TMI Blog2011 (7) TMI 103X X X X Extracts X X X X X X X X Extracts X X X X ..... applicant are services in connection with that activity whether in view of the developments that took place after 1st January, 2010, the income of the applicant should be assessed only in the context of Article 25 of the India-Norwegian Treaty - No dispute is raised by the Revenue regarding the claim of the applicant that though the company was registered in Cayman Islands the managerial control over it passed to Norway when the applicant got listed in the Oslo Stock Exchange - tax liability of the applicant to be taxed in India is governed by Article 23(4) of DTAA read with its non-obstante clause fixing the limit. This would be the position from 1st January 2010 the amount collected as Service Tax by the applicant to be made over to the State, cannot be treated as consideration for the service rendered by the applicant to ONGC - The consideration fixed under the contract between the parties as the sum to be paid has to be taken as the amount based on which the fictional income has to be ascertained - The very object of introducing the fiction, namely, to avoid all complications in determining the liability of an assessee coming under that provision otherwise, would itself be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... including the applicant, formed a consortium. An agreement in that behalf was entered into by them on 5.6.2009. The consortium submitted its bid on 10.6.2009 for the work. By letter dated 20.6.2005 ONGC awarded the work to the consortium. The letter of award provided that the period of the contract was 4 years from the date of commencement. A contract dated 16.11.2009 was entered into. The scope of the work was described thus: The contractor shall provide following services for the dynamically Positioned Drillship/Semi submersible Drilling Rig hired by Operator for working in water depth upto 10,000 feet for drilling exploratory/development wells and work-over/completion operations including re entry anywhere in Indian offshore. The services shall be capable of operating in water depth of 10,000 feet with well depth of 35,000 feet or more. 4. The consortium agreement dated 5.6.2009 provided the scope of the work of each one of the four. The applicant was required to provide Sea Logistics Services . It was specified that the Contractor shall be solely responsible to provide marine logistics support for transportation of essential cargo including operator s, o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the gross amount payable to the applicant by ONGC. By a terse order, the Deputy Director of Income-tax directed ONGC to deduct tax at the rate of 10% on all contractual payments. The applicant has produced a copy of that order. In the circumstances the applicant has sought a ruling as to whether it was not liable to be taxed only under section 44BB of the Act and whether ONGC was not liable to withhold tax only on that basis and on other related questions. 7. While admitting the application for a Ruling in terms of section 245R(2), this authority accepted the following questions for Ruling:- 1. Whether income derived by the Applicant in India is covered under the provisions of Section 44BB of the Income-tax Act, 1961? 2. Whether the income of the Applicant was not liable to be taxed as royalty‟ in terms of Section 9(1)(vi)(iva) given the exclusion carved out in respect of such income falling within the purview of section 44BB of the Act. 3. Whether the income derived by the Applicant is taxable in terms of Article 23 of the Double Taxation Avoidance Agreement (DTAA) between India and Norway after January 2010 when the Applicant became a tax res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e income derived by the applicant comes within sections 5 and 9 of the Income-tax Act under the chargeability laws in India. Same is the position with regard to the claim of the applicant that the service tax received by it and made over by it to the Government, cannot be treated as part of its income under section 44 BB of the Act especially in terms of the contract by which the liability to pay service tax was on ONGC. The comments merely repeat that the income does not fall under section 44 BB of the Act. 10. As summarized by Senior Counsel for the applicant the first question to be considered is whether the income earned by the applicant in terms of the contract can be computed under section 44BB of the Act for the purpose of assessment under the Act. A reference to the memorandum of understanding entered into by the four entities of the consortium shows that the work undertaken by the applicant is the providing of Sea Logistics Services. We have already noticed the content or scope of that service to be rendered by the applicant and its responsibilities in that behalf. From the role assigned to the applicant and the responsibilities undertaken by it in terms of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the provisions of the Treaty should be looked into for the purpose of assessment subsequent to January 2010. No dispute is raised by the Revenue regarding the claim of the applicant that though the company was registered in Cayman Islands the managerial control over it passed to Norway when the applicant got listed in the Oslo Stock Exchange. The Tax Residency certificate relied on by the applicant is also not questioned. Hence the DTAA relied on has to be considered. 12. Article 23 of the DTAA between India and Norway deals with Offshore activities. The present activity undertaken by the applicant being such an activity, it is claimed that it is liable to be taxed only in Norway in terms of Article 25 of the DTAA and not in India. A reading of Article 25 with particular reference to sub-article 4 thereof shows that an income covered by Article 23 can be taxed in this country, making it obligatory on Norway to give a deduction of the tax paid while assessing liability of the resident in that country. On reverting to Article 23 of DTAA we find that sub-article (4) also provides that the income like the one here can be taxed in India, but that it has to be at the rate and in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Rule 6 relied on regarding the depositing of tax with the Government cannot be taken to water down the obligation of the Service provider or relieve him from being assessed to tax. The liability remains that of the Service provider. 15. Section 44BB of the Income-tax provides for ascertainment of a fictional income for the purpose of taxation. It is fixed at 10% of the amount paid or payable for the service rendered or facility provided in connection with the prospecting for or extraction or production of mineral oils. The consideration fixed under the contract between the parties as the sum to be paid has to be taken as the amount based on which the fictional income has to be ascertained. The section does not speak of any deduction in that behalf. It is open to those who want to claim exemptions and exclusions in assessment to opt to proceed under section 44BB(3) of the Income-tax Act. But once an assessee opts to come under section 44BB(1) of the Act, there appears to be no scope for any calculation or re-calculation of the amount shown as payable in the contract. The very object of introducing the fiction, namely, to avoid all complications in determining the liability ..... X X X X Extracts X X X X X X X X Extracts X X X X
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