TMI Blog1999 (3) TMI 111X X X X Extracts X X X X X X X X Extracts X X X X ..... ant clauses of the agreement executed between the appellant non-resident company with ONGC clearly reveals that mobilisation fee paid by ONGC to the appellant-company were in the nature of reimbursement of expenses incurred by the appellant-company for the mobilisation of the drilling unit from their present location situated outside the taxable territories, namely, Setubal Portugal to the location designated by ONGC, namely, offshore Bombay, India or to the other drilling unit of ONGC (Kandla or Bombay). The Assessing Officer included the amount of mobilisation fee paid by the ONGC to the appellant-company in both the years under consideration in the amount of gross receipts on which deemed profit @ 10% was held to be liable to tax under section 44BB of the Act. The CIT(A) confirmed the said findings given by the Assessing Officer. He also relied upon decision of ITAT in ITA No. 3314/Del/88 for A.Y. 1986-87 in the case of ONGC as Agent of Schlumberger Forest v. IAC The CIT(A) has given the elaborate reasons in the order passed by him while confirming the action of the Assessing Officer. 2.1 The ld. counsel appearing on behalf of the assessee submitted that the aforesaid ground r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 93] 202 ITR 1014 ( Delhi ) The ld. counsel submitted that the Hon'ble Delhi High Court, which is the Jurisdictional High Court, has held in the aforesaid case that reimbursement of expenses can, under no circumstances, be regarded as a revenue receipt. In view of this judgment, the findings given by the CIT(A) and the Assessing Officer should be set aside. (2) CIT v. Dunlop Rubber Co. Ltd. [1983] 142 ITR 493/[1982] 10 Taxman 179 ( Cal .) The ld. counsel pointed out that the Tribunal in the aforesaid case has held that the payment made to the assessee, a non-resident English Company for the recoupment of the expenses incurred by the technical data for which a research department was maintained by the assessee-company inLondondid not constitute income assessable to tax. The Hon'ble Calcutta High Court confirmed the said view taken by the Tribunal. (3) Mannesmann Demag Lauchharnmer v. CIT [1988] 26 ITD 198 (Hyd.) The ld. Counsel submitted that the aforesaid decision involve consideration of almost a similar point in relation to interpretation of section 44B of the Act. It has been held by the Hyderabad Bench of the Tribunal that the provision of section 9(1)(vii) au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... way of mobilisation fee for reimbursement of such expenses. 2.4 The ld. counsel then contended that the mobilisation fee does not at all come within the ambit of section 44AB of the Act. He submitted that section 44AB covers within its ambit the payments made by ONGC for the services and facilities in connection with, or supply of Plant Machinery on hire, use or to be used, in the prospecting for, or extraction, or production of, mineral oil in India. The payments made for services rendered inIndiaalone are covered within the ambit of section 44BB. The mobilisation fee represents reimbursement of expenses for transportation of the rig from outsideIndiato the designated drilling unit inIndia. The said payment is attributable to services rendered prior to installation of the drilling rigs inIndia. The services covered within the ambit of section 44BB started only after the drilling rigs had been brought and installed inIndia. This fee is a reimbursement of expenses for services prior to the installation of the Drilling Unit or rig inIndia. Hence, section 44BB is not applicable in relation to mobilisation fee. The ld. counsel also drew our attention towards para 5 and onwards of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion to the aforesaid common ground for A.Y. 1986-87 and A.Y. 1987-88 should be set aside. 2.8 The ld. Sr. D.R. strongly supported the order of the CIT(A) in relation to the aforesaid point. He submitted that the point relating to inclusion of mobilisation fee in the gross receipts for purposes of computing the profit @ 10% under section 44BB of the Act is covered in favour of the Revenue by the various decisions referred to in the order of CIT(A). There is no justification for taking a view different than the view earlier taken by the Tribunal on identical facts. The mobilisation fee is not reimbursement of expenditure, as it has no nexus with the actual expenditure incurred by the assessee for transporting the drilling rigs/drilling unit to the designated destination such asBombayoffshore etc. The ONGC was liable to pay a fixed sum as stipulated in the contract regardless of the actual expenditure which may be incurred by the assessee-company for this purpose. The provision of section 44B also relate to payments made outsideIndia. Hence, provisions of section 44BB are fully applicable in relation to the income arising under the relevant contracts to the appellant-company. 2.9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the port of entry (Kandla orBombay). Contractor shall be compensated for the mobilization of the Drilling Unit from its place of origin by a mobilization fee payable within thirty days following the commencement date. (As per Appendix 'C')." 2.12 Apart from the aforesaid mobilization fee stipulated in the aforesaid two contracts, the ONGC had undertaken to pay compensation based on operating rate of US $ 24550 per 24 hours a day for all operating time and US $ 24060 as non-operating rate per day relating to Sedco 252 Rig. Similarly operating rate-R1 and stand by rate-R2 was also separately stipulated in the other contract dated12th July, 1986relating to Rig-21 etc. The ld. counsel for the assessee submitted that there is no dispute about the applicability of section 44BB of the Act in relation to payments made of ONGC under the aforesaid Agreements by way of operating charges and other payments made by ONGC to the appellant-company except in relation to mobilisation fee and reimbursement of certain other expenses, which are subject-matter of dispute in the present appeals. In other words, the ld. counsel appearing on behalf of the assessee submitted that the provisions of secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce Act, 1987 with retrospective effect from 1st April, 1983. The scope and effect of new section 44BB was explained in Departmental Circular No. 495 dated22nd September, 1987. It has been mentioned in the said Circular that a number of complications were involved in the computation of taxable income of a taxpayer engaged in the business of providing services and facilities in connection with or supply of Plant Machinery on hire, used or to be used in the exploration for and exploitation of mineral oils. Section 44BB was introduced with a view to simplifying the relevant provisions which provide for determining the income of such taxpayers at 10% of the aggregate of certain amounts, which have been specified in the said section. The provisions of section 44BB were amended by the Finance Act, 1988 with retrospective effect w.e.f.1st April, 1983which clarifies that applicability of section 44B will be restricted to the cases of only non-resident taxpayers. It is clear from the language used in section 44BB(2)(a) that the amount referred to in section 44BB(1) on which profits have to be calculated @ 10% will be the aggregate of amounts paid or payable to the taxpayer or to any perso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee would be reimbursed. The ITO disallowed some of the expenses incurred which were in the nature of entertainment and travelling expenses on the ground that they were more than the permissible limit. In the context of these facts, it was held that reimbursement of expenses cannot be regarded as a revenue receipt. It was found by the Tribunal as a matter of fact that the assessee received no sums in excess of expenses incurred. This provision did not relate to a provision like section 44BB which contains a provision for determination of presumptive income on the aggregate amounts paid under such agreements. The section further provides that such presumptive income shall be deemed to the income chargeable to tax under the head 'Profits Gains of Business'. In the case before the Hon'ble High Court, the reimbursement of actual expenses was made by the foreign company to the Indian Company. It was not a fixed amount payable by the foreign company to the Indian company as in the present case. Therefore, the said decision of Hon'ble Delhi High Court does not in any manner support the assessee's contention. (b) CIT v. Tejaji Farasram Kharawalla Ltd. [1968] 67 ITR 95 (SC) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tual amount incurred by the appellant-company for transportation of drilling units/rigs to the specified location inIndia. In fact, the services agreed to be rendered by the appellant-company to the ONGC for supply of the Plant Machinery on hire and for providing personnel for operating rigs etc. started from the point of time when the drilling unit/rigs were moved or transported from their present location to the specified destination inIndia. The aggregate payments made by ONGC under the aforesaid agreements were made for securing the services of the experts and securing the use of drilling units/ drilling rigs taken on hire from the appellant-companies. The aggregate payments made under such contract are clearly required to be taken into consideration for determining the presumptive rate of profit @ 10% on such aggregate payments regardless of the fact whether such payments have been made by ONGC to the appellant-company, inIndiaor outsideIndia. The judgment of the Hon'ble Supreme Court case also, therefore, does not in any manner support the assessee's contention. (c) Dunlop Rubber Co. Ltd.'s case The assessee-company in the aforesaid case, contended before the ITO tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these facts, it was held that ITO was not justified in including air fare, accommodation fee and stay allowances etc. in technical fees as taxable under section 9(1)(vii). The ratio of this decision also does not support the assessee's contention in relation to interpretation of an entirely different provision like section 44BB of the Act. (e) Metchem Canada Inc.'s case The facts of this case are also clearly distinguishable. The dispute in the said case related to reimbursement of cost relating to certain services inIndia. According to the contract, the Indian company has a responsibility to provide the basic infrastructure to enable the foreign company to render the contract of services inIndia. Such expenses were to be incurred by Indian company and not by the foreign consultant company. Since the expenses for the infrastructure provided were incurred by the foreign consultant company, the Indian company reimbursed the same. The reimbursement of such expenses is only to compensate the expenses incurred by the foreign consultant company. On these facts, the Tribunal has held that the rupee reimbursement relates to the expenses that ought to have been incurred by the Indian ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee's contention that only a reasonable portion of 10% income determined under section 44BB in relation to mobilization fee should be taxed, as income attributable to services rendered inIndiain the process of mobilisation of drilling unit is very small. Reliance placed by the ld. counsel on the circular issued by the Board does not in any manner support his contention. The said circular does not relate to section 44BB but it relates to determination of taxable income of a foreign contractor engaged in the execution of turnkey project involving part of the work to be carried out inIndiaas well as outsideIndia, for a lump sum consideration. The said circular cannot authorise the Assessing Officer to adopt a different mode of determination of taxable income in the case of a nonresident taxpayer, which arises from agreements specifically covered by the special provisions contained in section 44BB of the Act. 2.19 In view of the aforesaid facts and discussion, the common ground raised by the assessee relating to mobilization fee in A.Y. 1986-87 and A.Y. 1987-88 is rejected. 3. The next common ground in ITA Nos. 4549, 4550 and 4551/Del/91 relates to confirmation by the CIT (A) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of actual catering expenses which was the liability to be met and incurred by ONGC, cannot be treated as part of contract receipts in the hands of the appellant-company. He placed reliance on all those judgments which were relied upon by him in relation to the point relating to mobilisation fee. 3.2 The ld. D.R. supported the order of the CIT(A). He submitted that the nature of reimbursement of catering expenses and cost of supplies are similar as that of mobilisation fees. This ground is also covered against the assessee by the various decision of ITAT Delhi, which have been relied upon by the CIT(A) while confirming the view of the Assessing Officer with regard to mobilisation fee. 3.3 We have carefully considered the submissions made by the ld. representatives of the parties and have gone through all the relevant documents submitted in the compilation. 3.4 As regards reimbursement of Catering Expenses by ONGC to the appellant-company is concerned, the ld. counsel invited our attention to Exhibit 'D' forming the part of the Agreement executed between ONGC and the appellant-company. This clearly provides that catering for over 10 operators nominated by ONGC will be billed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able for inclusion for the purposes of determining taxable profit thereon under section 44BB. The details furnished in Annexure-I with the Written Submissions indicate that the cost of supplies reimbursed by ONGC represent the actual cost incurred by the appellant-company. Only the handling charges of US $ 255.49 relating to SEDCO 252 and the handling charges of US $ 157 relating to Rig-21 do not represent reimbursement of actual expenditure but it was a payment made @ 7.5% on the FOB cost of such spare parts in accordance with the terms of agreement. The expression reimburse means 'to repay' or to pay an equivalent amount for the loss or expenses incurred. It is not in dispute that the supply of material in question was the obligation of ONGC. The appellant-company simply provided such a services to ONGC in conformity with the terms of the Agreement. The reimbursement of actual cost of such supplies along with expenses for freight, insurance etc., therefore, cannot be included in the amount of contract receipts for purposes of section 44BB of the Act. However, the amount of handling charges paid by ONGC to the appellant-company aggregating to US $ 252.49 + US $ 157 = total US $ 41 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Assessing Officer in those subsequent years. He submitted that these amounts refunded in subsequent years cannot be taxed in the year under consideration as refunds have already been taxed in the subsequent years. 5.2 The ld. D.R. supported the order of the CIT(A) in relation to inclusion of the gross amount payable to the appellant-company by ONGC without deducting the boat and helicopter charges withheld by ONGC. 5.3 We have carefully considered the submissions made by the ld. representatives of the parties and have gone through the relevant documents to which our attention was drawn during the course of hearing. 5.4 The Assessing Officer in para 5 of the assessment order in the case of Sedco Forex International Drilling Inc.'s case for A.Y. 1988-89 has observed that the boat charges and helicopter charges were deducted from the Invoices raised by the appellants (Non-Resident Companies) and the net payment position has been reflected by the assessee in a statement of payments furnished by them and certified by ONGC. The Assessing Officer observed that as and when these payments will be made to them after settlement of dispute or arbitration, as the case may be, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e non-resident taxpayers for determination of their taxable profits from such contracts. If the amount is ultimately held to be borne by ONGC, the amount out of such unauthorised deduction made by ONGC will be paid as and when it is finally settled. But this fact will not vary the amount payable for services rendered by appellant-companies in connection with exploration of mineral oils in the relevant years under consideration. We are, therefore, of the considered opinion that the CIT(A) has rightly rejected the assessee's submissions that boat and helicopter charges withheld by ONGC should be deducted from the gross contract payments for purposes of computing income under section 44BB. The view taken by the CIT(A) in relation to this point is, therefore, confirmed. We will, however, like to observe that the Assessing Officer should examine the contention of the assessee that a part amount reimbursed by ONGC in the subsequent years, as and when the same has actually been received, has been subjected to tax in those subsequent years. If such a contention is found to be correct on verification of the relevant facts, the Assessing Officer should exclude the income attributable to such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee submitted that the appellant is a non-resident company and any sum paid to them are subject to deduction of tax at source under section 195 of the Act. The sums paid by ONGC have already suffered deduction of tax at source. Hence, no advance tax was required to be paid under section 209 of the Act. The assessee is, therefore, not liable to pay interest under section 234B for short deduction of tax at source by ONGC or for shortfall in the payment of advance tax. He placed reliance on judgment of Hon'ble Madras High Court in the case of CIT v. Madras Fertilisers Ltd. [1984] 149 ITR 703/[1985] 20 Taxman 349 and judgment of Hon'ble Gujarat High Court in the case of CIT v. Ranoli Investment (P.) Ltd. [1999] 235 ITR 433. The ld. counsel also submitted that on identical facts, the ITAT, Mumbai in ITA No. 1915/Bom/Del/6 dated3rd October, 1997has cancelled interest charged under section 234B and under section 234C. He, therefore, strongly urged that interest charged under section 234B should be cancelled. 8.1 The ld. Sr.D.R. submitted that the decisions of the Hon'ble Madras High Court and Hon'ble Gujarat High Court relied upon by the ld. counsel relate to levy of interest under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessment order for the year under consideration reveals that the Assessing Officer has nowhere given any direction for levy of interest under section 234B of the Act. The provision of section 195 of the Act clearly provides that any person responsible for paying to a nonresident, including a foreign company any income by way of interest or any other sum which is chargeable to income-tax inIndiais required to deduct tax at source on such income at the time of payment. It is an undisputed fact that ONGC was required to deduct tax at source on all payments made by them to the appellant foreign companies in accordance with the provisions of the Act. The provision of section 234B provides that where an assessee is liable to pay advance tax under section 208 has failed to pay such tax or where the advance tax paid by such assessee under the provisions of section 210 is less than 90% of the assessed tax, the assessee shall be liable to pay simple interest @ 2% for every month or part of a month. It is true that the meaning of assessed tax given in Explanation I to section 234B provides that the assessed tax would mean tax on total income as reduced by the amount of tax deducted a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urce. It was observed that the assessee in that case had no other income other than fees for technical services and interest on the refund received from Department. On both these incomes, tax at source was required to be deducted under section 195 of the Act. Hence, interest under sections 234B and 234C was liable to be quashed. The facts of the present case are similar to the decision rendered by ITAT,Bombay. In view of the aforesaid facts and discussions, we are of the view that interest charged under section 234B on the facts of the present case, is not sustainable. The Assessing Officer is directed to cancel the same. 9. Ground No. 4 raised by the assessee in this appeal is reproduced hereunder : "4. Your appellants submit that the taxable income of your appellants should be computed by converting the amounts received in dollars at the rate prevailing on the date of credit of such account and not at the year end rate. Your appellants pray that their taxable income be revised to Rs. 1,12,20,277 as against 1,20,58,696 assessed by the DCIT(A)" 9.1 The ld. counsel appearing on behalf of the assessee was fair enough to state that this ground was not raised before the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evised return is clearly beyond the scope of the relevant provisions of the Act. He, therefore, strongly objected to the admission of such an additional ground and submitted that the ground so taken by the assessee deserves to be rejected on merits also. 9.3 We have carefully considered the submissions made by the ld. representatives of the parties and have gone through the relevant material brought to our notice during the course of hearing. 9.4 The relevant provisions contained in Rule 115 of I.T. Rules, 1962 are reproduced hereunder : 115. "Rate of exchange for conversion into rupees of income expressed in foreign currency-(1) The rate of exchange for the calculation of the value in rupees of any income accruing or arising or deemed to accrue or arise to the assessee in foreign currency or received or deemed to be received by him or on his behalf in foreign currency shall be the telegraphic transfer buying rate of such currency as on the specified date. Explanation : For the purposes of this rule, (1) "telegraphic transfer buying rate" shall have the same meaning as in the Explanation to rule 26; (2) "specified date" means --- (c) in respect of income chargeable un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment rendered by the Hon'ble Supreme Court in the case of Chowgule Co. Ltd.'s case 218 ITR 384 in which the Hon'ble Apex Court has held as under : --- 'Rule 115 of the Income-tax Rules, 1962, merely lays down that "for the calculation of the value in rupees of any income accruing or arising or deemed to accrue or arise to the assessee in foreign currency', the rate of exchange shall be the telegraphic transfer buying rate of such currency as on the specified date. Explanation (2) has clarified that the "specified date" will mean in respect of income chargeable under the heading of "Profits and gains of business or profession' the last day of the previous year of the assessee. This only means that if an assessee is assessable in respect of any income occurring or arising or is deemed to have accrued or arisen in foreign currency or has received or deemed to have received income in foreign currency, then such foreign currency shall be converted into rupees notionally at the telegraphic transfer buying rate of such currency as on the last day of the previous year of the assessee. If on the last day of the previous year, the assessee does not have any foreign currency in his hand o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... low a pure question of law where no fresh evidence was required to be taken and there was no reason why the additional ground should not be entertained. The Hon'ble Supreme Court in a recent judgment in the case of National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383/97 Taxman 358 has held as under :---- "Under section 254 of the Income-tax Act, 1961, the Appellate Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders therein as it thinks fit. The power of the Tribunal in dealing with appeals is thus expressed in the widest possible terms. The purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. If, for example, as a result of a judicial decision given while the appeal is pending before the Tribunal, it is found that a non-taxable item is taxed or a permissible deduction is denied, there is no reason why the assessee should be prevented from raising that question before the Tribunal for the first time, so long as the relevant facts are on record in respect of the item. There is no reason to restrict the power of the Tribunal under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Officer, there is no reason why the assessee should be prevented from raising that question before the Tribunal for the first time, particularly when all the relevant facts, namely, date when contract payments were made by ONGC to the appellant-company, the date and amount of tax deducted at source are on record of the Assessing Officer. 9.11 It may also be relevant here to refer to the judgment of Hon'ble Supreme Court in the case of Poothundu Plantations (P.) Ltd. v. Agrl. ITO [1996] 134 CTR (SC) 593 in which it was held that it is well-settled law that if the Hon'ble Supreme Court has construed the meaning of section then any decision to the contrary given by any other authority, must be held to be erroneous and such error must be treated as error apparent on the record. The expression "recor" would include not only the details, documents, TDS Certificates existing on the records of the Assessing Officer but will also include the books of account and other records produced before the Assessing Officer during the course of assessment proceedings. The judgment of theHon'ble Apex Courtis a valid foundation for a rectification under section 154 of the Act. Therefore, there is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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