TaxTMI 
TaxTMI 
2009 (12) TMI 5
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..... Taranpreet Singh - CA Present for the Department : Mr. SMJ Abidi, Addl.DIT(Intl.Tax) R U L I N G (By Hon'ble Chairman) 1. The applicant has filed this application under section 245Q(1) of the Income-tax Act, 1961. The following facts are stated in the application. 1.1 The applicant is a company incorporated under the laws of Norway and is a tax resident of Norway. In this connection, the applicant has attached the certificate of incorporation and a certificate from the tax authorities certifying the applicant's tax residency in Norway. The applicant is a marine geophysical company that conducts seismic surveys and provides offshore seismic data acquisition and other associated services to global oil companies. Such services are aimed at increasing the exploration success of its oil and gas clients and to assist them in maximizing production from their existing reservoirs. The applicant was awarded a 3 year contract by ONGC for 3D Seismic data acquisition and onboard processing offshore India during the field season 2008-09, 2009-10 and 2010-11, in different sur....
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....d by PF Thor fall within the scope of section 44BB of the Act and accordingly the income chargeable to tax has to be computed as per that section. The Assessing Officer, without setting out any reasons, passed a withholding tax order according to which the applicant has to deduct tax at source at the rate of 10.56% on gross basis. Hence, this application. 2. The following questions are framed by the applicant for seeking advance ruling from this Authority: Questions: (1) Whether on the stated facts and in law the income derived by PF Thor ought to be computed in accordance with provisions of 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 the Applicant to PF Thor? (3) Whether on the stated facts and in the circumstances of the case, even if the consideration for the services provided by PF Thor is construed to be in the nature of 'Royalty' or 'Fees for technical services' under Article 13 of the Double Taxation Avoidance Agreement between India and Denmark ('tax treaty'), nevertheless, the income chargeable to tax ought to be computed....
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....for performing functions like reducing the impact of marine activities in the survey area, towing of main vessel in case of an emergency, transfer of personnel to and from the seismic vessel and supply of fuel to the seismic vessel etc. Accordingly, functions performed by chase vessel i.e. services provided by PF Thor are extremely important without which it may not be possible to undertake a successful seismic survey, hence a chase vessel forms an integral part of the entire process. 5. The applicant has stated that it entered into a world-wide 'time charter agreement' with PF Thor. Under the time charter arrangement, the entire operations, navigation and management of the vessel provided on hire will be in the exclusive command and control of the vessel owner and the vessel will be operated and services rendered as and when required by the applicant. A copy of the agreement titled "Bimco Supply Time 89 - Uniform Time Charter party for offshore services vessels" has been filed. "Bimco supply time 89" is the code name of standard time-charter party agreement. The agreement was entered into in November, 2006 between the owner of the vessel and the C....
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....arbour, tonnage and other duties and charges (vide clause 8). The owners have to procure and maintain in effect for the duration of the charter party, the insurance specified in Annexure-8. Broadly, these are the provisions which deserve reference in the context of this application. 6. The learned Sr. Counsel for the applicant has contended that the income received by the owner of the vessel, namely, PF Thor in the form of "hire charges paid by the applicant has to be computed in accordance with the special provision contained in Section 44BB of the Act which provides for presumptive taxation. As per section 44BB, a sum equal to 10 per cent of the aggregate amounts specified in sub-section (2) shall be deemed to be the profits and gains of the specified business and the effective rate works out to 4.23 per cent. The learned counsel submits that both the limbs of sub-section (1) of Section 44BB come into play in relation to the income derived by 'PF Thor'. It is further contended that it cannot be treated as 'royalty' income under Explanation 2 to Section 9(1)(vi) of the Act, firstly, f....
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....sub-section (2) of section 44AA and gets his accounts audited and furnishes a report of such audit as required under section 44AB, and thereupon the Assessing Officer shall proceed to make an assessment of the total income or loss of the assessee under sub-section (3) of section 143 and determine the sum payable by, or refundable to, the assessee. Explanation : For the purposes of this section, - (i) "plant" includes ships, aircraft, vehicles, drilling units, scientific apparatus and equipment, used for the purposes of the said business; (ii) "mineral oil" includes petroleum and natural gas. 9. In a very recent ruling given by this Authority in the case of Geofizyka Torun Sp.zo.o. (AAR No.813/2009), the scheme and nuances of the said special provision have been analysed in detail. The question in that case was whether computation had to be done in respect of the income derived by the assessee who carried out seismic survey and data processing services for the oil companies under section 44BB as contended by the applicant or section 44DA as contended by the Revenue. This Authority has taken the view that section 44BB being a specific and special....
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....vely, it is submitted that if it is construed that the substance of transaction is not rendering services of the nature envisaged by the first part, the second part of sub-section (1) of section 44BB is clearly attracted for the reason that the 'plant and machinery' has been supplied on hire for being used in the prospecting operations. In this regard, the contention of the Revenue is that it is not a case of rendering services, but, it is a case of supplying the vessel on hire falling within the second limb of sub-section (1) of Section 44BB; however, according to the departmental representative, the second limb is not attracted here for the reason that the vessel is supplied not by an enterprise having contract with ONGC but by a third party sub-contractor, i.e, PF Thor who has not entered into any contract with ONGC. 10.1 We are of the view that the second limb of section 44BB is clearly attracted in the instant case. There is no doubt that PF Thor is engaged, inter alia, in the business of letting out the ships/vessels on hire. There is also no doubt that the vessel has been taken on hire by the applicant for the purpose of enabling the applicant to ca....
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....tions of the charterer as regards employment and which require the charterer to furnish the master from time to time with all requisite instructions and sailing directions." 10.3 A Time Charter Party agreement is distinguishable from Bare-boat Charter under which the ship owner surrenders possession and control of the vessel to the charterer, who then succeeds to many of the ship owner's rights and obligations#2. 10.4 In an earlier case - Sea & Land Securities Ltd. Vs. William Dickinson & Co.Ltd.3 Mckinnon LJ expressed the view that the essence of such contract is that the ship owners, without divesting themselves of the possession and control of the ship merely undertakes to do services with their crew in carrying goods of the charterers and there is no "letting or hiring of the steamer in real sense." He pointed out that certain phrases have survived in the printed form and only "pertinent to the older form of the demise charterparty". This decision of 1942, 2KB has been cited by the learned counsel for the applicant to substantiate his first contention that the vessel of PF Thor has provided services in connection with the prospecting/exploration of oil & g....
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....employment of vessel is restricted to "support, re-supply and chase services for seismic operations as instructed by charter, always within vessel's safe capacities and capabilities". This stipulation again does not run counter to a hiring contract. The purposes for which the hiring vessel can be utilized are only specified there. Though the applicant has stated that the chase vessel "constantly monitors the activities of all the equipments used for seismic data acquisition", it is not stated by whom such monitoring is done. Is it by the Crew of the vessel or by the technical personnel of the applicant on board the vessel? The latter situation seems to be more probable. The Crew may be engaged in the normal operations connected with navigation and some support services. On the whole, it appears to us that the transaction falls more appropriately under the second limb of sub-section (1) of Section 44BB rather than the first limb. 12. In the light of above discussion, the questions are answered as follows : (1) The first question is answered in the affirmative. (2) It is not in dispute that as per Section 44BB read with Part II of the F....