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

ITA/91/1999HC UttarakhandUKHC01015038200401 July 2004Author: OTHER4 pages
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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). The ITAT's order, dated 9.11.1998, concerned Assessment Year 1990-91. The respondent assessee is O.N.G.C., acting as agent for Mr. Ponomareva Alexandre, a non-resident technician. The dispute revolves around the method of grossing up tax perquisites paid by ONGC on behalf of the assessee. The Assessing Officer applied a multi-stage grossing up, while the ITAT directed the application of single-stage grossing up.

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 to apply the concept of multi-stage grossing up to profits falling under Section 44BB. The Court reasoned that Section 44BB is a self-contained code for computing deemed profits for non-resident contractors in oil exploration, stipulating a 10% computation of aggregate receipts. Conversely, Section 195A falls under Chapter XVII (collection and recovery of tax) and is primarily for TDS purposes, not for the computation of business income under Chapter IV. The Court emphasized that Section 195A does not make a receipt chargeable to tax and is confined to incomes under Chapter XVII. Therefore, it cannot support multi-stage grossing up for deemed profits under Section 44BB. The Court concluded that the value of the benefit received by the assessee should be Rs. 200/- (as per single-stage grossing up) and not Rs. 250/- (as per multi-stage grossing up), as illustrated by the provided example. The appeal was disposed of accordingly.

What were the issues?

1. Whether, on the facts and circumstances of the case, the learned Income Tax Appellate Tribunal was justified in directing to apply single-stage grossing up of tax perquisites paid by ONGC on behalf of the assessee instead of multi-stage grossing up, applied by the Assessing Officer under Section 195A of the Income Tax Act, 1961? Assessee's Contentions: The assessee contended that Section 44BB of the Income Tax Act is a complete code for computing the income of non-resident contractors from oil exploration. They argued that Section 195A, which deals with TDS and is in Chapter XVII concerning collection and recovery of tax, cannot be applied to the computation of deemed profits under Section 44BB, which falls under Chapter IV dealing with business income computation. The value of the benefit received by the assessee should remain constant regardless of whether the contract is tax-protected or not. Revenue's Contentions: The Revenue 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 multi-stage grossing up of income.

Which sections of the Income-tax Act were involved?

Section 260A,Section 195A,Section 44BB

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. 427 of 2001 (Old No. 91/1999)

The Commissioner of Income Tax, Meerut and another

……… Appellants Versus O.N.G.C., Dehradun As agent of Mr. Ponomareva Alexandre

……… 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 9.11.1998 passed by the Income Tax Appellate Tribunal, New Delhi in I.T.A.T. No. 7785/D/92. 2. Mr. Ponomareva Alexandre, respondent is a non-resident technician of M/s V.V. Machino Import, Formerly known as V.O. Techno Export.

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 justified in directing to apply single stage grossing up of the Tax perquisites paid by ONGC on behalf of the assessee instead of multi stage grossing up, applied by the Assessing Officer under section 195-A of the income Tax Act, 1961?”

4.

Heard learned counsel for the parti

The order continues below.

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