Delhi High Court

Deputy Commissioner Of Income Tax vs O. N. G. C. As Agent Of Otis ... on 12 August, 1999

Equivalent citations: (2000) 66 TTJ Del 897

ORDER

M. K. Chaturvedi, JM:

All these appeals rotate round the identical issue. For the sake of convenience, these are consolidated and disposed of, by a common order.

2. The respondents are non-resident foreign companies. The assessments were made on ONGC as agent of the respondents. The solitary ground raised in these appeals relates to the validity of multi-stage grossing up of the income on account of the provisions of section 195A of the Income Tax Act, 1961 (hereinafter referred to as `the Act').

3. We have heard the rival submissions in the light of material placed before us and precedents relied upon. Assessments in all these cases were completed by making recourse to the deeming provision as contained in section 44BB of the Act. The learned Departmental Representative vehemently argued that the tax paid by the employer is a perquisite, given to the employee. This is to be added in the salary of the employee like any other perquisite.

4. Our attention was invited on the provision of section 28(iv) of the Act, which stipulates that the value of any benefit or perquisite whether converted into money or not, arising from business or the exercise of profession, shall be chargeable to Income Tax under the head "profits and gains of business or profession". The learned Departmental Representative placed reliance on the decision of the Hon'ble Karnataka High Court rendered in the case of S. Takenaka v. CIT (1999) 9 DTC 50 (Karn-HC) : (1999) 237 ITR 112 (Karn).

5. Our attention was further invited on the provision of section 195A of the Act. It was submitted that as per the prescription of section 195A, multi-stage grossing is required to be done. Reference was made to the decision rendered in the case of Tokyo Shibaura Electric Co. Ltd. v. CIT (1964) 52 ITR 283 (Mys). In this case the Hon'ble High Court approved the multi-stage grossing. The learned Departmental Representative also relied on some cases where the multi-stage grossing was approved.

6. The learned counsel for the assessee invited our attention on the prescription of section 44BB. It was submitted that this section overrides the provision of sections 28 to 41 and sections 43 and 43A. In the present case 44BB was applied for the purpose of assessment. The income was computed in accordance with the prescription of section 44BB of the Act. It is stipulated in this section that for computing the profit and gains in connection with the business of exploration of mineral oil, etc. a sum equal to 10 per cent of aggregate of the amount specified in sub-section (2) shall be deemed to be the profits and gains of such business chargeable to tax under the head "profits and gains of business or profession". As per sub-section (2) of section 44BB of the Act the amounts referred to in sub-section (1) shall be the amount paid or payable (whether in or out of India) to the assessee or to any person on his behalf on account of the provision of services and facilities in connection with or supply of plant and machinery on hire used or to be used in the prospecting for, or extraction or production of, mineral oil in India.

7. It was fairly conceded by the learned counsel for the assessee that the word "paid or payable" includes tax portion also. Therefore, the payment of tax on behalf of the contractor, is part and parcel of the income and it should be grossed up on single stage basis and not on multi-stage basis.

8. The learned counsel also relied on some precedents to buttress the point that tax in the present case is to be grossed up on single point basis. Our attention was invited on the decision of Hon'ble Calcutta High Court rendered in the case of CIT v. Schlumbargar Sea Co. in T. P. No. 88 of 1996. In this case the assessee, on an admitted basis, was liable to be taxed in accordance with the provisions of section 44BB of the Act. It was held that once a non-resident assessee comes within the purview of section 44BB, it cannot come again under the purview of other parts of the Act dealing with profits and gains of business or profession.

9. As a result of the amendment in section 44BB by the Finance Act, 1988, the application of the provision of section 44BB was restricted to the cases of only non-resident taxpayers with retrospective effect from 1-4-1983. This section was introduced as a measure of simplification by the Finance Act, 1987, with retrospective effect from 1-4-1983. It would be pertinent here to reproduce clause II of the memo explaining provision in Finance Bill, 1987. It reads as under -:

"New provisions for computation of taxable income from activities connected with exploration of mineral oils."

"28. The computation of the taxable income of a taxpayer engaged in the business of providing services and facilities in connection with, or supplying plant and machinery on hire, used or to be used in the exploration for, and exploitation of, mineral oils involves a number of complications.

As a measure of simplification the Bill seeks to insert a new section 44BB in the Income Tax Act providing for determination of income of such taxpayers at ten per cent of the aggregate of certain amounts. The amounts in respect of which the provisions will apply would be the amounts paid or payable to the taxpayer or to any person on his behalf whether in or out of India, on account of the provision of such services or facilities or supplying plant and machinery for the aforesaid purposes. This amount will also include the amounts received or due to be received in India on account of such services or facilities or supply of plant and machinery.

The aforesaid amendment will not, however, apply to any income to which the provisions of sections 42, 44D, 115A or 293A of the Income Tax Act apply.

This proposed amendment will take effect retrospectively from 1-4-1983, and will, accordingly, apply in relation to the assessment year 1983-84 and subsequent years.

10. Section 44B begins with a non obstante clause. It overrides sections 28 to 41 and sections 43 and 43A. A number of complications were involved in the computation of taxable income of a taxpayer engaged in the business of providing services and facilities in connection with or supply of plant and machinery on hire, used or to be used in the exploration and exploitation of mineral oils. With a view to simplify the provisions, section 44BB was inserted for determining the income of such taxpayers at ten per cent of the aggregate of certain amounts which had been specified. This amount includes the sum received or due to be received in India on account of such services or facilities or supply of plant and machinery.

11. In view of the above, in our opinion, the assessing officer is not permitted to make recourse to the provision of section 28(iv) of the Act. He is required to make the computation strictly in accordance with the scheme of section 44BB of the Act.

12. Coming now to the applicability of section 195A, we find that this section is applicable for the purposes of deduction of tax at source. The section reads as under:

" 195A. Income payable "net of tax"-Where, under an agreement or other arrangement the tax chargeable on any income referred to in the foregoing provisions of this Chapter is to be borne by the person by whom the income is payable, then, for the purposes of deduction of tax under those provisions such income shall be increased to such amount as would, after deduction of tax thereon at the rates in force for the financial year in which such income is payable, be equal to the net amount payable under such agreement or arrangement.

13. Both the parties agreed that the section 195A has to be read along with section 195. It is true that section 195A is applicable in the case of the assessee. But, it is applicable only for the purpose of determining the amount of tax deductible at source. Its scope cannot be elongated any further.

14. There are two broad heads of tax levy. One is direct levy and the other is levy by deduction at source (in short TDS). TDS is a convenient method of tax collection, since it effects early realisation and is less painful to person from whose income such tax is deducted. Moreover, it saves time on the part of the revenue, inasmuch as all collection and other attendant work are performed by person responsible for paying. All sums of tax deducted from the income of a person shall be treated as, and added to, his income for the purpose of computing the income (section 198). Credit shall be given to such person for the amounts of tax deducted at source from out of his income (section 199). Therefore, the amount deducted at source is not the final tax determined to be payable on assessment. It is only a safeguard against the possible concealment. Final tax is determined in accordance with the procedure established under the Income Tax Act, on the assessed income. After determining the total tax liability, credit is given for the TDS. Therefore, the method of calculation of TDS prescribed under section 195A is not final for determining the tax liability on the assessee. It only lays down the procedure for the calculation of TDS where income is payable "NET OF TAX". There is no dispute that for the purpose of section 195A multi-stage grossing is required. In the present cases, tax was deducted as such.

15. Let us find out the difference, with reference to an example between single stage grossing and multi-stage grossing. Suppose, the income is hundred, and twenty per cent is the tax rate. (As per the decision of the Hon'ble Supreme Court in the case of Emil Webber v. CIT (1993) 200 ITR 483 (SC), tax assessed on assessee, paid by Indian concern pursuant to an agreement with foreign concern, constitutes income of the assessee). The income of the assessee will, therefore, be treated at Rs. 120. Tax payable on Rs. 120 will be Rs. 24. This is single stage grossing. The assessee agreed to that.

16. Now for multi-stage grossing, four more rupees to be added to arrive at Rs. 24 the amount of tax. Tax on Rs. 124 works out to Rs. 24.8. Since only Rs. 24 was added additional Re. 0.8 is to be further added to the income. On Rs. 124.8 tax works out to Rs. 24.96. Since only 24. 8 was added, additional Re. 0. 16 is to be added. This gives income of Rs. 124.96. 20 per cent of 124.96 comes to 24.992. Therefore, gross income becomes 124.992.On this applying 20 per cent rate of tax it comes to 24.998. This can be rounded off to Rs. 25. So the rounded up gross income will be Rs. 125 and the rounded off gross multi-point tax will be Rs. 25.

17. The Tribunal in the case of Nedlloyd Lines b.b. v. Dy. ClT (1992) 43 ITD 433 (Bom-Trib) has held that if special provision is made on a certain matter, the matter excluded from the general provision. This idea is also inculcated in the dictum : "Generalibus Specialia Derogant" (special things derogate from general things).

18. Section 44BB overrides the provisions of sections 28 to 43A. Assessment is, therefore, to be done strictly in accordance with the procedure laid down under section 44BB. There is no ambiguity as to the application of this section in regard to the method of computation and calculation of tax. It is abundantly clear from the language of the section that 10 per cent of the aggregate of the amounts specified in sub-section (2) shall be the deemed profit and gains of the business. The aggregate of the amounts refers to the amounts paid or payable (whether in India or out of India) to the assessee or to any person on his behalf on account of the provision of services and facilities, etc.

19. In view of the decision of the Apex Court rendered in the case of Emil Webber (supra) the expression "amount paid or payable" will comprise the tax liability of the assessee, which is agreed to be paid by the Indian concern pursuant to the agreement-. As such, only single point grossing could be done. It is not open for the revenue to travel beyond the ken of section 44BB of the Act. Tax liability is to be determined with reference to the prescription of this section only. It cannot be determined with reference to the provision of section 195A which is relevant only for the purpose of deducting the tax at source.

20. Taking into consideration the entire conspectus of the case and having regard to the precedents relied upon in the matter, we are of the opinion that the Commissioner (Appeals) took a correct view in the matter and his order calls for no interference. Accordingly, we uphold the same.

21. In the result, the appeals of the revenue, stand dismissed.