Case of Authority for Advance Rulings, December 07, 2009 (case Geofizyka Torun Vs Director of Income-tax, (International Taxation), Range-II)

President:P.V. Reddi, J. (Chairman) and J. Khosla, Member
Defense:Direct Taxation
Resolution Date:December 07, 2009
 
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Judgment:

P.V. Reddi, J. (Chairman)

1. The applicant is a Company incorporated in Poland and a 'tax resident' of Poland. The applicant provides geophysical services to international oil and gas industry. The applicant conducts seismic surveys and provides on-shore seismic data acquisition and other associated services such as processing and interpretation of such data to global and oil companies. Seismic data acquisition has been explained to mean acquisition of data/information relating to earth structure in order to identify the existence of hydrocarbons underneath. Such services are aimed at increasing the exploration success of its customers and assisting them in maximizing the production from their existing reservoirs. It is explained that seismic surveys can paint the picture of the sub-surface in order to better target oil and gas reserves. The results would help assessing the potential for tapping oil and gas at the particular spot. It is further stated that seismic surveys are conducted to gather data to understand the size and location of oil fields so that the risks involved in exploratory drilling could be reduced. The applicant states that the main objective of seismic data acquisition is "to gather good quality seismic data in the block area so as to obtain meaningful geological sub-surface information and to indicate any direct (bright spot) or indirect evidence for the occurrence of hydrocarbons". Further, according to the Petroleum Tax Guide, published by the Govt. of India, topographical and seismic surveys, analysis, studies and their interpretation and investigations relating to the sub-surface geology including test drilling and drilling of exploration/appraisal wells are part of "exploration operations". Accordingly, the applicant submits that for any oil and gas exploration activity, seismic survey is the first and important step. The applicant states that it has been providing the seismic data acquisition, processing and interpretation services to various oil and gas exploration and production companies in India. The names of four major customers including ONGC are mentioned in the application. It is, therefore, the contention of the applicant that the activities/services related to seismic data acquisition clearly fall within the ambit of Section 44BB of the Income Tax Act, 1961 ('the Act') and therefore the computation of income should be done in terms of that Section.

2. Advance ruling is sought on the following question framed by the applicant:

Whether income derived by the applicant in India is covered under the provisions of Section 44BB of the Income Tax Act, 1961?

3. It has been brought to our notice that the applicant has been filing returns and subjected to assessments in India.

4 The facts stated in the application regarding the scope of services rendered by the applicant and their inter-relation to the exploration of oil and gas are not in dispute. The only question is whether the applicant can take recourse to Section 44BB and have the benefit of computation under that provision. The Revenue contests the applicability of Section 44BB. The contention of the Revenue is two-fold. Firstly, the services contemplated in Section 44BB are services other than those coming within the purview of Explanation 2 to Section 9(1)(vii) of the Act. The services extended by the applicant fall under Explanation 2. Secondly, the income by way of fees for technical services chargeable under Section 9(1)(vii) has to be computed under Section 44DA in a case like this where the service provider has a 'Permanent establishment' in India. In this context, the Revenue contends that the exclusion clause in Explanation 2 does not apply in the case of the applicant because it is not undertaking a mining or like project. Such project is undertaken by someone else and certain technical services are rendered by the applicant to the business enterprise that takes up the project. In short, the Revenue contends that Section 44BB would come into play only if the assessee goes out of the purview of Section 9(1)(vii) read with Explanation 2.

5. Let us look into the relevant provisions in order to appreciate the respective contentions. Section 44BB reads thus:

44BB. Special provision for computing profits and gains in connection with the business of exploration, etc. of mineral oils.

(1) Notwithstanding anything to the contrary contained in Sections 28 to 41 and Sections 43 and 43A, in the case of an assessee being a non-resident, engaged in the business of providing services or facilities in connection with, or supplying plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils, a sum equal to ten per cent of the aggregate of the amounts specified in Sub-section (2) shall be deemed to be the profits and gains of such business chargeable to tax under the head "Profits and gains of business or profession".

Provided that this Sub-section shall not apply in a case where the provisions of Section 42 or Section 44D or Section 115A or Section 293A apply for the purposes of computing profits or gains or any other income referred to in those sections.

(2) The amounts referred to in Sub-section (1) shall be the following, namely,:

(a) the amount paid or payable (whether in or out of India) to the assessee or to any person on his behalf on account of the provision of services and facilities in connection with, or supply of plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils in India; and

(b) the amount received or deemed to be received in India by or on behalf of the assessee on account of the provision of services and facilities in connection with, or supply of plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils outside India.

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[(3) Notwithstanding anything contained in Sub-section (1) an assessee may claim lower profits and gains than the profits and gains specified in that Sub-section, if he keeps and maintains such books of account and other documents as required under 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.

5.1. Then, we may refer to Clause (vii) of Section 9(1) dealing with income by way of fees for technical services (for short 'f.t.s') payable by a resident etc. Such income is deemed to accrue or arise in India. Explanation 2 to Clause (vii) defines 'f.t.s' thus:

Explanation 2: For the purposes of this clause, "fees for technical services" means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "Salaries".

5.2. Section 44DA which was inserted by the Finance Act, 2003 is another special provision for computing income by way of royalty or f.t.s received by a non-resident or foreign company which carries on business in India through a Permanent Establishment. It is the case of the Revenue that the applicant is liable to be taxed under Section 9(1)(vii) of the Act read with Section 44DA but not Section 44BB.

5.3. There is one more section which deserves notice. That is Section 115A which bears the heading "tax on dividends, royalty...

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