THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on: 08.04.2016
+ ITA 612/2012
PGS EXPLORATION (NORWAY) AS ..... Appellant
versus
ADDITIOANAL DIRECTOR OF INCOME TAX ..... Respondent
Advocates who appeared in this case:
For the Appellant : Mr Ajay Vohra, Senior Advocate with Mr S.S. Tomar,
Advocate.
For the Respondent: Mr Raghvendra Singh and Mr Rahul Chaudhary,
Advocates.
CORAM:
HON'BLE MR. JUSTICE S. RAVINDRA BHAT
HON'BLE MR. JUSTICE VIBHU BAKHRU
JUDGMENT
VIBHU BAKHRU, J
1. PGS Exploration (Norway) AS (now known as 'PGS Geophysical
AS'), a company incorporated under the laws of Norway (hereafter ,,the
Assessee), has filed the present appeal under Section 260A of the Income
Tax Act, 1961 (hereinafter ,,the Act) impugning the order dated 20.04.2012
passed by the Income Tax Appellate Tribunal (hereafter ,,the Tribunal) in
ITA No. 4056/Del/2011. The said appeal was directed against the
assessment order dated 29.07.2011 passed under Section 144C read with
Section 143(3) of the Act pursuant to directions of the Dispute Resolution
Panel (hereafter ,,DRP) issued on 18th July, 2011.
2. The principal controversy involved in the present appeal relates to
ITA No. 612/2012 Page 1 of 22
whether the consideration received by the Assessee for services rendered by
the Assessee to entities resident in India is "fees for technical services"
within the meaning of Explanation 2 to Section 9(1)(vii) of the Act; and,
whether the same is taxable under section 115A or Section 44BB of the
Act.
3. The present appeal was admitted on 08.01.2013 and the following
questions of law were framed:
1. Whether on the facts and circumstances of the case, the
Tribunal erred in law in holding that the activity of
2D/3D seismic survey carried on by the appellant in
connection with exploration of oil, was in the nature of
"fees for technical services" in terms of Explanation 2 to
section 9(1)(vii) of the Act?
2. Whether on the facts and circumstances of the case, the
Tribunal erred in law in holding that income of the
appellant, in the nature of "fees for technical service" was
liable to tax in India under section 44BB of the Act only
if the appellant had permanent establishment ("PE") in
India in the relevant assessment year?
4. Briefly stated, the relevant facts necessary to consider the disputes
involved are as under:-
4.1 The Assessee is a company incorporated under the laws of Norway
and is principally engaged in the business of providing Geophysical
services worldwide. These services include the services of acquiring and
processing two dimensional and three dimensional seismic data (both on
land and offshore). The acquisition of seismic data is the primary method of
exploring for hydrocarbon deposits.
ITA No. 612/2012 Page 2 of 22
4.2 M/s B.G. Exploration and Production India Limited (in short 'BG')
and Reliance Industries Limited (in short 'RIL'), who had been granted
exploration licenses, engaged the services of the Assessee for acquiring and
processing three dimensional marine seismic data with respect to an
offshore block awarded to the said companies.
4.3 The Assessee opted to be taxed on presumptive basis under Section
44BB(1) of the Act at the rate of 10% of the gross revenue. In conformity
with the same, the assessee also applied to the Income Tax Authorities for
authorizing deduction of tax at source (hereafter 'TDS') at lower rates. RIL
also filed an application for deducting TDS at a lower rate on the basis that
the tax on income of the Assessee from the contracts in question was to be
computed under Section 44BB of the Act. These applications were
accepted and the concerned officers issued orders under Section 197/195 of
the Act, authorizing deduction of TDS at the rate of 4.223% of the gross
amounts payable by the contracting oil companies (BG and RIL) to the
Assessee for the financial year 2007-2008.
4.4 The Assessee also filed its return of income for the Previous Year
2007-2008 (AY 2008-09) on 30.09.2008 declaring a total income of
`26,87,46,256/-. The return filed by the assessee was picked up for
scrutiny.
5. The Assessing Officer (hereafter ,,the AO) rejected the contention of
the Assessee that its income was liable to be taxed on a presumptive basis
under Section 44BB(1) of the Act. The AO held that the services provided
by the Assessee were technical in nature and the consideration payable to
ITA No. 612/2012 Page 3 of 22
the Assessee for rendering services in terms of the contracts in question was
"fees for technical services" within the scope of Section 9(1)(vii) of the
Act. Accordingly, the AO held that the tax on such income was to be
computed under the provisions of Section 115A of the Act and not under
Section 44BB(1) of the Act. A draft assessment order to the aforesaid effect
was made by the Assessing Officer on 24.12.2010.
6. The Assessee filed its objections to the said draft assessment order
before the DRP, which were rejected by an order dated 18.07.2011; the
DRP directed the AO to complete the assessment as per the draft
assessment order. Thereafter, on 29.07.2011, the AO passed the final
assessment order computing the Assessees taxable income at
`2,68,74,62,560/-.
7. Aggrieved by the assessment order dated 29.07.2011, the Assessee
preferred an appeal before the Tribunal, inter alia, on the ground that the
nature of its income did not fall within the definition of ,,fees for technical
services under Explanation 2 to Section 9(1)(vii) of the Act and that tax on
its income was liable to be computed under Section 44BB(1) of the Act.
The Tribunal disposed of the aforesaid appeal by an order dated
20.04.2012, which is impugned herein (,,the impugned order).
8. By the impugned order, the Tribunal concurred with the AO/DRP
that the consideration received by the Assessee was ,,fees for technical
services falling within the scope of Explanation 2 to Section (9)(1)(vii) of
the Act. The Assessee's contention that services in question fell within the
scope of "construction, assembly, mining or like project" and, therefore, the
ITA No. 612/2012 Page 4 of 22
consideration received for the said services was excluded from the scope of
'fees for technical services', was rejected by the Tribunal. The Tribunal then
proceeded to consider whether tax on Assessee's income from the contracts
in question would be computed under Section 44DA of the Act or Section
115A of the Act and following its earlier decision in CGG Veritas Services
SA: ITA No. 4653/Del/2010, held that the answer to the aforesaid issue
would be dependent on whether the Assessee had a permanent
establishment (hereafter 'PE') in India. The Tribunal quoting from its earlier
decision in CGG Veritas Services SA (supra) held as under:-
"(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 or technical services without business PE or
fixed place of profession (section 115A);"
9. Since the issue whether the Assessee had a PE in India was not
considered by the Authorities below, the Tribunal remitted the matter to the
AO for decision afresh and further directed the AO to first determine
whether the Assessee had a PE in India and, thereafter determine the tax
payable in accordance with its ruling in CGG Veritas Services SA (supra).
ITA No. 612/2012 Page 5 of 22
Submissions
10. It was contended by Mr Vohra, learned senior counsel appearing for
the assessee that income falling within the ambit of Section 44DA(1) of the
Act would be liable to be taxed under Section 44BB(1) of the Act if it was
in connection with prospecting for, or extraction or production of mineral
oils because Section 44BB was a special provision. It was further submitted
that this issue was squarely covered by the decision of the this Court in
Director of Income Tax-II v. OHM Ltd.: [2012] 28 taxmann 120 (Del)
which had approved the ruling of the Authority for Advanced Ruling in
Geofizyka Torun sp Z.O.O, In re : [2010] 320 ITR 268.
11. Mr Vohra further contended that consideration received for the
services rendered by the Assessee would not fall within the expression ,,fees
for technical services as such services were inextricably linked with
prospecting and extraction of mineral oil and thus, would fall within the
exclusion as provided under Explanation 2 to Section 9(1)(vii) of the Act.
He further submitted that the said issue was squarely covered in favour of
the Assessee by a recent decision of the Supreme Court in Oil and Natural
Gas Corporation Limited v. Commissioner of Income Tax & Anr.: Civil
Appeal 731/2007, decided on 01.07.2008.
12. Mr Raghvendra Singh, the learned counsel appearing for the
Revenue, contested the submissions made on behalf of the assessee and
submitted that "fees for technical services" received by a non-resident from
an Indian concern would be taxable under Section 44DA(1) of the Act, if
the assessee carried on the business through a PE in India. He submitted
ITA No. 612/2012 Page 6 of 22
that the amendment introduced in the proviso to Section 44BB(1) of the Act
by the Finance Act, 2010 with effect from 01.04.2011, specifically
excluded the incomes falling within the scope of Section 44DA of the Act
from its scope. He submitted that even though the period in question was
prior to the said amendment, nonetheless, the amendment would be
applicable as it was only clarificatory. He urged that the said amendment
would be instructive in determining whether the income from "fees for
technical services" was liable to be taxed under Section 44DA(1) of the Act
even if the same was in connection with prospecting for, or extraction or
production of, mineral oils. Insofar as the decision of this Court in OHM
Ltd. (supra) is concerned, he submitted that a Special Leave Petition under
Article 136 of the Constitution of India had been preferred by the Revenue
against the said judgment.
13. Mr Singh further contended that the decision of the Supreme Court in
Oil and Natural Gas Corporation Limited (supra) must be read in the
context of the facts of that case. He submitted that the subject matter of the
aforesaid decision was whether certain services fell within the scope of
mining and not whether the services were in connection with a "like
project". He argued that in the present case, the Assessee itself had not
claimed that its services were in connection with a mining project and,
therefore, the said decision would have no application to the facts of the
present case.
Reasoning and Conclusion
14. Before proceeding further, it would be necessary to refer to Section
ITA No. 612/2012 Page 7 of 22
44BB of the Act. The said Section as in force during AY 2008-09 is
reproduced below:-
"Special provision for computing profits and gains in
connection with the business of exploration, etc., of mineral
oils.
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 non-resident, engaged in the business of
providing services or facilities in connection with, or
supplying plant and machinery on hire used, or to be used, in
the prospecting 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 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
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 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
ITA No. 612/2012 Page 8 of 22
prospecting for, or extraction or production of,
mineral oils outside India.
(3) Notwithstanding anything contained in sub-section (1),
an assessee may claim lower profits and gains than the profits
and gains specified in that sub-section, if he keeps and
maintains such books of account and other documents as
required under sub-section (2) of section 44AA and gets his
accounts audited and furnishes a report of such audit as
required under section 44AB, and thereupon the Assessing
Officer shall proceed to make an assessment of the total
income or loss of the assessee under sub-section (3) of section
143 and determine the sum payable by, or refundable to,
the assessee.
Explanation.--For the purposes of this section,--
(i) plant includes ships, aircraft, vehicles, drilling
units, scientific apparatus and equipment, used
for the purposes of the said business;
(ii) mineral oil includes petroleum and natural
gas.
15. A plain reading of proviso to Section 44BB(1) of the Act indicates
that it would not apply in a case where provisions of Section 115A of the
Act are applicable for computing profits and gains or other income referred
to in that Section. It is, thus, necessary to refer to Section 115A of the Act
for ascertaining the nature of income that is taxable therein and
consequently, expressly excluded from the ambit of Section 44BB(1) of the
Act by virtue of the proviso thereto. The relevant extract of Section 115A
of the Act is quoted below:-
"Tax on dividends, royalty and technical service fees in the case of
foreign companies.
ITA No. 612/2012 Page 9 of 22
115A. (1) Where the total income of
xxxx xxxx xxxx xxxx xxxx
(b) 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 received from
Government or an Indian concern in pursuance of an
agreement made by the foreign company with
Government or the Indian concern after the 31st day
of March, 1976, and where such agreement is with an
Indian concern, the agreement is approved by the
Central Government or where it relates to a matter
included in the industrial policy, for the time being in
force, of the Government of India, the agreement is in
accordance with that policy, then, subject to the
provisions of sub-sections (1A) and (2), the income-
tax payable shall be the aggregate of,--
(A) the amount of income-tax calculated on the
income by way of royalty, if any, included in
the total income, at the rate of thirty per cent if
such royalty is received in pursuance of an
agreement made on or before the 31st day of
May, 1997 and twenty per cent where such
royalty is received in pursuance of an
agreement made after the 31st day of May,
1997 but before the 1st day of June, 2005;
(AA) the amount of income-tax calculated on the
income by way of royalty, if any, included in
the total income, at the rate of ten per cent if
such royalty is received in pursuance of an
agreement made on or after the 1st day of
June, 2005;
(B) the amount of income-tax calculated on the
income by way of fees for technical services, if
any, included in the total income, at the rate of
ITA No. 612/2012 Page 10 of 22
thirty per cent if such fees for technical
services are received in pursuance of an
agreement made on or before the 31st day of
May, 1997 and twenty per cent where such
fees for technical services are received in
pursuance of an agreement made after the 31st
day of May, 1997 but before the 1st day of
June, 2005; and
(BB) the amount of income-tax calculated on the
income by way of fees for technical services, if
any, included in the total income, at the rate of
ten per cent if such fees for technical services
are received in pursuance of an agreement
made on or after the 1st day of June, 2005;
and
(C) the amount of income-tax with which it would
have been chargeable had its total income
been reduced by the amount of income by way
of royalty and fees for technical services.
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) foreign currency shall have the same meaning as
in the Explanation below item (g) of sub-clause (iv)
of clause (15) of section 10;
(c) royalty shall have the same meaning as in
Explanation 2 to clause (vi) of sub-section (1) of
section 9;
(d) Unit Trust of India means the Unit Trust of India
established under the Unit Trust of India Act, 1963
(52 of 1963).
16. It is relevant to note that at the material time, the proviso to Section
44BB(1) did not expressly exclude the incomes covered under Section
ITA No. 612/2012 Page 11 of 22
44DA of the Act. However, any income falling under Section 115A of the
Act was expressly excluded from the scope of Section 44BB(1) of the Act.
By virtue of the Finance Act, 2010, the proviso to Section 44BB(1) of the
Act was amended with effect from 01.04.2011 to specifically exclude from
its scope, incomes referred to under Section 44DA of the Act. The question
whether any income falling within the scope of Section 44DA of the Act
would necessarily have to be excluded from the scope of Section 44BB(1)
of the Act in respect of the period prior to 01.04.2011 will be adressed a
little later. However, at this stage, it is necessary to observe that it is
indisputable that any income referred to under Section 115A would,
indisputably, fall outside the scope of Section 44BB(1) of the Act during
the relevant Assessment Year.
17. A plain reading of Section 115A(1)(b) of the Act indicates that
income by way of fees for technical services other than income referred to
in Section 44DA(1) of the Act would be computed in the manner as
specified therein. Explanation (a) to Section 115A(1) of the Act expressly
provides that the expression "fees for technical services" wou ld have the
same meaning as 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 services (including the provision of
services of technical or other personnel) but does not include
consideration for any construction, assembly, mining or like
project undertaken by the recipient or consideration which
would be income of the recipient under the head Salaries.
ITA No. 612/2012 Page 12 of 22
18. Thus, the income of an assessee would be taxable under Section
115A(1)(b) of the Act unless (a) it fell within the exclusionary clause of
Explanation 2 to Section 9(1)(vii) of the Act, that is, where the
consideration received by the assessee is for "construction, assembly,
mining or like project" undertaken by it; or (b) it fell within the scope of
Section 44DA (1) of the Act. At this stage it is necessary to refer to Section
44DA(1) of the Act, which reads as under:-
"Special provision for computing income by way of royalties, etc.,
in case of non-residents.
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
ITA No. 612/2012 Page 13 of 22
permanent establishment to its head office or to
any of its other offices.
19. A plain reading of Section 44DA(1) of the Act indicates that said
provision would be applicable, inter alia, in respect of income by way of
fees for technical services by a foreign company in cases where the foreign
company carries on business through a PE in India. Thus, in order to
compute the tax payable by a foreign company within the parameters of
section 44DA(1), the following conditions are required to be met:
(a) The foreign Company should receive such fees for technical
services from Government or an Indian concern in pursuance of an
agreement with the Government/Indian Concern;
(b) The foreign company carries on business in India through a PE in
India, or performs professional services from a fixed place of
profession in India; and
(c) The contract in respect of which income by way of fees for
technical services is received is effectively connected with the PE in
India.
20. If the aforesaid conditions are met, the income of the appellant
would fall within the scope of Section 44DA(1) of the Act and,
consequently, would be excluded from the scope of Section 115A(1)(b) of
the Act. Thus, whilst the existence of PE is not a condition specified in
section 44BB(1) of the Act, it is a necessary condition for applying section
44DA(1) of the Act and, consequently a necessary condition to exclude the
application of section 115A(1)(b) of the Act. However, both Sections
ITA No. 612/2012 Page 14 of 22
44DA(1) and Section 115(1)(b) apply to ,,fees for technical services and
any income which falls outside the scope of the said expression would also
fall outside the scope of Section 44DA and assuming the said income is not
royalty, it would also fall outside the scope of Section 115A of the Act and
none of the two provisions could be applied for computing the tax payable
on such income.
21. In this view, the primary issue to be addressed is whether the
consideration received by the Assessee for providing Geophysical services
would fall within the exclusion provided in Explanation 2 to Section
9(1)(vii) of the Act. In our view, the aforesaid question is no longer res
integra and is squarely covered by the decision of the Supreme Court in Oil
and Natural Gas Corporation Limited (supra). The said decision was
rendered in a batch of matters concerning several non-resident assessees
who claimed that their service fell within the expression "mining or like
projects" and thus, the consideration received by them for such services
stood excluded from the scope of 'fees for technical services'. The said
assessees classified the contracts entered into by them under eight heads
which are reproduced below:-
"1. Carrying out seismic surveys and drilling for oil
and gas.
2. Services starting/re-starting/enhancing production
of oil and gas from wells
3. Services for prospecting for exploration of oil and
or gas.
4. Planning and supervision of repaid of wells.
ITA No. 612/2012 Page 15 of 22
5. Repair, Inspection or Equipment used in the
exploration, extraction or production of oil and gas.
6. Imparting Training.
7. Consultancy in regard to exploration of oil and gas.
8. Supply, Installation, etc. of software used for oil
and gas exploration."
22. In its judgement, the Supreme Court referred to a Circular No.1862
dated 22.10.1990 which in turn referred to the Attorney General's opinion
that prospecting for or extraction or production of mineral oil could be
termed as 'mining operations' and consequently provided that expression
"mining projects" or like projects" as occurring in Explanation 2 to Section
9(1)(vii) of the Act would also cover "rendering of services like imparting
of training and carrying out drilling operations for exploration or
exploitation of oil and natural gas". And, after examining various contracts
involved in the appeals before it, the Supreme Court held that the contracts
were inextricably connected with prospecting, extraction or production of
mineral oil and, accordingly, proceeded on the basis that consideration for
such services was not fees for technical services. The Supreme Court held
that even though there may be certain ancillary works contemplated under
the contracts in question but since the dominant purpose of each of such
contract is for prospecting, extraction or production of mineral oils, the
income from such services were to be computed under Section 44BB of the
Act.
23. In view of the above, the first question - Whether on the facts and
circumstances of the case, the Tribunal erred in law in holding that the
ITA No. 612/2012 Page 16 of 22
activity of 2D/3D seismic survey carried on by the appellant in connection
with exploration of oil, was in the nature of "fees for technical services" in
terms of Explanation 2 to section 9(1)(vii) of the Act must be answered
the affirmative, that is, in favour of the Assessee and against the Revenue.
24. In view of our decision that the consideration for services rendered
by the Assessee cannot be construed as "fees for technical services", the
second question does not arise. However, since the counsel have advanced
their respective contentions on the said question, we consider it appropriate
to address the same on the assumption that the consideration received by
the Assessee for the services rendered is 'fees for technical services'.
25. This Court in the case of OHM (supra) had considered the conflict
between the provisions of Section 44DA(1) and 44BB(1) of the Act and
affirmed the view expressed by the AAR in Geofizyka (supra) and held that
Section 44BB of the Act, being industry specific was a special provision
and would, thus, override the provisions of Section 44DA(1) of the Act in
respect of any income that had arisen in respect of business carried on in
connection with prospecting for, or extraction or production of mineral oils
and which also fell within the ambit of Section 44DA(1) of the Act. The
relevant extract of the said judgment reads as under:-
11. We do not think that there is any error in the view taken
by AAR. Basically the rule that the specific provision excludes
the general provision has been applied. Section 44BB is a
special provision for computing the profits and gains of a non-
resident in connection with the business of providing 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
ITA No. 612/2012 Page 17 of 22
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
ITA No. 612/2012 Page 18 of 22
of services rendered by the nonresident, that would reduce
section 44BB to a useless lumber or dead letter and such a
result would be opposed to the very essence of the rule of
harmonious construction. In South India Corporation (P) Ltd.
v. Secretary, Board of Revenue Trivandrum, AIR 1964 SC 207
it was held that a familiar approach in such cases is to find
out which of the two apparently conflicting provisions is more
general and which is more specific and to construe the more
general one as to exclude the more specific.
26. Following the aforementioned decision, we accept the contention
advanced on behalf of the Assessee that since it is clearly engaged in
business of providing services in connection with prospecting for mineral
oils, its income - if it falls within the ambit of Section 44DA(1) of the Act -
would be taxable under Section 44BB(1).
27. The contention advanced on behalf of the Revenue that "fees for
technical services" earned by a foreign company in respect of a contract
which is connected with the PE of such foreign company in India would be
taxable under Section 44DA(1) of the Act, irrespective of whether the same
is connected with extraction/production of mineral oils, cannot be accepted.
By virtue of Finance Act, 2003, such income was excluded from the ambit
of Section 115A(1)(b) of the Act w.e.f. 01.04.2004. Although, with effect
from said date such income was taxable under Section 44DA(1) of the Act
but in certain cases where such income was earned by the assessee by
carrying on a business of providing services in connection with prospecting
for, or extraction or production of mineral oils, the said income would also
fall within the express language of Section 44BB(1) of the Act and in view
of the decision of this Court in OHM (supra), the provisions of Section
ITA No. 612/2012 Page 19 of 22
44BB(1) of the Act would be applied in preference to Section 44DA(1) of
the Act, in those cases. This conflict between Section 44BB(1) and
44DA(1) of the Act was resolved by the Finance Act, 2010 by including a
reference to Section 44DA in the proviso to Section 44BB(1) of the Act
with effect from 01.04.2011 and simultaneously introducing a second
proviso to Section 44DA(1) which reads as under:
Provided further that the provisions of section 44BB shall
not apply in respect of the income referred to in this section.
28. Thus, 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. However during the period from 01.04.2004 to 01.04.2011 tax on
any income from fees for technical services falling within Section 44DA(1)
of the Act - which was excluded from the ambit of Section 115A(1)(b) of
the Act but was not expressly excluded from the scope of Section 44BB(1)
of the Act - would be computed under Section 44BB(1) of the Act. Since
the Assessment Year 2008-09 falls within this period, the income of the
assessee, to the extent it falls within the scope of section 44DA(1) of the
Act and stands excluded from section 115A(1)(b) of the Act, would be
computed in accordance with section 44BB(1) of the Act.
29. Having stated the above, we must clarify that the income falling
within Section 115A(1)(b) of the Act which does not fall within the four
corners of Section 44DA(1) of the Act would also not be taxable under
Section 44BB(1) of the Act, for the reason that by virtue of proviso to
Section 44BB(1) of the Act, it is expressly excluded. Accordingly, if the
ITA No. 612/2012 Page 20 of 22
consideration received by the Assessee for services rendered is found to be
,,fees for technical services, the AO would specifically have to determine
(a) whether the assessee had a PE in India during the relevant period; and
(b) if so, whether the contracts entered into by the appellant with BG and
RIL were effectively connected with the Assessees PE in India. It is only,
if the AO finds that the said two conditions are satisfied, that the income of
the assessee would be computed under Section 44BB(1) of the Act.
However, if such conditions are not satisfied then the income tax payable
by the appellant would have to be computed in accordance with Section
115A(1)(b) of the Act.
30. Therefore, if it is accepted that the Tribunal was right in finding that
the consderation received by the Assessee from BG and RIL was fees for
technical services, in our view, the Tribunals decision to remit the matter
to the AO for determining whether the Assessee had a PE in India and
whether the consideration received by it was connected with that PE, would
have to be sustained.
31. Accordingly the second question - Whether on the facts and
circumstances of the case, the Tribunal erred in law in holding that income
of the appellant, in the nature of "fees for technical service" was liable to
tax in India under section 44BB of the Act only if the appellant had
Permanent Establishment ("PE") in India in the relevant assessment year
is answered in the negative, that is, in favour of the Revenue and against the
Assessee.
32. In view of the aforesaid, the impugned order and the assessment
ITA No. 612/2012 Page 21 of 22
order are set aside and the matter is remanded to the file of the AO to assess
the Assessees income and the tax payable thereon by applying the
provisions of Section 44BB of the Act.
VIBHU BAKHRU, J
S. RAVINDRA BHAT, J
APRIL 8, 2016
RK
ITA No. 612/2012 Page 22 of 22
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