THE COMMISSIONER OF INCOME TAX and ORS vs. M/S O.N.G.C M/S AS AGENT OF M/S BROWN AND ROOT

ITA/546/2001HC UttarakhandUKHC01009208200329 June 2005Author: HON'BLE MR. JUSTICE P. C. VERMA4 pages
AI SummaryDismissed

What were the facts?

The Revenue (Commissioner of Income-tax, Dehradun) appealed against an order of the Income Tax Appellate Tribunal (ITAT) for Assessment Year 1987-88. The respondent is M/s Brown & Root International Inc., a non-resident foreign company, represented by O.N.G.C. as its agent. The dispute concerns the applicability of 'grossing-up' of income determined notionally under Section 44BB of the Income Tax Act, 1961. The ITAT had upheld the order of the Commissioner of Income Tax (Appeals) which found no scope for grossing-up. The High Court was asked to decide whether the ITAT was correct in upholding this view.

What did the High Court hold?

The High Court held that Section 44BB of the Income Tax Act, 1961, is a complete code by itself for the computation of deemed profits for non-resident companies engaged in oil exploration. It is a charging section for such income and deals with the computation of business income. In contrast, Section 195A falls under Chapter XVII, which pertains to the collection and recovery of tax, and is primarily for Tax Deducted at Source (TDS). Therefore, Section 195A cannot be used to apply the concept of multiple-stage grossing-up to profits computed under Section 44BB. The court reasoned that Section 195A is for recovery of tax and does not make a receipt chargeable to tax if it otherwise isn't. The benefit received by the assessee should be valued as is, and the mechanism for TDS under Section 195A does not alter the chargeability of income under Section 44BB. The appeal was dismissed.

What were the issues?

1. Whether, on the facts and circumstances of the case, the learned Income Tax Appellate Tribunal was legally correct in upholding the orders of CIT(A) that there is no scope of grossing-up and that the income determined on a notional basis in accordance with Section 44BB of the Income Tax Act, 1961 was not liable to be grossed up under Section 195A of the Income Tax Act? Assessee's Contention: The assessee argued that Section 44BB is a self-contained code for computing deemed profits from oil exploration and that Section 195A, which deals with collection and recovery of tax, is not applicable for grossing up income under Section 44BB. The value of the benefit received by the assessee (ONGC paying tax on its behalf) should remain constant, whether the contract is tax-protected or not. Revenue's Contention: The Department argued that in the case of tax-protected contracts, Section 195A is attracted, entitling them to compute the deemed profits by applying the method of multiple-stage grossing-up of income.

Which sections of the Income-tax Act were involved?

Section 44BB,Section 195A,Section 260A

AI-generated summary — verify with the full judgment below

Assessment Year 1987-88

IN THE HIGH COURT OF UTTARANCHAL AT NAINITAL

Income Tax Appeal No. 546 of 2001

The commissioner of Income-tax Dehradun and another

………………

Appellants

Versus

M/s O.N.G.C. As agent of M/s Brown & Root International Inc., Tel Bhawan, Dehradun.

……………….

Respondent

Mr. S.K. Post, learned counsel for the appellant. Ms. J.P. Joshi, learned counsel for the respondent.

Coram : Hon’ble P.C. Verma, J.

Hon’ble P.C. Pant, J.

This is an appeal preferred under Section 260A of the Income Tax Act, 1961 filed by the Revenue against the judgment and order dated 07.12.2000 passed by the Income Tax Appellate Tribunal, New Delhi in I.T.A. No. 6148/Del/95. 2) M/s Brown and Root International Inc., respondent is a non-resident foreign company. During the year under consideration, O.N.G.C. was engaged in operations under the work contract with the above Non-resident company.

3) The question raised before us is as follows:

“Whether on the facts and circumstances of the case, the learned Income Tax Appellate Tribunal was legally correct in upholding the orders of CIT (A) that there is

The order continues below.

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