THE COMMISSIONER OF INCOME TAX and ANR. vs. M/S MC DERMOTT INTERNATIONAL INC.

ITA/309/2000HC UttarakhandUKHC01025236200320 July 2004Author: OTHER4 pages
AI SummaryAllowed

What were the facts?

The assessee, M/s Mc. Dermott International Inc., a non-resident foreign company, was engaged in designing, fabrication, construction, and installation for ONGC. The assessment year in question is 1990-91. The appeal is filed by the Revenue (Commissioner of Income Tax, Meerut) against the order of the Income Tax Appellate Tribunal (ITAT), New Delhi. The dispute concerns the method of calculating the income under Section 44BB of the Income Tax Act, specifically whether a single-stage or multiple-stage grossing up of tax should be applied. The Assessing Officer had applied multiple-stage grossing up, which the assessee and the Tribunal contested.

What did the High Court hold?

The Tribunal held that Section 44BB of the Income Tax Act is a complete code by itself for computing the deemed profits of non-resident companies engaged in the business of exploration of petroleum products. It was further held that Section 195A, which falls under Chapter XVII dealing with collection and recovery of tax, cannot be applied to compute income under Section 44BB, which falls under Chapter IV dealing with computation of business income. The Court found no merit in the Revenue's argument that Section 195A attracted multiple-stage grossing up. The reasoning was that Section 44BB contemplates a straightforward computation of deemed profits at 10% of aggregate receipts. The benefit received by the assessee due to ONGC paying tax on its behalf should be valued at a single stage. The Court illustrated the difference between single-stage and multiple-stage grossing up with an example, concluding that the Revenue's method of multiple-stage grossing up was incorrect. The appeal was answered in favour of the assessee.

What were the issues?

1. Whether, on the facts and circumstances of the case, the learned Income Tax Appellate Tribunal was legally correct in holding that while working out income under Section 44BB of the Income Tax Act, the addition of tax should be done only once at the beginning (single-stage grossing up) and not multiple-stage grossing up as done by the Assessing Officer? Assessee's Contention: The assessee argued that Section 44BB is a self-contained code for computing deemed profits for foreign companies engaged in oil exploration and that Section 195A, which deals with tax recovery, is not applicable for computing income under Section 44BB. The value of the benefit received due to ONGC paying tax on its behalf should be Rs. 200/-, irrespective of whether the contract is tax-protected or not. Revenue's Contention: The Revenue argued that in the case of tax-protected contracts, Section 195A was 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 1990-91

IN THE HIGH COURT OF UTTARANCHAL AT NAINITAL

I.T.A. No. 465 of 2001 (Old No. 309/2000)

The Commissioner of Income Tax, Meerut and another

……… Appellants

Versus

M/s Mc. Dermott International Inc., C/o Price Water House, 1102/1107, Raheja Chambers, Nariman Point, Bombay ……… Respondent

Mr. S.K. Posti, learned Advocate for Income Tax Department.

Hon’ble P.C. Verma, A.C.J. Hon’ble P.C. Pant, J.

1.

This is an appeal under section 260A of the Income Tax, 1961 filed by the Revenue against the judgment and order dated 18.01.2000 passed by the Income Tax Appellate Tribunal, New Delhi in I.T.A. No. 1118/D/94. 2. M/s Mc. Dermott International Inc., respondent is a non- resident foreign company incorporated in Panama. During the year under consideration it was engaged in the business of Deasigning, Fabrication, Construction, Installation of Platform decks, Pipelines, Jackets and various other similar activities for ONGC through its main contractors M/s Sumitomo Heavy Industries Ltd., Burn Standard Co. Ltd., Samsung Ship Bldg, Hundai Heavy Ind. Ltd. ONGC and Nippon K.K. etc.

3.

The question raised before us is a

The order continues below.

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