The Delhi bench of the Income Tax Appellate Authority ( ITAT ) has recently held that receipts from leasing/hiring of Rigs are taxable as business profits under section 44BB of the Income Tax Act, 1961.
Section 44BB of the Income Tax Act, 1961 is a special provision for computing the profit of non-residents in connection with the exploration of mineral oils.
Assesee UMW Sher (L) Ltd. is a non-resident corporate entity incorporated under the laws of Malaysia and is a tax resident of Malaysia. Also, the assessee is engaged in the business of leasing machines and equipment used for the exploration and extraction of mineral oils, providing services onshore to contract drilling and engineering services for the oil and gas industries. The assessee entered into a contract with JEPL for the supply/lease/hire of RIGS to be used by the contractee for the drilling and exploration of mineral oils. In the assessment years under dispute, the assessee received certain amounts towards leasing/hiring of the Rigs to JEPL.
In the returns of income filed for the impugned assessment years, the assessee offered the income from hiring/leasing of rigs as business profits to be taxed on a gross/presumptive basis under section 44BB of the Act at 10%.during the assessment procedure assessing officer amounts received by the assessee are in the nature of Fees for Technical Services (FTS) under section 9(1)(vii) read with section 44D and 115A of the Act. Accordingly, he completed the assessments by treating the amounts received by the assessee as FTS.
When the assessee raised an objection before the Dispute Resolution Forum, they confirmed the order of the assessing officer. Against this order, the assessee filed an appeal before the ITAT.
Ved Jain and Supriya Advocates appeared for the assessee and Gangadhar Panda appeared for the revenue.
While considering the contentions and facts the ITAT Bench observed that, section 44B of the Income Tax Act 1961 is a special provision for computing profits and gains in connection with the business of exploration, extraction etc. of minerals oils.
Therefore, the amounts received by the assessee are fully covered under the provisions of section 44BB and taxable on a gross basis at the rate of 10%.
DRP has made a fundamental error in ignoring the exceptions provided under clause (iva) to explanation 2 to section 9(1)(vi) of the Income Tax Act 1961 while concluding that the amount received is in the nature of royalty under section 9(1)(vi) read with section 115A of the Income Tax Act 1961.
After considering the material and records filed by both parties division bench of the ITAT, Comprising Saktijit Dey, (Judicial Member) And B.R.R. Kumar, (Accountant Member) allowed the appeal filed by the assessee.
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