Director of Income Tax International Taxation and ACIT vs Schlumberger Asia Services Ltd.

Prafulla C. Pant, J.—This appeal, preferred u/s 260A of Income Tax Act, 1961 (herein after referred as the Act), is directed against the order dated 13.04.2007, passed in ITA No. 4180/(Del)/2006 (Assessment Year 2002-03), by Income Tax Appellate Tribunal, Delhi Bench ''E'', whereby the appeal of the revenue has been dismissed.

Heard learned Counsel for the parties.

Question of law involved in this appeal is as under:

Whether Income Tax Appellate Tribunal (for short ITAT) has erred in law in holding that the reimbursement of expenses towards custom duty are not to be included in the gross receipts for computing income u/s 44BB of Income Tax Act, 1961?

Brief facts giving rise to this appeal are that respondent/assessee -M/s Schlumberger Asia Services Ltd. (for short SASL), is a company incorporated under the laws of Hongkong, which filed its return of income on 31.10.2002, declaring income of Rs. 19,60,06,200/-. The Assessing Officer (for short A.O.) noticed that SASL has not offered for tax on certain amounts, received by it towards the reimbursement of expenses, which included custom duty, and accordingly assessed the income to Rs. 19,72,63,659/-. Aggrieved by said order, the assessee filed appeal before the Commissioner of Income Tax (for short CIT). The said authority vide its order dated 11.10.2006, partly allowed the appeal holding that the custom duty, paid in importing the equipments for rendering services, cannot form part of the amount taxable u/s 44BB of the Act. Thereafter, the revenue filed ITA No. 4180(Del)/2006 (Assessment Year 2002-03), before the ITAT, which has dismissed said appeal, vide its impugned order dated 13.04.2007.

Learned Counsel for the respondents drew attention of this Court to Sub-section (2) of Section 44BB of the Act, which reads as under:

(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.

Attention of this Court is also drawn to the principle of law laid down by this Court in CIT v. Halliburton Offshore Services Inc. (2008) 169 Taxman 138, Sedco Forex International Inc. v. CIT (2008) 170 Taxman 459, CIT v. B.J. Services Co. Middle East (2008) 170 Taxman 286, CIT v. Trans Ocean Offshore Inc. (2008) 173 Taxman 429, CIT v. Enso Maritime Ltd. (2009) 181 Taxman 46, and The Commissioner of Income Tax and Asstt. Commissioner of Income Tax (OSD) Vs. RBF Rig Corporation, . Relying on these cases, it is contended on behalf of the appellant/revenue that all kinds of amount are to be included for the purposes of calculating amount on which 10% profits under Sub-section (1) of Section 44BB of the Act. Perusal of the aforesaid case laws, show that these relate to fright and transportation charges, mobilisation charges, supply of spare parts, catering charges and fuel charges. None of these cases refer to the reimbursement of the custom duty to the assessee.

Learned Counsel for the respondent submitted that for import of the machinery or equipment, liability to pay the custom duty was on the Oil and Natural Gas Corporation (for short ONGC), who has hired the services of the assessee in contract. It is further submitted that there cannot be element of profit in reimbursement of the custom duty, paid by the assessee. As such, it is contended on behalf of the respondent/assessee that CIT(A) and ITAT, has rightly held that said amount, received by the assessee is to be excluded in computing profits u/s 44BB of the Act.

Having considered submissions of learned Counsel for the parties, we are of the view that reimbursement towards the custom duty, paid by the assessee, being statutory in nature, cannot form part of amount for the purposes of deemed profits unlike the other amounts received towards reimbursement. Therefore, we do not find any sufficient reason to interfere with the impugned orders, passed by the ITAT, which has affirmed the view taken by the CIT(A). Question of law stands answered accordingly.

For the reasons, as discussed above, the appeal is dismissed.