2007 (9) TMI 196 - HC - Income Tax

Payments made to assessee outside India mobilization charges paid to assessee by ONGC had no nexus with the actual amount incurred by assessee for transportation of drilling units of rigs to India thus, mobilization charges weren t reimbursement of expenditure in view of fictional taxing provision u/s 44BB, AO is justified in adding the amount received by assessee towards mobilization charges for the purpose of imposing income tax

Issues Involved:
1. Inclusion of mobilization charges in the aggregate amount under Section 44BB of the Income-tax Act, 1961.
2. Nature of mobilization charges as reimbursement of expenses.
3. Applicability of Section 44BB vis-a-vis Sections 5 and 9 of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Inclusion of Mobilization Charges in the Aggregate Amount under Section 44BB:

The appellant, a non-resident company, entered into an agreement with ONGC for drilling contracts. The Assessing Officer included the mobilization charges of Rs. 99,04,000 for the assessment year 1986-87 and Rs. 64,64,530 for the assessment year 1987-88 under Section 44BB of the Income-tax Act, 1961. The Income-tax Appellate Tribunal (ITAT) upheld this inclusion, stating that the agreements between the appellant and ONGC were indivisible contracts. The Tribunal noted that Section 44BB specifically provides that the aggregate of the amounts referred to in sub-section (2) will be adopted as the basis for calculating profits at 10%, which shall be deemed to be the profits and gains of such business chargeable to tax. It does not exclude separate considerations for transportation of drilling units from the aggregate amount of gross receipts.

2. Nature of Mobilization Charges as Reimbursement of Expenses:

The appellant contended that mobilization charges were not actual charges but were expenses reimbursed by ONGC for mobilizing machinery from Portugal to Bombay seashore. The Commissioner of Income-tax (Appeals) rejected this argument, holding that the assessment was made at 10% on the total amount received by the non-resident company under Section 44BB. The ITAT further supported this by stating that the mobilization fee paid by ONGC had no nexus with the actual amount incurred by the appellant for transportation. Even if the actual expenditure was less, ONGC was liable to pay the fixed mobilization fee stipulated in the agreements.

3. Applicability of Section 44BB vis-a-vis Sections 5 and 9 of the Income-tax Act:

The appellant argued that mobilization charges represent reimbursement of expenses and should not be included in the amount under sub-section (2) of Section 44BB. They relied on various judgments, including Ishikawajima-Harima Heavy Industries Ltd. v. Director of Income-tax, where the Supreme Court held that only such part of the income as is attributable to operations carried out in India is taxable in India. However, the court clarified that Sections 5 and 9, which deal with the scope of total income and income deemed to accrue or arise in India, are not applicable in this case. Section 44BB is a special provision relating to non-resident assessees providing services or facilities in connection with, or supplying plant and machinery on hire used in the prospecting for, or extraction or production of, mineral oils. The section is a complete code in itself, and the amounts referred to in sub-section (2) of Section 44BB include payments made inside or outside India.

Conclusion:

The court concluded that the mobilization fee is not a reimbursement of expenditure but a fixed sum stipulated in the contract, regardless of the actual expenditure incurred. The Assessing Officer was correct in adding the mobilization charges to the aggregate amount for tax purposes under Section 44BB. The appeal was dismissed, and the question of law was answered in favor of the Revenue and against the assessee. There was no order as to costs.

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