Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2017 Supreme(SC) 1045

SUPREME COURT OF INDIA
A.K. Sikri, Ashok Bhushan, JJ.
Sedco Forex International Inc. Through It's Constituted Attorney Mr. Navin Sarda – Appellants
Versus
Commissioner of Income Tax, Meerut & Anr. – Respondents
Civil Appeal No. 4906 of 2010 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, Civil Appeal No. 4913 of 2010, Civil Appeal No. 4543 of 2013, Civil Appeal No. 5005 of 2014, 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 , 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 , 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
Decided On : 30-10-2017

Advocates Appeared:
For the Appellants : Porus Kaka, Sr. Adv., Ms. Kavita Jha, Shivani Khgandekar, Rustom B. Hathikhanawala, Ms. Geetanjali Mohan, Rohit Jain, Vaibhav Kulkarni, Ms. Anil Katiyar, Advs.
For the Respondents:- Ms. Anil Katiyar, B.V. Balaram Das, Ms. Kavita Jha, Advs.

IMPORTANT POINTS
Section 44BB excludes provisions for computation of profits as contained in Sections 28 to 41 and Sections 43 and 43A and applies to NRI assessees engaged in business of exploration etc. in mineral oils. Being a deeming provision, profits and gains are to be arrived at fictionally.
While determining profit u/s 44BB provisions of sections 4, 5 and 9 cannot be ignored.
Amount paid to assessees as mobilisation fee is treated as profits and gains of business; would be "income" u/s 5 as earned in India attracting Section 9 as well; and taxable u/s 44BB.

Headnote:(a) Income Tax Act, 1961 – Section 44BB – Excludes provisions for computation of profits as contained in Sections 28 to 41 and Sections 43 and 43A – Applies to NRI assessees engaged in business of exploration etc. in mineral oils – Being a deeming provision, profits and gains are to be arrived at fictionally. (Para 5)
       (b) Income Tax Act, 1961 – Section 44BB r/w sections 4, 5 and 9 – Section 4 is charging section for levying tax on total income computed in the manner laid down in section 5 – Section 9 deals with income of non-resident which arises or deem to arise in India – While determining profit u/s 44BB provisions of sections 4, 5 and 9 cannot be ignored. (Para 38, 41)
       (c) Income Tax Act, 1961 – Section 44BB(2) r/w section 5 and 9 – Section 44BB(2) – Certain receipts taken as deemed income – Should be taken aid of in determining total income u/s 5 and 9 – Held, Section 44BB is not the only computation provision. (Para 42, 43)
       (1996) 3 SCC 465 – Relied upon
       (d) Income Tax Act, 1961 – Computation of tax – Sections 28 to 43D(2) r/w section 44BB – Income from `Profits or Gains of Business or Profession' has to be computed in accordance with Sections 28 to 43D(2) – Special mechanism for computing income on presumptive basis for NRI including section 44BB have to be considered. (Para 44)
       (e) Income tax Act, 1961 – Section 44BB(2) r/w section 5 and 9 and contracts dated September 3, 1985 and July 12, 1986 – Mobilisation charges – Described as fee, not reimbursement – Fixed amount – Payable as compensation – Formula u/s 44BB applies irrespective of sections 28 to 41 and 43 and 43A – 10% of aggregate amount specified in section 44BB(2) deemed profit and gains of business – Includes amount paid (in or outside India) or payable and amount received or deemed to be received in India – Section 44BB must be read in conjunction with Sections 5 and 9 – Sections 5 and 9 cannot be read in isolation – Amount paid to assessees as mobilisation fee treated as profits and gains of business – Would be "income" u/s 5 as earned in India attracting Section 9 as well. (Para 46, 47, 48, 50)
       88 ITD 213 (Del); (1986) 159 ITR 203; (1954) 25 ITR 27 (SC); (2007) 288 ITR 408 (SC) : (2007) 3 SCC 481; (1977) 108 ITR 335 (SC); (1966) 60 ITR 11 (SC); (2007) 7 SCC 422; (1986) 158 ITR 102 (SC); (2015) 14 SCC 732; (1972) 4 SCC 426 – Referred
       Facts of the case:
       These cases pertain to the scope and interpretation of Section 44BB of the Income Tax Act, 1961.
       Finding of the Court:
       Mobilization fee is taxable u/s 44BB.
       Result: All appeals dismissed.

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 the 'assessees') except Civil Appeal No. 3695 of 2012 which is filed by Director of Income Tax (Revenue), the question of law which arises for consideration is identical and pertains to the scope and interpretation of Section 44BB of the Income Tax Act, 1961 (hereinafter referred to as the 'Act').

3. For computation of profits and gains of a business, to make it exigible to tax under the Act, provisions contained in Chapter IV, from Sections 28 to 41, 43 and 43A of the Act apply. However, in those cases where the assessee is a non-resident and specifically engaged in the business of exploration etc. of mineral oil, special mechanism is provided in Section 44BB of the Act for computation of profits and gains, on which the 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 the Act. Section 44BB of the Act stipulates that a sum equal to 10% of the 'aggregate of the amounts specified in sub-section (2)' shall be deemed to be the profits and gains of such business chargeable to tax under the head 'profits and gains of business or profession'. Thus, concessional rate of 10% is charged as tax, which is admittedly much less than the normal tax rate payable on profits and gains of business or profession. However, this tax @10% is on the aggregate of the amounts specified in sub-section (2) which are "deemed" profits and gains of such business. Thus, insofar as calculation of profits and gains of the business under Section 44BB of the Act is concerned, on which 10% tax is payable, it is worked out on fictional basis by adopting the 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 a business.

4. At this juncture, we reproduce the provisions of Section 44BB of the Act, as reading of this provision is necessary before spelling out the 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 the business of exploration, etc., of mineral oils.
(1) Notwithstanding anything to the contrary contained in sections 28 to 41 and sections 43 and 43A, in the case of an assessee, being a non-resident, engaged in the business of providing services or facilities in connection with, or supplying plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils, a sum equal to ten per cent of the aggregate of the amounts specified in sub-section (2) shall be deemed to be the profits and gains of such business chargeable to tax under the head "Profits and gains of business or profession" :
Provided that this sub-section shall not apply in a case where the provisions of section 42 or section 44D or section 44DA or section 115A or section 293A apply for the purposes of computing profits or gains or any other income referred to in those sections.
(2) The amounts referred to in sub-section (1) shall be the following, namely :-
(a) the amount paid or payable (whether in or out of India) to the assessee or to any person on his behalf on account of the provision of services and facilities in connection with, or supply of plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils in India; and
(b) the amount received or deemed to be received in India by or on behalf of the assessee on account of the provision of services and facilities in connection with, or supply of plant and machinery on hire

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2017 Supreme(SC) 1045

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