2012 (5) TMI 111 - AAR - Income Tax

Contract for services for supply, installation and commissioning of 36 manometer gauges with ONGC - Held that - On a proper reading of the Invitation to Tender and the contract entered into it is a contract for installation of equipment which the tenderer itself is to supply - it is an indivisible contract - the object in floating the tender is in furtherance of oil extraction - all payments received by the applicant under the composite contract with ONGC is income chargeable to tax in India - The contract cannot be treated as an independent one for offshore supply of 36 manometer gauges and another one for erection of it against assessee. Part of the payment towards price of the manometer gauges cannot be considered divorced from the payments received for the performance of entire obligations under the contract. Payment received by the applicant for installation, erection and commissioning of the manometer gauges Held that - The contract of services for supply, installation and commissioning of manometer gauges is chargeable to tax under section 44BB of the Act, if it is found that the contract is for providing services or facilities in connection with prospecting for, or extraction of mineral oil the services are rendered in connection with the prospecting and / extraction of oil by ONGC, hence section 44BB of the Act is attracted - against assessee.

Summary

Issues:
1. Taxability of amounts received under the contract for offshore supply of manometer gauges.
2. Determination of taxable income rate and portion for offshore supply of manometer gauges.
3. Taxability of amounts received for installation, erection, and commissioning of manometer gauges under Section 44BB of the Income-tax Act.

Analysis:

Issue 1: Taxability of amounts received for offshore supply of manometer gauges
The applicant argued that the transaction was an offshore supply contract, with goods passing and payment received outside India, thus not taxable in India. Citing relevant legal precedents, the applicant contended that the income did not accrue or arise in India. However, the Authority emphasized the need to consider the transaction as a whole, following the recent Supreme Court judgment in Vodafone International Holdings BV Netherlands vs. Union of India. The Authority concluded that the contract was for erection and commissioning of gauges in India, and income accrued in India, ruling all payments received under the contract as taxable in India.

Issue 2: Determination of taxable income rate and portion for offshore supply of manometer gauges
As the first issue was ruled against the applicant, the second question regarding the rate and portion of taxable income for offshore supply did not arise for consideration.

Issue 3: Taxability of amounts received for installation, erection, and commissioning under Section 44BB
The Authority determined that the contract for services related to the supply, installation, and commissioning of manometer gauges fell under the purview of Section 44BB of the Income-tax Act. Since the services were provided in connection with oil prospecting/extraction by ONGC, the payment received for these services was deemed taxable under Section 44BB. Therefore, the ruling pronounced on May 7, 2012, confirmed the taxability of payments received for installation, erection, and commissioning of manometer gauges under Section 44BB of the Act.

This comprehensive analysis of the judgment provides a detailed overview of the issues involved and the Authority's reasoning behind the rulings delivered in the case.