2024 (2) TMI 791 - HC - Income Tax

Applicability of Section 9(1)(vii) read with Section 44DA - HELD THAT - Issue stands conclusively answered by the Supreme Court in its judgment rendered in Oil and Natural Gas Corporation vs. Commissioner of Income Tax Anr. 2015 (7) TMI 91 - SUPREME COURT Applicability of Section 44BB - Special provision for computing profits and gains in connection with the business of exploration, etc., of mineral oils - essence of the contract was duly captured by the Income Tax Appellate Tribunal 2022 (7) TMI 1507 - ITAT DELHI as held the scope of work clearly envisages that the assessee has to render certain services in connection with the mining activity carried on. Thus, once the activity carried on by the assessee falls within the expression mining or like projects , it goes out of the purview of FTS as defined under Explanation 2 to section 9(l)(vii) of the Act. That being the factual and legal position, the amount received by the assessee cannot be treated as FTS under section 9(l)(vii) of the Act. That being the case, the provision of the Act being more beneficial in such a scenario, as per section 90(2) of the Act, will be applicable. Therefore, there is no need for us to examine the applicability of the term 'FTS' under India France Tax Treaty. Thus, once the amount received by the assessee does not fall within the definition of FTS under section 9(1)(vii) of the Act, by default, section 44DD would not apply to such payment. A reading thereof would clearly and in our considered opinion qualify the pith and substance test and be viewed as being inextricably linked to the primary contract as propounded by the Supreme Court in Oil and Natural Gas Corporation and the principles reiterated by the Division Bench of this Court in Director of Income Tax vs. OHM Ltd. 2012 (12) TMI 422 - DELHI HIGH COURT as held the amendment made by the Finance Act, 2010, with effect from April 1, 2011, in both the sections, cannot have the effect of altering or effacing the fundamental nature of both the provisions or their respective spheres of operation or to take away the separate identity of section 44BB. We do not, therefore, see how these amendments can assist the Revenues contention in the present case, put forward by the learned senior standing counsel. We, therefore, agree with the Authority for Advance Rulings that in the present case the profits shall be computed in accordance with the provisions of section 44BB of the Act and not section 44DA. We thus find that since the terms of the contract are not questioned or assailed before us they would clearly fall within the scope of the expression in connection with as appearing in Section 44BB of the Act. We, consequently find no ground to interfere with the view as expressed by the ITAT. We, additionally note that the ITAT while holding in favour of the assessee before this Court had also relied upon on its own order 2018 (12) TMI 1069 - ITAT DELHI . We are informed by Mr. Chawla that the same has attained finality since no appeal was preferred by the Department.

Summary

Issues involved:
The judgment deals with the issues emanating from Section 9(1)(vii) read with Section 44DA of the Income Tax Act, 1961 and the solitary issue remaining pertains to Section 44BB of the Act.

Section 9(1)(vii) and Section 44DA:
The Court noted that the issues under Section 9(1)(vii) read with Section 44DA have been conclusively answered by the Supreme Court in Oil and Natural Gas Corporation vs. Commissioner of Income Tax. The essence of the contract was captured by the Income Tax Appellate Tribunal (ITAT), indicating that the amount received by the assessee cannot be treated as Fees for Technical Services (FTS) under Section 9(1)(vii) of the Act. The Court affirmed that the provision of Section 44BB would be applicable in such a scenario, as it is more beneficial.

Section 44BB:
The Court analyzed the scope of work outlined in the contract between the assessee and another party, which involved services in connection with mining activities. Referring to the principles laid down in previous judgments, the Court found that the terms of the contract clearly fell within the scope of Section 44BB of the Act. It was emphasized that the specific services contemplated under Section 44BB are distinct from those covered under Section 44DA, and both provisions should be interpreted harmoniously without rendering either provision redundant.

Consistency and Finality of Previous Orders:
The Court also considered the principle of consistency and noted that the ITAT's previous order, which supported the assessee, had attained finality as no appeal was filed by the Department. Therefore, the appeal was dismissed based on the principles of consistency.

This judgment clarifies the application of Sections 9(1)(vii), 44DA, and 44BB of the Income Tax Act, emphasizing the specific nature of services covered under each provision and the importance of interpreting them harmoniously to give effect to their distinct scopes.