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Income Tax Appellate Tribunal, MUMBAI BENCHES “B”, MUMBAI
Before: Shri Joginder Singh, & Shri Rajesh Kumar
Per Joginder Singh (Judicial Member) The assessee is aggrieved by the impugned order dated 02/01/2014 of the ld. First Appellate Authority, Mumbai, upholding the aggregate amounts of Rs.40,721,042/- received by the assessee, on account of mobilization of the transport of vessels outside Indian territorial waters, which is
2 M/s Bourbon Off shore 44BB of the Income Tax Act, 1961 (hereinafter the Act).
During hearing of this appeal, the ld. DR, Shri Randhir Gupta, at the outset, claimed that the impugned issue is covered against the assessee by the order of the Hon’ble Uttarakhand High Court in 200 ITR 265 (UK) and also in the case of CIT vs Trans Ocean Offshore INC. (2008) 299 ITR 248 (UK). This factual matrix was not controverted by the ld. Counsel for the assessee, Shri Neeraj Agrawal.
2.1. We have considered the rival submissions and perused the material available on record. In view of the above, we are reproducing hereunder the relevant portion from the aforesaid order dated 08/10/2007 in the case of Trans Ocean Offshore INC. for ready reference:-
“This Income-tax appeal has been filed under section 260A of the Income-tax Act, 1961 (hereinafter referred to as " the Act" ) challenging the order dated September 23, 2005, passed by the Income-tax Appellate Tribunal, Delhi Bench " D", New Delhi (for short, the ITAT) in I.T. A. No. 3922/Del./2000 for the assessment year 1997-98, whereby the Income-tax Appellate Tribunal has modified the order passed by the Assessing Officer and affirmed by the Commissioner of Income-tax (Appeals) on two issues, firstly, that the amount worth Rs. 5,88,30,840 was taken to be the basis for determining the deemed profits and gains under sub-section (1) of section 44BB of the Act at 1 per cent. in view of the Circular No. 1767 issued by the Central Board of Direct Taxes as this amount was received by the assessee as mobilization charges for mobilizing the vessel with a well equipped rig to Enron Oil and Gas (India) Ltd., an Indian company. Therefore, the 3 M/s Bourbon Off shore India.
2. Secondly, the interest levied by the Assessing Officer under section 234B of the Act would be consequential to the decision that only 1 per cent of the mobilization charges for transportation of the vessel outside the territorial waters of India would be taxable.
The assessee, a non-resident company, executed a contract with Enron Oil and Gas (India) Ltd. (hereinafter referred to as 'ENRON', as referred in the impugned judgment) for provision of a well equipped rig and performing drilling operations in connection with oil and gas exploration in the Tapti basin area in India. The return for the assessment year 1997-98 was filed by the assessee-company showing total gross revenues and taxable income earned by the assessee as under :
XXXXXXXXXXXXXXXXXXX 4.The assessee filed an appeal before the Commissioner of Income-tax (Appeals), which was dismissed and the order of the Assessing Officer was affirmed.
Feeling aggrieved by the aforesaid order of the Commissioner of Income-tax (Appeals), the assessee preferred a second appeal before the Income-tax Appellate Tribunal and the Income-tax Appellate Tribunal allowed the appeal of the assessee in the terms stated above.
In the aforesaid facts and circumstances, the following questions arise for consideration by this court :
" (i) Whether the Income-tax Appellate Tribunal was legally justi fied in law and on facts in holding that mobilization charges should not be taxed at 10% as provided under section 44BB ?
(ii) Whether the Income-tax Appellate Tribunal was legally justified in law and on facts in taking cognizance of Instruction No. 1767 dated July 1, 1987, when it had no applicability for the assessment year under consideration ?
(iii) Whether the Income-tax Appellate Tribunal was legally justi fied in law and on facts in holding that interest under section 234B was not leviable when there was no debatable issue at all ?"
4 M/s Bourbon Off shore
In Income-tax Appeal No. 280 of 2001 (Sedco Forex International Inc. v. CIT [2008] 299 ITR 238, a Division Bench of this court have held that mobilization charges are liable to be taken into account as amount referred under sub-section (2) of section 44BB of the Act and of the said amount, 10 per cent. shall be the deemed income for levy of tax.
The Income-tax Appellate Tribunal has wrongly applied Circular No. 1767 issued by the Central Board of Direct Taxes on July 1, 1987, for two reasons, firstly, as the circular had a fixed life of three years from the assessment year 1987-88, which expired in the assessment year 1990-91. Secondly, the tenure of the said circular of the Central Board of Direct Taxes is relating to activity of purchases made by the Indian company outside India by way of platform, rig or other facility fabricated by the foreign contractor as per the specific requirement of the Indian company organization outside India. It does not refer to mobilization charges.
A perusal of the circular shows that the Central Board of Direct Taxes had provided that 1 per cent. of the receipt by the foreign company on purchase of equipments by way of platform, rig or any other facility fabricated outside India shall be applied to determine the deemed profits and gains under section 44BB of the Act.
The Central Board of Direct Taxes is competent to issue the circulars under section 119 of the Act in the form of guidelines or principles or procedures to be followed by the Income-tax authorities relating to assessment or calculation of revenue. The Central Board of Direct Taxes exercises the delegated power which has been described under section 119 of the Act. The Central Board of Direct Taxes has not been empowered to fix the percentage for calculating the deemed profit under section 44BB of the Act. Section 44BB itself provides that the aggregate of the amounts referred to under its sub-section (2) shall be taken into account and 10 per cent. thereof shall be the deemed income on which tax shall be levied. Thus, the circular suffers from vice and excessive delegation and is void. (Reliance is placed by us on the principles laid down by the hon' ble apex court in State Bank of Travancore v. CIT reported in [1986] 158 ITR 102 wherein it has been held that circulars which are executive in character cannot alter the provisions of the Act.)
5 M/s Bourbon Off shore
Thus, the finding recorded by the Income-tax Appellate Tribunal that one per cent. shall be the deemed profits and gains of the amount worth Rs. 5,88,30,840 pertaining to outside India activity is liable to be set aside and is hereby set aside. The Assessing Officer as well as the Commissioner of Income-tax (Appeals) has rightly calculated the deemed profits and gains at 10 per cent. of mobilization charges at Rs. 5,88,30,840 and the same is upheld.
Therefore, the finding of the Income-tax Appellate Tribunal to levy the interest as a consequence to its decision only on the one per cent. amount of the mobilization charges is also set aside and the order of the Assessing Officer and the Commissioner of Income-tax (Appeals) are affirmed on this point also. Accordingly, the appeal is allowed. All the three questions are answered in favour of the Revenue and against the assessee.”
2.2. If the totality of facts are analyzed by keeping them in juxtaposition with the aforesaid decision from Hon’ble High Court of Uttarakhand, we note that while coming to a particular conclusion, the Hon’ble Court duly considered the decision in the case of SEDCO Forex International Inc vs CIT (2008) 299 ITR 238 (Uttarakhan) and State Bank of Travancore vs CIT (1986) 158 ITR 102 (SC) (Para-10), by holding that circulars cannot alter provisions of the Act (Circular No.1767 dated 01/07/1987). It was held that the CBDT has not empowered to fix the percentage for calculating the deemed profit u/s 44BB of the Act and declared the aforesaid circular void. It is also noted that section 44BB of the Act, itself provides that aggregate of the amount referred to under its sub-section (2) shall be taken into account and 10%, thereof, shall be deemed income on which tax shall be levied. In the present appeal also, the assessee engaged in the business of providing facilities and 6 M/s Bourbon Off shore India. The ground raised before us are also with respect to mobilization charges, received by the assessee, which is claimed to be not chargeable to tax and offered the amount under the provision of section 44BB of the Act. The ld. counsel for the assessee fairly agreed that the facts and the issue involved in the present appeal is identical. In view of the above, the appeal of the assessee is dismissed.
Finally, the appeal of the assessee is dismissed.
This Order was pronounced in the open court in the presence of ld. representatives from both sides at the conclusion of the hearing on 21/10/2015.