TMI Blog2016 (4) TMI 317X X X X Extracts X X X X X X X X Extracts X X X X ..... prospecting, extraction or production of mineral oils, the income from such services were to be computed under Section 44BB of the Act. Question as whether the Tribunal erred in law in holding that the activity of 2D/3D seismic survey carried on by the appellant in connection with exploration of oil, was in the nature of "fees for technical services" in terms of Explanation 2 to section 9(1)(vii) of the Act – must be answered the affirmative, that is, in favour of the Assessee and against the Revenue. We accept the contention advanced on behalf of the Assessee that since it is clearly engaged in business of providing services in connection with prospecting for mineral oils, its income - if it falls within the ambit of Section 44DA(1) of the Act - would be taxable under Section 44BB(1). Tribunal was right in finding that the consderation received by the Assessee from BG and RIL was fees for technical services, in our view, the Tribunal’s decision to remit the matter to the AO for determining whether the Assessee had a PE in India and whether the consideration received by it was connected with that PE, would have to be sustained. Accordingly the second question - Whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the relevant assessment year? 4. Briefly stated, the relevant facts necessary to consider the disputes involved are as under:- 4.1 The Assessee is a company incorporated under the laws of Norway and is principally engaged in the business of providing Geophysical services worldwide. These services include the services of acquiring and processing two dimensional and three dimensional seismic data (both on land and offshore). The acquisition of seismic data is the primary method of exploring for hydrocarbon deposits. 4.2 M/s B.G. Exploration and Production India Limited (in short 'BG') and Reliance Industries Limited (in short 'RIL'), who had been granted exploration licenses, engaged the services of the Assessee for acquiring and processing three dimensional marine seismic data with respect to an offshore block awarded to the said companies. 4.3 The Assessee opted to be taxed on presumptive basis under Section 44BB(1) of the Act at the rate of 10% of the gross revenue. In conformity with the same, the assessee also applied to the Income Tax Authorities for authorizing deduction of tax at source (hereafter 'TDS') at lower rates. RIL also filed an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hnical services falling within the scope of Explanation 2 to Section (9)(1)(vii) of the Act. The Assessee's contention that services in question fell within the scope of construction, assembly, mining or like project and, therefore, the consideration received for the said services was excluded from the scope of 'fees for technical services', was rejected by the Tribunal. The Tribunal then proceeded to consider whether tax on Assessee's income from the contracts in question would be computed under Section 44DA of the Act or Section 115A of the Act and following its earlier decision in CGG Veritas Services SA: ITA No. 4653/Del/2010, held that the answer to the aforesaid issue would be dependent on whether the Assessee had a permanent establishment (hereafter 'PE') in India. The Tribunal quoting from its earlier decision in CGG Veritas Services SA (supra) held as under:- (i) Fee for technical services rendered in connection 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 prod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Finance Act, 2010 with effect from 01.04.2011, specifically excluded the incomes falling within the scope of Section 44DA of the Act from its scope. He submitted that even though the period in question was prior to the said amendment, nonetheless, the amendment would be applicable as it was only clarificatory. He urged that the said amendment would be instructive in determining whether the income from fees for technical services was liable to be taxed under Section 44DA(1) of the Act even if the same was in connection with prospecting for, or extraction or production of, mineral oils. Insofar as the decision of this Court in OHM Ltd. (supra) is concerned, he submitted that a Special Leave Petition under Article 136 of the Constitution of India had been preferred by the Revenue against the said judgment. 13. Mr Singh further contended that the decision of the Supreme Court in Oil and Natural Gas Corporation Limited (supra) must be read in the context of the facts of that case. He submitted that the subject matter of the aforesaid decision was whether certain services fell within the scope of mining and not whether the services were in connection with a like project . He argu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sub-section (2) of section 44AA and gets his accounts audited and furnishes a report of such audit as required under section 44AB, and thereupon the Assessing Officer shall proceed to make an assessment of the total income or loss of the assessee under sub-section (3) of section 143 and determine the sum payable by, or refundable to, the assessee. Explanation.-For the purposes of this section,- (i) plant includes ships, aircraft, vehicles, drilling units, scientific apparatus and equipment, used for the purposes of the said business; (ii) mineral oil includes petroleum and natural gas. 15. A plain reading of proviso to Section 44BB(1) of the Act indicates that it would not apply in a case where provisions of Section 115A of the Act are applicable for computing profits and gains or other income referred to in that Section. It is, thus, necessary to refer to Section 115A of the Act for ascertaining the nature of income that is taxable therein and consequently, expressly excluded from the ambit of Section 44BB(1) of the Act by virtue of the proviso thereto. The relevant extract of Section 115A of the Act is quoted below:- Tax on dividends, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 subsection (1) of section 9; (b) foreign currency shall have the same meaning as in the Explanation below item (g) of sub-clause (iv) of clause (15) of section 10; (c) royalty shall have the same meaning as in Explanation 2 to clause (vi) of sub-section (1) of section 9; (d) Unit Trust of India means the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963). 16. It is relevant to note that at the material time, the proviso to Section 44BB(1) did not expressly exclude the incomes covered under Section 44DA of the Act. However, any income falling under Section 115A of the Act was expressly excluded from the scope of Section 44BB(1) of the Act. By virtue of the Finance Act, 2010, the proviso to Section 44BB(1) of the Act was amended with effect from 01.04.2011 to specifically exclude from its scope, incomes referred to under Section 44DA of the Act. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 fixed place of profession in India; or (ii) in respect of amounts, if any, paid (otherwise than towards reimbursement of actual expenses) by the permanent establishment to its head office or to any of its other offices. 19. A plain reading of Section 44DA(1) of the Act indicates that said provision would be applicable, inter alia, in respect of income by way of fees for technical services by a foreign company in cases where the foreign company carries on business through a PE in India. Thus, in order to compute the ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gas. 2. Services starting/re-starting/enhancing production of oil and gas from wells 3. Services for prospecting for exploration of oil and or gas. 4. Planning and supervision of repaid of wells. 5. Repair, Inspection or Equipment used in the exploration, extraction or production of oil and gas. 6. Imparting Training. 7. Consultancy in regard to exploration of oil and gas. 8. Supply, Installation, etc. of software used for oil and gas exploration. 22. In its judgement, the Supreme Court referred to a Circular No.1862 dated 22.10.1990 which in turn referred to the Attorney General's opinion that prospecting for or extraction or production of mineral oil could be termed as 'mining operations' and consequently provided that expression mining projects or like projects as occurring in Explanation 2 to Section 9(1)(vii) of the Act would also cover rendering of services like imparting of training and carrying out drilling operations for exploration or exploitation of oil and natural gas . And, after examining various contracts involved in the appeals before it, the Supreme Court held that the contracts were inextricably conne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supplying plant and machinery on hire, used or to be used, in the prospecting for, or extraction or production of mineral oils including petroleum and natural gas. Section 44DA is also a provision which applies to non-residents only. It is, however, broader and more general in nature and provides for assessment of the income of the non-resident by way of royalty or fees for technical services, where such non-resident carries on business in India through a permanent establishment situated therein or performs services from a fixed place of profession situated in India and the right, property or contract in respect of which the royalties or fees for technical services are paid is effectively connected with the permanent establishment or fixed place of profession. Such income would be computed and assessed under the head business in accordance with the provisions of the Act, subject to the condition that no deduction would be allowed in respect of any expenditure or allowance which is not wholly or exclusively incurred for the business of such permanent establishment or fixed place of profession or in respect of amounts, if any, paid by the permanent establishment to its head office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction/production of mineral oils, cannot be accepted. By virtue of Finance Act, 2003, such income was excluded from the ambit of Section 115A(1)(b) of the Act w.e.f. 01.04.2004. Although, with effect from said date such income was taxable under Section 44DA(1) of the Act but in certain cases where such income was earned by the assessee by carrying on a business of providing services in connection with prospecting for, or extraction or production of mineral oils, the said income would also fall within the express language of Section 44BB(1) of the Act and in view of the decision of this Court in OHM (supra), the provisions of Section 44BB(1) of the Act would be applied in preference to Section 44DA(1) of the Act, in those cases. This conflict between Section 44BB(1) and 44DA(1) of the Act was resolved by the Finance Act, 2010 by including a reference to Section 44DA in the proviso to Section 44BB(1) of the Act with effect from 01.04.2011 and simultaneously introducing a second proviso to Section 44DA(1) which reads as under: Provided further that the provisions of section 44BB shall not apply in respect of the income referred to in this section. 28. Thus, after 01.04.2011 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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