Section 44BB of the Income-tax Act, 1961

HIGH COURT OF UTTARAKHAND Commissioner of Income-tax v. B. J. Services Co. Middle East p.c. verma and b.c. kandpal, jj. it appeal no. 85 of 2006 October 8, 2007 Section 44BB of the Income-tax Act, 1961 - Non-resident - Shipping business of - Mineral oil, business for prosperity/exploration etc., in case of - Assessment year 1998-99 - Assessee, non-resident, received a sum of Rs. 69,45,264 for supply of spare parts but disclosed only Rs. 3,27,770 as its income which was 5 per cent of total receipts towards handling charges on original cost - Assessing Officer took into account total amount received by assessee for supply of spare parts under section 44BB(2) for determining profits and gains and imposed tax at rate of 10 per cent under section 44BB(1) - However, Commissioner (Appeals) as well as Tribunal held that assessee was entitled to of amount received by it as reimbursement of expenses on account of supply of spare parts - Whether since total amount received by assessee was cost of spare parts supplied by it, same was a receipt during course of business and was chargeable to tax under section 44BB(2) without any deduction on account of reimbursement of expenses - Held, yes FACTS The assessee, a non-resident company, received a sum of Rs. 69,45,264 towards supply of spare parts to ONGC but disclosed only Rs. 3,27,770 as its income being 5 per cent of the total receipts towards handling charges on the original cost. The Assessing Officer, however, took into account the total amount received by the assessee for supply of spare parts under section 44BB(2) for determining the profits and gains and imposed the tax at the rate of 10 per cent under section 44BB(1). On appeal, the Commissioner (Appeals) held that the assessee was entitled to deduction of Rs. 66,17,495, claimed amount of the actual reimbursement of expenses incurred by the assessee in execution of the contract with the ONGC. On revenue’s appeal, the Tribunal upheld the Commissioner (Appeals)’s order. On revenue’s appeal under section 260A: HELD It was the fact that the impugned amount was received by the assessee for supply of materials which also included the handling charges. [Para 8] The amount received by the assessee on account of supply of spare parts was squarely covered under section 44BB. Therefore, the Assessing Officer was right in calculating the 10 per cent of total amount received by the assessee non-resident company, from the ONGC. The claim of the assessee that the amount of Rs. 66,17,495 could not be included for the purpose of calculating the amount referred to in 44BB(2) as it was reimbursement while the assessee himself had claimed 5 per cent handling charges on the original cost of material, i.e., spare parts. Therefore, the total amount received was the cost of spare parts and was duly received by the assessee and, hence, was an amount referred to under section 44BB(2) as it was a receipt during the course of business. [Para 9] Therefore, the orders of the Tribunal and Commissioner (Appeals) were to be set aside and the order of Assessing Officer was to be confirmed. [Para 10]