TMI Blog2014 (7) TMI 720X X X X Extracts X X X X X X X X Extracts X X X X ..... the second circumstance of the third situation and the fourth situation - The embargo on reassessment in such an event is only in the first circumstance of the third situation, being the change of opinion simplicitor without reference to any unconsidered tangible material coming to the notice of the AO indicating escapement of income – Relying upon COMMISSIONER OF INCOME-TAX AND ANOTHER Versus ONGC [2005 (12) TMI 46 - UTTARANCHAL HIGH COURT] - the revenue from services which are technical in nature in a business to which section 44BB applies, does not fall within the ambit of section 44BB(1) of the Act but is taxable under the provisions of either section 44D or section 115A. The AO did not venture to re-examine the assessment afresh de hors any fresh material, which would otherwise have made it a case of change of opinion ousting the jurisdiction of the AO to initiate proceedings u/s 147 - section 44BB applied by the assessee in the case of ONGC as agent of Foramer France, has been statutorily designated as a special provision for computing profits and gains in connection with the business of exploration, etc., of mineral oils - both sections 44BB and 44D have been categorized ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ains of business or profession' at ₹ 21,22,18,595/-. The AO issued notice u/s 143(2), inter alia, requiring the furnishing of copies of Contracts with ONGC, which led to the earning of the above business income. The assessee furnished copies of such Contracts along with details of its employees/personnel who came to India in connection with the execution of the contract. Here, it is relevant to mention that the assessee received US $ 4,65,428/- from ONGC on account of mobilization fee in terms of Contracts for hire of vessel for 3D Seismic Data Acquisition. The said amount was included u/s 44BB of the Act for the purposes of computing gross receipts. However, it was mentioned in the return that the assessee reserved its right to revise the computation of gross receipts to the extent of the amounts received on account of mobilization fee attributable to the activity undertaken in India. That is how, it was claimed during the course of the assessment proceedings that the receipt from mobilization or demobilization be taxed only to such extent as could be reasonably attributed to the operations carried out in India. In support of this contention, the assessee relied on a Thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt to contracts, copies of which were placed before him and thoroughly examined during the original assessment proceedings. Now, terming the revenue of the assessee as 'fees for technical services' covered u/s 9(1)(vii) of the Act, in the opinion of the ld. AR, amounted to change of opinion, which was not sustainable. To buttress his contention, the ld. AR relied on the judgment of the Hon'ble Supreme Court in CIT Vs. Kelvinator of India Ltd. (2010) 320 ITR 561 (SC). Per contra, the ld. DR stated that the income chargeable to tax escaped assessment in the original assessment order passed u/s 143(3) by taxing such revenue u/s 44BB(1) of the Act whereas it ought to have been considered as 'fees for technical services' as per the judgment of the Hon'ble jurisdictional High Court in the case of ONGC as agent of Foramer France (supra) read with the amendment made to section 44DA liable to tax under the later provision. 4. It is evident that the AO initiated reassessment by forming belief about the escapement of income due to its earlier erroneous taxation u/s 44BB instead of u/s 44DA on two factors, viz., the judgment of the Hon'ble jurisdictional High Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. In view of this revenues of ₹ 2,122,185,946/- earned during the year under consideration should be brought to tax @ 10%. Hence I have reasons to believe that the income of ₹ 1,909,967,352/- has escaped assessment for the year under consideration. 6.2. From the above reasons, it clearly emerges that the assessee filed its return declaring income u/s 44BB of the Act. Such income was derived from ONGC for planning and executing acquisition of 3D seismic data and basis 3D seismic data processing in different survey areas in Mumbai and Kutch etc. It is also apparent from the reasons recorded, within a period of four years from the end of the relevant assessment year, that the original assessment was completed by the AO u/s 143(3) by assessing such income u/s 44BB of the Act. One of the two factors which led to the initiation of reassessment proceedings, is the judgment of the Hon'ble jurisdictional High Court in the case of ONGC a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of a mere change of opinion on the part of the AO. When the matter came up before the Hon'ble Apex Court, it was held that a mere change of opinion cannot per se be a reason to reopen. It was further held that the AO has power to reopen the assessment u/s 147 provided there is some tangible material for coming to the conclusion about the escapement of income. The crux of the judgment is that a mere change of opinion cannot per se be a reason to reopen. 6.6. A unison reading of section 147 with its proviso makes it manifest that where assessment was originally made u/s 143(3), there can be escapement of income in four situations. The first situation is where the assessee did not properly disclose the particulars of his income. The second is where the assessee properly disclosed the particulars of his income, but the AO failed to examine the relevant issues. The third is again where the assessee properly disclosed the particulars of his income and the AO also examined the relevant issues but still the income escaped assessment. The fourth is the happening of some post assessment event leading to escapement of income, such as, retrospective statutory amendment or asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e properly or some post assessment event as discussed above. However, when we thoroughly examine the provision, it turns out that where a period of four years has not expired from the end of the relevant assessment year and the reassessment is taken up after the original assessment u/s 143(3), the provisions of section 147 can be activated in the first two situations, the second circumstance of the third situation and the fourth situation. The embargo on reassessment in such an event is only in the first circumstance of the third situation, being the change of opinion simplicitor without reference to any unconsidered tangible material coming to the notice of the AO indicating escapement of income. 6.8. It is noticed that in the instant case, the AO has unequivocally referred, inter alia, to the judgment of the Hon'ble jurisdictional High Court in the case of ONGC as agent of Foramer France (supra) for holding that the revenue from services which are technical in nature in a business to which section 44BB applies, does not fall within the ambit of section 44BB(1) of the Act but is taxable under the provisions of either section 44D or section 115A. II. WHETHER INITIATION OF ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 156 (P H) considered a case in which the deduction allowed u/s 80P in the original assessment turned out to be not allowable pursuant to the subsequent decision of the Hon'ble Supreme Court. The AO issued notice for reopening the assessment to be made in conformity with the judgment of the Hon'ble Supreme Court. The assessee filed writ petition, which met with the fate of dismissal by the Hon'ble High Court on the premise that notice for reassessment was not based merely on change of opinion, but also on subsequent judgment of the Hon'ble Supreme Court and, hence, the reopening was justified. The same view has been restated in the case of Jawand Sons vs. CIT(A) (2010) 326 ITR 39 (P H). 7.5. At this juncture, it is relevant to mention that the AO passed original order u/s 143(3) on 05.09.2006. The judgment of the Hon'ble jurisdictional High Court, dated 15.12.05 in ONGC as agent of Foramer France (supra), is one of the reasons for issuing notice u/s 148. It means that the judgment of the Hon'ble jurisdictional High Court, which formed the basis for initiation of reassessment proceedings, was in existence at the time of passing of the original order by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inal assessment indicating escapement of income would validate reassessment by putting the case in the afore discussed fourth situation, the decision rendered before the completion of original assessment, which was omitted to be considered earlier, would validate reassessment by landing the case in the above discussed second circumstance of third situation. 8. Reverting to the instant facts, it is more than clear that the AO did not venture to re-examine the assessment afresh de hors any fresh material, which would otherwise have made it a case of change of opinion ousting the jurisdiction of the AO to initiate proceedings u/s 147. As in the instant case, the original assessment was completed u/s 143(3) and notice u/s 148 was issued within a period of four years from the end of the relevant assessment year, basing the initiation of reassessment, inter alia, on the basis of the existing judgment of the Hon'ble jurisdictional High Court, the same is thus covered under the above referred second circumstance of the third situation. As such, the judgment in the case of Kelvinator of India (supra) has no application. This contention advanced on behalf of the assessee is, ergo, jet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for planning and executing acquisition of 3D seismic data and basis 3D seismic data processing in different survey areas with the help of its personnel and vessel, income from which was earlier assessed to tax u/s 44BB, but the AO initiated reassessment by forming the belief that such revenue should have been charged to tax u/s 44DA of the Act. At this stage, it would be relevant to set out the relevant part of section 44BB, which is as under:- 'Special provision for computing profits and gains in connection with the business of exploration, etc., of mineral oils. 44BB. (1) Notwithstanding anything to the contrary contained in sections 28 to 41 and section 43 and 43A, in the case of an assessee, being 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 . Provided that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of foreign companies. It is further clear that the non obstante clause contained in section 44D excludes the contrary provisions contained in section 28 to 44C of the Act. It is still further worthwhile to note that this section is not applicable in respect of agreements made by a foreign company after 01.04.2003. The term 'fees for technical services' has been assigned the same meaning which is given in Explanation 2 to section 9(1)(vii). In turn, the Explanation 2 defines 'fees for technical services' to mean any consideration for rendering of any managerial, technical or consultancy services including the provision of services for technical or other personnel, but excluding any consideration for any construction, assembly, mining or like projects undertaken by the recipient of the consideration which would be income of the recipient chargeable under the head 'salaries'. 9.6. The rule of generalia specialibus non derogant means that a special provision prevails over a general provision. In other words, if a particular subject falls both under a general provision as well as a specific provision, then it is the specific provision which would t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness, including prospecting etc. of minerals oils, is concerned. The reason for our this conclusion is that the exclusion of sections 28 to 44C by section 44D also covers section 44BB, which applies in respect of income from the business of exploration, etc., of mineral oils. When sections 28 to 44C have been made inoperative in the case of section 44D, it implies that the subject matter of section 44D, if covered under any of the sections including 44BB, shall also fall in section 44D. Now, when we examine the language of section 44BB, it can be seen that the non obstante clause is restricted in application only in respect of sections 28 to 41 and sections 43 and 43A. It implies that section 44D has not been made inoperative by section 44BB. The nitty gritty of the matter is that royalty or fees for technical services pertaining to any kind of business, including exploration, etc., of mineral oils as covered u/s 44BB, shall be considered only u/s 44D. This position can also be culled out from the language of proviso to section 44BB as applicable to the previous year relevant to the assessment year under consideration, which provides that this sub-section shall not apply in a ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther that the provisions of section 44BB shall not apply in respect of the income referred to in this section. Explanation.--For the purposes of this section,-- (a) fees for technical services shall have the same meaning as in Explanation 2 to clause (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.' (Emphasis supplied by us) *inserted by the Finance Act, 2003 w.e.f. 1.4.2004 **inserted by the Finance Act, 2010 w.e.f. 1.4.2011 9.9. A single asterisk above indicates that section 44DA was inserted by the Finance Act, 2003 w.e.f. 1.4.2004 in respect of agreements made by the non-resident or foreign company with Government or the Indian concern after 1.4.2003. The sunset clause in section 44D(b), being the agreement made before 1.4.2004, led to the birth of section 44DA which, in turn, applies in respect of income by way of royalty or fees for technical services received by a non-resident (not being a company) or a foreign company in pursuance of an agreement entered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence to section 44DA, which provision was albeit inserted w.e.f. 1.4.2004. The two asterisks above indicate that the proviso providing for non-applicability of section 44BB to the royalty and fees for technical services covered u/s 44DA, has been inserted by the Finance Act, 2010 w.e.f. 1.4.2011. Simultaneously, section 44DA has been added to the proviso to section 44BB along with the existing section 44D etc. by the Finance Act, 2010 w.e.f. 1.4.2011. This shows that during the period relevant to the A.Ys 2004-05 to 2010-11, the amount of royalty or fees for technical services arising in the business of exploration etc. of mineral oils was covered under section 44BB and not under section 44DA. The above discussion shows that the ratio of the judgment in the case of ONGC as agent of Foramer France (supra) rendered in the context of section 44D cannot be applied to the instant case because of significant difference in the language and scope of these two sections during the A.Ys 2004-05 to 2010-11. As we are concerned with the assessment year falling within the above referred block of assessment years, obviously there can be no parity between the two sections so as to apply the ratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 't be curtailed. 10.2. The ld. DR vehemently argued that that the AO initiated reassessment proceedings, inter alia, on the strength of the judgment of the Hon'ble jurisdictional High Court in ONGC as agent of Foramer France (supra), in which the chargeability u/s 44D was upheld in preference to section 44BB. He stated that since section 44DA is successor of section 44D and the assessee had also returned income from ONGC u/s 44BB, definitely the AO could have prima facie formed belief that the income of the assessee ought to have been charged to tax u/s 44DA and not u/s 44BB as per the ratio decidendi of the judgment of the Hon'ble jurisdictional High Court. 10.3. This contention of the ld. DR though appears to be attractive at the first blush but loses its shine on an indepth analysis. The reason for our this conclusion is that the term 'prima facie' has reference to indicate the escapement of income and not to applicability of the material. To put it simply, there should be some positive material to prima facie indicate the escapement of income. It is not that any unconnected material or any judgment delivered on a particular section empowers the AO to i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 44DA. In view of this conflicting position, the legislature stepped in by inserting second proviso to section 44DA(1) by the Finance Act, 2010 w.e.f. 1.4.2011 providing that the provisions of section 44BB shall not apply in respect of the income referred to in this section. Simultaneously, an amendment was carried out in the proviso to section 44BB(1) by inserting section 44DA along with sections 42, 44D, 115A and 293 w.e.f. 1.4.2011. Effect of these amendments is that the provisions of section 44BB shall not apply in respect of royalty or fees for technical services received by a non-resident engaged in the business of exploration, etc., of mineral oils. Such amount would be covered within the ambit of section 44DA. 12.2. Presently, we are dealing with the assessment year 2005-06 in which the assessee included the revenue from business of exploration, etc., of mineral oils u/s 44BB. The AO, inter alia, taking assistance of the proposed amendment to section 44DA by the Finance Bill, 2010 formed the belief that such amount was liable to be considered u/s 44DA of the Act. It is not disputed that the other requirements of section 44DA are duly satisfied in the present case. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure. The following observations of the Hon'ble High Court merit reproduction:- 'As stated earlier, ....... the Explanatory Note to the Finance Bill, 2010 clearly indicates that the amendments proposed in s. 44BB and 44DA of the Act would take effect from 1st April, 2011 and would apply in relation to the asst. yr. 2011-12 and subsequent years. The amendment is prospective in nature and would not apply to the cases in hand which is of the earlier assessment years. ........ The Explanatory Note to the Finance Bill has ..... only been made prospectively and cannot be used or applied for reopening the case under ss. 147 and 148 of the Act.' 12.5. When we are confronted with a direct judgment of the Hon'ble jurisdictional High Court, which categorically lays down that the amendment to sections 44DA and 44BB by the Finance Act, 2010 w.e.f. 01.04.2011 are prospective, there can be no question of arguing or holding otherwise. The position which, therefore, emerges is that the insertion of second proviso to section 44DA by the Finance Act, 2010 is applicable only from assessment year 2011-12 and not prior to that. If the situation is such, then we fail to understand as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see has a PE in India, then income in the nature of fees for technical services connected with such PE shall be includible u/s 44BB and not section 44DA during the period up to the A.Y. 2010-11. 13.3. When we advert to the facts for the instant year, namely, A.Y. 2005-06, it is seen that the AO has specifically held on page 9 of the draft order that the existence of PE of the assessee in India is not disputed. He further held that: Receipts of the assessee are covered under provisions of section 44DA of the I.T. Act. Since the books of account were not prepared by the assessee, the AO estimated 25% of the gross receipts as chargeable u/s 44DA of the Act. In the final order passed u/s 144C(13), the AO computed the assessee's total income u/s 44DA (sic 44BB) on the last page of the impugned order by considering total revenue and then estimating income @ 25% thereof. Ordinarily, income by way of royalty or fees for technical services earned by a non-resident pursuant to agreement made after 31.3.2003 is computed u/s 44DA where such non-resident carries on business in India through a permanent establishment situated in India and the contract, etc., in respect of which fees for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the agreement effectively connected with the PE. When we re-visit the facts for the AY 2007-08, it transpires that the Tribunal held the income chargeable to tax u/s 115A read with section 9(1)(vii) of the Act because of the absence of PE. There is a clear distinction of the facts for the instant year vis-a-vis those considered and decided by the Tribunal for the afore noted subsequent year. As the AO in the instant case has initiated reassessment by treating the income of the assessee chargeable to tax u/s 44D of the Act and has also, in fact, computed such income accordingly by holding the assessee to have a PE in India and such fees for technical services arising from a contract effectively connected with the PE, we are unable to hold that the income for the present year be also covered u/s 115A in line with the view taken by the tribunal for the AY 2007-08, which was neither the case of the Assessing Officer at the time of initiation of reassessment nor at the time of computation of the total income. 13.5. It is trite that reasons recorded by the Assessing Officer are final and the validity of reassessment is tested on the basis of such recorded reasons alone. Neither ..... X X X X Extracts X X X X X X X X Extracts X X X X
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