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Incometax Amount received by assessee on account of reimbursement of mobilization charges in respect of transportation of rigs outside territorial waters of India would be taxed under section 44BB [2010] 8 TAXMANN.COM 177 (UTTARAKHAND) HIGH COURT OF UTTARAKHAND Commissioner of Incometax* v. Atwood Oceanics Pacific Ltd. j.s. KHEHAR, CJ. SUDHANSHU DHULIA, J IT APPEAL NO. 93 OF 2007 MAY 19, 2010 Section 44BB of the Incometax Act, 1961 Nonresidents Mineral oil, business for prospecting exploration, etc., in case of Whether amount received by assessee on account of reimbursement of mobilization charges in respect of transportation of rigs outside territorial waters of India would be taxed under section 44BB Held, yes Whether amount reimbursed to assessee on account of supply of plant and machinery to be used in prospecting for or extraction or production of mineral oil in India would be taxed in view of provisions of section 44BB(2)(a) Held, yes CASE REVIEW Sedco Forex International Inc. v. CIT [2008] 299 ITR 238 (Uttarakhand) [Para 4] followed. CASE REFERRED TO Sedco Forex International Inc. v. CIT [2008] 299 ITR 238 (Uttarakhand). Arvind Vashishth for the Appellant. S.K. Posti for the Respondent. JUDGMENT

J.S. Khehar, CJ. The following questions of law arise for consideration in the instant Appeal : "1. Whether the Hon'ble ITAT was legally justified correct in allowing the amount received on account of reimbursement of mobilization charges by the NRC in respect of the transportation of rigs outside territorial waters of India without taking into consideration the issue that the rig was mobilized because of the operations in India? 2. Whether the Hon'ble ITAT was legally correct in allowing the amount received on account of reimbursement of expenses received from its customers against the expenditure incurred by the assessee in view of provisions contained in section 44BB(2)(a)?" 2. It is not disputed, that insofar as the first question is concerned, the same has been answered in favour of the revenue and against the assessee in Sedco Forex International Inc. v. CIT [2008] 299 ITR 238 (Uttarakhand). 3. Insofar as the second question of law is concerned, there is a dispute between the learned counsel for the parties, whether or not, the said question is also covered by Sedco Forex International Inc.'s case (supra). In order to substantiate his contention, that the second question of law is also covered by the judgment rendered in Sedco Forex International Inc.'s case (supra), learned counsel for the appellants has invited our attention to the following conclusion recorded therein : "We very respectfully submit that in the judgment IshikawajimaHarima Heavy Industries Ltd. v. Director of Income tax [2007] 288 ITR 408/[2007] 3 SCC 481, the Hon'ble Supreme Court has dealt with the assessment of a nonresident company on its income as per the provisions of section 5 and section 9 of the Incometax Act. Here in the present case, provisions of section 5 and section 9 are not attracted. Section 4 is a charging section and section 5 contains the scope of total income, which provides that subject to the provisions of this Act, the total income of any previous year of a person who is a resident includes all income as described under this section and section 9 provides the incomes deemed to accrue or arise in India in the contingencies described under this section. Therefore, section 5 and section 9 both are aimed at the income for the taxability under section 4 of the Act, while section 44BB does not take into account the income for calculating the aggregate amount to calculate 10 per cent profits and gains. Profits and gains is a type of income to be taxed under a legal fiction, i.e., at 10 per cent of the amount specified in subsection (2) of section 44BB. Section 44BB is a special provision relating to the non resident assessee who is providing services and 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 or outside India. The section is a complete code in itself. Thus, the reliance placed by Sri Porus Kaka, learned counsel for the assessee, is misplaced as we have observed that the amount referred in subsection (2) of section 44BB are four types of amounts and all the four types of amounts are mutually inclusive and has to be taken into account either all of them or any of them and its clauses themselves provide that whether the payment is made inside India or outside India. (Emphasis supplied)."

Based on the aforesaid observations recorded by this Court, learned counsel for the appellants contends, that the second question will be deemed to be covered by the judgment referred to hereinabove, in case the amount in question is included in one of the four types of amounts (referred to in the judgment). Insofar as the four types of amounts are concerned, learned counsel for the appellants has invited our attention to the following observations recorded in Sedco Forex International Inc.'s case (supra) : "Section 44BB is a special provision for imposing the incometax treating 10 per cent of the aggregate amount specified in subsection (2) of section 44BB as deemed profits and gains of such nonresident assessee who is engaged in the business of providing services or facilities in connection with, or supplying plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils. The amount referred in subsection (2) of section 44BB are the amounts (a) paid to the assessee (whether in or out of India) on account of the provision of services and 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, (b) payable to the assessee (whether in or out of India) on account of the provision of services and 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, (c) received by the assessee in India on account of the provision of services and 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 outside India, and (d) deemed to be received by the assessee in India on account of the provision of services and 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 outside India, which is clear from the perusal of section 44BB, which is reproduced as under : `44BB. (1) Notwithstanding anything to the contrary contained in sections 28 to 41 and sections 43 and 43A, in the case of an assessee, being a nonresident, engaged in the business of providing services or facilities in connection with, or supplying plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils, a sum equal to ten per cent of the aggregate of the amounts specified in subsection (2) shall be deemed to be the profits and gains of such business chargeable to tax under the head `Profits and gains of business or profession' : Provided that this subsection shall not apply in a case where the provisions of section 42 or section 44D or section 115A or section 293A apply for the purposes of computing profits or gains or any other income referred to in those sections. (2) The amounts referred to in subsection (1) shall be the following, namely :-- (a) the amount paid or payable (whether in or out of India) to the assessee or to any person on his behalf on account of the provision of services and 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; and

(b) the amount received or deemed to be received in India by or on behalf of the assessee on account of the provision of services and 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 outside India. (3) Notwithstanding anything contained in subsection (1), an assessee may claim lower profits and gains than the profits and gains specified in that subsection, if he keeps and maintains such books of account and other documents as required under subsection (2) of section 44AA and gets his accounts audited and furnishes a report of such audit as required under section 44AB, and thereupon the Assessing Officer shall proceed to make an assessment of the total income or loss of the assessee under subsection (3) of section 143 and determine the sum payable by, or refundable to, the assessee. Explanation.--For the purposes of this section, (i) `plant' includes ships, aircraft, vehicles, drilling units, scientific apparatus and equipment, used for the purposes of the said business; (ii) `mineral oil' includes petroleum and natural gas. Thus, the amount which are to be taken are the amount paid to the assessee whether in or out of India, payable to the assessee whether in or outside India on account of the provision of services and 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 and the amount received or deemed to be received in India by the assessee on account of the provision of services and 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 outside India." It is the submission of the learned counsel for the appellants, that the amount in the instant case squarely falls in the amount expressed in clause (b) of the aforesaid judgment, i.e., an amount payable to the assessee 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, inasmuch as, the reimbursed amount was expressly on account of the supply of plant and machinery to be used in the prospecting or extraction or production of mineral oils in India. 4. We have examined the instant submission advanced by the learned counsel for the appellants. Learned counsel for the respondent, on the factual aspect of the matter, acknowledged that the reimbursed amount (under reference) was the amount paid to the respondent on account of supply of plant and machinery to be used in the prospecting for, or extraction, or production of mineral oils in India. Thus viewed, we are satisfied, that even insofar as the second question of law is concerned, the same is squarely covered, in favour of the revenue and against the respondent/assessee, in view of the judgment rendered in Sedco Forex International Inc.'s case (supra). 5. In view of the above, the instant Appeal is allowed. Both the questions of law formulated for

consideration in the present appeal are answered in favour of the Revenue and against the assessee. Accordingly, the impugned order dated 12102006 rendered by the Incometax Appellate Tribunal, to the contrary, is hereby set aside. nn

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