Business of exploration, etc, of mineral oils

For the purposes of s 44BB, the vessels provided are covered under the definition of “plant” and the consideration received by the non-resident for supply of the vessels on hire, when used in prospecting for or extraction or production of oil and gas in India, is covered under s 44BB. The effective rate at which the tax has to be withheld from the payments would be 4.22%, as held by AAR in Bourbon Offshore Asia Pte Ltd, in Re; AAR No 937 of 2010.

The nature of the receipts, on account of provision of the supply of the vessels on a hire basis used in prospecting for or extraction or production of oil and gas, cannot have the character of fees for technical services within the meaning of Explanation 2 to s 9(1)(vii).

The applicant is engaged in the business of providing offshore oil and gas marine subsea services. It also offers range of offshore oil service vessels to the global oil and gas industry. Under the contract with TOVIL, who in turn is providing various offshore drilling and support services to ONGC, the applicant has provided four vessels to TOVIL to be used on the east and west coast of India. For the purposes of s 44BB of the Act, the vessels provided are covered under the definition of “plant”. The consideration received for supply of “plant”, ie the vessels on hire when used in the prospecting for or extraction or production of oil and gas, is covered under the special provision for computing profits and gains under s 44BB of the Act. The intention to exclude construction, assembly and mining or like projects from the purview of fees for technical services is to draw a line of distinction between business activities and the mere rendering of services. The nature of the receipts, on account of provision of the supply of the vessels on a hire basis, cannot have the character of fees for technical services within the meaning of Explanation 2 to s 9(1)(vii). The services required by TOVIL are rendered by the applicant by using the vessels under its control and command, which cannot bear the character of fees for technical services. The rate at which tax is to be withheld from payments made by Transocean to BOA towards the time-charter of service vessels will be 4.22%.

Decided on: 12 July 2011.