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Reimbursement of Equipment Lost in Hole is Capital Receipt: ITAT [Read Order]

Reimbursement Capital Receipt - Taxscan

The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) has held that the reimbursement received by the assessee-Company on account of equipment Lost in Hole is in the nature of capital receipt which should be excluded from the gross receipts for the purpose of section 44BB of the Income Tax Act, 1961.

The assessee is a company incorporated in Bermuda and engaged in the business of providing services or facilities in connection with the prospecting or extraction or production of mineral oils and natural gas. The assessees’ income is computed in accordance with provisions of section 44BB of the Income Tax Act wherein 10% on receipts would be deemed to be the income of the assessee for the year under consideration.

The Assessing Officer, during the course of the assessment proceedings, proposed to include the reimbursement received by the company on account of equipment Lost in Hole towards the gross income.

On appeal, the Commissioner of Income Tax (Appeals), has accepted the contentions of the assessee. Aggrieved by the order, the department approached the Tribunal.

The assessee contended that as the name signifies, Lost in Hole means destruction and loss of capital assets like drilling equipment which are provided by the assessee to oil exploration and production companies and therefore, the amount received on account of the loss of equipment does not form part of income in the hands of the assessee, rather it is a mere reimbursement of the cost of equipment destroyed in the process of oil extraction.

Upholding the findings of the first appellate authority, the Tribunal noted that “We find that the ld CITA duly appreciated the contentions of the assessee and by placing reliance on the decision of Hon’ble Uttarakhand High Court in the case of CIT vs Schlumberger Asia Services Ltd reported in 317 ITR 156 and the decision of Hon’ble Apex Court in the case of Sedco Forex International Inc. vs CIT reported in 399 ITR 1 (SC) decided the issue in favour of the assessee. Before us, the ld AR placed on record the said decision of the Hon’ble Apex Court in 399 ITR 1 (SC).

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