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Section 44BB – Income from providing drilling rig on hire to a person who is engaged in drilling activities in India for ONGC is eligible for the benefit of presumptive taxation u/s. 44BB of the Act.
Facts:
Taxpayer, a Company incorporated in USA (USCo), was a non-resident (“NR”) engaged in the business of providing drilling rig, and rendering services and facilities in connection with prospecting, production and extraction of mineral oil. USCo provided an offshore drilling rig on hire to one of its group entity- also a NR (Group Co) which the Group Co used for drilling activity in India carried out on behalf of oil producing Indian company (I Co). USCo had a PE in India. The income from the contract entered into by USCo in India was effectively connected with that PE in India.USCo filed its return of income by declaring income from provision of drilling rig on presumptive basis u/s 44BB of the Act. However, the Tax Authority argued that the rig was not provided by USCo pursuant to a direct contract with I Co but was provided to a sub-contractor. Accordingly, the Taxpayer was not entitled to avail benefit of taxability u/s. 44BB of the Act.
Held:
The benefit of presumptive taxation u/s 44BB requires that the Taxpayer should be a NR and it should be
• engaged in the business of providing services or facilities in connection with the prospecting, production and extraction of mineral oil (first limb)or
• engaged in the business of supplying ‘plant and Machinery’ on hire used or to be used in the prospecting, or extraction of mineral oils (second limb)
The second limb requires that the NR Taxpayer must supply plant and machinery and such plant and machinery should be used for prospecting for extraction or production of mineral oils. The emphasis is on “use for” and not “use by”.
Whether the rig is deployed in the prospecting activities pursuant to a direct contract with I Co or pursuant to a contract with sub-contractor is nowhere the condition or any mandatory provision of section 44BB. The only essence is that equipment is used in the prospecting for or extraction of mineral oils.
Where the provision does not create any discrimination between the person who actually does the activity of prospecting for or extraction or production, and the person who supplies the plant and machinery, the narrow interpretation of the provisions is not permitted.
Further in the case of PGS Geophysical (269 CTR 433), Delhi HC laid down two conditions for the applicability of section 44BB as follows:
• Taxpayer should have a (Permanent Establishment) PE in India during the relevant period and
• The contract entered into by the Taxpayer in India should be effectively connected with that PE in India.
As both these conditions were fulfilled, benefit of section 44BB was available to USCo.
