IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES : I : NEW DELHI
BEFORE SHRI R.S. SYAL, AM AND SHRI A.T. VARKEY, JM
ITA No.234/Del/2013
Assessment Year : 2005-06
CGG Marine SAS (now CGG Vs. ADIT,
Veritas Services SA), International Taxation,
C/o BMR & Associates LLP, 13-A, Subhash Road,
22nd Floor, Building No.5, Dehradun.
Tower A, DLF Cyber City,
DLF Phase III,
Gurgaon.
PAN : AADFC8178N
(Appellant) (Respondent)
Assessee By : Shri Ajay Vohra, Advocate
Department By : Shri Yogesh Kumar Verma, CIT, DR
ORDER
PER R.S. SYAL, AM:
This appeal by the assessee is directed against the order
passed by the AO u/s 147/143(3)/144C(13) of the Income-tax Act,
1961 (hereinafter also called `the Act') on 30.11.2012 in relation
to the assessment year 2005-06.
ITA No.234/Del/2013
2. The first ground is against initiation of the assessment.
Briefly stated, the facts of the case are that the assessee filed its
return declaring income under the head `Profits and gains of
business or profession' at ` 21,22,18,595/-. The AO issued notice
u/s 143(2), inter alia, requiring the furnishing of copies of
Contracts with ONGC, which led to the earning of the above
business income. The assessee furnished copies of such Contracts
along with details of its employees/personnel who came to India
in connection with the execution of the contract. Here, it is
relevant to mention that the assessee received US $ 4,65,428/-
from ONGC on account of mobilization fee in terms of Contracts
for hire of vessel for 3D Seismic Data Acquisition. The said
amount was included u/s 44BB of the Act for the purposes of
computing gross receipts. However, it was mentioned in the
return that the assessee reserved its right to revise the
computation of gross receipts to the extent of the amounts
received on account of mobilization fee attributable to the activity
undertaken in India. That is how, it was claimed during the
course of the assessment proceedings that the receipt from
mobilization or demobilization be taxed only to such extent as
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could be reasonably attributed to the operations carried out in
India. In support of this contention, the assessee relied on a Third
Member order passed by the Delhi Bench of the Tribunal in the
case of Saipem SPA vs. DCIT (2004) 88 ITD 213 (Del)(TM). The AO
passed order u/s 143(3) of the Act on 05.09.2006 after fully
considering and discussing the two Contracts with ONGC. In that
order, he accepted that the assessee was engaged in the
business of providing equipments and services or facilities in
connection with prospecting for extraction or production of
mineral oils and as such the revenue received in pursuance of the
aforesaid Contracts was taxable u/s 44BB of the Act. He, further
held that the entire mobilization fee constituting gross receipts
u/s 44BB included by the assesee in its return of income was
correct and hence the claim that mobilization fee attributable to
mobilization activity undertaken outside India should not be taxed
in India, was not acceptable. That is how, the AO completed the
original assessment on the basis of gross revenues from ONGC at
`212,21,85,946 and computed income at `21,22,18,594 u/s
44BB of the Act @ 10% of such gross receipts. Thereafter, a
notice u/s 148 was issued on the ground that section 44BB was
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not applicable to the facts of the instant case. It was opined that
the income of the assessee was required to be assessed as `fees
for technical services'. In reaching this prima facie belief, the AO
relied on the judgment of the Hon'ble jurisdictional High Court in
the case of CIT vs. ONGC as agent of M/s Foramer France,
Dehradun (2008) 299 ITR 438 (Uttaranchal) and the amendment
made to section 44DA through the Finance Bill, 2010. The
assessee raised objections against the initiation of reassessment
proceedings but without success. Consequently, the draft
assessment order was passed. The assessee approached the
Dispute Resolution Panel (DRP), inter alia, against the reopening
of assessment proceedings. However, it failed to convince the
DRP on its line of reasoning for declaring the initiation of
reassessment as bad in law. The Assessing Officer passed the
final order. That is how, the assessee is now before us against
the initiation of reassessment proceedings through ground No.1 of
its appeal.
3. We have heard the rival submissions and perused the
relevant material on record. The ld. AR argued that the AO
embarked upon the reassessment by changing his opinion on the
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question of taxability of receipts from ONGC pursuant to
contracts, copies of which were placed before him and thoroughly
examined during the original assessment proceedings. Now,
terming the revenue of the assessee as `fees for technical
services' covered u/s 9(1)(vii) of the Act, in the opinion of the ld.
AR, amounted to change of opinion, which was not sustainable.
To buttress his contention, the ld. AR relied on the judgment of
the Hon'ble Supreme Court in CIT Vs. Kelvinator of India Ltd.
(2010) 320 ITR 561 (SC). Per contra, the ld. DR stated that the
income chargeable to tax escaped assessment in the original
assessment order passed u/s 143(3) by taxing such revenue u/s
44BB(1) of the Act whereas it ought to have been considered as
`fees for technical services' as per the judgment of the Hon'ble
jurisdictional High Court in the case of ONGC as agent of Foramer
France (supra) read with the amendment made to section 44DA
liable to tax under the later provision.
4. It is evident that the AO initiated reassessment by forming
belief about the escapement of income due to its earlier
erroneous taxation u/s 44BB instead of u/s 44DA on two factors,
viz., the judgment of the Hon'ble jurisdictional High Court in
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ONGC as agent of M/s Foramer France (supra) and the
amendment proposed to section 44DA through the Finance Bill,
2010. We will examine both the factors, one by one.
A. REASSESSMENT ON THE BASIS OF JUDGMENT IN ONGC
5. The main case of the ld. AR before us was that having
thoroughly examined the question of taxability of receipts u/s
44B, the action of the AO in initiating reassessment to bring such
receipts u/s 44DA amounted to a change of opinion, which was
not possible in view of Kelvinator of India (SC)(supra).
I. WHETHER JUDGMENT IN KELVINATOR(SC) IS APPLICABLE?
6.1. In order to decide as to whether the reassessment
proceedings amounted to change of opinion or not, it is apposite
to have a glance at the reasons which led to the initiation of
reassessment proceedings, which are as under:-
"The assessee company is a non resident company.
During the year under consideration the assessee has
filed the return of income at the income of
Rs.212,565,273/- on 31.10.2005 u/s 44BB (1) of IT Act.
Assessment was completed u/s 143(3) of IT Act on
05.09.2006 at the income of Rs.212,565,270/-. During
the year under consideration the assessee has derived
revenues from ONGC for planning and executing
acquisition of 3D seismic data and basis 3D seismic
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data processing in different survey areas in Mumbai,
Kutch, Saurashtra, KG offshore and in Eastern Offshore,
etc.
As the assessee NRC is engaged in providing acquisition and
on Board processing of 2D & 3D seismic data for activities
relating to oil and gas sector by way of providing its men,
the services rendered are technical services and are liable to
be assessed as fees for technical services. The Hon'ble High
Court of Uttarakhand vide its order in Income Tax Appeal
No.239 of 2001 in the case of ONGC as agent of M/s Foramer
France Dehradun, has held on 15.12.2005 that services
which are technical in nature are not covered u/s 44BB(1) of
IT Act. The copy of the order of the Hon'ble High Court of
Uttarakhand is placed on record.
Further the Hon'ble Finance Minister while introducing
Finance Bill 2010 has clarified in the explanatory note to
Finance Bill that "Combined effect of the provisions of
section 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."
In view of this revenues of Rs.2,122,185,946/- earned during
the year under consideration should be brought to tax @
10%. Hence I have reasons to believe that the income of
Rs.1,909,967,352/- has escaped assessment for the year
under consideration."
6.2. From the above reasons, it clearly emerges that the
assessee filed its return declaring income u/s 44BB of the Act.
Such income was derived from ONGC for planning and executing
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acquisition of 3D seismic data and basis 3D seismic data
processing in different survey areas in Mumbai and Kutch etc. It
is also apparent from the reasons recorded, within a period of four
years from the end of the relevant assessment year, that the
original assessment was completed by the AO u/s 143(3) by
assessing such income u/s 44BB of the Act. One of the two
factors which led to the initiation of reassessment proceedings, is
the judgment of the Hon'ble jurisdictional High Court in the case
of ONGC as agent of M/s Foramer France (supra). Let us examine
as to whether it is a case of change of opinion in terms of the
judgment of the Hon'ble Supreme Court in Kelvinator of India Ltd.
(supra) ?
6.3. Section 147, to the extent it is relevant for the present
appeal, provides that if the Assessing Officer has reason to
believe that any income chargeable to tax has escaped
assessment for any assessment year, he may, subject to the
provisions of sections 148 to 153, assess or reassess such income
and also any other income chargeable to tax which has escaped
assessment and which comes to his notice subsequently in the
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course of the proceedings under this section. Then there is
proviso to this section, which provides that where an assessment
under sub-section (3) of section 143 has been made for the
relevant assessment year, no action shall be taken under this
section after the expiry of four years from the end of the relevant
assessment year, unless any income chargeable to tax has
escaped assessment for such assessment year by reason of the
failure on the part of the assessee to disclose fully and truly all
material facts necessary for his assessment, for that assessment
year.
6.4. A close reading of section 147 divulges that in ordinary
circumstances, the AO can assess or reassess any income
chargeable to tax which escaped assessment, subject to the other
relevant sections. Such escapement may be due to any reason.
However, there is a statutory caveat to this sweeping provision,
which is contained in the proviso limiting the reassessment only
to such cases where the any income chargeable to tax has
escaped assessment for such assessment year by reason of the
failure on the part of the assessee to disclose fully and truly all
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material facts necessary for his assessment, provided a period of
four years has not expired from the end of the relevant
assessment year and the assessment was originally made u/s
143(3).
6.5. The Hon'ble Supreme Court in Kelvinator of India Ltd. (supra)
considered a case in which the original assessment was made u/s
143(3) and the AO sought to reopen the assessment within a
period of four years from the end of the relevant assessment
year. The CIT(A), the tribunal and Hon'ble High Court
quashed/upheld the quashing of the reassessment proceedings
by holding that the assessee had disclosed all the facts and that
it was a case of a mere change of opinion on the part of the AO.
When the matter came up before the Hon'ble Apex Court, it was
held that a mere "change of opinion" cannot per se be a reason to
reopen. It was further held that the AO has power to reopen the
assessment u/s 147 provided there is some tangible material for
coming to the conclusion about the escapement of income. The
crux of the judgment is that a mere "change of opinion" cannot
per se be a reason to reopen.
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6.6. A unison reading of section 147 with its proviso makes it
manifest that where assessment was originally made u/s 143(3),
there can be escapement of income in four situations. The first
situation is where the assessee did not properly disclose the
particulars of his income. The second is where the assessee
properly disclosed the particulars of his income, but the AO failed
to examine the relevant issues. The third is again where the
assessee properly disclosed the particulars of his income and the
AO also examined the relevant issues but still the income escaped
assessment. The fourth is the happening of some post
assessment event leading to escapement of income, such as,
retrospective statutory amendment or assessment of earlier year
or enunciation of law by higher judicial forum. There can be no
question of `change of opinion' in the first and second situations.
`Change of opinion' in the fourth situation would always be the
outcome of such a post assessment event. `Change of opinion' in
the third situation may normally happen under one of the two
circumstances. First circumstance is the change of opinion
simplicitor, when the AO, without reference to any earlier
unconsidered material, reapplies his mind to the assessment and
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forms a belief about the escapement of income. Second
circumstance is the change of opinion triggered by some tangible
material, whether or not existing at the time of original
assessment, coming to the notice of the AO after the completion
of original assessment illuminating escapement of income in the
original assessment. It is the first circumstance of the third
situation in which the ratio in the case of Kelvinator of India
(supra) applies, that is, where the original assessment was made
u/s 143(3) in which the assessee properly disclosed the
particulars of his income and the AO also examined the issue but
still the income escaped assessment and now the AO is proposing
the reopen the assessment to bring such escaped income to tax
net without reference to any tangible material coming to his
notice after the completion of original assessment.
6.7. Going by the mandate of section 147, without the aid of the
proviso, it prima facie appears that a reassessment can be
undertaken when there is escapement of income by all or any of
the above four situations. When we take the assistance of proviso
as well and make an indepth analysis of the provision, it emerges
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that where the original assessment was completed u/s 143(3) and
a period of four years has expired from the end of the relevant
assessment year, the recourse to the provisions of section 147
can be taken only if the case falls under the first situation,
namely, where the income escaped assessment because of the
assessee not properly disclosing the particulars of his income. No
reassessment in such an event is permissible under the second,
third and fourth situations as discussed above, namely, where the
assessee properly disclosed the particulars of his income, but the
income escaped assessment with or without the failure on the
part of the AO to examine the issue properly or some post
assessment event as discussed above. However, when we
thoroughly examine the provision, it turns out that where a period
of four years has not expired from the end of the relevant
assessment year and the reassessment is taken up after the
original assessment u/s 143(3), the provisions of section 147 can
be activated in the first two situations, the second circumstance
of the third situation and the fourth situation. The embargo on
reassessment in such an event is only in the first circumstance of
the third situation, being the change of opinion simplicitor without
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reference to any unconsidered tangible material coming to the
notice of the AO indicating escapement of income.
6.8. It is noticed that in the instant case, the AO has
unequivocally referred, inter alia, to the judgment of the Hon'ble
jurisdictional High Court in the case of ONGC as agent of Foramer
France (supra) for holding that the revenue from services which
are technical in nature in a business to which section 44BB
applies, does not fall within the ambit of section 44BB(1) of the
Act but is taxable under the provisions of either section 44D or
section 115A.
II. WHETHER INITIATION OF REASSESSMENT ON THE BASIS OF
EXISTING OR LATER JUDGMENT IS VALID?
7.1. It is vivid that the AO referred to the judgment of the
Hon'ble jurisdictional High Court in the case of ONGC as agent of
Foramer France (supra) for canvassing a view that the revenue
from technical services in the business of exploration etc. of
mineral oils etc., does not fall within the ambit of section 44BB(1)
of the Act as was erroneously held in the original assessment.
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7.2. Before proceeding further, it is sine qua non to decide the
preliminary question which looms large before us is as to whether
an existing judgment of the Hon'ble Supreme Court or that of the
Hon'ble jurisdictional High Court on the date of the passing of the
original assessment order or such judgment coming into
existence after the passing of such order, can constitute a
foundation for initiating reassessment? The ld. AR argued with
vehemence that a judgment contrary to the view taken by the AO
in the original assessment cannot form a bedrock for reopening
of the assessment.
7.3. It goes without saying that the Hon'ble courts declare the
law and do not legislate. The interpretation given to a particular
provision by the Hon'ble Supreme Court or for that matter by the
Hon'ble High Court is considered as the correct interpretation of
that provision not from the date of the judgment, but from the
date on which this provision was enacted. It means that if after
the passing of an order by the AO, there is an advent of
interpretation of law by the Hon'ble Supreme Court or that of the
Hon'ble jurisdictional High Court, which runs contrary to what
was opined and understood by the AO in the original assessment,
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the reopening of the assessment to make it in line with the
interpretation rendered by the Hon'ble Supreme Court or the
Hon'ble jurisdictional High Court, cannot in our considered
opinion, vitiate the initiation of reassessment.
7.4. The Hon'ble Apex Court in ITO vs. Saradbhai M. Lakhani and
Another (2000) 243 ITR 1 (SC) has held in the context of section
147(b) that the decision of a High Court constitutes `information'
and the ITO can initiate proceedings u/s 147 on becoming aware
of the relevant decision of the High Court. The Hon'ble Punjab &
Haryana High Court in Punjab State Co-operative Agricultural
Development Bank Ltd. vs. CIT (2008) 305 ITR 156 (P&H)
considered a case in which the deduction allowed u/s 80P in the
original assessment turned out to be not allowable pursuant to
the subsequent decision of the Hon'ble Supreme Court. The AO
issued notice for reopening the assessment to be made in
conformity with the judgment of the Hon'ble Supreme Court. The
assessee filed writ petition, which met with the fate of dismissal
by the Hon'ble High Court on the premise that notice for
reassessment was not based merely on change of opinion, but
also on subsequent judgment of the Hon'ble Supreme Court and,
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hence, the reopening was justified. The same view has been
restated in the case of Jawand Sons vs. CIT(A) (2010) 326 ITR 39
(P&H).
7.5. At this juncture, it is relevant to mention that the AO passed
original order u/s 143(3) on 05.09.2006. The judgment of the
Hon'ble jurisdictional High Court, dated 15.12.05 in ONGC as
agent of Foramer France (supra), is one of the reasons for issuing
notice u/s 148. It means that the judgment of the Hon'ble
jurisdictional High Court, which formed the basis for initiation of
reassessment proceedings, was in existence at the time of
passing of the original order by the AO. In this regard, it become
relevant to note the judgment of the Hon'ble Supreme Court in
the case of A.L.A. Firm vs. CIT (1991) 189 ITR 285 (SC) in which it
has been held that reassessment u/s 147(b) on the basis of a
judicial decision though available at the time of original
assessment, but not considered by the ITO, is perfectly valid,
being based on definite material not considered earlier.
7.6. Here, we want to clarify that the scope of reassessment
prior to 1.4.1989 was limited inasmuch as this section had two
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clauses. Clause (a) of section 147 provided for reassessment by
the AO for the reason of omission or failure on the part of the
assessee to disclose fully and truly all material facts necessary for
assessment; and clause (b) empowered the AO to reassess
income escaping assessment in consequence of information in his
possession notwithstanding any omission or failure as mentioned
in clause (a). The legislature brought comprehensive changes
and considerably enlarged the scope of section 147 by omitting
the hitherto clauses (a) and (b) and mandating reassessment of
income escaping assessment by any reason whatsoever de hors
the earlier limited scope of section 147. To put it in simple terms,
the amended section 147, as substituted w.e.f. 1.4.1989, not
only embraces the cases of income escaping assessment covered
under earlier provisions of clauses (a) and (b), but also other
situation leading to the escapement of income, of course, subject
to the other relevant provisions. Thus, it is manifest that all the
decisions rendered in the context of section 147 in the pre-
substitution era upholding the validity of reassessment, apply
with full vigor in the post-amendment era as well. In the light of
the above discussion and coming back to our context, we have
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absolutely no doubt in our minds that not only the non-
consideration of a decision of a jurisdictional High Court available
at the time of passing the original assessment order, but the
subsequent decisions also validate reassessment, if it turns out
that the income chargeable to tax escaped assessment in the
light of the ratio decidendi of such decisions. Thus, we do not find
any force in the contention of the ld. AR that a decision of the
Hon'ble jurisdictional High Court cannot be a good ground to
reopen the assessment. Whereas, the decision rendered after the
completion of original assessment indicating escapement of
income would validate reassessment by putting the case in the
afore discussed fourth situation, the decision rendered before the
completion of original assessment, which was omitted to be
considered earlier, would validate reassessment by landing the
case in the above discussed second circumstance of third
situation.
8. Reverting to the instant facts, it is more than clear that the
AO did not venture to re-examine the assessment afresh de hors
any fresh material, which would otherwise have made it a case of
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change of opinion ousting the jurisdiction of the AO to initiate
proceedings u/s 147. As in the instant case, the original
assessment was completed u/s 143(3) and notice u/s 148 was
issued within a period of four years from the end of the relevant
assessment year, basing the initiation of reassessment, inter alia,
on the basis of the existing judgment of the Hon'ble jurisdictional
High Court, the same is thus covered under the above referred
second circumstance of the third situation. As such, the judgment
in the case of Kelvinator of India (supra) has no application. This
contention advanced on behalf of the assessee is, ergo,
jettisoned.
III. IS JUDGMENT IN ONGC REALLY APPLICABLE?
9.1. Having held that a judgment of the Hon'ble Summit Court or
that of the Hon'ble jurisdictional High Court delivered subsequent
to the passing of the assessment order or non-consideration of an
existing judgment empowers the AO to initiate reassessment
proceedings, it needs to be examined if the decision in the case of
ONGC as agent of Foramer France (supra) is really applicable to
the facts of the instant case. In that case, ONGC as agent of
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Foramer France (non-resident) submitted its return declaring a
particular income. The AO observed that the non-resident
company had entered into a contract with ONGC for supply of
personnel having expertise in operation and management of
drilling rigs, `Sagar Jyothi' and `Sagar Pragati'. After going
through the terms of the Contract, the AO held that the assessee
had provided technical expertise to ONGC for which the latter
paid technical fee to the foreign company (the assessee). That is
how, the AO completed the assessment of the said non-resident
as per the provisions of section 44D of the Act, as against section
44BB which was claimed by the assessee to be applicable. The
CIT(A) as well as the Tribunal decided the issue in assessee's
favour. However, the Hon'ble jurisdictional High Court noticed
that the Foramer France was required to carry out, inter alia, the
drilling operations through its personnel. The purpose for which
the contract was entered into, was found to be requiring the
assessee to render technical services through its personnel and
the owner, namely, ONGC utilizing the services of such expatriate
personnel. The Hon'ble High Court held that the consideration
received by the assessee for rendering technical services was
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liable to be considered u/s 44D read with section 115A and not u/s
44BB of the Act.
9.2. It can be seen from the factual matrix of that case that
Foramer France earned revenue for placing its expatriate
personnel at the disposal of ONGC and showed it as chargeable to
tax u/s 44BB. However, the Hon'ble High Court approved the
view of the AO that such revenue was in the nature of fee for
technical services covered u/s 9(1)(vii) of the Act, liable to be
taxed as per section 44D of the Act. When we view the facts of
the present case, it emerges that the assessee derived revenue
from ONGC for planning and executing acquisition of 3D seismic
data and basis 3D seismic data processing in different survey
areas with the help of its personnel and vessel, income from
which was earlier assessed to tax u/s 44BB, but the AO initiated
reassessment by forming the belief that such revenue should
have been charged to tax u/s 44DA of the Act. At this stage, it
would be relevant to set out the relevant part of section 44BB,
which is as under:-
`Special provision for computing profits and gains in connection
with the business of exploration, etc., of mineral oils.
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44BB. (1) Notwithstanding anything to the contrary contained in
sections 28 to 41 and section 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 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.'
(Emphasis supplied by us)
*inserted by the Finance Act, 2010 w.e.f. 1.4.2011
9.3. A bare perusal of the above provision reveals that
where a non-resident assessee is engaged in the business of
providing services or facilities in connection with or supplying of
plant and machinery on hire used or to be used in prospecting or
for extraction or production of mineral oils, etc., then,
notwithstanding anything to the contrary contained in sections 28
to 41 and sections 43 and 43A, a sum equal to 10% of the amount
specified in sub-section (2) shall be deemed to be the profits and
gains of such business. It is pertinent to note the marginal note
of section 44B, which is: "Special provision for computing profits
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and gains in connection with the business of exploration, etc., of
mineral oils."
9.4. Now, let us examine section 44D, relevant to the case
of ONGC as agent of Foramer France (supra), which is applicable
in relation to an agreement entered into before 1.4.2003 by a
foreign company with Government or with the Indian concern.
The relevant part of section 44D is as under:-
`Special provisions for computing income by way of royalties, etc.,
in the case of foreign companies.
44D. Notwithstanding anything to the contrary contained in
sections 28 to 44C, in the case of an assessee, being a foreign
company,--
(a)....
(b) no deduction in respect of any expenditure or allowance shall
be allowed under any of the said sections in computing 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 the foreign company with Government or with the Indian
concern after the 31st day of March, 1976 but before the 1st day
of April, 2003;
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) to (d)...'
(Emphasis supplied by us)
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9.5. A quick glance at this provision divulges that it is also a
special provision for computing income by way of royalty or fees
for technical services in the case of foreign companies. It is
further clear that the non obstante clause contained in section
44D excludes the contrary provisions contained in section 28 to
44C of the Act. It is still further worthwhile to note that this
section is not applicable in respect of agreements made by a
foreign company after 01.04.2003. The term `fees for technical
services' has been assigned the same meaning which is given in
Explanation 2 to section 9(1)(vii). In turn, the Explanation 2
defines `fees for technical services' to mean any consideration for
rendering of any managerial, technical or consultancy services
including the provision of services for technical or other
personnel, but excluding any consideration for any construction,
assembly, mining or like projects undertaken by the recipient of
the consideration which would be income of the recipient
chargeable under the head `salaries'.
9.6. The rule of generalia specialibus non derogant means that a
special provision prevails over a general provision. In other
words, if a particular subject falls both under a general provision
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as well as a specific provision, then it is the specific provision
which would take such subject in its ambit to the exclusion of
general provision. This rule has been quoted with approved by the
Hon'ble Supreme Court and several High Courts in a plethora of
cases including CIT vs. Shahzada Nand and Sons & Ors (1966) 60
ITR 392 (SC) (relevant page 400) and Forbes Forbes Campbell and
Co. Ltd. vs. CIT (1994) 206 ITR 495 (Bom.) The effect of this rule
is that a special provision overrides a general provision on the
same subject matter.
9.7. Coming back to our context, we find that section 44BB
applied by the assessee in the case of ONGC as agent of Foramer
France, has been statutorily designated as a special provision for
computing profits and gains in connection with the business of
exploration, etc., of mineral oils. It is also found that section
44D, held to be applicable by the AO in that case, has also been
statutorily designated as a special provision for computing income
by way of royalties, etc. There would have been no difficulty in
holding as to which provision would apply to a given case, if one
had been general and the other a special. But, in the present
case, the state of affairs is that both sections 44BB and 44D have
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been categorized by the legislature as special provisions. In such
a situation, the question arises as to which of these two special
provisions should have an overriding effect over the other. It is
patent that section 44BB is a special provision for computing
profits and gains in connection with the business of exploration,
etc., of mineral oils, which applies to 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.
The non obstante clause in this section makes the contrary
contents of sections 28 to 41 and sections 43 and 43A
inapplicable. Section 44D, which is again a special provision, is
applicable to an assessee, being a foreign company, earning
royalty income or fees for technical services engaged in any kind
of business. The non obstante clause in section 44D making the
contrary provisions of section 28 to 44C inoperative, has made
the things clear that section 44D is a special provision when
pitted against section 44BB in so far as income by way of royalty
or fees for technical services earned by a foreign company
engaged in any business, including prospecting etc. of minerals
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oils, is concerned. The reason for our this conclusion is that the
exclusion of sections 28 to 44C by section 44D also covers section
44BB, which applies in respect of income from the business of
exploration, etc., of mineral oils. When sections 28 to 44C have
been made inoperative in the case of section 44D, it implies that
the subject matter of section 44D, if covered under any of the
sections including 44BB, shall also fall in section 44D. Now, when
we examine the language of section 44BB, it can be seen that the
non obstante clause is restricted in application only in respect of
sections 28 to 41 and sections 43 and 43A. It implies that section
44D has not been made inoperative by section 44BB. The nitty
gritty of the matter is that royalty or fees for technical services
pertaining to any kind of business, including exploration, etc., of
mineral oils as covered u/s 44BB, shall be considered only u/s
44D. This position can also be culled out from the language of
proviso to section 44BB as applicable to the previous year
relevant to the assessment year under consideration, which
provides that this sub-section shall not apply in a case where the
provisions of sections 42, 44D, 115A or 293A apply for the
purposes of computing profits and gains or any other income.
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The effect of this proviso is again the same that if section 44D
applies to a particular income, then section 44BB would not apply.
As assessee in the case of ONGC as agent of Foramer France
(supra) received consideration by way of fees for technical
services albeit engaged in the business of exploration, etc., of
mineral oils, the income was rightly chargeable to tax u/s 44D of
the Act and not section 44BB.
9.8. Having seen that income by way of royalty or fees for
technical services earned by a foreign company in pursuance of
an agreement made before 1.4.2003 is chargeable u/s 44D of the
Act, now it needs to be considered as to whether the same thing
would be applicable in the context of section 44DA also. In order
to find answer to this question, it is of immense importance to
note down the relevant parts of section 44DA, which are 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
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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
establishment 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.
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.'
(Emphasis supplied by us)
*inserted by the Finance Act, 2003 w.e.f. 1.4.2004
**inserted by the Finance Act, 2010 w.e.f. 1.4.2011
9.9. A single asterisk above indicates that section 44DA was
inserted by the Finance Act, 2003 w.e.f. 1.4.2004 in respect of
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agreements made by the non-resident or foreign company with
Government or the Indian concern after 1.4.2003. The sunset
clause in section 44D(b), being the agreement made before
1.4.2004, led to the birth of section 44DA which, in turn, applies in
respect of income by way of royalty or fees for technical services
received by a non-resident (not being a company) or a foreign
company in pursuance of an agreement entered into after
31.3.2003. The agreements in the present case were admittedly
entered into after this cut-off date of 31.3.2003, which implies
that our case cannot be governed by section 44D, which was
applicable in case of ONGC as agent of Foramer France (supra). It
is not even the case of the AO that the assessee is covered u/s
44D.
9.10. Now, let us examine as to whether it is section 44DA or
section 44BB, which applies to our case. When we read section
44DA in juxtaposition to section 44D, it is manifested that there is
no non obstante clause in section 44DA as is there in section 44D,
which made the provision of section 28 to 44C, including section
44BB, inoperative. Now, when we examine the language of
section 44DA, it follows that the income by way of royalty or fees
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ITA No.234/Del/2013
for technical services received by a non-resident is chargeable to
tax under this section. The absence of the non obstante clause in
section 44DA, which has again been designated as a special
provision, has made the matter complex. Whereas, on one hand
there is one special provision contained in section 44BB dealing,
inter alia, with fees for technical services from the business of
exploration, etc., of mineral oils, there is another special provision
in section 44DA, which applies to royalty or fees for technical
services received by a non-resident from any kind of business
without any specific reference to the business of prospecting for
or extraction or production of mineral oils. Thus, it is obvious that
fees for technical services earned in the business of exploration,
etc., of mineral oils stand included in both the provisions.
Whereas fees for technical services from any kind of business
including the business of exploration etc. of minerals oils is
covered u/s 44DA, fees for technical services from the business of
exploration etc. of minerals oils is specifically covered u/s 44BB.
In such a situation, fees for technical services referred to in
section 44BB, being a special provision as regards income from
the business of exploration etc. of minerals, would assume the
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character of special provision vis-a-vis section 44DA and would be
superimposed on the later section. Proviso to section 44BB(1) at
the relevant time provided for non-application of the provisions of
this section in a case where section 42 or section 44D or section
115A etc. applied. This proviso did not have any reference to
section 44DA, which provision was albeit inserted w.e.f. 1.4.2004.
The two asterisks above indicate that the proviso providing for
non-applicability of section 44BB to the royalty and fees for
technical services covered u/s 44DA, has been inserted by the
Finance Act, 2010 w.e.f. 1.4.2011. Simultaneously, section 44DA
has been added to the proviso to section 44BB along with the
existing section 44D etc. by the Finance Act, 2010 w.e.f. 1.4.2011.
This shows that during the period relevant to the A.Ys 2004-05 to
2010-11, the amount of royalty or fees for technical services
arising in the business of exploration etc. of mineral oils was
covered under section 44BB and not under section 44DA. The
above discussion shows that the ratio of the judgment in the case
of ONGC as agent of Foramer France (supra) rendered in the
context of section 44D cannot be applied to the instant case
because of significant difference in the language and scope of
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these two sections during the A.Ys 2004-05 to 2010-11. As we
are concerned with the assessment year falling within the above
referred block of assessment years, obviously there can be no
parity between the two sections so as to apply the ratio of a
decision rendered u/s 44D to a case to which section 44DA
applies. We, therefore, hold that the AO was not justified in
initiating reassessment by relying on the judgment in the case of
ONGC as agent of Foramer France (supra).
IV. WHETHER REASSESSMENT ON PRIMA FACIE MATERIAL IS O.K.?
10.1. We are conscious of the position under law that there
should be some prima facie material to initiate reopening and that
the sufficiency or correctness of such material is not relevant. The
AO is not required to prove to the hilt at the stage of initiation of
reassessment that the income chargeable to tax has escaped
assessment. If there is some positive material on record which
prima facie indicates the escapement of income, then there can
be no fetters on the power of the AO to initiate reassessment.
Sufficiency of such material can be ascertained or tested during
the course of assessment or appellate proceedings. The Hon'ble
Supreme Court in Raymond Woollen Mills Limited Vs. ITO & Ors
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ITA No.234/Del/2013
(1999) 236 ITR 34 (SC) has held to this extent by laying down
that: `In this case, we do not have to give a final decision as to
whether there is suppression of material facts by the assessee or
not. We have only to see whether there was prima facie some
material on the basis of which the Department could reopen the
case. The sufficiency or correctness of the material is not a thing
to be considered at this stage. We are of the view that the Court
cannot strike down the reopening of the case in the facts of this
case.' Similar view was earlier taken by the Hon'ble Apex Court in
Calcutta Discount Co. Ltd. Vs. ITO (1961) 41 ITR 191 (SC). In
view of the foregoing discussion, it clearly surfaces that, by and
large, there can be two such situations to clothe the AO with the
power to reopen the assessment, viz., first, the existence of a
material conclusively proving the income escaping assessment,
and second, the existence of a material prima facie indicating the
escapement of income. The term `prima facie' means `at first
appearance' or `on the face of things'. It is not as if the initiation
of reassessment is possible only under the first situation and that
the jurisdiction is ousted in the second situation. As long as there
is some material to even prima facie indicate the escapement of
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ITA No.234/Del/2013
income, the AO's power to initiate reassessment can't be
curtailed.
10.2. The ld. DR vehemently argued that that the AO initiated
reassessment proceedings, inter alia, on the strength of the
judgment of the Hon'ble jurisdictional High Court in ONGC as
agent of Foramer France (supra), in which the chargeability u/s
44D was upheld in preference to section 44BB. He stated that
since section 44DA is successor of section 44D and the assessee
had also returned income from ONGC u/s 44BB, definitely the AO
could have prima facie formed belief that the income of the
assessee ought to have been charged to tax u/s 44DA and not u/s
44BB as per the ratio decidendi of the judgment of the Hon'ble
jurisdictional High Court.
10.3. This contention of the ld. DR though appears to be
attractive at the first blush but loses its shine on an indepth
analysis. The reason for our this conclusion is that the term `prima
facie' has reference to indicate the escapement of income and
not to applicability of the material. To put it simply, there should
be some positive material to prima facie indicate the escapement
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of income. It is not that any unconnected material or any
judgment delivered on a particular section empowers the AO to
initiate reassessment on all cases directly or indirectly involving
such section. Any judgment, so as to constitute the foundation for
reassessment, must be directly and fully applicable. If we accept
the contention of the ld. DR and hold that the judgment in ONGC
as agent of Foramer France (supra) is prima facie applicable, then
we will be wrong in the elaborate analysis carried out above
concluding about the inapplicability of such judgment to the facts
of the instant case. A judgment is either applicable or not
applicable. It cannot be a case that it is prima facie applicable but
not applicable on proper appreciation. As we have held above
that the judgment in ONGC as agent of Foramer France (supra) is
inapplicable to the facts of the instant case, we are not persuaded
to accept the contention of the ld. DR that it should be considered
as prima facie applicable so as to validate the initiation
reassessment. This contention is, ergo, rejected.
11. It is, therefore, held in the final analysis that the initiation of
the present reassessment on the basis of the judgment in ONGC
as agent of Foramer France (supra) is not valid in law.
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B. REASSESSMENT ON THE BASIS OF AMENDMENT TO SEC. 44DA
12.1. Now we take up the second reason adopted by the AO for
initiating the reassessment proceedings, being, the explanatory
note to Finance Bill, 2010 which in his opinion retrospectively
clarified that 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. It has been seen above that during the period relevant
to the A.Ys. 2004-05 to 2010-11 there was no straight forward
provision providing for the exclusion of royalty or fees for
technical services in the business of exploration etc. of mineral
oils etc. from section 44BB and its inclusion in section 44DA and
vice versa. Unlike the specific mention of section 44D and 115A,
there was no reference to section 44DA in the proviso to section
44BB. It was largely a question of drawing inference from the
interpretation of the provisions in totality that section 44BB was
not excluded by section 44DA to that extent. Some authorities
interpreted fees for technical services earned by a non-resident in
the business of exploration, etc., of mineral oils as covered u/s
44BB, while others held it to be covered u/s 44DA. In view of this
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ITA No.234/Del/2013
conflicting position, the legislature stepped in by inserting second
proviso to section 44DA(1) by the Finance Act, 2010 w.e.f.
1.4.2011 providing that the provisions of section 44BB shall not
apply in respect of the income referred to in this section.
Simultaneously, an amendment was carried out in the proviso to
section 44BB(1) by inserting section 44DA along with sections 42,
44D, 115A and 293 w.e.f. 1.4.2011. Effect of these amendments
is that the provisions of section 44BB shall not apply in respect of
royalty or fees for technical services received by a non-resident
engaged in the business of exploration, etc., of mineral oils. Such
amount would be covered within the ambit of section 44DA.
12.2. Presently, we are dealing with the assessment year
2005-06 in which the assessee included the revenue from
business of exploration, etc., of mineral oils u/s 44BB. The AO,
inter alia, taking assistance of the proposed amendment to
section 44DA by the Finance Bill, 2010 formed the belief that such
amount was liable to be considered u/s 44DA of the Act. It is not
disputed that the other requirements of section 44DA are duly
satisfied in the present case. In reaching the conclusion that the
amendment carried out to section 44DA by the Finance Act, 2010
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ITA No.234/Del/2013
shall apply to the assessment year under consideration as well,
the AO held such amendment to be retrospective.
12.3. Now the effect of the amendment is that the proviso to
section 44BB mandates that the provisions of section 44BB shall
not apply in a case where the provisions of section 44DA apply
and the second proviso to section 44DA provides that the
provisions of section 44BB shall not apply in respect of the
income referred to in this section. With the above amendments,
there is not even an iota of doubt that fees for technical services
in the business of exploration etc. of mineral oils shall be covered
u/s 44DA and not section 44BB of the Act. Now the critical
question is whether such amendments are prospective or
retrospective. If the amendment are held to be retrospectively
applicable from the date of insertion of section 44DA, being from
1.4.2004, then it would mean that the provisions of section 44BB
shall not apply in respect of royalty or fees for technical services
earned by the assessee engaged in the business of exploration,
etc., of mineral oils. If, on the other hand, this amendment is held
to be prospective, then, it would mean that the provisions of
section 44BB shall apply in respect of the entire income including
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ITA No.234/Del/2013
fees for technical services earned by the assessee engaged in the
business of exploration, etc., of mineral oils.
12.4. Primarily we find that this amendment has been made
applicable from 01.04.2011 and not retrospectively. This factor is
quite significant though not decisive. The ld. DR relied on several
judgments to contend that a clarificatory amendment is always
retrospective. Since this amendment has been brought in to
clarify the existing position of law u/s 44BB read with section
44DA, he contended that the same be construed as retrospective.
None of the judgments relied by the ld. DR deal with the
amendment to sections 44DA or 44BB by the Finance Act, 2010.
On the contrary, we find that there is a direct judgment, and that
too, of the Hon'ble jurisdictional High Court in the case of B.J.
Services Company Middle East Ltd. vs. Dy. Director of IT
(International Taxation) (2011) 339 ITR 169 (Uttarakhand) in
which it has been categorically held that the present amendments
to sections 44DA and 44BB are prospective in nature. The
following observations of the Hon'ble High Court merit
reproduction:-
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ITA No.234/Del/2013
`As stated earlier, ....... the Explanatory Note to the Finance
Bill, 2010 clearly indicates that the amendments proposed in
s. 44BB and 44DA of the Act would take effect from 1st April,
2011 and would apply in relation to the asst. yr. 2011-12 and
subsequent years. The amendment is prospective in nature
and would not apply to the cases in hand which is of the
earlier assessment years. ........ The Explanatory Note to the
Finance Bill has ..... only been made prospectively and
cannot be used or applied for reopening the case under ss.
147 and 148 of the Act.'
12.5. When we are confronted with a direct judgment of the
Hon'ble jurisdictional High Court, which categorically lays down
that the amendment to sections 44DA and 44BB by the Finance
Act, 2010 w.e.f. 01.04.2011 are prospective, there can be no
question of arguing or holding otherwise. The position which,
therefore, emerges is that the insertion of second proviso to
section 44DA by the Finance Act, 2010 is applicable only from
assessment year 2011-12 and not prior to that. If the situation is
such, then we fail to understand as to how the A.O. could take
assistance of such amendment to initiate reassessment for the
assessment year 2005-06 under consideration. In that view of the
matter, the reasons recorded by the AO for initiating the re-
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ITA No.234/Del/2013
assessment by taking cognizance of the amendment proposed by
the Finance Bill, 2010 and holding it to be retrospective, do not
stand.
2007-08
C. RELEVANCE OF TRIBUNAL ORDER FOR AY 2007-
13.1. The ld. DR vigorously contended that the Tribunal in
assessee's own case for the assessment year 2007-08 has held
that the provisions of section 44BB are not applicable to the
revenue earned from ONGC under similar circumstances. In view
of this decision, it was contended that the Tribunal in the instant
case should also follow the same rule and uphold the re-
assessment on the question of initiation as well as on merits.
13.2. Before coming to any conclusion as regard the
applicability or otherwise of the tribunal order for the AY 2007-08
to the year under consideration, it is essential to consider the
factual scenario and the decision rendered. Admittedly, the
assessee continued to be engaged in the same business of
acquisition and on board processing of seismic data to be
delivered to ONGC as is the position in the year under
consideration. The assessee in such later year had also declared
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ITA No.234/Del/2013
income u/s 44BB. The AO held for that year that the income was
chargeable to tax u/s 9(1)(vii). In the absence of the assessee
having any permanent establishment, it was opined that the
receipts were chargeable to tax u/s 115A read with section
9(1)(vii) of the Act. The tribunal finally held that the activities
undertaken by the assessee of seismic survey, processing of 3D
seismic data and submission of its reports in desired media would
be in the nature of `fees for technical services' covered under
Explanation 2 to section 9(1)(vii) of the Act. It was further held
that where provisions of sections 42, 44D or 44DA or 115A or
293A are applicable, the provisions of section 44BB(1) would not
apply by virtue of proviso to section 44BB(1). In the final analysis,
the tribunal ruled that since the receipts were not connected with
the PE in India, such `fees for technical services' rendered in
connection with prospecting for or extraction or production of
mineral oil would be assessable u/s 115A of the Act. It also
incidentally observed that if an assessee has a PE in India, then
income in the nature of fees for technical services connected with
such PE shall be includible u/s 44BB and not section 44DA during
the period up to the A.Y. 2010-11.
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ITA No.234/Del/2013
13.3. When we advert to the facts for the instant year, namely,
A.Y. 2005-06, it is seen that the AO has specifically held on page
9 of the draft order that the existence of PE of the assessee in
India is not disputed. He further held that: "Receipts of the
assessee are covered under provisions of section 44DA of the I.T.
Act." Since the books of account were not prepared by the
assessee, the AO estimated 25% of the gross receipts as
chargeable u/s 44DA of the Act. In the final order passed u/s
144C(13), the AO computed the assessee's total income u/s 44DA
(sic 44BB) on the last page of the impugned order by considering
total revenue and then estimating income @ 25% thereof.
Ordinarily, income by way of royalty or fees for technical services
earned by a non-resident pursuant to agreement made after
31.3.2003 is computed u/s 44DA where such non-resident carries
on business in India through a permanent establishment situated
in India and the contract, etc., in respect of which fees for
technical services results is effectively connected with such
permanent establishment. On satisfaction of such conditions, the
income is computed under the head `Profits and gains of business
or profession' in accordance with the provisions of this Act. Thus,
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in order to bring a particular income from royalty or fees for
technical services within the ambit of section 44DA, it is essential
that the non-resident must have a permanent establishment in
India and the contract from which fees for technical services
arises should be effectively connected with such permanent
establishment. When these conditions are satisfied, income is
computed under the head `Profits and gains of business or
profession' as per regular provisions. In other words, the income
is computed u/s 44DA on net basis after allowing deductions
admissible under Chapter IV-D of the Act. On the other hand,
section 115A applies where non-resident earns income by way of
fees for technical services in cases other than those referred to in
section 44DA(1). In such circumstances, the income is taxed on
gross basis at the rate prescribed in the section. When we
consider section 44DA in conjunction with section 115A, it
becomes obvious that income by way of fees for technical
services earned by non-resident from the agreement entered into
after the specified date is chargeable to tax u/s 44DA only when
the non-resident has a permanent establishment in India and the
agreement from which such fees for technical services arises is
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ITA No.234/Del/2013
effectively connected with the permanent establishment. To put
it conversely, where a non-resident assessee has no permanent
establishment in India and he earns income by way of fees for
technical services pursuant to a contract made after the specified
date, then, the income is chargeable to tax u/s 115A read with
section 9(1)(vii) of the Act.
13.4. Coming back to the facts of the instant year, it is
noticed from the reasons reproduced above that the AO
embarked upon the extant re-assessment by opining that the
income of the assessee was chargeable to tax u/s 44DA and not
u/s 44BB. In the final computation of total income, the AO applied
the provisions of section 44DA when he computed income from
fees for technical services by estimating income at 25%, being
the net income by holding that the assessee has PE in India and
fees for technical services is arising from the agreement
effectively connected with the PE. When we re-visit the facts for
the AY 2007-08, it transpires that the Tribunal held the income
chargeable to tax u/s 115A read with section 9(1)(vii) of the Act
because of the absence of PE. There is a clear distinction of the
facts for the instant year vis-a-vis those considered and decided
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by the Tribunal for the afore noted subsequent year. As the AO in
the instant case has initiated reassessment by treating the
income of the assessee chargeable to tax u/s 44D of the Act and
has also, in fact, computed such income accordingly by holding
the assessee to have a PE in India and such fees for technical
services arising from a contract effectively connected with the PE,
we are unable to hold that the income for the present year be
also covered u/s 115A in line with the view taken by the tribunal
for the AY 2007-08, which was neither the case of the Assessing
Officer at the time of initiation of reassessment nor at the time of
computation of the total income.
13.5. It is trite that reasons recorded by the Assessing Officer
are final and the validity of reassessment is tested on the basis of
such recorded reasons alone. Neither the Assessing Officer can
later on improve his reasons or make out a different case from
the one on which basis he initiated reassessment, nor is it
permissible to the ld. DR to argue that the reassessment be
sustained on the ground other than that of the Assessing Officer
as mentioned in the reasons. In view of the fact that the Tribunal
for the AY 2007-08 has held the income to be chargeable to tax
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u/s 115A read with section 9(1)(vii) and the AO for the instant
year took such income u/s 44DA of the Act by holding that the
assessee has a PE and the income from ONGC is attributable to
contract which is effectively connected with the PE, we express
regret in changing the entire complexion of the case for the
instant year by holding that the decision taken by the Tribunal for
AY 2007-08 be applied. Be that as it may, it is clear that the
tribunal for the AY 2007-08 ruled out the application of section
44DA up to the A.Y. 2010-11 and held by way of obiter dicta that
fees for technical services can be charged to tax u/s 44BB where
the assessee has a PE in India and the agreement leading to such
income is effectively connected with the PE. Though the ratio of
such order cannot be applied to the facts of the instant year, the
obiter dicta is rather supporting the view of the assessee that the
provisions of section 44DA cannot be applied to the facts for the
year under consideration. Since the tribunal order for the AY
2007-08 is not germane to the instant year, we hold that it does
not advance the case of the Revenue in validating the initiation of
the present reassessment.
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14. Coming back to the question of initiation of re-assessment,
we find that both the factors, on whose strength the AO issued
notice u/s 148, viz., applicability of the judgment of the Hon'ble
jurisdictional High Court in the case of ONGC as agent of Foramer,
France (supra) and the retrospective application of the
amendments brought out by the Finance Act, 2010 to section
44DA and section 44BB, are not relevant and hence do not
support the initiation of reassessment. We, therefore, set aside
the initiation of re-assessment and the proceedings flowing there
from.
15. In view of our decision in quashing the initiation of re-
assessment, there is no need to dispose of the grounds raised by
the assessee on merits.
16. In the result, the appeal is allowed.
The order pronounced in the open court on 17.07.2014.
Sd/- Sd/-
[A.T. VARKEY] [R.S. SYAL]
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated, 17th July, 2014.
dk
50
ITA No.234/Del/2013
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT (A)
5. DR, ITAT
AR, ITAT, NEW DELHI.
51
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