TMI Blog1994 (11) TMI 177X X X X Extracts X X X X X X X X Extracts X X X X ..... services on the drillship Sagar Vijay owned by ONGC. 2. The assessee maintained regular books of accounts on mercantile basis In respect of operations carried out inIndiawhich were duly audited in accordance with law. 3. The assessee made a claim for the benefit of Indo-French Double Taxation Avoidance Treaty (hereinafter referred to as 'treaty') by invoking :--- (a) Article 111 of the Treaty in respect of contract proceeds arising from the operations of Rig IDA and thus tax is chargeable on the net business income derived from the permanent establishment inIndia. (b) Article XVI of the Treaty in respect of Sagar Vijay management and manning contract being the technical fees earned on the development of its expatriates which are ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned Deputy Commissioner applied the provisions of article XVI on Sagar Vijay Contract by treating the proceeds as fees for technical services and restricting the expenses incurred inIndia. 7. On an appeal before Commissioner of Income-tax, it was submitted :--- (a) That the income from the proceeds of IDA Contract should be computed in accordance with the provisions of article 111 of the Indo-French and not as per deeming section 44BB in view of article XIX of the Treaty. (b) That the business income of IDA is to be computed as per Income tax Act and Rules subject to deduction of all expenses including executive and overhead expenses as per article 111. (c) That depreciation is a charge against the profits and is to be allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the age factor being predominant. The wear and tear In each year of the use outsideIndiashould be deducted in ariving at the actual state of the rig before Its use inIndia. (e) That straightline method of determination of depreciation to be adopted without recourse to the provisions of Income-tax Act. The learned CIT(A) set aside the assessment with the above directions. 8. The assessee being still aggrieved has brought the matter in appeal raising several grounds as per memo of grounds of appeal. At the time of hearing of appeal, Shri Puri, the learned counsel appearing for the assessee submitted that depreciation, while computing income from IDA contract under the treaty be allowed as per provisions of the Income Tax Act. He further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to govern the taxation of income in the respective Contracting States except where express provisions to the contrary is made in the present Agreement. Article XXI : The nationals one of the Contracting States shall not be subjected in the otherContractingStateto any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which nationals of that otherContractingStatein the same circumstances are or may be subjected. In Circular No. 333 dated2-4-1982it is provided as under :--- " 2. The correct legal position is that where a specific provision is made in the double taxation avoidance agreement, that provisions will prevail over the general provisions containe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th inIndiaand outsideIndiashould be taken into account for quantification of depreciation. The assessee, on the other hand, contends that depreciation be allowed as per provisions of Income Tax Act. In other words, it is claimed that depreciation be computed with reference to section 32(1) read with section 43(6) and allowed as per the rate prescribed in the schedule to the Income Tax Rules. For working out WDV, actual cost of rigs and other machinery be taken into account and not depreciation allowed outside India under any law other than those mentioned in sub-section (6) of section 43 of the Indian Income-tax Act. On careful consideration of provision of double taxation treaty and income-tax law, we are inclined to agree with the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the national of theContractingStateunder similar circumstances. If the assessee was Indian national, the depreciation was required to be allowed at cost or WDV as per the rate prescribed under the Indian Income-tax Act without deduction of depreciation, if any, allowed under the foreign law. Having regard to the article referred to above, there is no question of giving a different treatment to the foreign company and putting on it a heavier burden of tax. Thus, even when commercial profits are determined with reference to Treaty, the depreciation is to be computed and allowed under the Income-tax Act. We, therefore, see no bar or justification for not entertaining the claim of the assessee to allow depreciation under the Indian Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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