1996 (7) TMI 72 - HC - Income Tax

Assessing Officer Central Government Foreign Company High Court Mineral Oil Power To Call For Supplementary Statement Question Of Law

Issues Involved:
1. Addition of surtax leviable on the foreign company.
2. Exclusion of payments for other services, including supply of spares, materials, mobilisation, and demobilisation charges.
3. Application of net profit rate under section 44BB.
4. Determination of whether the case involved single or multiple grossing up.
5. Justification of the Income-tax Appellate Tribunal's order and its reliance on one issue.

Detailed Analysis:

1. Addition of Surtax Leviable on the Foreign Company:
The Commissioner of Income-tax initiated proceedings under section 263 of the Income-tax Act, citing that the surtax payable by the Oil and Natural Gas Commission (ONGC) on behalf of the foreign company was not added to the income. The Tribunal quashed this order, noting that Notification No. GSR 307(E), dated March 31, 1983, exempted the foreign company from surtax. The High Court upheld the Tribunal's decision, confirming that the surtax was not payable by the foreign company due to the exemption provided by the notification.

2. Exclusion of Payments for Other Services:
The Commissioner argued that the payments received by the foreign company for data processing, mobilisation and demobilisation of machinery, and supply of spares and materials should have been included in the taxable income. The Tribunal, however, found that these payments were excluded based on section 44BB, which deems 10% of the aggregate amounts as profits and gains. The High Court agreed with the Tribunal that the exclusion was justified and that the Commissioner did not establish that the Assessing Officer failed to make necessary inquiries.

3. Application of Net Profit Rate under Section 44BB:
The Tribunal observed that the income was computed by taxing 15% of the net receipts, whereas section 44BB specifies 10%. The High Court concurred that section 44BB could not support the Commissioner's conclusion that the assessments were erroneous and prejudicial to the Revenue. The Tribunal's application of the 10% rate was deemed appropriate.

4. Determination of Single or Multiple Grossing Up:
The Commissioner mentioned the need to determine whether the case involved single or multiple grossing up, although this was not specified in the show-cause notice. The Tribunal held that the notice under section 263 did not mention this issue, and the Commissioner did not provide a firm finding on it. The High Court agreed, noting that the Tribunal correctly observed that the income should be taken on a single stage grossing up, referencing a similar agreement in O.N.G.C. v. IAC [1990] 35 ITD 31 (Delhi).

5. Justification of the Income-tax Appellate Tribunal's Order:
The Department contended that the Tribunal erred in setting aside the Commissioner's order without addressing all the reasons given. The High Court reviewed the Tribunal's decision, noting that the Tribunal had considered the relevant issues and found no failure by the Assessing Officer to make necessary inquiries. The High Court concluded that the Tribunal did not commit any error by relying on the primary issue of surtax and upheld the Tribunal's order.

Conclusion:
The High Court rejected the applications for reference under section 256(2) of the Income-tax Act, affirming the Tribunal's decision to quash the Commissioner's order under section 263. The Tribunal's reliance on section 44BB and the exemption provided by Notification No. GSR 307(E) was deemed appropriate, and there was no error in the Tribunal's handling of the issues presented.

← Previous Next →