Indian Kanoon - Search engine for Indian Law

8. Learned AR further contended that Section 44BB has a non obstante clause and has a limited application with one deemed fiction of presumptive net profit of 10 per cent of gross proceeds, no further deeming fiction can be introduced for interpretation of article XIV(2) of. DTAA with France. There cannot be fiction over fiction more so when there cannot be assumption of deeming salary as having been deducted with the language of article XIV(2)(c) is very specific and provides of actual deduction of remuneration. The expression 'deduction' means factum factual deduction and ostensibly deducted in computing the profits of permanent establishment and therefore the expression 'deduction' cannot be equated to 'borne' or 'deductible' or 'deemed to be deducted'. It was also contended that there cannot be any estoppel against the statutory provisions and the agreed assessment is without any meaning when the tax department was merely following the instructions of C.B.D.T. and applying the provisions of Section 44BB read with Section 90(2) of the Income Tax Act, 1961 initially of taxing the proceeds as fees for technical services. On the other hand Learned CIT (DR) Shri Pandey relied on the orders of lower authorities and submitted that deeming provisions of Section 44BB not only aim at estimation of income but by necessary application allow the deduction of remuneration payable to expatriates._

10. As per the material on record as discussed above, there is no dispute to the fact that duration of stay of expatriate employees in India was less than 183 days as per the details furnished before lower authorities. The remuneration was also paid by or on behalf of employer who is not resident of other contracting State. The assessing officer has declined the assessee's claim on the plea that conditions (c) with regard to remuneration having been deducted in computing the profit of permanent establishment chargeable to tax in that other contracting State, was not satisfied. It is quite evident from the computation of total income placed on record as well as the copy of the audited P&L account and balance sheet filed before the lower authorities, that assessee has not claimed any deduction of salary and remuneration of expatriate employees with respect to activities carried out at Sagar Vijay and Sagar Bhushan. While framing the assessment, the assessing officer has applied provisions of Section 44BB and taken presumptive net profit of 10 per cent on manning and management contract instead of as fee for technical services following the C.B.D.T. instructions. The claim for non-taxability of remuneration was made under Section 201 proceedings with reference to article XIV(2) of DTAA with France. Article XIV(2)(c) provides for twin conditions that there must be permanent establishment and the remuneration must be, deducted in computing the profit of PE in India. As the assessee has not A claimed the remuneration in its audited P&L account nor in the return of income filed along with the income-tax returns, then Sub-clause (c) is negatively fulfil to enable the assessee to claim exemption from liability to tax in respect of salary of such expatriate employees. The remuneration having not been claimed by the assessee in its P&L account prepared with reference to its permanent establishment in India, has not been disputed either by the assessing officer nor by the Commissioner (Appeals). The only plea of lower authorities were that Section 44BB assumes deducibility and liability of all the expenses including remuneration paid to expatriate. As per our considered view Section 44BB has a non obstante clause and has a limited application with one deemed fiction presumptive net profit of 10 per cent of gross proceeds, no deeming fiction can be introduced for interpretation of article XIV(2) of DTAA with France. The expression "deducted" as used in article XIV(2)(c), mean "actually deducted" and "ostensively deducted" while computing the profit of permanent establishment.

It cannot be equated or extended by fiction to "deeming to have been deducted". As no salary was actually claimed in audited accounts in India while computing the chargeable profit, it cannot be deemed to be deducted when no claim was made for such deduction. Even while confirming the action of the assessing officer for treating the salary having been allowed while taking 10 per cent profit under Section 44BB, the CIT (Appeals) has observed that although no salary was claimed for deduction in the P&L account nor claimed in the income-tax returns, it does not make a difference since salary has been paid for work done in India and attributable to PE.

11. Section 44BB provides for special provision for the taxation of foreign(employer) company with regard to mineral oil operations by introducing a non obstante clause provides that provisions for deduction of expenses as per Sections 28 to 41, 43 and 43A are inapplicable and are overridden E and by further providing a legal fiction by deeming 10 per cent of proceeds as presumptive net profits in computing the income from business. The cumulative effect of non obstante clause and legal fiction is that no expenses incurred in the business of earning the income shall be allowed for deduction in computing the business profits and 10 per cent of proceeds irrespective of actual results shall be deemed to be presumptive 10 per cent profits of business chargeable to tax, where an assessment is p. made on estimated basis or on the basis of rate applied as per legal fiction, there is no assumption that the expenses for each head had been considered and allowed much less said to be deducted.