Income Tax Appellate Tribunal - Delhi
Sedco Forex International Drilling ... vs Deputy Commissioner Of Income Tax. ... on 23 March, 1999
Equivalent citations: [2000]72ITD415(DELHI)
ORDER
B.M. Kothari, A.M.
1. All these appeals by the abovenamed assessees involved consideration of some common points. Hence, these appeals are being disposed of by this common order.
2. We will first deal with ITA No. 4549/Del/1991, for asst. yr. 1986-87 and 4550/Del/1991, for asst. yr. 1987-88 filed by M/s. Sedco Forest International Inc. The first common ground in these two appeals relate to confirmation by the CIT(A) of the findings given by the AO that mobilisation fee of Rs. 99,04,000 received by the appellant company from ONGC in asst. yr. 1986-87 and Rs. 64,64,530 received in asst. yr. 1987-88 should be taken in to consideration for purposes of determining the assessee's income under s. 44BB of IT Act, 1961, ("The Act"). It was contended on behalf of the assessee before the authorities below that a plain reading of the relevant clauses of the agreement executed between the appellant non-resident company with ONGC clearly reveals that mobilisation fee paid by ONGC to the appellant company were in the nature of reimbursement of expenses incurred by the appellant company for the mobilisation of the drilling unit from their present location situated outside the taxable territories, namely, Setubal Portugal to the location designated by ONGC, namely, off shore Bombay, India or to the other drilling unit of ONGC (Kandla or Bombay). The AO included the amount of mobilisation fee paid by the ONGC to the appellant company in both the years under consideration in the amount of gross receipts on which deemed profit @ 10 per cent was held to be liable to tax under s. 44BB of the Act. The CIT(A) confirmed the said findings given by the AO. He also relied upon decision in the case of ONGC as Agent of Schlumberger Forest vs. IAC of ITAT in ITA No. 3314/Del/1988, for asst. yr. 1986-87. The CIT(A) has given the elaborate reasons in the order passed by him while confirming the action of the AO.
3. The learned counsel appearing on behalf of the assessee submitted that the aforesaid ground requires consideration of the following 4 points arising from the findings given by the CIT(A) and the AO :
(a) Whether reimbursement of expenses for mobilisation of the drilling unit from outside India to the designated destination in India for carrying out drilling operations, would partake the character of income liable to tax in India ?
(b) If it is held to be a receipt in the nature of income, whether such a receipt will fall within the ambit of s. 44BB of the Act ?
(c) Since the mobilisation fee for transportation of the drilling rig/drilling equipment relate to services rendered outside India and the payment was also made to the appellant company outside India, whether income on such payments can be charged to tax under the provisions of IT Act, 1961, as it is clearly beyond the scope of charging ss. 4 and 5 ?
(d) Even if income attributable to mobilisation fee is chargeable to tax, what is the reasonable proportion of income which can be charged to tax under s. 44AB of the Act ?
4. The learned counsel invited our attention towards cl. 3.2 and cl. 4.2 of the respective agreements executed between the appellant company and ONGC for performing drilling operations and supplying personnel, which are the relevant agreements for asst. yr. 1986-87 and asst. yr. 1987-88. He submitted that such mobilisation fee has been paid by ONGC to the appellant company for reimbursement of the expenses incurred by the assessee for transportation/mobilisation of drilling unit/drilling rigs to Bombay off shore in India and to other designated location of the drilling unit of ONGC. He also pointed out that the actual expenditure incurred for mobilisation of the drilling units was Rs. 1,54,95,047 in asst. yr. 1986-87 and Rs. 87,95,747 in asst. yr. 1987-88. It is clear from the aforesaid facts that the actual expenditure incurred by the appellant company for transportation of the drilling unit was more than the amount of mobilisation fee paid by ONGC by way of reimbursement of mobilisation expenses. The appellant company, therefore, did not derive any income out of payments made by ONGC by way of mobilisation fee. The learned counsel relied upon the following judgments to support his contention that payments made by way of reimbursement of expenditure cannot partake the character of income liable to tax :
CIT vs. Industrial Engg. Projects (P) Ltd. (1993) 202 ITR 1014 (Del)
5. The learned counsel submitted that the Hon'ble Delhi High Court which is the Jurisdictional High Court, has held in the aforesaid case that reimbursement of expenses can, under no circumstances, be regarded as a revenue receipt. In view of this judgment, the findings given by the CIT(A) and the AO should be set aside.
CIT vs. Dunlop Rubber Company Ltd. (1983) 142 ITR 493 (Cal)
6. The learned counsel pointed out that the Tribunal in the aforesaid case has held that the payment made to the assessee, a non-resident English company for the recoupment of the expenses incurred by the technical data for which a research Department was maintained by the assessee-company in London did not constitute income assessable to tax. The Hon'ble Calcutta High Court confirmed the said view taken by the Tribunal.
Mannesmann Demag Lauchhammer vs. CIT (1988) 26 ITD 198 (Hyd)
7. The learned counsel submitted that the aforesaid decision involve consideration of almost a similar point in relation to interpretation of s. 44B of the Act. It has been held by the Hyderabad Bench of the Tribunal that the provision of s. 9(1)(vii) authorises taxing of technical fees alone. It does not authorise taxing every business receipt from India, although such receipts might be incidental to the agreement to provide technical fees, they were not technical fees. It was, therefore, held that ITO was not justified in including air fare, accommodation fee and stay allowances, etc. in technical fees as taxable under s. 9(1)(vii) of the Act. The Tribunal also observed that s. 44D cannot be of any help for including air fare, accommodation fee, etc. in the technical fees.
(4) IAC vs. Metchem Canada Inc. (ITA Nos. 645 to 648/Bang/1985, dt. 26th August, 1987)
8. The learned counsel drew our attention towards para 11 of the said decision. In the case, the agreement executed between the foreign company and Indian company, inter alia, provided that certain expenses incurred by the assessee foreign company is to be reimbursed by the Indian company. The direct cost relating to services outside India are reimburseable in dollars and the direct costs relating to services in India are reimburseable in rupees. The dispute relates to the assessment of the rupee reimbursement. It was held by the Tribunal that the expenses relating to the establishment which are to be borne by the Indian company and which were actually paid by the foreign company were reimbursed by the Indian company to the foreign company. If all the facilities were provided according to the contract by the Indian company, the foreign company need not incur the expenditure towards the establishment and the Indian company also need not reimburse the same. It was held that the rupee reimbursement relates to the reimbursement of the expenditure already incurred by the foreign company on behalf of the Indian company and such reimbursement cannot be considered to be the income of the foreign company. Such findings were given after taking into consideration the provisions of s. 44D of the Act.
9. On the strength of the aforesaid 4 decisions, the learned lawyer vehemently contended that such mobilisation fee paid by ONGC to the appellant company by way of reimbursement of expenses cannot partake the character of income liable to tax. In the present case, it has been proved that the actual expenditure incurred by the appellant company for transportation/mobilisation of drilling rigs was substantially more than the compensation paid by ONGC by way of mobilisation fee for reimbursement of such expenses.
10. The learned counsel then contended that mobilisation fee does not at all come within the ambit of s. 44AB of the Act. He submitted that s. 44AB covers within its ambit the payments made by ONGC for the services and facilities in connection with, or supply of plant & machinery on hire, use or to be used, in the prospecting for, or extraction, or production of, mineral oil in India. The payments made for services rendered in India alone are covered within the ambit of s. 44BB. The mobilisation fee represents reimbursement of expenses for transportation of the rig from outside India to the designated drilling unit in India. The said payment is attributable to services rendered prior to installation of the drilling rigs in India. The services covered within the ambit of s. 44BB started only after the drilling rigs had been brought and installed in India. This fee is a reimbursement of expenses for services prior to the installation of the drilling unit or rig in India. Hence, s. 44BB is not applicable in relation to mobilisation fee. The learned counsel also drew our attention towards para 5 and onwards of the order dt. 20th June, 1990, in ITA No. 3310/Del/1988 relied upon by the CIT(A) for deciding the issue against the assessee. It was submitted that this decision is based on earlier decisions, which are not available with the assessee. In any case, the judgment of the Jurisdictional High Court in the case of Industrial Engineering Projects (P) Ltd. (supra) has not been considered. The various other decisions relied upon by the assessee's counsel have also not been considered. Therefore, the said decision of the Tribunal relied upon by the CIT(A) is not valid and the same requires a fresh look in the light of judgment of Hon'ble High Court.
11. The learned counsel further submitted that the mobilisation fee has been paid by way of reimbursement of expenses. Even if it is regarded as payment made for services rendered, such a payment has been made for services rendered outside India. It is an undisputed fact that the payment was made to the appellant company outside India. Such payments were neither received nor deemed to have been received by the non-resident appellant company in India. Such income for services rendered outside India cannot be said to have accrued in India. Therefore, the income arising in relation to mobilisation fee is clearly outside the scope of charging ss. 4 and 5 of the Act. The learned counsel placed reliance on judgments Carborandum Co. vs. CIT (1977) 108 ITR 335 (SC), CIT vs. Toshoku Ltd. (1980) 125 ITR 525 (SC) and CIT vs. Tata Chemicals (1974) 94 ITR 85 (Bom). He then strongly urged that the inclusion of mobilisation fees for computing income under s. 44BB is beyond the scope of charging ss. 4 and 5 of the Act.
12. The learned counsel further submitted that even if it is held to be includible in the amount of gross receipts for purposes of computing 10 per cent profit under s. 44BB of the Act, only a reasonable proportion of that 10 per cent profit can be included as attributable to services rendered in India. For this purpose, the learned counsel drew our attention towards Circular No. 1767, dt. 1st July, 1987, (p. 345) and submitted that according to the said circular, only 10 per cent of the profit rate of 10 per cent prescribed in s. 44BB i.e., only 1 per cent mobilisation fee can be treated as income attributable to services rendered in India.
13. The learned counsel thus strongly urged that the order of the CIT(A) and the AO in relation to the aforesaid common ground for asst. yr. 1986-87 and asst. yr. 1987-88 should be set aside.
14. The learned senior Departmental Representative strongly supported the order of the CIT(A) in relation to the aforesaid point. He submitted that the point relating to inclusion of mobilisation fee in the gross receipts for purposes of computing the profit @ 10 per cent under s. 44BB of the Act is covered in favour of the Revenue by the various decisions referred to in the order of CIT(A). There is no justification for taking a view different than the view earlier taken by the Tribunal on identical facts. The mobilisation fee is not reimbursement of expenditure, as it has no nexus with the actual expenditure incurred by the assessee for transporting the drilling rigs/drilling unit to the designated destination such as Bombay off shore, etc. The ONGC was liable to pay a fixed sum as stipulated in the contract regardless of the actual expenditure which may be incurred by the assessee-company for this purpose. The provisions of s. 44BB also relate to payments made outside India. Hence, provisions of s. 44BB are fully applicable in relation to the income arising under the relevant contracts to the appellant company.
15. We have carefully considered the submissions made by the learned representatives of the parties and have perused the orders of the learned Departmental authorities. We have also carefully gone through all the judgments relied upon by the learned representatives of both sides.
16. In order to appreciate the rival submissions made by the learned representatives of the parties, it may be relevant here to reproduce the relevant clauses of the representative agreements entered into between ONGC (Operator) and M/s. Forex Neptune International Inc. (name later on changed as Sedco Forex International Inc.). The cl. 3.2 of agreement dt. 3rd September, 1985 relating to providing the Shallo Dash Water Jack Up Rig. "SEDCO 252" is reproduced below :
"Mobilisation Operator shall pay to contractor a mobilization fee of eight hundred thousand United States Dollars (US $ 800,000) ("mobilization fee") for the mobilization of the drilling unit from its present location in Setubal, Portugal to the first well location designated by Operator, Offshore Bombay, India. Operator will notify contractor not later than fifteen (15) days from the execution of this agreement if it desires to mobilize the drilling unit to another location offshore India and no additional costs shall be charged to Operator for mobilization to such other location. In the event that Operator desires to mobilize the drilling unit to another location offshore India and it fails to notify contractor by such date, any additional costs incurred by contractor for such mobilization in excess of the mobilization fee shall be borne by the Operator. Contractor shall invoice Operator for payment of the mobilization fee after the drilling unit is jacked-up on the first well location and ready to spud the well. Operator shall make payment to contractor not later than thirty (30) days after receipt of the invoice."
17. Clause 4.2 of the agreement dt. 12th July, 1986 relating to mobilization of the drilling unit (including Rig 21) is also reproduced hereunder :
"Mobilization and Mobilization fee Contractor shall notify Operator when it is prepared to commence mobilization of the drilling unit from Muscat, Oman. Within thirty days of receipt of Contractor's notice of readiness, Operator shall instruct Contractor to commence mobilization, and Contractor shall forthwith ship the drilling unit to the port of entry (Kandla or Bombay).
Contractor shall be compensated for the mobilization of the drilling unit from its place of origin by a mobilization fee payable within thirty days following the commencement date. (As per Appendix 'C')."
18. Apart from the aforesaid mobilization fee stipulated in the aforesaid two contracts, the ONGC had undertaken to pay compensation based on operating rate of US $ 24,550 per 24 hours a day for all operating time and US $ 24,060 as non-operating rate per day relating to Sedco 252-Rig. Similarly operating rate-R1 and standby rate-R2 was also separately stipulated in the order contract dt. 12th July, 1986, relating to Rig-21 etc. The learned counsel for the assessee submitted that there is no dispute about the applicability of s. 44BB of the Act in relation to payments made by ONGC under the aforesaid agreement by way of operating charges and other payments made by ONGC to the appellant company except in relation to mobilisation fee and reimbursement of certain other expenses, which are subject-matter of dispute in the present appeals. In other words, the learned counsel appearing on behalf of the assessee submitted that the provisions of s. 44BB are applicable in relation to income derived by the assessee pursuant to the aforesaid agreement executed with the ONGC.
19. In may also be imperative to reproduce the provisions of s. 44BB of IT Act, 1961 :
'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 ss. 28 to 41 and ss. 43 and 43A, in the case of an assessee, being a non-resident, engaged in the business of providing services or facilities in connection with, or supplying plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils, a sum equal to ten per cent of the aggregate of the amounts specified in sub-s. (2) shall be deemed to be the profits and gains of such business chargeable to tax under the head "Profits and gains of business or profession" :
Provided that this sub-section shall not apply in a case where the provisions of s. 42 or s. 44D or s. 115A or s. 293A apply for the purposes of computing profits or gains or any other income referred to in those sections.
(2) The amounts referred to in sub-s. (1) shall be the following, namely :
(a) the amount paid or payable (whether in or out of India) to the assessee or to any person on his behalf on account of the provision of services and facilities in connection with, or supply of plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils in India; and
(b) the amount received or deemed to be received in India by or on behalf of the assessee on account of the provision of services and facilities in connection with, or supply of plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils outside India.
Explanation. - For the purposes of this section, -
(i) "plant" includes ships, aircraft, vehicles, drilling units, scientific apparatus and equipment, used for the purposes of the said business.
(ii) "mineral oil" includes petroleum and natural gas.'
20. The aforesaid s. 44BB making a special provision for computing profits and gains in connection with the business of exploration of mineral oils has been inserted by the Finance Act, 1987 with retrospective effect from 1st April, 1983. The scope and effect of new s. 44BB was explained in Departmental Circular No. 495, dt. 22nd September, 1987. It has been mentioned in the said circular that a number of complications were involved in the computation of taxable income of a taxpayer engaged in the business of providing services and facilities in connection with or supply of plant & machinery on hire, used or to be used in the exploration for and exploitation of mineral oils. Sec. 44BB was introduced with a view to simplifying the relevant provisions which provide for determining the income of such taxpayers at 10 per cent of the aggregate of certain amounts, which have been specified in the said section. The provisions of s. 44BB were amended by the Finance Act, 1988 with retrospective effect w.e.f. 1st April, 1983 which clarifies that applicability of s. 44B will be restricted to the cases of only non-resident taxpayers. It is clear from the language used in s. 44BB(2)(a) that the amount referred to in s. 44BB(1) on which profits have to be calculated @ 10 per cent will be the aggregate of amounts paid or payable to the taxpayer or to any person on his behalf whether in or out of India on account of the provisions of such services or facilities.
21. A perusal of the relevant agreements executed between the appellant company and ONGC clearly reveals that both the agreements are indivisible contracts. It is true that mobilization fee and operating charges have been separately indicated in the said agreements but the entire payments have been agreed to be made by ONGC for supply of the drilling unit including the Rigs, for operating those rigs, and for providing experts and other personnel for operating those rigs, etc. Sec. 44BB specifically provides that the aggregate of the amounts referred to in sub-s. (2) of s. 44BB will be adopted as the basis for calculating profits @ 10 per cent, which shall be deemed to be the profits and gains of such business chargeable to tax under the head "profits & gains of business or profession". It does not provide that separate consideration mentioned in the agreement for transportation of the drilling unit/rig from their present location to the designated location in India will be excluded from the aggregate amount of gross receipts on which 10 per cent profit rate is required to be applied. ONGC has made the entire payment including the mobilization fee, operating charges, daily hire on non-operating days, etc. for availing the services and facilities and the supply of plant & machinery on hire agreed to be provided by the appellant company to ONGC. The mobilization fee paid by ONGC to the appellant company has no nexus with the actual amount incurred by the appellant company for transportation of the drilling unit/rigs to the specified drilling location in India. Even if the actual expenditure incurred by the appellant company would have been substantially less, ONGC was liable to pay the fixed amount of mobilization fee stipulated in the respective agreements.
22. Let us examine the facts of the various decisions relied upon by the learned counsel for the assessee in the light of the aforestated facts :
(a) CIT vs. Industrial Engg. (supra) In that case, the assessee had executed an agreement with a foreign company whereby some services were to be rendered by the assessee to the foreign company for which assessee was entitled to receive a minimum sum of Rs. 1,20,000 per year. The agreement also provided that certain costs and expenses incurred by the assessee would be reimbursed. The ITO disallowed some of the expenses incurred which were in the nature of entertainment and travelling expenses on the ground that they were more than the permissible limit. In the context of these facts, it was held that reimbursement of expenses cannot be regarded as a revenue receipt. It was found by the Tribunal as a matter of fact that the assessee received no sums in excess of expenses incurred. This provision did not relate to a provision like s. 44BB which contains a provision for determination of presumptive income on the aggregate amounts paid under such agreements. The section further provides that such presumptive income shall be deemed to the income chargeable to tax under the head "profits & gains of business". In the case before the Hon'ble High Court, the reimbursement of actual expenses was made by the foreign company to the Indian company. It was not a fixed amount payable by the foreign company to the Indian company as in the present case. Therefore, the said decision of Hon'ble Delhi High Court does not in any manner support the assessee's contention.
(b) CIT vs. Teja J. Faras Remkhazawala (1968) 67 ITR 95 (Del) The learned counsel submitted that this judgment was referred to in the aforesaid case decided by the Delhi High Court. If the actual expenditure was lower than the amount reimbursed, the deduction has to be allowed to the extent of actual expenditure. The facts of the aforesaid judgment are that the assessee was a selling agent of CIBA India Ltd. and was entitled to a commission of 12-1/2 per cent on the sale, of which 7-1/2 per cent was to be treated as selling commission and 5 per cent as compensation in lieu of contingency expenses which it had to meet such as commission to dyeing master/agent, etc. For asst. yr. 1949-50, the assessee received Rs. 1,90,530 towards 5 per cent of selling agency commission but had spent only Rs. 1,32,512 for meeting the contingency expenses. The question was whether the 5 per cent of the selling agency commission was wholly exempt from tax under s. 4(3)(vi) of IT Act, 1922 (prior to its amendment in 1965) as a special allowance, benefit or perquisite specifically granted to meet expenses wholly and necessarily incurred in the performance of the duties of an office or employment of profit. It was held by the Hon'ble Supreme Court that only that portion of 5 per cent of the selling agency commission received by the assessee was exempt which was incurred in the year of account in the performance of the duties as selling agent. The Hon'ble Supreme Court further held that to qualify for exemption under the said provisions, the allowance must be granted to meet expenses incurred or to be incurred wholly and necessarily in the performance of the duties of an office. Any surplus remaining in the hands of the grantee after meeting the expenses does not bear the character of the allowance for meeting expenses and would be taxable. It is clear from the aforesaid judgment that any allowance or fees granted for meeting actual expenditure was held to be not taxable under a specific provision of s. 4(3)(vi) of IT Act, 1922. This judgment relates to interpretation of a specific provision granting exemption in respect of special allowance, benefit or perquisite specifically granted to meet expenses wholly and necessarily incurred in the performance of the duties. The present case deals with determination of presumptive income in accordance with s. 44BB of the Act. Moreover, the amount of mobilization fee paid by ONGC to the appellants had no nexus whatsoever with the actual amount incurred by the appellant company for transportation of drilling units/rigs to the specified location in India. In fact, the services agreed to be rendered by the appellant company to the ONGC for supply of the plant & machinery on hire and for providing personnel for operating rigs, etc. started from the point of time when the drilling unit/rigs were moved or transported from their present location to the specified destination in India. The aggregate payments made by ONGC under the aforesaid agreements were made for securing the services of the exports and securing the use of drilling units/drilling rigs taken on hire from the appellant companies. The aggregate payments made under such contract are clearly required to be taken into consideration for determining the presumptive rate of profit @ 10 per cent on such aggregate payments regardless of the fact whether such payments have been made by ONGC to the appellant company, in India or outside India. The judgment of the Hon'ble Supreme Court case also, therefore, does not in any manner support the assessee's contention.
(c) CIT vs. Dunlop Rubber Co. Ltd. (supra) The assessee-company in the aforesaid case, contented before the ITO that the amount received by the Indian company did not constitute income as the payments were merely reimbursement of the expenditure incurred in connection with the research work and so the amounts could not be assessed in its hands and that the assessee-company incurred large expenditure but only a part of it was allocated to its various subsidiary companies in the world and what it received from the subsidiary companies was only a part of the expenses incurred by it and, as such, there was no element of profit in them. The Government of India in that case permitted the Indian company to make payment of research contribution to the assessee-company subject to a ceiling of 0.67 per cent of the volume of sales. On these facts, it was held by the Hon'ble High Court that the Tribunal was right in arriving at the view that the payment was for the recoupement of the expenses incurred for the technical data for which a research department was maintained by the assessee-company in London. On these facts, it was held that amount received by the assessee-company from Indian company did not constitute income assessable to tax. The facts of the aforesaid case are clearly distinguishable with the facts of the present case. The mobilisation fee paid by ONGC to the appellant company did not depend on the quantum of expenditure incurred by the appellant company for transportation of drilling unit including rigs, as already stated herein before. Moreover, the question involved in the present case relates to mode of determination of the presumptive income under a special provision of s. 44BB introduced in the Act with a view to simplifying the process of determination of taxable income of a non-resident taxpayer engaged in the business of providing services and facilities and/or supply of plant & machinery on hire, used or to be used in the exploration or exploitation of mineral oils. The ratio of the aforesaid case, therefore, does not in any manner supports the assessee's contention.
(d) Mannesmann Demag Lauchhammer vs. CIT (supra) The aforesaid case relates to determination of technical fee under s. 9(1)(vii) of IT Act, 1961. It was held by the Tribunal that the section authorises taxing for technical fees alone. It does not authorises taxing every business receipt from India, although such receipts might be incidental to the agreement to provide technical fees. On these facts, it was held that ITO was not justified in including air fare, accommodation fee and stay allowances etc. in technical fees as taxable under s. 9(1)(vii). The ratio of this decision also does not support the assessee's contention in relation to interpretation of an entirely different provision like s. 44BB of the Act.
(e) IAC vs. Nepchun Canada Inc. ITA Nos. 645-648/Bang/1985 The facts of this case are also clearly distinguishable. The dispute in the said case related to reimbursement of cost relating to certain services of India. According to the contract, the Indian company has a responsibility to provide the basic infrastructure to enable the foreign company to render the contract of services in India. Such expenses were to be incurred by Indian company and not by the foreign consultant company. Since the expenses for the infrastructure provided were incurred by the foreign consultant company, the Indian company reimbursed the same. The reimbursement of such expenses is only to compensate the expenses incurred by the foreign consultant company. On these facts, the Tribunal has held that the rupee reimbursement relates to the expenses that ought to have been incurred by the Indian company. It was, therefore, held to be not liable to tax. It is clear from the facts of the said case that reimbursement was made of the actual expenditure incurred by the foreign company on behalf of the Indian company. In the resent case, the mobilisation fee paid by ONGC does not depend on the actual amount of expenditure incurred by the appellant company. It was a fixed amount of mobilization fee, which could not be varied in the event of actual expenditure being lower or higher than the fixed amount stipulated in the agreement. This decision also, therefore, does not, in any manner, support the assessee's contention.
23. The Tribunal in the ITA No. 3310/Del/1988, considered a similar question relating to inclusion of payment made on account of mobilization fee for purposes of determination of income liable to tax under s. 44BB. The Tribunal following its earlier orders ITA No. 3413, 3414, 3486, dt. 20th June, 1990 and also another order in ITA No. 3366/Del/1988, dt. 30th June, 1990, decided a similar issue against the assessee. It has been held that payment of mobilization fee under identical facts and circumstances, is covered under s. 44BB of the Act.
24. In view of the aforesaid facts and circumstances, we are of the considered opinion that the mobilization fee paid by ONGC to the appellant company has rightly been included in the aggregate amount of payments received by the appellant company from ONGC for the purposes of computing the profit @ 10 per cent chargeable to tax under the head 'profits & gains of business' under s. 44BB of the Act. The inclusion of such amount of mobilization fee for computing income under s. 44BB does not in any manner go beyond the charging ss. 4 and 5 of the Act. A special provision, namely, s. 44BB has been introduced for determination of taxable income of the non-resident taxpayers engaged in such business. The presumptive income of 10 per cent on the aggregate payments made under such agreements cannot be said to be beyond the scope of charging ss. 4 and 5. The various judgments relied upon by the learned counsel for the assessee does not in any manner, support such a contention, where only 10 per cent of the aggregate payments are deemed to be income chargeable to tax under the head "profits & gains of business" by virtue of such special provision of s. 44BB of the Act. We are also unable to accept the assessee's contention that only a reasonable portion of 10 per cent income determined under s. 44BB in relation to mobilization fee should be taxed, as income attributable to services rendered in India in the process of mobilisation of drilling unit is very small. Reliance placed by the learned counsel on the circular issued by the Board does not in any manner support his contention. The said circular does not relate to s. 44BB but it relates to determination of taxable income of a foreign contractor engaged in the execution of turnkey project involving part of the work to be carried out in India as well as outside India, for a lump sum consideration. The said circular cannot authorise the AO to adopt a different mode of determination of taxable income in the case of a non-resident taxpayer, which arises from agreements specifically covered by the special provisions contained in s. 44BB of the Act.
25. In view of the aforesaid facts and discussion, the common ground raised by the assessee relating to mobilization fee in asst. yr. 1986-87 and asst. yr. 1987-88 is rejected.
26. The next common ground in ITA Nos. 4549, 4550 and 4551/Del/1991 relates to confirmation by the CIT(A) of the findings given by the AO that the following items of reimbursement of expenses will be includible in the amount of aggregate payments made under the agreements executed between the ONGC and appellant company for purposes of computing profit @ 10 per cent thereon under the provisions of s. 44BB of the Act.
(a) Catering expenses reimbursed by the ONGC to the Appellant Co.
Asst. yr. 1986-87 (ITA 4549/Del/91) 1,53,901.00 Asst. yr. 1987-88 (ITA No. 4550/Del/91) 4,53,411.00 Asst. yr. 1988 89 (ITA 4551/Del/91) SEDCO-252 3,43,615.90 Rig-21 14,416.81 (b) Reimbursement of other expenses in asst. yr. 1988-89 (i) Reimbursement of cost of supplies US $ 6777.97 and handling charges thereon US $ 255.49 i.e. total US $ 7033.46 relating to SEDCO-252 91,096.00 (ii) Reimbursement of cost of supplies relating to Rig-21 = US $ 2090 and handling charges US $ 157 i.e. US $ 2247 29,098.65
27. The learned counsel submitted that under the terms of contract, the appellants were required to provide boarding and loading facility at their cost upto 10 ONGC's personnel on the rig at any given point of time. In respect of any additional personnel of ONGC, the appellants were entitled to seek reimbursement of catering expenses incurred. Similarly, the appellants were also required to provide spare parts, etc. from time to time. These catering charges and the actual expenses incurred towards spare parts together with handling charges were reimbursed by ONGC to the appellant under the terms of the contract. The learned counsel submitted that actual expenses of procuring the spares and transportation thereof were reimbursed except the handling charges. He also drew our attention towards cl. 5.1(b) of the agreement which provides that ONGC (Operators) shall reimburse the actual cost less any cash discount obtained by the appellant company (Contractor) plus freight, packing and insurance cost etc. In addition to the reimbursement of actual cost along with transportation expenses, the appellants were entitled to charge handling charges @ 7.5 per cent. The learned counsel submitted that such reimbursement of cost of supplies cannot be treated as contract receipt liable to be considered for purposes of s. 44BB of the Act. Only the handling charges can, perhaps, be treated as contract receipts in the hands of the appellant company for purposes of s. 44BB. Likewise, the reimbursement of actual catering expenses which was the liability to be met and incurred by ONGC, cannot be treated as part of contract receipts in the hands of the appellant company. He placed reliance on all these judgments which were relied upon by him in relation to the point relating to mobilisation fee.
28. The learned Departmental Representative supported the order of the CIT(A). He submitted that the nature of reimbursement of catering expenses and cost of supplies are similar as that of mobilisation fees. This ground is also covered against the assessee by the various decisions of Tribunal Delhi, which have been relied upon by the CIT(A) while confirming the view of the AO with regard to mobilisation fee.
29. We have carefully considered the submissions made by the learned representatives of the parties and have gone through all the relevant documents submitted in the compilation.
30. As regards reimbursement of catering expenses by ONGC to the appellant company is concerned, the learned counsel invited our attention to Exhibit 'D' forming the part of the agreement executed between ONGC and the appellant company. This clearly provides the catering for over 10 operators nominated by ONGC will be billed to operators at US $ 10 per meal and US $ 20 for lodging per day including meals. The rate at which the reimbursement has been made by ONGC towards catering expenses is lower than actual expenditure incurred by the appellant company. It has been pointed out in the documents submitted in compilation that the actual expenses for catering incurred by the appellant company was for more than the amount reimbursed. The amount of actual expenditure and the reimbursement made in asst. yr. 1986-87 by ONGC, as per the chart furnished by the assessee in Annexure-I with the written submissions shows the following position :
------------------------------------------------------------------------
Accounting year Amount reimbursed Amount actually incurred by
by ONGC the appellant
------------------------------------------------------------------------
Rs. Rs.
Asst. yr. 1986-87 1,53,901 2,51,921
Asst. yr. 1987-88 4,53,411 7,41,394
Asst. yr. 1988-89 PSEUDO-252
3,43,615 6,19,675
Rig-21 14,416 14,416
------------------------------------------------------------------------
31. The aforesaid reimbursement of catering expenses is based on expenditure actually incurred by the appellant company for providing boarding and lodging facilities to the employees of ONGC, which was, in fact, required to be provided by ONGC. Such reimbursement of catering expenses cannot form part of contract receipts paid by ONGC to appellant company for providing services or supplying plant & machinery in relation to exploration of mineral oils. These expenses were actually incurred by the appellant company on behalf of ONGC. If such facilities to persons exceeding 10 in numbers would have been provided by ONGC itself, the foreign company need not have incurred any expenditure towards their catering and lodging and there would have been no need for ONGC to reimburse the same. Such actual reimbursement of expenditure cannot be treated as part of contract receipt liable to be included for purposes of determining taxable profit @ 10 per cent thereon under s. 44BB of the Act.
32. Likewise, the reimbursement of actual cost of supplies also cannot be treated as part of the contract receipts liable for inclusion for the purposes of determining taxable profit thereon under s. 44BB. The details furnished in Annexure-I with the written submissions indicate that the cost of supplies reimbursed by ONGC represent the actual cost incurred by the appellant company. Only the handling charges of US $ 255.49 relating to SEDCO 252 and the handling charges of US $ 157 relating to Rig-21 do not represent reimbursement of actual expenditure but it was a payment made @ 7.5 per cent on the FOB cost of such spare parts in accordance with the terms of agreement. The expression reimburse means "to repay" or to pay an equivalent amount for the loss or expenses incurred. It is not in dispute that the supply of material in question was the obligation of ONGC. The appellant company simply provided such services to ONGC in confirmity with the terms of the agreement. The reimbursement of actual cost of such supplies along with expenses for freight, insurance, etc., therefore cannot be included in the amount of contract receipts for purposes of s. 44BB of the Act. However, the amount of handling charges paid by ONGC to the appellant company aggregating to US $ 252.49 + US $ 157 = total US $ 412.49 (sic-407.49) will be included in the contract receipts for computing the taxable profit @ 10% thereon under s. 44BB.
33. The AO is directed to grant the necessary relief in accordance with the aforesaid findings.
34. At this stage, we may also deal with one of the grounds raised in ITA 4562/Del/91 in the case of Sedco Forex International Drilling Inc. for asst. yr. 1988-89. One of the grounds raised in the appeal relates to reimbursement of light charges Rs. 15,164. The actual expenses incurred by the appellant company were Rs. 15,164. The amount of such actual expenses incurred by the appellant company on behalf of the ONGC has been reimbursed by them. Such reimbursement of actual expenditure is not liable to be included in the amount of contract receipts for purposes of s. 44BB of the Act in view of the reasons given in foregoing paras. The AO is directed to delete the same.
35. We will now deal with a common ground raised by Sedco Forex International Inc. in their appeal No. 4551/Del/91 for asst. yr. 1988-89 and raised by the other appellant, M/s. Sedco Forex International Drilling Inc. in their Appeal No. 4562/Del/91 for asst. yr. 1988-89.
(a) Boat and Helicopter charges withheld by ONGC in ITA No. 4551/Del/1991 Rs.
(i) Boat charges 9,64,963
(ii) Helicopter charges 1,37,600
(b) ITA No. 4562/Del/1992
Boat charges 2,000
36. The learned counsel submitted that a dispute arose between ONGC and the appellant company regarding boat charges and helicopter charges incurred by ONGC with reference to transportation of personnel, supplies, etc. The appellant claimed that these expenses were to be borne by ONGC. However, the ONGC took a stand that these charges were recoverable from the appellant company and ONGC accordingly withheld the expenses so incurred from the payments due to the appellant under the terms of the respective contracts. The learned counsel submitted that the amount withheld by ONGC are disputed by the appellant and the same are, therefore, not taxable in the year under consideration. It was also submitted that if such amounts are withheld by ONGC from the payments due to them, the gross payments cannot be brought to tax under s. 44BB of the Act. He further pointed out that a part of these amounts withheld by ONGC has been refunded to the appellants in the subsequent years and the same has been taxed by the AO in those subsequent years. He submitted that these amounts refunded in subsequent years cannot be taxed in the year under consideration as refunds have already been taxed in the subsequent years.
37. The learned Departmental Representative supported the order of the CIT(A) in relation to inclusion of the gross amount payable to the appellant company by ONGC without deducting the boat and helicopter charges withheld by ONGC.
38. We have carefully considered the submissions made by the learned representatives of the parties and have gone through the relevant documents to which our attention was drawn during the course of hearing.
39. The AO in para 5 of the assessment order in the case of Sedco Forex International Inc. for asst. yr. 1988-89 has observed that the board charges and helicopter charges were deducted from the invoices raised by the appellants (non-resident companies) and the net payment position has been reflected by the assessee in a statement of payments furnished by them and certified by ONGC. The AO observed that as and when these payments will be made to them after settlement of dispute or arbitration, as the case may be, the same will be taxed in the year of receipt. The appellants submitted that these are unauthorised deductions made by ONGC from the invoices raised by the appellants. The Dy. CIT(A) has included these amounts in the computation of income contrary to the findings given in para 5 of the assessment order.
40. On a careful consideration of the entire relevant facts and material brought on records, we are of the view that the CIT(A) has rightly confirmed the action of the AO of taking into consideration the gross amount of contract receipts as per the invoices raised by the appellant company without deducting therefrom the amount of boat and helicopter charges withheld by the ONGC. There is no dispute that the amount claimed in the relevant invoices was admitted as payable to them. However, ONGC deducted the amount of boat and helicopter charges, which according to the ONGC was to be borne by appellant companies. According to the appellant, such deductions are unauthorised deductions and the boat and helicopter charges were to be borne by ONGC. The only question was whether the appellant companies were liable to reimburse to the ONGC the amount of boat and helicopter charges incurred by ONGC for transportation of their personnel, supplies, etc. The gross contract receipts mentioned in the invoices of the appellant companies has not been disputed but only a part amount has been withheld for recovery or reimbursement of expenses incurred by ONGC on behalf of the appellant. The amount of contract receipts paid or payable for services or facilities provided by the appellant company in relation to extraction or prospecting of mineral oils has not been disputed by the ONGC. The claim for reimbursement of boat and helicopter charges made by ONGC and withholding of that amount out of the amount payable to appellant companies cannot result in the reduction of contract payments made by ONGC for the services specified in s. 44BB of the Act. If the amount of boat and helicopter charges withheld by ONGC is ultimately held to be borne by the appellant companies, such amount of boat and helicopter charges will be the expenditure incurred by the foreign company for carrying out the said contract. Sec. 44BB only provides for determining the profits @ 10 per cent of aggregate of the contract payments. Balance 90 per cent has been treated as aggregate expenditure allowable to the non-resident taxpayers for determination of their taxable profits from such contracts. If the amount is ultimately held to be borne by ONGC, the amount out of such unauthorised deduction made by ONGC will be paid as and when it is finally settled. But this fact will not vary the amount payable for services rendered by appellant companies in connection with exploration of mineral oils in the relevant years under consideration. We are, therefore, of the considered opinion that the CIT(A) has rightly rejected the assessee's submissions that boat and helicopter charges withheld by ONGC should be deducted from the gross contract payments for purposes of computing income under s. 44BB. The view taken by the CIT(A) in relation to this point is, therefore, confirmed. We will, however, like to observe that the AO should examine the contention of the assessee that a part amount reimbursed by ONGC in the subsequent years, as and when the same has actually been received, has been subjected to tax in those subsequent years. If such a contention is found to be correct on verification of the relevant facts, the AO should exclude the income attributable to such payments received in subsequent years out of the Boat and helicopter charges withheld by ONGC in the year under consideration so as to ensure that the same amount does not form part of contract receipts liable to be included for purposes of computing profit under s. 44BB of the Act in more than one year. This finding is necessary to ensure avoidance of double taxation of the same income in more than one year. With these observations, the view taken by the CIT(A) in relation to the aforesaid common point raised in ITA No. 4551 and 4562/Del/1991 is upheld.
41. Now we will deal with ITA No. 257/Del/1993 in the case of M/s. Sedco Forex International Inc. for asst. yr. 1989-90.
42. Ground No. 1 raised in this appeal relates to inclusion of the amount of Rs. 2,99,641 and Rs. 9,087 being amount reimbursed by ONGC on account of catering expenses and crane hire expenses respectively for purposes of computing income under s. 44BB in relation to contract for Rig-21. Ground No. 2 relates to reimbursement of catering expenses of Rs. 1,52,893 for Rig Sedco-252. The amount referred to in Ground Nos. 1 and 2 relate to reimbursement by ONGC of the expenses incurred by the appellant company on their behalf. It has already been held that reimbursement of actual expenses incurred by the appellant company on behalf of ONGC would not form part of contract receipts for the purposes of s. 44BB. The amount received as reimbursement of catering expenses and crane hire expenses are not the payment received by the assessee on account of provision of services and facilities in (sic) of plant & machinery on hire or extraction or production of mineral oils in India and, therefore, the same cannot be included for computing taxable income under s. 44BB of the Act. AO is directed to exclude the same.
43. Ground No. 3 raised in this appeal relates to levy of interest of Rs. 1,06,688 under s. 234B of the Act. The CIT(A) held that levy of interest under s. 234B is not appellable. Such a view taken by the CIT(A) is not valid in view of the judgment of Hon'ble Supreme Court in Central Provinces Manganese Ore Co. Ltd. vs. CIT (1986) 160 ITR 961 (SC), as the assessee has denied its liability in toto for levy of interest under s. 234B. On merits, the learned counsel for the assessee submitted that the appellant is a non-resident company and any sum paid to them are subject to deduction of tax at source under s. 195 of the Act. The sums paid by ONGC have already suffered deduction of tax at source hence, no advance tax was required to be paid under s. 209 of the Act. The assessee is, therefore, not liable to pay interest under s. 234B for short deduction of tax at source by ONGC or for shortfall in the payment of advance tax. He placed reliance on judgment of Hon'ble Madras High Court in the case of CIT vs. Madras Fertilizers Ltd. (1984) 149 ITR 703 (Mad) and judgment of Hon'ble Gujarat High Court in the case of CIT vs. Ranoli Investment (P) Ltd. (1999) 235 ITR 433 (Guj). The learned counsel also submitted that on identical facts, the Tribunal, Mumbai in ITA No. 1915/Bom/Del/6 dt. 3rd October, 1997 has cancelled interest charged under s. 234B and under s. 234C. He, therefore, strongly urged that interest charged under s. 234B should be cancelled.
44. The learned senior Departmental Representative submitted that the decisions of Hon'ble Madras High Court and Hon'ble Gujarat High Court relied upon by the learned counsel relate to levy of interest under s. 215 of the Act and does not relate to mandatory interest charged under s. 234B. He submitted that meaning of expression "assessed tax" for the purposes for ss. 215, 217 and 273 as given in s. 215(5) is that tax determined on the basis of regular assessment reduced by the amount of tax deductible in accordance with the provisions of ss. 192 to 196A. The words used in s. 215 is "tax deductible" at source and not tax deducted at source. However, the meaning of expression "assessed tax as given in Expln. 1 to s. 234B means the tax on the total income as reduced by the amount of tax deducted or collected at source in accordance with the provisions of Chapter XVII of the Act. He submitted that if an amount of tax, which was deductible at source, has not been deducted or short amount of tax has been deducted at source by ONGC, the amount of tax deductible at source but not actually deducted, cannot be taken into consideration for the purposes of levy of interest under s. 234B. He further submitted that levy of interest under s. 234B is mandatory and the same should be confirmed.
45. In reply, the learned counsel for the assessee submitted that the opening words of s. 234B clearly show that this section is applicable to an assessee who is liable to pay advance tax under s. 208 has failed to pay such tax or where the advance tax paid by such an assessee under the provisions of s. 210 is less than 90 per cent of the assessed tax. The provisions of s. 208 provides that advance tax shall be payable by the assessee as computed in accordance with the provisions of this Chapter "XVII", where the sum exceeds Rs. 1,500 or more. Sec. 209(1)(d) provides that the income-tax calculated under various clauses of this section shall be reduced by the amount of income-tax which would be deductible or collectable at source in view of s. 195 of the Act. Therefore, no advance tax is payable by the assessee, as tax was deductible at source on all payments made by ONGC to the appellant company. He submitted that the decision of Tribunal Bombay squarely supports the assessee's contention. He, therefore, once again urged that the interest levied under s. 234B should be cancelled.
46. We have carefully considered the submissions made by the learned representatives of the parties. At the outset, we may mention that a perusal of the assessment order for the year under consideration reveals that the AO has nowhere given any direction for levy of interest under s. 234B of the Act. The provision of s. 195 of the Act clearly provides that any person responsible for paying to a non-resident, including a foreign company any income by way of interest or any other sum which is chargeable to income-tax in India is required to deduct tax at source on such income at the time of payment. It is an undisputed fact that ONGC was required to deduct tax at source on all payments made by them to the appellant foreign companies in accordance with the provisions of the Act. The provision of s. 234B provides that where an assessee is liable to pay advance tax under s. 208 has failed to pay such tax or where the advance tax paid by such assessee under the provisions of s. 210 is less than 90 per cent of the assessed tax, the assessee shall be liable to pay simple interest @ 2 per cent for every month or part of a month. It is true that the meaning of assessed tax given in Expln. 1 to s. 234B provides that the assessed tax would mean tax on total income as reduced by the amount of tax deducted at source. The use of words "tax deducted" as against "tax deductible" used in s. 215(5) is significant. But the process of computing "assessed tax" as defined in Expln. 1 to s. 234B will come into play only when it is established that an assessee who is liable to pay advance tax under the provisions of the Act has failed to pay such tax or the advance tax paid by such assessee is less than 90 per cent of the assessed tax. The provisions of s. 234B will not at all apply in a case where an assessee is not liable to pay advance tax under the provisions of the Act. It will, therefore, be necessary to refer to the provisions contained in Chapter XVII-C relating to liability for payment of advance tax. The provisions of s. 209(1)(d) clearly provides that income-tax deductible at source during the relevant financial year under any provision of the Act from any income shall be reduced from the amount of advance tax payable by the assessee. In the present case tax was deductible at source by ONGC from all the payments made by them to the appellant companies at the income-tax rates then in force in the relevant financial year. If ONGC would have deducted tax at source at the prevalent income-tax rates out of all the payments made in the relevant financial years under consideration, there would have been no occasion of short deduction of tax at source. If the amount of tax deducted by ONGC would have been correctly worked out, the amount of tax deducted at source and tax deductible at source would have been the same. The assessee is entitled to take into consideration the amount of tax deductible at source during the relevant financial year for deciding whether he is liable to pay any advance tax. If for any reasons the full amount of tax deductible at source has not been deducted by the ONGC in the year under consideration, the appellant company cannot be fastened with the liability to pay interest under s. 234B.
47. The Tribunal Bombay in the case of M/s. Rheinhraun Engg. vide its order dt. 3rd October, 1997, in ITA No. 195/Bom/4 relying upon the judgment of Hon'ble Madras High Court (1984) 149 ITR 703 (Mad) (supra) and the decision of Hon'ble Bombay High Court in CIT vs. Daimler Benz A.G. (1977) 108 ITR 961 (Bom) has held that no interest under ss. 234B and 234C can be levied in respect of incomes which are subject to deduction of tax at source. It was observed that the assessee in that case had no other income other than fees for technical services and interest on the refund received from Department. On both these incomes, tax at source was required to be deducted under s. 195 of the Act. Hence, interest under ss. 234B and 234C was liable to be quashed. The facts of the present case are similar to the decision rendered by Tribunal, Bombay. In view of the aforesaid facts and discussions, we are of the view that interest charged under s. 234B on the facts of the present case, is not sustainable. The AO is directed to cancel the same.
48. Ground No. 4 raised by the assessee in this appeal is reproduced hereunder :
"4. Your appellants submit that the taxable income of your appellants should be computed by converting the amounts received in dollars at the rate prevailing on the date of credit of such account and not at the year end rate. Your appellants pray that their taxable income be revised to Rs. 1,12,20,277 as against 1,20,58,696 assessed by the Dy. CIT(A)."
49. The learned counsel appearing on behalf of the assessee was fair enough to state that this ground was not raised before the AO nor before the CIT(A). The assessee became aware of the correct legal position after the Hon'ble Bombay High Court rendered its decision in the case of Chowgule & Co. vs. CIT (1992) 195 ITR 810 (Bom). That is why the aforesaid ground, for the first time has been raised before the Tribunal. On merits of the said claim, the learned counsel drew our attention towards written submissions along with details of payment made by ONGC towards hire of Drilling Rig Sedco 252 and Drilling Rig 21 along with the relevant details of tax deducted at source and the prevailing exchange rate item-wise when tax was deducted by ONGC at source out of payments made to the appellant company. He submitted that the proviso to r. 115 inserted by IT (Ninth Amendment) Rules, 1993 w.e.f. 25th May, 1993 should be applied in relation to the year under consideration, as such, a provision contained in r. 115(2) has been held to be procedural in nature by the Hon'ble Supreme Court in the judgment CIT & Ors. vs. Chowgule & Co. (1996) 218 ITR 384 (SC). He strongly urged that such a ground raised for the first time before the Tribunal should be entertained and the same should be allowed in view of judgment of Hon'ble Supreme Court (1996) 218 ITR 384 (SC) (supra).
50. The learned senior Departmental Representative submitted that such a ground does not arise out of the order of CIT(A). It should have been raised by way of an additional ground in accordance with the relevant provisions of Act and the relevant rules. Since no application for additional ground has been raised, such a ground included in the grounds of appeal which does not arise out of the order of the CIT(A), cannot be entertained. He further submitted that this ground requires investigation into the relevant facts and, therefore, the same cannot be entertained even as an additional ground. The appellant himself disclosed the receipts as required under s. 44BB on the basis of r. 115 by adopting the exchange rate prevailing on the last day of the previous year. Allowing such an additional ground for the first time before the Tribunal will amount to permitting the assessee to file a revised return much after the completion of the assessment and also after the assessment order has achieved finality in relation to this point on passing of the order of the CIT(A). Such permission to make a fresh claim like making a claim in the revised return is clearly beyond the scope of the relevant provisions of the Act. He, therefore, strongly objected to the admission of such an additional ground and submitted that the ground so taken by the assessee deserves to be rejected on merits also.
51. We have carefully considered the submissions made by the learned representatives of the parties and have gone through the relevant material brought to our notice during the course of hearing.
52. The relevant provisions contained in r. 115 of IT Rules, 1962 are reproduced hereunder :
"115. Rate of exchange for conversion into rupees of income expressed in foreign currency - (1) The rate of exchange for the calculation of the value in rupees of any income accruing or arising or deemed to accrue or arise to the assessee in foreign currency or received or deemed to be received by him or on his behalf in foreign currency shall be the telegraphic transfer buying rate of such currency as on the specified date.
Explanation : For the purposes of this rule, (1) "telegraphic transfer buying rate" shall have the same meaning as in the Explanation to r. 26;
(2) "specified date" means - .........
(c) in respect of income chargeable under the heads "Income from house property", "Profits and gains of business or profession" not being income referred to in cl. (d) and "Income from other sources" (not being income by way of dividends and "interest on securities", the last day of the previous year of the assessee; .............
Provided that the specified date, in respect of income referred to in sub-cls. (a) to (f) payable in foreign currency and from which tax has been deducted at source under r. 26, shall be the date on which the tax was required to be deducted under the provisions of the Chapter XVII-B. (2) Nothing contained in sub-r. (1) shall apply in respect of income referred to in cl. (c) of the Explanation to sub-r. (1) where such income is received in, or brought into India by the assessee or on his behalf before the specified date in accordance with the provisions of the Foreign Exchange Regulation Act, 1973 (46 of 1973)."
53. The assessee while filing the return of income, has disclosed the receipt by way of hire of Drilling Rig Sedco-252 and Rig-21 by adopting the exchange rate prevailing on the last day of the previous year of the assessee in accordance with r. 115(1)-Expln. (c). The proviso was inserted w.e.f. 25th May, 1993, which provides that exchange rate prevailing on the date on which the tax was required to be deducted at source should be taken into consideration. We are dealing with asst. yr. 1989-90, when the proviso to the aforesaid rule was not in existence. Now the assessee wants that the contract receipt paid by ONGC in terms of foreign currency, namely, US dollar should be converted into rupee value as on the dates on which tax was deducted at source by ONGC out of such payments. The total payments on this basis relating to Rig-252 comes to Rs. 4,88,58,272 as against the corresponding contract receipts of Rs. 5,31,92,174 shown in the return of income, likewise, the contract receipt of Rig-21 has now been working out at Rs. 5,14,93,969 as against Rs. 5,55,44,268 shown in the return of income. The assessee has given necessary details along with written submissions during the course of hearing.
54. The first question which we have to consider is whether such a ground can be entertained at the stage of hearing before the Tribunal. The assessee submitted that the aforesaid ground has been taken in view of the authoritative judicial pronouncement rendered by the Hon'ble Supreme Court in the case of CIT vs. Chowgule & Co. Ltd. (1996) 218 ITR 384 (SC) in which the Hon'ble apex Court has held as under :
"Rule 115 of the IT Rules, 1962, merely lays down that "for the calculation of the value in rupees of any income accruing or arising or deemed to accrue or arise to the assessee in foreign currency", the rate of exchange shall be the telegraphic transfer buying rate of such currency as on the specified date. Expln. (2) has clarified that the "specified date" will mean in respect of income chargeable under the head of "Profits and gains of business or profession" the last day of the previous year of the assessee. This only means that if an assessee is assessable in respect of any income occurring or arising or deemed to have accrued or arisen in foreign currency or has received or deemed to have received income in foreign currency, then such foreign currency shall be converted into rupees notionally at the telegraphic transfer buying rate of such currency as on the last day of the previous year of the assessee. If on the last day of the previous year, the assessee does not have any foreign currency in his hand or the assessee is not entitled to receive any foreign currency, then there is no question of conversion of such foreign currency into rupees. It is only the foreign currency which will have to be converted into rupees. But, if the foreign currency received by an assessee has been converted into rupees before the specified date, the question of application of r. 115 does not arise. Rule 115 does not lay down that all foreign currencies received by an assessee will be converted into rupees only on the last day of the accounting period. Rule 115 only fixes the rate of conversion of foreign currency. If there is no foreign currency to convert on the last day of accounting period, then no question of invoking r. 115 will arise. Sub-r. (2), which was introduced on 1st April, 1990, is really clarificatory and does not bring about any change in r. 115. Rule 115 is not ultra vires the substantive provisions of the IT Act."
55. It is, therefore, clear that the Hon'ble Supreme Court has held that if the foreign currency received by an assessee has been converted into rupees before the specified date, the question of application of r. 115 does not arise. Rule 115 does not lay down that foreign currency received by an assessee will be converted into rupees only on the last day of accounting period. Rule 115 only fixes the rate of conversion of foreign currency. If there is no foreign currency to convert on the last day of the accounting period, then no question of invoking r. 115 will arise. The Hon'ble Supreme Court has also held that sub-r. (2), which was introduced on 1st April, 1990, is really clarificatory and does not bring about any change in r. 115. On the same analogy, the proviso to r. 115 inserted w.e.f. 25th May, 1993, will have to be considered as clarificatory. The judgment of Hon'ble Bombay High Court in Chowgule & Co. vs. CIT (1992) 195 ITR 810 (Bom) was rendered on 3rd March, 1992. It must have been reported in the ITR after a gap of few months. That is precisely the reason that this point could not be raised before the AO and the CIT(A) because the assessee became aware about the correct position of law only after the Bombay High Court judgment was published in the Tax reports.
56. The Hon'ble Supreme Court in the case of Jute Corporation of India vs. CIT (1991) 187 ITR 688 (SC) has held that the Tribunal has jurisdiction to allow a pure question of law where no fresh evidence was required to be taken and there was no reason why the additional ground should not be entertained. The Hon'ble Supreme Court in a recent judgment in the case of National Thermal Power Co. Ltd. vs. CIT (1998) 229 ITR 383 (SC), has held as under :
"Under s. 254 of the IT Act, 1961, the Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders therein as it thinks fit. The power of the Tribunal in dealing with appeals is thus expressed in the widest possible terms. The purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. If, for example, as a result of a judicial decision given while the appeal is pending before the Tribunal, it is found that a non-taxable item is taxed or a permissible deduction is denied, there is no reason why the assessee should be prevented from raising that question before the Tribunal for the first time, so long as the relevant facts are on record in respect of the item. There is no reason to restrict the power of the Tribunal under s. 254 only to decide the grounds which arise from the order of the CIT(A). Both the assessee as well as the Department have a right to file an appeal/cross-objections before the Tribunal. The Tribunal should not be prevented from considering questions of law arising in assessment proceedings, although not raised earlier. The view that the Tribunal is confined only to issues arising out of the appeal before the CIT(A) is too narrow a view to take of the powers of the Tribunal.
Undoubtedly, the Tribunal has the discretion to allow or not to allow a new ground to be raised. But where the Tribunal is only required to consider the question of law arising from the facts which are on record in the assessment proceedings, there is no reason why such a question should not be allowed to be raised when it is necessary to consider that question in order to correctly assess the tax liability of an assessee."
57. The ground raised by the assessee is a pure question of law relating to interpretation of the relevant r. 115 of IT Rules, 1962. The entire relevant material and evidence in the form of TDS Certificates are already available on records. The verification of the assessee's claim is conveniently possible from the documents already existing on records. In view of the aforesaid facts and the judgment of the Hon'ble apex Court, we have no hesitation in holding that such a ground raised by the assessee for the first time before the Tribunal should be entertained.
58. Coming to the objection of the learned senior Departmental Representative that entertaining such additional ground for the first time in an appeal before the Tribunal, would amount to permitting the assessee to file a revised return at this stage, it will be imperative to state that the Hon'ble Supreme Court in the case National Thermal Power Co. Ltd. (supra), has held that the power of the Tribunal in dealing with appeals is expressed in the widest possible terms. The purpose of assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. If as a result of a judicial decision of the apex Court, given while the appeal is pending before the Tribunal, it is found that taxable income of the assessee has been taxed at a higher figure based on an erroneous interpretation of r. 115 by the assessee as well as by the AO, there is no reason why the assessee should be prevented from raising that question before the Tribunal for the first time, particularly when all the relevant facts, namely, date when contract payments were made by ONGC to the appellant company, the date and amount of tax deducted at source are on record of the AO.
59. It may also be relevant here to refer to the judgment of Hon'ble Supreme Court in the case of Poothundu Plantations (P) Ltd. vs. Agrl. ITO & Ors. in which it was held that it is well settled law that if the Hon'ble Supreme Court has construed the meaning of a section then any decision to the contrary given by any other authority, must be held to be erroneous and such error must be treated as error apparent on the record. The expression "record" would include not only the details, documents, TDS Certificates existing on the records of the AO but will also include the books of accounts and other records produced before the AO during the course of assessment proceedings. The judgment of Hon'ble apex Court is a valid foundation for a rectification under s. 154 of the Act. Therefore, there is no reason for denying the assessee to make such a claim first time before the Tribunal on the strength of a direct judgment on the said point by the Hon'ble apex Court.
60. On merits we find that the claim made by the assessee is fully and squarely supported by the judgment of Hon'ble Supreme Court in the case of CIT vs. Chowgule & Co. (1996) 218 ITR 384 (SC), in which it has been clearly held that if the foreign currency received by an assessee has been converted into rupees before the specified date, the question of application of r. 115 does not arise. Rule 115 does not lay down that all the foreign currencies received by an assessee will be converted into rupees only on the last day of the accounting year. It the foreign currency has been received by the assessee during the currency of the relevant previous year, the exchange rate prevailing at the time when the payment was actually made and tax was deducted at source should be taken into consideration. This is what has been expressly provided in the proviso to r. 115 inserted w.e.f. 25th May, 1993. The said proviso is really, therefore, clarificatory in nature. We are, therefore, of the considered opinion that ground so raised by the assessee deserves to be accepted on merits also. The AO will, however, be entitled to verify the correctness of the relevant exchange rate on the basis of TDS certificates and other relevant records maintained by the assessee. Subject to such verification by the AO, aforesaid Ground No. 4 raised by the assessee is allowed.
61. All the aforesaid appeals are disposed of, as indicated herein before.