2007 (9) TMI 4 - SC - Income Tax

Liability of tax Alleged that there is three party involved , who related each other through agreement and the question arise here is who liable for payment of tax The petition stand disposed of with no order as to cost

Summary

Issues Involved:
1. Whether there is an enforceable arbitration agreement between the parties after the completion of the contract.
2. Whether the claim made by DHV is stale and barred by limitation.

Detailed Analysis:

Issue 1: Enforceable Arbitration Agreement Post-Completion of Contract
The petitioner, DHV Consultants BV, sought the appointment of an arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996, for disputes arising from a contract with Tahal Consulting Engineers Limited and the Water Resources Organisation, PWD, Government of Tamil Nadu (TNPWD). The main contract was signed on 1st December 1997, and a subsequent sub-consultancy agreement was signed in March 1998. Clause 1.10 of the special conditions of the main contract stated that TNPWD would bear the income tax liabilities on payments to the consultant, sub-consultants, and their personnel.

The respondents argued that the arbitration agreement expired with the completion of the contract and final payment in January 2003. However, the court held that the arbitration agreement remained enforceable. It was noted that Clause 1.10 imposed an ongoing obligation on TNPWD to pay taxes on behalf of the consultants and sub-consultants, which could arise even after the contract's completion. The court emphasized that the arbitration agreement does not perish with the contract and each case must be considered on its own facts. Therefore, an enforceable arbitration agreement existed between the parties.

Issue 2: Stale and Time-Barred Claim
The respondents contended that DHV's claim was stale and barred by limitation, as the main contract ended on 31st March 2002, and the last payment was made on 30th January 2003. They argued that there was no cause of action since the tax obligations were discharged and any claims were time-barred. DHV received notices from the Income Tax Department in February 2004, alleging non-payment of income tax on remittances made by TNPWD, leading to an additional tax demand which DHV paid to avoid penalties.

The court held that the claim was not stale or time-barred. It was noted that the cause of action arose only when DHV received the tax notices in February 2004, as prior to this, DHV had no reason to complain, having received full payments. The court referred to the decision in SBP & Co. Vs. Patel Engineering Ltd. & Anr., which established that the issue of whether a claim is time-barred should be decided by the arbitrator under Section 16 of the Act. Therefore, the court found that the claim was a live issue requiring settlement through arbitration.

Conclusion
The petition was allowed, and Justice P.K. Balasubramanyan, a former Judge of the Supreme Court, was appointed as the Sole Arbitrator to adjudicate upon the claims/disputes raised by DHV. The court directed the Registry to communicate this order to the learned Arbitrator for the matter to be decided expeditiously. The petition was disposed of with no order as to costs.