TMI Blog1997 (4) TMI 508X X X X Extracts X X X X X X X X Extracts X X X X ..... rvices and media work. The Command Petroleum (India) Pty. Ltd. (hereinafter briefly referred to as the Command ), another Australian company, had entered into a contract on October 28, 1994, with three more companies, the Oil and Natural Gas Corporation Ltd. of India (ONGC), Videocon Petroleum Ltd., Ravva Oil (Singapore) Pty. Ltd. and the Government of India for the development of the Ravva Offshore Oil and Gas Field which includes, inter alia, extraction and production of mineral oil. This contract is in the nature of a joint venture on a production sharing basis for the above purpose. The fuller details of this contract are not relevant for the purposes of this case. In pursuance of the wishes of its co-venturers and in order to effectively carry out its activities in terms of the above contract, Command entered into an agreement on September 13, 1995, with the applicant-company under which the applicant-company is required to provide helicopter services to facilitate the operations of the joint venture. The Ravva Oil and Gas Field has its bases, drilling units and operation platforms at various places whose geographical co-ordinates are set out as follows in Schedule I to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s as Command may reasonably require . . . 3. Helicopter availability.-. . . 3.1. Helicopter services shall be made available to Command on a 24 hours a day, seven days a week basis with normal hours of helicopter operations commencing at sunrise and terminating thirty (30) minutes before sunset (hereinafter referred to as normal operating hours ). Helicopters shall be available for at least three return flights per week as per a prearranged schedule with additional flights as advised by a flight request document. 3.2. Each flight, inclusive of schedule flights, shall be subject to a flight request document, except in an emergency as provided in clauses 3.3 and 3.4 where verbal instruction given directly by Command s representative or the drilling superintendent (or his equivalent) of the drilling unit shall be adequate. All flight request documents shall be provided a minimum of 24 hours prior to departure time, shall be signed on behalf of Command and shall detail : (a) time of departure and destination of the flight ; (b) the name of each passenger and their approximate weight which shall be checked and certified by contractor and recorded on the flight manifest t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vice, including passenger and freight handling for air transportation of : (i) Command s personnel and others as may be directed by Command s representative ; (ii) Freight which is the property of Command and others. The work will include, but not be limited to : (i) All labour, supervision, materials, supplies, equipment, transportation, and any and all other items necessary to perform the work, except where specifically stated as being provided by Command ; (ii) Provision of procedural input and technical guidance as required for the production programme and the crew change for the drilling programme ; and (iii) Provision of accurate flight logs giving flying time and detailing all aspects of the operations relevant to drilling crew changes and/or production flying programme. This shall include but not be limited to time schedule for all aircraft maintenance over the term of this agreement, a realistic programme for mobilisation of the aircraft and a detailed inventory of contractor s spare parts back up. The rest of the agreement is not material for the purpose of this case. In pursuance of the above agreement, the applicant opened a project site office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. Whether income of the applicant from activities carried on in India is taxable as per the provisions of section 44BBA of the Act ? 2. In the event the provisions of section 44BBA and section 44BB are held to be equally applicable, would the assessee be entitled to be taxed under the section favourable to it, i.e., section 44BBA ? 3. Whether remuneration paid to employees [residents of Australia] of the applicant satisfies sub-clause (c) of clause 2 of article 15 of the Agreement for Avoidance of Double Taxation ( DTAA ) concluded between India and Australia, as not being an expense deductible in determining the taxable profits of the permanent establishment of the applicant in India. This question is notwithstanding the income of the applicant being chargeable to tax either under section 44BB or section 44BBA of the Act. Before dealing with the merits of these questions, a few words have to be said about the actual import of the third question. To understand this, it is necessary to refer to article 15 of the Agreement for Avoidance of Double Taxation between India and Australia (DTAA). This article reads thus (see [1992] 194 ITR (St.) 241, 257) : Article 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er section 245Q to pose for the ruling of the Authority questions which pertain to the taxability of persons other than the applicant. It has been held by this Authority that, despite the wide canvas of the language of section 245Q(1) read with section 245N(a), the Authority may decline to rule on questions which do not concern an applicant ; it is not sufficient that the questions may have bearing on, or relevance to, the tax liability of another person, however closely related to the applicant. Shri Dastur, however, submitted that question No. 3 raised in the present application does not fall in this category in view of the nature of the provision contained in article 15 of the Double Taxation Avoidance Agreement. Though that article spells out the situation in which an employee of the applicant can seek exemption from tax liability in India for the remuneration paid to him by the applicant, such exemption is made dependant on the question whether such remuneration is deductible in determining the taxable profits of the applicant s permanent establishment or fixed base in India. This is certainly a question that pertains to the assessment of the applicant, capable of being determ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee on account of the carriage of passengers, livestock, mail or goods from any place outside India. It would seem, prima facie, that the wording of sub-section (1) of this section is wide enough to cover the present case. The only possible doubt can be whether a business of plying helicopters could be said to be a business of operation of aircraft. But, etymologically, the expression aircraft comprehends within it any structure or machine designed to travel through air with the possible exception of hovercrafts. The Chambers Dictionary defines the word thus : a weight-carrying machine or structure for flight in or navigation of the air and designed to be supported by the air either by the buoyancy of the structure or by the dynamic action of the air against its surface-used of airplanes, balloons, helicopters, kites, kite balloons, orthopters, and gliders but chiefly of airplanes or aerostats. The Webster s Dictionary gives even a wider definition in the following terms : any structure or machine designed to travel through the air, whether heavier or lighter than air, airplane, airship, balloon, helicopter, etc. Etymology apart, the operation of me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed reference to the words from any place in India and from any place outside India , respectively, in clauses (a) and (b) of sub- section (2) of the section, she contended that the section was intended to be applicable only to cases of operation of aircrafts between places in India and places outside India and not to cases, like the present one, where the transportation was entirely inside Indian territory. One shares the misgivings of the Departmental Representative as to whether section 44BBA was really intended to be so comprehensive and far-reaching as it was now sought to be made. It is doubtful whether it was intended to cover business in operations of helicopters and other kinds of aircraft covered by the definitions earlier set out, the commercial and economic parameters of which seem widely variant from the well-recognised traffic contours of ordinary airlines. But the amplitude of meaning of the word aircraft used in the section cannot be cut down on mere assumptions. Likewise one may wonder whether the framers of the provision intended it to apply to aircrafts other than airlines flying passengers and goods inter-countries. But it is difficult to read such territori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d it be possible or reasonable or right to say that such Indian income of the foreign airlines cannot be assessed by recourse to section 44BBA ? Such a construction would defeat the very purpose behind the provision. That apart, whatever may be the position in regard to aircraft in a narrower sense, the present case concerns an operation of helicopters moving men and goods within India and it will not be possible to exclude it from the purview of section 44BBA when the language contains nothing to exclude such cases from its ambit. If it was so intended, the Legislature could easily have made it amply clear by limiting section 44BBA to international airlines or international air-traffic , expressions defined and employed in tax instruments like Double Taxation Avoidance Agreements. The contention that section 44BBA should be confined to cases of international traffic cannot, therefore, be accepted. However, though the plying of helicopters even within places in India cannot be excluded from the purview of sub-section (1) of section 44BBA, the Authority has come to the conclusion, for reasons set out later that, having regard to the nature of transactions in the present case, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection after the word in following upon the word used . That comma is necessary to make it clear that the provision will be applicable to a non-resident assessee engaged in the business of, (a) providing services or facilities in connection with, or (b) supplying plant and machinery on hire used, or to be used in, the prospecting for, or exploration or production of, mineral oil. Without this comma, there is the absence of a connecting link between the words providing services or facilities in connection with and the prospecting for or extraction or production of oil on the other. The second is that the use of the words used for the purposes of the said business in the Explanation are repetitive as the word plant is already subject to this qualification in the main body of the sub-section. Turning now to the language of sub-section (1), there can be no doubt that the applicant comes within its ambit. It is clearly engaged in a business of either description referred to in the section and set out in the form of two clauses earlier. In this situation, therefore, it becomes necessary to determine whether the applicant should be assessed in accordance with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plicable to the present case, particularly because of the well-established proposition that if two provisions are equally applicable to any case, the assessee is entitled to avail of the provision that will be more beneficial to him. The authority is of the opinion, as indicated earlier, that it is section 44BB and not section 44BBA which is more appropriate to the present case. In the first place, the question of taxation here pertains to a non-resident assessee which is providing facilities and services and leasing out plant and machinery in relation to a business in exploration for, and extraction and production of, mineral oil. It may be that the company-or rather the group to which it belongs-may have a wider area of operations but the issue here is only regarding activities in relation to the business of mineral oils. Secondly, though the business operations in the present case attract the provisions of sub-section (1) of section 44BBA, that section can be invoked only in cases where the operator is deriving income of the categories specified in sub-section (2) of that section. Where the income derived cannot be brought within the categories of receipts outlined in sub-sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... engers and charges for goods or materials and other equipment. The consideration provided for is a consolidated consideration for a package of services and it is not proper or possible to segregate or determine any part of it as referable to, or being on account of, carriage of men and materials. The bargain between the parties is of a totally different nature and there is no justification to read into the transaction an arrangement which can fit into the language of section 44BBA. For the above reasons, it is difficult to say that the consideration or any part thereof paid to the applicant by Command is on account of the types of carriage in the section. Reading the two sub-sections of section 44BBA together, it can be said that the section is applicable-and can indeed be applied-only if it is possible to say that they represent the categories of receipts mentioned in the section and with reference to which the presumptive rate of profit specified in the section should be applied. On the other hand, the consideration in the present case can definitely be said to relate to only the provision of services and facilities and hire of plant and machinery in relation to an oil business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid or payable, on account of such carriage to the owner or the charterer or to any person on his behalf, whether that amount is paid or payable in or out of India, shall be deemed to be income accruing in India to the owner or charterer on account of such carriage. The Supreme Court held that the amount which the time-charterer was required to pay to the owners of the ship was not payable on account of the carriage of goods but was payable on account of the use and hire of the ship. The court observed (page 311) : It is true that one cannot place over-reliance on the form which the parties give to their agreement or on the label which they attach to the payment due from one to the other. One must have regard to the substance of the matter and, if necessary, tear the veil in order to see whether the true character of a payment is something other than what, by a clever device of drafting, it is made to appear. But we see no reason to hold that the real intention of the parties was something different from what the words used by them convey in their accepted sense. The charter-party was drawn in a standard form approved by the New York Produce Exchange and there is no warrant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stralia for the services performed by them in India can be taxed in their hands in India only if the three conditions set out in para. 2(c) of article 15 of the DTAA are satisfied. It is stated by the applicant that the first two conditions are satisfied and this, being a statement of fact by the applicant, has to be accepted by the authority, without prejudice to the right of the Department, if occasion should arise, to examine the precise factual position in regard to any particular employee. The only question agitated here is whether the condition set out in clause (c) is satisfied. It is contended by Shri Dastur for the applicant that, having regard to the type of assessment envisaged under section 44BB or section 44BBA on assessees like the present, it cannot be said that such remuneration (as has been referred to above) or indeed any other sum is deducted or deductible in determining the taxable profits arising to the applicant from its base or permanent establishment in India. He says that the section provides for a statutory determination of the taxable profit of a particular type of business at a fixed percentage of the gross receipts, dispensing with the normal process ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irst place, it is well settled that in the computation of profits, all proper outgoings have to be allowed as a deduction, irrespective of whether the statute contains a specific provision in this regard or not (see CIT v. Chitnavis [1932] 2 Comp Cas 464 ; [1932] 6 ITC 453 (PC)). Salaries paid to employees-and indeed all revenue expenditure iincurred-for running a business will have to be taken into account in determining its profits, irrespective of the provisions of sections 28 to 43A. Secondly, the provisions in sections 30 to 43A are primarily intended to restrict or qualify the extent of deduction in regard to certain categories of expenses that would have been normally allowable in the computation. This is indeed clear from the omnibus nature of deductions permissible under section 37. Hence, in a commercial sense, the concept of profits determined under section 44BB or 44BBA, though arrived at on a statutory basis, cannot be considered to exclude such expenses as non-deductible merely because the statute fixes a percentage in this regard. The fixation of a rate so low as five per cent. of the gross receipts as the net assessable profit indicates a statutory attempt at estima ..... X X X X Extracts X X X X X X X X Extracts X X X X
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