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2021 (2) TMI 507 - AAR - Income TaxIncome accrue or arise, or deemed to accrue or arise in India - contract of ONGC that the applicant had utilized the services of seismic vessels of the VPCS [ vessel providing companies] for acquisition of 4C-3D Base Survey Seismic Data - explanation to 'source rule' - source of the business income of the VPCs was embedded in the contract awarded by ONGC to the applicant - acquisition of 4C-3D Base Survey Seismic Data for which the vessels were deployed was only a part of the composite lump-sum contract awarded by ONGC - accrual of income of the VPCs through the business connection in India and also about the territorial nexus of the income generated by them - period of deployment in Indian Territory - business income taxable u/s 44BB ot not? - What is the nature of the sum paid by the applicant to the VPCs under the BBC agreement i.e. whether it is business income taxable u/s 44BB of the Act or royalty income u/s 9(1)(vi) of the Act? - HELD THAT:- The hiring of the vessels by the applicant, pursuant to the contract with ONGC, was for this purpose only. Further, the Explanation to the section 44BB clarifies that 'plant' includes ship or any scientific apparatus or equipment used for the purpose of said business. Thus, the research vessel employed by the applicant is found to be covered within the scope of "plant" as defined in this section. Therefore, the payment made by VPCs is found to be for supply of plant and machinery on hire used in the prospecting for mineral oil in India and is squarely covered under the provision of section 44BB(2)(a) of the Act. Since the receipt is found to be covered under the provision of Section 44BB it cannot partake the character of royalty in view of specific exclusion under clause (iva) of Explanation 2, to section 9(1)(vi) of the Act. The amounts paid by the applicant to the VPCs is found to be covered under the provision of section 44BB of the Act. In fact, the applicant has no serious objection to treat the revenue in the hands of VPCs as income u/s 44BB of the Act. It was admitted that the applicant conducts seismic surveys offshore for which it requires seismic vessels and agreements were made with VPCs for providing such vessels. It was further admitted that provision of such vessels on hire to be used in prospecting of mineral oil is covered u/s 44BB. The source of business income of the vessels was held partly outside India and partly in India, even though the vessel was operating in India during the entire period of contract. In our considered opinion such a concept of accrual of income is not only anomalous but also fraught with manipulation as one can take the vessel away from the place of operation on the date of agreement/renewal and redeploy it at the site afterwards, to escape the rigor of source or territorial nexus. As the business activity in the nature as described in section 44BB of the Act was carried out by the VPCs through the seismic vessels, we are of the opinion that the place where the vessels are deployed for operation would be deemed to be the source of such business income. The parameters of the 'source rule' as explained by the Apex Court in the case of GVK industries [2015 (2) TMI 730 - SUPREME COURT]is found fulfilled in this case and the business activity of the VPCs is found to have a clear nexus with the Indian Territory. There was existence of close, real, intimate relationship and commonness of interest between the non-resident VPCs and the applicant both of whom were operating in Indian Territory and which satisfies the essence of "business connection" and "territorial nexus". Ruling : - The sum paid by the applicant to the vessel providing companies (VPCs) under global usage under bare boat charter (BBC) agreements is deemed to accrue and arise in India and is liable to tax in India under the Income-Tax Act and, therefore, subject to withholding tax in India. The income liable to tax is to be assessed as business income under the provisions of Section 44BB of the Act. Sum received by VPCs is not in the nature of 'Royalty' under section 9(1)(vi) of the Act. Computation mechanism u/s 44BB of the Act would apply.
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