SEDCO FOREX INTERNATIONAL INC. THR. ITS CONSTITUTED ATTORNEY MR. NAVIN SARDA vs COMMISSIONER OF INCOME TAX MEERUT — C.A. No. 4906/2010

SEDCO FOREX INTERNATIONAL INC. v. COMMISSIONER OF INCOME TAX MEERUT - CASE SUMMARY Case Citation: C.A. No. 4906/2010 and 60+ related appeals heard together Court: Supreme Court of India (Civil Appellate Jurisdiction) Judgment Date: October 30, 2017 Judges: A.K. Sikri and Ashok Bhushan, JJ. --- OUTCOME All appeals of the assessees dismissed. The Supreme Court upheld the tax authorities' inclusion of mobilization fees in taxable income under Section 44BB of the Income Tax Act, 1961. --- KEY ISSUE Whether mobilization charges paid by ONGC to non-resident foreign drilling companies for transporting drilling rigs from foreign locations to Indian offshore sites constitute "deemed profits and gains" taxable under Section 44BB of the ITA, 1961. --- FACTS - Non-resident companies (Sedco Forex International Inc., Transocean Offshore Inc., etc.) entered into contracts with Oil and Natural Gas Commission (ONGC) to supply drilling rigs for oil exploration in Indian offshore waters - Contracts provided separate consideration for: (i) mobilization fees, (ii) operating charges, and (iii) reimbursements for expenses - Assessees argued mobilization fees were reimbursements of transportation expenses for activities conducted outside India and thus not taxable - All tax authorities (AO, CIT(A), ITAT, High Court) had included these amounts in taxable income under Section 44BB --- COURT'S DECISION Section 44BB is a special presumptive income provision: It provides that 10% of aggregate amounts specified in sub-section (2) is "deemed" profits and gains of mineral oil exploration business, taxable at concessional rates. Mobilization fees are included: Amounts paid or payable for provision of services/facilities in connection with mineral oil extraction in India fall under Section 44BB(2)(a), regardless of where payment is made. Sections 5 and 9 still apply: Though Section 44BB is a computation provision, charging sections (Sections 4, 5, and 9) cannot be entirely bypassed. However, Section 44BB(2) creates a legal fiction treating specified amounts as "income" deemed to arise in India, thereby satisfying both charging and computation requirements. Fixed fee vs. reimbursement distinction irrelevant: The mobilization fee was contractually fixed and bore no necessary nexus to actual expenses incurred. Whether labeled "reimbursement" or "fee," the payment constitutes taxable income under Section 44BB. Indivisible contract principle: The contract was an indivisible whole for provision of drilling services in India; mobilization was integral to this composite obligation, not a separate external transaction. --- OUTCOME IN RELATED APPEAL Civil Appeal No. 3695 of 2012 (Revenue's appeal): Dismissed. The Court upheld the High Court's decision that reimbursement for tools lost by ONGC does not fall within Section 44BB(2) and is not taxable. This case analysis is maintained by casestatus.in based on publicly available court records.