Director of IT v. OHM Ltd. - Taxpublishers.in

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The Tax Publishers2013 TaxPub(DT) 0541 (Del-HC) : (2013) 352 ITR 0406 : (2013) 259 CTR 0407 : (2013) 212 TAXMAN 0440 : (2013) 084 DTR 0142 INCOME TAX ACT, 1961 --Presumptive taxation under section 44BB--Prospecting of mineral oil, etc. Applicability of section 44BB vis-a-vis 44DA--Assessee non-resident company was engaged in the business of providing of geophysical services to oil and exploration industry, it conducts electromagnetic survey, processing and interpretation of data. The data so collected through the survey was used in of shore oil industry. T..... companies awarded contract to assessee for the above stated survey, etc., The assessee presented application under section 197 for issuance of a certificate for receiving payments after deduction of tax at source at the lesser rate 4.223% of tax as per provisions of section 44BB. The concerned authority held that tax would be deducted at the rate of 10 per cent (x surcharge x education cess). Against the application of section 197 assessee approached AAr who held that tax at 4.223% would be deducted at the sources. The revenue contended that section 44Da would be applied and not section 44BB in assessees case. *Held:* Not acceptable. The income received by a non-resident businessman for the technical services provided in relation to prospecting and extraction of mineral oil, will be wholly governed by section 44BB for the purpose of computation and not section 44DA. Basically the rule that the specific provision excludes the general provision has been applied. Section 44BB is a special provision for computing the profits and gains of a non-resident in connection with the business of providing services or facilities in connection with, or supplying plant and machinery on hire, used or to be used, in the prospecting for, or extraction or production of mineral oils including petroleum and natural gas. Section 44DA is also a provision which applies to non-residents only. It is, however, broader and more general in nature and provides for assessment of the income of the non-resident by way of royalty or fees for technical services, where such non-resident carries on business in India through a permanent establishment situated therein or performs services from a fixed place of profession situated in India and the right, property or contract in respect of which the royalties or fees for technical services are paid is effectively connected with the permanent establishment or fixed place of profession. Such income would be computed and assessed under the head business in accordance with the provisions of the Act, subject to the condition that no deduction would be allowed in respect of any expenditure or allowance which is not wholly or exclusively incurred for the business of such permanent establishment or fixed place of profession or in respect of amounts, if any, paid by the permanent establishment to its head office or to any of its other offices. Under section 44BB one does not find any reference to a permanent establishment in India. The type of services contemplated by the provision is more specific than what is contemplated by section 44DA. Section 44BB refers specifically to services or facilities in connection with, or supplying plant and machinery on hire, used or to be used in the prospecting for, or extraction or production of mineral oils. Revenues earned by the non-resident from rendering such specific services are covered by section 44BB. It is a well settled rule of interpretation that if a special provision is made respecting a certain matter, that matter is excluded from the general provision under the rule which is expressed by the maxim Generallia specialibus non derogant. It is again a well-settled rule of construction that when, in an enactment two provisions exist, which cannot be reconciled with each other, they should be so interpreted that, if possible, effect should be given to both. This was stated to be the rule of harmonious construction by the Supreme Court in Venkataramana Devaru v. State of Mysore, AIR 1958 SC 255. If as contended by the Revenue, section 44DA covers all types of services rendered by the nonresident, that would reduce section 44BB to a useless lumber or dead letter and such a result would be opposed to the very essence of the rule of harmonious construction. [Para 11] The second proviso to sub-section (1) of section 44DA inserted by the Finance Act, 2010 with effect from 1-4-2011 makes the position clear. Simultaneously a reference to section 44DA was inserted in the proviso to sub-section (1) of section 44BB. It should be remembered that section 44DA also requires that the nonresident or the foreign company should carry on business in India through a permanent establishment situated therein and the right, property or contract in respect of which the royalty or fees for technical services is paid should be effectively connected with the permanent establishment. Such a requirement has not been spelt out in section 44BB; moreover, a flat rate of 10% of the revenues received by the non-resident for the specific services rendered by it are deemed to be profits from the business chargeable to tax in India under section 44BB, whereas under section 44DA, deduction of expenditure or allowance wholly and exclusively incurred by the non-resident for the business of the permanent establishment in India and for expenditure towards reimbursement of actual expense by the permanent establishment to its head office or to any of its other offices is allowed from the revenues received by the non-resident. Because of the different modes or methods prescribed in the two sections for computing the profits, it apparently became necessary to clarify the position by making necessary amendments. That perhaps is the reason for inserting the second proviso to sub-section (1) of section 44DA and a reference to section 44DA in the proviso below sub-section (1) of section 44BB. A careful perusal of both the provisos shows that they refer only to computation of the profits under the sections. If both the sections have to be read harmoniously and in such a manner that neither of them becomes a useless lumber then the only way in which the provisos can be given effect to is to understand them as referring only to the computation of profits, and to understand the amendments as having been inserted only to clarify the position. So understood, the proviso to sub-section (1) of section 44BB can only mean that the flat rate of 10% of the revenues cannot be deemed to be the profits of the nonresident where the services are of the type which do not fall under that section, but are more general in nature so as to fall under section 44DA. Similarly, the second proviso to sub-section (1) of section 44DA can only be interpreted to mean that where the services are general in nature and fall under the sub-section read with Explanation 2 to section 9(1)(vii) of the Act, then an assessee rendering such services as provided in section 44BB cannot claim the benefit of being assessed on the basis that 10% of the revenues will be deemed to be the profits as provided in section 44BB. In other words, the amendment made by the Finance Act, 2010 with effect from 1-4-2011 in both the sections, cannot have the effect of altering or effacing the fundamental nature of both the provisions or their respective spheres of operation or to take away the separate identity of section 44BB. We do not, therefore, see how these amendments can assist the revenue's contention in the present case, put forward by the Senior Standing Counsel. This court does therefore, court is agreed with the AAR that in the present case the profits shall be computed in accordance with the provisions of section 44BB of the Act and not section 44DA. [Para 12] SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2013 TaxPub(DT) 0541 (Del-HC) : (2013) 352 ITR 0406 : (2013) 259 CTR 0407 : (2013) 212 TAXMAN 0440 : (2013) 084 DTR 0142

INCOME TAX ACT, 1961

--Presumptive taxation under section 44BB--Prospecting of mineral oil, etc. Applicability of section 44BB vis-a-vis 44DA--Assessee non-resident company was engaged in the business of providing of geophysical services to oil and exploration industry, it conducts electromagnetic survey, processing and interpretation of data. The data so collected through the survey was used in of shore oil industry. T..... companies awarded contract to assessee for the above stated survey, etc., The assessee presented application under section 197 for issuance of a certificate for receiving payments after deduction of tax at source at the lesser rate 4.223% of tax as per provisions of section 44BB. The concerned authority held that tax would be deducted at the rate of 10 per cent (x surcharge x education cess). Against the application of section 197 assessee approached AAr who held that tax at 4.223% would be deducted at the sources. The revenue contended that section 44Da would be applied and not section 44BB in assessees case. Held: Not acceptable. The income received by a non-resident businessman for the technical services provided in relation to prospecting and extraction of mineral oil, will be wholly governed by section 44BB for the purpose of computation and not section 44DA.

Basically the rule that the specific provision excludes the general provision has been applied. Section 44BB is a special provision for computing the profits and gains of a non-resident in connection with the business of providing services or facilities in connection with, or supplying plant and machinery on hire, used or to be used, in the prospecting for, or extraction or production of mineral oils including petroleum and natural gas. Section 44DA is also a provision which applies to non-residents only. It is, however, broader and more general in nature and provides for assessment of the income of the non-resident by way of royalty or fees for technical services, where such non-resident carries on business in India through a permanent establishment situated therein or performs services from a fixed place of profession situated in India and the right, property or contract in respect of which the royalties or fees for technical services are paid is effectively connected with the permanent establishment or fixed place of profession. Such income would be computed and assessed under the head business in accordance with the provisions of the Act, subject to the condition that no deduction would be allowed in respect of any expenditure or allowance which is not wholly or exclusively incurred for the business of such permanent establishment or fixed place of profession or in respect of amounts, if any, paid by the permanent establishment to its head office or to any of its other offices. Under section 44BB one does not find any reference to a permanent establishment in India. The type of services contemplated by the provision is more specific than what is contemplated by section 44DA. Section 44BB refers specifically to services or facilities in connection with, or supplying plant and machinery on hire, used or to be used in the prospecting for, or extraction or production of mineral oils. Revenues earned by the non-resident from rendering such specific services are covered by section 44BB. It is a well settled rule of interpretation that if a special provision is made respecting a certain matter, that matter is excluded from the general provision under the rule which is expressed by the maxim Generallia specialibus non derogant. It is again a well-settled rule of construction that when, in an enactment two provisions exist, which cannot be reconciled with each other, they should be so interpreted that, if possible, effect should be given to both. This was stated to be the rule of harmonious construction by the Supreme Court in Venkataramana Devaru v. State of Mysore, AIR 1958 SC 255. If as contended by the Revenue, section 44DA covers all types of services rendered by the nonresident, that would reduce section 44BB to a useless lumber or dead letter and such a result would be opposed to the very essence of the rule of harmonious construction. [Para 11] The second proviso to sub-section (1) of section 44DA inserted by the Finance Act, 2010 with effect from 1-4-2011 makes the position clear. Simultaneously a reference to section 44DA was inserted in the proviso to sub-section (1) of section 44BB. It should be remembered that section 44DA also requires that the nonresident or the foreign company should carry on business in India through a permanent establishment situated therein and the right, property or contract in respect of which the royalty or fees for technical services is paid should be effectively connected with the permanent establishment. Such a requirement has not been spelt out in section 44BB; moreover, a flat rate of 10% of the revenues received by the non-resident for the specific services rendered by it are deemed to be profits from the business chargeable to tax in India under section 44BB, whereas under section 44DA, deduction of expenditure or allowance wholly and exclusively incurred by the non-resident for the business of the permanent establishment in India and for expenditure towards reimbursement of actual expense by the permanent establishment to its head office or to any of its other offices is allowed from the revenues received by the non-resident. Because of the different modes or methods prescribed in the two sections for computing the profits, it apparently became necessary to clarify the position by making necessary amendments. That perhaps is the reason for inserting the second proviso to sub-section (1) of section 44DA and a reference to section 44DA in the proviso below sub-section (1) of section 44BB. A careful perusal of both the provisos shows that they refer only to computation of the profits under the sections. If both the sections have to be read harmoniously and in such a manner that neither of them becomes a useless lumber then the only way in which the provisos can be given effect to is to understand them as referring only to the computation of profits, and to understand the amendments as having been inserted only to clarify the position. So understood, the proviso to sub-section (1) of section 44BB can only mean that the flat rate of 10% of the revenues cannot be deemed to be the profits of the nonresident where the services are of the type which do not fall under that section, but are more general in nature so as to fall under section 44DA. Similarly, the second proviso to sub-section (1) of section 44DA can only be interpreted to mean that where the services are general in nature and fall under the sub-section read with Explanation 2 to section 9(1)(vii) of the Act, then an assessee rendering such services as provided in section 44BB cannot claim the benefit of being assessed on the basis that 10% of the revenues will be deemed to be the profits as provided in section 44BB. In other words, the amendment made by the Finance Act, 2010 with effect from 1-4-2011 in both the sections, cannot have the effect of altering or effacing the fundamental nature of both the provisions or their respective spheres of operation or to take away the separate identity of section 44BB. We do not, therefore, see how these amendments can assist the revenue's contention in the present case, put forward by the Senior Standing Counsel. This court does therefore, court is agreed with the AAR that in the present case the profits shall be computed in accordance with the provisions of section 44BB of the Act and not section 44DA. [Para 12]