In re Geofizyka Torun Sp.zo.o (AAR)

Fees for services coming within S. 44BB are not taxable u/s 9 (1) (vii) r.w.s. 44DA

The Applicant, a Polish company, was engaged in conducting seismic surveys and providing seismic data to oil companies in connection with their oil exploration and drilling activities. The AAR had to consider whether the income derived by the Applicant was assessable u/s 44BB or u/s 9 (1) (vii) r.w.s. 44DA. HELD, deciding in favour of the Applicant:

(i) S. 44BB applies to an assessee engaged in the business of providing services or facilities in connection with ….. the prospecting … of mineral oils. On the other hand, Explanation 2 to s. 9 (1) (vii) defines “fees for technical services” to mean consideration for the rendering of technical services but not including consideration for mining or like project undertaken by the recipient.

(ii) The Applicant’s case falls within s. 44BB because the words in connection with therein have an expansive meaning. The services provided by the Applicant have a real, intimate and proximate nexus with the prospecting for or extraction of mineral oils. The seismic survey and data acquisition is a prelude and critical component of the oil and gas exploration activity. Without seismic data acquisition and interpretation, it is impracticable to carry out the activity of prospecting which is a step in aid to exploration.

(iii) The argument of the Revenue that that the term ‘services’ in s. 44BB are other than the services covered by Expl. 2 to s. 9(1)(vii) is not acceptable. There is no compelling reason to assign a narrow and restricted meaning to the expression ‘services’ and confine it to services other than technical, consultancy or managerial services.

(iv) The argument of the Revenue that that the exclusion with regard to mining projects in Expl. 2 to s. 9 (1)(vii) is applicable only to those who have taken up main project but not to those who rendered services to the enterprise promoting the main project is also not acceptable in view of binding Instruction No. 1862 issued by the CBDT on 22.10.1990 wherein it was held that the term ‘mining project’ in Expl 2 to s. 9(1)(vii) covers the rendering of services.

(v) Even on first principles, s. 44BB is a special provision dealing with the computation of profits of non-residents engaged in providing services in prospecting for etc of mineral oils and will prevail over s. 9 (1) (vii) which is a general provision for charging fees for technical services to tax.