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2023 (2) TMI 120 - AT - Income Tax


Issues Involved:
1. Taxability of receipts from leasing/hiring of RIGs.
2. Classification of income as business profits under section 44BB or as royalty under section 9(1)(vi) read with section 115A of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Taxability of Receipts from Leasing/Hiring of RIGs:
The primary issue in these appeals is whether the receipts from leasing/hiring of RIGs are taxable as business profits under section 44BB of the Income-tax Act, 1961, or as royalty under section 9(1)(vi) read with section 115A of the Act. The assessee, a non-resident corporate entity incorporated in Malaysia, engaged in leasing machines and equipment for exploration and extraction of mineral oils, received amounts from an Indian entity, Jaybee Energy (P.) Ltd. (JEPL), for leasing RIGs. The assessee offered the income from leasing RIGs as business profits to be taxed on a gross/presumptive basis under section 44BB at 10%. However, the Assessing Officer treated these receipts as Fees for Technical Services (FTS) under section 9(1)(vii) read with sections 44D and 115A. The Dispute Resolution Panel (DRP) later held that the amounts received were in the nature of royalty under section 9(1)(vi) read with section 115A and Article 12 of the India-Malaysia DTAA.

2. Classification of Income:
The Tribunal examined whether the receipts should be treated as business profits under section 44BB or as royalty under section 9(1)(vi) read with section 115A. Section 44BB is a special provision for computing profits and gains in connection with the business of exploration, extraction, etc., of mineral oils, applicable to non-residents engaged in providing services, facilities, or supplying plant and machinery on hire used in the prospecting for, or extraction or production of, mineral oils. The provision allows taxation on a presumptive basis at 10% of the gross receipts. However, the proviso to section 44BB(1) excludes its application where sections 42, 44D, 44DA, 115A, or 293A apply.

The Tribunal noted that the activity carried on by the assessee falls within the scope of section 44BB, specifically under the category of supplying plant and machinery on hire used in the prospecting for, or extraction or production of, mineral oils. Section 9(1)(vi) defines royalty, including the use or right to use any industrial, commercial, or scientific equipment. However, clause (iva) to Explanation 2 of section 9(1)(vi) excludes amounts referred to in section 44BB from the definition of royalty.

The Tribunal concluded that the amounts received by the assessee are covered under section 44BB and taxable on a gross basis at 10%. The DRP's conclusion that the amounts received are in the nature of royalty under section 9(1)(vi) read with section 115A was deemed a fundamental error, as it ignored the exceptions provided under clause (iva) to Explanation 2 of section 9(1)(vi). Furthermore, the DRP's view that section 44BB applies only if the non-resident has a Permanent Establishment (PE) in India was found to be a misinterpretation, as section 44BB does not require the existence of a PE.

Conclusion:
The Tribunal accepted the assessee's position that the income from leasing RIGs should be taxed under section 44BB, as it aligns with the statutory provision. The Tribunal directed the Assessing Officer to compute the income for the disputed assessment years under section 44BB. The appeals were allowed, and the order was pronounced in the open court on February 1, 2023.

 

 

 

 

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