2004 (9) TMI 651 - AT - Income Tax

Summary

Issues Involved:
1. Applicability of Notification G.S.R. 304(E), dated March 31, 1983.
2. Taxability of activities performed by the assessee in India under section 44BB of the Income-tax Act.
3. Attribution of income for operations carried out outside India.

Issue-wise Detailed Analysis:

1. Applicability of Notification G.S.R. 304(E), dated March 31, 1983:
The assessee argued that the services rendered are not covered by Notification G.S.R. 304(E), which pertains to activities related to the prospecting for, extraction, or production of mineral oils in the continental shelf or exclusive economic zone of India. The notification also includes the provision of services or facilities or supply of equipment in connection with such activities. The assessee contended that their activities of designing, fabrication, construction, and installation of platforms, decks, pipelines, etc., do not fall under these categories. The Tribunal agreed, noting that the assessee is not engaged in exploration or production of mineral oil nor in providing services/facilities connected to such activities.

2. Taxability of activities performed by the assessee in India under section 44BB of the Income-tax Act:
The Assessing Officer and the Commissioner of Income-tax (Appeals) held that the assessee's activities fall under section 44BB, which deals with the taxation of non-residents providing services or facilities in connection with the prospecting for or extraction or production of mineral oils. Section 44BB deems 10% of the aggregate amounts received by the non-resident as profits and gains chargeable to tax. However, the Tribunal found that the assessee's activities as a sub-contractor do not have a direct nexus with the prospecting for, extraction, or production of mineral oils. Therefore, section 44BB does not apply to the assessee's income from such contracts.

3. Attribution of income for operations carried out outside India:
The assessee argued that only a part of the income attributable to operations carried out in India should be taxable, as per the Explanation to section 9(1)(i) of the Income-tax Act. This section states that in cases where not all business operations are carried out in India, only the income reasonably attributable to operations in India shall be deemed to accrue or arise in India. The Tribunal agreed with the assessee, stating that only the portion of income related to mobilization/demobilization work carried out in India is taxable. The Tribunal also noted that the Central Board of Direct Taxes (CBDT) Circular/Instruction No. 1766 supports this view, indicating that only 1% of the gross receipts from work carried out outside India should be attributed to activities in India.

Conclusion:
The Tribunal concluded that the services rendered by the assessee are not covered by Notification G.S.R. 304(E), dated March 31, 1983. Only the part of the mobilization/demobilization work attributable to operations in India is taxable in India. The order of the Commissioner of Income-tax (Appeals) was canceled, and the appeal of the assessee was allowed.