2009 (12) TMI 4 - AAR - Income Tax

Exploration operations - Scope of Section 44BB Computation of income Section 44BB versus 44DA - The applicant provides geophysical services to international oil and gas industry. The applicant conducts seismic surveys and provides on-shore seismic data acquisition and other associated services such as processing and interpretation of such data to global and oil companies held that - section 44D undoubtedly took precedence over section 44BB - there is nothing in Section 44DA which has the effect of superseding or overriding Section 44BB. Both these provisions should be harmoniously read. If so read, the profits derived from business of providing services in connection with the prospecting for or extraction or production of mineral oil are squarely and exclusively governed by Section 44BB, irrespective of the nature of services, provided the services are intimately connected to Prospecting and exploration of oil

Issues Involved:
1. Applicability of Section 44BB of the Income Tax Act, 1961.
2. Interpretation of Section 9(1)(vii) and Explanation 2.
3. Relevance of Section 44DA and Section 115A.
4. Consideration of CBDT Circular and Attorney General's opinion.
5. Analysis of relevant case law and rulings.

Issue-wise Detailed Analysis:

1. Applicability of Section 44BB of the Income Tax Act, 1961
The applicant, a Polish company providing geophysical services to the oil and gas industry, contended that its income from seismic data acquisition and interpretation services in India should be computed under Section 44BB of the Income Tax Act, 1961. Section 44BB is a special provision for computing profits and gains in connection with the business of exploration, etc., of mineral oils. The Authority concluded that the applicant's activities fit neatly into Section 44BB, satisfying all its ingredients, as the services provided are in connection with the prospecting for or extraction of mineral oils, thus qualifying for the special computation provision under Section 44BB.

2. Interpretation of Section 9(1)(vii) and Explanation 2
The Revenue argued that the services provided by the applicant fell under Explanation 2 to Section 9(1)(vii) of the Act, which deals with fees for technical services (FTS). The Revenue contended that the income by way of FTS should be computed under Section 44DA, as the applicant has a Permanent Establishment (PE) in India. However, the Authority found that the services provided by the applicant are intimately connected with the prospecting and exploration of mineral oils, thus falling within the ambit of Section 44BB. The Authority rejected the Revenue's narrow interpretation of the term 'services' in Section 44BB, emphasizing that the term should be understood in its plain and ordinary sense, encompassing technical services as well.

3. Relevance of Section 44DA and Section 115A
Section 44DA, inserted by the Finance Act, 2003, is another special provision for computing income by way of royalty or FTS received by a non-resident or foreign company with a PE in India. The Revenue argued that Section 44DA should govern the applicant's income. However, the Authority noted that Section 44BB, being a more specific provision, should prevail for the purposes of computation. Section 115A, which deals with tax on dividends, royalty, and technical service fees for foreign companies without a PE in India, was also considered but found not applicable as the Revenue's representative conceded that Section 44DA governs the case.

4. Consideration of CBDT Circular and Attorney General's Opinion
The Authority referred to CBDT Circular No. 1862, issued on 22nd October 1990, which clarified that services related to the exploration of mineral oil are considered 'mining operations' and thus fall under Section 44BB, not Section 115A. This circular, binding on the department, was issued after obtaining the opinion of the Attorney General of India. The circular and the Attorney General's opinion supported the view that the applicant's income should be computed under Section 44BB.

5. Analysis of Relevant Case Law and Rulings
The Authority examined several case laws and rulings, including the decision in *P No.6 of 95*, which dealt with the applicability of Section 44D (now Section 44DA) and Section 115A. The Authority distinguished the present case from *P No.6 of 95*, noting that Section 44DA does not have the effect of superseding or overriding Section 44BB. The Authority also referred to other Tribunal decisions, such as *DC(IT) vs. ONGC as agent of Foramer France*, which supported the view that Section 44BB governs services related to the exploration of mineral oils.

Conclusion
The Authority ruled in favor of the applicant, concluding that the income derived by the applicant in India should be computed under Section 44BB of the Income Tax Act, 1961. This ruling was pronounced on the 7th day of December, 2009.

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