2005 (12) TMI 62 - HC - Income Tax

Companies (Profits) Surtax Act, 1964 - Whether, on the facts and in the circumstances of the case, the learned Income-tax Appellate Tribunal was legally correct to hold that the assessee was not liable to surtax under the Companies (Profits) Surtax Act, 1964, by virtue of exemption available under Notification No. G.S.R. 307(E), dated March 31, 1983 (see 1983 142 ITR (St.) 88), issued under section 24AA of the Companies (Profits) Surtax Act, 1964? - the assessee is not a company as referred in section 24AA(2)(a) of the Act, hence, the assessee is not entitled for the exemption as claimed on the basis of the said notification - judgments of the Income-tax Appellate Tribunal as well as of the Income-tax Commissioner (Appeals) are hereby set aside and the judgment of the assessing authority is upheld

Summary

Issues:
1. Interpretation of Notification No. G.S.R. 307(E) dated March 31, 1983 for exemption from surtax under the Companies (Profits) Surtax Act, 1964.
2. Determination of applicability of exemption under section 24AA of the Act for foreign companies involved in contracts with O.N.G.C.
3. Analysis of distinction between work contract and service contract under section 24AA of the Act.

Analysis:
1. The case involved an income-tax appeal regarding the liability of the assessee for surtax under the Companies (Profits) Surtax Act, 1964, based on the exemption provided in Notification No. G.S.R. 307(E), dated March 31, 1983. The Tribunal held that the assessee, a non-resident company executing contracts with O.N.G.C., was not liable for surtax under the Act due to the exemption specified in the said notification.

2. The dispute centered around the interpretation of section 24AA of the Act and Notification No. G.S.R. 307(E), dated March 31, 1983. The assessing authority concluded that the assessee did not qualify for exemption under the notification as their contract with O.N.G.C. was deemed a service contract, not a works contract related to the prospecting for or extraction of mineral oils. The Commissioner (Appeals) and the Income-tax Appellate Tribunal upheld the assessee's exemption claim based on the earlier decision and clarification from O.N.G.C. regarding the exemption for foreign contractors.

3. Section 24AA of the Act outlines two categories of foreign companies eligible for exemption from surtax. Clause (a) refers to companies involved in works contracts related to mineral oils, while clause (b) pertains to companies providing services or facilities in connection with such contracts. The notification dated March 31, 1983, specifically exempts foreign companies engaged in the prospecting for or extraction of mineral oils. The distinction between work contracts and service contracts is crucial, as the notification only covers companies falling under section 24AA(2)(a) of the Act.

In conclusion, the court upheld the assessing authority's decision, ruling that the assessee did not qualify for exemption under Notification No. G.S.R. 307(E) dated March 31, 1983, as their contract with O.N.G.C. was classified as a service contract, not meeting the criteria specified for exemption under section 24AA of the Act. The judgment favored the Revenue, setting aside the decisions of the Income-tax Appellate Tribunal and the Income-tax Commissioner (Appeals).