Authority For Advance Rulings Of New Delhi
M-1 Overseas Ltd., In Re
Section : 9
P.K. Balasubramanyan, Chairman
A.A.R. No. 968 Of 2010
August 1, 2012
1. The applicant claims to be a company incorporated in Cayman Islands having its Indian Project Office situated in Mumbai. The control and management of the applicant is situated wholly outside India. It is “engaged in the business of providing services and facilities in connection with the prospecting for and extraction of and exploration of mineral oils.” It has entered into a contract with Naptogaz India Private limited for provision of Mud-Laboratory, operating Personnel (Mud-Engineers) and Mud Chemicals. Naptogaz along with others has the right ‘to carryout petroleum operations in Block CB-ONN-2004/05’ pursuant to a Production Sharing Contract.
2. The services to be rendered by the applicant under its contract, generally described as Mud Engineering Services, are to be rendered in connection with exploration and extraction of mineral oil. The compensation received by the applicant for the services rendered by it with Naptogaz is liable to be assessed under section 44BB of the Income-tax Act. The applicant made an application under section 197 of the Act on such a claim in respect of the withholding of tax under section 195 of the Act. But the Assessing Officer did not accept the stand of the applicant and passed a withholding order under section 197 of the Act. In that context, the applicant approached this Authority for Advance Rulings on the following two questions:-
(1) Whether the income derived by the applicant in India in terms of the contract No. Naptogaz/CB-ON-2004/ 5/2009/ CC003 is covered under the provisions of section 44BB and is not liable to be independently taxed as “fees for technical services” in terms of section 9(1)(vii) of the IT Act, 1961?
(2) Whether service tax charged and collected by the applicant from M/s Naptogaz India Private Ltd. would form part of gross receipts for purpose section 44BB of the IT Act, 1961?
This Authority allowed the Application under section 245R(2) of the Act for rendering rulings on the above two questions. The application was thereafter heard in detail leading to the present rulings.
3. It is the case of the applicant that since the services rendered by it to Naptogaz are services in connection with exploration and extraction of mineral oils, the consideration received by it for the said services would not qualify as Fees for Technical Services within the meaning of section 9(1)(vii) of the Act by virtue of the exception contained in Explanation (2) thereto and hence it would qualify to be assessed under section 44BB(1) of the Act. Since the exception in Explanation (2) to Section 9(1)(vii) is squarely attracted, the proviso to section 44BB(1) is not attracted to bring in section 44DA or section 115A of the Act. The amendment to the proviso to section 44BB(1) of the Act with effect from 1-4-2010, would not affect the position in the light of the exception and the consideration not being Fees for Technical Services. The vide scope of the expression ‘in connection with’ in section 44BB(1) of the Act is highlighted with reference to the Ruling of this Authority in Geofizyka Torun Sp.zo.o., In re  186 Taxman 213 (AAR – New Delhi).
4. On behalf of the Revenue it is contended that what is rendered by the applicant is technical services and section 44DA or section 115A was attracted. By virtue of the proviso to section 44BB(1) of the Act, the payment received by the applicant cannot be brought within section 44BB(1) of the Act, even if the services are rendered in connection with mining for mineral oil. It is submitted that the exception contained in Explanation (2) to section 9(1)(vii) of the Act was not applicable since the applicant had not undertaken any mining or like project, it was merely rendering service to a company that had undertaken that project. The service rendered by the applicant was technical in nature and the fees collected as consideration for it was ‘Fees for Technical Services’ and taxable as such under the Act. There was no tax convention with Cayman Islands.
5. What the applicant renders, is technical services, it is also in connection with exploration of mineral oils. The question is whether the consideration received by the applicant for these technical services will come under the exception in Explanation (2) to section 9(1(vii) of the Act so as not to qualify as ‘Fees for technical services’. The wording in Explanation (2) to section 9(1)(vii) of the Act containing the exception, differs from the wording in section 44BB(1) of the Act. The consideration received for rendering technical services will not be fees for technical services as defined in Explanation (2) to section 9(1)(vii) itself, if it is consideration for any ‘construction, assembly mining or like project undertaken by the recipient’. That means, that the recipient of the consideration must have undertaken the mining or like project, in our context. Can the applicant here be taken to have undertaken a mining or like project? Undertaking a mining project would indicate that the recipient must have undertaken the project itself. That would be the person who has undertaken the mining project. Every contractor for part of the work involved in the mining project, cannot be considered to have undertaken the mining or like project. Doing the work of Mud Engineering cannot be understood as the undertaking of the mining project. Here, that project is undertaken by Naptogaz. The applicant is only performing certain services for Naptogaz. At best, the applicant can claim that it is rendering services in connection with or in relation to a mining project. That is not the same as undertaking a mining or like project. This Authority has accepted this position in its Ruling in Application Advance Ruling Petition No. 6 of 1995, In re  100 Taxman 206 (AAR – New Delhi) and the question has been dealt with recently in the Ruling in AAR 1119 of 2011. Following this line of reasoning, I hold that the consideration received by the applicant for the services it renders to Naptogaz is fees for technical services within the meaning of section 9(1)(vii) of the Act.
6. Though the Revenue sought to contend that Mud Engineering Services to be rendered by the applicant cannot be said to be services in connection with prospecting for or extraction or production of mineral oils, on a consideration of the purpose for which the services are rendered, as explained by the applicant, I am inclined to conclude that the services rendered are in connection with extraction of mineral oil. Prima facie therefore the applicant could invoke section 44BB(1) of the Act. Then, the question is whether the fees for technical services received by the applicant would come within section 44BB(1) of the Act. In the Geofizyka Ruling, this Authority noticed the width of the expression ‘in connection with’ and considered the question whether technical services also would come under that section and came to the conclusion that it would. But, in that Ruling, this Authority bad no occasion to consider the scope of taxation of such services under section 44DA, subsequently introduced, or section 115A, not relied upon by the Revenue in that case. Accepting the view that technical services in connection with mining might also fall under section 44BB(1) of the Act (without giving into that question) the question is whether in view of the proviso to section 44BB(1) of the Act, the applicant can claim to be assessed under section 44BB(1)of the Act.
7. Fees for technical services in respect of a foreign company is liable to be computed in terms of section 44D or section 44DA or Section 115A of the Act. Section 44BB(1) contains a proviso taking out from within the purview of section 44BB(1), cases where the provisions of sections 42, 44D, 44DA, section 115A or section 293A apply. Section 44DA was introduced with effect from 1.4.2011 by Finance Act, 2010, after the Ruling in Geofizyka was given. Reading section 44BB(1) in the light of the provisio thereto, it is clear that fees for technical services received for rendering services in connection with prospecting for or extraction or production of mineral oils, cannot be brought under this section if section 44DA or section 115A of the Act applied to it.
8. The consequences arising from this, is sought to be got over by the applicant only by relying on the exception in section 9(1)(vii) of the Act. I have already found that the exception does not apply. So, necessarily the quest indicated, is to see whether the provisions of section 44DA or section 115A is attracted. The applicant is a non-resident. It is receiving consideration for the technical services rendered by it, from an Indian company. So, clearly section 44DA or section 115A(b) would be attracted. The applicant has not asked the question whether it can be considered to have a permanent establishment in India or it has business connection in India. Hence, a clear ruling, whether section 44DA would apply or section 115A would apply, is not called for. Suffice it to say that in view of the proviso to section 44BB(1) of the Act, the applicant is not entitled to be assessed under section 44BB(1) of the Act.
9. This Authority has discussed the interplay between Explanation (2) to section 9(1)(vii) and section 44BB(1) read with its proviso, in two recent rulings in MR No. 1119 of 2011 and MR No. 954 of 2011. The reasoning and conclusion therein apply to the present case as well.
10. For the reasons stated, it has to be ruled on question No.1 that the income-derived by the applicant in India in terms of its contract with Naptogaz is not covered under section 44BB of the Act and is liable to be independently taxed as ‘fees for technical services’ in terms of section 9(1)(vii) of the Act. In view of this, ruling on question No.2 does not arise, though this Authority has ruled in Siem off Shore Inc., In re  201 Taxman 96 / 12 taxmann.com 374 (AAR – New Delhi) AAR No.875 of 2010 and other cases that the service tax element collected by the applicant would form part of the gross receipts for the purpose of section 44BB(1) of the Act.
[Citation : 349 ITR 166]