Our Uttarakhand assessments add back the service tax ONGC reimbursed to us. Is there a binding answer in that High Court?
Yes, and it is against the Revenue. A Full Bench of the Uttarakhand High Court answered the reference holding that the amount reimbursed by ONGC to the service provider, representing service tax the provider had already paid to the Government, does not form part of the aggregate amount referred to in clauses (a) and (b) of s.44BB(2).
Decided by the High Court (Full Bench — Ramesh Ranganathan CJ, Sudhanshu Dhulia J and Alok Singh J) on 2019-04-12, reported as Income Tax Appeal No. 40 of 2012 with ITA Nos. 44, 60 and 62 of 2014, 14, 15 and 44 of 2015, 18, 33, 36, 37, 38 and 39 of 2016 and 54 and 57 of 2018 (High Court of Uttarakhand at Nainital); reserved 26 February 2019, delivered 12 April 2019. It bears on section 44BB, section 44BB(1), section 44BB(2), section 44BB(3), section 43B, section 44AA(2), section 44AB, section 119, section 194-I, section 194J, section 260A of the Income Tax Act 1961, in Presumptive Taxation & Audit and How Tax Law Is Read matters.
This is the strongest authority on the point because it is a three-Judge reference decided after a Division Bench declined to follow the earlier Division Bench in Schlumberger Asia Services. It also settles two subsidiary questions that the Delhi High Court in Mitchell Drilling did not: that s.43B has no work to do inside s.44BB(1) because s.44BB permits no deduction at all, and that the option under s.44BB(3) is a genuine alternative — an assessee who takes it computes under ss.28 to 44DB, may claim the s.43B(a) deduction for service tax paid and must then bring the reimbursement into its receipts. The judgment covers fifteen appeals of drilling and oilfield service companies — Income Tax Appeal No. 40 of 2012 and fourteen connected appeals. The appeals span assessment years on both sides of AY 2011-12 and the judgment does not year-tag each of them; the point decided is unaffected by the Finance Act 2010 provisos to s.44BB(1) and s.44DA(1), because it turns on what enters the s.44BB(2) aggregate and not on whether s.44BB or s.44DA applies. Note the Court expressly refused to decide whether such a reimbursement is income at all, holding only that it cannot be presumptive income under s.44BB.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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The assessees are all companies incorporated outside India and non-residents within s.6. They execute contracts worldwide, including in India, in connection with exploration and production of mineral oils, entered into agreements with ONGC and gave ONGC rigs on hire. They filed returns declaring income from charter hire of rigs and plant and machinery to be used in extraction or production of mineral oils in India and offered tax under s.44BB(1) read with s.44BB(2). In doing so they did not include, in gross revenues, amounts reimbursed to them by ONGC representing service tax they had earlier paid to the Government of India. The assessing authority included those amounts in gross receipts and taxed them under s.44BB. The appeals travelled through the CIT(A) and the Tribunal to the High Court under s.260A. A Division Bench, unable to agree with the earlier Division Bench decision in Schlumberger Asia Services Ltd. — which had held reimbursement of customs duty paid on imported equipment to be outside the s.44BB computation — referred to the Full Bench the question whether the amount reimbursed to the assessee by ONGC, representing service tax paid by the assessee to the Government of India, should be included in computing the aggregate amount referred to in s.44BB(2).
The reference was answered in favour of the assessee and against the Revenue: the amount reimbursed to the assessee service provider by ONGC as service recipient, representing the service tax paid earlier by the assessee to the Government of India, does not form part of the aggregate amount referred to in clauses (a) and (b) of s.44BB(2) (paragraph 64). The appeals were directed to be listed before the Division Bench hearing s.260A appeals for disposal in those terms (paragraph 65).
Under s.44BB(2)(a) and (b) an amount enters the aggregate only if it is paid on account of the provision of services and facilities in connection with prospecting for, or extraction or production of, mineral oils in India (para 26). The Court took the ordinary and lexical meaning of on account of — because of, by reason of, in consideration of — and held that only a payment in consideration of the services provided falls within s.44BB(2) (para 27). Since the expressions amount paid or payable and amount received or deemed to be received are qualified by that phrase, only amounts paid for the services can form gross receipts, and a reimbursement of service tax already paid to the Government is not such an amount (para 28). Service tax is a tax on service and is not the service itself; on a plain and literal reading of clauses (a) and (b) it cannot be included (paras 29 and 45). Taxing provisions are to be construed strictly, and where the Revenue cannot bring the case strictly within the words the levy fails (paras 21 to 24). The Court rejected the Revenue's reliance on s.43B: s.44BB permits no deduction at all in a s.44BB(1) computation, so s.43B is irrelevant there (paras 30 to 32). It then examined s.44BB(3), holding it a genuine option under which the assessee computes under ss.28 to 44DB, may claim the s.43B(a) deduction for service tax paid and adds the reimbursement to receipts, while expressly declining to decide whether such a receipt is income (paras 48 and 49). It gave effect to CBDT Circulars under s.119 excluding service tax from the s.194-I and s.194J bases (paras 51 to 56), and finally held that the Revenue had shown no just cause to differ from the Delhi High Court in Mitchell Drilling, against which no appeal had been preferred (paras 61 and 62).
We answer the reference in favour of the assessee, and against the Revenue, holding that the amount reimbursed to the assessee (service provider) by the ONGC (service recipient), representing the service tax paid earlier by the assessee to the Government of India, would not form part of the aggregate amount referred to in clauses (a) and (b) of sub-section(2) of Section 44BB of the Act.
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Handle my notice → Ask a CA on WhatsAppYes, and it is against the Revenue. A Full Bench of the Uttarakhand High Court answered the reference holding that the amount reimbursed by ONGC to the service provider, representing service tax the provider had already paid to the Government, does not form part of the aggregate amount referred to in clauses (a) and (b) of s.44BB(2). This was decided by the High Court (Full Bench — Ramesh Ranganathan CJ, Sudhanshu Dhulia J and Alok Singh J) and bears on section 44BB, section 44BB(1), section 44BB(2), section 44BB(3), section 43B, section 44AA(2), section 44AB, section 119, section 194-I, section 194J, section 260A of the Income Tax Act 1961. It is reported as Income Tax Appeal No. 40 of 2012 with ITA Nos. 44, 60 and 62 of 2014, 14, 15 and 44 of 2015, 18, 33, 36, 37, 38 and 39 of 2016 and 54 and 57 of 2018 (High Court of Uttarakhand at Nainital); reserved 26 February 2019, delivered 12 April 2019. This is the strongest authority on the point because it is a three-Judge reference decided after a Division Bench declined to follow the earlier Division Bench in Schlumberger Asia Services. It also settles two subsidiary questions that the Delhi High Court in Mitchell Drilling did not: that s.43B has no work to do inside s.44BB(1) because s.44BB permits no deduction at all, and that the option under s.44BB(3) is a genuine alternative — an assessee who takes it computes under ss.28 to 44DB, may claim the s.43B(a) deduction for service tax paid and must then bring the reimbursement into its receipts. The judgment covers fifteen appeals of drilling and oilfield service companies — Income Tax Appeal No. 40 of 2012 and fourteen connected appeals. The appeals span assessment years on both sides of AY 2011-12 and the judgment does not year-tag each of them; the point decided is unaffected by the Finance Act 2010 provisos to s.44BB(1) and s.44DA(1), because it turns on what enters the s.44BB(2) aggregate and not on whether s.44BB or s.44DA applies. Note the Court expressly refused to decide whether such a reimbursement is income at all, holding only that it cannot be presumptive income under s.44BB. If it applies to you, the first step is this: In an Uttarakhand assessment, cite the Full Bench answer at paragraph 64 rather than the earlier Division Bench, and note that the reference was made because a Division Bench doubted the earlier view.
The assessees are all companies incorporated outside India and non-residents within s.6. They execute contracts worldwide, including in India, in connection with exploration and production of mineral oils, entered into agreements with ONGC and gave ONGC rigs on hire. They filed returns declaring income from charter hire of rigs and plant and machinery to be used in extraction or production of mineral oils in India and offered tax under s.44BB(1) read with s.44BB(2). In doing so they did not include, in gross revenues, amounts reimbursed to them by ONGC representing service tax they had earlier paid to the Government of India. The assessing authority included those amounts in gross receipts and taxed them under s.44BB. The appeals travelled through the CIT(A) and the Tribunal to the High Court under s.260A. A Division Bench, unable to agree with the earlier Division Bench decision in Schlumberger Asia Services Ltd. — which had held reimbursement of customs duty paid on imported equipment to be outside the s.44BB computation — referred to the Full Bench the question whether the amount reimbursed to the assessee by ONGC, representing service tax paid by the assessee to the Government of India, should be included in computing the aggregate amount referred to in s.44BB(2). The matter was decided on 2019-04-12 by the High Court (Full Bench — Ramesh Ranganathan CJ, Sudhanshu Dhulia J and Alok Singh J). On those facts the High Court held as follows. The reference was answered in favour of the assessee and against the Revenue: the amount reimbursed to the assessee service provider by ONGC as service recipient, representing the service tax paid earlier by the assessee to the Government of India, does not form part of the aggregate amount referred to in clauses (a) and (b) of s.44BB(2) (paragraph 64). The appeals were directed to be listed before the Division Bench hearing s.260A appeals for disposal in those terms (paragraph 65).
Under s.44BB(2)(a) and (b) an amount enters the aggregate only if it is paid on account of the provision of services and facilities in connection with prospecting for, or extraction or production of, mineral oils in India (para 26). The Court took the ordinary and lexical meaning of on account of — because of, by reason of, in consideration of — and held that only a payment in consideration of the services provided falls within s.44BB(2) (para 27). Since the expressions amount paid or payable and amount received or deemed to be received are qualified by that phrase, only amounts paid for the services can form gross receipts, and a reimbursement of service tax already paid to the Government is not such an amount (para 28). Service tax is a tax on service and is not the service itself; on a plain and literal reading of clauses (a) and (b) it cannot be included (paras 29 and 45). Taxing provisions are to be construed strictly, and where the Revenue cannot bring the case strictly within the words the levy fails (paras 21 to 24). The Court rejected the Revenue's reliance on s.43B: s.44BB permits no deduction at all in a s.44BB(1) computation, so s.43B is irrelevant there (paras 30 to 32). It then examined s.44BB(3), holding it a genuine option under which the assessee computes under ss.28 to 44DB, may claim the s.43B(a) deduction for service tax paid and adds the reimbursement to receipts, while expressly declining to decide whether such a receipt is income (paras 48 and 49). It gave effect to CBDT Circulars under s.119 excluding service tax from the s.194-I and s.194J bases (paras 51 to 56), and finally held that the Revenue had shown no just cause to differ from the Delhi High Court in Mitchell Drilling, against which no appeal had been preferred (paras 61 and 62). In the words reproduced by the source cited on this page: "We answer the reference in favour of the assessee, and against the Revenue, holding that the amount reimbursed to the assessee (service provider) by the ONGC (service recipient), representing the service tax paid earlier by the assessee to the Government of India, would not form part of the aggregate amount referred to in clauses (a) and (b) of sub-section(2) of Section 44BB of the Act." The decision followed or applied Pr. CIT v. Mitchell Drilling International Pvt. Ltd. (Delhi High Court, 28 September 2015) — agreed with, no just cause shown to differ; DIT v. Schlumberger Asia Services Ltd. (earlier Division Bench, Uttarakhand) — approved; Sedco Forex International Inc. — relied on for the effect of the s.44BB(1) fiction.
It was decided by the High Court on 2019-04-12 and is reported as Income Tax Appeal No. 40 of 2012 with ITA Nos. 44, 60 and 62 of 2014, 14, 15 and 44 of 2015, 18, 33, 36, 37, 38 and 39 of 2016 and 54 and 57 of 2018 (High Court of Uttarakhand at Nainital); reserved 26 February 2019, delivered 12 April 2019. 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 44BB, section 44BB(1), section 44BB(2), section 44BB(3), section 43B, section 44AA(2), section 44AB, section 119, section 194-I, section 194J, 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 reference was answered in favour of the assessee and against the Revenue: the amount reimbursed to the assessee service provider by ONGC as service recipient, representing the service tax paid earlier by the assessee to the Government of India, does not form part of the aggregate amount referred to in clauses (a) and (b) of s.44BB(2) (paragraph 64). The appeals were directed to be listed before the Division Bench hearing s.260A appeals for disposal in those terms (paragraph 65). It arises in Presumptive Taxation & Audit and How Tax Law Is Read matters, on section 44BB, section 44BB(1), section 44BB(2), section 44BB(3), section 43B, section 44AA(2), section 44AB, section 119, section 194-I, section 194J, section 260A of the Income Tax Act 1961, and was decided by Full Bench — Ramesh Ranganathan CJ, Sudhanshu Dhulia J and Alok Singh 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. Meet the on account of argument head on: the Court held at paragraph 27 that the phrase means because of, by reason of, in consideration of, and that only a payment in consideration of the services falls in s.44BB(2). If the Assessing Officer invokes s.43B, answer with paragraphs 30 to 32 — s.44BB permits no deduction, so s.43B has no application to a s.44BB(1) computation. Decide deliberately between s.44BB(1) and s.44BB(3) before filing: if you go under s.44BB(3) you compute under the normal provisions, the reimbursement goes into receipts and you claim the s.43B(a) deduction for the tax actually paid. Keep proof that the tax was paid to the Government before the reimbursement was received — the whole reasoning depends on the payment being a reimbursement of tax already discharged.
Still good law. Eighteen citator hits and the Full Bench view has held. Division Benches of the same Court applied it three times in 2020 - CIT v Western Geco International Ltd (2 September 2020), DIT v Sedco Forex (20 November 2020) and CIT v B.J. Services Company Middle East Ltd (16 December 2020) - each answering the questions of law in favour of the assessee 'by following the order of the Full Bench'. It has since been carried to the GST era by the Mumbai Tribunal, which has applied the same reasoning to exclude GST from gross receipts under sections 44B and 44BB in Orient Overseas Container Line Ltd v DCIT (24 October 2024, 19 January 2026 and 25 June 2025) and DCIT v Korea Marine Transport Co Ltd (17 March 2023). One caution: in PGS Geophysical AS v Income Tax Department (Delhi High Court, 20 February 2026) the judgment appears only in counsel's list of authorities and the Bench decided on PGS Exploration (Norway) instead - that is not an application. Counsel there also cited a Supreme Court decision at [2024] 297 Taxman 1 in the same line; I could not open it to see whether it is a reasoned dismissal, so I have not treated it as an affirmance. Nothing overruling or doubting the Full Bench was found. 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.
The judgment has 65 numbered paragraphs, continuous, under seven headed parts, and ends with the Full Bench's direction to list the appeals before the Division Bench. The connected appeal ITA No. 41 of 2009 (Halliburton Offshore Service Inc.), which had generated the reference, was dismissed by a separate order dated 26 February 2019 because the assessee had conceded the point before the Tribunal (paragraph 5), so it is not part of the answer and should not be cited as though it were. The Court refers to the same senior counsel as both 'Porus Kaka' and 'Poras Kaka' at different places, which is a slip in the report and nothing more. 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 reference was answered in favour of the assessee and against the Revenue: the amount reimbursed to the assessee service provider by ONGC as service recipient, representing the service tax paid earlier by the assessee to the Government of India, does not form part of the aggregate amount referred to in clauses (a) and (b) of s.44BB(2) (paragraph 64). The appeals were directed to be listed before the Division Bench hearing s.260A appeals for disposal in those terms (paragraph 65).
TaxSphere, “DIT (International Taxation) v Schlumberger Asia Services Ltd (Full Bench)”, https://taxnotice.vittsphere.com/caselaw/case/dit-v-schlumberger-asia-services-full-bench-service-tax-44bb/ (validity last checked 2026-09-08)
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The officer has added the service tax we collected from ONGC to our s.44BB gross receipts. Is that right?
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?
For AY 2012-13 the officer moved us out of s.44BB into s.44DA. Does the Finance Act 2010 proviso really do that?
Our foreign company earns fees for technical services from an Indian oil company and we have a permanent establishment here. We have always returned the income at 10 per cent under section 44BB. The Assessing Officer says section 44DA applies instead. When did that change, and what does section 44DA require us to do?
