ABAN OFFSHORE LIMITED,CHENNAI vs. DCIT, INTL, TAX 1(1), CHENNAI

PER S. R. RAGHUNATHA, ACCOUNTANT MEMBER:

1. The Ld. CIT(A) erred in not considering the fact that the order passed u/s.250 of the Income Tax Act, 196l, dated 13.03.2024 is erroneous both on facts and in law to the extent the order is prejudicial to the interest of the appellant

:-2-: ITA. No:1240/Chny/2024

2. The Ld. CIT(A) erred by not giving reasonable opportunity of being heard and did not consider the submission made by the assessee which is against the principle of natural justice. (B)The Ld. CIT(A) ought to have appreciated the fact that Ld. AO erred in applying the tax of l0 and 22.5 percentage relating to royalty and fee for technical services respectively and charged interest without appreciating the nature of business of the assessee which is incorrect and bad in law 3. Without prejudice to above, the Ld. CIT(A) erred in not appreciating the fact that the mining activity not covered in the explanation to section 9(1)(vi) of the Act and payment in relation to mining activity is covered under section 44BB and not under section 115A r.w.s, 44DA of the Act. Further, the same has been considered by the Hon'ble ITAT in the assessee’s group companies. (B)The Ld. CITA) ought to appreciate that the payments to a foreign company for services in relation to prospecting for, or extraction or production of, mineral oil will be income chargeable to tax under the provisions of Sec. 44BB of the Income-tax Act, 1961. 4. The Ld. CITA) ought to have appreciated the fact that the provisions of the DTAA or ITA as per the section 90 of the Act, which are more beneficial to the assessee shall be taken into consideration for the purpose of tax liability. (B)The Ld.CIT(A) erred in not appreciating the fact that only 10% of the aggregate receipts during the year will be chargeable to tax as business income and same has been considered by the Ld. AO while issuing the certificate of lower deduction u/s 195(2) of the Act. (C)The Ld. CIT(A) ought to have appreciated the fact that the Ld. AO erred in not considering the fact that the assessee is engaged in the business of offshore drilling services, extraction and exploration of mineral oil and natural gas and any services and charges paid to non- residents with respect drilling, exploration of oil or gas activity same is covered under section 44BB of the Act. 5. The Ld. CIT(A) ought to have appreciated the fact that the Ld. AO erred in not considering the fact that the assessee has deducted the withholding tax as per the Section 44BB(1) from the remittance made to non-resident service providers which is according to the provision of the Act. (B)The Ld.CIT(A) ought to consider the fact that the specific provision i.e., 44BB of the Act will over-ride the general provision of the Act 6. The Ld. CIT(A) ought to consider the fact that as per the explanation to section 9(1) any payment with respect to use or right to use any equipment are covered under royalty except the payment included in :-3-: ITA. No:1240/Chny/2024 section 44BB of the Act which is specifically excluded from the definition of royalty. (B) The Ld. CIT(A) erred in not considering the fact that the foreign remittance to non-residents are in the nature of rental charges on the equipment used for the drilling, exploration of oil and gas and same is covered in 44BB and not as royalty under the provision of the Act. (C)The Ld. CIT(A) ought to have considered the fact that remittance to non-residents with respect to professional and consultancy charges are related to the extraction and exploration of mineral oil and natural gas which is fully covered under section 44BB and not as fee for technical services 7. The Ld. CIT(A) ought to have appreciated the fact that the Ld. AO erred in not appreciating the fact that the mining activity is not covered in the explanation to section 9(1) of the Act and payment in relation to mining activity is covered under section 44BB and not under section 115A r.w.s. 44DA of the Act. (B)The Ld. CIT(A) ought to consider the fact that it is a settled issue by CBDT Vide Instruction No. 1862 dated 22.1 1.1990 where in it is clarified that the payments to a foreign company for services in relation to prospecting for, or extraction or production of, mineral oil will be income chargeable to tax under the provisions of sec.44BB of the Act and not u/s 115A r.w.s 44DA of the Act i.e., technical services.

:-4-: ITA. No:1240/Chny/2024 of mineral oil and natural gas. The assessee company filed its return of income u/s.139(1) of the Income Tax Act, 1961 (hereinafter the ‘Act’) for the assessment year 2014-15 on 28.11.2014 admitting total income of Rs.16,02,59,960/-. Subsequently, the assessee filed its revised return u/s.139(5) of the Act on 16.10.2015 & 26.11.2015 admitting ‘Nil’ income. Later, the assessee’s case was selected for scrutiny and assessment was completed u/s.143(3) of the Act. Subsequently, the case was flagged for verification of foreign remittances made during the relevant financial year 2013-14 as per the Form 15CA filed by the assessee. Later the AO issued notice u/s.133(6) of the Act dated 08.03.2021 and a show-cause notice dated 30.03.2021. In response the assessee filed copies of Form 15CA, 15CB and corresponding invoices with respect to foreign remittances and also a detailed submission dated 31.03.2021. After considering the assessee’s submission, the AO passed order u/s.201 of the Act on 31.03.2021 by treating the assessee in default and raised demand of Rs.5,22,24,733/- of tax and interest u/s.201 of the Act.

3.1 Aggrieved, assessee preferred an appeal before the Ld.CIT(A). The Ld.CIT(A) after considering the assessee’s submissions dismissed the appeal of assessee by upholding the order of AO and :-5-: ITA. No:1240/Chny/2024 sustained the additions. Aggrieved by the impugned order of the Ld.CIT(A), the assessee is in appeal before us.

4.1 The Ld.AR submitted that the applicability of the provisions of Sec.4 of the Act dealing with 'Chargeability of income tax’ and Sec. 5 of the Act dealing with the ‘Scope of Total Income’. As per section 4 read with section 5(2), a person non-resident in India is liable to income tax in India if the income accrues or arises; or deemed to accrue and arise in India; received or deemed to be received in :-6-: ITA. No:1240/Chny/2024 India. However, section 90 of the Act, empowers the Central Government to enter into an agreement for avoidance of double taxation with any other country. Further, Sec. 90(2) states that "where the Central Government has entered into an agreement with the Government of any country outside India or specified territory outside India, as the case may be, under sub-section (1) for granting relief of tax, or as the case may be, avoidance of double taxation, then, in relation to the assessee to whom such agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to that assessee.” Thus, an assessee has an option to be governed by the provisions of the DTAA or Act which are more beneficial to the assessee. In other words, provisions of Sec. 4 and 5 cannot be applied if in terms of DTAA entered into by India in accordance with Sec. 90 of Act, India does not have right to tax.

4.2 Further the ld.AR submitted that provisions of section 195(1) are applicable only if the sums payable to non-resident are chargeable to tax in India. In the present case payment are made to non-residents/ foreign companies not having any permanent establishment in India, Income of non-residents/foreign companies are not chargeable to tax in India as per Article 7 read with Article 5 of Double Tax Avoidance Agreement. Even if it is assumed that :-7-: ITA. No:1240/Chny/2024 provisions of 195 are extra territorial in nature after introduction of Explanation 2 to section 195 of Act (though not accepting the preposition), the obligation to comply with provisions of section 195(1) shall be applicable only if the sums payable to non-resident are chargeable to tax in India. Therefore, the remittance to non- residents/ foreign companies are not liable to tax in India unless the income of non-residents or foreign companies are liable to tax in India as per the provision of the Act.

4.3 Further, the ld.AR stated that the assessee is in the business of drilling, extraction and exploration of mineral oil and natural gas. For production, drilling, extraction and exploration of mineral oil and natural gas the assessee utilized services/ hired rigs from residents as well as non-residents and foreign companies based on requirements. The Assessee made payments to non-residents/ foreign companies with respect to rig’s/equipment’s hiring/renting charges and professional/ consultancy/ support / maintenance services utilised for the activity of drilling, extraction and exploration of mineral oil and natural gas which is covered u/s.44BB of the Act. The ld.AR submitted that considering the same, the assessee has deducted withholding tax on payment made to non-residents/ foreign companies as per the section 195 read with section 44BB of :-8-: ITA. No:1240/Chny/2024 the Act and deposited the same to government as per the provision of the Act.

4.4 Further ld.AR stated that the AO, has wrongly treated the foreign remittance i.e., equipment rental charges as royalty and professional and consultancy charges as fee for technical services without appreciating the fact that the assessee company is engaged in the business of offshore drilling, extraction and exploration of mineral oil and natural gas and payment made to non-residents/ foreign companies for services utilised in the activity of offshore drilling, extraction and exploration of mineral oil and natural gas which is specially covered under section 44BB of the Act.

4.5 The ld.AR drew our attention to Section 44BB i.e., Special provision for computing profits and gains in connection with the business of exploration, etc., of mineral oils (presumptive taxation scheme) in case of 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

:-9-: ITA. No:1240/Chny/2024 chargeable to tax under the head "Profits and gains of business or profession".

4.6 The consideration paid in the context of our transactions pertains to the provision of services and facilities related to the exploration and exploitation of mineral oils and natural gas, rather than payments classified as royalties or fees for technical services. Such a classification disregards the nature of the transactions and the specific provisions under Section 44BB of the Act, which should govern the assessment of business income in this case. Therefore, it is inappropriate and contrary to the principles of natural justice.

4.7 In this regard, reliance is placed on the following judicial pronouncements  Decision of Hon’ble Supreme Court of India in the case of Oil & Natural Gas Corporation Limited 59 taxmann.com 1(SC).

The test of pith and substance of the 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 circular as far back as 22.10.1990 to the effect that mining operations and the expressions “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- resident/foreign company would be chargeable to tax under the provisions of Section 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.

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.....................................On the basis of the said conclusion reached by us, we allow the appeals under consideration by setting aside the orders of the High Court passed in each of the cases before it and restoring the view taken by the learned Appellate Commissioner as affirmed by the learned Tribunal.”

 Decision of Hon’ble ITAT in the case of Additional Director of Income-tax, International Taxation, Dehradun v. International Technical Services LLC; [2016] 71 taxmann.com 351 (Delhi - Trib.)

“In view of the above, we observe that the DRP after considering the relevant decisions of the Hon'ble HighCourt including the decision of the Jurisdictional High Court of Delhi in the case of DIT v. OHM Ltd. [2013]352 ITR 406/[2012] 212 Taxman 440/[2012] 28 taxmann.com 120 held that section 44BB of the Act being a more specific provision shall prevail over the general provisions of the Act and that the services rendered by the Sub-contractor at the off shore rigs of a contractor is part and parcel of activities for extraction etc of mineral oils and would be covered u/s. 44BB of the Act. We respectfully note that in the case of ONGC(supra), speaking for the Hon'ble Apex Court, their Lordships categorically held that payments for providing various services in connection with prospecting, extraction or production of mineral oil would be assessed u/s. 44AB and not u/s.44D of the Act. On the basis of aforesaid discussion, we are inclined to hold that the issue is squarely covered in favour of the assessee and the DRP was not justified and correct in directing the AO to assess income of the assessee from non-resident company on account of provision of technical person for executing contract with ONGC shall be taxed applying due profit rate of 10% u/s. 44BB of the Act. Finally, in the light of above noted discussion, we have no hesitation to hold that there is no ambiguity, perversity or any other valid reason to interfere with the impugned order of the DRP and thus we uphold the same. Consequently, the sole effective ground of the Revenue being devoid of merits in both the appeals is dismissed”

4.8 Further in assessee’s own case the ITAT Chennai has accepted the contention that withholding tax deducted as per the provision of section 44BB of the Act is correct and department appeal has been dismissed

:-11-: ITA. No:1240/Chny/2024  Decision of ITAT in case of Deputy Commissioner of Income-tax v. ABAN Offshore Ltd. IT Appeal Nos. 1542, 1543, 1381 & 1382 (MDS) of 2010:

“27. We have perused the orders and heard the rival contentions. The payments were made by the assessee to non-residents. The payment made to International Tubular F2E was for rental and repairs to machinery and payment made to International Offshore Management was for drilling services. This has been mentioned by the Assessing Officer at paragraph 6 of his assessment order. However, as per the Assessing Officer, it was not for the assessee to decide whether section 44BB could be applied to such non-resident entities. The Assessing Officer relied on the decision of Frontier Offshore Exploration (India) Ltd. (supra) which was for the assessment year 2003-04 for making the disallowance for short deduction of tax at source. The assessee admittedly was engaged in exploration of oil on offshore basins and drilling was undertaken on contracts received from entities like ONGC. Such offshore drilling was for crude oil and crude oil is definitely a mineral oil. Therefore, services rendered by a non-resident entity for rental and repairs to machinery used in offshore drilling and also for drilling services can only be considered as services or facilities in connection with prospecting for, or extraction or production of mineral oil. Hence, the assessee had sufficient reason to have a bona fide belief that section 44BB of the Act would apply to M/s. International Tubular F2E and M/s. International Offshore Management. Subsequent to the decision in the case of Frontier Offshore Exploration (India) Ltd. (supra) for the assessment year 2003-04, which has been heavily relied on by the Assessing Officer for making the disallowance, there was a decision by another co-ordinate Bench in for the assessment year 2004-05 where also one of the party was same Frontier Offshore Exploration (India) Ltd. (supra). A very similar issue was involved in that case. The Tribunal examined the aspect of deduction of tax at source on payments made to a non-resident, falling under section 44BB of the Act and whether an assessee could make deduction at lower rate taking 10 per cent. as the income of such non-resident entity. After considering its earlier decision for the assessment year 2003-04, it was held at paragraphs 6 and 7 of the order dated February 4, 2011, as under (page 177 of 13 ITR (Trib): "6. We have considered the rival submissions. At the outset we are primarily to decide as to whether to follow the decision of the co-ordinate Bench of this Tribunal in the assessee's own case for the assessment year 2003-04, supra, or to differ from the same. After a perusal of the decision of the hon'ble Supreme Court in the case of GE India Technology Centre (P.) Ltd. [2010] 327 ITR 456 (SC) as also taking into consideration the :-12-: ITA. No:1240/Chny/2024 views expressed by the hon'ble jurisdictional High Court in the case of CIT v. Hi Tech Arai Ltd. [2010] 321 ITR 477 (Mad.) we are of the view that the decision of the co-ordinate Bench of this Tribunal in the assessee's own case for the assessment year 2003-04 would no more constitute good law. To err is human. To continue the error is not bravery. If we are to accept the contention of the Revenue that the provisions of section 44BB is relating only to the non-resident for the purpose of his assessment, then one should also keep in mind that the non-resident's assessment comes into play when he files his return. The non-resident would file his return only when the assessee has made the payment and if the assessee has made the payment to the non-resident, where is the question that the assessee is to deduct TDS at a lower rate after the assessment has been done on the non-resident? Section 44BB is a special provision as it is mentioned in the cause title to the said provision itself. As per the provisions of section 44BB(1) a sum equal to 10 per cent of the aggregate of the amount specified in sub-section (2) is deemed to be the profits and gains of such business chargeable to tax under the head' Profits and gains of business or profession'. It is because the provision of section 44BB has quantified the deemed income of the non- resident assessee at 10 per cent., it has opened with the clause' Notwithstanding anything to the contrary' contained in sections 28 to 41 and sections 43 and 43A. The aggregate amounts are quantified in sub- section (2) of section 44BB to be the amount paid or payable, received or deemed to be received, etc. As per sub-section (3) of section 44BB the non- resident can claim a lower profit. It is for the purpose of claiming lower profits that the non-resident must file a return and prove the same with support of his regular books of account and other documents and by complying with other conditions specified therein. If no return is filed, section 44BB(1) deems that the profits and gains of the business of the non- resident at 10 per cent of the gross receipts. A perusal of the decision of the hon'ble Supreme Court in the case of GE India Technology Centre (P.) Ltd. [2010] 327 ITR 456 (SC), clearly shows that the hon'ble Supreme Court has categorically held that the obligation to deduct TDS is limited to the appropriate portion of income chargeable under the Act forming part of the gross sums of money payable to the non-resident. The hon'ble Supreme Court while deciding the issue had categorically recognised that as per the provisions of section 195 the words used were "any other sums chargeable under the provisions of this Act" as against the term "any sum" used in the other provisions falling in Chapter XVII of the Income-tax Act, 1961. Obviously, what the Assessing Officer is demanding is that TDS is liable to be made under the provisions of section 195 of the Act. If the provisions of section 195 are to be invoked, it is only such sum which is chargeable to tax under the Income-tax Act, 1961 on which TDS can be made. A question now arises as to how much of the amounts paid by the assessee to the non- resident is the income chargeable to tax under the Income-tax Act, 1961 for the purpose of section 195. It is true that the assessee cannot quantify the income of the non-resident. This is where the special provision of section :-13-: ITA. No:1240/Chny/2024 44BB comes into play. Where the statute has provided a special provision for dealing with a special type of income such a provision would exclude a general provision dealing with the income accruing or arising out of any business connection. This view of ours finds support from the decision of the hon'ble jurisdictional High Court in the case of CIT v. Copes Vulcan Inc. [1987] 167 ITR 884 (Mad). Section 44BB is a special provision to the exclusion of all the contrary provisions provided in sections 28 to 41 and 43 and 43A of the Act. Once the provisions of sections 28 to 41 and sections 43 and 43A stand excluded, the method of computing the business income of the non-resident on the basis of the books of account goes out of the picture. Then it is only the provisions of sections 44AD, 44AE and 44AF which could be applied and the same obviously do not apply to the income of the non-resident companies. The hon'ble Supreme Court while dealing with its own decision in the case of Transmission Corporation of A.P. Ltd. [1999] 239 ITR 587 (SC), has categorically explained that the tax was liable to be deducted by the payer of the gross amount if such payment included in it an amount which was exigible to tax in India. This is not so in the present case. Here on account of the special provisions of section 44BB, 10 per cent of the gross amount payable to the non-residents deemed as the income chargeable to tax in India. In the present case it is noticed that the assessee has deducted tax at the specified rate on the 10 per cent of the bare boat charges paid to the Norway company who is the non-resident, computed as per the provisions of section 44BB. In the circumstances, we are of the view that there is no violation of the provisions of section 195 in the assessee's case which calls for a disallowance by invoking the provisions of section 40(a)(i) of the Act. In the circumstances, the finding of the learned Commissioner of Income-tax (Appeals) and that of the Assessing Officer stands reversed.

7. We may also mention here that we are not in agreement with the submission of the learned authorised representative that the provisions of section 40(a)(i) postulates an absolute failure and not short deduction. This is because a reading of section 201 clearly shows that the portion 'the whole or any part of the tax' is in connection with the words 'after so deducting fails to pay'. It is not in connection with the words 'does not deduct'."

:-14-: ITA. No:1240/Chny/2024 4.9 Further we would also like to submit that the applicability of the beneficial treaty provisions, that the nature of the consideration we have paid to non-resident/ foreign companies does not fall within the definitions of "royalty" or "Fees for Technical Services" as outlined in the Explanation to Section 9(1) of the Act. The said explanation reads as follows: To clarify, the Explanation to Section 9(1) of the Act provides specific definitions and criteria for what constitutes "royalty" and "Fees for Technical Services." These definitions outline the types of payments that are subject to tax under these categories. In our case, the consideration in question does not fit these definitions, which means it should not be classified as either "royalty" or "Fees for Technical Services." The Explanation to Section 9(1) of the Act reads as follows: Royalty: “Explanation 2.—For the purposes of this clause, "royalty" means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head "Capital gains") for— (i) the transfer of all or any rights (including the granting of a licence) in respect of a patent, invention, model, design, secret formula or process or trade mark or similar property ; (ii) the imparting of any information concerning the working of, or the use of, a patent, invention, model, design, secret formula or process or trade mark or similar property ; (iii) the use of any patent, invention, model, design, secret formula or process or trade mark or similar property ; (iv) the imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill ; (iva) the use or right to use any industrial, commercial or scientific equipment but not including the amounts referred to in section 44BB; (v) the transfer of all or any rights (including the granting of a licence) in respect of any copyright, literary, artistic or scientific work including films or video tapes for use in connection with television or tapes for :-15-: ITA. No:1240/Chny/2024 use in connection with radio broadcasting 11[, but not including consideration for the sale, distribution or exhibition of cinematographic films] ; or (vi) the rendering of any services in connection with the activities referred to in sub-clauses (i) to (iv), (iva) and (v).” Fees for technical services: “Explanation 2.—For the purposes of this clause, "fees for technical services" means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "Salaries";”

4.10 Therefore, the ld.AR submitted that, in light of the aforementioned Explanation to Section 9(1) of the Act, the payments made in connection with the mining project are specifically excluded from the category of "royalty" and do not fall under the definition of "Fees for Technical Services." As such, these payments are not subject to the general provisions for taxation applicable to royalties or technical services. Instead, they are covered under the specialized provision set forth in Section 44BB of the Act, which pertains to the taxation of income from the provision of services and facilities related to the exploration and exploitation of mineral oils and natural gas. Consequently, these payments should not be subjected to the special taxation provisions outlined in Section 115A in conjunction with Section 44D/44DA of the Act, which deal with royalties and technical services fees.

:-16-: ITA. No:1240/Chny/2024 4.11 The CBDT vide Instruction No. 1862 dated 22-10-1990 has clearly clarified the fact that payments to a foreign company for services in relation to prospecting for, or extraction or production of, mineral oil will be income chargeable to tax under the provisions of Sec. 44BB of the Income-tax Act, 1961 and not under the special provision for the taxation contained in section 115A, read with section 44D of the Income-tax Act, 1961. The said CBDT Instruction is reproduced below for your ready reference: “Definition of ‘fees for technical services in Explanation 2 to section 9(1)(vii) - Whether prospecting for, or extraction or production of, mineral oil are ‘mining’ operations . The expression “fees for technical services” has been defined in Explanation 2 to section 9(1)(vii) of the Income-tax Act, 1961 as under: "Explanation 2: For the purpose of this clause, ‘fees for technical services’ means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining, or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head ‘Salaries.’ " The question whether prospecting for, or extraction or production of, mineral oil can be termed as ‘mining’ operations, was referred to the Attorney General of India for his opinion. The Attorney General has opined that such operations are mining operations and the expressions ‘mining project’ or ‘like project’ occurring in Explanation 2 to section 9(1)(vii) of the Income-tax Act would cover rendering of services like imparting of training and carrying out drilling operations for exploration 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 purpose of Explanation 2 to section 9(1)(vii) of the Income-tax Act, 1961. Payments for such services to :-17-: ITA. No:1240/Chny/2024 a foreign company, therefore, will be income chargeable to tax under the provisions of section 44BB of the Income-tax Act, 1961 and not under the special provision for the taxation of fees for technical services contained in section 115A, read with section 44D of the Income Tax Act, 1961.”

4.12 The ld.AR stated that, in light of above, it is very much clear that our activity is covered within the meaning of “mining” activity which is mentioned as a exclusion within the meaning of Fees for technical services in Sec. 9(1)(vii) of ACT and also excluded from the royalty explanation 2 (iva) to Section 9(1)(vi) of the ACT that the use or right to use any industrial, commercial or scientific equipment but not including the amounts referred to in section 44BB.. Being not covered under the definition of Royalty and Fees for technical services without considering the facts of case applying the section 9(1) which against the provision of law and also against the principle of natural justice.

4.13 In this regard, reliance is placed on the following judicial pronouncements  Decision of Hon’ble Supreme Court of India in the case of Oil & Natural Gas Corporation Ltd. 59 taxmann.com 1(SC) (supra).  Decision of Hon’ble ITAT in case of ADIT, International Taxation, Dehradun v. International Technical Services LLC; [2016] 71 taxmann.com 351 (Delhi - Trib.) (supra)  Decision of Hon’ble ITAT in case of DDIT, New Delhi Vs. M/s.RPS Energy Pty Ltd., ITA 45/DEL/2015

:-18-: ITA. No:1240/Chny/2024 “3.7. It is observed that Ld. AO taxed assessee at 10% of the gross receipt under section 115 A of the Act. However, on a combined reading of sections 44 BB, 44DA and 115 A of the Act, we are of the considered view that all these sections relating to royalty/FTS operate in different fields. Where assessee is imparting services which could be a simple royalty or FTS then the same would be taxed under section 9(1)(vi)/(vii) read with 115A, but where assessee is imparting any services in relation to exploration of mineral oil then the royalties/FTS would be taxable under section 44 BB of the Act. As section 44 BB are specific provisions in relation to specific services, it would prevail over the other provisions dealing with royalties/FTS. Further from the list of services considered by Hon’ble Supreme Court while deciding the issue in the case of ONGC vs. CIT (supra) the activity carried on would indicate that pith and substance of each of the contracts/agreements is connected with prospecting, extraction or production of mineral oil. And the assessee before us is also rendering services which is connected with similar activities of prospecting, extraction or production of mineral oil. 3.8. Under such circumstances we have no hesitation in holding that the payments received by assessee have to be assessed under the specific provision of section 44 BB and not 115 A of the Act. 3.9. Accordingly, grounds raised by revenue stand dismissed. “

4.14 In view of the above, the ld.AR submitted that the payment made by the assessee to non-resident or foreign companies are specifically governed by Section 44BB of the Income Tax Act (ITA), which pertains to the provision of services and facilities related to the exploration and exploitation of mineral oils and natural gas. Therefore, the assessee is not defaulted any provision of the Act and not be treated as assessee in default under the provision of Section 201/201(1A) of the Act.

:-19-: ITA. No:1240/Chny/2024 4.15 In continuation of above submission, the ld.AR stated that out of 88 foreign remittance the following (7 remittance) non-residents/ foreign company resident of USA & Singapore no withholding tax is deducted as the services are rendered outside India and no permanent establishment in India as per the Article 7 of DTAA:

Name of the Sl. Amount in TDS/ Remittee & Purpose Remarks No. INR WHT Country Professional Canrig Drilling Services render & 1 Technology Ltd, 16,51,200 0 outside India (As per Consultancy USA Article 7) No TDS/WHT Services Professional Services render Alpha Tech I Pte & 2 10,73,508 0 outside India (As per Ltd, Singapore Consultancy Article 7) No TDS/WHT Services Professional Services render Control Flow Inc, & 3 14,18,937 0 outside India (As per USA Consultancy Article 7) No TDS/WHT Services Professional Services render Control Flow Inc, & 4 27,72,418 0 outside India (As per USA Consultancy Article 7) No TDS/WHT Services Professional Lee Moore Services render & 5 Corporation of 19,53,174 0 outside India (As per Consultancy Tulsa, USA Article 7) No TDS/WHT Services Professional Services render Boyer Jacob & 6 21,79,400 0 outside India (As per Short, USA Consultancy Article 7) No TDS/WHT Services Professional Services render Control Flow Inc, & 7 1,66,32,717 0 outside India (As per USA Consultancy Article 7) No TDS/WHT Services In this regard, the assessee has entered the contract of drilling/ exploration/exploitation of mineral oils and natural gas i.e., provided the equipment and relating services with supporting staff to exploration, extraction and exploitation of mineral oil and natural

:-20-: ITA. No:1240/Chny/2024 gas and for which the contractor paying consideration as a whole which is chargeable under the head business income transaction covered under Article 7 of DTAA i.e., business receipts to non- residents and foreign companies between India and contracting states (non-resident/ foreign company’s country). Article 7 of the DTAA addresses the taxation of business profits and establishes the rules for determining the taxing rights between the countries involved. i.e., Country of residents has the right to tax unless the non-residents/foreign company operates business through permanent establishment in other country.

4.16 The ld.AR submitted that the consideration paid in the context of our transactions pertains to the provision of services and facilities related to the exploration and exploitation of mineral oils and natural gas, i.e., business transaction is governed by Article 7, rather than payments classified as royalties or fees for technical services i.e., Article 13/14. Such a classification disregards the nature of the transactions and the specific provisions under Section 44BB of the Act, which should govern the assessment of business income in this case. Therefore, it is inappropriate and contrary to the principles of natural justice to classify the consideration solely

:-21-: ITA. No:1240/Chny/2024 based on equipment provision & FTS under Article 13/14 of the DTAA.

4.17 Considering the above provision and facts the income of non- resident or foreign companies are not liable to tax u/s.195 of the Act unless non-residents/ foreign companies operates business in other country through permanent establishment. With respect to non-residents and foreign companies to whom the payments are made by the assessee for support services and hiring charges none of the non-residents/foreign companies not having permanent establishments in India for the period under consideration. Therefore, the income of non-residents or foreign companies are not liable to tax in India.

4.18 In this regard, the ld.AR placed reliance on the following judicial pronouncements:  Decision of Hon’ble Supreme Court in case of GE India Technology Cen. (P.) Ltd. v. Commissioner of Income-tax Civil Appeal Nos. 7541- 7778 OF 2010: “12. Since the High Court did not go into the merits of the case on the question of payment of royalty, we hereby set aside the impugned judgments of the High Court and remit these cases to the High Court for de novo consideration of the cases on merits. The question which the High Court will answer is whether on facts and circumstances of the case the ITAT was justified in holding that the amount(s) paid by the appellant(s) to the foreign software Suppliers was not "royalty" and that the same did not give rise to :-22-: ITA. No:1240/Chny/2024 any "income" taxable in India and, therefore, the appellant(s) was not liable to deduct any tax at source? 13. Subject to what is stated hereinabove, we set aside the impugned judgment(s) and remit these cases to the High Court to answer the question framed hereinabove. Accordingly, the appeal(s) filed by the appellant(s) stands allowed with no order as to costs.”  Decision of Hon’ble Supreme Court in case of Sedco Forex International Inc. v. CIT; 87 taxmann.com 29 (SC):  Decision of Hon’ble Supreme Court in case of Transmission Corpn. of A.P. Ltd. v. Commissioner of Income-tax; [1999] 105 Taxman 742 (SC): “Hence, in our view there is no substance in the contention of the learned counsel for the Appellant that the expression' any other sum chargeable under the provisions of this Act' would not include cases where any sum payable to the non-resident is a trading receipt which may or may not include 'pure income'. The language of section 195(1) for deduction of income-tax by the payee is clear and unambiguous and casts an obligation to deduct appropriate tax at the rates in force. We make it clear that the learned counsels for the parties have not advanced any submissions with regard to other findings given by the High Court.

:-23-: ITA. No:1240/Chny/2024  Decision of Hon’ble ITAT in case of M/s. Deep Drilling 5 PTE Ltd., v. The Dy. Commissioner of Income Tax, International Taxation-1(1), Chennai.; IT (TP) A No.17/Chny/2021 Assessment Year: 2017-18  Decision of Hon’ble ITAT in case of M/s. Aban Singapore Pte Ltd., Vs. The Dy. Commissioner of Income Tax 4.19 In view of the above facts, submission and judgements, the ld.AR prayed to delete the order passed u/s.201 of the Act amounting to Rs.5,22,24,733/-.

(c) The above payments are treated as royalty and fees for technical services and TDS at the rate as per the relevant DTAA's are applied by the AO, finding that the same does no fall u/s.44BB. I am in agreement with the AO, as the above payments made by the appellant to the foreign companies or individuals as Royalty and fees for technical services does not fall u/s 44BB as the said Royalty / Fees for technical services may not be the only income to the said companies / individuals. The business of the appellant may fall under Section 44BB, but it is not necessary that the income earned by the non-residents to whom the equipment royalty payment and fees for technical services is paid essentially fall under the provisions of 44BB.

:-24-: ITA. No:1240/Chny/2024 (d) Further the exclusion of Royalty and fees for technical services from the scope of section 44BB will not render section 44BB atiose or redundant. There is a wide range of income falling under section 44BB which will not fall within section 44D. the provision to Section 44BB(C) will be meaningless if Royalty and technical service fees arising out of a business cannot at all fall within the purview of section 44D. Section 44BB and Section 44D have, thus, both to be given effect to and the only way of doing it is by restricting section 44BB to income that does not fall within the scope of section 44D; it is this that made clear by the proviso to section 44BB(1) which specifically excludes any profits and gains of business or other income falling under section 44D from the purview of Section 44BB (Advance Ruling petition No. P-6 of 1995. In re. (1998) 234 |TR 371, 391- 92(AAR). In the facts of that case it has been held (P.230) that the payments made by x" to the applicant would not be taxable under section 44BB and by virtue of the Proviso to Section 44BB(1), the case of the applicant gets covered by the provisions of Section 44D and 115A. However, since fees for technical services are covered under Article 13 of the Double taxation Avoidance Agreement between India and United Kingdom and the rate of tax prescribed in that article 13 is 20 percent as against 30 percent u/s 115A, the applicant is entitled to the option available to him under section 90(2) as the provisions of the said agreement are beneficial to it. (e) The A.O. thus has applied the correct rate of taxation as per DTAA though she did not specifically mention the provisions of 44D and 44DA which provide for taxation of Royalty and fees for technical services. To be clear the proviso to section 44BB reads as under: ‘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 these section.' (f) Thus, I uphold the order passed by the A.0. and the addition made by the AO is sustained. It is also seen that the appellant was given opportunity to respond to the SCN issued and therefore, there is no violation of principles of natural justice. All the orders attached to the written submissions were perused and it is noted that the facts and law in these cases differ from the instant case, with due respect. In view of this finding, all the grounds of appeal raised by the appellant stand dismissed."

5.1 The ld.DR stated that an income of a Non-Resident as per sub section 2 of Section 5, Scope of total income, is taxable in India whenever it

:-25-: ITA. No:1240/Chny/2024 (a) is received or is deemed to be received in India in such year by or on behalf of such person ; or (b) accrues or arises or is deemed to accrue or arise to him in India during such year.

5.2 Further, the ld.DR submitted that in case of Income from Business or Profession, by virtue of Section 9 of the Act, certain Incomes of the Non-Residents are deemed to accrue or arise in India for being all income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India,.. and (a) in the case of a business [other than the business having business connection in India on account of significant economic presence] of which all the operations are not carried out in India, the income of the business deemed under this clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India.

5.3 Similarly in case of Royalty & Fee for Technical services, section 9(1)(vi)(b) & (vii)(b) is reproduced below:

(vi) income by way of royalty payable by (b) a person who is a resident, except where the royalty is payable in respect of any right, property or information used or services utilised for the purposes of a business or profession carried on by such person

:-26-: ITA. No:1240/Chny/2024 Outside India or for the purposes of making or earning any income from any source outside India; or (vii) income by way of fees for technical services payable by (b) a person who is a resident, except where the fees are payable in respect of services utilised in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India; or As is noted above, each of the above are different incomes as provided in the Act and in respective Double Taxation Avoidance Agreements.

5.4 Therefore the ld.DR submitted that the business income of a Non-Resident is taxable in India if the same accrues or arises through or from any business connection in India to an extent the said income is reasonably attributable to the operations carried out in India.

5.5 Further, the ld.DR stated that in case of Royalty, the same is deemed to accrue or arise in India except where the royalty is payable in respect of any right, property or information used or services utilised for the purposes of a business or profession carried on by such person outside India or for the purposes of making or earning any income in India or for the purposes of making or earning any income from any source outside India.

:-27-: ITA. No:1240/Chny/2024 5.6 The ld.DR also stated that in case of Fee for Technical Services, the same is deemed to accrue or arise in India except where the fees are payable in respect of services utilised in a business or profession carried on by such person outside India or for the purposes of making or earning any income India or for the purposes of making or earning any income from any source outside India. As per sub section 2 of Section 90 of the Income Tax Act, the Central Government would enter into agreements for avoidance of Double Taxation and in relation to an assessee to whom such agreement applies, the provisions of the Act shall apply to the extent they are more beneficial to the assessee. Such DTAAs entered into by India with most of the countries provide for taxation of business income of an assessee in India only if the Non-Residents carries on business in India through a permanent establishment situated there-in. And that so much of the profits directly or indirectly attributable to that permanent establishment alone would be taxed in India. A combined reading of provisions of Section 9(1)(i)(a), Section 90 and provisions of DTAA provide that in case of Business Income of a Non-Resident, the same would be taxable in India only if there exists a permanent establishment in India.

:-28-: ITA. No:1240/Chny/2024 Therefore, the ld.DR stated that in case of Royalties or Fee for Technical Services, the Act and DTAA provided that the said incomes are to be taxed in the country in which the said income arises on gross basis at a rate more beneficial to the assessee. As is note above, each of the above are different incomes as provided in the Act and in respective Double Taxation Avoidance Agreements.

5.7 Further, the ld.DR stated that for appellant's plea, on a cursory reading of the Section 44BB is a special deeming provision for computing Profits & Gains in connection with the business of exploration of mineral oils. Sub-section (1) of Section 44BB states that notwithstanding anything to the contrary containing in Section 28 to 41 and Section 43 & 43A clearly referring to the Business Income computation provisions. Reference is also invited to the memorandum explaining the provisions of Finance Act. 2023 where- in while introducing sub-section 4 of Section 44BB, it is clearly mentioned that Section 44BB is a presumptive scheme for the computation of Business or Profession Income. Reference is also invited to Section 72(1) referred to in sub-section 4 of 44BB, which provides for Carry Forward and Setting off of Business Losses. Also, it is emphasized that a harmonious reading of the entire provisions from 44AD to 44DA would prove that the said provisions are special

:-29-: ITA. No:1240/Chny/2024 provisions for computation of Business Income only. The above proves that Section 44BB of the Income Tax Act is applicable for computation of Business Income / Profits & Gains from Business Income only. This is further emphasised by the proviso to sub section (1) of Section 44BB where-in certain incomes are excluded from the ambit of Section 44BB for the purposes of computing Profits/ Gains or any other Income referred to in those sections.

5.8 To note, it is not the case of the assessee, that the Non- Resident whoever in receipt of the Royalty and Fee for Technical Services Income have permanent Establishment in India. And that the said incomes constitute Profit and Gains from Business or Professions in the hands of the Non-Residents in India. Hence, ld.DR submitted that the provisions of 44BB of the Income Tax Act does not apply to the facts of the case.

5.9 With regard to the definition of Royalty and Fee for Technical Services which is sought to be relied upon by the appellant, a perusal of the definitions as reproduced below will provide more clarity.

:-30-: ITA. No:1240/Chny/2024 5.10 Appellant seeks to rely on clause (iv) (a) of explanation 2 of Section 9(1)(vi) of the Act, where-in, one of the definition of Royalty is as follows: "the use or right to use any industrial, commercial or scientific equipment but not including the amounts referred to in section 44BB:"

5.11 The appellant seeks to rely on the exclusion provided there-in above to justify their act of deducting TDS on Royalty payments under the provisions of Section 44BB of the Act while it is submitted that the above provision is only for excluding the Royalty amounts paid to a Non-Resident in the nature of Business Income as provided in Section 44BB by virtue of presence of Permanent Establishment in India for the use or right to use industrial, commercial or scientific equipment and not otherwise. Hence, the above reliance of the appellant doesn't hold good. This argument is further supported by the definition of Fee for Technical Services provided in explanation 2 of 9(1)(vii) of the Act where-in a specific exclusion from the definition is sought to be made for a consideration for construction, assembly, mining or like projects undertaken by the recipient which projects would clearly fall within the definition of Business Income / Profits or Gains from business by virtue of these projects being long gestation projections resulting in establishment of PE. Reference is also invited to sample DTAA

:-31-: ITA. No:1240/Chny/2024 between India and Singapore where-in the Article 5 Clause 3 defines permanent establishment to be that of 'a building site or construction, installation or assembly project constitutes a permanent establishment only if it continues for a period of more than 183 days in any fiscal year'. The above exclusions apply only in case of payments forming Business Income in the hands of the recipient of Royalty and Fee for Technical Services.

5.12 Regarding, reliance placed by the appellant on the decision of the Hon'ble Supreme Court in the case of ONGC Limited Vs Commissioner of Income Tax [2015] 59 taxmann.com 1(SC), the point of contention in the said decision is only on whether the payments there-in would fall under Section 44BB or Sec 44D. It is noted that both the sections 44BB and 44D are in respect of Business Incomes where-in, in the case under consideration, the payments are in the nature of Royalty and Fees for Technical Services covered under section 115A of the Income Tax Act.

5.13 To conclude, it is not the case of the assessee, that the Non- Resident whoever in receipt of the Royalty and Fee for Technical Services Income have permanent Establishment in India. And that the said incomes constitute Profit and Gains from Business or :-32-: ITA. No:1240/Chny/2024 Professions in the hands of the Non-Residents in India. Hence, it is submitted that the provisions of 44BB of the Act does not apply to the facts of the case and the Assessing Officer has rightfully sought to tax. Such Royalties and Fee for Technical Services under section 115A of the Act.

:-33-: ITA. No:1240/Chny/2024 6.1 We note that the assessee is in the business of drilling, extraction and exploration of mineral oil and natural gas. The Assessee made payments to non-residents/ foreign companies with respect to rig’s/equipment’s hiring/renting charges and professional/ consultancy/ support / maintenance services utilised for the activity of drilling, extraction and exploration of mineral oil and natural gas which is covered u/s.44BB of the Act. The assessee has deducted withholding tax on payment made to non-residents/ foreign companies as per the section 195 r.w.s 44BB of the Act and deposited the same to government as per the provision of the Act. On perusal of records we find that the AO has wrongly treated the foreign remittance i.e., equipment rental charges as royalty and professional and consultancy charges as fee for technical services without appreciating the fact that the assessee company is engaged in the business of offshore drilling, extraction and exploration of mineral oil and natural gas and payment made to non-residents/ foreign companies for services utilised in the activity of offshore drilling, extraction and exploration of mineral oil and natural gas which is specially covered under section 44BB of the Act.

The Section 44BB i.e., Special provision for computing profits and gains in connection with the business of exploration, etc., of mineral oils

:-34-: ITA. No:1240/Chny/2024 (presumptive taxation scheme) in the case of 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".

Therefore, the consideration paid for these transactions pertains to the provision of services and facilities related to the exploration and exploitation of mineral oils and natural gas, rather than payments classified as royalties or fees for technical services. We note that such a classification disregards the nature of the transactions and the specific provisions under Section 44BB of the Act, which should govern the assessment of business income in this case. Therefore, we cannot accept the view of the AO and that of the ld.CIT(A) as it is inappropriate and contrary to the principles of natural justice. Our view is supported by the reliance of the following judicial pronouncements: - Decision of Hon’ble Supreme Court of India in the case of Oil & Natural Gas Corporation Limited 59 taxmann.com 1(SC).

:-35-: ITA. No:1240/Chny/2024 “The test of pith and substance of the 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 circular as far back as 22.10.1990 to the effect that mining operations and the expressions “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- resident/foreign company would be chargeable to tax under the provisions of Section 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. .....................................On the basis of the said conclusion reached by us, we allow the appeals under consideration by setting aside the orders of the High Court passed in each of the cases before it and restoring the view taken by the learned Appellate Commissioner as affirmed by the learned Tribunal.” - Decision of Hon’ble ITAT in the case of A D I T, International Taxation, Dehradun v. International Technical Services LLC; [2016] 71 taxmann.com 351 (Delhi - Trib.)

“In view of the above, we observe that the DRP after considering the relevant decisions of the Hon'ble High Court including the decision of the Jurisdictional High Court of Delhi in the case of DIT v. OHM Ltd. [2013]352 ITR 406/[2012] 212 Taxman 440/[2012] 28 taxmann.com 120 held that section 44BB of the Act being a more specific provision shall prevail over the general provisions of the Act and that the services rendered by the Sub-contractor at the off shore rigs of a contractor is part and parcel of activities for extraction etc of mineral oils and would be covered u/s. 44BB of the Act. We respectfully note that in the case of ONGC(supra), speaking for the Hon'ble Apex Court, their Lordships categorically held that payments for providing various services in connection with prospecting, extraction or production of mineral oil would be assessed u/s. 44AB and not u/s.44D of the Act. On the basis of aforesaid discussion, we are inclined to hold that the issue is squarely covered in favour of the assessee and the DRP was not justified and correct in directing the AO to assess income of the assessee from non-resident company on account of provision of technical person for executing contract with ONGC shall be taxed applying due profit rate of 10% u/s. 44BB of the :-36-: ITA. No:1240/Chny/2024 Act. Finally, in the light of above noted discussion, we have no hesitation to hold that there is no ambiguity, perversity or any other valid reason to interfere with the impugned order of the DRP and thus we uphold the same. Consequently, the sole effective ground of the Revenue being devoid of merits in both the appeals is dismissed”

6.2 Further our Tribunal in assessee’s own case has accepted the contention that withholding tax deducted as per the provision of section 44BB of the Act is correct and department appeal has been dismissed in 1543, 1381 & 1382 (MDS) of 2010 by holding as under:

“27. We have perused the orders and heard the rival contentions. The payments were made by the assessee to non-residents. The payment made to International Tubular F2E was for rental and repairs to machinery and payment made to International Offshore Management was for drilling services. This has been mentioned by the Assessing Officer at paragraph 6 of his assessment order. However, as per the Assessing Officer, it was not for the assessee to decide whether section 44BB could be applied to such non-resident entities. The Assessing Officer relied on the decision of Frontier Offshore Exploration (India) Ltd. (supra) which was for the assessment year 2003-04 for making the disallowance for short deduction of tax at source. The assessee admittedly was engaged in exploration of oil on offshore basins and drilling was undertaken on contracts received from entities like ONGC. Such offshore drilling was for crude oil and crude oil is definitely a mineral oil. Therefore, services rendered by a non-resident entity for rental and repairs to machinery used in offshore drilling and also for drilling services can only be considered as services or facilities in connection with prospecting for, or extraction or production of mineral oil. Hence, the assessee had sufficient reason to have a bona fide belief that section 44BB of the Act would apply to M/s.International Tubular F2E and M/s.International Offshore Management. Subsequent to the decision in the case of Frontier Offshore Exploration (India) Ltd. (supra) for the assessment year 2003-04, which has been heavily relied on by the Assessing Officer for making the disallowance, there was a decision by another co-ordinate Bench in for the assessment year 2004-05 where also one of the party was same Frontier Offshore Exploration (India) Ltd. (supra). A very similar issue was involved in that case. The Tribunal examined the aspect of deduction of tax at source on :-37-: ITA. No:1240/Chny/2024 payments made to a non-resident, falling under section 44BB of the Act and whether an assessee could make deduction at lower rate taking 10 per cent. as the income of such non-resident entity. After considering its earlier decision for the assessment year 2003-04, it was held at paragraphs 6 and 7 of the order dated February 4, 2011, as under (page 177 of 13 ITR (Trib): "6. We have considered the rival submissions. At the outset we are primarily to decide as to whether to follow the decision of the co-ordinate Bench of this Tribunal in the assessee's own case for the assessment year 2003-04, supra, or to differ from the same. After a perusal of the decision of the hon'ble Supreme Court in the case of GE India Technology Centre (P.) Ltd. [2010] 327 ITR 456 (SC) as also taking into consideration the views expressed by the hon'ble jurisdictional High Court in the case of CIT v. Hi Tech Arai Ltd. [2010] 321 ITR 477 (Mad.) we are of the view that the decision of the co-ordinate Bench of this Tribunal in the assessee's own case for the assessment year 2003-04 would no more constitute good law. To err is human. To continue the error is not bravery. If we are to accept the contention of the Revenue that the provisions of section 44BB is relating only to the non-resident for the purpose of his assessment, then one should also keep in mind that the non-resident's assessment comes into play when he files his return. The non-resident would file his return only when the assessee has made the payment and if the assessee has made the payment to the non-resident, where is the question that the assessee is to deduct TDS at a lower rate after the assessment has been done on the non-resident? Section 44BB is a special provision as it is mentioned in the cause title to the said provision itself. As per the provisions of section 44BB(1) a sum equal to 10 per cent of the aggregate of the amount specified in sub-section (2) is deemed to be the profits and gains of such business chargeable to tax under the head' Profits and gains of business or profession'. It is because the provision of section 44BB has quantified the deemed income of the non- resident assessee at 10 per cent., it has opened with the clause' Notwithstanding anything to the contrary' contained in sections 28 to 41 and sections 43 and 43A. The aggregate amounts are quantified in sub- section (2) of section 44BB to be the amount paid or payable, received or deemed to be received, etc. As per sub-section (3) of section 44BB the non- resident can claim a lower profit. It is for the purpose of claiming lower profits that the non-resident must file a return and prove the same with support of his regular books of account and other documents and by complying with other conditions specified therein. If no return is filed, section 44BB(1) deems that the profits and gains of the business of the non- resident at 10 per cent of the gross receipts. A perusal of the decision of the hon'ble Supreme Court in the case of GE India Technology Centre (P.) Ltd. [2010] 327 ITR 456 (SC), clearly shows that the hon'ble Supreme Court has categorically held that the obligation to deduct TDS is limited to the appropriate portion of income chargeable under the Act forming part of the :-38-: ITA. No:1240/Chny/2024 gross sums of money payable to the non-resident. The hon'ble Supreme Court while deciding the issue had categorically recognised that as per the provisions of section 195 the words used were "any other sums chargeable under the provisions of this Act" as against the term "any sum" used in the other provisions falling in Chapter XVII of the Income-tax Act, 1961. Obviously, what the Assessing Officer is demanding is that TDS is liable to be made under the provisions of section 195 of the Act. If the provisions of section 195 are to be invoked, it is only such sum which is chargeable to tax under the Income-tax Act, 1961 on which TDS can be made. A question now arises as to how much of the amounts paid by the assessee to the non- resident is the income chargeable to tax under the Income-tax Act, 1961 for the purpose of section 195. It is true that the assessee cannot quantify the income of the non-resident. This is where the special provision of section 44BB comes into play. Where the statute has provided a special provision for dealing with a special type of income such a provision would exclude a general provision dealing with the income accruing or arising out of any business connection. This view of ours finds support from the decision of the hon'ble jurisdictional High Court in the case of CIT v. Copes Vulcan Inc. [1987] 167 ITR 884 (Mad). Section 44BB is a special provision to the exclusion of all the contrary provisions provided in sections 28 to 41 and 43 and 43A of the Act. Once the provisions of sections 28 to 41 and sections 43 and 43A stand excluded, the method of computing the business income of the non-resident on the basis of the books of account goes out of the picture. Then it is only the provisions of sections 44AD, 44AE and 44AF which could be applied and the same obviously do not apply to the income of the non-resident companies. The hon'ble Supreme Court while dealing with its own decision in the case of Transmission Corporation of A.P. Ltd. [1999] 239 ITR 587 (SC), has categorically explained that the tax was liable to be deducted by the payer of the gross amount if such payment included in it an amount which was exigible to tax in India. This is not so in the present case. Here on account of the special provisions of section 44BB, 10 per cent of the gross amount payable to the non-residents deemed as the income chargeable to tax in India. In the present case it is noticed that the assessee has deducted tax at the specified rate on the 10 per cent of the bare boat charges paid to the Norway company who is the non-resident, computed as per the provisions of section 44BB. In the circumstances, we are of the view that there is no violation of the provisions of section 195 in the assessee's case which calls for a disallowance by invoking the provisions of section 40(a)(i) of the Act. In the circumstances, the finding of the learned Commissioner of Income-tax (Appeals) and that of the Assessing Officer stands reversed.

7. We may also mention here that we are not in agreement with the submission of the learned authorised representative that the provisions of section 40(a)(i) postulates an absolute failure and not short deduction. This is because a reading of section 201 clearly shows that the portion 'the

:-39-: ITA. No:1240/Chny/2024 whole or any part of the tax' is in connection with the words 'after so deducting fails to pay'. It is not in connection with the words 'does not deduct'." 28. We are, therefore, of the view that the assessee was right in effecting deduction of tax at source considering section 44BB of the Act. The disallowance was rightly deleted by the learned Commissioner of Income- tax (Appeals). No interference is called for. Ground No. 5 of the Revenue stands dismissed.”

6.3 We also note that these payments made by the assessee to non-residents do not fall into the ambit of either royalty or technical fees as these payments relating to the nature of business covered u/s.44BB of the Act, specifically excluded in the explanation as detailed below : The Explanation to Section 9(1) of the Act reads as follows: Royalty: “Explanation 2.—For the purposes of this clause, "royalty" means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head "Capital gains") for— (i) …… (iva) the use or right to use any industrial, commercial or scientific equipment but not including the amounts referred to in section 44BB; (v) ….. (vi)…… Fees for technical services: “Explanation 2.—For the purposes of this clause, "fees for technical services" means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "Salaries";”

:-40-: ITA. No:1240/Chny/2024 6.4 Further, we also note that the CBDT vide Instruction No. 1862 dated 22-10-1990 has clearly clarified the fact that payments to a foreign company for services in relation to prospecting for, or extraction or production of, mineral oil will be income chargeable to tax under the provisions of Sec. 44BB of the Income-tax Act, 1961 and not under the special provision for the taxation contained in section 115A, read with section 44D of the Income-tax Act, 1961.

6.5 In view of the above discussion and respectfully following judicial precedents cited supra, we are of the view that the assessee was right in effecting deduction of tax at source considering section 44BB of the Act. Therefore, we are of the considered view that the order of the ld.CIT(A) is erroneous and hence we set aside the same by allowing the grounds of appeal raised by the assessee.

Order pronounced in the open court on 28th April, 2025 at Chennai.