EY Tax Alert. Executive summary

Similar documents
EY Tax Alert. Executive summary

CBDT amends rules relating to furnishing information in respect of payments to nonresidents

Delhi Tribunal rules income of non-resident that is not attributable to PE in India shall still be taxable in India as FTS

EY Tax Alert. Executive summary. Chennai Tribunal upholds salary taxation of SARs benefits received from foreign parent of employer.

CBDT revises rules relating to furnishing information in respect of payments to nonresidents

Mumbai Tribunal rules reimbursement of expenses on secondment of employees not FTS

Indian Equalization Levy on digital services to be effective from 1 June 2016, administrative rules notified

EY Tax Alert. Executive summary

Mumbai Tribunal rules charterer includes slot charter arrangement for availing treaty benefit under Article 8 of India Malaysia DTAA

Operational, prudential and reporting norms for Alternative Investment Funds. Executive summary

EY Tax Alert. Executive summary. SC settles certain controversies on profit-linked deduction for export units. 21 December 2016

Amendments to the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, Executive summary

EY India Real Estate EY s point of view on Amended Foreign Direct Investment (FDI) Policy on Construction Development Sector

CBDT introduces form for employee investment declarations and extends due date for quarterly withholding statements

EY Tax Alert. Executive summary. CBDT sets up a Committee to deal with retroactive indirect transfer taxation. 1 September 2014

EY Tax Alert. Executive summary

EY Tax Alert. Executive summary. Supreme Court rules on year of deductibility of debenture interest paid upfront. 26 March 2015

AAR rules that provision of business support services to US affiliate are naturally bundled and are not intermediary services

EY Tax Alert. Executive summary

EY Tax Alert. Executive summary

Karnataka High Court rules that implementation of customized software is a service and cannot be subject to VAT

EY Tax Alert. Executive summary

EY Tax Alert Indian tax administration issues final rules on certain aspects for determining buy-back tax in India Executive summary

Bombay HC upholds non-taxability of deferred consideration on transfer of shares in the absence of accrual

CBDT releases fifth round of FAQs on Income Declaration Scheme, 2016

Pune Tribunal upholds tax deductibility of MTM exchange fluctuation loss on forex loan borrowed to reduce interest cost and hedge export receivables

EY Tax Alert. Executive summary

EY Tax Alert. Executive summary. Mumbai Tribunal rules on legality and taxability of certain gift transactions by corporates.

EY Tax Alert. Executive summary. Delhi HC rules payment towards live telecast is not royalty. 1 December 2014

EY Tax Alert. Executive summary. Bangalore Tribunal rules on deductibility of employee share reward discount cross-charged by foreign parent company

Mumbai Tribunal rules on DAPE in case of marketing and distribution activities carried out by an Indian branch for group companies

EY Tax Alert. Executive summary. CBDT provides clarifications on Direct Tax Dispute Resolution Scheme, September 2016

High Court rules that in-transit sale in turnkey contracts not eligible for exemption under Section 6(2) of the Central Sales Tax Act

Guidance Note on FATCA and CRS dated 30 November Key clarifications

EY Regulatory Alert. Executive summary

EY Regulatory Alert. Executive summary. SEBI releases Discussion Paper on review of framework for Institutional Trading

EY Tax Alert. Executive summary. Supreme Court upholds initiation of prosecution for failure to file return. 3 February 2014

EY Tax Alert. Executive summary

EY Tax Alert. Executive summary

EY India Defence EY s point of view on amended Foreign Direct Investment (FDI) Policy on Defence Sector

EY Tax Alert. Executive summary

CBDT releases second round of FAQs on Income Declaration Scheme, 2016

EY Tax Alert. Executive summary. Mumbai Tribunal rules write-down of investment loss allowable if a direct and proximate nexus exists with a business

EY Tax Alert. Executive summary

EY Tax Alert. Executive summary. CBDT notifies ITR Forms for Company/ Firms/ LLP/ Trusts and others. 05 August 2015 October 2014

EY Regulatory Alert. Executive summary

EY Tax Alert. Executive summary

EY Tax Alert. Executive summary

EY Tax Alert. Executive summary. CBDT modifies returns forms for tax year May mber 2012

Government of India amends Income Computation and Disclosure Standards and also defers them by one year to tax year

EY Tax Alert. Executive summary. CBDT notifies guidelines for onshore management of offshore funds. 17 March 2016

Supreme Court rules accumulated losses of amalgamating company to be set off after reducing interest waiver benefit

EY Tax Alert. Executive summary. Government of India notifies the entities eligible to issue tax free bonds for financial year

EY Tax Alert. Executive summary

EY Tax Alert. Executive summary

EY Tax Alert. Executive summary. Kolkata Tribunal rules on taxability of online advertisement revenues. 18 April mber 2012

EY Tax Alert. Executive summary. Delhi Tribunal rules on advertisement and promotion expenses involving use of trademarks as not royalty.

Securities and Exchange Board of India notifies regulations for Share Based Employee Benefits

Transfer pricing for Specified Domestic Transactions

EY Tax Alert. Executive summary. CBDT notifies GAAR rules. Background. 27 September mber 2012

EY Tax Alert. Executive summary. Hyderabad Tribunal reaffirms the distinction between use of copyright right and copyrighted article.

EY Tax Alert. Executive summary

Securities and Exchange Board of India and the Reserve Bank of India issue guidelines for international financial services centres

Background. Facts. produce articles or things or completes. substantial expansion.

EY Tax Alert. Executive summary

EY Tax Alert. Executive summary. Protocol signed on 10 May 2016 to amend the 1982 India- Mauritius tax treaty. 12 May 2016

Kerala HC upholds the constitutional validity of levy of Service tax on admission and access to entertainment event & amusement facilities

EY Tax Alert. Executive summary

EY Tax Alert. Executive summary

EY Tax Alert. Executive summary. Supreme Court rules on scope of statutory dues allowable as deduction on actual payment.

EY Tax Alert. Executive summary. Delhi High Court rules 50% as the benchmark to evaluate substantial value on taxation of indirect transfers

Reserve Bank of India releases final guidelines for on tap licensing of Universal Banks in the private sector

Indian Administration issues draft Exit Tax Rules for charitable organisations; invites comments from stakeholders

Reserve Bank of India releases draft guidelines for on tap licensing of Universal Banks in the private sector

EY Alert. Executive summary

EY Tax Alert. Executive summary. Third Protocol amending the India-Singapore tax treaty signed. 31 December 2016

MoF issues Notifications and Circular for services relating to transportation of goods by vessel

EY Regulatory Alert. Executive summary. ECB Policy- revised framework. 04 December 2015

EY PAS Alert. Finance bill proposes tax on long-term gains arising on sale of listed equity shares Impact on employee stock option plans

EY Alert. Kerala High Court quashes 2014 notification amending the Employees Pension Scheme, 1995

EY Tax Alert. Executive summary

EY Tax Alert. Executive summary

EY Tax Alert. Executive summary

EY Tax Alert. J&K HC rules that contract receipts of a JV result in diversion of income to JV members; receipt not an income of the JV

Special Bench rules ESOP discount is deductible on vesting of options

10 April EY Tax Alert. AAR treats buyback of shares as tax avoidance scheme taxable as dividend under Mauritius DTAA

CBDT Committee recommends MAT framework for Ind-AS companies

EY Tax Alert. Executive summary

24 April EY Tax Alert. Mumbai Tribunal rules that itemized sale of assets with an intention to transfer entire undertaking is a slump sale

EY Tax Alert Bangalore Tribunal rules on constitution of service PE for services rendered virtually as well as physically

EY Tax Alert. Supreme Court reaffirms constitutional validity of Aadhaar PAN linking requirement. Executive summary

Parliamentary Standing Committee Report on the Constitution (115 th Amendment) Bill, 2011 relating to GST

EY Tax Alert. Executive summary

HC denies refund of SAD paid on import of coil sheets sold after corrugation as proflex roof

EY Tax Alert. Executive summary

EY Tax Alert. Executive summary. Delhi HC rules on AOP constitution and taxability of offshore supply and services. 28 April 2014

EY Tax Alert. Executive summary. Delhi High Court rules 50% as the benchmark to evaluate substantial value on taxation of indirect transfers

Madras High Court rules Indian tax provision notifying Cyprus as non-cooperative jurisdiction is not unconstitutional

This Tax Alert highlights key aspects of the IDT Rules.

EY Tax Alert. Mumbai Tribunal rules conversion of compulsory convertible preference shares into equity shares is not transfer.

Transcription:

3 July 2015 EY Tax Alert SC rules on presumptive taxation; activities inextricably linked with prospecting, extraction or production of mineral oil eligible for presumptive taxation Executive summary Tax Alerts cover significant tax news, developments and changes in legislation that affect Indian businesses. They act as technical summaries to keep you on top of the latest tax issues. For more information, please contact your EY advisor. This Tax Alert summarizes a recent decision of the Supreme Court (SC) in the case of Oil and Natural Gas Corporation Ltd. [1] (Taxpayer). The Taxpayer was treated as a representative assessee on behalf of various nonresident (NR) companies (FCos) with which the Taxpayer had entered into separate agreements for availing of diverse services. The services rendered by the FCos to the Taxpayer included various services, such as provision of personnel with expertise and experience in operation and management of an oil rig, engineering and technical support, processing of seismic data, consultancy and training service, analysis of data, geological and feasibility study, inspection and repair service etc. The issue was whether the income of the FCos from such services is governed by the scheme of presumptive taxation provided under the Indian Tax Laws (ITL). The SC held that the services rendered by the FCos were inextricably linked with prospecting, extraction or production of mineral oil and, hence, were mining and related/ancillary services, so as to get excluded from the definition of fees for technical services (FTS) as provided under the ITL. Accordingly, the FCos would be governed by the provisions of presumptive taxation under the ITL. [1] [TS-363-SC-2015]

Background and facts The ITL provides for a scheme of presumptive taxation under Section 44BB, whereby the taxable income is presumed at 10% of specified receipts in case of an NR engaged in the business of provision of services or facilities in connection with or supply of plant and machinery to be used in prospecting, extraction or production of mineral oil. The ITL generally provides for gross basis of taxation for FTS earned by an NR. Furthermore, FTS has been defined to mean any consideration for rendering managerial, technical or consultancy services (including the provision of services of technical or other personnel). However, the FTS definition specifically excludes consideration for construction, assembly, mining or like project undertaken by the recipient. Having regard to the diverse provisions of the ITL, income in the nature of FTS is kept outside the purview of the presumptive taxation provisions. As a corollary to this, presumptive taxation benefit is available if income consideration for services rendered by an NR is, inter alia, in the nature of mining or like project and, hence, not FTS. The Central Board of Direct Taxes (CBDT), the apex administrative body for taxation in India, issued Instruction No. 1862 on 22 October 1990 (Instruction) to clarify that operations of prospecting for, or extraction or production of, mineral oil are mining operations and the expression mining or like project would cover rendering of services like imparting of training and carrying out drilling operations for exploration or exploitation of oil and natural gas. Accordingly, consideration for such services will not be treated as FTS under the ITL and will be taxable under the scheme of presumptive taxation. The Taxpayer, an Indian company, entered into separate agreements with various FCos for availing diverse services (listed below) in connection with prospecting, extraction or production of mineral oil by the Taxpayer. These agreements were broadly classified as falling into the following categories: Carrying out seismic surveys and drilling for oil and gas. Services starting/re-starting/enhancing production of oil and gas from wells. Services for prospecting for exploration of oil and/or gas. Planning and supervision of repair of wells. Repair, inspection or equipment used in the exploration, extraction or production of oil and gas. Imparting training. Consultancy in regard to exploration of oil and gas. Supply, installation etc., of software used for oil and gas exploration. The Taxpayer was regarded as a representative assessee on behalf of all the FCos for concluding tax assessment. The Tax Authority regarded income to be in the nature of FTS and denied benefit of presumptive taxation as prayed for. The Appellate Authority had accepted the claim of the Taxpayer. The High Court reversed the order of the Appellate Authority by holding that the services of the FCos are in the nature of FTS. The issue before the SC was whether the services rendered by the FCos were eligible to be taxed under the presumptive basis of taxation under the ITL. Taxpayer s contentions Consideration received by the Taxpayer under various contracts is for mining or like project and, hence, not FTS. In the absence of any definition of the term mining under the ITL, it should be understood based on the provisions of the Oil Fields (Regulation and Development) Act, 1948, read with the Petroleum and Natural Gas Rules, 1959. The provisions of the said Acts support the view that any service in connection with prospecting and extraction is an integral part of mining. The eventual test is one of pith and substance of the agreement, namely,

whether the works contemplated or services to be rendered under the agreement are directly and inextricably linked with the prospecting, extraction or production of mineral oil. Each of the agreements entered into by the Taxpayer satisfied this condition. The Instruction, being binding on the Tax Authority, should be applied in the present facts and, accordingly, income should be assessed under presumptive basis. Tax Authority s contentions The primary service rendered by the FCos is not for prospecting, extraction or production of mineral oil, but is in the nature of FTS. operations that would be crucial for the applicability of the presumptive scheme of taxation. The crucial test is one of pith and substance of the agreement. Where the dominant purpose of the agreement is for carrying on any activity which is directly associated or inextricably connected with prospecting, extraction or production of mineral oil, it will be covered by the scheme of presumptive taxation provided under the ITL. The fact that certain ancillary work is contemplated thereunder will not alter this conclusion. Accordingly, the SC held that the income received by the FCos is taxable under the provisions of the presumptive scheme of taxation under the ITL. Though the services rendered by the FCos, such as training of personnel, may have some connection with prospecting, extraction or production of mineral oil, it only has a remote connection with the business of prospecting, extraction or production of mineral oil. Even if it is argued that the Courts ought to have examined each agreement to evaluate its true intent, the matter needs to be remanded to the Tax Authority for examining the scope of the various agreements. SC s ruling The ITL does not define the expression mines or minerals. Having regard to the provisions of the Mines Act, 1952 which defines mines and minerals and the Oil Fields (Regulation and Development) Act, 1948 which specifically deals with prospecting and exploration of mineral oil, it is clear that even drilling operations would amount to a mining activity or a mining operation. This view is also upheld by the Instruction. Thus, it is the proximity of the work contemplated under the agreement with mining activities or

Comments There is a plethora of decisions which has analyzed the scope of the expression mining or like project. However, the Courts have been taking divergent views and there was no consensus on its interpretation. The present SC decision is a welcome step in this regard. It has given a broad interpretation to the expression mining or like project and has taken a view that, as long as the activities contemplated by an agreement with an NR are inextricably linked to prospecting, extraction or production of mineral oil, the benefit of presumptive taxation should be available. It also held that where the dominant purpose of the agreement is for prospecting, extraction or production of mineral oil, the consideration will be covered by the presumptive taxation provision, though there may be certain ancillary works contemplated thereunder.

Our offices Ahmedabad 2nd floor, Shivalik Ishaan Near. C.N Vidhyalaya Ambawadi, Ahmedabad 380 015 Tel: + 91 79 6608 3800 Fax: + 91 79 6608 3900 Bengaluru 6th, 12th & 13th floor U B City Canberra Block No.24, Vittal Mallya Road Bengaluru 560 001 Tel: + 91 80 4027 5000 + 91 80 6727 5000 Fax: + 91 80 2210 6000 + 91 80 2224 0695 Prestige Emerald, No. 4, 1st Floor, Madras Bank Road, Lavelle Road Junction, Bangalore - 560001 Chandigarh 1st Floor SCO: 166-167 Sectr 9-C, Madhya Marg Chandigarh 160 009 Tel: + 91 172 671 7800 Fax: + 91 172 671 7888 Chennai Tidel Park, 6th & 7th Floor A Block (Module 601,701-702) No.4, Rajiv Gandhi Salai Taramani Chennai 600 113 Tel: + 91 44 6654 8100 Fax: + 91 44 2254 0120 Hyderabad Oval Office 18, ilabs Centre, Hitech City, Madhapur, Hyderabad 500 081 Tel: + 91 40 6736 2000 Fax: + 91 40 6736 2200 Kochi 9th Floor ABAD Nucleus NH-49, Maradu PO, Kochi 682 304 Tel: + 91 484 304 4000 Fax: + 91 484 270 5393 Mumbai 14th Floor, The Ruby 29 Senapati Bapat Marg Dadar (west) Mumbai 400 028 Tel + 91 22 6192 0000 Fax + 91 22 6192 1000 5th Floor Block B-2, Nirlon Knowledge Park Off. Western Express Highway Goregaon (E) Mumbai 400 063 Tel: + 91 22 6192 0000 Fax: + 91 22 6192 3000 NCR Golf View Corporate Tower B Near DLF Golf Course, Sector 42 Gurgaon 122 002 Tel: + 91 124 464 4000 Fax: + 91 124 464 4050 6th floor, HT House 18-20 Kasturba Gandhi Marg New Delhi 110 001 Tel: + 91 11 4363 3000 Fax: + 91 11 4363 3200 4th & 5th Floor, Plot No 2B, Tower 2, Sector 126, Noida 201 304 Gautam Budh Nagar, U.P. India Tel: + 91 120 671 7000 Fax: + 91 120 671 7171 Pune C 401, 4th floor Panchshil Tech Park Yerwada (Near Don Bosco School) Pune 411 006 Tel: + 91 20 6603 6000 Fax: + 91 20 6601 5900 Ernst & Young LLP EY Assurance Tax Transactions Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization and may refer to one or more of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. Ernst & Young LLP is one of the Indian client serving member firms of EYGM Limited. For more information about our organization, please visit www.ey.com/in. Ernst & Young LLP is a Limited Liability Partnership, registered under the Limited Liability Partnership Act, 2008 in India, having its registered office at 22 Camac Street, 3rd Floor, Block C, Kolkata 700016. 2015 Ernst & Young LLP. Published in India. All Rights Reserved. ED None This publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Neither Ernst & Young LLP nor any other member of the global Ernst & Young organization can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. On any specific matter, reference should be made to the appropriate advisor. Kolkata 22, Camac Street 3rd Floor, Block C Kolkata 700 016 Tel: + 91 33 6615 3400 Fax: + 91 33 2281 7750 EY refers to global organization, and/or one or more of the independent member firms of Ernst & Young Global Limited Join India Tax Insights from EY on