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TMI Blog2012 (8) TMI 161X X X X Extracts X X X X X X X X Extracts X X X X ..... erson can at best be said to render technical services or services 'in connection with' the mining activity undertaken by the original contractor - the revenues earned by the applicant are not taxable in accordance with section 44BB and are taxable only as fees for technical services. Taxes on payments made by Essar Oil Limited under the sub-contract in question to be withheld under section 195 would be at 10.56% of the amount to be paid. - AAR NO. 1119 OF 2011 - - - Dated:- 31-7-2012 - JUSTICE P.K. BALASUBRAMANYAN, J. RULING Essar Oil Limited and Essar Engineering Holdings Limited were awarded a contract by the Government of India for exploration of block AA-ONN-2004/3 under the New exploration licensing policy VII. The award of the block to the Consortium is governed by the production sharing contract between the Government of India and the Consortium members. 2. The applicant is a company incorporated under the laws of Austria and claims to be a tax resident of Austria. It is engaged in the business of acquisition and processing of 2D/3D Seismic Data for companies engaged in the exploration and production of mineral oil in various countries. Seismic data acquisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the meaning of Article 5 of DTAA, whether the profits of the applicant taxable in India can exceed the extent of profit attributable to the Permanent Establishment as provided under Article 7(1) of DTAA? iii. Whether revenues earned by the applicant under the seismic data acquisition and processing contracts with Essar Oil Limited in India are taxable in accordance with Section 44BB of the Income-tax Act, 1961? iv. How much TDS percentage should be applied for deducting the TAS by the Essar Oil Limited while crediting/releasing the payment to the applicant? 4. According to the applicant, the activity undertaken by it is a mining activity and though the services rendered by it are technical services, the fees received by it for rendering such technical services under the contract, was exempt from the definition of fees for technical services by virtue of Explanation 2 to section 9(1)( vii ) of the Act to the effect that fees for technical services does not include consideration for any construction, assembly, mining or like project undertaken by the recipient. Since the consideration received was not fees for technical services, section 44BB of the Act applied to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the hearing, it was fairly pointed out that under paragraph 3 of Article 5 of the DTAC, the applicant shall be deemed to have a PE in India and to carry on business through that PE if it provided services and facilities in connection with prospecting or extraction or exploration of mineral oil in India. One has, therefore, only to rule on this question by stating that the applicant has a PE in India or will be deemed to have a PE in India. 6. Similarly, though the applicant had raised question No. 2 as to whether the profits of the applicant taxable in India can exceed the extent of the profits attributable to the PE as provided under paragraph 1 of Article 7 of the DTAC, the applicant conceded at the hearing that the activities of the applicant are by its PE or deemed PE and consequently, the whole of the income arising out of the contract will be attributable to that PE. In view of this, this question really does not call for a ruling. 7. The controversy centered around the applicability of section 44BB(1) of the Act to the applicant. It was submitted on behalf of the applicant by relying on the ruling of this Authority in Geofizyka Torun Sp.zo.o [AAR No. 813 of 2009], th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave no application. He also cited a decision of the Delhi High Court in DIT v. Reotonto Chemical Services in support of his contention. He also referred to certain decisions of Tribunals in support of his contention. 9. In answer, it was submitted on behalf of the applicant that the applicant had to bore wholes, place explosives, explode them, and keep the data recorded and it cannot be said that the applicant had not undertaken a mining project. There was, therefore, no merit in the contention that the exception contained in Explanation 2 to section 9(1)(vii) of the Act would not apply to the applicant. 10. A reading of the proviso to section 44BB(1) of the Act would show that the Parliament wanted to exclude certain income from within the purview of section 44BB(1) of the Act, which was enacted as a special provision for dealing with consideration received in connection with mining activities generally. Fees for technical services in respect of a non-resident has been specifically dealt with in section 44DA and section 115A of the Act. The proviso to section 44BB(1) originally had excluded only section 44D and section 115A from within the purview of the section 44BB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exception under the Explanation 2 is one who has undertaken a mining or like project. The recipient in section 44BB(1) is a person who is engaged in the business of providing services or facilities in connection with prospecting, extracting or production of mineral oils. In other words, whereas the exception contained in Explanation 2 to section 9(1)( vii ) is confined to the person who has undertaken a mining or like project, Section 44BB(1) takes within its sweep even those who are engaged in activities in connection with mining activities. The expansive nature of section 44BB(1) has been recognized in the ruling in Geofizyka by this Authority. But, there was no occasion in Geofizyka to consider the scope of the exception contained in section 9(1)(vii), Explanation 2 . When the claim of a person like the applicant who is engaged by the person who has undertaken a mining project, to render certain technical services in connection with that mining project, is considered, on the wording of the exception in Explanation 2 to section 9(1)( vii ) of the Act, it cannot be said that the consideration received by such a person would not be 'fees for technical services' within the m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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