Bombay High Court
Boskalia International - Dredging vs The Deputy Director Of Income Tax on 21 February, 2019
Bench: Akil Kureshi, M.S.Sanklecha
itxa-1327-2016.odt
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
INCOME TAX APPEAL NO. 1327 OF 2016
Boskalia International-Dredging .. Appellant.
v/s.
The Deputy Director of Income Tax
(International Taxation)-3(2) .. Respondent.
Mr. Madhur Agarwal i/b. MINT and Confreres, for the Appellant.
Mr. Charanjeet Chanderpal with Ms. Namita Shirke, for the Respondent.
CORAM: AKIL KURESHI &
M.S.SANKLECHA, JJ.
DATE : 21st FEBRUARY, 2019.
P.C:-
The Revenue is in Appeal against the Judgment of the Income Tax Appellate Tribunal (in short "the Tribunal"). In relation to the Assessment Years 2008-09, the Assessee has raised following questions for our consideration:-
"(1) Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in rejecting the claim of the Appellant for set off of unabsorbed depreciation of Rs.8,64,32,599/- carried forward from the earlier year while computing the income under section 44BB of the Act? (2) Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in restoring the issue of set off of claim of unabsorbed business loss in computing the income under section 44BB of the Act, after accepting all the contentions of the Appellant and rejecting the findings of the lower authorities?"S.R.JOSHI 1 ::: Uploaded on - 26/02/2019 ::: Downloaded on - 20/03/2019 18:50:44 :::
itxa-1327-2016.odt 2 Brief facts are as under:-
(i) Appellant-Assessee is a partnership firm, incorporated in the Netherlands and is engaged in the business of providing services and facilities in connection with prospecting, extracting and production of mineral oil including natural gas. Section 44BB of the Income Tax Act, 1961 (in short "the Act"), reference to which would be made in detailed later, makes special provisions for taxing the income arising from such activities.
(ii) The assessee had certain carry forward unabsorbed depreciation of Rs.8.64 Crores (rounded of), relating to Assessment Years 2001-02 and 2002-03. Similarly, the assessee had unabsorbed business loss, relating to Assessment Year 2002-03 of Rs.24.30 Crores (rounded of).
(iii) In the return of income filed for Assessment Year 2008-09, the assessee had declared its total income of Rs.42.96 Crores (rounded of). In such return, the assessee had computed the income in terms of Section 44BB of the Act, after claiming set-off of unabsorbed depreciation and unabsorbed business loss for the earlier years. The Assessing Officer rejected both the claims. The issue eventually reached the Tribunal. The Tribunal by the impugned judgment, accepted the assessee's contention with respect to carry forward of business loss but remanded the proceeding before the Assessing Officer, for fresh computation.
(iv) The assessee, is therefore, aggrieved by this direction of the Tribunal for remand. Question (2) raised by the assessee in this appeal, relates to this portion of the Tribunal's order.S.R.JOSHI 2 ::: Uploaded on - 26/02/2019 ::: Downloaded on - 20/03/2019 18:50:44 :::
itxa-1327-2016.odt 3 Having heard the learned Counsel for the parties and having perused the documents on record, we notice that in relation to the assessee's contention of permissibility of set-off of carried forward business loss of earlier years, the Tribunal accepted the assessee's stand. The Tribunal merely remanded the issue of computation of the assessee's income on such basis. Under the circumstances, we see no reason to interfere with the directions of the Tribunal, in this respect.
4 Question (1) relates to the assessee's claim of set-off of carried forward depreciation of the earlier years against the business income of the current year. In this regard, the Tribunal referred to the provisions contained in Section 44BB of the Act and held that, the computation provided therein, would over-ride the provisions of Section 32 of the Act and in particular, sub-section 2 thereof. The Tribunal, consequently, rejected the assessee's claim in this respect. Question (1) raised by the assessee relates to this issue.
5 Learned Counsel Shri Agrawal for the assessee, strenuously urged that, Tribunal has committed serious error. The legislature under sub-section (1) of Section 44BB of the Act, never intended to disallow the benefit of carried forward of unabsorbed depreciation of earlier years which is available in terms of Section 32(2) of the Act. The interpretation adopted by the Tribunal, is erroneous. He relied upon the 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 the parameters of the purpose for which, the fiction is corrected. Relying on this judgment, Counsel contended that, the over-riding effect given to Section 44BB of S.R.JOSHI 3 ::: Uploaded on - 26/02/2019 ::: Downloaded on - 20/03/2019 18:50:44 ::: itxa-1327-2016.odt the Act, should not be construed as to disallow the carried forward of unabsorbed depreciation for adjustment in the later years.
6 Counsel however, fairly pointed out that, Calcutta High Court in the case of Universal Cargo Carriers Inc. v/s. CIT reported in 26 Taxman 669 had held that, for computing the income under Section 44B of the Act, it was not permissible to adjust the depreciation allowance under Section 32(2) of the Act. He pointed out that, this view was reiterated in the later decision of the said High Court in case of British India Steam Navigation Co. Ltd., v/s. The Commissioner of Income Tax 107 CTR 278.
7 On the other hand, learned Counsel for the Revenue opposed the appeal, contending that, Section 44BB of the Act is clear and permits no ambiguity. The Tribunal has, therefore, correctly rejected the assessee's ground. The appeal is devoid of merit.
8 Having heard the learned Counsel for the parties and having perused the documents on record, we notice that, Section 44BB of the 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 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 percent 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."S.R.JOSHI 4 ::: Uploaded on - 26/02/2019 ::: Downloaded on - 20/03/2019 18:50:44 :::
itxa-1327-2016.odt 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 used, or to be used, in the prospecting for, or extraction or production of mineral oils outside India.
(3) Notwithstanding anything contained in sub-section (1), 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 (2) 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 (3) of section 143 and determine the sum payable by, or refundable to the assessee."
9 Sub-section 1 of Section 44BB provides that notwithstanding anything to the contrary contained in Sections 28 to 41 and Section 43 and 43A of the Act in 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 prospecting for or extraction or production of mineral oils, a sum equal to 10% of the aggregate amounts specified in sub-section (2) shall be deemed to be the profits and gains of such business, chargeable to tax under the head S.R.JOSHI 5 ::: Uploaded on - 26/02/2019 ::: Downloaded on - 20/03/2019 18:50:44 ::: 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 the deemed profits and gains of the 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 the Act. In such a case, the Assessing Officer would proceed to make assessment of the income of the assessee under sub-section (3) of Section 143 of the Act. Section 44BB of the Act clearly shows that an eligible assessee can opt for computation of profits and gains of its business on the basis of deeming fiction provided under sub- section (1) thereof. In such a case, the provisions of sub-section (1) of Section 44BB of the Act would apply notwithstanding anything contrary contained in Sections 28 to 41 and Sections 43 and 44A of the Act. However, if an assessee claims lower profits or gains in terms of sub- section (3) of Section 44BB of the Act, the assessee can opt out of the formula provided in sub-section (1) as long as he maintains books of account as provided under sub-section (2) of Section 44AA of the Act and gets such accounts audited.
10 In this view of the matter, we see provisions of sub-section (1) of Sections 44BB of the Act, is giving qualified benefit to the assessee. In a given case, assessee may as well consider that, not being governed by sub-section (1) of Section 44BB of the Act, may be more advantageous and he may, therefore, follow the option available under Section (3) of Section 44BB of the Act, since the profits and gains earned out of the business, is likely to be lower than computation as provided under sub-
S.R.JOSHI 6 ::: Uploaded on - 26/02/2019 ::: Downloaded on - 20/03/2019 18:50:44 :::itxa-1327-2016.odt section (1) of Section 44BB of the Act. Sub-section (1) of Section 44BB of the Act as noted, starts with non-obstinate clause over-riding anything contained to the contrary in Sections 28 to 41 of the Act which includes Section 32 also. In that view of the matter, in plain terms, the legislature has ruled out applicability of sub-section (2) of Section 32 of the Act while computing the profits and gains of an eligible assessee, arising out of the business in terms of sub-section (1) of Section 44BB of the Act. Any other view would be opposed to the plain language used in this sub- section. We do not discern any indication in this sub-section to come to the conclusion that while providing exclusion of anything contrary to contained in Sections 28 to 41 of the Act, the legislature intended to exclude Section 32 and, particularly, sub-section (2) thereof. The decision of this Court in case of Hindustan Petroleum Corporation Ltd., (supra) would not change this position. The deeming infection provided under sub-section (1) of Section 44BB of the Act, relates to the profits and gains of an assessee arising out of a business and is not directly connected with or co-related with the non-obstinate clause with which, the said sub- section begins, ruling out any conflict with the provisions contained in Sections 28 to 41 of the Act.
11 As noted, Calcutta High Court in two decisions has taken a similar view. However, since this question was being argued for the first time before this Court, we have devoted further discussion and gave our independent expression.
12 In the result, Appeal dismissed.
(M.S.SANKLECHA,J.) (AKIL KURESHI,J.) S.R.JOSHI 7 ::: Uploaded on - 26/02/2019 ::: Downloaded on - 20/03/2019 18:50:44 :::