Authority For Advance Rulings (Income-Tax), New Delhi
Bergen Oilfield Services As, Norway, In Re
Section : 44BB
Justice P.K. Balasubramanyan, Chairman And V.K. Shridhar, Member
A.A.R. No. 857 Of 2009
May 16, 2011
RULING
V.K. Shridhar, Member. – The applicant, Bergen Oilfield Services AS, is a company incorporated under the laws of Norway and a tax resident of Norway. It provides geophysical services to oil and gas exploration industry. It conducts seismic surveys and provides onshore seismic data acquisition and other associated services. Cairn Energy (P.) Limited (Cairn), India, has awarded contract to the applicant to carry out 3D Marine Seismic Data Acquisition services in PR-OSN-2004/1 Block located in the offshore coastal areas in the States Andhra Pradesh and Tamil Nadu. The applicant states that the services rendered by it will be utilized by the Cairn in its oil exploration and production activities. It is submitted that seismic survey is the first step and most critical part of any oil and gas exploration activity. The services are part of the exploration/prospecting activities for mineral oil and falls under the ambit of section 44BB of the Income-tax Act, 1961 (Act). The applicant further states that for the purposes of conducting seismic surveys, the vessel is mobilized from outside India to the site area in India where the work is to be carried out. Similarly, when the vessel is demobilized, after completion of the work, it involves moving out of equipment and personnel from the site area. The applicant is paid for mobilization as well as demobilization of its vessel from the site area. In its view, the mobilization/demobilization revenues taxable in India should be restricted only to the revenues attributable to the distance travelled in the Indian territorial waters as compared to the total distance travelled to/from India.
2. Advance ruling is sought on the following questions framed by the applicant:—
(1) Whether revenues earned or to be earned by the applicant under seismic data acquisition and processing contracts in India are taxable under section 44BB of the Income-tax Act (‘Act’) at of effective tax rate of 4.223 per cent?
(2) Whether entire mobilization/demobilization revenues received by the applicant with respect to seismic data acquisition and/or processing contracts would be taxable in India or revenues attributable to distance travelled by the vessel in India would be taxable in India.
3. As regards the first Question, the revenue contends that the services contemplated in section 44 BB are services other than those coming within the purview of Explanation 2 to section 9(1)(vii) of the Act. The services extended by the applicant fall under Explanation 2. It is submitted that the income by way of fees for technical services chargeable under section 9(1)(vii) has to be computed under section 44DA in a case like this where the service provider has a Permanent Establishment in India. It is contended that the exclusion clause in Explanation 2 does not apply in the case of the applicant because it is not undertaking a mining or like project. Such project is undertaken by someone else and certain technical services are rendered by the applicant to the business enterprise that takes up the project. In short, the revenue contends that section 44BB would come into play only if the applicant goes out of the purview of section 9(1)(vii) of the Act read with Explanation 2 thereof.
4. The issue had arisen in the case of Geofizyka Torun Sp.Zo.o, In re [2010] 186 Taxman 213 (AAR – New Delhi), wherein this Authority after a detailed discussion held the view that:
“If the business is of the specific nature envisaged under section 44BB, the computation provision therein would prevail over the computation provision in section 44DA. In other words the income received by a non-resident businessman for the technical services provided in relation to prospecting and extraction of mineral oil, will be governed by section 44BB for the purposes of computation. If all the services that are in the nature of technical services within the meaning of Explanation 2 to section 9(1)(vii) are to be computed in accordance with section 44 DA, very little purpose will be served by incorporating special provision in section 44BB for computing the profits in relation to the services connected with the exploration and extraction of mineral oils. The provision will then operate in a very limited field.”
It was then observed that:
“it is not our view that section 44BB will become otiose or altogether redundant, but it is our view that its scope and content will be unduly curtailed by adopting the interpretation sought to be placed by the revenue.”
We do not feel the necessity to reopen the discussion on this question as we hold the same view. Question No. 1 is answered in the affirmative.
5. No one was present on behalf of the revenue, even though comments had been furnished subsequent to the order under section 245R(2) of the Act. We have considered the said comments during the course of the arguments.
6. As regards the second Question, the learned Advocate on behalf of the applicant submits that section 4 of the Act provides that Income-tax shall be charged in respect of the total income of the previous year. Total income under section 2(45) of the Act means the total amount of income referred to in section 5 computed in the manner laid down in the Act. Unless the income is subjected to tax under section 5, it cannot be computed in the manner provided in the Act. The income can be subjected to tax in India only if it accrues or arises in India or is deemed to accrue or arise in India. Thereafter, under Explanation to section 9(1)(i), income of the business in which all the operations are not carried out in India, only such part of income as is reasonably attributable to the operations carried out in India would be the income deemed to accrue or arise in India. Applying the above stated law the applicant is of the view that any receipt can be subjected to tax under section 44BB only if it is chargeable to tax under the Act. Drawing our attention to the discussion that took place in the course of hearing, the learned Advocate stated that the following issues came up before the Authority:
“1. Whether section 44BB of Income-tax Act, 1961 (‘Act’) overrides charging section 4 and section 5 of the Act and accordingly, mobilization and demobilization revenues to extent attributable to journey of the vessel outside India is not subject to tax in India.
2. Whether the contract entered with Cairn Energy India Pty Ltd. (Cairn) is a composite contract and accordingly, gross receipts including mobilization and demobilization fee received or to be received under the contract are to be taxed under section 44BB.”
It is then prayed that the above issues arising out of Question No. 2 in the application be subjected to a Ruling only in the event the Authority decides the first issue in the negative and against the applicant. In the event the Authority is pleased to hold the first issue in favour of the applicant, the second question may be kept open to be agitated by the applicant before the assessing authority.
7. Once an assessee opts to come under section 44BB(1) of the Act, the provision itself deems its profits and gains as 10 per cent of the aggregate of the amounts specified in sub-section (2). Sub-section 2(a) specifies that that aggregate amount is the amount paid or payable whether in or out of India to the assessee on account of provision of services in India. In the scenario, there is no scope for splitting up the amount payable to the assessee. If the assessee wants to seek such a splitting up it has to go under section 44BB(3) of the Act.
8. Section 44BB does not close its doors to an applicant who desires to know which part of its income accrues or arises in India and how much. The applicant can exercise its rights provided it opts to get the income computed under section 44BB(3) of the Act. The scheme of computation of income under this section does not provide any leeway to apply simultaneously both the sub-sections (1) and (3) of section 44BB to the income arising from the business activities falling under the ambit of section 44BB(1) of the Act. It even goes to the extent that if a part of the income falls under ‘Royalties’ or ‘Fees for Technical Services’, there is no scope to assess such receipts under these heads, once it is held that the income is from its oil exploration and production activities as envisaged under section 44BB. We are of the view that if the applicant desires to know the answers to the two issues, then it has to first exercise the option to get its income computed under section 44BB(3). In view thereof, we answer the Question No. 2 by saying that the entire mobilization/demobilization revenues received by the applicant with respect to seismic data acquisition and/or processing contracts would be taxable in India at effective rate of 4.223 per cent.
[Citation : 337 ITR 167]
