2011 (2) TMI 119 - AAR - Income Tax

DTAA - International transaction - Presumptive rate of taxation under section 44BBB - Held that - whether the consideration received by the Applicant for the steam turbine, turbo generator erection of auxiliaries, other equipments including associated electrical, instrumentation and pre-commissioning work for the five units of 800 MW each of Ultra Mega Power Project at Mundra ( Mundra UMP project ), Gujarat is eligible for presumptive rate of taxation under section 44BBB of the Act in India. - Held Yes. if the Applicant engages the services of a related party or third party for supply of labour for executing the work under the contract with the condition that the overall responsibility would remain with the Applicant, whether the Applicant would be eligible for presumptive rate of taxation under section 44BBB of the Act on the entire consideration receivable in terms of the contract - Held Yes.

Summary

Issues:
1. Taxability of consideration received for execution of a contract under section 44BBB of the Income Tax Act.
2. Eligibility for presumptive rate of taxation under section 44BBB when engaging related party or third party for labor supply.

Analysis:

Issue 1:
The applicant, a foreign company, sought clarification on taxability of consideration received from an Indian company for executing a contract related to a power project. The applicant contended that the contract was distinct and independent, attracting section 44BBB of the Income Tax Act due to its business nature. The Revenue raised concerns about the contract's composite nature, potentially impacting taxability. However, considering the independent contracts and separate payments, the Authority ruled in favor of the applicant, applying section 44BBB to the situation.

Issue 2:
Regarding the engagement of related parties or third parties for labor supply under the same contract, the applicant argued that overall responsibility remained with them, making them eligible for presumptive taxation under section 44BBB. The Revenue highlighted the importance of verifying the actual scenario to determine tax applicability. The Authority emphasized the need to assess the factual matrix and the nature of contracts to ascertain tax liability accurately. It was concluded that if the applicant maintained control and coordination over labor supply, they would qualify for presumptive taxation under section 44BBB.

The judgment clarified the application of section 44BBB to foreign companies engaged in civil construction or plant erection for approved turnkey projects. It emphasized the need for independent contracts and the proper maintenance of accounts for tax assessment. The ruling favored the applicant, confirming the taxability of the consideration received for the specific project under section 44BBB. The Authority's decision was based on the facts presented, ensuring compliance with the Income Tax Act provisions.