9911796707
TMI Blog1990 (6) TMI 97X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessment of this assessee was made by Shri Prem Verma, inspecting Asstt. Commissioner of Income-tax (Asstt.), Dehradun vide assessment order dated 24-1-1986. The assessee-company was engaged by the Oil Natural Gas Commission (ONGC for short) for installation and commissioning of an offshore drilling and production complex on turnkey basis at the Bombay High area. It was contended before the assessing officer that since, the works were executed by the assessee beyond the territories of India, the Income-tax Act was not applicable to the assessee's income earned outside India. This contention was negatived by the assessing officer because of Notification No. GSR 304 (E) dated 31-3-1986 by which the Government in exercise of powers under the Territorial Waters Continental Shelf Exclusive Economic Zone and other Maritime Zones Act, 1976 extended the Income-tax Act to the Continental Shelf of India and to the Exclusive Economic Zone of India w.e.f. 1-4-1983. The assessing officer then computed the assessee's total income as below : " For the work executed by the foreign company, ONGC has paid a total sum of $ 10,779,235 to the foreign company during the previous year relevant t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annot be said to be erroneous. About the surtax it was stated that in view of section 44-BB no such perquisite can be added. It was also contended that surtax was not payable in these cases. It was also contended that appeals against the assessment orders have already been disposed of by the Commissioner of Income-tax (Appeals), Meerut and as such the assessment orders passed by the IAC(A) stand merged with the orders passed by the CIT(A) and, therefore, the Commissioner cannot revise the same under section 263. After hearing the assessees the Commission vide orders under appeal set aside the assessment orders directing the assessing officer to, (i) add the perquisite value of sur-tax; (ii) consider the profits arising from the foreign portion of the work under section 9(1)(i) of the Act; (iii) enquire about the mobilisation/demobilisation charges; (iv) grossing up of income for inclusion of the perquisite value of income-tax and sur-tax should be done in multiple stages as against the single stage of grossing up of income-tax resorted to by the assessing officer.The assessees are now in appeal before us. 5. During the hearing of the present appeals, the appellants moved an app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... did not raise the plea of applicability of the Income-tax Act. The assessee had preferred appeals before the CIT (Appeals) and according to its own showing in the quantum appeals the assessee had raised the same plea before the CIT(Appeals), who negatived the same and the learned counsel for the assessee told us this point is now pending decision of the Tribunal in the appeals arising out of the quantum assessments. The Commissioner initiated action under section 263 on limited issues and admittedly the assessee did not raise this plea before the Commissioner. Under Rule 11 of the Appellate Tribunal Rules, the appellant cannot urge any ground which was not set forth in the Memorandum of Appeal except by the leave of the Tribunal. Thus appellant has no vested right of raising an additional ground during the hearing of the appeal and the Tribunal has to decide in its judicial discretion whether to grant such leave or not. As stated above, the same point is pending determination by this Tribunal in other appeals preferred by the appellant. This point was not raised before the Commissioner and this Tribunal cannot set aside the assessment orders in the present appeals even if it holds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have offices nor accounts in India, is a difficult task and, therefore, on 24-12-1981 a meeting was held between the officers of the ONGC on the one hand and Commissioner, Meerut, assisted by IAC(Asst.), Dehradun, on the other. In this meeting it was decided that one stage grossing up is being accepted by the department and ONGC. A fixed percentage of 15 per cent of the receipts was also agreed to be treated as income of the foreign party. A copy of the minutes of the aforesaid meeting have been placed by the assessee at pages 28 to 31 of the paper book. It is in pursuance of the aforesaid understanding that in completing the assessment on 24-1-1986 the assessing officer determined the assessee's income at 15 per cent of the receipts and then added the income-tax perquisite on the basis of single stage grossing up. 10. Having stated the aforesaid facts let us now examine the various deficiencies relied upon by the learned Commissioner of Income-tax in holding the assessments to be erroneous and prejudicial to the Revenue. 11. As pointed out earlier the first defect found by the Commissioner was about the alleged perquisite value of sur-tax, which admittedly has not been taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... foreign contractors of the ONGC were exempted from payment of sur-tax. In our view, therefore, the failure of the assessing officer to add the alleged perquisite value of sur-tax was not an error and did not result in any prejudice to the Revenue. 12. The learned counsel for the Department contended that the ONGC had itself paid sur-tax on behalf of the foreign contractors and that the notification aforesaid was not brought to the notice of the Commissioner. In our view the failure on the part of the assessee to point out the notification to the Commissioner cannot justify the Commissioner's order. In our view, the Commissioner should have known about the notification better than the assessee. As regards the payment of sur-tax we were informed at the hearing that no assessment order has ever been made by the assessing officer levying sur-tax on these assessees. ONGC being a Government of India undertaking, its officers might have thought it safe to deposit sur-tax even without critically examining whether it was payable or not. But when the Commissioner was taking action under section 263 it was necessary for him to examine the issue properly and, in our view, he failed to do so. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee's contention is correct. The only point raised by the CIT in the notice issued to the assessee u/s 263 was that the sur-tax leviable on the foreign company was also payable by the ONGC and this tax perquisite was also to be added in the total income. There was no assertion in that notice that there should have been multiple grossing and even the perquisite value of income-tax was not correctly added. Therefore, the Commissioner's action in setting aside the assessment order on this point cannot be sustained. Further, even otherwise such a point was not available to the Commissioner because vide agreement dated 24-12-1981, the then Commissioner of Income-tax, Meerut and the ONGC had specifically agreed that one stage grossing up is being accepted by the Department and the ONGC. It was on the basis of this agreement that the assessing officer added the perquisite value of income-tax on single stage grossing up basis. The grossing up having been done in pursuance of the aforesaid agreement which the Commissioner had arrived at with the assessee's agent, the assessment order could not be said to be erroneous or prejudicial to the interest of Revenue. The successor Commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld that there could be no grossing up in respect of the perquisite value of the house accommodation. The learned counsel for the Department contended that this ruling permits multiple point grossing up. In our view, this is not so. At pages 27 and 28 of the Report Justice Ranganathan has given the necessary calculations which show that only single point grossing up was approved by the Hon'ble High Court. 17. In the case before us under the terms of agreement between the parties, ONGC was to bear all Indian corporate taxes levied or imposed on the contractor under the contract on account of payments received by it from the company (ONGC) for work done under the contract. Thus, payment of taxes by the ONGC would certainly be a perquisite which could in appropriate circumstances, be taxed under section 28(1)(iv) of the Act and the grossing up had to be to an amount that after the payment of taxes leviable on such grossed up amount, the net amount is equal to the income earned by the assessee. However, this would apply only in a case in which an assessee receives a net determined income in the form of salary or royalty. In the case before us firstly, there was an agreement that only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of tax. The payments to them were for goods supplied or services rendered and it was not known whether those assessees actually earned any income from those transactions and if so how much. Therefore, it cannot be argued that reading sections 44-BB and 195-A together, the income determined in the manner provided in section 44-BB can be grossed up with the help of section 195-A. We are, therefore, of the opinion that the income determined by the assessing officer on the basis of agreement was not liable in law to be grossed up and in any case by virtue of the agreement only single stage grossing up was permissible which the assessing officer had already done. Therefore, it cannot be said that in not resorting to multiple stage grossing, the assessing officer committed any error and the assessment order resulted in any prejudice to the Revenue. 18. We have pointed out above that ONGC that has to pay the taxes assessed on the foreign contractors, is a Government of India undertaking, the profit of which also goes to the Government revenue as dividend. Therefore, in dealing with the case of such an assessee, the Commissioner has to take a wider view of the concept of "revenue" and t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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