2009 (7) TMI 51 - HC - Income Tax

Reimbursements of customs duty for imported machinery excluded from gross receipts under Section 44BB; no profit element found

HC dismissed the appeal, upholding ITAT and CIT(A) findings that reimbursement of customs duty paid by the assessee for importing machinery is statutory ... Scope of Section 44BB - Gross Receipt - Whether the Tribunal has erred in law in holding that the reimbursement of expenses towards custom duty are not to be included in the gross receipts for computing income under Section 44BB ? - Held That:- Learned counsel for the respondent submitted that for import of the machinery or equipment, liability to pay the custom duty was on the Oil and Natural Gas Corporation (for short ONGC), who has hired the services of the assessee in contract. It is further submitted that there cannot be element of profit in reimbursement of the custom duty, paid by the assessee. We are of the view that reimbursement towards the custom duty, paid by the assessee, being statutory in nature, cannot form part of amount for the purposes of deemed profits unlike the other amounts received towards reimbursement. Therefore, we do not find any sufficient reason to interfere with the impugned orders, passed by the ITAT, which has affirmed the view taken by the CIT(A). Appeal is dismissed. Issues:1. Interpretation of Section 44BB of the Income Tax Act, 1961 regarding the inclusion of reimbursement of expenses towards custom duty in gross receipts for income computation.Analysis:The judgment pertains to an appeal under Section 260-A of the Income Tax Act, 1961, challenging the order of the Income Tax Appellate Tribunal (ITAT) that dismissed the revenue's appeal regarding the inclusion of reimbursement of expenses towards custom duty in the gross receipts for income computation under Section 44BB of the Act. The key question of law was whether the ITAT erred in holding that reimbursement of expenses towards custom duty should not be included in the gross receipts for computing income under Section 44BB.The respondent, a company incorporated in Hong Kong, had filed its income tax return declaring income. The Assessing Officer noted that the respondent had not offered for tax certain amounts received as reimbursement of expenses, including custom duty. The Assessing Officer assessed the income accordingly. The Commissioner of Income Tax partly allowed the appeal, holding that custom duty paid for importing equipment for services cannot be part of the taxable amount under Section 44BB. Subsequently, the revenue filed an appeal before the ITAT, which also ruled in favor of the respondent.The court examined Section 44BB(2) of the Act, which specifies the amounts to be considered for computing income under the provision. The court also referred to various precedents to analyze the inclusion of different types of charges in the deemed profits under Section 44BB. The court noted that the cases cited did not specifically address the reimbursement of custom duty to the assessee.The respondent argued that the liability to pay custom duty lay with another entity, and there was no profit element in the reimbursement of custom duty. The court agreed with the respondent, stating that reimbursement of custom duty, being statutory in nature, should not form part of the deemed profits under Section 44BB, unlike other reimbursed amounts. Therefore, the court upheld the decisions of the ITAT and CIT(A) and dismissed the appeal.In conclusion, the court held that reimbursement towards custom duty, being statutory, should not be included in the computation of deemed profits under Section 44BB. The judgment provides a detailed analysis of the legal provisions, precedents, and arguments presented by both parties, ultimately clarifying the treatment of custom duty reimbursement in income tax assessments under the specified provision.