1994 (11) TMI 177 - AT - Income Tax

Summary

Issues:
1. Computation of income under Indo-French Double Taxation Avoidance Treaty for a French company for assessment year 1987-88.
2. Allowance of depreciation for the company's operations in India under the Treaty and the Indian Income Tax Act.
3. Set off of losses and taxability of income from different contracts.
4. Application of specific provisions of the Treaty over general provisions of the Income Tax Act.

Detailed Analysis:
1. The French company appealed against the order of CIT(A) regarding the computation of income under the Indo-French Double Taxation Avoidance Treaty for contracts with Oil & Natural Gas Commission. The company claimed benefits under specific articles of the Treaty for two contracts, Rig IDA and Sagar Vijay, for the assessment year ending 31st March, 1987. The dispute arose over the set off of losses and taxability of income from these contracts.

2. The company argued that depreciation for its operations in India should be allowed as per the provisions of the Income Tax Act. The dispute centered around the rate and method of depreciation calculation. The company contended that depreciation should be computed based on the Income Tax Act's provisions, while the authorities applied the Treaty's provisions for computing reasonable profits.

3. The company sought to set off the losses from Rig IDA against the income from Sagar Vijay contract. Additionally, it raised concerns about the taxability of income from different contracts and the applicability of specific Treaty provisions over the general provisions of the Income Tax Act.

4. The Appellate Tribunal analyzed the provisions of the Treaty and the Income Tax Act to determine the computation of income and allowance of depreciation for the French company. The Tribunal held that the company's claim for depreciation under the Income Tax Act was well-founded and should be accepted. It emphasized that the Treaty provisions should prevail where specific provisions were made, and the Income Tax Act would govern in the absence of specific Treaty provisions.

5. The Tribunal referred to relevant articles of the Treaty, Circulars, and judicial precedents to support its decision. It highlighted that the Income Tax Act should dictate the allowance of depreciation for the company's operations in India, as it was more beneficial to the foreign national under the Treaty's provisions. The Tribunal directed the Assessing Officer to allow depreciation to the company as per the provisions of the Income Tax Act, ultimately allowing the company's appeal based on the above conclusions.