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TMI Blog2011 (3) TMI 479X X X X Extracts X X X X X X X X Extracts X X X X ..... 010, - - - Dated:- 25-3-2011 - I.P. Bansal, A.K. Garodia, JJ. K. Sampath and S. Kochhar for the Appellant Sudesh Garg for the Respondent ORDER I.P. Bansal, Judicial Member 1. This is an appeal filed by the assessee under the provisions of section 253(1)(d) of the IT Act, 1961, against the order passed by the Assessing Officer under section 143(3) read with section 144C of the Income-tax Act, 1961 (the Act). The grounds of appeal read as under:- "1 That, on the facts and in the circumstances of the case and in law, the learned Dy. Director has erred in applying an arbitrary rate of 25 per cent profit on sale of spares/supplies. 2. As the sale of spares/supplies has taken place entirely outside the country in the United Kingdom, the same should not be taxed in India. 3. Without prejudice to Ground No. 1, the learned Deputy Director has erred in both facts and law in estimating profit of 25 per cent which is exceptionally high as only profits attributable to the transaction will be taxed in India. 4. The appellant craves leave to supplement, to cancel, to amend, to add/or otherwise to modify any or all the ground(s) of appeal stated herei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of Rs.1,59,12,886 pertaining to receipts on account of repair/revamp of cranes installed at rigs, but has rejected the claim of the assessee regarding assessment of 1 per cent of gross receipt relating to spare parts used in such spares. The Assessing Officer has referred to section 9(1)(i) of the Act and has computed the income of the component @ 25 per cent and has assessed income on that component at Rs.1,29,40,166 and, in this manner, the income of the assessee has been assessed at a total sum of Rs.1,45,31,452 in place of returned income of Rs.21,08,893. The assessee has filed objections under section 144C and vide order dated 4th June, 2010, DRP has upheld the action of the Assessing Officer by observing that the assessee has not been able to give any convincing basis as to why 10 per cent should be applied and not 25 per cent as applied by the Assessing Officer considering that the said income is not covered under section 44BB(1). Learned Assessing Officer has passed the impugned order in pursuance of directions issued by the DRP under section 144C of the Act. The assessee is aggrieved, hence, has raised the aforementioned grounds of appeal. 4. At the outset, it was su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facilities in connection with, or supply of plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils in India. Explanation appended to section 44BB provides that for the purpose of this section, plant includes ships, aircrafts, apparatus and equipments used for the purpose of said business and mineral oils include petroleum and natural gas. Thus, the amount received by the assessee on account of supply of spare parts is squarely covered under section 44BB. Therefore, the Assessing Officer was right in calculating the 10 per cent of total amount of Rs.69,45,264, which was received by the assessee non-resident company from the ONGC. The claim of the assessee that the amount of Rs.66,17,495 could not be included for the purpose of calculating the amount referred to in sub-section (2) of section 44BB as it was reimbursement while the assessee himself has claimed 5 per cent handling charges on the original cost of material i.e., spare parts. Therefore, Rs.69,45,264 was the cost of spare parts and was duly received by the assessee non-resident company and hence was an amount referred to under sub-section (2) of section 44BB of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all be on turn key basis for repair/replacement/Servicing/overhauling of 4 Nos. Cranes Installed at BPB(E), BPB(W), BC and BLQ-2 platforms at Bassien and Satellite. The crane is to be get load tested after commissioning at site and duly certified by third party at rated capacity. The third party inspection agency shall be arranged by the Contractor. Testing loads shall be provided by ONGC. The number of manpower to be deputed at offshore for overhauling of crane shall be restricted to 6 to 9 persons per crane." ** ** ** 3.6 The Contractors scope of work shall also include the dismantling/cutting/removal of existing materials at BPB(E), BPB(W), BC and BLQ-2 platforms and loading on OSV (OSV will be arranged by ONGC). The cranes have to be revamped on turnkey basis including but not limited to replacing and/OR servicing the listed spare parts. If during the revamping process replacement of additional optional items become necessary to complete all the four cranes, the same will be carried out by the Contractor." 7.1 Clause 4 defines the scope of supply which defines contractor's scope of supply as under:- "4. Scope of Supply 4.1 Contractors Scope of Supply The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm and vice versa. (e) Compressed air shall not be available at BC." 7.3 Clause 5 defines repairs and replacements as under:- "5.0 Repairs and Replacement The contractor shall assume the entire responsibility for the protection of the structure and repair of all damages to the structure of its components resulting from contractor's negligence, accidents, inferior workmanship, or any other reason of evident fault by the Contractor and in including, but not limited to weather. Contractor shall be responsible for any work performed by the contractor on materials which do not meet the provision of the applicable specifications. Further, Contractor shall remove and replace all such materials which are incorporated in the structure (s) without prior written approval of the company." 8. Annexure - C defines contract price schedule copy of which is placed at page 75 of the paper book which is a sum of US$ 14,63,526.58 which read as under:- Annexure-c Contract Price Schedule Contract No. MR/BandS/MM/KKT/AA-CRANES/243/03-04/LT-06/PC-23 for "Revamping of 4 nos American Aero make cranes installed at BPB (EAST), BC, BPB (West) and BLQ-2 Platforms of ONGC" on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee for lower tax. But that does not mean that section 44BB will not be applicable to the activity carried on by the assessee being a non-resident assessee. 10. In the case of B.J. Services Co. Middle East (supra), the assessee being a non-resident company had disclosed income of Rs.3,27,770 under the provisions of sub-section (2) of section 44BB of the Act which was 5 per cent of the total receipts towards handling charges on the original cost. The assessee was supplying the spare parts to the ONGC which was a sum of Rs.69,45,264. The Assessing Officer applied 10 per cent rate as per the provisions of section 44BB(2). The CIT(A) held that the assessee was entitled to deduction of Rs.66,17,495 as the same was received as cost of material, etc. and was an actual reimbursement of expenses of such material incurred by the assessee in execution of the contract with ONGC and the same was on actual basis and was not in any way on a fixed percentage basis. The Tribunal upheld the order of the CIT(A). On these facts, it was decided by the Hon'ble High Court as under:- "8. Sub-section (1) of section 44BB specifically provides that aggregate of amounts specified in sub-section (2) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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