R & B Falcon Drilling Co v. The Addl. Commissioner Of Income-Tax, Special Range, Dehradun

IN THE HIGH COURT OF UTTARAKHAND AT NAINITAL Income Tax Appeal No. 29 of 2008 R & B Falcon Drilling Co. C/o Nangia & Company, 75 / 7, Rajpur Road, Dehradun. ...…………. Appellant Versus The Addl. Commissioner of Income-tax, Special Range, Dehradun. ...…………. Respondent Mr. S.K. Posti, Advocate for the appellant. Mr. Arvind Vashisth, Standing Counsel for the respondent. Coram : Hon’ble Prafulla C. Pant, J.Hon’ble B. S. Verma, J. Hon. Prafulla C. Pant, J. (oral) This appeal, preferred under Section 260-A of the Income Tax Act, 1961 (hereinafter referred as the Act) is directed against the order dated 14.03.2008, passed by the Income Tax Appellate Tribunal, Delhi Bench ‘E’, New Delhi (hereinafter referred as ITAT), in Income Tax Appeal No. 388 / Del / 2005, for the assessment year 1990-2000. 2) The questions of law involved in this appeal, are as under: 1. Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal has erred in law in holding that the entire alleged ‘mobilization” revenue was chargeable to tax in India despite of the fact that it is alleged that major part of said activity was carried outside India? circumstances of the case, the Income Tax Appellate Tribunal has erred in law in holding that the entire alleged ‘mobilization” revenue was chargeable to tax in India despite of the fact that it is alleged that major part of said activity was carried outside India? 2. Whether, on the facts and circumstances of the case, the Income Tax Appellate Tribunal has erred in law in impliedly taking the view that the provisions of Section 44BB would override Section 5 of the Income Tax Act, 1961? the case, the Income Tax Appellate Tribunal has erred in law in impliedly taking the view that the provisions of Section 44BB would override Section 5 of the Income Tax Act, 1961? 3) Heard learned counsel for the parties. 4) Brief facts of the case giving rise to this appeal are that assessee, a non-resident foreign company, engaged in the business of providing services in connection with extraction and production of mineral oils, submitted its return of income declaring income at Rs. 2,11,79,270/- for the Assessment Year 1999-2000. The case was processed under Section 143(1) of the Income Tax Act by the Assessing Officer, who issued notices under Section 143(2) of the Act to the assessee as to why not the reimbursement charges received by the assessee from Enron Oil and Gas India Limited be included in the gross receipts, received by the assessee? After hearing the parties, the Assessing Officer included said receipts amounting to Rs. 4,78,52,006/-. Aggrieved by said order, the assessee preferred appeal before the Commissioner of Income Tax (Appeals) [for brevity CIT(A)], but the same was also dismissed vide order dated 29.09.2004, passed by CIT(A)–1, Dehradun. Thereafter, the assessee filed Second Appeal No. 388 / Del / 2005 before the ITAT, Delhi. The ITAT, after hearing the parties, dismissed the appeal holding that Section 44BB apply to the mobilization charges received by the assessee, and accordingly, the receipts are rightly taxed @ 10 per cent as per provision of Section 44BB of the Act. Hence, this appeal by the assessee. 5) Before further discussion, we think it just and proper to quote the relevant provisions of law contained in Section 44BB of the Income Tax Act, 1961, which reads as under: “44BB. (1) Notwithstanding anything to the contrary contained in sections 28 to 41 and sections 43 and 43A, in the case of an assessee [being a non-resident] engaged in the business of providing services or facilities in connection with, or supplying plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils, a sum equal to ten per cent of the aggregate of the amounts specified in sub-section (2) shall be deemed to be the profits and gains of such business chargeable to tax under the head “Profits and gains of business or profession”: 5) Before further discussion, we think it just and proper to quote the relevant provisions of law contained in Section 44BB of the Income Tax Act, 1961, which reads as under: “44BB. (1) Notwithstanding anything to the contrary contained in sections 28 to 41 and sections 43 and 43A, in the case of an assessee [being a non-resident] engaged in the business of providing services or facilities in connection with, or supplying plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils, a sum equal to ten per cent of the aggregate of the amounts specified in sub-section (2) shall be deemed to be the profits and gains of such business chargeable to tax under the head “Profits and gains of business or profession”: Provided that this sub-section shall apply in a case where the provisions of section 42 or section 44D or section 115A or section 293A apply for the purposes of computing profits or gains or any other income referred to in those sections. (2) the amounts referred to insub-section (1) shall be the following, namely :- be the following, namely :- (a) the amount paid or payable (whether in or out of India) to the assessee or to any person on his behalf on account of the provision of services and facilities in connection with, or supply of plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils in India; and or out of India) to the assessee or to any person on his behalf on account of the provision of services and facilities in connection with, or supply of plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils in India; and (b) the amount received or deemed to be received in India by or on behalf of the assessee on account of the provision of services and facilities in connection with, or supply of plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils outside India. received in India by or on behalf of the assessee on account of the provision of services and facilities in connection with, or supply of plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils outside India. [(3) Notwithstanding anything contained in sub-section (1), an assessee may claim lower profits and gains than the profits and gains specified in that sub-section, if he keeps and maintains such books of account and other documents as required under sub-section (2) of section 44AA and gets his accounts audited and furnishes a report of such audit as required under section 44AB, and thereupon the Assessing Officer shall proceed to make an assessment of the total income or loss of the assessee under sub-section (3) of section 143 and determine the sum payable by, or refundable to, the assessee.] Explanation. –For the purposes of this section,- (i) “plant” includes ships, aircraft, vehicles, drilling units, scientific apparatus and equipment, used for the purposes of the said business; drilling units, scientific apparatus and equipment, used for the purposes of the said business; (ii) “mineral oil” includes petroleum and natural gas.] natural gas.] 6) The above quoted section makes a special provision for computing profits and gains by the non-resident assessees involved in the business of exploration etc. of mineral oils. It provides that such assessees would be liable to pay the income tax on ten per cent deemed profits, on the amount received by them. The amounts referred under sub-section (1) of Section 44BB of the Act are explained in sub-section (2), as quoted above, and the amounts of which ten per cent deemed profits is chargeable includes the sum paid or payable, whether in or outside India, to the assessee or to any person on his behalf on account of provision of services and facilities in connection with, or supply of plant and machinery used on hire, or to be used, in 6) The above quoted section makes a special provision for computing profits and gains by the non-resident assessees involved in the business of exploration etc. of mineral oils. It provides that such assessees would be liable to pay the income tax on ten per cent deemed profits, on the amount received by them. The amounts referred under sub-section (1) of Section 44BB of the Act are explained in sub-section (2), as quoted above, and the amounts of which ten per cent deemed profits is chargeable includes the sum paid or payable, whether in or outside India, to the assessee or to any person on his behalf on account of provision of services and facilities in connection with, or supply of plant and machinery used on hire, or to be used, in the prospecting for, or extraction or production of, mineral oils in India. The amount received by the assessee in connection with mobilization or demobilization charges is the amount received by him in connection with supply of plant and machinery in prospecting for or extraction of production of mineral oil. 7) In Income Tax Appeal No. 280 of 2001; Sedco Forex Internation Inc. Vs. Commissioner of Income Tax, Meerut and another decided on 28.09.2007, Division Bench of this Court has opined that the payment made to the assessee on account of mobilization fee is not the actual reimbursement, rather, it includes the expenditure incurred by the company in transporting the drilling units of rigs to the specified drilling locations in India. As such, such amounts received are liable to be included in the ‘gross receipts’. That being so, in our opinion, the amount received by the assessee in the present case towards mobilization / demobilization charges form part of the amount mentioned in sub-section (2) of Section 44BB of the Act. Therefore, we concur with the view taken by the ITAT in holding that the mobilization / demobilization charges received by the assessee form part of gross receipts for the purpose of computing the income under Section 44BB of the Act. Needless to say that sub-section (1) of Section 44BB read with Clause (a) of sub-section (2) of Section 44BB of the Act expressly provides that it makes no difference whether the amount was paid or payable in or outside India. The section does not exclude the mobilization / demobilization charges paid for transportation of the plant and machinery from the place out of India to the locations in India or its territorial waters. Accordingly, the substantial questions of law stand answered. 7) For the reasons, as discussed above, this appeal is dismissed. (B.S. Verma, J.) (Prafulla C. Pant, J.) Dt. July 03, 2009. H. Negi