2011 (5) TMI 13 - AAR - Income Tax

Advance ruling - Option between section 44BB(1) and 44BB(3) - Once an assessee opts to come under Section 44BB(1) of the Act, the provision itself deems its profits and gains as 10% of the aggregate of the amounts specified in sub-section (2). Sub-section 2 (a) specifies that that aggregate amount is the amount paid or payable whether in or out of India to the assessee on account of provision of services in India. In the scenario, there is no scope for splitting up the amount payable to the assessee. If the assessee wants to seek such a splitting up it has to go under section 44BB(3) of the Act. Section 44BB does not close its doors to an applicant who desires to know which part of its income accrues or arises in India and how much - The applicant can exercise its rights provided it opts to get the income computed under section 44BB(3) of the Act - The scheme of computation of income under this section does not provide any leeway to apply simultaneously both the sub-sections (1) and (3) of section 44BB to the income arising from the business activities falling under the ambit of sect ion 44BB(1) of the Act. seismic data acquisition and processing contracts - If a part of the income falls under Royalties or Fees for Technical Services , there is no scope to assess such receipts under these heads, once it is held that the income is from its oil exploration and production activities as envisaged under section 44BB - If the applicant desires to know the answers to the two issues, then it has to first exercise the option to get its income computed under section 44BB(3) Mobilization / demobilization revenues - the entire mobilization/demobilization revenues received by the applicant with respect to seismic data acquisition and/or processing contracts would be taxable in India at effective rate of 4.223% - Accordingly, ruling is given.

Summary

Issues:
1. Taxability of revenues earned under seismic data acquisition contracts in India under section 44BB of the Income-tax Act.
2. Taxability of entire mobilization/demobilization revenues received with respect to seismic data acquisition contracts in India.

Issue 1:
The applicant, a UK-based company, provides geophysical services to the oil and gas industry in India. The services involve conducting electromagnetic surveys and processing data for offshore oil exploration. The applicant seeks an advance ruling on whether the revenues earned under seismic data acquisition contracts in India are taxable under section 44BB of the Income-tax Act at a reduced rate. The Revenue argues that the services provided fall under Explanation 2 to section 9(1)(vii) and should be computed under a different section. However, the applicant relies on a previous ruling to support that section 44BB should prevail for services related to mineral oil exploration. The Authority agrees with the applicant, stating that section 44BB should apply for computing profits related to exploration activities, and that adopting a different interpretation would restrict the scope of the provision. Thus, the first issue is answered in the affirmative.

Issue 2:
The applicant also seeks a ruling on whether the entire mobilization/demobilization revenues received for seismic data acquisition contracts in India should be taxable or only the portion attributable to the vessel's journey in Indian waters. The applicant argues that income can only be taxed under section 44BB if it accrues or arises in India. It proposes excluding revenues related to the vessel's journey outside India from the computation under section 44BB. The Authority notes that once an assessee opts for section 44BB(1), the profits are deemed as a percentage of the total amount received for services in India, without scope for splitting the amount. It emphasizes that the applicant can opt for section 44BB(3) to determine income arising in India. Therefore, the Authority rules that the entire mobilization/demobilization revenues received with respect to seismic data acquisition contracts in India are taxable in India at the specified rate.

In conclusion, the Authority for Advance Rulings ruled in favor of the applicant on the taxability of revenues earned under seismic data acquisition contracts in India under section 44BB of the Income-tax Act. Additionally, it held that the entire mobilization/demobilization revenues received for such contracts in India are taxable in India, emphasizing the application of specific sections for computing profits related to exploration activities.