2017 (11) TMI 1775 - AT - Income Tax

Determination of income u/s 44BB - reimbursement of expenses from GSPC were includible in the receipts for the purpose of determination of income under section 44BB - whether the said amount is devoid of any profit element and do not constitute income in the hands of the appellant? - HELD THAT - Both the parties agreed that the issue is squarely covered by the decision of Honble Jurisdictional High Court in the case of Commissioner of Income Tax Vs. Halliburton Offshore Services Inc. 2007 (9) TMI 230 - UTTARAKHAND HIGH COURT wherein it has been held that section 44BB is a complete code in itself and all amounts including reimbursements are includible within the amount paid or payable to the assessee for the purpose of taxation under section 44BB of the Act. Therefore, this issue is decided against the assessee and in favour of the Revenue. Applicability of provisions of section 44BB to provision of barge - whether the receipts for activity carried out by appellant for L&T is inextricably linked with exploration, exploitation and production of mineral oil and cannot be held to be taxable as royalty in terms of section 9(1)(vi) of the Act? - HELD THAT - We find that the issue under consideration is squarely covered in favour of the assessee by the decision of SBS Marine Limited 2015 (3) TMI 147 - ITAT DELHI wherein it has been that second leg contracts are also eligible for benefit of tax treatment provided in section 44BB of the Act. This decision of ITAT stood confirmed by the Jurisdictional High Court 2015 (8) TMI 1253 - UTTARAKHAND HIGH COURT after relying on the decision of Apex Court in ONGC vs. CIT 2015 (7) TMI 91 - SUPREME COURT . - Decided in favour of the assessee

Summary

Issues:
1. Taxability of reimbursement of expenses under section 44BB of the Income-tax Act.
2. Tax treatment of receipts from supply of barge to a company engaged in exploration activities.

Issue 1 - Taxability of Reimbursement of Expenses:
The appeal concerned the tax treatment of a sum received by the assessee, claimed as reimbursement of expenses, under section 44BB of the Income-tax Act. The Assessing Officer (AO) taxed the sum under section 44BB, considering it as part of the gross contract receipts. The ld. CIT(A) affirmed this decision, leading to the appeal. The issue revolved around whether reimbursements are includible for taxation under section 44BB. Both parties agreed that the matter was covered by a decision of the Jurisdictional High Court, holding that all amounts, including reimbursements, are taxable under section 44BB. Consequently, the Tribunal ruled against the assessee, upholding the taxability of the sum as per the High Court decision.

Issue 2 - Tax Treatment of Barge Supply Receipts:
Regarding the second ground of appeal, the assessee contended that receipts from supplying vessels/equipment to a company were taxable only in Portugal under the DTAA between India and Portugal. The AO considered the receipts as royalty under section 9(1)(vi) of the Act, not eligible for concessional benefits under section 44BB. The ld. CIT(A) upheld this view for the company not engaged in mineral oil activities. However, the Tribunal referenced a previous decision where second leg contracts were eligible for section 44BB benefits, affirming that the receipts from supplying equipment should be taxed under section 44BB. This decision was supported by various precedents, leading the Tribunal to rule in favor of the assessee, allowing the appeal partially.

In conclusion, the Tribunal's judgment addressed the taxability of reimbursements under section 44BB and the treatment of receipts from supplying equipment, providing a detailed analysis based on legal precedents and interpretations of relevant tax provisions.