2015 (4) TMI 557 - AT - Income Tax

Fees for technical services - Assessment under section 144C/143(3) - income arising from services rendered by the appellant in connection with exploration/prospecting/extraction of mineral oil - CIT(A) Held that the provision of well testing equipments and services was not in the nature of Fee for Technical Services (FTS) squarely covered under section 9(1 )(vii) and holding that the income of the assessee was taxable under the provisions of sec 44BB - Held that - The word 'services' in section 44BB include both technical and non-technical services. It was held that the proviso to section 44BB (1) will be pressed into service in case of the assessee whose receipts being of the nature of FTS and the income is required to be computed in accordance with section 44D or 44DA or section 115A or section 293. It is not out of place to mention that had these not being technical services, the proviso will not be pressed for the exclusion. FTS effectively connected with the permanent establishment is taxable under the Section 44DA and not under section 44BB, however, this would be applicable from assessment year 2011-12 and for the assessment years 2004-05 to 2010-11 the FTS also would be taxable under section 44BB (1). See Baker Hughes Asia Pacific Ltd., C/o Nangia & Co., and others Versus Addl. Director of Income-tax, International Taxation, Dehradun 2014 (7) TMI 601 - ITAT DELHI . We uphold the order of the Ld. CIT(A) for the assessment year 2010-11 dated 05.03.2013. Hence we dismiss the appeal of the Revenue for assessment year 2010-11. - decided against revenue.

Summary

Issues Involved:
1. Classification of income under Section 44BB vs. Section 9(1)(vii) of the Income Tax Act.
2. Levy of interest under Section 234B and 234C of the Income Tax Act.
3. Determination of Permanent Establishment (PE) and its implications on taxability.

Detailed Analysis:

Issue 1: Classification of Income
The primary issue revolves around whether the income earned by the assessee from providing equipment and services for well testing in connection with oil exploration should be taxed under Section 44BB or Section 9(1)(vii) of the Income Tax Act.

- Assessee's Argument: The assessee, a company incorporated in Cyprus, claimed that its income should be taxed under Section 44BB, which deals with income from services or facilities provided in connection with the prospecting for, or extraction or production of, mineral oils. The assessee cited the decision of the Uttarakhand High Court in CIT vs. ONGC as an agent of Scan Drilling Company.

- Assessing Officer's (AO) Argument: The AO proposed to tax the income as "fee for technical services" (FTS) under Section 9(1)(vii), arguing that the services rendered by the assessee were technical in nature and not covered under Section 44BB.

- Dispute Resolution Panel (DRP) Decision: The DRP supported the AO's view, holding that the income should be assessed as FTS. It referred to the contracts with BG Exploration, Cairn Energy, and Jubilant Oil, concluding that the services provided were technical and involved well testing operations.

- Tribunal's Decision: The Tribunal reversed the DRP's order, noting that similar cases had been adjudicated in favor of the assessee under Section 44BB. The Tribunal cited the decision in ITA No.-5286/Del/2010 involving Precision Energy Services Ltd., where it was held that income from providing rig-based surface well testing equipment and personnel should be taxed under Section 44BB. Consequently, the Tribunal allowed the assessee's appeal for the assessment year 2008-09 and upheld the CIT(A)'s order for the assessment year 2010-11.

Issue 2: Levy of Interest
The second issue pertains to the levy of interest under Sections 234B and 234C of the Income Tax Act.

- Assessee's Argument: The assessee contended that there was no liability to pay advance tax under Section 209(1)(d) of the Income Tax Act, and hence, interest under Sections 234B and 234C should not be levied.

- DRP's Decision: The DRP upheld the AO's proposal to levy interest, refusing to follow the judgments of the Uttarakhand High Court and Bombay High Court, on the grounds that the Revenue had not accepted those judgments.

- Tribunal's Decision: The Tribunal did not specifically address this issue in detail, focusing primarily on the classification of income. However, by allowing the assessee's appeal on the primary issue, the implication is that the interest levied under Sections 234B and 234C would also be reconsidered based on the revised tax liability.

Issue 3: Determination of Permanent Establishment (PE)
The third issue involves the determination of whether the assessee had a Permanent Establishment (PE) in India and the implications on taxability.

- Revenue's Argument: The Revenue argued that it needed to be determined whether the assessee had a PE in India during the relevant period, as this would affect the taxability under Section 44DA or Section 115A.

- Tribunal's Decision: The Tribunal noted that the assessee had filed a return of income (ROI) and assessments were framed on the basis that the assessee had a PE in India. Therefore, this argument by the Revenue was found to lack merit.

Conclusion:
- For Assessment Year 2008-09: The Tribunal allowed the assessee's appeal, holding that the income should be taxed under Section 44BB.
- For Assessment Year 2010-11: The Tribunal upheld the CIT(A)'s order in favor of the assessee, dismissing the Revenue's appeal.
- Cross-Objection for Assessment Year 2010-11: The cross-objection filed by the assessee was dismissed as not pressed.

Final Order:
- Appeal of the Assessee (ITA No.-5561/Del/2011): Allowed.
- Appeal of the Revenue (ITA No.-4650/Del/2013): Dismissed.
- Cross-Objection of the Assessee (CO No.-29/Del/2014): Dismissed.

The order was pronounced in the open court on 12th February 2015.