2007 (10) TMI 175 - HC - Income Tax

CBDT circular 1767/87 providing that 1 % of the receipt by foreign co., shall be applied to determine deemed profits and gains u/s 44BB, is void CBDT is not empowered to fix the percentage for calculating the deemed profit u/s 44BB held that 10 % of the mobilization charges for transportation of vessel outside the territorial waters of India would be taxable

Summary

Issues:
1. Challenge to the order of the Income-tax Appellate Tribunal regarding deemed profits under section 44BB.
2. Levying of interest under section 234B by the Assessing Officer.
3. Interpretation of Circular No. 1767 by the Income-tax Appellate Tribunal.

Issue 1: Challenge to the order of the Income-tax Appellate Tribunal regarding deemed profits under section 44BB:

The case involved an appeal challenging the ITAT's decision on two issues. Firstly, the ITAT modified the order of the Assessing Officer and Commissioner of Income-tax (Appeals) regarding the deemed profits and gains under section 44BB of the Income-tax Act. The ITAT held that mobilization charges worth Rs. 5,88,30,840, received by the assessee for mobilizing a vessel outside India, should be taxed at 1 per cent instead of 10 per cent as per Circular No. 1767. The High Court, citing a previous judgment, disagreed with the ITAT's interpretation, stating that 10 per cent of the mobilization charges should be deemed income for tax purposes.

Issue 2: Levying of interest under section 234B by the Assessing Officer:

Secondly, the Assessing Officer had levied interest under section 234B of the Act based on the reduced taxable amount of 1 per cent of the mobilization charges. The High Court found that this interest was consequential to the decision on the taxability of the mobilization charges. Since the Court set aside the ITAT's decision and upheld the 10 per cent tax on the mobilization charges, the interest levied by the Assessing Officer was also deemed appropriate, and the decision was affirmed.

Issue 3: Interpretation of Circular No. 1767 by the Income-tax Appellate Tribunal:

The ITAT had relied on Circular No. 1767 issued by the Central Board of Direct Taxes to support its decision on taxing the mobilization charges at 1 per cent. However, the High Court found that the circular was misapplied. The circular, which expired in 1990-91, was related to purchases made by Indian companies outside India and did not specifically cover mobilization charges. The Court emphasized that the circular's application was beyond its intended scope and that the ITAT's reliance on it was erroneous. Ultimately, the High Court set aside the ITAT's decision and upheld the Assessing Officer's and Commissioner of Income-tax (Appeals)'s calculations, ruling in favor of the Revenue and against the assessee.

This comprehensive analysis of the judgment addresses the issues raised in the appeal and provides a detailed understanding of the High Court's decision on each point of contention.