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2011 (7) TMI 103 - AAR - Income TaxDTAA between India and Norway - Applicability of section 44BB - Royalty or fees for technical service - The consortium agreement between the applicant and the others was recognized by ONGC since the payments were to be made direct by ONGC to the applicant and the other three companies for the work done by each one of them - It has taken up the stand that the receipts of the applicant are covered under section 9(1)(vii) of the Income-tax Act, being fees for technical services and the applicant was not liable to be taxed under section 44BB of the Act especially in the context of the proviso thereto - Same is the position with regard to the claim of the applicant that the service tax received by it and made over by it to the Government, cannot be treated as part of its income under section 44 BB of the Act especially in terms of the contract by which the liability to pay service tax was on ONGC - since there is no case that ONGC is not involved in prospecting, exploration and extraction of oil and the services being provided by the applicant are services in connection with that activity whether in view of the developments that took place after 1st January, 2010, the income of the applicant should be assessed only in the context of Article 25 of the India-Norwegian Treaty - No dispute is raised by the Revenue regarding the claim of the applicant that though the company was registered in Cayman Islands the managerial control over it passed to Norway when the applicant got listed in the Oslo Stock Exchange - tax liability of the applicant to be taxed in India is governed by Article 23(4) of DTAA read with its non-obstante clause fixing the limit. This would be the position from 1st January 2010 the amount collected as Service Tax by the applicant to be made over to the State, cannot be treated as consideration for the service rendered by the applicant to ONGC - The consideration fixed under the contract between the parties as the sum to be paid has to be taken as the amount based on which the fictional income has to be ascertained - The very object of introducing the fiction, namely, to avoid all complications in determining the liability of an assessee coming under that provision otherwise, would itself be defeated, if an exercise is to be undertaken in each case to ascertain the liability of an assessee as if in the course of a regular assessment. Such an exercise is not warranted or permissible on the scheme of section 44BB of the Act - Held that service tax said to be included in the consideration received by the applicant from ONGC must also go into computation while calculating the consideration for the service or facility provided by the applicant under section 44BB of the Income-tax Act or Article 23(4) of the India-Norway DTAA - Ruling is given
Issues Involved:
1. Applicability of Section 44BB of the Income-tax Act, 1961. 2. Classification of income as "fees for technical services" under Section 9(1)(vi)(iva). 3. Taxability under Article 23 of the India-Norway Double Taxation Avoidance Agreement (DTAA) post-January 2010. 4. Exclusive taxability in Norway under Article 23 of the DTAA. 5. Notional income calculation at 7.5% under Article 23(4) of the DTAA. 6. Beneficial tax rate under the Proviso to Clause (4) of Article 23 of the DTAA. 7. Continued applicability of Section 44BB if the DTAA benefits are not applicable. 8. Inclusion of service tax in gross receipts under Section 44BB. Detailed Analysis: 1. Applicability of Section 44BB of the Income-tax Act, 1961: The applicant, a company incorporated in the Cayman Islands, engaged in providing Sea Logistics Services, formed a consortium to bid for a contract with ONGC. The services provided by the applicant included transportation of cargo, materials, and personnel to offshore rigs, ensuring marine logistics support, and other related activities. The Authority ruled that the income derived by the applicant from these activities falls under Section 44BB, which deals with services or facilities in connection with the extraction or production of oil, a mining activity. The income does not qualify as "fees for technical services" under Section 9(1)(vii), thus excluding the applicability of the proviso to Section 44BB. 2. Classification of income as "fees for technical services" under Section 9(1)(vi)(iva): The Revenue argued that the applicant's income should be classified as fees for technical services under Section 9(1)(vii) and not under Section 44BB. However, the Authority found that the applicant's responsibilities, such as transportation and logistics support, did not involve providing technical services. Therefore, the income is not classified as fees for technical services, and Section 44BB is applicable. 3. Taxability under Article 23 of the India-Norway Double Taxation Avoidance Agreement (DTAA) post-January 2010: Post-January 2010, the applicant claimed tax residency in Norway, supported by a tax residency certificate. The Authority accepted this claim and ruled that the income derived by the applicant is taxable under Article 23 of the India-Norway DTAA. The applicant's income from services rendered in India is liable to be assessed under Section 44BB of the Income-tax Act until January 2010 and under Article 23 of the DTAA thereafter. 4. Exclusive taxability in Norway under Article 23 of the DTAA: The applicant argued that post-January 2010, its income should be taxed exclusively in Norway. However, Article 23(4) of the DTAA allows India to tax the income, with Norway providing a deduction for the tax paid in India. Thus, the income is taxable in India, but the tax rate is limited as per the DTAA provisions. 5. Notional income calculation at 7.5% under Article 23(4) of the DTAA: Article 23(4) of the DTAA prescribes that the notional income for taxation should be 7.5% of the sums receivable. This provision overrides the 10% stipulated by Section 44BB. Additionally, the tax imposed should be 50% of the tax otherwise applicable in India. Therefore, from January 2010, the applicant's income is taxed at 7.5% of the gross receipts, with the tax rate being 50% of the applicable rate for foreign companies. 6. Beneficial tax rate under the Proviso to Clause (4) of Article 23 of the DTAA: The Authority confirmed that the applicant is entitled to the beneficial tax rate of 50% of the rate applicable to foreign companies in India, as per the Proviso to Clause (4) of Article 23 of the DTAA. 7. Continued applicability of Section 44BB if the DTAA benefits are not applicable: The Authority ruled that if the benefits of Article 23 of the DTAA are not applicable post-January 2010, the applicant would continue to be governed and taxed under Section 44BB of the Income-tax Act. 8. Inclusion of service tax in gross receipts under Section 44BB: The applicant argued that service tax collected from ONGC should not be included in the gross receipts for taxation purposes. However, the Authority held that under Section 44BB, the fictional income is calculated based on the total amount paid or payable for the services rendered. The service tax, being part of the consideration received, must be included in the gross receipts for calculating the taxable income. Conclusion: The Authority ruled that the applicant's income is taxable under Section 44BB of the Income-tax Act until January 2010 and under Article 23 of the India-Norway DTAA thereafter. The service tax collected must be included in the gross receipts for taxation purposes. The applicant is entitled to the beneficial tax rate as per the DTAA provisions.
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