By Geeta Jani, Dhishat B. Mehta Chartered Accountants
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Section 44BB – base erosion and profit shifting is a tax policy consideration relevant only for law making but not for judicial decision making
Facts:
The taxpayer was a non-resident company. It was engaged in the business of hiring of equipment and rendering of services to entities/contractors engaged in oil exploration work. The taxpayer offered its income to tax, in terms of section 44BB of the Act on presumptive basis1. The AO contended that the taxpayer has a PE in India and, hence, income from services rendered through the PE is taxable as royalty or FTS on net basis without applying presumptive taxation provisions of section 44BB. Relying on the decision in CGG Veritas Services SA vs. ADIT [2012] 18 taxmann.com 13 (Delhi), the CIT(A) accepted the contentions of the taxpayer and held that the income will be subject to presumptive taxation u/s. 44BB of the Act. The AO contended that allowing the benefit of presumptive taxation to the taxpayer would amount to Base Erosion and Profit Shifting (“BEPS”) from India.
The issue before the ITAT was whether, on facts, the provisions of section 44BB (i.e., presumptive taxation) will apply or those of section 44DA will apply to the facts of the case. Further issue was whether benefit of presumptive taxation can be denied on the ground that it leads to BEPS.
Held:
As regards presumptive taxation u/s. 44BB
The issue is directly covered by the decisions of the coordinate benches and there are no direct decisions on the issue by any higher forum. Hence, benefit of presumptive taxation is available.
As regards BEPS
BEPS is a tax policy consideration relevant only for the process of law making. but not for the process of judicial decision making. Taking BEPS into consideration would infringe the neutrality of judicial process. The judicial authority must not only be neutral vis-à-vis the party but also vis-à-vis competing ideologies.
The law has to be interpreted as it exists and not as it ought to be in the light of certain underlying value notions.
The issue being directly covered by the decisions of the coordinate benches, there is no reason to take any other view of the matter.
