Case Law Details

Case Name : Western Geco International Ltd. Vs Additional Director of Income-tax, International Taxation (ITAT Delhi)
Appeal Number : IT Appeal No. 5977 (DELHI) of 2010
Date of Judgement/Order : 04/05/2012
Related Assessment Year : 2007-08
Courts : All ITAT (7336) ITAT Delhi (1719)

ORDER

K.D. Ranjan, Accountant Member 

This appeal by the assessee for the Assessment Year 2007-08 arises out of assessment order passed under sec. 143(3) read with sec. 144C(13) of the Income-tax Act, 1961 (the Act). The effective grounds of appeal raised by the assessee are reproduced as under:-

“1.  The Ld. Assessing Officer has erred on facts and in law in dismissing the claim of the Appellant that its activity of seismic data acquisition and processing is an integral part of prospecting for mineral oil and therefore its income from such activities should be computed in accordance with the provisions of section 44BB of the Act. These services have a direct and definite bearing on exploration activities undertaken by petroleum and gas enterprises.

 2.  The Ld. Assessing Officer has erred on facts and in law in ignoring that the consideration arising under contracts for seismic data acquisition and processing services, which may range from six months to five years, do not qualify as ‘fee for technical services’ as defined in Explanation 2 to section 9(1)(vii) of the Act (herein after referred to as ‘fee for technical services’) as it falls within the exclusion of the definition of ‘fee for technical services’, being “consideration for any construction, assembly, mining or like project undertaken by the recipient”.

 3.  The Ld. Assessing Officer has erred on facts and in law in levying interest upon the Appellant under section 234B and 234D of the Act disregarding the fact that the Appellant is a non-resident assessee and its entire revenues/receipts are subject to tax withholding in India under section 195 of the Act and the Appellant is not liable to pay advance tax in respect of such revenues.

 4.  The Ld. Assessing Officer has erred on facts and in law in initiating penalty proceedings under section 271B of the Act.”

2. The only issue for consideration relates to taxability of fee for technical services under sec. 44BB or under sec. 44DA or under sec.115A of the Act. The facts of the case stated in brief are that the assessee carried out work with ONGC, Reliance Industries Ltd., Hardy Exploration & Production (India) Inc. & Westerngeco International Inc. GSPC & Cairn Energy India Pty. Ltd. for the acquisition and processing of 3D seismic data along with its personnel and equipments. The assessee offered income under sec. 44BB(1) of the Act on the ground that the revenues were received by the non-resident assessee engaged in the business of providing seismic services or facilities or supplying plant and machinery on hire or to be used in connection with prospecting for, or extraction or production of, mineral oils in India. However, the Assessing Officer was of the view that the income was received by the assessee as fee for technical services as defined under sec.9(1)(vii) of the Act and not under sec. 44BB of the Act. The revenue from ONGC, RIL and Gujarat State Petroleum Ltd. were squarely covered by Provisions of sec. 9(1)(vii) read with sec. 115A of the Act. Therefore, the income of Rs. 756,17,15,932/- was assessable @ 10%. As regards revenues earned from Cairn Energy India Pty. Ltd. and Hardy Exploration & Production (India) Inc., the Assessing Officer brought to tax the amount under sec. 9(1)(vii) read with sec. 28 of the Act by bringing the sum of Rs.6,71,54,604/- as deemed profit @ 25% on estimate basis.

3. The assessee objected to the addition proposed by the AO and agitated the matter before the Dispute Resolution Penal-II, Delhi which vide their order dated 29.09.2010 held that the receipts were liable to be assessed @ 10% as fee for technical services. The DRP accordingly directed the AO to pass order accordingly. The AO finally passed order under sec. 143(3)/144(13) vide order dated 22.10.2010.

4. Before us when the matter came up for hearing the learned AR of the assessee submitted that the issue is squarely covered by the decision of ITAT in the case of CGG Veritas Services, SA v. Addl DIT, International Taxation [2012] 50 SOT 335/18 taxmann.com 13 (Delhi). The learned AR of the assessee further submitted that terms of contract are to be seen. The assessee was engaged in providing the services in connection with 3D seismic data and processing thereof on board. He therefore, submitted that since the AO has applied provisions of sec. 44DA and as per decision of ITAT in the case of CGG Veritas Services, SA (supra) provisions of sec. 44DA are not applicable for the relevant Assessment Year as held by ITAT in Para 46 at page 67 of the order. He therefore, submitted that since provisions of sec. 44DA in case of an assessee having PE or fixed place of profession are not applicable for Assessment Year 2004-05 to 2010-11, the income of the assessee is to be assessed under sec. 44BB(1) of the Act. On the other hand, the learned CIT-DR submitted that the AO had not examined the issue as to whether the assessee had PE or fixed place of profession during the relevant period or not. The AO had also not examined the dates on which the contracts were entered into. If the date of contract was before 1.04.2003, the provisions of sec. 44D would be applicable. Since the issue has not been examined by the AO with reference to Permanent Establishment, the learned CIT-DR requested that the matter may be remanded back to the file of the AO with the directions to examine the issue relating to Permanent Establishment and decide the case in accordance with the decision of ITAT in the case of CGG Veritas Services, SA (supra) or the ratio of any other case which will be applicable at that point of time.

5. We have heard both the parties and gone through the material available on record. There is no dispute about the fact that the assessee during the relevant previous year was engaged in the business of providing services or facilities in connection with the prospecting for, or extraction or production of mineral oils in India. The assessee provided services by way of collection of 3D seismic data and processing thereof on board. The ITAT Delhi Bench ‘B’, Delhi in the case of CGG Veritas Services, SA (supra) has observed in Para 46 of order as under:-

“46. On combined reading of section 44DA(1) and 115A(1)(b) it is clear that the provisions of section 44DA(1) are applicable in the case of a non-resident assessee who carries on business in India through a permanent establishment, or perform professional services from a fixed place of profession, and fees for technical services paid under the contract is effectively connected with such permanent establishment or fixed place of profession in India. In section 115A(1)(b) the Finance Act, 2003 with effect from 1.4.2004 substituted words “a non-resident (not being a company) or a foreign company includes any income by way of royalty or fees for technical services other than income referred to in sub-section (1) of section 44DA” for words “a foreign company, includes any income by way of royalty or fees for technical services”. Therefore, w.e.f. 1.4.2004 fee for technical services which is not connected with permanent establishment of business or fixed place of profession in India, will be taxable u/s 115A(1)(b) of the Act. As observed earlier section 44DA was inserted in proviso to section 44BB(1) by the Finance Act, 2010 with effect from 1.4.2011 and simultaneously inserted second proviso to section 44DA applicable from assessment year 2011-012 according to which provisions of section 44BB(1) will not be applicable in respect of income referred to this section. On combined reading of proviso to section 44BB(1) and second proviso to section 44DA it is 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 profession will fall not under section 44BB(1) and will be assessable under section 44DA of the Act. To make it more clear the fee or technical services can be divided in following categories:

 (i)  Fee for technical services rendered in connection with prospecting for or extraction or production of mineral oil having business PE or fixed place of profession – (section 44DA);

(ii)  Fee for technical services rendered in connection with prospecting for or extraction or production of mineral oil without having business PE or fixed place of profession – (section 115A);

(iii)  Other fee for technical services having business PE or fixed place of profession – (section 44DA);

(iv)  Other fee for technical services without business PE or fixed place of profession – (section 115A);

Thus it is abundantly clear that with effect from assessment year 2011-12 fee for technical services whether rendered in connection with prospecting for or extraction or production of mineral oil or otherwise will be assessable either u/s 44DA or section 115A of the Act depending on fact whether such receipts are effectively connected with PE or fixed place of profession, or not. However, for assessment year 2004-05 to 2010-11 the consideration received for 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 profession will fall outside the scope of section 44DA and will be assessable under section 44BB(1) of the Act for the simple reason that proviso to section 44BB(1) does not contain section 44DA for these years.”

From above decision it is clear that (i) Fee for technical services having business PE or fixed place of profession will be assessable under sec. 44DA. (ii) Fee for technical services without having business PE or fixed place of profession will be assessable under sec. 115A. The Tribunal has further held that fee for technical services from Assessment Year 2011-12 whether rendered in connection with prospecting for or extraction or production of mineral oil will be assessable either under sec. 44DA or under sec. 115 depending upon the fact whether such receipts are effectively connected with PE or fixed place of profession or not. However, for the Assessment Year 2004-05 to 2010-11 considerations received as 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 profession will fall outside the scope of 44DA and will be assessable under sec. 44BB(1) of the Act for the simple reason that Proviso to sec. 44BB(1) does not contain sec.44DA for these years. In the instant case as argued by the learned CIT-DR, issue relating to PE or fixed place of business or profession has not been examined by the AO. Therefore, we feel it proper to set aside the matter to the file of the AO with the direction to examine the issue whether in the relevant assessment year the assessee had permanent establishment or fixed place of business or profession. The AO will also examine whether the contract was entered into between the parties before 1.04.2003 or subsequently. The AO will decide the issue in the light of decision of ITAT in the case of CGG Veritas Services, SA (supra) or any other decision of Hon’ble Apex Court/High Court, if any, which might come on the date of assessment order to be passed contrary to the decision of ITAT in the case of CGG Veritas Services, SA (supra). The AO is directed accordingly.

6. In the result, the appeal filed by the assessee is allowed for statistical purposes.

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