itxa 1327 2016.odt IN HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO. 1327 OF 2016 Boskalia International Dredging .. Appellant. v/s. Deputy Director of Income Tax (International Taxation) 3(2) .. Respondent. Mr. Madhur Agarwal i/b. MINT and Confreres, for Appellant. Mr. Charanjeet Chanderpal with Ms. Namita Shirke, for Respondent. CORAM: AKIL KURESHI & M.S.SANKLECHA, JJ. DATE : 21st FEBRUARY, 2019. P.C: Revenue is in Appeal against Judgment of Income Tax Appellate Tribunal (in short Tribunal ). In relation to Assessment Years 2008 09, Assessee has raised following questions for our consideration: (1) Whether on facts and in circumstances of case and in law, Tribunal was justified in rejecting claim of Appellant for set off of unabsorbed depreciation of Rs.8,64,32,599/ carried forward from earlier year while computing income under section 44BB of Act? (2) Whether on facts and in circumstances of case and in law, Tribunal was justified in restoring issue of set off of claim of unabsorbed business loss in computing income under section 44BB of Act, after accepting all contentions of Appellant and rejecting findings of lower authorities? S.R.JOSHI 1 ::: Uploaded on - 26/02/2019 ::: Downloaded on - 27/02/2019 11:29:46 ::: itxa 1327 2016.odt 2 Brief facts are as under: (i) Appellant Assessee is partnership firm, incorporated in Netherlands and is engaged in business of providing services and facilities in connection with prospecting, extracting and production of mineral oil including natural gas. Section 44BB of Income Tax Act, 1961 (in short "the Act"), reference to which would be made in detailed later, makes special provisions for taxing income arising from such activities. (ii) assessee had certain carry forward unabsorbed depreciation of Rs.8.64 Crores (rounded of), relating to Assessment Years 2001 02 and 2002 03. Similarly, assessee had unabsorbed business loss, relating to Assessment Year 2002 03 of Rs.24.30 Crores (rounded of). (iii) In return of income filed for Assessment Year 2008 09, assessee had declared its total income of Rs.42.96 Crores (rounded of). In such return, assessee had computed income in terms of Section 44BB of Act, after claiming set off of unabsorbed depreciation and unabsorbed business loss for earlier years. Assessing Officer rejected both claims. issue eventually reached Tribunal. Tribunal by impugned judgment, accepted assessee's contention with respect to carry forward of business loss but remanded proceeding before Assessing Officer, for fresh computation. (iv) assessee, is therefore, aggrieved by this direction of Tribunal for remand. Question (2) raised by assessee in this appeal, relates to this portion of Tribunal's order. S.R.JOSHI 2 ::: Uploaded on - 26/02/2019 ::: Downloaded on - 27/02/2019 11:29:46 ::: itxa 1327 2016.odt 3 Having heard learned Counsel for parties and having perused documents on record, we notice that in relation to assessee's contention of permissibility of set off of carried forward business loss of earlier years, Tribunal accepted assessee's stand. Tribunal merely remanded issue of computation of assessee's income on such basis. Under circumstances, we see no reason to interfere with directions of Tribunal, in this respect. 4 Question (1) relates to assessee's claim of set off of carried forward depreciation of earlier years against business income of current year. In this regard, Tribunal referred to provisions contained in Section 44BB of Act and held that, computation provided therein, would over ride provisions of Section 32 of Act and in particular, sub section 2 thereof. Tribunal, consequently, rejected assessee's claim in this respect. Question (1) raised by assessee relates to this issue. 5 Learned Counsel Shri Agrawal for assessee, strenuously urged that, Tribunal has committed serious error. legislature under sub section (1) of Section 44BB of Act, never intended to disallow benefit of carried forward of unabsorbed depreciation of earlier years which is available in terms of Section 32(2) of Act. interpretation adopted by Tribunal, is erroneous. He relied upon decision of this Court in case of CIT v/s. Hindustan Petroleum Corporation Limited reported in 187 ITR 1, in which, it was observed that, legal fiction has to be carried to its logical conclusion but only within parameters of purpose for which, fiction is corrected. Relying on this judgment, Counsel contended that, over riding effect given to Section 44BB of S.R.JOSHI 3 ::: Uploaded on - 26/02/2019 ::: Downloaded on - 27/02/2019 11:29:46 ::: itxa 1327 2016.odt Act, should not be construed as to disallow carried forward of unabsorbed depreciation for adjustment in later years. 6 Counsel however, fairly pointed out that, Calcutta High Court in case of Universal Cargo Carriers Inc. v/s. CIT reported in 26 Taxman 669 had held that, for computing income under Section 44B of Act, it was not permissible to adjust depreciation allowance under Section 32(2) of Act. He pointed out that, this view was reiterated in later decision of said High Court in case of British India Steam Navigation Co. Ltd., v/s. Commissioner of Income Tax 107 CTR 278. 7 On other hand, learned Counsel for Revenue opposed appeal, contending that, Section 44BB of Act is clear and permits no ambiguity. Tribunal has, therefore, correctly rejected assessee's ground. appeal is devoid of merit. 8 Having heard learned Counsel for parties and having perused documents on record, we notice that, Section 44BB of Act makes special provisions for computing profit and gains of shipping business in case of non residents. Section 44BB reads as under: 44BB: (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 percent 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. S.R.JOSHI 4 ::: Uploaded on - 26/02/2019 ::: Downloaded on - 27/02/2019 11:29:46 ::: itxa 1327 2016.odt 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 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. 9 Sub section 1 of Section 44BB provides that notwithstanding anything to contrary contained in Sections 28 to 41 and Section 43 and 43A of Act 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 10% of aggregate amounts specified in sub section (2) shall be deemed to be profits and gains of such business, chargeable to tax under head S.R.JOSHI 5 ::: Uploaded on - 26/02/2019 ::: Downloaded on - 27/02/2019 11:29:46 ::: itxa 1327 2016.odt 'Profits and gains of business or profession'. Sub section (2) of Section 44BB specifies amounts referred to in sub section (1), 10% of which would be deemed profits and gains of assessee's business. Sub section (3) of Section 44BB provides that notwithstanding anything contained in sub section (1) assessee may claim lower profits and gains, if he keeps and maintains books of account and other documents as required in sub section (2) of Section 44AA and gets accounts audited as required in Section 44AB of Act. In such case, Assessing Officer would proceed to make assessment of income of assessee under sub section (3) of Section 143 of Act. Section 44BB of Act clearly shows that eligible assessee can opt for computation of profits and gains of its business on basis of deeming fiction provided under sub section (1) thereof. In such case, provisions of sub section (1) of Section 44BB of Act would apply notwithstanding anything contrary contained in Sections 28 to 41 and Sections 43 and 44A of Act. However, if assessee claims lower profits or gains in terms of sub section (3) of Section 44BB of Act, assessee can opt out of formula provided in sub section (1) as long as he maintains books of account as provided under sub section (2) of Section 44AA of Act and gets such accounts audited. 10 In this view of matter, we see provisions of sub section (1) of Sections 44BB of Act, is giving qualified benefit to assessee. In given case, assessee may as well consider that, not being governed by sub section (1) of Section 44BB of Act, may be more advantageous and he may, therefore, follow option available under Section (3) of Section 44BB of Act, since profits and gains earned out of business, is likely to be lower than computation as provided under sub S.R.JOSHI 6 ::: Uploaded on - 26/02/2019 ::: Downloaded on - 27/02/2019 11:29:46 ::: itxa 1327 2016.odt section (1) of Section 44BB of Act. Sub section (1) of Section 44BB of Act as noted, starts with non obstinate clause over riding anything contained to contrary in Sections 28 to 41 of Act which includes Section 32 also. In that view of matter, in plain terms, legislature has ruled out applicability of sub section (2) of Section 32 of Act while computing profits and gains of eligible assessee, arising out of business in terms of sub section (1) of Section 44BB of Act. Any other view would be opposed to plain language used in this sub section. We do not discern any indication in this sub section to come to conclusion that while providing exclusion of anything contrary to contained in Sections 28 to 41 of Act, legislature intended to exclude Section 32 and, particularly, sub section (2) thereof. decision of this Court in case of Hindustan Petroleum Corporation Ltd., (supra) would not change this position. deeming infection provided under sub section (1) of Section 44BB of Act, relates to profits and gains of assessee arising out of business and is not directly connected with or co related with non obstinate clause with which, said sub section begins, ruling out any conflict with provisions contained in Sections 28 to 41 of Act. 11 As noted, Calcutta High Court in two decisions has taken similar view. However, since this question was being argued for first time before this Court, we have devoted further discussion and gave our independent expression. 12 In result, Appeal dismissed. (M.S.SANKLECHA,J.) (AKIL KURESHI,J.) S.R.JOSHI 7 ::: Uploaded on - 26/02/2019 ::: Downloaded on - 27/02/2019 11:29:46 ::: Boskalia InternationalDredging v. Deputy Director of Income-tax (International Taxation)3(2)