Commissioner of Income Tax and The Deputy Commissioner of Income Tax, Special Range vs Halliburton Offshore Services Inc.

This appeal is directed against the order dated 15.9.2006 passed by the Income Tax Appellate Tribunal, Delhi Bench 4A4, New Delhi (for short, the ITAT) passed in ITANo. 794/Del/1997 pertaining to Assessment Year 1991-92, whereby the ITAT has upheld the judgment of the CIT (Appeals) and dismissed the appeal of the Revenue. The CIT (Appeals) vide his order dated 16.7.1996 allowed the appeal of the assessee and had held that addition of Rs. 6,16,989/- received by the assessee on account of reimbursement of freight and transportation charges actually incurred in respect of equipment. Both CIT (Appeals) as well as the ITAT has held that these charges were freight and transportation charges incurred in respect of transportation of equipment by the assessee to ONGC and did not constitute an income and cannot be added as total income of assessee and on account of liquidated damages from the contract bills raised by the assessee could not be said to have accrued as income to the assessee so as to fall within the ambit of charging provisions of Section 5 of the Income Tax Act.

We have heard Sri Arvind Vashistha, learned Standing Counsel for the Revenue and perused the record. Affidavit of service has been filed on behalf of the appellant, but despite service, none appeared on behalf of the respondent to contest this appeal.

The application of Section 44BB is admitted in case of assessment of the assessee. The only dispute is in respect of addition of Rs. 6,16,989/- for calculating the 10 per cent to arrive at profits and gains in Sub-section (1) to Section 44BB. The question which arises for our consideration is as to whether only the income or accrued income is liable to be taken into account for arriving at profits and gains @ 10 per cent u/s 44BB or all the amounts received or deemed to be received are to be taken into account?

To answer this question we directly go to Section 44BB which reads as under:

44BB. (1) Notwithstanding anything to the contrary contained in Sections 28 to 41 and Sections 43 and 43A, in the case of an assessee, being a non- resident, engaged in the business of providing services or facilities in connection with, or supplying plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils, a sum equal to ten per cent of the aggregate of the amounts specified in Sub-section (2) shall be deemed to be the profits and gains of such business chargeable to tax under the head "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 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 outside India.

(3) Notwithstanding anything contained in Sub-section (1), an assessee may claim lower profits and gains than the profits and gains specified in that sub-section, if he keeps and maintains such books of account and other documents as required under Sub-section (2) of Section 44AA and gets his accounts audited and furnishes a report of such audit as required u/s 44AB, and thereupon the Assessing Officer shall proceed to make an assessment of the total income or loss of the assessee under Sub-section (3) of Section 143 and determine the sum payable by, or refundable to, the assessee.

Explanation.- For the purpose of this section,-

(i) "plant" includes ships, aircraft, vehicles, drilling units, scientific apparatus and equipment, used for the purposes of the said business;

(ii) "mineral oil" includes petroleum and natural gas.

Section 44BB provides that the deemed profits and gains under Sub-section (1) shall be @ 10 per cent of the aggregate amount specified in Sub-section (2). We proceed to analyze Sub-section (2). Clause (a) of Sub-section (2) refers to the amounts, (A) paid to the assessee (whether in or out of India) 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) payable to the assessee (whether in or out of India) 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. Clause (b) of Sub-section (2) refers to the amounts, (A) received by assessee in India 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 outside India, and (B) deemed to be received by the assessee in India 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 outside India.

Thus, it is clear from the perusal of Section 44BB that all the amounts either paid or payable (whether in India or outside India) or received or deemed to be received (whether in India or outside India) are mutually inclusive. This amount is the basis of determination of deemed profits and gains of the assessee @ 10 per cent. Therefore, in our view, the ITAT fell into error in not appreciating the difference between the amount and the income. Amount paid or received refers to the total payment to the assessee or payable to the assessee or deemed to be received by the assessee, whereas income has been defined u/s 2(24) of the Income Tax Act and Section 5 and Section 9 deal with the income and accrued income and deemed income. Section 4 is the charging Section of the Income Tax Act and definition as well as the incomes referred in Section 5 and 9 are for the purpose of imposing the income tax u/s 143(3). Section 44BB is a complete code in itself. It provides by a legal fiction to be the profits and gains of the non-resident assessee engaged in the business of oil exploration @ 10 per cent of the aggregate amount specified in Sub-section (2). It is not in dispute that the amount has been received by the assessee company. Therefore, the Assessing Officer added the said amount which was received by the non-resident company rendering services as per provisions of Section 44BB to the ONGC and imposed the income tax thereon.

Accordingly, for the reasons recorded above, we set aside the judgment and order of the ITAT and order of the CIT (Appeals). The order of Assessing Officer is confirmed. The question is answered in favour of Revenue and against the assessee.