Case Law Details
Frontier Offshore Exploration (India) Limited Vs. DCIT ITA No. 200/Mds/2009
Facts :- The assessee is an Indian company and is engaged in the business of providing oilfield services to upstream companies. The assessee has entered into a contract with ONGC and M/s Hardy Exploration & Production India for drilling of oil wells in the territorial waters of India. For the purpose of executing this contract, the assessee took two drilling units owned by two foreign companies on bare boat charter basis. The assessee was required to pay the hire charges for the drilling units in the form of bare boat charges. The assessee considered that the hire charges were covered under presumptive taxation scheme under section 44BB of the Income Tax Act, 1961 and accordingly withheld tax at the rate of 4.1% on payments made to foreign companies. The assessing officer (“AO”) disallowed the deduction of hire charges paid to the foreign companies under the provisions of section 40(a)(i) of the Act on account of alleged short deduction of withholding tax. The Commissioner of Income Tax (Appeals) upheld the order of the AO. Aggrieved by the CIT(A) order, the appellant filed an appeal before the Income Tax Appellate Tribunal The principal issue before the ITAT was whether the AO can disallow the payments made to foreign companies under section 40(a)(i) of the Act in case the assessee has withheld taxes by applying the provisions of section 44BB without making any application to the AO.
Contentions of the Revenue:- The Revenue placed reliance on the ITAT order in assessee’s own case for an earlier year wherein it was held that the applicability of section 44BB to a payee cannot be determined by the assessee and the assessee should approach the AO under section 195(2) of the Act to determine the appropriate proportion of income on which tax has to be withheld. In the absence of such an application, the deduction of expenses should be disallowed under section 40(a)(i) of the Act. The Revenue submitted that the decision of the Supreme Court in the case of GE Technology Centre (P) Ltd. (327 ITR 456) does not consider the provisions of section 44BB and therefore, reliance should be placed on the assessee’s own decision. The Revenue also contended that the provisions of section 44BB will be applicable when the nonresident taxpayer files his return of income and the applicability of section 44BB is accepted by the Revenue authorities at the time of assessment.
Contentions of the Assessee:- The assessee contended that section 44BB of the Act was a special provision dealing with taxation of income arising to nonresident oilfield service providers. It further placed reliance on the decision of jurisdictional High Court in the case of (167 ITR 884) wherein it was held that in case there is special regime to deal with special type of income, such a provision will supersede the general provisions. The assessee relied on the decision of Honorable Supreme Court in case of G.E. India Technology Centre (P) Ltd. wherein it was held that the obligation to withhold tax is limited to the appropriate portion of income which is chargeable to tax and forms part of the gross sum payable to the non-resident. The assessee submitted that the maximum appropriated portion of income chargeable under section 44BB of the Act was 10% of the gross receipts of the foreign companies and thus, tax was withheld at 4.1%. Accordingly, the payments made to foreign companies cannot be disallowed under the provisions of section 40(a)(i) of the Act. The assessee further contended that in view of the decision of G.E. India Technology Center (P) Ltd, the assessee’s own case for earlier year cannot constitute a legal precedent.
Ruling of the Chennai ITAT- The ITAT relied on the ruling of the Honorable Supreme Court in case of G.E. India Technology Center (P) Ltd. wherein, it has been held that that the obligation to withhold tax is limited to the appropriate portion of income which is chargeable to tax and forms part of the gross sum payable to the non-resident. The ITAT explained that the assessee would not be able to quantify the income of the nonresident payee and accordingly, the provisions of section 44BB of the Act come into play. It was further held that where the law provides for special regime to deal with special type of income, such a provision will supersede the general provision. Reliance in this regard was placed on the decision of jurisdictional High Court in the case of CIT v. Copes Vulcan Inc. Accordingly, in view of special provisions of section 44BB of the Act, 10 percent of the gross receipts can be deemed as income chargeable to tax for withholding tax purposes. In view of the above, the ITAT held that tax withheld by applying the provisions of section 44BB will not lead to violation of the provisions of section 195 of the Act and therefore, the payments made to foreign companies cannot be disallowed under the provisions of section 40(a)(i) of the Act.
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