2009 (7) TMI 3 - HC - Income Tax

Mobilization revenue reimbursement of expenses u/s 44B the payment made to the assessee on account of mobilization fee is not the actual reimbursement rather it includes the expenditure incurred by the company in transporting the drilling units of rigs to the specified drilling locations in India. As such such amounts received are liable to be included in the gross receipts . That being so in our opinion the amount received by the assessee in the present case towards mobilization / demobilization charges form part of the amount mentioned in sub-section (2) of Section 44BB of the Act. - sub-section (1) of Section 44BB read with Clause (a) of sub-section (2) of Section 44BB of the Act expressly provides that it makes no difference whether the amount was paid or payable in or outside India. The section does not exclude the mobilization / demobilization charges paid for transportation of the plant and machinery from the place out of India to the locations in India or its territorial waters. Decided in favor of revenue

Summary

Issues:
1. Taxability of 'mobilization' revenue in India
2. Interpretation of Section 44BB vis-a-vis Section 5 of the Income Tax Act, 1961

Issue 1: Taxability of 'mobilization' revenue in India

The case involved a non-resident foreign company providing services related to mineral oils. The Assessing Officer included reimbursement charges received by the company in the gross receipts, leading to a dispute. The Income Tax Appellate Tribunal (ITAT) held that Section 44BB applied to the mobilization charges, taxing them at 10%. The High Court analyzed Section 44BB, which deems 10% of specified amounts as profits chargeable to tax for non-resident entities providing services related to mineral oils. The Court referred to a previous judgment stating that mobilization fees included expenses for transporting drilling units to specific locations in India, making them part of gross receipts. The Court agreed with ITAT's decision, emphasizing that Section 44BB does not differentiate between payments made in or outside India, thus upholding the taxability of mobilization charges in India.

Issue 2: Interpretation of Section 44BB vis-a-vis Section 5 of the Income Tax Act, 1961

The appellant contested that ITAT erred in implying that Section 44BB overrides Section 5 of the Income Tax Act. The High Court delved into the provisions of Section 44BB, emphasizing its specific application to non-resident entities engaged in mineral oil-related services. The Court highlighted that Section 44BB deems a percentage of specified amounts as taxable profits, irrespective of the location of payment. By citing the relevant clauses of Section 44BB, the Court elucidated that mobilization charges fall under the purview of gross receipts for tax computation under this section. Consequently, the Court dismissed the appeal, affirming the applicability of Section 44BB to the case and rejecting the contention that it supersedes Section 5 of the Income Tax Act.

In conclusion, the High Court upheld the ITAT's decision, ruling in favor of taxability of mobilization charges under Section 44BB for the non-resident foreign company. The judgment provides a detailed analysis of the legal provisions and past precedents to support the decision, ensuring clarity on the tax treatment of such revenues in India for entities engaged in mineral oil-related services.