Sedco Forex International Inc. v. Commissioner of Income-tax, Meerut & Anr
[Citation -2017-LL-1030-4]

Citation 2017-LL-1030-4
Appellant Name Sedco Forex International Inc.
Respondent Name Commissioner of Income-tax, Meerut & Anr.
Court SUPREME COURT
Relevant Act Income-tax
Date of Order 30/10/2017
Judgment View Judgment
Keyword Tags profits and gains of business or profession • deemed to accrue or arise in india • services rendered outside india • business connection in india • fees for technical services • business of exploration • permanent establishment • non-resident assessee • non-resident company • plant and machinery • actual expenditure • onshore services • double taxation • earned in india • foreign company • question of law • deemed income • compensation • mineral oil • tax effect • source of income • reimbursement of expense • mobilisation fees
Bot Summary: Notwithstanding anything contained in sub-section, an assessee may claim lower profits and gains than the profits and gains specified in that sub-section, if he keeps and maintains such books of account and other documents as required under sub-section of section 44AA and gets his accounts audited and furnishes a report of such audit as required under section 44AB, and thereupon the Assessing Officer shall proceed to make an assessment of the total income or loss of the assessee under sub-section of section 143 and determine the sum payable by, or refundable to, the assessee. 5) A bare reading of the aforesaid provision brings out the following salient features thereof: Sub-section is a non-obstante clause, starting with the expression notwithstanding anything to the contrary contained in Sections 28 to 41 and Sections 43 and 43A. Thus, once we apply this special provision for computation of profits and gains, provisions for computation of such profits as contained in Sections 28 to 41 and Sections 43 and 43A of the Act stand excluded. v. A. Sanyasi Rao Ors.2 wherein Section 44AC of the Act has been interpreted in a similar manner holding that Section 44AC read with Section 206C is the only machinery provision and not charging Section. Reason given is that in Ishikawajima-Harima Heavy Industries Ltd., the Court had dealt with the assessment of a non-resident company on its income as per the provisions of Sections 5 and 9 of the Act and these sections are not attracted in the instant case, as the same is governed by Section 44BB of the Act. The said section came up for consideration before this Court in Anglo-French Textile Co. Ltd. v. CIT 23 ITR 101 xxx xxx xxx The counsel for the revenue Dr. Gaurishankar vehemently contended before us that Section 44AC read with Section 206C are only machinery provisions and not charging sections. Sections 5 to 9 and not by virtue of Section 44AC or section 206C xxx xxx xxx However, the denial of relief provided by sections 28 to 43C to the particular businesses or trades dealt with in Section 44AC calls for a different consideration. 47) Section 44BB starts with non-obstante clause, and the formula contained therein for computation of income is to be applied irrespective of the provisions of Sections 28 to 41 and Sections 43 and 43A of the Act.


1 REPORTABLE IN SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 4906 OF 2010 SEDCO FOREX INTERNATIONAL INC. THROUGH IT S CONSTITUTED ATTORNEY MR. NAVIN SARDA .....APPELLANT(S) VERSUS COMMISSIONER OF INCOME TAX, MEERUT & ANR. .....RESPONDENT(S) WITH CIVIL APPEAL NO. 2166 OF 2012 CIVIL APPEAL NO. 17388 OF 2017 (ARISING OUT OF SLP(C) NO. 2955 OF 2012) CIVIL APPEAL NO. 4908 OF 2010 CIVIL APPEAL NO. 2631 OF 2013 CIVIL APPEAL NO. 4910 OF 2010 CIVIL APPEAL NO. 4911 OF 2010 CIVIL APPEAL NO. 4907 OF 2010 Signature Not Verified Digitally signed by CIVIL APPEAL NO. 4913 OF 2010 ASHWANI KUMAR Date: 2017.10.31 16:11:02 IST Reason: CIVIL APPEAL NO. 4543 OF 2013 CIVIL APPEAL NO. 5005 OF 2014 2 CIVIL APPEAL NO. 17389 OF 2017 (ARISING OUT OF SLP(C) NO. 11560 OF 2014) CIVIL APPEAL NO. 4920 OF 2010 CIVIL APPEAL NO. 4919 OF 2010 CIVIL APPEAL NO. 4921 OF 2010 CIVIL APPEAL NO. 4916 OF 2010 CIVIL APPEAL NO. 4918 OF 2010 CIVIL APPEAL NO. 4917 OF 2010 CIVIL APPEAL NO. 5015 OF 2015 CIVIL APPEAL NO. 4925 OF 2010 CIVIL APPEAL NO. 4924 OF 2010 CIVIL APPEAL NO. 4922 OF 2010 CIVIL APPEAL NO. 5437 OF 2016 CIVIL APPEAL NO. 5154 OF 2011 CIVIL APPEAL NO. 5152 OF 2011 CIVIL APPEAL NO. 5153 OF 2011 CIVIL APPEAL NO. 5089 OF 2015 CIVIL APPEAL NO. 5090 OF 2015 CIVIL APPEAL NO. 4923 OF 2010 CIVIL APPEAL NO. 8627 OF 2013 CIVIL APPEAL NO. 5155 OF 2011 CIVIL APPEAL NO. 6573 OF 2014 3 CIVIL APPEAL NO. 4909 OF 2010 CIVIL APPEAL NO. 5935 OF 2010 CIVIL APPEAL NO. 5934 OF 2010 CIVIL APPEAL NO. 6651 OF 2014 CIVIL APPEAL NO. 17390 OF 2017 (ARISING OUT OF SLP(C) NO. 20000 OF 2015) CIVIL APPEAL NO. 17391 OF 2017 (ARISING OUT OF SLP(C) NO. 22343 OF 2012) CIVIL APPEAL NO. 17392 OF 2017 (ARISING OUT OF SLP(C) NO. 22833 OF 2012) CIVIL APPEAL NO. 4914 OF 2010 CIVIL APPEAL NO. 4915 OF 2010 CIVIL APPEAL NO. 8595 OF 2010 CIVIL APPEAL NO. 9188 OF 2013 CIVIL APPEAL NO. 8665 OF 2013 CIVIL APPEAL NO. 10294 OF 2016 CIVIL APPEAL NO. 10295 OF 2016 CIVIL APPEAL NO. 10296 OF 2016 CIVIL APPEAL NO. 4926 OF 2010 CIVIL APPEAL NO. 267 OF 2013 CIVIL APPEAL NO. 268 OF 2013 CIVIL APPEAL NO. 17393 OF 2017 (ARISING OUT OF SLP(C) NO. 39683 OF 2013) CIVIL APPEAL NO. 3695 OF 2012 4 CIVIL APPEAL NO. 435 OF 2017 CIVIL APPEAL NO. 10382 OF 2017 CIVIL APPEAL NO. 10385 OF 2017 CIVIL APPEAL NO. 10383 OF 2017 CIVIL APPEAL NO. 10384 OF 2017 CIVIL APPEAL NO. 10386 OF 2017 CIVIL APPEAL NO. 17394 OF 2017 (ARISING OUT OF SLP(C) NO. 21939 OF 2017) CIVIL APPEAL NO. 12365 OF 2017 AND CIVIL APPEAL NO. 12366 OF 2017 JUDGMENT A.K. SIKRI, J. Leave granted in SLP(C) No. 2955 of 2012, SLP(C) No. 11560 of 2014, SLP(C) No. 20000 of 2015, SLP(C) No. 22343 of 2012, SLP(C) No. 22833 of 2012, SLP(C) No. 39683 of 2013 and SLP(C) No. 21939 of 2017. 2) In all these appeals filed by different appellants (hereinafter referred to as assessees ) except Civil Appeal No. 3695 of 2012 which is filed 5 by Director of Income Tax (Revenue), question of law which arises for consideration is identical and pertains to scope and interpretation of Section 44BB of Income Tax Act, 1961 (hereinafter referred to as Act ). 3) For computation of profits and gains of business, to make it exigible to tax under Act, provisions contained in Chapter IV, from Sections 28 to 41, 43 and 43A of Act apply. However, in those cases where assessee is non-resident and specifically engaged in business of exploration etc. of mineral oil, special mechanism is provided in Section 44BB of Act for computation of profits and gains, on which tax is charged. It, however, gives choice to such non-resident assessees to opt for computation formula provided under Section 44BB or to be covered by normal computation mechanism contained in Sections 28 to 41, 43 and 43A of Act. Section 44BB of Act stipulates that sum equal to 10% of aggregate of amounts specified in sub-section (2) shall be deemed to be profits and gains of such business chargeable to tax under head profits and gains of business or profession . Thus, concessional rate of 10% is charged as tax, which is admittedly much less than normal tax rate payable on profits and gains of business or profession. However, this tax @10% is on aggregate of amounts specified in sub-section (2) which are deemed profits and gains of such business. Thus, insofar as 6 calculation of profits and gains of business under Section 44BB of Act is concerned, on which 10% tax is payable, it is worked out on fictional basis by adopting formula laid down in sub-section (2). Sub-section (2) mentions those amounts aggregate whereof is to be treated as deemed profits and gains of such business. 4) At this juncture, we reproduce provisions of Section 44BB of Act, as reading of this provision is necessary before spelling out nature of dispute which had arisen in these appeals. This section reads as under: 44BB. Special provision for computing profits and gains in connection with business of exploration, etc., of mineral oils. (1) Notwithstanding anything to contrary contained in sections 28 to 41 and sections 43 and 43A, in case of assessee, being non-resident, engaged in business of providing services or facilities in connection with, or supplying plant and machinery on hire used, or to be used, in prospecting for, or extraction or production of, mineral oils, sum equal to ten per cent of aggregate of amounts specified in sub-section (2) shall be deemed to be profits and gains of such business chargeable to tax under head "Profits and gains of business or profession" : Provided that this sub-section shall not apply in case where provisions of section 42 or section 44D or section 44DA or section 115A or section 293A apply for purposes of computing profits or gains or any other income referred to in those sections. (2) amounts referred to in sub-section (1) shall be following, namely : (a) amount paid or payable (whether in or out of India) to assessee or to any person on his behalf on account of provision of services and facilities in connection with, or supply of plant and machinery on hire used, or to be used, in prospecting for, or extraction or production of, mineral 7 oils in India; and (b) amount received or deemed to be received in India by or on behalf of assessee on account of provision of services and facilities in connection with, or supply of plant and machinery on hire used, or to be used, in prospecting for, or extraction or production of, mineral oils outside India. (3) Notwithstanding anything contained in sub-section (1), assessee may claim lower profits and gains than profits and gains specified in that sub-section, if he keeps and maintains such books of account and other documents as required under sub-section (2) of section 44AA and gets his accounts audited and furnishes report of such audit as required under section 44AB, and thereupon Assessing Officer shall proceed to make assessment of total income or loss of assessee under sub-section (3) of section 143 and determine sum payable by, or refundable to, assessee. Explanation. For purposes of this section, (i) "plant" includes ships, aircraft, vehicles, drilling units, scientific apparatus and equipment, used for purposes of said business; (ii) "mineral oil" includes petroleum and natural gas. 5) bare reading of aforesaid provision brings out following salient features thereof: (a) Sub-section (1) is non-obstante clause, starting with expression notwithstanding anything to contrary contained in Sections 28 to 41 and Sections 43 and 43A . Thus, once we apply this special provision for computation of profits and gains, provisions for computation of such profits as contained in Sections 28 to 41 and Sections 43 and 43A of Act stand excluded. 8 (b) In order to attract provisions of Section 44BB of Act, two conditions are to be specified, namely, (i) assessee has to be non-resident; and (ii) assessee should be engaged in business of exploration etc. in mineral oils of nature specifically spelled out in provision. (c) Choice is given to such assessee under sub-section (3) of Act to either claim lower profits and gains than profits and gains specified in sub-section (2) and covered by normal provisions of computing profits and gains of business or profession, subject to fulfilling conditions of audit etc. as mentioned therein or to be governed by Section 44BB of Act. (d) In case twin conditions mentioned above are satisfied, assessee can take benefit of paying tax as per provisions of Section 44BB on deemed profits and gains of its business and such profits and gains are to be calculated as per formula provided in sub-section (2) thereof. Pertinently, it is deemed provision for calculating profits and gains of business or profession, which means that such profits and gains are to be arrived at fictionally, as per provisions contained in sub-section (2). (e) Sub-section (2) mentions amounts which are to be added up, 9 and aggregate of those amounts is deemed to be profits and gains on which 10% tax is charged as component of income tax. 6) Coming to lis that is involved in these appeals, it may be seen that sub-section (2) mentions two kinds of amounts which are to be treated as profits and gains of business. In clause (a) of sub-section (2), amount referred to are those which are paid or payable to assessee on account of provision of services and facilities in connection with, or supply of plant and machinery on hire used or to be used in prospecting for, or extraction or production of, mineral oils in India. It is immaterial whether said amount is paid or payable in India or out of India. Second kind of amounts mentioned in clause (b) of sub-section (2) are those sums which are received or deemed to be received by or on behalf of assessee on account of provision of services and facilities in connection with, or supply of plant and machinery on hire used or to be used in prospecting for, extraction or production of mineral oils outside India. Here, however, only those sums which are paid or payable in India are to be included. 7) assessees herein had entered into contracts primarily with Oil and Natural Gas Commission (ONGC), public sector company, for hire of their rig for carrying out oil exploration activities in India. For this purpose, they were paid mobilisation fee as well, for and on account of 10 mobilisation/movement of rig from foreign soil/country to off-shore side at Mumbai (India). issue that has fallen for consideration is as to whether aforesaid amount received is to be included for computation of deemed profits and gains of business, chargeable to tax under Section 44BB of Act. Right from Assessing Officer (AO) till High Court, all fora have answered this question in affirmative holding that this amount is to be included for computing profits and gains of businesses of assessees. 8) Civil Appeal Nos. 4906 of 2010, 4907 of 2010, 4915 of 2010 filed by Sedco Forex International Inc., M/s Transocean Offshore Inc., M/s Sedco Forex International Drilling Inc. respectively were taken up as lead matters and, therefore, for sake of brevity, we recapitulate factual matrix from said appeals, as it would suffice for answering question involved. 9) During years under consideration, assessees are engaged in executing contracts all over world including India in connection with exploration and production of mineral oil. assessees are companies incorporated outside India and, therefore, non-resident within meaning of Section 6 of Act. assessees entered into agreements with ONGC, Enron Oil and Gas India Ltd. aforesaid agreements provided for scope of work along with separate 11 consideration for work undertaken. Since dispute is about mobilisation charges, clauses in respect thereof are as under: Operating Rate Receipts for undertaking drilling operations computed by per day rates provided in contract. operating rates shall be payable from time drilling unit is jacked-up and ready at location to spud first well. Mobilisation charges for transport of drilling unit from location outside India to location in India as may be designated by ONGC. In addition to above, assessees also received amounts from operator towards reimbursement of expenses like catering, boarding/lodging, fuel, customs duty, supply of material etc., with which we are not concerned. 10) assessees filed their return of income declaring income from charter higher of rig. same was offered to tax under Section 44BB of Act. In case of Sedco Forex International Inc., assessee did not include amount received as mobilisation charges to gross revenue for purpose of computation under Section 44BB of Act. In case of Transocean Offshore Inc., assessee included 1% of mobilisation fees. mobilisation fees were offered to tax on 1% deemed profit basis on ratio of CBDT Instruction No. 1767 dated July 1, 1987. 11) AO included amounts received for 12 mobilisation/demobilisation to gross revenue to arrive at profits and gains for purpose of computing TAX under Section 44BB of Act. Commissioner of Income Tax (Appeals) {hereinafter referred to as CIT(A) } confirmed action of AO. Income Tax Appellate Tribunal (hereinafter referred to as ITAT ) in case of Sedco Forex International Inc. dismissed appeal of assessee and action of AO was upheld insofar as mobilisation charges were concerned. In case of Transocean Offshore Inc., ITAT upheld view taken by assessee and directed AO to assess profits on mobilisation charges at 1% of amount received. This was done following Circular of CBDT Instruction No. 1767 dated July 1, 1987 and decision of third Member in case of Saipem S.P.A. v. Deputy Commissioner of Income Tax 1. High Court has held that mobilisation charges reimbursed inter alia even for services rendered outside India were taxable under Section 44BB of Act as same is not governed by charging provisions of Sections 5 and 9 of Act. Even on issue of reimbursement in M/s. Sedco Forex International Drilling Inc. (Civil Appeal No. 4915 of 2010), High Court followed its earlier judgments dated September 20, 2007 and May 22, 2009 to hold that reimbursement of expenses incurred by assessee was to be included in gross receipts, and taxable under Section 44BB of Act. 1 88 ITD 213 (Del) 13 12) From aforesaid brief narration of facts, it may be discerned that following three types of payments were given by ONGC to assessees: (i) Mobilisation/demobilisation advance. (ii) Custom duty reimbursement. (iii) Operational charges reimbursement. 13) High Court has held that these payments be also included as amounts received for computation of aggregate of amounts specified in sub-section (2) as deemed to be profits and gains of businesses of assessees, chargeable to tax under said provision. 14) Mr. Porus F. Kaka, learned senior advocate appearing in some of these appeals submitted that aforesaid amounts were, in fact, towards reimbursement of expenses actually incurred by assessees. According to him, work undertaken was, in fact, obligation of ONGC and it was for ONGC to provide such facilities/material under contract. Still assessees performed said task at request of ONGC and ONGC simply reimbursed these expenses which did not have any profit element. It was emphasised by Mr. Kaka that insofar as assessee Sedco Forex International Inc. is concerned, expenditure incurred on mobilisation was much higher than actual payment received. Thus, this assessee had, in fact, suffered loss on this 14 transaction. He also pointed out that agreement separately provided for consideration/remuneration for mobilisation and demobilisation of drilling unit and reimbursement of cost incurred on behalf of operator of ONGC. It was submitted that as this was nature of amount received, namely, reimbursement of expenses without there being any profit element, it could not be treated as amount within meaning of sub-section (2) of Section 44BB of Act. 15) Explaining taxation of income scheme enumerated under Sections 4, 5 and 9 of Act, Mr. Kaka submitted that globally tax systems can be classified broadly into two models; Worldwide and Territorial system. India follows territorial system of taxation specially qua business income of non-residents, which is taxed only as it is attributable to operations within Indian territory. This, according to him, was clear from conjoint reading of Sections 4, 5 and 9 of Act. Section 4 is charging section for levying tax on income of any person under Act which provides that income tax shall be levied at rates provided by Finance Act on total income of previous year. Scope of total income is provided under Section 5 of Act which deals with total income of residents as well as non-residents. learned senior counsel pointed out that insofar as non-residents are concerned, total income as per Section 5(2) of Act is income which is received or deemed to be received in India in such year or on 15 behalf of such person; or income which accrues or arises or is deemed to accrue or arise in India during such year. He, thus, argued that in respect of non-residents only that income which is received or deemed to be received in India or which accrues or arises or deemed to accrue or arise in India is taxable. In order to locate income which is deemed to accrue or arise in India, Section 9 is concerned provision. Section 9 acknowledges principle of attribution of income under Act. Section 9 lays down two broad categories of taxable of income i.e. (a) business income; and (b) income from interest or royalty or fees for technical services. Insofar as business income is concerned, it becomes taxable and only that income becomes chargeable to tax in India which is attributable to operations carried out in India. Insofar as second category, namely, income in nature of interest, royalty or fees for technical services is concerned, such income would be deemed to accrue or arise in India, irrespective of situs of services. learned senior counsel argued that insofar as payment for mobilisation which was received by assessee is concerned, it is neither income receipt nor deemed to be received in India. It is in respect of services outside India and, therefore, does not accrue or arise or deemed to accrue or arise under Section 5 read with Section 9 of Act. 16) Proceeding further on aforesaid line of argument, he submitted that, in first instance, it has to be determined that income accrues or 16 arises or is deemed to accrue or arise in India. Only when that is established, next step is to compute total income based on other provisions of Act and here Chapter IV of Act which deals with computation of income from Profits and Gains of Business or Profession gets triggered. It was submitted that, no doubt, Sections 44B, 44BB, 44BBB etc. provide for special mechanism for computing income in case of non-residents on presumptive basis. However, even when income is to be computed under any of these provisions, first pre-requisite is to find out as to whether particular income has accrued or arisen or deemed to accrue or arise in India. If that threshold is not met, question of treating such payments as income , merely because income is to be computed under special provision, is of no consequence. Mr. Kaka also referred to Circular No. 495 dated September 22, 1987 issued by Central Board of Direct Taxes (CBDT) which, according to him, explains Legislature intent behind inserting Section 44BB in Act. According to circular, computation of taxable income of non-resident assessee engaged in business of exploration etc. of mineral oils in accordance with general mode of computation under Sections 28 to 43A involved number of complications. As measure of simplification, Section 44BB was inserted by Finance Act, 1987 with retrospective effect from April 1, 1983 for determination of income of such tax payers on 17 presumptive basis, at 10% of amounts mentioned in sub-section (2) thereof. Relevant portion of that circular is as under: 21.1 number of complications are involved in computation of taxable income of taxpayer engaged in business of providing services and facilities in connection with or supply of plant and machinery on hire, used or to be used in exploration for and exploitation of mineral oils. With view to simplifying provisions, Amending Act has inserted new Section 44BB which provides for determining of income of such taxpayers at 10 percent of aggregate of certain amounts which have been specified. This amount will include amounts received or due to be received in India on account of such services or facilities or supply of plant and machinery. 17) After arguing that provisions have to be read in aforesaid manner, proposition advanced by learned senior counsel is that Section 44BB of Act is only computation provision and does not override Sections 4 and 5 of Act. For this purpose, he referred to judgment of this Court in Union of India & Anr. v. A. Sanyasi Rao & Ors.2 wherein Section 44AC of Act has been interpreted in similar manner holding that Section 44AC read with Section 206C is only machinery provision and not charging Section. 18) Towing aforesaid line of argument, another submission of Mr. Kaka was that since Section 44BB is computation provision under head income , it cannot override charging section. For this purpose, he relied upon judgment of Bombay High Court in 2 (1996) 3 SCC 465 18 Commissioner of Income Tax v. F.Y. Khambaty3. Mr. Kaka also relief upon following judgments: (a) Anglo-French Textile Company, Ltd., by Agents M/s Best & Company, Ltd., Madras v. Commissioner of Income Tax, Madras4 (b) Ishikawajma-Harima Heavy Industries Ltd. v. Director of Income Tax, Mumbai5 (c) Carborandum & Co. v. CIT, Madras6 (d) Commissioner of Income Tax, Madras v. Best and Company (Private) Ltd., Madras7 19) He also cited judgments on proposition that CBDT Circulars are binding on tax authorities; reimbursement of actual expenses does not represent income and, therefore, cannot be taxed; and normal concept of income cannot be taken away by presumption provisions. 20) In nutshell, as can be seen from aforesaid arguments, proposition advanced by learned senior counsel are as follows: (a) Principle of apportionment between India and outside India is basic principle of income tax law. Where payments are made to non-resident outside India, for services rendered outside India, 3 (1986) 159 ITR 203 4 (1954) 25 ITR 27 (SC) 5 (2007) 288 ITR 408 (SC) = (2007) 3 SCC 481) 6 (1977) 108 ITR 335 (SC) 7 (1966) 60 ITR 11 (SC) 19 namely mobilization charges for drilling rigs from foreign location to location in India, same is not chargeable to tax in India under Sections 5 and 9 of Act and same cannot be made chargeable to tax under Section 44BB of Act. (b) computation provision like Section 44BB cannot override charging provisions of Sections 4 and 5. It is so stated in instruction No. 1767 dated July 1, 1987 issued by CBDT. understanding of CBDT is binding on Revenue. (c) charges were reimbursed for services rendered outside India. Services rendered outside India cannot be chargeable to tax under Act. There should be sufficient territorial nexus between rendering of services and territorial limits of Act to make income taxable. (d) Where actual expenditure incurred by assessee for mobilization of rigs was higher than amount reimbursed, there cannot be any income chargeable to tax under Act. (e) Reimbursement of actual expenditure, which was obligation of operator/company cannot be included in receipts under Section 44BB of Act as income tax is levied on income. Further, fact of such reimbursements being devoid of any profit element has not been disputed by Revenue. 21) Mr. Vohra, learned senior counsel appearing for appellant 20 Pride Foramer S.A. (Civil Appeal No. 4543 of 2013) stated that appellant in said case is non-resident company incorporated in Republic of France. It also entered into contract with ONGC for hire of its rig for carrying out oil exploration activities by ONGC in India. rig was located in Singapore and accordingly, under contract, mobilization fees of US$1 million (equivalent to Rs.4,31,10,000/-) was payable by ONGC to appellant for and on account of mobilization/ movement of rig from Singapore to offshore site at Mumbai. In case of delay, liquidated damages @0.5% of operating day rate subject to maximum of 5% of annual operating charges was payable by appellant to ONGC. In Assessment Year 2000-01, during year under consideration, appellant received outside India, net mobilization charges of US$ 6,42,300 (equivalent to Rs.2,76,89,533/-) after deduction of liquidated damages for delay, for mobilization from Singapore to offshore site (in India). 22) On aforesaid facts, he submitted that net mobilization charges received outside India could not be taxed in India, more so, when these were in nature of reimbursement of expenses on account of mobilization/movement of rig from Singapore to offshore site at Mumbai. His primary contention was that before this payment could be included while making computation under Section 44BB of Act, it had to be income which is taxable in India in first instance. His 21 submissions on scheme of Sections 4, 5 and 9 of Act were same as that of Mr. Kaka, already noted above. Additionally, he submitted that insofar as Section 44BB of Act is concerned, it only provides simplified computation mechanism for computing profits and gains in case of non-resident assessee engaged in activities relating to business of exploration of mineral oil etc. Thereby, overriding normal computation mechanism contained in Sections 28 to 41, 43 and 43A of Act. His emphasis was that this provision does not override charging provisions as contained in Section 4 read with Sections 5 and 9 of Act, thereby bringing to tax amount which is not at all taxable under provisions of Act. In addition to Circular No. 495 dated September 22, 1987 (already noted above), he also relied upon Instruction No. 1767 dated July 1, 1987 issued by CBDT explaining computation of business income in case of contractor engaged in business of exploration of oil where part of activities are carried out in India and part of activities are carried on outside India. It has been stated as under: 3. On these facts, it is clear that income accruing or arising to non-resident contractor should be apportioned between various activities carried on by it, some of which would be within India and some outside. Where ownership in platform, terminal, treatment plant or other facilities passed outside India, non-resident will be taxable only in respect of activities performed in India by way of installation, hook-up and commissioning etc., of facilities acquired by Indian enterprises engaged in oil exploration or production 22 23) In support of aforesaid submissions, Mr. Vohra relied upon following judgments: (i) Commissioner of Income Tax and Anr. v. Hyundai Heavy Industries Co. Ltd.8 (ii) State Bank of Travancore v. Commissioner of Income Tax, Kerala9 24) To summarise, proposition advanced by Mr. Vohra are as under: (i) Mobilization fee was in respect of activities carried outside India prior to coming into existence of PE in India and, therefore, this mobilization fee was not taxable at all, in view of Article 7 of Double Taxation Avoidance Agreement (DTAA) between India and France, relevant portion whereof is as under: 1. profits of enterprise of one of Contracting States shall be taxable only in that Contracting State unless enterprise carries on business in other Contracting State through permanent establishment situated therein. If enterprise carries on business as aforesaid, profits of enterprise may be taxed in other Contracting State but only so much of them as is attributable to that permanent establishment . (ii) In case payment is held liable to tax in India, then same has to be computed in terms of Sections 4, 5 and 9 read with Section 44BB of Act. In that situation, only mobilization fee pertaining to voyage within territorial waters of India can be subjected to tax. 8 (2007) 7 SCC 422 9 (1986) 158 ITR 102 (SC) 23 (iii) Without prejudice to aforesaid, it is alternatively submitted that since appellant only received mobilization fee amounting to Rs.2,76,89,533/- (equivalent to US$ 6,42,300), after deduction of liquidated damages, AO erred in bringing to tax gross amount of US$1 million under Section 44BB of Act. 25) Mr. Lakshmikumaran and Mr. Jay Savla, learned advocates appearing for some other assessees treaded same path by adopting same line of arguments. 26) M/s. Chidananda and Arijit Prasad, learned advocates appearing for Revenue put up emphatic defence to judgment of High Court which has accepted position taken by Revenue. It was argued that assessee Sedco, which is non-resident company, had entered into composite/indivisible contract with ONGC to provide drilling unit to carry out drilling operations. finding of fact to this effect i.e. composite/indivisible contract was entered into, was arrived at by ITAT and, therefore, matter had to be proceeded on that basis. Submission was that, as per this contract, it was obligation of assessee to mobilise its resources for purpose of drilling operations. According to them, since payments were made by ONGC to assessee in terms of indivisible contract for purposes of drilling operations, it was not open to assessee to claim that mobilisation 24 fee/charges and it should not be included in aggregate receipts for purposes of Section 44BB of Act and their plea that they are not actual charges but expenses in nature of reimbursement by ONGC was not permissible. It was submitted that though, mobilisation fee/charges have been separately indicated in said contract, payments have been made by ONGC for supply of drilling unit including rigs, for operating these rigs and for providing experts and other personnel for operating rigs etc. Therefore, it is misnomer to term payment of mobilisation fee/charge as reimbursement . They are payments made pursuant to indivisible contract. Assuming, for purposes of argument that it amounts to reimbursement, same will not make any difference for reason that parties may agree to divide total amount as direct payment by way of fees and some part of consideration by way of expenses, but this arrangement between parties would not alter character of receipts. receipt will remain as such and will not partake character of expenditure. According to learned counsel, mobilisation fee/charges paid by ONGC to assessee amounts to income chargeable to tax. 27) For this purpose, reliance was placed on definition of income as contained in Section 2(24) of Act which defines said expression in inclusive manner. Attention was also drawn to Section 2(45) of Act which defines total income to mean total income 25 referred to in Section 5, computed in manner laid down in Act. It was, thus, argued that income had to be computed as per provisions of Act. Even Section 4 of Act, which is charging section, clearly points out that income tax is to be paid in respect of total income of previous year . Likewise, Section 5 of Act which deals with scope of total income includes all income from whatever source derived. It was submitted that, in this hue, Section 9 which deals with income deemed to accrue or arise in India, had to be looked into. According to learned counsel, assessee had business connection in India through equipment owned by it, operating in India and its employees, experts etc. working in India. Its assets are employed/used in India and source of income is in India. Therefore, ingredients of Section 9(1)(i) are fulfilled. Thus, assessee has territorial nexus in India. Further, in given case, if assessee fulfils these requirements and DTAA applies, this will also constitute Permanent Establishment (PE) through which assessee operates its business in India. Further, rigs/equipment are mobilised for its business operations in India and that source of income is in India, therefore, question of apportionment. Thus, mobilisation fee/charges paid by ONGC to assessee is income chargeable to tax from conjoint reading of Sections 4, 5 and 9. Therefore, submission of assessee that Section 44BB seeks to tax event 26 which charging sections does not seek to tax is incorrect. 28) Adverting to provisions of Section 44BB of Act which finds place in Chapter IV dealing with computation of income in respect of business or profession, it was submitted that scope and effect of Section 44BB has been explained in Departmental Circular No. 495 dated September 22, 1987. It has been mentioned in said circular that number of complications were involved in computation of taxable income of taxpayer engaged in business of providing services and facilities in connection with or supply of plant and machinery on hire, used or to be used in exploration for and exploitation of mineral oils. Section 44BB was introduced with view to simplifying relevant provisions which provide for determining income of such taxpayers at 10 per cent of aggregate of certain amounts, which have been specified in said section. It was submitted that Section 44BB provides for presumptive income determination . It is complete code in itself for determining taxable income in case of assessee, being non-resident, engaged in business of providing services or facilities in connection with, or supplying plant and machinery on hire used, or to be used, in prospecting for, or extraction or production of, mineral oils. It replaces Sections 28 to 41 and Sections 43 and 43A (which otherwise mandates assessee to maintain accounts, claim and prove expenses). Only 27 receipts are taken into account. Even if actual profits and gains of assessee are more than 10%, only 10% is presumed to be its income. Thus, 10% is income and rest 90% is allowed as expenditure/allowable claims of assessee. Assuming that Section 44BB was not on statute book, assessee would have shown mobilisation fee as receipt and claimed actual expenditure and arrived at net taxable income. Now, Section 44BB presumes that only 10% of aggregate receipts is income and remaining 90% is expenditure. It was also argued that in case of presumptive income determination like Section 44BB, items of expenditure cannot be claimed separately, otherwise it would lead to double deduction as Section 44BB presumes that only 10% of aggregate receipts is income and remaining 90% is expenditure. It was pleaded that when all authorities including final fact finding authority as well as High Court have recorded their concurrent findings on consideration of relevant material, this Court may not disturb those findings. Reliance was placed on Avasarala Technologies Limited v. Joint Commissioner of Income Tax, Special Range 1, Bangalore 10 and Commissioner of Income Tax Bihar and Orissa, Patna v. Ashoka Marketing Co.11 29) Before we appreciate rival submissions made by counsel for 10 (2015) 14 SCC 732 11 (1972) 4 SCC 426 28 parties on both sides, it would be apposite to go into raison d etre behind orders of ITAT as well as High Court. 30) ITAT in its order has taken note of relevant clauses of agreements entered into between ONGC and assessee (Sedco) pertaining to mobilisation and mobilisation fee. Clause 3.2 of Agreement dated September 3, 1985 relating to providing Shallow Dash Water Jack Up Rig covering this aspect reads as under: Mobilisation Operator shall pay to Contractor mobilisation fee of eight hundred thousand United States Dollars (US $ 800,000) ( Mobilisation Fee ) for mobilisation of Drilling Unit from its present location in Setubal, Portugal to first well location designated by Operator, Offshore Bombay, India. Operator will notify Contractor no later than fifteen (15) days from execution of this Agreement if it desires to mobilize Drilling Unit to another location offshore India and no additional costs shall be charged to Operator for mobilisation to such other location. In event that Operator desires to mobilize Drilling Unit to another location offshore India and it fails to notify Contractor by such date, any additional costs incurred by Contractor for such mobilisation in excess of Mobilisation Fee shall be borne by Operator. Contractor shall invoice Operator for payment of Mobilization Fee after Drilling Unit is jacked-up on first well location and ready to spud well. Operator shall make payment to Contractor no later than thirty (30) days after receipt of invoice. 31) Clause 4.2 of Agreement dated July 12, 1986 relating to Mobilisation of Drilling Unit (including Rig 21) is also reproduced hereunder: Mobilisation and Mobilisation Fee 29 Contractor shall notify Operator when it is prepared to commence mobilisation of Drilling Unit from Muscat, Oman. Within thirty days of receipt of Contractor s notice of readiness, Operator shall instruct Contractor to commence mobilisation, and Contractor shall forthwith ship Drilling Unit to port of entry (Kandla or Bombay). Contractor shall be compensated for mobilisation of Drilling Unit from its place of origin by mobilisation fee payable within thirty days following commencement date. 32) It also noted that apart from aforesaid mobilisation fee stipulated in aforesaid two contracts, ONGC had undertaken to pay compensation based on operating rate of US $ 24,550 per 24 hours day for all operating time and US $ 24,060 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 other contract dated July 12, 1986 relating to Rig-21 etc. 33) Thereafter, ITAT pointed out that even as per assessee, there was no dispute about applicability of Section 44BB of Act in relation to payments made by ONGC under aforesaid agreements by way of operating charges and other payments made by ONGC to assessee except in relation to mobilisation fee and reimbursement of certain other expenses as according to assessee, these payments were not in nature of fee (income) but reimbursement of expenses only. This argument is dealt with by ITAT, taking note of provisions of Section 44BB of Act. ITAT 30 concluded that it was special provision for computing profits and gains in connection with business of exploration of mineral oils, effect whereof was explained in Departmental Circular No. 495 dated September 22, 1987. It further noted that agreements between ONGC and assessee were indivisible in nature as per which entire payments had been agreed to be made by ONGC for supply of drilling unit including rigs, for operating those rigs, and for providing experts and other personnel for operating those rigs. Therefore, all these payments were deemed to be profits and gains of business for purposes of Section 44BB of Act and 10% thereof was to be treated as income chargeable to tax. Section 44BB of Act does not provide that separate consideration mentioned in Agreement for transportation of drilling units/rigs from their present location to designated location in India would be excluded from correct amount of gross receipts on which 10% profit rate is required to be applied. ITAT held that mobilisation fee paid by ONGC to assessee had no nexus with actual amount incurred by assessee for transportation of drilling units/rigs and, therefore, it could not be said that this payment was made for reimbursement of actual expenditure. 34) This is summary of rationale given by ITAT in support of its conclusion, as can be seen from following detailed discussion: 2.14 aforesaid Sec. 44BB making special provision for 31 computing profits and gains in connection with business of exploration of mineral oils has been inserted by Finance Act, 1987 with retrospective effect from 1st April, 1983. scope and effect of new Sec. 44BB was explained in Departmental Circular No. 495 dated 22 nd September, 1987. It has been mentioned in said Circular that number of complications were involved in computation of taxable income of taxpayer engaged in business of providing services and facilities in connection with or supply of Plant & Machinery on hire, used or to be used in exploration for and exploitation of mineral oils. Section 44BB was introduced with view to simplifying relevant provisions which provide for determining income of such tax-payers at 10% of aggregate of certain amounts, which have been specified in said Section. provisions of Section 44BB were amended by Finance Act, 1988 with retrospective effect w.e.f. 1st April, 1983 which clarifies that applicability of Section 44BB will be restricted to cases of only non-resident tax-payers. It is clear from language used in Section 44BB(2)(a) that amount referred to in Section 44BB(1) on which profits have to be calculated @10% will be aggregate of amounts paid or payable to taxpayer or to any person on his behalf whether in or out of India on account of provisions of such services or facilities. 2.15 perusal of relevant Agreements executed between appellant company and ONGC clearly reveals that both Agreements are indivisible contracts. It is true that mobilisation fee and operating charges have been separately indicated in said Agreements but entire payments have been agreed to be made by ONGC for supply of Drilling Unit including Rigs, for operating these Rigs, and for providing experts and other personnel for operating those rigs etc. Section 44BB specifically provides that aggregate of amounts referred to in sub-section (2) of Section 44BB will be adopted as basis for calculating profits @10%, which shall be deemed to be profits and gains of such business chargeable to tax under head Profits & Gains of Business or Profession . It does not provide that separate consideration mentioned in Agreement for transportation of Drilling Unit/Rig from their present location to designated location in India will be excluded from aggregate amount of gross receipts on which 10% profit rate is required to be applied. ONGC has made entire payment including mobilisation fee, operating charges, daily hire on non operating days etc. for availing services and facilities and supply of Plant & Machinery on hire agreed to be provided by appellant company to ONGC. mobilisation fee paid by ONGC to 32 appellant company has no nexus with actual amount incurred by appellant company for transportation of Drilling Unit/Rigs to specified drilling location in India. Even if actual expenditure incurred by appellant company would have been substantially less, ONGC was liable to pay fixed amount of mobilisation fee stipulated in respective Agreements. 35) Before High Court, argument of assessee was that amount of mobilisation charges cannot be included in amount referred to under sub-section (2) of Section 44BB of Act as mobilisation charges represent reimbursement of expenses incurred for transportation of drilling units of rigs from outside India to designated drilling places in India and payment has also not been made in India. In support of his submission, apart from other judgments, heavy reliance was placed on decision of this Court in Ishikawajima-Harima Heavy Industries Ltd. case. High Court noted that in said case, assessee was Japanese company, inter alia, engaged in business of construction of storage tanks as also engineering etc. It formed consortium along with few other Japanese companies and one subsidiary company of Japanese company. This consortium had entered into agreement with Indian company on January 19, 2001 for setting up Liquefied Natural Gas (LNG) receiving, storage and degasification facility at Dahej in State of Gujarat. supplementary agreement was also entered by parties on March 19, 2001. It was turnkey project. At same time, role and responsibility of each 33 member of consortium was separately specified and each of members of consortium was to receive separate payments. Insofar as appellant-assessee is concerned, it was to develop, design, engineer and procure equipment, materials and supplies to reject and construct storage tanks of 5 MMTPA capacity, with potential expansion of 10MMTPA capacity at specified temperature, i.e., 200 degree celsius. arrangement also included marine facilities (jetty and island breakwater) for transmission and supply of LNG to purchaser; to test and commission facilities relating to receipt and unloading, storage and regasification of LNG and to send out regasified LNG by means of turnkey fixed lump sum price time certain engineering procurement, construction and commission contract. contract indisputably involved: (i) offshore supply, (ii) offshore services, (iii) onshore supply, (iv) onshore services and (v) construction and erection. price was payable for offshore supply and offshore services in US dollars, whereas that of onshore supply as also onshore services and construction and erection partly in US dollars and partly in Indian rupees. 36) High Court noted that while determining tax liability of said foreign company, this Court had taken into consideration Section 5(2), Section 9(1)(i) and Section 9(1)(vii) of Act and considered question of imposition of tax on income arising from business connection of assessee. Holding that income is not taxable in India, 34 Court premised conclusion, inter alia, on ground that as per clause (a) of Explanation 1 to Section 9(1)(i) of Act, only such part of income as is attributable to operations carried out in India, is taxable in India and further that sufficient territorial nexus between rendition of services and territorial limits of India is necessary to make income taxable. As far as offshore supply and offshore services in US$ are concerned, it was done outside territory of India and payment was also made to assessee (a foreign company) in US$ outside India, said payment was not taxable as it was not income arising from business connection of said assessee. 37) High Court, after taking note of aforesaid judgment, has held that it is not applicable in instant case. Reason given is that in Ishikawajima-Harima Heavy Industries Ltd., Court had dealt with assessment of non-resident company on its income as per provisions of Sections 5 and 9 of Act and these sections are not attracted in instant case, as same is governed by Section 44BB of Act. This is material distinction, in opinion of High Court, manner in which same is discussed needs to be reproduced. Thus, we hereby quote relevant portion of said discussion: ..Therefore, section 5 and section 9 both are aimed the income for taxability under section 4 of Act, while section 44BB does not take into Account income for calculating aggregate amount t calculate 10 percent profit 35 and gains. Profit and gains is type of income to be taxed under legal fiction, i.e., @10 percent of amount specified in sub-section (2) of section 44BB. Section 44BB is special provision relating to non-resident assessee who is providing services and facilities in connection with, or supply of plant and machinery on hire used, or to be used, in prospecting for, or extraction or production of, mineral oils in or outside India. section is complete code in itself. Thus, reliance placed by Sri Porus Kaka, learned Counsel for assessee, is misplaced as we have observed that amount referred in sub-section (2) of Section 44BB are four types of amounts and all four types of amounts are mutually inclusive and has to be taken into account either all of them or any of them and its clauses themselves provide that whether payment is made inside India or outside India. 17.In present case, finding has been recorded by ITAT that it was not in dispute before Tribunal that payment was made to appellant company outside India and mobilization fee as claimed by assessee was paid to appellant by ONGC has no nexus with actual amount incurred by appellant company for transportation of drilling units of rigs to specified drilling locations in India. Hence, mobilization fee is not reimbursement of expenditure. ONGC was liable to pay fixed sum as stipulated in contract regardless of actual expenditure which may be incurred by assessee company for purpose. In view of fictional taxing provision contained under Section 44BB, Assessing Officer was right in adding amount of Rs. 99,04,000/- for Assessment Year 1986-87 and amount worth Rs. 64,64,530/- for Assessment Year 1987-88 received by assessee towards mobilization charges for purpose of imposing income tax and CIT (Appeals) and ITAT were also right in upholding order of Assessing Officer. 38) We feel that High Court may not be entirely correct in law in excluding provisions of Sections 5 and 9 in those cases where assessment is opted by assessee under Section 44BB of Act. Submissions of learned counsel for assessees are justified to extent that Section 44BB of Act is special provision providing computation mechanism for computing profits and gains in case of 36 non-resident assessee engaged in activities relating to business of exploration of mineral oil etc. At same time Sections 4,5 and 9 of Act which deal with charging section, total income and income of non-resident which arises or deem to arise in India cannot be sidetracked. These are provisions which bring particular income within net of income tax. Therefore, it is imperative that particular income is covered by charging provisions contained in Section 5 of Act. Indian Income Tax Act, admittedly, follows territorial system of taxation. As per this system only that income of non-resident is taxable in India which is attributable to operations within Indian Territory. Therefore, in first instance it is to be seen whether particular income arises or accrues or deem to arise or accrue within India. In order to seek this answer, principles contained in Section 9 have to be applied only when it becomes income taxable in India as per Section 9, in case of non-resident, question of computation of said income would arise. To recapitulate scheme of Act in this behalf, it may be stated that Section 4 is charging section for levying tax on income of any person under Act and provides that income-tax shall be levied at rates provided by Finance Act on total income of previous year of every person. expression total income has been defined in Section 2(45) of Act to mean total amount of income referred to in Section 5 computed in 37 manner laid down under Act. 39) scope of total income of any person, which could be subjected to tax under provisions of Act, is defined under Section 5 of Act and dependent upon residential status of persons. Section 5(1) provides scope of total income in case of residents, whereas Section 5(2) provides scope of total income in case of non-residents. As per Section 5(2) of Act, subject to provisions of this Act, total income of any previous year of non-resident includes: Income which is received or deemed to be received in India in such year or on behalf of such person; or Income which accrues or arises or is deemed to accrue or arise to him in India during such year. 40) Section 9 enumerates income which is deemed to accrue or arise in India. There are two broad categories of taxability of income provided under this Section, i.e., Business Income and income from interest or royalty or fees for technical services (FTS). 41) Section 9(1)(i) provides that income is to be deemed to have accrued or arising in India if income is accruing directly or indirectly through any business connection in India or from any property in India or from any asset or source of income in India or any capital asset situated 38 in India (referred as business income). Explanation 1(a) to Section 9(1)(i) of Act provides exclusion in case of operations which are not carried out in India. explanation provides that income of business deemed under this clause to accrue or arise in India shall be only that part of income as is reasonably attributable to operations carried out in India. Thus, business income earned by non-resident is chargeable to tax in India only to extent reasonably attributable to operations carried out in India. 42) It is, however, pertinent to point out that Section 44BB(2) makes certain receipts as deemed income for purposes of taxation in said provision. Therefore, aid of this provision is to be necessarily taken to determine whether particular amount will be income within meaning of Section 5 of Act. Likewise, Section 44BB(2) also acts as guide to determine whether particular income is attributed as income occurred in India. Section 44BB of Act provides for special provision for computing profits and gains. However, that would not mean that if income is to be computed under this provision, we have to give go-by to Sections 5 and 9 of Act. To this extent, remarks of High Court may not be correct. Law in this behalf is settled by judgment of this Court in A. Sanyasi Rao case as can be discerned from following discussion in said judgment. 39 We are further of view that basis of charge relating to income tax is laid down in Sections 4 to 9 of Act. Section 4 is charging section. Income-tax is levied in respect of total income of previous year of every person. Section 5 deals with scope of total income. Section 6 deals with residence in India. Section 7 deals with income deemed to be received. Section 8 deals with dividend income. Section 9 deals with income deemed to accrue or arise in India. xxx xxx xxx crucial words in Section 9(1) to effect that all income accruing or arising, whether directly or indirectly, through or from any business connection occurred in Section 42 of Income Tax Act, 1922 as well. said section came up for consideration before this Court in Anglo-French Textile Co. Ltd. v. CIT [(1953) 23 ITR 101 xxx xxx xxx counsel for revenue Dr. Gaurishankar vehemently contended before us that Section 44AC read with Section 206C are only machinery provisions and not charging sections. We see force in this plea. charge for levy of income that accrued or arose is laid by charging sections, viz., Sections 5 to 9 and not by virtue of Section 44AC or section 206C xxx xxx xxx However, denial of relief provided by sections 28 to 43C to particular businesses or trades dealt with in Section 44AC calls for different consideration. Even, according to revenue, provisions (sections 44AC and 206C) are only machinery provisions . If so, why should normal reliefs afforded to all assessees be denied to such traders? Prima facie, all assessees similarly placed under Income Tax Act are entitled to equal treatment. In matter of granting various reliefs provided under sections 28 to 43C, assessees carrying on business are similarly placed and should there be law, negativing such valuable reliefs to particular trade or business, it should be shown to have some basis and fair and rational. It has not been shown as to why persons carrying on business in particular goods specified in section 44AC are denied reliefs available to others. No plea is put forward by revenue that these trades are distinct and different even for grant of reliefs under 40 Sections 28 to 43C. denial of such reliefs to trades specified in section 44AC, available to other assessees, has no nexus to object sought to be achieved by Legislature. (emphasis supplied) 43) Having corrected position in law, by emphasising that Sections 4, 5 and 9 of Act are to be kept in mind even in those cases where assessment is done under Section 44BB of Act, we are of opinion that argument of assessees that Section 44BB is only computation provision, is also not entirely justified. 44) In first blush, assessees may appear to be correct in their contentions that Section 44BB falls in Chapter IV of Act. Insofar as computation of income from Profits or Gains of Business or Profession is concerned, it has to be computed as per provisions of Sections 28 to 43D(2). However, certain provisions are made for providing special mechanism for computing income on presumptive basis in case of non-resident and it includes Section 44BB as well. 45) Having put law in prospective, we need to examine as to whether mobilisation charges received by assessees can be treated as income under Section 5 of Act and would fall within four corners of Section 9, namely, whether it can be attributed as having arisen or deemed to arise in India. Argument of learned counsel appearing for assessees is that amount was received by way of reimbursement of expenses for operation carried outside India and 41 payment was also received outside India. It is on this premise, entire edifice is built to argue that it is not income and, in any case, not taxable in India at hands of assessees which are foreign entities. 46) We have already reproduced above Clause 3.2 of Agreement dated September 3, 1985 and Clause 4.2 of Agreement dated July 12, 1986. Clause 3.2 of Agreement dated September 3, 1985 pertains to providing Shallow Dash Water Jack Up Rig against which payment was made to assessees. This Clause says that assessees shall be paid mobilisation fee for mobilisation of drilling unit from its present location in Portugal to well location designated by ONGC, offshore Mumbai, India. Fixed amount is agreed to be paid which is mentioned in said Clause. aforesaid mobilisation fee was payable to assessees after jacking up of drilling at designated location and ready to spud well. After aforesaid operation, assessees were required to raise invoice and ONGC was supposed to make payment within 30 days of receipt of this invoice. Insofar as Clause 4.2 of Agreement dated July 12, 1986 is concerned, it related to mobilisation of drilling unit. Here again, mobilisation fee was payable for mobilisation of drilling unit from place of its origin to port of entry (Kandla Port, Mumbai). What follows from above is that fixed amount of mobilisation fee was 42 payable under aforesaid contracts as compensation . Contracts specifically describe aforesaid amounts as fee . In this hue, we have to consider as to whether it would be treated as income under Section 5 of Act and can be attributed as income earned in India as per Section 9 of Act. For this purpose, Section 44BB(2) has to be invoked. 47) Section 44BB starts with non-obstante clause, and formula contained therein for computation of income is to be applied irrespective of provisions of Sections 28 to 41 and Sections 43 and 43A of Act. It is not in dispute that assessees were assessed under said provision which is applicable in instant case. For assessment under this provision, sum equal to 10% of aggregate of amounts specified in sub-section (2) shall be deemed to be profits and gains of such business chargeable to tax under head profits and gains of business or profession . Sub-section (2) mentions two kinds of amounts which shall be deemed as profits and gains of business chargeable to tax in India. Sub-clause (a) thereof relates to amount paid or payable to assessee or any person on his behalf on account of provision of services and facilities in connection with, or supply of plant and machinery on hire used, or to be used in prospecting for, or extraction or production of, mineral oils in India. Thus, all amounts pertaining to aforesaid activity which are received on account of 43 provisions of services and facilities in connection with said facility are treated as profits and gains of business. This clause clarifies that amount so paid shall be taxable whether these are received in India or outside India. Clause (b) deals with amount received or deemed to be received in India in connection with such services and facilities as stipulated therein. Thus, whereas clause (a) mentions amount which is paid or payable, clause (b) deals with amounts which are received or deemed to be received in India. In respect of amount paid or payable under clause (a) of sub-section (2), it is immaterial whether these are paid in India or outside India. On other hand, amount received or deemed to be received have to be in India. 48) From bare reading of clauses, amount paid under aforesaid contracts as mobilisation fee on account of provision of services and facilities in connection with extraction etc. of mineral oil in India and against supply of plant and machinery on hire used for such extraction, clause (a) stands attracted. Thus, this provision contained in Section 44BB has to be read in conjunction with Sections 5 and 9 of Act and Sections 5 and 9 of Act cannot be read in isolation. aforesaid amount paid to assessees as mobilisation fee is treated as profits and gains of business and, therefore, it would be income as per Section 5. This provision also treats this income as earned in India, fictionally, thereby satisfying test of Section 9 of 44 Act as well. 49) Tribunal has rightly commented that Section 44BB of Act is special provision for computing profits and gains in connection with business of exploration of mineral oils. Its purpose was explained by Department vide its Circular No. 495 dated September 22, 1987, namely, to simplify computation of taxable income as number of complications were involved for those engaged in business of providing services and facilities in connection with, or supply of plant and machinery on hire used or to be used in prospecting for, or extraction or production of, mineral etc. Instead of going into nitigrities of such computation as per normal provisions contained in Sections 28 to 41 and Sections 43 and 43A of Act, Legislature has simplified procedure by providing that tax shall be paid @10% of aggregate of amounts specified in sub-section (2) and those amounts are deemed to be profits and gains of such business chargeable to tax... . It is matter of record that when income is computed under head profits and gains of business or profession , rate of tax payable on said income is much higher. However, Legislature provided simple formula, namely, treating amounts paid or payable (whether in or out of India) and amount received or deemed to be received in India as mentioned in sub-section (2) of Section 44BB as deemed profits and gains. Thereafter, on such deemed profits and gains 45 (treating same as income), concessional flat rate of 10% is charged to tax. In these circumstances, AO is supposed to apply provisions of Section 44BB of Act, in order to find out as to whether particular amount is deemed income or not. When it is found that amount paid or payable (whether in or out of India), or amount received or deemed to be received in India is covered by sub-section (2) of Section 44BB of Act, by fiction created under Section 44BB of Act, it becomes income under Sections 5 and 9 of Act as well. 50) It is stated at cost of repetition that, in instant case, amount which is paid to assessees is towards mobilisation fee. It does not mention that same is for reimbursement of expenses. In fact, it is fixed amount paid which may be less or more than expenses incurred. Incurring of expenses, therefore, would be immaterial. It is also to be borne in mind that contract in question was indivisible. Having regard to these facts in present case as per which case of assessees get covered under aforesaid provisions, we do not find any merit in any of contentions raised by assessees. Therefore, ultimate conclusion drawn by AO, which is upheld by all other Authorities is correct, though some of observations of High Court may not be entirely correct which have been straightened by us in above discussion. For our aforesaid reasons, we uphold conclusion. Resultantly, all appeals of 46 assessees are dismissed. 51) In this batch of appeals, Civil Appeal No. 3695 of 2012 is solitary appeal which is preferred by Director of Income Tax, New Delhi (Revenue) against judgment of High Court of Uttarakhand. computation of income of assessee was done under Section 44BB of Act. However, amount which was sought to be taxed was reimbursement of cost of tools lost in hole by ONGC. It is, thus, clear that this was not amount which was covered by sub-section (2) of Section 44BB of Act as ONGC had lost certain tools belonging to assessee, and had compensated for said loss by paying amount in question. On these facts, conclusion of High Court is correct. Even otherwise, tax effect is Rs.15,12,344/-. Therefore, Civil Appeal No. 3695 of 2012 filed by Revenue is dismissed. .............................................J. (A.K. SIKRI) .............................................J. (ASHOK BHUSHAN) NEW DELHI; OCTOBER 30, 2017. Sedco Forex International Inc. v. Commissioner of Income-tax, Meerut & Anr
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