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The Delhi bench of the Income Tax Appellate Tribunal (ITAT) in the case of DIT (International Taxation) v. Louis Dreyfus Armateures SASn (LDA) held that the activity of supply of vessels for the purpose of exploration, prospecting, extraction, production of mineral oil would be covered under Section 44BB of the Income Tax Act. 

The assessee, a French Company, has earned revenues from providing seismic survey vessels on hire to M/s. CGG Marine, a French company, under global time charter contracts for use in seismic data acquisition and onboard processing for prospecting, extraction and production of mineral oils in terms of contract with ONGC. 

The Company offered the income earned from the hire of the above vessels for taxation in its return of income after applying the deemed profit rate of 10% u/s.44BB of the Act. 

However, the AO rejected the same by finding that the assessee had supplied the vessel to M/s. CGG Marine which was not a party to the production sharing contract with ONGC, instead he treated the entire receipt as royalty. 

The DRP, confirmed the applicability of Section 44BB of the Income Tax Act on the ground that there is no provision u/s.44BB to support the Assessing Officer’s interpretation of the so-called ‘second leg contract’ so as to deny the applicability of the section to the assessee. Relying on its earlier order in the same of the same assessee, the Tribunal held that provision of Section 44BB would be applicable. 

Further, it was noted that the issue has been settled by the Supreme Court in the case of ONGC vs. CIT wherein it was held that any activity relating to exploration, prospecting, extraction, production of mineral oil would be covered u/s.44BB. 

Concluding the issue in favour of the assessee, the Tribunal held that “Here also the supplying of vessels for the said purposes is inextricably connected with the prospecting, production of mineral oil and therefore, the order of the learned DRP is in consonance with the judgment of the Hon’ble Supreme Court, accordingly, the same is confirmed.”

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