2007 (9) TMI 230 - HC - Income Tax

Assessee non-resident rendered services to ONGC assessee contention that amount received by them on account of reimbursement of freight and transportation charges were actually incurred in respect of equipment was not includible while computing its income u/s 44BB is not acceptable Assessing Officer was justified in adding the said amount which was received by the non-resident company as per provisions of Section 44BB and imposing the income tax thereon

Summary

Issues:
1. Interpretation of Section 44BB for calculating profits and gains under the Income Tax Act.
2. Whether only income or accrued income should be considered for determining profits and gains under Section 44BB.

Analysis:

Issue 1: Interpretation of Section 44BB
The case involved an appeal against the ITAT's order regarding the addition of a specific amount for calculating profits and gains under Section 44BB of the Income Tax Act. The CIT (Appeals) and ITAT held that certain charges incurred by the assessee did not constitute income and should not be added to the total income. The court analyzed Section 44BB, which provides for a deemed percentage of profits and gains for non-resident assesses engaged in specific businesses. The court emphasized that Section 44BB is a self-contained provision for determining profits and gains, and all amounts paid, payable, received, or deemed to be received are to be considered for calculating profits and gains at a specified rate. The court clarified the difference between amounts and income, highlighting that the section provides a legal fiction for determining profits and gains. Therefore, the court set aside the ITAT's decision and confirmed the Assessing Officer's order to add the amount received by the assessee for services rendered to the ONGC under Section 44BB.

Issue 2: Consideration of Income for Profits and Gains
The key question addressed was whether only income or accrued income should be taken into account for arriving at profits and gains under Section 44BB. The court explained that Section 44BB encompasses all amounts paid, payable, received, or deemed to be received, irrespective of whether they constitute income as defined under the Income Tax Act. The court referenced relevant sections of the Act, such as Section 2(24), Section 5, and Section 9, to distinguish between amounts and income. It reiterated that Section 44BB provides a specific mechanism for determining profits and gains for non-resident assesses engaged in certain businesses, and the Assessing Officer correctly added the received amount to the assessee's income for tax purposes. Consequently, the court ruled in favor of the Revenue and against the assessee, setting aside the decisions of the ITAT and CIT (Appeals).

This detailed analysis of the judgment clarifies the interpretation of Section 44BB and the considerations for calculating profits and gains under the Income Tax Act, providing a comprehensive understanding of the court's decision in this case.