AAR: In a contract for civil construction on turn-key basis, applicant would be eligible for presumptive rate of taxation under section 44BBB

Applicant: Toshiba Plant Systems and Services Corporation

A.A.R. No.864 of 2009

Assessment Year: 2010-11

Relevant Facts: M/s Toshiba Corporation, Japan, the holding company of the applicant is awarded a separate supply contract for off shore supply of plant and machineries to be installed at the Mundra UMP project.

The applicant would initially depute certain expats to the project office set up in Cyber Towers, Hitech city, Madhopur, Hyderabad for provision of services. Further in order to meet the project schedule, the applicant could in the course of the execution of the contract deploy additional expats and workforce, if required. It is contemplated to engage the services of a related party/third party for supply of labour for executing the work under the contract with CGPL.

Question/s before the Hon’ble Authority:

1. Whether on the stated facts and in law, the consideration received by the Applicant for the steam turbine, turbo generator erection of auxiliaries, other equipments including associated electrical, instrumentation and pre-commissioning work for the five units of 800 MW each of Ultra Mega Power Project at Mundra, Gujarat is eligible for presumptive rate of taxation under section 44BBB of the Act in India and accordingly, whether a sum equal to ten percent of the contract amount as and when received by the Applicant shall be deemed to be the profits and gains chargeable under the head, “Profit and gains of business of profession” of the Applicant in India?

2. Whether on the stated facts and in law, if the Applicant engages the services of a related party or third party for supply of labour for executing the work under the contract with the condition that the overall responsibility would remain with the Applicant, whether the Applicant would be eligible for presumptive rate of taxation under section 44BBB of the Act on the entire consideration receivable in terms of the contract?

The Hon’ble Authority decided that:

Para 6: “…we find that the CGPL has executed 2 contracts, one with M/s Toshiba Corporation for off-shore supply of equipments and the other with the applicant for erection of plant in execution for turnkey Mundra UMP Project. Both the contracts are independent of each other. The consideration received by M/s Toshiba Corporation is not taxable in India for the off-shore supply, while the applicant submits the consideration for taxation u/s 44BBB.”

Para 7: “The applicant’s case on the facts now disclosed squarely fits into the description given in this section. The argument on the side of the Revenue that if the contracts are an integral whole in the hands of Toshiba can be examined by it at the appropriate time. But on the facts as now disclosed by the applicant, section 44BBB of the Act would apply.”

The decision is available here.