TMI Blog2005 (7) TMI 296X X X X Extracts X X X X X X X X Extracts X X X X ..... ecuting these contracts, the assessee engaged the services of number of technicians. In respect of expatriates deputed for business operations on Jack up rig IDA owned by the assessee, tax was duly deducted at source under the Income-tax Act from the salary paid, as the proceeds of contracts were business profit receipts. Salary paid to expatriate employees was claimed as deductible expenditure. In case of manning and management contracts for services rendered on ONGC rigs Sagar Vijay and Sagar Bhushan in respect of expatriates whose stay in India did not exceed 183 days during the previous year, no tax was deductible on the ground that the salaries paid to such expatriates was exempt under Article XIV(2) of DTAA. It was also claimed that income from manning and management contracts was taxable as technical fees as per Article XVI and not as business profits under Article III of DTAA. The Assessing Officer rejected the contention of the assessee that income of assessee was taxed under section 44BB and therefore benefit of provisions of Article XIV(2) of DTAA was not available. The assessee was held as an assessee in default under section 201(1) of the Act. The assessee was also lia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee claimed expenses of Rs. 66,86,364 and the amount of salary worked out on the basis of details made available are at Rs. 47,60,458. Thus, the total expenses works out to Rs. 1,14,46,822 as against the gross contract thus receipt of Rs. 4,47,63,046. The expenditure on percentage of gross receipt thus worked out to 25.57 per cent. The Assessing Officer in order under section 195(2) has allowed 30 per cent of contractual receipt as expenditure before applying provisions of section 44D read with section 115A and Article III/XVI of DTAA. He, therefore, came to the conclusion that the Assessing Officer while allowing 30 per cent expenses at the time of passing order under section 195(2) has considered the salaries on ad hoc basis. Therefore, the assessee cannot fall back and say that there was no liability for tax deduction at source under section 192 read with section 195A of the Act. 3.2 Regarding applicability of decisions of ITAT in cases of Soulier Jeans, Boudier Christian and others in which department's application under section 256(2) was rejected, ld. CIT(A) observed that in these cases it has been held that if the income is offered for taxation as income from 'fee for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithout deducting the claim in respect of salaries of personnel which was paid by Head Office. However, the assessment was made by the Department under section 44BB taking the presumptive net profit of 10 per cent of gross receipts from 'manning and management' contracts instead of 'fee for technical services'. The Assessing Officer while doing so has followed CBDT instruction as well as the decision of ITAT in the case of Scan Drill. According to Assessing Officer, the balance 90 per cent of the amount representing expenditure will include the salary of the expatriates and thus deemed to have been deducted in computing the income of the company. 4.2 The ld. AR of the assessee submitted that the taxability of employer on presumptive basis under section 44BB does not lead to any legal presumption that salary was deducted in computing the profits of the employer in India when, in fact, no salary was actually deducted. Section 44BB has a non obstante clause and has limited application with one deemed fiction of presumptive net profit of 10 per cent of gross proceeds; no further deeming fiction can be introduced for interpretation of Article XIV(2) of DTAA. It is further submitted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of expenses allowed under section 44BB of the Act. Consequently the third condition of paragraph (2) of Article XIV is not satisfied making the payment of fee for technical services as taxable inIndia. The Assessing Officer has rightly held that the assessee was liable to deduct tax at source on salary paid by the assessee to the expatriate technicians. As regards reliance placed by the assessee on the decision of jurisdictional High Court and Hon'ble Supreme Court it has been submitted that the said decisions relate to reopening of assessment under section 147 and no decision on the taxability of salary has been rendered by Allahabad High Court and the Apex Court, therefore, the decisions relied upon by the ld. AR are not relevant. 6. We have heard both the parties. There is no dispute that assessee had permanent establishment inIndia. The assessee has accepted that the income from manning and management services is to be assessed as business income. For assessment year 1988-89 the Assessing Officer has assessed the income under section 44BB of the Act. No appeal against the order assessing receipts under section 44BB was filed. In cases of Boudier Christian and Jean Soulier ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent establishment in India would fall under condition (c) of Article XIV(2). There is no dispute that during the year under consideration the assessee had permanent establishment inIndia. As such condition (c) would be applicable. There is no dispute that the assessee agreed to be assessed under provisions of section 44BB for manning and management services rendered by it. 6.2 The next issue to be decided is whether remuneration paid outsideIndiaby the assessee can be treated to have been deducted in computing the profit of permanent establishment chargeable to tax inIndia. The Assessing Officer in order under section 195(2) has allowed 30 per cent of contractual receipt as expenditure before applying provisions of section 44D read with section 115A and Article III/XVI of DTAA. The contention of the assessee that in computing profits inIndia, the salary of the expatriates has not been debited has no relevance, when income is computed in accordance with the provisions of section 44BB. The contention of the assessee has relevance only when income is determined under other provisions of law. In the case of Kedarnath Jute Mtg. Co. Ltd. v. CIT [1971] 82 ITR 363 Hon'ble Supreme Court h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... employees, it was held that for assessment year 1957-58, Rs. 54,479 (i.e., the difference between Rs. 71,949 and Rs. 17,470) could not be assessed as the assessee's deemed profits under section 10(2A). Facts of the case before us are different and distinguishable from the facts of the case decided by Hon'ble Supreme Court. It is a case where assessee had debited expenditure in head office accounts and not in the books maintained inIndia. The issue whether liability was incurred on account of salaries paid incurred inIndiaor outsideIndiahas been decided in the immediate preceding paragraph 6.2. Now limited question to be decided is whether under deeming provisions of section 44BB aimed to determine the income of the assessee would be capable of deeming expenditure also. 6.3-1 In interpreting a provision creating a legal fiction, the court is to ascertain for what purpose the fiction is created and after ascertaining this, the court is to assume all those facts and consequences which are incidental or inevitable corollaries to give effect to the fiction. In an oft-quoted passage, Lord Asquith in East End Dwelling Co. Ltd. v. Finsbury Borough Council [1951] 2 All ER 587,589 (HL), ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be deemed to exist and it must accordingly be taken that by reason of this fiction notices required to be given under section 22 must be deemed to have been given"; making section 28 applicable. 6.3-4 Hon'ble Supreme Court in the case of CED v. Kantilal Tirkamlal [1976] 105 ITR 92 observed that Explanation 2 of section 2(15) of the Estate Duty Act, 1953 furnishes example of legal fiction which extends the normal meaning of a word. The explanation provides: "the extinguishments at the expense of the deceased of debt or other rights shall be deemed to have been a disposition made by the deceased in favour of the person for whose benefit the debt or right was extinguished and in relation to such a disposition the expression 'property' shall include the benefit conferred by the extinguishment of a debt or right". In view of this explanation it has been held that when the deceased, who was a coparcener in a Hindu Joint Family, entered in a partition within two year before his death in which he received as his share an allotment substantially lower in value than he could have legally got, there was a disposition by the deceased of his interest in the family property in favour of the o ..... 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