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TMI BlogTaxability of income of non resident contractors engaged by resident organisations.X X X X Extracts X X X X X X X X Extracts X X X X ..... us facilities like off-shore platforms and pipelines, terminals, treatment plants on-shore, rigs, etc. for exploration and production of Oil and/or Natural Gas. In these contracts the equipment by way of platform, rig or any other facility is fabricated by the foreign contractor as per specific requirement of the Indian company organisation engaged in such exploration or production. The major part of the work, namely design, engineering, procurement and fabrication is performed abroad by the foreign contractor. In certain cases, ownership in the facilities is also seen to have been transferred abroad. Because of the size and complicated nature of the platform etc., it is fabricated and transported in modules for example jacket, piles, deck, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contract. 4. The question of determining a reasonable percentage of gross receipts as profits/income was discussed, inter alia, with the Ministry of Petroleum, in the light of the importance of the oil sector to the Indian economy and taking into account the fact that oil industry is now passing through a very difficult period, resulting in idle capacity all round. Taking all these factors into account, it has been decided to adopt 10 per cent of the gross receipts from the contract as the net income of the contractor. It has also been decided that out of the income so computed, 10 per cent (i.e 1% of the gross receipt) would be attributable to the activity of sale itself and that the balance would be attributable to the other manufacturi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt : $0.8 M ($8,00,000) Income attributable to activity of sale in India at 10% of above. : $ 80,000 III. Income assessable in India (I+II) : $2,80,000 If, in this example, the sale is also outside India, only $ 2,00,000 would be taxable in India. 7. Hook-up, commissioning etc. would not amount to rendering of technical services as defined in Explanation 2 to Section 9(1)(vii) of the Income-tax Act 1961. Assessing Officers may, however, examine the contracts and see whether the non-resident contractors have been paid fees for technical services. Fees for technical services, if any, paid under above mentioned contracts will not be covered by the above guidelines. Such fees will be taxable as per the rates specified in the rel ..... X X X X Extracts X X X X X X X X Extracts X X X X
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