2018 (6) TMI 1227 - AT - Income Tax

Applicability of Section 44BB - AO denied the applicability of section 44BB in the draft assessment order on the ground that assessee had supplied the vessel to M/s. CGG Marine which was not a party to the production sharing contract with ONGC, instead he treated the entire receipt as royalty - interpretation of the so called second leg contract so as to deny the applicability of the section to the assessee - Held that - This Tribunal in assessee s own case for the Assessment Year 2007-08 has decided this issue in favour of the assessee and held that provision of Section 44BB would be applicable. Now this issue stands settled in the case of ONGC vs. CIT 2017 (10) TMI 322 - SUPREME COURT OF INDIA , wherein after analyzing the various kinds of contracts by different foreign companies with whom ONGC executed various contracts for services to be rendered in connection with prospecting, extraction or production of mineral oil by ONGC and after detail analysis and discussion, held that any activity relating to exploration, prospecting, extraction, production of mineral oil would be covered u/s.44BB. They have also taken note into account various kinds of works which has been set out in detail in the judgment. Here also the supplying of vessels for the said purposes is inextricably connected with the prospecting, production of mineral oil and therefore, the order of the learned DRP is in consonance with the judgment of the Hon ble Supreme Court, accordingly, the same is confirmed. - Appeal of revenue dismissed.

Issues:
1. Applicability of deemed profit rate under section 44BB on revenues earned from a non-resident company.
2. Taxability of amount received for provision of seismic survey vessels under global time charter contracts.
3. Eligibility of revenues earned on provision of seismic vessels under section 44BB.
4. Interpretation of provision of seismic vessels on hire to a non-resident company.
5. Distinction between receipts from Production Sharing Participants and Non-Production Sharing Participants.
6. Legislative intent behind the scheme of taxation under sections 9(1)(vi), 44DA, and 44BB.
7. Taxation of Royalty and Fee for Technical Services under section 44BB.
8. Special provisions for taxation of income in the nature of Royalties and FTS.
9. Conflict between sections 44BB and 9(1)(vi) read with sections 44DA and 115A.
10. Applicability of sections 44DA and 115A in cases of income received by a non-resident from another non-resident.
11. Interpretation of proviso to section 44BB in relation to Royalty income.
12. Nature and applicability of proviso to section 44DA introduced by the Finance Act 2011.

Analysis:
1. The appeal concerned the applicability of the deemed profit rate under section 44BB of the Income Tax Act on revenues earned from providing seismic survey vessels on hire to a non-resident company. The Revenue contested the direction given by the Dispute Resolution Panel (DRP) to apply the 10% profit rate under section 44BB. The issue revolved around whether the income from such activities should be taxed under section 44BB or as Royalty under section 9(1)(vi) read with sections 44DA and 115A. The DRP upheld the applicability of section 44BB, emphasizing the connection of the services provided with the prospecting for mineral oil.

2. The case also dealt with the taxability of the amount received for the provision of seismic survey vessels under global time charter contracts. The Revenue argued that the income should be treated as Royalty under section 9(1)(vi) and section 44DA. However, the DRP held that the income was eligible for treatment under section 44BB, considering the nature of services provided in connection with mineral oil prospecting.

3. The judgment addressed the eligibility of revenues earned on the provision of seismic vessels under section 44BB. The Tribunal referred to a previous decision in the assessee's own case for the Assessment Year 2007-08, where it was held that section 44BB would be applicable. The judgment further cited a Supreme Court decision in the case of ONGC vs. CIT, confirming that activities related to mineral oil exploration, prospecting, and production fall under the purview of section 44BB.

4. Another issue raised was the interpretation of providing seismic vessels on hire to a non-resident company not directly engaged in mineral oil prospecting. The DRP upheld the applicability of section 44BB, emphasizing the use of plant and machinery in mineral oil-related activities as the key requirement under the section.

5. The judgment also discussed the distinction between receipts from Production Sharing Participants and Non-Production Sharing Participants. It highlighted the importance of the nature of contracts and the connection of services provided with mineral oil activities in determining the tax treatment under sections 44BB and 9(1)(vi) read with sections 44DA and 115A.

6. The Tribunal delved into the legislative intent behind the taxation scheme under sections 9(1)(vi), 44DA, and 44BB, considering various judicial decisions and the specific provisions related to Royalty and Fee for Technical Services.

7. Additionally, the judgment addressed the taxation of Royalty and Fee for Technical Services under section 44BB, emphasizing the distinct scheme of taxation and the rationale behind the clarificatory provisos introduced in the Finance Bill 2010.

8. The Tribunal discussed the special provisions for the taxation of income in the nature of Royalties and FTS, emphasizing the interaction between specific provisions like section 44DA and general provisions under the rule of "Generalliaspecialibus non derogant."

9. A significant issue was the conflict between sections 44BB and 9(1)(vi) read with sections 44DA and 115A. The Tribunal analyzed the special nature of both sets of provisions and their applicability based on the character of income received.

10. The judgment also examined the applicability of sections 44DA and 115A in cases where income is received by a non-resident from another non-resident, emphasizing the specific scenarios where these provisions would apply.

11. The interpretation of the proviso to section 44BB in relation to Royalty income was a key aspect of the judgment, focusing on the definition of services or facilities and their connection with Royalty under section 9(1)(vi).

12. Lastly, the Tribunal discussed the nature and applicability of the proviso to section 44DA introduced by the Finance Act 2011, clarifying its interpretative role in relation to the main provisions of the Act.

In conclusion, the Tribunal dismissed the appeal of the Revenue, confirming the application of section 44BB based on the detailed analysis and alignment with previous judicial decisions and legislative intent.

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