1990 (6) TMI 97 - AT - Income Tax

Summary

Issues Involved:
1. Applicability of the Income-tax Act to the assessee's income earned outside India.
2. Consideration of perquisite value of sur-tax.
3. Inclusion of mobilisation and de-mobilisation charges in the assessee's income.
4. Profits from foreign portions of the work under section 9(1)(i) of the Income-tax Act.
5. Single stage vs. multiple stage grossing up of income.

Detailed Analysis:

1. Applicability of the Income-tax Act to the Assessee's Income Earned Outside India:
The assessee contended that the Income-tax Act was not applicable to their income earned outside India during the relevant accounting period ending on 31-3-1983. The Income-tax Act was extended to the Continental Shelf and the Exclusive Economic Zone of India from 1-4-1983 by Notification No. GSR 304(E) dated 31-3-1983. The Tribunal declined to admit this additional ground, stating that this point should be determined in the appeal against the quantum assessment, not in the appeal against the order under section 263.

2. Consideration of Perquisite Value of Sur-tax:
The Commissioner of Income-tax (CIT) initiated proceedings under section 263, considering the assessment order erroneous for not including the perquisite value of sur-tax. However, the Tribunal found that the CIT failed to establish that sur-tax was leviable on the assessee. The CIT did not provide findings on the extent of the company's capital or its chargeable profits. Additionally, Notification No. GSR 307(E) dated 31-3-1983 exempted foreign companies engaged in prospecting for or extraction or production of mineral oils from sur-tax. The Tribunal concluded that the failure to add the perquisite value of sur-tax was not an error and did not result in prejudice to the Revenue.

3. Inclusion of Mobilisation and De-mobilisation Charges in the Assessee's Income:
The CIT considered the assessment order erroneous for not including mobilisation and de-mobilisation charges in the assessee's income. However, the Tribunal found that this point did not arise in the present group of cases as no such charges were paid to the assessees in question. Therefore, this point was not available to the CIT in these cases.

4. Profits from Foreign Portions of the Work under Section 9(1)(i) of the Income-tax Act:
The CIT considered the assessment order erroneous for not considering the profits arising from the foreign portion of the work under section 9(1)(i) of the Act. The Tribunal found that the assessing officer had taken the total receipts of the foreign company from ONGC and determined the assessee's income at 15% of the receipts. There was no need for bifurcation regarding the foreign portion of the work and the portion done within the taxable territory. The Tribunal concluded that this point was not available to the CIT and did not create any error in the assessment order.

5. Single Stage vs. Multiple Stage Grossing Up of Income:
The CIT considered the assessment order erroneous for not resorting to multiple stage grossing up of income by including the perquisite value of taxes borne by ONGC. The Tribunal found that the CIT did not raise this point in the notice issued to the assessee under section 263, and the assessee had no opportunity of hearing on this point. Additionally, there was an agreement dated 24-12-1981 between the then Commissioner of Income-tax, Meerut, and ONGC that only single stage grossing up would be done. The Tribunal concluded that the income determined by the assessing officer on the basis of the agreement was not liable to be grossed up multiple times and that the assessment order did not result in prejudice to the Revenue.

Conclusion:
The Tribunal concluded that the assessment orders in the case of Mecdermott International Inc. and other assessees were not erroneous and prejudicial to the interests of the Revenue. The orders passed by the Commissioner under section 263 were unjustified and were hereby vacated. All the appeals were allowed.