2019 (2) TMI 1513 - AT - Income Tax

Applicability of section 44BB - services rendered by the assessee to ENI India Ltd. - Income by way of FTS u/s 9(1)(vii) - whether section 44BB is not applicable to second level contractors? - HELD THAT - Provision of section 44BB are held to be applicable to the tax payer being a second leg contractor/sub-contractor. Including the decision in the case of DIT Vs. OHM Ltd. 2012 (12) TMI 422 - DELHI HIGH COURT that the services rendered in relation to extraction and production of mineral oil are taxable u/s 44BB. A perusal of the service contract mentioned elsewhere clearly shows that the appellant had rendered similar services to ENI India Ltd for which services it received the revenue which it offered u/s 44BB of the Act. Considering the facts of the case in totality, in the light of judicial decisions discussed hereinabove, we are of the opinion that the assessee s case comes within the purview of section 44BB and its income should be taxed accordingly. First substantive grievance is accordingly allowed. We hold that the assessee s case comes within the purview of section 44BB of the Act. Levy of interest u/s 234B - 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. See Technip UK 2018 (12) TMI 1069 - ITAT DELHI

Issues Involved:
1. Applicability of section 44BB of the Income-tax Act, 1961 to the services rendered by the assessee.
2. Classification of revenue as Fees for Technical Services (FTS) under section 9(1)(vii) of the Act.
3. Levy of interest under section 234B of the Act.

Issue-wise Detailed Analysis:

1. Applicability of Section 44BB:
The primary issue was whether the services provided by the assessee to ENI India Ltd., a company involved in the prospecting, extraction, and production of mineral oil, fall under the purview of section 44BB of the Income-tax Act, 1961. The assessee, a non-resident company incorporated under the laws of Italy, contended that the revenue earned from providing services to ENI India Ltd. should be taxed under section 44BB(1) of the Act. The Assessing Officer (AO) disagreed, stating that the services were not directly connected with the core activities of oil exploration and thus did not qualify under section 44BB. Instead, the AO classified the revenue as Fees for Technical Services (FTS) under section 9(1)(vii) of the Act.

The Dispute Resolution Panel (DRP) upheld the AO's decision, referencing various judicial precedents and legislative history to support the view that FTS, regardless of the presence of a Permanent Establishment (PE) or connection with oil exploration activities, are not taxable under section 44BB. The DRP concluded that the services rendered by the assessee were technical in nature and fell under sections 44D, 44DA, and 115A, not section 44BB.

However, the Tribunal, after reviewing the service agreement and relevant judicial decisions, including the Supreme Court's ruling in ONGC and the Tribunal's decision in Technip UK Ltd., found that section 44BB does not distinguish between main contractors and sub-contractors. The Tribunal held that the services provided by the assessee were indeed in connection with the prospecting, extraction, or production of mineral oils and thus fell within the purview of section 44BB. The Tribunal emphasized that the legislative intent and the language of section 44BB did not restrict its applicability to only main contractors.

2. Classification of Revenue as FTS:
The AO classified the revenue earned by the assessee as FTS under section 9(1)(vii) of the Act, arguing that the services provided were technical in nature and not directly connected with oil exploration activities. The DRP supported this view, citing various judicial precedents and legislative amendments that clarified the taxability of FTS under sections 115A, 44D, and 44DA, irrespective of the connection with oil exploration activities.

The Tribunal, however, disagreed with this classification. It referred to the Supreme Court's decision in ONGC and other relevant judicial pronouncements, which clarified that services related to oil exploration, even if technical, fall under section 44BB if they are rendered in connection with the prospecting, extraction, or production of mineral oils. The Tribunal concluded that the services provided by the assessee to ENI India Ltd. were indeed in connection with oil exploration activities and thus should be taxed under section 44BB, not as FTS under section 9(1)(vii).

3. Levy of Interest under Section 234B:
The second substantive grievance of the assessee was the levy of interest under section 234B of the Act. The Tribunal referred to its previous decision in Technip UK Ltd. and the Delhi High Court's ruling in DIT v. GE Packaged Power Inc., which held that no interest under section 234B can be levied on the assessee-payee for non-payment of advance tax if the payer was obligated to deduct tax at source under section 195(1) of the Act.

The Tribunal noted that the Finance Act, 2012, introduced a proviso to section 209(1)(d) applicable from assessment year 2013-14, which clarified the liability of non-resident companies to pay advance tax. However, this proviso was prospective in operation and did not apply to the assessment year in question (2012-13). Therefore, the Tribunal directed the AO not to charge interest under section 234B for the year under consideration, as the primary obligation to deduct tax at source lay with the payer.

Conclusion:
The Tribunal allowed the appeal of the assessee, holding that the revenue earned from services provided to ENI India Ltd. should be taxed under section 44BB of the Income-tax Act, 1961. The Tribunal also directed the AO not to levy interest under section 234B for the assessment year 2012-13. The decision emphasized the legislative intent and judicial precedents supporting the applicability of section 44BB to services connected with oil exploration activities, irrespective of whether they were rendered by main contractors or sub-contractors.

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