Oil exploration vessel hire charges treated as business profits, outside shipping income, with no Indian tax withholding.

Hire charges for a specialised anchor-handling tug used exclusively for offshore platform construction in connection with oil exploration were treated as income directly connected with oil exploration operations and covered by section 44BB. The vessel was not regarded as an ordinary ship engaged in shipping operations, so article 9 of the applicable tax treaty was rejected. Instead, the income was considered business profits under article 7; as the non-resident had no permanent establishment in India, the profits were not taxable in India and no tax deduction from the remittance was required.

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Issues: Whether the hire charges for the specialised vessel used for offshore platform construction in connection with oil exploration were taxable in India, and whether tax was required to be deducted from the remittance to the non-resident.

Analysis: The vessel was found to be a specialised anchor-handling tug used exclusively for offshore platform construction in connection with oil exploration and extraction. On that basis, the income from its hire was treated as directly connected with oil exploration operations and covered by the special regime under section 44BB. The contention that the income fell within shipping income under article 9 of the Double Taxation Avoidance Agreement was rejected because the vessel was not treated as an ordinary ship engaged in shipping operations. The alternative position under article 7 was accepted, and since the non-resident had no permanent establishment in India, the business profits were not taxable in India.

Conclusion: The hire charges were not liable to tax in India, and no tax deduction from the remittance was required. The revenue's appeal failed.

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