Tidewater Marine International Inc. v. Deputy Commissioner of Income-tax
[Citation -2005-LL-0708-11]

Citation 2005-LL-0708-11
Appellant Name Tidewater Marine International Inc.
Respondent Name Deputy Commissioner of Income-tax
Court ITAT-Delhi
Relevant Act Income-tax
Date of Order 08/07/2005
Judgment View Judgment
Keyword Tags assessment proceeding • non-resident assessee • foreign technician • show-cause notice • bona fide belief • advance ruling • pe in india • profit rate • waiver of penalty
Bot Summary: Certain foreigntechnicians were employed by assessee at the rigs interritorial Waters of India. According to assessee company, it did not file returns of these technicians onthe bona fide belief that their income was not taxable in India underthe provisions of the treaties between India and the respective countries ofwhich these technicians were resident, as these persons stayed in India forless than 183 days. 5.The learned counsel for the assessee Mr. Vohra,has reiterated the stand of assessee and, thereforeneed not be repeated. The only question to be considered is whether assessee was under the bona fide belief that incomesof foreign technicians were exempt under the provisions of treaty between Indiaand the other States of which such technicians were resident. In para 10 ofthe order, the Tribunal observed that on the basis of factual details furnishedby assessee, it could not be said by any stretch ofimagination that salary was to be paid or borne by fixed base/PE in India. 9.In the present case, it has been repeatedly contended that neither assessee paid any salary in India nor maintained any booksof account in India. There is no evidence to show as to how the expenses at PE/fixed basewere incurred in India by assessee company.


DELHI BENCH DEPUTY TIDEWATER MARINE v. COMMISSIONER OF INTERNATIONAL INC. INCOME TAX July 8, 2005 JUDGMENT 1.Since common issue is involved in all these appeals, same are beingdisposed of by common order for sake of convenience. only issueinvolved in these appeals relates to levy of penalty under section 271(1)(c) of Income-tax Act, 1961 (the Act). 2.Briefly stated, facts are that assessee company was engaged in providing services & facilitiesin connection with prospecting for and exploration of mineral oils and,accordingly, assessed to tax under section 44BB of Act. Certain foreigntechnicians were employed by assessee at rigs interritorial Waters of India. These non-resident persons stayed in India forless than 183 days. According to assessee company, it did not file returns of these technicians onthe bona fide belief that their income was not taxable in India underthe provisions of treaties between India and respective countries ofwhich these technicians were resident, as these persons stayed in India forless than 183 days. However, as per assessee company, it was advised by present counsel that itwould be advisable to file returns. Accordingly, company filed thereturns of these employees declaring nil income after claimingexemptions under said treaties on 16-2-2001. Subsequently, noticesunder section 148 were issued on 26-2-2001 and returns filed wereregularized under section 148. 3.The Assessing Officer did not agree with stand of assessee.According to him, exemption under treaty was available only when theconditions prescribed in treaty were satisfied. One of conditions wasthat remuneration paid to such employees is not borne by permanentestablishment on fixed base in India. It was observed by him that assessee companyhad paid tax under section 44BB of Act which provided 10% profit rate underthe deeming provisions. That impliedly means that remuneration payable paid toemployees working at rig is deemed to have been taken into consideration and,therefore, deemed to have been allowed as expenditure. Hence, it cannot be saidthat remuneration to such employees was borne by PE/fixed base in India.Consequently, question of exemption did not arise. Since voluntary returnswere not filed, penalty proceedings were initiated while completing theassessment in respect of such employees. 4.In response to show-cause notice, assesseecompany reiterated its stand and relied on decision of ITAT, Delhi Bench inthe case of Elitos SPA as agent oftechnicians [ITA Nos. 6172 to 6201/D/90]. After considering reply, theAssessing Officer observed that exemption under treaty was available ifthree considerations mentioned therein were satisfied. He agreed that first twoconditions were satisfied but third condition remained to be satisfied i.e.,remuneration is not borne by PE/Fixed base in India. He also reiterated hisstand taken in assessment proceeding and held that no exemption was allowable.Hence, it was also held that assessee companydeliberately did not file returns and consequently penalty under section271(1)(c) was leviable.Hence, penalties were levied in all these cases which have been confirmed bythe CIT(A). Aggrieved by same, present appealshave been preferred before Tribunal. 5.The learned counsel for assessee Mr. Vohra,has reiterated stand of assessee and, thereforeneed not be repeated. According to him, neither salary was paid in Indianor any books were maintained in India. Hence, itcannot be inferred that liability to pay remuneration was borne by PE/fixed base in India mainly on basis of deeming provisions ofsection 44BB. He also referred to two decisions of ITAT to point out that thereis divergence of opinion on this issue. He drew our attention to decisionof ITAT in case of Elitos SPA in[ITA No. 6172/D/90] appearing at pages 81 to 89 wherein, on facts of case,it was held that it could not be said that PE in India had borne theremuneration of expatriate employees. It was also mentioned that referenceagainst this decision was refused by Hon'bleAllahabad High Court. He also relied on decision of advance ruling reportedas 235/155. Then he referred to decision of ITAT in case of EnscoMaritime Ltd. as agent of technicians appearing at pages 46 to 69 of paper bookwherein contrary view was taken. In this case it was held that where assessmentof company is made on basis of section 44BB, remuneration paid to itsemployees is deemed to have been allowed and, therefore, it can be said thatremuneration to such employees was borne by P.E. in India. In view of abovedifference of opinion, it was pleaded by Mr. Vohrathat issue was highly debatable and consequently, if returns were not filedit could be inferred that assessee was not bonafide belief that such income was exempt under provisions of treaty. 6.On other hand, learned DR has kly relied on reasoning ofAssessing Officer and decisions of ITAT taking view in favourof revenue. 7.Rival submissions of parties have been considered carefully. There is nodispute to legal position that if claim of assesseeregarding exemption under treaty is not allowable, then provisions ofsection 271(1)(c), read with Explanation 3would become applicable. only question to be considered is whether assessee was under bona fide belief that incomesof foreign technicians were exempt under provisions of treaty between Indiaand other States of which such technicians were resident. Both partieshave proceeded on basis that under treaties, three conditions must besatisfied for claiming exemption namely:' "(i)The recipients were present in India for period notexceeding in aggregate 183 days in fiscal year concerned; (ii)The remuneration was paid by or on behalf ofTidewater Marine International Inc. who was not resident of India; and (iii)Remuneration was not borne by P.E. or afield base which Tide Water Inc. had in India." Thereis also no dispute that first two conditions are satisfied in these cases. Thedispute between parties centres round thirdcondition. 8.Whether assessee acted in bona fidemanner or not would depend on facts of case. existence of thirdcondition mentioned above depends on facts of case and not on any legalposition. As far as provisions of I.T. Act are concerned, salary of suchtechnicians was taxable under deeming provisions of section 9(1)(ii) and there is no dispute on this point. Theexemption could be claimed only under provisions of treaty. It is thesettled legal position that burden is on person, claiming exemption, toprove that his case falls within four corners of such exemption provisions.So question is whether there was any material on basis of which assessee could form bona fide belief that incomeof such employees was exempt under provisions of treaty. assessee has placed heavy reliance on decision of ITATin case of Elitos SPA (supra ). Wehave gone through said decision. In para 10 ofthe order, Tribunal observed that on basis of factual details furnishedby assessee, it could not be said by any stretch ofimagination that salary was to be paid or borne by fixed base/PE in India. So theTribunal decided issue on basis of facts placed before it and held thatthird condition was not fulfilled. Hence, this decision could not lead to thebelief that in each case income of foreign technician was exempt. 9.In present case, it has been repeatedly contended that neither assessee paid any salary in India nor maintained any booksof account in India. On other hand, stand of revenue is thatseparate account of Indian establishment is maintained by every non-resident assessee and under section 44BB profits attributable toP.E. in India is determined on presumptive basis which means that salarypaid/payable to such employees are deemed to have been taken intoconsideration. In our opinion, no such legal inference can be drawn on thebasis of provisions of section 44BB. reason is that assesseewas to be assessed under section 44BB with regard to its income attributable toP.E. irrespective of fact whether P.E. bears liability of salary tosuch technicians. 10.Therefore, crucial question before us would depend on facts of eachcase. burden is on assessee to prove that thirdcondition stood satisfied. agreement between assesseeand its expatriate employees is not on record. agreement is primaryevidence which is missing. There is no evidence as to where payment of salarywas made. There is no evidence as to whether any books of account weremaintained in India. Even bank account in India has not been placed onrecord. There is no evidence to show as to how expenses at PE/fixed basewere incurred in India by assessee company. In absence of such evidence, no inference canbe drawn either in favour of or against assessee. In our opinion, interest of justice would be metif one more opportunity is given to assessee to provethe existence of third condition. Accordingly, we set aside orders of CIT(A) in all these cases and restore matter to fileof Assessing Officer for fresh adjudication after giving reasonable opportunityto assessee to lead necessary evidence. 11.In result, appeals are allowed for statistical purposes. *** Tidewater Marine International Inc. v. Deputy Commissioner of Income-tax
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