ORDER

R.V. Easwar, Vice President. - This is an appeal by the revenue and it relates to the assessment year 2003-04. The following grounds have been taken by the revenue :—

"1. That the Ld. CIT(A) has erred in law and on facts in holding that the revenues in respect of contract No. 2001/GENL/E-1-GG-L-033-MAC with ONGC Ltd. are not taxable in India as the services in respect of this contract were entered outside India, i.e., in Australia, whereas the basic ingredient of the scope of work is the sites at which the data was utilised was in India and some were offered and shown as taxable in India by the assessee NRC in its original as well as revised returns.
2. That the Ld. CIT(A) has erred in law and on facts in holding that the revenues in respect of contract No. 2001/GENL/E-1-GG-L-033-MAC with ONGC Ltd. are for the services in connection with the exploration and extraction of mineral oils and hence are taxable under section 44BB whereas the receipts are taxable as fees for technical services, which the assessee NRC itself offered in its original return of income and also in view of Article 13 of DTAA between India & Australia, the same were taxable as fees for technical services."

2. The assessee is a non-resident company incorporated in Australia. It entered into a contract with Reliance Industries Limited (hereinafter referred to as RIL) under contract No. 2001-GENL-El-GG-L-033-MAC. Under this contract, the assessee was to undertake the 2D and 3D seismic data processing based on the data collected by the RIL. The volume of data to be processed for 2D was 7,000 LKM and the volume of data to be processed for 3D was 3,050 sq. km. According to the contract, a copy of which is placed at pages 18 to 27 of the paperbook, the entire processing was to be carried out by the assessee at their processing centre located in the city of Perth, Australia. We shall examine the terms of the contract in some detail later. The gross receipts of the assessee from RIL under the contract amounted to Rs. 5,27,91,557 during the year. In the return filed, the assessee offered the aforesaid amount to tax under section 44BB of the Income-tax Act, under which a sum equal to 10 per cent of the receipts shall be deemed to be profits & gains of the business chargeable to tax under the head "Profits & gains of business". It may be noted that this section applies to a non-resident assessee. However, in the course of the assessment proceedings, the assessee took the stand that since it had no "permanent establishment" (PE) in India within the meaning of Article V of the agreement for avoidance of double taxation between India and Australia, the profits arising to it under the contract with RIL were not assessable in India as stipulated in Article VII of the double tax treaty. In accordance with this stand, it appears to have been contended before the Assessing Officer by letter dated Nil (pages 12-17 of the paperbook) written in response to the notice issued under section 143(2), that the assessee was resiling from its earlier position that the revenues were taxable under section 44BB and that the stand taken in the return was erroneous. It was pointed out that the assessee did not have a PE in India and, therefore, the revenues were not taxable as business profits in India. It was further pointed out that even under the contract the data was to be processed by the assessee at their location in the city of Perth in Australia, that none of the employees of the assessee-company came to India and no part of the processing activity was carried out by the assessee in India. Reliance was also placed on the following authorities in support of the contention that since no part of the processing activity took place in India, the revenues were not taxable under the Income-tax Act :

(i) Carborandum Co. v. CIT [1977] 108 ITR 335 (SC);
(ii) Commissioner Of Income-Tax, Bombay City I v. Tata Chemicals Ltd. [1974] 94 ITR 85 (Bom.);
(iii) The Commissioner Of Income Tax v. Energomach Exports* [1998] 232 ITR 448 (Kar.);
(iv) Commissioner Of Income-Tax v. Usha Martin Black (Wire Ropes) Ltd. [1984] 148 ITR 236 (Cal.).

3. The Assessing Officer did not dispute that the work of processing had to be carried out in Perth in Australia but held that even if it is so, the basic ingredient of the scope of work is the situs at which the processed data was to be utilised and so long as the data was being utilised by RIL in India, the provisions of section 44BB of the Act were attracted and revenues were taxable accordingly as business profits. He also noted that the assessee had rightly offered the revenues to tax under section 44BB in the return. In this view of the matter, he brought the revenues under the contract to tax by determining 10 per cent thereof as the profits of the assessee's business.

4. The assessee appealed to the CIT (Appeals) and took up the contention that the construction placed by the Assessing Officer on section 44BB, holding the same to override the charging provisions of sections 5 & 9 of the Act, was erroneous and was contrary to the judgment of the Supreme Court in the case of Carborandum Co. (supra). In the written submissions filed before the CIT (Appeals), reliance was placed on the judgment of the Hon'ble Allahabad High Court in the case of Pt. Sheo Nath Prasad Sharma v. CIT [1967] 66 ITR 647 in which it was held that the mere circumstance that the assessee has shown a receipt as income in his return does not make him liable to tax thereon and that whether the receipt can be taxable as income is a matter which requires consideration and examination of the realm of law and it is open to the assessee, even though he had shown a receipt in the return as his income, to resile from that position and contend before the income-tax authorities that the same is not taxable as income in law. Reliance was placed on this judgment to contend that the assessee was not bound by the admission made in the return that the revenues under the contract were taxable under section 44BB of the Act. It was also explained in the written submissions that there was no permanent establishment (PE) of the assessee in India within the meaning of Article V of the double tax treaty and, therefore, even if the assessee is considered to have performed services in connection with the exploration/extraction of mineral oils within the meaning of section 44BB(1), since it did not have a PE in India, the revenues were not taxable in India. Reliance was placed on Article VII of the double tax treaty which says that the business profits of the Australian company cannot be taxed in India in the absence of a PE in India. It was submitted that the double tax treaty would override the provisions of the Income-tax Act insofar as they are beneficial to the assessee and support for this submission was taken from the judgments of the Supreme Court in CIT v. P.V.A.L. Kulandagan Chettiar [2004] 267 ITR 654 and Union of India v. Azadi Bachao Andolan [2003] 263 ITR 706 and the Circular No. 333, dated 2-4-1982 issued by the CBDT. Strong reliance was also placed on the fact that no part of the processing activity was performed in India by the assessee-company and, therefore, on the basis of the judgment of the Supreme Court in Carborandum Co. (supra), no part of the receipt was taxable in India under the Income-tax Act.

5. The aforesaid submissions of the assessee were accepted by the CIT (Appeals) who observed as under :—

"I have gone through the order of the Assessing Officer as well as the submissions of the AR very carefully. The Assessing Officer has not contested the fact that the work was performed solely at the appellant's office in Australia. Also, the Assessing Officer has failed to take into account the fact that the provisions of DTAA necessarilyoverrides the provisions of the Income-tax Act, and that where an assessee disputes its very taxability in India relying upon the DTAA, this issue has to be examined first. Also, the fact that the appellant himself offered the revenues to tax in terms of section 44BB is of no help to the Assessing Officer as there is no estoppel in the Income-tax Act. On a through consideration of the matter, I hold that for contract No. 2001-GENL-E1-GG-L-033-MAC the appellant did not have a Permanent Establishment in India. Correspondingly, revenue from this contract are not be taxable in India and will be taxable only in Australia. The appellant gets relief to this extent."

6. The revenue is in appeal. Mr. Devender Shanker, the learned CIT(DR) put forth the following contentions in support of the appeal of the department. He submitted that the receipt fell to be taxed as "fees for technical services" within the meaning of the term under Explanation 2 to section 9(1)(vii)(b ) of the Income-tax Act which embodied the "source rule" introduced from 1-4-1976 and that the amount received by the assessee did not fall within the excluded area, viz., "consideration for any construction, assembly, mining or like project undertaken by the recipient" carved out by the aforesaid Explanation. He drew our attention to the contract and pointed out that the assessee, in addition to processing the date collected by RIL, was also providing training to the personnel of RIL and this would also amount to rendering technical services. He thus contended that the receipt was taxable under the domestic law (Indian tax law). Turning to the question whether the treaty between India and Australia exempted the receipt from taxation, he submitted that under clause (g) of Article XII(3) of the treaty the rendering of any services which make available technical knowledge, experience, skill, know-how or processes or consist of the development and transfer of a technical plan or design would amount to "royalty" and would be subjected to tax though at a lower rate. In this behalf, he pointed out that it was significant to note that the treaty between India and Australia did not contain a specific provision relating to the "fees for technical services" and certain services which would normally be considered as technical services were placed under Article XII with the result that in substance the services which were listed under the said article was the same as those services which would otherwise normally be termed as technical services and the consideration therefor would be termed as "fees for technical services". Mr. Shanker, the learned CIT(DR) raised another point. He drew our attention to Article VII(7) of the treaty which says that where (business) profits include items of income which are dealt with separately in other articles of the treaty, then the provisions of those articles shall not be affected by the provisions of Article VII and submitted that if in the present case it is found that the receipts of the assessee cannot be brought under "royalties" within the meaning of Article XII(3) then the result would be that the receipts will be assessed under the domestic law (Income-tax Act, 1961) as "fees for technical services" under sub-clause (b) of clause (vii) of sub-section (1) of section 9.

7. Mr. Ajay Vohra, the learned counsel for the assessee on the other hand contended firstly that section 9(1)(vii)( b) read with Explanation 2 was not applicable to the facts of the present case. He submitted that the amount received from RIL under the contract represented consideration for a "mining" project undertaken by the assessee and was therefore not taxable as "fees for technical services" under the domestic law. In this behalf he relied on the order of the Delhi Bench of the Tribunal in ITA No. 2145/Delhi/2004 (copy filed). Controverting the contention of the learned CIT(DR) that Article XII(3) of the treaty was applicable and the receipt was taxable under the treaty as "royalty", he pointed out that clause (g) of Article XII(3) required that the services rendered by the assessee should "make available" to RIL technical knowledge, skill, process or know-how or consist of the development and transfer of a technical plan or a design. He relied on the interpretation placed on the words "make available" appearing in Article 12(4)(b) of the Indo-US double tax treaty dated 20-12-1990 which came into force from 1-4-1991 (reported in 187 ITR St. 102 at rate 116) by the Bombay Bench of the Tribunal in Raymond Ltd. v. Dy. CIT [2003] 86 ITD 791 , 826, 835 and submitted that the processed data handed over by the assessee-company in the present case to RIL is not of any use to RIL once the work undertaken by RIL gets over and it does not make available to RIL any technical knowledge, skill, know-how, etc., or a technical plan or design which it can use in future without reference to the assessee-company, for its own benefit in other projects undertaken by it. Mr. Vohra further argued that if it is found that Article XII(3) of the Indo-Australian treaty is not applicable and that the receipt cannot be considered as "royalty" then one has to go back to Article VII of the treaty and not to the domestic law (Income-tax Act, 1961) as contended by the learned CIT(DR). Once we go to Article VII, the result will be that since the assessee has no PE in India the receipt cannot be taxed as business profits. In support of this submission, Mr. Vohra relied on the order of the Mumbai Bench of the Tribunal in Dy. CIT v. Boston Consulting Group [2005] 94 ITD 31 .

8. In reply to the assessee's arguments, the learned CIT (DR) submitted that even under the Indo-US Treaty, from which analogy was drawn by the learned counsel for the assessee, the services rendered by the assessee fell to be considered as "engineering services" as clarified by the memorandum of understanding concerning "fees for included services in Article 12" of the Indo-US Treaty, reported in 187 ITR St. 102 at 138. It was explained by Mr. Devender Shanker that under Article 12(4)(b) of the Indo-US Treaty engineering services have been explained in the memorandum of understanding as "typical categories of services that generally involve either the development and transfer of technical plans or technical designs, or making technology available as described in paragraph 4(b)". More particular, our attention was drawn by Mr. Shanker to pages 138 - 139 of 187 ITR St. where it was further explained by the memorandum that "technical and consultancy services could make technology available in a variety of settings, activities and industries" and the examples given are the area of "exploration or exploitation of mineral oil or natural gas", "geological surveys", "scientific services" and "technical training". Relying on these observations in the memorandum of understanding, it was contended by the learned CIT (DR) that the services rendered by the assessee did "make available" technology to RIL in the aforesaid areas. The decision of the Mumbai Bench of the Tribunal in the case of Raymond Ltd. ( supra) was sought to be distinguished on the ground that in that case, the services rendered by the non-resident company related to the issue of GDRs to a company which made a public issue of the GDRs for its cement project and that it was not possible or feasible for the Indian company to make use of the services rendered by the non-resident company in future for its own benefit and without reference to the non-resident company. It was pointed out that in the case on hand, RIL was enabled to make use of the processed data in future for any of its projects without reference to the assessee-company.

9. We have carefully considered the rival contentions. It needs hardly to be stated that the basic principle to be applied in such cases is that one has to first look at the domestic law to find out if the non-resident assessee is taxable thereunder. If it is taxable, only then one needs to look into the treaty, if any, between India and the country in which the non-resident is incorporated to find out if there is any beneficial provision in the treaty to exempt the assessee from taxation or reduce the rigours of the domestic law. If there is such a provision in the treaty, the assessee is entitled to claim that it should be given the benefit of the treaty provisions. On the other hand, if the assessee is not taxable under the domestic law itself, there is no need to look into the provisions of the treaty for avoidance of double taxation, even if one exists. One cannot, in such a situation, look into the treaty to find out if there is any provision under which the non-resident can be brought to tax. In other words, the treaty cannot be used as a taxing enactment. The subsidiary principle is that where the non-resident is taxable under the domestic law but there is a provision in the treaty to exempt the transaction or reduce the rigour of taxation to the benefit of the non-resident, the provisions of the treaty override the provisions of the domestic law. These fundamental principles are well-settled by the judgments of the Supreme Court in P.V.A.L. Kulandagan Chettiar's case (supra) and Azadi Bachao Andalon's case (supra).

10. In the present case, the contract in question provides that the assessee should undertake the work of 2D/3D seismic data processing to be completed as per agreed delivery schedule. The assessee shall carry out the total job at one processing centre, namely, Perth in Australia. RIL has to collect the data and it was the duty of the non-resident company (the assessee) to arrange to get all the tapes containing the data collected from RIL, Mumbai. After completion of the job, the assessee shall return the original tapes along with the processed tapes to RIL. There shall be a confidentiality or secrecy arrangement. The contract came into effect from 12-3-2001. Under clause 10.3 of the contract (described as letter of award), the assessee shall provide all committed equipment and personnel for the processing job at their Perth office. Clause 10.4 of the letter makes it clear that the assessee shall carry out the processing job at the single processing centre at Perth. Clause 10.5 says that the assessee shall provide licence for the software "Focus 2D/3D" to RIL at Mumbai for a period of four months and also the licence for "VoxGeo", the volumetric interpretation software for a period of two months at no cost to RIL. Under clause 10.6, the assessee shall deploy all the needed resources like manpower, software, hardware, etc., during the entire period of the contract to meet the timely execution and delivery of data and shall not divert these resources to any other jobs without the prior written approval of RIL. There are annexures to the letter of award containing the price schedule, delivery schedule and basis for final price which are not very relevant for the present purpose.

11. We find from the terms of the contract as summarised above that the entire job of processing the data collected by RIL was to be carried out by the assessee in its Perth office. The necessary manpower, software and hardware were to be deployed by the assessee towards the timely execution and delivery of data. But this is also to be done in the Perth office. Along with the processed data the assessee was required to supply the licence for operating the software to RIL at Mumbai; but this was at no additional cost to RIL. From these terms of the letter of award, it seems to us that there can be no dispute that no part of the processing work which was entrusted to the assessee was carried out in India. The entire income thus accrued to the assessee outside India, if one were to apply the principles laid down by the Supreme Court in Carborandum Co.'s case (supra). The Assessing Officer does not dispute the factual position that no part of the processing work was carried out in India, but says that since the processed data is utilised in India, the income accrues in India. There is no statutory basis for this conclusion. Under section 5(2)(b) of the Income-tax Act, the total income of a non-resident includes all income from whatever source derived which accrues or arises or is deemed to accrue or arise to him in India during the year. If the law laid down by the Supreme Court in the aforesaid judgment is applied to the facts of the present case, it is not possible to say that any income accrued or arose to the assessee-company in India by reason only of the fact that the processed data was utilised by RIL for its project in India. The further question is whether the income can be deemed to accrue or arise to the assessee-company in India. That takes us to section 9 of the Act which was relied on by the learned CIT (DR). This section provides for "Income deemed to accrue or arise in India". He put the case of the department on the source rule embodied in section 9(1)(vii)(b ). This section says that income by way of fees for technical services shall be deemed to accrue or arise in India if it is paid by a resident of India, the resident in this case being RIL. The only exception is that if the services were utilised by the resident in a business carried on outside India or for the purpose of making or earning any income from any source located outside India then such payment is not to be deemed as income accruing or arising in India. It must be noted that this provision applies only to payment made as fees for technical services. The expression "fees for technical services" has been defined in Explanation 2 to mean any consideration, including lump-sum consideration, for the rendering of any managerial, technical or consultancy services, including the provision of services of technical or other personnel, but does not include conside-ration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be chargeable in the hands of the recipient as salaries. Applying the definition of the term "fees for technical services" to the present case, it cannot be seriously disputed that the services rendered by the assessee-company in processing the data collected by the assessee are in the nature of technical services. The argument of the learned counsel for the assessee that the consideration received by it from RIL was for a mining project and, hence, falls within the excluded area carved out by the Explanation cannot be accepted because it overlooks the condition that the mining project should be undertaken by the recipient, namely, the assessee-company. It would be far-fetched to describe the assessee has having undertaken a project for mining merely because it has undertaken to process the data collected by RIL which is actually engaged in the mining project, namely, the prospecting for oil. The reliance placed by the learned counsel for the assessee on the order of the Tribunal dated 23-2-2007 in ITA No. 2145 (Delhi) of 2004 in the case of ONGC as representative assessee of Alberta Research Company, Canada v. Dy. CIT does not appear to have examined this position specifically. Therefore, it does not support the contention of the learned counsel for the assessee. It is also to be noted that it is not necessary for the application of section 9(1)(vii) that the recipient of the fees for technical services should have any business connection in India. All that is required is that the source of the payment should be in India, from a resident of India. In this view of the matter, we agree with the learned CIT (DR) that the amount received by the assessee-company from RIL under the letter of award (the contract) is taxable under section 9(1)(vii)(b ) read with Explanation 2 of the Income-tax Act, 1961.

12. We now turn to the question whether section 44BB covers the case. This section makes special provision for computing the profits and gains of a non-resident which is engaged in the business of exploration, etc., of mineral oils in India. It applies to a non-resident engaged in the business of providing services or facilities in connection with, or supplying plant and machinery on hire used, or to be used, in the prospecting form, or extraction or production of, mineral oils. The section starts with a non-obstante clause and overrides anything to the contrary contained in sections 28 to 41 and sections 43 and 43A of the Act. Under clause (a) of sub-section (2), the amount paid or payable, whether in India or outside India, to the assessee for the provision of services and facilities in connection with the prospecting for or extraction or production of mineral oils in India shall be taxed in India, the profits and gains being determined at a sum equal to 10 per cent of the amount so received by the non-resident assessee. The assessee in the present case filed its return on the basis of section 44BB and offered 10 per cent of the gross receipt of Rs. 5,27,91,557 to tax but later resiled from that position and contended that since it did not have a PE in India within the meaning of Article V of the treaty, its business profits cannot be assessed in India as provided in Article VII(1) of the treaty. This claim was of course not accepted by the Assessing Officer, without disputing the assessee's claim that there was no PE in India and without giving any reasons.

13. The question whether on the above facts the provisions of section 44BB are applicable to the assessee-company does not present much difficulty. It cannot be disputed that the services rendered by the assessee-company to RIL are in the nature of consultancy or technical services, as we have already seen while examining the applicability of section 9(1)(vii)(b ) read with Explanation 2 thereunder. Section 44BB applies to provision of services and facilities in connection with the prospecting for, or extraction or production of, mineral oils in India. The section does not qualify the word "services" with the words "consultancy" or "technical" or "managerial" as in Explanation 2 below section 9(1)(vii)( b). The result is that anything received as consideration for any services of whatever nature rendered by the non-resident company in connection with the prospecting or extraction of mineral oil in India will fall within section 44BB. The services rendered by the assessee-company - the processing of data collected by RIL - under the terms of the contract thus fall within section 44BB. There is no dispute that those services are in connection with the prospecting for or the extraction of mineral oil in India.

14. Since section 44BB falls within the heading "D.-Profits and gains of business or profession" in Chapter IV of the Income-tax Act, the profits of the assessee-company derived from the rendering of the services are taxable under the head "Business" and in fact the last part of sub-section (1) expressly says so. If the profits are so taxable, then it is open to the assessee-company to rely on Article VII(1) of the double tax treaty with Australia to contend that since it has no PE in India such profits are not taxable in India as "business profits". The basic principle that the treaty overrides the provisions of the Act is attracted and the contention deserves to be accepted. The result is that the profits cannot be assessed in India as "business profits" as rightly pointed out by the assessee in the course of the assessment proceedings before the Assessing Officer, resiling from the position it had taken in the return to the effect that section 44BB applies and tax is payable thereunder.

15. The same position would hold good vis-a-vis the provisions of section 9(1)(vii)(b ) read with Explanation 2 thereunder, but for a different reason. We have already seen that the above section refers to "fees for technical services". We have also seen that the section is applicable to the assessee's case and the amount received by it under the contract with RIL represents fees for technical services, having regard to the Explanation 2. But that is not the end of the matter. We have to look into the treaty to find out if there is any provision therein which exempts or reduces the rigour of taxation - in other words, whether there is any provision in the treaty which is more beneficial to the assessee - and if there exists such a provision the benefit thereof has to be extended to the assessee. Article VII(7) of the treaty says that where the (business) profits include any item of income for which a specific provision is made in the treaty, then the provisions of the treaty dealing with such item of income shall remain unaffected by Article VII. According to the learned CIT(DR), Article XII, though it is titled "royalties", in substance also deals with consideration for providing technical services, and therefore such provisions will prevail over Article VII. We must accept the contention as sound, as it is clearly supported by Article VII(7). He points out to clause (g) of Article XII(3) which according to him applies to the receipts by the assessee-company under the contract with RIL. Sub-article (3) of Article XII actually appears to define "royalties", but a closer look at it shows that it also includes :—

"...........consideration for..........

(g )the rendering of any services (including those of technical or other personnel), which make available technical knowledge, experience, skill, know-how or processes or consist of the development and transfer of a technical plan or design:"

Normally, any consideration for the rendering of any technical or other services (managerial, consultancy, etc.) would be understood as conside-ration for technical services but the treaty between India and Australia does not make specific provisions for dealing with fees for technical or other services. The consideration for such services is included in the definition of royalties. We have to therefore examine whether there is any such rendering of services by the assessee which make available technical knowledge, experience, skill, know-how or processes or consist of the development and transfer of a technical plan or design. We have already seen that under the letter of award, the assessee was required to process the seismic data collected by RIL of an estimated volume of 7,000 1km for 2D and 3,050 sq. km. of 3D. The assessee was also to provide committed equipment and personnel for the above processing but at their Perth office. It shall also carry out the processing job at its single processing centre at Perth. The assessee shall deploy all the needed resources like manpower, software and hardware during the entire period of the contract to ensure timely completion and delivery of the processed data and these resources cannot be diverted to any other job without the written approval of RIL. The assessee shall also provide RIL with the licence for the software for a period of four months in the case of "Focus 2D/3D" and for a period of two months for "VoxGeo". All these are no doubt technical services but the question that is to be further examined is whether such services make available to RIL any technical knowledge, experience, etc. A similar provision in the Indo-US Treaty was examined by the Mumbai Bench of the Tribunal in the case of Raymond Ltd. (supra). In that case, the Indian company was engaged in the manufacture of cement and it made a GDR issue and engaged a non-resident company to render services in connection therewith. The question was whether such services made available to the Indian company any technical knowledge, experience, skill, etc., within the meaning of Article 12(4)(b) of the Indo-US Treaty. The Tribunal held as under in paragraphs 92 and 93 of the order :—

"92. We hold that the word "which" occurring in the article after the word "services" and before the words "make available" not only describes or defines more clearly the antecedent noun ("services") but also gives additional information about the same in the sense that it requires that the services should result in making available to the user technical knowledge, experience, skill, etc. Thus, the normal, plain and grammatical meaning of the language employed, in our understanding, is that a mere rendering of services is not roped in unless the person utilising the services is able to make use of the technical knowledge, etc., by himself in his business or for his own benefit and without recourse to the performer of the services in future. The technical knowledge, experience, skill, etc., must remain with the person utilising the services even after the rendering of the services has come to an end. A transmission of the technical knowledge, experience, skills, etc., from the person rendering the services to the person utilising the same is contemplated by the article. Some sort of durability or permanency of the result of the "rendering of services" is envisaged which will remain at the disposal of the person utilising the services. The fruits of the services should remain available to the person utilising the services in some concrete shape such as technical knowledge, experience, skills, etc.

93. In the present case, as Mr. Dastur pertinently pointed out, after the services of the managers (Merrill Lynch and other co-managers) came to an end, the assessee-company is left with no technical knowledge, experience, skill, etc., and still continues to manufacture cement, suitings, etc., as in the past."

The contention of the learned CIT (DR) however was that the technical and consultancy services "make available" to RIL technology as has been explained in the memorandum of understanding entered into between India and US regarding the double tax treaty. After giving careful consi-deration to the rival submissions on this aspect, we are inclined to hold that the services rendered by the assessee-company are limited to the project undertaken by RIL and do not "make available" to RIL any technical knowledge, experience, etc., nor do they consist of the development and transfer of technical plan or design. Under the contract, it is RIL which collects the data in the area in which it proposes to prospect for mineral oil. The data is thus area-specific. The data so collected by RIL is recorded in the tapes and it is the duty of the assessee to collect the tapes from RIL in Mumbai, carry out the processing of the data at their Perth office and after completion of the processing the original tapes along with the processed tapes shall be returned by the assessee to RIL, Mumbai. Once the processed tapes are received by the RIL, the information contained in the tapes can be used by RIL but it seems to us that such information, being area-specific, cannot be made use of by RIL in future without reference to the assessee-company. In fact, in future if RIL undertakes a similar project in a different area, the seismic data collected from that area is most likely to be completely different from the data collected by it in the present area, with the result that the processed data will necessarily be completely different. The processed data received by RIL in connection with the present project will be of no use to it while undertaking a different project. Such a situation is covered by the decision in Raymond Ltd.'s case (supra). The processed tapes containing the processed data received by RIL from the assessee-company in connection with the present project may physically remain with RIL but the processed data will, for all practical purposes, be of no use in any future project to be undertaken by RIL. If RIL undertakes another project for prospecting or extracting mineral oil in another area, it has to collect data specific to that area and has to send that data to the assessee-company for being processed. We do not see how RIL can be richer in the area of technical knowledge, experience, skill, etc., because of the use of the processed data sent by the assessee-company. The processed data does not also amount to the development and transfer of a technical plan or design. In our opinion, therefore, Article 12(3)(g) of the Indo-Australian Treaty is not applicable to the facts of the present case. So far as the legal position is concerned, if the definition of "fees for technical services" in the domestic law is wider, but the definition of the same is narrower in the double tax treaty in comparison still it is the narrower definition in the treaty that will override the wider definition in the domestic law. This is the ratio of the decision of the Karnataka High Court in Citizen Watch Co. Ltd. v. IAC [1984] 148 ITR 774 and the Calcutta High Court in Commissioner Of Income-Tax v. Davy Ashmore India Ltd. [1991] 190 ITR 626 . Actually, this is a subsidiary principle emerging from the broader principle that the treaty overrides the domestic law. Implied in this broader principle is the position that the definition of a term in the double tax agreement should prevail, even if it is narrower than the definition in the domestic law.

16. We may now refer to the contention of the learned CIT (DR) that if Article XII(3)(g) of the treaty is not applicable than we have to go back to the domestic law, namely, the Income-tax Act and tax the receipt as fees for technical services within the meaning of section 9(1)(vii)( b) read with Explanation 2 thereunder. The argument of the learned counsel for the assessee however is that if the aforesaid article of the treaty is not applicable, we have to go back to Article VII of the treaty and not to the Income-tax Act. On a careful consideration of the debate, we are inclined to take the view canvassed on behalf of the assessee since that seems to be more logical. What Article VII(7) seems to convey is that where the business profits of the non-resident include items of income for which specific or separate provisions have been made in other articles of the treaty, then those provisions would apply to those items. Per contra, if it is found that those provisions are not applicable to those items of income, then the logical result would be that those items of income will remain in Article VII and will not go out of the same. Such items of income which do not fall under any other provision of the double tax treaty, would continue to be viewed as business profits covered by Article VII. To our humble minds, the position canvassed by the learned counsel for the assessee seems to be more logical than the view canvassed on behalf of the department. Fees for technical services are essentially business profits since the rendering of such services is the business of the non-resident. In order to take out an item of income from the business profits, it is necessary under Article VII(7) that there should be some other provision in the treaty dealing specifically with the item of income sought to be taken out from the business profits. If there is no other provision in the treaty or if the provision made in the treaty is not found applicable or to cover the item of income sought to be taken out from the business profits, for whatever reason, then it follows that the particular item of income should continue to remain under Article VII.

17. In light of the above discussion, we are of the view that the amount received by the assessee-company from RIL under the contract did not represent consideration for any technical services rendered to RIL which made available technical knowledge, experience, skill, etc., or consisted of the development and transfer of any technical plan or design within the meaning of Article XII(3)(g) of the Indo-Australian Treaty. The conside-ration will continue to be viewed as business profits under Article VII of the treaty and since the assessee had no PE in India the business profits cannot be taxed in India. We thus affirm the decision of the CIT (Appeals) and dismiss the first ground.

18. So far as the second ground is concerned, we may clarify that the correct contract number is 2001/GENL/E-1-GG-L-180-MAC and not as mentioned in the ground. Further, the contract is not with ONGC Limited as mentioned in the ground but it is also with RIL. The brief facts in connection with this ground are that the assessee entered into the above agreement on 8-3-2002. The copy of the contract which is at pages 38 to 48 of the paperbook shows that it has been described as a contract of service, the service being the training of the employees of RIL on Geolog software. Clause 2 of the contract says that the work order is for the supply of such labour, materials, manufacturing processes, testing, preparation for shipment, delivery and documentation as are necessary to ensure the supply of services as detailed in Annexure 1. Annexure 1, which is at pages 43 to 45 of the paperbook, is titled "Special conditions of contract". Clause 1 deals with "Scope of services". It is as under :—

"Scope of work.—Contractor shall carry out the work specified below in accordance with RIL's specifications, test procedures, parameters, evaluation criteria and the highest applicable professional standards.

The work includes but is not limited to accomplishing the following :

Training on Geolog software with inclusion of—

(a) Introduction to Geolog (Basic use);
(b) Geolog System administration;
(c) Section (Cross section construction);
(d) Determine (Basic Petrophysical analysis).

Deliverables

Training manuals in 10 copies"

Clause 2 which speaks of compensation and payment includes a term that the assessee shall be paid at the rate of US$ 1,750 per day per person commencing from the day after the assessee's personnel arrived at the job site until the last working day prior to their departure from the job site. Under clause 3, the assessee was to perform the services at the office of RIL located in India or elsewhere as decided by RIL. It also provided that RIL will decide the actual number of personnel required to render the services, the date of commencement and the duration. The services were to be performed at the work sites designated by RIL. The other provisions relating to invoicing, payment, etc., are not very relevant for our purpose. Annexure 2 is titled "General conditions of contract". Clause 1 which is titled "Description of services and compensation" says that the assessee shall provide technical guidance and direction to RIL and/or third parties nominated by RIL for usage of the assessee's proprietary software tools so as to achieve quality levels compliant with the industry standards followed globally. It further provides that the assessee's representatives shall be fully qualified and experienced in carrying out the work as detailed in Annexure 1. Clause 2 of the Annexure provides that the assessee shall not be an agent of RIL in performing the services and maintaining complete control and responsibility over its employees. The other clauses of Annexure 2 refer to insurance, indemnity, etc., which are not relevant for our purposes. Clause 5 provides for confidentiality of data and says that the assessee shall maintain confidentiality of the data and documents related to the project and the information obtained from the drawings, designs, etc., and other data provided by RIL while performing the services.

19. In the return filed, the assessee declared the receipts in respect of the above contract with RIL under Article XIII (alienation of property) of the Indo-Australian tax treaty, but in the course of the assessment proceedings resiled from that position and offered to be assessed under section 44BB on the basis that 10 per cent of the receipts would be treated as profits and gains of the business of rendering services in connection with the prospecting for or the extraction of mineral oil, as can be seen from its letter dated Nil written to the Assessing Officer in response to the notice under section 143(2) (pages 11-17 of the paper book). It was explained that the contract was for the provision of the service, viz., training of the employees of RIL on Geolog Software which is used exclusively by the oil and gas industry for the purpose of exploration/extraction of mineral oil. It was then contended that the assessee's case was covered by Instruction No. 1862, dated 22-10-1990 issued by the CBDT, based on the opinion of the Attorney General that prospecting for or extraction or production of mineral oil can be termed as "mining" operations for the purpose of Explanation 2 below section 9(1)(vii)(b ) of the Income-tax Act. It was contended that the words "mining project" appearing in that provision would cover rendering of services like imparting of training and carrying out drilling operations for exploration or exploitation of oil and natural gas in terms of the aforesaid Instruction. It was, therefore, contended that the receipt cannot be taxed as "fees for technical services" within section 9(1)(vii)(b ), but was chargeable under section 44BB of the Act. It was also submitted to the Assessing Officer that section 44D read with section 115A was inapplicable.

20. The Assessing Officer rejected the aforesaid contentions of the assessee and assessed the receipt under Article XIII of the double tax treaty between India and Australia.

21. On appeal, the assessee explained the functions of the software "Geolog" by producing the brochure, and relying on the instruction issued by the CBDT (supra) contended that the revenues under the contract were taxable only under section 44BB. The CIT (Appeals) accepted the above contention of the assessee and directed the Assessing Officer to tax the revenues under section 44BB.

22. It is against the aforesaid decision of the CIT (Appeals) that the revenue has come in appeal. Referring to the agreement between assessee and RIL, it was contended by the learned CIT (DR) that Article XII(3)(a) or (d) of the treaty would apply to the facts of the case. It was argued that under clause (a) consideration for the use of the software, which was a copyright, was to be treated as royalty and under clause (d) consideration for the rendering of any technical service which is ancillary or subsidiary to the application of the software was taxable as royalty and that in the present case, both the clauses were applicable. It was contended that if the assessee has no PE in India the receipt cannot be assessed as business profits as per Article VII(1) of the treaty and if that is so neither section 44BB nor the Board's instruction based on the opinion of the Attorney General would apply, and therefore, the CIT (Appeals) was wrong in relying on the Board's instructions or section 44BB. Our attention was also drawn to the proviso to section 44BB(1) which excluded the applicability of the section where the case fell under section 44D which contains special provisions for computing the income by way of royalties in the case of non-resident companies. On this basis, it was argued by the learned CIT (DR) that the order of the CIT (Appeals) was erroneous.

23. The learned counsel for the assessee on the other hand contended that section 44BB would be the more appropriate section to assess the revenues under the contract as the assessee had rendered services "in connection with" the prospecting or extraction or production of mineral oils. It was pointed out that the quoted words were absent in Explanation 2 below section 9(1)(vii)(b ) of the Act. It was pointed out that this distinction between the two sections was recognised by the Tribunal, Delhi Bench in its order in the case of Hotel Scopevista Ltd. v. Asstt. CIT [2007] 18 SOT 183 (copy filed). It was also contended that in any case, since the assessee was offering to be assessed under section 44BB there is no need to go to the treaty and, therefore, the argument of the learned CIT (DR) based on Article XII(3)(a) or ( d) need not be examined.

24. In reply, the learned CIT (DR) pointed out that Instruction No. 1862 was not issued under section 44BB but was issued to clarify Explanation 2 below section 9(1)(vii)( b) and in any case the opinion of the Attorney General was applicable only where the recipient of the consideration renders services and also carries out drilling operations and it was not applicable where the assessee was only imparting training on the use of software as in the present case. In the course of the arguments, the learned CIT (DR) also contended that section 44BB will apply only if the assessee had a PE in India and since this condition was not satisfied in the present case the section was not applicable.

25. We have carefully considered the rival contentions. It is seen from the terms of the contract and the scope of work that the assessee has to impart training to the employees of RIL for operating the Geolog software including the basic use, system administration, cross-section construction and basic petro-physical analysis. The personnel of the assessee will impart the training to the personnel of RIL at the job sites designated by RIL. They shall provide technical guidance and direction to RIL's employees on the usage of the assessee's proprietary software tools so as to achieve quality levels in conformity with global industry standards. It would thus initially appear from the scope of the work that the assessee was rendering a technical service and the case is covered by Explanation 2 below section 9(1)(vii)(b ). It is not clear as to how the assessee originally relied on Article XIII of the double tax treaty which provided for taxation of income or gains derived from the alienation of property. Be that as it may, the assessee resiled from that position before the Assessing Officer and offered to be assessed under section 44BB. As already noticed, if the provisions of domestic law cover the case, the non-resident has to be taxed accordingly. In case any specific provision in the double tax treaty is more beneficial to the assessee, then the assessee can take advantage of the same. The provisions of section 44BB are very wide and cover all services including technical services rendered by a non-resident, who is engaged in the business of providing such services, provided they are rendered in connection with the prospecting for or extraction or production of mineral oils in India. It is a well-known principle that a specific provision overrides a general provision. If this principle is applied, it seems to us that the case is covered by section 44BB and not section 9(1)(vii)( b) because the former has been specifically enacted for the purpose of computing the profits and gains of a non-resident engaged in the business of providing services or facilities in connection with the prospecting for, or the extraction or production of, mineral oils in India. The Instruction No. 1862 was issued in connection with Explanation 2 to section 9(1)(vii) of the Act as rightly pointed out by the learned CIT (DR) and it explains the expression "mining project" and "like project" occurring in the aforesaid Explanation. The assessee obviously cannot rely on the Board's instructions to contend that the consideration has been received by it for any mining or like project for the simple reason, which we have already noticed while disposing of ground No. 1, that such project has not been undertaken by it. It follows from this that the controversy precisely is whether the assessee's case is covered by section 9(1)(vii)( b) or by section 44BB. It is in this connection that the order of the Delhi Bench of the Tribunal in Hotel Scopevista Ltd.'s case (supra) has to be noticed. The difference between the two sections has been noticed in this order in paragraph 4.5 which is reproduced below :—

"4.5 The Ld. AR for the assessee has referred to certain decisions of the Tribunal as mentioned in para 3.1 of this order earlier which relate to provisions of section 44BB but we find that the provisions contained in section 44BB which relate to computation of profit and gain in connection with business of exploration, etc., of mineral oil have been differently worded. As per these provisions, services and facilities provided in connection with prospecting for or extraction or production of mineral oils are covered for separate computation of income under section 44BB. It was because of the words used "services or facilities provided in connection with" that in the decisions of the Tribunal cited, various services provided in connection with exploration of mineral oil such as comprehensive geological and geophysical studies, supply of supervisory staff and personnel having expertise in operation and management of drilling rigs, imparting training, etc., were held to be covered under the provisions of section 44BB and not separately considered as fees for technical services. But the words used in Explanation 2 of section 9(1)(vii) are different. The Explanation 2 does not exclude the consideration for providing services in connection with the construction project. Instead, it excludes consideration for construction project which means that exclusion is only in respect of consideration paid for actual carrying on construction activities. The clarification given by the CBDT regarding the legislative intention behind inserting the Explanation 2 is also on the same lines. We are therefore, of the view that the various managerial technical and consultancy services provided by the foreign contractor from the foreign country in connection with the construction project without actually taking up any such activities in India, will not be covered within the meaning of the words used in the Explanation 2 to section 9(1)(vii). In other words, we agree with the view taken by the authorities below that payments made for various services provided from abroad by the foreign contractor will be taxable as income in the hands of the recipient under the provisions of the Act and accordingly the payments made by the assessee to the foreign contractor are liable for the deduction of tax at source. Accordingly, we uphold the orders of the CIT(A) and dismissed the appeals filed by the assessee."

In our opinion, section 44BB would be the more appropriate section applicable to the case since the assessee is rendering technical services to RIL and such services were rendered in connection with the prospecting for or extraction or production of mineral oil. It is here that the Board's Instruction No. 1862 seems to support the assessee's case. After referring to the opinion of the Attorney General that operations for prospecting for or the extraction or production of mineral oils can be termed as 'mining' operations for the purpose of Explanation 2 below section 9(1)(vii)( b), in paragraph 3 the instruction goes on to say that "In view of the above opinion, the consideration for such services will not be treated as fees for technical services for the purpose of Explanation 2 to section 9(1)(vii) of the Income-tax Act, 1961. Payments for such services to a foreign com-pany, therefore, will be income chargeable to tax under the provisions of section 44BB of the Income-tax Act, 1961 and not under the special provision for the taxation of fees for technical services contained in section 115A, read with section 44D of the Income-tax Act, 1961". In view of the clear instruction of the Board that consideration for services rendered by a non-resident in connection with the prospecting for mineral oil in India will be taxed under section 44BB, the assessee is right in offering the revenues under the contract for tax under this section. The applicability of this section does not depend upon the existence of any PE of the non-resident in India. Therefore, even though the assessee has no PE in India, the receipt under this contract is assessable under section 44BB.

26. We now proceed to examine the contention of the learned CIT (DR) based on the proviso to section 44BB. It says that the section shall not apply if the provisions of section 44D are applicable. Section 44D makes special provisions for computing the income by way of royalties, etc., in the case of foreign companies. It has overriding effect and is applicable notwithstanding anything to the contrary contained in sections 28 to 44C. It thus overrides even section 44BB. Though the learned CIT (DR) contended that section 44BB is not applicable to the assessee's case if the assessee's case falls under section 44D, but he did not however elaborate the contention and explain how the assessee's case fell under section 44D. He however relied on Article XII(3)(a) and (d) of the treaty to contend that the amount received by the assessee under the contract represented consideration for the use of the Geolog software which was a copyright and also represented consideration for the rendering of technical or consultancy services (provision of personnel) which are ancillary and subsidiary to the application of the software. The contention, with respect, seems to overlook the basic principle that there can be no taxation under the double tax treaty. The treaty can come to the aid of the assessee if it is more beneficial or advantageous compared to the domestic law. However, the revenue has to first demonstrate that the case of the non-resident assessee falls under the domestic law and it is for the assessee to take advantage of any beneficial or advantageous provision in the double tax avoidance agreement. In the present case, no arguments were advanced by the learned CIT (DR) to show how the assessee is covered by section 44D and how the revenues under the contract can be treated as royalty within the meaning of the above section read with Explanation 2 to section 9(1)(vi) of the Income-tax Act. The Instruction No. 1862 issued by the Board also rules out the applicability of section 44D read with section 115A of the Act. Therefore, there is no need or legal justification to examine the applicability of Article XII(3)(a) or (d) of the treaty between India and Australia. We have already held that the provisions of section 44BB are more appropriate to the present case. Accordingly, we hold that the assessee was right in contending and the CIT (Appeals) was right in accepting the contention that the revenues under the contract are assessable in India under section 44BB of the Income-tax Act. We confirm his decision on this point and dismiss the ground.

27. In the result, the appeal filed by the department is dismissed with no order as to costs.