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TMI Blog2012 (6) TMI 321X X X X Extracts X X X X X X X X Extracts X X X X ..... in India and 1439 Nautical Miles to voyage of the rig outside the territorial waters of India. The assessee offered mobilization charges in relation to 207 Nautical Miles to tax by contending that mobilization charges in respect of 1439 Nautical Miles relating to territorial waters outside India were not liable to be considered in the amount referred to in section 44BB of the Act. In support of its view point, the assessee relied on the case of Saipem S.P.A. v. Dy. CIT [2004] 88 ITD 213 (Delhi) (TM)]. The Assessing Officer rejected the assessee's contention by relying on the judgment of the Hon'ble Uttarakhand High Court in the case of Sedco Forex International Inc. v. CIT [2008] 299 ITR 238. He, therefore, held that the mobilization fee Rs. 14,69,59,807 equivalent of US$ 31,93,390 in relation to the distance traveled outside the territorial waters of India, was also liable to be taxed. 4. We have heard the rival submissions and perused the relevant material on record. The assessee has mainly relied on the case of Saipem S.P.A. (supra), before the AO in which it has been held by a majority view that the mobilization charges received by the non-resident assessee outside India attri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that there was dispute with Hardy who had refused to make such payment and it was eventually in August 2007 that a final settlement was reached under which Hardy paid US$ 3.96 million in full and final settlement of all the pending claims in this regard. As the settlement was reached in the subsequent year, the assessee received money and offered it for taxation in the previous year relevant to assessment year 2008-2009. Copy of the computation of income for the said succeeding year was also submitted. The A.O. observed that the assessee had offered US$ 3.01 million pertaining to service tax in the succeeding year. Remaining amount of US$ 2.27 million was held to be taxable in the instant year. This resulted into addition of Rs. 98,41,201 in the total income of the assessee. 7. We have heard the rival submissions and perused the relevant material on record. The learned Counsel for the assessee contended that the amount of Rs. 98.41 lac was not liable to be included for two reasons. Firstly, the provisions of section 44BB do not encompass items of such nature within its purview and secondly, the amount in question did not accrue to the assessee. In support of first contention he re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unal in the case of Technip Offshore Contracting BV (supra), which case was promptly brought by the Revenue to the notice of the Mumbai Bench and such fact is verifiable from the said order itself. The learned Departmental Representative contended that the decision in the case of Islamic Republic of Iran Shipping Lines (supra) has emerged in assessee's favour by relying on the Hon'ble Uttarakhand High Court in the case of Schlumberger Asia Services Ltd. (supra) which decided an altogether different aspect of the matter. He submitted that in the case of Schlumberger Asia Services Ltd. (supra) the question was about the reimbursement of customs duty paid by the assessee on equipment which was to be utilized for rendering of services as specified in the section. Taking us through the language of section 44BB, the learned Departmental Representative contended that this section is a special provision for computing profits and gains in connection with the business of exploration etc. of mineral oils. In the opinion of the learned Departmental Representative, the custom duty paid by the assessee in the case of Schlumberger Asia Services Ltd. (supra) on the import of ships or other equipme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... US$ 3.14 million in its income for the succeeding year on the settlement of dispute. The Assessing Officer has also acknowledged this fact on page 4 of the assessment order. That is the reason for which he proceeded to make addition for the balance amount of US$ 2.27 millions. 12. The main plank of the submissions of the learned Departmental Representative in this regard has been that the assessee was following mercantile system of accounting and as such the raising of invoice led to the accrual of income. It is noted that under the mercantile system of accounting, deduction for expenses is allowed when liability to pay such expenses is incurred irrespective of the fact whether such an amount has been paid or remained unpaid at the end of the year. In the like manner, income, under such a method of accounting, is recognized on accrual basis. In other words, only when the assessee finally acquires a right to receive such income, that it is charged to tax. Actual receipt of such amount, whether before or after accrual, is of no consequence. The material thing is the time of its accrual. Once an income has accrued, it is liable to taxed, notwithstanding the fact that it was not recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... verting to the facts of the instant case it is noticed that the assessee lodged a claim of US$ 5.28 million towards service tax on Hardy, which was disputed and not accepted by the other party. Naturally, the claimed amount was not realized as well. In that sense of the matter, it remained just a claim not backed by any right to receive the income. It is only in the subsequent year that when the dispute was finalized that a settlement was reached under which Hardy agreed to pay and the assessee agreed to receive US$ 3.14 million towards outstanding service tax dues in full and final settlement of the claim of US$5.28 million. On such acknowledgement of liability by Hardy to the tune of US$ 3.01 million, it can be said that the assessee acquired a right to receive the amount and that too when such liability was acknowledged by Hardy. This event took place in the subsequent year. The assessee very rightly offered US$ 3.01 million in the subsequent year, which has been correctly assessed by the AO in such later year. There is absolutely no question of adding the remaining amount in the current year by holding that the assessee acquired any right to receive the amount. In fact, there w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... first stage there is receipt or accrual of income, that the question of the second stage, being its inclusion or otherwise within the purview of section 44BB, can arise. As we have held above that the assessee had not acquired any right to receive US$ 2.27 million on account of service tax, being the first step, we, therefore need not embark upon the second step, being its inclusion or otherwise in the receipts for the purposes of section 44BB. As such we desist from giving any finding on the inclusion or exclusion of the amount of service tax in the income of the assessee for the purpose of section 44BB of the Act. This issue is, therefore, left open to be decided in an appropriate case. 16. This ground is, therefore, allowed by holding that the unpaid service tax of Rs. 98.41 lakh did not accrue to the assessee. Hence it is not available for inclusion in the amount as referred to in section 44BB of the Act. 17. Ground no.3 is against charging of interest u/s 234B. 18. Having heard the rival submissions and perused the relevant material on record we find that the issue of charging of interest u/s 234B in the present case is no more res integra in view of the judgment of the Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X
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