The Tax Publishers2021 TaxPub(DT) 0876 (Del-AAR) : (2021) 431 ITR 0503

INCOME TAX ACT, 1961

Section 9(1)(vi) Section 44BB

Vessels were used in prospecting of mineral oil in India. The hiring of the vessels by non-resident assessee, pursuant to the contract with ONGC, was for this purpose only. Further, Explanation to section 44BB clarified that 'plant' includes ship or any scientific apparatus or equipment used for the purpose of said business. Thus, research vessel employed by assessee was found to be covered within the scope of 'plant' as defined in this section. Therefore, payment made by VPCs was found to be for supply of plant and machinery on hire used in the prospecting for mineral oil in India and was squarely covered under the provision of section 44BB(2)(a) and since the receipt was found to be covered under section 44BB, it could not partake the character of royalty in view of specific exclusion under clause (iva) of Explanation 2 to section 9(1)(vi). The seismic vessels of the VPCs also constituted permanent establishment (PE) for the business operation carried out. Income derived by the VPCs was found intrinsically linked with this PE and income arising from the PE located in India was liable to tax in India as business income under provisions of section 44BB.

Income deemed to accrue or arise in India - Reryalty income under section 9(1)(VI) - -

Assessee, based at UAE, was engaged in the business of rendering geophysical services to oil and gas exploration industry. Its business activity involved 4C-3D seismic data acquisition and processing. In India, the assessee was providing offshore seismic data acquisition and processing services to ONGC and other oil companies. For executing such work assessee required seismic survey vessels, which were special kind of vessels fitted with seismic recording systems and receiver units and which are used for undertaking seismic data acquisition and on-board data processing. Assessee entered into two bare boat charter agreement (BBC Agreement) with different vessel providing companies (VPCs) for provision of requisite seismic survey vessels on global usage basis. AO treated sum paid by assessee to the vessel providing company ('VPC') under global usage 'BBC Agreements' as royalty under section 9(1)(vi). Assessee pleaded that sum paid by it to the VPC's under global usage BBC agreements was taxable in India under section 44BB. Held: Vessels were used in prospecting of mineral oil in India. The hiring of the vessels by non-resident assessee, pursuant to the contract with ONGC, was for this purpose only. Further, Explanation to section 44BB clarified that 'plant' includes ship or any scientific apparatus or equipment used for the purpose of said business. Thus, research vessel employed by assessee was found to be covered within the scope of 'plant' as defined in this section. Therefore, payment made by VPCs was found to be for supply of plant and machinery on hire used in the prospecting for mineral oil in India and was squarely covered under the provision of section 44BB(2)(a) and since the receipt was found to be covered under section 44BB, it could not partake the character of royalty in view of specific exclusion under clause (iva) of Explanation 2 to section 9(1)(vi). In clause (iva) of Explanation 2 to section 9(1)(vi) the excluded amount is the 'amount as referred in section 44BB' and in the instant case, clause (a) of section 44BB(2) is applicable as amount was paid outside India. Such excluded amount was in respect of provision of services and facilities in connection with, or supply of plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils in India. The seismic vessels of the VPCs also constituted permanent establishment (PE) for the business operation carried out. Income derived by the VPCs was found intrinsically linked with this PE and income arising from the PE located in India was liable to tax in India as business income under provisions of section 44BB.

SUBSCRIBE TaxPublishers.inSUBSCRIBE FOR FULL CONTENT

TaxPublishers.in

'Kedarnath', 7, Avadh Vihar, Near Nirali Dhani,

Chopasni Road

Jodhpur - 342 008 (Rajasthan) INDIA

Phones : 9785602619 (11 am - 5 pm)

E-Mail : mail@taxpublishers.in / mail.taxpublishers@gmail.com