Siem Offshore Crewing AS vs. ADIT (ITAT Delhi)

The brief facts of the case are that the assessee is a non-resident company incorporated in Norway and derives revenue from Time Charter Agreement by providing crew on vessel. During the year under consideration, the assessee had shown gross revenues of Rs. 8,00,29,650/- on account of crew provision services. The Assessing Officer noticed that the assessee had not offered all the revenues earned by it from the contract for providing of crew to income-tax on the ground that the revenues earned by it beyond 200 nautical miles from the Indian shorelines was not taxable in India and hence the revenue earned for the period during which the vessel was not in India was not taxable. The Assessing Officer was of the opinion that as the contract for providing of crew was a continuing contract, the income could not be segregated and claimed as nontaxable for the period the vessel was not in India. The Assessing Officer was also of the opinion that under the scheme of section 44BB, the receipts are to be taxed on the basis of gross receipts. Secondly, the Assessing Officer was of the view that the assessee was only providing management services and as such, the same was covered within the definition of fees for technical services as envisaged in section 9(1)(vii) of the Income Tax Act, 1961. This was confirmed by the CIT(A). On appeal by the assessee to the Tribunal HELD:

(i) Gross payments are intricately linked to the services/works rendered by the assessee and arise due to the execution of contract in India, under the terms and conditions of the contract between the assessee and Siem Offshore Inc. The vessel was hired by the contract and it was only for this purpose that the vessel and the crew were involved in the said contract. Thus, it is improper on the part of the assessee to offer to tax its revenues only on a pro-rata basis based upon the number of days the vessel was stationed within 200 nautical miles from the Indian shore line. As the contract for the provision of crew was a continuing contract, it cannot be said that revenues were not earned for the period the vessel was out of the territorial waters of India. Hence, the entire contract amount is to be considered for the purpose of calculating the gross receipts and all receipts received against the execution of the contract would come under the purview of gross receipts. Thus, gross amounts for the months of November 2007, December 2007 and January 2008 are to be included in the gross receipts.

(ii) The basic ingredient of section 44BB are that the non-resident assessee should be engaged in the business of providing services or facilities in connection with the prospecting or extraction or production of mineral oils. Non-resident assessee should be engaged in the business of supply plant and machinery on hire used or to be used, in prospecting for or extraction or production of mineral oils. The amount being 10% of gross receipts would be assessable as “business income”. However, a proviso was also inserted which, inter alia, excluded the royalty or FTS contemplated u/s 44D or section 115A. Section 44DA was inserted by Finance Act 2010 w.e.f. 1-4- 2011. From the combined reading of these sections it is evident that all the sections relating to royalty/FTS operate in different fields and that is the reason for insertion of proviso to sections 44BB/44DA/115A. Where the assessee was imparting services which entitled it to royalty or FTS simpliciter then the same continues to be assessed u/s 9(1)(vi)/(vii) read with section 115A of the Act. However, where the assessee is imparting services in relation to oil exploration, the Royalty/FTS would be taxable u/s 44BB. Specific services are contemplated only under section 44BB and, therefore that being special provision, the same will prevail over all other provisions dealing with royalty/FTS. In no other section dealing with royalty/FTS, specific services are provided. In this regard, one may also refer to section 293A of the Act which empowers the Central Government to grant exemptions in relation to participation in the business of prospecting for or extraction etc. of mineral oil. In fact separate notifications have been issued by the Government in exercise of its power conferred u/s 293A to give relief to the assessees in connection with the business of exploration and extraction of mineral oil. Considering the pressing requirement of the oil industry, sections 42 and 293 A were inserted in the Act in view of the high expenditure involved in the business of oil exploration. When viewed in the back drop of this objective, we find that section 44BB has been couched in such a manner so as to encompass within its ambit all services connected with oil exploration. Thus, in our opinion, if a non-resident is engaged in the business of providing services or facilities in connection with the prospecting for extraction or production of mineral oil, then 10% of the aggregate of the amounts received/accrued will be deemed to be the profits and gains of such business chargeable to tax in terms of provisions of section 44BB of the Act. (ONGC vs. CIT & Anr. in Civil Appeal No 731 of 2007 followed)