Section 44BB receipts and treaty treatment of refund interest were split: operational receipts taxed, treaty relief allowed.

Mobilisation charges, reimbursement of expenses and demobilisation receipts were held includible in the presumptive gross receipts base under section 44BB because they were intrinsically linked to rig mobilisation and demobilisation; the issue was decided for the Revenue. Interest on income-tax refund was treated differently, as it was not effectively connected with the permanent establishment under either the asset test or the activity test, so it fell within Article XI of the Indo-US treaty and was taxable at the treaty rate; this issue was decided for the assessee. The overall result was a mixed outcome.

---

---

Issues: (i) Whether mobilisation charges, reimbursement of expenses and demobilisation receipts were includible in the gross receipts for computation of income under section 44BB of the Income-tax Act, 1961; (ii) Whether interest on income-tax refund was taxable at the maximum marginal rate or at the treaty rate under Article XI of the Indo-US Double Taxation Avoidance Agreement.

Issue (i): Whether mobilisation charges, reimbursement of expenses and demobilisation receipts were includible in the gross receipts for computation of income under section 44BB of the Income-tax Act, 1961.

Analysis: The receipts in question related to mobilisation of rigs outside Indian territorial waters, reimbursement of expenses and demobilisation of rigs. The settled position relied upon was that mobilisation fee forms part of deemed profits for presumptive taxation under section 44BB, reimbursement of expenses is includible in gross receipts for purposes of that section, and demobilisation receipts are also taxable on the same reasoning.

Conclusion: This issue was decided against the assessee and in favour of the Revenue.

Issue (ii): Whether interest on income-tax refund was taxable at the maximum marginal rate or at the treaty rate under Article XI of the Indo-US Double Taxation Avoidance Agreement.

Analysis: The interest on income-tax refund was held to be not effectively connected with the permanent establishment on either the asset test or the activity test. It was therefore treated as interest income falling under paragraph 2 of Article XI of the treaty and not as part of presumptive income under section 44BB.

Conclusion: This issue was decided in favour of the assessee and against the Revenue.

Final Conclusion: The Tribunal sustained the inclusion of mobilisation, reimbursement and demobilisation receipts in the section 44BB computation, but granted treaty-based relief on interest from income-tax refund, resulting in a mixed outcome.

Ratio Decidendi: Receipts intrinsically linked to mobilisation, reimbursement and demobilisation are includible in the presumptive income base under section 44BB, whereas interest on income-tax refund, when not effectively connected with the permanent establishment, is taxable under the relevant treaty article at the treaty rate.

---