ITAT Delhi U/s 44BB Receipts via Foreign Entity From Software Services In India Not Taxable If Absence of PE

Delhi ITAT ruled that receipts from software services provided by a foreign entity to Indian oil companies, resembling business profits, are not taxable in India in the absence of a Permanent Establishment (PE) during the relevant Assessment Years (AYs). Section 44BB of the Income Tax Act provides a unique provision for calculating the taxable income of a non-resident taxpayer engaged in providing services related to mineral oil exploration. \r

The Division Bench, comprising G.S. Pannu and Astha Chandra, emphasized that the taxpayer, a Canadian resident company, is governed by the more beneficial provisions of the India-Canada DTAA due to the absence of a PE in India. The AO's notice, issued under Section 148, contended that the taxpayer's income should be calculated under Section 44BB, resulting in a 10% tax on the receipts. \r

However, the bench, relying on the jurisdictional High Court rulings, held that the presence of a PE is a prerequisite for the application of Section 44BB. Since the taxpayer lacked a PE in India, the receipts were not subject to tax under Section 44BB. Consequently, the ITAT directed the AO to grant TDS credit and interest u/s 244A.