TaxTMI 
TaxTMI 
2025 (5) TMI 197
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....preciated 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 purpose of tax liability. (B)The Ld.CIT(A) erred in not appreciating the fa....
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....o 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 of the appeal. 3. The brief facts are that the assessee company is engaged in the business of offshore drilling se....
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....* 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 assessee to whom such agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to that assessee." Thus, an assessee has an option to....
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....ssessee 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". 4.6 The consideration paid in the context of our transactions pertains to the provision of services and facilities related to the exploration and exploitation of mineral oi....
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....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 Revenue being devoid of m....
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....tion 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 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....
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....e-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 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 4....
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....t/ 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 "Capital gains") for- (i) the transfer of all or any rights (including the granting of a licence) in respect of a patent, invention, model, design, secret formula or process or trade mark or similar property ; (ii) the imparting of any information concerning the working....
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....l 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)(vii) of the Income-tax Act, 1961 as under: "Explanation 2: For the purpose 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 fo....
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....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 from the list of services considered by Hon'ble Supreme Court while deciding the issue in the case of ONGC vs. CIT (supra) the activity carried on would indicate that pith and substance of each of the contracts/agreements is connected with prospecting, extraction or production of mineral oil. And the assessee before us is also rendering services which is connected with similar activities of prospecting, extraction....
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.... 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 in other country. 4.16 The ld.AR submitted that the consideration paid in the context of our transactions pertains to the provision of services and facilities related to the exploration and exploitation of mineral oils and natural gas, i.e., business transaction is governed by Article 7, rather than payments classified as royalties or fees for technical services i.e., Article 13/14. Such a classification disregards the nature of the transactions and the specific provisions under Section 44BB of the Act, which should govern th....
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.... 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 under obligation to deduct tax at source under section 195 in respect of the sums paid to them under the contracts entered into; and (ii) the obligation of the respondent-assessee to deduct tax under section 195 is limited only to appropriate proportion of income chargeable under the Act, are correct" * Decision of Hon'ble High Court Commissioner of Income-tax v. Fertilizers & Chemicals (Travancore) Ltd.; [1987] 34 TAXMAN 346 (KER.): "Inasmuch as a representative assessee can have recourse to section 162 which confers on him the right to get reimbursement of the tax paid by him....
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....n 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 petition No. P-6 of 1995. In re. (1998) 234 |TR 371, 391- 92(AAR). In the facts of that case it has been held (P.230) that the payments made by x" to the applicant would not be taxable under section 44BB and by virtue of the Proviso to Section 44BB(1), the case of the applicant gets covered by the provisions of Section 44D and 115A. However, since fees for technical services are covered under Article 13 of the Double taxation Avoidance Agreement between India and United Kingdom and the rate of tax prescribed in that article 13 is 20 percent as against 30 percent u/s 115A, the applicant is entitled to the option available to him u....
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.... (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 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 As is noted above, each of the above are different incomes as provided in the Act and in respective Double Taxation Avoidance Agreements. 5.4 Therefore the ld.DR submitted that the business income of a Non-Resident is taxable in India if the same accrues or arises through or from any business connection in India to an extent the said income is reasonably attributable to the operations carried out in India. 5.5 Further, the ld.DR stated that in case of Royalty, the same is deemed to accrue or arise in India except wh....
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....g 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 emphasized that a harmonious reading of the entire provisions from 44AD to 44DA would prove that the said provisions are special provisions for computation of Business Income only. The above proves that Section 44BB of the Income Tax Act is applicable for computation of Business Income / Profits & Gains from Business Income only. This is further emphasised by the proviso to sub section (1) of Section 44BB where-in certain incomes are excluded from the ambit of Section 44BB for the purposes of computing Profits/ Gains or any other Income referred to in those sections. 5.8 To note, it is not the case of the assessee, that the Non- Resident whoever in receipt of the Royalty and Fee for Technical Services Income ha....
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....ecision 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 covered under section 115A of the Income Tax Act. 5.13 To conclude, it is not the case of the assessee, that the Non- Resident whoever in receipt of the Royalty and Fee for Technical Services Income have permanent Establishment in India. And that the said incomes constitute Profit and Gains from Business or Professions in the hands of the Non-Residents in India. Hence, it is submitted that the provisions of 44BB of the Act does not apply to the facts of the case and the Assessing Officer has rightfully sought to tax. Such Royalties and Fee for Technical Services under section 115A of the Act. 6. We have heard both the parties, perused materials available on record, all the paper books and gone through orders of the authorities below....
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....o 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 or fees for technical services. We note that such a classification disregards the nature of the transactions and the specific provisions under Section 44BB of the Act, which should govern the assessment of business income in this case. Therefore, we cannot accept the view of the AO and that of the ld.CIT(A) as it is inappropriate and contrary to the principles of natural justice. Our view is supported by the reliance of the following judicial pronouncements: - Decision of Hon'ble Supreme Court of India in the case of Oil & Natural Gas Corporation Limited 59 taxmann.com 1(SC). "The test of pith and substance of the agreement commends to us as reasonable for acceptance. Equally important is the fact that the CBDT had accepted the said tes....
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.... 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 Revenue being devoid of merits in both the appeals is dismissed" 6.2 Further our Tribunal in assessee's own case has accepted the contention that withholding tax deducted as per the provision of section 44BB of the Act is correct and department appeal has been dismissed in ITA Nos. 1542, 1543, 1381 & 1382 (MDS) of 2010 by holding as under: "27. We have perused the orders and heard the rival contentions. The payments were made by the assessee to non-residents. The payment made to International Tubular F2E was for rental and repairs to machinery and payment made to International Offshore Management was for drilling services. This has been mentioned by the Assessing Officer at paragraph 6 of his assessment order. However, as per the Assessing Officer, it was not for the assesse....
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....e 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 non-resident for the purpose of his assessment, then one should also keep in mind that the non-resident's assessment comes into play when he files his return. The non-resident would file his return only when the assessee has made the payment and if the assessee has made the payment to the non-resident, where is the question that the assessee is to deduct TDS at a lower rate after the assessment has been done on the non-resident? Section 44BB is a special provision as it is mentioned in the cause title to the said provision itself. As per the provisions of section 44BB(1) a sum equal to 10 per cent of the aggregate of the amount specified in sub-section (2) is deemed to be the profits and gains of such business chargeable to tax under the head' Profits and gains of business or profess....
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....siness 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, the method of computing the business income of the non-resident on the basis of the books of account goes out of the picture. Then it is only the provisions of sections 44AD, 44AE and 44AF which could be applied and the same obviously do not apply to the income of the non-resident companies. The hon'ble Supreme Court while dealing with its own decision in the case of Transmission Corporation of A.P. Ltd. [1999] 239 ITR 587 (SC), has categorically explained that the tax was liable to be deducted by the payer of the gross amount if such payment included in it an amount which was exigible to tax in India. This is not so in the present case. Here on account of the special provisions of section 44BB, 10 per cent of the gross amount payable to the non-residents deemed as the income chargea....