THE COMMISSIONER OF INCOME TAX - INTERNATIONAL TAXATION -3 vs. VETCO GRAY PTE LTD.

2023

The sole issue which arises for consideration concerns the taxability of amounts received by the respondent/assessee against offshore supplies of plant and machinery.

We are informed by Mr Sachit Jolly, learned counsel, who appears on behalf of the respondent/assessee, that in the earlier AYs i.e., AY 2010-11 to AY 2017-18, 1% of the gross receipts were attributed to the respondent/assessee. ITA 775/2023

MrRuchir Bhatia, learned senior standing counsel, who appears on behalf of the appellant/revenue, however, informs us that insofar as AY 2017-18 is concerned, although an order was passed under Section 143(3) of the Income Tax Act, 1961[in short, “the Act”], the Commissioner of Income Tax [CIT] took recourse to powers under Section 263 of the Act and thereafter, as per law, set aside the assessment order.

1 Mr Bhatia also states that in the appeal, the Tribunal reversed the decision of the CIT and that the appellant/revenue’s appeal i.e., ITA 448/2023 for the said year is pending adjudication with this court. The said appeal is listed before the court on 04.04.2024. 6. We may note that the stand of the appellant/revenue is that the provision of Section 44BB of the Act would be applicable in this case, and therefore, a sum equal to 10% of the aggregate amount, as set forth in subsection (2) of the said Section, would have to be deemed as profits and gains of business and accordingly brought to tax.

On the other hand, Mr Jolly says that the provision of Section 44BB of the Act would not apply as the said provision speaks of plant and machinery supplied on “hire”, whereas, the respondent/assessee for years has been accepting the route charted out by the Central Board of Direct Taxes (CBDT) via Instruction No.1767 dated July 01, 1987. 7.1 In this regard, a hard copy of the instruction has been placed before us. Based on the said instruction, in particular paragraph 5 of the said instruction, it is contended that only 1% of the gross receipts, if at all, can be brought to tax of the offshore supplies. ITA 775/2023

2 For convenience, the relevant part of the said instruction is extracted hereafter:

Prima facie, the provisions of the said instruction seem to apply to the respondent/assessee.

Mr Bhatia states that he would require a short accommodation to ascertain as to whether or not the said instruction has been modified or superseded.

At the request of Mr Bhatia, list the matter on 22.12.2023. 11. For the purpose of good order and record, the Registry will scan and upload the copy of the aforementioned instruction so that the same remains embedded in the case file.