Payments Towards Charter Hire Of Tugs, Barges Made To Non-Resident Assessee Assessable U/S 44BB: Bombay High Court
The Bombay High Court has held that the payments made towards charter hire of tugs and barges made to non-resident assessee in execution of contract with Oil and Natural Gas Corporation Ltd (ONGC) are assessable under Section 44BB of Income Tax Actand are entitled to special dispensation.The division bench of Justice N.J.Jamadar and Justice K.R.Shriram has held that the payments made by...
The Bombay High Court has held that the payments made towards charter hire of tugs and barges made to non-resident assessee in execution of contract with Oil and Natural Gas Corporation Ltd (ONGC) are assessable under Section 44BB of Income Tax Actand are entitled to special dispensation.
The division bench of Justice N.J.Jamadar and Justice K.R.Shriram has held that the payments made by the ONGC and received by the non-resident assessees or foreign companies under the contracts were more properly assessable under the provisions of Section 44BB and not under Section 44D of the Act.
The petitioner/assessee is a public limited company and an engineering conglomerate and carries out varied business activities through independent divisions. The petitioner had entered into a contract with the ONGC, whereunder the petitioner was awarded the contract for survey (pre-engineering, pre-construction/pre-installation and post-installation), design engineering, procurement, fabrication, load out, tie-down/seas fastening tow out/sail out, transportation, installation, hook-up modifications of existing facilities, testing, pre-commissioning, commissioning of the BCP Booster Compressor Platform Project situated at an offshore location on Bombay high.
Since the barges and tugs were to be used for transportation of equipment from the petitioner's yard to offshore site, where the platform was to be erected, the petitioner was of the view that if the income that accrued to the vessel owner would be chargeable to tax in India, the same would have to be computed in accordance with the methodology provided for, in Section 44BB of the Act, 1961.
Thus, the petitioner submitted an application to the Deputy Director of Income-tax (International Taxation) – the Assessing Officer under Section 195(2) of the Act, 1961, seeking permission to remit the charter hire after deducting tax at source at the rate of 4.223%, on the income component of the charter hire, which was estimated at 10% of the gross amount. Documents were tendered and further submissions were made before the Assessing Officer in support of the said claim.
The issue raised was whether the payment of charter hire for the tugs and barges by the petitioner falls within the ambit of 'royalty' under Section 9(1)(iv) or is covered by the special provision contained in Section 44BB of the Act, 1961, for a correct appreciation in a proper perspective, it may be advantageous to extract the relevant provisions of the Act, 1961.
The Counsel for the petitioner, submitted that the authorities fell in error in recording that Section 44BB of the Act, 1961 did not govern the facts of the case as, according to the authorities, it was a case of mere transportation of equipment from the yard to offshore location. The authorities misdirected themselves in concluding that the payment was in the nature of "Royalty" within the meaning of Clause (iva) of Explanation 2 to Section 9(1)(iv) of the Act, 1961 as the payment was in connection with the use or right to use commercial equipment.
It was also submitted that the authorities fell in the error as they lost sight of the exception carved out by the latter part of Clause (iva) to the effect that 'such consideration does not include the amounts referred to in Section 44BB of the Act'.
The emphasis was laid on the end use of the services and facilities. If the service or facility is inextricably linked with the prospecting for, or extraction or production of, mineral oils, the special dispensation provided under Section 44BB of the Act, 1961 must be extended to a non-resident assessee as it was intended to achieve a definite purpose.
On the other hand, Counsel for the Revenue submitted that no fault can be found with the impugned order. The department has ascribed justifiable reasons in impugned order to arrive at the conclusion that the tugs and barges hired by the petitioner were used for transport of equipment from its yard to the offshore site. In the circumstances, the authorities were within their rights in drawing an inference that the payment was in the nature of royalty within the meaning of Clause (iva) of Explanation 2 to Section 9(1)(iv) of the Act, 1961.
The court in the light of the decision of the Supreme Court in the case of Oil and Natural Gas Corporation Limited vs. Commissioner of Income Tax and another observed that the authorities were not justified in arriving at the conclusion that the use of the tugs and barges was in the nature of a mere transportation facility.
"If we consider the object of special dispensation and the proximate use, to which the facility / service or plant and machinery was put to, an inference becomes irresistible that the hire of the tugs and barges, to transport an integral part of the equipment to enhance the exploration / production capacity, was inextricably connected with the extraction and production of mineral oil," the court said.
Case Title: Larsen & Toubro Limited Versus Girish Dave, Director of Income-tax (International Taxation)
Citation: 2022 LiveLaw (Bom) 60
Case No.: Writ Petition No. 2235 Of 2008
Date: 28.02.2022
Counsel For The Petitioner: Senior Advocate Percy Pardiwalla, Advocate Vikram Trivedi, Advocate Sunil Tilokchandani, Advocate Nipa Ghosh and Advocate Neha Javeri
Counsel For The Respondents: Advocate Suresh Kumar