2012 (4) TMI 280 - AT - Income Tax

Exploration, extraction and production of mineral oil - AO has brought to tax income of the assessee u/s 9(1)(vii) instead of u/s 44BB(1) - Held that - the assessee suffers no risks even if project of prospecting for or exploration for mineral oil does not succeed. The assessee could not demonstrate that the project is owned by it. The job of the assessee is well defined by the contract. Obviously, it cannot be said that the project is undertaken by the assessee even if it is assumed that services provided by the assessee amount to mining or like project . Hence, first exception to definition of FTS as contained in Explanation 2 to section 9(l)(vii) is not available to the assessee. The second exception is also not available as receipts are not taxable under the head salary. Therefore, receipts are in nature of FTS and hence because of proviso to section 44BB(l), provisions of section 44BB(1) are not applicable. On combined reading of proviso to section 44BB (1) and second proviso to section 44DA it is clear that the 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 profession will fall not under section 44BB(1) and will be assessable under section 44DA of the Act -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. Holding 25 per cent of the gross receipts from Eni as profits earned on the project and in failing to provide credit to the appellant in respect of taxes deducted at source by ONGC and Eni as per the provisions of section 195 of the Act assessee contested that entire project has to be executed by the assessee by employing vessels, whether owned or chartered equipped with specialized instruments all the terms of contract are similar to that of ONGC with only difference that Eni is a non-resident company Held that - the amount received by the assessee will be assessable in the nature of fee for technical service and will be assessable u/s 115A (1)(b) of the Act - income from fee for technical services has been assessed in the hands assessee, the assessing officer is directed to allow credit of TDS against the tax payable by the assessee - the AO has charged interest treating the same as mandatory without examining the case in the light of judicial pronouncements - direct the assessing officer to examine accordingly as stated. Levy of interest u/s 234B - Held that - assessing officer has charged interest treating the same as mandatory without examining the case in the light of judicial pronouncements to the effect that if amount was subject to TDS, whether any interest was still chargeable under these sections - assessing officer is directed accordingly.

Issues Involved:
1. Assessment of income under section 44BB vs. section 115A.
2. Classification of services as Fee for Technical Services (FTS) under section 9(1)(vii).
3. Application of proviso to section 44BB.
4. Credit for taxes deducted at source.
5. Levy of interest under section 234B.

Detailed Analysis:

1. Assessment of Income under Section 44BB vs. Section 115A:
The primary issue was whether the income of the assessee, a non-resident company engaged in providing geological and geophysical services for exploring mineral oil, should be assessed under section 44BB or section 115A of the Income Tax Act, 1961. The assessee argued that its services were in connection with the exploration of mineral oil and should be taxed under section 44BB, which provides a presumptive taxation scheme. However, the Assessing Officer (AO) and the Dispute Resolution Panel (DRP) held that the income was in the nature of Fee for Technical Services (FTS) and should be taxed under section 115A at a rate of 10%.

2. Classification of Services as Fee for Technical Services (FTS) under Section 9(1)(vii):
The AO classified the services rendered by the assessee as FTS under section 9(1)(vii) of the Act, arguing that the services did not fall under the exclusionary clauses of section 44BB(1). The assessee contended that its services, including seismic data acquisition and onboard processing, were integral to the exploration of mineral oil and thus should be covered under section 44BB. The Tribunal examined various judicial precedents and concluded that the services provided by the assessee were indeed technical in nature and fell under the definition of FTS as per Explanation 2 to section 9(1)(vii).

3. Application of Proviso to Section 44BB:
The Tribunal discussed the proviso to section 44BB(1), which states that the section shall not apply where the provisions of sections 42, 44D, 44DA, 115A, or 293A are applicable. The Tribunal noted that the proviso should be interpreted literally and that the presence of the word "or" between different sections indicates that if any of these sections apply, section 44BB(1) would not. The Tribunal concluded that since the services rendered by the assessee were technical and fell under the definition of FTS, the proviso to section 44BB(1) was applicable, and the income should be assessed under section 115A.

4. Credit for Taxes Deducted at Source:
The assessee argued that it should be given credit for taxes deducted at source by ONGC and Eni as per the provisions of section 195 of the Act. The Tribunal directed the AO to allow the credit for TDS against the tax payable by the assessee, as the income from FTS had been assessed in the hands of the assessee.

5. Levy of Interest under Section 234B:
The AO had levied interest under section 234B, treating it as mandatory. The Tribunal directed the AO to examine the chargeability of interest under section 234B in light of judicial pronouncements and the provisions of law, particularly considering whether the amount was subject to TDS.

Conclusion:
The Tribunal held that the income from services rendered by the assessee should be assessed under section 115A as FTS and not under section 44BB. The Tribunal also directed the AO to allow credit for TDS and to re-examine the levy of interest under section 234B. The appeal filed by the assessee was partly allowed.

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