1995 (6) TMI 43 - AT - Income Tax

Summary

Issues:
1. Interpretation of section 44BB of the Income-tax Act, 1961 regarding the method of accounting for non-resident companies.
2. Application of Heydon's Rule in interpreting the legislative intent behind section 44BB.
3. Determination of taxable income for non-resident companies providing services in connection with mineral oils exploration.

Analysis:
The judgment by the Appellate Tribunal ITAT BOMBAY involved an appeal by the revenue against the order of the Commissioner of Income Tax (Appeals) pertaining to the assessment year 1986-87. The case revolved around a non-resident company incorporated in Panama engaged in providing services for mineral oils exploration. The dispute arose regarding the method of accounting for taxation purposes. The revenue contended that section 44BB of the Income-tax Act, 1961 mandates taxing income on an accrual basis only, overriding any choice by the assessee to use cash basis accounting. The revenue argued that the special provision of section 44BB prevails over general provisions and does not require the maintenance of regular books of account by the assessee.

The assessee, on the other hand, argued that there is no explicit requirement in section 44BB to declare income on an accrual basis and that the language of the section is clear in allowing the assessee to follow the accounting system of their choice. The assessee maintained that since they had consistently used the cash system of accounting in previous years, the Assessing Officer should accept the same system without modification. The argument also highlighted the non obstante clause in section 44BB and its limitations concerning other sections of the Income-tax Act, such as section 145 related to the method of accounting.

The Tribunal analyzed the legislative intent behind section 44BB using Heydon's Rule, which aims to interpret statutes to suppress mischief and advance the remedy. The insertion of section 44BB in the Income-tax Act aimed to simplify the computation of taxable income for non-resident companies providing services in mineral oils exploration. The Tribunal upheld the Assessing Officer's order, emphasizing that section 44BB requires taxing receipts on an accrual basis, as indicated by the language of the section. The Tribunal concluded that the sum equal to 10% of the specified amounts should be deemed as profits chargeable to tax under the head "Profits and gains of business or profession."

In conclusion, the Tribunal allowed the appeal of the revenue, affirming the application of section 44BB to tax income on an accrual basis for non-resident companies engaged in mineral oils exploration services. The judgment clarified the legislative intent behind section 44BB and emphasized the importance of following the prescribed method of accounting for such entities.