Section 44BB applies to drilling rig hire for mineral oil operations even when routed through a sub-contract arrangement.

A non-resident leasing a drilling rig for mineral oil operations satisfied the conditions of section 44BB because the decisive factor was deployment of the plant or machinery in prospecting for or extraction of mineral oil. The arrangement being routed through a contractor or sub-contractor did not exclude section 44BB treatment, as that provision does not distinguish between direct and indirect supply where the rig is used for the relevant oil activity. The receipt was therefore assessable on the deemed profit basis under section 44BB, with the existence of a permanent establishment and effective connection in India also supporting that treatment, and it was not taxable as royalty.

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Issues: Whether the assessee, a non-resident engaged in leasing a drilling rig through a sub-contract arrangement, was entitled to be assessed under section 44BB of the Income-tax Act, 1961, or whether the receipt was taxable as royalty under section 9(1)(vi) read with Article 12 of the India-USA Double Tax Avoidance Treaty.

Analysis: The assessee satisfied the statutory conditions of section 44BB as a non-resident supplying plant and machinery on hire for use in prospecting for or extraction of mineral oil. The decisive consideration was the use of the rig for mineral oil operations, not whether it was supplied under a direct contract with the oil company or through a contractor or sub-contractor. The reasoning followed the view that section 44BB does not create a distinction between a main contractor and a sub-contractor where the plant or machinery is deployed for the relevant oil exploration or extraction activity. The existence of a permanent establishment in India and the effective connection of the contract with that establishment were also found to be present.

Conclusion: The assessee was held entitled to the benefit of section 44BB and the hire charges from the drilling rig were to be assessed on the deemed profit basis under that provision, not as royalty.

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