2015 (12) TMI 459 - AT - Income Tax

Entitlement for concessional benefit u/s 44BB - income of the assessee is held as FTS - Held that - As decided in assessee s own case we hereby held that the amount representing work like drilling and exploration of well is covered by Section 44BB of the Act and as such, liable to be reckoned u/s 44BB of the Act.

Issues Involved:

1. Taxability of well testing equipment and services under Section 9(1)(vii) of the Income Tax Act, 1961.
2. Application of Section 44BB for income computation.
3. Distinction between income taxable under Section 44BB and Section 44DA.
4. Legislative intent behind Sections 9(1)(vii), 44DA, and 44BB.
5. Interpretation of the proviso to Sections 44BB and 44DA.
6. Reliance on previous ITAT decisions and their acceptance by the department.
7. Estimation of income under Rule 10 of the Income Tax Rules, 1962.
8. Pending special petitions affecting the case.
9. Clarification of the proviso to Section 44BB.
10. Application of the rule "Generallia specialibus non derogant."
11. Clarificatory nature of proviso to Section 44DA.
12. Chargeability of interest under Section 234B.

Detailed Analysis:

1. Taxability of Well Testing Equipment and Services:
The CIT(A) held that the provision of well testing equipment and services was not in the nature of Fees for Technical Services (FTS) under Section 9(1)(vii) of the Act. The Revenue contended that the services were technical in nature and should be taxed as FTS. The Tribunal noted that the assessee had been providing well testing equipment and services through wire line testing and surface testing, which were technical services. However, previous ITAT decisions in the assessee's own case for earlier years had ruled these services to be covered under Section 44BB, not as FTS.

2. Application of Section 44BB:
The CIT(A) ruled that the income from well testing services should be taxed under Section 44BB, which deals with the taxation of non-residents providing services or facilities in connection with the extraction of mineral oils. The Revenue argued that Section 44BB should not apply as the services were technical. The Tribunal, however, relied on its previous decisions and the Uttarakhand High Court ruling, which had consistently held that such services fall under Section 44BB.

3. Distinction Between Section 44BB and Section 44DA:
The Revenue argued that the taxability under Section 44BB does not apply to income referred to in Section 44DA, which deals with royalties and FTS connected with a Permanent Establishment (PE). The Tribunal found that the assessee had a PE in India, and the income was rightly assessed under Section 44BB, not Section 44DA.

4. Legislative Intent Behind Sections 9(1)(vii), 44DA, and 44BB:
The CIT(A) was said to have erred in interpreting the legislative intent behind these sections. The Tribunal noted that the legislative intent and judicial precedents supported the application of Section 44BB for services related to oil exploration.

5. Interpretation of the Proviso to Sections 44BB and 44DA:
The Revenue contended that the proviso to Section 44BB clarified that payments characterized as FTS under Section 9(1)(vii) fall outside the purview of Section 44BB. The Tribunal, however, found that the main provision of Section 44BB was clear and covered the assessee's services.

6. Reliance on Previous ITAT Decisions:
The CIT(A) relied on the ITAT decision in the case of CGG VERITAS, which the Revenue had not accepted. The Tribunal reiterated that the previous decisions in the assessee's own case for earlier years were binding and applicable.

7. Estimation of Income Under Rule 10:
The Revenue argued that the AO had correctly estimated the Fee for Technical Services/Royalty received by the non-resident company at 25% of gross receipts under Rule 10 due to the absence of books of accounts. The Tribunal did not find merit in this argument, given the established application of Section 44BB.

8. Pending Special Petitions:
The Revenue mentioned pending special petitions in similar cases. However, the Tribunal focused on the current binding precedents and the specifics of the assessee's case.

9. Clarification of the Proviso to Section 44BB:
The Revenue argued that the proviso to Section 44BB was clarificatory and should apply retrospectively. The Tribunal found that the main provision of Section 44BB was sufficient to cover the assessee's income.

10. Application of "Generallia Specialibus Non Derogant":
The Revenue contended that Section 44DA, being a special provision, should override the general provision of Section 44BB. The Tribunal, however, upheld the application of Section 44BB, consistent with judicial precedents.

11. Clarificatory Nature of Proviso to Section 44DA:
The Revenue argued that the proviso to Section 44DA was clarificatory and should apply from the time the main provision came into effect. The Tribunal did not find this argument sufficient to override the established application of Section 44BB.

12. Chargeability of Interest Under Section 234B:
The CIT(A) held that interest under Section 234B was not chargeable, relying on the Uttarakhand High Court decision in the case of Maersk. The Tribunal upheld this view, noting the pending SLP before the Apex Court did not change the current applicability of the High Court's decision.

Conclusion:
The Tribunal dismissed the Revenue's appeal and upheld the CIT(A)'s order, confirming that the income from well testing services was taxable under Section 44BB and not as FTS under Section 9(1)(vii). The cross objections by the assessee were also dismissed.

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