Sec. 44BB of Income Tax Act, 1961—Non Resident—Matter remanded to AO as neither AO nor DRP has examined the applicability of section 44BB by looking into whether the pith and substance of each of the contract/agreement entered by assessee is inextricably connected with prospecting, extraction or production of mineral oil.

Facts: AO characterized the charter receipts earned by the assessee during the year as royalty by denying the specific exclusion granted for activities covered u/s 44BB from the definition of royalty in Explanation 2 to section 9(1)(vi) on the ground that no amounts were offered to tax u/s 44BB. Further, AO held that provision of vessels by assessee to the charterers during the year is purely in the nature of leasing/hiring of vessel on rental and hence, taxable as royalty. Accordingly, the AO concluded that the receipts in lieu of the lease of the vessels to the respective charterers is actually pure hire of the vessel.

Held, that section 44BB contains special provision for computing profits and gains in connection with the business of exploration, etc., of mineral oils. Assessee is a tax resident in Singapore and consequently, a non-resident in India and has entered into time charters contracts with BGEPIL, LTHE, Astro and Sapura. It was found that neither AO nor DRP has examined the applicability of section 44BB by looking into whether the pith and substance of each of the contract/agreement entered by the assessee is inextricably connected with prospecting, extraction or production of mineral oil. This is evident from the order of the DRP passed u/s 144C(5) and the assessment order passed by the AO u/s 143(3) r.w.s. 144C(5) and 144C(13). Therefore, we set aside the order of the AO and restore the matter to him to make an order afresh after examining each of the contract/agreement. We direct the assessee to file the relevant documents/evidence before the AO. In the result, the appeal filed by the assessee is allowed for statistical purposes - MARITIME VANGUARD PTE. LTD. V/s ASSTT. CIT - [2020] 182 ITD 339 (ITAT-MUMBAI)