(i) On facts, consideration for services provided by the applicant to ONGC was not FTS. Hence, was not excluded from section 44BB of Income-tax Act.
(ii) After shifting of managerial control to Norway, the applicant qualified for benefit under Article 23(4) of India-Norway DTAA.
(iii) In terms of section 44BB of Income-tax Act, Service Tax cannot be excluded for the purposes of determining presumptive income.
Facts:
The applicant was a company incorporated in Cayman Islands. To qualify for listing on stock exchange in Norway, in January 2010, the applicant shifted its managerial control to Norway. Thus, it also became a tax resident of Norway and Norway issued tax residency certificate to the applicant. The applicant was of the view that pursuant to its becoming a tax resident of Norway, it qualified to access India-Norway DTAA.
The applicant was owner and operator of support vessel and was engaged in providing services for extraction of oil and gas. In 2009, the applicant formed a consortium with three other members and entered into a contract with ONGC for providing bundled services for a deep water rig for 4 years. In terms of the agreement, ONGC was to make direct payment to each consortium member for performance of the work undertaken by it. The scope of work of taxpayer pertained to sea logistics and included logistical support, rescue operations, safety and security surveillance, etc.
The applicant applied to the tax authority for ascertaining the rate of withholding tax on its income from ONGC. The tax authority treated the applicant’s income as FTS and passed order for withholding tax @10% of the gross amount.
The applicant sought ruling from AAR on applicability of section 44BB to the receipts from ONGC and availability of benefits under India-Norway DTAA. The applicant contended that:
The receipts of the applicant from ONGC were subject to taxation u/s.44BB and consequently, only 10% of the gross receipts were chargeable as income.
Pursuant to shifting of its managerial control to Norway and its becoming tax resident of Norway, it qualified for benefit under India- Norway DTAA.
Under the agreement as well as under the domestic law the obligation of Service Tax was on ONGC. The applicant merely received the Service Tax and paid it to the tax authority on behalf of ONGC. Hence, Service Tax was not the income of the applicant so as to get covered within 44BB.
The tax authority contended that the receipts of the applicant were FTS, which were specifically excluded from section 44BB by proviso to section 44BB(1) through amendment to the Income-tax Act.
Held:
The AAR held as follows.
(i) From review of the role and responsibility of the applicant in terms of the contract amongst the consortium members, the responsibilities of the applicant were not to provide technical services. Therefore, the receipts were not FTS. Hence they were covered by section 44BB and were subject to presumptive basis of taxation.
(ii) Since the tax authority has not disputed shifting of the managerial control of the applicant to Norway and the tax residency certificate issued by Norway to the applicant, India-Norway DTAA should be considered. Having regard to the specific provision in Article 23(4) of India-Norway DTAA, the notional income will be limited to 75% and the tax chargeable shall be limited to 50% of the tax otherwise imposed by India.
(iii) The liability to pay Service Tax is that of the applicant although under the agreement, ONGC had undertaken to reimburse it. Section 44BB does not provide for any deduction in respect of Service Tax. The object of introducing section 44BB was to avoid all complications in determining tax liability of the recipient. Hence, exclusion of Service Tax from income is neither warranted nor permissible in the scheme of section 44BB.
