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Petitioner: COMMISSIONER OF INCOME-TAX VS Respondent: O.N.G.C. AGENT OF CGG, FRANCE D.B.
Court Name: Rajasthan High Court Judge(s): M. G. Mukherji, Bhagwati Prasad Title: COMMISSIONER OF INCOME-TAX vs O.N.G.C. AGENT OF CGG, FRANCE D.B. Case No.: Income-tax References Applications Nos.15., 19 and 29 of 1995, Date of Judgment:1996-07-11 Reported As: 1999 PTD 1831 Result: Application rejected
JUDGMENT
JUDGMENT ' M. G. MUKHERJI, ACTG. C.J.---D.B. Income-tax Reference Application No,15 of 1995 under section 256(2) of the Income Tax Act, 1961, is directed against an order, dated July 21, 1993, passed by the Income-tax Appellate Tribunal in R.As. Nos.15, 16 and 17/JP of 1992 arising out of I.T.As. Nos.420, 421 and 422/JP of 1988, for the assessm ent year 1985-86. ' D.B. Income-tax Reference Application No,19 of 1995 is also directed against the self-same order passed by the Income-tax Appellate Tribunal in R.As. Nos.15, 16 and 17/JP of 1992 arising out of I.T.As. Nos.420, 421 and 422/JP of 1988 for the assessment year 1984-85. ' D.B. Income-tax Reference Application No,29 of 1995 is also directed against the self-same order passed by the Income-tax Appellate Tribunal in R.As. Nos.15, 16 and 17/JP of 1992 arising out of I.T.As. Nos.420, 421 and 422/JP of 1988 for the assessment year 1983-84. ' In all these income-tax reference applications, common questions of fact and law are involved and they have been taken up for hearing analogously. ' Compagnie Generale de Geophysique is a foreign company assessed through its Indian agent, Oil and Natural Gas Commission, which is a corporation owned by the Government of India. Compagnie Generale de Geophysique, the non-resident company, entered into a contract with the Oil and Natural Gas Commission for carrying out seismic survey for processing of data for the Oil and Natural Gas Commission in North-West Himalayas. It deployed its specialized equipment and personnel for carrying out the said work. The Oil and Natural Gas Commission as the agent for Companies Generale de Geophysique declared income of Rs,84,740 for the assessment year 1985- 86 and the assessm ent was completed under section 143(3) of the Income-tax Act on income of Rs,2,94,053 on November 18, 1985, Rs,3,90,890 for the assessment year 1984-85, and the assessment
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was completed under section 143(3) of the Income-tax Act on income of Rs,13,56,400 on November 18, 1985, and Rs,28,77,530 for the assessment year 1983-84 and the assessment was completed under section 143(3) of the Income-tax Act on income of Rs,49,42,170 on December 9, 1985. ' The Commissioner of Income-tax, Jodhpur, initial proceedings under section 263 of the Income- tax Act, vide show-cause notice issued on March 21, 1988, for the following reasons: "(1) While income-tax perquisite value has been added in determining the income of the non- resident company, the surtax leviable on the foreign company which was payable by the Oil and Natural Gas Commission was not added. (2) For application of net profit rate, the payment received by the foreign company from the Oil and Natural Gas Commission on account of other services including supply of spares and materials, and mobilization and demobilization charges, etc., had been excluded by the Assessing Officer on the ground that they were nontaxable and without any element of profit." ' Before the Commissioner of Income-tax, it was contended by the assessee that section 44-BB overrides the provisions of section 28, under which the perquisite is required to be included in the profits and gains of business. Further, it was contended that the surtax is not payable by the Oil and Natural Gas Commission as representative assessee of the nonresident company. However, the Commissioner of Income-tax held that section 44-BB does not override the entire provisions of section 28 and, therefore, besides income-tax, the Assessing Officer ought to have added the value of perquisite on account of surtax borne by the Oil and Natural Gas Commission on behalf of the foreign company. Further, relying on the Supreme Court decisions in Smt. Rampyari Devi Saraogi v. CIT (1968) 67 ITR 84 and Smt. Tara Devi Aggarwal v. CIT (1973) 88 ITR 323, the Commissioner of Income-tax held that the assessm ent orders were erroneous and prejudicial to the interest of the Revenue and set aside the assessm ents and directed them to be made afresh. While doing, so, the Commissioner of Income-tax also mentioned that it should also be kept in view that while framing the fresh assessm ents, it was to be found out whether it was a case of single or multiple grossing up, even though this point was not specifically mentioned in the show-cause notice. ' The assessee filed an appeal before the Income-tax Appellate Tribunal against the order of the Commissioner of Income-tax and the Tribunal, vide its order, dated May 14, 1991, quashed the order of the Commissioner of Income-tax under section 263. As regards the perquisite on account of surtax, the Tribunal found that in view of the Notification No,GSR 307(E) (see (1983) 14 ITR (St.) 88), dated March 31, 1983, the foreign company was not liable to surtax and there was no question of adding any perquisite on that account. As regards the other issue, the Income-tax Appellate Tribunal has observed that the income was computed by taxing 15 per cent. Of the net receipt of the non-resident company as taxable, although in terms of section 44-BB, a sum equal to 10 per cent. Of the aggregate of the amounts mentioned in section 44-BB could be deemed to be the profits and gains of such business. Therefore, section 44-BB could not assist the Commissioner of Income-tax in arriving at a conclusion that the assessments were erroneous and prejudicial to the interests of the Revenue. As regards the issue of single or multiple grossing up, the Income-tax Appellate Tribunal observed that it was not mentioned in the notice under section 263 nor was it held specifically by the Commissioner of Income-tax that the assessments were erroneous and prejudicial to the interest of the Revenue. ' The Department filed reference applications under section 256(1) which were rejected by the Tribunal, vide its order, dated July 21, 1993, and hence, these three applications were filed under section 256(2) before this Court craving a reference on the following question: "Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in holding that the order of the Assessing Officer was not erroneous relying only on one issue and without giving a finding on all the issues on which the order of the Assessing Officer was cancelled under section 263 of the Income Tax Act, 1961?"
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' Shishodia, learned Senior Advocate, who appeared in the matter with Mr. Sandeep Bhandawat, for the petitioner-Commissioner of Income-tax, Jodhpur, contended before us that the Tribunal has erred in law in setting aside the Commissioner of Income-tax's order without meeting all the reasons given in the said order and that itself amounted to a question of law. Even if it could be said that the perquisite on account of surtax was not to be included, but on exclusion of payments on other services and facilities for the purpose of determining the income under section 44-BB, the assessm ents were clearly erroneous and prejudicial to the interests of the Revenue. The Income- tax Appellate Tribunal has simply relied on the fact that the income was taken at 15 per cent. As against 10 per cent. Provided under section 44-BB. The real question involved was not the percentage at which the profit is to be computed, but the receipts on which the profit is to be worked out. It was further submitted before us that the impugned payments related to the following services: "(a) Data processing done abroad; (b) Mobilisation and demobilisation of machinery and equipment; and (c) Supply of machinery and spare parts." ' It was further contended before us that the Tribunal has erred in law in not appreciation that the foreign company was engaged to make seismic survey and oil exploration. The survey data essentially required processing before a final report was given. The data processing was got done in France and it is a part of the survey. Therefore, the payments made for data processing are directly related to the services and facilities referred to and, as such, the payments made had to be included for determination of income under section 44-BB. As regards the mobilisation and demobilisation charges, the foreign company brought certain machinery and equipment for survey and oil exploration and installed such machinery and equipment at a particular site. When these were not required any further, they were dismantled and installed at another site. The payments made for such mobilisation and demobilisation were also directly relatable to the services and facilities referred to under section 44-BB. As regards the supply of machinery and spare parts, the Assessing Officer had failed to make enquiry so as to enable him to give a finding as to whether such payments were really covered under subsection (2) of section 44-BB. The following aspects were not duly adverted to at all: "(i) As to whether the said equipment's and spare parts were used in making survey and oil exploration by the foreign company for which service charges have been paid; and (ii) Whether the said equipment's were required to be supplied by the foreign company for assigned contract work as per terms of the contract." ' Mr. Shishodia further argued that the Tribunal has erred in law in not recording any finding as to whether non-inclusion of such receipts has really rendered the assessments completed by the Assessing Officer erroneous and prejudicial to the interests of the Revenue. Regard being had to the very many features of the case, which were earlier adverted to, it was contended that the Commissioner of Income-tax had rightly taken the stand that the assessments were erroneous and prejudicial to the interests of the Revenue and in that context, the Income-tax Appellate Tribunal was not justified in quashing the order of the Commissioner of Income-tax under section 263 and, thereafter, in rejecting the departmental reference applications made under section 256(1). ' We have heard Mr. N.P. Gupta, learned Advocate appearing for the respondent, who took us through the judgment and order of the Income-tax Appellate Tribunal, dated May 14, 1991. As regards the question of perquisite value of surtax leviable on Compagnie Generale de Geophysique, which was payable by the O.N.G.C., it was submitted by him on behalf of the assessee that the surtax was not payable by the O.N.G.C. Under the Companies (Profits) Surtax Act, 1964, and the amount of surtax wrongly paid was liable to be refunded. It was further pointed out
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that section 44-BB had no application and that the perquisite value of surtax could not be included in the computation of total income. That apart, only 10 per cent. Of the amount paid/payable on account of the provision of services and facilities in connection with supply of machinery on hire in India could be deemed to be profits and gains of the business-and, therefore, there was no scope for further addition on account of the value of tax perquisite. Even though the learned Commissioner held that section 44-BB did not override the entire provisions of section 28 and that the perquisite value of surtax should also have been added and in that context, the assessments were found to be erroneous and prejudicial to the interests of the Revenue leading ultimately to his taking a decision of setting aside the assessment orders, Mr. Gupta contended that the learned Commissioner of Income-tax was not justified in treating the orders passed by the Inspecting Assistant Commissioner (Assessm ent) as erroneous and prejudicial to the interests of the Revenue particularly in view of the special provisions of section 44-BB. The surtax was not chargeable from the assessee in view of the notification, dated March 31, 1983, issued by the Central Board of Direct taxes which notification had been duly examined by the Appellate Tribunal, vide para. 11 of its order, dated June 20, 1990, in similar appeals decided by the Delhi Bench of the Income-tax Appellate Tribunal. The direction regarding multiple grossing up did not find any mention whatsoever in the notice under section 263 and the Delhi Bench of the Income-tax Appellate Tribunal has also negatived the contention regarding its sustainability even on its merits. Mr. Gupta further submitted that even the single stage grossing up done by the assessee voluntarily was not warranted. Regarding the work executed outside India, the facts had been taken note of by the Inspecting Assistant Commissioner (Assessm ent) and which had not been made the subject-matter of his application of mind under section 263 by the learned Commissioner, In the subsequent assessm ent years, the Assessing Officer had himself taken 10 per cent. Of the receipts as taxable and also pointed out that the assessment orders as framed were prejudicial to the interests of the Revenue as the assessm ents had been framed on larger incomes, which eventually could not be said to be erroneous or prejudicial to the interests of the Revenue. We took into consideration the decisions reported in CIT v. Trustees of Anupam Charitable Trust (1987) 167 ITR 129 (Raj) and CIT v. Kashi Nath & Co. (1988) 170 ITR 28 (All). ' In terms of section 44-BB it is indeed true that a sum equal to 10 per cent. Of the aggregate of the amounts mentioned in the statutory provision could be deemed to be profits and gains of such business chargeable to tax under the head "Profits and gains of business or profession". Therefore, section 44-BB could not assist the Revenue in coming to the conclusion that the assessments were erroneous and prejudicial to the assessee. Had it been a case of failure to make enquiry by the Assessing Officer, which rendered an order erroneous in terms of section 263, we could have understood, but there was no finding by the Commissioner in the present context that there was failure on the part of the Assessing Officer to make enquiry. The failure to make enquiry was mainly centering around the question regarding surtax and the exclusion of the charges for supply of spares and materials and mobilisation and demobilisation. It is indeed a fact that by Notification No,G.S.R. 307(E) (see (1983) 142 ITR (St.) 88), dated March 31, 1983, issued by the Central Government in exercise of the powers conferred by section 24-AA of the Companies (Profits) Surtax Act, 1964, it has granted exemption from surtax in respect of foreign companies with whom the Central Government had entered into agreements for participation in the business of prospecting or for extraction of mineral oils. We have come to a specific finding that the said notification was also attracted in the case of the present assessee and hence, surtax was not payable by it. Hence, it was not necessary for the Assessing Officer to take into account the perquisite value of surtax, which aspect of the matter was not really probed through by the Commissioner at all. There was no finding that the profits of the assessee exceeded 50 per cent. Of the capital. Even though the 0.N.G.C. Had itself paid surtax on behalf of the foreign contractors and the Notification, dated March
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31, 1983, had not been brought to the notice of the learned Commissioner of Income-tax, that does not make the assessee liable for surtax, inasmuch as the Commissioner is expected to know all such notifications holding the field. When no surtax was payable by the foreign company and merely on account of the fact that the assessee had paid the surtax when the foreign companies were exempted from paying the surtax, vide notification, dated March 31, 1983, issued by the Central Government under section 24-AA of the Companies (Profits) Surtax Act, 1964, without recording any finding that the surtax was actually payable by the assessee, we do not think that there was any error on the part of the Income-tax Appellate Tribunal to have exempted the assessee from the liability to pay surtax. ' As regards the point of grossing up, the Income-tax Appellate Tribunal has rightly held that the notice under section 263 of the Income-tax Act served on the assessee did not mention this aspect of the matter and the assessee was not called upon to make an answer with regard to this question. The Commissioner of Income-tax did not actually give out by way of any firm finding in his order that the assessm ents were erroneous and prejudicial to the interests of the Revenue for grossing up and all he did was that while setting aside the assessments so as to make it re-done, he directed the Assessing Officer to keep in view whether these were cases of single or multiple grossing up. It was correctly observed by the Tribunal that the income determined by the Assessing Officer on the basis of the agreement should be taken only on single stage grossing up and there was no question of resorting to multiple stage grossing up and the Tribunal has rightly placed reliance on the decision in O.N.G.C. v. IAC (1990) 35 ITD 31 (Delhi), where a similar agreement had been entered into between 0.N.G.C. And foreign contractors. ' Mr. Shishodia drew our attention to the decision in CIT v. Indian Woollen Textiles Mills (1964) 51 ITR 291 (SC), for the proposition that the refusal of the Tribunal to state a case for the opinion of the High Court, on the view that a question of law does not arise out of the order, is not conclusive. The High Court has the power to call upon the Tribunal to state the case if in its view a question of law arises out of the order of the Tribunal. Such a question may arise out of the findings of the Tribunal, and also if the Tribunal has misdirected itself in law in arriving at its finding. It is not open to the Court to discard the Tribunal's finding of fact, if there is some evidence to support the finding of the Tribunal on a question of fact, even if on a review of the evidence, the Court might have 'arrived at a different conclusion. It must, however, appear that the Tribunal had considered the evidence covering all the essential matters before arriving at its conclusion. If the conclusion of the Tribunal is based upon some evidence ignoring other essential matters, it cannot be regarded as a finding not giving rise to a question liable to be referred to the Court. Thus, where the conclusion of the Tribunal suffers from a double infirmity, namely, that it assumes the only fact on which its conclusion is founded and ignores the other relevant matters on which the Appellate Assistant Commissioner relied in support of his conclusion, the Tribunal must be held to have misdirected itself in law in arriving at its finding and the High Court can require the Tribunal to state the case to it. Developing this point, Mr. Shishodia argued that the conclusion of the Tribunal was based really on one issue and not on the relevant points upon which the Commissioner of Income-tax based his finding for directing reassessm ents and setting aside the assessments already made by the Assessing Officer. ' Referring to the decision in CIT v. Princess Usha Trust (1984) 145 ITR 203 (MP), Mr. Shishodia argued that whether the Tribunal was justified in setting aside the order passed by the Commissioner under section 263 and whether the Tribunal was correct in holding that the order of the Income-tax Officer, though erroneous, was not prejudicial to the interests of the Revenue, were questions of law fit for reference. That was a case where the Commissioner set aside, under section 263, the assessm ent and directed the Income-tax Officer to make a fresh assessment after complying with the provisions of section 144-B, since the Commissioner was of the view that the order of the
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Income-tax Officer was erroneous and prejudicial to the interest of the Revenue. On appeal by the assessee, the Tribunal set aside the order of the Commissioner on the ground that the Income-tax Officer's order, though erroneous, was not prejudicial to the interests of the Revenue. On an application by the Revenue under section 256(2) for directing the Tribunal to refer certain questions of law, it was so held by a Division Bench of the Madhya Pradesh High Court that whether or not the Tribunal was correct in holding that the order of the Income-tax Officer, though erroneous, was not prejudicial to the interests of the Revenue, was a question of law fit for reference. ' It was held in CWT v. Sri Venkatesa Mills Ltd. (1965) 56 ITR 384, 387 (Mad.), that in an application for reference, the High Court is not concerned with the correctness of the decision of the Appellate Tribunal on the merits of the appeal which was disposed of by the Tribunal, but the High Court is only concerned with the correctness or otherwise of the order of the Tribunal in holding that no question of law arises out of its order warranting a reference under section 256(1) of the Income- tax Act. As was held in the famous decision of the Bombay High Court in Central Talkies Circuit v. CIT (1939) 7 ITR 628, by Chief Justice Beaumont, the ultimate decision on a point of law whether for or against the Commissioner, can have no bearing on the question whether there was a point of law upon which a case should have been stated. This decision has been followed in Dhanrajmal Chatandas v. CIT (1942) 10 ITR 384 (Sind) and R.B.L. Banarsi Das & Co. Ltd. v. ITAT (1959) 35 ITR 624 (Punj), even though in the latter decision, it was held that the Court is not concerned with the merits or ultimate decision or objection, whether it would be in favour of or against the assessee, and that what is crucial to consider is whether there is a point of law upon which a case should have been stated. ' In Vittaldas Moonji v. CIT (1958) 33 ITR 222, a Division Bench of the Kerala High Court held that the jurisdiction of the High Court under section 66(2) (now section 256(2) of the Income-tax Act) only arises when on an application made under subsection (1) the Appellate Tribunal refused to state the case on the ground that no question of law arises. It is only when there is such a refusal that the assessee or the Commissioner may apply to the High Court under section 66(2) (now section 256(2)). If the High Court is not satisfied with the correctness of the decision of the Appellate Tribunal then the Court can require the Tribunal to state the case. But, the High Court has no jurisdiction require the Tribunal to state a case on a question of law which the assessee or the Department never asked the Tribunal to refer. ' In Bansilal (on behalf of Shri Ekling Cotton Ginning and Pressing Factory) v. CIT (1958) 33 ITR 176 (Raj); AIR 1957 Raj 326, it was held that the High Court has the authority to require a reference from the Appellate Tribunal upon a question of law and in the words of their Lordships of the Privy Council in Alcock Ashdown & Co. v. Chief Revenue Authority, AIR 1923 PC 138 "always supposing that there is a serious point of law to be considered, there lies a duty upon the Chief Revenue Authority to state a case for the opinion of the Court and if he does not appreciate that there is such a serious point, it is in the power of the Court to control him and to order him to state the case" and further that if there is such a point of law "it ought to be decided in a regular manner and upon proper materials". But, it is equally true that a point of law on which a reference ought to be made or may be required to be made, must properly arise out of the order of the Tribunal within the meaning of section 256(1). It further seems to us that whether a question of law arises on an order of the Tribunal would depend upon the facts and circumstances of a given case, but we are disposed to think that as a rule in order that such a point should arise, it must have been pleaded before the Tribunal and it must have been properly before it, so that the Tribunal should have been in a position to apply its mind to the question sought to be raised. It follows that where a point of law has not been raised before the Tribunal at the proper stage and in a proper manner or it was never taken up at all before any of the income-tax authorities, so that the necessary materials for
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founding a conclusion thereon are absent or exist only in an incomplete form such a question cannot be held to arise out of the order of the Tribunal within the meaning of section 256(1), and to such a question the provisions of section 256(2) can hardly be made applicable so that the High Court would have no authority or jurisdiction to requisition a reference on a point of law not so raised before the Tribunal and, therefore, not arising out of its order. ' In New Jehangir Vakil Mills Ltd. v. CIT (1959) 37 ITR 11 (SC); AIR…
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