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TMI Blog2014 (7) TMI 720X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Third Member order passed by the Delhi Bench of the Tribunal in the case of Saipem SPA vs. DCIT (2004) 88 ITD 213 (Del)(TM). The AO passed order u/s 143(3) of the Act on 05.09.2006 after fully considering and discussing the two Contracts with ONGC. In that order, he accepted that the assessee was engaged in the business of providing equipments and services or facilities in connection ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Court in ONGC as agent of M/s Foramer France (supra) and the amendment proposed to section 44DA through the Finance Bill, 2010. We will examine both the factors, one by one. A. REASSESSMENT ON THE BASIS OF JUDGMENT IN ONGC 5. The main case of the ld. AR before us was that having thoroughly examined the question of taxability of receipts u/s 44B, the action of the AO in initiating reassessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 as agent of M/s Foramer France (supra). Let us examine as to whether it is a case of change of opinion in terms of the judgment of the Hon'ble Supreme Court in Kelvinator of India Ltd. (supra) ? 6.3. Section 147, to the extent it is relevant for the present appeal, provides that if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subjec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 assessment of earlier year or enunciation of law by higher judicial forum. There can be no question of 'change of opinion' in the first and second situations. 'Change of opinion' in the fourth situation would always be the outcome of such a post assessment event. 'Change of opinion' in the third situation may normally happen under one of the two circumstances. First circumstance is the change of opinion simplici ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation. 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 REASSESSMENT ON THE BASIS OF EXISTING OR LATER JUDGMENT IS VALID? 7.1. It is vivid that the AO referred to the judgment of the Hon'ble jurisdictional High Court in the case of ONGC as agent of Foramer France (supra) for canvassing a view that the revenue from technical services in the business of exploration etc. of mineral oils etc., does not fall within the ambit of section 44BB(1) of the Act as was erroneously held in the origin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otice 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 the AO. In this regard, it become relevant to note the judgment of the Hon'ble Supreme Court in the case of A.L.A. Firm vs. CIT (1991) 189 ITR 285 (SC) in which it has been held that reassessment u/s 147(b) on the basis of a judicial decision though available at the time of original assessment, but not considered by the ITO, is perfectly valid, being based on definite material not considered earlier. 7.6. Here, we want to clarify that the sc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xamine 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, jettisoned. III. IS JUDGMENT IN ONGC REALLY APPLICABLE? 9.1. Having held that a judgment of the Hon'ble Summit Court or that of the Hon'ble jurisdictional High Court delivered subsequent to the passing of the assessment order or non-consideration of an existing judgment empowers the AO to initiate reassessment proceedings, it needs to be examined if the decision in the case of ONGC as agent of Foramer France (supra) is really applicable to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al 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 this sub-section shall not apply in a case where the provisions of section 42 or section 44D or *section 44DA or section 115A or section 293A apply for the purposes of computing profits or gains or any other income referred to in those sections.' (Emphasis supplied by us) *inserted by the Finance Act, 2010 w.e.f. 1.4.2011 9.3. A bare perusal of the above provision reveals that where a non-resident assessee is engaged in the business of providing services or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 take such subject in its ambit to the exclusion of general provision. This rule has been quoted with approved by the Hon'ble Supreme Court and several High Courts in a plethora of cases including CIT vs. Shahzada Nand and Sons & Ors (1966) 60 ITR 392 (SC) (relevant page 400) and Forbes Forbes Campbell and Co. Ltd. vs. CIT (1994) 206 ITR 495 (Bom.) The effect of this rule is that a special provision overrides a general provision on the same subject matter. 9.7. Coming back to our conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 case where the provisions of sections 42, 44D, 115A or 293A apply for the purposes of computing profits and gains or any other income. The effect of this proviso is again the same that if section 44D applies to a particular income, then section 44BB would not apply. As assessee in the case of ONGC as agent of Foramer France (supra) received consideration by way of fees for technical services albeit engaged in the business of exploration, etc., of mineral oils, the income was rightly chargeabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... phasis 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 into after 31.3.2003. The agreements in the present case were admittedly entered into after this cut-off date of 31.3.2003, which implies that our case cannot be governed by section 44D, which was applicable in case of ONGC as agent of Foramer France (supra). It is not even the case of the AO that the assessee is covered u/s 44D. 9.10. Now, let us examine as to whether it is section 44DA or section 44BB, which applies to our case. When we read section 44DA in juxtaposition to section 44D, it is manifested that there i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of a decision rendered u/s 44D to a case to which section 44DA applies. We, therefore, hold that the AO was not justified in initiating reassessment by relying on the judgment in the case of ONGC as agent of Foramer France (supra). IV. WHETHER REASSESSMENT ON PRIMA FACIE MATERIAL IS O.K.? 10.1. We are conscious of the position under law that there should be some prima facie material to initiate reopening and that the sufficiency or correctness of such material is not relevant. The AO is not required to prove to the hilt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 initiate reassessment on all cases directly or indirectly involving such section. Any judgment, so as to constitute the foundation for reassessment, must be directly and fully applicable. If we accept the contention of the ld. DR and hold that the judgment in ONGC as agent of Foramer France (supra) is prima facie applicable, then we will be wrong in the elaborate analysis carried out above concluding about the inapplicability of such judgment to the facts of the instant case. A judgment is either applicable or not applicable. It c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yalty 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 reaching the conclusion that the amendment carried out to section 44DA by the Finance Act, 2010 shall apply to the assessment year under consideration as well, the AO held such amendment to be retrospective. 12.3. Now the effect of the amendment is that the proviso to section 44BB mandates that the provisions of section 44BB shall not apply in a case where the provisions of section 44DA apply and the second proviso to section 44DA provides that the provisions of section 44BB shall not apply in respect of the income referred to in this s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 to how the A.O. could take assistance of such amendment to initiate reassessment for the assessment year 2005-06 under consideration. In that view of the matter, the reasons recorded by the AO for initiating the re- assessment by taking cognizance of the amendment proposed by the Finance Bill, 2010 and holding it to be retrospective, do not stand. C. RELEVANCE OF TRIBUNAL ORDER FOR AY 2007-08 13.1. The ld. DR vigorously contended that the Tribunal in assessee's own case for the assessment year 2007-08 has held that the provisions of secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 technical services results is effectively connected with such permanent establishment. On satisfaction of such conditions, the income is computed under the head 'Profits and gains of business or profession' in accordance with the provisions of this Act. Thus, in order to bring a particular income from royalty or fees for technical services within the ambit of section 44DA, it is essential that the non-resident must have a permanent establishment in India and the contract from which fees for technical services arises should be effectively connec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uted 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 the Assessing Officer can later on improve his reasons or make out a different case from the one on which basis he initiated reassessment, nor is it permissible to the ld. DR to argue that the reassessment be sustained on the ground other than that of the Assessing Officer as mentioned in the reasons. In view of the fact that the Tribunal for the AY 2007-08 has held the income to be chargeable to tax u/s 115A read with section 9(1)(vii) and the AO for the instant year took such income u/s 44DA of the Act by holding that the assessee has a PE and the income ..... X X X X Extracts X X X X X X X X Extracts X X X X
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