Wednesday, December 12, 2012

Seismic services aren’t taxable under Sec. 44DA as Sec. 44BB specifically covers them; HC affirms AAR’s ruling

The assessee, a tax-resident of UK, was awarded contracts for procuring, processing and interpretation of data in respect of an off shore exploration block in India. It applied for lower tax deduction certificate under Section 197 at the rate of 4.223% as per section 44BB. However, the concerned authority directed the assessee to receive payments after effecting tax deduction at the rate of 10% in respect from such revenue. Aggrieved by the order, the assessee approached the AAR pleading that its services clearly fell within the ambit of Section 44BB. The AAR accepted the assessee’s claim. The revenue, thus, filed the present writ petition contending the validity of AAR’s ruling.

The High Court held in favour of assessee as under:

1) The AAR was right in applying the basic rule that ‘specific provision excludes the general provision’ in holding that the assessee’s income should be taxed as per provisions of Section 44BB;

2) Section 44BB is a specific provision for computing business income of a non-resident in connection with providing services for extraction or production of mineral oils including petroleum and natural gas;

3) On the other hand, section 44DA is broader and more general in nature and provides for assessment of the income of the non-residents by way of royalty or fees for technical services, where such non-residents carry on business in India through a PE;

4) If, as contended by the Revenue, Section 44DA covers all types of services rendered by the non-­residents 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;

Therefore, the writ filed by the revenue contending the decision of the AAR was dismissed - DIT v. OHM Ltd. [2012] 28 120 (Delhi)