1997 (9) TMI 8 - HC - Income Tax

Court rules on tax inclusion, evidence admission, and tax liability for non-resident assessee.

The court ruled that the inclusion of tax paid on behalf of the assessee by way of rectification was not within the jurisdiction of section 154 as it was ... The first batch of appeals was concerned with the power of rectification under section 154. In the assessment made under section 143 of the Act there had not been included in the assessee's income the amount of tax paid on behalf of the assessee by the ONCC to the Department - That tax paid was sought to be included by rectification - whether such an exercise of inclusion could be undertaken by way of rectification - In the second batch of appeals also the tax paid on behalf of the assessee was again under consideration but in a different light. The issue here was whether the tax paid on behalf of the assessee would be taken 100 per cent. as gains of business or profession (as would ordinarily be the case in the case of an ordinary citizen not engaged in oil exploration) or whether 10 per cent. of such tax would be taken as profits and gains of business, such tax paid being connected inextricably with the fees paid in regard to services rendered for oil exploration, or thirdly whether the tax paid on behalf of the assessee could at all be included in the profits and gains of the profession or business. Issues Involved:1. Inclusion of tax paid on behalf of the assessee by way of rectification under section 154 of the Income-tax Act, 1961.2. Admissibility of additional evidence by the Tribunal which was not raised before the lower authorities.3. Taxability of only 10 percent of the tax liability of the non-resident assessee paid by the ONGC under section 44BB.Issue-wise Detailed Analysis:1. Inclusion of Tax Paid on Behalf of the Assessee by Way of Rectification under Section 154:The main point before the Tribunal was whether the inclusion of tax paid on behalf of the assessee could be undertaken by way of rectification. The assessee was liable to be taxed under section 44BB of the Income-tax Act, 1961, which provides that only 10 percent of the amount received by a non-resident for supplying plant and machinery for production of mineral oils is to be taxed as profits and gains of business or profession. The assessment years in question were 1983-84 to 1989-90. The Tribunal held that the inclusion of tax paid on behalf of the assessee was a debatable issue and not within the jurisdiction of section 154. The court agreed with this view, emphasizing that only matters beyond debate or dispute can form the subject-matter of rectification, citing the case of T.S. Balaram, ITO v. Volkart Brothers [1971] 82 ITR 50 (SC). The court also noted that the Supreme Court's decision in Emil Webber v. CIT [1993] 200 ITR 483 (SC) came after the rectification orders were passed, and thus, could not be used to justify the rectification. The rule regarding this question was discharged.2. Admissibility of Additional Evidence by the Tribunal:The second issue was whether the Tribunal was justified in admitting additional evidence which was not raised before the lower authorities. The department argued that the Tribunal allowed new evidence, but the court clarified that the question framed before the Tribunal was about new evidence, not a new ground. The Tribunal held that no new evidence was allowed, and the court agreed, citing the Supreme Court's decision in CIT v. Scindia Steam Navigation Co. Ltd. [1961] 42 ITR 589, which states that a reference compulsorily ordered by the High Court upon the Tribunal is in the nature of a mandamus. Since the Tribunal was not asked to consider whether the consideration of a new ground led to an error of law, the court found no reason to intervene. The rule regarding this question was also discharged.3. Taxability of Only 10 Percent of the Tax Liability of the Non-resident Assessee Paid by the ONGC:The third issue was whether only 10 percent of the tax liability of the non-resident assessee paid by the ONGC could be taxed. The Tribunal held that only 10 percent of the tax paid on behalf of the assessee could be charged to tax under section 44BB. The court agreed with this view, stating that once section 44BB is applied, 10 percent of the receipts by the foreign resident is chargeable to tax, and the remaining 90 percent is not. The court rejected the department's argument that the tax paid on behalf of the assessee should be fully taxable. The rule regarding this question was also discharged.Conclusion:The rule issued in regard to all three questions was discharged, and the application under section 256(2) was rejected. The court held that:1. The inclusion of tax paid on behalf of the assessee by way of rectification was a debatable issue and not within the jurisdiction of section 154.2. The Tribunal was justified in not admitting additional evidence which was not raised before the lower authorities.3. Only 10 percent of the tax liability of the non-resident assessee paid by the ONGC could be taxed under section 44BB.