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Before: Shri H.S. Sidhu & Shri L.P. Sahu
ORDER Per L.P. Sahu, A.M.: This is an appeal filed by the assessee against the order of ld. CIT(A)-2, Noida dated 11.02.2016 for the assessment year 2011-12 on the following effective grounds :
“1. That the Ld. CIT(A) erred on facts and in law in affirming the action of the Assessing Officer in holding that reimbursement of expenses aggregating to INR 14,51,797/- from GSPC were includible in the receipts for the purpose of determination of income under section 44BB of the Income-tax Act. The Ld. CIT(A) failed to appreciate that the said amount is devoid of any profit element and do not constitute income in the hands of the appellant.
2. That the Ld. CIT(A) erred in law in holding that the provisions of section 44BB do not apply to provision of barge, without appreciating that the receipts of INR. 340,035,436/- for activity carried out by appellant for ITA No. 2071/Del./2016 2
L&T is inextricably linked with exploration, exploitation and production of mineral oil and cannot be held to be taxable as royalty in terms of section 9(1)(vi) of the Act.”
The brief facts relating to first ground of appeal are that the assessee received a sum of Rs.14,51,797/- and did not offer it to tax on the premises that these receipts were in nature of reimbursement of expenditure incurred by the assessee. The AO observed that the reimbursement claimed by the assessee was on account of payments received for material used which is intricately linked with the execution of contract and gross contract receipts.
He, therefore, taxed the same u/s. 44BB of the IT Act. The ld. CIT(A) after considering various decisions on the issue, confirmed the action taken by the Assessing Officer, which has been challenged by the assessee by way of ground No. 1 above.
We have heard the rival submissions on the issue and have gone through the entire material available on record. At the outset, both the parties agreed that the issue is squarely covered by the decision of Honble Jurisdictional High Court in the case of Commissioner of Income Tax Vs. Halliburton Offshore Services Inc., 300 ITR 265 (Uttarakhand), wherein it has been held that section 44BB is a complete code in itself and all amounts including reimbursements are includible within the amount paid or payable to ITA No. 2071/Del./2016 3 the assessee for the purpose of taxation under section 44BB of the Act.
Therefore, this issue is decided against the assessee and in favour of the Revenue, following the aforesaid decision of Hon’ble jurisdictional High Court.
Accordingly, ground No. 1 raised by the assessee is dismissed.
The facts relating to the issue involved in ground No. 2 are that the assessee claimed that the operations of the vessels/equipments given on hire to L&T were outside India and in international waters. Therefore, their receipts were taxable only in Portugal and not in India as per Article 8 of DTAA between India and Portugal. It was also the submission of the assessee that since the Barge was supplied to L&T to be used ultimately in connection with exploration, extraction and production of mineral oil, the receipts from the supply of barge should have been taxed u/s. 44BB of the Act. Reliance was placed on the decision of Hon’ble Apex Court in ONGC vs. CIT (civil appeal No. 731 of 2007). The AO was of the opinion that since the assessee had given specialized vehicle/Vessel/equipment on hire to L&T, its receipts are taxable as royalty as defined in section 9(1)(vi) of the Act read with Article 12 of India-Portugal DTAA. He, therefore, concluded that the income of the assessee is covered u/s. 9(1)(vi) of the IT Act and therefore, the assessee is not entitled for concessional benefit under section 44BB of the Act. He, therefore, brought
ITA No. 2071/Del./2016 4 the gross revenues amounting to Rs.34,00,35,436/- received in respect of L&T contract to tax as royalty receipt on gross basis taxable @ 10%. The learned CIT(A) after making an elaborate discussion on the issue, held that since GSPC and HOECL are engaged in the business of exploration in the activities of the prospecting, production of mineral oils, the supply of plant and equipments by the assessee to GSPC and HOECL were taxable u/s. 44BB of the Act. However, since L&T was in business of engineering and fabrication along with other allowed activities and was not engaged in the activity of exploration, prospecting and production of mineral oil, the receipts out of supply of equipments to L&T was taxable as royalty, as done by the Assessing Officer.
This decision of ld. CIT(A) is challenged by assessee by way of ground No. 2 above.
We have heard the submissions of both the parties and perused the material on record and we find that the issue under consideration is squarely covered in favour of the assessee by the decision of ITAT, Delhi Bench in the case of SBS Marine Limited (ITA No. 107/Del./2012, wherein it has been that second leg contracts are also eligible for benefit of tax treatment provided in section 44BB of the Act. This decision of ITAT stood confirmed by the Jurisdictional High Court in (copy placed on file) after relying
ITA No. 2071/Del./2016 5 on the decision of Apex Court in ONGC vs. CIT, 376 ITR 306. Similar view has been taken by ITAT in the cases of B.J. Services Co. ME Limited (ITA Nos.
3889/Del./2010, 421/Del./2012 and 4831/Del./2012 dated 19.12.16 (copy placed on paper book) and several other decisions. Respectfully following the above decisions of Hon’ble jurisdictional High Court and the Tribunal, we decide this issue in favour of the assessee and against the Revenue.
Accordingly, ground No. 2 raised by the assessee deserves to be allowed.
In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open court on 13.11.2017.