Siem Offshore Crewing AS, Dehradun V. ACIT, Intl. Taxation, Dehradun

ITA 4542/DEL/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 6474 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 7 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-03-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I2
• Next Hearing Date: 05-11-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 01-08-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ANAND KUMAR KADIA
• Assessee Lawyers: SURAJ NANGIA; AMIT ARORA CA AMIT BHALLA
• Keywords: Business income; Transfer pricing; Double taxation relief; Deemed to accrue or arise in india; Retrospective amendment; Permanent establishment; Question of law
• Section: 234B; 28; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES I-2 NEW DELHI BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER I.T.A. NO. 4542/DEL/2013 ASSESSMENT YEAR: 2008-09 SIEM OFFSHORE CREWING AS VS ASSISTANT D IRECTOR OF INCOME TAX, C/O NANGIA & CO., INTERNATIONAL TAXATION, 75/7, RAJPUR ROAD, DEHRADUN. DEHRADUN - 248001 (APPELLANT) (RESPONDENT) APPELLANT BY: S/SHRI AMIT ARORA, CA, AMIT BHALLA, CA & SURAJ NANGIA, CA RESPONDENT BY: SHRI ANAND KUMAR KADIA, CIT DR DATE OF HEARING: 10.03.2016 DATE OF PRONOUNCEMENT: 11.03.20 16 PER SUDHANSHU SRIVASTAVA, JM THIS APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AGAI NST ORDER DATED 21.05.2013 PASSED BY THE LEARN ED CIT (A)-II, DEHRADUN FOR ASSESSMENT YEAR 2008-09. 2. THE BRIEF FACTS OF THE CASE, AS BORNE OUT FROM T HE RECORDS, ARE THAT THE ASSESSEE IS A NON-RESIDENT COMPANY INCORPORATED IN NORWAY AND DERIVES REVENUE FROM TIME CHARTER AGREEMENT BY PROVIDING CREW ON V ESSEL. IT FILED ITS RETURN OF INCOME UNDER THE PROVISIONS OF SECTION 44BB OF T HE INCOME TAX ACT, 1961 I.T.A. NO. 4542/DEL/2013 ASSESSMENT YEAR 2008-09 2 ON 30.09.2008 AT AN INCOME OF RS. 80,02,970/-. A R EVISED RETURN OF INCOME WAS FILED ON 24.12.2009. DURING THE YEAR UNDER CONSIDER ATION, THE ASSESSEE HAD SHOWN GROSS REVENUES OF RS. 8,00,29,650/- ON ACCOUN T OF CREW PROVISION SERVICES. THE ASSESSING OFFICER NOTICED THAT THE A SSESSEE HAD NOT OFFERED ALL THE REVENUES EARNED BY IT FROM THE CONTRACT FOR PROVIDI NG OF CREW TO INCOME-TAX ON THE GROUND THAT THE REVENUES EARNED BY IT BEYOND 20 0 NAUTICAL MILES FROM THE INDIAN SHORELINES WAS NOT TAXABLE IN INDIA AND HENC E THE REVENUE EARNED FOR THE PERIOD DURING WHICH THE VESSEL WAS NOT IN INDIA WAS NOT TAXABLE. THE ASSESSING OFFICER WAS OF THE OPINION THAT AS THE CONTRACT FOR PROVIDING OF CREW WAS A CONTINUING CONTRACT, THE INCOME COULD NOT BE SEGREG ATED AND CLAIMED AS NON- TAXABLE FOR THE PERIOD THE VESSEL WAS NOT IN INDIA. THE ASSESSING OFFICER WAS ALSO OF THE OPINION THAT UNDER THE SCHEME OF SECTIO N 44BB, THE RECEIPTS ARE TO BE TAXED ON THE BASIS OF GROSS RECEIPTS. SECONDLY, TH E ASSESSING OFFICER WAS OF THE VIEW THAT THE ASSESSEE WAS ONLY PROVIDING MANAGEMEN T SERVICES AND AS SUCH, THE SAME WAS COVERED WITHIN THE DEFINITION OF FEES FOR TECHNICAL SERVICES AS ENVISAGED IN SECTION 9(1)(VII) OF THE INCOME TAX AC T, 1961. HE ALSO REFERRED THE MATTER TO THE TRANSFER PRICING OFFICER FOR DETERMIN ATION OF ARMS LENGTH PRICE (ALP) IN THIS RESPECT AND THE TPO SUGGESTED AN ADJU STMENT OF RS. 55,37,033/- ON THIS ISSUE. THE ASSESSEE WAS REQUIRED TO FURNIS H DETAILS/DOCUMENTS REGARDING ITS CALCULATION OF ALP. HOWEVER, THE ASSESSEE DID NOT RESPOND TO THE QUERY AND ALSO DID NOT RAISE ANY OBJECTIONS TO THE DRAFT ASSE SSMENT ORDER. SUBSEQUENTLY, THE ASSESSMENT WAS FINALIZED AT RS.11,59,84,960/- AFTER MAKING AN ADDITION OF RS. I.T.A. NO. 4542/DEL/2013 ASSESSMENT YEAR 2008-09 3 3,04,18,274/- TOWARDS AMOUNT EXCLUDED BY THE ASSESS EE FROM ITS GROSS RECEIPTS, ADDITION OF RS. 55,37,033/- TOWARDS ADJUSTMENT AS S UGGESTED BY THE TPO AND ADDITION OF RS.1,62,381/- TOWARDS REIMBURSEMENT OF EMPLOYEES TAX COST. 3. AGGRIEVED, THE ASSESSEE APPROACHED THE FIRST APP ELLATE AUTHORITY WHO UPHELD THE ACTION OF THE ASSESSING OFFICER ON ALL T HE COUNTS AND ONLY GAVE RELIEF IN TERMS OF LEVYING OF INTEREST U/S 234B OF THE INC OME TAX ACT, 1961. 4. NOW, IN SECOND APPEAL, THE ASSESSEE IS BEFORE US AND HE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LD. CIT(A) HAS ERRED ON THE FACTS AND LAW IN ADDING A SUM OF RS. 3,04,18,274/- TO THE GROSS RECEIPTS OF THE APPELLAN T WITHOUT APPRECIATING THE FACT THAT THE VESSEL WAS OPERATING OUTSIDE INDIA AND THEREFORE, THE SAID AMOUNTS ARE NOT CHARG EABLE TO TAX IN INDIA. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD . CIT (A) ERRED IN MAKING A TRANSFER PRICING ADJUSTMENT OF RS . 55,37,033/- DERIVING THE MARGIN (PLI) AT 10.12% AS PER SEARCH OF COMPARABLES MADE BY HIM WITHOUT CONSIDERI NG THE COMPARABLE MARGIN SUBMITTED BY THE ASSESSEE. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD . CIT (A) HAS ERRED ON THE FACTS AND LAW IN TREATING THE TOTA L GROSS RECEIPTS OF RS. 11,59,84,960/- OF THE APPELLANT TO BE TAXED UNDER ARTICLE 13 OF DTAA BETWEEN INDIA AND NORWAY A S FEES FOR TECHNICAL SERVICES INSTEAD OF TAXING IT UNDER S ECTION 44BB OF THE INCOME TAX ACT, 1961. I.T.A. NO. 4542/DEL/2013 ASSESSMENT YEAR 2008-09 4 5. DURING THE COURSE OF HEARING, REGARDING GROUN D NO. 1, THE LD. AR SUBMITTED THAT SECTION 9(L)(I) READ WITH EXPLANATION 1 AND SE CTION 9(L)(VII) OF THE ACT DEFINES THE SCOPE FOR TAXABILITY OF INCOME EARNED B Y FOREIGN COMPANIES. UNDER BOTH THE SECTIONS, INCOME OF THE NON- RESIDENT IS D EEMED TO ACCRUE OR ARISE IN INDIA ONLY WHERE THE OPERATIONS ARE CARRIED OUT IN INDIA OR THE SERVICES UTILIZED IN A BUSINESS/PROFESSION CARRIED ON BY SUCH PERSON IN INDIA OR FOR THE PURPOSE OF EARNING ANY INCOME FROM ANY SOURCE IN INDIA. HE FUR THER SUBMITTED THAT IN THE PRESENT CASE THE ASSESSEE HAS PROVIDED CREW TO OPER ATE THE VESSEL AND FOR MANAGEMENT OF THE VESSEL OWNED BY SIEM OFFSHORE INC . HE ELABORATED THAT SIEM OFFSHORE INC. HAS GIVEN VESSELS ON TIME CHARTER BAS IS TO EMGS. THE LD. AR AVERRED THAT SINCE THE VESSEL WAS PHYSICALLY OUTSID E INDIA IN NOVEMBER 2007 (26 DAYS), DECEMBER 2007 (31 DAYS) AND JANUARY 2008 (15 DAYS), THE BUSINESS ACTIVITIES WERE OUTSIDE INDIA, THE SERVICES WERE UT ILIZED OUTSIDE INDIA AND THE SOURCE OF INCOME WAS ALSO OUTSIDE INDIA. THEREFORE THE REVENUES RECEIVED BY THE ASSESSEE FOR THIS PERIOD DID NOT ACCRUE OR ARISE IN INDIA AND HENCE WAS NOT TAXABLE IN INDIA. THE LD. AR ALSO RELIED ON THE DEC ISION OF MUMBAI BENCH OF THE TRIBUNAL IN CASE OF ACIT V JINDAL DRILLING LEAS ING AND SUBMITTED THAT IT HAS BEEN HELD THAT MOBILIZATION CHARGES RECEIVED BY THE FOREIGN COMPANY WOULD BE TAXABLE IN INDIA ONLY TO THE EXTENT THE SAME RELATE S TO THE DISTANCE TRAVELLED BY THE EQUIPMENT WITHIN THE INDIAN TERRITORIAL WATERS (I.E. 200 NAUTICAL MILES FROM THE APPROPRIATE BASE LINE) AND CONSEQUENTLY MOBILIZ ATION CHARGES RECEIVED TOWARDS TRAVEL OF EQUIPMENTS BEYOND SUCH TERRITORIA L WATERS WILL NOT BE TAXABLE I.T.A. NO. 4542/DEL/2013 ASSESSMENT YEAR 2008-09 5 IN INDIA. 6. GROUND NO. 2 WAS NOT PRESSED BY THE LD. AR AND HENCE THE SAME IS DISMISSED AS WITHDRAWN. 7. REGARDING GROUND NO. 3 PERTAINING TO THE ISSUE AS TO WHETHER THE REVENUES EARNED SHOULD BE TAXED AS FEES FOR TECHNICAL SERVIC ES (FTS) OR UNDER THE PROVISIONS OF SECTION 44BB, LD. AR SUBMITTED THAT S IEM OFFSHORE INC HAD LEASED A VESSEL UNDER A TIME CHARTER AGREEMENT TO E LECTROMAGNETIC GEO SERVICES AS ('EMGS') TO ASSIST EMGS IN ITS EXPLORATION OF SE ABED AND SUBSOIL (EMGS HAS ENTERED INTO A CONTRACT WITH OIL AND NATURAL GA S CORPORATION LTD). IN CONNECTION WITH SIEM OFFSHORE INCS CONTRACT WITH E MGS, SIEM OFFSHORE INC HAS ENTERED INTO A MANAGEMENT CONTRACT WITH SIEM FO R MANAGEMENT OF VESSEL AND PROVISION OF CREW TO OPERATE THE VESSEL. SIEM R ECEIVED REVENUES UNDER THE CONTRACT WITH SIEM OFFSHORE INC FOR PROVIDING SERVI CES AND FACILITIES IN CONNECTION WITH PROSPECTING FOR, OR EXTRACTION OR P RODUCTION OF MINERAL OILS. THE LD. AR SUBMITTED THAT IN LIGHT OF THESE FACTS, THE REVENUES OF SIEM OFFSHORE AS SHOULD BE TAXED UNDER THE PROVISION OF SECTION 44BB OF THE ACT AND NOT AS FTS AS PER THE PROVISIONS OF SECTION 9(1) (VII). THE LD . AR FURTHER SUBMITTED THAT SECTION 9(L)(VII) OF THE ACT DEFINES THE SCOPE FOR TAXABILITY OF INCOME WHICH IS IN THE NATURE OF FTS. AS PER THE PROVISIONS OF THE ACT , FTS PAID BY A NON-RESIDENT IS DEEMED TO ACCRUE OR ARISE IN INDIA WHERE THE SER VICES ARE UTILIZED IN A I.T.A. NO. 4542/DEL/2013 ASSESSMENT YEAR 2008-09 6 BUSINESS/ PROFESSION CARRIED ON BY SUCH PERSON IN I NDIA OR FOR THE PURPOSE OF EARNING ANY INCOME FROM ANY SOURCE IN INDIA. HE SUB MITTED THAT UNDER THE ACT, ANY CONSIDERATION FOR RENDERING OF ANY MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES (INCLUDING THE PROVISION OF SERVICES OF TE CHNICAL OR OTHER PERSONNEL) IS TAXABLE AS FTS. THE LD. AR SUBMITTED THAT AS PER TH E DEFINITION OF FTS AS PROVIDED IN THE INCOME TAX ACT, CONSIDERATION FOR S ERVICES UNDERTAKEN FOR ANY CONSTRUCTION, ASSEMBLY, MINING OR LIKE PROJECT ARE SPECIFICALLY EXCLUDED FROM THE PURVIEW OF FTS. THE LD. AR FURTHER SUBMITTED THAT T HE WORDS CONSTRUCTION, ASSEMBLY, MINING OR LIKE PROJECT ARE NOT DEFINED IN THE ACT. HOWEVER, THE MEANING OF SUCH WORDS HAS BEEN CLARIFIED IN INSTRUC TION NO 1862 DATED OCTOBER 22, 1990 OF THE CENTRAL BOARD OF DIRECT TAXES (CBD T). HE DREW OUR ATTENTION TO INSTRUCTION NO. 1862 WHICH READS AS UNDER: INSTRUCTION NO 1862 CBDT HAD REFERRED THIS MATTER TO ATTORNEY GENERAL O F INDIA. BASED ON THE ATTORNEY GENERALS OPINION, THE CBDT ISSUED INSTRUC TION NO 1862 WHICH READ AS FOLLOWS: THE QUESTION WHETHER PROSPECTING FOR, OR EXTRACTIO N OR PRODUCTION OF MINERAL OIL CAN BE TERMED AS MINING OPERATIONS, W AS REFERRED TO THE ATTORNEY GENERAL OF INDIA FOR HIS OPINION. THE ATTO RNEY GENERAL HAS OPINED THAT SUCH OPERATIONS ARE MINING OPERATIONS AND THE EXPRESSIONS MINING PROJECT OR LIKE PROJECT OCCURRING IN EXPLANATION 2 TO SECTION 9(L)(VII) OF THE INCOME-TAX ACT WOULD COVER RENDERING OF SERVICE S LIKE IMPARTING OF TRAINING AND CARRYING OUT DRILLING OPERATIONS FOR E XPLORATION OR EXPLOITATION OF OIL AND NATURAL GAS. IN VIEW OF THE ABOVE OPINION, THE CONSIDERATION FOR SUCH SERVICES WILL NOT BE TREATED AS FEES FOR TECHNICAL SERVICES FOR THE PURP OSE OF EXPLANATION 2 TO SECTION 9(L)(VII) OF THE INCOME-TAX ACT, 1961. PAYM ENTS FOR SUCH SERVICES TO I.T.A. NO. 4542/DEL/2013 ASSESSMENT YEAR 2008-09 7 A FOREIGN COMPANY, THEREFORE, WILL BE INCOME CHARGE ABLE TO TAX UNDER THE PROVISIONS OF SECTION 44BB OF THE INCOME-TAX ACT, 1 961 AND NOT UNDER THE SPECIAL PROVISIONS FOR THE TAXATION OF FEES FOR TEC HNICAL SERVICES CONTAINED IN SECTION 115A READ WITH SECTION 44D OF THE INCOME -TAX ACT, 1961. 8. CONCLUDING HIS ARGUMENTS, THE LD. AR PLEADED TH AT GROUND NOS. 1& 3 OF THE APPEAL MAY BE ALLOWED. 9. IN RESPONSE, THE LD. DR FOR THE REVENUE SUBMITT ED THAT AS FAR AS GROUND NO. 1 IS CONCERNED, ASSESSEES CONTENTION IS NOT LEGALL Y TENABLE. HE SUBMITTED THAT GROSS PAYMENTS WERE INTRICATELY LINKED TO THE SERVI CES/WORKS RENDERED BY THE ASSESSEE AND ARISE DUE TO THE EXECUTION OF CONTRACT IN INDIA, UNDER THE TERMS AND CONDITION OF THE CONTRACT BETWEEN THE ASSESSEE AND SIEM OFFSHORE INC. HE SUBMITTED THAT THE VESSEL WAS HIRED FOR THE CONTRAC T AND IT WAS ONLY FOR THIS PURPOSE THAT THE VESSEL AND THE CREW WERE INVOLVED IN THE SAID CONTRACT AND THUS IT WAS IMPROPER ON THE PART OF THE ASSESSEE TO OFFE R REVENUES ONLY ON PARTIAL INVOICE ON A PRORATE BASIS OF APPLICABILITY. HE SU BMITTED THAT THE REVENUES EARNED FOR THE VESSEL AND THE CREW CANNOT BE SAID T O BE NOT THERE FOR BEYOND 200 NAUTICAL MILES AND OUT OF INDIAN WATERS. AS THE CON TRACT FOR PROVISION OF CREW WAS A CONTINUING CONTRACT, SO THE INTERVENING PERIO DS OF ABSENCE OF THE VESSEL FROM THE INDIAN TERRITORIAL WATERS CANNOT BE CONSID ERED AS NOT LIABLE TO TAX. HE SUBMITTED THAT THE ENTIRE CONTRACTUAL AMOUNT SHOULD BE TREATED AS PART OF TAXABLE GROSS RECEIPTS. HE ALSO SUBMITTED THAT IN ANY CASE, THE RECEIPTS UNDER SECTION 44BB (AS OFFERED BY ASSESSEE) ARE TO BE TAXED ON GR OSS BASIS I.E. ALL THE AMOUNTS I.T.A. NO. 4542/DEL/2013 ASSESSMENT YEAR 2008-09 8 WHICH ARE RECEIVED AGAINST THE EXECUTION OF THE CON TRACT WOULD COME UNDER THE PURVIEW OF GROSS RECEIPTS. 10. REGARDING GROUND NO. 3 OF THE APPEAL, THE LD . DR SUBMITTED THAT WHERE THE MAIN PROVISION IS CLEAR, ITS EFFECT CANNOT BE CUT D OWN BY THE PROVISO. BUT WHERE IT IS NOT CLEAR, THE PROVISO CAN PROPERLY BE LOOKED INTO, TO ASCERTAIN THE MEANING AND SCOPE OF THE MAIN PROVISION. HE PLACED RELIANCE ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF HINDUSTAN IDEAL INSURA NCE CO LTD V L I C OF INDIA 1963 AIR SC 1083. HE FURTHER SUBMITTED THAT PROVISO TO SECTION 44BB EXPLAINS AND CLARIFIES THE MAIN PROVISION AS THE TERMS SERV ICES OR FACILITIES USED THEREIN ARE NOT DEFINED AND THE TWO TERMS USED ARE TOO GENE RAL IN NATURE. HE SUBMITTED THAT THE PROVISO THUS RESTRICTS THE APPLICABILITY O F THE SUBSTANTIVE PROVISION OF SECTION 44BB IN RELATION TO THOSE PERSONS WHO ARE E ITHER ENGAGED IN THE BUSINESS FOR PROSPECTING, ETC., FOR MINERAL OIL (SECTION 42) OR FOREIGN COMPANIES WHO RECEIVED FEE FOR TECHNICAL SERVICES FROM AN INDIAN CONCERN ETC., (44D) OR IN THE CASES OF NON-RESIDENTS AND FOREIGN COMPANIES RECEIV ING FEE FOR TECHNICAL SERVICES (SECTION 115 A) AND PERSONS COVERED BY THE NOTIFICA TION ISSUED BY THE CENTRAL GOVERNMENT (SECTION 293A). HE FURTHER SUBMITTED THA T PROVISO WOULD BE RENDERED USELESS IF WE ARE TO HOLD THAT SECTION DEA LS WITH ALL SORTS OF SERVICES BE IT OF GENERAL NATURE, AS A CLASS IN ITSELF AS WELL SERVICES OF TECHNICAL, CONSULTANCY OR MANAGERIAL NATURE WHICH FORM A DISTINCT AND SEPA RATE SPECIES OF SERVICES. THE LD. DR FURTHER SUBMITTED THAT THE PHRASE IN CONNECTION WITH USED IN SECTION I.T.A. NO. 4542/DEL/2013 ASSESSMENT YEAR 2008-09 9 44BB ONLY BROADENS THE SCOPE OF THE SECTION TO COVE R SERVICES WHICH ARE NOT OF TECHNICAL NATURE AND ENACTS A SPECIAL PROVISION FOR DETERMINATION OF TAX LIABILITY OF PERSONS ENGAGED IN PROVIDING SUCH SERVICES WHICH WOULD BE OUTSIDE THE SCOPE OF TECHNICAL SERVICES. THE LD. DR ALSO SUBMITTED TH AT INSTRUCTION NO. 1862 DATED 22-10-1990 DEALING WITH THE INTERPRETATION OF THE TERM MINING OR LIKE PROJECT, HAS BEEN ISSUED IN AN ENTIRELY DIFFERENT CONTEXT A S CAN BE SEEN FROM THE STATEMENT OF THE CASE REFERRED FOR THE OPINION OF L EARNED ATTORNEY GENERAL AND THE OPINION OF LEARNED AG. HE, ACCORDINGLY, PLEADED FOR UPHOLDING THE ORDER OF THE LD. CIT (A). 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND GONE THROUGH THE FACTS OF THE CASE. AS FAR AS THE ISSUE OF INCLUSION OF RS.3 ,04,18,274/- IN GROSS RECEIPT FOR THE PURPOSES OF COMPUTING IS CONCERNED, WE ARE OF THE CONSIDERED OPINION THAT THE CONTENTION OF THE ASSESSEE IS INCORRECT. GROSS PAYMENTS ARE INTRICATELY LINKED TO THE SERVICES/WORKS RENDERED BY THE ASSESS EE AND ARISE DUE TO THE EXECUTION OF CONTRACT IN INDIA, UNDER THE TERMS AND CONDITIONS OF THE CONTRACT BETWEEN THE ASSESSEE AND SIEM OFFSHORE INC. THE VE SSEL WAS HIRED BY THE CONTRACT AND IT WAS ONLY FOR THIS PURPOSE THAT THE VESSEL AND THE CREW WERE INVOLVED IN THE SAID CONTRACT. THUS, IT IS IMPROPE R ON THE PART OF THE ASSESSEE TO OFFER TO TAX ITS REVENUES ONLY ON A PRO-RATA BASIS BASED UPON THE NUMBER OF DAYS THE VESSEL WAS STATIONED WITHIN 200 NAUTICAL M ILES FROM THE INDIAN SHORE LINE. AS THE CONTRACT FOR THE PROVISION OF CREW WA S A CONTINUING CONTRACT, IT I.T.A. NO. 4542/DEL/2013 ASSESSMENT YEAR 2008-09 10 CANNOT BE SAID THAT REVENUES WERE NOT EARNED FOR TH E PERIOD THE VESSEL WAS OUT OF THE TERRITORIAL WATERS OF INDIA. HENCE, THE ENT IRE CONTRACT AMOUNT IS TO BE CONSIDERED FOR THE PURPOSE OF CALCULATING THE GROSS RECEIPTS AND ALL RECEIPTS RECEIVED AGAINST THE EXECUTION OF THE CONTRACT WOUL D COME UNDER THE PURVIEW OF GROSS RECEIPTS. THUS, GROSS AMOUNTS FOR THE MON THS OF NOVEMBER 2007, DECEMBER 2007 AND JANUARY 2008 ARE TO BE INCLUDED I N THE GROSS RECEIPTS. WE ACCORDINGLY UPHOLD THE ACTION OF THE ASSESSING OFFI CER AND THE LD. CIT (A) ON THIS ISSUE AND DECLINE TO INTERFERE. 12. AS FAR AS GROUND NO. 3 OF THE APPEAL IS CONCER NED, IN ORDER TO PROPERLY APPRECIATE THE CONTROVERSY, IT IS NECESSARY FIRST T O CONSIDER VARIOUS SECTIONS DEALING WITH ROYALTY, FTS AND THEIR FIELDS OF OPERA TION. THE FINANCE ACT, 1976 EFFECTED THREE BASIC CHANGES AS REGARDS ASSESSMENT OF NONRESIDENTS. (A) IT INSERTED CLAUSES (V), (VI) AND (VII) IN SECTION 9(1 ) DEEMING INTEREST, ROYALTY AND TECHNICAL FEES TO ACCRUE OR ARISING IN INDIA, MAKIN G THE NON-RESIDENT/ RECIPIENT CHARGEABLE TO TAX IN CASES WHERE THERE WAS NO TAX L IABILITY UNDER THE PRE- EXISTING LAW; (B) IT INSERTED SECTIONS 44C AND 44D DENYING DEDUCTION S, ENTIRETY OR IN PART IN RESPECT OF EXPENSES WHOLLY A ND EXCLUSIVELY INCURRED FOR THE PURPOSE OF NONRESIDENT BUSINESS OR FOR EARNING THE ROYALTY OR TECHNICAL FEES. (C) IT INSERTED SECTION 115A, PRESCRIBING NEW RATES OF TAX FOR DIVIDENDS, ROYALTY AND TECHNICAL FEES IN CASE OF FOREIGN COMPANY. 13. BY FINANCE ACT, 2001 W.E.F. 1-4-2002, IN EXPLA NATION 2, DEALING WITH DEFINITION OF 'ROYALTY, CLAUSE (IV-A) WAS INSERTED IN SECTION 9(L)(VI), WHICH READS I.T.A. NO. 4542/DEL/2013 ASSESSMENT YEAR 2008-09 11 '(IVA) THE USE OR RIGHT TO USE ANY INDUSTRIAL, COMM ERCIAL OR SCIENTIFIC EQUIPMENT BUT NOT INCLUDING THE AMOUNTS REFERRED TO IN SECTION 44BB.' '(IV-A) THE USE OR RIGHT TO USE, ANY INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EQUIPMENT BUT NOT INCLUDING THE AMOUNTS REFERRED TO IN SECTION 44 B'. THUS, THE USE OR RIGHT TO USE ANY INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EQUIPM ENT WAS COMING WITHIN THE AMBIT OF THE TERM 'ROYALTY' TAXABLE U/S 9(L)(VI). H OWEVER, IF THE SAME WAS WITH REFERENCE TO THE AMOUNTS, REFERRED TO IN SECTION 44 BB, THEN THE SAME WAS EXCLUDED FROM SECTION 9(L)(VI). 14. IN SECTION 9(L)(VII), DEALING WITH FTS, EXPLA NATION 2 WAS INSERTED BY THE FINANCE NO. 2, ACT 1977 W.E.F. 1-4-1977, WHICH DEFI NES FTS AS 'EXPLANATION (2) - FOR THE PURPOSES OF THIS CLAUSE, 'FEES FOR TE CHNICAL SERVICES' MEANS ANY CONSIDERATION (INCLUDING ANY LUMP SUM CONSIDERATION ) FOR THE RENDERING OF ANY MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES (INCL UDING THE PROVISION OF SERVICES OF TECHNICAL OR OTHER PERSONNEL) BUT DOES NOT INCLUDE CONSIDERATION FOR ANY CONSTRUCTION, ASSEMBLY, MINING OR LIKE PROJECT UNDERTAKEN BY THE RECIPIENT OR CONSIDERATION WHICH WOULD BE INCOME OF THE RECIP IENT CHARGEABLE UNDER THE HEAD 'SALARIES'. 15 . AS PER CBDT INSTRUCTION NO. 1862 DATED 22-10-1990 [165 ITR 161 (ST.)], CONSIDERATION FOR MINING INCLUDES RENDERING OF SERV ICES LIKE IMPARTING OF TRAINING FOR CARRYING OUT DRILLING OPERATIONS IN CO NNECTION WITH THE EXTRACTION OF MINERAL OILS UNDERTAKEN BY RECIPIENT. THUS, THE CONSIDERATION, INTER ALIA, FOR MINING WAS EXCLUDED FROM SECTION 9(L)(VII), PROVIDE D THE SAME WAS UNDERTAKEN I.T.A. NO. 4542/DEL/2013 ASSESSMENT YEAR 2008-09 12 BY ASSESSEE ITSELF. 16. FROM THE ABOVE EXCLUSIONARY CLAUSE IT IS EVID ENT THAT THE ROYALTY AND FTS IN RESPECT OF INCOMES CONTEMPLATED U/S 44BB WERE TA XABLE U/S 9(L)(VI) AND 9(L)(VII) TILL THE DATE OF INSERTION OF EXCLUSIONAR Y CLAUSES. THUS, ROYALTY AND FTS WHICH WAS FOR THE NATURE OF SERVICES CONTEMPLAT ED U/S 44BB WERE EXCLUDED FROM SECTIONS 9(L)(VI) AND 9(L)(VII) AND B ROUGHT UNDER SECTION 44BB WHICH IS A SPECIAL PROVISION FOR COMPUTING PROFITS AND GAINS IN CONNECTION WITH THE BUSINESS OF EXPLORATION ETC. OF MINERAL OILS. S ECTION 44BB WAS INSERTED BY THE FINANCE ACT 1987 WITH RETROSPECTIVE EFFECT FROM 1-4-1983. 17. WE ALSO PROCEED TO ANALYSE VARIOUS PROVISIONS DEALING WITH ROYALTY AND FTS APART FROM THE BASIC SECTIONS BEING SECTION 9(L )(VI) AND 9(L)(VII). SECTION 44D WAS INSERTED IN CHAPTER IV BY THE FINANCE ACT, 1976 W.E.F. 1-6-1976. THIS SECTION IS REPRODUCED HEREUNDER: '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, BEI NG A FOREIGN COMPANY, - * (A) THE DEDUCTIONS ADMISSIBLE UNDER THE SAID SECTIO NS IN COMPUTING THE INCOME BY WAY OF ROYALTY OR FEES FOR TECHNICAL SERVICES RECEIVED I.T.A. NO. 4542/DEL/2013 ASSESSMENT YEAR 2008-09 13 [FROM GOVERNMENT OR A INDIAN CONCERN IN PURSUANCE O F AN AGREEMENT MADE BY THE FOREIGN COMPANY WITH GOVERNMENT OR WITH THE INDIAN CONCERN] BEFORE THE 1ST DAY OF APRIL, 1976, SHALL N OT EXCEED IN THE AGGREGATE TWENTY PER CENT OF THE GROSS AMOUNT OF SU CH ROYALTY OR FEES AS REDUCED BY SO MUCH OF THE GROSS AMOUNT OF SUCH ROYA LTY AS CONSISTS OF LUMP SUM CONSIDERATION FOR THE TRANSFER OUTSIDE IND IA OF, OR THE IMPARTING OF INFORMATION OUTSIDE INDIA IN RESPECT OF, ANY DAT A, DOCUMENTATION, DRAWING OR SPECIFICATION RELATING TO ANY PATENT, IN VENTION, MODEL, DESIGN, SECRET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERTY; (B) NO DEDUCTION IN RESPECT OF ANY EXPENDITURE OR A LLOWANCE SHALL BE ALLOWED UNDER ANY OF THE SAID SECTIONS IN COMPUTING THE INCOME BY WAY OF ROYALTY OR FEES FOR TECHNICAL SERVICES RECEI VED [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 BEF ORE THE 1ST DAY OF APRIL, 2003]; (C)[***] (D)[***] EXPLANATION.-FOR THE PURPOSES OF THIS SECTION,- (A) 'FEES FOR TECHNICAL SERVICES' SHALL HAVE THE SAME MEANING AS IN [EXPLANATION 2] TO CLAUSE (VII) OF SUB-SECTION (1) OF SECTION 9; (B) 'FOREIGN COMPANY' SHALL HAVE THE SAME MEANING AS I N SECTION 80B; (C) 'ROYALTY' SHALL HAVE THE SAME MEANING AS IN [EXPLA NATION 2] TO CLAUSE (VI) OF SUB-SECTION (1) OF SECTION 9; (D) ROYALTY RECEIVED [FROM GOVERNMENT OR AN INDIAN CON CERN IN PURSUANCE OF AN AGREEMENT MADE BY A FOREIGN COMPANY WITH GOVERNMENT OR WITH THE INDIAN CONCERN] AFTER THE 31 ST DAY OF MARCH, 1976, SHALL BE DEEMED TO HAVE BEEN RECEIVED IN PURS UANCE OF AN I.T.A. NO. 4542/DEL/2013 ASSESSMENT YEAR 2008-09 14 AGREEMENT MADE BEFORE THE 1ST DAY OF APRIL, 1976, I F SUCH AGREEMENT IS DEEMED, FOR THE PURPOSES OF THE PROVISO TO CLAUS E (VI) OF SUBSECTION (1) OF SECTION 9, TO HAVE BEEN MADE BEFORE THE 1ST DAY OF APRIL, 1976.] 18. NOTICEABLE FEATURES OF THIS SECTION ARE THA T IT IS SPECIAL PROVISION FOR COMPUTATION OF INCOME BY WAY OF ROYALTY OR FEES FOR TECHNICAL SERVICES. THUS IT IS A COMPUTATION PROVISION. THIS SECTION IS APPLIC ABLE TO ONLY THAT PORTION OF ROYALTY WHICH CONSISTS OF LUMP SUM CONSIDERATION FO R THE TRANSFER OUTSIDE INDIA, OR FOR IMPARTING OF INFORMATION OUTSIDE INDIA IN RE SPECT OF ANY DATA, DOCUMENTATION, DRAWING OR SPECIFICATION RELATING TO PATENT, INVENTION, MODEL, DESIGN, SECRET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERTY. THUS, IT PRIMARILY DEALS WITH CONSIDERATIONS PAID AS ROYALTY FOR TRANSFER OF INTELLECTUAL PROPERTY RIGHTS (IPR) OUTSIDE INDIA EVEN IF IPR WAS WITH RESPECT TO OIL EXPLORATION. THE OPERATION OF THIS SECTION WAS UP TO 31-3-2003. IT FOLLOWS, THEREFORE, THAT ROYALTY/ FTS RECEIVED BY A NON-RESI DENT FOR TRANSFER OF INTELLECTUAL PROPERTY RIGHTS CONTEMPLATED U/S 44D, IF PAID FOR THE NATURE OF SERVICES CONTEMPLATED U/S 44BB AFTER 31-3-2003, WOU LD BE TAXABLE U/S 44BB. 19. SECTION 44DA, INSERTED BY THE FINANCE ACT, 20 03, W.E.F. 1-4-2004, READS AS UNDER: SPECIAL PROVISION FOR COMPUTING INCOME BY WAY OF RO YALTIES, ETC., IN CASE OF NON-RESIDENTS 44DA(1) THE INCOME BY WAY OF ROYALTY OR FEES FOR T ECHNICAL SERVICES RECEIVED FROM GOVERNMENT OR AN INDIAN CONCERN IN PU RSUANCE OF AN I.T.A. NO. 4542/DEL/2013 ASSESSMENT YEAR 2008-09 15 AGREEMENT MADE BY A NON-RESIDENT (NOT BEING A COMPA NY) OR A FOREIGN COMPANY WITH GOVERNMENT OR THE INDIAN CONCERN AFTER THE 31ST DAY OF MARCH, 2003, WHERE SUCH NON-RESIDENT (NOT BEING A C OMPANY) OR A FOREIGN COMPANY CARRIES ON BUSINESS IN INDIA THROUG H A PERMANENT ESTABLISHMENT SITUATED THEREIN, OR PERFORMS PROFESS IONAL SERVICES FROM A FIXED PLACE OF PROFESSION SITUATED THEREIN, AND T HE RIGHT, PROPERTY OR CONTRACT IN RESPECT OF WHICH THE ROYALTIES OR FEES FOR TECHNICAL SERVICES ARE PAID IS EFFECTIVELY CONNECTED WITH SUCH PERMANE NT ESTABLISHMENT OR FIXED PLACE OF PROFESSION, AS THE CASE MAY BE, SHAL L BE COMPUTED UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSI ON' 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 PROFESSIO N 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 AN Y OF ITS OTHER OFFICES. (2) EVERY NON-RESIDENT (NOT BEING A COMPANY) OR A FOREI GN COMPANY SHALL KEEP AND MAINTAIN BOOKS OF ACCOUNT AN D OTHER DOCUMENTS IN ACCORDANCE WITH THE PROVISIONS CONTAINED IN SECTION 44AA AND GET HIS ACCOUNTS AUDI TED BY AN ACCOUNTANT AS DEFINED IN THE EXPLANATION BELO W SUB-SECTION (2) OF SECTION 288 AND FURNISH ALONG WI TH THE RETURN OF INCOME, THE REPORT OF SUCH AUDIT IN THE PRESCRIBED FORM DULY SIGNED AND VERIFIED BY SUCH I.T.A. NO. 4542/DEL/2013 ASSESSMENT YEAR 2008-09 16 ACCOUNTANT. EXPLANATION.-FOR THE PURPOSES OF THIS SECTION,- (A) 'FEES FOR TECHNICAL SERVICES' SHALL HAVE THE SAME MEANING AS IN EXPLANATION 2 TO CLAUSE (VII) OF SUB- SECTION (1) OF SECTION 9; (B) 'ROYALTY' SHALL HAVE THE SAME MEANING AS IN EXPLANATION 2 TO CLAUSE (VI) OF SUB-SECTION (1) OF SECTION 9; (C) 'PERMANENT ESTABLISHMENT' SHALL HAVE THE SAME MEANING AS IN CLAUSE (IIIA) OF SECTION 92 F. ] 20. THEREFORE, IT FOLLOWS THAT IF ROYALTY/ FTS IS RECEIVED BY A NON-RESIDENT WHO IS ENGAGED IN THE BUSINESS OF PROVIDING SERVICE S OR FACILITIES IN CONNECTION WITH, OR SUPPLYING P&M ON HIRE USED, OR TO BE USED, IN THE PROSPECTING FOR, OR EXTRACTION OR PRODUCTION OF MIN ERAL OILS THEN THIS WILL BE TAXED U/S 44BB BUT IF IT IS RECEIVED ON ACCOUNT OF HAVING PE/ FIXED PLACE IN INDIA THEN IT WILL BE TAXED U/S 44DA FROM 1-4-2011 ONWARDS. IT IS NOTICEABLE THAT THERE IS NO REQUIREMENT OF PE IN SECTION 44BB AND, THEREFORE, IF THE PAYMENT OF ROYALTY/FTS TO NON-RESIDENT HAS NO NEXUS WITH PE AND IS PAID FOR THE NATURE OF ACTIVITIES CONTEMPLATED U/S 44BB, THE SAME WOULD CONTINUE TO BE TAXABLE U/S 44BB. 21. SECTION 115A, SUBSTITUTED BY FINANCE ACT, 1994 W.E. F. 1-4-1995, READS AS UNDER: TAX ON DIVIDENDS, ROYALTY AND TECHNICAL SERVICE FEE S IN THE CASE OF I.T.A. NO. 4542/DEL/2013 ASSESSMENT YEAR 2008-09 17 FOREIGN COMPANIES 115A. (1) WHERE THE TOTAL INCOME OF- '(B) [A NON-RESIDENT (NOT BEING A COMPANY) OR A FOR EIGN COMPANY, INCLUDES ANY INCOME BY WAY OF ROYALTY OR F EES FOR TECHNICAL SERVICES OTHER THAN INCOME REFERRED TO IN SUB-SECTION (1) OF SECTION 44DA] RECEIVED FROM GOVERNMENT OR AN INDIAN CONCERN IN PURSUANCE OF AN AGREEMENT MADE BY THE FO REIGN COMPANY WITH GOVERNMENT OR THE INDIAN CONCERN AFTER THE 31ST DAY OF MARCH, 1976, AND WHERE SUCH AGREEMENT IS WIT H AN INDIAN CONCERN, THE AGREEMENT IS APPROVED BY THE CE NTRAL GOVERNMENT OR WHERE IT RELATES TO A MATTER INCLUDED IN THE INDUSTRIAL POLICY, FOR THE TIME BEING IN FORCE, OF THE GOVERNMENT OF INDIA, THE AGREEMENT IS IN ACCORDANCE WITH THAT POLICY, THEN, SUBJECT TO THE PROVISIONS OF SUB-SECTIONS (1A) AND (2), THE INCOME-TAX PAYABLE SHALL BE THE AGGREGATE OF- (A) THE AMOUNT OF INCOME-TAX CALCULATED ON THE INCO ME BY WAY OF ROYALTY, IF ANY, INCLUDED IN THE TOTAL INCOME, A T THE RATE OF THIRTY PER CENT IF SUCH ROYALTY IS RECEIVED IN PURS UANCE OF AN AGREEMENT MADE ON OR BEFORE THE 31ST DAY OF MAY, 19 97 AND TWENTY PER CENT WHERE SUCH ROYALTY IS RECEIVED IN P URSUANCE OF AN AGREEMENT MADE AFTER THE 31ST DAY OF MAY, 1997; (B) THE AMOUNT OF INCOME-TAX CALCULATED ON THE INCO ME BY WAY OF FEES FOR TECHNICAL SERVICES, IF ANY, INCLUDED IN THE TOTAL INCOME, AT THE RATE OF THIRTY PER CENT IF SUCH FEES FOR TECHNICAL SERVICES ARE RECEIVED IN PURSUANCE OF AN AGREEMENT MADE ON OR BEFORE THE 31ST DAY OF MAY, 1997 AND TWENTY PER CEN T WHERE I.T.A. NO. 4542/DEL/2013 ASSESSMENT YEAR 2008-09 18 SUCH FEES FOR TECHNICAL SERVICES ARE RECEIVED IN PU RSUANCE OF AN AGREEMENT MADE AFTER THE 31ST DAY OF MAY, 1997; AND (C) THE AMOUNT OF INCOME-TAX WITH WHICH IT WOULD HA VE BEEN CHARGEABLE HAD ITS TOTAL INCOME BEEN REDUCED BY THE AMOUNT OF INCOME BY WAY OF ROYALTY AND FEES FOR TECHNICAL SER VICES. EXPLANATION.-FOR THE PURPOSES OF THIS SECTION,- (A) 'FEES FOR TECHNICAL SERVICES' SHALL HAVE THE SA ME MEANING AS IN EXPLANATION 2 TO CLAUSE (VII) OF SUB-SECTION (1) OF SECTION 9 ; (C) 'ROYALTY' SHALL HAVE THE SAME MEANING AS IN EXP LANATION 2 TO CLAUSE (VI) OF SUB-SECTION (1) OF SECTION 9 ; (3) NO DEDUCTION IN RESPECT OF ANY EXPENDITURE OR ALLOWANCE SHALL BE ALLOWED TO THE ASSESSEE UNDER SECTIONS 28 TO 44C AND SECTION 57 IN COMPUTING HIS OR ITS INCOME REFERRED TO IN SU B-SECTION (1). 22. NOTICEABLE FEATURES OF SECTION 115A ARE THAT SECTION 115A (B) W.E.F. 1-4-04 COVERS THE CASES OF ROYALTY/ FTS OTHER THAN REFERRE D TO IN SECTION 44DA (1). THE RATE OF TAX IS AS UNDER: (I) 30% IF IN PURSUANCE TO AGREEMENT MADE AFTER 31/ 3/76 TO 31/5/97; (II) 20% IF IN PURSUANCE TO AGREEMENT MADE BETWEEN 1-6-97 TO 31/5/2005; (III) 10% IF IN PURSUANCE TO AGREEMENT MADE ON 1-6- 2005 OR THEREAFTER. NO DEDUCTION IS ALLOWABLE IN RESPECT OF ANY EXPEND ITURE OR ALLOWANCE U/S 28 TO 44C AND 57. 23 . SECTION 44BB INSERTED BY THE FINANCE ACT, 1987 WITH RETROSPECTIVE EFFECT I.T.A. NO. 4542/DEL/2013 ASSESSMENT YEAR 2008-09 19 FROM 1-4-1983 READS AS UNDER: SPECIAL PROVISION FOR COMPUTING PROFITS AND GAINS I N CONNECTION WITH THE BUSINESS OF EXPLORATION, ETC., OF MINERAL OILS 44BB. (1) NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAI NED IN SECTIONS 28 TO 41 AND SECTIONS 43 AND 43A, IN TH E CASE OF AN ASSESSEE [BEING A NON-RESIDENT] ENGAGED IN THE BUSI NESS 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, MI NERAL OILS, A SUM EQUAL TO TEN PER CENT OF THE AGGREGATE OF THE A MOUNTS SPECIFIED IN SUBSECTION (2) SHALL BE DEEMED TO BE T HE 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 WHE RE THE PROVISIONS OF SECTION 42 OR SECTION 44D OR SECT ION 115A OR SECTION 293A APPLY FOR THE PURPOSES OF COMPUTING PR OFITS OR GAINS OR ANY OTHER INCOME REFERRED TO IN THOSE SECT IONS. (2) THE AMOUNTS REFERRED TO IN SUB-SECTION (1) S HALL BE THE FOLLOWING, NAMELY:- (A) THE AMOUNT PAID OR PAYABLE (WHETHER IN OR OUT OF INDIA) TO THE ASSESSEE OR TO ANY PERSON ON HIS BEHALF ON ACCO UNT OF THE PROVISION OF SERVICES AND FACILITIES IN CONNECTION WITH, OR SUPPLY OF PLANT AND MACHINERY ON HIRE USED, OR TO B E USED, IN THE PROSPECTING FOR, OR EXTRACTION OR PRODUCTION OF , MINERAL OILS IN INDIA; AND (B) THE AMOUNT RECEIVED OR DEEMED TO BE RECEIVED IN INDIA BY I.T.A. NO. 4542/DEL/2013 ASSESSMENT YEAR 2008-09 20 OR ON BEHALF OF THE ASSESSEE ON ACCOUNT OF THE PROV ISION OF SERVICES AND FACILITIES IN CONNECTION WITH, OR SUPP LY OF PLANT AND MACHINERY ON HIRE USED, OR TO BE USED, IN THE P ROSPECTING FOR, OR EXTRACTION OR PRODUCTION OF, MINERAL OILS O UTSIDE INDIA. (3) NOTWITHSTANDING ANYTHING CONTAINED IN SUB-SECTI ON (1), AN ASSESSEE MAY CLAIM LOWER PROFITS AND GAINS THAN THE PROFITS AND GAINS SPECIFIED IN THAT SUB-SECTION, IF HE KEEP S AND MAINTAINS SUCH BOOKS OF ACCOUNT AND OTHER DOCUMENTS AS REQUIRED UNDER SUB-SECTION (2) OF SECTION 44AA AND GETS HIS ACCOUNTS AUDITED AND FURNISHES A REPORT OF SUCH AUD IT AS REQUIRED UNDER SECTION 44AB, AND THEREUPON THE ASSE SSING OFFICER SHALL PROCEED TO MAKE AN ASSESSMENT OF THE TOTAL INCOME OR LOSS OF THE ASSESSEE UNDER SUBSECTION (3) OF SECTION 143 AND DETERMINE THE SUM PAYABLE BY, OR REFUNDABLE TO, THE ASSESSEE. EXPLANATION.-FOR THE PURPOSES OF THIS SECTION,- (I) 'PLANT' INCLUDES SHIPS, AIRCRAFT, VEHICLES, DRI LLING UNITS, SCIENTIFIC APPARATUS AND EQUIPMENT, USED FOR THE PU RPOSES OF THE SAID BUSINESS; (II) MINERAL OIL' INCLUDES PETROLEUM AND NATURAL G AS. 24. IT IS SEEN THAT THE BASIC INGREDIENTS OF THIS SECTION ARE THAT THE NON-RESIDENT ASSESSEE SHOULD BE ENGAGED IN THE BUSINESS OF PROVI DING SERVICES OR FACILITIES IN CONNECTION WITH THE PROSPECTING OR EXTRACTION OR PR ODUCTION OF MINERAL OILS. NON-RESIDENT ASSESSEE SHOULD BE ENGAGED IN THE BUSI NESS OF SUPPLY PLANT AND MACHINERY ON HIRE USED OR TO BE USED, IN PROSPECTIN G FOR OR EXTRACTION OR I.T.A. NO. 4542/DEL/2013 ASSESSMENT YEAR 2008-09 21 PRODUCTION OF MINERAL OILS. THE AMOUNT BEING 10% OF GROSS RECEIPTS WOULD BE ASSESSABLE AS 'BUSINESS INCOME. HOWEVER, A PROVISO WAS ALSO INSERTED WHICH, INTER ALIA, EXCLUDED THE ROYALTY OR FTS CONTEMPLATE D U/S 44D OR SECTION 115A. SECTION 44DA WAS INSERTED BY FINANCE ACT 2010 W.E.F . 1-4- 2011. FROM THE COMBINED READING OF THESE SECTIONS IT IS EVIDENT TH AT ALL THE SECTIONS RELATING TO ROYALTY/FTS OPERATE IN DIFFERENT FIELDS AND THAT IS THE REASON FOR INSERTION OF PROVISO TO SECTIONS 44BB/44DA/115A. WHERE THE ASSE SSEE WAS IMPARTING SERVICES WHICH ENTITLED IT TO ROYALTY OR FTS SIMPLI CITER THEN THE SAME CONTINUES TO BE ASSESSED U/S 9(1)(VI)/(VII) READ WITH SECTION 115A OF THE ACT. HOWEVER, WHERE THE ASSESSEE IS IMPARTING SERVICES IN RELATIO N TO OIL EXPLORATION, THE ROYALTY/FTS WOULD BE TAXABLE U/S 44BB. SPECIFIC SE RVICES ARE CONTEMPLATED ONLY UNDER SECTION 44BB AND, THEREFORE THAT BEING S PECIAL PROVISION, THE SAME WILL PREVAIL OVER ALL OTHER PROVISIONS DEALING WITH ROYALTY/FTS. IN NO OTHER SECTION DEALING WITH ROYALTY/FTS, SPECIFIC SERVICES ARE PROVIDED. IN THIS REGARD, ONE MAY ALSO REFER TO SECTION 293A OF THE ACT WHICH EMPOWERS THE CENTRAL GOVERNMENT TO GRANT EXEMPTIONS IN RELATION TO PARTI CIPATION IN THE BUSINESS OF PROSPECTING FOR OR EXTRACTION ETC. OF MINERAL OIL. IN FACT SEPARATE NOTIFICATIONS HAVE BEEN ISSUED BY THE GOVERNMENT IN EXERCISE OF I TS POWER CONFERRED U/S 293A TO GIVE RELIEF TO THE ASSESSEES IN CONNECTION WITH THE BUSINESS OF EXPLORATION AND EXTRACTION OF MINERAL OIL. CONSIDERING THE PRESSING REQUIREMENT OF THE OIL INDUSTRY, SECTIONS 42 AND 293 A WERE INSERTED IN TH E ACT IN VIEW OF THE HIGH EXPENDITURE INVOLVED IN THE BUSINESS OF OIL EXPLORA TION. WHEN VIEWED IN THE I.T.A. NO. 4542/DEL/2013 ASSESSMENT YEAR 2008-09 22 BACK DROP OF THIS OBJECTIVE, WE FIND THAT SECTION 4 4BB HAS BEEN COUCHED IN SUCH A MANNER SO AS TO ENCOMPASS WITHIN ITS AMBIT ALL SE RVICES CONNECTED WITH OIL EXPLORATION. THUS, IN OUR OPINION, IF A NON-RESIDEN T IS ENGAGED IN THE BUSINESS OF PROVIDING SERVICES OR FACILITIES IN CONNECTION WITH THE PROSPECTING FOR EXTRACTION OR PRODUCTION OF MINERAL OIL, THEN 10% OF THE AGGRE GATE OF THE AMOUNTS RECEIVED/ACCRUED WILL BE DEEMED TO BE THE PROFITS A ND GAINS OF SUCH BUSINESS CHARGEABLE TO TAX IN TERMS OF PROVISIONS OF SECTION 44BB OF THE ACT. 25. A REFERENCE CAN ALSO BE MADE TO THE DECISION OF THE HONBLE APEX COURT IN ONGC VS. CIT & ANR. IN CIVIL APPEAL NO 731 OF 2007 WHEREIN THE HONBLE APEX COURT IN ITS ORDER DATED 01/07/2015 HAS ALLOWE D THE APPEAL OF ONGC ON THE SUBSTANTIAL QUESTION OF LAW FRAMED WHICH READS AS , WHETHER THE AMOUNTS PAID BY THE ONGC TO THE NON-RESIDENT ASSESSES/FOREI GN COMPANIES FOR PROVIDING VARIOUS SERVICES IN CONNECTION WITH PROSPECTING, EX TRACTION OR PRODUCTION OF MINERAL OIL IS CHARGEABLE TO TAX AS FEES FOR TECHN ICAL SERVICES UNDER SECTION 44D READ WITH EXPLANATION 2 TO SECTION 9(1)(VII) OF THE INCOME TAX ACT OR WILL SUCH PAYMENTS BE TAXABLE ON A PRESUMPTIVE BASIS UND ER SECTION 44BB OF THE ACT? 26. THE HONBLE APEX COURT HAS ANSWERED THE QUEST ION AS UNDER, VIEWED THUS, IT IS THE PROXIMITY OF THE WORKS CONTEMPLATED UNDER AN AGREEMENT, EXECUTED WITH A NON-RESIDENT ASSESSEE OR A FOREIGN COMPANY, WITH MINING ACTIVITY OR MINING OPERATIONS THAT WOULD BE CRUCIAL FOR THE DET ERMINATION OF THE QUESTION WHETHER THE PAYMENTS MADE UNDER SUCH AN AGREEMENT T O THE NON-RESIDENT I.T.A. NO. 4542/DEL/2013 ASSESSMENT YEAR 2008-09 23 ASSESSEE OR THE FOREIGN COMPANY IS TO BE ASSESSED U NDER SECTION 44BB OR SECTION 44D OF THE ACT. THE TEST OF PITH AND SUBSTANCE OF T HE AGREEMENT COMMENDS TO US AS REASONABLE FOR ACCEPTANCE. EQUALLY IMPORTANT IS THE FACT THAT THE CBDT HAD ACCEPTED THE SAID TEST AND HAD IN FACT ISSUED A CIR CULAR AS FAR AS 22.10.1990 TO THE EFFECT THAT MINING OPERATIONS AND THE EXPRESSIO NS MINING PROJECTS OR LIKE PROJECTS OCCURRING IN EXPLANATION 2 TO SECTION 9(1 ) OF THE ACT WOULD COVER RENDERING OF SERVICE LIKE IMPARTING OF TRAINING AND CARRYING OUT DRILLING OPERATIONS FOR EXPLORATION OF AND EXTRACTION OF OIL AND NATURAL GAS AND HENCE PAYMENTS MADE UNDER SUCH AGREEMENT TO A NON-RESIDEN T/FOREIGN COMPANY WOULD BE CHARGEABLE TO TAX UNDER THE PROVISIONS OF SECTIO N 44BB AND NOT SECTION 44D OF THE ACT. WE DO NOT SEE HOW ANY OTHER VIEW CAN BE TAKEN IF THE WORKS OR SERVICES MENTIONED UNDER A PARTICULAR AGREEMENT IS DIRECTLY ASSOCIATED OR INEXTRICABLY CONNECTED WITH PROSPECTING, EXTRACTION OR PRODUCTION OF MINERAL OIL. 27. THUS, ON THE FACTS OF THE CASE AND RESPECTFUL LY FOLLOWING THE RATIO OF THE JUDGMENT OF THE HONBLE APEX COURT IN ONGC VS. CIT & ANR. IN CIVIL APPEAL NO 731 OF 2007, IT IS OUR CONSIDERED OPINION THAT T HE REVENUES OF THE ASSESSEE SHOULD BE TAXED UNDER THE PROVISION OF SECTION 44BB OF THE ACT. HENCE, GROUND NO. 3 OF THE ASSESSEES APPEAL IS ALLOWED. 28. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. I.T.A. NO. 4542/DEL/2013 ASSESSMENT YEAR 2008-09 24 ORDER PRONOUNCED IN THE OPEN COURT ON 11TH OF MA RCH, 2016. SD/- SD/- (S.V. MEHROTRA) (SUDHANSHU SRIVASTAVA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: THE 11 TH OF MARCH, 2016 GS COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT BY ORDER ASSTT. REGISTRAR