2007 (10) TMI 219 - HC - Income Tax

High Court includes spare parts reimbursement in taxable profit under Income-tax Act

COMMISSIONER OF INCOME-TAX Versus BJ SERVICES CO.

The High Court upheld the Revenue's appeal, ruling that the amount received as reimbursement for spare parts supply should be included in the taxable ... Presumptive tax - Amount received by the non-resident company as reimbursement on account of supply of spare parts are to be included in the contract receipts for computing taxable profit u/s 44BB - amount received by the assessee on account of supply of spare parts is squarely covered under section 44BB – AO was justified in taking into account the total amount received by assessee for determining the profit & gains & imposing 10% tax u/s 44BB(1) – revenue appeal allowed Issues:- Interpretation of section 44BB of the Income-tax Act, 1961 regarding the inclusion of reimbursement amounts in the taxable profit calculation.Analysis:1. The appeal was filed by the Revenue challenging the order of the Income-tax Appellate Tribunal concerning the assessment year 1998-99 under section 260A of the Income-tax Act, 1961.2. The non-resident company filed a return of income disclosing an amount for computing under section 44BB of the Act. The Assessing Officer considered the total amount received for spare parts supply to ONGC for determining profits and imposed tax at 10% under section 44BB(1).3. The assessee claimed deduction of a specific amount as reimbursement for materials supplied to ONGC. The Commissioner of Income-tax (Appeals) allowed the deduction based on actual expenses incurred by the assessee.4. The Revenue appealed against the Commissioner's order, but the Income-tax Appellate Tribunal upheld it, leading to the Revenue's appeal before the High Court.5. The Department contended that the amount received as reimbursement for spare parts supply should be included in the taxable profit calculation under section 44BB.6. The High Court analyzed section 44BB, which specifies that amounts paid or received for services and facilities related to mineral oil production in India are included. The court found that the amount received for spare parts supply falls under this section.7. The High Court concluded that the Assessing Officer was correct in including the total amount received by the non-resident company for spare parts supply in the taxable profit calculation under section 44BB.8. Consequently, the High Court set aside the orders of the Tribunal and Commissioner, confirming the Assessing Officer's decision. The judgment favored the Revenue over the assessee in this case.