Mobilization Charges for Non-Residents Not Taxable Outside Indian Waters, ITAT Rules; Appeal Partly Allowed.

The ITAT ruled by majority that mobilization charges received by the non-resident company for transportation outside Indian territorial waters are not taxable under Section 44BB read with Section 5(2) of the Income Tax Act. Consequently, the assessee's appeal was partly allowed, limiting taxability to charges attributable to transportation within Indian waters.

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Issues Involved:
- Taxability of Mobilization Charges under Section 44BB.

Summary:

Issue: Taxability of Mobilization Charges under Section 44BB

1. Assessing Officer's Decision:
The assessee, a non-resident company, received 9,50,000 US$ from ONGC for mobilization and transportation of a drilling rig from Sharjah, UAE to Vishakhapatnam, India. The assessee claimed this amount as non-taxable reimbursement charges u/s 5 read with section 9. The Assessing Officer rejected this claim, holding that section 44BB covers all payments, including reimbursements, and brought the amount to tax under section 44BB.

2. CIT(A)'s Decision:
The CIT(A) upheld the Assessing Officer's decision, relying on a previous Tribunal decision (ITA No. 3413/Delhi/88) which held that mobilization and demobilization charges are taxable under section 44BB.

3. Tribunal's Decision:
The Tribunal considered rival contentions and found that the decision of the Delhi Bench relied upon by the revenue did not address the specific issue at hand. Instead, the Tribunal relied on the Mumbai Bench's decision in Jindal Drilling Leasing, which held that mobilization charges for transportation outside Indian territorial waters are not taxable under section 5 read with section 9. The Tribunal concluded that only the portion of mobilization charges attributable to transportation within Indian waters is taxable under section 44BB.

4. Separate Judgment by Accountant Member:
The Accountant Member disagreed with the Judicial Member, arguing that section 44BB is a special provision that overrides section 5. He contended that the entire mobilization charges should be taxable under section 44BB, as the section deems 10% of the aggregate amounts specified to be the profits and gains of the business chargeable to tax.

5. Third Member's Decision:
The Third Member sided with the Judicial Member, emphasizing that section 44BB is a computation provision and does not override the charging provisions of section 5. He noted that the Mumbai Bench's decision in Jindal Drilling Leasing, which held that only the portion of mobilization charges attributable to transportation within Indian waters is taxable, should be followed. The Third Member concluded that the mobilization charges for transportation outside Indian territorial waters are not taxable under section 44BB read with section 5(2).

6. Final Outcome:
The majority view held that mobilization charges received outside India for transportation outside Indian territorial waters are not taxable under section 44BB read with section 5(2). The appeal of the assessee was partly allowed.

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