2010 (1) TMI 725 - HC - Income Tax

Assessment under Section 44BBB - loss for the entire contract taken into account in the current assessment year, but the assessment not done under Section 44BBB on the ground that the bills for payment were all raised prior to 01.04.1990 - completion of contract is prior to coming into force of the provisions of Section 44BBB of the Act. - Held that - revenue cannot invoke Section 44 BBB of the Act

Issues Involved:
1. Applicability of Section 44BBB to the assessee.
2. Consideration of loss for the entire contract in the current assessment year.
3. Applicability of Section 44BBB to contracts entered into before the section's introduction but completed in the current year.

Issue-wise Detailed Analysis:

1. Applicability of Section 44BBB to the Assessee:
The primary issue was whether Section 44BBB of the Income Tax Act could be applied to the assessee, a non-resident foreign company, for the assessment year 1994-1995. Section 44BBB, introduced by the Finance Act, 1989, effective from 01.04.1990, is a special provision for computing presumptive profit and gain of foreign enterprises engaged in civil construction, erection, testing, or commissioning of plant or machinery in connection with a turnkey power project approved by the Central Government. The section deems 10% of the amount paid or payable to the foreign company as profits and gains chargeable to tax.

The Tribunal held that Section 44BBB could not be applied because the payments to the assessee were made before 01.04.1990, and the contract was completed by 30.04.1989, prior to the section's effective date. The Tribunal's decision was based on the fact that the amounts received were not during the accounting year 1994-1995 but much earlier.

2. Consideration of Loss for the Entire Contract in the Current Assessment Year:
The assessing officer had applied Section 44BBB and completed the assessment under Section 143(3) of the Act, levying 10% of the payment made by Neyveli Lignite Corporation (NLC) to the assessee as deemed profit. The assessee contended that Section 44BBB was not applicable and filed a return declaring a net loss of Rs. 5,80,69,876/-. The CIT (Appeals) and the Tribunal accepted the assessee's contention, allowing the appeal and dismissing the revenue's appeal, respectively.

The Tribunal noted that the assessee had filed returns for earlier assessment years, and the assessments were completed on a "No Income No Loss" basis. The Tribunal emphasized that the assessing officer should have considered the return of loss for the relevant assessment year 1994-1995 and followed the normal procedure of assessment to determine the amount of loss for being carried forward to subsequent years for set-off.

3. Applicability of Section 44BBB to Contracts Entered into Before the Section's Introduction but Completed in the Current Year:
The Tribunal considered whether Section 44BBB could be applied to a contract entered into before the section's introduction but completed in the current year. The Tribunal referred to the CBDT Circular No. 550, which clarified that Section 44BBB applies to foreign companies engaged in civil construction, erection, testing, or commissioning of plant or machinery in connection with a turnkey power project approved by the Central Government, provided the project is financed under an international aid program.

The Tribunal found that the contract between the assessee and NLC was entered into on 08.06.1981, and the work was completed by 30.04.1989. The payments were made against invoices supported by the purchaser's certificates of completion, and all bills were settled before 30.04.1990. The Tribunal concluded that the completion of the contract was prior to the effective date of Section 44BBB, and the amounts received were not during the accounting year 1994-1995. Therefore, Section 44BBB could not be invoked to levy 10% on the consolidated amount paid to the assessee much earlier to the assessment year 1994-1995.

Conclusion:
The Tribunal upheld the CIT (Appeals) decision, confirming that Section 44BBB was not applicable to the assessee for the assessment year 1994-1995. The assessing officer was not justified in levying 10% on the consolidated amount received much earlier, and the return of loss filed by the assessee should have been considered following the procedure contemplated by the Act. The Tribunal's order was based on valid materials and was not perverse, leading to the dismissal of the revenue's appeal.

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