TMI Blog2012 (8) TMI 636X X X X Extracts X X X X X X X X Extracts X X X X ..... establishment we deem it appropriate to remit this issue to the file of AO for adjudication afresh. - IT APPEAL NO. 4056 (DELHI) OF 2011 - - - Dated:- 20-4-2012 - RAJPAL YADAV, T.S. KAPOOR, JJ. S.D. Kapila and R.R. Maurya for the Appellant. Debjyoti Das for the Respondent. ORDER Rajpal Yadav, Judicial Member The present appeal is directed at the instance of assessee against the order of Ld. AO dated 29.7.2011 passed u/s 143(3) read with section 144C of the Income Tax Act 1961. The grounds of appeal taken by the assessee read as under :- 1. "That on the facts and circumstances of the case and in law, the Assessing Officer ("AO") has erred in completing the assessment by computing the income of the appellant at Rs. 2,68,74,62,560/- as against the original returned income of Rs. 26,87,46,256/- 2. That on the facts and circumstances of the case and in law, the AO / Dispute Resolution Panel ("DRP") has erred in holding that the provisions of section 44BB of the Income Tax Act, 1961 ("Act") do not apply to seismic data acquisition and onboard processing services and accordingly would not apply to the case of the appellant. 3. That on the facts and cir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rore u/s 44BB of the Income Tax Act. The AO was of the view that section 44BB(1) is not applicable to the facts of the assessee and the receipts received by the assessee are in nature of fee for technical services which are taxable u/s 115A read with section 9(1)(vii) of the Income Tax Act 1961. The AO had made a proposal in his draft assessment order for treating such receipts as a fee for technical services. The assessee filed objections before the Dispute Resolution Panel . All its arguments have been rejected by the Ld. Dispute Panel. Hence the present appeal. 3. Ld. Counsel for the assessee at the very outset submitted that he has argued the case of similar assessee namely CGG Veritas Services SA v. Addl. DIT, International Taxation [2012] 18 taxmann.com 13 (Delhi). That concern was also engaged in providing geological and geo physical services for exploring potential. The arguments which the assessee wants to raise in the present appeal were also raised in the case of CGG Veritas Services SA (supra) . Facts are identical. However 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 h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee had a permanent establishment in India and therefore section 115A are not applicable. 4. Ld. DR on the other hand relied upon the order of Ld. AO. He pointed out that the Tribunal in the case of CGG Veritas Services SA ( supra ) has held that the receipts received in connection with the service rendered for exploring potentiality, if an assessee acquire 2D/3D seismic data, onboard, process them and the analysis thereof delivered to the clients, is to be considered as fee for technical services. Thus the order of the Tribunal fully covers the issue in the case of assessee. Ld. Counsel for the assessee is advocating that since assessee has a permanent establishment therefore section 115A would not be applicable. Section 44DA has been held to be not applicable in such type of services prior to asstt. Year 2011-12 and in the absence of this mechanism income of the assessee has to be assessed u/s 44BB. He pointed out that AO has conclusively nowhere held that assessee has a PE. He drew our attention towards paragraph 15 of the asstt. Order which are as under :- 15. "In the light of discussion above, it is clear that provisions of section 44BB will not be applicable in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the consideration in respect thereof, will be chargeable to tax as 'fee for technical services' and second limb of the definition excludes certain services from its ambit. The consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of recipient chargeable under the head 'salaries' will not fall under the definition of 'fee for technical services'. The aforesaid exclusion states that the consideration received by an assessee for construction, assembly, mining or like project is not "fee for technical services". The words 'any construction, assembly, mining or like project' in exclusionary clause are qualified by the words "undertaken by the recipient". Therefore, the activities of any construction, assembly, mining or like project should be carried out by the recipient assessee himself. Further, the word 'mining' and words 'like project' are separated by word 'or'. Therefore, the words 'like project' would mean activities similar to mining i.e. extraction of minerals/oars from earth. The activities like digging or drilling will fall under 'like project'. Therefore, in order to fall under exclusionary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... collected 3D seismic data, analyzed it, and submitted the report in the diskette to ONGC. The assessee had also provided services of its personnel. Since the assessee is engaged in collection of 3D seismic data and processing thereof, the activities of the assessee cannot be treated at par with that of mining or like project operations even on the surface of the earth. Therefore, in our considered opinion, the assessee cannot be said to have been engaged in the mining or like project. The assessee had not itself undertaken any activity of 'mining or like project' for extraction or production of mineral oil. The clauses of the agreements with ONGC do not disclose that the assessee had undertaken any mining project or a like project. No such case based on terms of contracts has been made out by the ld. Counsel for the assessee. These activities have been undertaken by ONGC. 3D Seismic data acquisition and its processing onboard involve use of highly technical input, equipments and personnel. "Fees for technical services" as per Explanation 2 to section 9(1)(vii) of the Act, means any consideration (including any lump sum consideration) for the rendering of any managerial, technical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 44BB(1) of the Act. Section 44BB (1) as relevant to assessment year under consideration is reproduced as under: "44BB. (1) Notwithstanding anything to the contrary contained in sections 28 to 41 and sections 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 this sub-section shall not apply in a case where the provisions of section 42 or section 44D or section 115A or section 293A apply for the purposes of computing profits or gains or any other income referred to in those sections." From plain reading of the section 44BB(1) it is clear that the provisions of this section have overriding effect on sections 28 to 41 and sections 43 and 43A of the Act. The provisions of section 44BB(1) are applicable in the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions. We also find that in proviso to section 44BB(1) for the relevant assessment year each of the sections 42, 44D, 115A and 293A are separated by word "or". The word "or" is normally used as disjunctive and has to be read in the alternative. It cannot be read as conjunctive or in other meaning because the result produced will be unintelligible and absurd and against the clear intention of the legislature. It is also a settled law that the legislature does enact a word in the statute which can be said to be redundant. Therefore, literal interpretation has to be followed for existence of word "or" between different sections appearing in proviso to section 44BB(1) of the Act. In proviso to section 44BB(1) section 44DA has been inserted by the Finance Act, 2010 w.e.f. 1.4.2011. Thus in the case of a non-resident assessee where the provisions of section 42 or section 44D or 44DA or section 115A or section 293A are applicable for the purposes of computing profits or gains or any other income referred to in those sections, proviso to section 44BB(1) will be pressed into service. 44. The normal function of a proviso is to except something out of the main enactment or to qualify someth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e reject the contention of the ld AR of the assessee that the moment the case falls u/s 44BB(1), its proviso should be ignored. The contention of the assessee is also rejected that when there is no ambiguity in section 44BB(1), there is no need of proviso to it. 45. Provisions of section 42 are applicable in the case of an assessee for the purpose of computing the profits or gains of any business consisting of the prospecting for or extraction or production of mineral oils in relation to which the Central Government has entered into an agreement with any person for the association or participation of the Central Government or any person authorized by it in such business. The provisions of section 44D were in operation during the period from 1.4.1976 to 31.03.2003. Hence the provisions of section 44D are not applicable for the year under consideration. Provisions of section 115A are applicable in case of a non-resident assessee for the purpose of levy of tax on dividends, any income by way of royalty or fees for technical services. Section 44DA was also inserted in the statute by the Finance Act, 2003 w.e.f. 1.4.2004. Both the Sections 44DA(1) and 115A(1)(b) deal with income of no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , at the rate of thirty per cent if such royalty is received in pursuance of an agreement made on or before the 31st day of May, 1997 and twenty per cent where such royalty is received in pursuance of an agreement made after the 31st day of May, 1997 but before the 1st day of June, 2005; (AA) the amount of income-tax calculated on the income by way of royalty, if any, included in the total income, at the rate of ten per cent if such royalty is received in pursuance of an agreement made on or after the 1st day of June, 2005; (B) the amount of income-tax calculated on the income by way of fees for technical services, if any, included in the total income, at the rate of thirty per cent if such fees for technical services are received in pursuance of an agreement made on or before the 31st day of May, 1997 and twenty per cent where such fees for technical services are received in pursuance of an agreement made after the 31st day of May, 1997 but before the 1st day of June, 2005 ; and (BB) the amount of income-tax calculated on the income by way of fees for technical services, if any, included in the total income, at the rate of ten per cent if such fees for technical services are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onnection with prospecting for or extraction or production of mineral oil having business PE or fixed place of profession - (section 44DA); ( ii ) Fee for technical services rendered in connection with prospecting for or extraction or production of mineral oil without having business PE or fixed place of profession - (section 115A); ( iii ) Other fee for technical services having business PE or fixed place of profession - (section 44DA); ( iv ) Other fee for technical services without business PE or fixed place of profession - (section 115A); Thus it is abundantly clear that with effect from assessment year 2011-12 fee for technical services whether rendered in connection with prospecting for or extraction or production of mineral oil or otherwise will be assessable either u/s 44DA or section 115A of the Act depending on fact whether such receipts are effectively connected with PE or fixed place of profession, or not. However, for assessment year 2004-05 to 2010-11 the consideration received for fee for technical services rendered in connection with prospecting for or extraction or production of mineral oil though effectively connected with PE or fixed place of professio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... establishment in India. Accordingly, the provisions of section 44DA of the Act do not apply in the assessee's case. Thus, the only way in which the assessee could be taxed is section 115A of the Act. It is clearly stated in law that the provisions of section 44BB of the Act do not apply where the provisions of section 115A are applicable. The principle of taxing fees for technical services irrespective of the business to which it relates is also clarified in the memorandum to Finance Bill 2010 as below. "Combined effect of the provisions of sections 44BB, 44DA and 115A is that if the income of a non-resident is in the nature of fee for technical services, it shall be taxable under the provisions of either section 44DA or 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. However, owing to judicial pronouncements, doubts have been raised regarding the scope of section 44BB vis- -vis section 44DA as to whether fee for technical services relating to the exploration sector would also be covered un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her categories do not apply upon the assessee Therefore assessee's income is to be assessed u/s 44BB(1) as per the order of the Tribunal. On the other hand case of the revenue is that conclusively neither the Ld. DRP nor the Ld. AO has held that assessee has a permanent establishment in India. Impliedly AO has propounded that income of the assessee is to be assessed u/s 115A. On an analysis of the record we find that assessee has specifically raised a plea before the DRP, which has been noticed para 5.2. However no categorical finding has been recorded either by Ld. DRP or by the Ld. AO. Taking into consideration the case of the assessee that it has set up various project offices in India which constitute permanent establishment we deem it appropriate to remit this issue to the file of AO for adjudication afresh. Ld. AO shall determine whether assessee has a PE or not and thereafter determine the taxable income of the assessee in accordance with the law by taking into consideration the order of the ITAT also in the case of CGG Veritas Services SA ( supra ). 9. In ground No. 7 assessee has submitted that AO has erred in not granting the credit for taxes withheld, as well as in ..... 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