The officer has applied s.44BBB to the whole contract value in the year the turnkey power project was completed. Can he do that?
No. Section 44BBB is a deeming provision that charges ten per cent of the amount paid or payable to the foreign company during the year. Unless an amount is paid or payable in the previous year, there is nothing on which the ten per cent can operate, and the completion of the contract in that year does not let the officer aggregate payments received in earlier years.
Decided by the High Court (D. Murugesan J and P.P.S. Janarthana Raja J) on 2010-01-05, reported as Tax Case (Appeal) No. 571 of 2004 (High Court of Judicature at Madras), against ITAT Chennai 'A' Bench order dated 23 February 2004 in ITA No. 654/Mds/97. It bears on section 44BBB, section 143(3), section 143(1)(a), section 260A of the Income Tax Act 1961, in Presumptive Taxation & Audit and Assessment & Scrutiny matters.
This is the only decision found that actually construes s.44BBB, and it does so on the most basic question — the year of charge. The section was inserted by the Finance Act 1989 with effect from 1 April 1990 and applies from AY 1990-91, so a contract straddling that date raises exactly this problem: the Revenue wants to catch the whole contract at completion, and the section will not carry that weight. The same reasoning answers the wider point that a presumptive charge cannot be enlarged beyond its own conditions. Read the section text in the judgment as the version in force for AY 1994-95, not as the current law: s.44BBB has been amended since, and the judgment's own extract of the section differs from the CBDT circular it quotes, which adds the condition that the project be financed under an international aid programme.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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The assessee is a non-resident foreign company headquartered at Legnano, Italy, with a project office at Chennai established from 1 October 1981 and registered with the Registrar of Companies with Reserve Bank permission. Under contract dated 8 June 1981 with Neyveli Lignite Corporation it undertook unloading, erection, testing and commissioning of three steam turbine generators with ancillaries. Following Rule 10 of the Income-tax Rules the Assessing Officer had, for AY 1982-83 to AY 1993-94, closed the assessments as NA on the footing that profit or loss would be determined on completion of the entire contract, and the assessee accepted that; but for AY 1988-89 and AY 1989-90 the returned losses had been accepted and computed. The units were provisionally taken over by NLC on 28 September 1986, 8 May 1987 and 23 April 1988, guarantee obligations expired by 23 April 1989 and the bank guarantees were returned by 30 April 1989. The erection invoice was raised on 16 April 1988 and all bills were settled before 30 April 1990. Of the total Rs 4,90,45,132.72 received, Rs 3,02,10,878.21 was received in AY 1988-89 and AY 1989-90 and the balance in AY 1986-87, 1987-88, 1990-91 and 1991-92. For AY 1994-95 the assessee filed a consolidated profit and loss account for 1 January 1981 to 31 March 1994 showing a net loss of Rs 5,80,69,876 and returned nil income. Relying on the assessee's letter of 24 January 1995 stating that the contract had come to an end on 5 November 1993, the Assessing Officer applied s.44BBB to the entire Rs 4,90,45,132 and charged Rs 49,04,510 as deemed profit. The CIT(A) allowed the assessee's appeal and the Tribunal dismissed the Revenue's appeal.
The appeal was dismissed and the questions answered in favour of the assessee and against the Revenue. Section 44BBB is a deeming provision under which ten per cent of the amount paid or payable to the assessee is deemed to be profits; unless the amount is paid or payable during the year, the Revenue cannot levy ten per cent on the gross amount. On the concurrent findings that nothing was paid or payable during the accounting year and that the entire Rs 4,90,45,132 had been received in years long before AY 1994-95, the Assessing Officer was not justified in aggregating the payments and charging ten per cent in the year of completion. The mere completion of the contract does not suffice. The Assessing Officer was required instead to deal with the return of loss filed for AY 1994-95 by following the normal procedure, the CIT(A) having rightly observed that he was at liberty to scrutinise the loss and determine the amount to be carried forward (paragraph 7).
The Court set out s.44BBB as it stood, noted that it was inserted by the Finance Act 1989 with effect from 1 April 1990 and applies from AY 1990-91, and described it as a special provision for computing presumptive profits of foreign enterprises engaged in civil construction and erection, testing or commissioning in certain turnkey power projects. It set out CBDT Circular No. 550 dated 1 January 1990 explaining the object — simplification, given the difficulty of verifying expenses of non-residents whose books are kept abroad. On the facts, the authorities below had found that the works were completed by 30 April 1989, before s.44BBB came into force, and that payments at intermediate stages had been made against invoices supported by the purchaser's completion certificates. The Court treated as significant that the assessee had been regularly filing returns which had been processed, and that for AY 1988-89 and 1989-90 the assessments had not been closed on a no income no loss basis but on the computed loss. From these facts it was clear that no amount was received in the accounting year. Since the charge under the deeming provision requires an amount paid or payable during the accounting year, and unless the conditions stipulated in the deeming provision are satisfied the Revenue cannot invoke it, the findings of the authorities were based on valid material, were findings of fact and were not perverse.
From a reading of the above provision, it is clear that unless and until the amount is paid or payable to the assessee during the year, the revenue cannot levy 10% on the gross amount.
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Handle my notice → Ask a CA on WhatsAppNo. Section 44BBB is a deeming provision that charges ten per cent of the amount paid or payable to the foreign company during the year. Unless an amount is paid or payable in the previous year, there is nothing on which the ten per cent can operate, and the completion of the contract in that year does not let the officer aggregate payments received in earlier years. This was decided by the High Court (D. Murugesan J and P.P.S. Janarthana Raja J) and bears on section 44BBB, section 143(3), section 143(1)(a), section 260A of the Income Tax Act 1961. It is reported as Tax Case (Appeal) No. 571 of 2004 (High Court of Judicature at Madras), against ITAT Chennai 'A' Bench order dated 23 February 2004 in ITA No. 654/Mds/97. This is the only decision found that actually construes s.44BBB, and it does so on the most basic question — the year of charge. The section was inserted by the Finance Act 1989 with effect from 1 April 1990 and applies from AY 1990-91, so a contract straddling that date raises exactly this problem: the Revenue wants to catch the whole contract at completion, and the section will not carry that weight. The same reasoning answers the wider point that a presumptive charge cannot be enlarged beyond its own conditions. Read the section text in the judgment as the version in force for AY 1994-95, not as the current law: s.44BBB has been amended since, and the judgment's own extract of the section differs from the CBDT circular it quotes, which adds the condition that the project be financed under an international aid programme. If it applies to you, the first step is this: Tie the s.44BBB charge to the previous year: show the year-by-year record of amounts paid or payable under the contract, and show that nothing was paid or payable in the year the officer has taxed.
The assessee is a non-resident foreign company headquartered at Legnano, Italy, with a project office at Chennai established from 1 October 1981 and registered with the Registrar of Companies with Reserve Bank permission. Under contract dated 8 June 1981 with Neyveli Lignite Corporation it undertook unloading, erection, testing and commissioning of three steam turbine generators with ancillaries. Following Rule 10 of the Income-tax Rules the Assessing Officer had, for AY 1982-83 to AY 1993-94, closed the assessments as NA on the footing that profit or loss would be determined on completion of the entire contract, and the assessee accepted that; but for AY 1988-89 and AY 1989-90 the returned losses had been accepted and computed. The units were provisionally taken over by NLC on 28 September 1986, 8 May 1987 and 23 April 1988, guarantee obligations expired by 23 April 1989 and the bank guarantees were returned by 30 April 1989. The erection invoice was raised on 16 April 1988 and all bills were settled before 30 April 1990. Of the total Rs 4,90,45,132.72 received, Rs 3,02,10,878.21 was received in AY 1988-89 and AY 1989-90 and the balance in AY 1986-87, 1987-88, 1990-91 and 1991-92. For AY 1994-95 the assessee filed a consolidated profit and loss account for 1 January 1981 to 31 March 1994 showing a net loss of Rs 5,80,69,876 and returned nil income. Relying on the assessee's letter of 24 January 1995 stating that the contract had come to an end on 5 November 1993, the Assessing Officer applied s.44BBB to the entire Rs 4,90,45,132 and charged Rs 49,04,510 as deemed profit. The CIT(A) allowed the assessee's appeal and the Tribunal dismissed the Revenue's appeal. The matter was decided on 2010-01-05 by the High Court (D. Murugesan J and P.P.S. Janarthana Raja J). On those facts the High Court held as follows. The appeal was dismissed and the questions answered in favour of the assessee and against the Revenue. Section 44BBB is a deeming provision under which ten per cent of the amount paid or payable to the assessee is deemed to be profits; unless the amount is paid or payable during the year, the Revenue cannot levy ten per cent on the gross amount. On the concurrent findings that nothing was paid or payable during the accounting year and that the entire Rs 4,90,45,132 had been received in years long before AY 1994-95, the Assessing Officer was not justified in aggregating the payments and charging ten per cent in the year of completion. The mere completion of the contract does not suffice. The Assessing Officer was required instead to deal with the return of loss filed for AY 1994-95 by following the normal procedure, the CIT(A) having rightly observed that he was at liberty to scrutinise the loss and determine the amount to be carried forward (paragraph 7).
The Court set out s.44BBB as it stood, noted that it was inserted by the Finance Act 1989 with effect from 1 April 1990 and applies from AY 1990-91, and described it as a special provision for computing presumptive profits of foreign enterprises engaged in civil construction and erection, testing or commissioning in certain turnkey power projects. It set out CBDT Circular No. 550 dated 1 January 1990 explaining the object — simplification, given the difficulty of verifying expenses of non-residents whose books are kept abroad. On the facts, the authorities below had found that the works were completed by 30 April 1989, before s.44BBB came into force, and that payments at intermediate stages had been made against invoices supported by the purchaser's completion certificates. The Court treated as significant that the assessee had been regularly filing returns which had been processed, and that for AY 1988-89 and 1989-90 the assessments had not been closed on a no income no loss basis but on the computed loss. From these facts it was clear that no amount was received in the accounting year. Since the charge under the deeming provision requires an amount paid or payable during the accounting year, and unless the conditions stipulated in the deeming provision are satisfied the Revenue cannot invoke it, the findings of the authorities were based on valid material, were findings of fact and were not perverse. In the words reproduced by the source cited on this page: "From a reading of the above provision, it is clear that unless and until the amount is paid or payable to the assessee during the year, the revenue cannot levy 10% on the gross amount." The decision followed or applied CBDT Circular No. 550 dated 1 January 1990, (1990) 182 ITR ST 124 — relied on for the object and scope of s.44BBB.
It was decided by the High Court on 2010-01-05 and is reported as Tax Case (Appeal) No. 571 of 2004 (High Court of Judicature at Madras), against ITAT Chennai 'A' Bench order dated 23 February 2004 in ITA No. 654/Mds/97. Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 44BBB, section 143(3), section 143(1)(a), section 260A, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The appeal was dismissed and the questions answered in favour of the assessee and against the Revenue. Section 44BBB is a deeming provision under which ten per cent of the amount paid or payable to the assessee is deemed to be profits; unless the amount is paid or payable during the year, the Revenue cannot levy ten per cent on the gross amount. On the concurrent findings that nothing was paid or payable during the accounting year and that the entire Rs 4,90,45,132 had been received in years long before AY 1994-95, the Assessing Officer was not justified in aggregating the payments and charging ten per cent in the year of completion. The mere completion of the contract does not suffice. The Assessing Officer was required instead to deal with the return of loss filed for AY 1994-95 by following the normal procedure, the CIT(A) having rightly observed that he was at liberty to scrutinise the loss and determine the amount to be carried forward (paragraph 7). It arises in Presumptive Taxation & Audit and Assessment & Scrutiny matters, on section 44BBB, section 143(3), section 143(1)(a), section 260A of the Income Tax Act 1961, and was decided by D. Murugesan J and P.P.S. Janarthana Raja J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Rely on the assessment history — the Court gave weight to the fact that the earlier years' returns had been filed and processed, two of them accepting the computed loss rather than being closed as no income no loss. Where a completed-contract method has been followed under Rule 10 and earlier years were closed as NA, put those orders on record; that history is what defeated the aggregation here. If the officer relies on a letter of yours recording the date the contract ended, meet it directly — that was the sole basis for the s.44BBB invocation here and the Court held it insufficient. Do not rely on the section text extracted in this 2010 judgment as the current law; check the current text of s.44BBB, including the approval and financing conditions, before advising.
Searched for later treatment; none was found. That is not the same as a source affirming it. No later court has been found taking up the holding that section 44BBB, being a deeming provision charging ten per cent of the amount paid or payable during the previous year, has nothing to operate on unless an amount is paid or payable in that year. The reasoning has not been doubted either; it simply has no recorded later treatment, and a practitioner citing it should expect to argue it from first principles rather than to hand it up as settled. One near miss is worth recording, because it will otherwise look like later treatment and is not. In Daimler India Commercial Vehicles (P) Ltd v DCIT (Madras High Court, 5 July 2019) the Bench discusses 'Franco Tosi Ingegneria, [2000] 241 ITR 268 (Madras)' at paragraphs 50 and 51. That is a different and earlier judgment of the same Court, on when a business is set up, where a letter of intent from Neyveli Lignite Corporation marked commencement. It is not this 2010 judgment and it says nothing about section 44BBB. The two are easily confused because the parties are the same. Two limits on the decision itself. It construes section 44BBB as it stood for assessment year 1994-95; the section has been amended since, and the text extracted in the judgment differs from the version in the Board's own circular, which adds the condition that the project be financed under an international aid programme. And the result rests on concurrent findings of fact - that nothing was paid or payable in the year taxed and that the whole of Rs 4,90,45,132 had been received in earlier years - so a case where amounts are in fact paid or payable in the year is untouched by it. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
ON THE STRUCTURE OF THE JUDGMENT. It has seven numbered paragraphs. Paragraph 7 is very long and carries the whole of the reasoning and the disposal, so a citation to this judgment is in practice a citation to paragraph 7. The respondent was unrepresented before the High Court, which is worth knowing: the reasoning is the Court's own, on the Revenue's argument alone, and no contrary construction of section 44BBB was put to it. A WARNING ABOUT THE SECTION TEXT SET OUT IN THE JUDGMENT. The judgment reproduces section 44BBB in the form 'in connection with a turnkey power project approved by the Central Government in this behalf', without the condition - which appears in CBDT Circular No. 550 dated 1 January 1990, quoted by the Court at the same place - that the project be financed under an international aid programme. The section has been amended since the assessment year in issue in any event. Do not read the text extracted in this 2010 judgment as the current provision; check the section as it stands for the year you are advising on, including the approval and financing conditions. WHAT THE DECISION TURNS ON, AND WHAT IT DOES NOT. It turns on the words 'paid or payable to the assessee during the previous year'. The authorities below had found that the works were completed by 30 April 1989, before section 44BBB came into force on 1 April 1990, that the payments at intermediate stages had been made against invoices supported by the purchaser's completion certificates, and that the whole amount had been received in years long before assessment year 1994-95. On those findings there was nothing in the year for the ten per cent to operate on. The Court also gave weight to the assessment history under Rule 10 of the Income-tax Rules - earlier years closed as NA on the completed-contract footing, but assessment years 1988-89 and 1989-90 completed on the computed loss rather than on a no income no loss basis. What the Court did not decide is how the profits of such a contract are to be computed where the presumptive charge does not apply. It held only that the Assessing Officer had to deal with the return of loss filed for assessment year 1994-95 by the normal procedure under section 143(3), the Commissioner (Appeals) having rightly observed that he was at liberty to scrutinise the loss and determine the amount to be carried forward. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeal was dismissed and the questions answered in favour of the assessee and against the Revenue. Section 44BBB is a deeming provision under which ten per cent of the amount paid or payable to the assessee is deemed to be profits; unless the amount is paid or payable during the year, the Revenue cannot levy ten per cent on the gross amount. On the concurrent findings that nothing was paid or payable during the accounting year and that the entire Rs 4,90,45,132 had been received in years long before AY 1994-95, the Assessing Officer was not justified in aggregating the payments and charging ten per cent in the year of completion. The mere completion of the contract does not suffice. The Assessing Officer was required instead to deal with the return of loss filed for AY 1994-95 by following the normal procedure, the CIT(A) having rightly observed that he was at liberty to scrutinise the loss and determine the amount to be carried forward (paragraph 7).
TaxSphere, “CIT v Franco Tossi Ingegneria S.P.A.”, https://taxnotice.vittsphere.com/caselaw/case/cit-v-franco-tossi-ingegneria-44bbb-turnkey-power-project/ (validity last checked 2026-09-08)
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We are a foreign company on an approved turnkey power project. We keep books, they are audited, and we recognise revenue on percentage of completion under AS-7. The Assessing Officer has rejected the books under section 145(3) and taxed 10 per cent of our billings under section 44BBB(1). Can he do that?
We are a foreign company erecting plant for a power project in India. The Assessing Officer wants to tax 10 per cent of our billings under section 44BBB although our audited books show much less. Can we claim the lower figure, and does it matter that our project is not funded by any aid programme?
We are a foreign shipping line assessed under section 44B. The Assessing Officer has included freight we collected abroad and also our demurrage. What actually goes into the "aggregate of the amounts" under section 44B(2), and does it matter where the money was received?
Our foreign airline made a loss on its India operations and our books are audited. The Assessing Officer says 5 per cent of our gross collections is taxable under section 44BBA regardless. Is there any provision letting us claim the lower figure?
