Tax foreign cos helping oil explorers at 10%: AAR

Foreign firms helping domestic oil explorers need to pay tax at lower rate of 10 per cent only as their business is technical services, the Authority for Advance Ruling (AAR) has ruled.

The income earned by foreign firms by providing survey and technical services to an Indian oil exploration company will be taxable at 10 per cent as fee for technical services (under section 44BB of IT Act), rather than as royalty fee (section 44DA of the IT Act) which is double at 20 per cent, AAR has ruled.

"The income earned by the applicant in India is covered under the provisions of 44BB of the Income-Tax Act, 1961," said the AAR with regard to the tax rate on income earned by Dubai-based Seabird Exploration from state-owned ONGC for its data and seismic surveys related to oil exploration.

The AAR set aside the contention of the Revenue Department that the services provided by Seabird Exploration do not fulfil the requirement for being taxed under Section 44BB (technical services) and therefore the income from its activities has to be taxed under section 44DA of the IT Act (royalty fee).

The Dubai-based firm had entered into three contracts with the Oil & Natural Gas (ONGC) in 2008 for 2D seismic, gravity and magnetic data acquisition and on-board seismic data processing offshore India, during the field seasons 2007-08 and 2008-09 in different survey areas of Western and Eastern Indian Offshore.