2014 (1) TMI 301 - AT - Income Tax

Amount accrue or arise in India or not as per section 5(2) r.w Section 9 of the Act Fee paid for mibilisation/demobilization of rig to/from India Held that - The assessee is a non-resident company engaged in the business of offshore drilling as contractor with a fleet of mobile offshore drilling units employed for its customers to find and develop oil and natural gas reserves - The non-resident company had contracts with ONGC Ltd., and had offered the revenues from the contract in the return of income at 10 per cent. as deemed profits under section 44BB(1) of the Act - it did not offer for tax the reimbursement of expenses as well as receipt on account of mobilisation/ demobilisation of rigs attributable to voyage undertaken outside Indian territorial waters - Following Sedco Forex International Inc. v. CIT 2007 (9) TMI 196 - UTTARAKHAND HIGH COURT - the mobilisation charges paid to the assessee by ONGC had no nexus with the actual amount incurred by the assessee for transportation of drilling units of rigs to the specified drilling locations in India - the mobilisation charges were not reimbursement of expenditure - ONGC was liable to pay a fixed sum as stipulated in the contract regardless of the actual expenditure which might be incurred by the assessee for the purpose thus, the Assessing Officer was right in adding the amount received by the assessee towards mobilisation charges for the purpose of imposing income-tax and the Commissioner of Income-tax (Appeals) and the Tribunal were also right in upholding the order of the Assessing Officer Decided against Assessee. Reimbursement of expenses to be included in gross receipts u/s 44BB or not Held that - Following CIT v. Halliburton Offshore Services Inc. 2007 (9) TMI 230 - UTTARAKHAND HIGH COURT - all the amounts either paid or payable (whether in India or outside India) or received or deemed to be received (whether in India or outside India) are mutually inclusive - This amount is the basis of determination of deemed profits and gains of the assessee at 10 per cent - The amount paid or received refers to the total payment to the assessee or payable to the assessee or deemed to be received by the assessee, whereas income has been defined under section 2(24) of the Income-tax Act and section 5 and section 9 deal with the income and accrued income and deemed income Decided against Assessee.

Summary

Issues involved:
1. Taxability of sum received for mobilization/demobilization of rig outside Indian territorial waters under section 44BB of the Income-tax Act.
2. Taxability of amount received as reimbursement of actual expenses under section 44BB of the Income-tax Act.

Detailed analysis:
Issue 1: The appeal was filed against the order of the Commissioner of Income-tax (Appeals) regarding the inclusion of the sum received for mobilization/demobilization of rig outside Indian territorial waters in the gross receipts under section 44BB of the Income-tax Act. The assessee contended that these amounts do not accrue or arise in India and hence should not be taxable. However, the Assessing Officer disagreed and made the additions. The Tribunal noted that the issue was covered by a previous judgment of the Uttarakhand High Court, which held that such payments made outside India are taxable. The Tribunal dismissed this ground of appeal based on the precedent.

Issue 2: The second ground of appeal related to the taxability of the amount received as reimbursement of actual expenses under section 44BB of the Income-tax Act. The assessee argued that reimbursement of expenses should not be included in the contract amount for tax purposes. The Tribunal referred to a judgment of the Uttarakhand High Court, which clarified the provisions of section 44BB and held that all amounts paid or received, whether in India or outside, are to be included for determining deemed profits. The Tribunal dismissed this ground of appeal as well, following the precedent and upholding the taxability of the reimbursement amount. The Tribunal relied on earlier orders in the assessee's own case for the assessment years 2007-08 and 2008-09 to support the dismissal of both grounds of appeal.

In conclusion, the Tribunal dismissed the appeal filed by the assessee based on the taxability of the sum received for mobilization/demobilization of rig outside Indian territorial waters and the amount received as reimbursement of actual expenses, as both issues were covered by previous judgments and the provisions of section 44BB of the Income-tax Act.