TMI Blog2007 (5) TMI 261X X X X Extracts X X X X X X X X Extracts X X X X ..... t. yrs. 1984-85 to 1986-87 upholding the applicability of art. 14(2) of DTAA withFranceon the fulfilment of all conditions for exemption of tax on employees' remuneration. 3. The CIT(A) erred in law by misinterpreting the provision of art. 14(2) as based on irrelevant and subjective consideration instead of actual corporate assessment which has been confirmed by jurisdictional. Allahabad High Court in assessee's own case for the reassessment proceeding for the asst. yrs. 1988-89, 1989-90 and 1990-91 reported as Foramer vs. CIT (2001) 166 CTR (All) 129 : (2001) 247 ITR 436 (All) which became final binding decision after the rejection of SLP by the Supreme Court. 4. The learned CIT(A) erred in law by interpolating the presumptive profit provision of s. 44BB while interpreting the provisions of art. 14(2) of DTAA by assuming a fiction of allowability of salaries deemed to be indirectly covered in 10 per cent presumptive profit and by further creating fiction over fiction that for the purposes of art. 14(2) the salary is deemed to have been allowed and deemed to be have been deducted. 5. The learned CIT(A) erred in law by misinterpreting the non-claiming the deduction of salaries ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of s. 44D r/w s. 115A. Further, the inability by the NRC to produce details of expenses outsideIndiain respect of services attributable to PE on account of management contracts were expressed at the assessment stage itself and so the income was assessed @ 10 per cent of the invoices raised under the management contracts under art. 3 of the DTAA. The AO has further noted in the assessment order that these estimates of 10 per cent being made on management contracts would be fair and reasonable after due consideration of all expenses including salary of the expatriate employees as against net income as per P L a/c claimed in the return of income. It was, however, noticed by the AO that in the P L a/c submitted along with the return of income the assessee had not debited salary of the expatriates working on the manning and management contracts. These details were subsequently provided and the AO made assessment on the basis of details submitted and also treated the company as assessee in default under s. 201 and charged interest under s. 201(1A). 5. It was contended before the AO that in the earlier years the assessments were made under s. 44D wherein no expenses are allowed, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is clearly means that irrespective of the fact that whether the salary is debited in the P L a/c or not it shall be deemed to be attributed to the PE to calculate its profits under the DTAA. So, simply not debiting the salary to the P L a/c pertaining to Indian operations will not absolve the assessee from deducting TDS. Therefore, the assessee's ground that salary was not taxable as the corporate assessments in earlier years were made under s. 44D does not hold good. As such, since the employees do not satisfy all the conditions laid down in art. 14(2) of the DTAA, the AO has rightly denied exemption and held the assessee as assessee in default under s. 201 of the Act. 7. The CIT(A) further observed that the expenses claimed by the assessee in the P L a/c are Rs. 66,86,364 and the amount of salaries worked out from the details submitted are Rs. 47,60,458. The total expenses thus work out to Rs. 1,14,46,822 while the gross receipts of these contracts are Rs. 4,47,63,046. The expenditure on percentage of gross receipts thus works out to 25.57 per cent This shows that the AO had considered the salaries on ad hoc basis at the time of issue of withholding tax order under s. 195(2) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the IT Act, 1961. 10. Learned Authorised Representative further contended that s. 44BB has a non obstante clause and has a 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 art. 14(2) of DTAA withFrance. There cannot be fiction over fiction moreso when there cannot be assumption of deeming salary as having been deducted with the language of art. 14(2)(c) is very specific and provides of actual deduction of remuneration. The expression 'deduction' means factum of actual deduction and ostensibly deducted in computing the profits of PE and therefore the expression 'deduction' cannot be equated to 'borne' or 'deductible' or 'deemed to be deducted'. It was also contended that there cannot be any estoppel against the statutory provisions and the agreed assessment is without any meaning when the Tax Department was merely following the instructions of CBDT and applying the provisions of s. 44BB r/w s. 90(2) of the IT Act, 1961 initially of taxing the proceeds as fees for technical services. On the other hand, learned CIT-Departmental Representative, Shri Pandey, reli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resident of one of the Contracting States for services performed in that other Contracting State shall not be subjected to tax in that other Contracting State and may be subjected to tax in the former Contracting State, if, (a) he is present in that other Contracting State for a period or periods not exceeding in the aggregate 183 days in the taxable year concerned, and (b) the remuneration is paid by or on behalf of an employer who is not a resident of that otherContractingState, and (c) the remuneration is not deducted in computing the profits of a PE chargeable to tax in that otherContractingState. Thus, under art. 14(2) three conditions are required to be satisfied and satisfied cumulatively for earning exemption from levy of tax on salaries and wages." 12. As per the material on record as discussed above, there is no dispute to the fact that duration of stay of expatriate employees inIndiawas less than 183 days as per the details furnished before lower authorities. The remuneration was also paid by or on behalf of employer who is not a resident of otherContractingState. The AO has declined the assessee's claim on the plea that condition (c) with regard to remuneration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rved that although no salary was claimed for deduction in the P L a/c nor claimed in the IT returns, it does not make a difference since salary has been paid for work done in India and attributable to PE. 13. Sec. 44BB which provides for special provision for the taxation of foreign (employer) company with regard to mineral oil operations by introducing a non obstante clause provides that provisions for deduction of expenses as per ss. 28 to 41, 43 and 43A are inapplicable and are overridden and by further providing a legal fiction by deeming 10 per cent of proceeds as presumptive net profits in computing the income from business. The cumulative effect of non obstante clause and legal fiction is that no expenses incurred in the business of earning the income shall be allowed for deduction in computing the business profits and 10 per cent of proceeds irrespective of actual results shall be deemed to be presumptive 10 per cent profits of business chargeable to tax. Where an assessment is made on estimated basis or on the basis of rate applied as per legal fiction, there is no assumption that the expenses for each head had been considered and allowed much less said to be deducted. ..... 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