2009 (4) TMI 468 - HC - Income Tax

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 - Held that - In Commissioner of Income Tax and another Vs. Halliburton Offshore Services Inc. (2007 -TMI - 30249 - UTTARAKHAND HIGH COURT) 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.

Summary

Issues:
1. Interpretation of Section 44BB of the Income Tax Act, 1961 regarding the inclusion of catering charges in the calculation of deemed profits for non-resident assessees engaged in the business of mineral oils.

Analysis:
1. The main issue in this appeal was whether reimbursement of catering charges should be included in the 'amount' mentioned in sub-section (2) of Section 44BB of the Income Tax Act, 1961. The assessee, a non-resident company, received catering charges along with other payments but did not offer them for taxation. The Assessing Officer included the catering charges in the total amount for calculating the deemed profit under Section 44BB. The CIT(A) and ITAT held that catering charges should be excluded from the calculation, relying on a previous decision. However, the High Court held that catering charges are part of 'services and facilities' in connection with mineral oil extraction, thus should be included in the amount for calculating deemed profits.

2. Section 44BB provides a special provision for computing profits and gains for non-resident assessees in the business of mineral oils exploration. Sub-Section (1) states that such assessees are deemed to have earned ten per cent profits on the amount specified in sub-section (2). The High Court emphasized that the wording of sub-section (2) clearly includes amounts paid for services and facilities related to mineral oil extraction, whether paid in or outside India. The Court concluded that catering charges to non-resident assessees in the oil exploration business are part of 'services and facilities' and should not be excluded from the calculation.

3. The High Court referred to a previous judgment in Commissioner of Income Tax and another Vs. Halliburton Offshore Services Inc., where it was held that all payments made or received by the assessee for the specified purposes in Section 44BB should be considered. The Court agreed with this interpretation and determined that catering charges cannot be excluded from the 'amount' defined in sub-section (2) of Section 44BB. Therefore, the ITAT and CIT(A) were deemed to have erred in excluding catering charges from the calculation of deemed profit.

4. Consequently, the High Court allowed the appeal, setting aside the orders of the ITAT and CIT(A) that excluded catering charges from the calculation. The Assessing Officer's order, which included catering charges in the total amount for calculating deemed profit, was restored. The judgment clarified that catering charges should be considered as part of the amount under Section 44BB for non-resident assessees engaged in mineral oil business, ensuring proper taxation treatment for such payments.