2009 (4) TMI 69 - HC - Income Tax

Inclusion of Demobilization Charges in Gross Revenue for Income Tax Calculation

Commissioner of Income-tax, Dehradun Versus R & B Falcon Drilling Co.

The court held that demobilization charges related to a voyage in Indian territorial waters should be included in gross revenue for income tax calculation ... Assessee, a non-resident company received mobilization/ demobilization fee – such payment is not the actual reimbursement, rather, it includes the expenditure incurred by the company - it makes no difference whether the amount was paid or payable in or outside India - 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 - amount received are liable to be included in the ‘gross receipts and form part of the amount mentioned in s.s. (2) of Section 44BB Issues:Whether demobilization charges in respect of a voyage conducted in Indian territorial waters are to be included in gross revenue for income tax computation under Section 44BB of the Income Tax Act, 1961.Analysis:1. Background of the Case:The case involves an appeal under Section 260-A of the Income Tax Act, 1961 against an order passed by the Income Tax Appellate Tribunal, Delhi Bench 'H', New Delhi. The dispute revolves around the inclusion of demobilization charges in the gross revenue for income tax computation.2. Legal Provision - Section 44BB:Section 44BB of the Income Tax Act, 1961 provides a special provision for computing profits and gains for non-resident assessees engaged in the business of extraction of mineral oils. It mandates a deemed profit of ten percent on specific amounts received by the assessee, including payments for services and facilities related to mineral oil exploration.3. Interpretation of Section 44BB:The court analyzed the provisions of Section 44BB and emphasized that amounts received for mobilization or demobilization charges in connection with the supply of plant and machinery for mineral oil extraction are part of the gross receipts. The court referred to a previous judgment to support the inclusion of such charges in gross revenue.4. Precedent and Legal Opinion:Citing a previous case, the court highlighted that mobilization charges encompass expenses incurred in transporting drilling units to specific locations in India. Therefore, these charges are considered part of gross receipts for income tax computation under Section 44BB.5. Decision and Rationale:The court concluded that demobilization charges related to a voyage in Indian territorial waters should be included in the gross revenue for income tax calculation under Section 44BB. The court held that the Income Tax Appellate Tribunal erred in excluding these charges from gross receipts. The court emphasized that the section does not differentiate between payments made in or outside India, thus necessitating the inclusion of such charges.6. Final Verdict:Consequently, the court allowed the appeal, setting aside the order of the Income Tax Appellate Tribunal. The judgment clarified the inclusion of demobilization charges in gross revenue for income tax computation under Section 44BB of the Income Tax Act, 1961.