AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
1997 (4) TMI 508
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....ance to mining industries, tourism charters, taxi services and media work. The Command Petroleum (India) Pty. Ltd. (hereinafter briefly referred to as "the Command"), another Australian company, had entered into a contract on October 28, 1994, with three more companies, the Oil and Natural Gas Corporation Ltd. of India (ONGC), Videocon Petroleum Ltd., Ravva Oil (Singapore) Pty. Ltd. and the Government of India for the development of the Ravva Offshore Oil and Gas Field which includes, inter alia, extraction and production of mineral oil. This contract is in the nature of a joint venture on a production sharing basis for the above purpose. The fuller details of this contract are not relevant for the purposes of this case. In pursuance of the wishes of its co-venturers and in order to effectively carry out its activities in terms of the above contract, Command entered into an agreement on September 13, 1995, with the applicant-company under which the applicant-company is required to provide helicopter services to facilitate the operations of the joint venture. The Ravva Oil and Gas Field has its bases, drilling units and operation platforms at various places whose geographical co-o....
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....rs shall be available for at least three return flights per week as per a prearranged schedule with additional flights as advised by a flight request document. 3.2. Each flight, inclusive of schedule flights, shall be subject to a flight request document, except in an emergency as provided in clauses 3.3 and 3.4 where verbal instruction given directly by Command's representative or the drilling superintendent (or his equivalent) of the drilling unit shall be adequate. All flight request documents shall be provided a minimum of 24 hours prior to departure time, shall be signed on behalf of Command and shall detail : (a) time of departure and destination of the flight ; (b) the name of each passenger and their approximate weight which shall be checked and certified by contractor and recorded on the flight manifest together with the flying time, certified by the Command representative". The most important clause is paragraph 7 relating to consideration. It is sufficient to refer to paragraph 7.1 which is in the following terms : "7. Consideration.-As full compensation for the performance of contractor's obligations set forth herein, company agrees to pay contractor as herein prov....
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....rform the work, except where specifically stated as being provided by Command ; (ii) Provision of procedural input and technical guidance as required for the production programme and the crew change for the drilling programme ; and (iii) Provision of accurate flight logs giving flying time and detailing all aspects of the operations relevant to drilling crew changes and/or production flying programme. This shall include but not be limited to time schedule for all aircraft maintenance over the term of this agreement, a realistic programme for mobilisation of the aircraft and a detailed inventory of contractor's spare parts back up." The rest of the agreement is not material for the purpose of this case. In pursuance of the above agreement, the applicant opened a project site office at Rajahmundry and also notified a place of business in India under section 592 of the Companies Act, 1956. A helicopter was taken on lease by Command from the Lloyd group. The applicant sought and obtained permission for the operation of the helicopter for carriage of men and materials in connection with the project, subject to the directions of the civil aviation authorities in both countries. From ....
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....applicant satisfies sub-clause (c) of clause 2 of article 15 of the Agreement for Avoidance of Double Taxation ('DTAA') concluded between India and Australia, as not being an expense deductible in determining the taxable profits of the permanent establishment of the applicant in India. This question is notwithstanding the income of the applicant being chargeable to tax either under section 44BB or section 44BBA of the Act." Before dealing with the merits of these questions, a few words have to be said about the actual import of the third question. To understand this, it is necessary to refer to article 15 of the Agreement for Avoidance of Double Taxation between India and Australia (DTAA). This article reads thus (see [1992] 194 ITR (St.) 241, 257) : "Article 15 : Dependent Personal Services : (1) Subject to the provisions of articles 16, 17, 18, 19 and 20, salaries, wages and other similar remuneration derived by an individual who is a resident of one of the Contracting States in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived from ....
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.... of another person, however closely related to the applicant. Shri Dastur, however, submitted that question No. 3 raised in the present application does not fall in this category in view of the nature of the provision contained in article 15 of the Double Taxation Avoidance Agreement. Though that article spells out the situation in which an employee of the applicant can seek exemption from tax liability in India for the remuneration paid to him by the applicant, such exemption is made dependant on the question whether such remuneration is deductible in determining the taxable profits of the applicant's permanent establishment or fixed base in India. This is certainly a question that pertains to the assessment of the applicant, capable of being determined more satisfactorily only in the applicant's case, though in order to determine the taxability of an employee in respect of the remuneration derived by him from the applicant. Shri Dastur also pointed out that the question whether the employees would be taxable in India would also be a material circumstance that will have to be taken into account by the applicant in organising its business. If the remuneration is taxable, the applic....
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....machine designed to travel through air with the possible exception of hovercrafts. The Chambers' Dictionary defines the word thus : "a weight-carrying machine or structure for flight in or navigation of the air and designed to be supported by the air either by the buoyancy of the structure or by the dynamic action of the air against its surface-used of airplanes, balloons, helicopters, kites, kite balloons, orthopters, and gliders but chiefly of airplanes or aerostats." The Webster's Dictionary gives even a wider definition in the following terms : "any structure or machine designed to travel through the air, whether heavier or lighter than air, airplane, airship, balloon, helicopter, etc." Etymology apart, the operation of mechanisms in the air is subject to regulations regarding air worthiness, licensing and maintenance of skilled operators and mechanics in every country. The Aircraft Act, 1934 (22 of 1934), makes the relevant provisions so far as India is concerned. Section 2(1) of this Act defines an "aircraft" in the following manner : " 'aircraft' means any machine which can derive support in the atmosphere from reactions of the air, other than reactions of the air again....
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....tive as to whether section 44BBA was really intended to be so comprehensive and far-reaching as it was now sought to be made. It is doubtful whether it was intended to cover business in operations of helicopters and other kinds of aircraft covered by the definitions earlier set out, the commercial and economic parameters of which seem widely variant from the well-recognised traffic contours of ordinary airlines. But the amplitude of meaning of the word "aircraft" used in the section cannot be cut down on mere assumptions. Likewise one may wonder whether the framers of the provision intended it to apply to aircrafts other than airlines flying passengers and goods inter-countries. But it is difficult to read such territorial restrictions into the language of the section. The stand of the Department, on the other hand, introduces the additional words "to any place outside India" and "to any place in India", respectively, at the end of clauses (a) and (b) of sub-section (2) for which it is difficult to find justification. It may be that, at present, commercial flights of foreign airlines are not permitted to touch at more places than one in India so that a purely internal transport by ....
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.... contains nothing to exclude such cases from its ambit. If it was so intended, the Legislature could easily have made it amply clear by limiting section 44BBA to "international airlines" or "international air-traffic", expressions defined and employed in tax instruments like Double Taxation Avoidance Agreements. The contention that section 44BBA should be confined to cases of international traffic cannot, therefore, be accepted. However, though the plying of helicopters even within places in India cannot be excluded from the purview of sub-section (1) of section 44BBA, the Authority has come to the conclusion, for reasons set out later that, having regard to the nature of transactions in the present case, the applicant's receipts are not of the kind described in sub-section (2) and that, therefore, the provisions of section 44BBA will be inappropriate to the present case. Equally, the terms of section 44BB also seem applicable to the present case. This section is in the following terms : "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....
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....n connection with" and "the prospecting for or extraction or production of oil" on the other. The second is that the use of the words "used for the purposes of the said business" in the Explanation are repetitive as the word "plant" is already subject to this qualification in the main body of the sub-section. Turning now to the language of sub-section (1), there can be no doubt that the applicant comes within its ambit. It is clearly engaged in a business of either description referred to in the section and set out in the form of two clauses earlier. In this situation, therefore, it becomes necessary to determine whether the applicant should be assessed in accordance with the provisions of section 44BB or those of section 44BBA. The applicant's choice is the latter for the simple reason that its profits would be assessed at 10 per cent. of its receipts and accruals under section 44BB while it will be assessed only at five per cent. of such amounts under section 44BBA. Legal support for this choice is sought to be derived from the legal maxim "generalia specialibus non derogant", as applied for deciding on the competing claims of two provisions in the same enactment, one general ....
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....leasing out plant and machinery in relation to a business in exploration for, and extraction and production of, mineral oil. It may be that the company-or rather the group to which it belongs-may have a wider area of operations but the issue here is only regarding activities in relation to the business of mineral oils. Secondly, though the business operations in the present case attract the provisions of sub-section (1) of section 44BBA, that section can be invoked only in cases where the operator is deriving income of the categories specified in sub-section (2) of that section. Where the income derived cannot be brought within the categories of receipts outlined in sub-section (2), the statutory formula for determining the presumptive income becomes unworkable. The consequence of such a situation has been explained by the Supreme Court in the cases of CIT v. Srinivasa Setty [1981] 128 ITR 294 and CIT v. Official Liquidator, Palai Central Bank Ltd. [1984] 150 ITR 539. It was observed by the court in the earlier of these cases (page 299) : "The character of the computation provisions in each case bears a relationship to the nature of the charge. Thus, the charging section and the c....
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.... that the consideration or any part thereof paid to the applicant by Command is on account of the types of carriage in the section. Reading the two sub-sections of section 44BBA together, it can be said that the section is applicable-and can indeed be applied-only if it is possible to say that they represent the categories of receipts mentioned in the section and with reference to which the "presumptive" rate of profit specified in the section should be applied. On the other hand, the consideration in the present case can definitely be said to relate to only the provision of services and facilities and hire of plant and machinery in relation to an oil business carried on by Command. The authority is, therefore, of the view that the present case is one governed by section 44BB rather than by section 44BBA. Shri Dastur submitted that the contract by the applicant is part of a larger business of plying aircraft for hire and is to help Command to transport its personnel and equipment to its operation units from the base or between operation units inter se. To say that the payment received by the applicant is not on account of such carriage would be, according to him, a distinction wit....
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....that one cannot place over-reliance on the form which the parties give to their agreement or on the label which they attach to the payment due from one to the other. One must have regard to the substance of the matter and, if necessary, tear the veil in order to see whether the true character of a payment is something other than what, by a clever device of drafting, it is made to appear. But we see no reason to hold that the real intention of the parties was something different from what the words used by them convey in their accepted sense. The charter-party was drawn in a standard form approved by the 'New York Produce Exchange' and there is no warrant for supposing that though the payment which the charterers bound themselves to make to the owners of the ship was on account of the carriage of goods, the parties described it as being payable for the use and hire of the vessel, in order to avoid the payment of Indian income-tax. Indeed, the other terms of the charter-party and the general tenor of the document show that the payment was in fact to be made by the timecharterers for use and hire of the ship. Under the agreement, the charterers had the 'liberty to sublet' the vessel ....
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....he condition set out in clause (c) is satisfied. It is contended by Shri Dastur for the applicant that, having regard to the type of assessment envisaged under section 44BB or section 44BBA on assessees like the present, it cannot be said that such remuneration (as has been referred to above) or indeed any other sum is deducted or deductible in determining the taxable profits arising to the applicant from its base or permanent establishment in India. He says that the section provides for a statutory determination of the taxable profit of a particular type of business at a fixed percentage of the gross receipts, dispensing with the normal process outlined in sections 28 to 43A of taking the gross profits and deducting therefrom allowances and expenditure of the nature set out in those sections which are described as "deductions" in the computation of the taxable profits. He places emphasis on the opening words of the section which require the provisions of those sections to be disregarded and so contends that the concept of deduction or deductibility does not enter into the picture when a presumptive determination of the profits is made at a statutory fixed percentage irrespective o....
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....imarily 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 section 37. Hence, in a commercial sense, the concept of profits determined under section 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 normally likely to be incurred in such business. Shri Dastur gives the instance of a case where an assessee really makes a loss and yet is assessed at a profit rate of five per cent. and argues that, surely, in such a case, at least, it cannot be said that the salaries are a deductible item. But this contention overlooks that the interpretation of a statute cannot be based on isolated possibilities and exceptional situations. The case where a person will incur a loss only by setting off the salaries paid by him is a rare o....