S. 9(1)(vii), S. 44BB, S. 90, Income-tax Act; Articles 7, 12,
13, India-Australia DTAA
A.Y. : 2003-2004. Dated : 27-6-2008
Issues :
(i) Remuneration for processing of seismic data outside
India is not taxable in India since not royalty and no PE.
(ii) Fees for training for use of software pertaining to
exploration/extraction of mineral oil is taxable u/s.44BB.
Facts :
(i) The assessee was an Australian company (‘AusCo’). AusCo
entered into contract with RIL for processing of certain seismic data. The
seismic data was to be collected by RIL. Under the contract, AusCo was to :
collect the original data tapes from RIL at Mumbai; process these tapes at only
one processing centre in Australia; return the original data tapes together with
the processed data tapes to RIL at Mumbai; provide all committed equipments and
personnel for the processing at the processing centre; ensure not to divert the
committed resources to any other jobs without prior written approval of RIL;
provide licence for the use of certain software for limited period; and complete
timely execution and delivery of data.
While furnishing its return, AusCo offered the receipts for
assessment u/s.44BB, in terms of which 10% of the receipts would be deemed to be
profits and gains of business of rendering services in connection with the
prospecting for or the extraction of mineral oil. However, during the course of
assessment proceeding, it took the position that it had no PE in India under
Article V and hence, in terms of Article VII, the receipts were not taxable in
India. While not disputing that processing was carried out in Australia, the AO
held that the basic ingredient was the situs at which the processed data was to
be utilised (which was India) and accordingly, assessed the receipts u/s.44BB.
In appeal before CIT(A), CIT(A) accepted AusCo’s contention
that AusCo did not have PE in India and hence, receipts were not to be taxed in
India.
Before the Tribunal, the Revenue contended that the software
was a copyright and hence, consideration for the use of the software was a
royalty in terms of Clause (a) of Article XII(3) (Royalties) of DTAA. Further,
in terms of Clause (d) of Article XII(3), rendering of any technical service
which is ancillary or subsidiary to the application of software was also royalty
and thus both these clauses were applicable. Therefore, the receipts cannot be
assessed as business profits under Article VII(1) of DTAA. Consequently, the
Revenue also contended that presumptive taxation u/s.44BB was not applicable if
the receipt being royalty was covered by provisions of S. 115A.
AusCo contended that it did not ‘make available’ [as
clarified in Raymond Ltd. v. DCIT, (2003) 86 ITD 791 (Mum.)] any
technical knowledge, experience, etc. to RIL. Factually, processed seismic data
provided by AusCo cannot be used by RIL in future for any project undertaken in
another area, such processed data cannot be construed to be ‘development and
transfer of a technical plan or design’ and hence, it was not ‘made available’
by AusCo to RIL. Consequently, receipt cannot be treated as royalty under
Article XII(3) and one would need to look at Article VII and not domestic law.
Once in Article VII, since there is no PE, receipt cannot be taxed in India
[relying on DCIT v. Boston Consulting Group Pte. Ltd., 93 TTJ (Mumbai)
293].
(ii) AusCo had also entered in to a separate contract for
training employees of RIL to use software which was used exclusively by oil and
gas industry worldwide for exploration/extraction of mineral oil. The training
was to be provided at RIL’s office in India as may be decided by RIL.
While furnishing its return, AusCo declared that receipts
from RIL under training contract were subject to taxation under Article XIII
(Alienation of property) of DTAA. However, during the course of assessment
proceeding, it resiled from its stand and offered the receipts for assessment
u/s.44BB, in terms of which 10% of the receipts would be deemed to be profits
and gains of business of rendering services in connection with the prospecting
for or the extraction of mineral oil. AusCo contended that its case was covered
by CBDT’s Instruction No. 1862, dated 22nd October 1990, which explains the
expressions ‘mining project’ and ‘like project’ in connection with Explanation 2
to S. 9(1)(vii).
The AO rejected AusCo’s contention and assessed the receipts
under Article XIII (Alienation of property) of DTAA.
In appeal before CIT(A), CIT(A) accepted AusCo’s contention
and directed the AO to assess the income u/s.44BB.
Held :
(i) The Tribunal observed and held that :
