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Roxar Maximum reservoir Performance WLL
aar No. 977 of 2010
explanation 2 to section 9(1)(vi),
article 12(2) of india-Singapore DTaa
Dated: 7-5-2012
Justice P. K. Balasubramanyan (Chairman)
Present for the Applicant: Anita Sumant
Present for the Department: None
Contract for supply, installation and commissioning of equipment is a composite contract and cannot be segregated for tax purpose; Separate payment schedule agreed in the contract cannot alter tax treatment; Consideration for offshore supply of equipment is taxable in india.
A decision of a Larger Bench of Supreme Court (SC) is a stronger binding precedent.
Facts:
- Taxpayer, a Bahrain Company (FCO), entered into contract with ONGC (ICO) for supply, installation and commissioning of 36 manometer gauges in India. Under the contract, FCO was responsible for offshore supply of gauges and their installation and commissioning at sites within India.
- FCO claimed that the contract was in the nature of an offshore supply contract and since title in the equipment passed to ICO outside India and also since payments were received outside India, the consideration for offshore supply was not taxable in India. Reliance was placed on SC rulings1 to contend that income derived from offshore supply of equipment was not taxable in India.
AAR Ruling:
AAR rejected FCO’s contention and held that contract with ICO was a composite contract and entire consideration was chargeable to tax in India for the following reasons:
- A contract is to be read as a whole and cannot be segregated for tax purposes. In Ishikawajima’s case, SC adopted a dissecting approach by dissecting a composite contract into two parts and holding one part not taxable in India. The decision of SC in Ishikawajima needs to be reviewed in light of recent SC ruling in case of Vodafone International2, which has propagated that a transaction needs to be looked at as a whole. Further, the ruling in case of Vodafone was rendered by a larger Three-Member Bench and hence would have greater precedence as compared to the SC ruling in Ishikawajima’s case.
- The nomenclature of offshore contract was ‘services for supply, installation and commissioning of 36 manometer gauges’. Other documents such as ‘Invitation to tender’, ‘Scope of Work’, etc. executed by the parties, also support that the primary purpose of the contract was installation of gauges in order to enable ICO to carry on oil extraction in India. Thus, the contract was a composite contract for supply and erection of equipment in India.
- Hence, payment received for installation and commissioning of gauges is chargeable to tax in India and the same will be taxable u/s.44BB of the Income-tax Act as the services are rendered in connection with prospecting and extraction of oil by ICO.
