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

ITA/3/2001HC UttarakhandUKHC01006209200301 July 2004Author: OTHER4 pages
AI SummaryAllowed

What were the facts?

The Revenue (Commissioner of Income Tax, Meerut) filed an appeal under Section 260A of the Income Tax Act, 1961, against an order of the Income Tax Appellate Tribunal (ITAT), New Delhi. The appeal concerned Assessment Year 1985-86. The assessee is M/s Griffin Allexander Drilling Co., a non-resident foreign company, for whom ONGC (Oil and Natural Gas Corporation) was assessed as the agent. The dispute revolved around whether income determined on a notional basis under Section 44BB of the Act was liable to be grossed up on a multiple-stage basis under Section 195A.

What did the High Court hold?

The High Court held in favour of the assessee and against the Department, answering the question in the affirmative. The Court reasoned that Section 44BB is a complete code in itself, dealing with the computation of deemed profits for non-resident companies engaged in oil exploration. It is a charging section for such income. In contrast, Section 195A falls under Chapter XVII (Collection and Recovery of Tax), whereas Section 44BB is in Chapter IV (Computation of Business Income). Therefore, Section 195A cannot be used to apply the concept of multiple-stage grossing up to profits falling under Section 44BB. The Court noted that Section 44BB contemplates a deemed profit at 10% of aggregate receipts. It further clarified that Section 195A is primarily for Tax Deducted at Source (TDS) and recovery of tax, not for making a receipt chargeable to tax or for grossing up income under Section 44BB. The mechanism for recovery of tax under Section 195A does not make a receipt chargeable if it otherwise isn't. The Court also provided an illustration showing the difference between single-stage and multiple-stage grossing up, supporting the assessee's stance.

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 Income Tax Act, 1961, was not liable to be grossed up (multiple stage) under Section 195A of the Income Tax Act? Assessee's Contention: The judgment does not record specific arguments made by the assessee, but it implies the assessee's position was that Section 44BB is a complete code and Section 195A is not applicable for multiple-stage grossing up of income determined under Section 44BB. Revenue's Contention: The Department 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 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 1985-86 IN THE HIGH COURT OF UTTARANCHAL AT NAINITAL I.T.A. No. 03 of 2001

The Commissioner of Income Tax, Meerut & another

---- Appellants Versus

O.N.G.C., Dehradun As agent of M/s Griffin Allexander Drilling Co.

---- 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 24.5.2000 passed by the Income Tax Appellate Tribunal, New Delhi in I.T.A.T. No. 4644/D/94. 2. M/s Griffin Allexander Drilling Co., 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 counsel for the parties and perus

The order continues below.

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