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TMI Blog2012 (9) TMI 389X X X X Extracts X X X X X X X X Extracts X X X X ..... nits owned by two foreign companies, namely M/s. Frontier Drilling ASA, Bergen, Norway and M/s. Frontier Ice As, Bergan, Norway. The assessee was to pay the hire charges for the drilling units as Bare Boat charges and Ex-pat Crew charges. The assessee had deducted TDS @ 4.1 per cent of the Bare Boat charges. It was submitted that the 4.1 per cent was arrived at in the following manner. As per the provisions of section 44BB of the Income-tax Act, 1961 the income of the service provider was deemed to be 10 per cent of the aggregate amount and the rate of tax including surcharge came to nearly 41 per cent. Thus when the whole amount of the Bare Boat charges is considered as the income as done by the Assessing Officer, the TDS amount comes to 4.1 per cent. The learned authorised representative drew our attention to the provisions of section 44BB(1) and 44BB(2). It was the submission that as per the provisions of section 44BB(2) the recipient could claim to be taxed at a lower income. Maximum income that can be deemed on the recipient being a non-resident is 10 per cent as per section 44BB(1). He further drew our attention to the provisions of section 195 to submit that the words used w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayable to the non-resident. It was the submission that in the present case as per the provisions of section 44BB the maximum appropriated portion of income chargeable under the Act to the Norway companies was 10 per cent of the gross sum payable to the said two Norway companies and the assessee has deducted the TDS on the said sum of 10 per cent. It was the submission that consequently the action of the Assessing Officer in invoking the provisions of section 40(a)( i) for disallowing the payment made to the two Norway companies and the action of the learned CIT(A) in confirming the same was liable to be reversed. 4. In reply the learned DR submitted that the decision of the Hon'ble Supreme Court in the case of GE India Technology Centre (P.) Ltd. (supra) did not consider the provisions of section 44BB and the co-ordinate Bench of this Tribunal in the assessee's own case had considered the provisions of section 44BB to hold as follows in paragraph Nos. 24 to 27 : "24. We have considered the rival submissions carefully in the light of material available on record as well as decisions cited by both the parties. We agree with the first submission of the ld. DR that we are concerned i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee that there is no expression such as "existing assessee" used by the CIT(Appeals) by holding that provisions of section 44BB were applicable only in the case of existing assessees. In view of the legal situation which we have discussed, perhaps what the learned CIT(A) meant was applicability of these provisions could be examined only when somebody had filed return and was an existing assessee. Naturally applicability of this provision cannot be examined in a case of a person who has never filed any return because after all nature of business, nature of activities and other things require examination by the tax authorities. We are of the humble opinion that the overall scheme of the Act cannot be lost sight of. Sections 28 to 44DA deals with computation provisions under the head 'income from profits and gains of business or profession'. Whenever some income is assessable under that head, the same has to be computed in accordance with the Chapter IV i.e., sections 28 to 44DA. But Chapter XVII deals with collection and recovery of tax and Part A of this chapter consisting of sections190 and 191 are of general nature with regard to deduction at source and advance payment as wel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Chapter XVII-B has not been deducted, then such deduction cannot be allowed, even if expenditure was incurred for the purpose of business. Because of the wordings "in accordance with the provisions of Chapter XVII-B", the argument of the learned senior counsel of the assessee that this provision will not be applicable if it is a case of only short deduction in view of the decision of P.V. Rajagopal & Ors. v. UOI (supra), does not carry any weight because it was observed in that decision that section 201 was a penal provision and therefore the provision has to be construed strictly, whereas section 40(a)( i) is not a penal provision and therefore the ratio of the decision cannot be made applicable to the case before us. In any case, section 40(a)( i) very clearly uses the expression "in accordance with the other provisions of Chapter XVII-B". which would include section 201 also and would include the expression "the whole or any part of the tax", which has been inserted in section 201 by the Finance Act, 2001 with retrospective effect from 1st April, 1962. Therefore, whatever may be the impact of the absence of the expression "the whole or any part of the tax" in section 40(a )(i), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under this Act (other than salary) to a non-resident considers that the whole of such sum would not be income chargeable in the case of the recipient, he may make an application to the Assessing Officer to determine by general or special order, the appropriate proportion of such sum, so chargeable, and upon such determination, tax shall be deducted under sub-section (1) only on that proportion of the sum which is so chargeable. (3) Subject to rules made under sub-section (5), any person entitled to receive any interest or other sum on which income-tax has to be deducted under sub-section (1) may make an application in the prescribed form to the Assessing Officer for the grant of a certificate authorizing him to receive such interest or other sum without deduction of tax under that sub-section; and where any such certificate is granted, every person responsible for paying such interest or other sum to the person to whom such certificate is granted shall, so long as the certificate is in force, make payment of such interest or other sum without deducting tax thereon under sub-section (1)." The above provision clearly shows that any person responsible for making payment to non-resi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mentioned about this circular in a cursory fashion and the same was not produced before us, so we are not going in detail. But suffice it to say that there can be situations which can be generalized and the proportion of the sum can be determined on general basis. In all other situations, where "appropriate proportion" is required to be determined the assessee has to go before the taxing authorities and get such "appropriate proportion" of the same on which tax is to be deducted, determined and accordingly deduct tax. Therefore, wherever a general situation exists a general order is passed by the Department in the form of circular etc. No such circular has been issued by the CBDT, which means such parties must apply under section 195(2) for special order so as to get the "appropriate proportion" determined. Also the words "appropriate proportion" is significant. If the payer of such sum was to decide the proportion of amount which was chargeable, then there was no need to use the words "appropriate proportion". The use of these words clearly suggests that somebody needs to determine such appropriate proportion after considering all the facts and circumstances of the case. Naturall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the non-resident, where is the question that the assessee is to deduct TDS at a lower rate after the assessment has been done on the non-resident? Section 44BB is a special provision as it is mentioned in the cause title to the said provision itself. As per the provisions of section 44BB(1) a sum equal to 10 per cent of the aggregate of the amount specified in sub-section (2) is deemed to be the profits and gains of such business chargeable to tax under the head "profits and gains of business or profession". It is because the provision of section 44BB has quantified the deemed income of the non-resident assessee at 10 per cent, it has opened with the clause "Notwithstanding anything to the contrary" contained in sections 28 to 41 and sections 43 and 43A. The aggregate amounts are quantified in sub-section (2) of section 44BB to be the amount paid or payable, received or deemed to be received etc. As per the sub-section (3) of section 44BB the non-resident can claim a lower profit. It is for the purpose of claiming lower profits that the non-resident must file a return and prove the same with support of his regular books of account and other documents and by complying with other co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cision 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 gross amount if such payment included in it an amount which was exigible to tax in India. This is not so in the present case. Here on account of the special provisions of section 44BB, 10 per cent of the gross amount payable to the non-residents deemed as the income chargeable to tax in India. In the present case it is noticed that the assessee has deducted tax at the specified rate on the 10 per cent of the Bare Boat charges paid to the Norway company who is the non-resident, computed as per the provisions of section 44BB. In the circumstances, we are of the view that there is no violation of the provisions of section 195 in the assessee's case which calls for a disallowance by invoking the provisions of section 40(a)( i) of the Act. In the circumstances, the finding of the learned CIT(A) and that of the Assessing Officer stands reversed. 7. We may also mention here that we are not in agreement with the submission of the learned authorised representative that the provisions of section 40(a)( i) postulates an absolute failure and no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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