COMMISSIONER INCOME TAX vs. O.N.G.C.

ITA/57/2000HC UttarakhandUKHC01025112200301 July 2004Author: OTHER4 pages
AI SummaryDismissed

What were the facts?

This appeal by the Revenue is against the order of the Income Tax Appellate Tribunal (ITAT) dated August 12, 1999, concerning Assessment Year 1989-90. The respondent, M/s Otis Engineering Corpn., is a non-resident foreign company, and ONGC, Dehradun, was assessed as its agent. The core of the dispute revolves around the calculation of income for the non-resident, specifically whether income determined on a notional basis under Section 44BB of the Income Tax Act, 1961, should be grossed up under Section 195A. The ITAT had ruled in favour of the assessee, holding that grossing up was not permissible. The High Court is considering the legality of the ITAT's decision.

What did the High Court hold?

The High Court held that the ITAT was legally correct in its decision. The Court reasoned that Section 44BB of the Income Tax Act is a complete code by itself for the computation of deemed profits of non-resident contractors engaged in oil exploration. It is a charging section for such income. Conversely, Section 195A falls under Chapter XVII (Collection and Recovery of Tax) and deals with tax deduction at source, not the computation of business income which is governed by Chapter IV. Therefore, Section 195A cannot be used to apply the concept of multiple-stage grossing up to profits computed under Section 44BB. The Court further clarified that Section 195A is primarily for TDS purposes and does not make a receipt chargeable to tax if it otherwise isn't. The mechanism for recovery of tax under Section 195A does not alter the chargeability of income. The Court found no merit in the Revenue's argument for multiple-stage grossing up, stating that the value of the benefit received by the assessee (ONGC paying tax on its behalf) should remain constant and that Section 195A is not applicable in this context. The appeal was dismissed.

What were the issues?

1. Whether, in the facts and circumstances of the case, the learned Income Tax Appellate Tribunal was legally correct in holding 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 judgment does not explicitly record the assessee's arguments. However, it implies the assessee's position was that Section 44BB is a complete code for computing deemed profits from oil exploration and that Section 195A is not applicable for multiple-stage grossing up. The assessee argued that the value of the benefit received (ONGC paying tax on its behalf) should be Rs. 200, irrespective of whether the contract was protected or not. Revenue's Contention: The Revenue argued that in cases of Tax Protected Contracts, Section 195A was attracted, entitling the Department to compute the deemed profits of the non-resident contractor (NRC) by applying the method of multiple-stage grossing up of income. The Revenue sought to calculate the benefit at Rs. 250 by resorting to multiple-stage grossing up, whereas the assessee computed it at Rs. 200.

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 1989-90

IN THE HIGH COURT OF UTTARANCHAL AT NAINITAL

I.T.A. No. 47 of 2001 Old No. 57/2000

The Commissioner of Income Tax, Meerut & another

…….. Appellants

Versus

O.N.G.C., Dehradun As agent of M/s Otis Engineering Corpn.

…….. Respondent

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

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 12.8.1999 passed by the Income Tax Appellate Tribunal, New Delhi in I.T.A. No. 7292/D/92. 2. M/s Otis Engineering Corpn., 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 correct 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 u/s 195-A of the I.T. Act?”

4.

Heard learned counsel for the parties and perused the record.

5.

As this Court has

The order continues below.

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