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2010 (7) TMI 57 - AAR - Income TaxAccrual or arising of income in India - Applicability of Section 44BB - Royalty u/s 9(1)(vi) - the applicant has entered into Bareboat charter agreements ( BBC agreement ) with various vessel providing companies ( VPC ) for provision of requisite seismic survey vessels on global usage basis. BBC agreement is one where the lessor provides only the vessel (without provision of services associated with the vessel) on hire to the lessee. It is also referred to as dry lease arrangement - Held that - where the agreement was executed outside India and the delivery of the vessel also took place outside India by reason of the mere presence of the vessel in India without the volition of VPC the source of income cannot be said to be located in India. To this extent the hire charges paid by the applicant are liable to be excluded from the taxable profits of the VPC - hire charges realized by VPC during the certain periods are liable to be taxed under the Income-tax 1961 and the rest of them ought to be excluded - the seismic activities are inseparable part of prospecting of mineral oil and the seismic survey vessel plays a crucial role in such operations undertaken by the applicant. - as the applicant engaged in the business of providing services or facilities in connection with prospecting for or extraction of mineral oil or supplying of plant (including ships) on hire used or to be used in the prospecting or extraction of mineral oil Section 44BB is squarely attracted - Having regard to the fact that Section 44BB comes into play as held earlier the receipts cannot be brought within the section 9(1)(vi) of the Act - the consideration received by VPC cannot be held to be royalty income within the meaning of Sectio 9(1)(vi) of the Act.
Issues Involved:
1. Taxability of sums paid under global usage bareboat charter agreements. 2. Applicability of Section 44BB of the Income Tax Act, 1961. 3. Classification of sums paid as 'Royalty' under Section 9(1)(vi) of the Act. 4. Applicability of Double Taxation Avoidance Agreement (DTAA) provisions. Issue-wise Detailed Analysis: 1. Taxability of Sums Paid under Global Usage Bareboat Charter Agreements: The applicant, a UAE-based company, engaged in geophysical services for oil and gas exploration, sought a ruling on whether sums paid to vessel providing companies (VPC) under global usage bareboat charter agreements (BBC agreements) are subject to withholding tax in India. The agreements were executed outside India, and payments were made outside India. The Authority examined whether the income accrued or arose in India under Section 5(2) and Section 9(1)(i) of the Income Tax Act, 1961. It was determined that if the delivery of the vessel took place in India, the income could be deemed to accrue or arise in India. For vessels delivered or deemed to have been delivered in India, the hire charges were taxable in India. Specific periods for each vessel were identified where the hire charges were liable to be taxed. 2. Applicability of Section 44BB of the Income Tax Act, 1961: Section 44BB pertains to the taxation of non-residents providing services or facilities in connection with the prospecting for or extraction of mineral oils. The Authority held that the seismic survey vessels hired by the applicant for oil and gas exploration activities fall within the scope of Section 44BB. The income chargeable to tax in India should be computed as per the provisions of Section 44BB, which deems 10% of the aggregate amounts specified to be the profits and gains chargeable to tax. 3. Classification of Sums Paid as 'Royalty' under Section 9(1)(vi) of the Act: The Authority addressed whether the sums paid under the BBC agreements could be construed as 'Royalty' under Section 9(1)(vi) of the Act. It was concluded that the consideration for the use or right to use any industrial, commercial, or scientific equipment is covered under 'Royalty', but amounts referred to in Section 44BB are excluded. Since Section 44BB applies to the applicant's case, the receipts cannot be classified as 'Royalty' income. 4. Applicability of Double Taxation Avoidance Agreement (DTAA) Provisions: The Authority found it unnecessary to delve into the DTAA provisions between India and Cyprus or India and Malta, as the income was to be computed under Section 44BB. The computational mechanism under Section 44BB would apply, making further examination of DTAA provisions redundant. Conclusion: The ruling concluded with the following answers: - Question 1: Partly affirmative and partly negative. The hire charges are taxable in India for specified periods and vessels. - Question 2: Affirmative. The income liable to be taxed in India should be assessed under Section 44BB. - Question 3: Negative. The sums paid cannot be classified as 'Royalty' under Section 9(1)(vi). - Question 4: Unnecessary to answer, as the computational mechanism under Section 44BB applies. The ruling was pronounced on 23rd July 2010, with all members in agreement.
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