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TMI Blog2012 (4) TMI 280X X X X Extracts X X X X X X X X Extracts X X X X ..... endered in connection with prospecting for or extraction or production of mineral oil though effectively connected with PE or fixed place of profession will fall not under section 44BB(1) and will be assessable under section 44DA of the Act -admittedly the receipts are not connected with PE in India and hence the fee for technical services rendered in connection with prospecting for or extraction or production of mineral oil will be assessable u/s 115A of the Act. Holding 25 per cent of the gross receipts from Eni as profits earned on the project and in failing to provide credit to the appellant in respect of taxes deducted at source by ONGC and Eni as per the provisions of section 195 of the Act – assessee contested that entire project has to be executed by the assessee by employing vessels, whether owned or chartered equipped with specialized instruments –all the terms of contract are similar to that of ONGC with only difference that Eni is a non-resident company – Held that:- the amount received by the assessee will be assessable in the nature of fee for technical service and will be assessable u/s 115A (1)(b) of the Act - income from fee for technical services has been asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.7 That on the facts and circumstances of the case and in law, the AO has erred in failing to provide credit to the appellant in respect of taxes deducted at source by ONGC and Eni as per the provisions of section 195 of the Act; 1.8 That on the facts and circumstances of the case and in law, the AO has erred in levying interest under section 234-B and initiating penalty proceedings as per the provisions of section 271-B of the Act. 2. The main effective ground of appeal of assessee is that the AO has wrongly brought to tax income of the assessee u/s 9(1)(vii) instead of u/s 44BB(1) of the Income Tax Act, 1961. The case of Department is that provisions of section 44BB (1) are not applicable to the facts of the case and receipts are in nature of fee for technical services and hence the provisions of section 115A of the I.T. Act, 1961 are applicable. The fact of the case stated in brief are that the assessee company, a tax resident of France, during the relevant assessment year was engaged in providing geological and geophysical services for exploring mining potential. During the previous year relevant to assessment year under consideration the assessee derived inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r that CBDT Instruction No. 1862 deals with 'mining or like project' and therefore, the same will apply in the case of those assessees who are engaged in the drilling operations and not in the cases of the assessee who are engaged in carrying out seismic surveys. The A.O. has relied on Ruling of AAR P/6 reported as 234 ITR 371 and the decision of Uttaranchal High Court in the case of CIT v. ONGC Ltd 299 ITR 438 for the proposition that payment for seismic survey is covered by sec.115A and not sec. 44BB(1) of the Act. 4. Ld AR of the assessee further has submitted that all the ONGC and Eni contracts, though pertaining to different off-shore locations have similar terms and the scope of work is also similar. Referring to one of the contract at S.No 1 in Table at page 2 of the assessment order he submits that the AO has distorted the description of Scope of Work stipulated in the contracts with ONGC. According to her, the assessee is to provide personnel and equipment , whereas clause 1 of the contracts describes scope of work by stipulating that contractor shall with his own personnel equipment plan and execute acquisition of 3D seismic data .... . In other wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urface of the earth. However, according to the Revenue authorities, the normal digging operations under the surface of the earth have to be considered to be extraction of mineral oil . Thus, as per the Authorities below in order to be taxable under section 44BB of the Act, the assessee ought to have carried out some such operations under the surface of the earth. 6. Ld AR of the assessee read out section 44BB (1) which is reproduced as under: 44BB. (1) Notwithstanding anything to the contrary contained in sections 28 to 41 and sections 43 and 43A, in the case of an assessee, being a non-resident, engaged in the business of providing services or facilities in connection with, or supplying plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils, a sum equal to ten per cent of the aggregate of the amounts specified in sub-section (2) shall be deemed to be the profits and gains of such business chargeable to tax under the head Profits and gains of business or profession : Provided that this sub-section shall not apply in a case where the provisions of section 42 or section 44D or section 115A or section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally workable quantities. It includes a drilling of deep test wells in such number as would he necessary to verify the geological structure of the oil and gas-bearing formations and their productive extent. In view of the definition of words prospecting and mining he has submitted the assessee was engaged in execution of the projects connected with prospecting or mining of mineral oil and hence eligible for assessment u/s 44BB(1) of the Act. He placed reliance on the Ruling of Advance Authority in Geofyzika Torun ( Supra ), wherein it has been held that income from executing projects/contracts for capturing 2D and 3D seismic data by a non-resident contractor or a non resident sub- contractor is covered by sec. 44BB of the Act. Based on above it has been pleaded that the assessee, a nonresident company, satisfies all the conditions laid down in sec. 44BB of the Act and hence it is eligible for taxation u/s 44BB. He also placed reliance on the following rulings of AAR: i . Wavefield Inseis ASA 320 ITR 290 ii . Wavefield Inseis ASA 322 ITR 645 iii . Seabird Exploration FZ LLC 320 ITR 286 iv . Seabird Exploration FZ LLC 326 ITR 558 v . Global Geo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d planned undertaking from beginning to its end; culminating in delivery of 2D and 3D seismic data. Moreover, the contractor has to ensure quality control, collects data on its own, which it warrants. He referred to Clause 19 dealing with 'Indemnification'; Clause 20 dealing with 'Performance Guarantee'; and Clause 21 dealing with 'Insurance' under the said contracts. He has emphasized that all the crew and technicians on board report to the assessee who alone is accountable for them. The entire contract is performed by the assessee on its own as independent contractor without involvement of ONGC and Eni. The only interaction with the representatives of ONGC is for the limited purpose of preparation of the project report prior to commencement of the work under the contract. In view of above, it has been submitted that the assessee has implemented the contracts with ONGC and Eni as 'projects'. 9. Ld AR of the assessee referred to Article 31 A (e) of the Constitution of India which deals with searching or winning any mineral or mineral oil . He relied on the decision of Hon'ble Supreme Court in the case of Sri Tarkeshwar SIO Thakur JIU, Appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come tax reference no 2 of 2001). The Court held that manning, management and operation of drill ships for exploration purpose would fall within the ambit of 'mining or like project' and accordingly fall outside the purview of FTS. 12. As regards the reliance placed by the assessing officer on the Ruling of AAR in the case of P/6 of 1995 (234 ITR 371) it has been submitted that this Ruling is also not applicable on the facts of the present case. In the said ruling, the question before the AAR was on applicability of sec. 44BB as compared to sec. 44D of the Act. This year (A Y 2007-08), Sec. 44D is not in operation. Further. the question before the AAR was as to whether the assessee who was providing consultancy services to ONGC should be taxed u/s 44BB or u/s 44D of the Act. Consultancy Services clearly fall within the definition of 'fee for technical services' as defined in Explanation 2 to section 9(1)(vii). This question does not arise in the present case as the assessee is not providing consultancy services to ONGC under the contracts, as is evident from the Scope of Work as defined in the Contracts with ONGC. On the other hand the assessee is relying on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ical services as defined in Explanation 2 to section 9(1)(vii) of the Act, it can be taxed u/s 44BB only and not under section 115A of the Act. This would be in accordance with Instruction No, 1862 of 1990, which is binding on tax authorities; and (iv) the AO may be directed to tax the receipts from the four contracts with ONGC and a contract with Eni in accordance with the provisions of Section 44BB of the Act. 15 . On the other hand ld CIT(DR) submits that section 44BB(1) starts with non-obstante clause notwithstanding anything to the contrary contained in sections and hence this sub section over-rides sections 28 to 41 43 and 43A, which are normal provisions for computation of business income. It provides presumptive taxation as 10% of receipts without considering expenditures which is deemed to be business income. The AO is not required to examine books of accounts and statutory tax audit report as is evident from the provisions of section 44BB(3) of the Act. The provisions of section 44BB(1) are applicable in case where business of assessee is of providing services or facilities in connection with, or supplying plant and machinery on hire used or to be used, in the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndia and the contract is effectively connected with such PE, then income from FTS will be computed u/s 44DA of the Act. The net effect of sections 44D and 4DA is that if relevant contract is dated before 31.03.2003, then no deduction on account of expenditure or allowance is allowable and FTS is to be taxed on gross basis u/s 115A, but where contract is dated after 31-03-2003, then FTS is taxed on net basis if two conditions are satisfied and tax rate to be applied will be the same as that for foreign corporation. In a case, if two necessary conditions as mentioned in 44DA are not satisfied, then in case of contract dated after 31-03-2003, FTS will be taxed on gross basis as per the provisions of section 115A. Section 115A deals with FTS other than those which fall within purview of section 44DA. This is evident from starting sentence of section 115A(1)(b) which says that where total income of a non-resident (not being a company) or a foreign company includes any income by way of royalty or fee for technical services other than income referred to in sub-section (1) of section 44DA . This means that if FTS falls under purview of section 44DA, then normal tax rates applicable to for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation data. 4. On board processing of seismic trace data for QC. Ld. CIT(DR) on the basis of terms conditions relating to the work to be performed by the assessee contractor submitted that the assessee was required to do 3D seismic survey, process pack the data on CD and hand it over to ONGC. Admittedly, the job assigned to assessee is highly technical. It could only be done by a person having specialized technical knowledge and not by any other person. The assessee has also provided the services of technical personnel. Thus, the services provided by the assessee are technical services within the definition as given in Explanation 2 of section 9(1)(vii). The services being of technical nature, per se has not been disputed by the assessee. 20. As regards the contention of ld. AR of the assessee that proviso becomes unworkable in absence of section 44DA is not correct. Rule of interpretation of statute says that if meaning of a word used is unambiguous, then its natural meaning is to be considered and a proviso being a qualification to a section has to be given its meaning so as to make it workable in harmony with main provision. In proviso to section 44BB(1), t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... FTS. Both computation of FTS and calculation of tax payable are contained in 115A itself. 21. The second contention of ld. Counsel for assessee is that services provided are not FTS because first exception to definition of FTS as contained in Explanation 2 to section 9(1)(vii) operates. In this regard, nature of work done by the assessee has to be considered. Page 78 of paper book II provides definition of 'prospecting'. Page 80 of the same provides definition of 'exploration operations', which specifically contains seismic surveys. Page 79 of the same talks about 'exploring licence', 'prospecting licence' and 'mining lease', which means that for undertaking work of prospecting, exploration or mining, licence/lease is needed. In case under consideration, licence is held by ONGC and it is an admitted fact. It means that owner of the project is ONGC and not the assessee. The ld. Counsel has relied on CBDT's Instruction no. 1862 for the contention that services provided for prospecting or exploration of mineral oil constitute 'mining or like project' as contemplated in first exception to definition of FTS. In para 2 of said inst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g as in earlier situation. This means that these words are irrelevant without any meaning which cannot be regarded as correct interpretation of statute. Since legislature has consciously used this phrase, these words cannot be just ignored and their natural meaning has to be assigned. The assessee has no stakes in the project of prospecting for or exploration of mineral oil. It has no takeaway rights and no other vested interest in the said project. The assessee suffers no risks even if project of prospecting for or exploration for mineral oil does not succeed. The assessee could not demonstrate that the project is owned by it. The job of the assessee is well defined by the contract. Obviously, it cannot be said that the project is undertaken by the assessee even if it is assumed that services provided by the assessee amount to 'mining or like project'. Hence, first exception to definition of FTS as contained in Explanation 2 to section 9(l)(vii) is not available to the assessee. The second exception is also not available as receipts are not taxable under the head salary. Therefore, receipts are in nature of FTS and hence because of proviso to section 44BB(l), provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le Uttarakhand High Court that if services are in nature of FTS, then provisions of section 44BB will not be applicable because of operation of its proviso. Hence this case law also does not help the assessee. Ld. Counsel for assessee has also argued that section 44BB is available to contractors like the assessee and section 42 is available to persons like ONGC. Here, it is relevant to note that section 44BB(1) is subject to its proviso and both have to be read together. 25. In rejoinder, at the outset ld. AR of the assessee has agreed with the ld. CIT (DR) that sub-sec. (3) of sec. 115A provides for computation of income by way of FTS etc. He, therefore, has withdrawn his alternate plea that in the absence of section 44D or sec.44DA computation of income u/s 115A will not be possible. 26. Ld. AR of the assessee submitted that the ld. CIT( DR) has admitted the fact that the assessee's activities under the impugned contracts are without doubt 'in connection with' prospecting for or extraction of mineral oil and fall under the scope of main provision contained in Sec. 44BB(1). Since, admittedly, the assessee is covered by the main provision of sec. 44BB(1), the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in several cases. 28. Ld AR of the assessee has submitted that the scope of operations under the impugned contracts is such that they constitute self contained independent 'project'. He placed reliance on the dictionary meaning of the word 'project' - a planned undertaking (The Law Lexicon); an enterprise carefully planned to achieve a particular aim; a proposed or planned undertaking (Concise Oxford dictionary). He also relies on the decision of Apex court in the case of Union of India v. Indian Charge Chrome and Anr. ( supra ) for the definition of word 'project'. The question as to whether the work undertaken by the contractor constitutes a 'project' must be decided on the basis of the terms, magnitude and the element of planning contained in the contract. Further, the entire project, from inception to terminating in the delivery of the 'deliverables', as envisaged in the subject contracts is undertaken by the assessee at its own risk and it is accountable and responsible for all its actions during the term of the project by the laws of India including Customs, Income Tax, Environment and Labour Laws etc. Hence, the assessee has u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 44BB absolutely infructuous because the so called 'owner' of the project (namely, ONGC, ENI etc.) are covered by S. 42 read with notifications issued u/s 293A of the Act and not by section 44BB of the Act. For instance, the entire payment to the assessee for carrying out stipulated 3D seismic survey would constitute capital expenditure in the hands of ONGC, which will be allowed while computing its income in accordance with the provisions of Section 42 of the Act. This proposition of law is in accordance with the judgment of Hon'ble Uttaranchal High Court in CIT v. Enron Expat Services Inc. 327 ITR 626. 31. Assessee has placed reliance on Instruction No. 1862 issued by CBDT on 22.1 0.1990 which has been applied in several decisions by various judicial forums. The CIT (DR) brushed aside Instruction no . 1862 issued by CBDT on 22.10.1990 by alleging that the said Instruction of the CBDT has been misapplied by the courts. No reason/explanation has been given as to how the said Instruction No. 1862 has been misapplied. The Revenue has been repeatedly trying to distinguish the effect of Notification no. 1862 of 1990 but the AAR has once again rejected the stand of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as business income. However, the contention of the assessee is that since the income is from business, it should be assessed u/s 44BB, which overrides the provisions of section 28 to 43C of the Act. He placed reliance on the decision of Hon'ble Supreme Court in the case of Hyundai Heavy Industries Ltd reported as 291 ITR 482. 34. We have heard both the parties and gone through the material available on records. The assessee during the year under consideration has carried out seismic surveys and has submitted its reports to ONGC and ENI. The amounts received have been offered to tax under section 44BB (1) of the Act. However, the assessing officer has invoked the provisions of section 115A read with section 9(1)(vii) of the Act and assessed the said receipts as Fee for Technical Services. Section 9(1)( vii ) refers to income by way of fees for technical services payable by the Government or a resident company or non-resident company in certain circumstances. The payments for fee for technical services by resident to nonresident fall under section 9(1)(vii)(b) of the Act. The expression 'fee for technical services' is defined in Explanation 2 to section 9(1)(vii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreements with an Indian concern [VSP], one in respect of wire rod mill in which it was the prime contractor and the other in respect of light and medium merchant mill in which it was the confirming party, another party being the main contractor. In the first contract the assessee was given the over-all responsibility with regard to the entire work referred to in the scope whereas in the second contract, the over-all responsibility was to be jointly shared by the assessee and the main contractor. The assessee received various amounts under the contracts for (1) equipment and commissioning spares; (2) design and engineering fees including reimbursement of expenditure and fees for training services; (3) for supply of spares for two years of operation and maintenance. The assessee's claim was that the receipts of design and engineering fees and fees for imparting training abroad was not taxable as receipts for the services rendered abroad formed part of the commercial profit of the assessee; that separate payments were stipulated for supply of machinery and for supply of engineering services relating and incidental to supply of machinery. However, the assessing officer held tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was not construction, assembly, mining or like project undertaken by recipient. The assessing officer held that payment in question was taxable in India in the hands of GTA under article 13(2) of DTAA. On appeal, the ld. CIT (Appeals) confirmed the order of the assessing officer. It was noted by him that technicians came to India to supervise and give advice on re-assembly, erection and commissioning of machineries and they rendered services by their technical skill for which payment was to be made by the assessee. It was thus apparent that payment in question was in consideration of supervisory services rendered. On further appeal, the Tribunal held that the technical fee was for the technical advice in connection with erection and the actual erection was done by others. The payment of fee was only for giving technical advice in connection with the erection and not for undertaking the erection. It was thus held that the payment in question could not be said to be a payment for assembly of machines. Thus, the payment in question could not be said to fall within the exclusionary clause of Explanation 2 to section 9(1)(vii) of the Act. 36.3 In South West Mining Ltd. 278 ITR 233 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n contract was undertaken by KPTL by deploying all required input resources. As per scope of activities, assessee was required to provide design and engineering of various aspects and was also required for preparing welding procedure and was also required to review work procedure for pipeline laying and in addition to that, assessee was required to depute experts for site review and implementation by KPTL. Manner of sharing consideration had been prescribed in ratio of 3 per cent for assessee, 96 per cent of KPTL and balance 1 per cent was reserved for common expenses of consortium. Regarding 1 per cent, it was also agreed that if there was any deficit, it would be made good by KPTL. Assessee had shown income from PDPL project as technical fee (FTS) and offered same for tax at rate of 10 per cent u/s 115A of the Act. Assessing Officer held that income derived from PDPL project was from construction, assembly, mining or like projects and therefore, as per Explanation 2 to section 9(1)(vii), income could not be considered as FTS and taxed same as business income at rate of 40 per cent as against 10 per cent offered by assessee. On appeal Ld CIT(A) upheld the view of the assessing off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 in the case of Rio Tinto Technical Services has held that the use of the word 'project' in the expression is relevant and significant and therefore, the word 'project' in the said expression requires and mandates that there should be construction project, assembly project or a mining project or a like project undertaken by the recipient and the consideration paid should be on the said account. 37. From the above judicial pronouncements it is clear that in order to fall under the exclusionary clause of Explanation (2) to section 9(1)(vii) the assessee should have either undertaken the business of construction, assembly, mining or like project or the income received should be chargeable to tax under the head 'salaries'. According to assessee the mining process means winning of minerals which can be found from the earth surface or from the earth crust. Mining operations are different from collection of seismic data and processing thereof. Therefore, the decisions of Hon'ble Supreme Court relied upon by the assessee in the cases of Gujarat Pottery Works ( supra ) and Sri Tarkeshwar SIO Thakur JIU ( supra ) are of no help. The Legislature has used ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Seismic Data Processing ( c ) Appendix-B : Technical details of equipment ( d ) Appendix-C :General Information of Vessels ( e ) Appendix-D-1 :Price schedule for Data Acquisition Processing ( f ) Appendix-E :Location Maps of survey blocks ( g ) Appendix-F-1 :Proforma for Daily Progress Report (Data Acquisition) ( h ) Appendix-F-2 :Proforma for processing DPR ( i ) Appendix-G :Proforma for acceptance of Production LKM ( j ) Appendix-H :Format for Bathymetry data ( k ) Appendix-J :Format for Meteorological data ( l ) Appendix-K :Format for Deliverables ( m ) Appendix-L :Format for vessel acceptance ( n ) Appendix-M :Format for completion certificate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oject report should also contain the full description of the quality management methods to be employed by the CONTRACTOR to achieve the required quality standard. The CONTRACTOR shall provide personnel onboard having sufficient experience in the acquisition of 3D seismic data. 39.3 Under the head 'A. 2 Work' of Annexure-IV (Appendix-A), the terms of contract require that: The work that the contractor will perform shall comprise of obtaining and recording of: (adhering to the quality specification) 1. 3D CDP seismic reflection data. 2. Navigation positioning data unambiguously tied with seismic and bathymetric data. 3. Bathymetric data along with navigation data. 4. Onboard processing of seismic trace data for QC. 40. From the perusal of above mentioned annexures, terms and conditions of contract, scope of work, work area and work specifications it may be seen that the assessee has collected 3D seismic data, analyzed it, and submitted the report in the diskette to ONGC. The assessee had also provided services of its personnel. Since the assessee is engaged in collection of 3D seismic data and processing thereof, the activi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of section 44DA is excluded from section 115A. Secondly the instruction is silent about the expression undertaken by the recipient . Therefore, in our considered opinion the instruction cannot be applied to take out a case from ambit of section 115A and put the same in section 44BB(1). Since the statutory provisions as discussed above are clear, CBDT instruction No 1862 is of no help to the assessee. Therefore, the activities undertaken by the assessee of seismic survey, processing of 3D seismic data and submission of its report in desired media as also providing services of personnel will clearly fall under the definition of 'fee for technical services' covered in first limb of Explanation 2 to section 9(1)( vii ) of the Act. 42. Now question arises as to whether the technical services provided by the assessee can be said to be rendered in connection with the prospecting for, or extraction or production of, mineral oils covered by provisions of section 44BB(1) of the Act. Section 44BB (1) as relevant to assessment year under consideration is reproduced as under: 44BB. (1) Notwithstanding anything to the contrary contained in sections 28 to 41 and sections 43 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. Further the dictionary meaning of word 'prospecting' appearing in section 44BB(1) means 'searching for minerals/oars'. In view of decisions of ITAT referred to above it is held that the technical services rendered by the assessee are in connection with the prospecting for, or extraction or production of mineral oils. 43. Now next question arises as to whether the consideration received for fee for technical services rendered by the assessee is assessable u/s 44BB(1) of the Act or u/s 115A of the act? The legislature has employed word 'services' in section 44BB (1) of the Act. The word 'services' will include both technical and non-technical services. Proviso to section 44BB(1) carves out an exception according to which the provisions of this sub-section shall not apply in a case where the provisions of section 42 or section 44D or section 115A or section 293A are applicable for the purposes of computing profits or gains or any other income referred to in those sections. We also find that in proviso to section 44BB(1) for the relevant assessment year each of the sections 42, 44D, 115A and 293A are separated by word or . The word or is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on providing discretion to the Corporation to offer an alternative job to the retrenched driver. This offer is to be made after the exercise of power under the first branch of regulation 17(3). There is, therefore, no doubt that the second branch of regulation 17(3) is a substantial provision and not in the nature of a proviso to the first branch thereof. Examining the contents of proviso to section 44BB (1) in the light of above legal propositions, we are of the view that the proviso to section 44BB(1) can neither be ignored nor can be construed as an independent provision. If it is ignored, the consideration in respect of services both technical as well as non-technical will be covered by section 44BB (1) making provisions of sections 42/115A/293A redundant for the year under consideration and also section 44DA w. e. f. assessment year 2011-12. The proviso cannot also stand on its own as it convey no meaning independent of section 44BB(1) and hence it cannot be construed as an independent provision. In view of above legal position we reject the contention of the ld AR of the assessee that the moment the case falls u/s 44BB (1), its proviso should be ignored. The contention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manent establishment to its head office or to any of its other offices. ** ** ** 115A(1) Where the total income of- ( a )** ** ** (b) a non-resident (not being a company) or a foreign company, includes any income by way of royalty or fees for technical services other than income referred to in sub-section (1) of section 44DA received from Government or an Indian concern in pursuance of an agreement made by the foreign company with Government or the Indian concern after the 31st day of March, 1976, and where such agreement is with an Indian concern, the agreement is approved by the Central Government or where it relates to a matter included in the industrial policy, for the time being in force, of the Government of India, the agreement is in accordance with that policy, then, subject to the provisions of sub-sections (1A) and (2), the income-tax payable shall be the aggregate of- (A) the amount of income-tax calculated on the income by way of royalty, if any, included in the total income, at the rate of thirty per cent if such r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... than income referred to in sub-section (1) of section 44DA for words a foreign company, includes any income by way of royalty or fees for technical services . Therefore, w.e.f. 1.4.2004 fee for technical services which is not connected with permanent establishment of business or fixed place of profession in India, will be taxable u/s 115A(1)( b ) of the Act. As observed earlier section 44DA was inserted in proviso to section 44BB (1) by the Finance Act, 2010 with effect from 1.4.2011 and simultaneously inserted second proviso to section 44DA applicable from assessment year 2011-12 according to which provisions of section 44BB (1) will not be applicable in respect of income referred to this section. On combined reading of proviso to section 44BB (1) and second proviso to section 44DA it is clear that the fee for technical services rendered in connection with prospecting for or extraction or production of mineral oil though effectively connected with PE or fixed place of profession will fall not under section 44BB(1) and will be assessable under section 44DA of the Act. To make it more clear the fee for technical services can be divided in following categories: (i) Fee for tec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s' on gross basis at prescribed rates. The only case where provisions of section 115A of the Act would not apply is a situation where the provisions of section 44DA of the Act are applicable. Section 44DA of the Act is applicable only in a situation where the foreign enterprise carries out business in India through a Permanent Establishment. Accordingly, the only situation where 'fees for technical services' can be taxed at net basis is where the non-resident assessee has a permanent establishment in India and such fees for technical services is effectively connected with such permanent establishment. In no other circumstances can 'fees for technical services' be taxed on net basis. 47.2 The assessee's case does not fall in the exclusion to the definition of 'fees for technical services' for detailed reasons discussed in the order separately. Once it is certain that the payment received by the assessee was 'fees for technical services', the only situation in which such receipts can be taxed on net basis is where the assessee has a permanent establishment in India and such receipts are effectively connected with such permanent establishme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on identical facts has held that if the non-resident was engaged in the business of providing services in connection with the prospecting, etc., of mineral oils, the computation provision relating to fee for technical services in section 44DA had to yield to section 44BB. If the business was of specific nature envisages by section 44BB, the computation provisions therein would prevail over those in section 44DA. In this case the Authority for Advance Ruling has not discussed the effect of the proviso to section 44BB(1) under which if the income is assessable under section 42 or section 44-D or section 44DA, section 115A or section 293A, the provisions of section 44BB(1) will not be applicable. Since the Authority for Advance Ruling in the case of Geofizyca Torun (supra) had not considered the effect of proviso to section 44BB(1) the reliance placed by the assessee on this decision is of no help. Similar is the case with reference to the other decisions for Authority for Advance Ruling as they have not considered the proviso to section 44BB (1). We, therefore, are in agreement with the arguments advanced by the ld. CIT(DR) that decision of Geofizyca Torun (supra) is not applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Supreme Court it is clear that mistake committed earlier by the assessing officer in applying the correct law cannot be allowed to be perpetuated. Hence, this contention of the assessee is dismissed. 50. The next contention of the assessee is that the provisions of section 44BB (1) are special provisions and provisions of section 115A are general and hence the former will yield to the latter. Section 44BB (1) is a presumptive taxation provision under which 10% of the receipts will be treated as income. However, w. e. f. 1.4. 2004, the Finance Act, 2003 inserted sub-section (3) in section 44BB (1) under which a non resident assessee can opt for assessment under normal provisions of law for which he has to maintain regular books of accounts as provided in section 44AA(2) and get them audited under section 44AB of the Act. Therefore, after insertion of sub- section (3) in section 44BB (1) the presumptive taxation provision, in our considered opinion, cannot be treated as special provision. Even prior to insertion of sub section (3) in the presence of proviso section 44BB cannot also be said to be a special provision having overriding effect on section 115A of the Act. The pre ..... X X X X Extracts X X X X X X X X Extracts X X X X
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