2011 (7) TMI 104 - AAR - Income Tax

Taxability of seismic data revenues in India under section 44BB confirmed by Authority

The case involved WesternGeco International Ltd. (WGIL) concerning the taxability of revenues under section 44BB of the Income-tax Act, 1961, for seismic ... Applicability of section 44BB - Royalty or fees for technical services - It is engaged in the business of acquisition and processing of 2D and 3D seismic data for companies engaged in the exploration and production of mineral oils in India - if the income is taxable under section 44BB, the applicant submits that it should not be taxed as fees for technical services under the provisions of section 115A and section 44DA of the Act - The cost of maintenance of the vessels, catering and accommodation services on board the seismic vessels is to be borne by the applicant - This Authority is of the view that as section 44BB is a special, specific and exclusive provision, even where the profits arising from business specified therein fall within the ambit of fees for technical services, the provision should prevail for the purposes of computation - Decided in favour of the assessee 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 - Once an assessee opts to come under Section 44BB(1) of the Act, the provision itself deems its profits and gains as 10% 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 - Held that: the entire mobilization/demobilization revenues received by the applicant with respect to seismic data acquisition and/or processing would be taxable in India at an effective rate of 4.223% - Ruling is given Issues:1. Taxability of revenues earned under seismic data acquisition and processing contract with BHP Billiton in India under section 44BB of the Income-tax Act, 1961.2. Taxability of revenues arising from mobilization/demobilization activities attributable to vessel's journey outside India.Issue 1:The case involved WesternGeco International Ltd. (WGIL), a British Virgin Islands company engaged in seismic data acquisition for oil and gas exploration in India. The applicant sought clarification on the taxability of revenues under section 44BB of the Income-tax Act, 1961. The applicant argued that only the income attributable to operations carried out in India should be taxed under section 44BB, relying on the explanation to section 9(1)(i) of the Act. The applicant also contended that if taxable under section 44BB, the income should not be taxed as fees for technical services under section 115A and section 44DA of the Act. Reference was made to previous rulings by the Authority to support the position that data acquisition and processing services fall under section 44BB. The Revenue argued that the entire mobilization/demobilization revenues should be included in gross receipts for taxation purposes. The Authority held that the applicant's services were not technical in nature, thus falling under section 44BB. Question 1 was answered in the affirmative.Issue 2:Regarding the taxability of revenues from mobilization/demobilization activities, the applicant argued that only the portion attributable to the vessel's journey outside India should be excluded from income computation under section 44BB. The Revenue contended that these receipts were in the nature of fees for technical services. The Authority clarified that once an assessee opts for section 44BB(1), the profits are deemed as a percentage of specified amounts paid on account of services in India. There is no provision to split the amount payable to the assessee. The applicant must exercise the option under section 44BB(3) to compute income differently. The Authority held that the entire mobilization/demobilization revenues related to seismic data acquisition and processing would be taxable in India at an effective rate of 4.223%. Question 2 was answered accordingly. The ruling was pronounced on July 25, 2011, by Mr. V. K. Shridhar.