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TMI Blog2018 (12) TMI 1069X X X X Extracts X X X X X X X X Extracts X X X X ..... 011-12 and subsequent years. As in the case of DIT vs. OHM Ltd.[2012 (12) TMI 422 - DELHI HIGH COURT] held that income received from services rendered in connection with providing services in relation to extraction and production of mineral oil should be taxable under section 44BB as opposed to section 44DA of the Act and the amendment to the aforesaid sections by the Finance Act, 2010 could not have the effect of altering or effacing the fundamental nature of both the provisions or their respective spheres of operation, so to take away the separate identity of Section 44BB of the Act Whether section 44BB is not applicable to second level contractors - Held that:- A plain reading of section 44BB of the Act envisages a non-resident service provider not merely engaged in the business of providing services or facilities in connection with prospecting, extraction or production of mineral oils but providing such services / facilities to a person / entity engaged in such activities. The said section does not distinguish between the main contractor or a sub-contractor. If the intention of the Legislature was to restrict the benefit of section 44BB of the Act to the main contractor o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n'ble DRP has erred in holding that the revenues earned by the assessee on account of provision services to a nonresident company were in connection with prospecting etc of mineral oil and hence eligible for treatment u/s 44BB of the Act, without adjudicating the aspect of eligibility in terms of second limb of the exclusionary proviso ( Explanation to section 9(l)(vii) of the I T Act, 1961) i.e. for a project undertaken by the recipient in terms of the proposition confirmed by Hon'ble Delhi High Court in DIT V Rio Tinto Technical Services [2012-TII-01-HC- DEL-INTL]. 4. Whether on the facts and circumstances of the case, the Hon'ble DRP has erred in holding that the case of the assessee is covered by CBDT's Instruction No. 1862 dated 22.11.1990, not appreciating the fact that the said Instruction No. 1862 was not issued u/s 44BB but was issued to clarify the expression mining or like project in Expn 2 below section 9(l)(vii)(b) of the Act and the second limb of the exception ( for a project undertaken by the recipient ) was not the subject matter of the said Instruction. 5. Whether on the facts and in the circumstances of the case, the Hon'ble DR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not appreciating the fact that both set of provisions are special in nature which operate in their own clearly defined spheres and therefore, once a particular receipt or income takes on the character of FTS as defined in section 9(1(vii), it cannot be considered for treatment u/s 44BB of the Act. 11. Whether on the facts and circumstances of the case, the Hon'ble DRP has erred in holding that sections 44DA and section 115A apply only to cases where the income by way of Royalty or FTS is earned by a non-resident by way of royalty or FTS from Government or an Indian entity and where an income is received by a non-resident from another non-resident, the provisions of section 44DA/115A do not apply. 12. Whether on the facts and circumstances of the case, the Hon'ble DRP has erred in not appreciating that proviso to section 44BB is not inserted per majorem cautelam' but explains and clarifies the main provision as the terms services or facilities used therein are not defined and the two terms used are too general in nature and thus once the payments take the character of FTS u/s 9(l)(vii), they go outside the purview of section 44BB and have to be taxed as FTS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 5,80,12,971/-) under the provisions of section 44BB of the Act viz. presumptive basis, since the activities performed were in connection with prospecting for, extraction and production of mineral oil . The assessee has, accordingly, computed its income tax liability under the Act and filed its return of income on presumptive basis determining its taxable income at 10 percent of in-country and out-country receipts under section 44BB of the Act. 7. During the course of assessment proceedings under section 143(3) of the Act, the AO while disregarding the applicability of section 44BB of the Act proposed to tax the entire receipts earned by the assessee as business profits under Article 7 of the India-UK DTAA. Further, the AO applied Rule of the Income-tax Rules, 1962 to assess the profits of the assessee @ 25% of the gross receipts earned by the assessee and passed the draft assessment order dated 30.03.2013 computed income of the assessee at ₹ 54,21,86,560/- against returned income of ₹ 21,68,74,624/-. 8. The assessee raised objections before the DRP and the DRP, vide directions dated 23.12.2013 framed order u/s 144C(5) of the Act, deleted the proposed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applicability of Section 44BB was accepted by the AO for A.Y. 2009- 10. Consequently, the AO passed final assessment order dated 02.01.2014, under section 143(3) r.w.s. 144C( 1) of the Act and accepted the returned income filed by the assessee. 9. The bone of contention is taxability of the contract receipts u/s 44BB of the Act which reads as under: Section 44BB ( I) 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/or, 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 44 D or section 115A or section 293A apply for the purposes of computing profits or gains or any other inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceived in connection with prospecting for, or extraction or production of mineral oil would be taxed on presumptive basis as per section 44BB of the Act, considering that the scope of the said section is very wide and would cover all kinds of services including services in the nature-of managerial, technical or consultancy. * The AAR in the case of Lloyd Helicopters International Pty Ltd [2001] 249 ITR 162 has held that provision of helicopter services for transporting men to the area where exploration activities are undertaken would be categorized under section 44BB of the Act, thus giving a wide interpretation to the scope of the said section. * A similar ruling was given by the AAR in the case of Seabird Exploration FZLLC [2010] 320 ITR 286 wherein the AAR relying upon its own decision in the case of Geofizyka (supra) held that consideration received on seismic data acquisition and onboard processing would be subject to tax as per the provisions of section 44BB of the Act. * Also, the AAR in the case of Wavefield Inseis Asa |2009|320 ITR 290, relying upon its own decision in the case of Geoilzyka (supra) held that consideration received from provision of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e taxable 1 44BB of the Act. 13. The Revenue insists that the provisions of section 44DA r.w.s. 9(1)(vii) of the Act squarely apply on the facts of the case in hand. Section 44DA of the Act as introduced by the Finance Act, 2003, w.e.f. 1.04.2004 reads as under: 44 DA. (I) 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 a non-resident (not being a company) or a foreign company with Government or the Indian concern after the 31 si day of March, 2003, where such non-resident (not being a company) or a foreign company carries oh business in India through a permanent establishment situated therein, or performs professional services from a fixed place of profession situated therein, and the right, property or contract in respect of which the royalties or fees for technical services are paid is effectively connected with such permanent establishment or fixed place of profession, as the case may be, shall be computed under the head Profits and gains of business or profession in accordance with the provisions of this Act Section 44DA of the Act provides that where income by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 961 and not under the special provisions for the taxation of fees for technical services contained in Section 115A read with Section 44D Income-tax Act, 1961. (emphasis supplied). Accordingly, such services would be outside the purview of fees for technical services under section 9(I)(vii) of the Act. 14. The Supreme Court in the case of Oil and Natural Gas Corporation Limited vs. CIT 376 ITR 306 held as under: 13. The Income Tax Act does not define the expressions mines or minerals . The said expressions are found defined and explained in the Mines Act, 1952 and the Oil Fields (Development and Regulation) Act 1948. While construing the somewhat pari materia expressions appearing in the Mines and Minerals (Development and Regulation) Act 1957 regard must be had to the provisions of Entries 53 and 54 of List I and Entry 22 of List 11 of the 7th Schedule to the Constitution to understand the exclusion of mineral oils from the definition of minerals in Section 3(a) of the 1957 Ad, Regard must also be had to the fad that mineral oils is separately defined in Section 3(b) of the 1957 Act to include natural gas and petroleum in respect of which Parliament has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subsequent years. Memorandum explaining the provisions of Finance Bill, 2010 also makes it clear that these amendments assessment order proposed to take effect from 01.04.2011 and will, accordingly, apply to the assessment year 2011-12 and subsequent years. 16. The Hon'ble Delhi High Court in the case of DIT vs. OHM Ltd. 352 ITR 406 held that income received from services rendered in connection with providing services in relation to extraction and production of mineral oil should be taxable under section 44BB as opposed to section 44DA of the Act and the amendment to the aforesaid sections by the Finance Act, 2010 could not have the effect of altering or effacing the fundamental nature of both the provisions or their respective spheres of operation, so to take away the separate identity of Section 44BB of the Act. Relevant extracts of the said decision are as under: 11 - We do not think that there is any error in the view taken by AAR. Basically the rule that the specific provision excludes the general provision has been applied. Section 44BB is a special provision for computing the profits and gains of a non-resident in connection with the business of providing servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . If as contended by the Revenue, Section 44DA covers all types of services rendered by the non-resident, that would reduce section 44BB to a useless lumber or dead letter and such a result would be opposed to the very essence of the rule of harmonious construction In South India Corporation (P.) Ltd v. Secretary. Board of Revenue Trivandrum, AIR 1964 SC 207 it was held that a familiar approach in such cases is to find out which of the two apparently conflicting provisions is more general and which is more specific and to construe the more general one as to exclude the more specific. 12. The second proviso to sub-section (I) of Section 44DA inserted by the Finance Act, 2010 w.e.f. 01.04.2011 makes the position clear. Simultaneously a reference to Section 44DA was inserted in the proviso to sub-section (I) of section 44BB. It should be remembered that section 44DA also requires that the non-resident or the foreign company should carry on business in India through a permanent establishment situated therein and the right, property or contract in respect of which the royalty or fees for technical services is paid should be effectively connected with the permanent establishmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovisions 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 Revenue's contention in the present case, mil forward by the learned Senior Standing Counsel. We, therefore, agree with the AAR 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. (emphasis supplied). 17. The second contention of the Revenue is that section 44BB of the Act is not applicable to second level contractors. 18. A plain reading of section 44BB of the Act envisages a non-resident service provider not merely engaged in the business of providing services or facilities in connection with prospecting, extraction or production of mineral oils but providing such services / facilities to a person / entity engaged in such activities. The said section does not distinguish between the main contractor or a sub-contractor. If the intention of the Legislature was to restrict the benefit of section 44BB of the Act to the main contractor only, then, the words after the assessee engaged in the business of providing services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s clear so also the Legislative intention. It is a trite law that has already held by the Hon'ble Supreme Court in B. Parmannand v.Mohan Koikal [2011] 4 SCC 266 that the language employed in a statute is the determinative factor of the Legislative intend. It is well settled principle of law that the Court cannot read anything into a statutory vision which is plan and unambiguous . If the legislatures intention as contended by the Revenue was to restrict the benefit of sec. 44BB only to the main contractor or ONGC, then the words after 'the assessee engaged in the business of supplying plant and machinery on hire' or 'providing services or facilities' ought to e been omitted. Hence, where the provision does not create any discrimination between the person who actually does the activity of prospecting for or extraction or production, and the person who supplies the plants and machinery, the narrow interpretation of the provision is thus not permitted. The basic condition to satisfied in the said provision is that the plant or machinery supplied or lented on hire by the assessee, non-resident should be used in the prospecting for or extraction or production of min ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. Ltd reported in 291 ITR 482 [SC]. So far as the allegation of the ld. DIT that the A.O has not gone through the contract is concerned, we find the assessee has filed details including the copy of the contract before the A.O who, after analyzing the same has accepted the returned income. 61. We find the A.O in the instant case, after going through the various details filed by the assessee has taken a possible view. It has been held in various decisions that where the A.O has taken a possible view, the assessment order cannot be held as erroneous and prejudicial to the interest of revenue. We find the Hon'ble Delhi High Court in the case of CIT Vs Sunbeam Auto reported in 332 ITR 167 has held as held as under: 12. We have considered the rival submissions of the counsel on the other side and have gone through the records. The first issue that arises for our consideration is about the exercise of power by the CIT under s. 263 of the IT Act. As noted above, the submission of learned counsel for the Revenue was that while passing the assessment order, the AO did not consider this aspect specifically whether the expenditure in question was revenue or capital expendit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... must induces repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity. [see Parashuram Pottery Works Co. Ltd. vs. ITO 1977 CTR (SC) 32 : (1977) 106 ITR 1 (SC) at p. 10]. ............... From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an ITO acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the CIT simply because, according to him, the order should have been written more elaborately This section does not visualise a case of substitution of the judgment of the CIT for that of the ITO, who passed the order unless the decision is held to be erroneous. Cases may be visualised where the ITO while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The CIT, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the CIT he would have estimated the income at a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the matching effect, the cost of the dyes has been claimed as a revenue expenditure. 14. This clearly shows that the AO had undertaken the exercise of examining as to whether the expenditure incurred by the assessee in the replacement of dyes and tools is to be treated as revenue expenditure or not. It appears that since the AO was satisfied with the aforesaid explanation, he accepted the same. The CIT in his impugned order even accepts this in the following words : AO accepted the explanation without raising any further questions, and as stated earlier, completed the assessment at the returned income. 15. Thus, even the CIT conceded the position that the AO made the inquiries, elicited replies and thereafter passed the assessment order. The grievance of the CIT was that the AO should have made further inquiries rather than accepting the explanation. Therefore, it cannot be said that it is a case of 'lack of inquiry'. 16. Having put the records straight on this aspect, let us proceed further. Is it a case where the CIT has concluded that the opinion of the AO was clearly erroneous and not warranted on the facts before him and, viz., the expenditure in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such order thereon as the circumstances of the case justify. The twin requirements of the section are manifestly for a purpose. Merely because the CIT considers on examination of the record that the order has been erroneously passed so as to prejudice the interest of the Revenue will not suffice. The assessee must be called, his explanation sought for and examined by the CIT and thereafter if the CIT still feels that the order is erroneous and prejudicial to the interest of the Revenue, the CIT may pass revisional orders. If, on the other hand, the CIT is satisfied, after hearing the assessee, that the orders are not erroneous and prejudicial to the interest of the Revenue, he may choose not to exercise his power of revision. This is for the reason that if a query is raised during the course of scrutiny by the AO, which was answered to the satisfaction of the AO, but neither the query nor the answer were reflected in the assessment order, this would not by itself lead to the conclusion that the order of the AO called for interference and revision. In the instant case, for example, the CIT has observed in the order passed by him that the assessee has not filed certain documents on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt of 90% of the assessed tax. As per provisions of section 208 r.w.s 209(1) of the Act, advance tax payable has to be computed after reducing from the estimated tax liability the amount of tax deductible/ collectible at source on income which is included in computing the estimated tax liability. Such balance tax liability is the advance tax payable under section 208 of the Act. 26. The Hon'ble Delhi High Court in the case of DIT v. GE Packaged Power Inc.: 373 1TR 65, held that no interest under section 234B of the Act can be levied on the assessee-payee on the ground of non-payment of advance tax because the obligation was upon the payer to deduct the tax at source before making remittances to them. The relevant extracts of the decision are reproduced hereunder: 22. This Court, therefore, holds that Jacobs (supra) applies in such situations; Alcatel Lucent (supra) can be explained as a decision turning upon its facts; its seemingly wide observations, limited to the circumstances of the case. This Court, therefore, holds that the view taken by ITAT was correct; the primary liability of deducting tax (for the period concerned, since the law has undergone a change a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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