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2008 (6) TMI 238 - AT - Income TaxDTAA between India Australia - Income accrued in India - Revenues earned from a non-resident company on account of provision of services for executing contracts - work of 2D/3D seismic data processing - deemed profit rate of 10% u/s 44BB - fees for technical services within section 9(1)(vii)(b) or chargeable u/s 44BB. HELD THAT - From the terms of the letter of award it seems to us that there can be no dispute that no part of the processing work which was entrusted to the assessee was carried out in India. The entire income thus accrued to the assessee outside India if one were to apply the principles laid down by the Supreme Court in Carborandum Co. s case 1977 (4) TMI 2 - SUPREME COURT . The AO does not dispute the factual position that no part of the processing work was carried out in India but says that since the processed data is utilised in India the income accrues in India. There is no statutory basis for this conclusion. U/s 5(2)(b) of the Income-tax Act the total income of a non-resident includes all income from whatever source derived which accrues or arises or is deemed to accrue or arise to him in India during the year. If the law laid down by the Supreme Court in the aforesaid judgment is applied to the facts of the present case it is not possible to say that any income accrued or arose to the assessee-company in India by reason only of the fact that the processed data was utilised by RIL for its project in India. It is also to be noted that it is not necessary for the application of section 9(1)(vii) that the recipient of the fees for technical services should have any business connection in India. All that is required is that the source of the payment should be in India from a resident of India. In this view of the matter we agree with the ld CIT (DR) that the amount received by the assessee-company from RIL under the letter of award (the contract) is taxable u/s 9(1)(vii)(b) r/w Explanation 2 of the Income-tax Act 1961. We do not see how RIL can be richer in the area of technical knowledge experience skill etc. because of the use of the processed data sent by the assessee-company. The processed data does not also amount to the development and transfer of a technical plan or design. In our opinion therefore Article 12(3)(g) of the Indo-Australian Treaty is not applicable to the facts of the present case. So far as the legal position is concerned if the definition of fees for technical services in the domestic law is wider but the definition of the same is narrower in the double tax treaty in comparison still it is the narrower definition in the treaty that will override the wider definition in the domestic law. This is the ratio of the decision in Citizen Watch Co. Ltd. v. IAC 1983 (5) TMI 16 - KARNATAKA HIGH COURT and in CIT v. Davy Ashmore India Ltd. 1990 (12) TMI 51 - CALCUTTA HIGH COURT . Actually this is a subsidiary principle emerging from the broader principle that the treaty overrides the domestic law. Implied in this broader principle is the position that the definition of a term in the double tax agreement should prevail even if it is narrower than the definition in the domestic law. We are of the view that the amount received by the assessee-company from RIL under the contract did not represent consideration for any technical services rendered to RIL which made available technical knowledge experience skill etc. or consisted of the development and transfer of any technical plan or design within the meaning of Article XII(3)(g) of the Indo-Australian Treaty. The consideration will continue to be viewed as business profits under Article VII of the treaty and since the assessee had no PE in India the business profits cannot be taxed in India. We thus affirm the decision of the CIT (Appeals) and dismiss the first ground. Applicability of receipts u/s 44BB - In our opinion section 44BB would be the more appropriate section applicable to the case since the assessee is rendering technical services to RIL and such services were rendered in connection with the prospecting for or extraction or production of mineral oil. It is here that the Board s Instruction seems to support the assessee s case. In view of the clear instruction of the Board that consideration for services rendered by a non-resident in connection with the prospecting for mineral oil in India will be taxed u/s 44BB the assessee is right in offering the revenues under the contract for tax under this section. The applicability of this section does not depend upon the existence of any PE of the non-resident in India. Therefore even though the assessee has no PE in India the receipt under this contract is assessable u/s 44BB. In the present case no arguments were advanced by the learned CIT (DR) to show how the assessee is covered by section 44D and how the revenues under the contract can be treated as royalty within the meaning of the above section read with Explanation 2 to section 9(1)(vi) of the Income-tax Act. The Instruction issued by the Board also rules out the applicability of section 44D read with section 115A of the Act. Therefore there is no need or legal justification to examine the applicability of Article XII(3)(a) or (d) of the treaty between India and Australia. We have already held that the provisions of section 44BB are more appropriate to the present case. Accordingly we hold that the assessee was right in contending and the CIT (Appeals) was right in accepting the contention that the revenues under the contract are assessable in India u/s 44BB of the Income-tax Act. We confirm his decision on this point and dismiss the ground. In the result the appeal filed by the department is dismissed with no order as to costs.
Issues Involved:
1. Taxability of revenues from a contract for seismic data processing performed outside India. 2. Applicability of Section 44BB versus Section 9(1)(vii)(b) for revenues from training services related to oil and gas exploration. Detailed Analysis: Issue 1: Taxability of Revenues from Seismic Data Processing Background: The assessee, a non-resident company incorporated in Australia, entered into a contract with Reliance Industries Limited (RIL) to undertake 2D and 3D seismic data processing. The entire processing was to be carried out in Perth, Australia. The gross receipts amounted to Rs. 5,27,91,557, which the assessee initially offered to tax under Section 44BB of the Income-tax Act. However, during assessment proceedings, the assessee claimed that since it had no "permanent establishment" (PE) in India, the revenues were not taxable in India under Article VII of the double tax treaty between India and Australia. Assessing Officer's View: The Assessing Officer held that the revenues were taxable under Section 44BB, as the processed data was utilized in India, despite the processing being done in Australia. CIT (Appeals) Decision: The CIT (Appeals) accepted the assessee's contention that the revenues were not taxable in India due to the absence of a PE, and that the double tax treaty overrides the provisions of the Income-tax Act. Tribunal's Analysis: The Tribunal examined the contract's terms and noted that all processing was done in Perth, Australia, and no part of the activity was carried out in India. It was held that: - The income did not accrue or arise in India as per Section 5(2)(b) of the Income-tax Act. - Section 9(1)(vii)(b) read with Explanation 2, which deems income by way of fees for technical services to accrue in India, was applicable but overridden by the double tax treaty. Conclusion: The Tribunal concluded that the revenues were not taxable in India under Article VII of the double tax treaty, as the assessee had no PE in India. The decision of the CIT (Appeals) was affirmed, and the first ground of appeal was dismissed. Issue 2: Applicability of Section 44BB versus Section 9(1)(vii)(b) for Training Services Background: The assessee entered into a contract with RIL to provide training on Geolog software, used for exploration/extraction of mineral oil. The assessee initially declared the receipts under Article XIII of the Indo-Australian tax treaty but later offered to be assessed under Section 44BB. Assessing Officer's View: The Assessing Officer assessed the receipts under Article XIII of the treaty. CIT (Appeals) Decision: The CIT (Appeals) accepted the assessee's contention that the revenues were taxable under Section 44BB, based on the CBDT's Instruction No. 1862, which clarified that services related to oil and gas exploration are covered under Section 44BB. Tribunal's Analysis: The Tribunal noted that: - Section 44BB covers all services, including technical services, rendered in connection with the prospecting for or extraction of mineral oils in India. - The Board's Instruction No. 1862 supports the assessee's case, clarifying that consideration for services related to oil exploration is not treated as fees for technical services under Section 9(1)(vii)(b) but is taxable under Section 44BB. - The applicability of Section 44BB does not depend on the existence of a PE in India. Conclusion: The Tribunal held that the revenues from the training services were assessable under Section 44BB, and the CIT (Appeals) decision was affirmed. The second ground of appeal was dismissed. Final Decision: The appeal filed by the department was dismissed, affirming the CIT (Appeals) decisions on both grounds, with no order as to costs.
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