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TMI Blog2003 (9) TMI 65X X X X Extracts X X X X X X X X Extracts X X X X ..... ernational 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 income of the NRC under the contract. In other words, the contract between ONGC and NRC was "net of tax" contract. Since the contract was for oil exploration section 44BB was applicable. Under that section 10 per cent. of the gross receipts is deemed to be the income of the NRC (assessee). This is not in dispute. However, the contract was net of tax. ONGC had taken over the tax liability of the NRC. Therefore, the Assessing Officer came to the conclusion that the extent to which ONGC undertook to discharge the tax liability of the NRC would amount to benefit under section 28(iv) of the Income-tax Act. Accordingly, he added that tax component to the income of the assessee on the basis of multiple grossing. According to the Assessing Officer, section 44BB of the Income-tax Act did not override section 28(i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tected 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 the extent ONGC paid the tax on behalf of the NRC and to the extent that ONGC did not deduct the tax at source, the tax amount paid by ONGC on behalf of the NRC constituted a benefit/perquisite under section 28(iv) and consequently, that benefit was required to be added to the income of the NRC under section 44BB. Mr. Posti, learned counsel for the Department, further submitted that the assessee in this case has accepted its liability under section 28(iv) at single stage but they are disputing multi stage grossing up of income which the Department has resorted to by invoking section 195A. It was argued that since the NRC had accepted its liability under section 28(iv) of the Act, may be at single stage, it is clear that section 28(iv) has to be read with section 44BB of the Income-tax Act and that section 44B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 discharged by the agent. That in the case of contracts concerning oil exploration 10 per cent. of the gross receipts computed under section 44BB(2) is considered to be the deemed profits of the assessee. It was argued that in the case of contracts, where the NRC pays the tax on its own and not through its agent, the NRC has to pay the tax on the consideration which it receives from ONGC That, in such an event, the assessee was required to pay tax under section 44BB only on Rs. 200 and therefore whether one takes the contracts as tax protected contract or contract which is not net of tax, makes no difference. In both the cases the value of the benefit is only Rs. 200. That the Department is wrong in applying the concept of multiple stage grossing up of income to tax protected contracts because whether one take ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mputation 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 derived by the NRC from oil exploration falling under section 44BB of the Act. As stated above, section 44BB contemplates computation of deemed profits at 10 per cent. of the aggregate receipts received by the NRC from oil exploration. That section 44BB(2) refers to items covered by gross receipts. In this case the assessee has computed its income by taking into account the benefit which it has received on account of ONGC paying tax on its-behalf. For example, in the above illustration if applied the assessee has paid tax on Rs. 200 which is treated as its deemed profits. However, the Department has calculated that benefit at Rs. 250 by resorting to multi stage grossing up of income. This is not the case where the assessee is not paying tax on the benefit of Rs. 200. The dispute is only regarding the value of that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsp; 200.00 --------- ---------- 1,200.00 1,200.00 Tax at 20 per cent. on Rs. 200 40.00 &nb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 0.32 ---------- 1,249.92 Tax at 20 per cent. on Rs. 0.32 0.08 &nbs ..... X X X X Extracts X X X X X X X X Extracts X X X X
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