2001-VIL-348-RAJ-DT

Equivalent Citation: [2002] 255 ITR 413, 172 CTR 297, 124 TAXMANN 292

RAJASTHAN HIGH COURT

Date: 02.11.2001

COMMISSIONER OF INCOME TAX

Vs

OIL AND NATURAL GAS COMMISSION.

BENCH

Judge(s)  : RAJESH BALIA., HARBANS LAL.

JUDGMENT

The judgment of the court was delivered by

RAJESH BALIA J.- All these cases relate to the assessment of Oil and Natural Gas Commission (hereinafter referred to as "ONGC"), as the agent of a non-resident assessee, Compagnie Generale De Geophysique, France (in short "CGG"). It is not in dispute in any of these cases that the non-resident assessee is engaged in the business of providing services or facilities in connection with prospecting for, or extraction or production of mineral oil as well for supplying plant and machinery on hire used, or to be used.

D.B.I.T. Appeal No. 68 of 2001 is an appeal against the order of the Income-tax Tribunal dated March 30, 2000. We shall first consider the issue in appeal.

The assessee acting under section 44BB(2) returned its taxable income under the head "Profits and gains of business or profession" on the basis of computation made in terms of section 44BB of the Income-tax Act, 1961. According to the assessee, it is liable to pay tax on "10 per cent. of the aggregate of the amounts specified in sub-section (2) of section 44BB". Accordingly, he has included in the computation of its profits and gains of business or profession of "the non-resident assessee" the sum received by it from its principal for the purpose of making payment of income-tax in connection with the activities carried on by him in India which is related to processing/ exploration/production of mineral oil in India. This claim was originally accepted by the Assessing Officer. However, the Commissioner of Income-tax considered the inclusion of income-tax for aggregate of sums in the amounts referred to in sub-section (2) of section 44BB to be erroneous and prejudicial to the interests of the Revenue and directed the Assessing Officer to recompute the income of the assessee by including the entire receipt of the income-tax payable by the company in India as part of the income from profits and gains of business falling under section 28(iv) of the Income-tax Act, 1961 by excluding it from the computation of income made under section 44BB(2).

On the other hand, the assessee has contended that computation of income under the head "Profits and gains of business or profession" so far as the non-resident assessee is concerned, in the facts and circumstances of the case can only be made under section 44BB, without reference to any other provision for computation of income under the head "Profits and gains, on account of the non obstante clause".

The plea of the assessee found favour with the Tribunal and it has set aside not only the order of the Commissioner under section 263 of the Act but has also held in favour of the assessee on the merits. It is in the aforesaid circumstances that Income-tax Appeals Nos.67 of 2001, 68 of 2001 and 71 of 2001 were admitted by this court and the substantial question of law which in the opinion of the court prima facie arose for consideration in that appeals, were framed as under:

"1. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is justified in law in quashing the order under section 263 passed by the Commissioner of Income-tax?

2. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in law in upholding the finding of the Commissioner of Income-tax (Appeals) that only 10 per cent. of the incometax payable by 0.N.G.C. on behalf of C.G.G. is includible in the total income of the assessee in total disregard to the fact that the amount of income-tax payable by 0.N.G.C. on behalf of non-resident company is not a receipt within the meaning of section 44BB of the Income-tax Act?"

Learned counsel for the respondent appearing in this case states that if the controversy between the parties is examined in the proper perspective in the facts and circumstances and undisputed facts, the answer is self-evident and obvious that there is no other mode of computation of income of the assessee under the head of profits and gains of business or profession than the one provided under section 44BB(1) and in view of that the question framed by the court at the time of admitting the appeal cannot be said to be a substantial question of law or at any rate they must be answered in the affirmative, i.e., to say, in favour of the assessee.

Learned counsel for the Revenue has urged that since those part of the provisions which have been excepted by the non obstante clause cannot be invoked to the extent they are contrary to the provisions of section 44BB and cannot be pressed into service for computation of income.

Before considering the provisions of section 44BB it will be apposite to refer to the relevant part of the scheme of the Act of 1961.

Section 4 which is the charging section for levying tax on income of any person under the Act provides that income-tax shall be charged at the rate or rates enacted by the Central Act in accordance with and subject to the provisions of the Act in respect of his total income of the previous year relevant for that assessment year of every person.

The expression "total income" has been defined in section 2(45) of the Act to mean the total income referred to in section 5, computed in the manner laid down in this Act.

Chapter IV of the Act deals with computation of total income. Section 14 of the Act envisages that all incomes for the purposes of charge of income-tax, computation of total income shall be classified under the following heads--(a) Salaries; (b) [Deleted]; (c) Income from house property; (d) Profits and gains of business or profession; (e) Capital gains; and (f) Income from other sources. This Chapter IV has further been divided into sub-parts which provides for computation of income under different heads referred to above.

Part D of Chapter IV deals with computation of income from "profits and gains of business or profession". This part contains section 28 to section 44D. Section 28 defines what are to be included under the head "Profits and gains of business" or what is the income to be included under the head "Profits and gains of business or profession" under various sub-clauses. Section 29 states that the income referred to in section 28 shall be computed in accordance with the provisions contained in the said part.

Broadly speaking sections 32 to section 37 deal with general deductions to be allowed in computing the total income under the head "Profits and gains of business or profession" of the assessee (including deductions on account of depreciation, rebate and other specified expenses). The general deduction on account of expenses incurred or laid out wholly and exclusively for the purpose of business and profession are allowable under section 37 of the Act. Section 38 to section 41 deals with certain provisions modulating specific deductions or additions of certain receipts in computing the income under Part D of Chapter IV. Section 43 is a definition clause for that purpose and section 43A is a specific provision relating to conversion rate of foreign exchange.

All these provisions have been excluded from being pressed into service, while the computation of income from "profits and gains of business and profession" is to be made under section 44BB. Significantly the co-related provision of section 42, which relates to allowance of special deductions in the case of income from business of exploration of mineral oils, is not excluded from the process of computing the income under section 44BB.

Section 43 deals with specific conditions in which alone such expenses or deductions shall be permissible.

The scheme onwards to section 43B is to deal with income from specified business/professional activities. The scheme of the later provisions of Part D of Chapter IV deals with specific items of expenses and outgoings which are either not deductible from the computation of total income for claiming deductions on that account. Some provisions have been made for providing special mode of determining income from particular business activity. It is in this background section 44BB reads as under:

"44BB. Special provision for computing profits and gains in connection with the business of exploration, etc., of mineral oils.--(1) Notwithstanding anything to the contrary contained in sections 28 to 41 and sections 43 and 43A, in the case of an assessee, being a non-resident, engaged in the business of providing services or facilities in connection with, or supplying plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils, a sum equal to ten per cent. of the aggregate of the amounts specified in sub-section (2) shall be deemed to be the profits and gains of such business chargeable to tax under the head "Profits and gains of business or profession":

Provided that this sub-section shall not apply in a case where the provisions of section 42 or section 44D or section 115A or section 293A apply for the purposes of computing profits or gains or any other income referred to in those sections.

(2) The amounts referred to in sub-section (1) shall be the following, namely:-

(a) the amount paid or payable (whether in or out of India) to the assessee or to any person on his behalf on account of the provision of services and facilities in connection with, or supply of plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils in India; and

(b) the amount received or deemed to be received in India by or on behalf of the assessee on account of the provision of services and facilities in connection with, or supply of plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils outside India.

Explanation.--For the purposes of this section,-

(i) 'plant' includes ships, aircraft, vehicles, drilling units, scientific apparatus and equipment, used for the purposes of the said business;

(ii) 'mineral oil' includes petroleum and natural gas."

A bare perusal of the aforesaid provisions reveals that notwithstanding the general mode of computing profits and gains of business in connection with the business of exploration, etc., of mineral oil, a special method has been devised and that object is revealed through a non obstante clause which excludes operation of sections 28 to 41 and sections 43 and 43A in the case of computing the income of an assessee who is a non-resident and is engaged in the business of providing facilities in connection with supplying plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils in India.

The principles governing any non obstante clause are well established. Ordinarily, it is a legislative device to give such a clause an overriding effect over the law or provision that qualifies such clause. When a clause begins with "notwithstanding anything contained in this Act or in some particular provision/provisions in the Act", it is with a view to give the enacting part of the section, in case of conflict, an overriding effect over the Act or provision mentioned in the non obstante clause. It conveys that in spite of the provisions or the Act mentioned in the non-obstante clause, the enactment following such expression shall have full operation. It is used to override the mentioned law/provision in specified circumstances.

The distinction between the expression "subject to other provisions" and the expression "notwithstanding anything contained in other provisions of the Act" was explained by a Constitution Bench of the Supreme Court in South India Corporation (P.) Ltd. v. Secretary, Board of Revenue [1964] 15 STC 74; AIR 1964 SC 207. About the former expression the court said while considering article 372:

"The expression 'subject to' conveys the idea of a provision yielding place to another provision or other provisions to which it is made subject."

About the non obstante clause with which article 278 began, the court speaking through Subba Rao J. said:

"The phrase 'notwithstanding anything in the Constitution' is equivalent to saying that in spite of the other articles of the Constitution, or that the other articles shall not be an impediment to the operation of article 278."

The court explained the effect of operation of the two phrases with reference to the provisions before it:

"While article 372 is subject to article 278, article 278 operates in its own sphere inspite of article 372."

The principle enunciated by the Supreme Court in South India Corporation (P.) Ltd. v. Secretary, Board of Revenue [1964] 15 STC 74; AIR 1964 SC 207, was reiterated by the apex court in Union of India v. Kokil (G.M.) [1984] 65 FJR 1; [1984] AIR 1984 SC 1022; [1984] Suppl. SCC 196, wherein it said:

"It is well known that a non obstante clause is a legislative device which is usually employed to give overriding effect to certain provisions over some contrary provisions that may be found either in the same enactment or some other enactment, that is to say, to avoid the operation and effect of all contrary provisions."

Again the apex court said in Chandavarkar Sita Ratna Rao v. Ashalata S. Guram, AIR 1987 SC 117; [1986] 4 SCC 447:

"A clause beginning with the expression 'notwithstanding anything contained in this Act or in some particular provision in the Act or in some particular Act or in any law for the time being in force, or in any contract' is more often than not appended to a section in the beginning with a view to give the enacting part of the section in case of conflict an overriding effect over the provision of the Act or the contract mentioned in the non obstante clause. It is equivalent to saying that in spite of the provision of the Act or any other Act mentioned in the non obstante clause or any contract or document mentioned in the enactment following it will have its full operation or that the provisions embraced in the non obstante clause would not be an impediment for an operation of the enactment. See in this connection the observations of this court in South India Corporation (P.) Ltd. v. Secretary, Board of Revenue, AIR 1964 SC 207; [1964] 4 SCR 280."

The above principles were again reiterated in Parayankandiyal Eravath Kanapravan Kalliani Amma v. K. Devi [1996] AIR 1996 SC 1963.

Applying these principles, if section 44BB is to take effect in spite of section 28, it would be paradoxical to say that though section 44BB has an overriding effect section 28(iv) will operate in spite of sub-section (1) of section 44BB. Section 44BB which provides a complete code of computation of income from business of an NR of the nature specified in section 44BB(1), to the exclusion of entire section 28 including clause (iv) of section 28 which provides inclusion of perquisite within the purview of the "profits and gains from any particular business to which such perquisite relates". Any part of section 28 cannot be used to exceed the limit of income to be computed under section 44BB, viz., 10 per cent. of the aggregate of the amounts specified in subsection (2) of section 44BB. Including something which is income from business of the nature specified in section 44BB(1) of a person who is governed by the said provision, is to make section 44BB subject to section 28(iv) contrary to the legislative mandate that it will operate in spite of it is not includible in section 44BB(2). If it is includible in items includible aggregate only 10 per cent. of it would go in the computations. If it does not fall in the specified amount under section 44BB(2) it cannot be included in the computation at all for the purpose of computing income of such an NR whose income from the business of exploration of mineral oils is to be computed.

In the present case there is no dispute about the fact that the assessee is a non-resident falling in that category. That being so, whether it is clause (i) or clause (iv), no part of section 28, or for that matter no provision of section 28 to section 41 as a whole and sections 43 and 43A could be resorted to for the purpose of computing the business of exploration of mineral oil.

It may be noticed that these methods have not been included only to the extent that they are contrary to section 44BB, but section 44BB has been given overriding effect of the special mode in entirety for the computation of profits and gains of business in the case of a NR income arising to him from the business of providing services or facilities in connection with or supplying plant and machinery on hire used or to be used in the prospecting or extraction or production of mineral oils, over the mode generally provided for computing the total income under that head. It not only provides for computation of income from "profits and gains" in connection with the business of exploration of mineral oils in a comprehensive form, leaving other income to be computed as per the general provisions; it gives a clear indication, without any complexity and doubt, that if the assessee is one whose income is to be computed under the head "Profits and gains of business" under section 44BB, it could be computed in the manner as provided in sub-section (2) and not with reference to any provision of section 28 to 41 or 43 and 43A.

Learned counsel for the Revenue has contended in tune with the reasoning adopted by the assessing authority, for including the receipt in question with reference to section 28(iv) by treating it as perquisite within the meaning of that provision to its full extent, in addition to computation of its income in respect of other receipts forming part of the same business under section 44BB. Acceptance of the said contention shall obviously be contrary to the scheme of section 44BB.

It would be amounting to say that though it is income of an NR from the business of exploring mineral oils as perquisite under section 28(iv), yet it is to be included in the income of such assessee in addition to the income computed under that head to by excluding section 28. That would be contradictory in terms. Clause (iv) of section 28 is as much a part of section 28, as any other part of it. It cannot be dealt with independent of it.

In this connection, we may refer to the decision of the Orissa High Court reported in Oil India Ltd. v. CIT [1995] 212 ITR 225. The very same question was raised before the Bench comprising the G.B. Patnaik and P.C. Naik JJ. The court held as under:

"Section 44BB is a special provision for computing profits and gains in connection with the business of exploration of mineral oil. Parliament engrafted the aforesaid provision in the Income-tax Act as a measure of simplification providing for determination of income of such taxpayers at ten per cent. of the aggregate of certain amount. By virtue of section 44BB and because of the non obstante clause, section 28 of the Act will have no application. In other words, the value of the perquisite arising from the business will have to be computed as provided in section 44BB(1) when the business is exploration of mineral oil."

The court, therefore, held that the tax liability of the non-resident firm which has been undertaken by the Indian firm and has been paid by the Indian firm would be a perquisite arising from the business of oil exploration under the agreement entered into by the non-resident firm with the Indian firm and would be taxable as such. The computation of the same will have to be made under sub-section (1) of section 44BB and, therefore, only ten per cent. of the same would be deemed to be the profits of such business chargeable to tax and not the entire sum.

In these circumstances the Income-tax Appeals bearing Nos. 67 of 2001, 68 of 2001 and 71 of 2001 have no merit and are hereby dismissed.

I.T.R. Nos. 48 of 1999, 49 of 1999, 50 of 1999, 51 of 1999, 52 of 1999, 53 of 1999, 54 of 1999 and 55 of 1999 (CIT v. Oil and Natural Gas Commission).

These are applications under section 256(2) of the Income-tax Act, 1961, seeking a direction from this court, because by the order dated May 26, 1998, the Income-tax Appellate Tribunal, Jaipur Bench, Jaipur, has rejected the applications under section 256(1) for stating the case and referring the following question in each case, stated to be a question of law arising out of the Tribunal's appellate order for the decision of this court:

"Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in law in upholding the finding of the learned Commissioner of Income-tax (Appeals) that only 10 per cent. of the income-tax payable by ONGC, on behalf of the CGG is includible in the total income of the assessee in total disregard to the fact that the amount of income-tax payable by ONGC on behalf of the non-resident company is not a receipt within the meaning of section 44BB of the Income-tax Act?"

The same question has been sought to be referred to this court in each of the aforesaid applications as the same was declined to be referred by the Tribunal under section 256(1).

While considering the appeals filed by the Revenue for later assessment years raising the same questions as discussed above, we have come to the conclusion that the answer to the controversy raised by the Revenue is obvious and is self-evident from the scheme of the Act and reading of the provision itself, therefore, the appeal has been dismissed on hearing both sides.

In that view of the matter, the question need not be referred to this court for its decision. The Tribunal was justified in rejecting the applications under section 256(1) for making a reference to this court. As a result the reference applications are also rejected.

 

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