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TMI Blog2016 (3) TMI 421X X X X Extracts X X X X X X X X Extracts X X X X ..... s of India. Hence, the entire contract amount is to be considered for the purpose of calculating the gross receipts and all receipts received against the execution of the contract would come under the purview of gross receipts. Thus, gross amounts for the months of November 2007, December 2007 and January 2008 are to be included in the gross receipts. We accordingly uphold the action of the Assessing Officer and the Ld. CIT (A) on this issue and decline to interfere. - Decided against assessee Revenues earned - taxed as Fees for Technical Services (FTS) or under the provisions of section 44BB - Siem Offshore Inc had leased a vessel under a time charter agreement to Electromagnetic Geo Services AS ('EMGS') to assist EMGS in its exploration of seabed and subsoil (EMGS has entered into a contract with Oil and Natural Gas Corporation Ltd) - Held that:- Specific services are contemplated only under section 44BB and, therefore that being special provision, the same will prevail over all other provisions dealing with royalty/FTS. In no other section dealing with royalty/FTS, specific services are provided. In this regard, one may also refer to section 293A of the Act which empowers the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 8,00,29,650/- on account of crew provision services. The Assessing Officer noticed that the assessee had not offered all the revenues earned by it from the contract for providing of crew to income-tax on the ground that the revenues earned by it beyond 200 nautical miles from the Indian shorelines was not taxable in India and hence the revenue earned for the period during which the vessel was not in India was not taxable. The Assessing Officer was of the opinion that as the contract for providing of crew was a continuing contract, the income could not be segregated and claimed as nontaxable for the period the vessel was not in India. The Assessing Officer was also of the opinion that under the scheme of section 44BB, the receipts are to be taxed on the basis of gross receipts. Secondly, the Assessing Officer was of the view that the assessee was only providing management services and as such, the same was covered within the definition of fees for technical services as envisaged in section 9(1)(vii) of the Income Tax Act, 1961. He also referred the matter to the Transfer Pricing Officer for determination of Arms Length Price (ALP) in this respect and the TPO suggested an adjustm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further submitted that in the present case the assessee has provided crew to operate the vessel and for management of the vessel owned by Siem Offshore Inc. He elaborated that Siem Offshore Inc. has given vessels on time charter basis to EMGS. The Ld. AR averred that since the vessel was physically outside India in November 2007 (26 days), December 2007 (31 days) and January 2008 (15 days), the business activities were outside India, the services were utilized outside India and the source of income was also outside India. Therefore the revenues received by the assessee for this period did not accrue or arise in India and hence was not taxable in India. The Ld. AR also relied on the decision of Mumbai Bench of the Tribunal in case of ACIT v Jindal Drilling Leasing and submitted that it has been held that mobilization charges received by the foreign company would be taxable in India only to the extent the same relates to the distance travelled by the equipment within the Indian territorial waters (i.e. 200 nautical miles from the appropriate base line) and consequently mobilization charges received towards travel of equipments beyond such territorial waters will not be taxable in In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia. Based on the Attorney General s opinion, the CBDT issued Instruction No 1862 which read as follows: The question whether prospecting for, or extraction or production of mineral oil can be termed as mining operations, was referred to the Attorney General of India for his opinion. The Attorney General has opined that such operations are mining operations and the expressions mining project or like project occurring in Explanation 2 to Section 9(l)(vii) of the Income-tax Act would cover rendering of services like imparting of training and carrying out drilling operations for exploration or exploitation of Oil And Natural Gas. In view of the above opinion, the consideration for such services will not be treated as fees for technical services for the purpose of Explanation 2 to Section 9(l)(vii) of the Income-tax Act, 1961. Payments for such services to a foreign company, therefore, will be income chargeable to tax under the provisions of Section 44BB of the Income-tax Act, 1961 and not under the special provisions for the taxation of fees for technical services contained in Section 115A read with Section 44D of the Income-tax Act, 1961. 8. Concluding his ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ., (44D) or in the cases of non-residents and foreign companies receiving fee for technical services (Section 115 A) and persons covered by the notification issued by the Central Government (Section 293A). He further submitted that Proviso would be rendered useless if we are to hold that Section deals with all sorts of services be it of general nature, as a class in itself as well services of technical, consultancy or managerial nature which form a distinct and separate species of services. The Ld. DR further submitted that the phrase In connection with used in section 44BB only broadens the scope of the section to cover services which are not of technical nature and enacts a special provision for determination of tax liability of persons engaged in providing such services which would be outside the scope of technical services. The Ld. DR also submitted that Instruction No. 1862 dated 22-10-1990 dealing with the interpretation of the term Mining or like project , has been issued in an entirely different context as can be seen from the statement of the case referred for the opinion of learned Attorney General and the opinion of Learned AG. He, accordingly, pleaded for upholding t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alty and technical fees in case of foreign company. 13. By Finance Act, 2001 w.e.f. 1-4-2002, in Explanation 2, dealing with definition of 'royalty, clause (iv-a) was inserted in Section 9(l)(vi), which reads (iva) the use or right to use any industrial, commercial or scientific equipment but not including the amounts referred to in section 44BB. (iv-a) The use or right to use, any industrial, commercial or scientific equipment but not including the amounts referred to in section 44B . Thus, the use or right to use any industrial, commercial or scientific equipment was coming within the ambit of the term 'royalty' taxable u/s 9(l)(vi). However, if the same was with reference to the amounts, referred to in section 44BB, then the same was excluded from section 9(l)(vi). 14. In section 9(l)(vii), dealing with FTS, Explanation 2 was inserted by the Finance No. 2, Act 1977 w.e.f. 1-4-1977, which defines FTS as Explanation (2) - For the purposes of this clause, fees for technical services means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of tech ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rawing or specification relating to any patent, invention, model, design, secret formula or process or trade mark or similar property; (b) no deduction in respect of any expenditure or allowance shall be allowed under any of the said sections in computing the income by way of royalty or fees for technical services received [from Government or an Indian concern in pursuance of an agreement made by the foreign company with Government or with the Indian concern] after the 31st day of March, 1976 [but before the 1st day of April, 2003]; (c)[***] (d)[***] Explanation.-For the purposes of this section,- (a) fees for technical services shall have the same meaning as in [Explanation 2] to clause (vii) of sub-section (1) of section 9; (b) foreign company shall have the same meaning as in section 80B; (c) royalty shall have the same meaning as in [Explanation 2] to clause (vi) of sub-section (1) of section 9; (d) royalty received [from Government or an Indian concern in pursuance of an agreement made by a foreign company with Government or with the Indian concern] after the 31st day of March, 1976, shall be deemed to have been recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not wholly and exclusively incurred for the business of such permanent establishment or fixed place of profession in India; or (ii) in respect of amounts, if any, paid (otherwise than towards reimbursement of actual expenses) by the permanent establishment to its head office or to any of its other offices. (2) Every non-resident (not being a company) or a foreign company shall keep and maintain books of account and other documents in accordance with the provisions contained in section 44AA and get his accounts audited by an accountant as defined in the Explanation below sub-section (2) of section 288 and furnish along with the return of income, the report of such audit in the prescribed form duly signed and verified by such accountant. Explanation.-For the purposes of this section,- (a) fees for technical services shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9; (b) royalty shall have the same meaning as in Explanation 2 to clause (vi) of sub-section (1) of section 9; (C) permanent establishment shall have the same meaning as in clause (iiia) of section 92 F. ] 20. Therefore, it follows t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of an agreement made after the 31st day of May, 1997; and (C) the amount of income-tax with which it would have been chargeable had its total income been reduced by the amount of income by way of royalty and fees for technical services. Explanation.-For the purposes of this section,- (a) fees for technical services shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9 ; (c) royalty shall have the same meaning as in Explanation 2 to clause (vi) of sub-section (1) of section 9 ; (3) No deduction in respect of any expenditure or allowance shall be allowed to the assessee under sections 28 to 44C and section 57 in computing his or its income referred to in sub-section (1). 22. Noticeable features of section 115A are that Section 115A (b) w.e.f. 1-4-04 covers the cases of royalty/ FTS other than referred to in section 44DA (1). The rate of tax is as under: (i) 30% if in pursuance to agreement made after 31/3/76 to 31/5/97; (ii) 20% if in pursuance to agreement made between 1-6-97 to 31/5/2005; (iii) 10% if in pursuance to agreement made on 1-6-2005 or thereafter. No deduction is allowable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsection (3) of section 143 and determine the sum payable by, or refundable to, the assessee. Explanation.-For the purposes of this section,- (i) plant includes ships, aircraft, vehicles, drilling units, scientific apparatus and equipment, used for the purposes of the said business; (ii) mineral oil includes petroleum and natural gas. 24. It is seen that the basic ingredients of this section are that the non-resident assessee should be engaged in the business of providing services or facilities in connection with the prospecting or extraction or production of mineral oils. Non-resident assessee should be engaged in the business of supply plant and machinery on hire used or to be used, in prospecting for or extraction or production of mineral oils. The amount being 10% of gross receipts would be assessable as business income. However, a proviso was also inserted which, inter alia, excluded the royalty or FTS contemplated u/s 44D or section 115A. Section 44DA was inserted by Finance Act 2010 w.e.f. 1-4- 2011. From the combined reading of these sections it is evident that all the sections relating to royalty/FTS operate in different fields and that is the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come Tax Act or will such payments be taxable on a presumptive basis under section 44BB of the Act? 26. The Hon ble Apex Court has answered the question as under, Viewed thus, it is the proximity of the works contemplated under an agreement, executed with a non-resident assessee or a foreign company, with mining activity or mining operations that would be crucial for the determination of the question whether the payments made under such an agreement to the non-resident assessee or the foreign company is to be assessed under section 44BB or section 44D of the Act. The test of pith and substance of the agreement commends to us as reasonable for acceptance. Equally important is the fact that the CBDT had accepted the said test and had in fact issued a circular as far as 22.10.1990 to the effect that mining operations and the expressions mining projects or like projects occurring in Explanation 2 to section 9(1) of the Act would cover rendering of service like imparting of training and carrying out drilling operations for exploration of and extraction of oil and natural gas and hence payments made under such agreement to a non-resident/foreign company would be chargeable to ta ..... X X X X Extracts X X X X X X X X Extracts X X X X
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