Supply of Vessel on Hire is Taxable u/s 44BB of Income Tax Act: ITAT [Read Order]

Mumbai bench of Income Tax Appellate Tribunal (ITAT) held that the supply of vessel on hire is taxable under section 44BB of the Income Tax Act 1961 and not under the section 44B.

In the present case, assessee-Company is a tax resident of Singapore and the principal activities are of ship-owners, operators and charters and engaged in the business activity of providing services and facilities.

During the course of assessment proceedings, the Assessing Officer (AO) noticed that the assessee had provided three vessels on hire to carry out and conduct activities relating to exploration or extraction of mineral oil. After verifying the necessary documents and agreements entered into by the assessee, the AO assessed income of the assessee as per the provisions of section 44BB of the Income Tax Act. He was of the view that the vessels had been specifically supplied by the assessee to the co-ventures on hire that the vessels were to be used in activities related to exploration and production of mineral oil, therefore, it is clear that the vessels were to be used in activities related to exploration and production of mineral oil, that the owner had not earned any income from carriage of passengers/goods/mail/livestock through the vessels, that the charterer of the vessel was not using the vessels in its business activities.

The assessee contended that they had given special type of vessels used for various jobs at sea, and were also carry fuel/fresh water in bulk to supply to other ships or rigs at sea/off shore. And the vessels were not normal transportation ships transporting man and material from one port to another, that same were special purpose ocean going vessels which had been prepared to be used in activities related to exploration, extraction of mineral oil. That’s why the hirers used the vessels for the said purposes; hence it is not taxable under section 44BB in the hands of the assessee.

After considering the rival submissions the bench comprising of Judicial Member Ravish Sood and Accountant Member Rajendra observed that section 44B deals with computing of profits and gains of a non-resident from the business of operation of ships, whereas section 44BB is about computation of taxable income of a taxpayer engaged in the business of providing services and facilities in connection with or supply of plant and machinery on hire, used or to be used in the exploration for and exploration of mineral oils.

The division bench also held that section 44BB is applicable where the assessee, being a non-resident, is engaged in the business of providing services or facilities in connection with or supplying plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils. The bench noted that the assessee is a non-resident and the section provides for taxation with reference to pre-ordained criteria which are mentioned in provision itself-amounts received or payable to an assessee-non-resident, whether in India or outside India, had to be included for purpose of calculating income u/s.44 BB. Hence, it was held that the supply of vessels on hire is taxable in the hands of the assessee itself under Section 44BB of the Income Tax Act.

Subscribe Taxscan Premium to view the Judgment
taxscan-loader