Case nº A.A.R. No. 867 of 2010 of AAR Cases, December 02, 2015 (case In Re: Aker Contracting FP ASA Vs)
| Judge | For Appellant: Percy Pardiwala, Sr. Advocate, Urvi Thakkar, Rahul Jain, CAs and R. Satish Kumar, Advocate |
| President | V.S. Sirpurkar, J. (Chairman) and A.K. Tewary, Member (Revenue) |
| Resolution Date | December 02, 2015 |
| Issuing Organization | AAR Cases |
Judgment:
A.K. Tewary, Member (Revenue)
-
The applicant, Aker contracting FP ASA, is a company incorporated under the laws of Norway and is engaged in the business of providing 'Floating Production Storage and Offloading' (FPSO) facilities which is a type of floating production system used in the offshore oil and gas industry. The applicant is a tax resident of Norway. The applicant entered into a contract on 9th May 2007 (being referred to as original contract) with M/s. Reliance Industries Limited (RIL). Under this contract the applicant was required to provide FPSO at the assigned oil and gas field in connection with extracting, prospecting or production of mineral oil, the consideration for this was on day rate release rental basis. Further the original contract specified USD 18.79 million as the fee towards mobilization of the vessel from Singapore to India to the offshore location in India. The consideration for FPSO facility and the fees towards mobilization of the vessel as per the original contract have been offered to tax from Assessment Year 2009-10 onwards. The applicant, in the return of income filed from the Assessment Order 2009-10 onwards, accepted that the consideration for providing FPSO facility was for supplying plant and machinery on hire used or to be used in the prospecting, extraction or production of mineral oil and such income having accrued in India was computed in terms of Section 44BB of the Income-tax Act and offered to tax accordingly. Similarly, the mobilization Revenue was also offered to tax on the same basis.
-
On 27th July 2008, the applicant signed a 'Change Order' with RIL to facilitate the following amendments in the scope of work of the original contract dated 9th May 2007 for a total sum of US Dollars 85 million.
-
The consideration received as per the 'Change Order' has not been offered to tax by the applicant. In the application before this Authority the applicant mentions that the 'Change Order' provides for additional scope of work out of which a substantial portion of work was performed outside India. However, RIL has been withholding tax on payments made under the 'Change Order' also based on the withholding order obtained from the Income Tax Department for the original contract under which tax was to be deducted in accordance with provisions of section 44BB of the Act.
-
The events are summarized in chronological order as under:--
-
The applicant has filed the application in respect of taxability of the consideration received from various streams under the 'Change Order' mentioned above. The application was admitted vide order dated 24th May, 2010. While admitting the application it was noted by the Authority that the number of questions (15) framed in the application could be reduced and they could be more precise and, accordingly, the applicant was directed to recast the questions. The applicant filed revised questions on 17th February, 2011, which are as under:--
1) Whether based on the stated facts of the case and in law, the consideration received by the Applicant under the Change Order for undertaking the following [before the floating production storage and offloading system, ('FPSO') arrived in India], is in the nature of business profits or in the nature of 'fees for technical services' as defined in the Explanation 2 of section 9(1)(vii) of the Income Tax Act, 1961 ('Act')?:
i Fabrication and installation of new living quarters onboard the FPSO facility and procurement and installation of Heating Ventilation Air Conditioning System ('HVAC'') system onboard the living quarters.
ii Expediting deliveries of topside modules and increasing productivity at the Singapore yard.
iii Performing scope of work to avoid the dry-docking period up to a period of 15 years.
iv Mobilizing the commissioning team of the Applicant along with the members of Aker Borgestad Operations AS (entity which operates and maintains the FPSO) and major vendor representatives four months prior to the FPSO sailing to India instead of the scheduled timeline of six weeks prior to the FPSO sailing to India.
2) If the scope of work is in nature of business profits, would the consideration for the scope of work, as mentioned in question 1 above, be taxable in India even though it pertains to work performed wholly outside India?
3) Whether on the stated facts and in the circumstances of the case, the consideration received by the Applicant for installation of the buoy and moorings in India is in the nature of business profits on fees for technical services under section 9 of the Act? Whether the income chargeable to tax ought to be computed having regard to the computational mechanism under section 44BB of the Act?
4) If for any reason the amount as received by the Applicant for performing the scope of work as mentioned in Question 1 is taxable in India, whether the income chargeable to tax ought to be computed having regard to the computational under section 44BB of the Act?
5) Whether based on the stated facts and in law, the consideration received by the Applicant that is attributable to mobilization of the FPSO to the extent of the distance travelled by the FPSO outside India is taxable in India?
6) Whether on the stated facts and in the circumstances of the case, the consideration received by the Applicant on account of insurance receipts for loss of hire are chargeable to tax in India?
Applicant's Submissions in the Application
-
Applicant's submission in the original application dated 17 January 2010 and in the letter dated 17 February 2011 while filing revised questions are same and main points are as under:--
A. Consideration received under the 'Change Order' is in the nature of business profits
According to the applicant it has not rendered any managerial, technical or consultancy services to RIL. The consideration received is neither for rendering services of managerial, technical or consultancy in nature nor in the nature of royalty. The work performed by the applicant is in the nature of business profits because such receipts are arising from execution of a contract. Even in respect of work relating to mobilization it was stated that the applicant is simply undertaking the mobilization of the commissioning team along with members of Aker Borgestad (entity which will operate and maintain the FPSO) and major vendor representatives four months prior to the FPSO sailing to India instead of six weeks prior to the FPSO sailing to India, as stipulated under the Change Order executed with RIL. The same essentially amounted to execution of the contract and not rendering any service to RIL. The mobilization of the commissioning team is integral to the provision of the FPSO (as envisaged by the original contract)....................................................................
'The work performed by the applicant is in the nature of business profits.'
B. Work performed outside India.
The applicant has stated that as the entire scope of work was performed outside India, the consideration received cannot be said to accrue or arise in India.
C. Income should be computed under section 44BB of the Act
The applicant further states that in the event consideration received under the Change Order for revenue streams mentioned in question No. 1 is deemed to be taxable in India, the income chargeable to tax should be computed as per computational mechanism under section 44BB of the Act. The activities performed are integral part of provisions of the FPSO and are thus in connection with extraction and production of mineral oil and gas at the assigned gas fields and should accordingly be liable to tax in accordance with the provisions of section 44BB. However, consideration received by the applicant that is attributable to mobilization of FPSO to the extent of distance travelled outside India is not taxable. The mobilization revenue taxable in hands of the applicant should be restricted only to the revenues attributable to the distance travelled in Indian territorial waters as compared to the total distance travelled from Singapore yard to India.
D. Work as per 'change order' cannot be attributed to PE
According to the applicant the STP buoy and moorings were installed in Indian waters in January 2008 and FPSO arrived at the production site only in August 2008. The consideration received was for the work done as per the 'change order' and cannot be attributed to PE in India on the ground that the work has been carried out outside India.
E. Income out of consideration to STP Buoys & Moorings should be computed under Section 44BB of the Act.
As regards the consideration received for the installation of buoy and moorings in India, it was stated by the applicant that the activities performed on this account would fall within the exclusion to Section 9(1)(vii) of the Act and they would be classified as 'Mining or like project' and accordingly would not be in the nature of FTS. Such activities should be liable to tax in accordance with the provisions of Section 44BB of the Act. Such installation services are the services or facilities in connection with the production of 'mineral oil' and clearly fall under the ambit of Section 44BB of the Act. Accordingly, the additional compensation for timely installation of STP buoy and moorings should be computed having regard to the computational mechanism under section 44BB of the Act.
F. Insurance receipts not taxable in India
As regards insurance receipt, the applicant has stated that the insurance received cannot be deemed to accrue or arise in India since they are received outside India pursuant to an insurance policy which has been signed outside India. Accordingly, such receipts are not taxable in India. The same is not taxable even under the provisions of section 44BB because such receipts neither are the 'services or facilities' in connection with prospecting, extraction or production of mineral oil nor are for the...
To continue reading
Request your trial