JUDGMENT

1. Although we have issued rule on all three questions sought to be got referred to us, yet on hearing both sides on the returnable date and thereafter we are of the final and firm opinion that the rule should be discharged.

2. Since we are discharging the rule, some reasons and background are necessary. The assessee was, on an admitted basis, liable to be taxed in accordance with the provisions of section 44BB of the Income-tax Act, 1961.

3. Roughly speaking that section provides that when a non-resident receives amount for supplying plant and machinery for production of mineral oils, the amount paid to the assessee is not wholly to be taxed as profits and gains of business or profession but that only 10 per cent, of such amount is to be so taxed.

4. The assessment years in question are 1983-84 to 1989-90.

5. There were two batches of appeals which reached the Tribunal in this regard. The first batch of appeals was concerned with the power of rectification under section 154. In the assessment made under section 143 of the Act there had not been included in the assessee's income the amount of tax paid on behalf of the assessee by the ONGC to the Department.

6. That tax paid was sought to be included by rectification. Thus, in the first batch of appeals the main point before the Tribunal was whether such an exercise of inclusion could be undertaken by way of rectification.

7. In the second batch of appeals also the tax paid on behalf of the assessee was again under consideration but in a different light. The issue here was whether the tax paid on behalf of the assessee would be taken 100 per cent, as gains of business or profession (as would ordinarily be the case in the case of an ordinary citizen not engaged in oil exploration) or whether 10 per cent, of such tax would be taken as profits and gains of business, such tax paid being connected inextricably with the fees paid in regard to services rendered for oil exploration, or thirdly whether the tax paid on behalf of the assessee could at all be included in the profits and gains of the profession or business.

8. The third and last view arises out of the special wording of section 44BB.

9. We set out only the relevant words in this regard so that this issue of total exclusion can be understood:

“44BB…. in the case of an assessee, being a non-resident, engaged in the business of providing services… for… production of, mineral oils, a sum equal to 10 per cent, of the aggregate of the amounts specified in subsection (2) shall be… ‘Profits and gains of business or profession’….

(2)(a) the amount paid or payable (whether in or out of India) to the assessee or to any person on his behalf on account of… services… or supply of plant…”

10. It was submitted that profits and gains of business in regard to these special assessees are defined in a particular manner under section 44BB. The special definition has various extraordinary characteristics. The first notable character is that only 10 per cent, of the receipts are taxable at all. The second characteristic is that only those receipts as mentioned are taxable and such mentioning must be found within the section itself, and in our case within the above words quoted from sub-section (2)(a). If tax is paid on behalf of the assessee to the Union of India and its exchequer, it was submitted that such payment is not made to a person on behalf of the assessee because that description hardly fits the Union of India. It was also submitted by Mr. Dastur that tax being never payable out of India the bracketed portion in sub-section (2)(a) would indicate payment of tax to be outside the ambit of this sub-section.

11. The first question sought to be referred raises the issue of inclusion of the tax paid for the assessee by way of rectification. Surely when the above provisions are admittedly to be applied to the assessee, it is not beyond debate or dispute whether in spite of application of such provisions the amount of tax paid would become liable to be taxed at all, even to the extent of 10 per cent, of it as the specially defined profits and gains of the business of the assessee must come within the meaning of the words used in section 44BB.

12. That only matters beyond debate or dispute can form the subject-matter of rectification, is so well settled that an authority is hardly needed for that proposition. Yet we refer in this regard to the case cited by Mr. Dastur being the case of T.S Balaram, ITO v. Volkart Brothers, [1971] 82 ITR 50 (SC).

13. Mr. Agarwal, appearing for the department, submitted that in the case of Emil Webber v. CIT, [1993] 200 ITR 483, the Supreme Court has given a pronouncement which is extremely helpful in dealing with the situations where tax is paid by a third party on behalf of the assessee. That case is Emil Webber's case, [1993] 200 ITR 483 (SC). There the tax paid on behalf of the assessee, who worked as a foreign personnel for setting up a manufacturing plant in India, was declared by the Supreme Court to be in effect, and falling within the inclusive definition of income given in section 2(24) of the Act.

14. Mr. Agarwal submitted that if there is a Supreme Court's decision on a point, then and in that event the matter is laid thereby beyond all doubt or dispute. A rectification made on the basis of a Supreme Court pronouncement is, therefore, although a technical matter and might also be a complicated matter, yet it is a matter beyond debate, doubt or dispute as the Supreme Court itself has laid the matter at rest.

15. With this-proposition there is no dispute. But the case of Emil Webber v. CIT, [1993] 200 ITR 483 (SC) admittedly came a long time after the rectification orders were passed.

16. It is not that the case of Emil Webber v. CIT, [1993] 200 ITR 483 (SC) was sought to be applied by the rectifying officer and that he sought to rectify the matter and bring it in line with the law laid down by the Supreme Court. Thus, the principle that a binding Supreme Court's decision gives the jurisdiction to rectify cannot be invoked. We should at this stage guard against falling into a logical and legal error. Mr. Agarwal submitted that it would be anomalous if rectification orders passed after the decision of Emil Webber v. CIT, [1993] 200 ITR 483 (SC) could pass the test of law and yet an identical order, effecting an identical rectification, should fail to pass the test just because it was passed and the order was made before the Supreme Court pronouncement saw the light of the day. There is a logical fallacy in this. The challenge to section 154 order is not a challenge to this correctness. The challenge is as to its jurisdiction. The jurisdiction to pass an order in rectification arises when the Supreme Court lays the matter at rest. It is not possible for a rectifying officer to anticipate the decision of the highest authority and pass a “correct” rectifying order in anticipation. Orders passed in excess of jurisdiction are liable to be set aside and quashed irrespective of whether the orders are correct or not. This is true when an order is made, say, against the rules of natural justice or where a statutory authority otherwise exceeds its jurisdiction. Thus, in the instant case, when rectification was sought to be made by including within the income of the assessee the amount of tax paid on its “behalf”, the officer sought to operate on a territory which was not, so to speak, an undisputed territory. The Tribunal has held so. The Tribunal has refused to refer the question of the rectifying officer being, in the instant case, right in law, and we are fully in agreement with the Tribunal in this regard. There is no point of law which arises from the records which would persuade us to hold that even in the above facts and circumstances, it is necessary further to examine whether the rectifying officer proceeded on an undisputed basis for rectifying obvious errors and mistakes.

17. Mr. Agarwal also added that because the question whether jurisdiction under section 154 could be used is itself, a matter of debate or dispute, we should finally settle it after the questions are referred to us. With respect, this is again a logical fallacy. If it is a matter of debate and dispute whether the jurisdiction under section 154 was originally used in a matter which is debatable or disputable or not, then the original matter itself is thereby immediately branded as one on which there can be debate or dispute. The rule in regard to the first question, therefore, must be discharged.

18. The second question arose out of this fact that the point of the rectifying officer having no jurisdiction to rectify under section 154 was not raised before the first appellate authority. It was raised before the Tribunal and the point succeeded before the Tribunal. The Department would, therefore, have us refer the question whether the Tribunal was entitled to allow the raising of a new ground for deciding the appeal.

19. But the second question as framed before the Tribunal in the application under section 256(1) of the Act reads whether the Tribunal was justified in law in allowing new evidence, the word “ground” was not used.

20. It was not a matter of mere error or slip or a stenographer's error where ground is somehow mistyped as “evidence”. The ground of additional evidence was pressed as such. The Tribunal has given its decision on that ground and has, with full justification, held that no question arose, in the instant case, of allowing new evidence before the Tribunal.

21. Mr. Dastur submits in these circumstances that it is not permissible for the department to change the question into a different question at this stage. The question is typed out as a new evidence question even in the petition before us. Mr. Dastur referred to us the high authority of the Supreme Court in this regard and gave us the case of CIT v. Scindia Steam Navigation Co. Ltd., [1961] 42 ITR 589. The decision is a decision of a Bench of strength of five. It is said in the judgment at page 609 of the Report that a reference compulsorily ordered by the High Court upon the Tribunal is an order in the nature of a mandamus. The court further said that no mandamus will be issued unless the applicant has made a distinct demand on the appropriate authorities for the very reliefs which he seeks to enforce by mandamus and that had been refused.

22. If the Tribunal is first asked to refer a question on its own to us, and it does not do so, then and then only can we intervene and in our discretion compel the Tribunal to make a reference on that question.

23. Applying the principle of the Supreme Court's decision in this case, we have no hesitation in reaching this conclusion that the Tribunal was not asked to consider whether the consideration of a new ground by it led to an error of law on the records and the reasons given in this decision. Since the Tribunal was not asked to decide on this question, the applicant-Department never applied for relief to the first authority to which it is bound to go for relief in the first instance. Not having done so, an order for mandamus against that authority cannot be asked for before us because that authority is not in any error or in any breach of duty.

24. We respectfully follow the above principle laid down by the Supreme Court and by applying that principle, the second question sought to be referred must also be refused and the rule in that regard also be discharged.

25. Additionally, there are authorities to the effect that where all the facts are before the Appellate Tribunal, a pure new ground of law can usually be allowed to be taken by a party provided that party has not disentitled itself by adopting any unfair means. If that new ground has been intentionally suppressed or some such disentitling factor can be shown against that party, the additional ground might be refused to be taken by the party before the Appellate Tribunal. But, ordinarily, a pure point of law is usually allowed to be taken. Mr. Dastur gave us the Supreme Court's decision in the case of CIT v. S. Nelliappan, [1967] 66 ITR 722. The right of the Tribunal to give relief to the assessee to urge new grounds is taken note of in that case. The rules themselves permit such relief to be granted in appropriate cases by appropriate use of discretion. Thus the matter of taking of a new ground not being challenged before the Tribunal at all, interference by us in this regard at this stage would be thoroughly unjust and unlawful.

26. The third question relates to the amount of tax payable by the assessee on the amount of tax which was paid on behalf of the assessee.

27. Let us make things clear by giving hypothetical figures. The percentage of tax prevalent at the material time was 65 per cent. If the fees of the assessee came to be hundred (we are intentionally not mentioning rupees, dollars, lakhs or crores), the section 44BB taxable profit would be 10. The tax on that would be 6.5 Since the assessee wanted its fees clean, and not be involved in any tax liabilities thereon, this 6.5 was paid by the ONGC to the department.

28. The case of the Department was that this 6.5 is to be charged to the full extent as an additional amount of profits or gains.

29. The Tribunal has held that only 10 per cent, of 6.5 can be charged to tax and, therefore, the total amount chargeable to tax would be 10.65 Since the tax on 10 has already been paid, if the Tribunal's decision is upheld, the additional liability to tax would be 65 per cent, of 0.65 According to the assessee, this is a comparatively small sum and because it is a comparatively small sum the assessee itself has not made a reference application before the Tribunal for deleting it altogether and for obtaining the ruling that the profit which was liable to tax was only 10 per cent, of 100 and nothing more.

30. According to the assessee, the tax paid on behalf of the assessee is not an amount paid on behalf of the assessee to any person within the meaning of section 44BB. But we need not enter into the correctness of this point in this matter as the assessee would be satisfied with a lesser relief.

31. According to the lesser relief, and the slightly worse interpretation from the point of view of the assessee, the tax paid on behalf of the assessee is an amount paid on behalf of the assessee to a person, which is the Indian exchequer. This amount is paid on account of service and facilities in connection with supply of plant and machinery for extraction of oil.

32. It can hardly be disputed that it is so. Had the assessee not made the supplies and rendered the services the tax on its behalf would not have been paid. Had the assessee not been paid hundred, the ONGC would not have paid 6.5 to the Department as any separate payment on any separate head or count.

33. The Department, however, submitted through Mr. Agarwal that if the assessee's case is that the payment of tax is not a payment made on its behalf to any person, then the assessee itself argues that section 44BB of sub-section (2) is inapplicable. If the assessee itself argues that section 44BB is inapplicable, then the payment of tax on behalf of the assessee must be an ordinary payment and must class as an ordinary and usual gain or profit of business or profession. If it is such an ordinary gain of business then it should be ordinarily taxable. In other words, the tax should be 65 per cent, on 6.5 and not 65 per cent, on 0.65

34. With respect, this contains a fundamental fallacy. Once a non-resident supplier of machinery comes within the purview of section 44BB, it cannot come again under the purview of the other parts of the Act dealing with profits and gains of business or profession. It cannot be said that the assessee is liable to 10 per cent, of the profits and gains under section 44BB and is liable to 100 per cent, under the other parts of the Act which makes profits and gains liable to tax. If section 44BB operates, it operates to exclude altogether the incidence of tax on profits and gains of business or profession which would otherwise be incidental on the basis of the other sections apart from section 44BB.

35. In Emil Webber's case, [1993] 200 ITR 483 (SC), referred to above, the Supreme Court considered income from other sources. This also cannot be made applicable in regard to the tax paid on behalf of the assessee. The words of that section, in the very beginning clarify that income on other account is to be taken as provided and it is hot excluded from the total income under the Act. If there is an exclusion under some other provision of the Act, the residuary section being section 56 cannot be brought into play.

36. Once section 44BB is applied, two conclusions become inescapable. The first conclusion is that 10 per cent, of the receipts by the foreign resident is chargeable to tax and the other conclusion is that 90 per cent, of the receipts of that foreign resident as well as receipts or gains other than those mentioned in section 44BB is not chargeable to tax. It would be logically fallacious to use the taxability of 10 per cent, which is expressly provided in section 44BB, and to pass over or fail to recognise the exemption from tax as to the balance 90 per cent, of the receipts, and 100 per cent, of other profits and gains, which is also provided for in section 44BB by necessary and inescapable conclusion.

37. If 90 per cent, of receipts and gains mentioned, and 100 per cent, of those not mentioned are necessarily excluded by section 44BB, those cannot be included by an indirect manner or by application of residuary articles or provisions.

38. Therefore, even if the assessee submits that the payment of tax on its behalf might be allowed to be left in the instant matter as covered by section 44BB, but it really does not admit such taxability and that submission cannot be used for making the entirety of that amount taxable under sections other than section 44BB. Only 10 per cent, of 6.5 can be charged under section 44BB and that has been done by the Tribunal. Since any other view which is less favourable to the assessee is impossible on this question, we discharge the rule on this question also.

39. For the sake of convenience, we set out below the questions which were the subject-matter of the rule issued by us:

“1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that where tax payable on behalf of the assessee was not included in the order under section 143(3), the inclusion of the same in the order under section 154 was a debatable issue and was not within the jurisdiction of section 154 of the Income-tax Act, 1961?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in admitting the additional evidences which were not raised before the lower authorities?

3. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that only 10 per cent, of tax liability of nonresident assessee paid by the OIL and ONGC can be taxed?”

40. The rule issued in regard to all three questions is discharged and the application under section 256(2) is, accordingly, rejected.

41. Let photo copies of the dictated order be issued to the parties concerned on the usual undertakings to have the order drawn up and completed expeditiously.