2012 (12) TMI 422 - HC - Income Tax

Applicability of section 44BB or Section 44DA - revenues earned in respect of services in connection with the prospecting for extraction or production of mineral oils - Revenue contended that the AAR erred in its decision that Section 44BB would apply to the present case and that it failed to note that the appropriate provision to be applied was Section 44DA read with section 9(1)(vii), Explanation 2. On the other hand the contention urged on behalf of the assessee is that it is Section 44BB which is the more specific of the two sections and which made special provision for computing profits and gains in connection with the business of exploration, etc. of mineral oils that was applicable and not Section 44DA which made special provision for computing income by way of royalties, etc. in case of non-resident . Held that - Under section 44BB one does not find any reference to a permanent establishment in India. The type of services contemplated by the provision is more specific than what is contemplated by Section 44DA. Section 44BB refers specifically to services or facilities in connection with, or supplying plant and machinery on hire, used or to be used in the prospecting for, or extraction or production of mineral oils . Revenues earned by the non-resident from rendering such specific services are covered by Section 44BB. It is a well settled rule of interpretation that if a special provision is made respecting a certain matter, that matter is excluded from the general provision under the rule which is expressed by the maxim Generallia specialibus non derogant . It is again a well-settled rule of construction that when, in an enactment two provisions exist, which cannot be reconciled with each other, they should be so interpreted that, if possible, effect should be given to both. If as contended by the Revenue, Section 44DA covers all types of services rendered by the non-resident, that would reduce section 44BB to a useless lumber or dead letter and such a result would be opposed to the very essence of the rule of harmonious construction. The amendment made by the Finance Act, 2010 w.e.f. 01.04.2011 in both the sections, cannot have the effect of altering or effacing the fundamental nature of both the provisions or their respective spheres of operation or to take away the separate identity of Section 44BB. Profits shall be computed in accordance with the provisions of section 44BB of the Act and not section 44DA. - Decision of AAR upheld - Decided in favor of assessee.

Issues Involved:
1. Applicability of Section 44BB vs. Section 44DA of the Income Tax Act, 1961.
2. Interpretation of statutory provisions regarding computation of profits for non-residents providing services in connection with oil exploration.
3. Relevance of the Authority for Advance Ruling (AAR) decision and its correctness.
4. Harmonious construction of conflicting statutory provisions.

Detailed Analysis:

1. Applicability of Section 44BB vs. Section 44DA of the Income Tax Act, 1961:
The primary issue in this case is whether the assessee, a UK-based company providing geophysical services, should be assessed under Section 44BB or Section 44DA of the Income Tax Act, 1961. The assessee contends that Section 44BB, which deals with the computation of profits for non-residents engaged in providing services related to oil exploration, is applicable. Conversely, the Revenue argues that Section 44DA, which pertains to income by way of royalties and fees for technical services, should apply.

2. Interpretation of Statutory Provisions:
Section 44BB provides a specific method for computing profits for non-residents providing services in connection with oil exploration, where 10% of the gross revenues are deemed to be profits. In contrast, Section 44DA deals with the computation of income from royalties and technical services, requiring the maintenance of books of account and allowing deductions for expenses exclusively incurred for the business of the permanent establishment in India. The court noted that Section 44BB is more specific to the nature of services provided by the assessee, while Section 44DA is broader and more general.

3. Relevance of the Authority for Advance Ruling (AAR) Decision:
The AAR had previously ruled in favor of the assessee, stating that Section 44BB was applicable. This decision was based on the nature of services provided by the assessee, which were directly related to oil exploration. The court upheld the AAR's decision, citing a previous case (Geofizyka Torun Sp. Zo.o) where it was determined that Section 44BB should prevail over Section 44DA for services connected with the exploration and extraction of mineral oils.

4. Harmonious Construction of Conflicting Statutory Provisions:
The court emphasized the principle of harmonious construction, which dictates that specific provisions should prevail over general ones. It was noted that if Section 44DA were to apply to all services, it would render Section 44BB redundant. The court concluded that Section 44BB, being a special provision for services related to oil exploration, should take precedence over the more general Section 44DA. This interpretation ensures that both provisions are given effect without rendering either one useless.

Conclusion:
The court dismissed the writ petition filed by the Revenue, affirming that the assessee should be assessed under Section 44BB. It was held that the specific nature of services provided by the assessee in connection with oil exploration falls squarely within the ambit of Section 44BB, and the profits should be computed accordingly. The amendments made by the Finance Act, 2010, which introduced references to Section 44DA in the proviso to Section 44BB, were interpreted as clarifications rather than changes that would alter the fundamental nature of the provisions. The court's decision reinforces the principle that specific statutory provisions should prevail over general ones, ensuring a coherent and effective application of the law.

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