2024 (12) TMI 850 - AT - Income Tax

Disallowance u/s 40(a)(i) when income was offered on presumptive basis u/s 44BB - HELD THAT - The assessee is a non-resident company. It has offered income u/s 44BB on presumptive basis @10% of gross receipts arising out of a project office situated in India. The returned income has been accepted by Ld. AO in the assessment order. The payee under consideration i.e., DDPL is also a resident of Singapore. The provisions of Sec.44BB of the act starts with a non obstante clause and excludes the application of other provision of Section 28 to 41 and Section 43 and 43A of Income Tax Act which would include the provisions of Sec.40a)(i) also. The impugned transactions have been entered into between two non-residents outside India. As seen that these provisions have overriding effect on other provisions of the act. Further, the provisions of Sec.44BB provide complete code of computation of income from business of a non-resident of the nature specified in section 44BB, to the exclusion of specified sections. Therefore, the excluded provisions could not be resorted to for the purpose of computing business of exploration of mineral oil u/s 44BB. As in the case of CIT vs. Vantage International Management Co 2023 (11) TMI 90 - SC ORDER confirmed the stand of Hon ble High Court holding that reimbursement of service tax ought not to be included in aggregate of amounts specified in clauses (a) and (b) of Sec. 44BB(2) since it was not an amount received by assessee on account of services provided by them in prospecting, extraction or production of mineral oils. In our opinion, services tax as well as GST bear same character of receipts. We also find that the assessment clearly accepts the income computed by the assessee u/s 44BB. Therefore, this plea does not render any assistance to the case of the revenue. For the aforesaid reasons, the impugned disallowance stands deleted. Decided in favour of assessee.

Issues Involved:

1. Applicability of Section 40(a)(i) disallowance concerning payments made to a non-resident entity.
2. Interpretation and application of Section 44BB of the Income Tax Act.
3. Determination of tax liability for payments made to a non-resident entity under the India-Singapore Double Taxation Avoidance Agreement (DTAA).
4. Applicability of Section 195 regarding tax deduction at source for payments made outside India.
5. Consideration of GST in computing income under Section 44BB.

Issue-wise Analysis:

1. Applicability of Section 40(a)(i) Disallowance:

The primary grievance of the assessee was the confirmation of disallowance under Section 40(a)(i) for non-deduction of tax at source on payments made to a non-resident entity, DDPL. The assessee argued that the provisions of Section 40(a)(i) were not applicable as the income was offered on a presumptive basis under Section 44BB. The tribunal noted that the provisions of Section 44BB, which start with a non-obstante clause, exclude the application of other provisions, including Section 40(a)(i). Therefore, the disallowance under Section 40(a)(i) was not warranted.

2. Interpretation and Application of Section 44BB:

The assessee, a non-resident company, filed its return under Section 44BB, offering income on a presumptive basis at 10% of gross receipts. The tribunal emphasized that Section 44BB provides a complete code for computing income from the business of exploration of mineral oils for non-residents, to the exclusion of Sections 28 to 41, 43, and 43A. It was held that the impugned transactions between two non-residents outside India fell within the ambit of Section 44BB, and thus, the disallowance was not applicable.

3. Tax Liability under India-Singapore DTAA:

The tribunal examined whether the payments made to DDPL were liable to tax in India under the India-Singapore DTAA. It was found that DDPL did not have a permanent establishment in India, and hence, its income was not taxable in India as business profits. The tribunal relied on previous decisions, including those in the assessee's own case, which supported the view that such payments were not taxable in India under the DTAA.

4. Applicability of Section 195:

The tribunal addressed the applicability of Section 195 regarding tax deduction at source for payments made outside India. It was argued that Section 195 applies only if the sum is chargeable to tax in India. Since the payments to DDPL were made outside India and were not chargeable to tax in India, the provisions of Section 195 were not applicable. The tribunal supported this view by referencing judicial precedents, including decisions from the Hon'ble Supreme Court.

5. Consideration of GST in Computing Income under Section 44BB:

The revenue contended that the assessee had disclosed a lower rate of profit by netting its income after deducting GST. However, the tribunal rejected this argument, citing the decision in CIT vs. Vantage International Management Co., where it was held that service tax (and by extension, GST) should not be included in the aggregate amounts specified under Section 44BB(2). The tribunal concluded that the assessment accepted the income computed by the assessee under Section 44BB, and therefore, the disallowance was not justified.

Conclusion:

The tribunal allowed the appeal filed by the assessee, setting aside the orders of the lower authorities and deleting the addition made by the Assessing Officer. The connected stay application was dismissed as infructuous. The judgment reaffirmed the applicability of Section 44BB and the non-applicability of Sections 40(a)(i) and 195 in the context of the specific facts and circumstances of the case.

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