Case Law Details
Western Geco International Ltd Vs DDIT (ITAT Delhi)
In the case of Western Geco International Ltd vs. DDIT (ITAT Delhi), the issue of whether reimbursement of service tax should be included in the gross turnover for computing taxable income under Section 44BB of the Act was examined.
The representatives of both parties agreed that the issue is settled in favor of the assessee based on the judgment of the Hon’ble Uttarakhand High Court in the case of Director of Income-tax International Taxation vs. Schlumberger Asia Services Ltd. It was held that the reimbursement of service tax, paid by the assessee to the Government of India and reimbursed by the service recipient (ONGC), does not form part of the aggregate amount referred to in Section 44BB(2) of the Act. A similar decision was rendered by the Hon’ble Delhi High Court in the case of Director of Income-tax vs. Mitchell Drilling International (P.) Ltd.
FULL TEXT OF THE ORDER OF ITAT DELHI
On account of difference of opinion between the learned Accountant Member and learned Judicial Member of ITAT, “C” Bench, New Delhi, this matter has been referred to me by the Hon’ble President, ITAT for consideration and disposal under Section 255(4) of the Income Tax Act, 1961.
2. While referring the matter to Third Member, separate two questions each were framed by both the differing Members. In order to settle and 9 finalise the questions that are required to be considered and decided by the Third Member, the learned Representatives of both sides were required to propose draft questions in such a manner that the same shall project the exact controversy involved in the point of reference. They were directed to confine themselves to the order of reference while preparing the draft questions and not to enlarge or modify the point of difference referred by the differing Members to the Third Member. Accordingly the learned Representatives of both the sides have proposed two draft questions each and after going thrguei the questions suggested by learned representatives of both the sides,
1. Whether, in view of the facts and circumstances of the case and in law, the revenue received by the assessee on account of provision of facilities and services of seismic data acquisition, planning and carrying out of pre-survey study, taking marine data and confirming prospects, maintenance / upgradation/support of software licenses, etc, is taxable as FTS u/s 44DA r.w.s.
9(1)(vii) or is taxable under Section 44BB of the Income Tax Act, 1961 (‘the Act’)?
2. Whether, the amount received as reimbursement of ‘service tax’ is includible in gross turnover for the purpose of computing taxable income under Section 44BB of the Act?
3. Although the learned Accountant Member and learned Judicial Member both have narrated the facts relevant to the controversy referred to the Third Member as involved in the present case in their respective dens I, recapitulate the same in brief for the sake of completeness and ready reference.
4. The assessee, in the present case, is a non-resident company having Permanent Establishment in India. During the year under consideration, the assessee generated revenue from 16 contracts which, as admitted by the Assessing Officer himself, were continuing from earlier years except for contract with BHP Billiton Petroleum [International Exploration] Pty. Ltd. The income from the said contracts as earned during the year under consideration was offered to tax by the assessee at the presumptive rate of 10% under Section 44BB of the Income-tax Act, 1961 (“the Act” in short). As noted by the Assessing Officer, the scope of work of the contracts with RIL, GSPCL & ONGC by and large included processing of 2D/3D marine seismic data, survey, long term lease of marine technology, hiring of Q-Marine Vessel with the help of its personnel and equipment, Seismic Data Acquisition and Processing, hiring of vessel and technology etc. According to the Assessing Officer, these services were in the nature of technical services as covered under Section 9(1)(vii) of the Act and the same, therefore, were chargeable to tax as fees for technical services under Section 9(1)(vii) r.w.s. 44DA of the Act and not under Section 44BB of the Act as claimed by the assessee. In this regard, it was submitted on behalf of the assessee before the Assessing Officer that the services rendered by it under the relevant contracts were connected with oil prospecting and drilling covered under essential part of seismic survey activities and seismic survey being the first step in any oil and gas exploration activity is inextricably connected to exploration of mineral oils. It was submitted that all these activities thus are directly related to and part of exploration activities including prospecting for mineral oil and clearly fall under the ambit of Section 44BB of the Act. In support of this contention, reliance was placed by the assessee on the CBDT instruction No. 1862 dated 22.10.1990. It was further contended that Section 44BB(1) is a special provision applicable to the non-resident engaged in the business of providing services or facilities in connection with prospecting for or extraction or production of mineral oils and, therefore, the general provision of Section 44DA has no application.
5. The Assessing Officer did not find merit in the contentions raised on behalf of the assessee. According to him, the services rendered by the assessee were in the nature of technical services and therefore the revenue generated by the assessee was liable to be treated as fees for technical services under Section 9(1)(vii) of the Act. He held that Section 44BB of the Act is applicable only to those persons who are directly engaged in the business for prospecting etc. of mineral oils and the assessee-company being a foreign company who received fees for technical se*ices from an Indian* concern was taxable under Section 44DA of the Act. He held that the work o construction, assembly, mining or of similar nature was undertaken by ONGC, GSPCL, RIL etc. and not by the assessee and since the assessee-company was only rendering services to these companies which were in the nature of technical services, the assessee-company was not eligible for claim under Section 44BB of the Act. He held that provision of Section 44BB cannot override the other provisions of Section 9(1)(vii) etc., because Legislature has taken away the technical services and royalty from the purview of lower tax on presumptive basis as envisaged under Section 44BB of the Act. To arrive at this conclusion, he relied on the judgment of Hon’ble Uttarakhand High Court in the case of CIT Vs. ONGC as an agent of M/ s. Foramer France reported in (2008) 298 ITR 438 and held that the income of the assessee-company was liable to be computed under Section 44DA of the Act and not under Section 44BB of the Act. He also relied on the amendments made in Sections 44BB and 44DA of the Act by the Finance Act, 2010 with effect from 01.04.2011 and observed that the intention of Legislature was clear to exclude income which is in the nature of FTS or royalty from the purview of Section 44BB of the Act. Since no books of accounts were regularly maintained by the assessee, the Assessing Officer determined the income of the assessee for the year under consideration @ 25% in terms of Section 44DA of the Act. While doing so, he also included the amount received by the assessee on account of reimbursement of service tax to determine the income of the assessge,for the year under consideration by applying a profit rate of 25%.
6. The order of the Assessing Officer determining its tax liability for the year under consideration in terms of Section 44DA of the Act by applying the rate of 25% on the receipts including the reimbursement of service tax was challenged by the assessee in the appeal filed before the learned CIT(A). After considering the submissions made by the assessee as well as the material available on record, the learned CIT(A) held that the services rendered by the assessee were directly connected with the extraction of and prospecting for mineral oils. He held that all the services rendered by the assessee were intimately connected with oil extractions going by the nature of contracts executed by it and consequently the income of the assessee from revenue generated from these services was liable to tax at presumptive rate of 10% under Section 44BB of the Act. To arrive at this conclusion, he derived support from the decision of Hon’ble Delhi High Court in the case of DIT Vs. OHM Ltd., (2013) 352 ITR 406 (Del) observing that the application of Section 44BB vis-a-vis Section 44DA of the Act was clarified by their Lordships in the said decision after taking into consideration the amendments brought in these two Sections with effect from 01.04.2011. He further relied on the decision of Delhi Bench of ITAT in the case of Precision Energy Services Ltd. (ITA No. 5609/Del/ 2012) to hold that the reimbursement of service tax was not to be included in the turnover of the assessee-company for the purpose of computing its income by applying the n presumptive rate of 10% under Section 44BB of the Act.,
7. The decision of learned CIT(A) holding that the case of the assessee-company was covered under Section 44BB of the Act as claimed by the assessee and not under Section 44DA of the Act as held by the Assessing Officer was challenged by the Revenue in an appeal filed before the Tribunal. Before the Tribunal, reliance was mainly placed on behalf of the Revenue on the amendments made to Section 44BB and Section 44DA of the Act with effect from 01.04.2011. It was pointed out that proviso to Section 44BB(1) was amended with effect from 01.04.2011 to the effect that special provision under Section 44BB of the Act for computing profit and gains in connection with the business of exploration etc. of mineral oils shall not apply in a case where provision of Section 44DA of the Act applies. It was highlighted that second Proviso simultaneously was inserted to Section 44DA(1) of Act w.e.f. 01.04.2011 to the effect that provision of Section 44BB shall not apply in respect of the income referred to in Section 44DA(1) of Act. Relying on these amendments, it was contended on behalf of the Revenue that income by way of Royalty or Fee for Technical Services (FTS) is to be assessed under Section 44DA of Act with effect from 01.04.2011 as held by the Assessing Officer and not under Section 44BB of the Act as claimed by the assessee. It was submitted on behalf of the Revenue that a categorical finding was recorded by the Assesing Officer in the assessment order that the contractual receipts of the assess e were in the nature of FTS and while allowing the claim of the assessee for, applicability of Section 44BB in its case, the learned CIT(A) failed to adjudicate upon whether the contractual receipts of the assessee were in It’ the nature of FTS and also failed to take into account the amendments made in Sections 44BB and 44DA of the Act with effect from 01.04.2011 in the light of the judgment of Hon’ble Delhi High Court in the case of PGS Geophysical AS Vs. Addl. Director of Income Tax [2014-TII-35-HC-Del-INTL].
8. The learned Counsel for the assessee, on the other hand, submitted before the Tribunal that the amended provisions of Section 44BB and Section 44DA of the Act were already considered by the learned CIT(A). He submitted that there was no change in the nature and scope of services provided by the assessee-company as the services were being provided in the year under consideration under the same contracts which were continuing from the earlier years. Reiterating the nature of services, it was submitted on behalf of the assessee-company that the scope of services provided to various clients included processing of 2D/3D marine seismic data, survey, long term lease of marine technology, hiring of Q-Marine vessels and seismic data acquisition and processing, which were closely and intrinsically related to exploration and production of mineral oil as seismic survey,activities:ar67orw of the most critical parts of exploration activities. It was submitteddihaf a similar issue was decided by ITAT in assessee’s •..pW4n case for AssessmeAt Year 2010-11 wherein it was held under similar facts and circumstances thit services rendered by the assessee are in connection with prospecting of mineral oil and covered under Section 44BB of the Act. Reliance was placed on behalf of the assessee on the decision of Hon’ble Supreme Court in the case of ONGC Limited Vs. CIT, 376 ITR 306 (SC), wherein it was held that similar services provided by the assessee were specifically covered under the provision of Section 44BB of the Act and, therefore, general provision of Section 44DA could not be applied.
9. After considering the submissions made by both the sides and the material available on record, the learned Accountant Member, who proposed the leading order, held that as per the amended provisions of Section 44BB and Section 44DA of the Act with effect from 01.04.2011, income of the assessee by way of royalty and fee for technical services referred to in Section 44DA(1) of the Act is not to be assessed under Section 44BB of the Act. To arrive at this conclusion, he derived support from the decision of Hon’ble Delhi High Court in the case of PGS Geo physical AS (supra), wherein it was held that income falling within the scope of Section 44DA(1) of the Act would be excluded from the scope of Section 44BB of the Act with effect from 01.04.2011. He held that the claim of the assessee regarding the applicability of Section 44BB in its case was granted by the learned CIT(A) merely on the basis of nexus of business activities with oil extraction without giving any finding the issue as to whether the income of the assessee, in respect of which applicability of Section 44BB was claimed, is royalty or fees for technical services or not. He held that Section 44BB of the Act has no application with effect from AY 2011-2012 to the extent to which assessee’s income is royalty or fees for technical services and such income is to be assessed under Section 44DA of the Act as held by the Hon’ble Delhi High Court in the case of PGS Geo physical AS (supra). According to the learned Accountant Member, the issue thus was not considered properly by the learned CIT(A) and it required fresh consideration at the level of learned CIT(A).
10. The learned Judicial Member did not agree with the view expressed by the learned Accountant Member and proceeded to pass a separate order expressing his dissenting view. He considered the nature of services provided by the assessee under the relevant contracts and found that the Assessing Officer himself had agreed in the assessment order that all the services provided by the assessee-company under the relevant contracts to ONGC, GSPCL & RIL were connected with prospecting for and extraction of mineral oil carried out by Indian companies. He also found that a categorical finding was recorded by the learned CIT(A) in paragraph No. 4.1 of his impugned order that all the services rendered by the assessee under relevant contracts are intimately connected with oil extraction. He noted that similar issue was involved in assessee’s own case for Assessment Year 2010-11 and by relying on the decision of Hon’ble Supreme Court in the case of ONGC Ltd (supra), it was held by the Tribunal that provision of various services in connection with prospecting for or extraction or production of mineral oil is taxable on presumptive basis under Section 44BB of the Act. He then referred to the decision of Hon’ble Supreme Court in the case of ONGC Ltd (supra) rendered by judgment dated 1st July, 2015 and noted that the judgment of Hon’ble Uttarakhand High Court in the case of CIT vs. ONGC, which was strongly relied upon by the Assessing Officer, has been reversed by the Hon’ble Supreme Court. He noted that ONGC was a representative-assessee to many non-resident companies for providing various services in connection with prospecting, extraction or production of mineral oils and the issue before the Hon’ble Supreme Court was whether the amount paid by the ONGC to the non-resident companies in connection with such services is taxable as “fees for technical services” under Section 44D r.w.s. Explanation (2)to Section 9(1)(vii) or would be taxable on presumptive basis under Section 44BB of the Act. He noted that the Hon’ble Supreme Court accepted the contention raised by the parties on the basis of test of ‘pith and substance’ of the agreement that if any work is inextricably connected with prospecting, extraction or production of mineral oils and certain ancillary works connected thereto will not be treated as ‘fees for technical services’ under Section 9(1)(vii) of the Act as the same fall within the exclusion of Explanation (2).The learned Judicial Member referred to Explanation (2) to Section 9(1)(vii) of the Act and noted that the said Explanation clearly excludes any consideration received for any construction, assembly, mining or like project undertaken by the recipient which inter alia means such services have not been treated as ‘fees for technical services’. He noted that the services provided by the assessee in the year under consideration are similar in nature as most of the relevant contracts were continuing from earlier years as noted by the Assessing Officer himself in the assessment order. He held that the issue thus was squarely covered by the decision of the Hon’ble Supreme Court in the case of ONGC Ltd (supra) which was followed by the Tribunal in assessee’s own case for the immediately preceding year. He accordingly held that the revenue received by the assessee-company from various contracts were clearly in connection with prospecting, extraction or production of mineral oils and did not fall in the category of royalty or fee for technical services (FTS). He held the same would thus be subjected to presumptive tax under Section 44BB as claimed by the assessee and there is no question of taxing the same under Section 44DA of the Act.
11. As regards the amendments made to Section 44BB and Section 44DA of the Act with effect from 01.04.2011 and the decision of Hon/J7le Delhi High Court in the case of PGS Geophysical AS (supra) on which heavy reliance was placed by the Revenue, the learned Judicial Member noted that the assessee-company in the case before the Hon’ble Delhi High Court cos engaged in providing Geo Physical Services to oil and natural gas and conducted electric magnetic survey, processing and interpretation of data and the data so collected for the survey was used for the off-shore oil industries. He noted that since the services were found to be in the nature of technical services, the Hon’ble Delhi High Court held that the same were taxable under Section 44DA of the Act r.w.s. 9(1)(vii) of the Act. He noted that the Hon’ble Delhi High Court thus found that the services rendered by the assessee in the case of PGS Geophysical AS (supra) were covered by Section 44DA of the Act which is broader and more general in nature and not by Section 44BB which is a special provision for computing the profits and gains of non-resident in connection with business for providing services or facilities in connection with prospecting for, or extraction or production of mineral oil, including petroleum and natural gas. As noted by the learned Judicial Member, the effect of amendments made to Section 44BB and Section 44DA with effect from 01.04.2011 was also clarified by the Horible Delhi High Court in the case of OHM Ltd. (supra) by observing that since both these sections have different modes and methods prescribed for computing the profit, therefore, legislature thought it fit to clarify the position by making a necessary amendment. Learned Judicial Member accordingly held that the second proviso provides that provision of Section 44BB shall not apply in respect of itcome referred to in this section, which means that, if a non- resident is carrying out or has rendered services through its PE which are in the nature of royalty or fees for technical services then same has to be computed under Section 44DA of the Act. He held that Section 44BB, on the other hand, is a special provision for giving a benefit of lesser tax rate to the non-resident which is engaged in providing services or facilities as mentioned therein, including prospecting for, or extraction or production of mineral oils. He then referred to the maxim `generalia specialibus non derogant’, which means the provisions of a general statute must yield to those which are special one and held that when any non-resident assessee is carrying out specific work which falls in the services provided in special provision, i.e. 44BB, then special provision will apply and not the general provision contained in Section 44DA of the Act. He accordingly held that the revenue generated by the assessee-company from the services rendered on the relevant contracts in the year under consideration is taxable under Section 44BB of the Act as claimed by the assessee and not under Section 44DA of the Act as held by the Assessing Officer.
12. The learned Departmental Representative submitted that the natural of services provided by the assessee-company under the relevant contacts during the year under consideration was examined by the Assessing Officer; and, on such examination, he found that the said services were in the nature of technical services and the fees received by the assessee was in the nature of fees for technical services. By relying on the provisions of Section 44BB and Section 44DA of the Act as amended by the Finance Act, 2010 with effect from 01.04.2011, he contended that the fees for technical services received by the assessee during the year under consideration, i.e. AY 2011-12, to which he said amended provisions are applicable, is taxable under Section 44DA of the Act as rightly held by the Assessing Officer and not under Section 44BB of the Act as claimed by the assessee. He submitted that the effect of amendment to Section 44BB and Section 44DA of the Act as made with effect from 01.04.2011 has been considered by the Tribunal in the case of M/s. CGG Veritas Services SA Vs. Addl. Director of International Taxation, Dehradun (ITA No.4653/De1/2010 dated 25.01.2012) and on such consideration, it is held that the combined reading of proviso to Section 44BB(1) and second proviso to Section 44DA makes it clear that the fee for technical services rendered in connection with, prospecting for or extraction or production of mineral oil, though effectively connected with PE or fixed place of business fall not under Section 44BB(1) of the Act and will be assessable under Section 44DA of the Act.
13. As regards the decision of Hon’ble Delhi High Court in the case of OHM Ltd. (supra) cited on behalf of the assessee and relied upon by the learned Judicial Member, the learned DR submitted that the said decision rendered on 06.12.2012; whereas in the later judgment delivered on 09.07.2014 in the case of PGS Geophysical AS (supra), it was categorically held by the Hon’ble Delhi High Court that fees for technical services has to be taxed under Section 44DA of the Act and not under Section 44BB of the even if the services were given to concerns involved in extraction of mineral oils. He pointed out that even in the judgment rendered thereafter on 13.03.2020 in the case of Paradigm Geophysical Pty Ltd. Vs. CIT (WP.(C) No. 1370 of 2019), the Hon’ble Delhi High Court again held that after 01.04.2011, income falling within the scope of Section 44DA(1) of the Act would be excluded from the scope of Section 44BB of the Act and if the income of a non-resident is in the nature of fees for technical services or royalty, it shall be taxable under the provisions of either Section 44DA or Section 115A of the Act.
14. As regards the decision of Hon’ble Supreme Court in the case of ONGC Ltd. (supra) cited on behalf of the assessee and strongly relied upon by the learned Judicial Member, learned DR submitted that the said decision was given in the context of the interplay and applicability of the provisions of Section 44BB vis-a-vis Section 44D of the Act and there was thus no occasion for the Hon’ble Supreme Court to consider and examine the applicability of the provisions of Section 44DA of the Act, more specifically the interplay between the provisions of Section 44BB and Section 44DA of the Act as amended with effect from 01.04.2011. He contended that the case lows axed the Board’s circular relied upon by the learned Judicial Member . thus were applicable before the amendments made to Section 44BB and Section 44DA of the Act with effect from 01.04.2011 and keeping in view the specific purpose for which the amendments to Section 44BB and Section 44DA are made with effect from 01.04.2011, the position has changed drastically as rightly observed by the learned Accountant Member. He contended that the definition of fees for technical services as given in Explanation (2) to Section 9(1)(vii) of the Act is required to be overlooked; otherwise the amendments made to Section 44BB and Section 44DA of the Act with effect from 01.04.2011 will become redundant.
15. The learned Counsel for the assessee, on the other hand, submitted that the services provided by the assessee-company under the relevant contracts during the year under consideration were not in the nature of technical services and since the receipts for the said services were not in the nature of fees for technical services, the same were covered under Section 44BB of the Act as rightly claimed by the assessee and not under Section 44DA of the Act as held by the Assessing Officer. He submitted that the Assessing Officer, however, held that the said services were in the nature of t duaical services and applied the provisions of Section 44DA of the Act by relying on the decision of Hon’ble Uttarakhand High Court in the case of ONGC Ltd. ‘(supra). He submitted that the decision of Hon’ble Uttarakhand High Court in the case of ONGC Ltd (supra), however, has been subsequently reversed by the Hon’ble Supreme Court as rightly noted by the learned Judicial Member. He contended that the Hon’ble Supreme Court, after applying the test of ‘pith and substance’, held that whenever the services are inextricably connected with the prospecting, extraction, or production of mineral oils and even certain ancillary works connected thereto, receipts for the same will not be treated as ‘fees for technical services’ under Section 9(1)(vii) of the Act as the same would fall within the exclusion as given in Explanation (2).
16. The learned Counsel for the assessee also submitted that similar issue was involved in assessee’s own case for AY 2010-11 and the ITAT following the judgment of Hon’ble Supreme Court in the case of ONGC Ltd (supra) held that all the services rendered by the assessee were in connection with prospecting for mineral oil and, therefore, the receipts for such services were taxable on presumptive basis under Section 44BB of the Act. He submitted that the appeal was filed by the Revenue against the order of ITAT for AY 2010-11 and the same has already been dismissed by the Hon’ble Uttarakhand High Court on 02.09.2020. He submitted that most of the contracts executed in the year under consideration are countinug since earlier years as admitted by the Assessing Officer himself ‘in the ass’esftent order and the scope of services is similar to those provided in the earlier years. He contended that this issue thus is squarely covered by tla judgment of Hon’ble Supreme Court in the case of ONGC Ltd. (supra) as held by the ITAT in its order passed in assessee’s own case for AY 2010-11 which has been upheld by the Hon’ble Uttarakhand High Court and the facts involved in the year under consideration being similar to that of AY 2010-11, ruling of Hon’ble Supreme Court in the case of ONGC Ltd (supra) is applicable even in the year under consideration as rightly held by the learned Judicial Member since the services provided are not in the nature of technical services.
17. The learned Counsel for the assessee further submitted that even though most of the contracts executed in the year under consideration by the assessee-company were continuing since earlier years; there were certain new contracts executed during the year under consideration involving similar nature and scope of work which included four new contracts executed with BHP Billiton Petroleum (International Exploration) Pty. Ltd. He contended that the assessee had approached Authority for Advance Rulings (AAR) regarding the taxability of revenue received from BHP Billiton Petroleum contract which was being offered for tax for the first time and the AAR vide its order dated 25.07.2011 held that revenues from the BHP Billiton Petroleum contract were taxable under Section 44BB of the Act after taking in to consideration the amendment made by the Finance Act, 2010 with 6-4) effect fkm”01.04.2011. He pointed out that the appeal filed by the Revenue against the order of AAR has already been dismissed by the Hon’ble Uttarakhand High Court.
18. Reliance was placed by the learned Counsel for the assessee in support of the assessee’s case on the issue under consideration on the recent decision of the Hon’ble Delhi High Court in the case of Paradigm Geophysical Pty Ltd. Vs. CIT (WP.(C) No. 1370 of 2019 dated 13.03.2020) to contend that the Hon’ble Delhi High Court relying on the judgment of Hon’ble Supreme Court in the case of ONGC Ltd (supra) held that where characterization of services rendered by the assessee falls under “mining or like projects”, Section 44BB shall apply and the said revenues cannot be construed as taxable under Section 44DA of the Act. It was held that various activities in connection with exploration or extraction or production of mineral oil shall be included under the term “mining or like projects”. He pointed out that the assessment year involved in the case of Paradigm Geophysical Pty Ltd. (supra) was 2012-13 and the amendments made to Section 44BB and Section 44DA by the Finance Act, 2010 with effect from 01.04.2011 were duly taken into consideration by the Hon’ble Delhi High Court. He contencled–that the view taken by the Hon’ble Delhi High Court in the case of OHM Ltd. (supra), which has been relied upon heavily by the learned Judicial Member, thus has been further reiterated by the Horible Delhi High Court mits recent decision rendered in the case of Paradign Geophysical Pty. Ltd. (supra). He contended that the learned Accountant Member has not considered the effect of Hon’ble Supreme Court decision in the case of ONGC Ltd (supra), the decision of Hon’ble Delhi High Court in the case of OHM Ltd. (supra) as well as the CBDT Circular and the definition of fees for technical services and the exclusion thereof as provided in Explanation (2) to Section 9(1)(vii) of the Act. He contended that a clear finding was recorded by the learned CIT(A) in his impugned order on the nature and scope of services provided by the assessee during the year under consideration but the learned Accountant Member failed to appreciate the same. He invited our attention to the exhaustive list of services provided by the assessee in the case of ONGC Ltd (supra) and contended that the services rendered by the assessee being covered under the said list should be construed as “mining or like project” which are covered under Section 44BB of the Act as claimed by the assessee and not under Section 44DA of the Act as held by the Assessing Officer.
19. As regards the decision of Hon’ble Delhi High Court in the case of PGS Geo physical AS (supra) relied upon by the learned DR, the learned Counsel for the assessee submitted that the same was rendered on 09.07.2014, that is well before the decision in the case of ONGC Ltd (supra) came to be rendered by the Hon’ble Supreme Court on 01.07.2015. He pointed out that the assessm€nt year involved in the said case was 2008-09 and the nature of services provided being FTS was not disputed in the said case.
20. I have considered the submissions of both the sides and also perused the relevant material available on record including the respective orders passed by the differing Members and the judicial pronouncements cited by both the sides. The assessee, in the present case, is a non-resident company having a Permanent Establishment in India. During the year under consideration, it provided services to the Indian companies under the various contracts and, as noted by the Assessing Officer himself, the scope of services as provided by the assessee-company under the said contracts mainly entered into with RIL, GSPCL and ONGC, by and large included processing of 2D/3D marine seismic data, survey, long term lease of marine technology, hiring of Q-Marine Vessel with the help of its personnel and equipment, Seismic Data Acquisition and Processing, hiring of vessel and technology etc. As per the claim of the assessee-company, the said services rendered by it
were connected with oil prospecting & drilling; and the consideration received for the same being for mining contracts etc. undertaken by the assessee-company, it was not in the nature of fees for technical services as per the exclusion provided in Explanation (2) to Section 9(1)(vii) of the Act which reads as under:-
“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 service,. (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” ;”
21. It was claimed by the assessee-company that the services or facilities provided by it being in connection with prospecting for or extraction or production of mineral oils, the provision of Section 44BB is applicable in its case and accordingly the income from revenue generated from the said services was offered to tax at the presumptive rate of 10%. The provisions of Section 44BB being relevant in this context are reproduced below:-
“44BB. (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 nonresident, 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 for, 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 44D or section 44DA or section 115A or section 293A apply for the purposes of computing profits or gains or any other income referred to in those sections.
(2) The amounts referred to in sub-section (1) shall be the following, namely: —
(a) the amount paid or payable (whether in or out of India) to the assessee or to any person on his behalf on account of the provision of services and cilities in connection with, or supply of plant and machinery on hire #is M, or to be used, in the prospecting for, or extraction or production of niinkral oils in India; and
(b) the amount received or deemed to be received in India by or on behalf of the assessee on account of the provision of services and facilities in connection with, or supply of plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of mineral oils outside India.”
22. The Assessing Officer did not accept the claim of the assessee. According to him, the services provided by the assessee were not covered by exclusion provided in Explanation (2) to Section 9(1)(vii) of the Act and the said services being in the nature of technical services, the income generated by the assessee-company from rendering the said services was chargeable to tax as per the provisions of Section 44DA of the Act which read as under:-
“44DA. (1) 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 31st day of March, 2003, where such non-resident (not being a company) or a foreign company carries on 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 :
Provided that no deduction shall be allowed, —
(i) in respect of any expenditure or allowance which is 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 estatiligiiment to,its head office or to any of its other offices :
Provided further that the provisions of section 44BB shall not apply in respect of the income referred to in this section.
(2) Every non-resident (not being a company) or a foreign company shall lc& and maintain books of account and other documents in accordance with theev 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 [before the specified date referred to in section 44AB and furnish by that date] 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 92F.”
To arrive at the conclusion that the case of the assessee was covered by the provisions of Section 44DA of the Act, the Assessing Officer strongly relied on the decision of the Hon’ble Uttarakhand High Court in the case of ONGC (supra).
23. As submitted on behalf of the assessee, the decision of Hon’ble Uttarakhand High Court in the case of ONGC (Supra), relied upon by the Assessing Officer to hold that the case of the assessee is covered under Section 44DA of the Act and not under Section 44BB of the Act, has been subsequently overruled by the Hon’ble Supreme Court by its judgement dated 01.07.2015, reported in (2015) 376 ITR 306 (SC) and by relying on the 5arneythe Tribunal in assessee’s own case for the immediately preceding year 2010J1 as decided a similar issue in favour of the assessee vide its order reported in [2016] 71 taxmann.com 166 (Delhi – Trib.), wherein it was held that since the services rendered by the assessee-company are in connection with prospecting for, or extraction or production of mineral oil, the income generated from the said services is taxable on presumptive basis under Section 44BB of the Act and not under Section 44DA of the Act.
24. At the time of hearing before me, the learned Departmental Representative has contended that the decision of Hon’ble Supreme Court in the case of ONGC (supra) was rendered in the context of interplay and applicability of the provisions of Section 44BB vis-a-vis Section 44D of the Act and there was no occasion for the Hon’ble Supreme Court to consider and examine the applicability of the provisions of Section 44DA of the Act; more specifically the interplay between the provisions of Section 44BB and Section 44DA of the Act as amended with effect from 01.04.2011. He has also contended that the case laws and the Board’s circulars, relied upon by the learned CIT(A) in his impugned order as well as by the learned Judicial Member to support his view taken in favour of the assessee, were applicable before the amendments made to Section 44BB and Section 44DA of the Act with effect from 01.04.2011; and, keeping in view the specific purpose for which the said amendments were made, the position has changed drastically with effect from 01.04.2011 as rightly observed by the learned Accountant Member. In this regard, it is relevant to refer to question which.wa.r4 the case of ONGC (supra) for the consideration of •Hon’ble Supreme Court. The said question reads as under:
‘Whether the amounts paid by the ONGC to the non-resident assessees/foreign companies for providing various services in connection with prospecting, extraction or production of mineral oil is chargeable to tax as “fees for technical services” under Section 44D read with Explanation 2 to Section 9(1)(vii) of the Income Tax Act or will such payments be taxable on a presumptive basis under Section 44BB of the Act’ ?
25. It is manifest from the question raised before the Hon’ble Supreme Court in the case of ONGC (supra) that the issue raised for consideration was, no doubt, relating to the applicability of Section 44BB vis-à-vis Section 44D read with Explanation (2) to Section 9(1)(vii) of the Act in the facts of the case. However, a careful perusal of the judgement passed by the Hon’ble Supreme Court in the said case clearly shows that the issue relating to the applicability of Section 44BB of the Act in the facts of the case was independently examined by the Horible Apex Court. Although their Lordships initially referred to the provisions of Section 44BB of the Act as well as Section 44D read with Explanation (2) to Section 9(1)(vii) of the Act, the issue relating to the applicability of Section 44BB read with Explanation (2) to Section 9(1)(vii) of the Act was independently examined by the Hon’ble Supreme Court. In this regard, reference was made to Circular No.1862 issued by the CBDT on 22.10.1990. As stated in the said Circular, a question wheth4 prospecting for or extraction or production of mineral oil can be termed Tinkling operations’ was referred to the Attorney General of India for his opinion. He opined that such operations are mining operations and the expressions ‘mining project’ or ‘like projects’ occurring in Explanation (2) to Section 9(1)(ii) of the 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 said opinion, it was clarified by the Board in the circular dated 22.10.1990 that the consideration for such services will not be treated as fees for technical services for the purpose of Explanation (2) to Section 9(1)(vii) of the Act and the payments for such services to a foreign company will be income chargeable to tax under the provisions of Section 44BB of the Act and not under the provision of Section 44DA of the Act. Keeping in view this clarification issued by the CBDT, the Hon’ble Supreme Court accepted the contentions raised on behalf of the assessee that the eventual test is one of pith and substance of the agreement, namely, whether the works contemplated or services to be rendered under the agreement is directly and inextricably linked with the prospecting, extraction or production of mineral oil. The Hon’ble Supreme Court then examined the relevant contracts and listed the work covered under the said contracts to hold that there was a clear indication that the pith and substance of each of the contracts/ agreements was inextricably connected with prospecting for, extraction or production of mineral oil. It was held by the Horible Supreme Court that the dominant purpose of each of such agreement was for prospecting for, extraction or production of mineral oils though there may be certain ancillary works contemplated thereunder. It was held that the payments made by ONGC and received by the non- resident assessee or foreign company under the said contracts was rnofe,,,, appropriately assessable under the provisions of Section 44BB and not Section 44D of the Act.
26. At the time of hearing, the learned Counsel for the assessee has pointed out that the work covered under one of the contracts, as listed by the Hon’ble Supreme Court in the judgement passed in the case of ONGC, is “drilling of exploration wells and carrying out seismic surveys for exploratory drilling” and the same is of the nature which is similar to the work performed by the assessee-company in the present case. It is observed that the Tribunal while deciding a similar issue in assessee’s own case for AY 2010-11 took note of the same and held that the services carried on by the assessee were in connection with the prospecting for mineral oil and the income generated from rendering of the said services was taxable on presumptive basis under Section 44BB of the Act as held by the Hon’ble Supreme Court in the case of ONGC (supra).
27 . It is observed that the Assessing Officer himself in the assessment P:citder has noted that the nature of services rendered by the assessee during he yeaevnfler consideration under the contracts mainly with RIL, GSPCL & ONGC continued to remain the same as in the immediately preceding year i.e. AY 2010-11 since the same contracts were continuing from earlier years except for the contract with BHP Billiton Petroleum [International Exploration] Pty. Ltd. As submitted by the learned Counsel for the assessee, there were four contracts executed by the assessee-company with BHP Billiton Petroleum [International Exploration] Pty. Ltd. involving similar nature and scope of work; and, the assessee had approached the Authority for Advance Rulings (AAR) regarding the taxability of revenue received from BHP Billiton Petroleum contracts which was being offered for tax for the first time. He has placed a copy of the order dated 25.07.2011 passed by the Authority for Advance Rulings in appeal bearing No. A.A.R No. 938 of 2010 wherein the issue was decided vide paragraph No.5 as under:-
“5. In terms of the contract, the applicant is to provide vessels and seismic crew at the area of operations to acquire the 2D geophysical survey in the MB/KK blocks offshore India to BHP Billiton. The vessels are to be equipped with hardware and software to process the seismic data. The survey work is to be carried out 24X7 hours a day, seven days a week and without shut down for holidays. The cost of maintenance of the vessels, catering and accommodation services on board the seismic vessels is to be borne by the applicant. It is therefore obvious that the applicant is engaged in the business of providing services or facilities in connection with extraction or production of oil, a mining activity. It could also be said that the applicant is supplying plant and machinery for hire to be used in the prospecting of mineral oil. The activities undertaken are recognised by BHP Billiton in connection with the extraction or production of oil. The activities being mining, the services rendered goes out of the purview of section 9(1)(vii) of the Act. The executive understanding of Explanation 2 to section 9(1)(vii) is also explained in CBDT’s instruction no. 1862 in the similar manner. This Authority is of the view that as section 44BB is a special, specific and exclusive provision, even where the profits arising from business… specified therein fall within the ambit of fees for technical services4 provision should prevail for the purposes of computation. (R4er Geofizyka Torun Sp.zo.o, AAR/813 of 2009. 320 ITR 268). The issued raised by the revenue have been discussed at length in the said ruling. Regarding the Revenue’s contention that the provisions of section 44BB would not apply’in, view of insertion of section 44DA by the Finance Act 2010 iv,ef 1/4/2011, 4V is pointed out that section 44DA applies where royalty or fees’ for technical services is received by a foreign company in pursuance of an agreement with a Indian concern, whereas in the present case the parties involved are two foreign companies. This we are saying without addressing the question whether the receipts in the hands of the applicant qualifies as fees for technical services, as we find that the services provided by the applicant are not technical services.”
28. The Authority for Advance Rulings thus held that the revenue received from BHP Billiton Petroleum contracts by the assessee-company for the similar nature of services is not fees for technical services as per Explanation (2) to Section 9(1)(vii) of the Act and therefore, the provision of Section 44BB of the Act was applicable and not Section 44DA of the Act. It is pertinent to note that the writ petition filed by the Revenue against the order of the Authority for Advance Rulings (AAR) dated 25th July, 2011 is dismissed by the Hon’ble Uttarakhand High Court observing that the issue is squarely covered by the judgment of Hon’ble Supreme Court in the case of ONGC (supra).
29. As already noted, even though the issue involved in the case of ONGC (supra) before the Hon’ble Supreme Court was in the context of applicability the provision of Section 44BB vis-a-vis Section 44D of the Act, the applicability of Section 44BB of the Act in the facts of the assessee’s case was indepen4ently decided by the Hon’ble Supreme Court after having found that the services rendered by the assessee in the said case, which are similar to the services rendered by the assessee in the present case, were not in the nature of technical services as the same were covered by the exclusion provided in Explanation (2) to Section 9(1)(vii) of the Act. I, therefore, find it difficult to accept the contention of the learned Departmental Representative that the decision of Hon’ble Supreme Court in the case of ONGC cannot be applied in the present case because the same was rendered in the context of interplay and applicability of the provisions of Section 44BB vis-a-vis Section 44D of the Act and there was no occasion for the Hon’ble Supreme Court to consider and examine the applicability of the provisions of Section 44DA of the Act. It is also important to note that Section 44D of the Act was inserted in the Statute initially vide Finance Act, 1976 for taxability of income in the nature of royalty and fees for technical services. Later, a special provision was introduced by way of Section 44BB vide Finance Act, 1987. However, even when 44D was appearing in the statute book, Section 44BB contained a proviso which excluded applicability of Section 44BB to cases that were covered by Section 44D. There was, however, no similar proviso appearing under Section 44D of the Act. Finance Act, 2003 provided a sunset clause to the operation of Section 44D with effect from 1st April 2003. Simultaneously, from the said date, a similar provision by way of. Section 44DA was introduced. It is significant to note that both the provisions i.e. Sedtion 44t as well as Section 44DA pertain to the same subject. matter i.e. taxation of income by way of “royalties and fees for technical service”. Keepin’g in view this legislative history also, I am unable to accept the contention of the learned Departmental Representative that the decision of Hon’ble Supreme Court in the case of ONGC (supra) rendered in the context of applicability of provisions of Section 44BB vis-à-vis Section 44D cannot be applied in the present case involving the issue of applicability of Section 44BB vis-à-vis Section 44DA of the Act.
30. Strong reliance has been placed on behalf of the Revenue on the amendments made to Section 44BB and Section 44DA of the Act with effect from 01.04.2011 and the contentions raised by the learned Departmental Representative is that keeping in view the specific purpose for which the said amendments are made with effect from 01.04.2011, the legal position has changed drastically. In this regard, it is observed that the Hon’ble Delhi High Court in the case of OHM Ltd. (supra) had an occasion to consider the effect of amendments made to Section 44BB and Section 44DA of the Act with effect from 01.04.2011 and after considering the nature of the provisions of Section, 44BB and Section 44DA of the Act and by applying the relevant ruIe of interpetation, the matter was discussed and decided vide paragraph nos. 11 and 12 gas 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 services or facilities in connection with, or supplying plant and machinery on hire, used or to be used, in the prospecting for, or extraction or production of mineral oils including petroleum and natural gas. Section 44DA is also a provision which applies to non-residents only. It is, however, broader and more general in nature and provides for assessment of the income of the non-resident by way of royalty or fees for technical services, where such non-resident carries on business in India through a permanent establishment situated therein or performs services from a fixed place of profession situated in India and the right, property or contract in respect of which the royalties or fees for technical services are paid is effectively connected with the permanent establishment or fixed place of profession. Such income would be computed and assessed under the head “business” in accordance with the provisions of the Act, subject to the condition that no deduction would be allowed in respect of any expenditure or allowance which is not wholly or exclusively incurred for the business of such permanent establishment or fixed place of profession or in respect of amounts, if any, paid by the permanent establishment to its head office or to any of its other offices. Under section 44BB one does not find any reference to a permanent establishment in India. The type of services contemplated by the provision is more specific than what is contemplated by Section 44DA. Section 44BB refers specifically to “services or facilities in connection with, or supplying plant and machinery on hire, used or to be used in the prospecting for, or extraction or production of mineral oils”. Revenues earned by the non-resident from rendering such specific services are covered by Section 44BB. It is a well settled rule of interpretation that if a special provision is made respecting a certain matter, that matter is excluded from the general provision under the rule which is expressed by the maxim “Generallia specialibus non derogant”. It is again a well-settled rule of construction that when, in an enactment two provisions exist, which cannot be reconciled with each other, they should be so interpreted that, if possible, effect should be given to both. This was stated to be the “rule of harmonious construction” by the Supreme Court in Venkataramana Devaru v. State of Mysore AIR 1958 SC 255. 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 Corpn. (P.) Ltd. v. Secretary, Board Revenue Trivandrum, AIR 1964 SC 207 it was held that a familiar appPoricit,in such cases is to find out which of the two apparently confliqing, provisions is more general and which is mare specific and to construe the more general one as to exclude the more specific.
12. The second proviso to sub-section (1) of Section 44DA insertetby.‘ 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 (1) 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 establishment. Such a requirement has not been spelt out in Section 44BB; moreover, a flat rate of 10% of the revenues received by the non-resident for the specific services rendered by it are deemed to be profits from the business chargeable to tax in India under Section 44BB, whereas under Section 44DA, deduction of expenditure or allowance wholly and exclusively incurred by the non-resident for the business of the permanent establishment in India and for expenditure towards reimbursement of actual expense by the permanent establishment to its head office or to any of its other offices is allowed from the revenues received by the non-resident. Because of the different modes or methods prescribed in the two sections for computing the profits, it apparently became necessary to clarify the position by making necessary amendments. That perhaps is the reason for inserting the second proviso to sub-section (1) of Section 44DA and a reference to section 44DA in the proviso below sub-section (1) of Section 44BB. A careful perusal of both the provisos shows that they refer only to computation of the profits under the sections. If both the sections have to be read harmoniously and in such a manner that neither of them becomes a useless lumber then the only way in which the provisos can be given effect to is to understand them as referring only to the computation of profits, and to understand the amendments as having been inserted only to clarify the position. So understood, the proviso to sub-section (1) of Section 44BB can only mean that the flat rate of 10% of the revenues cannot be deemed to be the profits of the non-resident where the services are of the type which do not fall under that section, but are more general in nature so as to fall under Section 44DA. Similarly, the second proviso to sub-section (1) of Section 44DA can only be interpreted to mean that where the services are general in nature and fall under the sub-section read with Explanation 2 to Section 9(1)(vii) of the Act, thn’cip assessee rendering such services as provided in Section 44BB cannot claim the benefit of being assessed on the basis that 10% of the revenues will be WeeMed to be the profits as provided in Section 44BB. In other words, the amendment made by the Finance Act, 2010 w.e.f. 01.04.2011 in both the sections, cannot have the effect of altering or effacing the fundamental nature of both the provisions or their respective spheres of operation or to take away the separate identity of Section 44BB.”
31. Hon’ble Delhi High Court thus held, after analyzing and considering the nature of provisions contained in Section 44BB and Section 44DA of the Act and by applying the relevant rule of interpretation, that the amendments made by Finance Act, 2010 with effect from 01.04.2011, in both the sections, cannot have the effect of altering or effacing the fundamental nature of both the provisions or their respective spheres of operation or to take away the separate identity of section 44BB of the Act. As already noted, the issue relating to the applicability of Section 44BB of the Act was considered and decided independently by the Hon’ble Supreme Court in the case of ONGC (supra) and after having found that the services rendered by the assessee in the said case, which are similar to the services rendered by the assessee in the present case, were not in the nature of technical services as the same were covered by exclusion provided in Explanation (2) to Section 9(1)(vii) of the Act, it was held by the Hon’ble Supreme Court that Section 44BB was applicable. The amendments made by the Finance Act, 2010 with effect from 01.04.2011 in Section 44BB and Section 44DA of the Act thus cannot have the effect of altering or effacing the legal position propounded by the Hon’ble Supreme Court in the case of ONGC (supra) after taking into consideration the fundamental nature and the sphere of Section 44BB of the Act which has a separate identity as held by the Hon’ble Delhi High Court in the case of OHM Ltd (supra).
32. The Horible Delhi High Court in another case of Paradigm Geophysical Pty Ltd. (supra) had an occasion to consider the interplay., between Section 44BB and Section 44DA of the Act and after taking into consideration the effect of amendments made to both these provisions, it was held by their Lordships as under:-
“The interplay between section 44DA(1) and 44BB(1) of the Act has been a subject matter of several judgments. We need not engage ourselves with an elaborate analysis of the said provisions, as they existed prior to amendments, and it would suffice to note that the conflict between the two provisions has been noticed in several decisions. Revenue has always maintained its stand that both set of provisions are special in nature which operate in their own clearly defined spheres; once a particular receipt of income takes on the character of Royalty/FTS as defined in section 9(1) (vi)/9(1) (vii), it cannot be considered for treatment under section 44BB and has to be taxed under section 115A/44DA of the Act. That being said, there are several judgments of this court, wherein it has been held that Section 44BB is a specific provision and in case the income falls within the ambit of section 44DA(1) of the Act, it would be liable to be taxed under section 44BB(1) of the Act, provided it was in connection with extraction or production of mineral oils. This conflict or inconsistency now stands resolved by virtue of the amendments introduced under the Finance Act, 2010. Though the insertions are stated to be clarificatory, however the rationale behind the introduction of the amendments has to be examined to appreciate the legislative intent envisioned under the Finance Act, 2010.
13. Section 44 BB is a special provision for computing profits and gains of a non-resident from business of providing services or facilities in connection with, or supplying plant and machinery on hire, used or to be used in the prospecting for or extraction or production of mineral oils, including petroleum and natural gas. Section 44DA is broader and more general in ,,,nature and provides for assessment of the income of the non-resident by way xlf ‘royalty or fees for technical services, where such non-resident carries on business in India through a permanent establishment situated therein, or performance services from a fixed place of profession situated in India and the fight, property or contract in respect of which the royalties or fees for technical suites are paid is effectively connected with the permanent establishment or fixed place of profession situated in India. One more distinction between sections 44 DA and 44 BB is that, in section 44 BB one does not find any reference to a permanent establishment in India and the services contemplated therein are more specific than what is contemplated in section 44 DA. Thus, section 44BB is a special provision insofar as it relates to the applicability of the provision in the context of the specified services. Section 44DA applies where such non-resident carries on business in India through a permanent establishment stipulated therein or performs services from a fixed place of profession, such income shall be computed under the head “profit and gains of business or profession” in accordance with the provisions of the Act, subject to the condition that no deduction shall be allowed in respect of any expenditure or allowance which is not wholly or exclusively incurred for the business of such permanent establishment or fixed place of profession in India or in respect of amounts, if any, paid by the permanent establishment to its head office or to any of its other offices. Section 115A of the Act provides the rate of taxation in respect of income of a non-resident, in the nature of royalty or fees for technical services, other than the income referred in section 44DA i.e. income in the nature of royalty and fees for technical services which is not connected with the permanent establishment of the non-resident.
14. There is another section that needs to be referred, for the sake of comprehensive understanding i.e. section 44D of the Act, inserted in the first place vide Finance Act, 1976 for taxability of income in the nature of royalty and fee for technical services. Later, a special provision was introduced by way of section 44BB vide Finance Act, 1987. However, even when 44D was appearing in the statute book, section 44BB contained a proviso which excluded applicability of section 44BB to cases that were covered by section 44D. However, it is pertinent to note that there was no similar proviso appearing under section 44D. Finance Act, 2003 provided a sunset clause to the operation of section 44D with effect from 1st April 2003. Simultaneously, from the said date, a similar provision by way of section 44DA was introduced. It is significant to note that both the provisions i.e. section 44D as well as section 44DA pertain to the same subject matter i.e. taxation of income by way of “royalties and fees for technical services”.
15. The aforesaid provisions further underwent change by way of amendments introduced by the Finance Act, 2010 zv.e f 1-4-2011. By way of the said Act, a reference to section 44DA was inserted in the proviso to sub-section (1) of section 44BB. Simultaneously, a second proviso to sub-section (1) of section 44DA was inserted to the following effect:
“Provided further that provisions of Section 44BB shat respect of the income referred to in this Section”.
16. Keeping in mind the legislative history of amendments in provisions, the aforesaid amendments are significant and changed the AO with respect to the applicability of the said provisions. A taxing statute is to be construed strictly. The position that existed prior to the amendments was different. There was no proviso which restricted the applicability of section 44BB in respect of the income falling within the scope of section 44DA (1) of the Act. However, now that the proviso has been inserted, it has fundamentally restricted the applicability of section 44BB. This proviso has to be given due consideration and a meaning, recognizing the legislative intent. A plain reading of section 44BB (1) shows that it applies to an assessee who is engaged in the business of providing services or facilities in connection with, or supplying plant and machinery on hire use, or to be used, in the prospecting for, or extraction or production of mineral oils. However, the proviso thereto carves out an exception that the subsection shall not apply in a case where the provisions of section 44DA apply for the purpose of computing profits or gains or any other income referred to in those sections. Further, a reading of section 44DA makes it clear that it applies to the character of income which is in the nature of royalty or fees for technical services. The legislative intent behind the amendment is also evident from the memorandum to the Finance Bill 2010 which reads as under:
“Under the existing provisions contained in section 44BB (1) of the Income-tax Act, income of a non-resident taxpayer who is 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 for, or extraction or production of mineral oils is computed at ten per cent of the aggregate of the amounts paid.
Section 44DA provides the procedure for computing income of a nonresident, including a foreign company, by way of royalty or fee for technical services, in case the right, property or contract giving rise to such income are effectively connected with the permanent establishment of the said non-resident. This income is computed as per the books of account maintained by the assessee.
Section 115A provides the rate of taxation in respect of income of a non-resident, including a foreign company, in the nature of royalty or fee for technical services, other than the income referred to in section 44DA i.e., income in the nature of royalty and fee for technical services Ach is not connected with the permanent establishment of the non-
Combined effect of the provisions of sections 44BB, 44DA and 115A is that if the income of a non-resident is in the nature of fee for technical services, it shall be taxable under the provisions of either section 44DA or section 115A irrespective ‘of the business to which it relates. Section 44BB applies only in a case where consideration is for services and other facilities relating to exploration activity which are not in the nature of technical services. However, owing to judicial pronouncements, doubts have been raised regarding the scope of section 44BB vis-a-vis section 44DA as to whether fee for technical services. relating to the exploration sector would also be covered under the presumptive taxation provisions of section 44BB.
In order to remove doubts and clarify the distinct scheme of taxation of income by way of fee for technical services, it is proposed to amend the proviso to section 44BB so as to exclude the applicability of section 44BB to the’ income which is covered under section 44DA. Similarly, section 44DA is also proposed to be amended to provide that provisions of section 44BB shall not apply to the income covered under section 44DA.
These amendments are proposed to take effect from 1st April 2011 and will, accordingly, apply in relation to the assessment year 2011-12 and subsequent years.”
This proviso reinforces the legislative intent to carve out an exception to the character of the income referred to in this section i.e. royalty and fees for technical services. The principles relating to interpretation of statute, emphatically lay down that statute should be interpreted to preserve the legislative intent. A reading of the overall scheme of sections 44BB and 44DA leaves no manner of doubt that section 44BB applies if the assessee is engaged in the business of providing services or facilities in the prospecting for, or extraction or production of minerals oils. However, if income earned by such assessee takes the colour of royalty or FTS, then the computation for the purposes of determining “profits and gains of business or profession” is to be done as per the provisions of section 44DA of the Act. Therefore, now in the current scenario if the income of the assessee is Royalty or FTS, then the same would be taxed under section 9(1)(vi)/(vii) read with section 115A or 44DA, as the case may be.”
33. After taking into consideration the conflict or inconsistency in “the provisions of Section 44BB and Section 44DA of the Act, attempt made by virtue of the amendments introduced under the Finance Act, 2010 to resolve the same, the nature and scope of both the provisions, the legislative history of amendments made in both the provisions and the legislative intent behind the amendments made by the Finance Act, 2010, it was held by the Hon’ble Delhi High Court that Section 44BB applies if the assessee is engaged in the business of providing services or facilities in the prospecting for, or extraction or production of minerals oils; but, if income earned by such assessee takes the colour of royalty or FTS, then the computation of income is to be done as per the provisions of section 44DA of the Act. The services or facilities provided by the assessee in the present case are similar to the services provided in the case of ONGC (supra), which as held by the Hon’ble Supreme Court, are inextricably connected with the prospecting for or extraction or production of mineral oils, and the same being covered by the exclusion provided in Explanation (2) to Section 9(1)(vii) of the Act, are not in the nature of fee for technical services (FTS). Provision of Section 44BB of the Act thus applies in the case of the assessee and not Section 44DA of the Act as held by the Honible Delhi High Court in the case of Paradigm Geophysical Pty Ltd. (supra) after taking into consideration, inter alia, the amendments Imad.e,to Section44BB and Section 44DA of the Act by Finance Act, 2010 with effect from01.04.2011.
34. In support of the Revenue’s case, reliance has been strongly placed on tile–decision of Hon’ble Delhi High Court in the case of PGS Geophysical AS (supra). It is observed that the assessee-company in the said case was engaged in providing geophysical services to oil and natural gas and conducted electric magnetic survey, processing and interpretation of data. The data so collected for the survey was used for the off-shore oil industries and the nature of the said services being FTS was not disputed by the assessee in the said case as noted by the Hon’ble Delhi High Court in paragraph No.7 of the judgement. The services rendered by the assessee in the said case thus were covered by Section 44DA of the Act and keeping in view this admitted position, it was held by the Hon’ble Delhi High Court that Section 44DA was applicable in the case of the assessee and not Section 44BB of the Act. As rightly pointed out by the learned Counsel for the assessee, the said decision was rendered by the Hon’ble Delhi High Court on 09.07.2014 and the benefit of the decision of Hon’ble Supreme Court in the case of ONGC (supra) rendered subsequently on 01.07.2015 was not available to the Hon’ble Delhi High Court while deciding the said case. Moreover, the Hon’ble Delhi High Court had an occasion again to consider a similar issue subsequently in the case of Paradigm Geophysical Pty Ltd. (supra) which was decided on 13.03.2020. In the said case, the assessee-company was engaged in the business of developing and providing customized ,software enabled solutions and annual maintenance services. The solutions provide, by the assessee-company were used by oil and gas industry in relation to excavation, extraction, production activities and seismic analysis The assessment year involved was 2012-13 and the issue was whether the case of the assessee was covered by the provisions of Section 44BB or Section 44DA of the Act. After analyzing the provisions of Section 44BB and Section 44DA, as amended by the Finance Act, 2010 with effect from 01.04.2011 read with the provisions of Section 9(1)(vi) and Section 9(1)(vii), and taking into consideration the judicial pronouncements cited by both the sides including the decision of Hon’ble Supreme Court in the case of ONGC (supra) as well as the decision of their own court in OHM Ltd. (supra), the Hon’ble Delhi High Court held that if the income from the services provided by the assessee is in the nature of FTS under Explanation (2) to Section 9(1)(vii) of the Act, the income would be taxable under Section 44DA of the Act and, if not, the income of the assessee would be taxable under Section 44BB of the Act as held by Hon’ble Supreme Court in the case of ONGC (supra) and as clarified by the CBDT in Circular No.1862 dated 22.10.1990 since it is excluded from the definition of ‘fees for technical services’ under Explanation (2) to Section 9(1)(vii) of the Act being covered under the exception relating to “mining” and “like activities” provided in the definition of FTS.
35. Having regard to all the facts of the case and keeping in view the legal position emanating from the judicial pronouncements as discussed above, I am of the view that the revenue received by the assessee-company during the year under consideration on account of provision of facilities and services of seismic data acquisition, planning and carrying out of pre-survey study, taking marine data and confirming prospects, maintenance/ upgradation /support of software licenses, etc, is not in the nature of fees for technical services as the same is covered by the exclusion provided in Explanation (2) to Section 9(1)(vii) of the Act being consideration received for “mining or like projects” and the same, therefore, is not taxable under Section 44DA of the Act. The said services or facilities provided by the assessee actually are inextricably connected with prospecting for, or extraction or production of, mineral oils as held by the Hon’ble Supreme Court in the case of ONGC (supra) under the similar facts and circumstances and the revenue received for the same accordingly is taxable under Section 44BB of the Act.
36. As regards the issue involved in question No.2, the learned representatives of both the sides have agreed that the same is squarely covered in favour of the assessee by the decision of Hon’ble Uttarakhand High Court in the case of Director of Income-tax International Taxation Vs. Schlumberger Asia Services Ltd, [2019] 414 ITR 1, wherein it was held that the amount reimbursed to assessee (service provider) by ONGC (service recipient), representing service tax paid earlier by assessee to Government of India, not being an amount paid to assessee on account of providing services and facilities in connection with prospecting for, or extraction or production of, mineral oils in India, would not form part of aggregate amount referred to in clauses (a) and (b) of sub-section (2) of Section 44BB of the Act. To the similar effect is the decision of Hon’ble Delhi High Court in the case of Director of Income-tax Vs. Mitchell Drilling International (P.) Ltd., [2016] 380 ITR 130 (Del.), wherein it was held that the service tax collected by the assessee for passing it on to Government was not to be included in gross receipt in terms of Section 44BB(2) read with Section 44BB(1) of the Act for the purpose of computing presumptive income of the assessee under Section 44BB of the Act. Respectfully following the decision of Hon’ble jurisdictional High Court in the case of Schlumberger Asia Services Ltd (supra) as well as that of Hon’ble Delhi High Court in the case of Mitchell Drilling International (P.) Ltd. (supra), I hold that the amount received by the assessee in the present case as reimbursement of service tax is not includible in gross turnover for the purpose of computing taxable income under Section 44BB of the Act.
37. I accordingly agree with the view taken by the learned Judicial Member on both the issues and answer both the questions referred under Section 255(4) of the Act in favour of the assessee.
38. In the light of above discussion, the matter may be placed before the regular Bench for appropriate order in accordance with law.
