For AY 2012-13 the officer moved us out of s.44BB into s.44DA. Does the Finance Act 2010 proviso really do that?
Yes. From 1 April 2011, income falling within the scope of s.44DA(1) is excluded from s.44BB, and if a non-resident's income is royalty or fees for technical services it is taxable under s.44DA or s.115A. But the exclusion only bites if the receipt really is royalty or FTS, and services for a mining or like project are carved out of the FTS definition in Explanation 2 to s.9(1)(vii) altogether.
Decided by the High Court (Vipin Sanghi J and Sanjeev Narula J) on 2020-03-13, reported as W.P.(C) 1370/2019 (High Court of Delhi); reserved 4 September 2019, pronounced 13 March 2020. It bears on section 44BB, section 44BB(1), section 44DA, section 44DA(1), section 115A, section 9(1)(vi), section 9(1)(vii), section 264 of the Income Tax Act 1961, in Presumptive Taxation & Audit, How Tax Law Is Read and Revision & Rectification matters.
This is the case that states the post-AY 2011-12 position squarely, and it does so against the taxpayer on the legal question while still setting the assessment aside. The practical route out of s.44DA is therefore not to argue that s.44BB is a special provision that overrides s.44DA — the Court rejected that reading of DIT v OHM Ltd — but to show that the receipt is not royalty or FTS at all. The Court also rejected the Commissioner's attempt to confine mining or like project to services performed at the drilling site, holding the scope of technical services cannot be broadened by reading that expression restrictively. Note the judgment is a writ against a s.264 revision order, taken after the assessee let the DRP and CIT(A) routes go; the alternative remedy under s.264 was not treated as a bar.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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The petitioner is a company incorporated under the laws of Australia and a tax resident of Australia, engaged in developing and providing customised software-enabled solutions and annual maintenance services used by the oil and gas industry in relation to excavation, extraction, production and seismic analysis. Its customers included ONGC, Reliance Industries, Gujarat State Petroleum Corporation and Oil India. For AY 2012-13 it opted to be taxed under s.44BB(1) and returned income of Rs 19,71,61,430. In scrutiny the Assessing Officer held the services were royalty or fees for technical services taxable under s.44DA, estimating 25 per cent of gross receipts as business income; a draft order issued on 5 March 2015 and the final assessment on 11 May 2015. The petitioner filed no DRP objection and no appeal to the CIT(A), and instead filed a revision petition under s.264. An earlier writ had already quashed a s.264 order that had been decided on maintainability and remanded it; by order dated 1 November 2018 the Commissioner decided the revision on merits, rejected the s.44BB claim and upheld s.44DA. That order was challenged in this writ petition.
The Court held that after 1 April 2011 income falling within the scope of s.44DA(1) is excluded from the scope of s.44BB, and that if a non-resident's income is in the nature of fees for technical services or royalty it is taxable under either s.44DA or s.115A (para 21). But the definition of fees for technical services in Explanation 2 to s.9(1)(vii) excludes consideration for construction, assembly, mining or like projects, and that definition remains unchanged with CBDT Circular No. 1862 dated 22 October 1990 still in force; so if the services are for a mining or like project the receipt is outside FTS and therefore outside s.44DA (para 22). The Commissioner's restriction of mining or like project to services performed onsite was held to be an erroneous approach with no rationale (para 26). Because the Commissioner had returned no categorical finding on whether, and to what extent, the receipts were royalty or FTS, the Court set the impugned order aside and remanded the matter to the Commissioner to assess the income by first determining the nature of the receipts in the light of the observations in the judgment (para 32).
The Court treated s.44BB as qualifying a business activity and s.44DA as applying to the nature of the income, and read paragraph 12 of DIT v OHM Ltd as agreeing with that: where the services are of a type that fall under s.44DA, an assessee rendering services of the kind described in s.44BB cannot claim to be assessed on the ten per cent basis (para 20). It then turned to the definition of FTS. Since the Explanation to s.44DA carries the same meaning as Explanation 2 to s.9(1)(vii), and that Explanation excludes mining or like projects, income outside the FTS definition is outside s.44DA. Applying the principle of harmonious construction — avoiding a head-on clash between two sections and not assuming Parliament gave with one hand what it took with the other — the Court held that despite the 2010 amendments to s.44BB and s.44DA the legislature left the FTS definition untouched, and it must be given its own meaning (para 22). On the facts, the impugned order itself recorded that the petitioner's software helps ascertain the drilling spot with the maximum probability of finding oil, and that its services prima facie appeared covered by ONGC v CIT; the Court applied the Supreme Court's pith-and-substance approach in ONGC and held that services with a proximate nexus to extraction or production of mineral oils fall outside FTS (paras 26 and 27). What remained undetermined, and what the remand was for, was whether the receipts were royalty, in which event s.44DA(1) would apply.
The upshot of the above discussion is that after 01.04.2011, income falling within the scope of Section 44DA (1) of the Act would be excluded from the scope of Section 44BB of the Act.
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Handle my notice → Ask a CA on WhatsAppYes. From 1 April 2011, income falling within the scope of s.44DA(1) is excluded from s.44BB, and if a non-resident's income is royalty or fees for technical services it is taxable under s.44DA or s.115A. But the exclusion only bites if the receipt really is royalty or FTS, and services for a mining or like project are carved out of the FTS definition in Explanation 2 to s.9(1)(vii) altogether. This was decided by the High Court (Vipin Sanghi J and Sanjeev Narula J) and bears on section 44BB, section 44BB(1), section 44DA, section 44DA(1), section 115A, section 9(1)(vi), section 9(1)(vii), section 264 of the Income Tax Act 1961. It is reported as W.P.(C) 1370/2019 (High Court of Delhi); reserved 4 September 2019, pronounced 13 March 2020. This is the case that states the post-AY 2011-12 position squarely, and it does so against the taxpayer on the legal question while still setting the assessment aside. The practical route out of s.44DA is therefore not to argue that s.44BB is a special provision that overrides s.44DA — the Court rejected that reading of DIT v OHM Ltd — but to show that the receipt is not royalty or FTS at all. The Court also rejected the Commissioner's attempt to confine mining or like project to services performed at the drilling site, holding the scope of technical services cannot be broadened by reading that expression restrictively. Note the judgment is a writ against a s.264 revision order, taken after the assessee let the DRP and CIT(A) routes go; the alternative remedy under s.264 was not treated as a bar. If it applies to you, the first step is this: State on the face of your submission which assessment year you are in. For AY 2010-11 and earlier the Finance Act 2010 provisos do not apply; for AY 2011-12 onwards they do.
The petitioner is a company incorporated under the laws of Australia and a tax resident of Australia, engaged in developing and providing customised software-enabled solutions and annual maintenance services used by the oil and gas industry in relation to excavation, extraction, production and seismic analysis. Its customers included ONGC, Reliance Industries, Gujarat State Petroleum Corporation and Oil India. For AY 2012-13 it opted to be taxed under s.44BB(1) and returned income of Rs 19,71,61,430. In scrutiny the Assessing Officer held the services were royalty or fees for technical services taxable under s.44DA, estimating 25 per cent of gross receipts as business income; a draft order issued on 5 March 2015 and the final assessment on 11 May 2015. The petitioner filed no DRP objection and no appeal to the CIT(A), and instead filed a revision petition under s.264. An earlier writ had already quashed a s.264 order that had been decided on maintainability and remanded it; by order dated 1 November 2018 the Commissioner decided the revision on merits, rejected the s.44BB claim and upheld s.44DA. That order was challenged in this writ petition. The matter was decided on 2020-03-13 by the High Court (Vipin Sanghi J and Sanjeev Narula J). On those facts the High Court held as follows. The Court held that after 1 April 2011 income falling within the scope of s.44DA(1) is excluded from the scope of s.44BB, and that if a non-resident's income is in the nature of fees for technical services or royalty it is taxable under either s.44DA or s.115A (para 21). But the definition of fees for technical services in Explanation 2 to s.9(1)(vii) excludes consideration for construction, assembly, mining or like projects, and that definition remains unchanged with CBDT Circular No. 1862 dated 22 October 1990 still in force; so if the services are for a mining or like project the receipt is outside FTS and therefore outside s.44DA (para 22). The Commissioner's restriction of mining or like project to services performed onsite was held to be an erroneous approach with no rationale (para 26). Because the Commissioner had returned no categorical finding on whether, and to what extent, the receipts were royalty or FTS, the Court set the impugned order aside and remanded the matter to the Commissioner to assess the income by first determining the nature of the receipts in the light of the observations in the judgment (para 32).
The Court treated s.44BB as qualifying a business activity and s.44DA as applying to the nature of the income, and read paragraph 12 of DIT v OHM Ltd as agreeing with that: where the services are of a type that fall under s.44DA, an assessee rendering services of the kind described in s.44BB cannot claim to be assessed on the ten per cent basis (para 20). It then turned to the definition of FTS. Since the Explanation to s.44DA carries the same meaning as Explanation 2 to s.9(1)(vii), and that Explanation excludes mining or like projects, income outside the FTS definition is outside s.44DA. Applying the principle of harmonious construction — avoiding a head-on clash between two sections and not assuming Parliament gave with one hand what it took with the other — the Court held that despite the 2010 amendments to s.44BB and s.44DA the legislature left the FTS definition untouched, and it must be given its own meaning (para 22). On the facts, the impugned order itself recorded that the petitioner's software helps ascertain the drilling spot with the maximum probability of finding oil, and that its services prima facie appeared covered by ONGC v CIT; the Court applied the Supreme Court's pith-and-substance approach in ONGC and held that services with a proximate nexus to extraction or production of mineral oils fall outside FTS (paras 26 and 27). What remained undetermined, and what the remand was for, was whether the receipts were royalty, in which event s.44DA(1) would apply. In the words reproduced by the source cited on this page: "The upshot of the above discussion is that after 01.04.2011, income falling within the scope of Section 44DA (1) of the Act would be excluded from the scope of Section 44BB of the Act." The decision followed or applied Oil & Natural Gas Corporation Ltd. v. CIT (Supreme Court, 1 July 2015) — pith and substance test applied; Director of Income Tax v. OHM Ltd. (Delhi High Court) — para 12 read as consistent with the Court's own view, and the petitioner's wider reading of it rejected; PGS Exploration (Norway) AS v. Additional Director of Income Tax — cited as reaffirming the position.
It was decided by the High Court on 2020-03-13 and is reported as W.P.(C) 1370/2019 (High Court of Delhi); reserved 4 September 2019, pronounced 13 March 2020. 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 44BB(1), section 44DA, section 44DA(1), section 115A, section 9(1)(vi), section 9(1)(vii), section 264, 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 cuts both ways and is cited by both sides. The Court held that after 1 April 2011 income falling within the scope of s.44DA(1) is excluded from the scope of s.44BB, and that if a non-resident's income is in the nature of fees for technical services or royalty it is taxable under either s.44DA or s.115A (para 21). But the definition of fees for technical services in Explanation 2 to s.9(1)(vii) excludes consideration for construction, assembly, mining or like projects, and that definition remains unchanged with CBDT Circular No. 1862 dated 22 October 1990 still in force; so if the services are for a mining or like project the receipt is outside FTS and therefore outside s.44DA (para 22). The Commissioner's restriction of mining or like project to services performed onsite was held to be an erroneous approach with no rationale (para 26). Because the Commissioner had returned no categorical finding on whether, and to what extent, the receipts were royalty or FTS, the Court set the impugned order aside and remanded the matter to the Commissioner to assess the income by first determining the nature of the receipts in the light of the observations in the judgment (para 32). It arises in Presumptive Taxation & Audit, How Tax Law Is Read and Revision & Rectification matters, on section 44BB, section 44BB(1), section 44DA, section 44DA(1), section 115A, section 9(1)(vi), section 9(1)(vii), section 264 of the Income Tax Act 1961, and was decided by Vipin Sanghi J and Sanjeev Narula 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. Do not lead with the argument that s.44BB overrides s.44DA — the Court held s.44BB qualifies a business activity while s.44DA applies to the nature of the income, and read para 12 of OHM Ltd as consistent with that. Attack the characterisation instead: show the receipt is not royalty and not FTS. Rely on the exclusion of consideration for any construction, assembly, mining or like project in Explanation 2 to s.9(1)(vii), and on CBDT Circular No. 1862 dated 22 October 1990, which the Court recorded as still in force. Resist any argument that mining or like project is limited to onsite work — the Court called that approach erroneous and found no rationale in it. Where the Commissioner has not returned a categorical finding whether the receipt is royalty or FTS and how much of it is, take that as a ground: the absence of such a finding is what led the Court to set the order aside.
Validity check could not be completed. Validity check could not be completed. I did not check whether this judgment has been appealed, followed or distinguished. Note also that the entry states the legal proposition at paragraph 21 and the remand at paragraph 32; I could not read the text after paragraph 32. 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 judgment runs to 50 pages. The plain /doc/ fetch reached paragraph 28 and then truncated mid-sentence; the disposal was recovered separately through /docfragment/, which returned the heading 'Directions' and paragraph 32 setting the impugned order aside and remanding to the Commissioner. The last numbered paragraph seen is 32, and I could not read whatever follows it, so nothing beyond paragraph 32 is asserted here. Paragraph 20 of the judgment reproduces paragraph 12 of DIT v OHM Ltd at length; that quoted material is not this Court's own words and no locator from it has been used. 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 Court held that after 1 April 2011 income falling within the scope of s.44DA(1) is excluded from the scope of s.44BB, and that if a non-resident's income is in the nature of fees for technical services or royalty it is taxable under either s.44DA or s.115A (para 21). But the definition of fees for technical services in Explanation 2 to s.9(1)(vii) excludes consideration for construction, assembly, mining or like projects, and that definition remains unchanged with CBDT Circular No. 1862 dated 22 October 1990 still in force; so if the services are for a mining or like project the receipt is outside FTS and therefore outside s.44DA (para 22). The Commissioner's restriction of mining or like project to services performed onsite was held to be an erroneous approach with no rationale (para 26). Because the Commissioner had returned no categorical finding on whether, and to what extent, the receipts were royalty or FTS, the Court set the impugned order aside and remanded the matter to the Commissioner to assess the income by first determining the nature of the receipts in the light of the observations in the judgment (para 32).
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