SEABIRD EXPLORATION FZ Vs. DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION)
LAWS(AR)-2010-7-3
AUTHORITY FOR ADVANCE RULINGS
Decided on July 23,2010

Seabird Exploration Fz Appellant
VERSUS
Director of Income Tax (International Taxation) Respondents

JUDGEMENT

P.V. Reddi, J. (Chairman) - (1.) THE following facts are stated by the applicant in this application for Advance Ruling under Section 245Q of the Income Tax Act 1961, hereafter referred to as the 'Act'. 1.1. Seabird Exploration FZLLC ('the Applicant') is a company incorporated under the laws of United Arab Emirates and is a tax resident of UAE. Seabird is engaged in the business of rendering geophysical services to oil and gas exploration industry. Its core business activity involves: 1) 2D Seismic data acquisition and processing. 2) 2D/3D Shallow water data acquisition and processing. In India, the applicant has been providing offshore 2D and 3D seismic data acquisition and processing services to Oil & Natural Gas Corporation Limited ('ONGC') and other oil companies in India. For the purpose of executing the scope of work under such contracts, the applicant requires seismic survey vessels. Seismic survey vessels are special kind of vessels which are fitted with seismic recording systems and receiver units which are used for undertaking seismic data acquisition and on -board data processing. 1.2. In this regard, the applicant has entered into "Bareboat charter" agreements" ('BBC agreement') with various vessel providing companies ('VPC') for provision of requisite seismic survey vessels on global usage basis. BBC agreement is one where the lessor provides only the vessel (without provision of services associated with the vessel) on hire to the lessee. It is also referred to as 'dry lease arrangement'. Further, a global usage BBC agreement is one where the charterer is free to use the vessel anywhere around the world. 1.3. The details of seismic vessels hired by the applicant for executing contracts in India and elsewhere are given in the form of a chart: - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -S.No. Name of the vessel Name of vessel Country of incorporation providing company. of VPC - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1. M/V Northern M/s Sana Navigation Cyprus Explorer Company Limited - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 2. M/V Munin Explorer M/s. Munin Cyprus Navigation Company Limited - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 3. M/V Osprey M/s. Osprey Republic of Panama Explorer Navigation Company Inc. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 4. M/V Geo Mariner M/s Silver Queen Malta Maritime Ltd. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1.4. The BBC agreements between the applicant and VPCs were executed outside India. Under the terms of the agreement, the vessels would be delivered to and redelivered by the applicant outside India. In addition, all payments due by the applicant to VPC under the agreement would be received/paid outside India. The factual details relating to the hiring of vessels are given hereinafter. 1.5. The applicant filed a withholding tax application under Section 195 of the Income -tax Act, 1961 ('Act') for payments due to VPC requesting for a NIL withholding tax order since VPC do not have any income chargeable to tax in India. However, the assessing officer passed an order directing the Applicant to deduct tax at source at the rate of 4.224% of gross payments being income computable under Section 44BB of the Act.
(2.) ON the basis of the above facts, the applicant has approached this Authority seeking advance ruling on the following questions: 1. Whether sum paid by the applicant to the vessel providing companies ('VPC') under global usage bare boat charter agreements ('BBC agreements') could be said to accrue or arise or deemed to accrue or arise in India under the provisions of the Income Tax Act, 1961 ('Act') and therefore subject to withholding tax in India? 2. If the answer to question 1 is in affirmative, whether sum paid by the applicant to the VPCs under global usage BBC agreements are taxable in India under the provisions of Section 44BB of the Act? Whether on the stated facts and in law, can the sum paid or to be paid by the applicant to VPCs under global usage BBC agreements be construed to be in the nature of 'Royalty' under Section 9(1)(vi) of the Act?
(3.) WHETHER on the stated facts and in the circumstances of the case, if the sum paid by the applicant to VPC under global usage BBC agreements are construed to be in the nature of 'Royalty' or 'Royalty and fees for included services' under Art.12 of the Double Taxation Avoidance Agreement between India and Cyprus and India and Malta respectively ('tax treaty'), the income chargeable to tax in India ought to be computed as per the computational mechanism under Section 44BB of the Act? 2.1. Inspite of giving sufficient opportunities, the Department has not chosen to file comments or written submissions. On 23rd February, 2010, the case was adjourned on the request of the Addl. DIT (Intl. Taxation), Dehradun, though the request for adjournment was made at the last minute. Thereafter, by a communication received on 9.3.2010 (wrong date is given in the letter), the Addl. DIT, Dehradun, has raised some queries about the ownership of the vessels which was replied to by the applicant, as stated in the following para. Thereafter, though the Department received the written submissions filed by the applicant, no comments were offered on behalf of the Revenue nor any one appeared for the department. An indifferent attitude seems to have been adopted. 3. Before we proceed further to deal with the question, we would like to advert to the fact that the Department, in its comments dated 23rd February, 2010, has pointed out certain discrepancies in regard to the ownership of the vessels, namely, Northern Explorer, Munin Explorer and Osprey Explorer. As regards Northern Explorer, the applicant in its reply filed on 13.1.2010, reiterated that Sana Navigation Co. Ltd. is the owner (as stated in the application). The applicant has filed a certificate issued by the Directorate General of Merchant Marine of Panama certifying that the vessel is owned and registered in the name of Sana Navigation Co. The applicant has stated that as the vessel was at the disposal of the applicant, the same was shown in public domain as owned by the applicant. As regards Osprey Explorer and Munin Explorer, it has been pointed out by the Revenue that the names of the owners of the vessels are shown differently in different documents. To meet this point, the certificate of ownership issued by DG of Merchant Marine, Panama regarding Osprey Explorer has been filed by the applicant in confirmation of what it stated in the application. As regards Munin Explorer, two comments are made by the Revenue (vide written note dt. 4.2.2010): (i) as per the letter of ONGC, the said vessel is owned by Ordinate Shipping AS whereas the assessee has shown the owner of the vessel as Munin Navigation Co. Ltd. and (ii) the BBC agreement submitted to ONGC was between Ordinate Shipping (AS) and Seabird Exploration Ltd. and not with Seabird Explorer F -2 LCC - the applicant. No specific clarification has been furnished by the applicant on this aspect. 3.1. In the affidavit signed by the Executive Vice -President of the applicant on 1st March, 2010, it is asserted that there was no MOU between the owner of the vessel and the applicant which cast an obligation on the owner to assure uninterrupted supply of the vessel to ONGC. The deponent further clarified that the BBC Agreement is neither location -specific nor utilization -specific and that the applicant is free to use the vessel in any part of the world. Further, it is stated that the payments have to be made by the applicant even if the vessels are not in use. The BBC agreement, it is pointed out, does not involve provision of crew of the vessel by the owner. However, it is to be noted that Clause 10(b) of the Agreement recognizes the possibility of the vessel owner providing the crew. 4. According to Section 115V of the Income -Tax Act, Bareboat Charter means hiring of a ship for a stipulated period on terms which gives the charterer the possession and control of the ship including the right to appoint a master and crew. In Black's Law Dictionary, the meaning of Bareboat Charter is given as: bareboat charter - A charter under which the shipowner provides the ship, and the charterer provides the personnel, insurance, and other materials necessary to operate it. 'Time Charter', on the other hand, is defined as: 'time charter - A charter for a specified period, rather than for a specific task or voyage; a charter under which the shipowner continues to manage and control the vessel, but the charterer designates the ports of call and the cargo carried.;


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