Section 44BB

Section 44BB — the law in short

What the courts have decided on section 44BB, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Sedco Forex International Inc v CIT Supreme CourtHelps department
  We are a non-resident drilling contractor taxed under section 44BB. Is the mobilisation fee for bringing the rig to India part of the taxable receipts?
  Yes, on these contracts. The Supreme Court held that a fixed mobilisation fee paid for moving a drilling unit to the Indian location falls within clause (a) of section 44BB(2), as an amount paid on account of the provision of services and facilities in connection with, or supply of plant and machinery on hire used in, the extraction of mineral oils in India. Clause (a) applies whether the amount is paid in or outside India. By the fiction in section 44BB the amount becomes income under section 5 and is treated as arising in India for section 9. The assessees' appeals were dismissed.
• Oil & Natural Gas Corporation Ltd v CIT Supreme CourtHelps taxpayer
  The Assessing Officer says our contract with ONGC is really technical services, so 44BB is out and 44D applies. How is that decided?
  By the pith and substance of the contract, not by picking out its ancillary parts. If the dominant purpose of the agreement is prospecting for, or extraction or production of, mineral oils, the payment is assessable under s.44BB and not as fees for technical services under s.44D read with Explanation 2 to s.9(1)(vii).
• CIT v Hyundai Heavy Industries Co Ltd Supreme CourtCuts both ways
  I am a foreign company on a turnkey contract. I fabricated the platform abroad and only installed it in India. Can the Department tax the offshore fabrication profit because the contract was one indivisible whole?
  No, on these facts. The Supreme Court held that an installation permanent establishment comes into existence only at the installation stage, which is after the equipment has been sold and delivered abroad, so profits on the offshore supply are not attributable to it. Under Article 7 what is taxed is not the real profit but the hypothetical profit the permanent establishment would have made as a wholly independent enterprise, so nothing can be attributed on the supply unless the Department shows the price was not at arm's length or included an element for the establishment's services. On quantum, ten per cent of the Indian gross receipts was upheld.
• Paradigm Geophysical Pty Ltd v CIT (International Taxation)-3 High CourtCuts both waysNo later treatment found
  For AY 2012-13 the officer moved us out of s.44BB into s.44DA. Does the Finance Act 2010 proviso really do that?
  Yes. From 1 April 2011, income falling within the scope of s.44DA(1) is excluded from s.44BB, and if a non-resident's income is royalty or fees for technical services it is taxable under s.44DA or s.115A. But the exclusion only bites if the receipt really is royalty or FTS, and services for a mining or like project are carved out of the FTS definition in Explanation 2 to s.9(1)(vii) altogether.
• DIT (International Taxation) v Schlumberger Asia Services Ltd (Full Bench) High CourtHelps taxpayer
  Our Uttarakhand assessments add back the service tax ONGC reimbursed to us. Is there a binding answer in that High Court?
  Yes, and it is against the Revenue. A Full Bench of the Uttarakhand High Court answered the reference holding that the amount reimbursed by ONGC to the service provider, representing service tax the provider had already paid to the Government, does not form part of the aggregate amount referred to in clauses (a) and (b) of s.44BB(2).
• National Petroleum Construction Company v DIT High CourtHelps taxpayer
  I am a UAE company that fabricates offshore platforms abroad and installs them in India. My installation ran under nine months with a long break in the middle. Do I have a permanent establishment here?
  No. The Delhi High Court held the UAE company had no permanent establishment in India for assessment years 2007-08 and 2008-09. Under Article 5(2)(h) of the India-UAE treaty the nine-month test looks to the period the enterprise is actually involved at the site; a long interruption when the assessee had no access to the site is excluded, and the installation activity lasted only from November 2006 to April 2007. The Indian consultant was an agent of independent status acting in its ordinary course of business, with no authority to conclude contracts, so it was no dependent agent permanent establishment. The assessment orders and the Tribunal's orders were set aside.
• DIT v Mitchell Drilling International Pvt Ltd High CourtHelps taxpayer
  The officer has added the service tax we collected from ONGC to our s.44BB gross receipts. Is that right?
  No. Service tax collected by the assessee and passed on to the Government is not to be included in the gross receipts under s.44BB(2) read with s.44BB(1). It is not an amount paid or payable, or received or deemed to be received, for the services rendered — the assessee is only a collecting agency.
• DIT v OHM Ltd High CourtHelps taxpayer
  I am a foreign company providing survey and data services to an offshore oil exploration block in India. Am I taxed at 10% of gross under section 44BB, or must I go under section 44DA?
  Section 44BB applies. The Delhi High Court upheld the Authority for Advance Rulings and held that where a non-resident provides services in connection with prospecting for or extraction or production of mineral oils, section 44BB governs the computation, not section 44DA. Section 44BB is the special provision and section 44DA the general one, so generalia specialibus non derogant applies. Reading section 44DA as covering everything would reduce section 44BB to a dead letter. The provisos inserted by the Finance Act 2010 in both sections are clarificatory on computation and do not change either section's sphere of operation.
• Computer Modelling Group Ltd. v. ACIT — for a year after 1 April 2012, the proviso to s.209(1)(d) is not attracted where tax was in fact deducted at source ITATHelps taxpayerNo later treatment found
  My non-resident client's Indian customers did deduct tax at source, but the Assessing Officer has still charged s.234B interest for an assessment year after 2012-13, saying the Finance Act, 2012 proviso removes the s.209(1)(d) credit. Is that right?
  No. The Delhi Tribunal held that the proviso inserted in s.209(1)(d) by the Finance Act, 2012 with effect from 1 April 2012 'would apply only in a scenario where person responsible for deducting tax has paid or credited such income without deduction of tax', and that where the income was received by the assessee after deduction of tax at source the proviso is not applicable. Reading s.209(1)(d) with its proviso, it held that where in the case of a non-resident company the tax deductible at source has been paid, it is not permissible for the Revenue to charge interest under s.234B for an alleged failure to pay advance tax, and it allowed the ground for both assessment year 2012-13 and assessment year 2019-20.
• John A. Sayre v CIT Advance RulingHelps departmentSuperseded by amendment
  I am a geologist running production at three oil and gas fields in India for a foreign oil company. Am I a technician in mining, or in constructional operations, for the section 10(5B) exemption?
  No, on both routes. The Authority held that mining in the Explanation to s.10(5B) is not used in a broad sense that takes in prospecting for or extraction of mineral oil, because the Income-tax Act consistently treats mineral oil as something separate from minerals and makes its own special provision for it in ss.42, 44BB and 293A. It also rejected the alternative case that the applicant was a technician in constructional or manufacturing operations: he had a degree in geology and no shown special knowledge of construction, and he was employed to run oil and gas field production, not to build. It did accept the applicant's answer to the Commissioner's threshold objection - the second category of technician, one employed in any business carried on in India, need not be in government or public employment. The ruling binds only the applicant.
• Tekniskil (Sendirian) Berhard v CIT Advance RulingHelps taxpayerSuperseded by amendment
  We are a Malaysian company that recruits skilled workers abroad and supplies them to a Korean contractor working offshore India. We are paid outside India and we supervise nothing. Are we taxable here?
  No. The Authority ruled that Tekniskil, a Malaysian manpower company, was not taxable in India on sums received abroad and had no permanent establishment here. It supplied about a hundred skilled workers to Hyundai Heavy Industries for offshore installation work at Bombay High. It recruited them outside India, bore their mobilisation and personal costs, and handed them over; HHI directed and supervised them on its own barges. Supplying labour was a business activity, so article 7 of the India-Malaysia agreement applied, and with no fixed place at Tekniskil's disposal there was nothing for the profits to attach to. The ruling binds only Tekniskil.
• Statutory position — section 44DA: royalty and fees for technical services effectively connected with a permanent establishment, and the second proviso that shuts section 44BB out from 1 April 2011 CBDT Circulars & InstructionsCuts both ways
  Our foreign company earns fees for technical services from an Indian oil company and we have a permanent establishment here. We have always returned the income at 10 per cent under section 44BB. The Assessing Officer says section 44DA applies instead. When did that change, and what does section 44DA require us to do?
  It changed with the Finance Act 2010, with effect from 1 April 2011, which inserted a second proviso to s.44DA(1) reading "Provided further that the provisions of section 44BB shall not apply in respect of the income referred to in this section." Section 44DA(1) applies where royalty or fees for technical services are received from Government or an Indian concern under an agreement made after 31 March 2003, the non-resident or foreign company carries on business in India through a permanent establishment or performs professional services from a fixed place of profession, and the right, property or contract in respect of which the royalty or fees are paid is effectively connected with that permanent establishment or fixed place; the income is then computed under "Profits and gains of business or profession" in accordance with the provisions of the Act — that is, on a net basis — and s.44DA(2) requires books under s.44AA, an audit by an accountant within the meaning of the Explanation below s.288(2), and the audit report furnished along with the return.
• Statutory position — section 44BBB: the 10 per cent turnkey power presumption, the international-aid condition dropped in 2003, and the lower-profit claim in sub-section (2) CBDT Circulars & InstructionsCuts both ways
  We are a foreign company erecting plant for a power project in India. The Assessing Officer wants to tax 10 per cent of our billings under section 44BBB although our audited books show much less. Can we claim the lower figure, and does it matter that our project is not funded by any aid programme?
  You can claim the lower figure, and the aid-funding point no longer matters. Section 44BBB(2), inserted by the Finance Act 2003 with effect from 1 April 2004, provides that notwithstanding sub-section (1) an assessee may claim lower profits and gains than the 10 per cent, if he keeps and maintains books of account and other documents as required under s.44AA(2) and gets his accounts audited and furnishes the audit report as required under s.44AB — whereupon the Assessing Officer must proceed to make an assessment of the total income or loss under s.143(3). The same Finance Act 2003 omitted, with effect from the same date, the words "and financed under any international aid programme" which until then had confined the section to aid-funded turnkey power projects; what remains is the requirement that the turnkey power project be approved by the Central Government in that behalf.
• Statutory position — section 44BBA: the 5 per cent presumption for a non-resident operating aircraft, and the lower-profit option it does not contain CBDT Circulars & InstructionsCuts both ways
  Our foreign airline made a loss on its India operations and our books are audited. The Assessing Officer says 5 per cent of our gross collections is taxable under section 44BBA regardless. Is there any provision letting us claim the lower figure?
  Not in section 44BBA itself. Section 44BBA(1) deems 5 per cent of the aggregate of the sub-section (2) amounts to be the profits of a non-resident engaged in the business of operation of aircraft, notwithstanding sections 28 to 43A, and the section as printed contains only two sub-sections: there is no counterpart to s.44BB(3) or s.44BBB(2), which is what lets a mineral-oil contractor or a turnkey power contractor claim lower profits on audited books. Sub-section (2) takes in (a) the amount paid or payable, whether in or out of India, on account of carriage of passengers, livestock, mail or goods FROM any place in India, and (b) the amount received or deemed to be received in India on account of such carriage FROM any place outside India.
• Statutory position — section 44B: the 7.5 per cent shipping presumption, and why clause (i) and clause (ii) of sub-section (2) are not symmetrical CBDT Circulars & InstructionsCuts both ways
  We are a foreign shipping line assessed under section 44B. The Assessing Officer has included freight we collected abroad and also our demurrage. What actually goes into the "aggregate of the amounts" under section 44B(2), and does it matter where the money was received?
  It matters, but only for cargo shipped at a port OUTSIDE India. Section 44B(2) has two clauses and they are deliberately different: clause (i) takes in the amount paid or payable "whether in or out of India" on account of carriage of passengers, livestock, mail or goods shipped at any port IN India, so where the freight was collected is irrelevant for an Indian loading; clause (ii) takes in only the amount "received or deemed to be received in India" on account of carriage of goods shipped at any port OUTSIDE India, so for a foreign loading receipt in India is the condition of charge. The Explanation to sub-section (2) then provides that the amount referred to in either clause shall include amounts by way of demurrage charges or handling charges or any other amount of similar nature.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.