Section 44BB & the services or facilities provided by a non-resident assessee vis a vis TDS provision

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Section 44BB & the services or facilities provided by a non-resident assessee vis a vis TDS provision

Here is an important case discussion about the scope of Section 44BB & the services or facilities provided by a non-resident assessee vis a vis TDS provision. The same is discussed hereunder.
The citation of the case is as under:
BOMBAY HIGH COURT
LARSEN & TOUBRO LIMITED
VERSUS
GIRISH DAVE, DIRECTOR OF INCOME-TAX (INTERNATIONAL TAXATION), BOMBAY,
VINAY SINHA, DEPUTY INCOME-TAX (INTERNATIONAL TAXATION) 4 (1) MUMBAI AND UNION OF INDIA- No.-
 
WRIT PETITION NO. 2235 OF 2008,
Dated.- February 28, 2022
  1. The issue was with regard to taxation of Income deemed to accrue or arise in India
  2. Whether payments made by the petitioner to the non-resident assessee as assessable under Section 44BB or not?
  3. In this case the payment was made by the petitioner towards charter hire of the tugs and barges for executing the contract entered into with ONGC.
  4. The issue was whether the hire of the tugs and barges by the petitioner had any connection with the exploration, extraction or production of mineral oils?  Whether the payment of charter hire for the tugs and barges by the petitioner falls within the ambit of ‘royalty’ under Section 9(1)(iv) or is covered by the special provision contained in Section 44BB ?
  1. It is held as under:
    It is imperative to note that the service provider in this case being a non-resident assessee, under Section 195 of the Act, the petitioner – assessee was enjoined to deduct income tax thereon at source at the applicable rates. Moreover, there is material to indicate that in the case at hand, the petitioner had grossed up the profits by 10% and thereafter paid the taxes”.
    There does not appear much controversy as regards the nature of the contract between ONGC and the petitioner – the use of the expression ‘in connection with’ in Section 44BB is of significance. The said expression expands the horizon of the services or facilities, provided by a non-resident assessee, which fall within the ambit of the said provision, provided they have connection with the exploration, extraction or production of mineral oils. The emphasis is not as much on the service, facility as plant as on the purpose to which it is put to. It is the proximity or connection of the service, facility, plant or machinery with the process of exploration, extraction and production of mineral oils, that is of determinative significance.
    The Supreme Court in the case of Oil and Natural Gas Corporation Limited concluded that the pith and substance of each of the contract and agreement in the said case was inextricably connected with prospecting, extraction and production of mineral oil.
The dominant purpose of each of such agreements was for prospecting, extraction or production of mineral oils though there might be certain ancillary works contemplated thereunder, and, therefore, the Supreme Court held that the payments made by the ONGC and received by the non-resident assessees or foreign companies under the said contracts were more properly assessable under the provisions of Section 44BB and not under Section 44D of the Act.

The payments made by the petitioner to the non-resident assessee in the execution of the contract with ONGC is properly assessable under the provisions of Section 44BB of the Act, 1961.

Thus, the impugned order deserves to be quashed and set aside.
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