ACIT, CHENNAI V. Frontier Offshore Exploration (India) Limited, CHENNAI

ITA 1006/CHNY/2016

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 9201 (ITAT-CHENNAI)
• Duration Of Justice: 3 year(s) 8 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-01-2020
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 18-04-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A SUNDARARAJANADDL
• Keywords: Business income; Deemed to accrue or arise in india; TDS
• Section: 195; 201; 44BB; 43; 13; 28

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: CHENNAI , , BEFORE SHRI GEORGE MATHAN, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ./ ITA NO.1006/CHNY/2016 ASSESSMENT YEAR: 2007 - 08 THE ASSISTANT COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 2 (1) , CHE NNAI 600 034. VS. M/S. FRONTIER OFFSHORE EXPLORATION (INDIA) LIMITED, [FORMERLY KNOWN AS FRONTIER ABAN DRILLING (INDIA) LIMITED] JANPRIYA CREST, NO.113, PANTHEON ROAD, EGMORE, C HENNAI 600 008. [PAN: AA AC A 2927K ] ( /APPELLANT) ( / RESPONDENT) / APPELLANT BY : MR. A. S U NDARARAJAN, ADD L .CIT /RESPONDENT BY : NONE / DATE OF HEARING : 0 2 .01.2020 / DATE OF PRONOUNCEMENT : 0 2 .01.2020 / O R D E R PER GEORGE MATHAN, JUDICIAL MEMBER : TH IS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE LEARNED COMMIS SIONER OF INCOME TAX (APPEALS) - 6 CHENNAI I N I.T.A. NO.193/CIT(A) - 6/2013 - 14 DATED 10.02.2016 FOR THE ASSESSMENT YEAR 200 7 - 0 8 . ITA NO. 1 006/CHNY/2016 : - 2 - : 2. MR. A. SUNDARARAJAN, ADDITIONAL CIT REPRESENTED ON BEHALF OF THE REVENUE AND NONE REPRESENTED ON BEHALF OF THE ASSESSEE. 3. 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 BE EN 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 ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2004 - 05, THE ADJOURNMENT SOUGHT IS REJECTED AND THE APPEAL IS DISPOSE D OF. 4. 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 B A R E 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. 1 006/CHNY/2016 : - 3 - : INVOICES HAD BEEN R AISED 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 CONSEQ UENTLY 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 LEA RNED 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 . I N 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 HONBLE 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 VODAF ONE INTERNATIONAL HOLDINGS B.V VS. UNION OF INDIA REPORTED IN 341 ITR 1 THE REVENUE IS IN APPEAL . 5. 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. 1 006/CHNY/2016 : - 4 - : THIS TRIBUNAL IN THE ASSESSEES OWN CASE IN I.T.A. NO.200/MDS/2009 VIDE ORDER DATED 4 TH FEBRUARY, 2011, WHEREIN IT HAS BEEN HELD AS FOLLOWS IN PARAS - 6 & 7 THAT IS AS UNDER: 6. WE HAVE CONSIDERED THE RIVAL SUBMI SSIONS. 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 ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2003 - 04, SUPRA, OR TO DIFFER FROM THE SAME. AFTER A PERUSAL OF THE DECISION O F 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 ASSESSEES 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 T HAT 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 - RESIDENTS ASSESSMENT COMES INTO PLAY WHEN HE FILES HIS RETURN. THE NON - RESIDE NT 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 - RESIDE NT? 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 NOTWITHSTAN DING 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 OTHE R 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 TH E 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 ITA NO. 1 006/CHNY/2016 : - 5 - : TDS IS LIABLE TO BE MADE UNDER THE PROVISIONS OF SECTION 195 OF THE ACT. IF THE PROVISI ONS 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 P ROVISION 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 JURISDICTIONA L 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 B E 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 TH AT 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 - RE SIDENT, 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 ASSESSEES CASE WHICH CALLS FOR A DISALLOWANCE BY INVOKING THE PROVISIONS OF SECTION 40(A)(I) O F 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 7. WE MAY ALSO MENTION HERE THAT WE ARE NOT IN AGREEMENT WITH THE SUBMISSION OF THE LEARNED AUTHORISED REPRESE NTATIVE 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 DEDUCT ING FAILS TO PAY. IT IS NOT IN CONNECTION WITH THE WORDS DOES NOT DEDUCT. ITA NO. 1 006/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. 6. 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 ASSESSEES OWN CASE REFERRED TO SUPRA. ADMITTEDLY, THE ASSESSEE IS IN THE BUSINESS OF PR OVIDING OIL FIELD SERVICES. T HE PROVISION OF SECTION 44BB APPLIED TO THE FACTS OF THE ASSESSEES 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 AMO UNT SPECIFIED IN SUB - SECTION - 2 I S 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 A S 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. 1 006/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 EXPEND ITURE AS THAT WOULD BE THE AMOUNT LIABLE TO BE TREATED AS INCOME AS PER SECTION 44BB(1) OF THE INCOME TAX ACT, 1961. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 2 ND JANUARY, 2020 IN CHENNAI. SD/ - ( ) (INTURI RAMA RAO) / ACCOUNTANT MEMBER /CHENNAI, / DATED: 2ND JANUARY , 2 0 20 IA, SR. PS SD/ - ( ) (GEOR GE MATHAN) / JUDICIAL MEMBER /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. ( ) /CIT(A) 4. /CIT 5. /DR 6. /GF