# CONSTITUTED ATTORNEY MR. NAVIN SARDA v. COMMISSIONER OF INCOME TAX. MEERUT & ANR - **Citation:** [2017] 11 S.C.R. 399 - **Court:** Supreme Court of India - **Decided:** 2017 - **Case number:** Civil Appeal No. 4906 of2010 - **Bench:** A. K. Sikri, Ashok Bhushan - **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/constituted-attorney-mr-navin-sarda-v-commissioner-of-income-tax-meerut-anr-31577 - **Pages:** 36 ## Headnote Income Tax Act, 1961: s.4488 - Scope and illlerpretation - s.4488 starts. with nonobstante clause, and the formula contained therein for computation of income is to be applied irrespective of the provisions of ss.28 to B c 41 and ss.43 and 43A of the Act - For assessment under this provision, a sum equal to 10% of the aggregate of the. amounts specified in sub-section "(2) shall be deemed lo be the profits and 0 gains of such business chargeable to tax under the head 'profits and gains of the business or profession' - Sub-section (2) mentions two k)nd~ of amounts which shall he deemed as pl·ofits and gains or the business chargeable to tax in- India - Silb-clause (a) thereof relates to amount paid or payable to the assessee or any person on his behalf on account of provision of services and facilities in connection with, or supply of plant and machinery on hire used, or to be used in the prospecting f01; or extraction or production of. mineral oils in India - Tims, all amounts pertaining to the said activity which are received oi:i account of provisions of service;; andfacilities in connection with the said facility are treated as profits and gains of the business. - This clause clarifies that the amount so paid .v!wl! be taxable whether these .are received in India or outside India - Clause (b) deals with amount received or deemed lo be received in India in ·connection with such services and facilities as stipulated therein - Thus, whereas clause (a) mentions the amount which is paid ar payable, clause (b) deals with the amounts which are received or deemed to be received in India - In respect of amount paid or payable under clause (a) of sub-section (2), it is immaterial wheiher these are paid in India or outside India -On the other hand, amount received or deemed to be received have to be in India. 399 E F G H 400 A B c SUPREME COURT REPORTS (2017] ll S.C.R. s.44BB - Special provision for calculating profits and gains in connection with business of exploration of mineral oils -AssesseeNon-resident company entered into contract with ONGC for hire of their rig for can:ving out oil exploration activities in India - Payment of mobilisation fees for mobilisationimovement of rig from foreign soil/country to the off shore side al 11Iumbai - Whether said amount received is to be i11cluded for comp11tatio11 of deemed profits a11d gains of the business chargeable to tax under s.44BB of the Act - Held: Clause (a) and (b) of sub-section (2) of s.44BB stipulates that the amount paid 1111der the said contracts as mobilisation fee on account of provision of services a11d facilities in connection with the extraction etc. of mineral oil in India and against the supply of plant and machinery on hire used for such extraction, clause (a) is attracted - Thus, this provision contained in s.44BB has to be read i11 co11ju11ction with ss.5 and 9 of the Act a11d ss.5 a11d 9 of the Act cannot be read in isolation - The said amo1111t paid to the assessees D as mobilisation fee is treated as profits and gains of business a11d, therefore, it would be "income" as per s.5 - This provision also treats this i11c:ome as eamed in India, fictionally, thereby salisfyi11g the test of s.9 of the Act as well - Circular 110.495 dated September 22 1987 issued by CBDT. E s.44BB - Assessee-Non-residen/ company entered into co11tracls with ONGC for hire of their rigfor carrying out oil exploration activities i11 India - Reimbursement of cost of tools lost in hole by ONGC - Taxability of - Held: Not taxable - This amount is not covered by sub-section (2) of s.4488 of the Act as ONGC had lost certain tools belonging to the assessee, and had compens.ated F for the said loss by payi11g the amount in question. G Disposing of the appeals, the Court HELD: 1.1 Indian Income Tax Act, admittedly, follows a territorial system of taxation. As per this system only that income of a non-resident is taxable in India which is attributable to operations within the Indian Territory. The ## Text _Characters 0–39,996 of 86,493. This is a partial read: ask again with offset=39996 for what follows._ [2017] II S.C.R. 399 SEDCO FOREX INTERNATIONAL INC. THROUGH IT'S A CONSTITUTED ATTORNEY MR. NAVIN SARDA v. COMMISSIONER OF INCOME TAX. MEERUT & ANR. (Civil Appeal No. 4906 of20 I 0) OCTOBER 30. 2017 [A. K. SIKRI AND ASHOK BHUSHAN, JJ.] Income Tax Act, 1961: s.4488 - Scope and illlerpretation - s.4488 starts. with nonobstante clause, and the formula contained therein for computation of income is to be applied irrespective of the provisions of ss.28 to B c 41 and ss.43 and 43A of the Act - For assessment under this provision, a sum equal to 10% of the aggregate of the. amounts specified in sub-section "(2) shall be deemed lo be the profits and 0 gains of such business chargeable to tax under the head 'profits and gains of the business or profession' - Sub-section (2) mentions two k)nd~ of amounts which shall he deemed as pl·ofits and gains or the business chargeable to tax in- India - Silb-clause (a) thereof relates to amount paid or payable to the assessee or any person on his behalf on account of provision of services and facilities in connection with, or supply of plant and machinery on hire used, or to be used in the prospecting f01; or extraction or production of. mineral oils in India - Tims, all amounts pertaining to the said activity which are received oi:i account of provisions of service;; andfacilities in connection with the said facility are treated as profits and gains of the business. - This clause clarifies that the amount so paid .v!wl! be taxable whether these .are received in India or outside India - Clause (b) deals with amount received or deemed lo be received in India in ·connection with such services and facilities as stipulated therein - Thus, whereas clause (a) mentions the amount which is paid ar payable, clause (b) deals with the amounts which are received or deemed to be received in India - In respect of amount paid or payable under clause (a) of sub-section (2), it is immaterial wheiher these are paid in India or outside India -On the other hand, amount received or deemed to be received have to be in India. 399 E F G H 400 A B c SUPREME COURT REPORTS (2017] ll S.C.R. s.44BB - Special provision for calculating profits and gains in connection with business of exploration of mineral oils -AssesseeNon-resident company entered into contract with ONGC for hire of their rig for can:ving out oil exploration activities in India - Payment of mobilisation fees for mobilisationimovement of rig from foreign soil/country to the off shore side al 11Iumbai - Whether said amount received is to be i11cluded for comp11tatio11 of deemed profits a11d gains of the business chargeable to tax under s.44BB of the Act - Held: Clause (a) and (b) of sub-section (2) of s.44BB stipulates that the amount paid 1111der the said contracts as mobilisation fee on account of provision of services a11d facilities in connection with the extraction etc. of mineral oil in India and against the supply of plant and machinery on hire used for such extraction, clause (a) is attracted - Thus, this provision contained in s.44BB has to be read i11 co11ju11ction with ss.5 and 9 of the Act a11d ss.5 a11d 9 of the Act cannot be read in isolation - The said amo1111t paid to the assessees D as mobilisation fee is treated as profits and gains of business a11d, therefore, it would be "income" as per s.5 - This provision also treats this i11c:ome as eamed in India, fictionally, thereby salisfyi11g the test of s.9 of the Act as well - Circular 110.495 dated September 22 1987 issued by CBDT. E s.44BB - Assessee-Non-residen/ company entered into co11tracls with ONGC for hire of their rigfor carrying out oil exploration activities i11 India - Reimbursement of cost of tools lost in hole by ONGC - Taxability of - Held: Not taxable - This amount is not covered by sub-section (2) of s.4488 of the Act as ONGC had lost certain tools belonging to the assessee, and had compens.ated F for the said loss by payi11g the amount in question. G Disposing of the appeals, the Court HELD: 1.1 Indian Income Tax Act, admittedly, follows a territorial system of taxation. As per this system only that income of a non-resident is taxable in India which is attributable to operations within the Indian Territory. Therefore, in the first instance it is to be seen whether a particular income arises or accrues or deem to arise or accrue within India. In order to seek this answer, the principles contained in Section 9 have to be applied. Only when it becomes an income taxable in India as per H Section 9, in case of non-resident, the question of computation of SEDCO FOREX INTERNATIONAL INC. THR. IT'S CONSTITUTED ATTORNEY v. CIT, MEERUT the said income would arise. Section 4 is the charging section for levying a tax on the income of any person under the Act and provides that income-tax shall be levied at the rates provided by the Finance Act on the 'total income' of the previous year of every person. The scope of the total income of any person, which could be subjected to tax under the provisions of the Act, is defined under Section 5 of the Act and dependent upon the residential status of the persons. Section 5(1) provides the scope of 'total income' in the case of residents, whereas Section 5(2) provides the scope of 'total income' in the case of non-residents' As per Section 5(2) of the Act, subject to the provisions of this Act, the 'total income' of any previous year of non-resident includes; Income which is received or deemed to be received in India in such year or on behalf of such person; or Income which 'accrues or arises' or is deemed to accrue or arise to him in India during such year. [Paras 38, 391[428-8-D, E-F] 1.2 Section 9 enumerates the income which is deemed to accrue or arise in India. There are two broad categories of taxability of income provided under this Section, i.e., Business Income and income from interest or royalty or fees for technical services (FTS). Section 9(I)(i) provides that income is to be deemed to have accrued or arising in India if the income is accruing directly or indirectly through any business connection in India or from any property in India or from any asset or source of income in India or any capital asset situated in India (referred as business income). Explanation l(a) to Section 9(l)(i) of the Act provides an exclusion in the case of operations which are not carried out in India. The explanation provides that the income of the business deemed under this clause to accrue or arise in India shall be only that part of the income as is reasonably attributable to the operations carried out in India. Thus, business income earned by non-resident is chargeable to tax in India only to the extent reasonably attributable to the operations carried out in India. (Paras 40, 41](428-G-H; 429-A-C] 2. Section 44BB(2) makes certain receipts as "deemed income" for the purposes of taxation in the sald provision. Therefore, aid of this. provision is to be necessarily taken to determine whether a particular amount will be "income" within 401 A B c D E F G H 402 A B c D E F G H SUPREME COURT REPORTS [2017] l l S.C.R. the meaning of Section 5 of the Act. Likewise, Section 4488(2) also acts as guide to determine whether a particular income is attributed as income occurred in India. Section 4488 of the Act provides for special provision for computing profits and gains. However, that would not mean that ifthe income is to be computed under this provision, a go-by to Sections 5 and 9 of the Act is to be given. Sections 4, 5 and 9 of the Act are to be kept in mind even in those cases where assessment is done under Section 4488 of the Act. The argument of the assessees that Section 4488 is only a computation provision, is also not entirely justified. In the first blush, assessees may appear to be correct in their contentions that Section 44BB falls in Chapter IV of the Act. Insofar as computation of income from 'Profits or Gains of Business or Profession' is concerned, it has to be computed as per the provisions of Sections 28 to 430(2). However, certain provisions are made for providing special mechanism for computing the income on presumptive basis in case of nonresident and it includes Section 4488 as well. [Paras 42, 43, 44J[429-C-E; 430-G-H; 43I-A] Union of India & Am: v. A. Sanya.vi Rao & Ors. (1996) 3 SCC 465 : [1996] 2 SCR 570 - relied on. 3. Clause 3.2 of the Agreement dated September 3, 1985 pertains to providing the Shallow Dash Water Jack Up Rig against which payment was made to the asscssees. This Clause says that the assessees shall be paid 'mobilisation fee' for the mobilisation of drilling unit from its present location in Portugal to the well location designated by ONGC, offshore Mumbai, India. Fixed amount is agreed to be paid which is mentioned in the said Clause. The said mobilisation fee was payable to the assessees after the jacking up of the drilling at the designated location and ready to spud the well. After the said operation, assessees were required to raise invoice and ONGC was supposed to make the payment within 30 days of the receipt of this invoice. Insofar as Clause 4.2 of Agreement dated July 12, 1986 is concerned, it related to mobilisation of drilling unit. Here again, •mobilisation fee' was payable for the mobilisation of the drilling unit from the place of its origin to the port of entry (Kandla Port, Mumbai). SEDCO FOREX INTERNATIONAL INC. THR. IT'S 403 CONSTITUTED ATTORNEY v. CIT, MEERUT What follows from the above is that a fixed amount of mobilisation A fee was payable under the said contracts as "compensation". Contracts specifically describe the aforesaid amounts as 'fee'. [Paras 46](431-D-G] 4. Section 44BB starts with non-obstantc clause, and the formula contained therein for computation of income is to be applied irrespective of the provisions of Sections 28 to 41 and Sections 43 and 43A of the Act. It is not in dispute that asscssces were assessed under the said provision which is applicable in the instant case. For assessment under this provision, a sum equal to 10% of the aggregate of the amounts specified in subsection (2) shall be deemed to be the profits and gains of such business chargeable to tax under the head 'profits and gains of the business or profession'. Sub-section (2) mentions two kinds of amounts which shall be deemed as profits and gains of the business chargeable to tax in India. Sub-clause (a) thereof relates B c to amount paid or payable to the assessec or any person on his D behalf on account of 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 Iiulia. Thus, all amounts pertaining to the said activity which arc received on account of provisions of services and facilities in connection with the said facility arc treated as profits and gains of the business. This clause clarifies that the amount so paid shall be taxable whether these are received in India or outside India. Clause (b) deals with amount re.ceived or deemed to be received in India in connection with such services and facilities as stipulated therein. Thus, whereas clause (a) mentions the amount which is paid or payable, clause (b) deals with the amounts which arc received or deemed to be received in India. In respect of amount paid or payable under clause (a) of sub-section (2), it is immaterial whether these arc paid in India or outside India. On the other hand, amount received or deemed to be received have to be in India. A bare reading of the clauses shows that the amount paid under the said contracts as mobilisation fee on account of provision of services and facilities in connection with the extraction etc. of mineral oil in India and against the supply of plant and machinery on hire used for such E F G H 404 A B c D E F G H SUPREME COURT REPORTS [2017] l I S.C.R. extraction, clause (a) stands attracted. Thus, this provision contained in Section 44BB has to be read in conjunction with Sections 5 and 9 of the Act and Sections 5 and 9 of the Act cannot be read in isolation. The said amount paid to the assessees as mobilisation fee is treated as profits and gains of business and, therefore, it would be "income" as per Section 5. This provision also treats this income as earned in India, fictionally, thereby satisfying the 'test of Section 9 of the Act as well. [Paras 47, 48J1432-A-HJ 5. The Tribunal has rightly commented that Section 44BB of the Act is a special provision for computing profits and gains in connection with the business of exploration of mineral oils. Its purpose was explained by the Department vide its Circular No. 495 dated September 22, 1987, namely, to simplify the computation of taxable income as number of complications were involved for those engaged in the business of providing 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 etc. Instead of going into the nitigrities of such computation as per the normal provisions contained in Sections 28 to 41 and Sections 43 and 43A of the Act, the Legislature has simplified the procedure by providing that tax shall be paid @ 10% of the 'aggregate of the amounts specified in sub-section (2)' and those amounts arc 'deemed to be the profits and gains of such business chargeable to tax .. .'. It is a matter of record that when income is computed under the head 'profits and gains of business or profession', rate of tax payable on the said income is much higher. However, the Legislature provided a simple formula, namely, treating the amounts paid or payable (whether in or out of India) and amount received or deemed to be received in India as mentioned in sub-section (2) of Section 44BB as the deemed profits and gains. Thereafter, on such deemed profits and gains {treating the same as income), a concessional flat rate of 10% is charged to tax. In these circumstances, the AO is supposed to apply the provisions of Section 44BB of the Act, in order to find out as to whether a particular amount is deemed income or not. When it is found that the amount paid or payable {whether in or out of India), or amount received or deemed to be SEDCO FOREX INTERNATIONAL INC. THR. IT'S 405 CONSTITUTED ATTORNEY v. CIT, MEERUT received in India is covered by sub-section (2) of Section 44BB A • of the Act, by fiction. created under Section 44BB of the Act, it becomes 'income' under Sections 5 and 9 of the Act as well. In the the instant case, the amount which is paid to· the assessees is towards mobilisation fee. It docs not mention that the same is for reimbursement of expenses. In fact, it is a fixed amount paid B which may be less or more than the expenses incurred. Incurring of expenses, therefore, would be immaterial. It is also to be borne in mind that the contract in question was indivisible. [Paras 49, 50](433-A-G] 6. In revenue's appeal preferred by the Director of Income Tax against the judgment of the High Court, the computation of C income of the assessee was done under Section 44BB of the Act. However, the amount which was sought to be taxed was reimbursement of cost of tools lost in hole by ONGC. It is, thus, clear that this was not the amount which was covered by subsection (2) of Section 44BB of the Act as ONGC had lost certain D tools belonging to the assessee, and had compensated for the said loss by paying the. amount in question. [Para 51][434~B-D] Saipem S.PA. v. Deputy Commissioner of Income Tax 88 ITD 213 (Del); Commissioner of Income Tax v. F.Y Khambaty (1986) 159 ITR 203; Anglo-French Textile Company, Ltd., by Agents Mis Best & Company, Ltd., Madras v. Commissioner of Income Tax, Madras (1954) 25 ITR 27 (SC); lshikawajma-Harima Heavy Industries Ltd. v. Director oflncome Tax, Mumbai (2007) 288 ITR 408 (SC) : (2007) 3 sec 481 : (2007] 1 SCR 112; Carboranduin & Co. v. CIT, Madras (1977) 108 ITR 335 (SC); Commissioner of Income Tax, Madras v. Best and Company (Private) Ltd., Madras (1966) 60 ITR 11 (SC); Commissioner of Income Tax and Anr. v. l~vundai Heavy Industries Co. Ltd. (2007) 7 SCC 422 : [2007) 7 SCR 288; State Bank of Travancore v. Commissioner of Income Tax, Kera/a (1986) 158 ITR 102 (SC); Avasarala Technologies Limited v. Joint Commissioner of Income Tax, Special Range I, Bangalore (2015) 14 SCC 732; Commissioner of Income Tax Bihar and Orissa, Patna v. Ashoka Marketing Co. E F G H 406 SUPREME COURT REPORTS [2017] ll S.C.R. . A {1972) 4 sec 426-- referred to. Case Law Reference 88 ITD 213 {Del) referred to Para 11 [19961 2 SCR 570 relied on Para 17 B (1986) 159 ITR 203 referred to Pura 18 {1954) 25 ITR 27 {SC) referred to Para 18 [2007) 1 SCR ll2 referred to Para 18 { 1977) 108 !Tit 335 {SC) referred to Para18 (1966) 60 ITR 11 (SC) referred to Para 18 c 120071 7 SCR 288 referred to Para 23 (1986) 158 ITR 102 (SC) referred to Para 23 {2015) 14 sec 132 referred to Para 28 (1972) 4 sec 426 referred to Para 28 D CIVIL APPELLATE JuRISDICTION: Civil Appeal No. 4906 of2010. E F From the Judgment and Order dated 28.09.2007 of the High Court ofUttarakhand at Nainital in Income Tax Appeal (!TA) No. 280 of2001 WITH C. A. No.4908, 4910, 4911,4907, 4913, 4920, 4919, 4921,4916, 4918,4917,4925,4924,4922,4923,4909,5935,5934,4914,4915,8595 and4926 of2010 C. A. Nos. 5154, 5152, 5153 and 5155 of201 I C. A. Nos. 2166 and 3695 of 2012 C. A. Nos. 2631, 4543, 8627, 9188, 8665, 267 and268 of2013 C. A. Nos. 5005, 6573 and 6651 of 2014 C. A. Nos. 5437, 10294, 10295 and 10296 of2016 G C.A. No. 17388, 17389, 17390, 17391, 17392, 17393,435, 10382, H 10385, 10383, 10384, 10386, 17394, 12365 and 12366 of2017. Porns F Kaka, Ajay Vohra, Sr. Advs. Ms. Ka vita Jha, Ms. Shivani Khamlckar, Udit Narcsh, Manish Kanth, Divesh Kanth, Rustom B. Hathikhanwala, Rohit Jain, Vaibhav Kulkarni, K.K. Mohan,Arijit Prasad, SEDCO FOREX INTERNATIONAL INC. THR. IT'S 407 CONSTITUTED ATTORNEY v. CIT, MEERUT D. L. Chidananda. Ritin Rai, Ms. Sadhna Sandhu, Shirin K.hajuria, A Ms. A nil Katiyar, Ms. Rashmi Malhotra, Rupesh Kumar, Ms. Gargi Khanna. B. V. Balaram Das, Ms. Kavita Jha, Ms. Geetanjali Mohan, Manish Kanth, Divesh Chawla. V. Lakshmikumaran, Jay Savla, Karan Sachdev, Ms. Renuka Sahu, Aditya Bhattacharye, Prabhat Chaurasia. Jasdeep Singh Dhillon, L Badri Narayanan, Advs. with them for the B appearing parties. The Judgment of the Court was delivered by A. K SIKRI, J. I. Leave granted in SLP(C) No. 2955 of 2012, SLP(C) No. ll560 of2014, SLP(C) No. 20000 of2015, SLP(C) No. 22343 of2012, SLP(C) No. 22833 of 2012, SLP(C) No. 39683 of2013 c and SLP(C) No. 21939 of2017. 2. In all these appeals filed by different appellants (hereinafter referred to as the 'assessees') except Civil Appeal No. 3695 of2012 which is filed by Director oflncome Tax (Revenue). the question oflaw which arises for consideration is identical and pertains to the scope and D interpretation of Section 44BB of the Income Tax Act, 1961 (hereinafter referred to as the •Act'). 3. For computation of profits and gains of a business, to make it exigiblc to tax under the Act, provisions contained in Chapter IV, from Sections 28 to 41, 43 and 43A of the Act-apply. However, in those cases E where the assessec is a non-resident and specifically engaged in the business of exploration etc. of mineral oil, special mechanism is provided in Section 44BB of the Act for computation of profits and gains, on which the tax is charged. It, however, gives choice to such non-resident asscssccs to opt for computation formula provided under Section 44BB or to be covered by normal computation mechanism contained in Sections F 28 to 41, 43 and 43A of the Act. Section 44BB of the Act stipulates that a sum equal to 10% of the 'aggregate of the amounts specified in subsection (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'. Thus, concessional rate of I 0% is charged as tax, which is G admittedly much less than the normal tax rate payable on profits and gains of business or profession. However, this tax @l 0% is on the aggregate of the amounts specified in sub-section (2) which are "deemed" · profits and gains of such business. Thus, insofar as calculation of profits and gains of the business under Section 44BB of the Act is concerned, H 408 SUPREME COURT REPORTS (2017] l l S.C.R. A on which l 0% tax 1s payable, it is worked out on fictional basis by adopting the formula laid down in sub-section (2). Sub-section (2) mentions those amounts aggregate whereof is to be treated as deemed profits and gains of such a busmess. B c D E F G H 4. At this juncture. we reproduce the provisions of Section 44BB of the Act, as reading of this provision is necessary before spelling out the nature of dispute which had arisen in these appeals. This section reads as under: "44BB. Special provision for computing profits and gains in connection with the business of exploration, etc., of mineral ails. ( 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 per cent 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" : 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 l l 5Aor 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 oflndia) 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 extrnction 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 assessec 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. SEDCO FOREX INTERNATIONAL INC. THR. IT'S CONSTITUTED ATTORNEY v. CIT, MEERUT [A. K. SIKRI, J.] (3) Notwithstanding anything contained in sub-section (I), an assessee may claim lower profits and gains than the profits and gains specified in that sub-section, ifhe keeps and maintains such books of account and other documents as required under subsection (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 subsection (3) of section 143 and determine the sum payable by, or refundable to, the asscssee. Explanation.-For the purposes of this section,- ( i) "planf' includes ships, aircrnft, vehicles, drilling units, scientific apparntus and equipment, used for the purposes of the said business; (ii) "mineral_ oil" includes petroleum and natural gas." 5. A bare reading of the aforesaid provision brings out the following 409 A B c salient features thereof: D (a) Sub-section (I) is a non-obstante clause, starting with the expression 'notwithstanding anything to the contrary contained ;n Sections 28 to 41 and Sections 43 and 43A'. Thus, once we apply this special provision for computation of profits and gains, provisions for computation of such profits as contained in E Sections 28 to 41 and Sections 43 and 43A of the Act stand excluded. (b) In order to attract the provisions ofScction 44BB of the Act, two conditions are to be specified, namely, (i) assessee has to be a non-resident; and (ii) assessee should be engaged in the F business of exploration etc. in mineral oils of the nature specifically spelled out in the provision. (c) Choice is given to such an asscssce under sub-section (3) of the Act to either claim lower profits and gains than the profits and gains specified in sub-section (2) and covered by normal G provisions of computing profits and gains of business or profession, subject to fulfilling the conditions of audit etc. ~s mentioned therein or to be governed by Section 44BB of the Act. H 4IO A 8 c D E F SUPREME COURT REPORTS [2017] I J S.C.R. ( d) In case the twin conditions mentioned above are satisfied the . ' assessee can take the benefit ,,f paying the tax as per the provisions of Section 4488 on "deemed profits and gains" of its business and such profits and gains are to be calculated as per the formula provided in sub-section (2) thereof. Pertinently, it is a 'deemed' provision for calculating profits and gains of business or profession, which means that such profits and gains arc to be arrived at fictionally, as per provisions contained in sub-section (2). (c) Sub-section (2) mentions the amounts which are to be added up, and·thc aggregate of those amounts is deemed to be profits and gains on which 10% tax is charged as component of income tax. 6. Coming to the /is that is involved in these appeals, it may be seen that sub-section (2) mentions two kinds of amounts which are to be treated as profits and gains of the business. In clause (a) of sub-section (2), the amount referred to arc those which arc paid or payable to 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 extrnction or production of, mineral oils in India. It is immaterial whether the said amount is paid or payable in India or out oflndia. Second kind of amounts mentioned in clause (b) of sub-section (2) arc those sums which arc received or deemed to be received by or on behalf of the assessee on account of 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, extraction or production ofmincrnl oils outside India. Herc, however, only those sums which arc paid or payable in India are to be included. 7. The asscssccs herein had entered into contracts primarily with Oil and Natural Gas Commission (ONGC), a public sector company, for hire of their rig for carrying out oil exploration activities in India. For this purpose, they were paid mobilisation fee as well, for and on account of G mobilisation/movement ofrig from foreign soil/counlly to the off-shore side at Mumbai (India). The issue that has fallen for consideration is as to whether aforesaid amount received is to be included for computation of deemed profits and gains of the business, chargeable to tax under Section 4488 of the Act. Right from the Assessing Officer (AO) till the H SEDCO FOREX INTERNATIONAL INC. THR. IT'S 411 CONSTITUTED ATTORNEY v. CIT, MEERUT [A. K. SIKRI, J.] High Court, all the fora have answered this question in affi1mative holding A that this amount is to be included for computing profits and gains of the businesses of the assessees. 8. Civil Appeal Nos. 4906 of2010, 4907 of2010, 4915 of2010 filed by Sedco Forcx International Inc., Mis Transocean Offshore Inc., Mis Sedco Forex International Drilling Inc. respectively were taken up B as lead matters and, therefore, for the sake of brevity, we recapitulate the factual matrix from the said appeals, as it would suffice for answering the question involved. 9. During the years umlerconsideration, the asscssees are engaged in executing the contracts all over the world including India in connection c with exploration_ and production of mineral oil. The assessees are companies incorporated outside India and, therefore, non-resident within the meaning of Section 6 of the Act. The assessecs entered into agreements with ONGC, Enron Oil and Gas India Ltd. The aforesaid agreements provided for the scope of work along with separate considerMion for the work undertaken. Since the dispute is about D mobilisation charges, clauses in respect thereof are as.under: "Operating Rate - Receipts for undertaking drilling operations computed by per day rates provided in the contract. The operating rates shall be payable from the time the drilling unit is jacked-up and ready at the location to spud the first well. Mobilisation-charges for the transport of the drilling unit from a location outside India to a location in India as may be designated by ONGC." In addition to the above, assessees also received amounts from the operator towards reimbursement of expenses like catering, boarding/ lodging, fuel, customs duty, the supply of material etc., with which we are not concerned. E F l 0. The assessces filed their return of income declaring income from charter higher of the rig. The same was offered to tax under G Section 44BB of the Act. In the case of Scdco Forex International Inc., the lk~sessee did not include the amount received as mobilisation charges to the gross revenue for the purpose of computation under Section 44BB of the Act. Jn the case of Transocean Offshore Inc., the assessec included l % of the mobilisation fees. The mobilisation fees were offered H 412 A B c D E F G H SUPREME COURT REPORTS (2017) l l S.C.R. to tax on a l % deemed profit basis on the ratio of the CBDT Instruction No. 1767 dated July I, 1987. 11. The AO included the amounts received for mobilisation! demobilisation to the gross revenue to arrive at the "profits and gains" for the purpose of computing TAX under Section 44BB of the Act. The Commissioner of Income Tax (Appeals) [hereinafter referred to as the 'CIT(A)'J confirmed the action of the AO. The Income Tax Appellate Tribunal (hereinafter referred to as the '!TAT') in the case of Sedco F orex International Inc. dismissed the appeal of the assessee and the action of the AO was upheld insofar as the mobilisation charges were concerned. In the case of Transocean Offshore Inc., the !TAT upheld the view taken by the assessee and directed the AO to assess the profits on mobilisation charges at l % of the amount received. This was done following the Circular ofCBDT Instruction No. 1767 dated July 1, 1987 and decision of the third Member in the case of Saipem S.P.A. v. Depu(v Commissioner of Im·ome Tax'. The High Com1 has held that the mobilisation charges reimbursed inter alia even for the services rendered outside India were taxable under Section 4488 of the Act as the same is not governed by the charging provisions of Sections 5 and 9 of the Act. Even on the issue of reimbursement in M/s. Sedco Forex International Drilling Inc. (Civil Appeal No. 4915 of 2010), the High Court followed its earlier judgments dated September 20, 2007 and May 22, 2009 to hold that reimbursement of expenses incurred by the asscssee was to be included in the gross receipts, and taxable under Section 44BB of the Act. 12. From the aforesaid briefnarration of fact~. it may be discerned that following three types of payments were given by the ONGC to the asscssees: (i) Mobilisation/demobilisation advance. (ii) Custom duty reimbursement. (iii) Operational charges reimbursement. 13. The High Court has held that these payments be also included as amounts received for computation of aggregate of amounts specified in sub-section (2) as deemed to be the profits and gains of the businesses of the assessees, chargeable to tax under the said provision. '88 rm 213 (Dell SEDCO FOREX INTERNATIONAL INC. THR. IT'S 413 CONSTITUTED ATTORNEY v. CIT, MEERUT [A. K. SIKRI, J.] J 4. Mr. Porns F. Kaka, learned senior advocate appearing in some A of these appeals submitted that the aforesaid amounts were, in fact, towards reimbursement of expenses actually incurred by the assessees. According to him, the work undertaken was, in fact, the obligation of the ONGC and it was for ONGC to provide such facilities/material under the contract. Stili the assessees performed the said task at the request of the ONGC and ONGC simply reimbursed these expenses which did not have any profit element. It was emphasised by Mr. Kaka that insofar as the asscsse~~Scdco Forcx International Inc. is concerned, the expenditure incurred on mobilisation was much higher than the actual payment received. Thus, this assessee had, in fact, suffered loss on this transaction. He also pointed out that the agreement separately provided for consideration/remuneration for mobilisation and demobilisation of dri Hing unit and reimbursement of cost incurred on behalf of the operator B c of ONGC. It was submitted that as this was the nature of the amount received, namely, reimbursement of expenses without there being any profit clement, it could not be treated as 'amount' within the meaning of D sub-section (2) of Section 44BB of the Act. 15. Explaining the taxation of income scheme enumerated under Sections 4. 5 and 9 of the Act, Mr. Kaka submitted that globally the tax systems can be classified broadly into two models; Worldwide and Territorial syst~m. India follows a territorial system of taxation specially qua business income of non-residents, which is taxed only as it is attributable to operations within the Indian territory. This, according to him, was clear from the conjoint reading of Sections 4, 5 and 9 of the Act. Section 4 is the charging section for levying a tax