1. This is a Misc. Application filed by the assessee Under Section 254(2) of the Act praying that the Order dt. 14.7.05 passed by this Tribunal in the aforesaid appeal be recalled and the patent mistakes in the Order be rectified.
2. Before adverting to the various mistakes pointed out in this M.A., in the Order of the Tribunal, it is necessary for us to give a background of the past history of the appellant. The appellant is a non resident company incorporated in France. It entered into a contract with ONGC of India. The appellant as per the agreement was to provide technicians for the exploration of oil and gas offshore India. Through the technicians the appellant provide technical services on jack up rigs owned by the ONGC. In the A.Y. 1984-85 to 1986-87 the question arose as to whether the salary which the appellant pays to the expatriate employees who work on the ONGC jack up rigs were chargeable to tax in India and consequently was there an obligation on the part of the appellant to deduct tax at source in the case of Boudier Christian v. ITO 46 ITD 114 which was a case of expatriate employee employed with the appellant. The Tribunal held that the appellant herein did not have a fixed place of business in India or had any permanent establishment in India. The Tribunal also held that the payment which the appellant receives from ONGC was in the nature of fees for rendering technical services and was not in the nature of an industry or commercial profits. As a natural corollary to the aforesaid conclusion the Tribunal also concluded that salary which the appellant paid to the expatriate employees were not chargeable to tax in India as per Article XIV (2) of the DTAA between India and France. In the case of several other expatriate employees of the appellant the Tribunal had followed the order in the case of Baudier Christian (supra). The Allahabad High Court had also confirmed these orders of the Tribunal.
3. In the income tax proceedings of the appellant for the Assessment Year 1984-85, which are different from the proceedings referred to above, which were in relation to non-deduction of tax at source by the appellant from the salaries paid to expatriate employees, the Hon'ble ITAT in ITA No. 5032/Del/89 following ruling in the case of Scan Drilling Company in ITA No. 6147/ Del/ 87 had concluded that the receipts by the appellant was to be assessed Under Section 44BB of the Act and not under 44D read with Section 115A of the Act. The decision in DCIT v. ONGC as Agent of Foramer France 10 ITD 468 (Del.) was one such decision.
4. The CBDT issued Instruction No. 1862 dated 22.10.1990 whereby they recognized the activity of imparting training and carrying out drilling operations for exploration or exploitation of oil and natural gas as mining operation within the meaning of explanation 2 to Section 9(1)(vii) of the Act and consequently payment for such services were directed to be brought to tax under the provisions of Section 44BB of the Act.
5. In the background of the aforesaid facts the appellant filed its return of income for the Assessment Year 1988-89. During the financial year 1987-88 relevant to assessment year 1988-89 the company had executed three contracts for Oil and Natural Gas Commission: ii. Manning and management services for supervision or drilling activities carried on by ONGC on its own rigs: In respect of expatriates deputed for business operations on jack up IDA owned and deployed by Foramer in India, tax was duly deducted at source from the salaries and paid under Income Tax Act, as the proceeds of the contract were business profit receipts computed as per Article III of the Indo-French Tax Avoidance Treaty and salary paid to expatriates was claimed as deductible expenditure.
In respect of expatriates deputed under manning and management contracts for services rendered on ONGC rigs Sagar Vijay and Sagar Bhushan, exemption was claimed in respect of French expatriates whose stay in India did not exceed 183 days during the Previous Year.
6. Article XIV of Double Tax Avoidance Treaty between India and France provided as under: (i) Subject to the provisions of Article XII, salaries, wages or other similar remuneration for services as an employee performed in one of the contracting states by an individual who is a resident of the other contracting state may be taxed only in the contracting state in which his service is rendered.
(ii) Notwithstanding the provisions of paragraph (1) of this Article, salaries, wages or other similar remuneration paid to an individual who is a resident of one of the contracting states for services performed in that other contracting state shall not be subjected to tax in that other contracting state and may be subjected to tax in the former-contracting state, if: (a) He is present in that other contracting state for a period or periods not exceeding in the aggregate 183 days in the taxable year concerned, and (b)The remuneration is paid by or on behalf of an employer who is not a resident of that other contracting state, and (c) The remuneration is not deducted in computing the profits of a permanent establishment chargeable to tax in that other contracting state.
7. The assessee while filing the return of income for the Assessment Year 1988-89 specifically made a distinction between drilling operation through its own rig He D'Amsterdam which was considered by it as business operation carried on in India and chargeable to tax under Article III of the DTAA with France. It also highlighted the fact fees received that in respect of manning and management of ONGC's drill ship Sagar Vijay and Bhushana were in the nature of a fee for technical services which could be charged to tax only under Article XIV of the Treaty. The computation of taxable income filed by the assessee was as follows.Profits / Gains of business or profession Rs. Rs.Net loss/Profit as per P&L accounta) Drilling operations through Company's Rig IleD Amsterdam 9,86,78,875Less: Depreciation considered separately 13,48,73,995 3.61.95.120b) Manning & Management of ONGC DrillshipProfit as per P&L A/c 2,45,82,816Add: Depreciation considered separately 47,859 2,46,30,675c) Manning & Management of ONGC DrillshipSagar Bhushana 1,34.93,866Profit as per P&L a/c 7,799 1.35.01.665Add: Depreciation considered separatelyLess: depreciation as per IT Rules 13,49,29,653 ---------------NET LOSS/DEPRE:CIATION CARRIED Rs. 6,06,02,193FORWARD: --------------- --------------- NOTE: 1. The Company is a non-resident French Company. During the year ended 31st March 1987, the Company's activities consisted of (a) Drilling operations performed through its own Rig, He D'Amsterdam, under contract dated 17^th October, 1986 with ONGC; and (b) Manning and Management of Drillship of ONGC - SAGAR VIJAY - under contract dt.
24^th March, 1987, (c) Manning and Management of ONGC drillship SAGAR under Contract dated 23.3.87.
2. The company being a French Company, the provisions of Agreement for Avoidance of Double Taxation between India and France are applicable.
Under Article III of the Treaty, tax can be charged only on the net income derived by the Company through a Permanent Establishment situated in India. Even fees for technical services can be charged to tax only on the net income as per Article XVI of the Treaty.
3. The provisions of Indo-French Treaty override the provisions of the Income tax Act, 1961, including Section 44BB and 44D. As per the Treaty, tax can be charged only on the net profit, if any; derived from operations in India. There being a net loss, the Company is not subject to any tax in India and it is claimed that the tax amounting to Rs. 1,76,56,052/= deducted at source by ONGC on payments made to the company be refunded.
4. Even under the Income tax Act the unabsorbed depreciation of last year Rs. 9,55,59,728/= is available for set off against income in the current year as per the provisions of Section 71 and 72 of the Income tax Act, 1961.
8. It is also pertinent to mention that the return of income for the Assessment Year 1988-89 was filed by the appellant on 5.9.1988. At this point of time there was a dispute as to whether the consideration received were to be considered as fees for technical services or business income Under Section 44BB. The decision in Scan Drill's case was rendered in June, 1988.
The CBDT issued it's instruction No. 1862 dt. 22.10.1990. The order in the case of Boudier Christian (supra) was passed on 13.5.91. The ITAT applied the provisions of Section 44BB of the Act to the fees for technical services on proceeds of management and manning, drilling contracts received by the assessee in Assessment Year 1984-85 on 16.3.95 and in Assessment Year 1985-86, 1986-87 on 29.10.98.
9. While completing the assessment in the case of the appellant the Assessing Officer applied 10% of the gross proceeds of manning and management contracts instead of fees for technical services. The Assessing Officer did so in view of the CBDT instruction as well as the decision in Scan drills case by the ITAT. The order of the Assessing Officer was dated 26^th February. 1991.
10. Because of the application of the provisions of Section 44BB the stand of the department has been that the remuneration paid to expatriate employees has been deducted in computing the proceeds of a Permanent Establishment chargeable to tax in India within the meaning of Article X1V(2) of the DTAA with France. And therefore the condition laid down in Article XIV(2) (c ) was not fulfilled and therefore the salaries paid to expatriates were chargeable to tax and therefore the appellant was obliged to deduct tax at source on such salaries paid to expatriates.
11. The Tribunal after hearing the parties came to the conclusion that since 44 BB is a deeming provision and therefore expenditure on account of salaries is deemed to have claimed by the assessee and consequently the exemption of taxation of salary of expatriate employees under Article XIV(2) (c ) was held not applicable and consequently the salaries paid to expatriates were held to be income chargeable to tax in India and consequently appellant was considered as an assessee in default in not deducting tax at source. The Tribunal has also further concluded that the deeming fiction is to assume all facts and circumstances which are incidental or inevitable corollaries to give effect to the legal fiction.
12. In this M.A. the assessee has pointed out as many as 15 mistakes which were mistakes of facts as per the record of the case.
13. We have considered the arguments of the learned counsel for the assessee who took us through the various mistakes pointed out in the M.A. The ld, counsel for the assessee summed up his conclusions as follows.
a) There is a manifest error on the assumption of facts contrary to evidence and inadvertent misreading of judicial decisions in appellant's own cases.
b) On account of factual inaccuracy, inference has been drawn by holding that the cited ITAT decisions and High Court decisions are distinguishable and are not applicable which have been erroneously disregarded.
c) That the decisions in appellant's own cases both for corporate taxation as well as taxation of expatriates are squarely applicable and are binding. But inadvertently not following the binding decision is a mistake apparent on record.
d) That judicial propriety is to be adopted in following the binding decision of jurisdictional High Court and Various decisions of ITAT Delhi Bench in appellant's own cases which have been accepted by the department for the Assessment Year 1984-85, 1985-86 and 1986-87 and therefore legally can neither be disregarded nor deviated on similar facts:(M.P.) Berger Paints India. Ltd. v. CIT CIT Central, v. LG Ramamurthi & Others CIT v. A. Devraj e) That this petition is not a review petition but a petition for rectification of substantive glaring and obvious mistake and that the Hon'ble Tribunal has full power to recall its order for rectification of apparent mistakes as held inSeth Madan Lal Modi v. CIT CIT v. Mool Chand Shyam Lal (2005) 273 ITR 160 (All) Champalal Chopra v. State of Rajasthan 14. The ld DR opposed the M.A. contending the mistakes pointed out in the M.A. are not mistakes which are apparent on the face of the record.
According to him the Tribunal does not have the power to recall its order and in this regard relied on the decision of the Hon'ble Delhi High Court in the case of Karan & Co. 253 ITR 156 (Del).
15. Before going into the various mistakes pointed out in the M.A. we deem it Just and proper to highlight the manner in which the assessee had drawn up its Profit and Loss a/c. A copy of the combined Profit & Loss a/c for the year ending 31.3.1988 had been filed in the paper book which is at page 36. Perusal of the same reveals that the receipts from carrying out manning and management contracts rendered on ONGC rigs Sagar Vijay and Sagar Bhushan have been shown at Rs. 2,90,45,875/= and 1,57,12,576/= respectively. The total of receipts from these two services were Rs. 4,47,58,451/=. As against these receipts certain expenses have been claimed in the Profit and Loss a/c under the head salaries of expatriates nothing has been claimed as a deduction. In respect of the salaries of expatriates who had worked on the appellant's own rig viz. Ili D'Amsterdam, the assessee had claimed salaries of expatriate. There is no dispute that tax at source has been deducted in respect of these salaries. It is further seen from the order of assessment passed in the case of the appellant for the Assessment Year 1988-89 that 10% rate of profit has been applied on the total receipts from Sagar Vijay and Sagar Bhushan totaling to Rs. 4,47,58,457/= and a taxable profit of Rs. 44.75.845/= has been determined. From these documents it is apparent that the salaries of expatriates with reference to Sagar Vijay and Sagar Bhushan had not been claimed by the appellant. It is therefore clear that while computing the profits of the P.E. in India the remuneration paid to expatriates had not been deducted while arriving at the profits. The Tribunal while passing its order has however gone by the deeming fiction of all expenses having been duly allowed while applying a presumptive rate prescribed Under Section 44BB of the Act overlooking the above fact. This presumption is not warranted. This factual misconception has vitiated the conclusions drawn by the Tribunal consequent conclusions arrived at by the Tribunal holding that the conditions mentioned in Article XIV(2)(c ) of the DTAA were not fulfilled requires reconsideration. There have been several factual errors which have been highlighted in the M.A. Considering the various factual inaccuracies pointed out in the M.A. and the ultimate inference drawn by the Tribunal, we are of the view that the orders of the Tribunal deserves to be recalled and the appeal deserves to be disposed afresh in accordance with law. Such a course in our view will meet the ends of justice in the present case. The Hon'ble Allahabad High Court in the case of CIT v. Moolchand Shamlal(supra) has also held that where there are certain factual aspects which are recorded incorrectly by the Tribunal it is a fit case where the appeal deserves to be decided afresh. We therefore recall the order dated 14.7.05 and direct that the appeal be heard and decided afresh.