2017 (5) TMI 1054 - HC - Income Tax

Issuance of the certificate under Section 197(1)/195 - contracts between NPCC and ONGC - Held that - There is no justification for Respondent No.1 not to accept the alternative and without prejudice plea of the Petitioner that in respect of only the inside India activities there may be a deduction of TDS @ 4%. Accordingly, the Court sets aside the certificate issued by Respondent No.1 dated 31st January, 2017 insofar as it requires deduction of TDS @ 4% on the entire payments made by the ONGC to the Petitioner, both on the outside India and the inside India activities. Respondent No.1 is now directed to consider the matter afresh, and within a period of four weeks from today, issue a fresh certificate under Section 197(1) of the Act, accepting the alternative plea of the Petitioner, without prejudice to its right to contest the said deduction in accordance with law, that the ONGC would deduct tax @ 4% surcharge education cess on the revenues in respect of only the inside India activities of the Petitioner

Summary

Issues:
Quashing of certificate rejecting tax deduction plea under Sections 197(1)/195 of the Income Tax Act, 1961 for payments received under a contract with ONGC.

Analysis:
1. The petitioner, a company incorporated in the UAE, sought to quash a certificate rejecting its plea for nil tax deduction on payments received from ONGC under a contract. The petitioner argued that the Agreement for Avoidance of Double Taxation between India and the UAE should apply to determine taxable income, emphasizing it has been filing tax returns till AY 2016-2017.

2. The contract with ONGC involved various activities, and the petitioner contended that its business profits would be taxable in India only if it had a Permanent Establishment (PE) in India. The petitioner maintained it had no PE in India, highlighting that activities in Abu Dhabi did not contribute to a PE in India, and activities in India did not exceed the threshold under the Treaty.

3. The petitioner applied for a certificate under Section 197 of the Act for nil tax deduction on ONGC payments and alternatively requested a 4% deduction for inside India activities. However, the certificate issued directed ONGC to deduct tax at 4% on all payments, rejecting the petitioner's plea for nil tax deduction.

4. Referring to a previous judgment, the Court noted that the petitioner's project office did not constitute a fixed place PE and that the profits from the contract did not need to be split between India and overseas activities. The Court directed a fresh consideration of the matter, instructing a 4% deduction only for inside India activities, setting aside the previous certificate.

5. The Court emphasized that the order was specific to the issuance of the certificate under Section 197(1) of the Act and did not express any opinion on the merits of the parties' contentions. The petition was disposed of accordingly, with the directive for a fresh certificate within four weeks, accepting the petitioner's alternative plea for tax deduction on inside India activities only.