9911796707
TMI Blog2009 (12) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... in Goel, Mr. Taranpreet Singh, Mr. Hitesh Jain, Mr. Lalit Mohan, Mr.Sanjay Aggarwal. Present for the Department - Mr. Girish Dave, Mr. Virendra Singh, Mr. S.M.J. Abidi. R U L I N G The applicant is a Company incorporated in Poland and a 'tax resident' of Poland. The applicant provides geophysical services to international oil and gas industry. The applicant conducts seismic surveys and provides on-shore seismic data acquisition and other associated services such as processing and interpretation of such data to global and oil companies. Seismic data acquisition has been explained to mean acquisition of data/information relating to earth structure in order to identify the existence of hydrocarbons underneath. Such services are aimed at increasing the exploration success of its customers and assisting them in maximizing the production from their existing reservoirs. It is explained that seismic surveys can paint the picture of the sub-surface in order to better target oil and gas reserves. The results would help assessing the potential for tapping oil and gas at the particular spot. It is further stated that seismic surveys are conducted to gather data to understand the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for technical services chargeable under section 9(1)(vii) has to be computed under Sec. 44DA in a case like this where the service provider has a 'Permanent establishment' in India. In this context, the Revenue contends that the exclusion clause in Explanation 2 does not apply in the case of the applicant because it is not undertaking a mining or like project. Such project is undertaken by someone else and certain technical services are rendered by the applicant to the business enterprise that takes up the project. In short, the Revenue contends that Section 44BB would come into play only if the assessee goes out of the purview of Section 9(1)(vii) read with Explanation 2. 5. Let us look into the relevant provisions in order to appreciate the respective contentions. Section 44BB reads thus: 44BB. Special provision for computing profits and gains in connection with the business of exploration, etc. of mineral oils. (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... technical services (for short 'f.t.s') payable by a resident etc. Such income is deemed to accrue or arise in India. Explanation 2 to clause (vii) defines 'f.t.s' thus: 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 technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "Salaries". 5.2. Section 44DA which was inserted by the Finance Act, 2003 is another special provision for computing income by way of royalty or f.t.s received by a non-resident or foreign company which carries on business in India through a Permanent Establishment. It is the case of the Revenue that the applicant is liable to be taxed under section 9(1)(vii) of the Act read with section 44DA but not section 44BB. 5.3. There is one more section which deserves notice. That is section 115A which bears the heading "tax on dividends, ro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plicant neatly fits into Section 44BB and all the ingredients of that section are satisfied. To attract the first part of section 44BB, the non-resident must be (a) engaged in the business of providing services or facilities; (b) such provision of services/facilities must be 'in connection with' the prospecting for or extraction or production of mineral oils. Both these ingredients are present in relation to the activities undertaken by the applicant in India. Firstly, it does not admit of any doubt that the applicant is engaged in the business of providing services (technical services) to the oil sector industries. It is not some sporadic or isolated activities that are being carried on by the applicant. The applicant claims to have many clients in India and it has been engaged in the said activities since many years. In fact, it has come to light at the time of hearing that the applicant has been filing returns and is being assessed to tax from 2002-03 onwards and even for the year 2009-10 return has been filed. It is an undisputed and undeniable fact that the activities or operations of the applicant in India have the characteristics of 'business' and the applicant is engaged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds include matters occurring prior to as well as subsequent to or consequent upon so long as they are related to the principal thing. The phrase "having to do with" perhaps gives as good a suggestion of the meaning as could be had? I think section 66 is sufficient to oust the jurisdiction of this Court to deal with a decision on which an assessment is subsequently made." In that case, the court was with interpreting section 66 of the Income War Tax Act which reads as under: "66. Subject to the provisions of this Act, the Exchequer Court shall have exclusive jurisdiction to hear and determine all questions that may arise in connection with any assessment made under this Act." 6.3. In V.A. Vasumathi v. CIT*** the Kerala High Court observed while interpreting Section 48(1) of the Income-tax Act that the words "in connection with such transfer" mean intrinsically related to the transfer and the expenditure has to be connected with the transfer. 7. Keeping the above exposition of the phrase "in connection with", it is crystal clear that the services offered by the applicant is in connection with the prospecting for or extraction of mineral oils, which business is carried on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om excluding technical/consultancy services, they were also intended to be brought within the ambit of Section 44BB. The word 'services' followed by an expansive phrase 'in connection with' are relatable to Prospecting for and exploration of mineral oil. That means, all services associated with Prospecting for and exploration activities are brought within the scope and reach of Section 44BB. Another category of assessees governed by Section 44BB are those supplying plant and machinery on hire. Both these two categories of assesses covered by Section 44BB engage themselves in core activities pertaining to prospecting and exploration of oil and gas and the Parliament thought it fit to accord a special treatment to the income derived by these two categories of non-residents in India. 7.2. The Revenue submits that the exclusionary provision in Explanation 2 to Section 9(1)(vii) has no application here for the reason that the applicant has not undertaken any mining or like project and, therefore, the main part of the definition in FTS continues to govern the applicant' services. It may be recalled that the second part of the Explanation excludes "consideration for any construction, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of training and carrying drilling operations for exploration or exploitation of natural gas. In view of the above opinion, the consideration for services will not be treated as fees for technical services for purposes of Explanation 2 to section 9(1)(vii) of the Income-tax Act, 1961. The payments for such services to a foreign company will, therefore, 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." 7.4. The Circular which can be traced to the power vested in the CBDT under section 119(7) of the Act is binding on the department. The executive understanding of the relevant statutory provisions is reflected in this circular which has held the field for nearly two decades. This circular has been relied upon by the Income-tax Appellate Tribunal in a number of cases in order to reach the conclusion that Section 44BB governs the cases in which the services (including technical services) are rendered in relation to the prospecting for or exploration of oil [vide AC(IT) vs. Paradig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -residents/foreign companies engaged in the specified types of business. True, profits arising from the business specified in Section 44BB may also fall within the ambit of fees for technical services chargeable under Section 9(1)(vii). But, the question is which is the appropriate computation provision that is applicable? As between the competing provisions, namely 9(1)(vii) read with Section 44DA and 44BB, Section 44BB being a more specific provision, that provision should prevail for the purposes of computation. Section 44DA, it may be recalled, provides for method of computation of income by way of f.t.s received by a non-resident or a foreign company carrying on business through a PE in India. If the non-resident is engaged in the business of providing services in connection with the prospecting etc. of mineral oils, the computation provisions relating to f.t.s will have to yield to Section 44BB. It may be noticed that in a case of business governed by Section 44BB, normally, the enterprise concerned would be having a PE in India. It is difficult to envisage a situation of a person being engaged in providing services or facilities in connection with prospecting and extraction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e construction project. Whether the services rendered right from the designing stage upto the construction stage are covered by the exclusion clause in Explanation 2 is a moot point. But, we need not go into that aspect. Irrespective of that reasoning, Section 44BB cannot in any case be applied to construction services as they are not included within the fold of Section 44BB. That is why the Tribunal observed that the decisions dealing with the provisions of Section 44BB stood on a different footing. At the same time, the Tribunal while referring to the earlier orders of Tribunal, explained that various services in connection with exploration of mineral oil such as geological and geophysical studies and providing expert personnel were covered under the provisions of Section 44BB. Thus, the decision of Tribunal in Hotel Scopevista Ltd., far from supporting the Revenue, clearly negates the contention of Revenue on the scope of S.44BB. 9.2. The other decision of the Tribunal referred to by the learned Departmental Representative is the case of DC(IT) vs. ONGC as agent of Foramer France*. Even this decision is not contrary to the earlier decisions of the Tribunal in regard to the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tio of this ruling rests on a statutory provision, namely, Section 44D with which we are not concerned. Section 44D which is a special provision for computing income by way of royalties and fees for technical services in the case of foreign companies starts with a non-obstante clause "notwithstanding anything to the contrary contained in Sections 28 to 44C". Section 44BB is thus enveloped by the non-obstante clause. It is in this context that the AAR very rightly stated the legal position as follows: "15.3 A perusal of these provisions would make it clear that these are special provisions which have to be read together, for computing and taxing income by way of royalties and fees for technical services in the case of foreign companies. Section 44D starts with an overriding expression 'notwithstanding anything to the contrary contained in sections 28 to 44C .'. This means that section 44D has application in respect of royalties and technical fees in the course of a business and that its special provisions take precedence over sections 28 to 44C and override these provisions. That means section 44BB is also superseded in respect of computation of income by way of royalties or fees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an apparent bid to meet the argument that Section 44BB will be rendered otiose if the interpretation sought to be placed by the Revenue is accepted. In this context, the following passage is relied upon by the Revenue's representative: "It was sought to be made out that the above interpretation will render section 44BB altogether redundant. This is not correct for section 44BB will continue to apply to several types of cases in relation to the prospecting for or extraction or production of mineral oils. It is possible to conceive of services or facilities provided in this connection the consideration for which may not amount to 'royalty' or 'fees for technical services' within the scope of the definition in section 9(1)(vi) and (vii). Consideration for the supply of plant and machinery on hire referred to in section 44BB will not be in the nature of 'royalty'. Consideration for any construction, assembly, mining or like project is excluded from the compass of the definition of 'fees for technical services' within the meaning of Explanation to section 9(1)(vii). There is, therefore, a wide range of income falling under section 44BB which will not fall within section 44D. The excl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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