High Court Of Rajasthan
CIT vs. Oil And Natural Gas Commission
Sections 44BB, 256(2)
Rajesh Balia & Harbans Lal, JJ.
IT Ref. Nos. 48 to 55 of 1999 & IT Appeal Nos. 67, 68 & 71 of 2001
2nd November, 2001
Counsel Appeared
Sandeep Bhandawat, for the Applicant : Vineet Kothari, for the Respondent
JUDGMENT
RAJESH BALIA, J.:
All these cases relate to the assessment of Oil and Natural Gas Commission (hereinafter referred to as ‘ONGC’) as agent of non-resident assessee M/s Compagnie Generals Deo Gophysique, France (in short ‘CGG’). It is not in dispute in any of these cases that the non-resident assessee is engaged in the business of providing services or facilities in connection with prospecting for, or extraction or production of mineral oil as well for supplying plant and machinery on hire used, or to be used. D.B. IT Appeal No. 68/2001 is an appeal against order of the Tribunal, dt. 30th March, 2000. We shall first consider the issue in appeal.
2. The assessee acting under s. 44BB(2) returned . his taxable income under the head ‘Profits and gains of business or profession’ on the basis of computation made in terms of s. 44BB of the IT Act, 1961. According to the assessee he is liable to pay tax on ‘10 per cent of the aggregate of the amount specified in sub-s. (2) of s. 44BB’. Accordingly, he has included in computation of his profits and gains of business or profession of ‘the non- resident assessee’ the sum received by it from its principal for the purpose of making payment of income-tax in connection with activities carried on by him in India which is related to processing/exploration/production of mineral oil in India. This claim was originally accepted by the AO. However, the CIT considered the inclusion of income-tax for aggregate of sum in the amounts referred to in sub-s. (2) of s. 44BB to be erroneous and prejudicial to the interest of Revenue and directed the AO to recompute the income of the assessee by including the entire receipt of the income-tax payable by the company in India as part of the income from profits and gains of business falling under s. 28(iv) of the IT Act, 1961, by excluding it from computation of income made under s. 44BB(2).
On the other hand, the assessee has contended that computation of income under the head ‘Profits and gains of business or profession’ so far as non-resident assessee is concerned, in the facts and circumstances of the case can only be made under s. 44BB, without reference to any other provision for computation of income under the head ‘profits and gains’, on account of non obstante clause.
The plea of the assessee found favour of the Tribunal and it has set aside not only the order of CIT under s. 263 of the Act but has also held in favour of the assessee on merits. It is in the aforesaid circumstances that IT Appeals No. 67/2001, 68/2001 and 71/2001 were admitted by this Court and the substantial question of law which in the opinion of the Court prima facie arose for consideration in that appeals, were framed as under: Whether, on the facts and in the circumstances of the case, the Tribunal is justified in law in quashing the order under s. 263 passed by the CIT? Whether, on the facts and in the circumstances of the case, the Hon’ble Tribunal was justified in law in upholding the finding of the CIT(A) that only 10 per cent of the income-tax payable by ONGC on behalf of CGG is includible in total income of the assessee in total disregard to the fact that amount of income-tax payable by ONGC on behalf of non-resident company is not a receipt within the meaning of s. 44BB of the IT Act?
Learned counsel for the respondent appearing in this case states that if the controversy between the parties is examined in proper perspective in the facts and circumstances undisputed facts, the answer is; self-evident and obvious that there is no other mode of computation of income of the assessee under the head of ‘Profits and gains of business or profession’ than the one provided under s. 44BB(1) and in view of that the question framed by the Court at the time of admitting the appeal cannot be said to be substantial question of law or at any rate they must be answered in affirmative i.e., to say in favour of the assessee.
Learned counsel for the Revenue has urged that since those part of the provisions which have been excepted by the non obstante clause cannot be invoked to the extent they are contrary to the provisions of s. 44BB and cannot be pressed into service for computation of income.
Before considering the provisions of s. 44BB it will be apposite to refer to relevant part of the scheme of the Act of 1961. Sec. 4 which is the charging section for levying tax on income of any person under the Act provides that income-tax shall be charged at rate or rates enacted by Central Act in accordance with and subject to provisions of the Act in respect of his total income of the previous year relevant for that assessment year of every person.
The expression ‘total income’ has been defined in s. 2(45) of the Act to mean the total income referred to in s. 5 computed in the manner laid down in this Act. Chapter IV of the Act deals with computation of total income. Sec. 14 of the Act envisages that all incomes for the purpose of charge of income-tax computation of total income shall be classified under the following heads—(a) ‘Salaries’; (b) xxx (c) ‘Income from house property’; (d) ‘Profits and gains of business or profession’; (e) ‘Capital gains’, and (f) ‘Income from other sources’. This Chapter IV has further been divided into sub-parts which provides for computation of income under different heads referred to above. Part-D of Chapter IV deals with computation of income from ‘profits and gains of business or profession’. This part contains s. 28 to s. 44D. Sec. 28 defines what are to be included under the head ‘Profits and gains of business’ or what is the income to be included under the head ‘Profits and gains of business or profession’ under various sub-clauses. Sec. 29 states that the income referred to in s. 28 shall be computed in accordance with the provisions contained in said part. Broadly speaking ss. 32 to 37 deal with general deductions to be allowed in computing the total income under the head ‘Profits and gains of business or profession’ of the assessee (including deductions on account of depreciation, rebate and other specified expenses). The general deduction on account of expenses incurred or laid wholly and exclusively for the purpose of business and profession are allowable under s. 37 of the Act. Sec. 38 to s. 41 deals with certain provisions modulating specific deductions or additions of certain receipts in computing income under Part D of the Chapter IV. Sec. 43 is definition clause for that purposes and s. 43A is specific provision relating to conversion rate of foreign exchange.
All these provisions have been excluded from being pressed into service, while the computation of income from ‘Profits and gains of business and profession’ is to be made under s. 44BB. Significantly the co-related provision of s. 42, which relates to allowance of special deductions in the case of income from business of exploration of mineral oils, is not excluded from the process of computing income under s. 44BB. Sec. 43B deals with specific conditions in which alone such expenses or deductions shall be permissible. Scheme onwards to s. 43B is to deal with income from specified business/professional activities. Scheme of the later provisions of the Part-D of Chapter IV deals with specific items of expenses and outgoings which are either not deductible from the computation of total income for claiming deductions on that account. Some provisions have been made for providing special mode of determining income from particular business activity. It is in this background s. 44BB reads as under: “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. (11) 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 the 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, aircraft, vehicles, drilling units, scientific apparatus and equipment, used for the purposes of the said business; (ii) ‘Mineral Oil’ includes petroleum and natural gas.” A bare perusal of the aforesaid provisions reveals that notwithstanding general mode of computing profits and gains of business in connection with business of exploration, etc., of mineral oil, special method has been devised and that object is revealed through a non obstante clause which excludes operation of ss. 28 to 41 and ss. 43 and 43A in the case of computing income of an assessee who is a non-resident and is engaged in the business of providing facilities in connection with supplying plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils in India. Principles governing any non obstante clause are well established. Ordinarily it is a legislative device to give such a clause an overriding effect over the law or provision that qualifies such clause. When a clause begins with ‘notwithstanding anything contained in this Act or in some particular provision/provisions in the Act, it is with a view to give the enacting part of the section, in case of conflict, an overriding effect over the Act or provision mentioned in non obstante clause. It conveys that in spite of provisions or Act mentioned in the non obstante clause, the enactment following such expression shall have full operation. It is used to override the mentioned law/provision in specified circumstance. Distinction between expression ‘subject to other provisions’ and expression ‘notwithstanding anything contained in other provisions of the Act’ was explained by a Constitution Bench of the Supreme Court in S.I. Corpn. (P) Ltd. vs. Secretary Board of Revenue AIR 1964 SC 207. About the former expression the Court said while considering Art. 372— “The expression ‘subject to’ conveys the idea of a provision yielding place to another provision or other provisions to which it is made subject.” About the non obstante clause with which Art. 278 began, the Court speaking through Subba Rao, J. said : “The phrase ‘notwithstanding in the Constitution’ is equivalent to saying that in spite of other articles of the Constitution or that the other articles shall not be an impediment to the operation of Art. 278.”
The Court explained the effect of operation of two phrases with reference to provisions before it : “While Art. 372 is subject to Art. 278, Art. 278 operates in its own sphere in spite of Art. 372.” The principle enunciated by Supreme Court in S.I. Corpn.’s case (supra) was reiterated by the apex Court . in Union of India vs. G.M. Kokil (1984) Suppl. SCC 196 wherein it said : “It is well known that a non obstante clause is a legislative device which is usually employed to give overriding effect to certain provisions over some contrary provisions that may be found either in the same enactment or some other enactment, that is to say, to avoid the operation and effect of all contrary provisions.”
Again the apex Court said in Chandavarkar S.R. Rao vs. Ashalata S. Guram (1986) 4 SCC 447 : “A clause beginning with the expression ‘notwithstanding anything contained this Act or in some particular provision in the Act or in some particular Act or any law for the time being in force, or in any contract’ is more often than not appended to a section in the beginning with a view to give the enacting part of the section in case of conflict an overriding effect over the provision of the Act or the contract mentioned in the non obstante clause. It is equivalent to saying that in spite of the provision of the Act or any other Act mentioned in the non obstante clause or any contract or document mentioned in the enactment following it will have its full operation or that the provisions embraced in the non obstante clause would not be an impediment for an operation of the enactment. See in this connection the observations of this Court in South India Corpn. (P) Ltd. vs. Secretary, Board of Revenue, Trivandrum.”
The above principles were again reiterated in P.E.K. Kalliani Amma vs. K. Devi AIR 1996 SC 1963. Applying these principles, if s. 44BB is to take effect in spite of s. 28, it would be paradoxical to say that though s. 44BB has an overriding effect s. 28(iv) will operate in spite of sub-s. (2) of s. 44BB. Sec. 44BB which provide complete code of computation of income from business of an NRI of the nature specified in s. 44BB(1), to the exclusion of entire s. 28 including cl. (iv) of s. 28 which provides inclusion of perquisite within the purview of the ‘profits and gains from any particular business to which such perquisite relates business’. Any part of s. 28 cannot be used to exceed the limit of income to be computed under s. 44BB viz., 10 per cent of the aggregate of the amounts specified in sub-s. (2) of s. 44BB. Including something which is income of a person from business of nature specified in s. 44BB(1) who is governed by the said provision, is to make s. 44BB subject to s. 28(iv) contrary to legislative mandate that it will operate in spite of it is not includible in s. 44BB(2). If it is includible in items includible aggregate only 10 per cent of it would go in computations. If it does not fall in the specified amount under s. 44BB(2) it cannot be included in computation at all for the purpose of computing income of such an NRI whose income from the business of exploration in mines is to be computed.
In the present case there is no dispute about the fact that the assessee is a non-resident falling in that category. That being so, whether it is cl. (i) or cl. (iv) no part of s. 28 or for that matter no provision of ss. 28 to 41 as a whole and ss. 43 and 43A could be resorted to for the purpose of computing business of exploration of mineral oil.
It may be noticed that these methods have not been included only to the extent that they are contrary to s. 44BB, but s. 44BB have been given overriding effect of the special mode in entirety for the computation of profits and gains of business in the case of a NRI income arising to him from 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 or extraction or production of mineral oils, over the mode generally provided for computing the total income under that head. It not only provides for computation of income from ‘profits and gains’ in connection with business of exploration of mineral oils in a comprehensive form, leaving other income to be computed as per general provision, it gives a clear indication, without any complexity and doubt, that if the assessee is one whose income is to be computed under the head ‘Profits and gains of business’ under s. 44BB, it could be computed in the manner as provided in sub-s. (2) and not with reference to any provision of s. 28 to s. 41 or 43 and 43A.
12. The learned counsel for the Revenue has contended in tune with the reasoning adopted by the assessing authority, for including the receipt in question with reference to s. 28(iv) by treating it as perquisite within the meaning of that provision to its full extent, in addition to computation of its income in respect of other receipts forming part of same business under s. 44BB. Acceptance of said contention shall obviously be contrary to the scheme of s. 44BB. It would be amounting to say that though it is income of an NRI from the business of exploring mineral oils as perquisite under s. 28(iv), yet it is to be included in income of such assessee in addition to the income computed under that head by excluding s. 28. That would be contradictory in terms sub-s. (iv) of s. 28 isasmuch a part of s. 28, as any other part of it. It cannot be dealt with independent of it.
13. In this connection we may refer to the decision of Orissa High Court Oil India Ltd. vs. CIT (1995) 123 CTR (Ori) 46 : (1995) 212 ITR 225 (Ori) : TC 47R.270. The very same question was raised before the Bench comprising of Hon’ble G.B. Patnaik & P.C. Naik, JJ. The Court held as under : “Sec. 44BB is a special provision for computing profits and gains in connection with the business of exploration of mineral oil. Parliament engrafted the aforesaid provision in the IT Act as a measure of simplification providing for determination of income of such taxpayers at ten per cent of the aggregate of certain amount. By virtue of s. 44BB and because of non obstante clause, s. 28 of the Act will have no application. In other words, the value of the perquisite arising from the business will have to be computed as provided in s. 44B(1) when the business is exploration of mineral oil.” The Court, therefore, held that tax liability of non-resident firm which has been undertaken by the Indian firm and has been paid by the Indian firm would be a perquisite arising from the business of oil exploration under , the agreement entered into by the non-resident firm with the Indian firm and would be taxable as such. The computation of the same will have to be made under sub-s. (1) of s. 44BB and, therefore, only ten per cent of the same would be deemed to be the profits of such business chargeable to tax and not the entire sum.
14. In these circumstances the IT Appeal bearing Nos. 67/2001, 68/2001 and 71/2001 have no merit and are hereby dismissed. IT Ref. Nos. 48/99, 49/99, 50/99, 51/99, 52/99 53/99, 54/99 and 55/99
15. These are applications under s. 256(2) of the IT Act, 1961, seeking a direction from this Court, because by the order dt. 26th May, 1998, the Tribunal, Jaipur Bench, Jaipur, has rejected the application under s. 256(1) for stating the case and referring the following question in each case, stated to be a question of law arising out of the Tribunal’s appellate order for the decision of this Court. “Whether, on the facts and in the circumstances of the case the Hon’ble Tribunal was justified in law in upholding the finding of the learned CIT(A) that only 10 per cent of the income-tax payable by ONGC, on behalf of the CGG is includible in total income of the assessee in total disregard to the fact that amount of income tax payable by ONGC on behalf of the non-resident company is not a receipt within the meaning of s. 44B of the IT Act ?” The same question has been sought to be referred to this Court in each of the aforesaid applications as the same was declined to be referred by the Tribunal under s. 256(1).
16. While considering the appeal filed by the Revenue for later assessment years arising the same questions as discussed above, we have come to the conclusion that the answer to the controversy raised by the Revenue is obvious and is self-evident from the scheme of the Act and reading of the provision itself, therefore, the appeal has been dismissed on hearing both sides.
In that view of the matter, the question need not be referred to this Court for its decision. The Tribunal was justified in rejecting the applications under s. 256(1) for not making a reference to this Court, as a result the reference applications are also rejected.
[Citation : 255 ITR 413]
