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TMI Blog2012 (9) TMI 285X X X X Extracts X X X X X X X X Extracts X X X X ..... led for as the rate of TDS applied was only 11.33 % instead of 33.99% on payments made to non-residents for services rendered in India. 4. The CIT(A) failed to note that Sec.44BB of the Act is attracted to the facts of the case and so the appropriate rate of tax would be only 3.399% whereas the appellant has deducted more tax at the rate of 11.33% which in anyway does not warrant any proportionate disallowance in the manner done by the Assessing officer. 5. The CIT(A)ought to have appreciated that the appellant had engaged the services of nine NRI's who are not liable to tax in India and the only issue relates to the rate of TDS to be applied. 6. The CIT(A) has not given due to weightage to the various arguments advanced by the assessee with regard to the scope of Sec. 44BB as applicable to business or profession. 7. The appellant craves leave to adduce additional grounds of appeal at the time of hearing." 3. The sole issue involved in the above grounds of appeal relates to disallowance of Rs. 61,19,632/- u/s 40(a)(i) towards consultancy charges/fee for technical services paid to non-resident individuals of Indian origin working in off-shore oil and gas exploration projects in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee. They are professionally qualified in the field of extraction or production of mineral oils etc in off-shore areas in international waters. Some of them have also done professional services outside India. The assessee further stated that the word 'business' is one of wide import and it means an activity carried on continuously and systematically by a person with a view to earn an income. All the non-residents to whom payments were made are engaged in the business of providing services whose income are chargeable to tax under the head 'profits and gains of business or profession'. The assessee further submitted that if the provisions of section 44BB are considered as inapplicable, then in absence of any exclusion of the categories of persons stated above, a beneficial interpretation of section 44BB was called for, since it is open to those non-resident to contend that they should be fastened with the rate of taxation which is lower than those falling in any of the provisions of Act, such as section 194J or 195. In view of this, provisions of section 40(a)(i) cannot be invoked to make any proportionate disallowance of the expenses incurred by assessee for there is no guideline ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayment made is a composite payment in which a certain proportion of payment has an element of income chargeable to tax in India. Hence, he supported the order of the Assessing Officer in making proportionate disallowance of expenditure for short deduction of tax at source by the assessee. 9. We have heard the rival submissions and perused the orders of the lower authorities and materials available on record. The issue before us is whether deduction of tax at source @ 11.33% in case of payments made to nine non-residents engaged in rendering services in connection with oil exploration business which are taxable under the Income-tax Act as per the provisions of section 44BB, is sufficient compliance of section 40(a)(i) of the Act or any disallowance out of such payment is warranted u/s 40(a)(i) of the Act. We find that the issue is decided by this Tribunal in the case of Frontier Offshore Exploration (India) Ltd vs DCIT, (2011) 10 Taxman.com 250 (Chennai) wherein the Tribunal, after taking into consideration the decision of the Hon'ble Supreme Court in the case of GE India Technology Centre Pvt. Ltd (supra) relied upon by the DR before us, has held as under: "6. ................ Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see cannot quantify the income of the non-resident. This is where the special provision of section 44BB comes into play. Where the statute has provided a special provision for dealing with a special type of income such a provision would exclude a general provision dealing with the income accruing or arising out of any business connection. This view of ours finds support from the decision of the Hon'ble jurisdictional High Court in the case of Copes Vulcan Inc., referred to supra. Section 44BB is a special provision to the exclusion of all the contrary provisions provided in sections 28 to 41 and 43 and 43A of the Act. Once the provisions of sections 28 to 41 and sections 43 & 43A stand excluded, the method of computing the business income of the non-resident on the basis of the books of account goes out of the picture. Then it is only the provisions of section 44AD, 44AE & 44AF which could be applied and the same obviously do not apply to the income of the non-resident companies. The Hon'ble Supreme Court while dealing with its own decision in the case of Transmission Corpn. of A.P. Ltd., (supra) has categorically explained that the tax was liable to be deducted by the payer of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er course for the assessee would be to make an application u/s 195(2) to the concerned Assessing Officer, in the absence of which the assessee ought to have deducted tax at 33.99%. 3. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT(A) may be set aside and that of the Assessing Officer restored." 12. The sole issue involved in the above grounds of appeal of the Revenue is that the CIT(A) erred in deleting the disallowance of Rs. 4,76,58,976/- u/s 40(a)(i) of the Act for non-deduction of tax on consultancy charges/fee for technical services paid to non-residents working in overseas off shore oil and gas exploration projects in Nigeria. 13. The brief facts of the case, as observed by the Assessing Officer, are that an amount of Rs. 10,22,97,112/- was claimed as consultancy fees paid by the assessee both to residents and to nonresidents. He also found that the taxes were not deducted for certain payments made to non-residents to the extent of Rs. 4,76,58,976/-. The Assessing Officer also observed that provisions of section 9(1)(vii)(b) exclude only the fees paid in respect of services utilized in a business carri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved Ahmed 15,88,000 Jayamanohar Daniel 5,35,305 J. Muthukumar 1,11,14,105 Naidu Bakam 10,83,000 Shasikanth 72,98,683 Umamaheshwar 1,11,42,080 4,76,58,976 19. The Assessing Officer observed that same issue had come up for consideration in assessment year 2007-08 and on appeal by the assessee in I.T.A.No. 527/09-10/A.III, Chennai, vide his order dated 28.9.2010, deleted the addition. He also observed that the CIT(A) placed reliance on the decision of Hon'ble Supreme Court in the case of GE India Technology Centre Pvt. Ltd vs CIT, 327 ITR 356 and observed that section 195(2) springs into action only when the payment to the recipient contains an element of income chargeable to tax in India. Since the sum is not chargeable to tax in India, the provisions of section 195(2) are not attracted and disallowance u/s 40(a)(i) would not arise. The Assessing Officer observed that objecting to the order of the CIT(A)-III, Chennai dated 28.9.2010 for assessment year 2007-08, the Department approached the Tribunal by way of an appeal and the issue has not attained finality. Therefore, he disallowed the payment of consultancy fees of Rs. 4,76,58,976/- by invoking the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r technical services payable by a resident shall be deemed to accrue or arise in India except where the fees are payable in respect of services utilized in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any sources outside India. As rightly observed by the Addl. CIT if the resident assessee utilizes the services of non-resident, in its business outside India, it is covered under the exception given in the section itself and the payment received by the non-resident cannot be deemed to accrue or arise in India. Having held so, he could not have pressed into service the mischief of section 40(a)(i) because the appellant did not make application u/s 195(2). For this he has relied on the decision of the Karnataka High Court in the case of Samsung Electronics (supra). However, the Hon'ble Supreme Court in its recent ruling in GE India Technology Centre Pvt. Ltd. v. CIT & Others in Civil Appeal Nos. 7541-4542 of 2010 dated 09.09.2010 held as under: "Section 195 uses the word 'payer' and not the word 'assessee'. The payer is not an assessee. The payer becomes an assessee-in-default only when he fails to fulfill the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ind that that the ACIT in his directions under Section 144A of the Act, had stated as under:- "S 9(1)(vii)(b) itself provides the exception. If the Resident assessee utilizes the services of the Non-resident, in its business outside India, it is covered under the exception given in the section itself and the payment received by the non-resident cannot be deemed to accrue or arise in India. Here, the assessee company, utilized the services of two nonresident in its business outside India, i.e. in Nigeria. Therefore, though assessee company has shown that the payments are directly related to the Nigerian project, the fact that the payments were made from India and not from Nigeria leaves some ambiguity in determining whether the exception provided to the non-resident on utilization of services outside India would directly apply to the said nonresident consultants and whether the income accrue to them in India or abroad, as section 9(1)(vii)(b) is a deeming provision." (emphasis supplied)". 17. It is clear from the above that the payments made by the assessee to non-resident consultants, were directly related to the Nigerian projects of the assessee. Assessee being engaged in cons ..... X X X X Extracts X X X X X X X X Extracts X X X X
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