2017 (9) TMI 748 - HC - Income Tax

Taxability in India - Settlement commission order eligibility - Settlement Commission held that the Non- Resident Entities not having permanent establishment in India are not liable to pay taxation in respect of offshore transactions - DTAA - Held that - The Settlement Commission considers the contracts. It looks into the aspect of the taxability of the portion said to be performed within India. It takes a particular view upon understanding the contract between the parties and gives reasons for such particular view as returned. As noted above it is of view that so far as the plant and machineries are concerned the sale took place offshore and therefore is not taxable in India. So far as the supervisory contracts are concerned the Settlement Commission is of the view that the same is taxable and has determined the tax liability. The private respondents have accepted the same. Provisions in the contract allowing deferred payment to be made in India by itself may not allow an inference that the title to the goods stand transferred only upon such payment being made. An order passed by the Settlement Commission is justiciable. Jyotendrasinhji (1993 (4) TMI 1 - SUPREME Court ) is of the view that an order of the Settlement Commission which is contrary to any of the provisions of the Income Tax Act 1961 and prejudicial to the interest of the assessee is amenable to interference under Article 226 of the Constitution of India. An order of the Settlement Commission can also be interfered with if it is substantiated the same is vitiated by fraud or bias or malice. None of the grounds noted for sustaining a challenge to an order passed by the Settlement Commission stands substantiated in the facts of the present case. The Writ Court is not called upon to reapprise the evidence produced before the Settlement commission as an Appellate Court and arrived at a finding contrary thereto.

Summary

Issues:
Challenge to Settlement Commission order regarding tax liability for non-resident entities for offshore transactions.

Analysis:
The case involved a challenge to an order passed by the Settlement Commission concerning the tax liability of non-resident entities for offshore transactions. The Settlement Commission admitted the application for settlement under Section 245D(1) of the Income Tax Act, 1961. The dispute revolved around the sale of plant and machinery by the non-resident entities to Indian companies. The petitioner argued that the sale took place in India, making it subject to income tax under the Income Tax Act, 1961. The Settlement Commission, however, considered the contracts in detail, including the provisions of the Sale of Goods Act, 1930, and the intentions of the parties as reflected in the terms and conditions of the contracts. It concluded that the sale of plant and machinery occurred offshore and, therefore, was not taxable in India. On the other hand, the supervisory contracts were deemed taxable, and the tax liability was determined accordingly. The Settlement Commission's decision was based on legal principles established in previous cases such as Ishikawajima-Harima Heavy Industries Ltd. and L.G. Cable Ltd.

The petitioner contended that the Settlement Commission erred in allowing the settlement application, as it did not consider the sale of plant and machinery to have taken place in India. The petitioner referred to various clauses of the contract to support the argument that the income derived from the sale should be subject to Indian taxation laws. The respondent, however, argued that the major portion of the contracts occurred outside India and, therefore, the non-resident entities were not liable to pay tax for those transactions. The Settlement Commission's order was detailed, considering the provisions of the Sale of Goods Act, 1930, and the specific terms of the contracts between the parties. The respondent emphasized that the deferred payment clause in the contract did not imply that the title to the goods transferred only upon payment.

The Court analyzed the Settlement Commission's order and found no grounds for interference under Article 226 of the Constitution of India. It noted that the Settlement Commission's decision was justiciable and could be challenged if contrary to the provisions of the Income Tax Act, 1961, or prejudicial to the assessee's interests. Since none of the grounds for challenging the order were substantiated in this case, the Court dismissed the writ petition, concluding that there was no need to reevaluate the evidence produced before the Settlement Commission.