ITAT (DELHI BENCH ‘B’: NEW DELHI) DSD Industrieanlagen GmbH v. DDIT (Int’l Taxation)

Determination of income of a foreign company under section 44BBB of IT Act, 1961



When section 44BBB mandates that income of the assessee is to be computed at ten per cent of the receipts and the assessee does not claim a lower profits than that to be assessed under sub-section (2) of section 44BBB, the Assessing Officer cannot proceed to determine the income of the assessee under section 28 to 44AA on the pretext of consistency.



ITAT (DELHI BENCH ‘B’: NEW DELHI)

DSD Industrieanlagen GmbH

v.

DDIT (Int’l Taxation)

ITA NO. 2354/Del/2008

July 24, 2009

RELEVANT EXTRACTS:

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8. We have heard the parties and considered the rival submissions. The income of the assessee under the head “Business or profession” is normally to be computed as per the provisions of sections 28 in accordance with the provision contained in sections 30 to 43D. The legislature also provides the computation contained in sections 30 to 43D. the legislature also provides the computation of income under this head on “presumptive basis” under certain sections like 44, 44A, 44AD, 44AE, 44AF, 44B, 44BB, 44BBA, 44BBB, 44BD, 44BDA, 44D, 44DA, etc. We are concerned in this case with section 44BBB. It reads as under:

"44BBB. (1) 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, 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) 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 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 assessee”.

9. This is a section, which provides special provision for computing profits and gains of foreign companies engaged in the business of civil construction, etc. in turnkey power projects. This section, like others mentioned above, is a non-obstante provision and starts with the words "Notwithstanding anything to the contrary contained in sections 28 to 44AA". It determines the income at a sum equal to ten per cent of the amount paid or payable on account of such civil construction or the business of erection of plant or machinery or testing or commissioning thereof, as the profits and gains of such business chargeable to tax under the head "Profits & gains from business or profession". By sub-section (2) of this section, an option is given to the assessee to 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 under section 44AB. It is only in that case, the Assessing Officer has to make assessment on the total income or loss of the assessee under section 143 (3) of the Act as per the books of accounts maintained by the assessee. The provisions under section 44BBB being a non-obstante provision overrides the provision of section 28 to 44AA of the Act, and, therefore, in our opinion, has to be given precedence over the normal provision of computing profits and gains to section 28 to 44AA.

10. The reliance placed by the Revenue on the decision of the Supreme Court in the case of A. Sanyasi Rao, in our opinion, would not be of any help to it, inasmuch as in that case section 44AC and section 206C were held to be the provisions akin to advance tax and reference to sections 44B, 44BB and 44BB, 44BBA and 44D which were contended to be similar provisions to section 44AC and 206C was found to be irrelevant in construing sections 44AC and 206C by the Supreme Court as they relate to non-residents carrying on business in India. Section 44BBB is also a provision applicable to non-residents carrying on business in India. Further the decision of Supreme Court has only stated that the denial of relief provided under sections 28 to 43C to the particular business or trades dealt with in section 44AC cannot be denied and, therefore, the non-obstante clause in section 44AC denying such reliefs was held to have no basis and as unfair and arbitrary and equality of treatment is denied to such persons, necessitating ground of appropriate relief. In the present case, no relief is claimed under section 28 to 43C by the assessee and, therefore, the case of A. Sanyasi Rao would not be any help to the revenue.

11. The other contention of the revenue is that the assessee has been assessed in the earlier years under section 28 to 43C and, therefore, in view of the Delhi High Court decision in the case of A.R J. Security Printers (supra) relying upon the Supreme Court decision in Radhasoami Satsang, the assessee cannot be allowed to change the consistency and has to be assessed on the basis as he was assessed in the past. Here also, we do not find any merit in the contention of the revenue, in view of the clear mandate contained in section 44BBB. What the courts have held that earlier decision should not be reopened to maintain consistency unless fresh facts are found in the subsequent year. Here in the case law gives option to an assessee to opt for assessment based on accounts if he claims a lower profit than 10% provided under sub-section (1) of section 44BBB of the Act. The mandate as given in section 44BBB is to compute the profit @ 10% is a law and law cannot be given a go bye to maintain consistency. These cases are to settle a dispute resolved in earlier year have thus no application. In our view, therefore, the Assessing Officer cannot force the system, which has been followed in the earlier year as per the option by the provision of law itself. He has to follow the mandate of the law and as held by the Supreme Court in the case of Motilal Padampat Sugar Mills Co. Ltd. 118 ITR 326 (SC), the doctrine of promissory estoppel cannot be applied in the teeth of an obligation or liability imposed by law. Promissory estoppel cannot be invoked to compel the Government or even a private party to do an act prohibited by law. There can also be no promissory estoppel against the exercise of legislative power. The legislature can never be precluded from exercising its legislative function by resort to the doctrine of promissory estoppel. In these circumstances, when section 44BBB mandates that income of the assessee is to be computed at 10% of the receipts and the assessee does not claim a lower profit than that to be assessed under sub-section (2) of section 44BBB and the Assessing Officer cannot proceed to determine the income of the assessee under section 28 to 44AA ignoring such provisions which are specifically overridden in the opening sentence of section 44BBB of the Act on the pretext of consistency.

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