TMI Blog2003 (9) TMI 65X X X X Extracts X X X X X X X X Extracts X X X X ..... ment and order of the Income-tax Appellate Tribunal (Delhi Bench), the Department has come in appeal against the order dated August 12, 1999. The appeal is filed by the Department under section 260A of the Income-tax Act. This appeal has been filed in respect of the assessment year 1990-91. This appeal No. 471 of 2001 is, heard along with Income-tax Appeal No. 22 of 2003; I.T.A. No. 343 of 2001, I.T.A. No. 470 of 2001 and I.T.A. No. 518 of 2001 as they raise a common question of fact and law, therefore, all the appeals are heard together and disposed of by a common judgment. For the sake of convenience we are referring to the facts in I.T.A. No. 471 of 2001. Facts: On December 31, 1990, ONGC filed a return under section 160(1)(i) read with section 163(1)(c) as agent of Cooper Engineering Services International declaring a net income of Rs. 3.69 lakhs. The assessee-company is a non-resident company. The said company had undertaken repairs of two gas compressors on Bombay High platform. The scope of the work included design, fabrication, installation, testing and repairs. ONGC as the agent/authorised representative of the NRC had agreed to bear the corporate tax liability on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce between the net of tax contracts and contracts under which the NRC undertakes to discharge all its tax liabilities. In other words, it was argued, that there are two types of contracts, namely, tax protected contracts under which ONGC agrees to pay the tax on behalf of the NRC and those contracts under which the NRC pays tax on the consideration it receives from ONGC under section 44BB(2). It was argued that these are two different contracts. It was argued by Mr. Posti, learned counsel for the Department, that if the argument of the assessee is accepted then there will be no difference between the two contracts. It was further argued on behalf of the Department that section 195A contemplates multiple stage grossing up of income in case of tax protected contracts. In this case we are concerned with tax protected contracts. It was argued that if one reads section 28(iv), section 44BB and section 195A it is clear that the assessee was required to pay tax on the income determined as per multiple stage grossing. It was further argued that in case of tax protected contracts every benefit/perquisite was taxable under section 44BB with the help of section 28(iv). It was argued that to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 200 whereas according to Department which has applied multiple stage grossing up of income the benefit to the assessee was Rs. 250 (approximately). This is the only point at issue in this case. That section 44BB begins with the non-obstante clause. That section 44BB is a special provision which imposed tax on income derived by non-resident companies from oil exploration. That section 44BB deals with notional income of the NRC. It, inter alia, states that 10 per cent. of the gross receipts mentioned in section 44BB(2) shall be deemed to be the profit of the NRC It was argued that section 44BB contemplates tax on notional income and therefore section 28(iv) was not applicable. It was argued that whenever an assessee ordinarily derives income from business such income is taxable under section 28 of the Income-tax Act. However, section 44BB provides for an independent machinery to compute income earned by a NRC from oil exploration and therefore section 28(iv) has no application. It was further argued that there are two types of contracts, namely, tax protected contracts and contracts in which the NRC discharges the tax liability on its own. In the former case, the tax liability is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The main point which we are required to decide is whether, the concept of multiple stage grossing up of income is applicable to the deemed profits derived by the NRC under section 44BB of the Act. Whether, that concept can be applied by the Department to compute income falling under section 44BB of the Income-tax Act? It was argued on behalf of the Department, that in case of tax protected contracts, section 195A was attracted and therefore the Department was entitled to compute the deemed profits derived by the NRC by applying the method of multiple stage grossing up of income. We do not find any merit in this argument of the Department. Firstly, as stated above section 44BB is a complete code by itself. It is a charging section as far as the income of the NRC is concerned from oil exploration. It deals with computation of deemed profits. Secondly, section 195A comes under Chapter XVII of the Income-tax Act which deals with collection and recovery of tax whereas section 44BB comes under Chapter IV which deals with computation of business income. Therefore, section 195A will not assist the Department in applying the concept of multiple stage grossing up of income to the profits de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement which illustrates the meaning of "grossing up of income", both multi stage and single stage. Example of grossing up where the tax on the personal income of the nonresident technician is to be borne by the ONGC Say the amount payable to the non-resident technician is Rs. 1,000 and for the sake of simplicity, the tax rate is 20 per cent. Stand of ONGC I.T. Department's stand Income 1,000.00 1,000.00 Tax at 20 per cent. on Rs. 1,000 200.00 200.00 --------- ---------- 1,200.00 1,200.00 Tax at 20 per cent. on Rs. 200 40.00 ---------- 1,240.00 Tax at 20 per cent. on Rs. 40 8.00 ---------- 1,248.00 Tax at 20 per cent. on Rs. 8 1.60 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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