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TMI Blog2012 (8) TMI 636X X X X Extracts X X X X X X X X Extracts X X X X ..... ces and accordingly would not apply to the case of the appellant. 3. That on the facts and circumstances of the case and in law, the AO/DRP has erred in holding that the services rendered by the appellant to be in the nature of fee for technical services ("FTS"), thereby, liable to be taxed as per the provisions of section 115A read with section 9(1)(viii) of the Act. 4. That on the facts and circumstances of the case and in law, the AO/DRP has erred in holding that the services rendered by the appellant are not in the nature of 'mining or like project' and therefore are not liable to be excluded from the definition of FTS as per proviso to the definition of FTS under section 9(1)(vii) of the Act. 5. That on the facts and circumstances of the case and in law, the AO/DRP has erred in holding that the amendment to the proviso to section 44BB and insertion of second proviso to section 44DA(1) of the Act vide Finance Act, 2010 with effect from April 1, 2011 are clarificatory in nature and must be read into the main provision with effect from the time the provision of section 44BB came into force. 6. That on the facts and circumstances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the contentions of the assessee could not met the approval of the Tribunal, but that is a separate issue. The issue could be taken to the higher form. He pointed out this aspect only in order to save the time. He further submitted that one of the issue involved in the case of CGG Veritas Services SA (supra) is the applicability of section 44DA. Section 44DA was inserted in proviso to section 44BB(i) by the Finance Act 2010 w.e.f. 1st April, 2011 and simultaneously section proviso to section 44DA has been inserted. According to Ld. Counsel these are applicable from Asstt. Year 2011-2012, The Ld. DRP has erred in holding that amendment to the proviso to section 44BB and insertion of second proviso to section 44DA(i) are clarificatory in nature and must be read into the main provision w.e.f the time the provision of section 44BB came into force. He pointed out that this aspect has been accepted by the Tribunal in the case of CGG Veritas Services SA (supra) and it has been held that these provisos are not clarificatory in nature. The outcome of such conclusion is that if an assessee has a PE and it has income in the nature of fee for technical services rendered in connection with pros ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re as under :- 15. "In the light of discussion above, it is clear that provisions of section 44BB will not be applicable in the case of FTS received by the assessee. Such receipts would be taxable @ 10% in accordance with the provisions of section 115A." 5. Ld. DR emphasised that this conclusion impliedly suggest that there was no PE. 6. We have duly considered the rival contention and gone through the record carefully. In the case of CGG Veritas Services, SA (supra) the facts are that assessee company is a tax resident of France. It was engaged in providing geological and geophysical services for exploring mining potentials. It filed its return of income for asstt. Year 2007-08 under status of non-resident declaring income u/s 44BB(1). Ld. AO taxed the assessee @ 10% u/s 115A of the income Tax Act. The relevant discussion made by the Tribunal read as under :- "34. We have heard both the parties and gone through the material available on records. The assessee during the year under consideration has carried out seismic surveys and has submitted its reports to ONGC and ENI. The amounts received have been offered to tax under section 44BB (1) of the Act. However, the assessing off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies like digging or drilling will fall under 'like project'. Therefore, in order to fall under exclusionary limb of the definition, the activities of 'mining or like project' should be undertaken by the assessee himself. Our view is supported by the following decisions: ** ** ** 37. "From the above judicial pronouncements it is clear that in order to fall under the exclusionary clause of Explanation (2) to section 9(1)(vii) the assessee should have either undertaken the business of construction, assembly, mining or like project or the income received should be chargeable to tax under the head 'salaries'. According to assessee the mining process means winning of minerals which can be found from the earth surface or from the earth crust. Mining operations are different from collection of seismic data and processing thereof. Therefore, the decisions of Hon'ble Supreme Court relied upon by the assessee in the cases of Gujarat Pottery Works (supra) and Sri Tarkeshwar SIO Thakur JIU (supra) are of no help. The Legislature has used two different expressions in section 44BB (1) and second limb of Explanation 2 to section 9(1)(vii) of the Act. In exclusionary clause of Explanati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel). Therefore, the services provided by the assessee under the contracts to ONGC squarely fall under definition of fee for technical services. Simply because the assessee had provided services or facilities by way of acquisition and processing of 3D seismic data onboard, it cannot be said to be engaged in mining project or project similar to mining. Our view is supported by the decision of Hon'ble Delhi High Court in the case of Rio Tinto Technical Services (supra) and other decisions of ITAT referred to above where in it has been held that there should be construction project, assembly project or a mining project or a like project undertaken by the recipient and the consideration paid should be on the said account. 41. CBDT instruction No 1862 issued on 22.10.1990 clarifies that the expressions "mining project" or "like project" would cover rendering of services like imparting of training and carrying out drilling operations for exploration or exploitation of oil and natural gas. The instruction in paragraph 3 refers to sections 44D and 115A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 44BB(1) are applicable in the case of non-resident assessees 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. The assessee during the relevant period was engaged in activities of acquisition of 3D seismic data, processing them onboard and submission of the report in desired media to ONGC. In order to find out the presence of mineral oil in the earth crust which can be extracted commercially, 3D seismic survey is conducted by employing sophisticated techniques, equipments and professionals. Without conducting seismic surveys it will be impossible to undertake business of extraction/production of mineral oil. In DCIT v. Schlumberger Sea Co Inc. 50 ITD 348 (Cal), the assessee a sub-contractor rendered services to ONGC for its on-shore oil-wells and also supplied personnel and materials. The Calcutta Bench of Income Tax Appellate Tribunal held that such services were in connection with exploration and extraction of mineral oil and therefore the income was assessable u/s 44BB. This decision was followed by the Tribunal in P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain enactment or to qualify something enacted therein which but for the proviso would be in the purview of the enactment. It is also a settled law that the main part of a section must not be construed in such a way as to render a proviso to the section redundant (R v. Leeds Prison (Governor) Ex. p. Stafford [1964] 2 QB 625). Proviso sometime clarifies ambiguity in the section to which it is attached to. Sometimes proviso can stand on its own independent of main enactment to which it is attached. Hon'ble Supreme Court in the case of UP State Road Transport Corporation v. Mohd. Ismail (AIR 1991 SC 1099), while interpreting the proviso to the Regulation 17(3) of the UP State Road Transport Corporation has held that sometimes a proviso in effect becomes a substantive provision. Regulation 17(3) reads as follows: "17(3) The service of a person who fails to pass the fitness test, referred to in sub-regulation (2), may be dispensed with; Provided that the persons, whose services are dispensed with may, in the discretion of the Corporation, be offered alternative jobs." Interpreting the above proviso attached to the Regulation 17(3), Hon'ble Supreme Court observed as under: "The proviso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b) deal with income of non-resident assessee received by way of royalty or Fee for Technical Services and are reproduced as under:- "44DA.(1) The income by way of royalty or fees for technical services received from Government or an Indian concern in pursuance of an agreement made by a non-resident (not being a company) or a foreign company with Government or the Indian concern after the 31st day of March, 2003, where such non-resident (not being a company) or a foreign company carries on business in India through a permanent establishment situated therein, or performs professional services from a fixed place of profession situated therein, and the right, property or contract in respect of which the royalties or fees for technical services are paid is effectively connected with such permanent establishment or fixed place of profession, as the case may be, shall be computed under the head "Profits and gains of business or profession" in accordance with the provisions of this Act: Provided that no deduction shall be allowed,- (i) in respect of any expenditure or allowance which is not wholly and exclusively incurred for the business of such permanent establishment or f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f an agreement made on or after the 1st day of June, 2005; and (C) the amount of income-tax with which it would have been chargeable had its total income been reduced by the amount of income by way of royalty and fees for technical services. 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 ; ** ** ** 46. On combined reading of section 44DA(1) and 115A(1)(b) it is clear that the provisions of section 44DA(1) are applicable in the case of a non-resident assessee who carries on business in India through a permanent establishment, or performs professional services from a fixed place of profession, and fees for technical services paid under the contract is effectively connected with such permanent establishment or fixed place of profession in India. In section 115A(1)(b) the Finance Act, 2003 with effect from 1.4.2004 substituted words "a non-resident (not being a company) or a foreign company includes any income by way of royalty or fees for technical services other than income referred to in sub-section (1) of section 44DA" for words "a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 44DA and will be assessable under section 44BB(1) of the Act for the simple reason that proviso to section 44BB(1) does not contain section 44DA for these years. 47. Thus from above discussion the scheme of taxation with regard to payments to non-residents is clear and unambiguous. Section 9 is a charging section and lays down the income deemed to be accrued and arising in India. Section 9(1)(vii) of the Act taxes the income by way of fees for technical services, "fees for technical services" is defined in Explanation to section 9(1)(vii) to include any consideration for rendering any managerial, technical or consultancy services. However, the definition of fees for technical services excludes consideration received for any construction, assembly, mining or like project undertaken by the recipient. 47.1 Once any receipt of the non-resident falls within the definition of 'fees for technical services', then tax is determined thereon in accordance with the provisions of section 44DA or section 115A of the Act. Provisions of section 115A lay down taxation of 'fees for technical services' on gross basis at prescribed rates. The only case where provisions of section 115A of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions 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." 48. In the case of assessee the assessment year involved is 2006-07 and admittedly the receipts are not connected with PE in India and hence the fee for technical services rendered in connection with prospecting for or extraction or production of mineral oil will be assessable u/s 115A of the Act. Thus, we do not find merit in the contention of the assessee that it should be taxed in accordance with the provisions of section 44BB of the Act." 7. In the light of the above observation, if we examine the facts of the present assessee then it would reveal that the Tribunal in the case of CGG Veritas Services SA (supra) has propounded four categories which will govern the fee for technical services. At the cost of repetition these are as u ..... X X X X Extracts X X X X X X X X Extracts X X X X
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