TMI Blog2012 (6) TMI 404X X X X Extracts X X X X X X X X Extracts X X X X ..... IT Appeal No. 2169(Mad.) of 2010 - - - Dated:- 22-6-2011 - Abraham P. George, George Mathan, JJ. For the Appellant: Shri P.B. Sekaran For the Respondent: Shri V.S. Jayakumar ORDER Abraham P. George, Accountant Member Appeal filed by the Revenue and Cross Objection filed by the assessee are directed against the order dated 28.9.2010 of Commissioner of Income Tax (Appeals)-III, Chennai. 2. Appeal of the Revenue is taken first for disposal. Revenue has raised four grounds of which, 1 and 4 are general needing no adjudication. 3. Vide its ground No.2, Revenue's grievance is that ld. CIT(Appeals) had deleted disallowance of ₹ 46,99,128/- made by the A.O. under Section 40(a)(i) of Income-tax Act, 1961 (in short the Act ) for non deduction of tax on consultancy charges paid to nonresidents working in oil exploration projects in India. As per the Revenue, deduction of tax was compulsory in view of the decision of Hon'ble Karnataka High Court in the case of CIT v. Samsung Electronics Co. Ltd. [2010] 320 ITR 209/[2009] 185 Taxman 313. Revenue also placed reliance on the decision of Hon'ble Apex Court in the case of Transmi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e part of income included in the payments to non-residents. He was, therefore, of the opinion that assessee having deducted tax at a lower rate than specified under the Act, it had not complied with the provisions of Section 40(a)(i) of the Act. Disallowance thereunder was made. Assessing Officer also placed reliance on the decision of co-ordinate Bench of this Tribunal in the case of Frontier Offshore Exploration (India) Ltd. v. Dy. CIT [2009] 118 ITD 494 (Delhi) and that of in the case of Van Oord ACZ India (P.) Ltd. v. Addl. CIT [2008] 112 ITD 79 (Delhi). 6. In its appeal before ld. CIT(Appeals), argument of the assessee was that both the above consultants were non-residents and persons other than of Indian origin and Section 44BB of the Act was applicable to them for services rendered by them in India. Therefore, as per the assessee, their income could be taken only at 10% of consultancy receipts and it had appropriately deducted 4% on the payments made to them considering 40% tax rate. As per the assessee, it had also considered surcharge and the actual deduction effected was at ₹ 4.182%. Assessee also submitted before ld. CIT(Appeals) that the services by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (supra) as well as decision of Hon'ble Apex Court in the case of GE India Technology Cen. (P.) Ltd. (supra) would not help the case of the assessee since assessee itself admitted that part of payment made by it to the non-residents were income in their hands. 8. Per contra, learned A.R. submitted that there was no dispute that income of the non-residents concerned fell under the purview of Section 44BB of the Act since they were engaged in services relating to prospecting and extracting or production of mineral oils in India. Therefore, according to him, only 10% of the receipts of such persons could be considered as income in their hands by virtue of sub-section (1) of Section 44BB of the Act. Assessee having rightly considered this position, had deducted tax at 4% along with surcharge applicable. In any case, according to him, Section 44BB of the Act was a separate code and co-ordinate Bench of this Tribunal in the case of Cairn Energy India Pty. Ltd. v. Asstt. CIT [2009] 126 TTJ 226 (Chennai) had held that where special provisions of computation applied, such provisions would prevail over general provisions of computation of income contained in Section 30 to 38 of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pty. Ltd. (supra) has in relation to Section 42 of the Act, which is a special provision for deductions in the case of prospecting for mineral oil, held at paras 14 and 15 of its order, as under:- 14. We also find force in the contention of the learned counsel for the assessee that income of the assessee is to be computed as per the special provisions of s. 42 of the Act and consequently no disallowance can be made by invoking the provisions of s. 40(a)(i) of the Act. Though it is not a non obstante provision, yet it is a special provision relating to the computation of the income of an assessee engaged in the business of prospecting for or extracting or producing mineral oils in India. It is a settled legal provision that general provisions must give way to the special provisions. Reference can be made to the judgement of the Hon'ble Supreme Court in the case of CIT v. Shahzada Nand Sons [1966] 60 ITR 392 (SC) as well as the judgement of the Hon'ble Madras High Court in the case of CIT v. Copes Vulcan Inc. [1986] 57 CTR (Mad) 244; [1987] 167 ITR 884 (Mad.) wherein it was held that special provisions would prevail over the general provisions contained in the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oils (para 16) Analysing s. 42(1), it becomes clear that the said section is a special provision for deduction in the case of business of prospecting, extraction or production of mineral oils. As stated above, s. 42(1), inter alia, provides for deduction of certain expenses. (para 18). The above analysis shows that s. 42 provides for deduction for expenses provided such expenses/allowances are provided for in the PSC. The PSC in question provides for both capital and revenue expenditure. It also provides for a method in which the said expenses had to be accounted for. The said PSC is an independent accounting regime which includes tax treatment of costs, expenses, incomes, profits, etc. It prescribed a separate rule of accounting. (para 22). Therefore, the PSC represented an independent regime. The shares of the Government and the contractors were also determined on that basis. Sec. 42 is inoperative by itself. It becomes operative only when it is read with the PSC. Expenses deductible under s. 42 had to be determined as per the PSC. This implied that expenses had to be accounted for only as contemplated by the PSC (para 22) The said 'PSC acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we are of the opinion that non-deduction of tax at source on such payments made by the assessee or deduction of tax at source at lower rate would not call for application of Section 40(a)(i) of the Act. Ld. CIT(Appeals)'s view is upheld, though for different reason. Ground No.2 of the Revenue stands dismissed. 11. Vide its ground No.3, Revenue is again aggrieved regarding deletion of disallowance made under Section 40(a)(i) of the Act by the Assessing Officer. But, here, the payments made by the assessee to non-residents were in respect of projects in Nigeria. 12. Short facts apropos are that assessee had paid consultancy fees to one Shri Sashi Kant and Shri Umamaheshwar for consultancy services rendered in Nigeria. When put on notice regarding non-deduction of tax at source, reply of the assessee was that the said consultants were used in the business of the assessee in Nigeria and therefore, sub-clause (b) of clause (vii) of sub-section (1) of Section 9 would apply. Assessee submitted before the A.O. that the payments were for services rendered by the consultants on account of its business abroad and hence, the income of such non-residents could not be deemed to ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yer cannot be made liable. He cannot be declared to be an assessee-in default. Further it held In our view, Section 195(2) is based on the 'principle of proportionality'. The said sub-section gets attracted in cases where the payment made is composite payment in which certain portion of the payment has an element of 'income' chargeable to tax in India. It also stated This interpretation of the High Court completely loses sight of the plain words of section 195(1) which in clear terms lays down that tax at source is deductible only from 'sums chargeable' under the provisions of the Act, i.e. chargeable under sections 4, 5 and 9 of the Income-tax Act, 1961. It is absolutely clear from the above ruling of the Apex Court that section 195(2) springs into action only when the payment to the recipient contains an element of income chargeable to tax in India. It has already been discussed above that the payments made to the non-residents for services rendered outside India would not amount to income accrued or arising in India. Since the sum is not chargeable to tax in India, provisions of sec. 195(2) are not attracted. Hence, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s paid to such consultants on its projects abroad has to be considered as fees paid for services utilized in the business of the assessee outside India. Therefore, clearly Section 9(1)(vii)(b) of the Act applied and the income earned by such non-residents cannot be deemed to accrue or arising in India. Therefore, assessee had every reason to hold a bona fide belief that no part of the payment had any element of income which was chargeable to tax in India. When the assessee held such a bona fide belief, it is clearly covered by the decision of Hon'ble Apex Court in GE India Technology Cen. (P.) Ltd. (supra) and decision of Special Bench of this Tribunal in Prasad Productions Ltd. (supra). This being so, assessee could not be put in a position where it can be visited with the rigours associated with non deduction of tax at source. It cannot be fastened with any liability associated with non-deduction of tax at source on such payments. In these circumstances, application of Section 40(a)(i) of the Act was not called for. Ld. CIT(Appeals) was right in deleting the addition. No interference is called for. Ground No.3 raised by the Revenue is dismissed. 18. In the result, the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X
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