TaxTMI 
TaxTMI 
2003 (12) TMI 280
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.... Port. It was claimed before the Assessing Officer that the amount received was in the nature of reimbursement charges which were not taxable in view of section 5 read with section 9. This contention of the assessee was rejected by the Assessing Officer since in his view section 44BB covered all payments whether in the form of reimbursement or in the nature of other payments. Accordingly, this amount was brought to tax under section 44BB. 3. The matter was carried before the CIT(A) before whom the same contentions were raised on behalf of the assessee. On behalf of the Assessing Officer it was submitted that the issue was covered in favour of the revenue by the decision of the Tribunal Delhi Bench in ITA No. 3413/Delhi/88 dated20-6-1990wherein it was held that mobilisation and demobilisation charges were taxable under section 44BB. Following the said decision of the Tribunal, the CIT(A) confirmed the order of the Assessing Officer on this aspect. Aggrieved by the same, the assessees in appeal before the Tribunal. 4. The learned counsel for the assessee. Mr. Vohra has vehemently assailed the order of CIT(A) by contending that the mobilisation charges cannot be brought within t....
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....read with section 9. Consequently, it was also held that only the mobilisation charges in respect of transportation of the rig in the course of Indian water were taxable under section 44BB. According to the Bench, the entire receipts could not be brought in the net of taxation. The relevant observations of the Bench are being reproduced for the benefit of this order: "On a close reading of sections 44BB, 4 and 5(2), it is evident that what is taxable in India in the case of a non-resident is the income which is accrued or has arisen whether actually or is deemed under the statute or which is received in India. This concept is, in fact, adopted for arriving at the total earning of a non-resident by sub-section (2) of section 44BB, which, as aforesaid, takes in its ambit only those receipts which are paid or payable either in India or elsewhere for services rendered in India and in case the services are rendered outside India, the receipt by the non-resident in India. The terms "paid" or "payable" are used with reference to payer's point of view, but if these are translated into the recipients point of view they are to be read as received or receivable for the services r....
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.... (corresponding to section 9 of the 1961 Act), but on general principles of apportionment of income, profits or gains depending whether the income, profits or gains could be said to arise or accrue. Therefore, in these circumstances, in our opinion, even though the entire receipts by the assessee may be subject to the determination of 10 per cent profit under section 44BB of the Act, the taxable portion thereof would have to be the amount that relates to the proportionate operations carried out in India and that; as aforesaid, would be relating to the voyage of 140 nautical miles out of the 11990 nautical miles for which the hire charges were received by the assessee. In these circumstances, in our opinion, the CIT(A) was justified in directing that only the proportionate income i.e. 185/11990 would be taxable in India. The order of the CIT(A), therefore; does not call for any interference and is accordingly upheld." 7. In view of the above discussion, we hold that mobilisation charges in respect of the transportation of rig outside the territorial water of India are not taxable. The order of the CIT(A) is, therefore, set aside and the Assessing Officer is directed to include in....
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....crues or arises or is deemed to accrue or arise in India is liable to be included in the total income of the non-resident, He stated that the case of the assessee could, at the most, be considered to be falling under clause (b) of sub-section (2). The attention of the Bench was drawn towards section 9(1) which deals with the incomes which are deemed to accrue or arise in India. It was urged that Explanation (a) to section 9(1)(i) provides that in the case of a business of which all the operations are not carried out in India, the income of the business deemed under this clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India. Placing reliance on this Explanation, the ld. counsel for the assessee urged that only that part of the profit which is relatable to the receipts attributable to the transportation of rig in the territorial water of India could be included in the total income, while computing the income under section 44BB. For this proposition, the ld. counsel placed reliance on the order of the Mumbai Bench 'E' in the case of Jindal Drilling Leasing, a copy of which was placed at pag....
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....irst thing to be decided is as to whether section 5(2) read with section 9 are applicable to section 44BB or not. For that it is necessary to consider the provisions of section 5(2) which are as under:-- "(2) Subject to the provisions of this Act, the total income of any previous year of a person who is a non-resident includes all income from whatever source derived which-- (a) is received or is deemed to be received in India in such year by or on behalf of such person; or (b) accrues or arises or is deemed to accrue or arise to him in India during such year." 6. There is no dispute about the fact that ordinarily the income of a non-resident is to be computed according to the mandate of section 5 which provides that the income which is received or is deemed to be received in India and also the income which accrues or arises or is deemed to accrue or arise in India is liable to be included in the total income of the nonresident. But the question arises that would section 5(2) hold the field even if any special/deeming provision has been enacted such as section 44BB in the Act? The answer to this question can be found from the language of section 5(2) it....
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....ead "Profits and gains of business or profession": Provided that this sub-section shall not apply in a case where the provisions of section 42 or section 44D or section 115A or section 293A apply for the purposes of computing profits or gains or any other income referred to in those sections. (2) The amounts referred to in sub-section (1) shall be the following, namely:-- (a) the amount paid or payable (whether in or out of India) to the assessee or to any person on his behalf on account of the provision of services and facilities in connection with, or supply of plant and machinery on hire used, or to be used in the prospecting for, or extraction or production of, mineral oils in India; and (b) the amount received or deemed to be received in India by or on behalf of the assessee on account of the provisions of services and facilities in connection with, or supply of plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils outside India. Explanation.--For the purpose of this section:-- (i) 'plant' includes ships, aircraft, vehicles, drilling units, scientific a....
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....2), it is totally irrelevant that the amount is paid to the assessee in or out of India. It is the admitted position, as is clear from the written submissions also, that the assessee hired out its drilling rig to ONGC for exploratory drilling in India only. It, therefore, boils down that section 44BB contains special provisions by virtue of which 10% of the qualifying amounts are deemed to be profits of the business which are chargeable to tax. Deeming provisions create a fiction by assuming a particular state of affairs. The law is trite and no authority is needed to be cited for the proposition that the deeming provisions override the general provisions. Seen in this light, it is difficult to digest the contention of the ld. counsel for the assessee that even though the entire receipts by the assessee may be subject to the determination of 10% profits under section 44BB but the taxable portion would be only that amount which relates to the distance covered in India, for the simple reason that section 44BB contemplates that 10% of the aggregate receipts would be deemed to be the profits and gains of such business chargeable to tax under the head "Profits and gains of business or p....
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....ces Inc. shows that there was clear indication that ONGC would pay fees or lump-sum for mobilization or demobilisation charges or such charges at the moving rate. Similarly, the agreement with Dowell Schlumberger SA show that the ONGC had undertaken to clear from the port/ airport authorities customs of equipment and spares etc. imported into India for ONGC's work and that cost incurred by the non-resident company for transportation of equipment in India from point of origin to ONGC's location and back to point of origin would be reimbursed by ONGC." From the above extracted finding of the Tribunal's order it is clear that the entire mobilisation charges from the point of origin outside India to the ONGC's location in India were held to be includible in the receipts for applying the profit rate as per the prescription of section 44BB. The facts of the instant case are on all fours with the order passed by the Delhi Bench, relied upon by the CIT(A), and I am unable to find out even a single distinguishing feature. Hence it is manifest that the submission of the ld. counsel that the afore cited order of the Tribunal is not applicable is sans merits and deserv....
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....the Act. The inclusion of such amount of mobilisation fee for computing income under section 44BB does not in all manner go beyond the charging sections 4 and 5 of the Act. A special' provision, namely, section 44BB has been introduced for determination of taxable income of the nonresident taxpayers engaged in such business. The presumptive income of 10% on the aggregate payments made under such agreements cannot be said to be beyond the scope of charging sections 4 and 5, The various judgments relied upon by the ld. counsel for the assessee does not in any manner, support such a contention, where only 10% of the aggregate payments an~ deemed to be income chargeable to tax under the head "Profits & gains of business" by virtue of such special provisions of section 44BB of the Act. We are also unable to accept the assessee's contention that only a reasonable portion of 10% income determined under section 44BB in relation to mobilisation fee should be taxed, as income attributable to services rendered in India in the process of mobilisation of drilling unit is very small. Reliance placed by the ld, counsel on the circular issued by the Board does not in any manner support his....
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....er section 255(4) of the Income-tax Act, 1961:-- "Whether on facts and in law, the mobilization charges, received by the assessee outside India, attributable to the transportation of rigs outside territorial waters of India are chargeable to tax under section 44BB read with section 5(2) of the Income-tax Act, 1961?" 2. The facts pertaining to the point at issue are well set out in the order passed by the ld. Judicial Member and in respect of which the ld. Accountant Member has not expressed any dissent but for purposes of making the present order a self-contained one, I summarize these as under. 3. The assessee in this case is a non-resident company having its Registered Office at Milano Corso Venezia. It carried on the business pertaining to the exploration of mineral oils etc. In the year 1984, the company entered into an agreement with ONGC for offering One Land Drilling Rig on charter basis for exploratory drilling in the Krishna-Godavari Basinarea. Under the agreement between the parties, the assessee was to receive a fixed sum of, US $ 9,50,000 towards mobilization and transportation of the drilling rig from Sharjah, UAE to the Vishakapatnam port. Before the As....
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....essing Officer in that case did not include the receipts towards mobilization charges in the total income of the assessee and the CIT in proceedings under section 263 took the view that the order of the Assessing Officer was erroneous and prejudicial to the interest of Revenue. He accordingly directed the Assessing Officer to include the same under section 44BB. On the matter being carried before the Tribunal, it was held that such payments arose out of the contract and, therefore, directly connected with the assessee's business. The further view expressed by the Tribunal was that there was an element of profit since a fixed amount had been received by the assessee irrespective of the expenditure incurred. The Bench on the aforesaid facts took the view that the mobilization charges were taxable in the hands of the assessee under section 44BB read with section 28(iv). It was categorically observed by the ld. Judicial Member that the issue with which the present Bench was concerned was neither raised before the Delhi Bench in the decision cited and nor considered by them. He accordingly took the view that the ratio of this decision could not be applied to the present case. 7. ....
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....ection 5(2) with the contention that the income which accrued or arose or was deemed to accrue or arise in India was liable to be included in the total income of the non-resident and according to him the assessee's case at the most could be considered to be falling under clause (b) of sub-section (2). 10. Thereafter the ld. Accountant Member referred to the provisions of section 9(1) and which were referred to by the assessee's counselor the proposition that Explanation (a) to section 9(1)(z) provided that in the case of a business of which all the operations are not carried out in India but the income of the business deemed under this clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India. Placing reliance on the said explanation, the ld. counsel for the assessee urged that only that part of the profit which was relatable to the receipts attributable to the transportation of the rig in the territorial waters of India could be included in the total income while computing the income under section 44BB. The plea of the assessee in other words as noted by the Ld. Accountant Member was tha....
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....n in sub-section (2) to the effect that only that portion of the mobilization charges was includible for purposes of tax and which covered the distance falling in theterritoryofIndia. Further, according to the Ld. Accountant Member, it was totally irrelevant whether the amount was paid to the assessee in or out ofIndia. In conclusion, the ld. Accountant Member took the view that section 44BB contained special provisions and according to him deeming provisions over-rode the general provisions. IJ was reiterated by the ld. Accountant Member that the provisions of section 44BB were not controlled by the provisions of section 5(2), and the further view expressed by the Ld. Accountant Member was that when section 5 itself was held to be inapplicable then there could be no question of considering the applicability of section 9 separately. 13. In coming to the decision of the Delhi Bench of the Tribunal in the case of Nippon Kokan K.K. which was relied upon by the Revenue, the Ld. Accountant Member at pages. 16 and 17 of his separate order took the view that there were no distinguishing features vis-a-vis the facts of the assessee's case and the said order of the Tribunal was squar....
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....ndia in any previous year by or on behalf of such persons; and/ or (b) all incomes which accrue or arise or are deemed to accrue or arise to such person in India during the previous year. It is trite law that no income can be brought to tax unless it falls within the scope of charging section. Their Lordships of the Supreme Court in the case of CIT v. Ajax Products Ltd. 55 ITR 741 held that the subject is not to be taxed unless the charging provisions clearly impose an obligation. The provisions of section 5 of the Act start with the expression 'Subject to other provisions of the Act'. The legislative intent behind making the provisions of section 5 subject to other provisions of the Act is that if any other section operates to exclude from the total income of any person any income, which otherwise falls within the broad framework of his total income as laid down in section 5 of the Act, such section may prevail. For example, although an income may fall within the four corners of the charging sections, namely, sections 4 & 5, the provisions of section 10 of the Act may, however, operate to exclude all or any part of such income from the total inco....
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....etc., of mineral oils etc. Under clause (b) amounts received or deemed to be received in India on account of provisions of services and facilities outside India are to be considered. Thus, clause (a) of section 5(2) and clause (b) of section 44BB(2) brings within their ambit incomes/amounts, which are received or are deemed to be received in India. Similarly, clause (b) of section 5(2) and clause (a) of section 44BB(2) deals with incomes/amounts accruing in India (whether received in or out of India). Thus, making a departure from general mode of computation of income chargeable under the head 'Profit and gains of business or profession', as a matter of convenience, the provisions of section 44BB of the Act provides that tax shall be levied on a presumptive rate of 10% on the aggregate of the following amounts: (a) Amounts accruing in India (whether received in or out of India) on account of rendering of services/utilization of facilities in India; (b) Amounts received or deemed to be received in India on account of rendering of services/utilization of facilities outside India. In view of the aforesaid, the provisions of section 44BB are ....
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....erabad Tribunal in the case of DCIT v. Nagarjuna Investment Trust Ltd. 65 ITD 17 also held likewise. It is further pertinent to mention that the provisions of section 44BB have be amended by the Finance Act, 2003, w.e.f. 1-4-2004, inserting a new sub-section (3) thereto. The newly inserted sub-section (3) provides that the assessee may claim lower profits and gains than the profits and gains specified in sub-section (1) provided that the assessee complies with certain conditions, viz., maintenance of books of account, getting the accounts audited, etc. In that case, the presumptive rate of taxation as laid down in sub-section (1) of section 44BB shall not apply and the income of the non-resident assessee shall be computed in accordance with the normal provisions of the Act. A non-resident assessee may, thus, w.e.f. assessment year 2004-05, compute his income from the business of exploration, etc., of mineral oils in accordance with the general mode of computation of income chargeable under the head 'Profits and gains of business or profession'. The amendment made by the Finance Act, 2004 further reinforces the contention of the appellant that the provision....
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....Accountant Member has laid emphasis on the expression "subject to provisions of this Act" as used in section 5(2) of the Act to hold as under: "It ergo shows that section 5(2) does not have an overriding effect over other sections of the Act and it has to be harmoniously construed in conjunction with other special provisions." The Learned Member has, in this regard, relied upon the decision of the Kerala High Court in CIT v. Fertilizer & Chemicals (Travancore) Ltd. 166 ITR 823. With respect, section 5 is the charging provision and no income can be brought to tax unless it falls within the scope of the charging section. It is trite law that the subject is not to be taxed unless the charging provision clearly imposes the obligations, as held in following: CIT v. Ajax Products Ltd. 55 ITR 741 (SC) CWT v. Ellis Bridge Gymkhana 229 ITR 1 (SC) The Learned Authors of Kanga & Palkhiwala in their book 'Law and Practice of Income-tax' have on page 208 observed as under: 'The definition of total income is "subject to the provisions of this Act". The result is that while income cannot be taxed, generally speaking, unles....
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.... gains of the business' in connection with business of exploration etc. The said section merely overrides the operation of sections 28 to 41 and sections 43 and 43A of the Act and does not override the provision of section 5 of the Act, which is the charging section of the Act. Reliance, in this regard, is placed on following: Memorandum Explaining the Finance Bill, 1987; 165 ITR 161 (St.) (Pages 39-40 of paper book) Circular No. 495 dated22-9-1987; 168 ITR 87, 98 (St.) (Page 41 of paper book) Oil India Ltd. v. CIT 212 ITR 225, 229 (Ori.) 'Section 44BB is a special provision for computing profits and gains in connection with the business of exploration of mineral oil. Parliament engrafted the aforesaid provision in the Income-tax Act as a measure of simplification providing for determination of income of such taxpayers at ten per cent of the aggregate of certain amount.' CIT v. ONGC 124 Taxman 292 (Raj.) Canara Bank v. Joint CIT 84 ITD 310 (Bang.) The Bombay High Court in the case of CIT v. Standard Motor Co. Ltd. 119 ITR 573, 582-583 held that section 145(1) is only an enabling provision to effectu....
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.... CIT v. Ajax Products Ltd. 55 ITR 741 (SC) CIT v. Quantas Airways. Ltd. 175 CTR 98 (Delhi.) The decision of Mumbai Bench of Tribunal in the case of Jindal Drilling Leasing is direct authority on the issue under consideration wherein it has been held that mobilisation charges in respect of voyage outside the territorial waters of India are not taxable in view of section 5 read with section 9 of the Act. The Learned Accountant Member has, on page 18 and 19, relied upon the decision of the Delhi Tribunal in the case of Sedco Forex International v. Dy. CIT in ITA No. 4562/D/91 reported in 72 ITD at page 415. The decision of the Delhi Tribunal in the case of Sedco Forex does not deal with the issue under consideration. The decision of the Mumbai Tribunal in the case of Jindal Drilling is directly on the issue and fully applicable to the facts of the case." 17. In the course of the submissions before us over and above the aforesaid written propositions, the ld. counsel contended that the decision of the Delhi Bench of the Tribunal in the case of Sedco Forex International Drilling Inc. had not been confronted to the assessee. It was further emp....
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....contained special provisions and section 5 was subject to the other provisions of the Act which included section 44BB. According to the ld. DR the argument raised by the assessee if accepted would negate the provisions of section 44BB and it was not only a machinery provision as contended on behalf of the assessee but a charging provision as well. A reference was made to the provisions of section 172(2) which according to the ld. DR were identically worded and in the decision in Union of India v. Gosalia Shipping (P.) Ltd. [1978] 113 ITR 307(SC) at 310 section 172 had been treated as a charging section. 20. The further submission was to the effect that the services were to begin from Sharjah, UAE and end at Vishakapatnam (India) and these could not therefore be curtailed to a place up to 200 nautical miles outside India. According to the ld. DR, the contract between the parties got completed in India and not outside and therefore the entire amount would become taxable under section 44BB which was a special provision overriding the general provision. Further, according to the ld. DR the provisions of the statute were to be interpreted in a harmonious manner and it could not invol....
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....he Revenue's case and further the various decisions relied upon by the ld. DR did not advance the Revenue's case. A specific reference was made to CIT v. Quantas Airways Ltd. [2002] 256 ITR 849 (Delhi), Visakhapatnam Port Trust's case and Smt. Kamalini Khatau's case. 24. In coming to the provisions of section 172(2) and 172(3), the ld. counsel emphasized that these provided a mechanism for taxing a ship owner before he left India and in 222 ITR 739 (sic), Their Lordships of the Hon'ble Supreme Court had explained the working of section 172 but the view expressed as also the interpretation of the said provisions did not in any way lessen the merits of the assessee's case. The further submission was to the effect that it was not section 5 which was subject to the provisions of section 44BB but the position was the other way round. According to the Id. counsel the amount had first of all to be brought within the ambit of section 5(2) and it was only thereafter that provisions of section 44BB came into operation. The question of a PE i.e. Permanent Establishment according to the ld. counsel was not relevant for purposes of deciding the point at issue as was t....
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....he rig had accrued to the assessee or had arisen to it only when the transportation had taken place and that transportation was both in India as also outside India. Further according to the Bench, accrual of income in India was therefore to be only for that portion of the voyage which pertained to the travel in India and the balance would accrue to the non-resident for transportation outside India and therefore the receipts on this account would not be covered by the provisions of section 44BB of the Act. 28. In following the view taken by the Mumbai Bench of the Tribunal in the aforesaid decision cited supra, the ld. Judicial Member opined that mobilization charges in respect of the transportation of the rig outside the territorial waters of India were not taxable and he, therefore, set aside the order of the CIT(A) and directed the Assessing Officer to include in the total income only that portion of the profit which was relatable to the receipts attributable to the transportation of the rig in the territorial waters of India while computing the income under section 44BB. The Ld. Judicial Member distinguished the decision of the Delhi Bench of the Tribunal which had been follo....
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.... port in India and it is not disputed at any stage of the proceedings that the ONGC had paid the amount to the assessee outside India in in Italy. In other words, the journey outside India is substantial and much more than the journey of the rig within the Indian waters: The ld. Accountant Member in para 6 of his order accepts that "ordinarily" the income of a non-resident is to be computed according to the mandate of section 5 i.e. that income which is received or is deemed to be received in India as also income which accrues or arises or is deemed to accrue or arise in India but in the same para he proceeds to hold that the provisions of section 44BB being special provisions are not controlled or hit by section 5. In my opinion, the decisions taken by the ld. Accountant Member renders otiose/redundant the provisions of section 5 inasmuch as all assessees engaged in the business of exploration of mineral oils would have their income computed for taxation purposes only with reference to section 44BB and the entire exercise of deciding the question of accrual of income Or the place of accrual would become inoperative. There would be no need to refer to the provisions of section 5 or....
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....Sedco Forex International Drilling Inc. has been extracted and the ld. Members have taken the view that section 44BB contains special provisions and these do not go beyond the scope of the charging sections 4 and 5. In my opinion, the manner in which the relevant provisions of the Act more so those of section 44BB have been interpreted in the case of Sedco Forex International Drilling Inc. has rendered inoperative the provisions of sections 4 and 5 which have been accepted even in the case of Sedco Forex International Drilling Inc. to be charging sections. 32. The position as has now emerged before me is that there are two decisions of the Delhi Benches of the Tribunal taking a view in favour of the Revenue i.e. the cases of Sedco Forex International Drilling Inc. and the case of Nippon Kokan K.K. and on the other side are two decisions of the Mumbai Bench of the Tribunal, the first being the case of Jindal Drilling Leasing and the other being the decision of the same Bench in the case of Sonal Offshore Drilling Inc. The former decision has in fact been followed in the latter decision of the Mumbai Bench of the Tribunal and CBDT instruction No. 1767 dated1-7-1987has also been ta....
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....sons who are not resident in India from a partnership business carried on abroad and not controlled from India in which the assessee is a partner would be liable to be included in the total income of the assessee and liable to be taxed in India. We find it difficult to believe that the Legislature had any such intention in mind in enacting the provisions of section 5 and section 64. Accepting the submission of Mr. Jetley, in our view, would amount to straining the plain language of section 5 to bring about an illogical and unjust result and there is no warrant for us to do so." 34. The ld. authors Kanga & Palkhivala in their commentary at page 208 observed as under:-- "The definition of total income is 'subject to the provisions of this Act', The result is that while income cannot be taxed, generally speaking, unless it falls within section 5, it is not necessarily to be taxed because it falls within the section; any other section may operate to save from taxation income which is within the purview of this section." 35. With reference to the aforesaid, I accept the argument of the ld. counsel that section 5 is the charging provision and no income can be broug....