Section 44BB of Income Tax Act 1961 – Profits and Gains in connection with the Business of Exploration etc. of Mineral Oils.
| Section | Section 44BB of Income Tax Act |
| Particulars | Income of a non-resident engaged in the business of providing services for extraction or production of, mineral oils shall be computed on presumptive basis. |
| Rate of presumptive income/deduction | 10% (Note: Lower profits may be claimed if assessee maintains books of account and gets them audited) |
| Type of business | Non-resident engaged in business of exploration of mineral oils |
Who can opt for presumptive tax provisions ?
Eligible Assessee – Section 44BB of Income Tax Act 1961
Where a non-resident (Indian citizen or foreign citizen) is engaged in the following two activities, he can opt for the presumptive tax provisions of Section 44BB of Income Tax Act: –
- Providing services and facilities, in connection with prospecting for mineral oil , or extraction or production of mineral oil. ;or
- Supplying plant and machinery on hire , which is used or to be used in prospecting for mineral oil or extraction or production of mineral oil
It is not mandatory, for a person who is engaged in the specified business discussed above to follow the provisions of Section 44BB of Income Tax Act. Such a person can opt to be governed by the normal provisions of Income Tax Act, and maintain the required books of accounts and other documents, for the purpose of arriving at their taxable income in India.
Some of the points to be noted are as under : –
- Service of providing Helicopter to a non resident engaged in business of exploration etc. of mineral oils will be taxable u/s 44BB and not Section 44BBA
- The following reimbursement will also form part of the gross receipt for the purpose of calculating tax u/s 44BB (whether included in the gross payment or mentioned separately in the agreement ) : –
- Charges towards supply of machinery, including reimbursement for mobilisation or demobilization of plant and machinery from a place outside India to the the Indian site or vice versa . However, custom duty shall not form part of the reimbursement liable to tax ;
- Reimbursement of charges paid towards transportation of rigs outside the territorial waters of India
- Reimbursement of fuel expenses and Catering charges
Presumptive Tax Rate – Section 44BB of Income Tax Act 1961
If the non-resident opts for the presumptive tax provisions of Section 44BB of Income Tax Act, the profits and gains for such activities shall be deemed to be 10% of the following amounts : –
a) Amounts paid or payable to the taxpayer or to any person on his behalf whether in India or outside India, for services or facilities or supply of plant & machinery for the aforesaid purposes in India; and
b) Amounts received or deemed to be received in India by the taxpayer or any other person on his behalf, on account of the provision of such services or facilities or supply of plant & machinery for the aforesaid purposes outside India.
The provision of Section 28 to Section 41 and Section 43 and 43A (In case of Clough Projects International Pte Ltd. it was held that provision of Section 43B are not applicable as well) would not be applicable when computing income u/s 44BB.
Summary of the Provisions – Section 44BB
Non Applicability of Section 44BB of Income Tax Act
The provisions of section 44BB shall not apply to following incomes : –
| Section | Provision |
| 42 | Special provision for deductions in case of business for prospecting, etc., for mineral oil |
| 44DA | Special provisions for computing income by way of royalties and Fees for technical services in case of non-residents. |
| 115A | Tax on dividends, royalty and fees for technical services in case of foreign companies |
| 293A | Power to make exemption, etc., in relation to participation in the business of prospecting for, extraction, etc., of mineral oils. |
NOTE:
Applicability of Section 44BB of Income Tax Act to Fees for technical services taxable under Section 44DA or section 115A
Fees for technical services earned by non-resident shall be taxable only under the provisions of section 44DA or section 115A, irrespective of the business to which it relates. Section 44BB would apply only for consideration for services and other facilities relating to exploration activity, which are not in the nature of technical services.
Section 44BB of Income Tax Act – Example 1
a. Kalaari Limited was engaged in exploration of mineral oil during FY 2019 – 20, for which it availed certain technical services from FCO, which are covered and taxable at 10% under Section 115A. Whether FCO can opt for presumptive taxation Scheme of Section 44BB ?
Solution –
Technical services taxable under Section 115A are specifically excluded from purview of Section 44BB. Thus, FCO cannot opt for presumptive taxation scheme of Section 44BB.
Section 44BB of Income Tax Act – Example 2
b. In the above example, assume that FCO had PE in India and such technical services are effectively connected with such PE. Other facts remain unchanged. Whether FCO can opt for presumptive taxation Scheme of Section 44BB ?
Solution –
Technical services connected with India PE are taxable under Section 44DA. Services taxable under Section 44DA are specifically excluded from purview of Section 44BB. Thus, FCO cannot cannot opt for presumptive taxation scheme of Section 44BB.
Option to Claim Lower Profit under section 44BB
An assesse, who is covered in respect of activities/supply of plant and machinery, under Section 44BB may, instead of such presumptive rate of 10%, claim lower income provided he satisfies the following conditions –
- Such assessee keeps and maintains books of account under section 44AA(2) ; and
- Get them audited and furnishes report of such audit under section 44AB.
In such cases, assessment of income shall be done by the Assessing Officer under section 143(3).
Section 44BB of Income Tax Act – Example 3
ICO was engaged in exploration of mineral oil during the FY 2019-20. It avails certain technical services from a non-resident Individual, for a sum of Rs 50 lakhs. Such technical services are not taxable under Section 115A or Section 44DA. The non-resident wants to declare a taxable income of Rs 4 lakhs under Section 44BB during FY 2019-20. Evaluate ?
Solution –
In this case, the non-resident wants to declare taxable income , which is less than the rate of 10%. He can do so provided he : –
- Keeps and maintains books of account under section 44AA(2); and
- Furnish a report of such audit under section 44AB.
Meaning of certain terms for Section 44BB of Income Tax Act 1961
- Plant includes ships, aircraft, vehicles, drilling units, scientific apparatus and equipment, used for the purposes of the said business;
- “Mineral oil” includes petroleum and natural gas.
For any queries, please write them in the Comment Section or Talk to our tax expert
Presumptive Taxation Provisions for Non residents
