ADIT, vs Smith International Inc.

ITA No. 1375/Del/2012

Asstt.Year: 2006-07

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IN THE INCOME TAX APPELLATE TRIBUNAL

DELHI BENCH ‘G’ NEW DELHI

BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER

AND

SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER

I.T.A.No.1375/Del/2012

Assessment Year : 2006-07

ADIT, vs Smith International Inc.

International Taxation, C/o Nangia & Co.,

13A-Subhash Road, 75/7, Rajpur Road,

Aayakar Bhawan, Dehradun.

Dehradun-248001 (PAN: AAHCS3148R)

 (Appellant) (Respondent)

 Appellant by: Shri Sanjeev Sharma, CIT DR

 Respondent by : Shri Amit Arora

 O R D E R

PER CHANDRAMOHAN GARG, JUDICIAL MEMBER

 This appeal has been preferred by the revenue against the order

of the CIT(A)-II, Dehradun dated 10.01.2012 in Appeal No.

488/DDN/ 2008-09 for AY 2006-07.

2. The revenue has raised following grounds in this appeal:-

“1.Whether on facts and circumstances of the case,

the CIT(A) had erred in holding that the amount of

reimbursement(s) on account of custom duty and

other reimbursements were not includible in the

gross receipts for the purpose of computing

assessee's income under the provisions of section

4488 of the Income Tax Act, 1061 by ignoring the

decision of Hon'ble Uttarakhand High Court in the ITA No. 1375/Del/2012

Asstt.Year: 2006-07

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case of CIT vs. Halliburton Offshore Services Inc.

(300 ITR 265).

2. Whether on facts and circumstances of the case,

the CIT(A) has erred in holding that the amount of

reimbursements on account of custom duty and

other reimbursements were not includible in the

gross receipts for the purpose of computing

assessee's income under the provisions of section

44Bb of the Income Tax Act, 1961 when the rationale

for inclusion of both i.e. Service tax and Custom duty

are on all fours namely payment to the assessee or

payable to the assessee on account of service and

facilities in connection with the extraction or

production of mineral oils u/ 44BB.

3. Whether on the facts and circumstances of the

case, the CIT(A) has erred in relying upon the

decision in the case of DIT vs Schlumberger Asia

Services (186 Taxman 436) (UK) which has not been

accepted by the Department.”

Ground N0. 1, 2 & 3

3. Apropos these grounds, we have heard arguments of both the

sides and carefully perused the record, inter alia decision of Hon’ble

High Court of Uttarakhand in the case of DIT vs

Schlumberger Asia Services Asia Services Ltd. reported as

(2009) 317 ITR 156 (Uttarakhand). The ld. counsel of the

assessee submitted that the sole issue involved in this appeal is

squarely covered in favour of the assessee by the decision of Hon’ble

High Court of Uttarakhand in the case of DIT vs Schlumberger Asia ITA No. 1375/Del/2012

Asstt.Year: 2006-07

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Services Ltd.(supra). Ld. DR fairly accepted that the issue of

reimbursement of the custom duty paid by the assessee has been

decided in favour of the assessee by the above decision of Hon’ble

High Court of Uttarakhand.

4. In the present case, from bare reading of the impugned order,

we observe that the CIT(A) has granted relief for the assessee with

following observations and conclusions:-

“3. The first two grounds are on the issue of

taxing the revenues representing reimbursement of

expenditure on account of engagement of services of

helicopter. The Ld AR has filed detailed breakup of the

impugned amount of Rs 90,84,691(as filed before Ld

AO) as under:

(i) Rs 87,84,468 on account of reimbursement of

Customs Duty; and

(ii) Rs 3,00,223 on account of other reimbursements.

3.1 The Ld AR has relied upon the case of DIT vs

Schlumberger Asia Services Ltd [186 Taxman

436(UK)] for seeking relief on the amount mentioned

at (i) above. This issue may be discussed in the light of

various decisions of the Hon'ble Jurisdictional High

Court.

3.2 It is seen that the ld. AO relied on the case of

Halliburton Offshore Services reported in 300 JTR

265 (UK) to tax the reimbursements u/s 44BB of the

Act. The case of Halliburton Offshore (supra) has been

the subject matter of analysis and review in the case

of DIT vs. Schlumberger Asia Services Ltd. reported in

186 Taxman 436 (UK). In this case it has been held ITA No. 1375/Del/2012

Asstt.Year: 2006-07

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that customs duty, being a statutory levy, cannot form

part of receipts of assessee for determining his income

u/s 44BB of the Act. The other findings in the case of

Halliburton Offshore have not been distinguished or

differed with. Considering the express finding of the

Hon’ble Jurisdictional High Court on the issue of

taxability of reimbursement of Customs Duty, the

amount of Rs.87,84,468 is held to be outside the

purview of taxation u/s 44BB of the Act.”

5. From careful reading of decision of Hon’ble High Court of

Uttarakhand in the case of DIT vs Schlumberger Asia Services

Ltd.(supra), we note that the issue of reimbursement of custom duty

paid by the assessee has been decided against the revenue and in

favour of the assessee with following observations and findings:-

 “6. Attention of this Court is also drawn to the

principle of law laid down by this Court in CIT vs.

Halliburton Offshore Services Inc. (2007) 213 CTR

(Uttarakhand) 547 : (2008) 169 Taxman 138

(Uttarakhand), Sedco Forex International Inc. vs. CIT

(2008) 214 CTR (Uttarakhand) 192 : (2008) 170

Taxman 459 (Uttarakhand), CIT vs. B.J. Services Co.

Middle East (2007) 213 CTR (Uttarakhand) 545 :

(2008) 170 Taxman 286 (Uttarakhand), CIT vs. Trans

Ocean Offshore Inc. (2008) 173 Taxman 429

(Uttarakhand), CIT vs. Enso Maritime Ltd. (2009) 24

DTR (Uttarakhand) 221 : (2009) 181 Taxman 46

(Uttarakhand), and CIT vs. RBF Rig Corporation

(2009) 24 DTR (Uttarakhand) 224 : (2009) 313 ITR

369 (Uttarakhand). Relying on these cases, it is

contended on behalf of the appellant/Revenue that all

kinds of amount are to be included for the purposes of

calculating amount on which 10 per cent profits under

sub-s. (1) of s. 44BB of the Act. Perusal of the aforesaid ITA No. 1375/Del/2012

Asstt.Year: 2006-07

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case laws, shows that these relate to freight and

transportation charges, mobilisation charges, supply

of spare parts, catering charges and fuel charges.

None of these cases refer to the reimbursement of the

customs duty to the assessee.

7. Learned counsel for the respondent submitted

that for import of the machinery or equipment,

liability to pay the customs duty was on the Oil and

Natural Gas Corporation (for short ONGC), who has

hired the services of the assessee in contract. It is

further submitted that there cannot be element of

profit in reimbursement of the customs duty, paid by

the assessee. As such, it is contended on behalf of the

respondent/assessee that CIT(A) and Tribunal, have

rightly held that said amount, received by the assessee

is to be excluded in computing profits under s. 44BB of

the Act.

8. Having considered submissions of learned

counsel for the parties, we are of the view that

reimbursement towards the customs duty, paid by the

assessee, being statutory in nature, cannot form part

of amount for the purposes of deemed profits unlike

the other amounts received towards reimbursement.

Therefore, we do not find any sufficient reason to

interfere with the impugned orders, passed by the

Tribunal, which has affirmed the view taken by the

CIT(A). Question of law stands answered

accordingly.”

6. In view of above, we observe that the CIT(A) has granted relief

for the assessee by relying upon the decision of Hon’ble Uttarakhand

High Court in the case of DIT vs Schlumberger Asia Services

Ltd.(supra) and on a specific query from the Bench, ld. DR fairly ITA No. 1375/Del/2012

Asstt.Year: 2006-07

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accepted that the decision of Hon’ble High Court of Uttarakhand is

squarely applicable to the present case on the issue of reimbursement

of custom duty.

 7. In view of above, we are inclined to hold that the CIT(A) has

decided the issue in favour of the assessee by following decision of

Hon’ble High Court of Uttarakhand (supra) wherein it has been held

that the reimbursement towards custom duty paid by the assessee,

being statutory in nature cannot form part of amount for the purpose

of deemed profits unlike the other amounts received towards

reimbursement. Accordingly, ground no. 1, 2 and 3 of the revenue

being devoid of merits are dismissed.

8. In the result, respectfully following the decision of Hon’ble High

Court of Uttarakhand (supra), the appeal of the revenue is dismissed.

 Order pronounced in the Open Court on 18th July 2014.

 Sd/- Sd/-

 (S.V. MEHROTRA) (CHANDRAMOHAN GARG)

ACCOUNTANT MEMBER JUDICIAL MEMBER

DT. 18th JULY 2014

‘GS’ ITA No. 1375/Del/2012

Asstt.Year: 2006-07

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Copy forwarded to:-

1. Appellant

2. Respondent

3. CIT(A)

4. CIT 5. DR By order

5.

 Asstt. Registrar