2011 (1) TMI 565 - HC - Income Tax

Computation of Profit - The respondent/assessee is a German company. - It set up a project office in India for providing engineering and technical services for various projects - The Tribunal has held that section 44BBB of the Act is a provision for computing the profits and gains of foreign companies engaged in the business of civil construction, erection and turnkey power projects and profits and gains of such foreign companies are to be computed in accordance with the said provision. The view taken by the Tribunal is perfectly justified on correct interpretation of the aforesaid provision - The computation of profits in respect of other assessees as provided in the aforesaid provisions namely sections 28 to 44AA of the Act would not be applicable in the case of those foreign companies who fulfills the conditions laid down under section 44BBB of the Act - In cases of such companies, this provision which is fictional in nature is made which specifies that a sum equal to 10 per cent of the amount paid or payable to the assessee or to any person on his behalf shall be deemed to be the profits and gains of such persons chargeable to tax - Decided in favour of assessee.

Summary

Issues: Interpretation of Section 44BBB of the Income-tax Act for foreign companies engaged in civil construction projects.

Analysis:
1. The respondent, a German company, established a project office in India for engineering and technical services for government-approved projects. The company claimed benefits under Section 44BBB of the Income-tax Act for the assessment years 2004-05 and 2005-06.
2. The Assessing Officer disputed the company's claim, arguing that the profits could exceed 10% based on the company's maintained books of account. The Commissioner of Income tax (Appeals) upheld this decision, but the Income-tax Appellate Tribunal ruled in favor of the company.
3. The Tribunal correctly interpreted Section 44BBB, emphasizing the non obstante clause, which excludes other provisions from applying to foreign companies meeting the conditions of Section 44BBB. This provision deems 10% of the amount paid to the company as profits chargeable to tax.
4. The Assessing Officer's reliance on sub-section (2) was deemed misconceived. Sub-section (2) allows the assessee to claim lower profits than the specified 10%, provided they maintain required documents and get their accounts audited. The Revenue cannot argue for profits exceeding 10% under this provision.
5. The court found no merit in the appeals and dismissed them, upholding the Tribunal's interpretation of Section 44BBB for foreign companies engaged in civil construction projects.