TaxTMI 
TaxTMI 
2024 (8) TMI 1573
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....of remittances made to two foreign entities, by name Frontier Drilling ASA Bergen Norway and Frontier Inc AS, Bergen, Norway (hereinafter referred to as 'non-residents') for assessment years (AY) 03- 04 & 04-05. 2. The Assessee had entered into agreements with Oil and Natural Gas Corporation (ONGC) and Hardy Exploration and Production (India) (HEPI) for drilling of oil wells in Indian waters of the coast of India. It had, in turn, entered into agreements with the non-residents for hiring of drilling units and rigs for specified periods on bareboat charter basis for which payments had been made in foreign currency. 3. The substantial questions admitted for each year are as follows : - T.C.(Appeal) No. 1003 of 2007 (AY 03-04) (i) Whether on the facts and circumstances of the case, the Tribunal was right in law in holding that payments made to the non-resident should be disallowed under Section 40(a)(i) of the Income Tax Act, even though tax has been deducted at source on the income of the non-resident computed in accordance with Section 44BB? (ii) Whether on the facts and circumstances of the case, the Tribunal was right in law in holding that the gross payment to the non-r....
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....here would be no necessity for deduction of tax in respect of those remittances over and above the tax deducted by it in terms of Section 44BB of the Act. 6. The submission was negated for AY 2003-04 by the assessing authority who was of the view that the provisions of Section 44BB would not be applicable to the non-residents as they were not 'eligible assesses' under that provision. The assessing officer had proceeded on the basis that the non-residents are in receipt of business income that is taxable at higher rates. As a consequence, the Assessee was required to deduct tax at the rates applicable for business income as against which it has deducted tax at the rate applicable to receipts covered under Section 44BB of the Act taxable presumptively at the rate of 10% only, which order has been confirmed by the Tribunal on 28.02.2007. For AY 03-04, while the order of assessment and first appeal were adverse to the petitioner, the Tribunal reversed the aforesaid orders, vide order dated 04.02.2011 holding that the provisions of Section 44BB were indeed applicable to non-residents. Hence, the necessity to deduct tax at source over and above the deduction already made stood obviated ....
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.... Where there is, in the view of the assessee, no component of taxable income in a remittance made to a non-resident, there would arise no necessity to deduct tax at source. Thus, with this pronouncement, liberty was available to an assessee to take a calculated risk as to whether to deduct tax in respect of remittances to non-residents or desist. Needless to say, if the decision of the assessee not to deduct in a particular case was found to be erroneous by the Income tax Department, consequences would follow such as levy of penalty under section 201 of the Act and disallowance under section 40(a)(i). 12. The settled position is thus, that an option is extended to the assessee to ensure that the amount deducted is tax appropriate. For this purpose, an assessee may approach an assessing officer under Section 197 seeking clarity as to the quantum of income embedded in the remittance and/or, the rate of deduction at NIL or lower rate, where it believes that there is ambiguity about the quantum of, or rate at which deduction is to be effected. If the assessee chooses to make those decisions itself, without seeking the advice of the Assessing Officer (TDS), it carries the burden of suc....
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....the remittances made to them, and deposited with the Income tax Department. Hence, the non-residents cannot be stated not to be 'assessees'. According to the Department however, is that the receipts ought to be taxed as business profits without the benefit of presumptive taxation. 17. However, section 44BB applies to a foreign entity engaged in the business of civil construction or the business of erection of plant or machinery or testing or commissioning thereof, in connection with a turnkey power project approved by the Central Government. Records have been produced before the authorities to establish the aforesaid position including a copy of agreement dated 27.07.2001 inter se the Frontier Ice AS Bergen, Norway and Frontier Aban Drilling (India) Pvt Ltd. 18. The Tribunal, in order dated 04.02.2011 for AY 2004-05 has taken note of the documentation, the nature of business and the status of the parties to come to the conclusion that the provisions of section 44BB are applicable. Procedurally, we agree that the proper approach would have been for the Bench passing order dated 04.02.2011 to have made a reference to the President of the Income tax Appellate Tribunal for constituti....
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.... the Madras High Court in CIT v. Chennai Metropolitan Water Tax Cases Appeals Nos.500-501 of 2005, [2011]14 taxmann.com 73/202 Taxman 454/[2012] 348 ITR 530 (Mad.) with a request for clarification as to whether the tax is to be deducted under sub-section (1) of section 195 on the whole sum being remitted to a non-resident or only the portion representing the sum chargeable to tax, particularly if no application has been made undo sub-section (2) of section 195 of the Act to determine the sum. 3. The matter has been examined in the Board and accordingly, in exercise of powers vested under Section 119 of the Act, the Board hereby directs that in a case where the assessee fails to deduct tax under section 195 of the Act, the Assessing Officer shall determine the appropriate proportion of the sum chargeable to tax as mentioned in sub-section (1) of section 195 to ascertain the tax liability on which the deductor shall be deemed to be an assessee in default under section 201 of the Act, and the appropriate proportion of the sum will depend on the facts and circumstances of each case taking into account nature of remittances, income component therein or any other fact relevant to dete....
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....king into account the nature of remittances, income component therein or any other fact relevant to determine such appropriate proportion. 4. As disallowance of amount under section 40(a)(i) of the Act in case of a deductor is interlinked with the sum chargeable under the Act as mentioned in section 195 of the Act for the purposes of tax deduction at source, the Central Board of Direct Taxes, in exercise of powers conferred under section 119 of the Act, hereby clarifies that for the purpose of making disallowance of 'other sum chargeable' under section 40(a)(i) of the Act, the appropriate portion of the sum which is chargeable to tax under the Act shall form the basis of such disallowance and shall be the same as determined by the Assessing Officer having jurisdiction for the purpose of sub-section (1) of section 195 of the Act as per Instruction No. 2/2014 dated 26.02.2014 of CBDT. Further, where determination of 'other sum chargeable' has been made under sub-sections (2), (3) or (7) of section 195 of the Act, such a determination will form the basis for disallowance, if any, under section 40(a)(i) of the Act. 5. This may be brought to the notice of all conce....