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Issues:
Validity of multi-stage grossing of income under section 195A of the Income-tax Act, 1961. Analysis: The appeals revolve around the issue of multi-stage grossing of income under section 195A of the Income-tax Act, 1961. The respondents are non-resident foreign companies, and the assessments were conducted with ONGC acting as their agent. The key contention raised in the appeals pertains to the validity of multi-stage grossing of income. The Departmental Representative argued that the tax paid by the employer is a perquisite to the employee and should be added to the employee's salary. Reference was made to section 28(iv) of the Act and a decision of the Karnataka High Court supporting this stance. The counsel for the assessee highlighted section 44BB, which overrides other provisions for computing profits in the business of exploration of mineral oil. It was argued that the tax portion is included in the term 'paid or payable,' and hence, should be grossed up on a single-stage basis. The counsel relied on a decision of the Calcutta High Court supporting this interpretation. The Finance Act, 1988, limited the application of section 44BB to non-resident taxpayers from 1-4-1983, simplifying the computation of taxable income for such taxpayers. The Tribunal found that the Assessing Officer should strictly follow the provisions of section 44BB for computation, overriding section 28(iv) of the Act. Regarding section 195A, it was noted that it is applicable for deduction of tax at source and should be read along with section 195. The Tribunal emphasized that the method of calculation under section 195A is not final for determining tax liability, as it only lays down the procedure for calculating TDS where income is payable 'NET OF TAX.' The Tribunal illustrated the difference between single-stage and multi-stage grossing using a numerical example. In conclusion, the Tribunal upheld the Commissioner of Income Tax (Appeals)'s decision, stating that tax liability should be determined with reference to section 44BB and not section 195A. The appeals of the Revenue were dismissed based on the detailed analysis and precedents presented in the case.
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