2012 (8) TMI 280 - AAR - Income Tax

India UAE DTAA - contract with the UAE Company for seismic data acquisition on Cauvery and Krishna Godavari basin - can the income derived by the applicant be construed in the nature of Fees for technical services‟ u/s 9(1)(vii) - Held that - The applicant is engaged in the business of providing services or facilities in connection with the prospecting for oil but clearly the applicant cannot be said to have undertaken a mining or like project or the work of prospecting for extraction or production of mineral oil, therefore, satisfied that the exception contained in Explanation (2) to section 9(1)(vii) of the Act is not attracted in the case of the applicant -Since the consideration received by the applicant is for rendering technical or consultancy services, on question no. 1, it has to be ruled that the income derived by the applicant has to be construed to be in the nature of fees for technical services‟ in terms of section 9(1)(vii). Whether the consideration received by the applicant has to be deemed to be royalty‟ under section 9(1)(vi) - as the Revenue itself in its objection suggested that the consideration received would be fees for technical services to be dealt with as such in this state it no ruling on this question required. Whether the income derived by the applicant from the contract from UAE company is liable to be assessed under section 44BB(1) - Held that - The income derived by the applicant is from a UAE company and not from the Government or an Indian concern - On the wording of section 44D, 44DA, or 115A the income cannot be brought within their purview, because they only speak of income by way of fees for technical services received from Government or an Indian concern, thus contention of the Revenue that the income derived by the applicant is independently assessable under section 115A or 44DA has to be rejected - as income derived by the applicant is from an activity of mineral oils and from a foreign company, the applicant would be entitled to claim to be assessed under section 44BB(1).

Summary

Issues: Determination of withholding tax rate under the Income-tax Act for a UK company's income derived from providing services to a UAE company for seismic data processing.

Analysis:
1. The applicant, a UK company, provided services to a UAE company for processing seismic data acquired by the UAE company for ONGC. The applicant sought a ruling on the withholding tax rate under the Income-tax Act. The Authority for Advance Rulings allowed the application to render rulings on whether the income derived could be considered "fees for technical services" or "royalty" under the Act, and if it should be computed under Section 44BB.

2. The applicant argued that the services provided were not fees for technical services under Section 9(1)(vii) due to an exception in Explanation (2) as they were related to oil exploration. The Revenue contended that the applicant's income constituted fees for technical services and not covered by Section 44BB(1) as the applicant was a sub-contractor. The Authority ruled that the exception did not apply, and the income was deemed "fees for technical services" under Section 9(1)(vii).

3. The second question on whether the income could be deemed "royalty" was not ruled upon due to lack of arguments. The Authority left this question open based on the ruling regarding technical services income.

4. Regarding the third question, the applicant contended that the income should be assessed under Section 44BB(1) as it was in connection with oil prospecting. The Revenue argued that technical services were excluded from Section 44BB(1) if covered by other sections. The Authority clarified that income from a foreign company for oil prospecting services could not be assessed under Section 44D, 44DA, or 115A, and ruled that it should be computed under Section 44BB(1) of the Act.

5. The ruling was pronounced on August 1, 2012, confirming that the applicant's income derived from providing services to the UAE company should be computed in accordance with the provisions of Section 44BB(1) of the Income-tax Act.