TaxTMI 
TaxTMI 
2008 (8) TMI 392
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....dan. Reliance was placed on the decision of Tribunal in the case of Iraqi 29 ITD 115 [(sic)-Iraqui Airways vs. IAC (1987) 66 CTR (Trib)(Del) 56 : (1987) 23 ITD 115 (Del))Ed.]. The AO completed assessment under s. 143(3) by invoking provision of s. 44BBA of the IT Act. The AO computed income @ 5 per cent of aggregate amount specified in sub-s. (2) of s. 44BBA as the income chargeable to tax. The assessee preferred further appeal before the learned CIT(A). The learned CIT(A) for asst. yrs. 1995-96, 1996-97, 1997-98 and 1998-99 deleted the addition and held that the income of appellant is not taxable in India. However, the learned CIT(A) for asst. yr. 2000-01 confirmed the action of the AO. Aggrieved from the aforesaid orders of the learned CIT(A), further appeals were preferred by the assessee and Revenue. Special Bench of the Tribunal was constituted to dispose of the appeals as there were apparent contrary decisions of the Tribunal. Special Bench of the Tribunal in paras 75 and 76 of its order [order reported as Dy. CIT vs. Royal Jordanians Airlines (2005) 97 TTJ (Del)(SB) 434-Ed.] held as under: "75. In view of the discussion in the foregoing paras, we hold that RJA did n....
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....lant has incurred losses both in global and Indian operations, no income whatsoever can be taxed in India while computing the income under the provisions contained in s. 44BBA of the Act. In support, reliance was placed on the judgment of apex Court in the case of Union of India vs. A. Sanyasi Rao & Ors. (1996) 132 CTR (SC) 81 : (1996) 219 ITR 330 (SC) at p. 332. Apart therefrom, details in respect of confirmations of refunds, receipts from M/s Royal Jordan Airlines were also furnished. 4.2 The AO vide order dt. 27th Dec., 2006 for each of the five assessment years has held that, despite the losses incurred by the appellant both in India and globally, income to be computed at 5 per cent of the gross receipts. He has also held that, in view of the findings contained in the order of Hon'ble Tribunal dt. 31st Oct., 2005 in para 75, he further held that, income of the assessee has to be computed in accordance with provisions contained in s. 44BBA of the Act and there is no scope of deviation. 5. The appellant being aggrieved from all the five orders of assessment preferred appeals before CIT(A). 6. Before learned CIT(A), the main contentions of the appellant were as u....
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..... 44BBA of the Act and therefore, it cannot be applied on the facts of the case of the appellant; (d) The principle of "cassus omissus" cannot be applied to s. 44BBA of the Act as has been held by the apex Court in the cases of Padmasundara Rao (Decd) & Ors. vs. State of Tamil Nadu (2002) 176 CTR (SC) 104 : (2002) 255 ITR 147 (SC); Shatrushailya Digvijay Singh Jadeja vs. CIT (2002) 177 CTR (Guj) 508 : (2003) 259 ITR 149 (Guj). The appellant being aggrieved has thus preferred the instant appeals. 7. The grounds of appeals raised by the appellant in all five appeals are primarily regarding following two issues: (A) Whether provisions contained in s. 44BBA of the Act can be interpreted to compute an income, despite the fact that admittedly, appellant has incurred losses in each of the assessment years under consideration? (B) If answer to the aforesaid question is in the affirmative, whether the levy of interest under s. 234B of the Act on the facts of the instant case was in accordance with law? 8. Shri Salil Aggarwal, learned advocate appearing for the appellant made detailed submissions. He invited our attention to the provisions of s. 44BBA of t....
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....n India or deemed to be received in India or accrues or arises in India or deemed to accrue or arise in India. In other words, s. 4 r/w s. 5 of the Act stipulates that there must be necessarily income before bringing an assessee subject to tax. At this juncture, it would be appropriate to state here that, s. 2(24) of the Act defines 'income' which among other things includes 'profits and gains'. It is thus submitted that in the case of the appellant, since there are no profits or gains and, in fact, there are losses, it cannot be held that, there was any income, which was subject to tax under the Act under s. 44BBA of the Act. 8.1 In support of the aforesaid submissions, Shri Aggarwal seeks to rely upon following observation from two judicial pronouncements extracted herein: (a) Saipem S.P.A. vs. Dy. CIT (2004) 86 TTJ (Del)(TM) 1 : (2004) 88 ITD 213 (Del)(TM) "35. With reference to the aforesaid, I accept the argument of the learned counsel that s. 5 is the charging provision and no income can be brought to tax unless it falls within the scope of the said section and the use of the expression 'subject to other provisions of the Act' in s....
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.... notwithstanding anything to the contrary contained in ss. 28 to 43C had been used), it was held by the apex Court as under: "However, the denial of relief provided by ss. 28 to 43C to the particular businesses or trades dealt with in s. 44AC calls for a different consideration. Even according to the Revenue, the provisions (ss. 44AC and 206C) are only 'machinery provisions'. If so, why should the normal reliefs afforded to all assessees be denied to such traders? Prima facie, all assessees similarly placed under the IT Act are entitled to equal treatment. In the matter of granting various reliefs provided under ss. 28 to 43C, the assessees carrying on business are similarly placed and should there be a law, negativing such valuable reliefs to a particular trade or business, it should be shown to have some basis fair and rational. It has not been shown as to why the persons carrying on business in the particular goods specified in s. 44AC are denied the reliefs available to others. No plea is put forward by the Revenue that these trades are distinct and different even for the grant of reliefs under ss. 28 to 43C of the Act. The denial of such reliefs to trades spec....
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....sessee has no income and it has losses throughout, it cannot be said that there is income. 8.6 He submits that it is well-settled that, if charging section fails, no machinery provision can be invoked to compute income. Reliance is placed on the following judicial pronouncements: (a) CIT vs. D.P. Sandu Bros. Chembur (P) Ltd. (2005) 193 CTR (SC) 578 : (2005) 273 ITR 1 (SC); (b) Arun Kumar & Ors. vs. Union of India & Ors. (2006) 205 CTR (SC) 193 : (2006) 286 ITR 89 (SC); (c) K.P. Varghese vs. ITO & Anr. (1981) 24 CTR (SC) 358 : (1981) 131 ITR 597 (SC). It is submitted that, unlike ss. 68 and 69 of the Act which is a charging section, s. 44BBA of the Act is a machinery provision. 8.7 It is submitted that, s. 44BBA of the Act was inserted w.e.f. 1st April, 1988 and circular explaining the insertion of the provisions provides as under: "Circular No. 495, dt. 22 Sept., 1987 [(1988) 67 CTR (St) 1 : (1987) 168 ITR (St) 99]: "Simplification in the computation of income in respect of foreign airlines. 22.1 Presently the income of a non-resident engaged in the business of operation of aircraft is computed after allowing deduction ....
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....f a construction results in equity rather than in injustice, then such construction should be preferred to the literal construction." 8.9 The learned Authorised Representative also relies upon the case of CIT vs. Punjab Financial Corporation (2002) 172 CTR (P&H)(FB) 561 : (2002) 254 ITR 6 (P&H)(FB), wherein it was held that, fiscal statute should be construed strictly in respect of charging provision or a provision imposing penalty but not other portion of statute which contains the machinery provisions. In the judgment of Gauhati High Court in the case of Sardar Harvinder Singh Sehgal & Ors. vs. Asstt. CIT & Ors. (1998) 144 CTR (Gau) 626 : (1997) 227 ITR 512 (Gau), it was also held that, a machinery provision has to be construed in a manner that it sub-serves the objective of the statute. 8.10 Assailing the order of the learned CIT(A), Shri Aggarwal submitted that- (1) The learned CIT(A) has denied the claim of the appellant on the ground that provisions of s. 44BBA of the Act did not specifically provide for computation of lower rate of profit, as has been provided under ss. 44AD, 44AF, 44BB and 44BBB of the Act. It is submitted that, this finding is misconceived. ....
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....submitted that, computation of income was never subject-matter of the adjudication before the Tribunal. However, two grounds had been taken in asst. yrs. 1994-95 and 2000-01 wherein too, two issues had been set aside to the file of the AO for re-examination. In any case, all what the assessee respectfully submits is that, it is wrong to assume and incorrect to hold that Tribunal held that there is income of the assessee which warrants computation when neither a submission had been made and nor a ground raised. It is submitted that, this issue has never been examined by the Tribunal and then too, it cannot be said that, there is direction of the Tribunal in the order dt. 31st Aug., 2005. In view of the aforesaid, it is submitted that it be held that since appellant had incurred losses, no income can be brought to tax in each of the five assessment years. 9. The learned Departmental Representative Devendra Shanker, on the other hand, strongly relied upon the finding of the learned CIT(A). He submitted that in this case the assessee is a non-resident and whose income is assessable to tax under ss. 4, 5 and 9 as the assessee has a business connection. The income of the assessee....
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....pplication of s. 44BBA is mandatory and there is no option for the assessee to make a request for assessment at a lower rate unlike s. 44BB, 44D or 44BBB and some other sections where the statute has besides providing a presumptive rate also given an option to the, taxpayer to be assessed at, a different lower rate subject to certain conditions. In cases where statute gives options of being assessed at a rate lower than the presumptive rate of tax the assessee may be assessed on the basis of the books of accounts and the procedure laid down under the Act like maintenance of accounts, tax audit under s. 44AB, etc. Such provisions exist in s. 44BB as well as s. 44DA, sub-s. (2) of 44BBB, sub-s. (7) of 44AE, sub-s. (5) of 44AF, etc. However, no such option is available to the assessee under s. 44BBA which will apply in the case of the assessee. 9.4 The assessee's case of reading s. 44BBA and permitting computation at a lower rate is not warranted and cannot be accepted as this will amount to reading into the statute which is not provided by the plain and simple language which is clear and unambiguous. The principles of interpretation of a fiscal statute do not provide for such ....
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....6C of the Act. therefore, it would be futile to contend that interpretation placed on ss. 44AC and 206C would equally apply to s. 44D of the Act. In construing s. 44AC, the Hon'ble Supreme Court observed thus: 'Counsel for the Revenue brought to our notice ss. 44B, 44BB, 44BBA and 44D and contended that there are other similar provisions in the Act. We should State that they relate to non-residents carrying on business in India and are not much relevant in construing ss. 44AC and 206C of the Act'." 9.8 In the case of Hyundai Heavy Industries Co. Ltd., which referred to asst. yrs. 1987-88 and 1988-89, the Hon'ble Supreme Court referred to computation of income at a rate provided for in the s. 44BB because of Instruction No. 1767, dt. 1st July, 1987 issued by the CBDT. 9.9 The observation of the Supreme Court at p. 494 of the judgment of the Supreme Court clearly indicates that computation of income at a lower rate than prescribed under s. 44BB provided for lower rate of determination of income in view of Instruction No. 1767 which being more beneficial to the assessee could be applicable. This is clear from the following observations of the Supreme Cou....
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....AR). However, the ruling favours the case of Revenue and not of the appellant. It has been laid down hence, in a commercial sense, the concept of profits determined under ss. 44BB and 44BBA, though arrived at on a statutory basis, cannot be considered to exclude such expenses as non-deductible merely because the statute fixes a percentage in this regard. The fixation of a rate so low as five per cent of the gross receipts as the net assessable profit indicates a statutory attempt at estimating the expenses normally likely to be incurred in such business. 9.13 Similarly, in the case of DHV Consultants BV, In re (2005) 197 CTR (AAR) 105 : (2005) 277 ITR 97 (AAR), have come to the conclusion that in the case of presumptive taxation income has to be computed as per the provisions and the presumption is that the expenses incurred for earning the income are deemed to have been allowed. From the above submissions it is clear that the appellant's reliance on the judgments of A. Sanyasi Rao & Ors. and Hyundai Heavy Industries Co. Ltd. is misled and the income of the appellant has to be computed under s. 44BBA of the Act. 10. We have heard the parties at length. We have perused the....
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....estore this issue to the file of AO for decision afresh in accordance with the law after allowing the assessee reasonable opportunity being heard in the matter." From the perusal of the aforesaid para, it is seen that, the Hon'ble Tribunal has recorded its findings in respect of two alternative grounds of appeal that, while determining the assessee's income under s. 44BBA of the Act with respect to the gross sales, the authorities below have erred in not reducing the sum as commission retained by the agent and, the sum refunded to the customer. It is thus evident that, the Hon'ble Tribunal was not considering the issue whether in case, there are losses incurred by the appellant, still any income is assessable under s. 44BBA of the Act. In fact, on the contrary, the aforesaid issue as raised in the grounds of appeal was also not considered fit for adjudication since the Hon'ble Tribunal found that there is no serious discussion in this respect in the order of learned officer and the learned CIT(A) and accordingly, the Hon'ble Tribunal held that, "in all fairness and assessee should now be given a specific opportunity to put forth its arguments in relation to c....
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....e Tribunal does not have jurisdiction to go into the validity of the provisions of the Act as the Tribunal itself is a creature of the Act. 11.2 Time and again various Courts have held that 'income-tax' is a tax and (sic-on) 'income'. Thus, the prerequisite for levy of tax is earning of income. The charge of tax is attracted by virtue of s. 4 of the Act which prescribes that income-tax shall be charged in accordance with the provision of this Act in respect of the total income of the previous year of every person. The score of total income is contained in s. 5 of the Act. As per s. 5(2), the total income of a non-resident includes all income from whatever source derived which is either received or deemed to be received in India or accrues or deemed to be accrued in India. Thus, as per ss. 4 and 5 of the Act, which are charging sections, the prerequisite is income and if the assessee is non-resident, further condition is that such income should have been received or accrued in India. If this basic charge is attracted, the income can be computed therewith as per the scheme of the Act. As per s. 14 in Chapter IV of the Act, all income for the purpose of charge of in....
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....rein the Hon'ble Court after following the various judgments of the apex Court observed as under: "Income-tax is a levy on income. No doubt, the IT Act takes into account two points of time at which the liability to tax is attracted, viz., the accrual of the income or its receipt; but the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in book keeping, an entry is made about a 'hypothetical income', which does not materialize. Where income has, in fact, been received and is subsequently given up in such circumstances that it remains the income of the recipient even though given up, the tax may be payable. Where, however, the income can be said not to have resulted at all, there is obviously neither accrual nor receipt of income, even though an entry to that effect might, in certain circumstances, have been made in the books of account." On the basis of above decisions as well as decision of Hon'ble Supreme Court in the case of A. Sanyasi Rao & Ors., it is held that s. 44BBA of the Act is not a charging section but a machinery provision for computation of income. Sec. 4 of the Act is the charging....
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..... Lala Karam Chand Thapar AIR 1961 SC 838, the Supreme Court noted the observations of Lord Chancellor in the case of Institute of Patent Agents vs. Joseph Lockwood 1894 A.C. 347, to the following effect: "'No doubt' said he, 'there might be some conflict between a rule and a provision of the Act. Well there is a conflict sometimes between two sections to be founding the same Act. You have to try and reconcile them as best as you may. If you cannot, you have to determine which is the leading provision and which is the subordinate provision, and which must give way to the other. That would be so with regard to enactments and with regard to rules which are to be treated as if within the enactment. In that case, probably the enactment itself would be treated as the governing consideration and the rule as subordinate to it'." 12.3 In the case of the State of Gujaratvs. Chaturbhuj Maganlal (1976) 3 SCC 54, their Lordships held: "Where the language of a statutory provision is susceptible of two interpretations, the one which promotes the objects of the provision, comports best with its purpose and preserves its smooth working should be chosen in prefe....
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....from the first day of assessment year to the date of regular assessment and, not to the date of order of the Settlement Commission under s. 245D(4) of the Act. This contention has been noted by their Lordships at p. 458 as under: "Sec. 234C deals with interest for deferment of advance tax. As noted above, great emphasis is laid by the assessee on sub-s. (4) of s. 245D which, inter alia, provides that where as a result of an order of the Settlement Commission under sub-s. (4) of s. 245D the amount on which interest was payable under sub-s. (1) or sub-s. (3) has been increased or reduced, as the case may be, the interest shall be increased or reduced accordingly. From this, according to the assessee, the inference to be drawn has to be that only the quantum of income on which interest is charged is varied, but the period remains fixed." Despite the plain reading suggested the interpretation as contended by the appellant, yet the Hon'ble Court rejected such a contention by holding at p. 464 that, a construction which reduces the statute to a futility has to be avoided. It was further observed as under: "A statute or any enacting provision therein must....
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....eat those of another unless it is impossible to effect reconciliation between them. Thus a construction that reduces one of the provisions to a 'useless lumber' or 'dead letter' is not a harmonised construction. To harmonise is not to destroy." 13.2 Applying the aforesaid, it can be held that, interpretation suggested by the Revenue reduces the "concept of income" as provided in s. 2(24) of the Act to a dead letter. In other words, even if there is no income yet in view of the machinery provisions and, not the deeming provisions, there is income which can be taxed. The interpretation adopted by the AO is an absurd or inconsistent interpretation and, in the landmark case of Grey vs. Pearson (1857) 6 HL Cas 61, 62, that where the grammatical and ordinary sense of the words in the statute leads to some obscurity or inconsistency with the rest of the statute, the words are modified so as to avoid absurdity or inconsistency. Further, in the case of K.P. Varghese vs. ITO & Anr., the observations of the Court, particularly at pp. 605 and 606 are conclusive of the issue as under: "It is now a well-settled rule of construction that where the plain literal interpr....
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.... book for those years. Yet Hon'ble Supreme Court held that the assessee has option to be assessed at lesser than presumptive rate by producing books of account. Learned Departmental Representative has submitted that Hon'ble Supreme Court has come to such conclusion on the basis of Instruction No. 1767, dt. 1st July, 1987 of CBDT and not by reading in something which is not there. The argument is not convincing. If instruction of CBDT also clarifies that in case of presumptive taxation, assessee can be assessed at less than specified rate, such circular was never intended to be issued contrary to the provision of law. The circular is only to relax the rigour of law. If that be the case, there is no gain saying that the Tribunal cannot read such provision in the Act. The Hon'ble Court by giving independent decision has stated that, in the scheme of presumptive taxation where assessee claims that his income is less than the presumptive figure and is required to support his claim by producing books of accounts. Once there are observations of the learned apex Court, such observations cannot be overlooked and have to be followed. In fact, even the obiter dicta of the ape....
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....& Ors., learned Departmental Representative has submitted that it has no application to the facts of the instant case in view of the ruling of Authority for Advance Rulings in the case of Timken India Ltd., In re (2005) 193 CTR (AAR) 610 : (2005) 273 ITR 67 (AAR). The learned Departmental Representative has relied upon the observations made by the apex Court in the case of A. Sanyasi Rao & Ors. at p. 350, wherein it has been held as under: "Counsel for the Revenue brought to our notice ss. 44B, 44BB, 44BBA and 44D and contended that there are other similar provisions in the Act. We should state that they relate to lion-residents carrying on business in India and are not much relevant in construing ss. 44AC and 206C of the Act." The appellant had relied upon on the aforesaid judgment and had made two basic submissions namely: (a) that provisions contained in s. 44BBA of the Act are machinery provisions and (b) that only real income can be brought to tax and not hypothetical income. In fact, in the case of State of Rajasthan vs. Rajasthan Chemists Association (copy placed on record), apex Court following the judgment of A. Sanyasi Rao & Ors., has again reiterated above pr....
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....ning words of the section make no difference to this concept. In the first place, it is well-settled that in the computation of profits, an proper outgoings have to be allowed as a deduction, irrespective of whether the statute contains a specific provision in this regard or not. Salaries paid to employees-and indeed all revenue expenditures incurred-for running a business will have to be taken into account in determining its profits, irrespective of the provisions of ss. 28 to 43A. Secondly, the provisions in ss. 30 to 43A are primarily intended to restrict or qualify the extent of deduction in regard to certain categories of expenses that would have been normally allowable in the computation. This is indeed clear from the omnibus nature of deductions permissible under s. 37. Hence, in a commercial sense, the concept of profits determined under s. 44BB or 44BBA, though arrived at on a statutory basis, cannot be considered to exclude such expenses as non-deductible merely because the statute fixes a percentage in this regard. The fixation of a rate so low as five per cent of the gross receipts as the net assessable profit indicates a statutory attempt at estimating the expenses nor....