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Income Tax Appellate Tribunal, ‘B’ BENCH: CHENNAI
Before: SHRI GEORGE MATHAN & SHRI INTURI RAMA RAO
आयकर अपीलीय अधिकरण, ‘बी’ न्यायपीठ, चेन्नई। IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH: CHENNAI श्री जॉजज माथन, न्याधयक सदस्य एवं श्री इंटूरी रामा राव, लेखा सदस्य एवं BEFORE SHRI GEORGE MATHAN, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.1006/Chny/2016 धनिाजरण वर्ज Assessment Year: 2007-08
The Assistant Commissioner of M/s. Frontier Offshore Income Tax, Exploration (India) Limited, Corporate Circle 2 (1), Vs. [formerly known as Frontier Chennai – 600 034. Aban Drilling (India) Limited] Janpriya Crest, No.113, Pantheon Road, Egmore, Chennai – 600 008. [PAN: AAACA 2927K] (अपीलार्थी/Appellant) (प्रत्यथी/Respondent) अपीलाथी की ओर से/ Appellant by : Mr. A. Sundararajan, Addl.CIT प्रत्यथी की ओर से /Respondent by : None सुनवाई की तारीख/Date of Hearing : 02.01.2020 घोर्णा की तारीख /Date of Pronouncement : 02.01.2020 आदेश / O R D E R PER GEORGE MATHAN, JUDICIAL MEMBER:
This is an appeal filed by the Revenue against the order of the learned Commissioner of Income Tax (Appeals)-6 Chennai in I.T.A. No.193/CIT(A)-6/2013-14 dated 10.02.2016 for the Assessment Year 2007-08.
ITA No. 1006/Chny/2016
:- 2 -:
Mr. A. Sundararajan, Additional CIT represented on behalf of the Revenue and none represented on behalf of the Assessee.
The Counsel on behalf of the assessee has sought adjournment on the ground that he is not in India and that certain details called for from the auditor of the assessee have not been produced. The appeal was filed by the Revenue as early as 18.04.2016 and the appeal has been posted more than twenty-four times. This is the twenty-fifth time that the appeal has been posted. Repeatedly adjournments has been sought. As it is noticed that the issue in the appeal is squarely covered by the decision of the Co-ordinate Bench of this Tribunal in the assessee’s own case for the Assessment Year 2004-05, the adjournment sought is rejected and the appeal is disposed of.
It was submitted by the learned Departmental Representative that the assessee is in the business of providing oil field services. The assessee had during the relevant assessment year incurred an expenditure of Rs.2,76,86,036/- under the head ‘bare boat rentals’ for the rig. The said expenditure was on account of arbitration settlement in respect of the liability which had got created during the financial year 2002-03. Entries made in the year 2002 had been reversed and fresh
ITA No. 1006/Chny/2016
:- 3 -: invoices had been raised on the date the arbitration settlement was received. Consequently, the Assessing Officer on two grounds has disallowed the said expenditure. The first on the ground that the said expenditure was related to the assessment year 2002-03 and was consequently a prior period expenditure. The second was on the ground that no TDS had been made on the said payment. It was a submission that on appeal, the learned CIT(A) had deleted the addition. It was a submission that in respect of the finding of the learned Assessing Officer that the expenditure was prior period expenditure, the learned CIT(A) held that the expenditure was not prior period. It was a submission that the Revenue has not challenged this finding. In respect of the finding of the learned CIT(A) that no TDS was liable to be deducted by applying the ratio of the decision of the Hon’ble Supreme Court in the case of GE India Technology Private Limited vs. Commissioner of Income Tax reported in 327 ITR 456 as also the decision in the case of Vodafone International Holdings B.V vs. Union of India reported in 341 ITR 1 the revenue is in appeal.
The learned Department Representative submitted that the provision of Section 44BB applied. It was a submission that the issue was now squarely covered by the decision of the Co-ordinate Bench of
ITA No. 1006/Chny/2016
:- 4 -: this Tribunal in the assessee’s own case in I.T.A. No.200/Mds/2009 vide order dated 4th February, 2011, wherein it has been held as follows in
paras-6 & 7 that is as under:
“6. We have considered the rival submissions. At the outset we are primarily to decide as to whether to follow the decision of the co-ordinate Bench of this Tribunal in the assessee’s own case for the assessment year 2003-04, supra, or to differ from the same. After a perusal of the decision of the Hon'ble Supreme Court in the case of GE India Technology Centre (P) Ltd. as also taking into consideration the views expressed by the Hon'ble jurisdictional High Court in the case of Hi Tech Arai reported in 321 ITR 477 (Mad) we are of the view that the decision of the co-ordinate Bench of this Tribunal in the assessee’s own case for the assessment year 2003-043 would no more constitute good law. To err is human. To continue the error is not bravery. If we are to accept the contention of the Revenue that the provisions of sec. 44BB is relating only to the non- I.T.A. No.200/Mds/2009 13 resident for the purpose of his assessment, then one should also keep in mind that the non- resident’s assessment comes into play when he files his return. The non- resident would file his return only when the assessee has made the payment and if the assessee has made the payment to the non-resident, where is the question that the assessee is to deduct TDS at a lower rate after the assessment has been done on the non-resident? Section 44BB is a special provision as it is mentioned in the cause title to the said provision itself. As per the provisions of sec. 44BB(1) a sum equal to 10% of the aggregate of the amount specified in sub-section (2) is deemed to be the profits and gains of such business chargeable to tax under the head “profits and gains of business or profession”. It is because the provision of sec.44BB has quantified the deemed income of the non-resident assessee at 10%, it has opened with the clause “Notwithstanding anything to the contrary” contained in sections 28 to 41 and sections 43 and 43A. The aggregate amounts are quantified in sub-section (2) of sec. 44BB to be the amount paid or payable, received or deemed to be received etc. As per the sub-section (3) of sec. 44BB the non-resident can claim a lower profit. It is for the purpose of claiming lower profits that the non-resident must file a return and prove the same with support of his regular books of accounts and other documents and by complying with other conditions specified therein. If no return is filed, section 44BB(1) deems that the profits and gains of the business of the non- resident at 10% of the gross receipts. A perusal of the decision of I.T.A. No.200/Mds/2009 14 the Hon'ble Supreme Court in the case of GE India Technology Centre (P) Ltd., referred to supra, clearly shows that the Hon'ble Supreme Court has categorically held that the obligation to deduct TDS is limited to the appropriate portion of income chargeable under the Act forming part of the gross sums of money payable to the non-resident. The Hon'ble Supreme Court while deciding the issue had categorically recognized that as per the provisions of sec. 195 the words used were “any other sums chargeable under the provisions of this Act” as against the term “any sum” used in the other provisions falling in Chapter XVII of the Income Tax Act, 1961. Obviously, what the Assessing Officer is demanding is that
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:- 5 -: TDS is liable to be made under the provisions of section 195 of the Act. If the provisions of sec. 195 are to be invoked, it is only such sum which is chargeable to tax under the Income-tax Act, 1961 on which TDS can be made. A question now arises as to how much of the amounts paid by the assessee to the non-resident is the income chargeable to tax under the Income Tax Act, 1961 for the purpose of section 195. It is true that the assessee cannot quantify the income of the non-resident. This is where the special provision of sec. 44BB comes into play. Where the statute has provided a special provision for dealing with a special type of income such a provision would exclude a general provision dealing with the income accruing or arising out of any business connection. This view of ours finds support from the decision of the Hon'ble jurisdictional High Court in the case of Copes Vulcan Inc., referred to supra. Section 44BB is a I.T.A. No.200/Mds/2009 15 special provision to the exclusion of all the contrary provisions provided in sections 28 to 41 and 43 and 43A of the Act. Once the provisions of sections 28 to 41 and sections 43 & 43A stand excluded, the method of computing the business income of the non-resident on the basis of the books of accounts goes out of the picture. Then it is only the provisions of section 44AD, 44AE & 44AF which could be applied and the same obviously do not apply to the income of the non-resident companies. The Hon'ble Supreme Court while dealing with its own decision in the case of Transmission Corporation of A.P. Ltd., referred to supra, has categorically explained that the tax was liable to be deducted by the payer of the gross amount if such payment included in it an amount which was exigible to tax in India. This is not so in the present case. Here on account of the special provisions of sec. 44BB, 10% of the gross amount payable to the non- residents deemed as the income chargeable to tax in India. In the present case it is noticed that the assessee has deducted tax at the specified rate on the 10% of the Bare Boat charges paid to the Norway company who is the non-resident, computed as per the provisions of sec. 44BB. In the circumstances, we are of the view that there is no violation of the provisions of section 195 in the assessee’s case which calls for a disallowance by invoking the provisions of section 40(a)(i) of the Act. In the circumstances, the finding of the learned CIT(A) and that of the Assessing Officer stands reversed. I.T.A. No.200/Mds/2009 16
We may also mention here that we are not in agreement with the submission of the learned authorised representative that the provisions of sec. 40(a)(i) postulates an absolute failure and not short deduction. This is because a reading of section 201 clearly shows that the portion “the whole or any part of the tax” is in connection with the words “after so deducting fails to pay”. It is not in connection with the words “does not deduct”.”
ITA No. 1006/Chny/2016
:- 6 -: It was a submission that the provision of Section 44BB applied. It was a submission that the order of the learned CIT(A) was liable to be reversed.
We have considered the rival submissions and perused the materials on record. We have also perused the order of the Co-ordinate Bench of this Tribunal in the assessee’s own case referred to supra. Admittedly, the assessee is in the business of providing oil field services. The provision of Section 44BB applied to the facts of the assessee’s case. The payment has been made by the assessee to M/s. Hardy Exploration & Production (India) Incorporate (HEPI). As the provision of Section 44BB applied is only 10% of the aggregate amount specified in Sub-Section-2 is deemed to be the profit and gains of such business chargeable to tax under the head ‘Profit and gains of business or provision’. In such a situation, though TDS is liable to be made, it would relate only to the 10% as provided in Section 44BB(1) of the Act. Consequently, the disallowance made by the Assessing Officer as deleted by the learned CIT(A) stands modified. The Assessing Officer is directed to restrict the disallowance on account of the non-deduction of TDS in respect of such portion as is computable u/s.44BB(1) of the Act in
ITA No. 1006/Chny/2016
:- 7 -: respect of the recipient of the expenditure, more specific to the 10% of the expenditure. The assessee claims to have deducted the necessary TDS in respect of the said 10% as provided u/s.44BB(1) of the Act. If the Assessee is unable to prove the deduction of TDS, then consequently the disallowance would be of only of such expenditure representing 10% of the total expenditure as that would be the amount liable to be treated as income as per Section 44BB(1) of the Income Tax Act, 1961.
In the result, the appeal of the Revenue is partly allowed.
Order pronounced in the open Court on 2nd January, 2020 in Chennai.
Sd/- Sd/- (इंटूरी रामा राव) (जॉजज माथन) (INTURI RAMA RAO) (GEORGE MATHAN) लेखा सदस्य/ACCOUNTANT MEMBER न्याधयक सदस्य/JUDICIAL MEMBER चेन्नई/Chennai, धदनांक/Dated: 2nd January, 2020 IA, Sr. PS आदेश की प्रधतधलधप अग्रेधर्त/Copy to: 1. अपीलाथी/Appellant 2. प्रत्यथी/Respondent 3. आयकर आयुक्त (अपील)/CIT(A) 4. आयकर आयुक्त/CIT 5. धवभागीय प्रधतधनधि/DR 6. गार्ज फाईल/GF