2010 (3) TMI 113 - AAR - Income Tax

Special provision for computing profits and gains in connection with the business of exploration, etc., of mineral oils Section 44BB - The applicant is a marine geophysical company that conducts seismic survey and provides offshore seismic data acquisition and other associated services to global oil companies. - The applicant was awarded a three year contract by ONGC for 3D Seismic data acquisition and onboard processing Offshore India during field season 2008-09, 2009-10 and 2010-11. For the purpose of executing the contract with ONGC, the applicant has entered into a global Time Charter Agreement with Geo Subsea Pte Ltd., a company incorporated in Singapore, for the provision of seismic vessel. Held that - as per Section 44BB read with Part II of the First Schedule to the Income Tax Act, the effective rate at which the tax has to be withheld from the payments made by the applicant to P.F. Thor would be 4.223% - As the amounts falling under Section 44BB of I.T. Act have been excluded from the purview of the royalty definition, this question has to be answered in the negative. Once Section 44BB is attracted, it is common ground that the computation has to be made in accordance with that provision and no other special provision, viz., Section 44DA or Section 115-A would come into play in view of the fact that the payment is being made by a non-resident to another non-resident.

Summary

Issues:
1. Computation of income under section 44BB of the Income-tax Act.
2. Rate of tax withholding on payments to a company.
3. Applicability of computational mechanism under section 44BB.
4. Consideration for services as 'Royalty' under section 9(1)(vi).
5. Consideration for services as 'Fees for technical services' under section 9(1)(vii).
6. Rate of tax withholding on payments for time charter of a seismic vessel.

Issue 1 - Computation of income under section 44BB:
The applicant, a marine geophysical company, sought advance ruling on whether income derived should be computed under section 44BB of the IT Act. The company argued that seismic survey services provided are integral to oil and gas exploration activities, falling under Section 44BB. The ruling referred to a previous case where it was held that Section 44BB applies specifically to income arising from services related to mineral oil exploration, overriding other provisions like Section 44DA. The ruling affirmed that income under Section 44BB is excluded from the definition of 'Royalty,' leading to a positive answer to this issue.

Issue 2 - Rate of tax withholding on payments:
The applicant requested a withholding tax order at 4.223%, but the Assessing Officer ordered tax deduction at 10.56% without providing reasons. The ruling clarified that the effective rate for tax withholding from payments should be 4.223% as per Section 44BB of the Income Tax Act.

Issue 3 - Applicability of computational mechanism under section 44BB:
The ruling confirmed that once Section 44BB is triggered, income computation must align with that provision, excluding other special provisions like Section 44DA or Section 115-A. This is particularly relevant when payments are made between non-resident entities.

Issue 4 - Consideration for services as 'Royalty' under section 9(1)(vi):
The ruling answered this issue in the negative, emphasizing that when Section 44BB applies, the computation should be done exclusively under that provision, excluding other definitions such as 'Royalty.'

Issue 5 - Consideration for services as 'Fees for technical services' under section 9(1)(vii):
The ruling deemed this question unnecessary for consideration in the given context.

Issue 6 - Rate of tax withholding on payments for time charter of a seismic vessel:
The applicant withdrew Question 6 as unnecessary, and the ruling did not address this issue further.

In conclusion, the ruling delivered on March 5, 2010, clarified various aspects related to income computation, tax withholding rates, and the applicability of specific provisions under the Income-tax Act concerning services provided in connection with mineral oil exploration activities.