COMMISSIONER OF INCOME TAX DEHRADUN AND ANOTHER V. SUNDOWNER OFFSHORE INTERNATIONAL

ITA/91/2007

AI Insights

The case involves an appeal by the Commissioner of Income Tax, Dehradun against the judgment of the Income Tax Appellate Tribunal (ITAT), which had dismissed the Revenue's appeal concerning the taxability of mobilization charges received by Sundowner Offshore International (Bermuda) Ltd. The ITAT had upheld the decision of the CIT (A), which found that only a proportionate amount of the mobilization charges, corresponding to the distance traveled within Indian territorial waters, was chargeable to tax in India. The High Court, referencing previous decisions, concluded that the entire amount received by the non-resident company for mobilization charges should be included in gross revenues for tax computation under Section 44BB.

• Counselvise Citation: [2009] 140 COUNSELVISE.COM (IT) 730286 (HC-UTTARAKHAND)
• Appeal Type: Others
• Pronouncement Date: 16-02-2009
• Assessment Year: misc
• Other Referred Cases: Saipem SPA Vs. CIT, Commissioner of Income Tax, Dehradun & another versus M/s Sedco Forex International Drilling Inc., Sedco Forex International Inc. versus Commissioner of Income Tax, Dehradun and another
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: S K POSTI
• Assessee Lawyers: ARVIND VASHIST
• Keywords: Income tax appeal; Mobilization Charges; Non-Resident Company; Section 44BB; Taxable in India
• Section: 44BB; 260-A

Judgement Text

"IN THE HIGH COURT OF UTTARAKHAND AT NAINITAL Income Tax Appeal No. 91 of 2007 The Commissioner of Income Tax Dehradun & another …Appellants Versus Sundowner Offshore International (Burmuda) Ltd. …Respondent Sri Arvind Vashist, learned Standing Counsel for appellants Sri S.K. Posti, learned counsel for respondent Dated: 16-02-2009 Hon’ble B.C. Kandpal, ACJ. Hon’ble B.S. Verma, J. Oral Judgment (Per Hon’ble B.C. Kandpal, ACJ.) This Income Tax Appeal under Section 260-A of Income Tax Act has been filed by the Commissioner of Income Tax, Dehradun and another, against the judgment and order dated 17.10.2006 passed by Income Tax Appellate Tribunal, Delhi Bench ‘G’ New Delhi, in I.T.A. No. 4762/Del/2005 for the assessment year 2004-05. The Income Tax Appellate Tribunal (ITAT) has dismissed the appeal of the appellant/Revenue by holding that CIT (A) has rightly held in both the cases that the proportionate receipts were taxable in India. It appears from the perusal of the prayer made in the memo of the appeal that only one appeal has been filed to set aside the composite judgment dated 10.10.2005 passed by CIT (Appeals). This appeal has been filed by the Revenue Department against 2 only one assessee-Sundowner Offshore International (Burmuda) Ltd., C/o Nangia & Co. 75/7 Rajpur Road, Dehradun. Brief facts of the case are that the assessee is a non-resident company incorporated under the laws of Burmuda. It entered into a contract with Oil and Natural Gas Company Ltd. for charter hire of one light modular work over rig Sundowner VI. The NRC did not offer to tax Rs.4,74,71,672/- being revenue on account of mobilization of the rig from outside India. The Assessing Officer, however, included these receipts in the gross revenue under Section 44BB of the Income Tax Act, 1961. The CIT (A) followed the decision of ITAT Third Member in the case of Saipem SPA Vs. CIT 83 ITD 213 and held that mobilization charges received by the NRC outside India attributed to the transportation of rig outside territorial waters of India are not chargeable to tax under Section 44BB of the I.T. Act. The CIT (A) held that proportionate amount is chargeable to tax on the basis of the figures mentioned in paragraph 5 of the impugned judgment. The CIT (A) in the instant case has held as under: “6. I have gone through the order of the AO and the submissions of the AR very carefully. The Hon’ble ITAT in the decision of Saipen SPA Vs. CIT (88 ITD 213) mentioned above has clearly held that mobilization charges received by the NRC outside India attributed to the transportation of rigs outside the territorial water of India are not chargeable to tax u/s 44BB. The ld. AR has submitted the details of 3 voyage and the distance traveled within India is 200 nautical miles out of total distance traveled of 9940 nautical miles. The percentage of voyage conducted in India territorial waters, therefore, amounts to 2.0121%. Thus, the proportionate revenue taxable in India amounts to Rs.9,47,4778/-. The appellant gets relief accordingly.” The Revenue Department preferred the appeal before the ITAT against the judgment of CIT (A) and the ITAT after having considered the rival submissions raised by learned counsel for the parties and having perused the entire material available on record has held that CIT (A) has rightly directed the Assessing Officer in both the cases that the proportionate receipts were taxable in India and the receipts of the non-resident outside India were not taxable under Section 44BB of the Income Tax Act. The ITAT has further held that the facts of the instant case are similar to the facts of the case of Saipem SPA Vs. CIT, hence the CIT (A) has rightly held in both the cases that the proportionate receipts were taxable in India. The ITAT has dismissed the appeal filed by the Revenue Department. Feeling aggrieved by the judgment of the ITAT, the Revenue Department has preferred the present Income Tax Appeal under Section 260-A of Income Tax Act, 1961, before this Court. We have heard Sri Arvind Vashist, learned counsel for the appellants, Sri S.K. Posti, learned counsel for the respondent and perused the record. The substantial question of law for consideration before us is “ Whether the ITAT was 4 correct in holding that mobilization charges of 2.0121% being charges in respect of voyage conducted in Indian Territorial Water only be included in the gross revenues and remaining amount of mobilization charges not to be part of gross revenues for the purposes of computation of income u/s 44BB of the I.T. Act, 1961?” The Division Bench of this Court in the case of Commissioner of Income Tax, Dehradun & another versus M/s Sedco Forex International Drilling Inc. Dehradun in I.T.A. No. 14 of 2007, vide judgment and order dated 20th September, 2007 has held as under: “Thus, it is clear that sub-section (1) of Section 44BB specifically provides that aggregate of amounts specified in sub-section (2) shall be taken into account, 10 per cent of which shall be deemed to be profits and gains. This amount is the basis of determination of deemed profits and gains of the assessee @ 10 per cent. Sub- section (2) provides that amounts referred shall be amount paid or payable to the assessee (whether in or out of India) and the amount received or deemed to be received 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 in India. Reimbursement of catering expenses etc. is also liable to be included. This is receipt and is taxable. Therefore, the Assessing Officer was right in adding the above amount which was received by the assessee non-resident company from the ONGC. Therefore, in our opinion, the ITAT fell into error in taking the contrary view. Section 44BB is a complete code in itself. It provides by a legal fiction to be the profits and gains of the non-resident assessee engaged in the business of oil exploration @ 10- per cent of the aggregate of amounts specified in sub-section (2). It is not in dispute that the amount has been received by the assessee company. Therefore, 5 the Assessing Officer added the said amount which was received by the non-resident company rendering services as per provisions of Section 44BB to the ONGC and imposed the tax thereon.” The Division Bench of this Court in the aforesaid case set aside the order of the ITAT. Further, another Division Bench of this Court in the case of Sedco Forex International Inc. versus Commissioner of Income Tax, Dehradun and another, in I.T.A. No. 280 of 2001 (Old No.99 of 1999), vide judgment and order dated 28th September, 2007 has considered the same question of law which is involved in the present case and the Division Bench of this Court in the aforesaid case has held as under: “17. In the present case, a finding has been recorded by the ITAT that it was not in dispute before the Tribunal that the payment was made to the appellant company outside India and the mobilization fee as claimed by the assessee was paid to the appellant by ONGC has no nexus with the actual amount incurred by the appellant company for transportation of drilling units of rigs to the specified drilling locations in India. Hence, the mobilization fee is not the reimbursement of expenditure. ONGC was liable to pay a fixed sum as stipulated in the contract regardless of actual expenditure which may be incurred by the assessee company for the purpose. In view of the fictional taxing provision contained under Section 44BB, the Assessing Officer was right in adding the amount of Rs.99,04,000/- for the Assessment Year 1986-87 and amount worth Rs.64,64,530/- for the Assessment Year 1987- 88 received by the assessee towards mobilization charges for the purpose of imposing income tax and CIT (Appeals) and ITAT were also right in upholding the order of the Assessing Officer.” 6 The Division Bench of this Court has thus dismissed the appeal of the assessee by answering the question in favour of the Revenue Department and against the assessee. In view of the aforesaid two decisions of the Division Bench of this Court as well as keeping in view the point for determination in this case, we are of the view that the present appeal filed by the Revenue Department is liable to be allowed. The impugned judgment and order dated 17.10.2006 passed by the ITAT deserves to be set aside. For the reasons stated above, we allow the appeal filed by the Revenue Department and answer the substantial question of law in favour of the Revenue Department and against the assessee. The impugned judgment and order dated 17.10.2006 passed by the ITAT, is hereby set aside. (B.S.V., J.) (B.C.K., ACJ.) 16.02.2009 SP "