2013 (1) TMI 477 - HC - Income Tax

Addition taking recourse to Special provision for computing profits and gains in connection with the business of exploration, etc., of mineral oils - nexus between the services rendered in India and administrative and support services provided outside India Agreement No. 70711 entered during the period of fabrication, outfitting and manufacturing of load out platform for Tapti and Panna field development - Held that - Merely because the agreement in question was entered at the time when the fabrication activity for Tapti and Panna was going on, it could not be contended that the agreement related or the subject matter thereof was for the fabrication of Tapti and Panna field development. As aforesaid, independently also, it could not be established that the said agreement had any nexus with the activities for construction of Tapti and Panna field development. That being the situation, income derived from the said agreement, entered outside India, for providing administrative and support services outside India and, in respect whereof, remuneration has been received outside India, will not come within Section 5(2) r.w.s.9(1)(i) accordingly, is not taxable in India.

Summary

Issues: Taxability of income derived from a contract entered into outside India for providing administrative and support services outside India.

Analysis:
1. The respondent assessee executed various contracts with Indian companies during the relevant year and received payments. The assessee filed its return, offering to pay tax computed under Section 44BB of the Act for the payments received. One of the contracts was with Enron Oil and Gas India Ltd., under which the assessee received US $55,983 for providing services at Jebel Ali, outside India. The Assessing Officer included this amount as taxable income under Section 44BB, but the Tribunal reversed this decision.

2. The Tribunal found that the assessee, a non-resident company, entered into a contract with an Indian company to provide administrative and personnel support outside India. The payment received under this contract was also outside India. The Tribunal observed that there was no direct nexus between the services provided in India and the administrative support services outside India. Therefore, the Tribunal held that the income from this contract did not fall under the provisions of Section 5(2) and Section 9(1)(i) of the Act, making it not taxable in India.

3. The contract in question, Agreement No. 70711 dated 15th August, 1995, was not presented before the court. However, the findings of the Tribunal regarding the contract were not disputed by the appellant's counsel. It was clarified that the contract did not involve providing administrative or support services for the fabrication of the load-out platform for Tapti and Panna field development. The timing of the contract did not establish a connection to the fabrication activities. Therefore, the income derived from this agreement, involving services provided and remuneration received outside India, was deemed not taxable in India under Section 5(2) and Section 9(1)(i) of the Act.

4. In conclusion, the High Court dismissed the appeal, affirming that the income derived from the contract entered outside India for providing administrative and support services outside India was not subject to taxation in India as it did not meet the criteria under the relevant sections of the Act.