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TMI Blog1994 (11) TMI 97X X X X Extracts X X X X X X X X Extracts X X X X ..... If the answer to question No. (i) is in the negative, whether the entire or ten per cent. of tax borne by Oil India Limited should be taken as income of the non-resident considering the provisions of section 44BB and other sections of the Income-tax Act, 1961 ? " The aforesaid two questions arise under the following circumstances. Nowsco Well Services Ltd., a non-resident firm, had entered into an agreement with Oil India Limited, in connection with mineral oil exploration activity in the Mahanadi basin. Under the contract, the Indian firm, namely, Messrs. Oil India Limited, had undertaken the liability to pay the income-tax which is otherwise payable by the non-resident firm. Messrs. Oil India Limited filed the necessary income-tax retur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id by the Indian firm towards the tax liability of the non-resident firm must be held to be a receipt in the hands of the non-resident and as such taxable, the stand of the assessee was that the entire amount is non-taxable by virtue of the application of section 44BB of the Act. The Tribunal, however, rejected the contention of the assessee and dismissed the cross-objection, but, allowed the appeal of the Department on a finding that the liability of income-tax of the non-resident is not payment for the services rendered by them for exploring oil, but it is an independent liability and, therefore, the entire amount should be considered as taxable income. The assessee thereafter moved the Tribunal under section 256(1) of the Income-tax Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would depend upon an examination of some provisions of the Income-tax Act as well as the terms and conditions of the agreement under which the Indian firm undertook the liability of making all payments towards income-tax for which the non-resident firm would have otherwise been liable and as to what would be the character of such payment. Learned standing counsel, with reference to the definition of " income " in section 2(24) and the charging section under section 5 as well as the different heads of income defined in section 14, contends that the income-tax paid by the Indian firm which would have otherwise been paid by the non-resident firm must be held to be an income from other sources of the non-resident firm and, therefore, is liable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he agreement, and the Indian firm having taken up the liability of paying the entire income-tax dues payable by the non-resident firm, the same will partake of the character of a perquisite arising from the business of exploration of mineral oil. This question has already been decided by a Bench of this court under similar circumstances in the case of CIT v. American Consulting Corporation [1980] 123 ITR 513 and the agreement in that case is identical with the agreement in the case in hand. This court ultimately came to hold that it was a perquisite which arises to the non-resident firm and as such is taxable as profits of its business. But by the date of the aforesaid judgment, the special provision of computation as contained in section 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eing included therein, the entire amount will be non-taxable. It is difficult to accept this contention since once it is held that the payment thus made towards the income-tax liability of the non-resident firm by the Indian firm is a perquisite arising from the business of oil exploration, it must be held to be an income of the non-resident firm, but would be taxable only in accordance with section 44BB(1) and consequently only ten per cent. of the said income would be deemed to be the gains of such business chargeable to tax and not the entire amount, as has been held by the Tribunal. In the aforesaid premises, our answers to the questions posed are : (i) On the facts and in the circumstances of the case, the tax liability of the non-res ..... X X X X Extracts X X X X X X X X Extracts X X X X
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