2011 (7) TMI 51 - AAR - Income Tax

Applicability of section 44BB - Whether on the stated facts and in law the income derived by BOA ought to be computed in accordance with the computation mechanism under section 44BB of the Act - There is no dispute that the applicant is engaged in the business of providing offshore oil and gas marine subsea services. It also offers range of offshore oil service vessels to global oil and gas industry - For the purposes of section 44BB of the Act, the vessels provided are covered under the definition of plant . The consideration received for supply of plant i.e. the vessels on hire when used in the prospecting for or extraction or production of oil and gas is covered under the special provision for computing profits and gains under section 44BB of the Act - The nature of receipts on account of provision of supply of vessels on hire basis cannot have the character of fees for technical services within the meaning of explanation 2 to section 9(1)(vii) - The rate at which tax is to be withheld from payments made by Transocean to BOA towards time charter of service vessels will be 4.22% - Decided in favour of the assessee

Summary

Issues:
1. Applicability of section 44BB of the Income-tax Act 1961 to income derived by the applicant.
2. Determination of the rate at which tax is to be withheld from payments made by Transocean to the applicant towards time charter of service vessels.

Analysis:

1. The applicant, a Singapore-based company, provides offshore service vessels to support drilling and marine operations. The vessels are hired by Transocean Offshore International Ventures Ltd. (TOIVL) in India for offshore drilling services to Oil and Natural Gas Corporation Ltd. The applicant argues that its services are integral to offshore drilling activities, falling under section 44BB of the Act. The applicant relies on a previous ruling by the Authority to support its claim that income derived from providing such vessels should be computed under section 44BB.

2. The applicant seeks an advance ruling on whether its income should be computed under section 44BB and, if so, at what rate tax should be withheld from payments by Transocean. The revenue authority argues that the applicant's services are technical in nature and should be taxed as fees for technical services under section 9(1)(vii) of the Act. However, the Authority determines that the applicant's services fall under section 44BB, not section 9(1)(vii), as they are essential for offshore drilling activities and not merely technical services.

3. The Authority clarifies that the vessels provided by the applicant are considered "plant" under section 44BB, and the consideration received for their use in oil and gas exploration is covered by the special provision for computing profits under this section. The distinction is made between business activities and technical services, with the ruling emphasizing that income related to services connected with oil exploration should be governed by section 44BB for computation purposes.

4. Ultimately, the Authority rules in favor of the applicant, stating that the income derived by the applicant should be computed under section 44BB of the Act. The rate at which tax should be withheld from payments made by Transocean to the applicant towards the time charter of service vessels is determined to be 4.22%. The ruling was pronounced on 12th July 2011 by the Authority for Advance Rulings.