AAR : The rate at which tax is to be withheld from payments made by Transocean to BOA towards time charter of service vessels will be 4.22 per cent

Authority For Advance Rulings (Income-Tax), New Delhi

Bourbon Offshore Asia Pte. Ltd., In Re

Section : 44BB, 9

AAR No. 937 Of 2010

Justice P.K. Balasubramanyan, Chairman And V.K. Shridhar, Member

July 12, 2011

RULING

V.K. Shridhar, Member. – The applicant, Bourbon Offshore Asia Pte Ltd., (BOA), is a company formed and registered under the laws of Singapore and is a tax resident of Singapore. The applicant states that it offers a comprehensive range of highly productive and new generation innovative offshore service vessels to global oil and gas industries. The vessels assist and support offshore drilling and marine operations. The applicant has entered into a time charter vessels hiring agreement on 26-4-2006 for provisions of its offshore service vessels to Transocean Offshore International Ventures Ltd., (TOIVL) in India. TOIVL is providing various offshore drilling and support services to Oil and Natural Gas Corporation Ltd., (ONGC). For execution of the contract, TOIVL has entered into a uniform time charter vessel agreement with the applicant. Being a time charter agreement, the entire operation, navigation and management of the vessel provided on hire is under the exclusive command and control of the applicant. The vessel is operated and services are rendered as requested by TOIVL but are subject to exclusive rights of the applicant.

2. The applicant submits that the offshore drilling activities are an integral part of exploration and prospecting activities for mineral oil. The entire process of offshore drilling is done from offshore service vessel equipped with various equipments. Therefore such offshore services vessels are the basic requirement for carrying out activity of offshore drilling operations.

3. The applicant submits that section 44BB of the Income-tax Act, 1961 (Act) applies to non-residents who are engaged in the business of providing services or facilities which are in connection with or supplying plant and machinery on hire used, or to be used in the prospecting for or extraction or production of mineral oil. One of the very generally accepted meanings of “in connection with” is “relation between things one of which is bound up with or involved in another”: or again having to do with. Therefore, “in connection with” any activity would mean that everything which is connected with any of the three activities, namely, prospecting for, extraction of or production of mineral oil would fall within its scope. The applicant is of the view that the facilities or services provided must be linked or related to the above three activities in such a way that it would not be possible to carry out such activities in isolation without the aid of services or facilities. The provision of service vessel by the applicant is thus an integral part of the entire process of offshore drilling activities and cannot be carried without the use of service vessel. It is contended that the services provided by the applicant are in connection with the activities of prospecting for mineral oil as envisaged under section 44BB of the Act. The applicant has relied on the ruling of this Authority in the case of Wavefield Inseis ASA, In re [2010] 187 Taxman 62 wherein the income derived by provision of time charter seismic vessel is held to be computed under the computational mechanism of section 44BB of the Act and the effective rate at which the tax has to be withheld from the payments would be 4.223 per cent.

4. The applicant then submits section 44BB does not make any distinction between the main contractor and sub-contractor as regards its applicability in view of the finding given by ld. ITAT Mumbai in the case of Micoperi S.P.A. Milano v. Dy. CIT [2002] 82 ITD 369.

5. Advance ruling is sought on the following questions raised by the applicant :

“1. Whether on the stated facts and in law the income derived by BOA ought to be computed in accordance with the computation mechanism under 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 Transocean to BOA towards time charter of service vessel?”

6. The ld. Addl. DIT (Intl. Tax) appearing on behalf of the revenue submits that the services carried out by the applicant is technical in nature and income from providing services in India is liable to be taxed as fee for technical services. The services contemplated in section 44BB 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. It is contended that the exclusion clause in Explanation 2 to section 9(1)(vii) 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. 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. It is submitted that though the amendment to section 44BB and 44DA was made effective from 1-4-2011, the amendment is clarificatory in nature and should be read into the main provisions of section 44BB with effect from the time when section 44BB came into force in view of the decision of Hon’ble Supreme Court in the case of Sedco Forex International Drill Inc. v. CIT [2005] 149 Taxman 352. It is further submitted that fee for technical services cannot be taxed under section 44BB of the Act in view of the decision by the Hon’ble High court of Uttarakhand in the case of CIT v. ONGC as Representative assessee of Rolls Royee (P.) Ltd. [2008] 170 Taxman 563 .

7. There is no dispute that the applicant is engaged in the business of providing offshore oil and gas marine sub-sea services. It also offers range of offshore oil service vessels to global oil and gas industry. Under the contract with TOIVL, who in turn is providing various offshore drilling and support services to ONGC, the applicant has provided 4 vessels to TOIVL to be used on east and west coast of India. For the purposes of section 44BB of the Act, the vessels provided are covered under the definition of “plant”. The consideration received for supply of “plant” i.e., the vessels on hire when used in the prospecting for or extraction or production of oil and gas is covered under the special provision for computing profits and gains under section 44BB of the Act. The intention to exclude construction, assembly and mining or like project from the purview of fees for technical services is to draw a line of distinction between business activities and mere rendering of services. This authority in Geofizyka Torun Sp. zo. o., In re [2010] 186 Taxman 213 has gone a step further to explain that :

“If the business is of the specific nature envisaged under 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 44DA, 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.”

8. The nature of receipts on account of provision of supply of vessels on hire basis cannot have the character of fees for technical services within the meaning of Explanation 2 to section 9(1)(vii). The services required by TOIVL are rendered by the applicant by using the vessels under its control and command which cannot bear the character of fees for technical services.

9. Question No. 1 is answered in the affirmative and in favour of the applicant.

Question No. 2 : The rate at which tax is to be withheld from payments made by Transocean to BOA towards time charter of service vessels will be 4.22 per cent.

[Citation : 337 ITR 122]

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