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High Court Dismisses Writ On Oil & Gas Industry

6 Mar 2013
The Delhi High Court has dismissed the writ petition filed by the Revenue Authorities (RA) and affirmed that the income of non-residents in the oil & gas exploration industry is taxable as per section 44BB of the Income Tax Act.

Taxand India discusses the background to this case.

OHM Limited, a UK company, was engaged in the business of providing geophysical services to the oil and gas exploration industry. OHM was awarded contracts by 2 companies, namely Petro Gas E&P LLC and CGGVeritas Services SA, for procuring data, processing and interpreting the data in respect of offshore exploration in India.

OHM sought lower withholding tax under the provisions of section 44BB of the Income Tax Act, however the claim was rejected. Aggrieved by this, OHM applied to the Authority for Advance Rulings (AAR) to determine their entitlement. The AAR held that the income received by OHM under the contracts would be taxable on a deemed profit basis.

The RA thought the AAR had made its decision without appreciating that such income qualifies as FTS and is to be taxed on a net income basis (under the provisions of section 44DA of the Income Act), and brought the case to the Delhi High Court.

The Delhi High Court affirmed the ruling of the AAR and stated that OHM should be taxed on a deemed profit basis. Further to this the Court held that section 44BB is a specific section governing the taxability of non-residents engaged in the providing services / facilities in connection with prospecting for, extraction and production of mineral oil and would continue to apply even after exclusion of section 44DA from section 44BB of the Income Act.

Discover more: The taxation of non-resident oilfield service providers


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Gokul Chaudhri
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Taxand's Take

Amidst the uncertainties and multi-level litigation in similar cases, the decision of the Delhi High Court is welcomed as it affirms the taxation on a deemed profit basis under section 44BB to the non-resident oilfield service providers. The Court also re-establishes that the position should not change by the exclusion of section 44DA from section 44BB of the Act by the Finance Act 2010. Although the Delhi High Court has not specifically commented on whether the geophysical services would be excluded from the definition of FTS, the Court has indicated that such services should be categorised as 'mining or like project' and therefore should fall outside FTS.

Taxand's Take Author