Judgment:
1. These appeals are by the respective assessees who are non-residents and whose common agent is the Oil & Natural Gas Commission of India.
They raise a common issue and, are therefore, disposed of by this common order.
2. The three assessees hired their ships to the ONGC on charter basis and received the hire charges. The ONGC filed a return of income on their behalf declaring income @ 7.5 per cent of the payments made to them. The ITO determined the income @ 15 per cent of the payments. In doing' so, he has observed that it was agreed between the ONGC and the Income-tax department that a net rate of 15 per cent will be applied to arrive at the taxable income. The assessee's case was that Section 44B of the Income-tax Act, 1961 applied to the facts of the case and, therefore, the income declared by the assessees should have been accepted. This contention has been negatived by the CIT (Appeals) as well to whom the appeals were preferred.
3. At the hearing before us, the learned counsel for the assessee placed a copy of an agreement between the ONGC and M/s Gulf Fleet Marine Operation, Inc., Dubai appellant in ITA No. 672/86 and it was conceded on both sides that the terms of the agreement in respect of the other two assessees were similar. This agreement shows that the assessee hired out on charter basis its vessel known as 'Gulf Fleet No.29' for a period of 24 months. The hire payable was US dollars 4,150.00 per day. The vessel was to be used for movement of materials and personal incidental to Charterer's (ONGC) operations in exploration for and the production of oil. The owner of the vessel was to men, maintain, navigate and supply the vessel at its expense. The operation, navigation and management of the vessel was to remain under the exclusive control of the owner i.e., the assessee. The ONGC was to reimburse the owner for all permits, clearance expenses, customs fees, duties, pilotage fees, wharfage, port charges, etc. etc. The ONGC was also to provide all fuel, oil and greases, towing lines, cordage, delivery hoses etc. The ONGC is said to have used the vessel for the carriage of its men and material from the Bombay shore to the place of work where drilling for oil exploration was going on in the sea at Bombay High.
4. Section 44B of the Income-tax Act, 1961 makes special provision for computing profits and gains of shipping business in the case of non-residents. It reads as under : 44B. (1) Notwithstanding anything to the contrary contained in Sections 28 to 43A, in the case of an assessee, being a non-resident, engaged in the business of operation of ships, a sum equal to seven and a half per cent of the "aggregate of the amounts specified in Sub-section (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'.
(2) The amounts referred to in Sub-section (1) shall be the following, namely : (i) 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 carriage of passengers, livestock, mail or goods shipped at any port in India ; and (ii) the amount received or deemed to be received in India by or on behalf of the assessee on account of the carriage of passengers, livestock, mail or goods shipped at any port outside India.
The learned counsel for the assessee contended that since the vessels in question were used by the ONGC for the carriage of men and material, the payment of hire charges is an amount to which Sub-clause (i) of Section 44B(2) would apply. The learned CIT (Appeals) has repelled this argument by saying that the payment to the assessee was made as hire charges of the ship or vessel and not as freight for the carriage of goods or men. For this the learned CIT (Appeals) has relied upon a judgment of Hon'ble the Supreme Court in Union of India v. Gosalia Shipping (P.) Ltd. [1978] 113 ITR 307. In that case, the Aluminium Co.
of Canada, a nonresident company, had entered into a charter-party with the owners of a ship on a time charter. Under the charter-party the company had agreed to pay to the owners 4.5 dollars per ton on the dead weight carrying capacity per calendar month, for the use and hire of the vessel. The Hon'ble Supreme Court upheld the decision of the Judicial Commissioner to the effect that the amount which the company was required to pay to the owners of the ship was not payable on account of the carriage of goods. The Hon'ble Supreme Court observed that the owners were entitled to the payment for the use and hire of the ship and that the amount was payable irrespective of what use the ship was put to by the time charterers, or indeed whether it was put to any use at all and that no part of the payment can be said to have been made on account of carriage of goods. The Hon'ble Supreme Court further observed : "Similies can be misleading but if a hall is hired for a marriage, the charges payable to the owner of the place are for the use and hire of the place not on account of marriage." The learned counsel for the assessee contended that this ruling is not applicable as the circumstances wore different. We have already referred to the various terms of the contract between the present assessees and the ONGC and we have also referred to the terms of hire as reported in the judgment; of Hon'ble the Supreme Court (supra) and it is clear that the necessary incident of the contract are similar. In the present case also, the assessees were only to place the ship or the vessel at the disposal of the ONGC and they were not interested in whether the ONGC used, the ship for the carriage of men and material, whether the ONGC kept the vessel idle etc., etc. The payment to the assesses was on account of making the ship/ vessel available to the assessee for use as and when desired. It cannot be said that the ONGC paid any amount on account of carriage of passengers etc. by the assessees. It is important to remember that tne cost of fuel etc. was to be borne uy the ONGC. In such circumstances the carriage of men and material is effected by the ONGC and not by the owners of the vessel.
5. Further the language of Sub-clause (i) of Section 44B(2) would indicate that it applies to the case of an operator of ships when the ship visits an Indian Port and picks up passengers or goods from that port to be carried to another Port. It is only in case of such operations that a rough and ready formula was required to be formulated for the determination of their income. In the present case, the assessee is not shown to have operated from the Bombay Port and admittedly it did not carry goods or material to any other Port. The goods and men were carried to the ONGC's installations in the sea which cannot be termed as a Port. Even if the ships were operating from the Bombay Port, they cannot be said to have operated from any Port, when they were on their return journey from the Oil Installations to the Bombay Shore.
6. Admittedly the ONGC had an understanding with the CIT Mcerut that the net income of these assessees will be taken at 15 per cent of their gross receipts. The IAC (Asst.) as in the case of Gulf Fleet Marine Operation, stated that such as understanding was arrived at on 24-12-1981. The accounting year of the assessees ended on 31-3-1982. If Section 44B was clearly applicable to the facts of the present case, there was no need for such an understanding and it is unfortunate that the ONGC which is a wing of the Government of India should back out from an agreement or understanding arrived at with another Department of the same Government.
7. For the above reasons, we hold, that Section 44B was not applicable to the facts of the case and the determination of income at 15 per cent having been made under an understanding with the ONGC and the determination of income at 15 per cent of the receipts having not been shown to be excessive or unreasonable, these appeals have no force and deserve to be dismissed.
8. In the alternative, tl\e learned counsel for the assessee contended that Section 44B has been introduced w.e.f. 1-4-1983 under which the net income has to be determined at 10 per cent in the case of non-residents engaged in the business of providing services or facilities in connection with or supplying plant and machinery on hire or to be used in the prospecting of or extraction or production of mineral oils. The said provision was not on the statute book at the relevant time and here the assessees acting through the ONGC have agreed to the determination of their income at 15 per cent. They, therefore, cannot take the benefit of Section 44BB. Further the said section may not apply in the case of a mere transport vessel which is used merely to transport men and material to and fro. The facility hired out has to be intimately connected with the prospecting of oils etc. A mere transport facility cannot be governed by the provisions of Section 44B.