TaxTMI 
TaxTMI 
2009 (1) TMI 308
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.... of salary and other payments to crew members/staffs. These grounds taken by the assessee are reproduced as under: "1. That on the facts and in the circumstances of the case, the learned CIT(A) erred in confirming the disallowance of Rs. 26,09,29,745 being reimbursement of crew salary and other payments made to Alfa Crew. 1.1 That the learned CIT(A) erred in holding that the provisions of s. 40(a)(i) are applicable on the facts and in the circumstances of the case. 1.2 That on the facts and in the circumstances of the case, the learned CIT(A) erred in holding that the crew deployed with the appellant on secondment, on whose salary taxes were deducted at source under s. 192 of the Act, wherever applicable, were not the employees of the appellant. 1.3 That on the facts and in the circumstances of the case, the learned CIT(A) erred in holding that the appellant was under statutory obligation to deduct tax at source as per the order under s. 195(2) disregarding the fact that the said order was issued only in the month of March, 2004, i.e., the concluding month of the previous year, and that the appellant had already deducted tax under s. 192, wherever applicable. 1.4 Tha....
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....ventory records were claimed to have been maintained, and the following remarks were given in Col. 10 of Form No. 3CD: "The assessee wishes to offer its income to tax under s. 44BB of the IT Act, 1961 (being special provisions for computing profits and gains in connection with the business of exploration, etc., of mineral oils). As per the requirements stipulated under sub-s. (3) of s. 44BB, the assessee has maintained the necessary books of account and documentation." 5.4. The assessee had also given the following remarks vide para 6 of note of statement of income which reads as under: "In an unlikely scenario wherein the taxable income of DDL under s. 44BB(1) of the Act is lower than the income computed under s. 44BB(3) of the Act, DDL reserves the right to be assessed under s. 44BB(1) of the Act." 5.5 From the said averment made by the assessee in the return of income, it is, thus, clear that the assessee had claimed it to be assessed under s. 44BB(3) with a rider that in an unlikely scenario wherein taxable income of the assessee determined under s. 44BB(1) of the Act comes to a sum lower than the income computed under s. 44BB(3), the assessee reserved its right to ....
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....sp; Rs. 1,32,27,988 ---------------- Total Rs. 28,70,87,666 ---------------- 5.10 The AO further stated that the assessee company deducted tax at source only on a payment of Rs. 2,03,73,617 and the payments of TDS were made to the credit of the Government account as per the following details: "The assessee company has however, deducted tax at source only on payment of Rs. 2,03,73,617. The payment of TDS has been made to the credit of Government account as per following details. ---------------------------------------------------------- Date of payment/ Amount Amount of TDS Date of credit &nbs....
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....ll pay to Alfa Crew a fee of USD 869 per day inclusive of value added tax if applicable payable upon receipt of monthly invoices thereon, or as otherwise agreed. This fee shall cover Alfa Crew running costs, such as but not limited to, personnel, office and administration costs/expenses. This fee will be subject to a yearly review but will remain fixed unless otherwise agreed by the parties.' 5. Crew expenses 5.1 The client shall reimburse Alfa Crew all crew salaries/expenses reasonably incurred by the Alfa Crew in the proper provisions of the services in accordance with the client's identifications and requested that Alfa Crew shall be entitled to a 5 per cent handling fee thereon-as Alfa Crew shall provide the client with evidence of such salaries/expenses as the client may reasonably require.' From the above conditions of contract agreement it is clear that all the payments including salary of crew were to be made to Alfa Crew. The assessee company had applied for determining deemed profit in respect of the payments which were to be made to Alfa Crew in pursuance of above contract lo the then Dy. CIT, Circle-I, Dehradun, and the then AO accordingly, directed the assesse....
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....petence of the assessee company to decide whether any payment was liable to TDS or not, particularly in view of the fact the assessee company was specifically directed to deduct tax on deemed income of 12 per cent on all the payments, it was not left to assessee company to decide that payments were covered by s. 192 of IT Act. The Hon'ble Supreme Court has categorically observed in regard to duty of person responsible for IDS at the time of crediting or paying income to which any provisions of TDS have application. Hon'ble apex Court has, in the case of Aggarwal Chamber of Commerce Ltd. vs. Ganpat Rai Hira Lal (1958) 33 ITR 245 (SC), observed that those persons who are bound under the Act to make deduction at the time of payment of any income, profits or gains are not concerned with the ultimate result of assessment. In addition to above the Hon'ble apex Court has also observed in the case of Transmission Corporation of A.P. Ltd. vs. CIT (1999) 155 CTR (SC) 489 : (1999) 239 ITR 587 (SC) that provision of s. 195 applies to all sums paid to non-residents during the course of regular business operations. As such, s. 195 applies not only to the amounts which wholly bear the income char....
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....ves is accepted, it is quite beyond understanding as to how the assessee came to know at the time of very first payment that the stay of crew will not exceed 90 days in the relevant period when there were 237 days in the relevant period during which the employment of crew was to continue. 5.2 As clear from the above facts and discussion, the assessee was under obligation to deduct tax on payments made to Alfa Crew against services of crew provided by it and has totally failed to deduct tax at source and pay it to the credit of Government account within the period specified under s. 200(1) and corresponding r. 30 of IT Rules, the provisions of s. 40(a)(i) which clearly provide that if any expenditure has been claimed in respect of any payments made to a non-resident whereon no tax has been deducted at source or after having deducted no tax has been paid to the credit of Government account within the stipulated period, such expenditure will not be allowed, remained unsatisfied. In view of above provisions of Act the expenditure of Rs. 26,66,14,049 on account of payments to Alfa Crew is disallowed and added to the income of the assessee company. I may also mention that even if the ....
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....ce India Ltd. vs. ITO (1988) 25 ITD 136 (Del); (i) Mannesmann Demag Lauchhammer vs. CIT (1988) 26 ITD 198 (Hyd). 6.2 Alternatively, the assessee contended before the learned CIT(A) that in any case the assessee could not be treated to be in default as because the payment had already been made prior to the receipt of the order under s. 195(2) dt. 3rd March, 2004. It was pointed out by the assessee that out of the total payment of crew salary aggregating to Rs. 25,12,50,598, the payment had already been made to the extent of Rs. 15,45,31,676. The assessee also pointed out before the learned CIT(A) that the actual payment towards salary to crew debited during the period was aggregated to Rs. 25,22,44,043 and not Rs. 26,66,14,049 as taken by the AO. It was, thus, submitted that even otherwise there was excess disallowance of Rs. 1,43,70,015. 6.3 After hearing the assessee and perusing the AO's order, the learned CIT(A) did not accept the various contentions of the assessee company for the reasons given below: (i) From the terms and conditions of the contract, it was clear that the actual employer of the crew members is MI s Alfa Crew and not the assessee company. The paymen....
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....nd holding as under: "3.8 Since no tax has been deducted on the amount paid to M/s Alfa Crew, the amount paid in my view is not admissible as deduction under s. 40A(i) of the IT Act, and the AO was, therefore, right in making the disallowance. However invoices have been debited only to the extent of Rs. 27,26,17,650, as against Rs. 28,70,87,666 taken by the AO. Out of this amount, tax has been deducted on amount of Rs. 2,03,73,617 as per details given by the AO in his order on p. 8, and reproduced on p. 5 of this order. However, TDS of Rs. 4,27,336 on payment of Rs. 86,85,704 has been paid on 27th Oct., 2004 and therefore, amount of Rs. 86,85,704 is not allowable as deduction in asst. yr. 2005-06. The disallowance is worked out as under: Total payment to Alfa Crew 27,26,17,651 Less: Amount on which TDS made 1,16,87,912 ------------  ....
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.... facts: (a) The assessee company operated the drillship "Belford Dolphin" and not "Alfa Crew". The assessee company was accountable to ONGC as respects the nature and quality of the crew performance. Alfa Crew did not accept any accountability as respects the nature and quality of the crew performance but it merely supplied the crew. (b) The assessee company issued appointment letters to each and every member of the crew detailing the salary payable and other terms and conditions of employment, and each individual employee was informed in the appointment letter itself that he was to work as per schedule notified to him by the assessee company as the employer. An attention was drawn to a sample copy of appointment letter, a copy of which was placed in the paper book and annexed as Annex. A to the written submissions filed by the assessee. (c) The assessee company was responsible for securing work permits and security passes for its employees/personnel as per the Indian Government laws. The ONGC agreed to issue the necessary documentary assistance in this regard. (d) The assessee company was solely responsible for providing various requirements of its personnel, e.g., hou....
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....ts. He made a reference to the provisions contained in ss. 198 and 199 of the Act. He also explained the provisions of ss. 192 and 195 of the Act. He then submitted that the obligation of an assessee, who makes payment to non-resident under contract, to deduct tax at source is limited only to appropriate proportion of income chargeable under the Act as so held by the Hon'ble Supreme Court in the case of Transmission Corporation of A.P. Ltd. vs. CIT. 7.8 With regard to the second assumption of the Revenue authorities below that the payment of crew salary or expenditure made by the assessee company to Alfa Crew constitutes income receipts of Alfa Crew, he submitted that this assumption of the authorities below has no foundation in the light of the facts of the present case. He submitted that the cl. 5 of the agreement between assessee company and Alfa Crew was categorical that the assessee company shall "reimburse Alfa Crew all crew salaries/expenses reasonably incurred by Alfa Crew". It was contended by the learned counsel for the assessee that the expression "reimbursement" denotes payments of actual expenditure/cost alone and does not encompass any profit element or mark up of ....
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....9(1)(viii), any consideration which would be the income of the recipient chargeable under the head "Salaries" as excluded from the ambit of "fees for technical services". He further submitted that in the light of the cl. 5 of the agreement entered into with Alfa Crew, it is more than clear that Alfa Crew shall provide the assessee company with evidence of salaries or expenses incurred towards crew provided to the assessee company which would make it clear that the payments by the assessee company to Alfa Crew were towards the expenditure incurred by Alfa Crew on payment of salaries/expenditure paid to the crew which Alfa Crew was entitled to get reimbursed from the assessee company, and such payment was chargeable in the hands of the crew under the head "Salaries". He further submitted that the technical fees or consideration was separately paid by the assessee company to Alfa Crew in the nature of fixed fee of US $ 869 per day and 5 per cent handling fee on the amount of reimbursement of crew salaries or expenses. He further contended that the payment by way of reimbursement of salary and expenses payable to crew had no element of income in any manner whatsoever in the hands of th....
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.... both the authorities below have misunderstood the judgment of the Hon'ble Supreme Court in the case of Transmission Corporation of A.P. Ltd. vs. CIT as also in the case of Aggarwal Chamber of Commerce Ltd., as in the case of Transmission Corporation of A.P. Ltd., the Hon'ble Supreme Court has categorically held that the assessee's obligation to deduct tax at source under s. 195 is limited only to appropriate proportion of income chargeable under the Act. The learned counsel for the assessee further contended that provisions of s. 195 are applied to the payment of income chargeable under the Act and not to the payment by way of reimbursement of any expenses incurred by the non-resident for and on behalf of the assessee. In the case of the present assessee company, the payment of salary to crew of Alfa Crew was by way of reimbursement of actual expenditure incurred on crew salaries/expenses and, thus, the same is not the income of the Alfa Crew chargeable to tax under the provisions of the Act. He further pointed out that Alfa Crew neither received the aforesaid amount on their own behalf or for their own purposes. He further contended that the assumption of the Revenue authorities ....
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....y way of reimbursing the same to Alfa Crew, the assessee deducted the tax at source treating the same as income chargeable under the head "Salaries", and that bona fide conduct of the assessee to deduct tax at source from payment of salary to crew under s. 192 is certainly a sufficient compliance of the provisions of s. 40 (a)(i) of the Act. He invited our attention to the following judgments also: (1) Gwalior Rayon Silk Co. Ltd. vs. CIT (1983) 37 CTR (MP) 351 : (1983) 140 ITR 832 (MP); (2) CIT vs. Manilal Tarachand (2001) 170 CTR (Guj) 466 : (2002) 254 ITR 630 (Guj). 7.18 In view of the aforesaid submissions, the learned counsel for the assessee then contended that the disallowance upheld by the learned CIT(A) to the extent of Rs. 26,09,29,745 is unjustified and is, thus, to be deleted. 8. The learned Departmental Representative, on the other hand, supported the orders of the authorities below. He submitted that in the light of the agreement entered into by the assessee with Alfa Crew, it is clear that Alfa Crew provided services of technical or other personnel to the assessee, and as such the fee received by the Alfa Crew from assessee towards salary/expenses of crew ....
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....to conduct for ONGC, drilling operations in the offshore waters of India on charter hire basis with drilling unit, known as "Belford Dolphin", taken on charter hire basis by the assessee from Dolphin Drilling (P) Ltd., a group company incorporated in Singapore. The assessee also entered into a contract with another group company, M/s Alfa Crew A.S. for procuring, drilling and marine crew for the operation of the abovenamed rig known as "Belford Dolphin". The agreement entered into with M/s Alfa Crew A.S. is of dt. 10th Oct., 2003. The copy of agreement is placed at pp. 281 to 284 of the paper book filed by the assessee. In the said agreement, it was mentioned that the assessee was operator of the drilling ship named "Belford Dolphin" and was desirous to be provided with drilling and marine crew for the operation of the drilling ship. In the agreement, it is mentioned that the Alfa Crew A.S. was engaged in the business of providing marine and drilling crew to the offshore industry and was willing to provide such services, i.e., as services of providing marine and drilling crew to the assessee company, in accordance with the terms and conditions set out in the said agreement. It was,....
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....869 per day inclusive of VAT, if applicable, payable upon receipt of monthly invoices thereon or as otherwise agreed. This fee of US $ 869 shall cover Alfa Crew A.S. running cost but shall not be limited to personnel, office and administrative cost or expenses. Clause 5 provides that the assessee company shall reimburse Alfa Crew A.S. all crew salaries/expenses reasonably incurred by Alfa Crew in the proper provision of the services, in accordance with the assessee company's identification and request, and Alfa Crew shall be entitled to a 5 per cent handling fee thereon. It is also provided therein that Alfa Crew shall provide the assessee company with evidence of such salaries/expenses as the assessee company may reasonably require. Clause 8 provides that the Alfa Crew shall be responsible for all income-tax liabilities, employer tax liabilities and similar contributions in respect of its fees or otherwise, and Alfa Crew shall indemnify the assessee company against all demands for any such tax, penalties, interest in respect of or in any way related to the services provided under the agreement and against its costs of dealing with any such demand. From the conjoint reading of cls.....
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....e to the agreement entered into with ONGC. The agreement to reimburse to Alfa Crew the payment of salaries or expenses of the crew deployed at the drilling ship operated by the assessee company was made only for the convenience of the parties and not because of the reason that the assessee was discharging the obligation of Alfa Crew. When the separate clauses are provided in the agreement for the payment of fees for services provided by Alfa Crew to the assessee company, there is no reason to treat the payment made by the assessee to Alfa Crew by way of reimbursement of all crew salaries or expenses as payment made to Alfa Crew for providing technical services. 12. It has been claimed by the assessee that for execution of the works contract entered into with the ONGC, the assessee company itself employed the crew provided by the Alfa Crew as its employee and each individual crew employee provided by Alfa Crew was appointed by the assessee as assessee's employee vide appointment letters, which were furnished before the AO and at sample copy of appointment letter was also incorporated in the paper book furnished to the learned CIT(A). A sample copy of appointment letter has also b....
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....rt thereof a copy of assessee's submission dt. 19th July, 2005 together therewith the said appointment letters filed with the AO was produced before the learned CIT(A). However, while deciding the issue, the learned CIT(A) has not said anything upon this matter of the appointment letters issued by the assessee to the crew members, who were claimed by the assessee to be its seconded employees. With a view to ascertain the actual state of affairs with regard to the assessee's claim that the assessee had filed appointment letters issued to crew members by the assessee for executing the work contract entered into with ONGC before the AO, the matter was again put up by the Bench for clarification of both the parties. After granting adjournments to both the parties, the matter was then finally heard on 23rd Oct., 2008, when the assessee produced before us a copy of letter dt. 15th Oct., 2008 given by Dy. Director of IT, International Taxation, Dehradun, enclosing therewith certified copy of assessee's submission dt. 19th July, 2005 filed before the AO. The AO has issued certified copy of assessee's submission dt. 19th July, 2005 together with enclosures thereto, to the assessee, vide his....
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....all, Raymond W British 68 ---------------------------------------------------- 4. Barnes, Carl British 73 ---------------------------------------------------- 5. Beare, Mark A British 64 ---------------------------------------------------- 6. Bisanti, Ramon British 68 ---------------------------------------------------- 7. Booth, Micheal J British 86 ---------------------------------------------------- 8. Brierley, Andrew W  ....
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....p; 66 ---------------------------------------------------- 20. Dixon, Robert E British 84 ---------------------------------------------------- 21. Duthie, John A British 79 ---------------------------------------------------- 22. Eccleston, Peter R British 65 ---------------------------------------------------- 23. Elliot, Jason L Australian 70 ---------------------------------------------------- 24. Elsworth, David G British 66 ---------------------------------------------------- 25. Evans, Teifion H &nbs....
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....; 67 ---------------------------------------------------- 38. Hogstorm. Sven Swedish 79 ---------------------------------------------------- 39. Hughes, Colin British 78 ---------------------------------------------------- 40. Hutton, Paul N British 76 ---------------------------------------------------- 41. James, Ronald J British 82 ---------------------------------------------------- 42. Karlsson, Karl G Swedish 45 ---------------------------------------------------- 43. Kelly, ....
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.... Zealander 37 ---------------------------------------------------- 56. Munro, Philip J British 66 ---------------------------------------------------- 57. Murray, Douglas R British 87 ---------------------------------------------------- 58. Noon, Philip British 65 ---------------------------------------------------- 59. Olah, Steven W Australian 86 ---------------------------------------------------- 60. Perry, Leigh C British 74 ---------------------------------------------------- 6l. Ralph, Bruce G  ....
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....bsp; British 75 ---------------------------------------------------- 73. Woods, Gareth R British 43 ---------------------------------------------------- 13. Copies of appointment letters are placed at pp. 302 to 379 of the paper book filed before us, and these appointment letters are in respect of employees listed above. Thus, it is clear that the aforesaid expatriate employees were directly employed by the assessee on the terms and conditions as incorporated in the appointment letters issued by the assessee to the said expatriate employees. 14. In support of the view that the crew were employees of the assessee company and the assessee company was discharging its own obligation by way of reimbursing the payment of all crew salaries or expenses, the following additional factors besides the averments made in cls. (1), (4), (5) and (8) of the agreement are found to be relevant: (i) Drilling ship known as "Belford Dolphin" was being operated by the assessee company, who was acco....
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....n collaborator on behalf of the assessee in deputing the foreign technicians in India has attracted s. 192 and not s. 195, since the aforesaid technicians were practically the employees of the assessee during the period of deputation. In that case, the assessee company entered into a joint venture agreement for technical and financial collaboration with HP, a foreign company. The purpose of the agreement being the provision of technical know-how by HP to the assessee to make and sell certain products of HP in India, the assessee was to pay a lump sum technology transfer fee in consideration of the services and privileges provided by HP and in consideration of the transfer of know-how by HP to the assessee company in relation to HP transfer products, and in consideration for the manufacture right on the HP transfer products, the assessee company was to pay 13 lakh dollars in three equal instalments. Over and above, the assessee was to pay recurring royalty in relation to HPI's manufacture of the HP 9.000 model-822 and 832 computers from the commencement of commercial production. Another part of the agreement was that HP was to depute certain technical personnel to work for assessee ....
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....he Alfa Crew had to receive a fixed fee of US $ 869 per day and 5 per cent handling fee on the amount of reimbursement of all crew salaries or expenses. The crew were deputed and their services were placed at the disposal of the assessee during the deputation period. The assessee had also issued appointment letters to all the crew or technicians, who were deputed and placed at the disposal of the assessee. The services of the technicians were also fully at the discretion of the assessee during the period of deputation inasmuch as they had to work under the control and supervision of the assessee and not of Alfa Crew. The facts of the present case are, thus, quite similar and identical to that of the case of HCL Infosystems Ltd., and as such, the decision of the Co-ordinate Bench of the Tribunal in the case of HCL Infosystems Ltd., is squarely applicable to the present case. It is also pertinent to know that the aforesaid Tribunal's decision in the case of HCL Infosystems Ltd. has been upheld and approved by the Hon'ble jurisdictional High Court reported as Director of ITO vs. HCL Infosystems Ltd. 16. In the case of HCL Infosystems Ltd. vs. Dy. CIT (2002) 76 TTJ (Del) 505, Tribun....
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....art. 10 of the agreement. In consideration of the HP deputing its technical and advisory personnel, the assessee shall reimburse and pay to HP on a monthly basis the actual amount of the salaries and related employment costs incurred by HP in deputing and maintaining these employees in India. The assessee shall provide at its cost appropriate accommodation and suitable local transportation to HP's personnel during their stay in India. The assessee shall bear all Indian taxes payable on the abovementioned payments to HP. Any arrangement arrived at between the parties pursuant to cl. 10 above shall be subject to a specific approval of the Government of India and the RBI, HP shall not be obligated to provide any personnel pursuant to above clause until such approvals have been obtained. 24. As per this agreement, the assessee, was to reimburse and pay to HP on a monthly basis the actual amount of the salaries and related employment costs incurred by HP in deputing and maintaining these employees in India. The technicians deputed desired to receive their salary in US dollars. For the convenience of these technicians, HP made the monthly salary in USA for which debit notes were sent ....
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.... discretion of the assessee during the period of deputation, it was submitted that the liability was rightly of the assessee as an employer to deduct tax at source under s. 192 and there is no question of any deduction under s. 195 of the Act. If the claim of the Department is correct then the assessee is not liable to deduct tax at source under s. 192 of the Act as the foreign company i.e., HP was liable to deduct tax at source from the salary of the technicians. The learned counsel also found support from the Circular No. 720 of the CBDT, dt. 30th Aug., 1995, where it was clarified that each section relating to tax deduction at source under Chapter XVII of the Act deals with a particular kind of payment to the exclusion of all other sections in that chapter and that the payment of any sum shall be liable to deduction of tax only under one section. Having regard to the above facts and circumstances of the case, we are of the view that the assessee was fully justified in holding the view that it was not liable to deduct tax at source. The view taken by the assessee was directly supported by the letter of the Asstt. CIT, Special Circle 30(1), Mayur Bhavan, New Delhi, who informed th....
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....um so chargeable and upon such determination tax shall be deducted under sub-s. (1) only on that proportion of the sum which is so chargeable. However, the assessee was not in a position to invoke the above provision in view of the fact that Asstt. CIT, Special Circle 30(1), informed the assessee that the reimbursement of salary was not covered by the provisions of s. 195 of the Act. There is therefore no reason to hold that the assessee was in default for non-deduction of tax under s. 195 of the Act. 29. Having regard to the above facts and circumstances of the case, we hold that the assessee cannot be deemed to be an assessee in default under s. 201(1) and also not liable to interest under s. 201(1A) of the Act. We order accordingly." 17. The aforesaid decision of the Tribunal in the case of HCL Infosystem Ltd. has been approved and upheld by the Hon'ble jurisdictional Delhi High Court in the case of Dy. CIT vs. HCL Infosystems Ltd. by observing and upholding as under: "Judgment As pointed out by the Tribunal, the IT Department after a lapse of six years issued notices requiring the assessee to show cause why the remittances made by it to Hewlett Packard (USA) in resp....
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....ion was delivered on its peculiar facts. In fact, in the said decision it is observed that: 'There appears to be no dispute that the services rendered by the foreign company, Foster Wheeler Energy Corporation, would be in the nature of technical services and would, therefore, consequently be covered fully by the above Explanation.' In our opinion, it cannot be said that the Tribunal has committed an error. In any event, there is no substantial question of law which requires consideration as the Tribunal has arrived at a finding on the material placed on record. Hence, the appeal is dismissed." 18. At this juncture, we find it necessary to examine the reason given by the AO in not following the aforesaid decision of the Tribunal in the case of HCL Infosystems Ltd. The AO in his order has stated that in the course of hearing before him, the assessee placed reliance upon the said decision of the Tribunal in the case of HCL Infosystems Ltd. However, the AO did not feel inclined to follow the same by observing that the decision of the Tribunal in the case of HCL Infosystems Ltd. does not apply to the facts of the case of the assessee company as in the assessee's case, the payme....
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....es not make any difference as to applicability of the Tribunal in the case of HCL Infosystems Ltd. as the technicians employed by the assessee and placed at the disposal of the assessee, were under the direct control of the assessee and the relationship of a employer and employee existed between the assessee and the technicians. Thus, the reason given by the learned CIT(A) in not following the decision of HCL Infosystems Ltd. has no legs to stand. 20. The next reason given by the AO in not accepting the assessee's claim that the reimbursement payment made to Alfa Crew towards salaries/expenses of the crew is covered by s. 192 of the Act is that even if the payments were covered by s. 192, there was a clear default in deduction of tax at source on payment against services of crew as because of the invoices raised by Alfa Crew on account of salaries of crew were raised on monthly basis indicating that the payment to crew was being made on monthly basis but the assessee had failed to deduct tax at source from the said monthly payment under s. 192 of the Act. The AO further observed that the s. 192 casts the liability upon the assessee to deduct tax at source on the date when salary....
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....ch the payment is made, on the estimated income of the assessee under this head for that financial year. The section nowhere mandates that each instalment of TDS recovered should be exactly 1/12 of the total tax deductible at source. A conjoint reading of ss. 192(1) and 192(3) of the IT Act, 1961 makes it further clear that TDS instalments of each month need not necessarily be accurate, as otherwise the expression 'increase or reduce the amount to be deducted under this section for the purpose of adjusting any excess or deficiency arising out of any previous deduction or failure to deduct during the financial year' will have no meaning. Let us take an example of a salaried employee, who is supposed to pay annual tax of Rs. 30,000 based on the salary income earned in the month of April of the financial year. The employer has to deduct, according to the Revenue authorities, tax @ Rs. 2,500 per month. If, in the month of December, the employee gets arrears of salary, bonus, etc. which doubles the tax liability, the employer would be liable to deduct Rs. 5,000 towards tax every month as against Rs. 2,500 deducted earlier. Neither the assessee nor the employer could have anticipated thi....
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....ia exceeding 90 days in the relevant period. The AO's observations in this respect are reproduced herein which would make it clear that the AO rejected the assessee's contention only for the reason that the assessee failed to deduct tax at source under s. 192 on the date when the salary of each and every month was paid without considering ultimate liability of tax in the relevant year and considering the provisions of s. 192(3) of the Act. "4. The argument of the learned Authorised Representatives that the crew were deemed employees of the assessee company and payments against their services were covered by s. 192 is not tenable but even if the payments against their services were covered by s. 192, there is a clear default in deduction of tax at source on payments against services of crew. All the invoices raised by Alfa Crew on account of salary of crew have been raised on monthly basis which indicates that payment to crew was being made on monthly basis. Mobilization of drillship was started on 8th Aug., 2003 as the first invoice bearing No. 1800000046, dt. 2nd Sept., 2003 was raised for US $ 6,00,166 on account of salary of crew. The amount of invoice was due to be paid by 1....
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.... s. 9(1)(vii) of the Act. However, CIT(A) agreed with the assessee. On appeal, the Tribunal held that the payments were taxable under s. 9(1)(vii) of the Act. At the instance of the assessee, a question whether the amount was paid for technical services and would be treated as income under s. 9(1)(vii) of the Act was referred to the High Court. The Hon'ble High Court decided this issue against the assessee. It was observed in that case that the two supervisors were deputed only for the purpose of rendering technical services. In that case, it was the responsibility of non-resident company to do the job of erection of conveyor belts through their engineers, and for that purpose, the two supervisors were deputed for a period of two working days. From the facts of this case, it is, thus clear that these two supervisors were discharging their duties under the control and supervision of the non-resident company, which was responsible for doing the job of erection of conveyor belts through their engineers. Though, on the other hand, in the case before us, deep water drilling rig known as "Belford Dolphin" taken on charter hire basis from Dolphin Drilling (P) Ltd. was operated by the asse....
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.... the payments made to the personnel were in the course of or in the process of obtaining advice of a technical character from the foreign company 'F'. The very act of valuation whether the coke produced from a blend of vacuum bottoms and clarified oil from Bombay High crude was suitable for making anodes for the vacuum industry was not carried out by the assessee in the course of which the assessee had employed these two personnel of foreign company but the personnel did work for the foreign company. As discussed above, the facts of the present case are quite different inasmuch as the present assessee did not obtain the services of the personnel from Alfa Crew in the course of providing any service in the nature of technical services defined under Explanation s. 9(1)(vii) of the Act but the crew members were placed at the disposal of the assessee for the purpose of manning the drilling unit operated by the assessee in the offshore waters in pursuance to the contract entered into with ONGC. Thus, this decision does not give any assistance to the Revenue on facts. 26. The learned Departmental Representative has also relied upon the following two Tribunal decisions: (1) West Asi....
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....ose of allowing or otherwise of deduction in the assessment. 29. The decision of Hon'ble Supreme Court in the case of Transmission Corporation of A.P. Ltd. vs. CIT is also of no assistance to the Department inasmuch as in this case a preposition that has been laid down is that income-tax on the gross sum chargeable to tax is to be deducted, and it is the statutory obligation of the person responsible; for payment of such sum chargeable to tax, to deduct tax thereon before making payment. Here, in the present case, it is the case of the assessee that the payment of crew salary and expenses is not chargeable to tax as fees for technical services in the hands of Alfa Crew, and as such the question of deducting tax at source under s. 195 of the Act did or could not arise. This decision would have gone against the assessee only after it is found that the payment of salary crew and expenses paid to Alfa Crew were chargeable to tax in the hands of Alfa Crew and thus, the tax was deductible under s. 195 of the Act. In this case, it has also been observed that the s. 195 provides for deduction of tax at source subject to regular assessment, and the purpose of s. 195 is to see that on the....
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....-B of the Act. The AO has not examined the matter and pointed out any material to say that the assessee has not deducted the tax at source from the aforesaid payments chargeable under the head 'Salaries'. The assessee's contention is that the assessee has deducted tax at source from the payment chargeable under the head 'Salary' after wherever it was found due after considering the income exempted under s. 10(6)(viii) of the Act, the AO has not made any adverse finding against the assessee's claim that the payment made to crew members by way of salary or expenses was exempted from tax under s. 10(6)(viii) of the Act inasmuch as the non-resident crew member did not stay into India in the aggregate for a period of 90 days or more in the relevant financial year. This aspect of the question has not been adversely commented upon by the learned CIT(A) also. On perusal of s. 10(6)(viii), it is clear that any income chargeable under the head salaries received by or due to any non-resident as remuneration for services rendered in connection with his employment on a foreign ship where total stay in India does not exceed in the aggregate a period of 90 days in the relevant previous year is no....
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....the facts and in the circumstances of the case the learned CIT(A) erred in confirming disallowance to the extent of Rs. 10,18,72,035 being the payment made by the appellant to Dolphin A.S. for acquiring management rights of the drillship 'Belford Dolphin' pursuant to the management agreement. 2.1 That on the facts and in the circumstances of the case the learned CIT(A) erred in holding that the appellant had no liability to pay a sum of Rs. 35.72 crores to Dolphin A.S. in respect of the management rights of the drillship. 2.2 That on the facts and in the circumstances of the case, the learned CIT(A) erred in commenting that the claim of the appellant was an afterthought aimed at inflating the operating cost in order to get its tax liability reduced." 33. In the course of assessment proceedings, it was noticed by the AO that the assessee has debited an amount of Rs. 10,18,72,035 in the P&L a/c being part of total payment of Rs. 35,72,02,369 paid for acquiring management rights in drillship "Belford Dolphin". However, in the return of income, the assessee claimed the deduction of entire sum of Rs. 35,72,02,369 paid for acquiring management rights of drillship "Belford Dolphi....
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....cquired right for management of drillship from Dolphin A.S. for an amount of Rs. 35,72,02,369 to eliminate recurring payments of 7 per cent of the gross revenue attributable to drillship, which would otherwise have had to be paid to Dolphin A.S. in its capacity as manager of drillship. The assessee, thus, submitted that by making a lump sum payment to Dolphin A.S. the assessee company has eliminated recurring revenue expenditure. The assessee's contentions and claims were not found to be convincing or tenable by the AO for the various reasons discussed by him in paras 4.3 to 4.7 of his order which are reproduced hereunder for ready reference: "4.3 The arguments set forth are however, neither convincing nor tenable because the drillship was mobilized on 9th Aug., 2003 for being deployed on site for execution of contract work in pursuance of agreement dt. 10th Oct., 2003 for charter hire of drillship entered into by the assessee with Dolphin Drilling (P) Ltd. (owners of the bareboat). There is no mention in the agreement dt. 10th Oct., 2003 that managerial rights over drillship were with some other company. On going through above agreement, it clearly transpires that Dolphin Drill....
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....ring of managerial rights has found place in those details of expenditures. It is also of extreme relevance that agreement for acquiring managerial rights is claimed to have been signed on 17th Sept., 2004 and it is mentioned in cl. (A) of the agreement that Fred Oison Energy ASA had acquired management rights in pursuance of sale and purchase agreement dt. 20th June, 2000 and subsequent amendment dt. 30th Nov., 2000 over the Drillship from Navis Explorer A.S., the parent company. Para (B) of agreement indicates that vessel was sold by Navis Explorer A.S. (which was later merge into Dolphin A.S.) to Fred Olsen Drilling A.S. on 30th Nov., 2001. The above conditions of agreement are very confusing and it is nowhere mentioned in the agreement that management rights were acquired by Dolphin A.S. Neither event-wise details of transfer of drillship and managerial rights are given not copy of any of the agreements mentioned in the agreement dt. 17th Sept., 2004 have been produced for verifications even after being specifically asked about. It is therefore, not possible to verify as to whether the Dolphin A.S. was in fact having managerial rights over the vessel. The agreement bears dt. 17....
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.... to TDS as it did not constitute income chargeable to tax under the Act in the hands of the recipient company. The sum received by the recipient company is clearly income in its hands as it has only source of income from management of Drillship and the ship in respect of which it has received management charges was working in India and therefore, in view of provisions of ss. 5 and 9 of IT Act, the income accrued in respect of ship is chargeable to tax in India. Moreover, neither the assessee company had applied for determining income of recipient company under s. 195(2) nor the recipient company applied for under s. 195(3) or 197 for exemption or lower determination of profit rate. The sum paid by assessee company to non-resident company was clearly a revenue receipt in the hands of recipient NRC and thus was liable to TDS under s. 195 as it is covered by the term 'other sum' which has been paid to a non-resident and outside India. In view of the above provisions the amount paid is not allowable as expenditure under s. 40(a)(i) of IT Act: As regards argument of the learned Authorised Representatives, that sum is a revenue receipt in the hands of recipient company Dolphin A.S. and t....
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....e forwarded by the learned CIT(A) to the AO for his comments. The assessee made further submission before the learned CIT(A) vide its letter dt. 12th Oct., 2006, which is stated to be more or less repetition of the submissions made earlier on 31st May, 2006 before the learned CIT(A). 33.5 After considering the assessment order and the submission of the assessee and as well after going through the paper book filed by the assessee before the learned CIT(A) including the agreement dt. 17th Sept., 2004 between the assessee and Dolphin A.S., the learned CIT(A) confirmed the AO's order by concluding as under: "(c) The foregoing discussion goes to establish that the appellant has raised this claim to avail a chance to get its tax liability reduced and has done so with the culpable knowledge of its falsity as is established from the consideration of the alternate claim that the assessment of its total income cannot exceed 10 per cent of the revenue received by it from ONGC, This apprehension of the appellant clearly indicates a culpable state of mind recognizing the fact that the claim in its return of income is false and may not be accepted. Since I am of the opinion that there was ....
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....xpenditure was of capital or revenue in nature and also about other aspects of the matter as to allowability or otherwise of the assessee's claim under the provisions of the Act. Thus, we have to decide first whether agreement dt. 17th Sept., 2004 entered into between assessee and Dolphin A.S. with regard to the alleged acquisition of management rights over the drillship known as "Belford Dolphin" is genuine and/or whether the assessee had incurred liability to pay any consideration for acquiring alleged management rights of drillship "Belford Dolphin" to Dolphin A.S.? 37.2 In this connection, the learned counsel for the assessee has invited our attention to the various agreements entered into between different concerns from time to time with regard to the management rights over the drillship Known as "Belford Dolphin" with a view to buttress his argument that historically, ownership rights and management rights in drillship known as "Belford Dolphin" vested with separate entities from time to time. He further submitted that the historical state of affairs about management rights in drillship may be traced in the impugned order of the learned CIT(A), who has discussed and noted ....
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....o writing with a view to ratify and confirm the transaction. This sort of arrangement of effecting the transaction first by conduct of the parties and then later reducing the same in writing with a view to ratify and confirm the same is commonly prevalent and accepted system in the business transaction. For instance, in the present case, the agreement entered into between the assessee and ONGC is dt. 17th Oct., 2003 but the agreement was made effective as of 1st Aug., 2003. The agreement to acquire drillship on charter hire basis is dt. 10th Oct., 2003, though the drillship had already been mobilized on 9th Aug., 2003 and this agreement was even made before the written agreement with ONGC was made on 17th Oct., 2003. Thus, the subsequent agreement confirming and ratifying the acts, deeds and things already done by the parties to the agreement cannot be held to be non-genuine only for the reason that the agreement in writing was made at a point of time later than the date of its commencement. The AO has not made any enquiry from Dolphin A.S. about the transaction in question. The averments recited in the agreement have not been proved to be false or bogus by bringing out, any adequa....
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....were transferred to the assessee company w.e.f. 9th Aug., 2003, which was recorded by way of confirmation of transfer of management rights by a memorandum of agreement dt. 17th Sept., 2004. He, therefore, submitted that the doubts raised by the Revenue authorities below about the genuineness of the transfer agreement was contrary to the actual state of affairs. He further submitted that it was not correct for the authorities below to doubt a valid agreement duly signed by both the parties to the agreement. 37.5 We have carefully perused the history of management rights in the drillship "Belford Dolphin" as narrated by the learned CIT(A) in his order, and on perusal thereof, we find that the assessee has raised a contention that the management rights were acquired by different entities from time-to-time. The copy of management agreement allegedly entered into by different entities from time to time has been filed by the assessee before us. The AO has doubted the genuineness of the agreement entered into between the assessee and Dolphin A.S. for one of the reasons that the fact of management rights vesting with some other entities was not mentioned in the charter hire agreement en....
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.... to enable the AO to bring on record actual state of affairs about alleged separate management right over the drillship claimed to be held by other entities other than the owner thereof. 37.6 The next reason given by the authorities below for raising doubt against the claim of the assessee is that during the course of proceedings under s. 195(2), the assessee had given projected figures of all the expenditures against contract receipts and there was no mention of any expenditure on account of acquiring managerial rights. After considering the facts of the present case, we find that this reason given by the authorities below has no substance as the total amount paid for acquiring managerial rights was capitalized in the books and it is only in the return of income filed after the end of the previous year that the total expenses for acquiring managerial rights were claimed as revenue expenditure. It is, thus, clear that at the time of proceedings under s. 195(2), the assessee did not decide to claim the expenses as revenue expenditures but instead the expenses were capitalized in the books. Thus, not mentioning of any expenditure of acquiring managerial rights in the projected fig....
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.... reserving one's right available under the law to get assessed at deemed profit so as to say that any claim of expenses made in the return of income but disallowed by the AO while making assessment would be nothing but a false claim made without any justification. In this view of the matter, we are not inclined to be in agreement with the aforesaid approach adopted by the learned CIT(A), and thus this reason given by learned CIT(A) is set aside and rejected. 37.9 In the light of the discussion made above, we remit this issue back to the file of the AO for his fresh adjudication after making necessary enquiry or verification as observed hereinabove by us. While adjudicating the issue afresh, the AO shall also decide all other aspects of the issue other than the aspect relating to the genuineness of the assessee's claim of deduction on account of management rights in the drillship. The other aspect of this issue arising in the present case as revealed from the orders of the authorities below and the submission of the assessee would, amongst others if any, be that whether expenditure for acquiring management rights would be revenue or capital in nature, and whether the same is liab....