P.C. Verma, J.
1. This income-tax appeal has been filed under Section 260A of the Income-tax Act, 1961 (hereinafter referred to as 'the Act') challenging the order dated September 23, 2005, passed by the Income-tax Appellate Tribunal, Delhi Bench 'D', New Delhi (for short, the ITAT) in I.T.A. No. 3922/Del./2000 for the assessment year 1997-98, whereby the Income-tax Appellate Tribunal has modified the order passed by the Assessing Officer and affirmed by the Commissioner of Income-tax (Appeals) on two issues, firstly, that the amount worth Rs. 5,88,30,840 was taken to be the basis for determining the deemed profits and gains under Sub-section (1) of Section 44BB of the Act at 1 per cent. in view of the Circular No. 1767 issued by the Central Board of Direct Taxes as this amount was received by the assessee as mobilization charges for mobilizing the vessel with a well equipped rig to Enron Oil and Gas (India) Ltd., an Indian company. Therefore, the mobilization charges were for the activities carried on outside India.
2. Secondly, the interest levied by the Assessing Officer under Section 234B of the Act would be consequential to the decision that only 1 per cent of the mobilization charges for transportation of the vessel outside the territorial waters of India would be taxable.
3. The assessee, a non-resident company, executed a contract with Enron Oil and Gas (India) Ltd. (hereinafter referred to as 'ENRON', as referred in the impugned judgment) for provision of a well equipped rig and performing drilling operations in connection with oil and gas exploration in the Tapti basin area in India. The return for the assessment year 1997-98 was filed by the assessee-company showing total gross revenues and taxable income earned by the assessee as under:
---------------------------------------------------------------------------TaxableGross revenues income Nature of revenues (in Rs.) (in Rs.)---------------------------------------------------------------------------(a) Revenues offered to tax on 10 per cent 7,01,52,538 70,15,254deemed profit basis as per Section 44BB of the Act(b) Mobilisation receipts offered to tax 5,88,30,840 5,88,308 on a 1 per cent deemed profit basis based on the ratio of Instruction No. 1767 issued by the Central Board of Direct Taxes read with Section 44BB of the Act.(c) Reimbursement of expenses offered to tax 6,75,759 67,576under protest on a 10 per cent deemed profit basis---------------------------------------------------------------------------The Assessing Officer levied the tax as under :---------------------------------------------------------------------------Rs.Gross receipts under the contract 12,96,59,1371 per cent. thereof as deemed profit under Section 44BB of the 1,29,65,914Income-tax ActTotal business income 1,29,65,910Interest income on IT. refunds 20,39,499---------------------------------------------------------------------------
4. The assessee filed an appeal before the Commissioner of Income-tax (Appeals), which was dismissed and the order of the Assessing Officer was affirmed.
5. Feeling aggrieved by the aforesaid order of the Commissioner of Income-tax (Appeals), the assessee preferred a second appeal before the Income-tax Appellate Tribunal and the Income-tax Appellate Tribunal allowed the appeal of the assessee in the terms stated above.
6. In the aforesaid facts and circumstances, the following questions arise for consideration by this Court:
(i) Whether the Income-tax Appellate Tribunal was legally justified in law and on facts in holding that mobilization charges should not be taxed at 10% as provided under Section 44BB ?
(ii) Whether the Income-tax Appellate Tribunal was legally justified in law and on facts in taking cognizance of Instruction No. 1767 dated July 1, 1987, when it had no applicability for the assessment year under consideration ?
(iii) Whether the Income-tax Appellate Tribunal was legally justified in law and on facts in holding that interest under Section 234B was not leviable when there was no debatable issue at all?
7. In Income-tax Appeal No. 280 of 2001 (Sedco Forex International Inc. v. CIT MANU/UC/0098/2007, a Division Bench of this Court have held that mobilization charges are liable to be taken into account as amount referred under Sub-section (2) of Section 44BB of the Act and of the said amount, 10 per cent. shall be the deemed income for levy of tax.
8. The Income-tax Appellate Tribunal has wrongly applied Circular No. 1767 issued by the Central Board of Direct Taxes on July 1, 1987, for two reasons, firstly, as the circular had a fixed life of three years from the assessment year 1987-88, which expired in the assessment year 1990-91. Secondly, the tenure of the said circular of the Central Board of Direct Taxes is relating to activity of purchases made by the Indian company outside India by way of platform, rig or other facility fabricated by the foreign contractor as per the specific requirement of the Indian company organization outside India. It does not refer to mobilization charges. A perusal of the circular shows that the Central Board of Direct Taxes had provided that 1 per cent. of the receipt by the foreign company on purchase of equipments by way of platform, rig or any other facility fabricated outside India shall be applied to determine the deemed profits and gains under Section 44BB of the Act.
9. The Central Board of Direct Taxes is competent to issue the circulars 1 under Section 119 of the Act in the form of guidelines or principles or procedures to be followed by the income-tax authorities relating to assessment or calculation of revenue. The Central Board of Direct Taxes exercises the delegated power which has been described under Section 119 of the Act. The Central Board of Direct Taxes has not been empowered to fix the percentage for calculating the deemed profit under Section 44BB of the Act. Section 44BB itself provides that the aggregate of the amounts referred to under its Sub-section (2) shall be taken into account and 10 per cent. thereof shall be the deemed income on which tax shall be levied. Thus, the circular suffers from vice and excessive delegation and is void. (Reliance is placed by us on the principles laid down by the hon'ble apex court in State Bank of Travancore v. CIT reported in MANU/SC/0282/1986 : [1986]158ITR102(SC) wherein it has been held that circulars which are executive in character cannot alter the provisions of the Act.)
10. Thus, the finding recorded by the Income-tax Appellate Tribunal that one per cent. shall be the deemed profits and gains of the amount worth Rs. 5,88,30,840 pertaining to outside India activity is liable to be set aside and is hereby set aside. The Assessing Officer as well as the Commissioner of Income-tax (Appeals) has rightly calculated the deemed profits and gains at 10 per cent. of mobilization charges at Rs. 5,88,30,840 and the same is upheld. Therefore, the finding of the Income-tax Appellate Tribunal to levy the 12 interest as a consequence to its decision only on the one per cent. amount of the mobilization charges is also set aside and the order of the Assessing Officer and the Commissioner of Income-tax (Appeals) are affirmed on this point also. Accordingly, the appeal is allowed. All the three questions are answered in favour of the Revenue and against the assessee.