2016 (9) TMI 343 - AAR - Income Tax

Taxability of considerations received under the Contract - Held that - All the considerations received under the Contract whether as a Contractor or as a Sub-Contractor by applicant Corpro would be taxable under Section 44BB of the Income Tax Act. The answer to the Question No. 2 is that the withholding of the tax would be in the spirit of Section 44BB, hence, we dispose of all the 4 applications.

Summary

Issues Involved:
Interpretation of tax residency and activities of a UK-based company providing coring services to global oil & gas companies for ONGC; Applicability of Section 44BB for income generated from coring services; Reference to Supreme Court judgment in ONGC Ltd. Vs. CIT & Another regarding mining services; Examination of specific services provided by the applicant in relation to the Supreme Court ruling; Consideration of objections raised by the Department regarding subcontract agreements under Section 44BB.

Analysis:
The judgment by the Authority for Advance Rulings in New Delhi addresses multiple issues arising from applications filed by a UK-based company engaged in providing coring services to global oil & gas companies, specifically in a consortium with ONGC. The applicant claims tax residency in the UK and asserts that their activities fall under the purview of Section 44BB, which covers income from services related to mineral oil exploration. The ruling examines the nature of coring services involving sample removal for analysis and asserts that such activities align with the scope of Section 44BB, considering the provision of plant and machinery for oil exploration.

The judgment references a Supreme Court ruling in the ONGC Ltd. case, highlighting that mining services' consideration does not constitute Fees for Technical Services under Section 9(1)(vii). The ruling further delves into specific services provided by the applicant, correlating them with the services enumerated by the Supreme Court, such as the selection of enhanced oil recovery processes and opinions on hydrocarbon resources, to establish the applicability of Section 44BB to the applicant's operations.

The Authority dismisses objections raised by the Department regarding subcontract agreements, emphasizing that Section 44BB's applicability is activity-centric rather than agreement-centric. It clarifies that if any activity covered under Section 44BB is undertaken, regardless of contractor or subcontractor status, the section applies. Consequently, the judgment concludes that all considerations received by the applicant, whether as a contractor or subcontractor, are taxable under Section 44BB, and tax withholding aligns with the spirit of the section, leading to the disposal of all four applications.

In summary, the ruling affirms the UK-based company's tax liability under Section 44BB for income generated from coring services provided to ONGC, drawing parallels with relevant Supreme Court precedents and dismissing objections related to subcontract agreements, thereby providing a comprehensive legal interpretation of the issues at hand.