2014 (7) TMI 723 - HC - Income Tax

Taxability of income u/s 44BB or u/s 44DA - acquiring and processing three dimensional marine seismic data with respect to offshore block - appellant (assessee) opted to be taxed on presumptive basis under Section 44BB(1) of the Act at the rate of 10% of the gross revenue - AO rejected the contention of assessee and observed that the services provided by the assessee were technical in nature and its income from providing services fell within the definition of fees for technical services as defined by provisions of Section 9(1)(vii) of the Act, which was liable to be taxed under the provisions of Section 115A Held that - Section 44BB(1) of the Act would not be applicable with respect to incomes which are included u/s 115A of the Act - in respect of income from technical services, section 44BB(1) of the Act would not be applicable unless the income falls within the scope of 44DA(1) of the Act, which could only be applied if an assessee being a foreign company, had a PE in India - the tax on income would be liable to be computed in accordance with section 44BB(1) of the Act Relying upon Geofizyka Torun Sp. zo. o. 2009 (12) TMI 4 - AUTHORITY FOR ADVANCE RULINGS - Section 44BB of the Act, being industry specific was a special provision and would, thus, override the provisions of Section 44DA(1) of the Act in respect of income which fall within the ambit of Section 44DA(1) of the Act but had arisen in respect of business carried on in connection with prospecting for, or extraction or production of mineral oils. The assessee is engaged in business for providing services in connection with prospecting for mineral oils, its income if it falls within the ambit of Section 44DA(1) of the Act would be taxable under Section 44BB(1) - the income falling within Section 115A(1)(b) of the Act which does not fall within the four corners of Section 44DA(1) of the Act would also not be taxable under Section 44BB(1) of the Act, for the reason that by virtue of proviso to Section 44BB(1) of the Act, the same is excluded - the AO would specifically have to determine as to whether the assessee had a PE in India during the relevant period and if so, whether the contracts entered into by the appellant with BG and RIL were effectively connected with the appellant s PE in India Decided in favour of Assessee.

Issues Involved:
1. Whether the activity of 2D/3D seismic survey carried on by the appellant is in the nature of "fees for technical services" under Explanation 2 to Section 9(1)(vii) of the Income Tax Act.
2. Whether the income of the appellant, in the nature of "fees for technical services," is liable to tax under Section 44BB of the Act only if the appellant had a Permanent Establishment (PE) in India.
3. Whether the Tribunal erred in following the decision of the co-ordinate Bench in the case of CGG Veritas Services SA, ignoring other judicial precedents.
4. Whether the findings of the Tribunal are perverse.

Detailed Analysis:

1. Nature of Income as "Fees for Technical Services":
The appellant argued that the income received from providing geophysical services, including 2D/3D seismic surveys, should be taxed under Section 44BB(1) of the Income Tax Act, which pertains to services connected with the exploration of mineral oils. The Assessing Officer (AO) and the Tribunal, however, classified this income as "fees for technical services" under Section 9(1)(vii) of the Act, thus subjecting it to tax under Section 115A. The High Court noted that the appellant did not contest this classification before it, and proceeded on the basis that the income was indeed "fees for technical services."

2. Applicability of Section 44BB(1) vs. Section 44DA(1):
The primary legal question addressed was whether the income, although falling within the scope of Section 44DA(1) (fees for technical services), should be computed under Section 44BB(1) if it is connected with the business of prospecting for or extraction of mineral oils. The court referred to its earlier decision in Director of Income Tax-II v. OHM Ltd., which held that Section 44BB, being industry-specific, overrides Section 44DA for such income.

3. Permanent Establishment (PE) Requirement:
The court clarified that for income to be taxed under Section 44DA(1), the foreign company must have a PE in India, and the income must be effectively connected with this PE. If these conditions are met, the income would be excluded from Section 115A and computed under Section 44BB(1). The court instructed the AO to determine if the appellant had a PE in India and if the contracts with BG and RIL were connected to this PE.

4. Tribunal's Decision and Judicial Precedents:
The court found that the Tribunal did not err in following the decision in CGG Veritas Services SA, as it was consistent with the principle that specific provisions (Section 44BB) override general provisions (Section 44DA). The court emphasized the rule of harmonious construction, ensuring that both provisions are given effect where possible.

5. Clarificatory Amendments:
The court noted that amendments introduced by the Finance Act, 2010, which explicitly excluded income under Section 44DA from Section 44BB, were clarificatory. These amendments took effect from 01.04.2011, and thus did not apply to the Assessment Year 2008-09 in question.

Conclusion:
The court concluded that for the relevant assessment year, if the appellant had a PE in India and the income was connected with this PE, it should be taxed under Section 44BB(1). If not, the income would be taxed under Section 115A. The court answered the question of law in favor of the appellant and remanded the matter to the AO for specific determinations regarding the existence of a PE and the connection of the income to this PE.

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