2011 (5) TMI 14 - 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 or only revenues attributable to distance traveled in India under seismic data acquisition contracts.

Analysis:

Issue 1:
The applicant sought an advance ruling on whether revenues earned under seismic data acquisition contracts in India are taxable under section 44BB of the Income-tax Act at an effective tax rate of 4.223%. The revenue contended that the services provided by the applicant fall under Explanation 2 to section 9(1)(vii) of the Act, and thus, the income should be computed under Section 44DA due to the presence of a Permanent Establishment in India. However, the Authority referred to a previous case and held that if the business falls under the specific nature envisaged under section 44BB, the computation provision in that section would prevail over section 44DA. Therefore, the revenue's argument was dismissed, and it was affirmed that section 44BB would apply to the applicant's income from seismic data acquisition services in India.

Issue 2:
Regarding the taxability of mobilization/demobilization revenues under seismic data acquisition contracts, the applicant argued that such revenues should only be taxable in India if they are chargeable under the Act. The Authority clarified that once an assessee opts for section 44BB(1) of the Act, the profits and gains are deemed as 10% of the total amount paid or payable to the assessee on account of services in India. Splitting up the amount payable is not permissible unless the assessee chooses section 44BB(3). The Authority emphasized that if the applicant desires to know which part of its income accrues in India, it must opt for computation under section 44BB(3) exclusively. Consequently, the ruling stated that the entire mobilization/demobilization revenues received by the applicant under seismic data acquisition contracts would be taxable in India at an effective rate of 4.223%.

In conclusion, the Authority provided a detailed analysis and ruling on the taxability of revenues earned under seismic data acquisition contracts in India under section 44BB of the Income-tax Act, as well as the tax treatment of mobilization/demobilization revenues in such contracts.