This case involves UMW Sher (L) Limited, a company incorporated under the laws of Malaysia and a tax resident of Malaysia, engaged in the leasing and hiring of rigs used in oil exploration and drilling.
The issue at the heart of ITA Nos. 569 & 570/Del/2021 is the tax treatment of receipts from the leasing or hiring of RIGs. The central question is whether these receipts should be taxed as business profits under section 44BB of the Income-tax Act on a gross basis, or as royalty under sections 9(1)(vi) and 115A of the Act.
UMW Sher (L) Limited provided rigs on lease to Jaybee Energy (P.) Ltd. (JEPL), which in turn contracted with Oil India Ltd. for exploration in Northeast India. The Assessing Officer initially treated these receipts as Fees for Technical Services (FTS) and later as royalty, which was disputed by UMW Sher (L) Limited.
The Dispute Resolution Panel (DRP) concurred with the Assessing Officer that the payments were in the nature of royalty. However, upon appeal, the tribunal considered whether these should be treated under section 44BB, which specifically pertains to the business of mineral oils exploration and related activities. The tribunal ruled in favor of the assessee, directing that income from the leases should be taxed under section 44BB, emphasizing that the activity falls squarely within the scope of this section which is intended for non-residents engaged in such business activities in India without requiring a permanent establishment.
This decision underscores the importance of correctly interpreting treaty provisions and the specific sections of the Income-tax Act applicable to non-resident entities engaged in the oil and gas sector. It provides significant relief to entities in similar sectors by clarifying the tax implications of their operations in India.
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