2011 (1) TMI 123 - AT - Income Tax

Addition of income - The AO issued notice u/s 142(1) dated 18.10.2002 calling upon the assessee to substantiate its claim as to how the mobilization of rig would not be taxable in India in view of the provisions of section 44AB of the Act - Assessee contended that the mobilization fee accrued to the assessee outside India since it was in respect of mobilizing the rig from outside India to its first location in India - as per the provisions of section 44BB 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 extraction or production of mineral oils in India is taxable in India - When there is no provision for payment of any repairs and maintenance of the rig in the agreement then the payment received by the assessee under any head or nomenclature would deemed as payment for the operation carried out in India and therefore the income has accrued/arisen in connection with the business operation of the assessee in India - Hence the explanation (1)(a) to section 9(1)(i) is not applicable in the facts and circumstances of the case - The appeal of the revenue is allowed

Issues Involved:
1. Taxability of mobilization fees in India.
2. Applicability of Section 44BB versus Sections 5 and 9 of the Income Tax Act.
3. Classification of business operations inside and outside India.

Detailed Analysis:

1. Taxability of Mobilization Fees in India:
The primary issue revolves around whether the mobilization fees received by the assessee, a company incorporated in the Cayman Islands, for moving a drilling rig from Sharjah to Bombay High, is taxable in India. The assessee argued that the mobilization fees accrued outside India and thus should not be taxed in India. However, the Assessing Officer (AO) contended that the mobilization fees are connected to the business operations in India and should be included in the total receipt for the calculation of total income under Section 44BB of the Act.

2. Applicability of Section 44BB versus Sections 5 and 9 of the Income Tax Act:
The AO argued that Section 44BB, which specifically deals with the computation of income in connection with the business of exploration of mineral oils, has an overriding effect over the general provisions of Sections 5 and 9. The AO emphasized that Section 44BB deems any amount paid or payable in or outside India for services or facilities connected with extraction or production of mineral oils in India as taxable in India. On the other hand, the assessee contended that Section 44BB is merely a computation provision and does not override the charging provisions of Section 5(2), which specifies the conditions under which income is chargeable to tax in India.

3. Classification of Business Operations Inside and Outside India:
The CIT(A) held that only 10% of the mobilization fees should be taxable in India, indicating that part of the business operations were carried out within Indian territory. However, the AO and the learned DR argued that the entire mobilization fees should be taxed in India since the rig was already in India under an existing agreement and the mobilization was not for initial movement from outside India. The AO further noted that the agreement did not categorize services as inside or outside India but referred to operations in offshore waters of India.

Tribunal's Findings:
The Tribunal considered the rival contentions and relevant records, including the terms of the agreement between the assessee and NEPL. It was found that the rig was already in India under an existing agreement at the time of signing the new agreement and was taken to Sharjah for repairs. Thus, there was no initial mobilization from outside India. The Tribunal concluded that the mobilization fees received by the assessee are for operations carried out in India and are taxable under Section 44BB. The Tribunal emphasized that Section 44BB is in furtherance of Sections 5 and 9 and not in contravention of them. Consequently, the Tribunal set aside the order of the CIT(A) and restored that of the AO, holding that the entire mobilization fees are taxable in India.

Conclusion:
The appeal by the revenue was allowed, and the Tribunal held that the mobilization fees received by the assessee for the rig, which was already in India, are taxable under Section 44BB of the Income Tax Act. The Tribunal clarified that Section 44BB provides specific provisions for the computation of income related to the exploration of mineral oils and has an overriding effect over the general provisions of Sections 5 and 9.

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