RULINGS
A.A.R. No. 427 of 1998
Decided On: 14.12.1998
Appellants: N.V. Jan De Nul
Vs.
Respondent: Commissioner of Income-tax
Hon’ble Judges:
Suhas C. Sen, J. (Chairman), Subhash C. Jain and Mohini Bhussry, Members
Counsels:
For Appellant/Petitioner/Plaintiff: S.N. Inamdar and P.B. Deshpande C.A., Advs.
For Respondents/Defendant: Radha Balakrishna, Adv. in person
Subject: Direct Taxation
Acts/Rules/Orders:
Income Tax Act, 1961 – Section 44BBB
RULING
S.C. Sen, J. (Chairman)
1. The advance ruling has been sought on the following questions of law :
“1. Whether, on the facts and in the circumstances, the applicant can be said to have a permanent establishment in India ?
2. Whether under paragraph 3(a) of Article 7 of the Double Taxation Avoidance Agreement between India and Belgium, the profits attributable to the permanent establishment can be worked out on completed contract method ?
3. Though the said para. 3(a) speaks of deduction of expenses, whether depreciation allowance will be granted on dredgers, boats, equip-
ment, computers and other plant and machinery deployed for the execution of the contract on the basis of cost of acquisition, since the said assets were not put to use in India any time before and no depreciation is ‘actually allowed’ under the Income-tax Act, 1961 ?
4. Whether repairs and maintenance expenses incurred before commencement of the contract and to be incurred immediately after completion of the contract on dry docking, etc., but relating to the execution of the contract, shall be allowed as deduction or could be capitalised on the cost of equipment, if depreciation is held allowable ?
5. Whether standing charges for the assets specifically taken on hire/ lease for the Indian contract/sub-contract will be allowed as deduction in computing taxable income payable for the period, though the assets are required to be kept or remain idle, though ready for use, during the execution of the contract ?
6. Whether writing off of obsolete assets shall be allowed as deduction ?
7. Will the applicant get credit for the tax deducted at source if any, in the year of completion of contract when full profits, if taxable, will be offered for tax under Section 199, without treating the tax deducted earlier as liable to tax as income received under Section 198 ?
8. Without prejudice to the above, whether, on the facts and in the circumstances, the rationale behind the provisions of Section 44BBB would be applicable in the case of the appellant and a sum equal to ten per cent. of the contract amount as and when paid shall be deemed to be the profits and gains chargeable under the head ‘Profits and gains of business or profession’ ?
9. Without prejudice to the facts and in the circumstances the amount of taxable profit could be determined by MR at a fixed percentage of the gross receipts based on the applicant’s past profitability statements and other relevant factors, either assessable in the year of completion of the contract or year wise ?”
2. The following submissions have been made by the applicant in this case:
1. The applicant is a company incorporated in Belgium having its registered office at Tragel 23, 9308 Hofstade-Aalst, Belgium. The applicant is engaged in the business of dredging and marine contracting. The business of the applicant is managed by a board of directors who are non-resident foreign nationals. Control and management of the affairs of the company are situated wholly outside India. The company has no branches in India.
2. The applicant has been awarded a contract by Chennai Port Trust for the work of dredging at their new port known as “Ennore Coal Port Project”. The total approximate cost of the contract is Rs. 847,914,875. The
preliminary work relating to the contract has already been commenced and the entire contract is expected to be completed in July, 2000. The scope of works described in the contract as per Clause 1001.2 on page 208 is as follows : “The works to be executed under this contract comprise the dredging of Port Basin, approach Channel, and the Small Craft Harbour, to create an adequate depth for navigation to and Within the port area, including disposal of dredged material on land and at sea”.
3. The applicant has opened a temporary project office in India to execute the said contract. The applicant has obtained permission from the Reserve Bank of India, Chennai, to open the project office. The applicant shall deploy from abroad its dredgers, survey equipment, boats, computers, technical people and other relevant plant and machinery required to execute the said contract.
4. The applicant has got contracts throughout the world. Being a company operating internationally, the applicant prefers tax stability together with the knowledge of any tax exposure at the start of the contract in order to take managerial decisions and avoid litigation. This application is made with an objective of ascertaining confirmed legal status about the tax liability of the company in India.
5. The residential status of the applicant, for the purpose of taxation, would be “non-resident under Section 6(3) as the control and management of its affairs is situated with 4(1) of the Double Taxation Avoidance Agreement between India and Belgium, the applicant will be a resident enterprise of Belgium (sic).
3. Although elaborate arguments were advanced on behalf of the applicant as well as on behalf of the Revenue, the case can be disposed of on the point raised in question No. 8. The question raised by the applicant is whether, on the facts and in the circumstances of its case, the provision of Section 44BBB is applicable in its case. The contract obtained by the applicant will go on for a number of years. This contract has been given to the applicant in connection with the turnkey power project which has been approved by the Central Government. Section 44BBB reads as under :
“44BBB. Notwithstanding anything to the contrary contained in Sections 28 to 44AA, in the case of an assessee, being a foreign company, engaged in the business of civil construction or the business of erection of plant or machinery or testing or commissioning thereof, in connection with a turnkey power project approved by the Central Government in this behalf and financed under any international aid programme, a sum equal to ten per cent. of the amount paid or payable (whether in or out of India) to the said assessee or to any person on his behalf on account of such civil construction, erection, testing or commissioning 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’.”
4. It will be more advantageous for the Department as well as the applicant to proceed with the assessment of the profits made by the applicant by having recourse to Section 44BBB. We hold that on the facts as stated by the applicant, Section 44BBB is applicable. Question No. 8 is answered in the affirmative and in favour of the applicant. In that view of the matter, it is not necessary to specifically deal with and answer questions Nos. 1 to 7 and 9 in this application.