2003 (7) TMI 28 - HC - Income Tax

Exploration Of Oil - Whether, Tribunal is legally justified in 1. Upholding the order of CIT (Appeals) who held that the amount of corporate tax paid by the OIL on behalf of the company falls under section 44BB(2) and therefore, only 10 per cent. of that amount may be treated as income of the assessee? And 2. Observing that the amount of corporate taxes paid by the OIL on behalf of the non-resident company does not amount to perquisite within the meaning of section 28 (iv)? - We answer the questions referred to us in the affirmative, i.e., in favour of the assessee and against the Department.

Summary

Issues:
1. Interpretation of section 44BB(2) of the Income-tax Act, 1961 regarding corporate tax treatment.
2. Determination of whether corporate taxes paid by an Indian company on behalf of a foreign company constitute a perquisite under section 28(iv).

Analysis:
1. The case involved a non-resident company entering a contract with an Indian company for oil and gas operations, where the Indian company paid corporate taxes on behalf of the foreign company. The Assessing Officer treated the entire tax amount as a perquisite under section 28(iv) and added it to the income of the foreign company. However, the Indian company argued that only 10% of the tax amount should be taxed under section 44BB. The Appellate Tribunal upheld the Indian company's position, stating that under section 44BB(2), tax can be levied at only 10% of the gross receipts, which includes the tax paid by the Indian company on behalf of the foreign company. The High Court agreed with this interpretation, emphasizing the non obstante clause in section 44BB, which mandates taxing 10% of the aggregate amount received, deeming it as the income of the assessee for the year. The Court found no basis for taxing the total tax amount paid by the Indian company, as only 10% of that amount can be taxed under section 44BB(2).

2. The Court examined the provisions of section 28(iv) in relation to the treatment of corporate taxes paid by the Indian company on behalf of the foreign company. The Assessing Officer argued that the entire tax and surtax amount should be treated as a perquisite under section 28(iv). However, the Court held that as per the specific provisions of section 44BB(2), only 10% of the tax amount paid by the Indian company can be taxed. The Court's decision was supported by the Orissa High Court's ruling in a similar case (Oil India Ltd. v. CIT [1995] 212 ITR 225). Therefore, the Court answered the referred questions in favor of the assessee and against the Department, affirming the Tribunal's decision and rejecting the Assessing Officer's interpretation.

This judgment clarifies the application of sections 44BB(2) and 28(iv) in determining the tax treatment of corporate taxes paid by an Indian company on behalf of a foreign company, providing a clear guideline for assessing such scenarios in accordance with the Income-tax Act, 1961.