Swiwar Offshore Pte. Ltd. Vs. Addl. DIT (ITAT Mumbai)
Some of the general principles, governing the section, culled out from various judgments can be summarized as under:
i. Once section 44BB is applied, two conclusions become inescapable. The first conclusion is that 10% of the receipts by the foreign resident is chargeable to tax and the other conclusion is that 90% of the receipts of that foreign resident as well as receipts or gains other than those mentioned in the section is not chargeable to tax.
ii. It would be logically fallacious to use the taxability of 10% which is expressly provided in section 44BB and to pass over or fail to recognize the exemption from tax as to the balance 90% of the receipts and 100% of other profits and gains,which is also provided for in section 44BB by necessary and inescapable conclusion.
iii. The section provides for taxation with reference to pre- ordained criteria which are mention -ed in provision itself-amounts received or payable to an asses see-non-resident, whether in India or outside India, had to be included for purpose of calculating income u/s. 44 BB.
iv. There is no compelling reason to assign a narrow and restricted meaning to the expression ‘services’ in section 44BB and confine it to services other than technical, consultancy or managerial services. In the absence of any words of limitation or exclusion, the word ‘services’ shall be understood in its plain and ordinary sense. If the legislature wanted to give a restricted meaning to the expression ‘services’, explicit words to that effect would have been deployed. The contextual setting and the company in which the expression ‘services’ is found is suggestive of inference that far from excluding technical/ consultancy services, they were also intended to be brought within the ambit of section 44BB. The word ‘services’ followed by an expansive phrase ‘in connection with’ are relatable to prospecting for and exploration of mineral oil. That means, all services associated with prospecting for and exploration activities are brought within the scope and reach of section 44BB.
v. Another category of assessees governed by section 44BB are those supplying plant and machinery on hire. Both these two categories of assessees covered by section 44BB engage themselves in core activities pertaining to prospecting and exploration of oil and gas and the Parliament thought it fit to accord a special treatment to the income derived by these two categories of non-residents in India.
vi. Between the competing provisions, namely section 9(1)(vii) r/w ss. 44DA and 44BB, section 44BB being a more specific provision, will prevail for the purposes of computation. Sec. 44DA provides for method of computation of income by way of fees for technical services received by a non-resident or a foreign company carrying on business through a PE in India. If the non-resident is engaged in the business of providing services in connection with the prospecting etc.of mineral oils, the computation provisions relating to fees for technical services will have to yield to section 44BB. In a case of business governed by section 44BB, normally, the enterprise concerned would be having a PE in India. It is difficult to envisage a situation of a person being engaged in providing services or facilities in connection with prospecting and extraction of mineral oils not having a fixed place of business from where the operations are carried on. Thus, the existence of PE is a common feature in both the sections, though there is an explicit reference to PE under section 44DA. Rendering of technical services through PE may be a common feature of both the sections, although in the case of section 44DA, it is explicitly mentioned. But,what is important is the nature of business and it is that factor which serves as an indicator to apply one of the two sections. If the business is of the specific nature envisaged by section 44BB, the computation provisions therein would prevail over the computation provisions in section 44DA. In other words,the income received by a non-resident entity for the technical services provided in relation to prospecting and extraction of mineral oil, will be wholly governed by section 44BB for the purposes of computation.
‘vii. Explanation appended to section 44BB provides that for the purpose of this section, plant includes ships, air crafts, apparatus and equipments used for the purpose of said business and mineral oils include petroleum and natural gas. Thus, the amount received by the assessee on account of supply of spare parts of ships, air crafts, apparatus and equipments used for the purpose of the business is squarely covered u/s. 44BB.
‘viii. If an assessee does not claim benefit of section 44BB(3), it cannot claim that amount, which it receives by way of mobilization advance outside India, should not be included for purpose of calculating income u/s. 44BB.
ix. Services provided by non-resident in connection with movement of offshore rigs set up by assessee on high seas for exploration, prospecting and production of mineral oil from the sea bed is asses sable u/s. 44BB and not as fees for technical services u/s.9(1)(vii).
x. The Hon’ble Calcutta High Court in the case of Schlumberger Sea Co.Inc.(157 CTR 538) has held that once a non-resident supplier of machinery comes within the purview of section 44BB,then it cannot come again under the purview of the other parts of the Act,dealing with profits and gains of business or profession.
xi. Section 195A is not applicable to it and concept of multiple-stage grossing up of income is also not applicable to deemed profits to be computed u/s.44BB.
xii. It is open to an assessee to claim lower profits and gains,if he kept and maintained books of account and other documents as required u/s 44AA(2)and get accounts audited and furnish report.
Order u/s. 254(1)of the Income-tax Act, 1961 (Act)
PER RAJENDRA, AM-
Challenging the orders dated 2/9/2011, 31/5/2012 & 13/3/2015 of CIT(A)-11 and 56, Mumbai the Assessee and the Assessing Officer (AO) have filed appeals for the above assessment years (AYs). Assessee- company is a tax resident of Singapore and the principal activities are of ship-owners, operators and charters. The details of dates of filing of date of filing of return of Income, returned income, date of assessment order, etc. can be summarized as under :-
