THE COMMISSIONER OF INCOME TAX and ANR. vs. O.N.G.C.

ITA/76/1999HC UttarakhandUKHC01015028200408 July 2004Author: OTHER4 pages
AI SummaryAllowed

What were the facts?

This is an appeal by the Revenue against an order of the Income Tax Appellate Tribunal (ITAT) for Assessment Year 1987-88. The assessee, M/s Atwood Oceanics, is a non-resident foreign company, and ONGC was assessed as its agent. The core of the dispute concerns the calculation of income determined on a notional basis under Section 44BB of the Income Tax Act, 1961. The Revenue sought to apply a 'multiple stage grossing up' method to this income, which the ITAT had disallowed. The High Court is hearing the appeal against the ITAT's decision.

What did the High Court hold?

The High Court held in favour of the assessee and against the Revenue. The Court found no merit in the Revenue's argument that Section 195A could be used for multiple stage grossing up of income under Section 44BB. The Court reasoned that Section 44BB is a complete code by itself, dealing with the computation of deemed profits from oil exploration, and is located in Chapter IV of the Act. In contrast, Section 195A falls under Chapter XVII, which pertains to the collection and recovery of tax. Therefore, Section 195A cannot be used to inflate the income computed under Section 44BB. The Court emphasized that Section 44BB contemplates a deemed profit at 10% of aggregate receipts. The dispute was only regarding the value of the benefit received by the assessee, not whether the assessee was paying tax on it. The Court also noted that Section 195A is primarily for TDS and does not make a receipt chargeable to tax if it is not otherwise taxable. The appeal was disposed of accordingly.

What were the issues?

1. Whether, in the facts and circumstances of the case, the learned Income Tax Appellate Tribunal was legally justified in holding that the income determined on a notional basis in accordance with Section 44BB of the IT Act, 1961, was not liable to be grossed up (multiple stage) under Section 195A of the IT Act? Assessee's contentions: 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, cannot be applied to this computation. The value of the benefit received by the assessee remains constant regardless of whether the contract is tax-protected or not. Section 195A is for TDS purposes and does not make a receipt chargeable to tax if it otherwise isn't. Revenue's contentions: The Revenue contended that in the case of Tax Protected Contracts, Section 195A is attracted, entitling the Department 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 I.T.A. No. 268 of 2001 OLD NO. 76 OF 1999 The Commissioner of Income Tax, Meerut & another

........... Appellants

Versus

O.N.G.C., Dehradun As agent of M/s Atwood Oceanics

.......... Respondent

Mr. S.K. Posti, learned Advocate for Income Tax Department Mrs. J.P. Joshi learned counsel for the respondent.

Hon. P.C. Verma, A.C.J. Hon. 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 15.02.1999 passed by the Income Tax Appellate Tribunal, New Delhi in I.T.A. No. 6058/Del/92. 2. M/s Atwood Oceanics, respondent is a non-resident foreign company. The assessment was made on ONGC as agent of the respondent.

3.

The question raised before us is as follows:

"Whether in the facts and circumstances of the case the learned Income Tax Appellate Tribunal was legally justified in holding that the income determined on notional basis in accordance with section 44BB of I.T. Act, 1961, was not liable to be grossed up (multiple stage) u/s 195-A of the I.T. Act?"?

4.

Heard learned coun

The order continues below.

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