2017 (6) TMI 282 - AT - Income Tax

Fees for technical services - made available or not - payments made to the M/s University of Calgary, Canada (non-resident) in terms of contract dated 23.06.2008 for long term collaboration, participation, training, maintenance of air injection equipment - Receipts taxable in India - India-Canada DTAA - Held that - We agree with the findings arrived at by the AO and the CIT(A) that the know how possessed by the non-resident appellant has been shared and made available to the ONGC personnel. The same is evident from clause 1.2 of the scope of project extracted herein above. The contention of the Ld. AR that the technology is not made available to ONGC is incorrect as the agreement not only contemplates participation but also training and collaborative research between the personnel of the non-resident and ONGC. Article 12(4) of the DTAA thus becomes applicable in the present facts and circumstances of the case. In view thereof, Ground No.1 raised by the appellant is dismissed. Receipts taxable under section 44BB - Held that - The appellant has no PE in India. Section 44BB of the Act applies in a case where consideration is for services relating to exploration activity which are not in the nature of technical services. If, the consideration is in the nature of fee for technical services, the provisions of either section 44DA or section 115A will be applicable. The said position remained same even after the amendment brought by Finance bill 2010. The agreement shows that the personnel of the non-resident are not engaged in extraction or production of mineral oils. The appellant is not receiving any consideration for mining, assembly or other like projects undertaken by it. Thus, the appellant falls within the purview of Explanation 2 of Section 9(1)(vii) of the Act. The judgment of the Apex Court in ONGC Vs. CIT (2015 (7) TMI 91 - SUPREME COURT) is not applicable to the present case as in that case the non-resident recipient of income was engaged in drilling operations. The facts of this case are distinguishable. We agree with the reasoning given by the AO and CIT(A) and in view thereof, Ground no. 2 raised by the appellant is dismissed. - Decided against assessee.

Summary

Issues Involved:
Assessment of income as 'fees for technical services' under section 9(l)(vii) of the Act and applicability of India-Canada Double Taxation Avoidance Agreement. Taxability of receipts under section 44BB of the Income-tax Act, 1961 for services related to extraction or production of mineral oils.

Issue 1: Assessment of Income as 'Fees for Technical Services'

The appellant's income from M/s University of Calgary, Canada, received through ONGC, was treated as 'fees for technical services' under section 9(l)(vii) of the Act. The appellant contended that the income was not taxable under the India-Canada DTAA. The appellant argued that the services provided did not fall under 'fees for included services' as per Article 12 of the DTAA. The appellant emphasized that the technology was not made available to ONGC independently. However, the tribunal agreed with the AO and CIT(A) that the technology was shared and made available to ONGC personnel, as per the contract terms. The tribunal dismissed the appellant's argument and upheld the taxability of the income as 'fees for technical services' under the DTAA.

Issue 2: Taxability under Section 44BB

The appellant contended that if the income was taxable, it should be taxed under section 44BB of the Act, which applies to non-residents providing services related to mineral oil extraction. The appellant relied on a Supreme Court judgment in the ONGC case to support this argument. However, the tribunal noted that the appellant's personnel were not directly involved in oil extraction activities, and the services provided were not related to exploration activities but were technical in nature. Therefore, the tribunal held that the provisions of section 44BB did not apply to the appellant's case. The tribunal dismissed the appellant's argument and upheld the taxability of the income as 'fees for technical services' under section 9(l)(vii) of the Act.

Conclusion:
The tribunal dismissed both appeals of the assessee, upholding the taxability of the income as 'fees for technical services' under section 9(l)(vii) of the Act and rejecting the applicability of section 44BB for taxation. The tribunal's decision was based on the sharing of technology and services provided by the appellant, which were deemed to fall under the category of 'fees for technical services' as per the India-Canada DTAA and the contract terms.