I am a foreign company providing survey and data services to an offshore oil exploration block in India. Am I taxed at 10% of gross under section 44BB, or must I go under section 44DA?
Section 44BB applies. The Delhi High Court upheld the Authority for Advance Rulings and held that where a non-resident provides services in connection with prospecting for or extraction or production of mineral oils, section 44BB governs the computation, not section 44DA. Section 44BB is the special provision and section 44DA the general one, so generalia specialibus non derogant applies. Reading section 44DA as covering everything would reduce section 44BB to a dead letter. The provisos inserted by the Finance Act 2010 in both sections are clarificatory on computation and do not change either section's sphere of operation.
Decided by the High Court (High Court of Delhi at New Delhi - S. Ravindra Bhat and R.V. Easwar, JJ. (judgment per R.V. Easwar, J.)) on 2012-12-06, reported as W.P.(C) 6830/2011 (Delhi High Court). It bears on section 44BB, section 44DA, section 9(1)(vii), section 197 of the Income Tax Act 1961, in Presumptive Taxation & Audit and How Tax Law Is Read matters.
This settles the section 44BB versus section 44DA fight for oilfield service companies, which matters because the difference is large: a flat 10% of gross receipts deemed to be profits under section 44BB, against actual computation with restricted deductions under section 44DA. The Revenue's standard argument is that once the receipt answers the description of fees for technical services in Explanation 2 to section 9(1)(vii), section 44DA takes over. The Court rejects that and puts the test on the nature of the business: if the services are in connection with prospecting, extraction or production of mineral oils, section 44BB prevails whether or not there is a permanent establishment. It also disposes of the Revenue's reliance on the Finance Act 2010 provisos, reading them as clarifying computation only.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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OHM Limited, a company incorporated in and tax-resident of the United Kingdom, provided geophysical services to the oil and gas exploration industry - electromagnetic survey, and the processing and interpretation of the resulting data. Petro Gas E & P, LLC and CGG Veritas Services SA awarded it contracts to procure, process and interpret data for an offshore exploration block in India. It was paid for mobilising and demobilising its vessels and for services in connection with prospecting for extraction or production of mineral oils. It applied under section 197 for a certificate permitting deduction at 4.223%, the effective rate where 10% of gross revenues is deemed to be profits under section 44BB. The authority refused and directed deduction at 10% plus surcharge and cess on all revenues from both payers. The company then sought an advance ruling. The Authority for Advance Rulings, following its earlier ruling in Geofizyka Torun Sp. Zo.o, accepted the section 44BB claim. The Revenue challenged that ruling by writ petition.
The writ petition was dismissed with no order as to costs. The High Court held there was no error in the Authority's view and that the assessee's profits were to be computed under section 44BB, not section 44DA. Section 44BB is a special, specific provision for non-residents providing services or facilities in connection with, or supplying plant and machinery on hire used in, the prospecting for or extraction or production of mineral oils. Section 44DA, though also confined to non-residents, is broader and general, dealing with royalty and fees for technical services effectively connected with a permanent establishment or fixed place of profession. The special provision excludes the general one. The second proviso to section 44DA(1) and the reference to section 44DA in the proviso to section 44BB(1), both inserted by the Finance Act 2010 with effect from 1 April 2011, are clarificatory and go only to computation; they do not efface the separate identity or sphere of operation of section 44BB.
The Court applied two settled rules of construction. First, generalia specialibus non derogant: where a special provision is made on a matter, that matter is taken out of the general provision. Section 44BB names the very services in question; section 44DA speaks generally of royalty and fees for technical services. Second, harmonious construction, as in Venkataramana Devaru v. State of Mysore and South India Corporation: of two irreconcilable provisions the more general must be read so as not to swallow the more specific. If section 44DA covered every service a non-resident renders, section 44BB would become useless lumber. The Court noted the structural differences: section 44BB requires no permanent establishment and deems a flat 10% of revenues to be profits, while section 44DA requires a permanent establishment or fixed place of profession with which the contract is effectively connected and allows actual expenditure subject to restrictions. Those different computation methods explained why the 2010 provisos were needed. Read harmoniously, the proviso to section 44BB(1) means only that the 10% presumption is unavailable where the services are general in nature and fall under section 44DA, and the second proviso to section 44DA(1) means only that a person rendering general services cannot claim the section 44BB presumption. The Court also relied on its own earlier Division Bench decision in DIT v. Jindal Drilling and Industries Ltd, where services connected with moving offshore rigs were held covered by section 44BB and not by section 9(1)(vii), Explanation 2 to which in any event excludes consideration for a construction, assembly, mining or like project.
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.
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Handle my notice → Ask a CA on WhatsAppSection 44BB applies. The Delhi High Court upheld the Authority for Advance Rulings and held that where a non-resident provides services in connection with prospecting for or extraction or production of mineral oils, section 44BB governs the computation, not section 44DA. Section 44BB is the special provision and section 44DA the general one, so generalia specialibus non derogant applies. Reading section 44DA as covering everything would reduce section 44BB to a dead letter. The provisos inserted by the Finance Act 2010 in both sections are clarificatory on computation and do not change either section's sphere of operation. This was decided by the High Court (High Court of Delhi at New Delhi - S. Ravindra Bhat and R.V. Easwar, JJ. (judgment per R.V. Easwar, J.)) and bears on section 44BB, section 44DA, section 9(1)(vii), section 197 of the Income Tax Act 1961. It is reported as W.P.(C) 6830/2011 (Delhi High Court). This settles the section 44BB versus section 44DA fight for oilfield service companies, which matters because the difference is large: a flat 10% of gross receipts deemed to be profits under section 44BB, against actual computation with restricted deductions under section 44DA. The Revenue's standard argument is that once the receipt answers the description of fees for technical services in Explanation 2 to section 9(1)(vii), section 44DA takes over. The Court rejects that and puts the test on the nature of the business: if the services are in connection with prospecting, extraction or production of mineral oils, section 44BB prevails whether or not there is a permanent establishment. It also disposes of the Revenue's reliance on the Finance Act 2010 provisos, reading them as clarifying computation only. If it applies to you, the first step is this: Show in the contract and the scope of work that the services are in connection with prospecting for, or extraction or production of, mineral oils - that description, not the label fees for technical services, decides the section.
OHM Limited, a company incorporated in and tax-resident of the United Kingdom, provided geophysical services to the oil and gas exploration industry - electromagnetic survey, and the processing and interpretation of the resulting data. Petro Gas E & P, LLC and CGG Veritas Services SA awarded it contracts to procure, process and interpret data for an offshore exploration block in India. It was paid for mobilising and demobilising its vessels and for services in connection with prospecting for extraction or production of mineral oils. It applied under section 197 for a certificate permitting deduction at 4.223%, the effective rate where 10% of gross revenues is deemed to be profits under section 44BB. The authority refused and directed deduction at 10% plus surcharge and cess on all revenues from both payers. The company then sought an advance ruling. The Authority for Advance Rulings, following its earlier ruling in Geofizyka Torun Sp. Zo.o, accepted the section 44BB claim. The Revenue challenged that ruling by writ petition. The matter was decided on 2012-12-06 by the High Court (High Court of Delhi at New Delhi - S. Ravindra Bhat and R.V. Easwar, JJ. (judgment per R.V. Easwar, J.)). On those facts the High Court held as follows. The writ petition was dismissed with no order as to costs. The High Court held there was no error in the Authority's view and that the assessee's profits were to be computed under section 44BB, not section 44DA. Section 44BB is a special, specific provision for non-residents providing services or facilities in connection with, or supplying plant and machinery on hire used in, the prospecting for or extraction or production of mineral oils. Section 44DA, though also confined to non-residents, is broader and general, dealing with royalty and fees for technical services effectively connected with a permanent establishment or fixed place of profession. The special provision excludes the general one. The second proviso to section 44DA(1) and the reference to section 44DA in the proviso to section 44BB(1), both inserted by the Finance Act 2010 with effect from 1 April 2011, are clarificatory and go only to computation; they do not efface the separate identity or sphere of operation of section 44BB.
The Court applied two settled rules of construction. First, generalia specialibus non derogant: where a special provision is made on a matter, that matter is taken out of the general provision. Section 44BB names the very services in question; section 44DA speaks generally of royalty and fees for technical services. Second, harmonious construction, as in Venkataramana Devaru v. State of Mysore and South India Corporation: of two irreconcilable provisions the more general must be read so as not to swallow the more specific. If section 44DA covered every service a non-resident renders, section 44BB would become useless lumber. The Court noted the structural differences: section 44BB requires no permanent establishment and deems a flat 10% of revenues to be profits, while section 44DA requires a permanent establishment or fixed place of profession with which the contract is effectively connected and allows actual expenditure subject to restrictions. Those different computation methods explained why the 2010 provisos were needed. Read harmoniously, the proviso to section 44BB(1) means only that the 10% presumption is unavailable where the services are general in nature and fall under section 44DA, and the second proviso to section 44DA(1) means only that a person rendering general services cannot claim the section 44BB presumption. The Court also relied on its own earlier Division Bench decision in DIT v. Jindal Drilling and Industries Ltd, where services connected with moving offshore rigs were held covered by section 44BB and not by section 9(1)(vii), Explanation 2 to which in any event excludes consideration for a construction, assembly, mining or like project. In the words reproduced by the source cited on this page: "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 was decided by the High Court on 2012-12-06 and is reported as W.P.(C) 6830/2011 (Delhi High Court). Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 44BB, section 44DA, section 9(1)(vii), section 197, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The writ petition was dismissed with no order as to costs. The High Court held there was no error in the Authority's view and that the assessee's profits were to be computed under section 44BB, not section 44DA. Section 44BB is a special, specific provision for non-residents providing services or facilities in connection with, or supplying plant and machinery on hire used in, the prospecting for or extraction or production of mineral oils. Section 44DA, though also confined to non-residents, is broader and general, dealing with royalty and fees for technical services effectively connected with a permanent establishment or fixed place of profession. The special provision excludes the general one. The second proviso to section 44DA(1) and the reference to section 44DA in the proviso to section 44BB(1), both inserted by the Finance Act 2010 with effect from 1 April 2011, are clarificatory and go only to computation; they do not efface the separate identity or sphere of operation of section 44BB. It arises in Presumptive Taxation & Audit and How Tax Law Is Read matters, on section 44BB, section 44DA, section 9(1)(vii), section 197 of the Income Tax Act 1961, and was decided by High Court of Delhi at New Delhi - S. Ravindra Bhat and R.V. Easwar, JJ. (judgment per R.V. Easwar, J.). Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Apply for the section 197 certificate at the section 44BB rate and, if refused, consider an advance ruling before the assessment hardens. Meet the Revenue's Explanation 2 argument on its own terms: consideration for a construction, assembly, mining or like project is excluded from fees for technical services anyway. Do not let the Revenue use the Finance Act 2010 provisos as a switch between the two sections; they go to computation, not to which section applies.
Still good law. The full judgment was read, ending in the operative dismissal. It follows the Delhi High Court's own decision in Jindal Drilling and the Authority's ruling in Geofizyka Torun. I have not checked for any special leave petition or later Supreme Court decision on the section 44BB versus section 44DA question, so no view is expressed on that. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The batch line lists section 115A; the judgment mentions it only as it appears in the text of the proviso to section 44BB(1) and decides nothing on it, so it is left out. Section 197, on which the dispute began, is added. No reporter citations were supplied, so the writ petition number is used. The judgment reproduces an observation of the Authority that section 44BB was inserted with effect from 1 April 2004; the High Court's own paragraph 7 records that section 44BB was inserted by the Finance Act 1987 with retrospective effect from 1 April 1983, and section 44DA by the Finance Act 2003 with effect from 1 April 2004. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The writ petition was dismissed with no order as to costs. The High Court held there was no error in the Authority's view and that the assessee's profits were to be computed under section 44BB, not section 44DA. Section 44BB is a special, specific provision for non-residents providing services or facilities in connection with, or supplying plant and machinery on hire used in, the prospecting for or extraction or production of mineral oils. Section 44DA, though also confined to non-residents, is broader and general, dealing with royalty and fees for technical services effectively connected with a permanent establishment or fixed place of profession. The special provision excludes the general one. The second proviso to section 44DA(1) and the reference to section 44DA in the proviso to section 44BB(1), both inserted by the Finance Act 2010 with effect from 1 April 2011, are clarificatory and go only to computation; they do not efface the separate identity or sphere of operation of section 44BB.
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