2010 (4) TMI 862 - AT - Income Tax

Income - Deemed to accrue or arise in India - Double Taxation Avoidance Agreement (DTAA) between India and Mauritius - HELD THAT - The preparation of designs in this case is done by Jebel Ali Dubai and the documents were transmitted to EIL from outside the country. The distance from Jebel Ali to India is 1050 nautical miles and the travel within India is about 100 nautical miles which means 10 per cent of the total transportation is within the country. The assessee in this case followed the project completion method to recognize contract revenues. The revenues pertaining to work carried on within India and works carried on outside India has been determined based on actual activities carried out and as already stated there is no dispute on this fact. In such a situation in our considered opinion the first appellate authority has rightly observed that section 9(1)( i ) Explanation 1 provides that the income from business deemed under this clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India. We also agree with the finding that the income in question should be first taxable in view of section 5 of the Act read with section 9 and that section 44BB cannot override section 5 which is the charging section. Thus we uphold the order of the first appellate authority and dismiss ground No. 1 of the Revenue. In the result the appeal of the Revenue is dismissed.

Summary

Issues involved: Appeal filed by revenue against CIT (Appeals) order for assessment year 2003-04 regarding taxation of income from work done outside India and interest under section 234B of the Income-tax Act.

Taxation of income from work done outside India:
The assessee, a company incorporated in Mauritius, executed transportation and installation work under a contract with Engineers India Ltd. for ONGC Ltd. The dispute arose regarding the taxation of income from work done outside India. The Assessing Officer held that the entire receipts should be taxed in India, rejecting the assessee's contention. The first appellate authority granted partial relief. The Tribunal considered the facts and held that income reasonably attributable to operations carried out in India should be taxed first, citing section 9(1)(i) Explanation 1. The Tribunal also emphasized that section 44BB cannot override section 5, the charging section. Referring to relevant case laws, the Tribunal upheld the first appellate authority's order, dismissing the revenue's appeal.

Interest under section 234B:
The second ground of appeal was regarding the deletion of interest under section 234B of the Act. The Tribunal held that the levy of interest is consequential and set aside the issue for fresh adjudication by the Assessing Officer.

In conclusion, the Tribunal dismissed the revenue's appeal, upholding the first appellate authority's order on the taxation of income from work done outside India and setting aside the issue of interest under section 234B for fresh adjudication.