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?
You can claim the lower figure, and the aid-funding point no longer matters. Section 44BBB(2), inserted by the Finance Act 2003 with effect from 1 April 2004, provides that notwithstanding sub-section (1) an assessee may claim lower profits and gains than the 10 per cent, if he keeps and maintains books of account and other documents as required under s.44AA(2) and gets his accounts audited and furnishes the audit report as required under s.44AB — whereupon the Assessing Officer must proceed to make an assessment of the total income or loss under s.143(3). The same Finance Act 2003 omitted, with effect from the same date, the words "and financed under any international aid programme" which until then had confined the section to aid-funded turnkey power projects; what remains is the requirement that the turnkey power project be approved by the Central Government in that behalf.
Decided by the CBDT Circulars & Instructions (Not applicable — statutory text) on 2004-04-01, reported as Income-tax Act, 1961, s.44BBB, as printed on the departmental Year 2009 page; inserted by the Finance Act, 1989 w.e.f. 1 April 1990 and amended by the Finance Act, 2003 w.e.f. 1 April 2004 per the footnotes on that page. It bears on section 44BBB, section 44BBB(1), section 44BBB(2), section 44AA, section 44AA(2), section 44AB, section 143(3), section 145(3), section 44BB, section 44BB(3) of the Income Tax Act 1961, in Presumptive Taxation & Audit, Assessment & Scrutiny and How Tax Law Is Read matters.
This is the presumptive section that is most open to displacement, and knowing that changes how a foreign EPC contractor should be advised. Before AY 2004-05 the section was doubly narrow — the project had to be a turnkey power project approved by the Central Government AND financed under an international aid programme — and it was a one-way 10 per cent with no escape. From AY 2004-05 the aid condition is gone and sub-section (2) makes the 10 per cent a floor the assessee can go below on audited books. Two consequences follow. The first is that where the contractor maintains proper books under s.44AA(2) and files a s.44AB report, the presumptive route is not the Assessing Officer's to choose: the Ahmedabad Tribunal has held, in a Revenue appeal it dismissed, that an officer cannot reject books under s.145(3) without a proper defect finding and then fall back on s.44BBB(1). The second is that the section is worded "an assessee MAY claim lower profits", so it is an option, and the condition precedent is compliance, not the outcome: the books must exist, they must be audited, and the report must be furnished. Note also the reach of the non-obstante clause here — sub-section (1) overrides "sections 28 to 44AA", not "sections 28 to 43A" as in s.44B and s.44BBA — and that the business described is civil construction, or erection of plant or machinery, or testing or commissioning thereof.
Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them.
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As printed on the Year 2009 departmental page, section 44BBB reads: "44BBB. (1) Notwithstanding anything to the contrary contained in sections 28 to 44AA, in the case of an assessee, being a foreign company, engaged in the business of civil construction or the business of erection of plant or machinery or testing or commissioning thereof, in connection with a turnkey power project approved by the Central Government in this behalf, a sum equal to ten per cent of the amount paid or payable (whether in or out of India) to the said assessee or to any person on his behalf on account of such civil construction, erection, testing or commissioning shall be deemed to be the profits and gains of such business chargeable to tax under the head \"Profits and gains of business or profession\". (2) Notwithstanding anything contained in sub-section (1), an assessee may claim lower profits and gains than the profits and gains specified in that sub-section, if he keeps and maintains such books of account and other documents as required under sub-section (2) of section 44AA and gets his accounts audited and furnishes a report of such audit as required under section 44AB, and thereupon the Assessing Officer shall proceed to make an assessment of the total income or loss of the assessee under sub-section (3) of section 143 and determine the sum payable by, or refundable to, the assessee." The footnotes printed on that page record: 86, "Inserted by the Finance Act, 1989, w.e.f. 1-4-1990"; 87, a cross-reference to Circular No. 552, dated 9-2-1990; 88, "Renumbered as sub-section (1) by the Finance Act, 2003, w.e.f. 1-4-2004"; 89, "Words 'and financed under any international aid programme' omitted by the Finance Act, 2003, w.e.f. 1-4-2004"; and 90, "Inserted by the Finance Act, 2003, w.e.f. 1-4-2004". The archived Year 2000 edition prints the section unnumbered, with the aid-programme words present and with no sub-section (2).
A foreign company engaged in civil construction, or in erection of plant or machinery or testing or commissioning thereof, in connection with a turnkey power project approved by the Central Government, is taxable on 10 per cent of the amount paid or payable to it, whether in or out of India, notwithstanding sections 28 to 44AA. From 1 April 2004 that presumption is displaceable: under s.44BBB(2) the assessee may claim lower profits if it keeps books under s.44AA(2), gets them audited and furnishes the s.44AB report, and the Assessing Officer must then assess the total income or loss under s.143(3). From the same date the requirement that the project be financed under an international aid programme was omitted.
Not applicable — this is a statement of statutory text taken from a departmental page, with the legislative history corroborated against an archived departmental edition and against a Tribunal order reproducing the section and the relevant CBDT circular paragraph. No judicial reasoning of my own is involved.
(2) Notwithstanding anything contained in sub-section (1), an assessee may claim lower profits and gains than the profits and gains specified in that sub-section, if he keeps and maintains such books of account and other documents as required under sub-section (2) of section 44AA and gets his accounts audited and furnishes a report of such audit as required under section 44AB, and thereupon the Assessing Officer shall proceed to make an assessment of the total income or loss of the assessee under sub-section (3) of section 143 and determine the sum payable by, or refundable to, the assessee.
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Handle my notice → Ask a CA on WhatsAppYou can claim the lower figure, and the aid-funding point no longer matters. Section 44BBB(2), inserted by the Finance Act 2003 with effect from 1 April 2004, provides that notwithstanding sub-section (1) an assessee may claim lower profits and gains than the 10 per cent, if he keeps and maintains books of account and other documents as required under s.44AA(2) and gets his accounts audited and furnishes the audit report as required under s.44AB — whereupon the Assessing Officer must proceed to make an assessment of the total income or loss under s.143(3). The same Finance Act 2003 omitted, with effect from the same date, the words "and financed under any international aid programme" which until then had confined the section to aid-funded turnkey power projects; what remains is the requirement that the turnkey power project be approved by the Central Government in that behalf. This was decided by the CBDT Circulars & Instructions (Not applicable — statutory text) and bears on section 44BBB, section 44BBB(1), section 44BBB(2), section 44AA, section 44AA(2), section 44AB, section 143(3), section 145(3), section 44BB, section 44BB(3) of the Income Tax Act 1961. It is reported as Income-tax Act, 1961, s.44BBB, as printed on the departmental Year 2009 page; inserted by the Finance Act, 1989 w.e.f. 1 April 1990 and amended by the Finance Act, 2003 w.e.f. 1 April 2004 per the footnotes on that page. This is the presumptive section that is most open to displacement, and knowing that changes how a foreign EPC contractor should be advised. Before AY 2004-05 the section was doubly narrow — the project had to be a turnkey power project approved by the Central Government AND financed under an international aid programme — and it was a one-way 10 per cent with no escape. From AY 2004-05 the aid condition is gone and sub-section (2) makes the 10 per cent a floor the assessee can go below on audited books. Two consequences follow. The first is that where the contractor maintains proper books under s.44AA(2) and files a s.44AB report, the presumptive route is not the Assessing Officer's to choose: the Ahmedabad Tribunal has held, in a Revenue appeal it dismissed, that an officer cannot reject books under s.145(3) without a proper defect finding and then fall back on s.44BBB(1). The second is that the section is worded "an assessee MAY claim lower profits", so it is an option, and the condition precedent is compliance, not the outcome: the books must exist, they must be audited, and the report must be furnished. Note also the reach of the non-obstante clause here — sub-section (1) overrides "sections 28 to 44AA", not "sections 28 to 43A" as in s.44B and s.44BBA — and that the business described is civil construction, or erection of plant or machinery, or testing or commissioning thereof. If it applies to you, the first step is this: Confirm the project is a turnkey power project approved by the Central Government in that behalf, and keep the approval on file — that is the only remaining gateway condition after the Finance Act 2003.
As printed on the Year 2009 departmental page, section 44BBB reads: "44BBB. (1) Notwithstanding anything to the contrary contained in sections 28 to 44AA, in the case of an assessee, being a foreign company, engaged in the business of civil construction or the business of erection of plant or machinery or testing or commissioning thereof, in connection with a turnkey power project approved by the Central Government in this behalf, a sum equal to ten per cent of the amount paid or payable (whether in or out of India) to the said assessee or to any person on his behalf on account of such civil construction, erection, testing or commissioning shall be deemed to be the profits and gains of such business chargeable to tax under the head \"Profits and gains of business or profession\". (2) Notwithstanding anything contained in sub-section (1), an assessee may claim lower profits and gains than the profits and gains specified in that sub-section, if he keeps and maintains such books of account and other documents as required under sub-section (2) of section 44AA and gets his accounts audited and furnishes a report of such audit as required under section 44AB, and thereupon the Assessing Officer shall proceed to make an assessment of the total income or loss of the assessee under sub-section (3) of section 143 and determine the sum payable by, or refundable to, the assessee." The footnotes printed on that page record: 86, "Inserted by the Finance Act, 1989, w.e.f. 1-4-1990"; 87, a cross-reference to Circular No. 552, dated 9-2-1990; 88, "Renumbered as sub-section (1) by the Finance Act, 2003, w.e.f. 1-4-2004"; 89, "Words 'and financed under any international aid programme' omitted by the Finance Act, 2003, w.e.f. 1-4-2004"; and 90, "Inserted by the Finance Act, 2003, w.e.f. 1-4-2004". The archived Year 2000 edition prints the section unnumbered, with the aid-programme words present and with no sub-section (2). The matter was decided on 2004-04-01 by the CBDT Circulars & Instructions (Not applicable — statutory text). On those facts the CBDT Circulars & Instructions held as follows. A foreign company engaged in civil construction, or in erection of plant or machinery or testing or commissioning thereof, in connection with a turnkey power project approved by the Central Government, is taxable on 10 per cent of the amount paid or payable to it, whether in or out of India, notwithstanding sections 28 to 44AA. From 1 April 2004 that presumption is displaceable: under s.44BBB(2) the assessee may claim lower profits if it keeps books under s.44AA(2), gets them audited and furnishes the s.44AB report, and the Assessing Officer must then assess the total income or loss under s.143(3). From the same date the requirement that the project be financed under an international aid programme was omitted.
Not applicable — this is a statement of statutory text taken from a departmental page, with the legislative history corroborated against an archived departmental edition and against a Tribunal order reproducing the section and the relevant CBDT circular paragraph. No judicial reasoning of my own is involved. In the words reproduced by the source cited on this page: "(2) Notwithstanding anything contained in sub-section (1), an assessee may claim lower profits and gains than the profits and gains specified in that sub-section, if he keeps and maintains such books of account and other documents as required under sub-section (2) of section 44AA and gets his accounts audited and furnishes a report of such audit as required under section 44AB, and thereupon the Assessing Officer shall proceed to make an assessment of the total income or loss of the assessee under sub-section (3) of section 143 and determine the sum payable by, or refundable to, the assessee."
It was decided by the CBDT Circulars & Instructions on 2004-04-01 and is reported as Income-tax Act, 1961, s.44BBB, as printed on the departmental Year 2009 page; inserted by the Finance Act, 1989 w.e.f. 1 April 1990 and amended by the Finance Act, 2003 w.e.f. 1 April 2004 per the footnotes on that page. Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them. A CBDT circular or instruction binds officers of the department but not the assessee and not the courts. Where a circular helps you, you may hold the department to it. Where it hurts you, it cannot override the Act or a judgment. On section 44BBB, section 44BBB(1), section 44BBB(2), section 44AA, section 44AA(2), section 44AB, section 143(3), section 145(3), section 44BB, section 44BB(3), 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 cuts both ways and is cited by both sides. A foreign company engaged in civil construction, or in erection of plant or machinery or testing or commissioning thereof, in connection with a turnkey power project approved by the Central Government, is taxable on 10 per cent of the amount paid or payable to it, whether in or out of India, notwithstanding sections 28 to 44AA. From 1 April 2004 that presumption is displaceable: under s.44BBB(2) the assessee may claim lower profits if it keeps books under s.44AA(2), gets them audited and furnishes the s.44AB report, and the Assessing Officer must then assess the total income or loss under s.143(3). From the same date the requirement that the project be financed under an international aid programme was omitted. It arises in Presumptive Taxation & Audit, Assessment & Scrutiny and How Tax Law Is Read matters, on section 44BBB, section 44BBB(1), section 44BBB(2), section 44AA, section 44AA(2), section 44AB, section 143(3), section 145(3), section 44BB, section 44BB(3) of the Income Tax Act 1961, and was decided by Not applicable — statutory text. 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. For any year from AY 2004-05 onwards, do not concede the 10 per cent. Maintain books under s.44AA(2), obtain the s.44AB audit and furnish the report, and claim under s.44BBB(2); the assessment then has to be made under s.143(3) on the total income or loss. For an earlier year, check whether the project was financed under an international aid programme. Before 1 April 2004 the section did not apply at all without that, and both the 10 per cent and the section's non-obstante clause fall away with it. If the officer rejects the books under s.145(3) and applies s.44BBB(1), make him identify the defect. Rejection of accounts is a finding that has to be made and supported; it is not a doorway back into the presumption. Keep the accounting policy visible. Where revenue is recognised on a recognised percentage-of-completion basis and the method is regularly followed and disclosed, that is what the officer has to displace.
Still good law. The Year 2009 departmental edition and a Tribunal order of 18 January 2017 reproduce the section in the same current form, and the archived Year 2000 edition corroborates the Finance Act 2003 changes by showing the pre-amendment text. No Finance Act text was retrieved this pass and I could not establish whether a departmental edition later than Year 2009 exists, so I make no statement about any amendment after 2003. I carried out no general check of judicial treatment of s.44BBB beyond reading the Ahmedabad Tribunal order cited. 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.
CORRECTION TO THE BRIEF, and it is a substantive one. The brief for this slice describes s.44BBB as having "its proviso allowing a lower claim on audited books". It is not a proviso. It is sub-section (2), inserted by the Finance Act 2003 with effect from 1 April 2004, and the original s.44BBB was renumbered as sub-section (1) by the same Act — footnotes 88 and 90 on the departmental Year 2009 page say so in terms. A practitioner told to look for a proviso will not find one. The section text was transcribed from https://incometaxindia.gov.in/w/section-44bbb (Year: 2009, Act name "Income-tax Act, 1961", heading "Special provision for computing profits and gains of foreign companies, engaged in the business of civil construction, etc., in certain turnkey power projects"). Two independent corroborations were obtained. (1) The archived edition at https://incometaxindia.gov.in/w/section-44bbb-1 (Year: 2000) prints the section UNNUMBERED, with no sub-section (2) at all and with the words "and financed under any international aid programme" present — which is exactly what the Finance Act 2003 footnotes describe, and is the clearest possible confirmation of the legislative history. That page is archived and must never be used to state the current position. (2) The Ahmedabad Tribunal, in ADIT (International Taxation) v. Shandong Tiejun Electric Power Engineering Co. Ltd. (order of 18 January 2017), reproduced both sub-sections in the current form, showing the omitted words as "67[***]", and at its paragraph 5.28 set out paragraph 36.4 of CBDT Circular No. 7/2003 dated 5 September 2003 explaining that the Act "has also amended sections 44BB and 44BBB to provide that an assessee may claim lower profits and gains". I did not retrieve Circular No. 7/2003 or the Finance Act 2003 directly; the Circular passage was read as reproduced in that order. I could not establish whether a departmental edition of s.44BBB later than Year 2009 exists. 'decided_on' is the COMMENCEMENT DATE of the most recent change to this section — the Finance Act, 2003, w.e.f. 1 April 2004, which inserted sub-section (2), renumbered the original section as sub-section (1) and omitted the words "and financed under any international aid programme" (footnotes 88, 89 and 90) — and is not a decision date; 'bench' and 'favours' are inapplicable to a statutory entry. 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.
A foreign company engaged in civil construction, or in erection of plant or machinery or testing or commissioning thereof, in connection with a turnkey power project approved by the Central Government, is taxable on 10 per cent of the amount paid or payable to it, whether in or out of India, notwithstanding sections 28 to 44AA. From 1 April 2004 that presumption is displaceable: under s.44BBB(2) the assessee may claim lower profits if it keeps books under s.44AA(2), gets them audited and furnishes the s.44AB report, and the Assessing Officer must then assess the total income or loss under s.143(3). From the same date the requirement that the project be financed under an international aid programme was omitted.
Every entry in this library links to where it was found, so you can check it yourself rather than take our word for it.
We charge fees for our public utility work. Does that cost us charitable status under s.2(15)?
My return was only processed under 143(1). Does that stop the department reopening it later?
No s.143(2) notice was issued at all. Does s.292BB save the assessment?
Can the Assessing Officer estimate income on departmental material the assessee has never been shown?