IN RE: ARAMCO OVERSEAS COMPANY Vs. STATE
AUTHORITY FOR ADVANCE RULINGS
In Re: Aramco Overseas Company, BV
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P.V. Reddi, J. Chairman -
(1.) THIS application is filed under section 245Q(1) of the Income -tax Act by AramCo Overseas Company B.V. (hereinafter referred to as the 'applicant' or 'AOC'). It is a Company incorporated under the laws of the Netherlands in 1989. It is stated to be a tax -resident of the Netherlands. The following facts are stated in the application:
AOC is a subsidiary of the Saudi Arabian Oil Company (Saudi AramCo). It operates through it offices in Europe, Asia, Australia and Africa to render services in relation to supply chain management, technical support, finance support and administrative support to Saudi AramCo and its group companies. In consideration, AOC is paid the cost plus 5 per cent mark -up by Saudi AramCo, which is received in the Netherlands.
AOC proposes to establish an office in India ('Indian office') for undertaking procurement support activities for its head office and/or Saudi AramCo. The Indian office will undertake procurement support services for the purpose of export outside India of various goods/products required by Saudi AramCo e.g. steel pipes, pipe fittings, steel valves, process vessels, heat transfer equipments, electrical equipments etc. These products will be utilized by Saudi AramCo in its business as fixed assets or as consumables.
Indian office proposes to render the following services in relation to procurement of goods from India:
Assistance in collection and dissemination of market intelligence on products and prospective suppliers.
Giving opinion on reasonability of prices.
Social audit of the supplier to ensure that they adhere to various environmental and other regulations.
Checks to confirm whether the suppliers adhere to quality parameters.
Coordinating and acting as a channel of communication with the suppliers.
The Indian office will not undertake any other business function of AOC or any of its group companies. The Indian office will be funded entirely by reimbursements received by it from its head office without any profit element thereon.
The Indian supplier will be paid directly by the head office or Saudi Aram Co, as the case may be.
(2.) THE question on which the applicant sought advance ruling is the following:
Whether AramCo Overseas Company BV ('applicant') will be taxable in India, in respect of support services rendered by its Indian office for purchases made by the applicant and its group company, in light of the provisions of the Income -tax Act, 1961?
The case of the applicant rests on clause (b) to Explanation (1) of section 9(1) of the Income -tax Act, 1961 hereafter referred to as the 'Act'. Section 9(1) specifies the incomes which shall be deemed to accrue or arise in India. The relevant part of section 9(1) is extracted below:
Section 9(1): The following incomes shall be deemed to accrue or arise in India:
(i) all income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India, or through the transfer of capital asset situate in India.
Explanation 1 - For the purposes of this clause -
(a) in the case of a business of which all the operations are not carried out in India, the income of the business deemed under this clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India;
(b) in the case of a non -resident, no income shall be deemed to accrue or arise in India to him through or from operations which are confined to the purchase of goods in India for the purpose of export;
Section 5(2) may also be noted:
Section 5: Scope of total income. -(1) ******
(2) Subject to the provisions of this Act, the total income of any previous year of a person who is a non -resident includes all income from whatever source derived which -
(a) is received or is deemed to be received in India in such year by or on behalf of such person; or
(b) accrues or arises or is deemed to accrue or arise to him in India during such year.
Explanation 1: Income accruing or arising outside India shall not be deemed to be received in India within the meaning of this section by reason only of the fact that it is taken into account in a balance sheet prepared in India.
Explanation 2: For the removal of doubts, it is hereby declared that income which has been included in the total income of a person on the basis that it has accrued or arisen or is deemed to have accrued or arisen to him shall not again be so included on the basis that it is received or deemed to be received by him in India.
(3.) IT is the contention of the applicant that all the activities proposed to be undertaken by the Indian office are for the purpose of and in connection with the purchase of goods to be exported out of India and therefore Explanation 1(b) to section 9(1)(i) is squarely applicable to the present case. Hence it is contended that no part of the income of the applicant will be taxable in India. The mark -up of 5 per cent over and above the cost paid to the applicant by Saudi AramCo in Netherlands on each transaction cannot be treated as taxable income of the applicant in India having regard to the said specific provision.;
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