The Commissioner of Income Tax and Dy. Commissioner of Income Tax vs Ensco Maritime Ltd.

Prafulla C. Pant, J.—This appeal, preferred u/s 260-A of the Income Tax Act, 1961 (hereinafter referred as the Act) is directed against the order dated 1st February 2006, passed by the Income Tax Appellate Tribunal, Delhi Bench ''B'', New Delhi (hereinafter referred as ITAT), in Income Tax Appeal No. 3869 / Del of 2002, for the assessment year 1998- 99.

Following is the question of law involved in this appeal:

Whether, reimbursement of catering charges is not liable to be included in ''amount'' mentioned in Sub-section (2) of Section 44BB of the Income Tax Act, 1961?

Heard learned Counsel for the parties.

Brief facts of the case giving rise to this appeal are that assessee, a non-resident company, received a sum of Rs. 98,49,041.15 from M/s Oil and Natural Gas Company Limited and M/s Paramount Offshore as consideration for loss of down hole equipment. The assessee further received catering charges amounting to Rs. 16,12,958/-. But the aforesaid two charges were not offered for taxation. The Assessing Officer took the view that the aforesaid amount received by the assessee as catering charges is part of the amount on which ten per cent deemed profit is to be calculated u/s 44BB of the Income Tax Act, as such, the Assessing Officer clubbed this receipt with other receipts, and the assessment was made at Rs. 6,32,11,641/- as against Rs. 6,20,65,440/- shown in the return of income. Aggrieved by said order, the assessee preferred appeal before the Commissioner of Income Tax (Appeals) [for brevity CIT(A)]. The said authority following the decision of the ITAT, Delhi, in Sedco Forex International Drilling Inc. v. Dy. Commissioner of Income Tax, in I.T.A. No. 257, 4549, 4550, 4557 and 4562, allowed the appeal holding that the reimbursement of the catering charges and the one received on account of loss of down hole equipment are not liable to be included for the purposes of Section 44BB of the Act. The Revenue challenged said order passed by the CIT(A) on 06.06.2002, before the ITAT, Delhi, which was registered as I.T.A. No. 3869 / Del / 02 (Assessment Year 1998-99). The ITAT after hearing the parties concurred with the CIT(A) and dismissed the second appeal. Hence, this appeal by the Revenue.

Before further discussion, we think it just and proper to quote the provisions contained in Section 44BB of the Income Tax Act, 1961, which reads as under:

44BB. (1) Notwithstanding anything to the contrary contained in Sections 28 - 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 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 purposes 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.]

The above quoted section makes a special provision for computing profits and gains by the non-resident assessees engaged in the business of exploration etc. of mineral oils. Sub-section (1) provides that in respect of such assessees notwithstanding anything contained in Section 28 - 41 and Section 43 and 43A of the Act, an assessee shall be deemed to have earned ten per cent profits on the amount mentioned in Sub-section (2), received by him. The amount mentioned in Sub-section (2), as quoted above, clearly shows that the amount paid to the assessee on account of provision of services and facilities in connection with the extraction or production of mineral oils, whether paid in or outside India, are to be included. The words used in the section, in our opinion, include the amount received by the assessee on account of catering charges to the non-resident assessee involved in the business of oil exploration, as the catering charges do form part of ''services and facilities'' in connection with the extraction or production of the mineral oil.

A Division Bench of this Court in Commissioner of Income Tax and The Deputy Commissioner of Income Tax, Special Range Vs. Halliburton Offshore Services Inc., , has held that the amount paid or received refers to all the payment to the assessee or payable to the assessee for the purposes mentioned in this section. In our opinion also the catering charges cannot be excluded from the ''amount'' defined in Sub-section (2) of Section 44BB of the Act. That being so, we are of the opinion that the ITAT and CIT(A) have erred in law in holding that the catering charges are liable to be excluded from the amount for the purpose of calculating the ten per cent deemed profit. Accordingly, the substantial question of law stands answered.

For the reasons, as discussed above, this appeal is allowed. The impugned order passed by the ITAT and the order passed by the CIT(A), are set aside to the extent they have held that the catering charges from the amount received by the assessee, are liable to be excluded. Accordingly, the order of Assessing Officer is restored on the above count.