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TMI Blog2009 (12) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... d X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.4 The applicant filed an application under section 195 of the Income-tax Act, 1961 requesting for a withholding tax order @ 4.223% on the basis that the services rendered by PF Thor fall within the scope of section 44BB of the Act and accordingly the income chargeable to tax has to be computed as per that section. The Assessing Officer, without setting out any reasons, passed a withholding tax order according to which the applicant has to deduct tax at source at the rate of 10.56% on gross basis. Hence, this application. 2. The following questions are framed by the applicant for seeking advance ruling from this Authority: Questions: (1) Whether on the stated facts and in law the income derived by PF Thor ought to be computed in accordance with provisions of section 44BB of the Act? (2) If the answer to question 1 is in affirmative, what would be the rate at which tax is to be withheld from payments made by the Applicant to PF Thor? (3) Whether on the stated facts and in the circumstances of the case, even if the consideration for the services provided by PF Thor is construed to be in the nature of 'Royalty' or 'Fees for technical services' under Article 13 of the Dou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase vessel is also used for performing functions like reducing the impact of marine activities in the survey area, towing of main vessel in case of an emergency, transfer of personnel to and from the seismic vessel and supply of fuel to the seismic vessel etc. Accordingly, functions performed by chase vessel i.e. services provided by PF Thor are extremely important without which it may not be possible to undertake a successful seismic survey, hence a chase vessel forms an integral part of the entire process. 5. The applicant has stated that it entered into a world-wide 'time charter agreement' with PF Thor. Under the time charter arrangement, the entire operations, navigation and management of the vessel provided on hire will be in the exclusive command and control of the vessel owner and the vessel will be operated and services rendered as and when required by the applicant. A copy of the agreement titled "Bimco Supply Time 89 - Uniform Time Charter party for offshore services vessels" has been filed. "Bimco supply time 89" is the code name of standard time-charter party agreement. The agreement was entered into in November, 2006 between the owner of the vessel and the Charter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the charter party, the insurance specified in Annexure-8. Broadly, these are the provisions which deserve reference in the context of this application. 6. The learned Sr. Counsel for the applicant has contended that the income received by the owner of the vessel, namely, PF Thor in the form of "hire charges paid by the applicant has to be computed in accordance with the special provision contained in Section 44BB of the Act which provides for presumptive taxation. As per section 44BB, a sum equal to 10 per cent of the aggregate amounts specified in sub-section (2) shall be deemed to be the profits and gains of the specified business and the effective rate works out to 4.23 per cent. The learned counsel submits that both the limbs of sub-section (1) of Section 44BB come into play in relation to the income derived by 'PF Thor'. It is further contended that it cannot be treated as 'royalty' income under Explanation 2 to Section 9(1)(vi) of the Act, firstly, for the reason that there is no lease of 'equipment' and secondly for the reason that the amounts referred to in Section 44BB are specifically excluded from the purview of sub-clause (iv a) of Explanation 2. 7. The Revenue cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section (3) of section 143 and determine the sum payable by, or refundable to, the assessee. Explanation : For the purposes of this section, - (i) "plant" includes ships, aircraft, vehicles, drilling units, scientific apparatus and equipment, used for the purposes of the said business; (ii) "mineral oil" includes petroleum and natural gas. 9. In a very recent ruling given by this Authority in the case of Geofizyka Torun Sp.zo.o. (AAR No.813/2009), the scheme and nuances of the said special provision have been analysed in detail. The question in that case was whether computation had to be done in respect of the income derived by the assessee who carried out seismic survey and data processing services for the oil companies under section 44BB as contended by the applicant or section 44DA as contended by the Revenue. This Authority has taken the view that section 44BB being a specific and special provision providing for computation of income arising from such services rendered in connection with the prospecting for or exploration of mineral oil has to be computed under that section and Section 44DA cannot be applied in preference to Section 44BB even if the income partook the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtmental representative, the second limb is not attracted here for the reason that the vessel is supplied not by an enterprise having contract with ONGC but by a third party sub-contractor, i.e, PF Thor who has not entered into any contract with ONGC. 10.1 We are of the view that the second limb of section 44BB is clearly attracted in the instant case. There is no doubt that PF Thor is engaged, inter alia, in the business of letting out the ships/vessels on hire. There is also no doubt that the vessel has been taken on hire by the applicant for the purpose of enabling the applicant to carry on the seismic survey and data acquisition operations which are essential for prospecting of mineral oil. The requirement of sub-section (1) of section 44BB is that the vessel/ship must be used in the prospecting for or extraction of mineral oils. The function and utility of chase vessel in the operations relating to seismic survey and data acquisition which are integral to prospecting has been explained earlier. A chase vessel, provided by PF Thor is thus inextricably linked to the prospecting operations. Once the deployment of the vessel in the prospecting operations is considered to be inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kes to do services with their crew in carrying goods of the charterers and there is no "letting or hiring of the steamer in real sense." He pointed out that certain phrases have survived in the printed form and only "pertinent to the older form of the demise charterparty". This decision of 1942, 2KB has been cited by the learned counsel for the applicant to substantiate his first contention that the vessel of PF Thor has provided services in connection with the prospecting/exploration of oil & gas and therefore, the first part of section 44BB(1) would come into play. It is not necessary for us to go into the larger question as regards the scope and incidents of the contract for Time Charter Party and whether the statement of law by Mckinnon LJ is preferable to the opinion expressed by House of Lords. On a perusal of the relevant terms and clauses of the Time Charter Party agreement filed in the present case, it seems to us fairly clear that it contemplates the vessel being taken on hire by the applicant and the nomenclature 'hire' and 'pay hire for the vessel' in fact conveys the predominant nature of the transaction and the intention of parties. The master and crew of the hired ve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whole, it appears to us that the transaction falls more appropriately under the second limb of sub-section (1) of Section 44BB rather than the first limb. 12. In the light of above discussion, the questions are answered as follows : (1) The first question is answered in the affirmative. (2) It is not in dispute 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%. (3) No answer is called for as the contentions were confined to the provisions of the Income-tax Act, 1961 but not DTAA. (4) 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. (5) It is unnecessary to answer this question. Accordingly, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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