JCIT (OSD), CHENNAI V. M/s. Aban Offshore Ltd., CHENNAI

ITA 1995/CHNY/2011

• Counselvise Citation: 199521714 RSA 2011
• Duration Of Justice: 7 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-07-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 26-07-2012
• Assessment Year: 2003-2004
• Appeal Filed On: 09-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANUPAMA SHUKLA
• Keywords: Bonafide belief; Difference of opinion; Change of opinion
• Section: 143(3); 147; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI S.S. GODARA, JUDICIAL MEMBER I.T.A. NOS. 1995 & 1996/MDS/2011 (ASSESSMENT YEARS : 2003-04 & 2004-05) THE JOINT COMMISSIONER OF INCOME TAX (OSD), COMPANY CIRCLE I(1), CHENNAI - 600 034 . (APPELLANT) V. M/S ABAN OFFSHORE LTD., JANPRIYA CREST, NO.113/96, PANTHEON ROAD, CHENNAI - 600 008. PAN : AAACA3012H (RESPONDENT) APPELLANT BY : MS. ANUPAMA SHUKLA, CIT-DR RESPONDENT BY : SHRI VIKRAM VIJAYARAGHAVAN, ADVO CATE DATE OF HEARING : 26.07.2012 DATE OF PRONOUNCEMENT : 26.07.2012 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : THESE ARE APPEALS FILED BY THE REVENUE FOR THE IM PUGNED ASSESSMENT YEARS, AGAINST ORDERS DATED 12.9.2011 OF COMMISSIONER OF INCOME TAX (APPEALS) III, CHENNAI. FIRST GRIE VANCE OF THE REVENUE IN BOTH THESE APPEALS IS THAT THE CIT(APPEA LS) HELD REOPENING DONE TO BE INVALID, AS ACCORDING TO IT, R EOPENING WAS NOT ON I.T.A. NOS. 1995 & 1996/MDS/11 2 A MERE CHANGE OF OPINION. SECOND GRIEVANCE IS THAT CIT(APPEALS) DELETED THE DISALLOWANCE MADE BY THE ASSESSING OFFI CER RELYING ON SECTION 40(A)(I) OF INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT') FOR PAYMENTS MADE TO NON-RESIDENTS WITHOUT DEDUCTING TA X AT SOURCE. 2. WHEN THE ISSUE CAME UP, LEARNED A.R. SUBMITTED T HAT WITH REGARD TO THE SECOND GRIEVANCE OF THE REVENUE, THE MATTER STOOD COVERED IN FAVOUR OF ASSESSEE BY THIS TRIBUNAL VIDE ITS ORDER DATED 15 TH JULY, 2011 IN I.T.A. NO. 1542/MDS/10 RELEVANT TO A SSESSMENT YEAR 2005-06. AS FOR THE ISSUE OF REOPENING, LEARN ED A.R. SUBMITTED THAT SUCH REOPENING WAS RESORTED TO AFTER COMPLETIO N OF FOUR YEARS AND IT WAS MERELY BASED ON A CHANGE OF OPINION, SIN CE ORIGINAL ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF TH E ACT, FOR BOTH THE YEARS. 3. LEARNED D.R. FAIRLY ADMITTED THAT INSOFAR AS THE MERITS OF THE CASE WITH REGARD TO DISALLOWANCE UNDER SECTION 40(A )(I) OF THE ACT WAS CONCERNED, THE MATTER STOOD DECIDED IN FAVOUR O F ASSESSEE BY THIS TRIBUNAL VIDE ORDER MENTIONED SUPRA FOR ASSESS MENT YEAR 2005- 06. HOWEVER, WITH REGARD TO THE ISSUE OF REOPENING , LEARNED D.R. SUBMITTED THAT IT WAS NOT ON A MERE CHANGE OF OPINI ON THE REOPENING I.T.A. NOS. 1995 & 1996/MDS/11 3 WAS RESORTED TO, BUT, ON THE OTHER HAND, ASSESSEE H AD FAILED TO DISCLOSE MATERIAL FACTS AT THE TIME OF ORIGINAL ASS ESSMENT. 4. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. ONLY DISALLOWANCE MADE BY THE ASSESSING OFFICER AND DELETED BY THE CIT(APPEALS), ON WHICH REVENUE IS IN APPEAL BEFORE US, IS THE DISALLOWANCE MADE UNDER SECTION 40(A)(I) OF THE ACT FOR PAYMENTS MADE TO NON-RESIDENTS, WHICH THE A.O. CONSIDERED TO HAVE BEEN MADE WITHOUT DEDUCTING TAX AT THE RATES PRESCRIBED UNDER THE ACT. ASSESSEE HAD MADE THE OFFSHORE PAYMENTS FOR MACHINE RY REPAIRS AND RENTALS TO M/S INTERNATIONAL TUBULAR F2E AND FOR DR ILLING SERVICES TO INTERNATIONAL OFFSHORE MANAGEMENT, BOTH OF WHICH WE RE NON-RESIDENT ENTITIES. ASSESSEE HAD DEDUCTED TAX AT 4% ON SUCH PAYMENTS CONSIDERING THE SERVICES RENDERED BY THE NON-RESIDE NT ENTITIES AS FALLING UNDER SECTION 44BB OF THE ACT. HOWEVER, TH E A.O. WAS OF THE OPINION THAT THE ASSESSEE WAS REQUIRED TO DEDUCT 40 % OF THE GROSS AMOUNT PAYABLE UNDER SECTION 195(1) OF THE ACT. SI MILAR ISSUE HAD COME UP BEFORE THIS TRIBUNAL IN REVENUES APPEAL FO R ASSESSMENT YEAR 2005-06 ALSO AND THIS TRIBUNAL, AFTER CONSIDER ING THE ARGUMENTS ON BOTH SIDES, HELD AS UNDER AT PARA 24 OF ITS ORDE R DATED 15 TH JULY, 2011: I.T.A. NOS. 1995 & 1996/MDS/11 4 24. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. THE PAYMENTS WERE MADE BY THE ASSESSEE TO NON-RESID ENTS. THE PAYMENT MADE TO INTERNATIONAL TUBULAR F2E WAS FOR R ENTAL AND REPAIRS TO MACHINERY AND PAYMENT MADE TO INTERNATIO NAL OFFSHORE MANAGEMENT WAS FOR DRILLING SERVICES. THIS HAS BEEN MENTIONED BY THE ASSESSING OFFICER AT PARA 6 OF HIS ASSESSMENT ORDER. HOWEVER, AS PER THE ASSESSING OFFICER, IT WA S NOT FOR THE ASSESSEE TO DECIDE WHETHER SECTION 44BB COULD BE AP PLIED TO SUCH NON-RESIDENT ENTITIES. ASSESSING OFFICER RELI ED ON THE DECISION OF FRONTIER OFFSHORE EXPLORATION (INDIA) L TD. V. DCIT (118 ITD 495) WHICH WAS FOR ASSESSMENT YEAR 2003-04 FOR MAKING THE DISALLOWANCE FOR SHORT DEDUCTION OF TAX AT SOURCE. ASSESSEE ADMITTEDLY WAS ENGAGED IN EXPLORATION OF O IL ON OFFSHORE BASINS AND DRILLING WAS UNDERTAKEN ON CONT RACTS RECEIVED FROM ENTITIES LIKE ONGC. SUCH OFFSHORE DRI LLING WAS FOR CRUDE OIL AND CRUDE OIL IS DEFINITELY A MINERAL OIL . THEREFORE, SERVICES RENDERED BY A NON-RESIDENT ENTITY FOR RENT AL AND REPAIRS TO MACHINERY USED IN OFFSHORE DRILLING AND ALSO FOR DRILLING SERVICES CAN ONLY BE CONSIDERED AS SERVICES OR FACI LITIES IN CONNECTION WITH PROSPECTING FOR, OR EXTRACTION OR P RODUCTION OF MINERAL OIL. HENCE ASSESSEE HAD SUFFICIENT REASON T O HAVE A BONAFIDE BELIEF THAT SECTION 44BB OF THE ACT WOULD APPLY TO M/S INTERNATIONAL TUBULAR F2E AND M/S INTERNATIONAL OFF SHORE MANAGEMENT. SUBSEQUENT TO THE DECISION IN THE CASE OF FRONTIER OFFSHORE EXPLORATION (INDIA) LTD. V. DCIT ( 118 ITD 495) FOR ASSESSMENT YEAR 2003-04, WHICH HAS BEEN HEAVILY REL IED ON BY THE A.O. FOR MAKING THE DISALLOWANCE, THERE WAS A D ECISION BY ANOTHER CO-ORDINATE BENCH IN I.T.A. NO. 200/MDS/200 9 FOR ASSESSMENT YEAR 2004-05 WHERE ALSO ONE OF THE PARTY WAS SAME FRONTIER OFFSHORE EXPLORATION (INDIA) LTD. A VERY S IMILAR ISSUE WAS INVOLVED IN THAT CASE. TRIBUNAL EXAMINED THE AS PECT OF DEDUCTION OF TAX AT SOURCE ON PAYMENTS MADE TO A NO N-RESIDENT, FALLING UNDER SECTION 44BB OF THE ACT AND WHETHER A N ASSESSEE COULD MAKE DEDUCTION AT LOWER RATE TAKING 10% AS TH E INCOME OF SUCH NON-RESIDENT ENTITY. AFTER CONSIDERING ITS EAR LIER DECISION FOR ASSESSMENT YEAR 2003-04, IT WAS HELD AT PARAS 6 AND 7 OF THE ORDER DATED 4 TH FEBRUARY, 2011, AS UNDER:- I.T.A. NOS. 1995 & 1996/MDS/11 5 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. AT TH E OUTSET WE ARE PRIMARILY TO DECIDE AS TO WHETHER TO FOLLOW THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE AS SESSEES OWN CASE FOR THE ASSESSMENT YEAR 2003-04, SUPRA, OR TO DIFFER FROM THE SAME. AFTER A PERUSAL OF THE DECISION OF T HE HON'BLE SUPREME COURT IN THE CASE OF GE INDIA TECHNOLOGY CE NTRE (P) LTD. AS ALSO TAKING INTO CONSIDERATION THE VIEWS EX PRESSED BY THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE O F HI TECH ARAI REPORTED IN 321 ITR 477 (MAD) WE ARE OF THE VI EW THAT THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2003-04 3 WOULD NO MORE CONSTITUTE GOOD LAW. TO ERR IS HUMAN. TO CONTINUE THE ERROR IS NOT BRAVERY. IF WE ARE TO ACC EPT THE CONTENTION OF THE REVENUE THAT THE PROVISIONS OF SE C. 44BB IS RELATING ONLY TO THE NON-RESIDENT FOR THE PURPOSE O F HIS ASSESSMENT, THEN ONE SHOULD ALSO KEEP IN MIND THAT THE NON- RESIDENTS 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 H AS 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? SECTI ON 44BB IS A SPECIAL PROVISION AS IT IS MENTIONED IN T HE 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 PR OFITS AND GAINS OF SUCH BUSINESS CHARGEABLE TO TAX UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. IT I S BECAUSE THE PROVISION OF SEC.44BB HAS QUANTIFIED THE DEEMED INC OME OF THE NON-RESIDENT ASSESSEE AT 10%, IT HAS OPENED WIT H THE CLAUSE NOTWITHSTANDING ANYTHING TO THE CONTRARY C ONTAINED IN SECTIONS 28 TO 41 AND SECTIONS 43 AND 43A. THE AGGR EGATE AMOUNTS ARE QUANTIFIED IN SUB-SECTION (2) OF SEC. 4 4BB TO BE THE AMOUNT PAID OR PAYABLE, RECEIVED OR DEEMED TO B E RECEIVED ETC. AS PER THE SUB-SECTION (3) OF SEC. 44 BB THE NON- RESIDENT CAN CLAIM A LOWER PROFIT. IT IS FOR THE PU RPOSE OF CLAIMING LOWER PROFITS THAT THE NON-RESIDENT MUST F ILE A RETURN AND PROVE THE SAME WITH SUPPORT OF HIS REGULAR BOOK S 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 BUS INESS OF THE NON-RESIDENT AT 10% OF THE GROSS RECEIPTS. A PE RUSAL OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F GE INDIA TECHNOLOGY CENTRE (P) LTD., REFERRED TO SUPRA, CLEA RLY SHOWS THAT THE HON'BLE SUPREME COURT HAS CATEGORICALLY HE LD THAT THE OBLIGATION TO DEDUCT TDS IS LIMITED TO THE APPROPRI ATE PORTION OF INCOME CHARGEABLE UNDER THE ACT FORMING PART OF THE GROSS SUMS OF MONEY PAYABLE TO THE NON-RESIDENT. THE HON' BLE I.T.A. NOS. 1995 & 1996/MDS/11 6 SUPREME COURT WHILE DECIDING THE ISSUE HAD CATEGORI CALLY RECOGNIZED THAT AS PER THE PROVISIONS OF SEC. 195 T HE WORDS USED WERE ANY OTHER SUMS CHARGEABLE UNDER THE PROV ISIONS OF THIS ACT AS AGAINST THE TERM ANY SUM USED IN THE OTHER PROVISIONS FALLING IN CHAPTER XVII OF THE INCOME TA X ACT, 1961. OBVIOUSLY, WHAT THE ASSESSING OFFICER IS DEMANDING IS THAT TDS IS LIABLE TO BE MADE UNDER THE PROVISIONS OF SE CTION 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 AS SESSEE TO THE NON-RESIDENT IS THE INCOME CHARGEABLE TO TAX UN DER 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 SE C. 44BB COMES INTO PLAY. WHERE THE STATUTE HAS PROVIDED A S PECIAL 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 CONN ECTION. THIS VIEW OF OURS FINDS SUPPORT FROM THE DECISION O F THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CO PES VULCAN INC., REFERRED TO SUPRA. SECTION 44BB IS A SPECIAL PROVISION TO THE EXCLUSION OF ALL THE CONTRARY PROVISIONS PROVID ED IN SECTIONS 28 TO 41 AND 43 AND 43A OF THE ACT. ONCE T HE PROVISIONS OF SECTIONS 28 TO 41 AND SECTIONS 43 & 4 3A STAND EXCLUDED, THE METHOD OF COMPUTING THE BUSINESS INCO ME OF THE NON-RESIDENT ON THE BASIS OF THE BOOKS OF ACCOU NTS GOES OUT OF THE PICTURE. THEN IT IS ONLY THE PROVISIONS OF SECTION 44AD, 44AE & 44AF WHICH COULD BE APPLIED AND THE SA ME OBVIOUSLY DO NOT APPLY TO THE INCOME OF THE NON-RES IDENT COMPANIES. THE HON'BLE SUPREME COURT WHILE DEALING WITH ITS OWN DECISION IN THE CASE OF TRANSMISSION CORPORATIO N OF A.P. LTD., REFERRED TO SUPRA, HAS CATEGORICALLY EXPLAINE D 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 EXI GIBLE 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 C ASE IT IS NOTICED THAT THE ASSESSEE HAS DEDUCTED TAX AT THE S PECIFIED RATE ON THE 10% OF THE BARE BOAT CHARGES PAID TO TH E NORWAY COMPANY WHO IS THE NON-RESIDENT, COMPUTED AS PER TH E PROVISIONS OF SEC.44BB. IN THE CIRCUMSTANCES, WE AR E OF THE VIEW THAT THERE IS NO VIOLATION OF THE PROVISIONS O F SECTION 195 IN THE ASSESSEES CASE WHICH CALLS FOR A DISALLOWAN CE BY INVOKING THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT. IN THE CIRCUMSTANCES, THE FINDING OF THE LEARNED CIT(A) AN D THAT OF THE ASSESSING OFFICER STANDS REVERSED. I.T.A. NOS. 1995 & 1996/MDS/11 7 7. WE MAY ALSO MENTION HERE THAT WE ARE NOT IN AGRE EMENT WITH THE SUBMISSION OF THE LEARNED AUTHORISED REPRE SENTATIVE 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 WHO LE OR ANY PART OF THE TAX IS IN CONNECTION WITH THE WORDS A FTER SO DEDUCTING FAILS TO PAY. IT IS NOT IN CONNECTION W ITH THE WORDS DOES NOT DEDUCT. 5. IN ANY CASE, WE FIND THAT THE DISALLOWANCE WAS M ADE IN A RE- ASSESSMENT DONE WHEN THE ORIGINAL ASSESSMENT WAS CO MPLETED UNDER SECTION 143(3) OF THE ACT. CIT(APPEALS) HAD CLEARLY NOTED THAT ALL THE DETAILS RELATING TO TAX DEDUCTED AT SOURCE ON PAYMENTS MADE TO NON-RESIDENTS, WERE DULY DISCLOSED BY THE ASSESSEE AT THE TIME OF ORIGINAL ASSESSMENT. THIS HAS NOT BEEN REBUTTED BY THE REVENUE. IN SUCH A SITUATION, IN OUR OPINION, REOPENING FOR A R EASON THAT ASSESSEE HAD NOT DEDUCTED TAX AT SOURCE, WAS NOT WARRANTED. ESPECIALLY SO, SINCE FOUR YEARS HAD LAPSED FROM THE END OF THE IMP UGNED ASSESSMENT YEAR, WHEN THE RE-ASSESSMENT PROCEEDINGS WERE INITIATED. FIRST PROVISO TO SECTION 147 OF THE ACT CLEARLY APPLIED AND REVENUE WAS UNABLE TO SHOW ANY FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE MATERIALS OR PARTICULARS RELEVANT TO IM PUGNED ASSESSMENT YEAR. I.T.A. NOS. 1995 & 1996/MDS/11 8 6. IN THIS VIEW OF THE MATTER, WE ARE OF THE OPINIO N THAT THE CIT(APPEALS) WAS JUSTIFIED IN HOLDING THE REOPENING TO BE INVALID AND ALSO IN DELETING THE DISALLOWANCE MADE BY THE A.O. UNDER SECTION 40(A)(I) OF THE ACT. NO INTERFERENCE IS REQUIRED. 7. IN THE RESULT, BOTH THE APPEALS FILED BY THE REV ENUE ARE DISMISSED. THE ORDER WAS PRONOUNCED IN THE COURT ON THURSDAY, THE 26 TH OF JULY, 2012, AT CHENNAI. SD/- SD/- (S.S. GODARA) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 26 TH JULY, 2012. KRI. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT(A)-III, CHENNAI (4) CIT, CHENNAI-I, CHENNAI (5) D.R. (6) GUARD FILE