ORDER
R.V. EASWAR, J.M. :
The appeals are by the Revenue. The assessee is non-resident company. In respect of the asst. yrs. 1983-84, 1984-85 and 1986-87, the appeals arise out of the orders passed by the ITO under S. 154 of the IT Act. In respect of the asst. yr. 1987-88 the appeal arises out of the assessment made under S. 143(3) of the IT Act.
2. The assessee entered into contracts with ONGC and Oil India Ltd. (OIL). These contracts related to certain services to be rendered by the assessee in respect of on-shore exploratory wells owned by ONGC and OIL located in the eastern and central region of India. The contract with ONGC was made on 21st Feb., 1985. The contract with OIL was made on 26th Nov., 1987 to take effect from 1st Jan., 1986. The assessments for the asst. yrs. 1983-84, 1984-85 and 1986-87 were made prior to the introduction of S. 44BB of the IT Act by the Finance Act, 1987, which made the said section applicable with retrospective effect from 1st April, 1983, i.e., from the asst. yr. 1983-84 onwards. In the assessments, apparently the income of the assessee had been computed applying the normal provisions of the IT Act applicable for income from business. The assessee, pursuant to the introduction of S. 44BB, moved applications before the ITO under S. 154 of the Act praying for rectification of the assessments by applying the provisions of S. 44BB. The applications were rejected by the ITO by orders dt. 30th March, 1990. On the same day, the assessment for the asst. yr. 1987-88 had been completed under S. 143(3) of the Act. In the course of that assessment, the assessee had claimed that the provisions of S. 44BB were applicable to the computation of its income. The ITO for reasons stated in the assessment order for the asst. yr. 1987-88, had rejected the assessees claim. He applied the provisions of S. 115A of the Act r/w S. 44D(b) of the Act. While rejecting the assessees request for applying the provisions of S. 44BB to the computation of its income for the asst. yrs. 1983-84, 1984-85 and 1986-87, the ITO relied on the reasons given by him in the assessment order for the asst. yr. 1987-88.
3. The CIT(A) to whom the appeals were preferred by the assessee, accepted the assessees contention and directed the computation of the income for all the years under S. 44B of the Act.
4. The Department is in appeal before us questioning the correctness of the conclusion of the CIT(A) for all the years. Mr. Rajesh, the learned Departmental Representative submitted that the provisions of S. 115A r/w S. 44D were applicable and, therefore, the proviso to sub-s. (1) of S. 44BB came into play. The assessees case was, therefore, according to him, taken out of the sweep of sub-s. (1) of S. 44BB. The pointed out that the assessee was rendering certain services to ONGC and OIL under the contracts and, therefore, the frees received by the assessee for such services should be treated as 'fees for technical services' within the meaning of S. 9(1)(vii), Expln. 2. The case of the assessee, according to Mr. Rajesh, is therefore covered by the provisions of S. 115A, the Explanation to which refers to the provisions of Expln. 2 to S. 9(1)(vii). As against this contention, Mr. Dastur, the learned counsel for the assessee, strongly urged that the conclusions of the CIT(A) both on the facts as well as on the interpretation of the statutory provisions were unassailable. He took us through the relevant contracts, copies of which were submitted before us and pointed out that the assessee was engaged in a work in India for exploration of oil. According to him, the income derived by the assessee for carrying out such work was not fees for technical services within the meaning of Expln. 2 to S. 9(1)(vii). He pointed out that even if it is considered as fees for technical services within the meaning of Expln. 2 to S. 9(1)(vii) the exclusionary part of the said Explanation took out the case from the sweep of the Explanation. He further draw our attention to various Tribunals orders where similar contracts have been interpreted to give rise to income of the nature specified in S. 44BB. The opinion of the Attorney General on this question was also relied upon by him. Mr. Dastur also drew our attention to the Circular issued by the CBDT in F. No. 500/6/89-FTD, dt. 22nd Oct., 1990 in support of the assessees claim. In respect of the asst. yrs. 1983-84, 1984-85 and 1986-87 Mr. Dastur submitted that non-application of the provisions of S. 44BB to these assessment years constituted a mistake apparent from the record and, therefore, the assessments ought to have been rectified as directed by the CIT(A). He referred to the following decisions in this connection :
1. M.K. Venkatachalam, ITO & Anr. vs . Bombay Dyeing & . : [1958]34ITR143(SC) ,
2. ITO vs . Ashok Textiles Ltd. : [1961]41ITR732(SC) ,
3. India Woollen Textile Mills (Pvt.) Ltd. vs. CIT (1979) 111 ITR 205,
4. ITO vs. Sri Varadaraja Textiles (P.) Ltd. (1984) 9 ITD 469 (Mad).
According to Mr. Dastur, the provision was introduced by the Finance Act, 1987, with retrospective effect from 1st April, 1983 and the non-consideration of S. 44BB to these assessment years constituted an error apparent from the record. Mr. Dastur submitted that at any rate, after the opinion of the Attorney General which was also followed by the CBDT in its Circular there can be no debate on the question and, therefore, the CIT(A) was right in directing the ITO to apply the provisions of S. 44BB in computing the income for these years.
5. On a consideration of the rival contentions and on a perusal of the contracts and the relevant statutory provisions, we are of the view that the orders of the CIT(A) for all the years have to be upheld. So far as the asst. yrs. 1983-84, 1984-85 and 1986-87 are concerned, there can be no dispute regarding the proposition that the non-consideration of the provisions of S. 44BB constitutes a mistake apparent from the record and the ITO not having applied the same to the assessments must be directed to rectify the assessments by applying the said section. It is no doubt true that while completing the assessments, the provisions of S. 44BB were not in the statute. That section was introduced into the IT Act only by the Finance Act, 1987, but with retrospective effect from 1st April, 1983. After the judgment of the Supreme Court in M.K. Venkatachalam, ITO vs. Bombay Dyeing & . (supra) there can be no dispute that a retrospective amendment can give rise to an action on the ground that the failure to apply the provision gave rise to a mistake apparent from the record. The principle is well established that full effect must be given to a statutory fiction and it should be carried on to its logical conclusion. Applying this principle it is the amended law which must be held to have been in force at the time that the order sought to be rectified was passed. The assessment orders for these years were made at a time when S. 44BB was not in the IT Act. The section was given retrospective effect from 1st April, 1983. Therefore, it is as if the assessment orders were made overlooking or ignoring the provisions of S. 44BB. Therefore, the assessee was justified in applying for rectification of the assessments on the strength of S. 44BB.
6. In passing, it may be stated that the ITO did not object to the applications under S. 154 on the ground that there was no mistake apparent from the record. He has rejected the applications on the merits following his decision in the assessment for the asst. yr. 1987-88. We will, therefore, proceed to an examination of the merits of assessees claim that its income should be computed in accordance with S. 44BB. Sec. 44BB provides that in the case of an assessee being a non-resident which is engaged in the business of providing services or facilities in connection with the extraction or production of mineral oil, its profit and gains from such business shall be equal to 10% of the amounts received by it. Under the Explanation below the section, mineral oil includes petroleum and natural gas. There is a proviso to S. 44BB(1) which says that this computation of the business income is not available if the income consists of fees for technical services, in which case S. 115A will apply. Under S. 115A, special rates of income-tax are prescribed in the case of foreign companies. If the income of the foreign company - the present assessee is indisputedly a foreign company - consists of fees for technical services in terms of an agreement made after 31st March, 1976, such fees will be subjected to tax @ 40% for the assessment years prior to 1987-88 and @ 30% on and from the asst. yr. 1987-88. Under S. 44D(b) if the income of the foreign company is computed in accordance with S. 115A, there will be no deduction in respect of any expenditure or allowance and the gross income by way of fees for technical services will be taxed at the special rates. The Explanation in S. 115A defines fees for technical services as it has been defined in S. 9(1)(vii), Expln. 2. Under Explanation 2 to S. 9(1)(vii), fees for technical services means any consideration including lump-sum consideration for rendering managerial, technical or consultancy service, including the rendering of services of technical or other personne. It is expressly stated in the latter part of the Explanation that the fees for technical services will not include consideration 'for any construction, assembly, mining or like project' undertaken by the assessee. If the case of the assessee falls within the main provision of sub-s. (1) of S. 44BB it is entitled to have its assessment made thereunder and 10 per cent, of the receipts will be subjected to income-tax at the normal rates. If the case is covered by the proviso thereto, the assessee will be taxed at the special rates under S. 115A. We have to necessarily find out whether the assessee is engaged in the business of providing services or facilities or supplying plant and machinery in the extraction or production of mineral oil. A perusal of the contracts in the present case indicates that all the incidents that are generally attached to the carrying on of a business are present. The contracts are for conducting wireline services for the exploratory wells of ONGC and OIL. The assessee has the requisite expertise, experience and technical know-how in respect of conducting such services. It is useful to refer to the assessees letter written to the ITO in the course of the assessment for the asst. yr. 1987-88 explaining the nature of the work. The scope of the work required by the assessee is to provide the wire logging services to ONGC and OIL. The work is executed by the assessee with the help of wire logging equipment and tools and personnel to operate the same. The function of wire logging unit is to measure, record and log geological and geographical characteristic of the oil well by lowering and electric equipment at the end of electric cable into the well. The equipment measures the porosity, density, responsibility, conductivity, etc. of the oil and helps in determining the possibility of finding mineral oil or natural gas from the well. The assessees income consists of a monthly rental charge for the equipment and the tools and monthly charges for the crew provided to operate the equipment. The ITO has taken the view that the assessee is to render detailed and sophiscated services to ONGC and OIL. The assessee also provides technical personnel who operate the equipment. Therefore, the ITO has taken the view that the work involves not men and materials but it involves the rendering of technical services, the receipt in respect of which by way to fees has to be charged at the special rates under S. 115A r/w S. 44D(b) r/w Expln. 2 to S. 9(1)(vii). But this view of the ITO, in our opinion, has been rightly rejected by the CIT(A). The view of the CIT(A) requires to be upheld. The mere fact that the assessee is to supply the equipment as also the personnel to operate the equipment does not automatically mean that the assessee is rendering only technical services to ONGC and OIL. Sec. 44BB(1) speaks of a business of providing services or facilities in connection with extraction or production of mineral oil and natural gas. It also speaks of the business of supplying plant and machinery for hire to be used for such purposes. No materials or evidence have been brought on record by the ITO to indicate that the assessee is not engaged in such business or that the activities in which the assessee engages itself do not bear the incidents of business. The preamble of the agreements recites that the assessee possesses the requisite expertise, experience and technical know-how in conducting wireline services. Apparently, such expertise or experience is the result of a continuous course of activity in rendering such services to various persons engaged in the extraction of oil all over the world. The assessee having engaged itself continuously in the above activity, it must be stated to have engaged itself in such business. Its business is the provision of the facility or service of rendering wireline services and also the provision of personnel to operate wire logging equipment. There is nothing in the agreements to show that such that rendering of the services has not been undertaken by the assessee as part of its business activity. The ITO has relied upon the fact that the assessee is rendering technical services and, therefore, the income represents fees for technical services. There is difficulty in accepting this view. The income can be earned by rendering the services continuously and such services may also include technical services of the type rendered by the assessee. That does to mean that the assessees case is taken out from the main provision of sub-s. (1) of S. 44BB. The enquiring in cases of the present type, in our opinion, has to be whether the services or facilities are rendered or provided in such a manner as to constitute a business. The very fact that S. 44BB(1) also speaks of rendering of services shows that it cannot be stated that merely because the assessee has rendered some technical services the income arising therefrom must be treated only as fees for technical services taxable under S. 115A at the special rates. As held by the Supreme Court in Lakshminarayan Ram Gopal & Sons Ltd. vs . Government of Hyderabad : [1954]25ITR449(SC) , the activities which constitute carrying on business need not necessarily consist of activities by way of trade, commerce or manufacture or activities in the exercise of a profession or vocation. Such activities may even consist of rendering services to others which services may be of a variegated character.
7. This necessarily takes us to the question as to what are the types of cases which would fall within the proviso to S. 44BB(1). The function of a proviso is to carve out an exception from the earlier part of a section which but for the proviso would have fallen within the scope of the earlier part of the section. A proviso cannot be construed as enlarging the scope of the main section. The proviso has to be read in the present case with the exclusionary part Expln. 2 to S. 9(1)(vii). In that Explanation it is clearly provided that any consideration received for any mining or like project will not be treated as fees for technical services. Reading sub-s. (1) of S. 44BB together with the proviso thereto along with Expln. 2 to S. 9(1)(vii), it is clear that they operate on different fact-situations. While the main enactment, namely, sub-s. (1) of 44BB, speaks of a business in the provision of the services or facilities in connection with the extraction or production of mineral oil, there is no reference to any business in Expln. 2 to S. 9(1)(vii). Sec. 9(1)(vii), as is by now well known, embodies the 'source rule' in respect of fees for technical services. The emphasis in that provision introduced by the Finance Act, 1976 w.e.f. 1st June, 1976 is on the source of the income by way of fees for technical services. The income is considered as accruing or arising in India if the source from which it is derived is located in India. The person who is in receipt of the income may not be carrying on any business in India. It is to rope in the income received by such persons who had successfully avoided tax under the provisions which existed before 1st June, 1976 which was considered to be insufficient or ineffective, that the source rule was brought in the form of cl. (vi) and cl. (vii) of sub-s. (1) of S. 9. This will be clear if reference is made to the Circular of the Board explaining the source rule. In the Circular No. 202, dt. 5th July, 1976 (1976) 105 ITR 25, the definition of the words 'fees for technical services' as contained in Expln. 2 to S. 9(1)(vii) has been explained by the Circular as under :
'16.3 'The expression 'fees for technical services' has been defined to mean any consideration (including any lump sum consideration) for the rendering of managerial, technical or consultancy services, (including the provision of services of technical or other personnel). It, however, does not include fees of the following types, namely :-
(i) Any consideration received for any construction, assembly, mining or like project undertaken by the recipient. Such consideration has been excluded from the definition on the ground that such activities virtually amount to carrying on business in India, for which considerable expenditure will have to be incurred by a non-resident and accordingly it will not be fair to tax such consideration in the hands of a foreign company on gross basis or to restrict the expenditure incurred for earning the same to 20 per cent. of the gross amount as provided in new S. 44D of that Act. Consideration for any construction, assembly, mining or like project will, therefore, be chargeable to tax on net basis, i.e., after allowing deduction in respect of costs and expenditure incurred for earning the same and charged to tax at the rates applicable to the ordinary income of the non-resident as specified in the relevant Finance Act.
(ii) Consideration which will be chargeable to tax in the hands of the recipient under the head 'Salaries'.
16.4 The aforesaid amendment has come into force w.e.f. the 1st June, 1976 and will apply in relation to the asst. yr. 1977-78 and subsequent years [S. 4(b) (Part) of the Finance Act].'
From the above Circular it will be clear that the legislature while introducing Expln. 2 to S. 9(1)(vii) had in mind only those non-residents who did not carry on any business as such in India but were merely in receipt of the income by way of fees for technical services. This is exactly why the later part of the Explanation excludes from the purview of the definition, any income represented by consideration for any mining or like project in India which would necessarily involve the incurring of expenditure, setting up of various operations in India, deployment of men and material and considerable organisation and establishment. For some time such expenditure was regulated by S. 44D of the Act. Only the Finance Act, 1987, introduced S. 44BB with retrospective effect from 1st April, 1983. If regard is had to the position and the background set out above, it will be clear that if the activities engaged in by the non-resident assessee in India constitute a business of the nature prescribed in S. 44BB(1), the income from such activity can never be characterised as fees for technical services taxable at the special rates under S. 115A. This is what we mean when we say that the substantive part of S. 44BB(1) and the proviso thereto operate on different fact situations.
8. The various Tribunals orders to which Mr. Dastur invited our attention and the opinion of the Attorney General on a reference made to him by the CBDT are clearly of the opinion that prospecting of mineral oil and natural gas falls within the words 'mining or like project' appearing in the later part of the Explanation. The assessee has supplied wire logging equipment and personnel to operate the equipment to ONGC and OIL. The equipment was supplied only for the purpose of being used in the onshore exploratory wells. The opinion of the Attorney General dt. 13th May, 1990 on the question whether petroleum and natural gas are mineral oils and whether the activity of prospecting for or extraction of the same can be called a mining activity is clearly in favour of the assessee. The Attorney General is of the opinion that petroleum and natural gas are mineral oils and, therefore, they are minerals and mines and consequently would fall within the expression 'mining' as contemplated by Expln. 2 to S. 9(1)(vii). We may add that Expln. to S. 44BB itself defines mineral oil as including petroleum and natural gas. The Attorney General has also opined that even assuming that the operations carried out by the assessee do not directly relate to mining they relate to a project similar to mining which can called 'like project' within the meaning of Expln. 2 to S. 9(1)(vii). Therefore, any consideration received for carrying out such operation which is either a mining project or a like project must be considered to fall outside the definition of the words 'fees for technical services' as contained in that Explanation and consequently outside the provisions of S. 115A.
9. In Circular No. F. No. 500/6, dt. 22nd Oct., 1990, the CBDT specifically referred to the opinion of the Attorney General and held as under :
'In view of the above opinion, the consideration for such services will not be treated as fees for technical services for the purpose of Expln. 2 to S. 9(1)(vii) of the IT Act, 1961. Payments for such services to a foreign company, therefore, will be income chargeable to tax under the provisions of S. 44BB of the IT Act, 1961 and not under the special provisions for the taxation of fees for technical services contained in S. 115A r/w 44D of the IT Act, 1961.'
After the above Circular based on the opinion of the Attorney General the matter is clearly put beyond doubt and any assessment made without giving effect to the provisions of S. 44BB in the case of the assessees, such as the present one, would be against the statute itself. Those assessments cannot be upheld. The CIT(A) is, therefore, right in his opinion that for all the assessment years the income of the assessee has to be computed in accordance with S. 44BB(1).
10. For the aforesaid reasons we are of the opinion that the conclusion of the CIT(A) for all the assessment years under appeal is unexceptionable and requires to be upheld. We do so and dismiss the appeals filed by the Revenue.