January 2009
(i) Reimbursement of customs duty by an importer to a service provider is not taxable u/s.44BB. (ii) Interest received by non-resident company on refund of income-tax to be characterised as ‘interest’
By Geeta Jani, Dhishat B. Mehta, Chartered Accountants
Reading Time 3 mins
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Part C — International Tax Decisions
10 Transocean Offshore Deep Water Drilling
Inc v. ACIT
(Delhi Trib.) (Unreported)
ITA No. 2160/Del./2006
S. 44BB, Income-tax Act; Article 11, India-USA DTAA
A.Y. : 2004-2005. Dated : 24-10-2008
Issues :
(i) Reimbursement of customs duty by an importer to a
service provider is not taxable u/s.44BB.
(ii) Interest received by non-resident company on refund
of income-tax should be characterised as ‘interest’ and taxed at the relevant
rate mentioned in Article dealing with ‘interest’.
Facts :
(i) The assessee was an American company (‘USACo’) which
was tax-resident of the USA. USACo was engaged in providing services in
connection with exploration and extraction of mineral oils. USACo had paid
customs duty on import of certain items which were imported by ONGC. ONGC
reimbursed the customs duty to USACo.
The AO charged tax on the income of the assessee u/s.44BB
of the Income-tax Act. Relying on the decisions in Sedco Forex
International Inc. v. CIT, (2008) 299 ITR 238 (Uttarakhand) and USACo’s
own case in CIT v. Trans Ocean Offshore Inc, (2008) 299 ITR 248
(Uttarakhand), the AO also included the aforesaid reimbursement of customs
duty in the income of USACo.
(ii) USACo had received interest u/s.244A on income-tax
refund. The AO assessed the income as income from other sources and charged
tax @ 41%. USACo claimed that it should be taxed either @15% in terms of
Article 11 of India-USA DTAA, or @ 20% u/s.115A(1)(a)(ii) of the Income-tax
Act if provision of India-USA DTAA are considered not to apply.
Held :
The Tribunal held that :
(i) Payment of customs duty is primarily the obligation of
the importer, namely, ONGC; USACo discharged ONGC’s primary liability; the
payments made by ONGC to USACo were not on account of provisions 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 thus, reimbursements were not in connection with the
services mentioned in S. 44BB of the Income-tax Act; and therefore, it was not
includable for determining profits and gains u/s.44BB of the Income-tax Act.
(ii) In respect of chargeability of interest on refund, the
Tribunal relied on AAR decision in Application No. P 17 of 1998, In re
(1999) 236 ITR 637 (AAR), in the context of India-UK DTAA, where AAR held that
interest derived in respect of tax lying with Revenue authorities was covered
by the definition of interest in terms of Article 12(2) and in absence of PE
in India should be entitled to benefit of reduced withholding rate of 15%.
Tribunal held that the provisions of India-USA DTAA are
identical to India-UK DTAA; since the issue involved is identical, interest on
income-tax refund should be taxed under Article 11 (interest) of India-USA
DTAA @ 15%.
Editorial note :
As regards the issue whether interest on the Income-tax Act
refund should be characterised as ‘interest’ or as ‘business profits’, in BJ
Services Company Middle East Ltd. v. ACIT, (unreported) (digested above), on
similar facts, the Delhi Tribunal itself had held that such interest should be
characterised as ‘business profits’. Possibly, unlike the earlier decision, in
this case, the tax authorities do not appear to have brought out that USACo had
a PE in India and the interest on income-tax had a nexus with that PE.
