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TMI Blog1994 (2) TMI 102X X X X Extracts X X X X X X X X Extracts X X X X ..... de prior to the introduction of section 44BB of the I.T. Act by the Finance Act, 1987 which made the said section applicable with retrospective effect from 1-4-1983, i.e., from the assessment year 1983-84 onwards. In the assessments, apparently the income of the assessee had been computed applying the normal provisions of the Income-tax Act applicable for income from business. The assessee, pursuant to the introduction of section 44BB, moved applications before the ITO under section 154 of the Act praying for rectification of the assessments by applying the provisions of section 44BB. The applications were rejected by the ITO by orders dated 30-3-1990. On the same day, the assessment for the assessment year 1987-88 had been completed under section 143(3) of the Act. In the course of that assessment, the assessee had claimed that the provisions of section 44BB were applicable to the computation of its income. The ITO for reasons stated in the assessment order for the assessment year 1987-88, had rejected the assessee's claim. He applied the provisions of section 115A of the Act read with section 44D(b) of the Act. While rejecting the assessee's request for applying the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e CBDT in F. No. 500/6/89-FTD, dated 22-10-1990 in support of the assessee's claim. In respect of the assessment years 1983-84, 1984-85 and 1986-87 Mr. Dastur submitted that non-application of the provisions of section 44BB to these assessment years constituted a mistake apparent from the record and therefore the assessments ought to have been rectified as directed by the CIT(A). He referred to the following decisions in this connection: 1. M. K. Venkatachalam, ITO v. Bombay Dyeing Mfg. Co. Ltd. [1958] 34 ITR 143 (SC). 2. ITO v. Asok Textiles Ltd. [1961] 41 ITR 732 (SC). 3. India Woollen Textile Mills (P.) Ltd. v. CIT [1978] 111 ITR 205 (Punj. Har.). 4. ITO v. Sri Varadaraja Textiles (P.) Ltd. [1984] 9 ITD 469 (Mad.). According to Mr. Dastur, the provision was introduced by the Finance Act, 1987 with retrospective effect from 1-4-1983 and the non-consideration of section 44BB to these assessment years constituted an error apparent from the record. Mr. Dastur submitted that at any rate, after the opinion of the Attorney General which was also followed by the CBDT in its Circular there can be no debate on the question and therefore the CIT(A) was right in directing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of providing services or facilities in connection with the extraction or production of mineral oil, its profits and gains from such business shall be equal to 10 per cent of the amounts received by it. Under the Explanation below the section, mineral oil excludes petroleum and natural gas. There is a proviso to section 44BB(1) which says that this computation of the business income is not available if the income consists of fees for technical services, in which case section 115A will apply. Under section 115A, special rates of income-tax are prescribed in the case of foreign companies. If the income of the foreign company - the present assessee is undisputedly a foreign company - consists of fees for technical services in terms of an agreement made after 31-3-1976, such fees will be subjected to tax @ 40% for the assessment year perior to 1987-88 and 30% on and from the assessment year 1987-88. Under section 44D(b) if the income of the foreign company is computed in accordance with section 115A, there will be no deduction in respect of any expenditure or allowance and the gross income by way of fees for technical services will be taxed at the special rates. The Explanation in sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the equipment. The ITO has taken the view that the assessee is to render detailed and sophisticated services to ONGC and OIL. The assessee also provides technical personnel who operate the equipment. Therefore, the ITO has taken the view that the work involves not men and materials but it involves the rendering of technical services, the receipt in respect of which by way of fees has to be charged at the special rates under section 115A read with section 44D(b) read with Explanation 2 to section 9(1)(vii). But this view of the ITO, in our opinion, has been rightly rejected by the CIT(A). The view of the CIT(A) requires to be upheld. The mere fact that the assessee is to supply the equipment as also the personnel to operate the equipment does not automatically mean that the assessee is rendering only technical services to ONGC and OIL. Section 44B(1) speaks of a business of providing services or facilities in connection with extraction or production of mineral oil and natural gas. It also speaks of the business of supplying plant and machinery for hire to be used for such purposes. No materials or evidence have been brought on record by the ITO to indicate that the assessee is not e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 44BB(1). The function of a proviso is to carve out an exception from the earlier part of a section which but for the proviso would have fallen within the scope of the earlier part of the section. A proviso cannot be construed as enlarging the scope of the main section. The proviso have to be read in the present case with the exclusionary part of Explanation 2 to section 9(1)(vii). In that Explanation it is clearly provided that any consideration received for any mining or like project will not be treated as fees for technical services. Reading sub-section (1) of section 44BB together with the proviso thereto along with Explanation 2 to section 9(1)(vii), it is clear that they operate on different fact-situations. While the main enactment, namely, sub-section (1) of section 44BB, speaks of a business in the provision of the services or facilities in connection with the extraction or production of mineral oil, there is no reference to any business in Explanation 2 to section 9(1)(vii). Section 9(1)(vii), as is by now well known, embodies the "source rule" in respect of fees for technical services. The emphasis in that provision introduced by the Finance Act, 1976 with effect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly in relation to the assessment year 1977-78 and subsequent years [Section 4(b) (Part) of the Finance Act]." From the above Circular it will be clear that the Legislature while Introducing Explanation 2 to section 9(1)(vii) had in mind only those non-residents who did not carry on any business as such in India but were merely in receipt of the income by way of fees for technical services. This is exactly why the later part of the Explanation excludes from the purview of the definition, any income represented by consideration for any mining or like project in India which would necessarily involve the incurring of expenditure, setting up of various operations in India, deployment of men and material and considerable organisation and establishment. For some time such expenditure was regulated by section 44D of the Act. Only the Finance Act, 1987 introduced section 44BB with retrospective effect from 1-4-1983. If regard is had to the position and the background set out above. It will be clear that if the activities engaged in by the non-resident assessee in India constitute a business of the nature described in section 44BB(1), the income from such activity can never be characterise ..... X X X X Extracts X X X X X X X X Extracts X X X X
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