COMMISSIONER OF INCOME-TAX AND ADDITIONAL COMMISSIONER OF INCOME-TAX, SPECIAL RANGE Vs. FORAMER FRANCE

JUDGEMENT

(1.) IN all these three appeals, preferred under Section 260 -A of the Income Tax Act, 1961, common questions of law are involved, as such, the appeals are being taken up together, for their disposal. At the outset, it is pertinent to mention here, that Income Tax Appeal No. 91 of 2006 and Income Tax Appeal No. 98 of 2006, are being reheard and disposed of in compliance of order dated 13th of October 2008, passed by the Apex court in Civil Appeal No. 6105 of 2008 and Civil Appeal No. 3 6106 of 2008. The common questions of law involved in these appeals are as under: 1) Whether, the assessee, a non -resident company, was entitled to claim deduction for expenses incurred by it between the period 1993 -1999, particularly, when according to the Department there was no permanent establishment in existence in India during the relevant period?

(2.) WHETHER , the Income Tax Appellate Tribunal has erred in law in holding that the expenses claimed by the assessee were allowable and constitute business loss to be set off under Section 71 of the Income Tax Act, 1961? 2. Brief facts of the case relating to Income Tax Appeal No. 91 of 2006, are that the respondent / assessee, a non -resident company, entered into contract with Oil and Natural Gas Corporation (for short ONGC) in connection with the work of drilling operations in oil exploration. Business under the contract was to be completed by the end of 1993. Thereafter, the respondent / assessee made efforts for its business, but could get fresh contract only in the year 1999. The assessee M/s Pride Foramer S.A. has its office in France. The respondent / assessee filed its return for the assessment year 1996 -97, showing NIL income. The return reflects that there was income of Rs. 1,69,57,395/ - as receipt on account of interest received on income tax refunds to the assessee, and against those receipts, the assessee has shown expenses of Rs. 2,40,000/ - towards administrative charges; Rs. 10,000/ - towards audit fee and Rs. 788/ - towards depreciation in furniture and fixtures. The Assessing Officer (Deputy Commissioner of Income -tax, Dehradun) [for short A.O.] rejected the claim of the assessee on account of expenses for the year, as the assessee did not carry any business during that period in India, and held that no set off is allowable under Section 71 of the Income Tax Act, 1961 (for brevity hereinafter referred as the Act). Aggrieved by said order dated 31.12.1998, passed by the A.O., Appeal No. 413 / DDN / 2002 -03 was preferred before Commissioner of Income -tax (Appeals) -I, Dehradun [for short CIT(A)]. Said appeal was dismissed by said authority vide order dated 21.02.2003. Thereafter, assessee preferred I.T.A. No. 3056 / DEL / 2003 before the Income Tax Appellate Tribunal, Delhi (for short ITAT). The said appeal was allowed by the ITAT. Hence, the appeal before this Court by the Revenue.

(3.) THE facts in connection with Income Tax Appeal No. 49 of 2005, are that the respondent / assessee Foramer France, another non -resident company, also having its office in France, had a contract with ONGC in the year 1983, which expired in the year 1991 -92, and thereafter there was no business activity till 1998, and fresh contract was awarded to the assessee only in the year 1999. The assessee submitted its return before the A.O. (Jt. Commissioner of Income -tax, Dehradun) for the assessment year 1997 -1998, showing income to the tune of Rs. 5,49,628/ - on account of interest received from the refund of income tax. As against this, expenses were claimed on various heads, such as, legal and professional charges, salary and administrative charges, vehicle maintenance, travelling expenses, miscellaneous expenses and depreciation. After processing the return under Section 143(1)(a) of the Act, the A.O. assessed total income of the assessee at Rs. 5,49,648/ -, refusing to allow the expenses claimed on the ground that that assessee company did not carry out any business relating to work of oil exploration in India during the period the same are said to have been incurred. Also, penalty proceedings were directed to be initiated under Section 271(1)(C) of the Act. Aggrieved by said order dated 13.01.2000, the assessee preferred Appeal No. 352 / DDN / 1999 -2000, before the CIT(A), Dehradun. Said authority, after hearing the parties, partly allowed the appeal to the extent the A.O. charged interest under Section 234 of the Act. Thereafter, the assessee filed I.T.A. No. 1442 / DEL / 2001 (Assessment Year 1997 -98) before the ITAT, Delhi. After hearing the parties, the ITAT partly allowed the appeal and directed the A.O. to give due effect to set off and carry forward in accordance with law. Hence, this appeal by the Revenue. Answers to questions of law No. 1 and 2: