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 115A would come into play in view of the fact that the payment is being made by a non-resident to another non-resident
AUTHORITY FOR ADVANCE RULINGS (INCOME TAX), NEW DELHI
Wavefield Inseis ASA, In re
A.A.R. No.844 of 2009
March 5, 2010
R U L I N G
(By Hon’ble Chairman)
1. The applicant is a company incorporated in Norway has filed this application under section 245Q (1) of the Income-tax Act, 1961 (hereinafter referred to as ‘IT Act’) seeking advance ruling on the following questions:
1. Whether on the stated facts and in law the income derived by Master and Commander AS (‘M&C) ought to be computed in accordance with the computational mechanism under section 44BB of the Act?
2. If the answer to question no.1 is in affirmative, what would be the rate at which tax is to be withheld from payments made by the applicant to M&C?
1.3. Whether on the stated facts and in the circumstances of the case, even if the consideration for the services provided by M&C is construed to be in the nature of ‘Royalty’ or ‘Fees for technical services’ under Article 13 of the Double Taxation Avoidance Agreement between India and Norway (‘tax treaty’) nevertheless, the income chargeable to tax ought to be computed having regard to the computational mechanism under section 44BB of the Act?
4. Whether on the stated facts and in law, can the consideration for services provided by M&C be construed to be in the nature of ‘Royalty’ under section 9(1)(vi) of the Act?
5. Whether on the stated facts and in law, even if the consideration for services provided by M&C be construed to be in the nature of ‘Fees for technical services’ under section 9(1)(vii) of the Act, nevertheless, the income chargeable to tax ought to be computed having regard to the computational mechanism under section 44BB of the Act?
6. Having regard to findings on the above questions, at what rate should the applicant withheld tax on payments made to M&C towards time charter of seismic vessel?
1.1. The learned counsel for the applicant has stated that Question no. 6 is unnecessary and therefore is not pressed.
1.2. The applicant is a marine geophysical company that conducts seismic survey and provides offshore seismic data acquisition and other associated services to global oil companies. The applicant has stated and it is beyond doubt that for any oil and gas activity, seismic survey is the first step and a very critical part of the activity. Seismic data acquisition and processing activities carried on by the applicant increases exploration success and reduces the risk of exploration drilling. Hence, it is the case of the applicant that seismic survey and related services is an integral part of the exploration/prospecting activities for mineral oil (petroleum and natural gas) and, therefore, they fall under the ambit of Section 44BB of the IT Act and the income has to be computed in accordance with that provision.
1.3. The applicant was awarded a three year contract by ONGC for 3D Seismic data acquisition and onboard processing Offshore India during field season 2008-09, 2009-10 and 2010-11. For the purpose of executing the contract with ONGC, the applicant has entered into a global Time Charter Agreement with Geo Subsea Pte Ltd., a company incorporated in Singapore, for the provision of seismic vessel. It is stated that the vessel was subsequently transferred to Master & Commander AS, a company incorporated in Norway, and as a result of this an addendum to the original agreement was entered into between Wavefield and M&C. As per time charter arrangement, the operation and navigation of the vessel is by the personnel of M&C of M&C. A copy of the Time Charter Agreement has been filed.
1.4. The applicant has stated that it 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 facts of the present case and the questions raised are identical to those in an earlier application filed by the same applicant in AAR/823/2009 which was disposed of on 21st December, 2009. The only difference is that the vessel covered by the time charter was a chase vessel whereas in the present case it is a seismic vessel. The discussion and reasoning in the above ruling squarely governs the present case. We are, therefore, relieved of the need to discuss the merits over again. It was held in that case that the second limb of Section 44BB was clearly attracted for the reason that the ‘plant and machinery’ which includes a ship or vessel has been supplied on hire for being used in the prospecting operation. In regard to the applicability of Section 44BB, it was observed thus:
4.“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 characteristics of “fees for technical services” within the meaning of Explanation 2 to Section 9(1)(vii). The expression “services in connection with” has also been explained. Further, it was held that the income of such nature stood excluded from the purview of Explanation 2, as made clear by the CBDT in its circular. In the present case, we are not
concerned with the controversy whether the character of payment is in the nature of ‘royalty’ as per section 9(1)(vi) because clause (iv a) of Explanation 2 to Section 9(1)(vi) excludes the amounts referred to in Section 44BB. That clause reads thus:
“the use or right to use any industrial, commercial or scientific equipment but not including the amounts referred to in Section 44 BB”
Apart from this specific exclusion, the learned counsel for the applicant sought to contend that even the substantive part of clause (iv a) has no application here. We need not go into that question.”
3. Following the ruling in the above case, 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 ruling is given and pronounced on this the 5th day of March, 1010.