2009 (12) TMI 5 - AAR - Income Tax

Non Resident - offshore seismic data acquisition and other associated services to global oil companies - . This data is collected on large storage tapes and then interpreted/processed by specialist professionals with the help of specialized equipments (computers and software) to present the subsurface data in a manner that it can help geologists draw conclusions about the existence of potential hydrocarbons in the area. Seismic surveys can paint a picture of the subsurface in order to better target oil and gas reserves. This results in fewer dry holes and even avoids drilling if seismic data suggests a low potential for oil and gas. held that - . On the whole, it appears to us that the transaction falls more appropriately under the second limb of sub-section (1) of Section 44BB rather than the first limb income to be computed u/s 44BB rate of withholding tax is 4.223% - once provision of section 44BB are attached, provisions of section 44DA and 115-A can not be applied

Summary

Issues Involved:
1. Applicability of Section 44BB of the Income-tax Act, 1961.
2. Rate of tax to be withheld under Section 44BB.
3. Computation of income under Section 44BB versus Double Taxation Avoidance Agreement (DTAA).
4. Classification of consideration as 'Royalty' under Section 9(1)(vi) of the Act.
5. Classification of consideration as 'Fees for technical services' under Section 9(1)(vii) of the Act.

Issue-wise Detailed Analysis:

1. Applicability of Section 44BB of the Income-tax Act, 1961:
The applicant, a marine geophysical company, entered into a contract with ONGC for seismic data acquisition offshore India. To execute this contract, the applicant hired a chase vessel from PF Thor. The main issue was whether the income derived by PF Thor should be computed under Section 44BB, which provides for presumptive taxation for non-residents supplying plant and machinery on hire for prospecting or extracting mineral oils. The ruling concluded that the second limb of Section 44BB(1) was applicable as the chase vessel was integral to the seismic survey operations, which are essential for oil prospecting. The vessel was considered to be hired for this purpose, thus satisfying the requirements of Section 44BB.

2. Rate of tax to be withheld under Section 44BB:
It was determined that the effective rate of tax to be withheld from payments made by the applicant to PF Thor, as per Section 44BB read with Part II of the First Schedule to the Income Tax Act, would be 4.223%. This was not disputed by the parties involved.

3. Computation of income under Section 44BB versus Double Taxation Avoidance Agreement (DTAA):
The ruling did not provide a specific answer to this issue as the contentions were confined to the provisions of the Income-tax Act, 1961, and not the DTAA. Therefore, no further analysis was deemed necessary for this question.

4. Classification of consideration as 'Royalty' under Section 9(1)(vi) of the Act:
The ruling stated that the amounts falling under Section 44BB are excluded from the purview of the 'royalty' definition under Section 9(1)(vi). Therefore, the consideration for services provided by PF Thor could not be construed as 'Royalty'. This question was answered in the negative.

5. Classification of consideration as 'Fees for technical services' under Section 9(1)(vii) of the Act:
Given that Section 44BB was applicable and the computation had to be made in accordance with that provision, it was unnecessary to address whether the consideration could be classified as 'Fees for technical services' under Section 9(1)(vii).

Conclusion:
The ruling concluded that the income derived by PF Thor should be computed under Section 44BB of the Income-tax Act, 1961, with the effective tax rate being 4.223%. The amounts were not considered 'Royalty' under Section 9(1)(vi), and it was unnecessary to classify them as 'Fees for technical services' under Section 9(1)(vii). The ruling was pronounced on December 21, 2009.