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TMI Blog2012 (6) TMI 404X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Transmission Corpn. of AP Ltd. v. CIT [1999] 239 ITR 587/105 Taxman 742. 4. Short facts apropos are that assessee, doing the business of rendering consultancy services for exploration of oil, had engaged outside consultants for rendering such services. There were both receipts from consultancy as well as payment of consultancy fees to the consultants. The receipt derived by the assessee by rendering consultancy service was Rs. 4,33,61,775/- against which consultancy fees payment claimed was Rs. 3,67,86,792/-. During the course of assessment proceedings, it was noted by the Assessing Officer that there were payment of consultancy fees by the assessee both to residents as well as non-residents. But, in certain cases, assessee had deducted tax only at 4% while in certain other cases, there was no deduction of tax at source at all. Assessing Officer put assessee on notice as to why a disallowance under Section 40(a)(i) of the Act should not be made on the consultancy charges paid without deduction of tax. Assessee, there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered surcharge and the actual deduction effected was at Rs. 4.182%. Assessee also submitted before ld. CIT(Appeals) that the services by the above non-residents were in relation to oil exploration contract entered into by it with M/s Heramec, M/s Jubilant Oil and M/s Hindustan Oil Exploration Company Ltd. Ld. CIT(Appeals) after verifying the submission of the assessee, held that the assessee had rightly deducted tax at 4.182% on the gross payments since Section 44BB applied to the concerned non-residents. As per ld. CIT(Appeals), the Special Bench of this Tribunal in the case of ITO v. Prasad Productions Ltd. [2010] 125 ITD 263 (Chennai) had clearly held that when a payer was under a bona fide belief that the income was not chargeable to tax, application of Section 195 was not called for. Ld. CIT(Appeals) further relying on the decision of Hon'ble Apex Court in the case of GE India Technology Cen. (P.) Ltd. v. CIT [2010] 327 ITR 456/193 Taxman 234 held that the payment made when it did not comprise any element of income, the payer could not be held liable for non-deduction of tax at source. As per ld. CIT(Appeals), assessee was under a bona fide belief that Section 44BB o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computation applied, such provisions would prevail over general provisions of computation of income contained in Section 30 to 38 of the Act. Therefore, according to learned A.R., no disallowance could be made by invoking Section 40(a)(i) of the Act. In this respect, reliance was also placed on the decision of Hyderabad Bench of this Tribunal in the case of Teja Construction v. Asstt. CIT [2010] 39 SOT 13 (URO) 57. 9. We have perused the orders and heard the rival contentions. There is no dispute that assessee had effected payments to two nonresidents and Section 44BB of the Act applied to these persons since the services rendered by such non-residents were in relation to prospecting for mineral oils in India. There is also no dispute that assessee had deducted tax at the rate of 4.182% considering the tax rate of 40% along with surcharge as payable to the said nonresidents. Section 195(1) of the Act, no doubt, specifies that any person paying to a non-resident any sum chargeable under the provisions of the Act, was obliged to deduct tax at source. As held by Special Bench of this Tribunal in the case of Prasad Productions Ltd. (supra), if an assessee was under bona fide impressio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [1987] 167 ITR 884 (Mad.) wherein it was held that special provisions would prevail over the general provisions contained in the Act. Even the Board Circular No.308, dt. 29th June, 1981 clarifies this position. Para 11.1 of the said circular reads as under: "11.1 Sec. 42 provides the machinery for securing flexible deductions in respect of expenses and allowances etc., admissible in determining the profits and gains of any business consisting of the prospecting for, or extraction or production of mineral oils. The provision of this section can be invoked only where the Central Government has entered into an agreement with the person concerned for prospecting for or extraction or production of mineral oils and the Central Government is a participant in such business. Sec. 42 further provides that the agreement between the Central Government and the person concerned may make provisions in relation to the expenditure by way of infructuous or abortive exploration or expenditure incurred on drilling or exploration activities and depletion allowance and where such provisions are made, the expenditure or allowance shall be computed in accordance with the agreement and not in accordance w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be accounted for only as contemplated by the PSC" (para 22) "The said 'PSC accounting' obliterated the difference between capital and revenue expenditure. It made all kinds of expenditure chargeable to the P&L a/c without reference to their capital or revenue nature. But for the PSC accounting there would have been disputes as to whether the expenses were of revenue or capital nature. In view of the special accounting procedure prescribed by the PSC, AS-11 had to be ruled out." (para 22) The above observations make it clear that : (i) Sec. 42, being a special provision, is a code by itself for computing the income from business of providing for, or production of mineral oil in India. (ii) it provides that the assessee would be entitled to deduct any expense which is referred to in the PSC, whether capital or revenue in nature. If the expenditure claimed as deduction is in accordance with the provisions of PSC then it has to be allowed as per the decision of the Hon'ble Apex Court. The fact that even capital expenditure is allowable as deduction under s. 42 itself shows that it overrides the provisions of s. 37 of the Act. Thus, the scheme of the Act makes it clear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d hence, the income of such non-residents could not be deemed to accrue or arise in India. However, the A.O. was not impressed. He, following the directions of ACIT under Section 144A of the Act, held that assessee was not carrying any separate business outside India and it did not have any branches outside India. Therefore, according to A.O., assessee was not liable for tax in Nigeria and the payments constituted income in India of the concerned non-residents. He, therefore, considered the amounts as income of the non-residents accruing in India and for non-deduction of tax at source, disallowance of Rs. 60,95,311/- was made relying on Section 40(a)(i) of the Act. 13. In its appeal before ld. CIT(Appeals), argument of the assessee was that the payments were not chargeable to tax in India and Section 195(1) of the Act would make it obligatory to deduct tax at source only from the income chargeable to tax as per the provisions of the Act in India, in the hands of the concerned non-residents. Ld. CIT(Appeals) deleting the disallowance held as under:- "5.2.1 As per sec. 9(1)(vii)(b) income by way of fees for technical services payable by a resident shall be deemed to accrue or arise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... attracted. Hence, the disallowance u/s 40(a)(i) would also not arise. Accordingly the AO is directed to delete the addition. This ground is accordingly allowed." 14. Now before us, learned D.R., strongly assailing the order of ld. CIT(Appeals), submitted that the assessee could not be given freedom to decide whether tax is to be deducted at source or not. According to him, the assessee-company had made payments directly from India and not from Nigeria and whether Section 9(1)(vii)(b) of the Act would apply or not was not clear. 15. Per contra, learned D.R. supported the order of ld. CIT(Appeals). 16. We have perused the orders and heard the rival contentions. This issue is slightly different from the issue raised by the Revenue in its ground No.2. Here, the payments made by the assessee were to non-residents Indian who were working abroad. Assessee had made no deduction of tax at source whatsoever. As per the assessee, they were working for its business carried on in Nigeria and hence, by virtue of Section 9(1)(vii)(b) of the Act, the fees payable to such nonresidents could not be considered as income accruing or arising to them in India. We find that that the ACIT in his direc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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