2012 (10) TMI 202 - AT - Income Tax

Fees for Technical Services - Assessee carried out work with ONGC, Reliance Industries Ltd., Hardy Exploration & Production (India) Inc. & Westerngeco International Inc. GSPC & Cairn Energy India Pvt. Ltd. for the acquisition and processing of 3D seismic data along with its personnel and equipments. Question is whether The contention of revenue was justified in imposing Tax @25% on Revenues worth ₹ 671,54,604 earned from Cairn Energy India Pty. Ltd. and Hardy Exploration & Production (India) Inc. as against charging the whole revenue of ₹ 756,17,15,932/- @10%. The Assessee contended that fee for technical services whether rendered in connection with prospecting for or extraction or production of mineral oil or otherwise will be assessable either u/s 44DA or section 115A of the Act depending on fact whether such receipts are effectively connected with Permanent establishment or Fixed place of Profession. As decided in case of CGG Veritas Services, SA Versus Additional Director of Income-tax, (International Taxation 2012 (4) TMI 280 - ITAT DELHI as entire project has to be executed by the assessee and all the terms of contract are similar with the only difference that the other party is a non-resident company. The amount received by the assessee will be assessable u/s 115A of the Act. Held that - The receipts are liable to tax @10% as Fees is received in connection with PE and Place of Profession in India - Appeal is allowed in favour of assessee.

Summary

Issues:
Taxability of fee for technical services under sec. 44BB, sec. 44DA, or sec. 115A of the Income-tax Act, 1961.

Analysis:
1. The primary issue in this case pertains to the taxability of fee for technical services under different sections of the Income-tax Act. The appellant argued that its seismic data acquisition and processing activities are integral to prospecting for mineral oil and should be computed under section 44BB. However, the Assessing Officer deemed the income as fee for technical services under section 9(1)(vii) of the Act. The revenue from certain entities was assessed at 10%, while for others, a deemed profit of 25% was applied under different sections of the Act.

2. The appellant contested the addition proposed by the AO and approached the Dispute Resolution Panel, which upheld the taxability of receipts as fee for technical services. Subsequently, the AO passed the final order under sec. 143(3)/144(13). During the hearing, the appellant relied on a previous ITAT decision and argued against the applicability of sec. 44DA for the relevant assessment year, advocating for assessment under sec. 44BB(1) instead.

3. The ITAT, after considering the arguments from both parties and the precedents, observed that the issue of whether the appellant had a Permanent Establishment (PE) or fixed place of profession during the relevant period had not been examined by the AO. The Tribunal directed the matter to be remanded back to the AO for a detailed examination of the PE issue and the contract dates to determine the appropriate section for tax assessment.

4. The ITAT referenced the decision in the CGG Veritas Services case, emphasizing that fee for technical services with or without a business PE or fixed place of profession would be assessed under sec. 44DA or sec. 115A, respectively. For the relevant assessment years, the Tribunal clarified that fee for technical services connected with mineral oil activities but not linked to a business PE or fixed place of profession would fall under sec. 44BB(1), as sec. 44DA was not applicable during that period.

5. In conclusion, the ITAT allowed the appeal for statistical purposes, directing the AO to re-examine the PE issue and contract dates to determine the appropriate section for tax assessment. The decision highlighted the importance of assessing whether the receipts were effectively connected with a PE or fixed place of profession to ascertain the correct tax treatment under the Income-tax Act.