Authority For Advance Rulings
LLoyd Helicopters International Pty. Ltd., In Re
Sections 44BB, 44BBA, 245N(a)
S. Ranganathan, J., Chairman; Bhuvanendra Nigam & Dr. Subhash C. Jain, Members
AAR No. 308 of 1996
30th April, 1997
Counsel Appeared
S.E. Dastur & R. Murlidharan, for the Applicant : Ms. Anuradha Bhatia, for the concerned CIT
RULING
BY THE AUTHORITY :
Very interesting questions arise for consideration in this application under s. 245Q(1) of the IT Act, 1961 (‘the Act’), filed by Lloyd Helicopters International (P) Ltd., a company incorporated in Australia and not resident in India within the meaning of the Act.
1. The applicant, and two allied companies, are subsidiaries of an Australian holding company. This group of companies, along with Helicopter Services A/S of Norway and Bond Helicopters of the U.K. carry on business in the operation of helicopters on a world-wide basis. It has a variety of helicopter operations such as search and rescue services, ambulance and emergency services, underslung load lifting, offshore oil and gas support, help in military operations, assistance to mining industries, tourism charters, taxi services and media work.
2. The Command Petroleum (India) (P) Ltd. (hereinafter briefly referred to as ‘the Command’), another Australian company, had entered into a contract on 28th Oct., 1994, with three more companies, the Oil & Natural Gas Corporation Ltd. of India (ONGC), Videocon Petroleum Ltd. Ravva Oil (Singapore) (P) Ltd. and the Government of India for the development of the Ravva Offshore Oil & Gas Field which includes, inter alia, extraction and production of mineral oil. This contract is in the nature of 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.
3. 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 13th Sept., 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 & Gas Field has its bases, drilling units and operation platforms at various places whose geographical coordinates are set out as follows in Schedule I to the agreement :
Location Latitude Longitude
Ravva-A Platform Ravva-B Platform
16 degrees
28’N 28 degrees 11’E
16 degrees
23’N 82 degrees 07’E
Surasaniyanam
Plant Facility
Surasaniyanam
Living
Quarters and
16 degrees
29’N
16 degrees
82 degrees 05’E
Heli
Pad
28’N 82 degrees 06’E
17
Rajahmundry
Vishakhapatna m
degrees
00’N
17 degrees
42’N
81 degrees 45’E
83 degrees 15’E
Drilling Unit and other new plat-forms
W n it a
h 2 ut i 0 ic
n al miles of
Ravva- A Platfor m.
The joint venture, therefore, needed transport for the frequent conveyance of men and materials from their fixed bases such as at Rajahmundry, Vishakhapatnam and Surasaniyanam to the actual work-sports and it is this need that is sought to be fulfilled by the agreement with the applicant- company.
5. A few clauses of the above agreement need to be set out. Para 1 is the definition clause. The relevant definitions are the following : “1. Definitions 1.1 xxx xxx xxx ‘Contract Area’ is the area contained within the permit boundaries set forth in Schedule 1. xxx xxx xxx ‘Helicopters’ means the support helicopter and standby helicopter, and Helicopter means any one of them. xxx xxx xxx ‘On Hire Period’ means the period during which the services of any helicopter is being provided by the contractor to Command as provided pursuant to clause 2. xxx xxx xxx ‘Operation Unit’ means the Drilling Unit, Ravva-A Platform, Ravva-B Platform or any other offshare platform or vessel with suitable vessel mounted helipad which is located within the contract area. xxx xxx xxx ‘Services’ means the services to be performed by the contractor as described in this agreement and the Schedules hereto, and all other related services required by Command, and normally provided by contractor incidental to such services.”
6. Paras 2 and 3 define the services to be provided by the applicant. The relevant clauses are : 2. Services. 2.1 Contractor shall provide helicopter services between the Operation Base, any Operating Units and such other locations as Command may reasonably require.
xxx xxx xxx 3. Helicopter availability. 3.1 Helicopter services shall be made available to Command on a 24 hours a day, 7 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 scheduled flights, shall be subject to a flight request document, except in an emergency as provided in cls. 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 together with the flying time, certified by the Command Representative.” The most important clause is para 7 relating to consideration. It is sufficient to refer to Para 7.1 which is in the following terms : “7. Consideration As full compensation for the performance of contractor’s obligations set forth herein, Company agrees to pay contractor as herein provided :
7.1 (a) The mobilisation fees set out in Schedule II are to cover all costs incurred by contractor for mobilisation of all resources to be provided by contractor required for the services, provided however, that if Command exercises its right to termination as set forth in cl. 18 prior to mobilisation, no mobilisation fee shall be due to the company, without prejudice to any other right or claim for damages that the company may have. The mobilisation fees shall only be payable after satisfactory mobilisation to the Operation Base of the relevant helicopter and all relevant personnel and equipment. (b) The fixed monthly rates for provision of each Helicopter during the on hire period in respect of such helicopter as set out in Schedule II. Command shall not be charged the fixed monthly rate during any periods of suspension which Command may declare as provided herein or during any other periods in which a helicopter is not operational due to fault of the contractor and in such event the fee will be reduced pro rata based on a thirty (30) days month for the period in which the helicopter was not operational. (c) The fixed hourly rates for Flight Service Time in respect of each helicopter as set out in Schedule II for each hour or pro rata for any portion thereof the logged Flight Service Time. Logged Flight Service Time shall be the time as recorded in the helicopter flight report. (d) The demobilisation fees set out in Schedule II to cover all costs incurred by contractor for demobilisation of all resources and which shall be payable only after demobilisation of the relevant helicopter and all relevant personnel and equipment to point of origin.” Schedule I sets out elaborate details. Para A of this Schedule sets out the work to be done by the applicant. It reads : “A General The work to be performed under the terms of this agreement shall be the provision of technical support, equipment and personnel as necessary for the provision of a helicopter support service, 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.
7. In pursuance of the above agreement, the applicant opened a project site office at Rajahmundry and also notified a place of business in India under s. 592 of the Companies Act, 1956. A helicopter was taken on lease by Command from the Lloyd group. The applicant sought and obtained permission for the operation of the helicopter for carriage of men and materials in connection with the project, subject to the directions of the civil aviation authorities in both countries. From the terms of the agreement, it is clear that the applicant has a place of business in India and that a substantial portion, if not the entirety, of its operations taken place within India. Under a Notification No. GSR 304(E) dt. 31st March, 1983, issued by the Government under ss. 6(6)(a) and 7(7)(a) of the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act (80 of 1976), the operation of the IT Act has been extended to the continental shelf and exclusive economic zone of India w.e.f. 1st April, 1983. It will only apply, however, in respect of income derived by every person from all or any of the following activities, namely : (a) the prospecting for or extraction or production of mineral oil (which includes petroleum and natural gas) in the said continental shelf or exclusive economic zone; (b) the provision of any services or facilities or supply of any ship, aircraft, machinery or plant (whether by way of sale or live) in connection with any activities referred to in cl. (a);(c) the rendering of service as an employee of any person engaged in any of the activities referred to in cl. (a) or cl. (b). The territory of India, for the purposes of the Act, would, therefore, include these areas and no material has been placed before us to show that the operations of the joint venture or of the applicant extend beyond such territory. There is, therefore, no doubt that the applicant and its employees sent to operate the helicopters are liable to tax in India under the Act in respect of the operations carried on by them.
8. The applicant has, however, posed three questions before the Authority two of which pertain to the manner in which it should be taxed in India and the third substantially raises the issue whether the applicant’s employees engaged in operations pursuant to the agreement can be assessed to tax in India. The questions raised are : “1. Whether income of the applicant from activities carried on in India is taxable as per the provisions of s. 44BBA of the Act.
1. In the event the provisions of s. 44BBA and s. 44BB are held to be equally applicable, would the assessee be entitled to be taxed under the section favourable to it, i.e. s. 44BBA.
2. Whether remuneration paid to employees [residents of Australia] of the applicant satisfies sub-cl. (c) of cl. 2 of Art. 15 of the Agreement for Avoidance of Double Taxation (‘DTA’) 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 s. 44BB or 44BBA of the Act.”
9. 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 Art. 15 of the Agreement for Avoidance of Double Taxation between India and Australia (DTAA). This article reads thus : “Art 15—Defendant Personal Services (1) Subject to the provisions of Arts. 16, 17, 18, 19 and 20, salaries, wages and other similar remuneration derived by an individual who is a resident of one of the Contracting States in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived from that exercise may be taxed in that other State. (2) Notwithstanding the provisions of paragraph (1), remuneration derived by an individual who is a resident of one of the Contracting States in respect of an employment exercised in the other Contracting State shall be taxable only in the first mentioned State if : (a) the recepient is present in that other State for a period or periods not exceeding in the aggregate 183 days in a year of income of that other State : (b) the remuneration is paid by, or on behalf of, an employer who is not a resident of the other State; and (c) the remuneration is not deductible in determining taxable profits of a permanent establishment or a fixed base which the employer has in that other State. (3) Notwithstanding the preceding provisions of this Article, remuneration in respect of an employment exercised aboard a ship or aircraft operated in international traffic by a resident of one of the contracting States may be taxed in that State.” It will at once be seen that this article regulates, as between India and Australia, the taxability of individuals in employment who are resident in one of these States but derive remuneration for the exercise of their employment in the other. Applying this article to the applicant’s employees in the present case (who are residents of Australia), para 1 lays down the general rule that they will have to be taxed in India and not Australia since their employment is exercised in India. However, para 2 lays down an exception to that rule and restricts their taxability only to their State of residence, viz., Australia (and not India, the State where the services are rendered) if the three conditions specified therein are fulfilled. In other words, Art. 15 is concerned with the issue of taxability, not of the applicant but of the applicant’s employees. A question that arises in this situation is whether it is permissible for an applicant under s. 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 s. 245Q(1) r/w s. 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 Art. 15 of the DTAA. 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 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 determined more satisfactorily only in the applicant’s case, though in order to determine the taxability of an employee in respect of the remuneration derived by him from the applicant. Shri Dastur also pointed out that the question whether the employees would be taxable in India would also be a material circumstance that will have to be taken into account by the applicant in organising its business. If the remuneration is taxable, the applicant will have to deduct tax from the remuneration so paid and pay it over to the Indian IT authorities. Also, the applicant as well as the employees are proceeding on the footing that the employees would not be taxable in India by virtue of Art. 15 of the DTAA. If this assumption is not correct, the applicant may need to make adjustments to its salary pattern to meet the situation and compensate the employees for their loss in this regard. There is considerable force in these submissions. Accepting this contention, the Authority holds it should proceed to give its ruling on all the three questions and should not decline to answer question No. 3 posed by the applicant.
10. Questions 1 and 2 may be taken up for consideration together. The applicant’s contention is that its assessment to income-tax in India should be made in accordance with the provisions of s. 44BBA of the Act. This section, inserted in the Act by the Finance Act, 1987, w.e.f. 1st April, 1988, reads thus : “44BBA. Special provision for computing profits and gains of the business of operation of aircraft in the case of non-residents.—(1) Notwithstanding anything to the contrary contained in ss. 28 to 43A, in the case of an assessee, being a non-resident, engaged in the business of operation of aircraft, a sum equal to five per cent of the aggregate of the amounts specified in sub-s. (2) shall be deemed to be the profits and gains of such business chargeable to tax under the head “Profits and gains of business or profession.” (2) The amounts referred to in sub-s. (1) shall be the following, namely : (a) the amount paid or payable (whether in or out of India) to the assessee or to any person on his behalf on account of the carriage of passengers, livestock, mail or goods from any place in India; and (b) the amount received or deemed to be received in India by or on behalf of the 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-s. (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. 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.” 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 mechanisms in the air is subject to regulations regarding air worthiness, licensing and maintenance of skilled operators and mechanics in every country. The Air Craft Act (XXII of 1934) makes the relevant provisions so far as India is concerned. Sec. 2(1) of this Act defines an ‘aircraft’ in the following manner : “’aircraft’ means any machine which can derive support in the atmosphere from reactions of the air other than reactions of the air against the earth’s surface and includes balloons, whether fixed or free, airships, kites, gliders and flying machines.” Secs. 14 and 14A of this Act confer rule- making powers. These rules were framed in 1937. Rule 3 (7) repeats the statutory definition of the word “aircraft” and r. 3 (28) defines a ‘helicopter’ thus : “’Helicopter’ means a heavier-than- air aircraft supported in flight by the reactions of the air on one or more power driven rotors on substantially vertical axis.” No aircraft (including a helicopter) can be operated save in accordance with these rules (r. 4). The rules contain detailed provisions regulating such operation which need not be repeated here except to point out that Schedule II contains special provisions in ss. B, F, K, N and P, Q and R to cover helicopters. Similar wide definitions can also be seen in s. 4(ii) of the Air Force Act (45 of 1950) and s. 2(1) of the Air Corporations Act (XXVII of 1953). Though these are special statutes, it is not possible, having regard to the nature of the subject-matter, to construe the expression ‘aircraft’ otherwise than in consonance with these provisions even in the IT Act, when used in the context of a business in the operation of aircrafts.
11. Smt. Anuradha Bhatia, appearing on behalf of the CIT, took upon a different plea to exclude the applicant’s case from the purview of s. 44BBA(1). Normally, she pointed out, the business of transport of men and materials within India was looked after by Indian companies and no such extraordinary difficulties in the determination of the profits of such an enterprise had been experienced as would call for resort to any special rule for the determination of profits in an ad hoc manner as envisaged by s. 44BBA. Referring to a memorandum issued by the Board [(1988) 67 CTR (St) 1 : (1987) 168 ITR (St) 87, 97] explaining the insertion of s. 44BBA, and making pointed reference to the words “from any place in India” and “from any place outside India” respectively in cls. (a) and (b) of sub-s. (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 s. 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 territorial restrictions into the language of the section. The stand of the Department, on the other hand, introduces the additional words “to any place outside India” and “to any place in India” respectively at the end of cls. (a) and (b) of sub-s. (2) for which it is difficult to find justification. It may be that, at present, commercial flights of foreign airlines are not permitted to touch at more places than one in India so that a purely internal transport by them—of men or goods—is unlikely. But that is not to say that such a situation is not possible or permissible. On the other hand, the Indo-Australian DTAA as well as several others, seem to envisage such a possibility. Art. 8 of the present DTAA reads : “Art. 8 : Ships and aircraft (1) Profits from the operation of ships or aircraft, including interest on funds connected with that operation, derived by a resident of one of the Contracting States shall be taxable only in that State. (2) Notwithstanding the provisions of para (1), such profits may be taxed in the other Contracting State where they are profits from the operations of ships or aircraft confined solely to places in that other State. (3) The provisions of para (1) and (2) shall apply in relation to the share of the profits from the operation of ships or aircraft derived by a resident of one of the Contracting States through participation in a pool service, a joint transport operating organisation or in an international operating agency. (4) For the purposes of this Article, profits derived from the carriage by ships or aircraft of passengers, livestock, mail, goods or merchandise shipped in a Contracting State for discharge at another place in that State, shall be treated as profits from operations of ships or aircraft confined solely to places in that State.” Moreover, an illustration given by Shri Dastur, also militates against the acceptance of such a contention. Suppose a foreign airline transporting passengers of goods from one place outside India (say, London) to another destination also outside India (say, Colombo), but the fare or freight therefor is paid or payable to it in India. There is nothing abnormal or unusual about such a situation in the context of present day global trading. Would it be possible or reasonable or right to say that such Indian income of the foreign airlines cannot be assessed by recourse to s.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 s. 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 s. 44BBA to “international airlines” or “international air-traffic”, expressions defined and employed in tax instruments like DTAAs. The contention that s. 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-s. (1) of s. 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, the applicant’s receipts are not of the kind described in sub-s. (2) and that, therefore, the provisions of s. 44BBA will be inappropriate to the present case.
12. Equally, the terms of s. 44BB also seem applicable to the present case. This section is in the following terms : “44BB. Special provision for computing profits and gains in connection with the business of exploration etc., of mineral oils.—(1) Notwithstanding anything to the contrary contained in ss. 28 to 41 and ss. 43 and 43A, in the case of an assessee, being a non-resident, engaged in the business of providing services or facilities in connection with, or supplying plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils, a sum equal to ten per cent of the aggregate of the amounts specified in sub-s. (2) shall be deemed to be the profits and gains of such business chargeable to tax under the head ‘Profits and gains of business or profession’ : Provided that this sub-section shall not apply in a case where the provisions of s. 42 or s. 44D or s. 115A or s. 293A apply for the purposes of computing profits or gains or any other income referred to in those sections. (2) the amounts referred to in sub-s. (1) shall be the following, namely : (a) the amount paid or payable (whether in or out of India) to the assessee or to any person on his behalf on account of the provision of services and facilities in connection with, or supply of plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils in India; and (b) the amount received or deemed to be received in India by or on behalf of the assessee on account of the provision of services and facilities in connection with, or supply of plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils outside India. Explanation : For the purposes of this section— (i) ‘plant’ includes ships, aircrafts, vehicles, drilling units, scientific apparatus and equipment, used for the purposes of the said business; (ii) ‘mineral oil’ includes petroleum and natural gas.” At the outset, attention may be drawn to (what appear to be) two mistakes in the drafting of the section. The first is the absence of a comma in the section 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.
1. Turning now to the language of sub-s. (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.
2. In this situation, therefore, it becomes necessary to determine whether the applicant should be assessed in accordance with the provisions of s. 44BB or those of s. 44BBA. The applicant’s choice is the latter for the simple reason that its profits would be assessed at 10 per cent of its receipts and accruals under s. 44BB while it will be assessed only at 5 per cent of such amounts under s. 44BBA.
1. Legal support for this choice is sought to be derived from the legal maxim “Generalia Specialibus non derogant”, as applied for deciding on the competing claims of two provisions in the same enactment, one general and the other special : in other words, the principle that a general provision cannot derogate from a special provision. It is argued that s. 44BBA is a special provision prescribing a statutory method for the determination of the profits from a business of operation of aircraft. That is indeed the business of the applicant. The terms of s. 44BB are sought to be imported by the Department only because, in relation to this particular contract between the applicant and Command, the aircraft operations pertain to a certain joint venture in its oil exploration business. The business of the applicant company as such, however, has nothing to do with oil exploration nor is the employment of aircraft by the company in the course of its business restricted to this field of operations. As already pointed out, the helicopters provided by the applicant are engaged in a multitude of operations pertaining to various areas of human activity. The fact that the applicant, under this contract, which is one of several entered into by it in the course of its business, is for transport of men and materials employed in an oil exploration business is of no significance at all in deciding on the applicability of the section. Sec. 44BB likewise will come into operation where the business carried on by the assessee is the provision of plant, equipment, services and facilities in connection with business of oil exploration even if one of the items of plant or equipment supplied may be aircraft (including helicopters). In such a case, the core business would be that of oil exploration and the fact that one of the items of assistance provided by way of sale or hire of aircraft would be incidental and unimportant. It is, therefore, contended that, even if the words of s. 44BB may seem to have some bearing, only the provisions of s. 44BBA should be held applicable 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.
2. The Authority is of opinion, as indicated earlier, that it is s. 44BB and not s. 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 business of mineral oils. Secondly, though the business operations in the present case attract the provisions of sub-s. (1) of s. 44BBA, that section can be invoked only in cases where the operator is deriving income of the categories specified in sub-s. (2) of that section. Where the income derived cannot be brought within the categories of receipts outlined in sub-s. (2), the statutory formula for determining the presumptive income becomes unworkable. The consequence of such a situation has been explained by the Supreme Court in the cases of CIT vs. B.C. Srinivasa Setty (1981) 21 CTR (SC) 138 : (1981) 128 ITR 294 (SC) : TC 20R.148 and CIT vs. Official Liquidator, Palai Central Bank Ltd. (1984) 43 CTR (SC) 164 : (1984) 150 ITR 539 (SC). It was observed by the Court in the earlier of these cases : “The character of computation provisions in each case bears a relationship to the nature of the charge. Thus, the charging section and the computation provision together constitute and integrated code. When there is a case to which the computation provisions cannot apply at all, it is evident that such a case was not intended to fall within the charging section.” If that principle is applied, the result will be that the section will be inoperative for the present type of cases. Here the section provides a machinery for applying the rate of presumptive taxation not to all enterprises engaged in the business of operation of aircraft but only to such of those as levy charges from their customers specifically on account of the carriage of men and material from one place to another and should be held inapplicable to a case of the present type. It is true that the applicant company is carrying passengers and goods from the onshore bases to offshore units of Command but the real nature of the agreement between the applicant and Command is basically different. Under cl. 2 of the agreement, what the applicant has to do is to place its helicopter services at the disposal of Command for its oil operations. Paragraph 7 of the agreement, which sets out the consideration payable by Command for such services, classifies it under four different heads : (a) mobilisation fees, (b) fixed monthly rates for provision of each helicopter, (c) fixed hourly rates for the actual period of operation of the helicopter, and (d) demobilisation fees.The agreement nowhere mentions any consideration for the carriage of passengers or equipment. Trips will be charged for irrespective of the number of men or quantity of material transported. The charges will have to be paid even if, for some reasons, there should be no passenger and/or equipment at all carried on any flight. The contract makes no reference to charges for transport of men and materials and makes no distinction between charges for passengers 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 referrable 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 s. 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 s. 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 carried on by Command. The Authority is, therefore, of the view that the present case is one governed by s. 44BB rather than by s.
44BBA.
1. Shri Dastur submitted that the contract by the applicant is part of a larger business of plying aircraft for hire and is to help Command to transport its personnel and equipment to its operation units from the base or between operation units inter se. To say that the payment received by the applicant is not on account of such carriage would be, according to him, a distinction without a difference. The Authority is unable to accept this contention. The parties here have entered into a commercial contract. Its tax consequences have to be determined on its language. Moreover, it is not a mere verbal distinction that is sought to be made out here. The parties considered it expedient to agree that Command should be able to command the helicopter and allied services of the applicant as and when required; it was not sufficient for them merely to enter into a contract agreeing to pay for fare and freight as and when passengers or material were transported. There is a material distinction, in the commercial sense, between the two types of contract and one cannot ignore it.
2. That the distinction about pointed out is real and not artificial can be seen from the decision of the Supreme Court in the case of Union of India vs. Gosalia Shippping (P) Ltd. 1978 CTR (SC) 76 : (1978) 113 ITR 307 (SC) : TC 47R.289. In that case, a non-resident company had entered into a time charter with the owners of a ship. Under the charter-party, the company had agreed to pay to the owners 4.5 dollars per ton on the dead-weight carrying capacity per calendar month, for the use and hire of the vessel, from the date of delivery of the ship to the day of redelivery. The company had liberty to sublet the vessel, captain was under its orders and directions as regards employment and agency, and if the vessel were lost, money paid in advance and not earned was to be returned by the owners. The ship called at an Indian port where it was loaded with the company’s own goods, namely, bauxite and the ship left for Canada. The IT Department raised a demand on the company for income-tax under s. 172 of the IT Act, 1961, which provides that where a ship belonging to, or chartered by, a non-resident, carries goods shipped at a port in India, 1/6th of amounts, paid 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 the 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 : “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 for supposing that though the payment which the charterers bound themselves to make to the owners of the ship was on account of the carriage of goods, the parties described it as being payable for the use and hire of the vessel, in order to avoid the payment of Indian income-tax. Indeed, the other terms of the charter-party and the general tenor of the document show that the payment was in fact to be made by the time-charterers for use and hire of the ship. Under the agreement, charterers had the “liberty to sublet” the vessel for all or any part of the time covered by the agreement. The captain of the ship was to be under the orders and directions of the charterers as regards employment and agency. And if the vessel be lost, money paid in advance and not earned was to be returned by the owners to the charterers at once. These terms and conditions of the contract between the parties are not consistent with the theory that the charterers were liable to pay to the owners any amount on account of the carriage of goods. In order that it may be said that the amount was payable on account of the carriage of goods, it would be necessary to show that one is the consideration for the other, that is to say, that the payment which the charterers had agreed to make to the owners of the ship was in consideration of the carriage of goods. If the charterers are liable to pay the amount irrespective of whether they carry the goods or not, it would be difficult to say that the amount was payable on account of the carriage of goods. Under the terms of the charter-party, the owners of the ship received the amount as charges for the use and hire of the ship. The character of the payment cannot change according to the use to which the charterers put the ship or according as to whether the ship is loaded with goods in a port in India. What is payable as hire charges for the use of the ship cannot transform itself into an amount payable on account of the carriage of goods, by reason of the circumstance that the ship was loaded with goods in India.” In the opinion of the Authority, the principle of the above decision and the observations quoted above fully govern the present case.
19. The above discussion answers the first two questions posed by the applicant. Turning to the third question, it will be seen that the remuneration paid by the applicants to its residents in Australia 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 Art. 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 cl. (c) is satisfied. It is contended by Shri Dastur for the applicant that, having regard to the type of assessment envisaged under s. 44BB or s. 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 P.E. 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 outlined in ss. 28 to 43A of taking the gross profits and deducting therefrom allowances and expenditure of the nature set out in these sections which are described as “deductions” in the computation of the taxable profits. He places emphasis on the opening words of the section which require the provisions of those sections to be disregarded and so contends that the concept of deduction or deductibility does not enter into the picture when a presumptive determination of the profits is made at a statutory fixed percentage irrespective of actuals. He draws attention to the provisions of s. 44AD(2) and (3) and AE(3) and (4) which specifically presume certain deductions as made in such a presumptive estimate and points to the absence of any like indication in ss. 44BB and 44BBA. He, therefore, contends that the remuneration paid to the employees is not deductible in ascertaining the applicant’s profits under these sections. Such remuneration will, therefore, not be assessable in the hands of those employees. In support of his contentions, counsel has referred to the dictionary meanings of the expression ‘deductible’ and has also placed reliance on the decisions of the Supreme Court in Tirunelveli Motor Bus Service Co. (P) Ltd. vs. CIT (1970) 78 ITR 55 (SC) : TC 19R.187 and Karamat Khan vs. CIT (1961) 58 ITR 642 (SC).
1. Interesting as these arguments are, the Authority finds it difficult to accept them as well- founded. The decisions of the Supreme Court relate to the question whether certain items can be treated as having been allowed or actually deducted in the determination of the profits of an earlier year when the assessment made for that year was a best judgment assessment. Here the language used is “deductible” and the emphasis, therefore, lies not on the factum of their actual deduction but on their deductibility, in principle, in the computation of the applicant’s income. It is difficulty to agree to the proposition that the expenses in question should be held not to be deductible because the assessment is made on an estimated basis. It cannot be overlooked that though the section outlines a statutory basis of assessment, what is being assessed at the statutory rate is the ‘profits of the business’, an expression which, as is well settled, has to be understood in a commercial sense. The opening words of the section make no difference to this concept. In the first 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 Chitnavis vs. CIT (1932) 6 ITC 453 (PC)]. Salaries paid to employees—and indeed all revenue expenditure incurred—for running a business will have to be taken into account in determining its profits, irrespective of the provisions of ss. 28 to 43A. Secondly, the provisions in ss. 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 s. 37. Hence, in a commercial sense, the concept of profits determined under s. 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 estimating the expenses normally, likely to be incurred in such business. Shri Dastur gives the instance of a case where an assessee really makes a loss and yet is assessed at a profit rate of 5 per cent and argues that, surely, in such a case, at least, it cannot be said that the salaries are a deductible item. But this contention overlooks that the interpretation of a statute cannot be based on isolated possibilities and exceptional situations. The case where a person will incur a loss only by setting off the salaries paid by him is a rare one and cannot furnish a business for interpreting the clause. The statute brings to tax only 5 per cent (or 10 per cent) and envisages an allowance of 95 per cent (or 90 per cent) of the expenses in computing the taxable profits under these sections and it is difficult to agree that this involves no element of deductibility of revenue expenses such as salaries and the like. The entire purport of cl. (c) is that the remuneration should be taxable in the hands of the employee unless it comes out of profits taxable in the hands of the employer. The effect of accepting the contention will be that it will escape taxation in both places and this cannot be permitted. For the above reasons, the Authority is of opinion that question (3) should be answered in the negative.
2. In the result, the Authority pronounces the following ruling on the questions raised in the application : RULING Q. 1. Whether income of the applicant from activities carried on in India is taxable as per the provisions of s. 44BBA of the Act. Q. 2 In the event the provisions of s. 44BBA and s. 44BB are held to be equally applicable, would the assessee be entitled to be taxed under the section favourable to it, i.e. s. 44BBA. Q. 3 Whether remuneration paid to employees [residents of Australia] of the applicant satisfies sub-cl. (c) of cl. 2 of Art. 15 of the Agreement for Avoidance of Double Taxation (‘DTA’) 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 s. 44BB or 44BBA of the Act.” No. This question does not arise as it is only s. 44BB that is applicable to the present case. No. The application is disposed of accordingly.
[Citation : 249 ITR 162]
