BEFORE THE AUTHORITY FOR ADVANCE RULINGS (INCOME THE AUTHORITY FOR ADVANCE RULINGS (INCOME TAX), NEW...

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  • BEFORE THE AUTHORITY FOR ADVANCE RULINGS (INCOME TAX), NEW DELHI

    23rd Day of July, 2010

    PRESENT

    Mr Justice. P.V. Reddi (Chairman) Mr. J. Khosla (Member)

    Mr. V.K. Shridhar (Member)

    A.A.R. No. 829 of 2009

    Name & address of the applicant : Seabird Exploration FZ, LLC,UAE

    35th floor, Al Shatha Tower, P.O. Box 500549, Dubai Media City

    United Arab Emirates

    Commissioner Concerned : Director of Income-tax (International Taxation),

    New Delhi Present for the applicant : Mr. N. Venkataraman, Sr. Advocate Mr. Achin Goel, Advocate Mr. Taranpreet Singh, C.A. Mr. Hitesh Jain, C.A. Mr. Sanjay Aggarwal, C.A. Present for the Department : On 23rd Feb. 2010 Mr. S.M.J.Abidi, Addl.DIT, appeared. (appearance on 1st date of hearing) R U L I N G

    [By Honble Chairman]

    1. The following facts are stated by the applicant in this

    application for Advance Ruling under section 245Q of the Income

    Tax Act 1961, hereafter referred to as the Act.

    1.1. Seabird Exploration FZLLC (the Applicant) is a company

    incorporated under the laws of United Arab Emirates and is a tax

    resident of UAE. Seabird is engaged in the business of rendering

    geophysical services to oil and gas exploration industry. Its core

    business activity involves: 1) 2D Seismic data acquisition and

    1

  • processing. 2) 2D/3D Shallow water data acquisition and processing.

    In India, the applicant has been providing offshore 2D and 3D

    seismic data acquisition and processing services to Oil & Natural Gas

    Corporation Limited (ONGC) and other oil companies in India. For

    the purpose of executing the scope of work under such contracts, the

    applicant requires seismic survey vessels. Seismic survey vessels

    are special kind of vessels which are fitted with seismic recording

    systems and receiver units which are used for undertaking seismic

    data acquisition and on-board data processing.

    1.2. In this regard, the applicant has entered into Bareboat

    charter agreements (BBC agreement) with various vessel

    providing companies (VPC) for provision of requisite seismic survey

    vessels on global usage basis. BBC agreement is one where the

    lessor provides only the vessel (without provision of services

    associated with the vessel) on hire to the lessee. It is also referred to

    as dry lease arrangement. Further, a global usage BBC agreement

    is one where the charterer is free to use the vessel anywhere around

    the world.

    1.3. The details of seismic vessels hired by the applicant for

    executing contracts in India and elsewhere are given in the form of a

    chart:

    S.No. Name of the vessel Name of vessel

    providing company. Country of incorporation of VPC

    1. M/V Northern Explorer

    M/s Sana Navigation Company Limited

    Cyprus

    2

  • 2. M/V Munin Explorer M/s. Munin Navigation Company Limited

    Cyprus

    3. M/V Osprey Explorer

    M/s. Osprey Navigation Company Inc.

    Republic of Panama

    4. M/V Geo Mariner M/s Silver Queen Maritime Ltd.

    Malta

    1.4. The BBC agreements between the applicant and VPCs were

    executed outside India. Under the terms of the agreement, the

    vessels would be delivered to and redelivered by the applicant

    outside India. In addition, all payments due by the applicant to VPC

    under the agreement would be received/paid outside India. The

    factual details relating to the hiring of vessels are given hereinafter.

    1.5. The applicant filed a withholding tax application under

    section 195 of the Income-tax Act, 1961 (Act) for payments due to

    VPC requesting for a NIL withholding tax order since VPC do not

    have any income chargeable to tax in India. However, the assessing

    officer passed an order directing the Applicant to deduct tax at source

    at the rate of 4.224% of gross payments being income computable

    under section 44BB of the Act.

    2. On the basis of the above facts, the applicant has

    approached this Authority seeking advance ruling on the following

    questions:

    1. Whether sum paid by the applicant to the vessel providing

    companies (VPC) under global usage bare boat charter

    agreements (BBC agreements) could be said to accrue or arise

    3

  • or deemed to accrue or arise in India under the provisions of the

    Income Tax Act, 1961 (Act) and therefore subject to withholding

    tax in India?

    2. If the answer to question 1 is in affirmative, whether sum paid by

    the applicant to the VPCs under global usage BBC agreements

    are taxable in India under the provisions of section 44BB of the

    Act?

    3. Whether on the stated facts and in law, can the sum paid or to be

    paid by the applicant to VPCs under global usage BBC

    agreements be construed to be in the nature of Royalty under

    section 9(1)(vi) of the Act?

    4. Whether on the stated facts and in the circumstances of the case,

    if the sum paid by the applicant to VPC under global usage BBC

    agreements are construed to be in the nature of Royalty or

    Royalty and fees for included services under Article 12 of the

    Double Taxation Avoidance Agreement between India and Cyprus

    and India and Malta respectively (tax treaty), the income

    chargeable to tax in India ought to be computed as per the

    computational mechanism under section 44BB of the Act?

    2.1. Inspite of giving sufficient opportunities, the Department has

    not chosen to file comments or written submissions. On 23rd

    February, 2010, the case was adjourned on the request of the

    Addl. DIT (Intl.Taxation), Dehradun, though the request for

    adjournment was made at the last minute. Thereafter, by a

    communication received on 9.3.2010 (wrong date is given in the

    letter), the Addl. DIT, Dehradun, has raised some queries about

    the ownership of the vessels which was replied to by the applicant,

    as stated in the following para. Thereafter, though the Department

    4

  • received the written submissions filed by the applicant, no

    comments were offered on behalf of the Revenue nor any one

    appeared for the department. An indifferent attitude seems to have

    been adopted.

    3. Before we proceed further to deal with the question, we

    would like to advert to the fact that the Department, in its

    comments dated 23rd February, 2010, has pointed out certain

    discrepancies in regard to the ownership of the vessels, namely,

    Northern Explorer, Munin Explorer and Osprey Explorer. As

    regards Northern Explorer, the applicant in its reply filed on

    13.1.2010, reiterated that Sana Navigation Co. Ltd. is the owner (

    as stated in the application). The applicant has filed a certificate

    issued by the Directorate General of Merchant Marine of Panama

    certifying that the vessel is owned and registered in the name of

    Sana Navigation Co. The applicant has stated that as the vessel

    was at the disposal of the applicant, the same was shown in public

    domain as owned by the applicant. As regards Osprey Explorer

    and Munin Explorer, it has been pointed out by the Revenue that

    the names of the owners of the vessels are shown differently in

    different documents. To meet this point, the certificate of

    ownership issued by DG of Merchant Marine, Panama regarding

    Osprey Explorer has been filed by the applicant in confirmation of

    what it stated in the application. As regards Munin Explorer, two

    5

  • comments are made by the Revenue (vide written note dt.

    4.2.2010): (i) as per the letter of ONGC, the said vessel is owned

    by Ordinate Shipping AS whereas the assessee has shown the

    owner of the vessel as Munin Navigation Co. Ltd. and (ii) the BBC

    agreement submitted to ONGC was between Ordinate Shipping

    (AS) and Seabird Exploration Ltd. and not with Seabird Explorer F-

    2 LCC the applicant. No specific clarification has been furnished

    by the applicant on this aspect.

    3.1. In the affidavit signed by the Executive Vice-President of the

    applicant on 1st March, 2010, it is asserted that there was no MOU

    between the owner of the vessel and the applicant which cast an

    obligation on the owner to assure uninterrupted supply of the vessel

    to ONGC. The deponent further clarified that the BBC Agreement

    is neither location-specific nor utilization-specific and that the

    applicant is free to use the vessel in any part of the world. Further,

    it is stated that the payments have to be made by the applicant

    even if the vessels are not in use. The BBC agreement, it is

    pointed out, does not involve provision of crew of the vessel by the

    owner. However, it is to be noted that Clause 10(b) of the

    Agreement recognizes the possibility of the vessel owner providing

    the crew.

    4. According to section 115V of the Income-Tax Act, Bareboat

    Charter means hiring of a ship for a stipulated period on terms

    6

  • which gives the charterer the possession and control of the ship

    incl