G&T Resources (Europe) Ltd., New Delhi V. DDIT, Dehradun

ITA 3909/DEL/2010

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 0051 (ITAT-DELHI)
• Duration Of Justice: 7 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-03-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2007-2008
• Appeal Filed On: 20-08-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: S KOCHHAR

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : C : NEW DELHI BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ITA NO.3909/DEL/2010 ASSESSMENT YEAR : 2007-08 G&T RESOURCES (EUROPE) LTD., C/O F-04 & 05, TRIVENI COMMERCIAL COMPLEX, SHEIKH SARAI PHASE-I, NEW DELHI. PAN : AABCG9877F VS. DDIT, INTERNATIONAL TAXATION, DEHRADUN. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI K. SAMPATH, ADVOCATE & SHRI S. KOCHHAR, AR REVENUE BY : SHRI SUDESH GARG, SR. DR ORDER PER I.P. BANSAL, JUDICIAL MEMBER THIS IS AN APPEAL FILED BY THE ASSESSEE UNDER THE PROVISI ONS OF SECTION 253 (1) (D) OF THE IT ACT, 1961, AGAINST THE ORDER PASSED BY THE ASSESSING OFFICER U/S 143 (3) READ WITH SECTION 144C OF THE INCOME-TAX ACT, 1961 (THE ACT). THE GROUNDS OF APPEAL READ AS U NDER:- 1. THAT, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED DY. DIRECTOR HAS ERRED I N APPLYING AN ARBITRARY RATE OF 25% 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 ITA NO.3909/DEL/2010 2 DEPUTY DIRECTOR HAS ERRED IN BOTH FACTS AND LAW IN ESTIMATING PROFIT OF 25% 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 HEREINABOVE, AT A LATER STAGE. 2. THE ASSESSEE IS A NON-RESIDENT ENTITY ENTERING INTO TU RNKEY BASIS CONTRACTS WITH ONGC WHICH HAVE BEEN LISTED IN THE ASSESSM ENT ORDER IN PARA 2 AS FOLLOWS:- S.NO. S.NO. S.NO. S.NO. CONTRACT AGREEMENT NO. CONTRACT AGREEMENT NO. CONTRACT AGREEMENT NO. CONTRACT AGREEMENT NO. 1. MR/B&S/MM/KKT/ASS-CRANES/243/03-04/LT-06/PC-23 F OR REVAMPING OF 4 NOS. AMERICAN AERO MAKE CRANES INSTALLED AT BPB (EAST), BC, BPB (WEST) & BLQ-2 PLATFORMS OF ONGC ON TURNKEY BASIS. 2. MR/MH/CMC/OEM/DAMAGED-BOOM-SM/2005/05001 FOR REP LACEMENT OF DAMAGED BOOM OF SM DECK CRANE ON OEM AND TURNKEY BASIS INSTALLED AT IC COMPLEX 3. MR/MH/MM/LSTK/RO/OEM/DAMAGE BOOM/110/2005/Y15OS0 5001/P-B- 4006 FOR REPLACEMENT OF DAMAGED BOOM SELECTION OF SS DECK CRANE ON TURNKEY BASIS INSTALLED AT SH COMPLEX. 4. MR/MH/MM/LSTK/AB/OEM/PATRIOT/CRANES/2004/Y15AL 04003/PAPER- BOOK-3007 FOR REPAIR/REVAMPING OVERHAULING AND SERV ICING OF PEDESTAL/PATRIOT MAKE DECK CRANES ON OEM AND TURNKEY B ASIS INSTALLED AT BHS (NORTH) AND SLQ (SOUTH) PLATFORM. 5. MR/MH/MM/LSTK/AB/OEM/PATRIOT/CRANES/GROUP- II/2004/Y15AL04004/PAPER-BOOK-3008 DT.11/11/2005. 6. MR/MH/MM/LSTK/RO/OEM/DAMAGED BOOM/110/2005/Y1505S05001/PAPER-BOOK-4006 DT.07/03/2 006. 7. MR/MH/MM/LSTK/CG/OEM/SK-NQD-SHD/CRANES/LT-33/PAP ER-BOOK- 4004 FOR REPAIR/REVAMPING OF 3 NOS. AMERICAN AERO M AKE DECK CRANES ON OEM AND TURNKEY BASIS INSTALLED AT GROUP-1 (SK & SHD DECK CRANES NOS.) AND GROUP H (NQD DECK CRANE-1 NO.) 3. IN THE COMPUTATION OF INCOME, THE TOTAL RECEIPTS OF THE CONTRACTS AMOUNTING TO `6,76,73,525/- WERE BIFURCATED INTO TW O PORTIONS; ONE RELATING TO SUPPLY OF MATERIAL OF ` 5,17,60,664/- AN D THE OTHER SUM OF ` 1,59,12,861/- RELATING TO SERVICES RENDERED BY THE ASSE SSEE WITH REGARD TO REPAIR/REVAMP OF CRANES INSTALLED AT RIGS. ON THE COMPONENT OF ITA NO.3909/DEL/2010 3 SPARES, THE ASSESSEE HAD RETURNED INCOME @ 1% OF THE GROSS RECEIPTS BY TAKING RESORT TO NOTIFICATION F.NO.484/3/87-FTD, GOVERNMENT OF INDIA, MOF, DEPARTMENT OF REVENUE (FOREIGN TAX DIVI SION), NEW DELHI, JULY, 1987. ON THE OTHER PORTION, THE INCOME WAS OF FERED @ 10% OF THE GROSS RECEIPTS BY MAKING REFERENCE TO SECTION 44BB ON PRESUMPTIVE BASIS AND, IN THIS MANNER, THE INCOME RETURNED WAS CALC ULATED AT ` 21,08,893/-. THE ASSESSING OFFICER THOUGH ACCEPTED THE CLAIM OF THE ASSESSEE U/S 44BB (2) IN RESPECT OF TOTAL RECEIPTS OF ` 1, 59,12,886/- PERTAINING TO RECEIPTS ON ACCOUNT OF REPAIR/REVAMP O F CRANES INSTALLED AT RIGS, BUT HAS REJECTED THE CLAIM OF THE ASSESSEE REGAR DING ASSESSMENT OF 1% OF GROSS RECEIPT RELATING TO SPARE PARTS U SED 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% A ND HAS ASSESSED INCOME ON THAT COMPONENT AT ` 1,29,40,166/-AND , IN THIS MANNER, THE INCOME OF THE ASSESSEE HAS BEEN ASSESSED AT A TO TAL SUM OF ` 1,45,31,452/- IN PLACE OF RETURNED INCOME OF ` 21,08,893/-. THE ASSESSEE HAS FILED OBJECTIONS U/S 144C AND VIDE ORDER DATE D 4 TH JUNE, 2010, DRP HAS UPHELD THE ACTION OF THE ASSESSING OFFICER BY OBSERVING THAT THE ASSESSEE HAS NOT BEEN ABLE TO GIVE ANY CONVINCI NG BASIS AS TO WHY 10% SHOULD BE APPLIED AND NOT 25% AS APPLIED BY T HE ASSESSING OFFICER CONSIDERING THAT THE SAID INCOME IS NOT COVERE D U/S 44BB (1). LEARNED ASSESSING OFFICER HAS PASSED THE IMPUGNED ORDER IN PURSUANCE OF DIRECTIONS ISSUED BY THE DRP U/S 144C OF TH E ACT. THE ASSESSEE IS AGGRIEVED, HENCE, HAS RAISED THE AFOREMENTIONE D GROUNDS OF APPEAL. 4. AT THE OUTSET, IT WAS SUBMITTED BY LEARNED AR THAT THE ASSESSEE HAS FORGONE ITS CLAIM OF BEING ASSESSED @ 1% AND NOW IT I S THE CASE OF THE ASSESSEE THAT ITS ENTIRE RECEIPTS SHOULD BE MADE SUBJEC T TO PROVISIONS OF SECTION 44BB (1) AND, THUS, THE APPLICAT ION OF RATE OF 25% ON THE COMPONENT RELATING TO USER OF SPARE PARTS IS, TH US, BAD AS NONE ITA NO.3909/DEL/2010 4 OF THE PROVISIONS OF THE ACT SUPPORT SUCH COMPUTATION O F INCOME @ 25%. TO SUPPORT THE CONTENTION THAT SUPPLY OF SPARES I N CASE OF TURNKEY CONTRACT IS ALSO SUBJECT TO PROVISIONS OF SECTIO N 44AB, LEARNED COUNSEL HAS RELIED ON VARIOUS JUDGEMENTS INTER ALIA INC LUDING THE DECISION OF HONBLE UTTARANCHAL HIGH COURT IN THE CA SE OF CIT VS. B.J. SERVICES CO. MIDDLE EAST 300 ITR 392 (UTTARANCHAL) TH E COPY OF WHICH IS PLACED AT PAGES 37-38 OF THE PAPER BOOK. READING FR OM PARA 2-8, IT WAS SUBMITTED BY HIM THAT SUPPLY OF SPARE PARTS IN A TUR NKEY CONTRACT OF REPAIR WILL ALSO BE COVERED UNDER THE PROVISIONS OF SECTION 44BB OF THE ACT AND, THEREFORE, THE APPLICABLE RATE OF NET PROFIT WILL BE @ 10%. FOR THE SAKE OF CONVENIENCE PARA 2 AND 8 FROM THE SAI D ORDER ARE BEING REPRODUCED BELOW:- 2. FACTS, IN BRIEF, ARE THAT RETURN OF INCOME WAS FILE D BY A NON-RESIDENT COMPANY M/S B.J. SERVICES CO. MIDDLE EA ST, DISCLOSING RS.3,27,770/- FOR COMPUTING THE AMOUNT REFE RRED UNDER SUB-SECTION (2) OF SECTION 44BB OF THE ACT, WHICH WAS 5 PER CENT OF THE TOTAL RECEIPTS TOWARDS HANDLING CHARGES O N THE ORIGINAL COST. IT WAS FOUND FROM THE RETURN FILED BY TH E ASSESSEE THAT TOTAL AMOUNT RECEIVED BY THE ASSESSEE FOR S UPPLY OF SPARE PARTS TO THE OIL & NATURAL GAS CORPORATION (FOR SHORT, ONGC) WAS RS.69,45,264. THE A.O., THEREFORE, TOOK IN TO ACCOUNT THE TOTAL AMOUNT RECEIVED BY THE NON-RESIDENT COMPANY FOR SUPPLY OF SPARE PARTS TO ONGC UNDER SUB-S ECTION (2) OF SECTION 44BB FOR DETERMINING THE PROFITS AND GAI NS AND IMPOSED THE TAX @ 10 PER CENT UNDER SUB-SECTION (1) OF SECTION 44BB OF THE ACT. 8. SUB-SECTION (1) OF SECTION 44BB SPECIFICALLY PROVI DES THAT AGGREGATE OF AMOUNTS SPECIFIED IN SUB-SECTION (2) SHAL L BE TAKEN INTO ACCOUNT, 10 PER CENT OF WHICH SHALL BE DEEME D TO BE PROFITS AND GAINS. SUB-SECTION (2) PROVIDES THAT AMOUN TS REFERRED SHALL BE AMOUNT PAID OR PAYABLE TO THE ASSESS EE (WHETHER IN OR OUT OF INDIA) AND THE AMOUNT RECEIVED OR DEEMED TO BE RECEIVED IN INDIA ON ACCOUNT OF THE PROVI SION OF SERVICES AND FACILITIES IN CONNECTION WITH, OR SUPPLY OF PLANT AND MACHINERY ON HIRE USED, OR TO BE USED, IN THE PROSPEC TING FOR, OR EXTRACTION OR PRODUCTION OF, MINERAL OILS IN INDIA. EXPLANATION APPENDED TO SECTION 44BB PROVIDES THAT FOR THE PURPOSE O F 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 AMOU NT ITA NO.3909/DEL/2010 5 RECEIVED BY THE ASSESSEE ON ACCOUNT OF SUPPLY OF SPAR E PARTS IS SQUARELY COVERED UNDER SECTION 44BB. THEREFORE, THE A.O. 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 ASSE SSEE THAT THE AMOUNT OF RS.66,17,495 COULD NOT BE INCLUDED FO R THE PURPOSE OF CALCULATING THE AMOUNT REFERRED TO IN SUB-S ECTION (2) OF SECTION 44BB AS IT WAS REIMBURSEMENT WHILE THE ASSESSEE HIMSELF HAS CLAIMED 5 PER CENT HANDLING CHA RGES ON THE ORIGINAL COST OF MATERIAL I.E., SPARE PARTS. THER EFORE, RS.69,45,264 WAS THE COST OF SPARE PARTS AND WAS DULY RECEIVED BY THE ASSESSEE NON-RESIDENT COMPANY AND HEN CE WAS AN AMOUNT REFERRED TO UNDER SUB-SECTION (2) OF SEC TION 44BB OF THE ACT AS IT WAS A RECEIPT DURING THE COURSE OF BUSINESS. 5. THUS, IT WAS PLEADED BY LEARNED AR THAT THE ASSESSEE M AY BE GRANTED APPROPRIATE RELIEF. HE SUBMITTED THAT THERE IS NO DOUBT THAT ON THE OTHER COMPONENT THE ASSESSING OFFICER HAS HIMSELF ACC EPTED THE CLAIM OF THE ASSESSEE REGARDING APPLICATION OF SECTION 44BB (1) OF THE ACT. 6. ON THE OTHER HAND, IT WAS SUBMITTED BY LEARNED DR THAT SINCE THE ASSESSEE IS NOT PRESSING HIS CLAIM REGARDING APPLICATION OF 1% RATE, HIS SUBMISSION IS THAT THE CONTRACTS OBTAINED BY THE ASSESSEE FR OM ONGC WERE HAVING TWO COMPONENTS AND, FOR THIS PURPOSE, HE R EFERRED TO THE COMPUTATION OF INCOME SUBMITTED BY THE ASSESSEE IN WHICH SUCH BIFURCATION WAS MADE. THE ONE RELATING TO SUPPLY OF SPARE PARTS AND THE OTHER RELATING TO THE SERVICES RENDERED IN THAT R EGARD. HE SUBMITTED THAT SUPPLY OF SPARES IS NOT COVERED AS SUCH BY THE PROVISIONS OF SECTION 44BB OF THE ACT AND, HENCE, IT SHOULD HAVE BEEN TREATED SEPARATELY FROM THE SERVICES RENDERED BY THE A SSESSEE AS ENVISAGED IN SECTION 44BB OF THE ACT. HE, THEREFORE , SUPPORTED THE CASE OF THE ASSESSING OFFICER THAT ONLY WITH REGARD TO T HE SERVICES RENDERED BY THE ASSESSEE SECTION 44BB WILL BE APPLICABL E AND IN RESPECT OF SUPPLY OF SPARE PARTS THIS SECTION WILL NOT A PPLY AND THE ASSESSING OFFICER WILL BE FREE TO ASSESS THE INCOME OF THE ASSESSEE AS PER NORMAL PROVISIONS OF THE ACT. IN THIS MANNER, LEA RNED DR SUPPORTED ITA NO.3909/DEL/2010 6 THE ORDER OF THE ASSESSING OFFICER AND CIT (A) VIDE WHI CH 25% NET PROFIT RATE HAS BEEN APPLIED ON THE COMPONENT RELATING TO SU PPLY OF SPARES AS THE SAME HAS RIGHTLY BEEN ASSESSED UNDER THE PROVISIONS OF SECTION 9(1)(I) BEING INCOME ACCRUING OR ARISING TO THE ASSESSEE THROUGH OR FROM ANY BUSINESS CONNECTION IN INDIA. 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS IN THE LIGHT OF THE MATERIAL PLACED BEFORE US. IT IS UNDISPUTED THAT THE ASSESSEE HAS RECEIVED COMPOSITE PAYMENTS WITH REGARD TO TURNKEY CO NTRACTS LISTED IN THE ASSESSMENT ORDER. THESE CONTRACTS ARE WITH ONGC AND THE NAME OF THE WORK CONTRACT OF THE ASSESSEE IN ONE OF THE CONT RACTS IS REVAMPING OF 4 NOS. AMERICAN AERO MAKE CRANES INSTALL ED AT BPB (E), BC, BPB (W) & BLQ-2 PLATFORMS OF ONGC. IN THE OTHER CONTRACTS ALSO THE NATURE OF WORK IS SAME. CLAUSE 3 DEFINES THE SCOPE OF WORK WHICH INTER ALIA PROVIDES AS UNDER:- 3.0 SCOPE OF WORK 3.1 CONTRACTORS SCOPE OF WORK SHALL BE ON TURN KEY BA SIS FOR REPAIR/REPLACEMENT/SERVICING/OVERHAULING OF 4 NOS. C RANES INSTALLED AT BPB(E), BPB(W), BC & BLQ-2 PLATFORMS AT BA SSIEN & SATELLITE. THE CRANE IS TO BE GET LOAD TESTED AFTER COMMI SSIONING 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 OVERH AULING OF CRANE SHALL BE RESTRICTED TO 6 TO 9 PERSON 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 & BLQ-2 PLATFORMS AND LOADING ON OSV (OSV WI LL BE ARRANGED BY ONGC). THE CRANES HAVE TO BE REVAMPED O N TURNKEY BASIS INCLUDING BUT NOT LIMITED TO REPLACING AND /OR SERVICING THE LISTED SPARE PARTS. IF DURING THE REVAMP ING PROCESS REPLACEMENT OF ADDITIONAL OPTIONAL ITEMS BECOME NECESSA RY TO COMPLETE ALL THE FOUR CRANES, THE SAME WILL BE CARRIED OUT BY THE CONTRACTOR. ITA NO.3909/DEL/2010 7 7.1 CLAUSE 4 DEFINES THE SCOPE OF SUPPLY WHICH DEFINES C ONTRACTORS SCOPE OF SUPPLY AS UNDER:- 4.0 SCOPE FO SUPPLY 4.1 CONTRACTORS SCOPE OF SUPPLY THE PROCUREMENT AND SUPPLY IN SEQUENCE AND AT APPROPR IATE TIME OF ALL MATERIALS AND CONSUMABLES SHALL BE ENTIREL Y THE CONTRACTORS RESPONSIBILITY AND HIS QUOTED PRICE FOR EX ECUTION SHALL BE INCLUSIVE OF ALL THESE ITEMS WHICH INCLUDE, BUT NOT LIMITED TO THE FOLLOWING. A) ALL SPARES AND ASSEMBLIES/SUB-ASSEMBLIES ALONG W ITH OPTIONAL ITEMS REQUIRED TO MAKE THE CRANES FULLY OPERATIONAL AT RATED CAPACITY AND FIT FOR CERTIFICATION AR E ATTACHED AT APPENDICES I TO IV UNDER ANNEXURE-III OF TH E TENDER. B) ALL STRUCTURAL AND SEA FASTENING MATERIALS, LIFTING A ND INSTALLATION MATERIALS AND EQUIPMENTS. C) ALL INDUSTRIAL GASES LIKE OXYGEN, ACETYLENE OR INE RT GSES AND ALL TYPES OF WELDING MACHINES, ELECTRODES, TORCHE S, BRAZING RODS, FLUX, ETC. FOR WELDING PURPOSES. D) PTFE TAPE AND OTHER JOINTING COMPOUNDS FOR SOCKETS THREADS AND GASKETS FOR FLANGES. E) GREASE, CLEANING OILS, OTHER SOLVENTS, CHEMICALS R EQUIRED FOR CLEANING AND GREASING OF LINES, ADHESIVES, ETC. F) PAINTS, THINNER AND PAINTING MATERIALS, PAINTING EQUIPMENT, INCLUDING EQUIPMENTS ENQUIRE FOR SURFACE PREPARATION AND OTHER CONSUMABLES. G) HARDWARE AND BLINDS WHEREVER REQUIRED. H) EQUIPMENT/MATERIALS REQUIRED FOR LOAD TESTING, EXCLU DING THE TEST WEIGH LOADS. I) ANY OTHER ITEM NOT SPECIFIED BUT REQUIRED FOR THE COMPLETION OF WORKS. J) STRUCTURAL STEEL, M.S. PLATES, FLATS/PIPES, ETC. REQUI RED FOR FABRICATION OF SUPPORTS, TRAYS, STRUCTURES, ETC. AS REQUI RED TO COMPLETE THE WORKS. INSTALLATION, ASSEMBLY MECHANICA L COMPLETION, COMMISSIONING, THIRD PARTY INSPECTION AND CERTIFICATION AGENCY TO BE APPROVED BY ONGC ALONG WITH ALL THE REQUIRED ACCESSORIES AT PLATFORM. K) IF ANY MATERIAL IS FALLING SHORT OR REQUIRE REPLACEME NT, THE SAME SHALL BE AIR FREIGHTED TO COMPLETE THE JOB AS PER OPERATIONAL REASON AND THE COST WILL BE BORNE BY THE CONTRACTOR. 7.2 CLAUSE 4.2 DEFINES ONGC SCOPE OF SUPPLY WHICH READ AS UNDER:- 4.2 ONGCS SCOPE OF SUPPLY ITA NO.3909/DEL/2010 8 A) PROVIDE WATER, DIESEL, ELECTRICITY, COMPRESSED AIR. B) PORTABLE FIRE EXTINGUISHERS, FIRE WATER SUPPLY THROU GH FWP OR OSV DURING HOT WORK PERIOD IF REQUIRED. C) PROVIDE BOARDING AND LODGING AT OFFSHORE PLATFORM FOR CONTRACTORS PERSONNEL AS SPECIFIED IN CONTRACT. D) PROVIDE TRANSPORTATION FACILITY FREE OF COST TO & FOR MAN AND MATERIAL BY OSV/HELICOPTER BETWEEN NHAVA/ONGC HELIBASE MUMBAI TO BPB/BLQ-2 PLATFORM 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 FO R THE PROTECTION OF THE STRUCTURE AND REPAIR OF ALL DAMAGES TO THE STRUCTURE OF ITS COMPONENTS RESULTING FROM CONTRACTORS 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 PERFORME D BY THE CONTRACTOR ON MATERIALS WHICH DO NOT MEET THE PROVISION O F THE APPLICABLE SPECIFICATIONS. FURTHER, CONTRACTOR SHALL R EMOVE AND REPLACE ALL SUCH MATERIALS WHICH ARE INCORPORATED IN THE STRUCTURE (S) WITHOUT PRIOR WRITTEN APPROVAL OF THE COMPAN Y. 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 ANNEXURE ANNEXURE ANNEXURE- -- -C CC C CONTR CONTR CONTR CONTRACT PRICE SCHEDULE ACT PRICE SCHEDULE ACT PRICE SCHEDULE ACT PRICE SCHEDULE CONTRACT NO. MR/B&S/MM/KKT/AA-CRANES/243/03-04/LT-0 6/PC-23 FOR REVAMPING OF 4 NOS AMERICAN AERO MAKE CRANES INSTLALED AT BPB (EAST), BC, BPB (WEST) & BLQ-2 PLA TFORMS OF ONGC ON TURNKEY. LUMPSUM PRICE LUMP SUM PRICE FOR REVAMPING OF 4 NOS. AMERICAN AERO MAKE CRANES INSTALLED AT BPB (EAST), BC BPB (WEST) & BLQ-2 PLATFORMS, AS PER ENCLOSED SCOPE OF WORK ON TURNKEY BASIS. THE SCOPE OF WORK SHALL INCLUDE BUT NOT LIMITED TO US $ 1,463,526=58 (UNITED STATES DOLLAR ONE ITA NO.3909/DEL/2010 9 DISMANTLING & REPLACEMENT WITH NEW PARTS/SUB-ASSEMBLIES/ASSEMBLIES, SUPPLY OF PARTS/ASSEMBLIES/SUB- ASSEMBLIES, SERVICING AND GREASING OF ITEMS, INSTALLATION & COMMISSIONING OF CRANES, PROVIDING MANPOWER INCLUDING OEM REPRESENTATIVE FOR COMPLETE EXECUTION OF WORK ALONG WITH MOBILIZATION & DEMOBILIZATION, TOOLS & TACKLES, OVERHAULING/REBUILDING OF ENGINES AND ALSO INCLUDING THIRD PARTY INSPECTION CHARGES. THE LUMP SUM PRICE SHALL ALSO BE INCLUSIVE OF ALL TAXES, DUTIES (EXCLUDING CUSTOMS DUTY), LEVIES, INSURANCE, SERVICE TAX AND CORPORATE TAX TO COMPLETE THE JOB ON TURNKEY BASIS. MILLION FOUR HUNDRED AND SIXTY THREE THOUSAND FIVE HUNDRED TWENTY SIX AND CENTS FIFTY EIGHT ONLY) NOTE: 1. THE ABOVE LUMPSUM PRICE INCLUDES CORPORATE TAX AN D SERVICE TAX SHOWN BELOW: 1. CORPORATE TAX @ 41% BY APPLYING A PROFIT RATE OF 1% IN RESPECT OF SUPPLY OF SPARES. US $ 3,788=75 2. CORPORATE TAX @ 41% BY APPLYING A PROFIT RATE OF 11.5% IN RESPECT ON INSTALLATION COST US $ 22,407.00 3. SERVICE TAX @ 8% ON INSTALLATION & COMMISSIONING US $ 38,018=24 9. A CUMULATIVE READING OF ALL THESE CLAUSES WILL SHOW THAT THE SUPPLY OF COMPONENTS IS INDIVISIBLE PART OF ENTIRE CONT RACT. ONGC IS CERTAINLY ENGAGED IN THE ACTIVITY OF PROSPECTING FOR , OR EXTRACTION OR PRODUCTION OF MINERAL OILS AND ANY AMOUNT RECEIVED B Y THE ASSESSEE BEING A NON-RESIDENT ENGAGED IN THE BUSINESS OF PROVIDI NG SERVICES OR FACILITY IN CONNECTION WITH, OR SUPPLYING PLANT AND MACHINERY ON HIRE, USED OR TO BE USED IN SUCH ACTIVITY SHALL BE GOVERNED B Y THE PROVISIONS OF SECTION 44BB. FOR ONE COMPONENT OF THE CONTRACT , THE ASSESSING OFFICER HIMSELF HAS AGREED FOR APPLICATION OF SECTION 44BB AND THE ASSESSEE HAS BEEN CHARGED TO TAX BY TAKING 10% NET PROFI T ON THAT COMPONENT. THE ASSESSEE MAY HAVE BIFURCATED THE CONTRA CT PRICE INTO ITA NO.3909/DEL/2010 10 TWO SEGMENTS; ONE RELATING TO SUPPLY OF SERVICES AND THE OTHER RELATING TO SUPPLY OF SPARES, BUT THAT MAY HAVE BEEN DONE BY TH E ASSESSEE FOR LOWER TAX. BUT THAT DOES NOT MEAN THAT SECTION 44BB WILL NOT BE APPLICABLE TO THE ACTIVITY CARRIED ON BY THE ASSESSEE B EING A NON- RESIDENT ASSESSEE. 10. IN THE CASE OF CIT VS. B.J. SERVICES CO. MIDDLE EA ST (SUPRA), THE ASSESSEE BEING A NON-RESIDENT COMPANY HAD DISCLOSED INCOME OF ` 3,27,770/- UNDER THE PROVISIONS OF SUB-SECTION (2) OF S ECTION 44BB OF THE ACT WHICH WAS 5% OF THE TOTAL RECEIPTS TOWARDS HAN DLING CHARGES ON THE ORIGINAL COST. THE ASSESSEE WAS SUPPLYING THE SPARE PARTS TO THE ONGC WHICH WAS A SUM OF ` 69,45,264/-. THE ASSESSING OFF ICER APPLIED 10% RATE AS PER THE PROVISIONS OF SECTION 44BB (2). T HE CIT (A) HELD THAT THE ASSESSEE WAS ENTITLED TO DEDUCTION OF ` 66,17,4 95/- AS THE SAME WAS RECEIVED AS COST OF MATERIAL, ETC. AND WAS AN A CTUAL 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 BASI S. THE TRIBUNAL UPHELD THE ORDER OF THE CIT (A). ON THESE FACTS, IT WAS DECIDED BY THE HONBLE HIGH COURT AS UNDER:- 8. SUB-SECTION (1) OF SECTION 44BB SPECIFICALLY PROV IDES THAT AGGREGATE OF AMOUNTS SPECIFIED IN SUB-SECTION (2) SHA LL BE TAKEN INTO ACCOUNT, 10 PER CENT OF WHICH SHALL BE DEEMED TO B E PROFITS AND GAINS. SUB-SECTION (2) PROVIDES THAT AMOUNTS REFER RED SHALL BE AMOUNT PAID OR PAYABLE TO THE ASSESSEE (WHETHER IN O R OUT OF INDIA) AND THE AMOUNT RECEIVED OR DEEMED TO BE RECEIVE D IN INDIA ON ACCOUNT OF THE PROVISION OF SERVICES AND FAC ILITIES IN CONNECTION WITH, OR SUPPLY OF PLANT AND MACHINERY ON H IRE USED, OR TO BE USED, IN THE PROSPECTING FOR, OR EXTRACTION OR PRODUCTION OF, MINERAL OILS IN INDIA. EXPLANATION APPENDED TO S ECTION 44BB PROVIDES THAT FOR THE PURPOSE OF THIS SECTION, PLANT INCL UDES 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 ACCO UNT OF SUPPLY OF SPARE PARTS IS SQUARELY COVERED UNDER SECTI ON 44BB. THEREFORE, THE A.O. WAS RIGHT IN CALCULATING THE 10 PER CENT OF TOTAL AMOUNT OF RS.69,45,264, WHICH WAS RECEIVED BY THE ITA NO.3909/DEL/2010 11 ASSESSEE NON-RESIDENT COMPANY FROM THE ONGC. THE CLA IM OF THE ASSESSEE THAT THE AMOUNT OF RS.66,17,495 COULD NOT BE INCLUDED FOR THE PURPOSE OF CALCULATING THE AMOUNT REF ERRED TO IN SUB-SECTION (2) OF SECTION 44BB AS IT WAS REIMBURS EMENT WHILE THE ASSESSEE HIMSELF HAS CLAIMED 5 PER CENT HAN DLING CHARGES ON THE ORIGINAL COST OF MATERIAL I.E., SPARE PARTS. THEREFORE, RS.69,45,264 WAS THE COST OF SPARE PARTS AN D WAS DULY RECEIVED BY THE ASSESSEE NON-RESIDENT COMPANY AN D HENCE WAS AN AMOUNT REFERRED TO UNDER SUB-SECTION (2) OF SEC TION 44BB OF THE ACT AS IT WAS A RECEIPT DURING THE COURSE OF BUSINESS. 11. IN THAT CASE, EVEN SUPPLY OF SPARE PARTS HAVE BEEN TREATED TO BE ASSESSABLE UNDER THE PROVISIONS OF SECTION 44BB (1)OF THE ACT. 12. THE ASSESSEE IN THE PRESENT CASE HAS FORGONE ITS CLAIM REGARDING ASSESSABILITY OF THE SEGMENT OF SPARE SUPPLIED @ 1% AND HA S ONLY PRESSED THE APPLICATION OF 44BB ON THAT SEGMENT. IN O THER WORDS, THE ASSESSEE HAS ACCEPTED THE APPLICATION OF 10% NET PROFIT RATE ON THE SEGMENT RELATING TO SUPPLY OF SPARES. IT MEANS THAT ON ENTIRE PAYMENTS RECEIVED BY THE ASSESSEE FROM ONGC, THE ASSESSEE HA S ACCEPTED THE APPLICATION OF SECTION 44B I.E., NET P ROFIT RATE OF 10% ON PRESUMPTIVE BASIS. THEREFORE, IN OUR OPINION, THE ENTI RE RECEIPTS OF THE ASSESSEE ARE ASSESSABLE @ 10% AS DESCRIBED IN SECTION 44 BB. 13. IN VIEW OF ABOVE DISCUSSION, THE APPEAL FILED BY T HE ASSESSEE IS PARTLY ALLOWED IN THE MANNER AFORESAID. AS GROUND NO .2 OF THE ASSESSEE WAS NOT PRESSED AND DURING THE COURSE OF DISCUSSION T HE ASSESSEE HAS AGREED FOR THE APPLICATION OF SECTION 44BB ON THE ENTIRE CONTRACT RECEIPTS. ITA NO.3909/DEL/2010 12 14. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PA RTLY ALLOWED IN THE MANNER AFORESAID. THE ORDER PRONOUNCED IN THE OPEN COURT ON 25.03.20 11. SD/- SD/- [A.K. GARODIA] [I.P. BANSAL] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED, 25.03.2011. DK COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR, ITAT, DELHI BENCHES