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2018 (12) TMI 1069 - AT - Income TaxIncome accrued in India - Revenues earned from a non-resident company on account of provision of services for executing contracts - deemed profit rate of 10% u/s 44BB - whether services rendered was not in the nature of Fee for Technical Services ( FTS ) as defined u/s 9(l)(vii) of the Act and was not taxable under the provisions of sec 44DA r.w.s. 115A - Held that - It is worth mentioning here that by Finance Act, 2010, amendment was brought in the proviso to section 44BB of the Act w.e.f 1.04.2011 whereby Section 44DA of the Act was inserted therein indicating that the provisions of Section 44BB shall not apply in respect of income referred to in that section. Finance Act 2010 itself specifically mentions that the above amendment shall take effect from 1st April 2011 and will, accordingly, apply to the assessment year 2011-12 and subsequent years. Memorandum explaining the provisions of Finance Bill, 2010 also makes it clear that these amendments assessment order proposed to take effect from 01.04.2011 and will, accordingly, apply to the assessment year 2011-12 and subsequent years. As in the case of DIT vs. OHM Ltd. 2012 (12) TMI 422 - DELHI HIGH COURT held that income received from services rendered in connection with providing services in relation to extraction and production of mineral oil should be taxable under section 44BB as opposed to section 44DA of the Act and the amendment to the aforesaid sections by the Finance Act, 2010 could not have the effect of altering or effacing the fundamental nature of both the provisions or their respective spheres of operation, so to take away the separate identity of Section 44BB of the Act Whether section 44BB is not applicable to second level contractors - Held that - A plain reading of section 44BB of the Act envisages a non-resident service provider not merely engaged in the business of providing services or facilities in connection with prospecting, extraction or production of mineral oils but providing such services / facilities to a person / entity engaged in such activities. The said section does not distinguish between the main contractor or a sub-contractor. If the intention of the Legislature was to restrict the benefit of section 44BB of the Act to the main contractor only, then, the words after the assessee engaged in the business of providing services or facilities in connection therewith or supplying plant and machinery on hire ought to have been omitted. Hence, where the provision does not create any discrimination between the person who actually does the activity of prospecting for or extraction or production, and the person who renders services in connection therewith, the section cannot be narrowly construed. Levy of interest u/s 234B - scope of amendment of act - Held that - The insertion of the proviso cannot be considered to have retrospective effect so as to expose a non-resident company to levy of interest u/s 234B of the Act for the assessment years prior to assessment year 2013-14. In the light of the above, we direct the Assessing Officer to not charge interest u/s 234B of the Act.
Issues Involved:
1. Applicability of Section 44BB of the Income Tax Act, 1961. 2. Classification of income as Fee for Technical Services (FTS) under Section 9(1)(vii) of the Act. 3. Distinction between services rendered by main contractors and sub-contractors. 4. Interpretation of "in connection with" in Section 44BB. 5. Applicability of Section 44DA and Section 115A of the Act. 6. Levy of interest under Section 234B of the Act. Detailed Analysis: 1. Applicability of Section 44BB of the Income Tax Act, 1961: The core issue was whether the income earned by the assessee from a non-resident company for services provided in connection with oil prospecting was taxable under Section 44BB. The Tribunal upheld the DRP's direction to apply the deemed profit rate of 10% under Section 44BB, emphasizing that the activities performed by the assessee were integral to oil prospecting operations. The Tribunal referenced various judicial precedents to support the broad interpretation of "in connection with" under Section 44BB, including cases like Geofizyka Torun Sp zoo and ACIT vs. Paradigm Geophysical Private Limited. 2. Classification of Income as Fee for Technical Services (FTS) under Section 9(1)(vii) of the Act: The Revenue argued that the income should be classified as FTS and taxed under Section 44DA read with Section 115A. The Tribunal, however, agreed with the DRP's finding that the services provided were directly connected to oil prospecting and thus fell under the purview of Section 44BB. The Tribunal cited the Supreme Court's decision in Oil and Natural Gas Corporation Limited vs. CIT, which clarified that services closely linked to oil extraction activities should be taxed under Section 44BB rather than as FTS. 3. Distinction Between Services Rendered by Main Contractors and Sub-Contractors: The Revenue contended that Section 44BB should not apply to sub-contractors. The Tribunal rejected this argument, stating that Section 44BB does not distinguish between main contractors and sub-contractors. The Tribunal referenced its own decision in the case of Louis Dreyfus Armateures SAS, which held that the provision applies to any non-resident providing services in connection with oil prospecting, regardless of their contractual position. 4. Interpretation of "In Connection With" in Section 44BB: The Tribunal emphasized the wide amplitude of the phrase "in connection with" in Section 44BB, which includes various services related to oil extraction. Judicial precedents such as Geofizyka Torun Sp zoo and Lloyd Helicopters International Pty Ltd were cited to support this broad interpretation. The Tribunal concluded that the assessee's services were indeed in connection with oil prospecting and thus taxable under Section 44BB. 5. Applicability of Section 44DA and Section 115A of the Act: The Tribunal noted that Sections 44DA and 115A apply to income in the nature of royalties and FTS received from the Government or an Indian concern, whereas Section 44BB is a specific provision for services related to oil prospecting. The Tribunal referred to the Delhi High Court's decision in DIT vs. OHM Ltd., which held that Section 44BB, being more specific, prevails over the general provisions of Sections 44DA and 115A. 6. Levy of Interest Under Section 234B of the Act: The Tribunal addressed the assessee's cross-objection regarding the levy of interest under Section 234B. It held that since the assessee's income was subject to tax deduction at source, there was no obligation to pay advance tax, and consequently, no interest under Section 234B could be levied. The Tribunal cited the Delhi High Court's decision in DIT v. GE Packaged Power Inc., which supported this view. Conclusion: The Tribunal dismissed the Revenue's appeal, upholding the DRP's directions to apply Section 44BB for the assessee's income and rejecting the classification of the income as FTS under Section 9(1)(vii). The Tribunal also allowed the assessee's cross-objection, directing the AO not to levy interest under Section 234B.
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