Sec. 44BB applies to charter hire charges received by NR for transporting equipment from yard to offshore sites: HC

Case Details: Larsen & Toubro Ltd. v. DIT (International Taxation) - [2022] 136 taxmann.com 7 (Bombay)

Judiciary and Counsel Details

• • K.R. Sharma and N.J. Jamadar, JJ.
  • Percy Pardiwalla, Sr. Adv. Vikram Trivedi, Sunil Tilokchandani, Ms. Nipa Ghosh and Ms. Neha Javeri for the Petitioner. 
  • Suresh Kumar for the Respondent.

Facts of the Case

Assessee was a public limited company and carried out various business activities through independent divisions. The assessee was awarded a contract by Oil and Natural Gas Corporation Ltd. (ONGC) for the survey, design engineering, procurement, etc. of the BCP Booster Compressor Platform Project situated at an offshore location on Bombay high.

Assessee had to transport certain equipment from its yard to offshore sites. Thus, it hired barges and tugs from six non-resident persons. The assessee believed that income accrued to the vessel owner was chargeable to tax under section 44BB. Thus, it submitted an application under section 195(2) seeking permission to remit the sum after withholding tax on the income component computed as per section 44BB.

The Assessing Officer (AO) accepted the assessee’s stand. However, later he held that said payment would fall within the definition of ‘royalty’ and exigible to tax at the rate of 10%. The assessee preferred an application under section 264 before the Director of Income Tax, who upheld the order of AO. Aggrieved-assessee filed the writ petition before the High Court.

High Court Held

The Bombay High Court held that AO believed that the benefit of Section 44BB would be admissible only to the person directly using the services/plants and machinery for exploring, extracting or producing mineral oils and not to the entity which executes the contract for such person.

The assessee hired the tugs to transport the Compressor module to the offshore platform from the yard. The said compressor module was an integral part of the execution of the contract by the assessee.

Considering the object of special dispensation and the proximate use to which the facility or plant and machinery was put, an inference becomes irresistible that the hire of the tugs and barges to transport an integral part of the equipment to enhance the exploration or production capacity was inextricably connected with the extraction and production of mineral oil.

Thus, the payments made by the assessee to the non-resident persons in the execution of the contract with ONGC is properly assessable under the provisions of Section 44BB.

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