Delhi High Court
The Director Of Income Tax vs Dsd Noell Gmbh on 31 January, 2011
Author: A.K.Sikri
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ ITA No. 1392/2010
ITA NO. 1567/2010
ITA NO. 1568/2010
% Judgment delivered on:31.01.2011
(1) ITA No. 1392/2010
THE DIRECTOR OF INCOME TAX . . . APPELLANT
Through : Mr. Sanjeev Sabharwal, Sr. Standing
Counsel
VERSUS
DSD NOELL GMBH . ....RESPONDENT
Through : Mr. Rajan Bhatia, Advocate
(2) ITA NO.1567/2010
THE DIRECTOR OF INCOME TAX . . . APPELLANT
Through : Mr. Sanjeev Sabharwal, Sr. Standing
Counsel
VERSUS
DSD INDUSTRIEANLAGEN GMBH ....RESPONDENT
Through : Mr. Rajan Bhatia, Advocate
(3) ITA NO. 1568/2010
THE DIRECTOR OF INCOME TAX . . . APPELLANT
Through : Through : Mr. Sanjeev Sabharwal, Sr.
Standing Counsel
VERSUS
DSD INDUSTRIEANLAGEN GMBH ....RESPONDENT
Through: Mr. Rajan Bhatia, Advocate
CORAM :-
HON'BLE MR. JUSTICE A.K. SIKRI
HON'BLE MR. JUSTICE M.L. MEHTA
1. Whether Reporters of Local newspapers may be allowed
to see the Judgment?
2. To be referred to the Reporter or not?
3. Whether the Judgment should be reported in the Digest?
A.K. SIKRI, J (ORAL)
1. The admitted facts are that the respondent/assessee is a German
Company. It set up a Project Office in India in the year 2000 for
providing engineering and technical services for various projects.
These projects are duly sanctioned by the Central government as well.
The assessee for the assessment years 2004-05 and 2005-06 filed its
return claiming the benefits under Section 44BBB of the Income-Tax
Act (hereinafter referred to as the „Act‟). Section 44BBB of the Act
reads as under:-
"44BBB. (1) Notwitstanding anything to the contrary
contained in Section 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, 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.
(2) Notwitstanding 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 the Section 44AA and gets his
accounts audited and furnished 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".
2. It is not in dispute that the assessee fulfills all the conditions
stipulated in sub-Section (1) of Section 44BBB of the Act. it is stated
on behalf of the assessee that a sum equal to 10 per cent of the
amount paid or payable to the assessee under the projects undertaken
by it be treated as deemed profits and gains chargeable to tax under
the head "Profits and gains of business or profession". The Assessing
Officer did not accept the aforesaid contention of the assessee, as
according to him, on the basis of books of accounts maintained by the
assessee, the profits could be more than 10 per cent. Forming this
opinion, the Assessing Officer took shelter of sub-section (2) of the Act
and observed that as the assessee was maintaining the books of
accounts and on the basis of those documents it could be shown that it
was earning more than 10 per cent profits, then actual profits should
be brought to tax. The assessee preferred appeals against this order
of the Assessing Officer which were dismissed by the CIT (A).
However, in further appeals to the Income Tax Appellate Tribunal
(hereinafter referred to as the „Tribunal‟), the assessee has succeeded.
The Tribunal has held the view that Section 44 BBB of the Act is a
provision for computing the profits and gains of foreign companies
engaged in the business of civil construction, erection and turnkey
power projects and profits and gains of such foreign companies are to
be computed in accordance with the said provision. The view taken by
the Tribunal is perfectly justified on correct interpretation of the
aforesaid provision. It is clear from the reading of this section that it
starts with non-obstante clause by clearly stating "Notwitstanding
anything to the contrary contained in Section 28 to 44AA". It is thus
clear that the computation of profits in respect of other assessees as
provided in the aforesaid provisions namely Section 28 to 44AA of the
Act would not be applicable in the case of those foreign companies
who fulfills the conditions laid down under Section 44BBB of the Act.
In cases of such companies, this provisions which is fictional in nature
is made which specifies that a sum equal to 10 per cent of the amount
paid or payable to the assessee or to any person on his behalf shall be
deemed to be the profits and gains of such persons chargeable to tax.
3. The reliance placed by the Assessing Officer on sub-Section (2) is
clearly misconceived. The provision made in sub Section (2) is for the
benefit of the assessee which is clear from the words "the assessee
may claim lower profits and gains than the profits and gains specified
in sub-section (1)". Thus, even when sub-Section (1) provides for a
sum equal to 10 per cent of the amount paid or payable as deemed
profits, the assessee is given a chance to demonstrate and prove
before the Assessing Officer that actual profits earned by the assessee
were less than 10 per cent. The condition is that the assessee should
keep and maintain such books of accounts and other documents as
required under sub- Section (2) of Section 44AA of the Act and to get
his accounts audited and also furnish report of such audited accounts
as required under Section 44AB of the Act. On the basis of this
provision, the Revenue cannot plead or make out a case that the
profits earned by the assessee are more than 10 per cent. In so far as
Revenue is concerned, it has to feel contended by what is provided in
sub-Section (1) thereof namely maximum of 10 per cent of the amount
paid or payable as profits and gains of such business chargeable to
tax.
4. We, thus, find no merits in these appeals and are accordingly
dismissed.
(A.K. SIKRI)
JUDGE
(M.L. MEHTA)
JUDGE
January 31, 2011
skb
