2004 (9) TMI 585 - AT - Income Tax

Summary

Issues Involved:
1. Applicability of Notification GSR 304(E), dated 31st March 1983.
2. Taxability of income received for activities performed outside India.
3. Interpretation and application of Section 44BB of the Income-tax Act.
4. Consideration of the C.B.D.T. Circular/Instruction No. 1766.
5. Deemed income under Section 9(1)(i) of the Income-tax Act.

Detailed Analysis:

1. Applicability of Notification GSR 304(E), dated 31st March 1983:

The primary issue in this case was whether the services rendered by the assessee were covered by the provisions of Notification GSR 304(E), dated 31st March 1983. The Notification applies to activities such as prospecting for, extraction, or production of mineral oils, provision of services or facilities, or supply of ships, aircraft, machinery, or plant in connection with such activities, and rendering services as an employee in these activities. The assessee argued that its activities of designing, fabrication, construction, and installation of platforms, decks, pipelines, and jackets were not covered by the Notification as these did not involve exploration or production of mineral oil.

2. Taxability of income received for activities performed outside India:

The assessee contended that only a part of the income attributable to operations carried out in India should be taxable, as per the Explanation to Section 9(1)(i) of the Income-tax Act. The Assessing Officer, however, assessed 10% of the gross receipts from work carried out outside India as taxable income, ignoring the C.B.D.T. Circular which suggested that only 1% of such receipts should be taxable.

3. Interpretation and application of Section 44BB of the Income-tax Act:

Section 44BB pertains to the computation of income for non-residents engaged in providing services or facilities in connection with the prospecting for, or extraction or production of, mineral oils. The authorities held that the assessee's business activities fell under this section. However, the assessee argued that its activities as a sub-contractor did not have a direct nexus with the exploration or production of mineral oil and hence, should not be covered under Section 44BB.

4. Consideration of the C.B.D.T. Circular/Instruction No. 1766:

The assessee relied on a C.B.D.T. Circular issued in 1987, which clarified that in cases of work carried out outside India, only 1% of the gross receipts would be attributable to activities in India. The CIT(A) dismissed this argument, stating that the Circular was only operative for three years and had long elapsed without any extension.

5. Deemed income under Section 9(1)(i) of the Income-tax Act:

The Department contended that the income received by the assessee was deemed income under Section 9(1)(i) since the agreement was signed in India and the income was received in India. However, the Tribunal highlighted that according to the Explanation to Section 9(1)(i), only the part of the income reasonably attributable to operations carried out in India should be deemed to accrue or arise in India.

Judgment Summary:

The Tribunal ruled in favor of the assessee, addressing each issue as follows:

1. Notification GSR 304(E): The Tribunal agreed with the assessee that its activities did not fall under the Notification GSR 304(E), as these were not directly related to the exploration or production of mineral oil.

2. Taxability of Income: The Tribunal held that only the part of the mobilization/demobilization work attributable to operations carried out in India is taxable in India. The entire gross receipts from the work carried out outside India should not be taxed.

3. Section 44BB Application: It was determined that the assessee's activities as a sub-contractor did not directly connect with the prospecting or production of mineral oil, and therefore, Section 44BB was not applicable.

4. C.B.D.T. Circular Consideration: The Tribunal noted that the C.B.D.T. Circular, although expired, provided a reasonable basis for attributing only 1% of the gross receipts to activities in India.

5. Deemed Income under Section 9(1)(i): The Tribunal emphasized that only the income reasonably attributable to operations in India should be deemed to accrue or arise in India, as per the Explanation to Section 9(1)(i).

In conclusion, the Tribunal canceled the order of the CIT(A), stating that the services rendered by the assessee were not covered by the Notification GSR 304(E), and only the income attributable to operations carried out in India should be taxable. The appeal of the assessee was allowed.