2012 (8) TMI 200 - AAR - Income Tax

Mud Engineering Services - income derived in India for the services rendered to Naptogaz - whether covered under the provisions of section 44BB or is liable to be independently taxed as fees for technical services in terms of section 9(1)(vii) - Held that - Explanation (2) to section 9(1)(vii) depicts that the consideration received for rendering technical services will not be fees for technical services if it is consideration for any construction assembly mining or like project undertaken by the recipient - As in this case doing the work of Mud Engineering cannot be understood as the undertaking of the mining project and is only performing certain services for Naptogaz. At best, consideration received by the applicant for the services it renders is fees for technical services within the meaning of section 9(1)(vii). Section 44BB(1) clearly states that fees for technical services received for rendering services in connection with prospecting for or extraction or production of mineral oils cannot be brought under this section if section 44DA or section 115A of the Act applied to it and as the applicant is a non-resident receiving consideration for the technical services rendered by it from an Indian company so clearly section 44DA or section 115A(b) would be attracted - the income-derived by the applicant in India is liable to be independently taxed as fees for technical services in terms of section 9(1)(vii) - in favour of assessee.

Summary

Issues:
Interpretation of provisions under Income-tax Act regarding taxation of services in connection with mineral oil exploration and extraction.

Analysis:
1. The applicant, a company incorporated in Cayman Islands with its Indian Project Office in Mumbai, provides services for mineral oil exploration under a contract with Naptogaz. The applicant sought clarification on taxation under section 44BB of the Income-tax Act regarding income derived in India and service tax implications.

2. The applicant argued that its services fall under section 44BB(1) due to the exception in Explanation (2) to section 9(1)(vii) of the Act, exempting it from being categorized as "fees for technical services." The Authority considered the scope of the expression 'in connection with' in section 44BB(1) and previous rulings to determine the tax liability.

3. The Revenue contended that the services provided were technical in nature, making the fees taxable under section 9(1)(vii) of the Act. The Authority analyzed whether the applicant undertook a mining project or merely provided services in connection with Naptogaz's project to ascertain the tax implications.

4. The Authority examined whether the services rendered by the applicant were indeed in connection with mineral oil extraction, concluding that the applicant could potentially be assessed under section 44BB(1) of the Act. However, the proviso to section 44BB(1) excludes cases where section 44DA or section 115A applies, affecting the applicant's tax assessment.

5. Section 44BB(1) excludes cases where sections 42, 44D, 44DA, 115A, or 293A apply. The introduction of section 44DA post the Geofizyka ruling impacted the tax treatment of technical services related to mineral oil exploration, affecting the applicant's tax liability.

6. The Authority clarified that the exception in section 9(1)(vii) did not apply to the applicant, leading to a potential assessment under section 44DA or section 115A. The applicant's non-resident status and receipt of consideration for technical services from an Indian company triggered the application of section 44DA or section 115A.

7. Relying on previous rulings, the Authority determined that the applicant's income from the contract with Naptogaz should be taxed as 'fees for technical services' under section 9(1)(vii) and not under section 44BB of the Act. Consequently, the ruling on the service tax element collected did not arise, as the income was independently taxable under section 9(1)(vii).

8. The judgment highlighted the interplay between Explanation (2) to section 9(1)(vii) and section 44BB(1) and its proviso, emphasizing the application of section 44DA or section 115A in cases where the proviso to section 44BB(1) excludes taxation under section 44BB.

9. The ruling clarified that the applicant's income from the contract with Naptogaz should be taxed as 'fees for technical services' under section 9(1)(vii) and not under section 44BB of the Act. The service tax element collected by the applicant was deemed to form part of the gross receipts for taxation purposes.

10. The judgment concluded that the applicant's income from the contract with Naptogaz was not covered under section 44BB of the Act but was independently taxable as 'fees for technical services' under section 9(1)(vii), leading to the ruling that the service tax element collected formed part of the gross receipts for taxation purposes.