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TMI Blog2001 (8) TMI 1391X X X X Extracts X X X X X X X X Extracts X X X X ..... nd MDL had entered into main contract with Oil Natural Gas Commission (hereinafter referred to as ONGC). Under the said sub-contracts, HHI and MDL were obliged to discharge corporate tax liability of the assessee, if any, under their respective sub-contracts. The main installation and other activities were carried out outside the territorial waters of India but in the Exclusive Economic Zone and Continental Shelf of India. The Government of India had issued a Notification bearing No. 304(E) [5147 F. No. 133(7)/82-TPL], dated 31-3-1983, extending the provisions of IT Act, 1961 (hereinafter referred to as Act) and the Companies (Profits) Surtax Act, 1964 to the Exclusive Economic Zone and Continental Shelf of India with effect from 1-4-1983. 3. The original return of income was filed on 30-6-1986 declaring an income of ₹ 71.15 lakhs. This return of income was treated as filed under section 139(4) of the Act on the ground that this was filed beyond the stipulated time under section 139(1) of the Act. The assessee, however, submitted before the CIT(A) that the Assessing Officer has not taken into account the fact that the extension of time for submission of tax return in For ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ental Shelf of India and Exclusive Economic Zone of India with effect from 1-4-1983. Under this Notification, Provisions of Income-tax Act would apply only in respect of income derived from all or any of the following activities : (a)The prospecting for or extraction or production of mineral oils in the Continental Shelf of India or Exclusive Economic Zone of India. (b)The provision of any services or facilities for supply of any ship, aircraft, machinery or plant (whether by way of sale or hire) in connection with any activities referred to in clause (a) or clause (b). It was also argued that the activities of the assessee non-resident com- pany in respect of the above two contracts are not in the nature of any of the categories specified in the abovesaid Notification. Therefore, the assessee non-resident company cannot be brought to tax on income received on account of the above two contracts. It was also submitted before the Assessing Officer that the said Notification was applicable to those assessees who are engaged in the exploration for production of mineral oil and those who are engaged in providing services and/ or facilities to those who are engaged in exploratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... age-7 of the compilation). The learned counsel referred to the Notification issued by the Government of India and contended that the Notification was not applicable to the assessee company as the assessee company was carrying on the work assigned to them by the main contractors and no services were rendered directly by the assessee company to ONGC. Therefore according to him, clauses (A) (B) of the Notification were not applicable to the assessee company. The learned counsel argued that the extraction was done by ONGC. The assessee also did not supply any services or facilities or any ship, aircraft, machinery or plant in connection with prospec- ting for or extraction or production of mineral oils in the Continental Shelf of India or the Exclusive Economic Zone of India. The learned counsel further stated that clause (C) of the Notification applies only to the individuals. Therefore, all the three clauses (A), (B) and (C) of the Notification are not applicable to the assessee company. He argued that the Notification was not applicable to the assessee company because it was only a sub-contractor. He contended that the Notification was applicable only to contractors and not to sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... achieve either of the three activities. He finally contended that the Notification does not apply to any of the activities carried on by the assessee. He also contended that the sub- contractor who was only assisting the main contractor in its engineering, transportation, installation of platforms, raisers, pipe-laying and testing services etc., cannot be held to have any connection with the three activities. He also contended that the Notification needs to be given its plain meaning especially when there is no ambiguity in it. He contended that Legislature by this Notification has extended the applicability of the Income-tax Act to the territorial waters of Bombay High, therefore, it is absolutely must for the courts to give strict interpretation. He pleaded that the courts have been insistent that the statutes should be given their plain meaning and it is not the duty of the courts to assume or add or remove any word therefrom and give their own interpretation. The learned counsel also argued that the term ';derived from'; mentioned in the Notification is having a very restricted meaning. In the present case, the assessee had not derived income directly from the activity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee are covered by the said Notification issued by the Government of India. The learned DR specifically invited our attention to page-13 of the compilation. Para 7.2 of Appendix-E pertains to ';Pipeline Crossings'; which reads as follows : The work consists of building a standard vertical separation frame at the point where two pipelines intersect. MICOPERI will build pipeline crossings in accordance with the relevant specifications, in the following positions. All required materials such as sand bags, marker etc., as per ONGC specifications will be provided by MICOPERI. Prior to installing the sand bags, marker etc., MICOPERI shall perform the sea bottom visual inspection with divers of crossings at his care and cost. Thus, the learned DR argued that the services were being rendered by the assessee directly to ONGC though it was appointed as sub-contractor by HHI. Therefore, the services rendered by the assessee are covered by the aforesaid Notification of the Government of India. Whether the work falls under the Notification or under section 44BB of the Act, the learned DR invited our attention to the decision of the Delhi Bench of the Tribunal in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ication and by extending Income-tax Act to the activities in the Bombay High. Since the Government of India was aware of the process involved such as construction of platforms, oil rigs, laying of pipeline, their installation, testing, commissioning followed by either of the three activities and also of the process and support that were necessary for carrying out the three activities and since the ownership of the activities were vested on the Government of India, it had clearly spelt out that the Notification would cover the income derived from the three activities and from the services or facilities provided in connection with those three activities. Therefore, the intention being so clear to hold that the services and facilities provided in connection with the activities is to cover post construction works only would defeat the very intention. The intention in the present case is to engulf into the tax net, the income derived from prospecting, extraction and production of mineral oil and natural gas and income derived in the rendering of services or provisions of facilities that include supply of ship, air craft, plant and machinery in connection with all the three activit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (supra) as the same perhaps was not brought to the notice of the Tribunal though the same was available at the relevant time. He also respectfully differed with the findings of the Tribunal that To execute a special work does not tantamount to providing services . The learned DR further argued that section 44BB is a special provision. He referred to the case of Dy. CIT v. Geoservices Eastern Inc. (1995) 55 ITD 227of Bombay Tribunal wherein the Tribunal has brought out the intention of the Legislature on pages 231 and 232. He also referred to clause 11 of Notes on Clauses of Finance Bill, 1987, 165 ITR 125(St.). The clause 11 pertains to the insertion of a new section 44BB in the Income-tax which reads as follows : Under the proposed provision, the income of an assessee engaged in the business of providing services and facilities in connection with or supplying plant and machinery on hire used or to be used in the exploration for and exploitation of mineral oils will be determined at 10 per cent of the aggregate of certain amounts. The amounts in respect of which the provisions will apply would be amounts paid or payable to the assessee or to any person on his behalf whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 44BBA. The learned DR thus contended that the assessee in the present case had rendered services for extracting mineral oil from the sea bed by laying down the platforms, pipelines and other services mentioned in the agreement. The fact remains that the services had been rendered though as a sub-contractor for prospecting for or extraction or production of mineral oil. Therefore, the case of the assessee is covered by the aforesaid Notification and the provisions of section 44BB of the Act. 9. The learned counsel for the assessee in rejoinder contended that what is binding is the ratio of the judgment and not the conclusion at the bottom. He thus argued that the cases relied upon by the learned DR of McDermott International Inc. (supra) and Lloyd Helicopter International Pty. Ltd. (supra) are not applicable to the facts of the present case. He contended that providing services is different from execution of services. In this connection, he referred to the provisions of sections 194J and 194C of the Act wherein two different nature of works are mentioned which are statutorily recognised. According to him, in the case of McDermott International Inc. (supra), this issue had not b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... similar to the provision in section 80HHB(1)(b) and therefore, it should be held that the Notification is intended to cover only the main contractors. He contended that the interpretation has to be given their logical application by appreciating their meaning and by that process, it is only logical to exclude the application of Notification to sub-contractors. He pleaded that the Apex Court in the case of Mrs. Bacha F. Guzdar (supra) held that though the company may derive income from agriculture but the dividend received by its shareholders is not agricultural income. He thus contended that the meaning of a word has to be given its true meaning by carrying it to its logical consideration. Similarly, the learned counsel also referred to the case of CIT v. Sir Kamleshwar Singh (1935) 3 ITR 305(PC) wherein the court held Agricultural income is excluded altogether from the scope of the Act. The exemption is conferred indelibly on a particular kind of income and does not depend upon the character of the receipts. Such income does not be assessable as business profits mainly because it is received by the assessee, not as an ordinary landlord or proprietor, but as a part of the income, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Zone of India. The stated activities are prospecting for or extraction or production of mineral oils, the provision of any services or facilities or supply of ship, aircraft, machinery or plant (whether by way of sale or hire) in connection with any activities namely, prospecting for or extraction or production of mineral oils. The prospecting for or extraction or production of mineral oil or natural gas in the high seas requires digging of deep sea wells and their construction followed by laying of pipelines for drawing of mineral oil or natural gas and other engineering constructions like platforms and many other ancillaries related thereto. These structure are basic infrastructure required without which carrying out any of the three activities described by the Notification is not possible. These construction works form the foundation for enabling the carrying out of the three activities and are directly connected with those activities. 11. In the present case, the assessee entered into two agreements with HHI and MDL for transportation, installation and hook-up of certain platforms at Bombay High offshore. The various other services rendered by the assessee are mentioned in d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the courts is only to expound and not to legislate is a fundamental rule. The first and primary rule is that the intention of the Legislature must be found in the words used by the Legislature itself. The second rule of construction is that the intention of the Legislature must be found by reading the statute as a whole. Every clause of statute should be construed with reference to the context and other clauses of the Act so as, as far as possible to make a consistent enactment of the whole statute or series of statutes relating to the subject matter. The third rule of construction is that a statute or any enacting provision therein must be so construed as to make it effective and operative. The fourth main rule of interpretation of a statute is that when the words of the statute are clear, plain or unambiguous that is they are reasonably susceptible to only one meaning, the courts are bound to give effect to that meaning irrespective of consequences. The fifth rule of interpretation is the rule of appraisal of the principle. It may look somewhat paradoxical that the plain meaning rule is not plain and requires some explanation. The rule that plain words require no constructio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by every person from all or any of the activities mentioned in clauses A, B and C. Clause-B applies to the provision of any services or facilities or supply of any ship, air-craft, machinery and plant in connection with the activities referred to in clause-A. In the present case, the services and facilities had been rendered in transportation of WIN platform jacket from HHI shipyard quay at Ulsan (South Korea) to ONGC installation site in Bombay High offshore, Bombay, installation of the jacket, installation of four pipeline crossings and number of other activities mentioned in the agreements entered by the assessee with HHI and MDL. Therefore, the intention being so clear, to hold that services and facilities provided by the assessee in connection with the activities mentioned in the Notification are not covered in the case of the assessee would defeat the very purpose of issue of Notification by the Government of India. The intention of the Government for issuing this Notification was to engulf into the tax net, the income derived from prospecting, extraction or production of mineral oil and the income derived in the rendering of services or provision of facilities that includ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not intended to cover the income derived by any person from all or any of the activity carried out within the Continental Shelf or Exclusive Economic Zone of India which does not involve prospecting for or extraction or production of mineral oil or rendering services or provision of any facility in connection with the three activities. Another rule of interpretation of tax statutes is that when the words of statute are clear or unambiguous that is they are reasonably susceptible to one meaning only, the courts are bound to give affect to that meaning irrespective of the consequences. The literal meaning of the word ';connected'; being related to or linked to the services and facilities provided in connection with the three activities cover the sub-contractor also. It was not possible to carry out the activities of prospecting etc., without the services rendered by the sub-contractor. There is no ambiguity in the language used in the Notification and it plainly speaks about the services rendered for the achievement of prospecting, extraction or production of mineral oil. Another rule of construction is that statute or any enacting provision therein must be so construed as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is derived from the investment made in the shares by the company and the foundation of it rests on the contractual relations between the company and the shareholders. The dividend is not derived by a shareholder by his direct relationship with the land. There can be no doubt that the initial source which has produced the revenue is land used for agricultural purpose but to give to the words ';revenue derived from land'; the unrestricted meaning apart from its direct association or relation with the land would be quite unwarranted. For agriculture income, agriculture operation is an integrated activity of basic operation followed by subsequent operations. The dividend income has not been earned by performing the agriculture operation on land. Hence, it cannot be said as agriculture income. But in the present case, the income has directly emanated from the extraction of mineral oil. But for the services rendered by the assessee, there would not have been any extraction or production of oil and natural gas. In the case of V.A. Vasumathi (supra), the Kerala High Court held that In computing capital gains, expenditure incurred wholly and exclusively in connection with the tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ternational Inc. (supra) services were provided but in the case of National Petroleum Construction Co. Ltd. (supra), the sub-contractors carried on the work for the main contractors and did not provide any services. Therefore, he contended that the assessee';s case is squarely covered with the case of National Petroleum Construction Co. Ltd. (supra) and the case of McDermott International Inc. (supra) is not applicable. The assessee was only a sub-contractor to HHI and MDL and he did not provide any services directly to ONGC. The learned counsel placed his reliance on the case of Thane Electric Supply Ltd. (supra) to support his contention. He also referred to the case of CIT v. Mody Timblo (1994) 206 ITR 647 (Bom.), wherein the Bombay High Court has held The principle of diversion of income by overriding title is not applicable. It will not be proper to try to apply the principle of ejusdem generis to give the same restricted meaning to the newly introduced expression ';body of individuals'; as has been given by the Supreme Court to ';association of persons'; on the interpretation of the word association. The fact that both the expressions are placed under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the present case, services rendered by the assessee are closely linked with or related to the three activities. Therefore, the Notification covers all or any activities that involve rendering of any services or provision of any facility that assist or aid in prospecting for or extraction or production of mineral oil. But for the services rendered by the assessee, it would not have been possible to carry out either of the three activities. Therefore, there is a direct and close connection between the services rendered by the assessee and the three main activities. The facts of the present case are, therefore, exactly similar to the facts of the case McDermott International Inc. (supra). Therefore, there is no doubt about the application of the Notification to the facts of the present case. 17. The learned counsel also argued that the case of Lloyd Helicopter International Pty. Ltd. (supra) relied upon by the learned DR is not applicable to the facts of the present case. The learned counsel argued that in the aforesaid case, services were provided but in the case of the assessee, it was construction activity and not helicopter services. In the above case, the non-resident company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dering of services in connection with the prospecting, extraction or production of natural oil. In the aforesaid case of Lloyd Helicopter International Pty. Ltd. (supra) and in the assessee';s case, services have been rendered for prospecting, extraction or production of mineral oil. The assessee has rendered services by providing transport facilities, installation of platforms, raisers, laying of pipelines etc., and in the case of Lloyd Helicopter International Pty. Ltd., the services have been rendered for providing transport for the frequent conveyance of men and material to the actual work spots. Thus, both the companies have provided services for prospecting for or extraction or production of mineral oil. Therefore, both the cases i.e., McDermott International Inc. (supra) and Lloyd Helicopter International Pty. Ltd. (supra) are comparable and the case of the assessee is fully covered with the facts of the aforesaid cases. 18. The learned counsel also argued that the income has not been directly derived from the three activities mentioned in the Notification. According to him, the income earned by the assessee may be attributable to three activities but it has not been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ental. In our opinion, these facts of this case have no application to the facts of the present case. In the present case, there is a direct nexus between the income of the assessee and the prospecting of or extraction or production of mineral oil. The income has been ';derived from'; the three activities by rendering services which are directly connected with the prospecting of or extraction or production of mineral oil. There is no other source of income from which the assessee can say that the income has been ';derived from';. The only source of earning the income is prospecting of or extraction or production of mineral oil from which source the assessee has directly derived the income. In the case of Orissa State Warehousing Corpn. (supra) relied upon by the learned counsel, the Hon';ble Supreme Court held On a plain reading of section 10(29) of the Income-tax Act, 1961, it appears that the pre-requisite element for the entitlement as regards the claim for exemption is the income which is derived from letting out of godowns or warehouse for storage, processing or facilitating marketing of commodities and not otherwise. If the letting out of the godowns or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to the facts of the present case. In the present case, the income has been derived by the assessee directly from the three activities mentioned in the Notification. Therefore, the expression ';attributable to'; has no relevance to the income of the assessee. The expression ';attributable to'; is used only to cover income which has not been generated by direct sources or direct exploi-tation of the business assets. But in the present case, the income has been ';derived from'; the main business i.e., prospecting of or extraction or production of mineral oil by rendering services in connection with these three activities. In the case of Cambay Electric Supply Industries Co. Ltd. (supra), the Hon';ble Supreme Court has laid down that the balancing charge arising as a result of the sale of old machinery and buildings and worked out in accordance with section 41(2) irrespective of its real character has to be taken into account and included as income of the business for the purpose of computing the deduction of 8% under section 80E. The Supreme Court further held that the Legislature has directly used the expression ';attributable to'; having a wider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were accepted by the AAC. On further appeal, the Tribunal held that the words ';derived from the export of any goods'; referred to profit and gains directly connected with the export of goods and the savings effected by the assessee company on the import of palm oil which was utilised by it could not be treated as profit derived by it from the export of groundnut oil. On reference, Bombay High Court held that As far as income tax law is concerned, the word ';derived'; has been given a narrow meaning, a strict meaning by courts and has been understood in the restricted sense of a direct derivation and not understood in the broad sense as equivalent to derived directly or indirectly. In other words, only the proximate source has to be considered and not the sense to which it may ultimately be referable. Giving the word ';derived'; in section 2(5)(i) of the Finance (No. 2) Act, 1962, a meaning consistent with the restricted sense, the words ';derived from exports'; cannot be accepted as equivalent to ';referable to exports';. The construction to be put on a statutory provision cannot either be enlarged or restricted by the rules framed which ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Whenever the Legislature wanted to give a restricted meaning in the manner suggested, it had used the expression ';derived from';. In the present case, the Legislature has used the words ';derived from'; in the Notification to give it a restricted meaning because the income was to be brought to tax only if the same is derived from the only source of prospecting of or extraction or production of mineral oil. The assessee has derived income from the above three activities by rendering services in connection with such activities. Therefore, the direct source of income is from the three activities mentioned in the Notification. Similarly, in the case of Andaman Timber Industry Ltd. (supra), the Calcutta High Court has again interpreted the expressions ';attributable to'; and ';derived from';. The court also held that for the purpose of deduction under section 80HH in the case of a new industrial undertaking in backward areas, the profits should be derived from industrial undertaking. In this case, the transport subsidy was received from the Government. Therefore, the court held that the subsidies received are not the profits ';derived from'; ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o bring into tax only that portion of profits which are attributable to the Permanent Establishment (hereinafter referred to as the PE) in India. 20. The Assessing Officer in his assessment order has stated that the assessee non-resident company had an office for the contracts between the assessee non-resident company and M/s. MDL and also M/s. HHI. According to him, the assessee company had an office in India and the address shown is as under : M/s. Micoperi SpA 819/820, Tulsiani Chambers, Nariman Point, Mumbai-21 Thus, it is stated that the assessee non-resident company had maintained an office in India during the accounting year relevant to the assessment year under consideration. The Assessing Officer has further supported his findings by stating that the accounts filed by the assessee with him also indicated the various heads of expenses which have been paid by the assessee and charged to the profit and loss account out of the rupee payments from India project office on account of postage, telephone, telex etc. The Assessing Officer has further stated that the definition of the term ';Permanent Establishment'; is an inclusive definition and the same is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate in which the PE is situated or elsewhere. He also contended that only that portion of the profits which are attributable to the PE in India and not the entire profits should be worked out. The learned DR relied on the findings of the authorities below. 22. We have considered the submissions made by the rival parties. We have also gone through the Article 5 and Article 7 of the Indo-Italy Tax Treaty. As per Article 5 of the Treaty, the PE means a fixed place of business in which the business of the enterprise is wholly or partly carried on. The term as Permanent Establishment shall include especially : (a)A place of management (b)A branch (c)An office (d)A factory (e)A workshop (f)Premises used as a sales outlet or for reviving or soliciting orders (g)A mine, quarry or other places of extraction of natural resources (h) A building site or construction, installation or assembly project or supervisory activities in connection therewith, where such site, project or supervisory activity in continuous for a period of more than three months. Clause 1 of Article 7 of the Treaty reads as follows : The profits of an enterprise of a contracting state shal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s stated that the assessee non-resident company has made the claim of expenses incurred for the PE in India as provided in Article 7 of the Tax Treaty. Therefore, the assessee company was required to produce books of account so that the genuineness of expenses could be verified. According to the Assessing Officer, no such books were produced. It was contended on behalf of the assessee that the books of account relating to dollar payments were maintained in Italy, the Head Office of the Company and the only thing that could be produced was the photocopy of the vouchers of the receipts and expenditure. It was further contended that books of account relating to rupee payments portion were only maintained in India which were in the nature of ledger and cash book. The assessee produced the books of account relating to Indian project for both the contracts. The Assessing Officer further stated that the representative of the assessee denied maintaining any books of account in India for dollar portion of payment. Thus according to the Assessing Officer, the genuineness of the expenses relating to the PE in India could not be verified. The Assessing Officer further observed that the represe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll the expenses were audited by the Italian Chartered Accountants and the payments had also been genuinely made. The learned DR, however, supported the findings of the lower authorities and contended that the Assessing Officer is empowered to determine taxable income of the assessee as per the provisions of law if the books of account and other documents are not produced before him. The Assessing Officer is to satisfy himself whether the expenses claimed are genuine and whether such expenses had actually been incurred for the purpose of business of the assessee. 26. We have considered the submissions made by the rival parties. A tax payer is obliged to give any information that may be required by the officers of the Income-tax Department not only in matters relating to his own assessments but that of others. Nagpur High Court in the case of Tejmal Bhojraj v. CIT (1952) 22 ITR 208held that The ITO is the sole judge to decide which books are required to be produced. The assessee cannot take the stand that some of the books called for were not really required and that the assessment could have been made without those books. Article 7 of DTAA between India and Italy relates to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduced therefrom. The Hon';ble Supreme Court in the case of CIT v. British Paints India Ltd. (1991) 188 ITR 44has laid down that It is incorrect to say that the Officer is bound to accept the system of account regularly employed by the assessee, the correctness of which had not been questioned in the past. There is no estoppel in these matters and the Officer is not bound by the method followed in the earlier years. Further, in the case of CIT v. McMillan Co. (1958) 33 ITR 182(SC), the Apex Court held that The words in the opinion of the ITO are not to be construed in the sense of mere discretionary power, but in the context of the words used in section 145, they impose a statutory duty on the ITO to examine in every case, the method of accounting and to see (i) whether or not it is regularly employed and (ii) to determine whether the income, profits and gains can properly be deduced therefrom. In the present case, the Assessing Officer called for the books of account relating to dollar payments which are maintained in Italy. The assessee could not produce the books of account, instead produced some photocopies of the vouchers of the receipts and expenses. The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of expenses (furnished by your appellants) which he found were ';voluminous'; in nature. 28. The Assessing Officer in his order has stated that the books of account pertaining to the dollar payments were maintained in Italy, head office of the company. The assessee company did not produce the original books of account but produced only copies of the vouchers pertaining to receipts and expenditure. The assessee, however, produced the books of account relating to Indian projects for both the contracts. Under the circumstances, the Assessing Officer came to the conclusion that the genuineness of the expenses relating to the PE in India could not be verified. It has also been pointed out by the Assessing Officer that the assessee company also did not make any compliance with the provisions of section 44AB of the Act which was obligatory on the part of the assessee to get its books of account audited relating to the Indian project as the gross turnover of the assessee company exceeded the amount statutorily fixed under the law. As the assessee could not produce the audited books of account pertaining to the Indian projects, the Assessing Officer applied the provisions of se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The learned DR, however, contended that there was a PE in India as has been pointed out by the Assessing Officer in his order. He also pointed out that the period for the works carried out as per contract with MDL is from 29-3-1984 to 9-11-1984 as per the invoices issued for the work as per pages 77 to 79 of the compilation. Therefore, the period is more than 8 months and not less than 71 days as has been stated by the learned counsel. Therefore, the assessee company was having PE in India. The learned counsel, however, contended that ';heading'; is relevant for determining the period and not the contents given therein. According to him, the heading pertain to the period from 20-3-1984 to 29-5-1984, therefore, the contract is only for 71 days. The learned counsel also contended that the Italian books of account were audited by Italian Chartered Accountants and the assessee company was also willing to produce such books of account before the Assessing Officer as mentioned in their letter dated 10-1-1991 addressed to DCIT, Special Range 26, Bombay (compilation pages 94 95). 30. We have carefully considered the submissions made by the rival parties. The books of account m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that the account in respect of Indian project were verifiable and the books of account duly audited by the Price Water House were also available. But the CIT(A) has further clarified that in respect of dollar payments, the work relating to outside India, the audited accounts were produced before the Assessing Officer but the Assessing Officer in his order has clearly mentioned that the representative of the non-resident assessee company, M/s. Price Water House has only audited the accounts relating to rupee portion of payment and their report regarding dollar payments is only based on the photocopy of the balance sheet produced by the assessee company of their auditors in Italy. Indian auditors has not actually examined the books of account and original vouchers of the assessee company pertaining to the dollar payments. The CIT(A) has made reference to these findings of the Assessing Officer and concluded that the Assessing Officer has correctly resorted to the provisions of Rule 10 of the IT Rules and also the provision of section 44BB. The term PE as mentioned in Article 5 of the Tax Treaty between India and Italy would be relevant only if the profits are to be determined as pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade any compliance with the provisions of section 44AB of the Act which was obligatory on the part of the assessee to get the accounts audited relating to Indian projects as the gross turnover of the assessee company exceeded the amount statutorily fixed by the law. Therefore, it was not possible to determine the taxable income under the DTAA. Therefore, the Assessing Officer applied the provisions of Rule 10 of the IT Rules and the provisions of section 44BB of the Act for the determination of taxable income of the assessee. Under the circumstances, we do not find any infirmity with the findings of the learned CIT(A) and the same are confirmed. 31. The fifth ground of appeal taken up by the assessee reads as follows : (i)The CIT(A) has erred in law and on facts in not directing the DC to take cognizance of the ';voluminous'; details/information and explanations offered by your appellants in respect of the following expenses : Details US $ (a)Payments to sub-contractors 1,24,15,784 (b)Materials spare parts consumed 12,95,780 (c)Proje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f relevant details. The assessee could file only the copies of various vouchers. Under the circumstances, the Assessing Officer concluded that application of the provision of section 44BB were inevitable and the provision of DTAA cannot be made applicable. The learned CIT(A) supported the findings of the Assessing Officer. 33. At the time of hearing, the learned counsel for the assessee contended that the details of the various expenses incurred outside were made available to the Assessing Officer. The Assessing Officer did not verify the details and resorted to the provisions of section 44BB. He also argued that as per the provisions of section 90 of the IT Act, Tax Treaty must be implemented. The learned DR, however, contended that where there is no conflict between the DTAA and the IT Act, the IT Act would have preference because of special provisions of section 44BB of the Act. 34. We have heard the rival parties. The learned counsel has argued that as per the Tax Treaty between India and Italy, profits attributable to the PE are to be taxed. In other words, the assessment is to be completed under the provisions of DTAA. We have already discussed in details in the aforesa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... age grossing up method as rightly adopted by the Assessing Officer because once the assessee receives the income net of tax then the correct taxable income can be arrived at only by multiple stage grossing up and further because this is a case of an agreement between two private parties and not between Government Companies as a result of which the concessional treatment as per ratio of the case relied upon also has no application. 36. We are taking up both the grounds together as the issue involved is similar. The Assessing Officer took up 10% of gross receipts as taxable income. In terms of agreement dated 5-12-1982 between the assessee company and M/s. HHI, the tax liability in respect of Indian corporate tax out of such sub-contracts was that of M/s. HHI. Since the tax liability was being borne by the persons other than one who received the income the Assessing Officer grossed up such tax perquisite on multiple stage basis under Rule 195A of the Act. The learned CIT(A) in his order has observed that the Assessing Officer has not pointed out in his order as to why multiple stage gross up method was resorted to. He also observed that the Assessing Officer in his earlier assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act under which any sum paid by the representative assessee in respect of any obligation which but for such payment would have been paid by the beneficiary is to be added to the income, the Tribunal was correct in upholding the grossing up of income by calculating tax on tax until zero difference was arrived at and not restricting the grossing up of income merely to the tax on the net amount. Similarly in the case of Asian Development Service (supra) relied upon by the learned DR, Kerala High Court held that In case of agreement between a resident and non- resident pursuant to which amounts were paid to the non-resident, if the contract provides that the tax liability, if any, in respect of amounts so paid to the non-resident is to be borne by the resident company, the amount of tax payable by the non-resident company has to be added to the income remitted to the non-resident and the tax liability of the non-resident should be determined with reference to the gross figure arrived at. The decision of the Andhra Pradesh High Court (supra) appears to be quite logical because as per the agreement, the tax has to be paid by the resident company and that amount has to be added to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the facts of this case and hearing both the parties, we find full justification in adopting the rate of 73.5%. The Assessing Officer has rightly not taken into consideration Article 25 of the Tax Treaty because the taxable income of the non-resident company has not been determined as per the provisions of the Tax Treaty. Therefore, the provisions of Article 25 of Tax Treaty would not be applicable in this case. The Assessing Officer resorted to the provisions of section 44BB of the Act and determined the taxable income of the assessee by applying Rule 10 of the IT Rules because the assessee failed to produce the books of account, as discussed earlier. Therefore, resorting to the provisions of section 44BB, the Assessing Officer has been quite reasonable. Once the provisions of section 44BB have been applied, the tax rates have to be determined accordingly. Section 44BB is specific and states that in the case of a non-resident company, 10% of gross receipts would be taken as taxable income. Therefore, the tax rate to be applied in the assessee';s case has to be the same as in the case of other non-resident companies governed by the provisions of section 44BB. Therefore, the As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer to exclude the receipts pertaining to the activities carried out outside India such as mobilisation/demobilisation costs etc., while computing the gross receipts under section 44BB. The learned DR contended that the assessee company has received the amounts by hiring their machinery and plant for the prospecting of or extraction or production of mineral oil, as stated in clause (B) of the Notification issued by the Government of India. Therefore, the income is covered under the Notification and the same has been derived from the three activities mentioned in the Notification. Therefore, he argued that the CIT(A) has wrongly directed the Assessing Officer to exclude these amounts from the gross receipts while computing the gross receipts under section 44BB. He also argued that the insurance amount received by the assessee company is also closely connected with the three activities mentioned in the Notification. Hence, the income is also squarely covered under the Notification. The learned counsel for the assessee, however, contended that the mobilisation/demobilisation costs have been paid by HHI to the assessee in order to enable the assessee to bring its DB Crawler Barge from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng of or extraction or production of mineral oil. Therefore, this income has also been derived by the assessee from the prospecting of or extraction or production of mineral oil in the continental shelf or exclusive economic zone of India. In our considered opinion, the Assessing Officer has, therefore, correctly included the receipts pertaining to the mobilisation/demobilisation and the insurance charges for the computation of the gross receipts under section 44BB of the Act. The directions given by the learned CIT(A) for taking 1% of the receipts as taxable in India under Instruction No. 1767 of the Board are also erroneous in view of our aforesaid findings that the receipts have to be included while computing the gross receipts under section 44BB. The findings of the learned CIT(A) are, therefore, set aside and that of the Assessing Officer are restored. 46. The learned counsel pleaded that the issue involved in the present case is squarely covered with the decision of the Bombay Tribunal in the case of National Petroleum Construction Co. Ltd. (supra). After considering the facts of the aforesaid case, we do not find any force in the arguments of the learned counsel. Firstly, ..... 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