Payments made by ONGC to Foreign Companies towards Charter Hire of Tugs assessable u/s 44BB of Income Tax Act: Bombay HC [Read Order]

A division bench of 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 Act and are entitled to special dispensation.

Justice N.J.Jamadar and Justice K.R.Shriram has held that these 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 postinstallation), 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.

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 bench 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.

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