2012 (6) TMI 321 - AT - Income Tax

Challenging the taxability of mobilization fee received outside India for the voyage carried out outside India u/s 44BB Held that - Minority view that the amount liable to be considered for section 44BB(2) would be the one which is received or receivable on account of supply of machinery including the hire charges as relatable to the territorial waters outside India As decided in CIT Dehradun & another Versus Sundowner Offshore International (Burmuda) Ltd. 2009 (2) TMI 46 (HC) that the mobilization charges received by the assessee attributable to transportation of rig from outside India have to be taken into account for the purpose of computing income u/s 44BB against assessee. Treatment of disputed unrealized and unpaid service tax u/s 44BB the assessee agreed to receive US 3.14 million towards outstanding service tax dues in full and final settlement of the claim of US 5.28 million claim of Service tax on US 2.27 million Held that - As acknowledgement of liability by Hardy to the tune of US 3.01 million is received for event to took place in the subsequent year no question of adding the remaining amount in the current year by holding that the assessee acquired any right to receive the amount - the assessee had not acquired any right to receive US 2.27 million on account of service tax being the first step therefore need not embark upon the second step being its inclusion or otherwise in the receipts for the purposes of section 44BB in favour of assessee. Challenge charging of interest u/s 234B Held that - As decided in case of DIT (International Taxation) v. NGC Network Asia LLC 2009 (1) TMI 174 (HC) that when the duty is cast on the payer to deduct tax at source on failure of the payer to do so no interest can be charged from the payee assessee u/s 234B in favour of assessee.

Summary

Issues Involved:
1. Taxability of mobilization fee received outside India under section 44BB.
2. Inclusion of disputed, unrealized, and unpaid service tax as income under section 44BB.
3. Charging of interest under section 234B.

Issue-wise Detailed Analysis:

1. Taxability of Mobilization Fee Received Outside India Under Section 44BB:

The first issue concerns the taxability of mobilization fees amounting to Rs. 1,46,95,980 received outside India for a voyage conducted outside India. The assessee, a non-resident foreign company, received mobilization fees from Hardy Exploration and Production (India) Inc. for mobilizing a rig from Singapore to India. The rig traveled 1646 Nautical Miles, with only 207 Nautical Miles within India. The assessee argued that the mobilization charges for the distance traveled outside India (1439 Nautical Miles) should not be taxed under section 44BB, relying on the case of Saipem S.P.A. v. Dy. CIT. However, the Assessing Officer, referencing the Uttarakhand High Court's decision in Sedco Forex International Inc. v. CIT, included the entire mobilization fee in the taxable amount. The Tribunal upheld the Assessing Officer's decision, citing the Uttarakhand High Court's ruling in CIT v. Sundowner Offshore International (Burmuda) Ltd., which held that mobilization charges for transportation of rigs from outside India must be included for computing income under section 44BB. Consequently, the Tribunal dismissed the assessee's ground.

2. Inclusion of Disputed, Unrealized, and Unpaid Service Tax as Income Under Section 44BB:

The second issue pertains to whether disputed, unrealized, and unpaid service tax of Rs. 98,41,201 should be treated as income under section 44BB. The assessee raised an invoice for service tax on Hardy, which was disputed and not paid. A settlement was reached in the subsequent year, and the assessee offered the settled amount for taxation in the assessment year 2008-2009. The Assessing Officer included the unpaid amount in the current year's income. The Tribunal examined the arguments and precedents, noting that under the mercantile system of accounting, income is recognized on accrual basis, but only when there is an enforceable right to receive it. The Tribunal found that since Hardy disputed the invoice and no enforceable right existed in the current year, the income did not accrue. Therefore, the unpaid service tax could not be included in the assessee's income for the current year. The Tribunal allowed this ground, holding that the unpaid service tax did not accrue and thus was not includible under section 44BB.

3. Charging of Interest Under Section 234B:

The third issue involves the charging of interest under section 234B. The Tribunal referred to the jurisdictional High Court's judgment in DIT (International Taxation) v. NGC Network Asia LLC, which held that when the payer is required to deduct tax at source, and fails to do so, no interest can be charged from the payee under section 234B. The Tribunal also referenced DIT (IT) v. Krupp UDHE GmbH, reiterating that no interest can be charged under section 234B when the assessee is a non-resident and the payer fails to deduct tax at source. Consequently, the Tribunal allowed this ground, ruling that no interest under section 234B could be charged.

Conclusion:

In summary, the Tribunal upheld the taxability of the mobilization fee under section 44BB, excluded the disputed, unrealized service tax from the assessee's income, and ruled that no interest under section 234B could be charged. The appeal was partly allowed.