-a-vis section 44DA of the Act better, especially the effect of amendments to the two sections with effect from April 1, 2011. It is seen that as in the assessment year 2010-11, this year also the learned Assessing Officer has termed the services as being fees for technical services and thus beyond the scope of section 44BB of the Act. The learned Assessing Officer is seen to have relied upon on interpretation of law which basically revolves around the presumption that the amendments to sections 44BB and 44DA of the Act are retrospective, being merely clarificatory. It ....
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.... instance the services are 'general in nature' and can be categorised as 'fees for technical services' under Explanation 2 to section 9(1)(viii), the benefit of section 44BB cannot be availed of by the assessee. In other words, it has been held that revenue in the nature of 'fees for technical services' and earned from activities in a connection with exploration and production of mineral oil are includible in the revenue chargeable to tax under section 44BB of the Act. 2. The activities of the appellant are not 'general in nature' and are directly in connection with the oil and gas E and P. 2.1. Based on the scope of work awarded to the assessee, the provision of geophysical services to oil and gas exploration industry the activities carried out by the appellant are detailed in exhibit 1 attached herewith. In view of the foregoing, the appellant wishes to assert that the activities carried out by the appellant are activities in connection with oil and gas exploration and production ('E & P') activities. Furthermore, the appellant wishes to submit that your goodself in the case of CGG Veritas Services SA vide Order No. 150/ C....
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....ces which are specific to the oil and gas E and P operations would be taxable under section 44BB in preference to section 44DA ; and * Again it is important to note that the scope of work performed by PGS was not examined in detail by the High Court and its role in the E and P industry not appreciated by the court in a nutshell, the appellant wishes to submit as under : * The activities of the appellant are explicitly in connection with oil and gas E and P ; * The hon'ble Delhi High Court in the case of OHM Ltd. (supra) held that revenue from services which are specific to the oil and gas E and P sector shall be subject to the computation provisions of section 44BB as opposed to section 44DA ; * The above principle has been upheld by the hon'ble Delhi High Court in a subsequent decision in the case of PGS Geophysical (supra) ; In view of all of the foregoing, the appellant submits that the revenue is includible in the revenue chargeable to tax under section 44BB of the Act. Furthermore, the summarised grounds vis-a-vis the grounds raised and adjudicated in the earlier year(s) is also enclosed herewith as exhibit 2. ....
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.... (v) Copy of decision of the hon'ble Tribunal in the case of KOP Surface Products (Services) Pte Ltd. v. Dy. DIT (International Taxation) (I. T. A. No. 215/Delhi/2015, dated June 6, 2018). (vi) Copy of decision of the hon'ble Tribunal in the case of Dy. DIT v. RPS Energy Pty Ltd. [2018] 92 taxmann.com 77 (Delhi). (vii) Copy of decision of the hon'ble Delhi High Court in the case of DIT v. Mitchell Drilling International P. Ltd. [2016] 380 ITR 130 (Delhi). (viii) Copy of decision of the hon'ble Delhi High Court in the case of DIT (International Taxation) v. GE Packaged Power Inc. [2015] 373 ITR 65 (Delhi) and copy of decision of the hon'ble High Court of Uttarakhand in the case of DIT v. Maersk Co. Ltd. [2011] 334 ITR 79 (Uttarakhand). 3.1 The Revenue has taken several grounds in its appeal (I. T. A. No. 6536/Delhi/2014) pertaining to section 44BB/44DA of the Income-tax Act. However, there are essentially two disputes raised in the Revenue's appeal. The first dispute between the Revenue and the assessee is whether, the assessee's income is to be assessed under section 44BB of the Income-tax Act, as claimed by the ass....
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....lhi High Court in the case of DIT v. OHM Ltd. [2013] 352 ITR 406 (Delhi) in (W. P. (C) No. 6830 of 2011) ; the learned Commissioner of Income-tax (Appeals) did not consider the order of the hon'ble High Court of Delhi in the case of PGS Geophysical AS v. Addl. DIT [2014] 369 ITR 27 (Delhi) ; [2014-TII-35-HC-Delhi-INTL] in I. T. A. No. 612 of 2012. The learned Commissioner of Income-tax (Depart mental representative) submitted that the order of the learned Commissioner of Income-tax (Appeals) should be set aside as the learned Commissioner of Income-tax (Appeals) failed to adjudicate on whether the contractual receipts of the assessee were in the nature of fees for technical services and also failed to take into account the amendments to sections 44BB and 44DA of the Income-tax Act in the light of PGS Geophysical AS (supra). The learned Commissioner of Income-tax (Departmental representative) placed reliance on PGS Geophysical AS v. Addl. DIT (supra) and CGG Veritas Services v. Addl. DIT [2012-TII-18-ITAT-Delhi-INTL] in I. T. A. No. 4653/Delhi/2010. 3.2 On the other side, the learned counsel for the assessee submitted that amended provisions of sections 44BB and 44DA of the I....
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....td. [2011] 334 ITR 79 (Uttarakhand). 4. We have heard both sides patiently. We have carefully perused the materials on record including the paper book, synopsis, etc. We have considered judicial precedents referred to in our records and/or brought to our attention, at the time of hearing. The precedents in the cases of ONGC Ltd. v. CIT (supra) ; KOP Surface Products (Services) Pte. Ltd. v. Dy. DIT (supra) ; Dy. DIT v. RPS Energy Pty Ltd. (supra) ; DIT v. Mitchell Drilling International P. Ltd. (supra) ; DIT (I.T.) v. GE Packaged Power Inc. (supra) ; DIT v. Maersk Co. Ltd. (supra) and the order dated May 13, 2016 of the Income-tax Appellate Tribunal in the assessee's own case for the assessment year 2010-11 in aforesaid I. T. A. Nos. 5602 and 5400/Delhi/ 2013 do not advance the case of the assessee for the assessment year 201112, the year under consideration, because these orders were for assessment years prior to the assessment year 2011-12 and the aforesaid amendments of sections 44BB and 44DA of the Income-tax Act, had no application in the assessment years prior to the assessment year 2011-12. Further, the hon'ble High Court of Delhi, after considering DIT v. OHM Ltd.....
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....n be no hesitation in holding that revenues deserves to be taxed under section 44BB of the Act". The learned Commissioner of Income-tax (Appeals) has failed to give his findings on whether the income of the assessee, in respect of which the assessee claimed applicability of section 44BB of the Income-tax Act, was royalty or fees for technical services. The learned Commissioner of Income-tax (Appeals) was required to first give a finding on whether income was royalty or fees for technical services within the meaning of section 44DA of the Income-tax Act. To the extent to which assessee's income is royalty or fees for technical services, section 44BB of the Income-tax Act has no application with effect from the assessment year 2011-12 and such income is to be assessed under section 44DA of the Income-tax Act. This interpretation is consistent with the order of the hon'ble Delhi High Court in the case of PGS Geophysical AS v. Addl. DIT (supra), as referred to in foregoing paragraph 4 of this order. As the learned Commissioner of Income-tax (Appeals) has not considered the issue prop erly, we are of the view that this issue in dispute needs fresh consideration at the level o....
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.... as well as other expenses would be taxable as fees for technical services. The learned counsel for the assessee submitted that the Assessing Officer failed to deal with the merits of the issue with respect to reimbursement of other expenses. The learned counsel for the assessee submitted that, surprisingly this error was not corrected by the learned Commissioner of Income-tax (Appeals) as it was held by the learned Commissioner of Income-tax (Appeals) that the issue of reimbursement of other expenses is against the assessee as case law cited by the learned Assessing Officer on pages 11, 12, 13 of the impugned order (Assessing Officer's order) would squarely place this issue against the appellant-assessee. The learned counsel for the assessee contended that the learned Commissioner of Income-tax (Appeals) totally failed to appreciate that the case law mentioned on pages 11-14 of the Assessing Officer's order related to reimbursement of service tax and not with respect to reimbursement of other expenses. The learned counsel for the assessee submitted that both the reimbursements are at actuals and do not include any profit element and cannot form part of consideration for pr....
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.... to his views on some of the directions and conclusion in the proposed draft order. I have my reservations in so far as the finding given on the following issues : * Firstly, whether revenue received by the assessee on account of provision for facilities and services of seismic data acquisition, planning and carrying out of pre-survey study, taking marine data and confirming prospects, maintenance/upgradation/support of software licences, etc., are in the nature of fees for technical services or not ; * Secondly, whether the revenue on account of aforesaid services is taxable under section 44BB or section 44DA read with section 9(1)(vii). * Thirdly, whether the amount received as reimbursement of service tax is includible in gross turnover for the purpose of computing taxable income under section 44BB. 2. The aforesaid issues were discussed at length with my learned Brother on following points : * Whether, in the wake of judgment of the hon'ble Supreme Court in the case of ONGC Ltd. v. CIT [2015] 376 ITR 306 (SC), any such provision of services which are closely linked and connected with prospecting for, or extraction or production of mine....
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....e gross receipts for the purpose of presumptive income under section 44BB. 4. In so far as the grounds raised by the assessee with regard to the reimbursement of various expenses amounting to Rs. 9,30,10,042 my learned Brother has remanded this issue to the file of the learned Commissioner of Income-tax (Appeals), on which I fully concur with his findings and I accept the same. 5. Similarly, in so far as chargeability of interest under section 234B is concerned, I agree with the conclusion of the learned Brother that the same is covered by the judgment of the hon'ble jurisdictional High Court in the case of DIT (International Taxation) v. GE Packaged Power Inc. [2015] 373 ITR 65 (Delhi). 6. The only point of difference is with regard to other issues as discussed above. In the proposed draft order, the facts have been discussed in the detail as well as entire observations of the learned Assessing Officer have been incorporated verbatim. However, for the sake of brevity and for deciding the issues in hand, I would like to discuss the observation and the finding of the Assessing Officer in a succinct manner, hereinafter. 7. The assessee-company undisputedly is a non-re....
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....e receipts from the aforesaid contracts should not be taxed as "fees for technical services" as defined in section 9(1)(vii) and claim of section 44BB be disallowed, the assessee submitted that all the revenues received from the contracts are covered under section 44BB as the same are connected with oil prospecting and drilling which cannot be treated as fees for technical services or royalty. The assessee in support strongly relied upon the Central Board of Direct Taxes Instruction No. 1862, dated October 22, 1990. It was further contended that, data processing activities are essential part of seismic survey activities and are inextricably connected to exploration of mineral oils ; and for any oil and gas exploration activity, seismic survey is the first step and the most critical part of the activity. All these services are directly related to and are part of exploration activities and processing activities for mineral oil (petroleum and natural gas), there fore, activities of seismic data clearly fall under the ambit of section 44BB of the Act. Further, section 44BB(1) is a special provision applicable to the non-resident engaged in the business of providing services or faciliti....
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....sions of section 44BB cannot override the other provisions of section 9(1)(vii), etc., because the Legislature has taken away the technical services and royalty from the purview of lower tax on presumptive basis as envisaged in section 44BB. Both these sections are not overriding and section 44BB is applicable to those services which are not technical in nature. Thereafter, he strongly relied on the judgment of the hon'ble Uttarakhand High Court in the case of CIT v. ONGC as an agent of M/s. Former France reported in [2008] 298 ITR 438 (Uttarakhand). He further held that the decisions relied upon by the assessee are distinguishable on facts ; and in fact, the assessee's case is squarely covered by the judgment of the hon'ble Uttrakhand High Court in the case of CIT v. ONGC (supra). Thus, he held that presumptive rate of tax at 10 per cent. under section 44BB will not apply and the same would be computed under section 44DA. 8.1 Lastly, while computing the income, the Assessing Officer held that since the present proceedings are for the assessment year 2011-12 during which revenues have been earned by the non-resident company, therefore, section 44DA are applicable and....
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....ed draft order, therefore, the same are not reiterated. 11. First of all, I will deal with the issue, whether the nature of services provided by the assessee which has been summarised by the learned Assessing Officer that it relates to processing of 2D/3D marine seismic data, survey, long-term lease of marine technology, hiring of Q-marine vessel with the help of its personnel and equipment, seismic data acquisition and processing, hiring of vessel and technology, is inextricably linked and connected with prospecting for, or extraction or production of mineral oils or not ; and whether these provisions for services fall into the ambit of "fees for technical services" as defined in Explanation 2 to section 9(1)(vii). As discussed in the foregoing paragraphs, the learned Assessing Officer has observed that the assessee has neither undertaken any construction, assembly, mining or like project directly as it has rendered these services to the companies who have undertaken these projects and therefore, exclusion provided in the Explanation will not apply. He has also noted that, since the Legislature has not used the word "in connection with" in Explanation 2, therefore, benefit of t....
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.... mineral oil are "mining", which though, has been interpreted by the Assessing Officer against the assessee. The relevant instruction of the Central Board of Direct Taxes as incorporated in the judgment reads as under : "Subject : Definition of 'fees for technical services' in Explanation to section 9(1)(vii) of the Income-tax Act, 1961 whether prospecting for or extraction or production of mineral oil are 'mining' operations-Clarification-Regarding The expression 'fee for technical services' has been defined in Explanation 2 to section 9(1)(vii) of the Income-tax Act, 1961 as under : 'Explanation 2.-For the purposes of this clause, 'fees for technical services' means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "Salaries".' 2. The question whether prospecting ....
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....d in the Mines Act, 1952 and the Oil Fields (Development and Regulation) Act, 1948. While construing the somewhat pari materia expressions appearing in the Mines and Minerals (Development and Regulation) Act, 1957, regard must be had to the provisions of entries 53 and 54 of List I and entry 22 of List II of the Seventh Schedule to the Constitution to understand the exclusion of mineral oils from the definition of minerals in section 3(a) of the 1957 Act. Regard must also be had to the fact that mineral oils is separately defined in section 3(b) of the 1957 Act to include natural gas and petroleum in respect of which Parliament has exclusive jurisdiction under entry 53 of List I of the Seventh Schedule and had enacted an earlier legislation, i. e., the Oil Fields (Regulation and Development) Act, 1948. Reading section 2(j) and 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 min....
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.... 7. 1528 Analysis of data to prepare job design, procedure for execution and details regarding monitoring. 8. 1532 Study for selection of enhanced oil recovery processes and conceptual design of pilot tests. 9. 1520 Engineering and technical support to ONGC in implementation of cyclic steam stimulation in heavy oil wells. 10. 2794 Assessment and processing of seismic data along with engineering and technical support in implementation of cyclic steam stimulation. 11. 1524 Conducting reservoir stimulation studies in association with personnel of ONGC. 12. 1535 Laboratory testing under stimulated reservoir conditions. 13. 1514 Consultancy for optimal exploitation of hydrocarbon resources. 14. 2797 Consultancy for all aspects of coal bed methane. 15. 6174 Analysis of data of wells to prepare a job design. 16. 1517 Geological study of the area and analysis of seismic information reports to design 2 dimensional seismic surveys. 17. 7226 Opinion on hydrocarbon resources and foreseeable potential. 18. 7227 Opinion on hydrocarbon resources and foreseeable potential. 19. 7230 ....
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....prospecting, extraction or production of mineral oil. The dominant purpose of each of such agreement is for prospecting, extraction or production of mineral oils though there may be certain ancillary works contem plated thereunder. If that be so, we will have no hesitation in holding that the payments made by ONGC and received by the non-resident assessees or foreign companies under the said contracts is more appropriately assessable under the provisions of section 44BB and not section 44D of the Act. On the basis of the said conclusion reached by us, we allow the appeals under consideration by setting aside the orders of the High Court passed in each of the cases before it and restoring the view taken by the learned Appellate Commissioner as affirmed by the learned Tribunal." 12. The key sequitur as culled out from the aforesaid judgment are that : (i) Proximity of the work contemplated under an agreement executed with the non-resident assessee with mining activity or mining operation is crucial for determination for the question, whether payments made under such an agreement is to be assessed under section 44BB or section 44D. (ii) Secondly, the hon'ble S....
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.... basis under section 44BB and all the services rendered by the assessee are in connection, with, prospecting from mineral oil, and therefore, following the judgment of the hon'ble Supreme Court the assessee's appeal deserves to be allowed. 14. Admittedly, it is not the case of the Assessing Officer that the services provided by the assessee are different in this year, in fact, he has clearly stated at page 3 in paragraph 4 of his order that most of these contracts are continuing since earlier years. Now, once there is a binding precedence of the hon'ble Supreme Court on the same issue which has been followed by the co-ordinate Bench of this Tribunal in the assessee's own case for earlier assessment years, then I find it extremely difficult to hold that these judgments have been rendered nullity or are of no consequence from the assessment year 2011-12, because of the amendments brought in section 44BB and section 44DA by the Finance Act, 2010. Here, one has to see, whether the services rendered by the assessee fall in the category of "fees for technical services" or not and it has nothing to do with amendment brought in section 44DA or section 44BB. It is only wh....
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.... excludes the general provision has been applied. Section 44BB is a special provision for computing the profits and gains of a non-resident in connection with 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 pro duction of mineral oils including petroleum and natural gas. Section 44DA is also a provision which applies to non-residents only. It is, however, broader and more general in nature and provides for assessment of the income of the non-resident by way of royalty or fees for technical services, where such non-resident 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 place of profession. Such income would be computed and assessed under the head 'Business' in accordance with the provisions of the Act, subject to the condition that no deduction would be allowed in respect of ....
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....dia through a permanent establishment situated therein and the right, property or contract in respect of which the royalty or fees for technical services is paid should be effectively connected with the permanent establish ment. Such a requirement has not been spelt out in section 44BB ; moreover, a flat rate of 10 per cent. of the revenues received by the non-resident for the specific services rendered by it are deemed to be profits from the business chargeable to tax in India under section 44BB, whereas under section 44DA, deduction of expenditure or allowance wholly and exclusively incurred by the non-resident for the business of the permanent establishment in India and for expenditure towards reimbursement of actual expenses by the permanent establishment to its head office or to any of its other offices is allowed from the revenues received by the non-resident. Because of the different modes or methods prescribed in the two sections for computing the profits, it apparently became necessary to clarify the position by making necessary amendments. That perhaps is the reason for inserting the second proviso to sub-section (1) of section 44DA and a reference to section 44DA in the ....
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....n nature which provides for overall assessment of income of the non-resident by way of royalty or fees for technical services were such non-resident carries on business in India through a permanent establishment. Their Lordships have also held that, where special provision is applicable then such, provision would not apply. Most importantly, the hon'ble court has clarified the effect of the second proviso to sub-section (1) of section 44DA inserted by the Finance Act, 2010 with effect from April 1, 2011 and simul taneous insertion of the proviso in section 44BB(1). The hon'ble High Court have clearly clarified that, since both these sections have different modes and method prescribed for computing the profit, therefore, the Legislature thought it fit to clarify the position by making a necessary amendment. After analysing both the provisos and giving a harmonious construction to both the duly inserted provisos, their Lordships held that both these sections have to be read harmoniously that neither of them becomes useless lumber. The proviso to section 44BB(1) contemplates a flat rate of 10 per cent. of the revenue and cannot be deemed to be the profits of the non-resident w....
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....ation, the conflict may be avoided by applying the specific provision to the exclusion of the more general one. The specific provision prevails over the general and it does not matter which was incurred first. Thus, when any non-resident assessee is carrying out specific work which falls in the services provided in special provision, i. e., 44BB, then special provision will apply. Here, I have already held above that now in the wake of the law enunciated by the hon'ble Supreme Court in the case of ONGC Ltd. v. CIT (supra) any services which are inextricably linked or connected with prospecting for, or extraction or production of mineral oils, firstly, do not fall under "the category of fees for technical services ; and secondly, the benefit of special provision of section 44BB is applicable. Thus clarification given by the hon'ble Delhi High Court in OHM's case clearly clinches the issue, on the effect of the amendment from the assessment year 2010-11 and not only that, in a subsequent judgment, the hon'ble Delhi High Court, again referred to the judgment of OHM and accepted the contention advanced on behalf of the assessee that when the assessee is engaged in busin....
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....rder of reference while preparing the draft questions and not to enlarge or modify the point of difference referred by the differing Members to the Third Member. Accordingly the learned representatives of both the sides have proposed two draft questions each and after going through the questions suggested by learned representatives of both the sides, it is noted that question No. 2, out of two questions, suggested by them is exactly similar and there is no difference. As regards question No. 1, there is some difference ; and, after discussion, the learned counsel for the assessee has agreed to adopt question No. 1, as suggested by the leaned Departmental representative with slight modification with which the learned Departmental representative has also agreed. Accordingly, the following two questions are finalised as the questions arising from the difference of opinion between the two differing Members in this case which are required to be resolved by the Third Member after hearing the arguments of both the sides : 1. Whether, in view of the facts and circumstances of the case and in law, the revenue received by the assessee on account of provision of facilities and servic....
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.... for technical services. It was contended that data processing activities are an essential part of seismic survey activities and seismic survey being the first step in any oil and gas exploration activity is inextricably connected to exploration of mineral oils. It was submitted that all these activities thus are directly related to and part of exploration activities including prospecting for mineral oil and clearly fall under the ambit of section 44BB of the Act. In support of this contention, reliance was placed by the assessee on the Central Board of Direct Taxes Instruction No. 1862, dated October 22, 1990. It was further contended that section 44BB(1) is a special provision applicable to the non-resident engaged in the business of providing services or facilities in connection with prospecting for or extraction or production of mineral oils and, therefore, the general provisions of section 44DA has no application. 5. The Assessing Officer did not find merit in the contentions raised on behalf of the assessee. According to him, the services rendered by the assessee were in the nature of technical services and therefore the revenue generated by the assessee was liable to be t....
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....appeal filed before the learned Commissioner of Income-tax (Appeals). After considering the submissions made by the assessee as well as the material available on record, the learned Commissioner of Income-tax (Appeals) held that the services rendered by the assessee were directly connected with the extraction of and prospecting for mineral oils. He held that all the services rendered by the assessee were intimately connected with oil extractions going by the nature of contracts executed by it and consequently the income of the assessee from revenue generated from these services was liable to tax at presumptive rate of 10 per cent. under section 44BB of the Act. To arrive at this conclusion, he derived support from the decision of the hon'ble Delhi High Court in the case of DIT v. OHM Ltd. [2013] 352 ITR 406 (Delhi) observing that the application of section 44BB vis-a-vis section 44DA of the Act was clarified by their Lordships in the said decision after taking into consideration the amendments brought in these two sections with effect from April 1, 2011. He further relied on the decision of Delhi Bench of the Income-tax Appellate Tribunal in the case of Precision Energy Service....
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....ical AS v. Addl. DIT [2014] 369 ITR 27 (Delhi) ; [2014-TII-35-HC-Delhi-INTL]. 8. The learned counsel for the assessee, on the other hand, submitted before the Tribunal that the amended provisions of section 44BB and section 44DA of the Act were already considered by the learned Commissioner of Income-tax (Appeals). He submitted that there was no change in the nature and scope of services provided by the assessee-company as the services were being provided in the year under consideration under the same contracts which were continuing from the earlier years. Reiterating the nature of services, it was submitted on behalf of the assessee-company that the scope of services provided to various clients included processing of 2D/3D marine seismic data, survey, long-term lease of marine technology, hiring of Q-Marine vessels and seismic data acquisition and processing, which were closely and intrinsically related to exploration and production of mineral oil as seismic survey activities and one of the most critical parts of exploration activities. It was submitted that similar issue was decided by the Income-tax Appellate Tribunal in the assessee's own case for the assessment year 201....
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....ee with the view expressed by the learned Accountant Member and proceeded to pass a separate order expressing his dissenting view. He considered the nature of services provided by the assessee under the relevant contracts and found that the Assessing Officer himself had agreed in the assessment order that all the services provided by the assessee-company under the relevant contracts to ONGC, GSPCL and RIL were connected with prospecting for and extraction of mineral oil carried out by Indian companies. He also found that a categorical finding was recorded by the learned Commissioner of Incometax (Appeals) in paragraph No. 4.1 of his impugned order that all the services rendered by the assessee under relevant contracts are intimately connected with oil extraction. He noted that similar issue was involved in the assessee's own case for the assessment year 2010-11 and by relying on the decision of the hon'ble Supreme Court in the case of ONGC Ltd. (supra), it was held by the Tribunal that the provision of various services in connection with prospecting for or extraction or production of mineral oil is taxable on presumptive basis under section 44BB of the Act. He then referred....
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.... same would thus be subjected to presumptive tax under section 44BB as claimed by the assessee and there is no question of taxing the same under section 44DA of the Act. 11. As regards the amendments made to section 44BB and section 44DA of the Act with effect from April 1, 2011 and the decision of the hon'ble Delhi High Court in the case of PGS Geophysical AS (supra) on which heavy reliance was placed by the Revenue, the learned Judicial Member noted that the assessee-company in the case before the hon'ble Delhi High Court was engaged in providing geophysical services to oil and natural gas and conducted electric magnetic survey, processing and interpretation of data and the data so collected for the survey was used for the off-shore oil industries. He noted that since the services were found to be in the nature of technical services, the hon'ble Delhi High Court held that the same were taxable under section 44DA of the Act read with section 9(1)(vii) of the Act. He noted that the hon'ble Delhi High Court thus found that the services rendered by the assessee in the case of PGS Geophysical AS (supra) were covered by section 44DA of the Act which is broader and mo....
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....amination, he found that the said services were in the nature of technical services and the fees received by the assessee were in the nature of fees for technical services. By relying on the provisions of section 44BB and section 44DA of the Act as amended by the Finance Act, 2010 with effect from April 1, 2011, he contended that the fees for technical services received by the assessee during the year under consideration, i. e., assessment year 2011-12, to which he said amended provisions are applicable, are taxable under section 44DA of the Act as rightly held by the Assessing Officer and not under section 44BB of the Act as claimed by the assessee. He submitted that the effect of amendment to section 44BB and section 44DA of the Act as made with effect from April 1, 2011 has been considered by the Tribunal in the case of CGG Veritas Services SA v. Addl. DIT (International Taxation) (I. T. A. No. 4653/Delhi/2010, dated January 25, 2012) [2012] 50 SOT 335 (Delhi) and on such consideration, it is held that the combined reading of the proviso to section 44BB(1) and the second proviso to section 44DA makes it clear that fees for technical services rendered in connection with, prospect....
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....iew the specific purpose for which the amendments to section 44BB and section 44DA are made with effect from April 1, 2011, the position has changed drastically as rightly observed by the learned Accountant Member. He contended that the definition of fees for technical services as given in Explanation 2 to section 9(1)(vii) of the Act is required to be overlooked ; otherwise the amendments made to section 44BB and section 44DA of the Act with effect from April 1, 2011 will become redundant. 15. The learned counsel for the assessee, on the other hand, submitted that the services provided by the assessee-company under the relevant contracts during the year under consideration were not in the nature of technical services and since the receipts for the said services were not in the nature of fees for technical services, the same were covered under section 44BB of the Act as rightly claimed by the assessee and not under section 44DA of the Act as held by the Assessing Officer. He submitted that the Assessing Officer, however, held that the said services were in the nature of technical services and applied the provisions of section 44DA of the Act by relying on the decision of the hon....
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....are not in the nature of technical services. 17. The learned counsel for the assessee further submitted that even though most of the contracts executed in the year under consideration by the assessee-company were continuing since earlier years ; there were certain new contracts executed during the year under consideration involving similar nature and scope of work which included four new contracts executed with BHP Billiton Petroleum (International Exploration) Pty. Ltd. He contended that the assessee had approached Authority for Advance Rulings (AAR) regarding the taxability of revenue received from BHP Billiton Petroleum contract which was being offered for tax for the first time and the Authority for Advance Rulings vide its order dated July 25, 2011 held that revenues from the BHP Billiton Petroleum contract were taxable under section 44BB of the Act after taking into consideration the amendment made by the Finance Act, 2010 with effect from April 1, 2011. He pointed out that the appeal filed by the Revenue against the order of the Authority for Advance Rulings has already been dismissed by the hon'ble Uttarakhand High Court. 18. Reliance was placed by the learned cou....
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....strued as "mining or like project" which are covered under section 44BB of the Act as claimed by the assessee and not under section 44DA of the Act as held by the Assessing Officer. 19. As regards the decision of the hon'ble Delhi High Court in the case of PGS Geophysical AS (supra) relied upon by the learned Departmental representative, the learned counsel for the assessee submitted that the same was rendered on July 9, 2014, that is well before the decision in the case of ONGC Ltd. (supra) came to be rendered by the hon'ble Supreme Court on July 1, 2015. He pointed out that the assessment year involved in the said case was 2008-09 and the nature of services provided being fees for technical services was not disputed in the said case. 20. I have considered the submissions of both the sides and also perused the relevant material available on record including the respective orders passed by the differing Members and the judicial pronouncements cited by both the sides. The assessee, in the present case, is a non-resident company having a permanent establishment in India. During the year under consideration, it provided services to Indian companies under the various cont....
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.... 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 to any person on his behalf 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 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." 22. The Assessing Officer did not accept the claim of the assessee. According to him, the services provided by the assessee were not covered by exc....
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....vii) of sub-section (1) of section 9 ; (b) 'royalty' shall have the same meaning as in Explanation 2 to clause (vi) of sub-section (1) of section 9 ; (c) 'permanent establishment' shall have the same meaning as in clause (iiia) of section 92F." To arrive at the conclusion that the case of the assessee was covered by the provisions of section 44DA of the Act, the Assessing Officer strongly relied on the decision of the hon'ble Uttarakhand High Court in the case of ONGC (supra). 23. As submitted on behalf of the assessee, the decision of the hon'ble Uttarakhand High Court in the case of ONGC (supra), relied upon by the Assessing Officer to hold that the case of the assessee is covered under section 44DA of the Act and not under section 44BB of the Act, has been subsequently overruled by the hon'ble Supreme Court by its judgment dated July 1, 2015, of ONGC Ltd. v. CIT reported in [2015] 376 ITR 306 (SC) and by relying on the same, the Tribunal in the assessee's own case for the immediately preceding year, i. e., 2010-11 has decided a similar issue in favour of the assessee vide its order ONGC Ltd. v. CIT reported in [2016] ....
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....xplanation 2 to section 9(1)(vii) of the Act in the facts of the case. However, a careful perusal of the judgment passed by the hon'ble Supreme Court in the said case clearly shows that the issue relating to the applicability of section 44BB of the Act in the facts of the case was independently examined by the hon'ble apex court. Although their Lordships initially referred to the provisions of section 44BB of the Act as well as section 44D read with Explanation 2 to section 9(1)(vii) of the Act, the issue relating to the applicability of section 44BB read with Explanation 2 to section 9(1)(vii) of the Act was independently examined by the hon'ble Supreme Court. In this regard, reference was made to Instruction No. 1862 issued by the Central Board of Direct Taxes on October 22, 1990. As stated in the said circular, a 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. He opined that such operations are mining operations and the expressions "mining project" or "like projects" occurring in Explanation 2 to section 9(1)(vii) of the Act would cover rend....
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....ried on by the assessee were in connection with the prospecting for mineral oil and the income generated from rendering of the said services was taxable on presumptive basis under section 44BB of the Act as held by the hon'ble Supreme Court in the case of ONGC (supra). 27. It is observed that the Assessing Officer himself in the assessment order has noted that the nature of services rendered by the assessee during the year under consideration under the contracts mainly with RIL, GSPCL and ONGC continued to remain the same as in the immediately preceding year, i. e., assessment year 2010-11 since the same contracts were continuing from earlier years except for the contract with BHP Billiton Petroleum (International Exploration) Pty. Ltd. As submitted by the learned counsel for the assessee, there were four contracts executed by the assessee-company with BHP Billiton Petroleum (International Exploration) Pty. Ltd., involving similar nature and scope of work ; and, the assessee had approached the Authority for Advance Rulings (AAR) regarding the taxability of revenue received from BHP Billiton Petroleum contracts which was being offered for tax for the first time. He has placed....
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....companies. This we are saying without addressing the question whether the receipts in the hands of the applicant qualifies as fees for technical services, as we find that the services provided by the applicant are not technical services." 28. The Authority for Advance Rulings thus held that the revenue received from BHP Billiton Petroleum contracts by the assessee-company for the similar nature of services is not fees for technical services as per Explanation 2 to section 9(1)(vii) of the Act and therefore, the provisions of section 44BB of the Act was applicable and not section 44DA of the Act. It is pertinent to note that the writ petition filed by the Revenue against the order of the Authority for Advance Rulings (AAR) dated July 25, 2011 is dismissed by the hon'ble Uttarakhand High Court observing that the issue is squarely covered by the judgment of the hon'ble Supreme Court in the case of ONGC (supra). 29. As already noted, even though the issue involved in the case of ONGC (supra) before the hon'ble Supreme Court was in the context of applicability of the provisions of section 44BB vis-a-vis section 44D of the Act, the applicability of section 44BB of the A....
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....de to section 44BB and section 44DA of the Act with effect from April 1, 2011 and the contentions raised by the learned Departmental representative is that keeping in view the specific purpose for which the said amendments are made with effect from April 1, 2011 the legal position has changed drastically. In this regard, it is observed that the hon'ble Delhi High Court in the case of OHM Ltd. (supra) had an occasion to consider the effect of amendments made to section 44BB and section 44DA of the Act with effect from April 1, 2011 and after considering the nature of the provisions of section 44BB and section 44DA of the Act and by applying the relevant rule of interpretation, the matter was discussed and decided vide paragraph Nos. 11 and 12 as under (page 416 of 352 ITR) : "11. We do not think that there is any error in the view taken by the Authority for Advance Rulings. Basically the rule that the specific provision excludes the general provision has been applied. Section 44BB is a special provision for computing the profits and gains of a non-resident in connection with the business of providing services or facilities in connection with, or supplying plant and mach....
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....A covers all types of services rendered by the non-resident, that would reduce section 44BB to a useless lumber or dead letter and such a result would be opposed to the very essence of the rule of harmonious construction. In South India Corporation P. Ltd. v. Secretary, Board of Revenue, AIR 1964 SC 207 it was held that a familiar approach in such cases is to find out which of the two apparently conflicting provisions is more general and which is more specific and to construe the more general one as to exclude the more specific. 12. The second proviso to sub-section (1) of section 44DA inserted by the Finance Act, 2010 with effect from April 1, 2011 makes the position clear. Simultaneously a reference to section 44DA was inserted in the proviso to sub-section (1) of section 44BB. It should be remembered that section 44DA also requires that the non-resi dent or the foreign company should carry on business in India through a permanent establishment situated therein and the right, property or contract in respect of which the royalty or fees for technical services is paid should be effectively connected with the permanent establishment. Such a requirement has not been spelt ou....
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....provisions or their respective spheres of operation or to take away the separate identity of section 44BB." 31. The hon'ble Delhi High Court thus held, after analysing and considering the nature of provisions contained in section 44BB and section 44DA of the Act and by applying the relevant rule of interpretation, that the amendments made by Finance Act, 2010 with effect from April 1, 2011, in both the sections, cannot have the effect of altering or effacing the fundamental nature of both the provisions or their respective spheres of operation or to take away the separate identity of section 44BB of the Act. As already noted, the issue relating to the applicability of section 44BB of the Act was considered and decided independently by the hon'ble Supreme Court in the case of ONGC (supra) and after having found that the services rendered by the assessee in the said case, which are similar to the services rendered by the assessee in the present case, were not in the nature of technical services as the same were covered by exclusion provided in Explanation 2 to section 9(1)(vii) of the Act, it was held by the hon'ble Supreme Court that section 44BB was applicable. The a....
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....ction 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 non-resident by way of royalty or fees for technical services, where such non-resident 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 place of profession situated in India. One more distinction between sections 44DA and 44BB is that, in section 44BB 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 44DA. 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 ....
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....: 'Provided further that provisions of section 44BB shall not apply in respect of the income referred to in this section.' 16. Keeping in mind the legislative history of amendments in the two provisions, the aforesaid amendments are significant and 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, recognising 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....
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.... 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 April 1, 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 inter pretation of statute, emphatically lay down that statute should be interpreted to preserve the legislative intent. A reading of the overall scheme of sections 44BB and 44DA leaves no 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....
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....e-company in the said case was engaged in providing geophysical services to oil and natural gas and conducted electric magnetic survey, processing and interpretation of data. The data so collected for the survey was used for the off-shore oil industries and the nature of the said services being fees for technical services was not disputed by the assessee in the said case as noted by the hon'ble Delhi High Court in paragraph No. 7 of the judgment. The services rendered by the assessee in the said case thus were covered by section 44DA of the Act and keeping in view this admitted position, it was held by the hon'ble Delhi High Court that section 44DA was applicable in the case of the assessee and not section 44BB of the Act. As rightly pointed out by the learned counsel for the assessee, the said decision was rendered by the hon'ble Delhi High Court on July 9, 2014 and the benefit of the decision of hon'ble Supreme Court in the case of ONGC (supra) rendered subsequently on July 1, 2015 was not available to the hon'ble Delhi High Court while deciding the said case. Moreover, the hon'ble Delhi High Court had an occasion again to consider a similar issue subseque....
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....tion 2 to section 9(1)(vii) of the Act being consideration received for "mining or like projects" and the same, therefore, is not taxable under section 44DA of the Act. The said services or facilities provided by the assessee actually are inextricably connected with prospecting for, or extraction or production of, mineral oils as held by the hon'ble Supreme Court in the case of ONGC (supra) under the similar facts and circumstances and the revenue received for the same accordingly is taxable under section 44BB of the Act. 36. As regards the issue involved in question No. 2, the learned representatives of both the sides have agreed that the same is squarely covered in favour of the assessee by the decision of the hon'ble Uttarakhand High Court in the case of DIT (International Taxation) v. Schlumberger Asia Services Ltd. [2019] 414 ITR 1 (Uttarakhand) [FB], wherein it was held that the amount reimbursed to assessee (service provider) by ONGC (service recipient), representing service tax paid earlier by assessee to Government of India, not being an amount paid to assessee on account of providing services and facilities in connection with prospecting for, or extraction or p....
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....e assessee on account of provision of facilities and services of seismic data acquisition, planning and carrying out of pre-survey study, taking marine data and confirming prospects, maintenance/ upgrading/support of software licenses etc, is taxable as FTS u/s. 44DA r.w.s. 9 (1)(vii) or is taxable under Section 44B of the Income Tax Act, 1961 ('the Act') ? 2. Whether, the amount received as reimbursement of 'service tax' includible in gross turnover for the purpose of computing taxable income under Section 44BB of the Act ?" 4. After hearing the arguments of both the sides the Learned third member held as under :- "35. Having regard to all the facts of the case and keeping in view the legal position emanating from the judicial pronouncements as discussed above, I am of the view that the revenue received by the assessee company during the year under consideration on account of provision of facilities and services of seismic data acquisition, planning and carrying out of pre-survey study, taking marine data and confirming prospects, maintenance/ upgradation / support of software licenses, etc, is not in the nature of fees for technical services as the same is co....