TaxTMI 
TaxTMI 
2025 (5) TMI 197
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....iple of natural justice. (B)The Ld. CIT(A) ought to have appreciated the fact that Ld. AO erred in applying the tax of 10 and 22.5 percentage relating to royalty and fee for technical services respectively and charged interest without appreciating the nature of business of the assessee which is incorrect and bad in law 3. Without prejudice to above, the Ld. CIT(A) erred in not appreciating the fact that the mining activity not covered in the explanation to section 9(1)(vi) of the Act and payment in relation to mining activity is covered under section 44BB and not under section 115A r.w.s, 44DA of the Act. Further, the same has been considered by the Hon'ble ITAT in the assessee's group companies. (B)The Ld. CITA) ought to appreciate that the payments to a foreign company for services in relation to prospecting for, or extraction or production of, mineral oil will be income chargeable to tax under the provisions of Sec. 44BB of the Income-tax Act, 1961. 4. The Ld. CITA) ought to have appreciated the fact that the provisions of the DTAA or ITA as per the section 90 of the Act, which are more beneficial to the assessee shall be taken into consideration for the pu....
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.... CBDT Vide Instruction No. 1862 dated 22.1 1.1990 where in it is clarified that the payments to a foreign company for services in relation to prospecting for, or extraction or production of, mineral oil will be income chargeable to tax under the provisions of sec.44BB of the Act and not u/s 115A r.w.s 44DA of the Act i.e., technical services. 8. The Ld. CIT(A) ought to appreciate the fact that the assessee has deducted the tax and same is paid as per section 44BB(1) of the Act i.e., 10 percent of the aggregate receipts during the year will be chargeable to tax as Business Income 9. The Ld. CIT(A) ought to have appreciated the fact that the assessee company is governed by the Article 7 of the tax treaty with respect to taxation of Business Income and not by the Article 12/Article 13. 10. The Ld. CIT (A) ought to have appreciated the fact that assessee is liable for withholding tax on foreign company/ party payment only if the foreign company/ party's income is liable to tax in India. The Appellant may, add or alter or amend or modify or substitute or delete and/or rescind all or any of the grounds of appeal at any time before or at the time of hearing ....
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....9 (SC) * Decision of Hon'ble Supreme Court in case of Transmission Corpn. of A.P. Ltd. v. Commissioner of Income-tax; [1999] 105 Taxman 742 (SC) * Decision of Hon'ble High Court Commissioner of Income-tax v. Fertilizers & Chemicals (Travancore) Ltd.; [1987] 34 TAXMAN 346 (KER.) 4.1 The Ld.AR submitted that the applicability of the provisions of Sec.4 of the Act dealing with 'Chargeability of income tax' and Sec. 5 of the Act dealing with the 'Scope of Total Income'. As per section 4 read with section 5(2), a person non-resident in India is liable to income tax in India if the income accrues or arises; or deemed to accrue and arise in India; received or deemed to be received in India. However, section 90 of the Act, empowers the Central Government to enter into an agreement for avoidance of double taxation with any other country. Further, Sec. 90(2) states that "where the Central Government has entered into an agreement with the Government of any country outside India or specified territory outside India, as the case may be, under sub-section (1) for granting relief of tax, or as the case may be, avoidance of double taxation, then, in relation to the assesse....
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....oreign remittance i.e., equipment rental charges as royalty and professional and consultancy charges as fee for technical services without appreciating the fact that the assessee company is engaged in the business of offshore drilling, extraction and exploration of mineral oil and natural gas and payment made to non-residents/ foreign companies for services utilised in the activity of offshore drilling, extraction and exploration of mineral oil and natural gas which is specially covered under section 44BB of the Act. 4.5 The ld.AR drew our attention to Section 44BB i.e., Special provision for computing profits and gains in connection with the business of exploration, etc., of mineral oils (presumptive taxation scheme) in case of a non-resident, engaged in the business of providing services or facilities in connection with, or supplying plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils, a sum equal to ten per cent of the aggregate of the amounts specified in sub-section (2) shall be deemed to be the profits and gains of such business chargeable to tax under the head "Profits and gains of business or profession". ....
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.... Delhi in the case of DIT v. OHM Ltd. [2013]352 ITR 406/[2012] 212 Taxman 440/[2012] 28 taxmann.com 120 held that section 44BB of the Act being a more specific provision shall prevail over the general provisions of the Act and that the services rendered by the Sub-contractor at the off shore rigs of a contractor is part and parcel of activities for extraction etc of mineral oils and would be covered u/s. 44BB of the Act. We respectfully note that in the case of ONGC(supra), speaking for the Hon'ble Apex Court, their Lordships categorically held that payments for providing various services in connection with prospecting, extraction or production of mineral oil would be assessed u/s. 44AB and not u/s. 44D of the Act. On the basis of aforesaid discussion, we are inclined to hold that the issue is squarely covered in favour of the assessee and the DRP was not justified and correct in directing the AO to assess income of the assessee from non-resident company on account of provision of technical person for executing contract with ONGC shall be taxed applying due profit rate of 10% u/s. 44BB of the Act. Finally, in the light of above noted discussion, we have no hesitation to hold th....
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....ty was same Frontier Offshore Exploration (India) Ltd. (supra). A very similar issue was involved in that case. The Tribunal examined the aspect of deduction of tax at source on payments made to a non-resident, falling under section 44BB of the Act and whether an assessee could make deduction at lower rate taking 10 per cent. as the income of such non-resident entity. After considering its earlier decision for the assessment year 2003-04, it was held at paragraphs 6 and 7 of the order dated February 4, 2011, as under (page 177 of 13 ITR (Trib): "6. We have considered the rival submissions. At the outset we are primarily to decide as to whether to follow the decision of the co-ordinate Bench of this Tribunal in the assessee's own case for the assessment year 2003-04, supra, or to differ from the same. After a perusal of the decision of the hon'ble Supreme Court in the case of GE India Technology Centre (P.) Ltd. [2010] 327 ITR 456 (SC) as also taking into consideration the views expressed by the hon'ble jurisdictional High Court in the case of CIT v. Hi Tech Arai Ltd. [2010] 321 ITR 477 (Mad.) we are of the view that the decision of the co-ordinate Bench of this....
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....cally recognised that as per the provisions of section 195 the words used were "any other sums chargeable under the provisions of this Act" as against the term "any sum" used in the other provisions falling in Chapter XVII of the Income-tax Act, 1961. Obviously, what the Assessing Officer is demanding is that TDS is liable to be made under the provisions of section 195 of the Act. If the provisions of section 195 are to be invoked, it is only such sum which is chargeable to tax under the Income-tax Act, 1961 on which TDS can be made. A question now arises as to how much of the amounts paid by the assessee to the non-resident is the income chargeable to tax under the Income-tax Act, 1961 for the purpose of section 195. It is true that the assessee cannot quantify the income of the non-resident. This is where the special provision of section 44BB comes into play. Where the statute has provided a special provision for dealing with a special type of income such a provision would exclude a general provision dealing with the income accruing or arising out of any business connection. This view of ours finds support from the decision of the hon'ble jurisdictional High Court in the case....
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....ls). No interference is called for. Ground No. 5 of the Revenue stands dismissed." 4.9 Further we would also like to submit that the applicability of the beneficial treaty provisions, that the nature of the consideration we have paid to non-resident/ foreign companies does not fall within the definitions of "royalty" or "Fees for Technical Services" as outlined in the Explanation to Section 9(1) of the Act. The said explanation reads as follows: To clarify, the Explanation to Section 9(1) of the Act provides specific definitions and criteria for what constitutes "royalty" and "Fees for Technical Services." These definitions outline the types of payments that are subject to tax under these categories. In our case, the consideration in question does not fit these definitions, which means it should not be classified as either "royalty" or "Fees for Technical Services." The Explanation to Section 9(1) of the Act reads as follows: Royalty: "Explanation 2.-For the purposes of this clause, "royalty" means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head ....
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....ct, which pertains to the taxation of income from the provision of services and facilities related to the exploration and exploitation of mineral oils and natural gas. Consequently, these payments should not be subjected to the special taxation provisions outlined in Section 115A in conjunction with Section 44D/44DA of the Act, which deal with royalties and technical services fees. 4.11 The CBDT vide Instruction No. 1862 dated 22-10-1990 has clearly clarified the fact that payments to a foreign company for services in relation to prospecting for, or extraction or production of, mineral oil will be income chargeable to tax under the provisions of Sec. 44BB of the Income-tax Act, 1961 and not under the special provision for the taxation contained in section 115A, read with section 44D of the Income-tax Act, 1961. The said CBDT Instruction is reproduced below for your ready reference: "Definition of 'fees for technical services in Explanation 2 to section 9(1)(vii) - Whether prospecting for, or extraction or production of, mineral oil are 'mining' operations. The expression "fees for technical services" has been defined in Explanation 2 to section 9(1)(vi....
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....pronouncements * Decision of Hon'ble Supreme Court of India in the case of Oil & Natural Gas Corporation Ltd. 59 taxmann.com 1(SC) (supra). * Decision of Hon'ble ITAT in case of ADIT, International Taxation, Dehradun v. International Technical Services LLC; [2016] 71 taxmann.com 351 (Delhi - Trib.) (supra) * Decision of Hon'ble ITAT in case of DDIT, New Delhi Vs. M/s.RPS Energy Pty Ltd., ITA 45/DEL/2015 "3.7. It is observed that Ld. AO taxed assessee at 10% of the gross receipt under section 115 A of the Act. However, on a combined reading of sections 44 BB, 44DA and 115 A of the Act, we are of the considered view that all these sections relating to royalty/FTS operate in different fields. Where assessee is imparting services which could be a simple royalty or FTS then the same would be taxed under section 9(1)(vi)/(vii) read with 115A, but where assessee is imparting any services in relation to exploration of mineral oil then the royalties/FTS would be taxable under section 44 BB of the Act. As section 44 BB are specific provisions in relation to specific services, it would prevail over the other provisions dealing with royalties/FTS. Further fr....
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....per Article 7) No TDS/WHT 6 Boyer Jacob Short, USA 21,79,400 0 Professional & Consultancy Services Services render outside India (As per Article 7) No TDS/WHT 7 Control Flow Inc, USA 1,66,32,717 0 Professional & Consultancy Services Services render outside India (As per Article 7) No TDS/WHT In this regard, the assessee has entered the contract of drilling/ exploration/exploitation of mineral oils and natural gas i.e., provided the equipment and relating services with supporting staff to exploration, extraction and exploitation of mineral oil and natural gas and for which the contractor paying consideration as a whole which is chargeable under the head business income transaction covered under Article 7 of DTAA i.e., business receipts to non-residents and foreign companies between India and contracting states (non-resident/ foreign company's country). Article 7 of the DTAA addresses the taxation of business profits and establishes the rules for determining the taxing rights between the countries involved. i.e., Country of residents has the right to tax unless the non-residents/foreign company operates business through permanent establishment i....
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....uestion framed hereinabove. Accordingly, the appeal(s) filed by the appellant(s) stands allowed with no order as to costs." * Decision of Hon'ble Supreme Court in case of Sedco Forex International Inc. v. CIT; 87 taxmann.com 29 (SC): * Decision of Hon'ble Supreme Court in case of Transmission Corpn. of A.P. Ltd. v. Commissioner of Income-tax; [1999] 105 Taxman 742 (SC): "Hence, in our view there is no substance in the contention of the learned counsel for the Appellant that the expression' any other sum chargeable under the provisions of this Act' would not include cases where any sum payable to the non-resident is a trading receipt which may or may not include 'pure income'. The language of section 195(1) for deduction of income-tax by the payee is clear and unambiguous and casts an obligation to deduct appropriate tax at the rates in force. We make it clear that the learned counsels for the parties have not advanced any submissions with regard to other findings given by the High Court. 13. In this view of the matter, the answers given by the High Court that (i) the assessee who made the payments to the three non-residents was un....
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.... the said Royalty / Fees for technical services may not be the only income to the said companies / individuals. The business of the appellant may fall under Section 44BB, but it is not necessary that the income earned by the non-residents to whom the equipment royalty payment and fees for technical services is paid essentially fall under the provisions of 44BB. (d) Further the exclusion of Royalty and fees for technical services from the scope of section 44BB will not render section 44BB atiose or redundant. There is a wide range of income falling under section 44BB which will not fall within section 44D. the provision to Section 44BB(C) will be meaningless if Royalty and technical service fees arising out of a business cannot at all fall within the purview of section 44D. Section 44BB and Section 44D have, thus, both to be given effect to and the only way of doing it is by restricting section 44BB to income that does not fall within the scope of section 44D; it is this that 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 (Advance Ruling pet....
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....or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India,.. and (a) in the case of a business [other than the business having business connection in India on account of significant economic presence] of which all the operations are not carried out in India, the income of the business deemed under this clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India. 5.3 Similarly in case of Royalty & Fee for Technical services, section 9(1)(vi)(b) & (vii)(b) is reproduced below: (vi) income by way of royalty payable by (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 (vii) income by way of fees for technical services payable by (b) a person who is a resident, except where the fees are payable ....
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....s or Fee for Technical Services, the Act and DTAA provided that the said incomes are to be taxed in the country in which the said income arises on gross basis at a rate more beneficial to the assessee. As is note above, each of the above are different incomes as provided in the Act and in respective Double Taxation Avoidance Agreements. 5.7 Further, the ld.DR stated that for appellant's plea, on a cursory reading of the Section 44BB is a special deeming provision for computing Profits & Gains in connection with the business of exploration of mineral oils. Sub-section (1) of Section 44BB states that notwithstanding anything to the contrary containing in Section 28 to 41 and Section 43 & 43A clearly referring to the Business Income computation provisions. Reference is also invited to the memorandum explaining the provisions of Finance Act. 2023 wherein while introducing sub-section 4 of Section 44BB, it is clearly mentioned that Section 44BB is a presumptive scheme for the computation of Business or Profession Income. Reference is also invited to Section 72(1) referred to in sub-section 4 of 44BB, which provides for Carry Forward and Setting off of Business Losses. Also, it is....
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....ects would clearly fall within the definition of Business Income / Profits or Gains from business by virtue of these projects being long gestation projections resulting in establishment of PE. Reference is also invited to sample DTAA between India and Singapore where-in the Article 5 Clause 3 defines permanent establishment to be that of 'a building site or construction, installation or assembly project constitutes a permanent establishment only if it continues for a period of more than 183 days in any fiscal year'. The above exclusions apply only in case of payments forming Business Income in the hands of the recipient of Royalty and Fee for Technical Services. 5.12 Regarding, reliance placed by the appellant on the decision of the Hon'ble Supreme Court in the case of ONGC Limited Vs Commissioner of Income Tax [2015] 59 taxmann.com 1(SC), the point of contention in the said decision is only on whether the payments there-in would fall under Section 44BB or Sec 44D. It is noted that both the sections 44BB and 44D are in respect of Business Incomes where-in, in the case under consideration, the payments are in the nature of Royalty and Fees for Technical Services cover....
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....iness of offshore drilling, extraction and exploration of mineral oil and natural gas and payment made to non-residents/ foreign companies for services utilised in the activity of offshore drilling, extraction and exploration of mineral oil and natural gas which is specially covered under section 44BB of the Act. The Section 44BB i.e., Special provision for computing profits and gains in connection with the business of exploration, etc., of mineral oils (presumptive taxation scheme) in the case of a non-resident, engaged in the business of providing services or facilities in connection with, or supplying plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils, a sum equal to ten per cent of the aggregate of the amounts specified in sub-section (2) shall be deemed to be the profits and gains of such business chargeable to tax under the head "Profits and gains of business or profession". Therefore, the consideration paid for these transactions pertains to the provision of services and facilities related to the exploration and exploitation of mineral oils and natural gas, rather than payments classified as royalties o....
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....e general provisions of the Act and that the services rendered by the Sub-contractor at the off shore rigs of a contractor is part and parcel of activities for extraction etc of mineral oils and would be covered u/s. 44BB of the Act. We respectfully note that in the case of ONGC(supra), speaking for the Hon'ble Apex Court, their Lordships categorically held that payments for providing various services in connection with prospecting, extraction or production of mineral oil would be assessed u/s. 44AB and not u/s. 44D of the Act. On the basis of aforesaid discussion, we are inclined to hold that the issue is squarely covered in favour of the assessee and the DRP was not justified and correct in directing the AO to assess income of the assessee from non-resident company on account of provision of technical person for executing contract with ONGC shall be taxed applying due profit rate of 10% u/s. 44BB of the Act. Finally, in the light of above noted discussion, we have no hesitation to hold that there is no ambiguity, perversity or any other valid reason to interfere with the impugned order of the DRP and thus we uphold the same. Consequently, the sole effective ground of the Reve....
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....uld make deduction at lower rate taking 10 per cent. as the income of such non-resident entity. After considering its earlier decision for the assessment year 2003-04, it was held at paragraphs 6 and 7 of the order dated February 4, 2011, as under (page 177 of 13 ITR (Trib): "6. We have considered the rival submissions. At the outset we are primarily to decide as to whether to follow the decision of the co-ordinate Bench of this Tribunal in the assessee's own case for the assessment year 2003-04, supra, or to differ from the same. After a perusal of the decision of the hon'ble Supreme Court in the case of GE India Technology Centre (P.) Ltd. [2010] 327 ITR 456 (SC) as also taking into consideration the views expressed by the hon'ble jurisdictional High Court in the case of CIT v. Hi Tech Arai Ltd. [2010] 321 ITR 477 (Mad.) we are of the view that the decision of the co-ordinate Bench of this Tribunal in the assessee's own case for the assessment year 2003-04 would no more constitute good law. To err is human. To continue the error is not bravery. If we are to accept the contention of the Revenue that the provisions of section 44BB is relating only to the no....
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....essing Officer is demanding is that TDS is liable to be made under the provisions of section 195 of the Act. If the provisions of section 195 are to be invoked, it is only such sum which is chargeable to tax under the Income-tax Act, 1961 on which TDS can be made. A question now arises as to how much of the amounts paid by the assessee to the non-resident is the income chargeable to tax under the Income-tax Act, 1961 for the purpose of section 195. It is true that the assessee cannot quantify the income of the non-resident. This is where the special provision of section 44BB comes into play. Where the statute has provided a special provision for dealing with a special type of income such a provision would exclude a general provision dealing with the income accruing or arising out of any business connection. This view of ours finds support from the decision of the hon'ble jurisdictional High Court in the case of CIT v. Copes Vulcan Inc. [1987] 167 ITR 884 (Mad). Section 44BB is a special provision to the exclusion of all the contrary provisions provided in sections 28 to 41 and 43 and 43A of the Act. Once the provisions of sections 28 to 41 and sections 43 and 43A stand excluded....