TMI Blog2011 (7) TMI 1015X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal in its order dated March 26, 2008 in I. T. A. No. 1964/Mds/2006 for the assessment year 2003-04, had decided this issue in favour of the assessee and held that the assessee was eligible for claiming such depreciation. Now before us, the only contention raised by the learned Departmental representative is that the above referred decision of the Tribunal in the assessee's own case for the assessment year 2003-04 has not been accepted. Per contra, the learned authorised representative pointed out that the matter stood decided in favour of the assessee by the Tribunal. We have perused the orders and heard the rival contentions. The disallowance was deleted by the learned Commissioner of Income-tax (Appeals) relying on the Tribunal order in the assessee's own case for the assessment year 2003-04 mentioned supra. Nothing has been brought on record to take a contrary view for impugned assessment year. Therefore, ground No. 2 appeal of the Revenue stands dismissed. Vide its ground No. 3, the Revenue's grievance is that the learned Commissioner of Income-tax (Appeals) deleted disallowance of Rs. 30,12,454 made by the Assessing Officer under section 14A of the Income-tax Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of Income-tax (Appeals), it could not always be considered that direct or indirect expenditure was incurred and disallowance under section 14A was required to be made in every case. He, therefore, deleted the disallowance made by the Assessing Officer. Now before us, the learned Departmental representative submitted that the hon'ble Bombay High Court in the case of Godrej and Boyce Mfg. Co. Ltd. v. Deputy CIT [2010] 328 ITR 81 (Bom) though had held that rule 8D of the Income-tax Rules, 1962 could not be applied retrospectively, there was a clear ruling that section 14A of the Act had to be applied even in the earlier years and the Assessing Officer was not precluded from making apportionment of expenditure between exempt and non-exempt income for disallowance, even without invoking rule 8D or sub-sections (2) and (3) of section 14A of the Act. Per contra, the learned authorised representative submitted that the assessee could not be fastened with a disallowance where no borrowed funds were used for the purpose of investments giving rise to dividend. We have perused the orders and heard the rival contentions. The Assessing Officer made the disallowance relying on the decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of the main contract, were all in the nature of sub-contracts and hence, as per the assessee, it had rightly deducted one per cent. TDS. However, the Assessing Officer was of the opinion that the assessee's explanation regarding subcontracts could be only accepted to the extent of the amount reimbursed by ONGC for catering services done to its employees. Therefore, as per the Assessing Officer, the balance amount which came to Rs. 1,24,43,488 represented catering charges directly spent by the assessee and TDS ought have been deducted at 2 per cent on such amount and not one per cent. He, therefore, made pro rata disallowance of Rs.62,21,744, relying on section 40(a)(ia) of the Act. In its appeal before the learned Commissioner of Income-tax (Appeals), argument of the assessee was that it had provided catering facilities for pursuant to the main drilling contract with ONGC. As per the assessee, it was its responsibility to provide catering facilities for ensuring due performance of the main contract and the sub-contract entered into with the catering services company was only for this purpose. With regard to the observation of the Assessing Officer that there was nothing menti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... since its business was offshore drilling only. Unless the assessee was given contracts for exploration by ONGC or similar companies who had licence from the Government, it could not operate a rig on its own nor extract any oil from the wells drilled by it. Thus, the rigs employed by the assessee in offshore drilling were all based on its contract with ONGC and similar companies licenced by the Government to do so. Hence, it could not be considered that the assessee had entered into a catering contract as an independent contract having no relation whatsoever with main contract it had with oil companies. If we look at section 194C(2) of the Act, it reads as under : "Any person (being a contractor and not being an individual or a Hindu undivided family) responsible for paying any sum to any resident (hereafter in this section referred to as the sub-contractor) in pursuance of a contract with the sub-contractor for carrying out, or for the supply of labour for carrying out, the whole or any part of the work undertaken by the contractor or for supplying whether wholly or partly any labour which the contractor has undertaken to supply shall, at the time of credit of such sum to the acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 509 made by the Assessing Officer relying on section 40(a)(i) of the Act for payments made to non-residents without deduction of TDS. The short facts apropos are that the assessee had, during the relevant previous year, paid for offshore drilling services and machinery repairs/ rentals, varying amounts to M/s. International Tubular F2E and International Offshore Management both of which were non-resident entities. On such payments, the assessee deducted tax at 4 per cent. The assessee arrived at 4 per cent. by considering the services rendered by the non-resident entities to fall under section 44BB of the Act. Therefore, as per the assessee, only 10 per cent. of their receipts could be deemed as income and 40 per cent. of such 10 per cent. worked out to 4 per cent. However, the Assessing Officer was of the opinion that the assessee was required to deduct tax at 40 per cent. on the gross sum paid to such entities under section 195 of the Act. Therefore, as per the Assessing Officer, the assessee had failed to deduct tax as prescribed under the Act and made a disallowance of Rs. 2,11,02,509 under section 40(a)(i) of the Act. Before the learned Commissioner of Income-tax (Appeals) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r effecting remittances with deduction of tax at lower rate on identical payments. Therefore, as per the learned Commissioner of Income-tax (Appeals), the assessee had taken a bona fide decision to make a deduction only at the rate of 4 per cent. based on its past experience. The learned Commissioner of Income-tax (Appeals) also noted that the Special Bench in the case of Prasad Production Ltd. had taken into consideration various other decisions on the same issue including that of Frontier Offshore Exploration (India) Ltd. v. Deputy CIT [2009] 314 ITR (AT) 193 (Chennai) ; 118 ITD 494, Transmission Corporation of A. P. Ltd. v. CIT [1999] 239 ITR 587 (SC), CIT v. Samsung Electronics Co. Ltd. [2010] 320 ITR 209 (Karn) and Van Oord ACZ India P. Ltd. v. CIT [2010] 323 ITR 130 (Delhi). He, therefore, deleted the disallowance made by the Assessing Officer. Now before us, the learned Departmental representative submitted that the assessee could not by itself decide whether section 44AB was to be applied to the concerned non-residents. According to the learned Departmental representative, when the assessee was of the belief that a lower deduction only was warranted, it had to follow the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shore drilling was for crude oil and crude oil is definitely a mineral oil. Therefore, services rendered by a non-resident entity for rental and repairs to machinery used in offshore drilling and also for drilling services can only be considered as services or facilities in connection with prospecting for, or extraction or production of mineral oil. Hence, the assessee had sufficient reason to have a bona fide belief that section 44BB of the Act would apply to M/s. International Tubular F2E and M/s. International Offshore Management. Subsequent to the decision in the case of Frontier Offshore Exploration (India) Ltd. v. Deputy CIT [2009] 314 ITR (AT) 193 (Chennai) ; 118 ITD 494 for the assessment year 2003-04, which has been heavily relied on by the Assessing Officer for making the disallowance, there was a decision by another co-ordinate Bench in I. T. A. No. 200/Mds/2009 for the assessment year 2004-05 where also one of the party was same Frontier Offshore Exploration (India) Ltd. v. Deputy CIT [2012] 13 ITR (Trib) 168 (Chennai). A very similar issue was involved in that case. The Tribunal examined the aspect of deduction of tax at source on payments made to a non-resident, falli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or deemed to be received, etc. As per sub-section (3) of section 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 account 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 business of the non-resident at 10 per cent. of the gross receipts. A perusal of the decision of the hon'ble Supreme Court in the case of GE India Technology Centre P. Ltd. [2010] 327 ITR 456 (SC), 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 recognised that as per the provisions of section 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowance by invoking the provisions of section 40(a)(i) of the Act. In the circumstances, the finding of the learned Commissioner of Income-tax (Appeals) and that of the Assessing Officer stands reversed. 7. We may also mention here that we are not in agreement with the submission of the learned authorised representative that the provisions of section 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 deducting fails to pay'. It is not in connection with the words 'does not deduct'." We are, therefore, of the view that the assessee was right in effecting deduction of tax at source considering section 44BB of the Act. The disallowance was rightly deleted by the learned Commissioner of Income-tax (Appeals). No interference is called for. Ground No. 5 of the Revenue stands dismissed. In the result, the appeal of the Revenue for the assessment year 2005-06 is partly allowed for statistical purposes. I. T. A. No. 1543/Mds/10 (assessment year 2006-07) The grounds raised by the Revenue in this appeal are pari materia t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led law that when a building is let out, the income has to be computed as income from house property. It was not letting out of a complex nature involving machinery and services. In our opinion, the learned Commissioner of Income-tax (Appeals) rightly applied the decision of the hon'ble apex court in the case of Shambhu Investment P. Ltd. [2003] 263 ITR 143 (SC) and that of the hon'ble jurisdictional High Court in the case of Chennai Properties and Investments Ltd. [2004] 266 ITR 685 (Mad). Even if letting out of property on rent, was the object of the assessee-company, the decision of the hon'ble apex court in the case of East India Housing and Land Development Trust Ltd. v. CIT [1961] 42 ITR 49 (SC) would still go against it. We are, therefore, of the opinion that the view taken by the lower authorities do not require any interference. The assessee's ground in this regard is dismissed. The second ground taken by the assessee is that the learned Commissioner of Income-tax (Appeals) confirmed disallowance of Rs. 91,423 made under section 94(7) of the Act. The Assessing Officer, during the course of assessment proceedings, noted that the assessee had claimed short-term capital l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act could not be made, the learned Commissioner of Income-tax (Appeals) decided to confirm the view of the Assessing Officer since the assessee could not furnish details of the schemes in the relevant previous year. Now before us, the learned authorised representative, assailing the order of the learned Commissioner of Income-tax (Appeals), submitted that relevant investments on which dividends were received on short-term capital loss claimed had no record date. Nevertheless, he admitted that the assessee was unable to produce any evidence in this regard. Per contra, the learned Departmental representative supported the order of the learned Commissioner of Income-tax (Appeals). We have perused the orders and heard the rival contentions. It is for the assessee to show that the short-term capital loss claimed by it were all on mutual investments, for which there was no record date. The assessee could not produce any details. In fact, nothing was brought on record to show how the computation made by the Assessing Officer reproduced at paragraph 36 above was not acceptable. We are, therefore, of the opinion that the disallowance was rightly done. No interference is required. G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed, having not been put to use during the relevant previous year, and the assessee having itself classified it as capital work in progress, deduction under section 35D could not be allowed. In its appeal before the Commissioner of Income-tax (Appeals), contention of the assessee was that the assessee was engaged in the business of oil drilling and rigs hired and purchased were used by the assessee for drilling and other oil field services. Therefore, according to the assessee, such exploration of oil came within the meaning of "mining" and therefore, clause (aa) of sub-section (7) of section 72A clearly applied and it was an industrial undertaking. Further, as per the assessee, the oil rig purchased, though not put to use during the year, such purchase was only an extension of industrial undertaking and the moment the purchase was complete, the extension of industrial undertaking was also complete. Though the learned Commissioner of Income-tax (Appeals) accepted the contention of the assessee that it was an industrial undertaking, he was of the opinion that though the assessee had purchased the oil rig, it had never put it to use in the relevant previous year. According to the lear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as shown by the assessee as "capital work in progress". The assessee had never made a claim for amortisation of preference share issue expenses in its return of income, but had chosen to make such a claim when put on notice that the said amount could not be allowed as revenue expenditure. In so far as contention of the learned Departmental representative that the assessee could not prefer such a claim, but through a revised return, no doubt, in the case of Goetze (India) Ltd. [2006] 284 ITR 323 (SC), the hon'ble apex court held that an Assessing Officer could not entertain a claim made otherwise than by way of revised return. However, here the assessee had claimed the whole of the amount as revenue expenditure. The letter filed by the assessee was only an alternative claim that amount if not allowed in one go, it should be considered amortisation under section 35D of the Act. The assessee might have made a claim under a particular section, but if the claim though not allowable under that section, but was allowable under another section, then it cannot be considered as a fresh claim, though the allowance under the latter section could be given only in a gradation manner. The claim, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the five successive previous years' had been substituted." The purchase of a rig might result in extension of its industrial undertaking. But, the deduction under section 35D of the Act would be allowable for ten successive years beginning with the year in which extension of industrial undertaking is complete. Can we say that by purchase, a rig, the extension of industrial undertaking is complete ? It is an admitted position that the rig was under refurbishment and was not put to use. It is also an admitted position that the assessee itself had shown it as a part of capital work-in-progress. No article classified as work-in-progress can be considered as a completed item. Be it a rig or be it any other thing. Hence, extension of the industrial undertaking cannot be considered as complete in the relevant previous year. The learned Commissioner of Income-tax (Appeals) was justified in denying the assessee claim under section 35D of the Act for the impugned assessment year. We do not find any reason to interfere. Ground No. 3 of the assessee stands dismissed. In the result, the appeal of the assessee for the assessment year 2006-07 is dismissed. To summarise the results, appeals ..... X X X X Extracts X X X X X X X X Extracts X X X X
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