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CGG Marine SAS C/o BMR & Associates LLP, 22nd Floor, Building No.5, Tower A, DLF Cyber City, DLF Phase III, Gurgaon. Vs. ADIT, International Taxation, 13-A, Subhash Road, Dehradun.
July, 21st 2014
          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

                                  2
                                                      ITA No.234/Del/2013


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

                                 3
                                                      ITA No.234/Del/2013


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
                                 4
                                                      ITA No.234/Del/2013





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
                                  5
                                                      ITA No.234/Del/2013


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

                                 6
                                                      ITA No.234/Del/2013


    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

                                 7
                                                        ITA No.234/Del/2013


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


                                    8
                                                     ITA No.234/Del/2013


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


                                 9
                                                           ITA No.234/Del/2013


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.


                                    10
                                                         ITA No.234/Del/2013


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

                                  11
                                                          ITA No.234/Del/2013


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


                                     12
                                                      ITA No.234/Del/2013


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

                                 13
                                                      ITA No.234/Del/2013


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.



                                 14
                                                        ITA No.234/Del/2013


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,
                                 15
                                                       ITA No.234/Del/2013


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,
                                  16
                                                         ITA No.234/Del/2013


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


                                   17
                                                      ITA No.234/Del/2013


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

                                 18
                                                      ITA No.234/Del/2013


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


                                 19
                                                     ITA No.234/Del/2013


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


                                 20
                                                     ITA No.234/Del/2013


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

                                21
                                                        ITA No.234/Del/2013


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.

                                   22
                                                                  ITA No.234/Del/2013


       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

                                      23
                                                           ITA No.234/Del/2013


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)


                                     24
                                                       ITA No.234/Del/2013


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
                                  25
                                                       ITA No.234/Del/2013


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
                                  26
                                                     ITA No.234/Del/2013


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

                                27
                                                     ITA No.234/Del/2013


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.

                                28
                                                       ITA No.234/Del/2013


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
                                  29
                                                             ITA No.234/Del/2013


        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
                                     30
                                                      ITA No.234/Del/2013


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
                                 31
                                                       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

                                  32
                                                     ITA No.234/Del/2013


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

                                33
                                                      ITA No.234/Del/2013


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
                                 34
                                                       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

                                  35
                                                      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


                                 36
                                                        ITA No.234/Del/2013


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.
                                  37
                                                     ITA No.234/Del/2013


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
                                38
                                                      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
                                 39
                                                      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
                                 40
                                                         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:-



                                  41
                                                         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-

                                    42
                                                         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

                                 43
                                                       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.

                                  44
                                                     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,

                                45
                                                      ITA No.234/Del/2013


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

                                 46
                                                    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
                                47
                                                      ITA No.234/Del/2013


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
                                 48
                                                     ITA No.234/Del/2013


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.



                                 49
                                                    ITA No.234/Del/2013


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.




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