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TMI Blog1994 (9) TMI 117X X X X Extracts X X X X X X X X Extracts X X X X ..... ars 104642.10 to M/s. Drake Maritime S.A.--London (DM) which covered the hire charges of a ship (H.V. Pelican). The respondent had stated that Oil Natural Gas Commission (ONGC), a Government of India Undertaking had contracted with Mazagon Down Ltd. (MDL) for various services in connection with its activities of exploration/development of Mineral Oil (MO) in Bombay Offshore area. MDL in turn entered into a contract with the respondent for the provision of ship on hire and accordingly it had entered into Charter Party agreement with DM for hire of a ship that was effective from 7-12-1992. 3. The ACIT held that, the hire of ship to an Indian company by DM in the circumstances of the case, has to be taken to mean that service was rendered by DM in India and hence the hire charges so received by it arose and accrued in India according to the provisions of section 5(2) of the Income-tax Act, 1961. He also noted that, since DM itself was not engaged in the business of hiring of ships for exploration of oils, the provisions of section 44BB for determination of income from hiring of machinery for exploration/production of mineral oil does not apply. He also noted that the Government of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t along with article 9 of DTA. He referred to the letter from MDL to Director General of Shipping dated 25-11-1992 wherein the facility available of the ship hired from NR was indicated. This facility was Anchor Handling Tug to assist in Bombay High for construction of Offshore Platforms'. Considering the fact that the ship was ultimately used by ONGC in connection with oil exploration works, CIT(A) accordingly concluded that the ACIT was wrong to state that the assessee was not entitled to the benefits of section 44BB of the Act. He therefore held that the assessee was not only entitled to the benefit under section 44BB of the Act and was right in pleading that by virtue of section 90 of the Act, DTA was enforceable and cancelled the order of ACIT. The CIT(A) also referred to the CBDT Circular No. 333, dated 2-4-1982 which clarified that in case of conflict between the provisions of the Act and DTA, the provisions of DTA shall prevail. 6. The department has thus come up in appeal before us. The learned departmental representative contended that article 9 of DTA covered movement of ships in international waters. The notification was issued extending the rights of water territory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it satisfied the technical specifications as had been noted by the CIT(A) in his order. He submitted that, the extension of the rights on water that permitted the oil exploration is with regard to water, the oil under it, etc., and has been so made keeping in line with the International understanding. He submitted that, the ship had to be brought from Sharjah where it was used for similar work of oil exploration extraction. He contended that the ship was required for the construction of the Offshore platforms is not in dispute, that it is also not disputed that it satisfied the technical specifications for the nature of the work and that it was used solely to enable the construction of the Offshore platform. He submitted that, provisions of section 44BB is relevant only to the limited extent of appreciating the various actions that would be treated as in the nature of oil exploration. He contended that, it covered all those services that assisted in the ultimate aim of exploration or extraction. He contended that the prospecting for the mineral oil required the special platform is not in dispute and since NR had only assisted in the construction of the platform which is to be us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rter hire are the same as day rate of "M.V. Gomes Defender" and lowest as compared to rates quoted by other bidders. Our requirement for Charter hire of this vessel is approx. 170 days. 4. We are in the process of issuing the letter of Intent to M/s. Interocean Shipping (P.) Ltd., Bombay on a condition that they will obtain the necessary approval from the D.G. Shipping prior to moblization of the vessel. In order to mobilize this vessel we request you to kindly grant them necessary permission/approval, clearance etc., at your earliest as Anchor Handling Tug is urgently required by us to assist our DB Mahavir in Bombay High for construction of Offshore platforms. The reading of the above indicates that the ship supplied by NR is not a shipment for passenger or cargo or a trailer vessel but a sort of machinery which assists in the construction of Offshore platforms for the Oil exploration/extraction. The vessel that is hired is stated to be technically superior for the anchor handling. The word 'anchor' means to hold and the word 'tug' means to pull hard. This indicates that, the vessel is meant to assist in the construction of the platform by providing such facility so that the pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o NR would be liable to be taxed in UK in view of the provisions contained in article 7 of DTA. Since, the hire charges are not subjected to Indian Taxation, question of deducting any tax from the hire charges payable to NR does not arise. We accordingly uphold the order of the CIT(A). The other alternative submission that the ship should be treated to have plied in international waters and that the Territorial Waters Act, 1976 only permitted rights of exploration and did not extend the Indian territory, in our opinion would be a mere academic discussion that need not be gone into and therefore we do not express our opinion on those submissions of the parties. Before we part we may observe that the Tribunal in ONGC's case was concerned with a hire of a vessel for transportation of men and machine to its work site and such hire was considered as not covered by shipping activity. In Donald William Rickard's case, the Tribunal was concerned with the effective of the notification issued in regard to the exclusive economic zone it was held that it would be applicable for the financial year commencing from 1-4-1983 relevant for the assessment year 1984-85. Similar was the view of the Bom ..... X X X X Extracts X X X X X X X X Extracts X X X X
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