TMI Blog2023 (2) TMI 120X X X X Extracts X X X X X X X X Extracts X X X X ..... and 44DA apply in different situations. While existence of PE is a pre-condition for applicability of section 44DA, it is not so in case of 44BB of the Act. DRP has made a fundamental error in ignoring the exceptions provided under clause (iva) to explanation 2 to section 9(1)(vi) of the Act while concluding that the amount received is in the nature of royalty under section 9(1)(vi) read with section 115A of the Act. One more fundament error committed by learned DRP is in holding that section 44BB will be applicable only in a case where non-resident has a PE in India. The aforesaid conclusion of learned DRP is based on complete misinterpretation of the provision and goes against the very essence of the provision, which does not put the condition of existence of PE for applicability of the provision. Thus, in our view, the conclusion drawn by learned DRP that the amounts received are in the nature of royalty under section 9(1)(vi) read with section 115A of the Act is unacceptable. On the contrary, we accept the position taken by the assessee in offering the income to tax under section 44BB of the Act, as, it is in accordance with the statutory provision. Accordingly, we dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the view that the amounts received by the assessee are in the nature of Fees for Technical Services (FTS) under section 9(1)(vii) read with section 44D and 115A of the Act. Accordingly, he completed the assessments by treating the amounts received by the assessee as FTS. Against the assessment orders so passed, the assessee raised objections before learned DRP. 4. After considering the submissions of the assessee in the context of facts and materials on record, learned DRP held that the amounts received by the assessee from leasing/hiring of rigs are in the nature of royalty under section 9(1)(vi) read with section 115A of the Act as well as Article 12 of India Malaysia DTAA. 5. We have heard at length learned Representatives appearing for the parties and perused materials on record. We have also applied our mind to the judicial precedents cited before us. As discussed earlier, the dispute between the parties is qua the nature of receipts from hiring/leasing of rigs, whether to be treated as business profits under section 44BB of the Act as claimed by the assessee or royalty under section 9(1)(vi) read with section 115A and as per the definition of royalty under the tre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounts referred to in sub-section (1) shall be the following, namely :- (a) the amount paid or payable (whether in or out of India) to the assessee or to any person on his behalf on account of the provision of services and facilities in connection with, or supply of plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils in India; and (b) the amount received or deemed to be received in India by or on behalf of the assessee on account of the provision of services and facilities in connection with, or supply of plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils outside India. (3) Notwithstanding anything contained in sub-section (1), an assessee may claim lower profits and gains than the profits and gains specified in that subsection, if he keeps and maintains such books of account and other documents as required under 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oyalty . The term royalty in Explanation (2) initially was in a restricted form. However, the scope of royalty under explanation (2) was enlarged with introduction of clause (iva) w.e.f. 01.04.2002, which reads as under: Income deemed to accrue or arise in India. 9. (1) The following incomes shall be deemed to accrue or arise in India :- 37(i) to (v) ......... (vi) income by way of royalty payable by- (a) .. (b) . (c) . .. Explanation 2.-For the purposes of this clause, royalty means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head Capital gains ) for- (i) ; (ii) ; (iii) ; (iv) ..... (iva) the use or right to use any industrial, commercial or scientific equipment but not including the amounts referred to in section 44BB; 10. A careful reading of clause (iva) to explanation 2 would make it clear that the term royalty will also mean any amount received towards the use or right t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act while concluding that the amount received is in the nature of royalty under section 9(1)(vi) read with section 115A of the Act. One more fundament error committed by learned DRP is in holding that section 44BB will be applicable only in a case where non-resident has a PE in India. The aforesaid conclusion of learned DRP is based on complete misinterpretation of the provision and goes against the very essence of the provision, which does not put the condition of existence of PE for applicability of the provision. 13. Thus, in our view, the conclusion drawn by learned DRP that the amounts received are in the nature of royalty under section 9(1)(vi) read with section 115A of the Act is unacceptable. 14. On the contrary, we accept the position taken by the assessee in offering the income to tax under section 44BB of the Act, as, it is in accordance with the statutory provision. In course of hearing, learned counsel appearing for the assessee has cited the following decisions in support of its claim that the amount is taxable under section 44BB of the Act: 1. Schlumberger Asia Services Ltd. Vs. Deputy Director of India Tax (International Taxation), 2022 (6) TMI 833 (ITA ..... X X X X Extracts X X X X X X X X Extracts X X X X
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