2011 (3) TMI 111 - AAR - Income Tax

Under section 44BB - Computation of income - The applicant is a non-resident assessee - It has entered into a contract with ONGC as well as Cairn Energy to conduct seismic survey and data acquisition activities - It has specialization for identifying the surface of the ocean for tapping gas and oil reserves - The seismic data (in processed form) is used to create highly accurate images of the earth s sub-surface which in turn are used by the exploration and production companies for locating potential oil and gas reserves based upon the geology observed - Held that the income derived by the applicant under the contracts with ONGC and Cairn Energy is to be computed by applying the provisions of section 44BB of the Act.

Summary

Issues:
1. Interpretation of section 44BB of the Income-tax Act, 1961 regarding the computation of income derived from contracts with Oil and Natural Gas Corporation Limited (ONGC) and Cairn Energy India Pty Limited.

Analysis:
The judgment by the Authority for Advance Ruling involved the interpretation of section 44BB of the Income-tax Act, 1961 concerning the computation of income derived by a non-resident company from contracts with ONGC and Cairn Energy India Pty Limited. The applicant, a non-resident company engaged in seismic data acquisition and processing for exploration companies, sought clarification on whether its income should be computed under section 44BB of the Act. The applicant had entered into contracts with ONGC and Cairn Energy for seismic data acquisition activities in India. The Authority analyzed the nature of the applicant's services, which were crucial for prospecting mineral oils, and concluded that the activities fell within the scope of section 44BB, which applies to non-residents providing services related to the prospecting for mineral oils.

The Authority highlighted that seismic data acquisition plays a vital role in identifying oil and gas reserves, making it an integral part of the exploration process. Referring to previous rulings, the Authority emphasized that geophysical services directly contribute to prospecting and exploration activities of oil and gas enterprises. The judgment cited cases such as Geofizyka Torun SP. Z. O. O., Wavefield Inseis ASA, and Seabird Exploration FZ LLC, where similar views were upheld, supporting the application of section 44BB for computing income derived from such services. The Authority noted that the applicant had already offered its income for taxation but sought the application of section 44BB for computation, aligning with the consistent interpretation by the Authority in similar cases.

Based on the precedents and the nature of the applicant's services, the Authority ruled in favor of applying section 44BB for computing the income derived by the applicant from the contracts with ONGC and Cairn Energy. The judgment affirmed that the activities undertaken by the applicant, which involved seismic data acquisition and interpretation for oil and gas exploration companies, fell within the purview of section 44BB, emphasizing the direct relevance of such services to prospecting for mineral oils. The ruling was delivered on March 15, 2011, affirming the application of section 44BB for computing the applicant's income under the contracts with ONGC and Cairn Energy.