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2007 (1) TMI 198 - AT - Income TaxDeduction of tax at Source - Payments made after moving an application u/s 195(2) - No Objection Certificate with regard to remittance of payment - Assessee in default u/s 201 - Charging Of interest u/s 201(1A) - limitation for exercising the powers in passing order u/s 201 - HELD THAT - This order of the Tribunal was passed on 1-12-1995 and still holding the field on the issue. It is followed recently in the case of Workhardt Life Science Ltd. 2005 (6) TMI 550 - ITAT MUMBAI . From the order of Workhardt Life Science Ltd. it reveals that ITAT Delhi has also followed the Raymond Woollen Mills order in the case of Sahara Airlines v. Dy. CIT 2002 (2) TMI 319 - ITAT DELHI-E . In the case of Indian Rayon for assessment year 199495. ITAT Mumbai again followed the order of M/s. Raymond Woollen Mills and held that an order u/s 201 ought to be passed within 4 years. Thus respectfully following all these orders we hold that action of Assessing Officer treating the assessee in default for the remittance made prior to 31-3-1998 is barred by limitation. Accordingly we direct the Assessing Officer not to treat the assessee in default for the payments made prior to 31-3-1998. This ground is partly allowed. Since payments have been made after 31-3-1998 hence we have to decide the issue on merit also. No Objection Certificate with regard to remittance of payment of first contract - In the present case the assessee contended that it has obtained a No Objection Certificate from the Assessing Officer u/s 195(2) of the Act for remitting the payment relating to the first contract and therefore it believed that for making similar payment it is not necessary to approach the Assessing Officer for similar payments. If this argument is accepted then some other assessee would say that in case of A Assessing Officer has permitted the remittance of payment without deducting the tax his contract is also similar to that of A hence he is not obliged to approach the Assessing Officer. In that situation the very purpose of the section would otiose. The Act imposes the authority for permitting an assessee to remit the payment without deducting tax in the Assessing Officer and not in any other person. The powers and discretions of Assessing Officer cannot be substituted with the belief of an assessee. Therefore on the basis of this belief we cannot hold that assessee is justified for not deducting the tax while remitting the amount to non-resident. This argument of the assessee is rejected. DDIT of recovering the tax - Here the assessee has not deducted the tax while making the payment for the contracts relating to second phase. Thus assessee cannot draw any benefit from this decision and it is not the duty of the Assessing Officer to ascertain whether the recipient has paid the tax or not before passing order under section 201 read with section 195. More particularly Article 5 of the contract between assessee M/s. Toyo postulate the mode of payment of the contract price and how to discharge the tax liability etc. it is worth to note this clause (d) of sub-clause (8) of Article 5. Thus it was the obligation of the assessee to ascertain tax liability etc. while making the payments. The assessee has not deducted the TDS therefore we do not find any merit in this argument of the assessee and Ground No. 4 is rejected. Determination of appropriate sum chargeable out of remittance - towards contract for offshore design for phase one of the project - No Objection Certificate for payment without deduction of TDS - From the record it revealed that while making payment for the contracts relating to Phase-I assessee has moved an application u/s 195(2) of the Act. The ld. Assessing Officer has issued No Objection Certificate for making the remittance without deducting tax. The ld. D.R. at the time of hearing pointed out that it is not an order passed u/s 195(2) of the Act it is simply a No Objection Certificate authorizing the assessee to make the payment. It is for facilitating the assessee from rigors of RBI guidelines etc. However we have gone through the application of the assessee available at the paper book. It is an application moved u/s 195(2) of the Act. It is immaterial how the Assessing Officer processed this application and issued a No Objection Certificate for making the remittance without making TDS. Therefore as far as for the payment made for Phase-I the assessee cannot be treated in default u/s 201 of the Act because it has applied u/s 195(2) of the Income-tax Act before the Assessing Officer prior to remitting the payment. The ld. Assessing Officer shall recompute the liability of the assessee and exclude all those amounts for which assessee has moved application u/s 195(2) of the Act and no No Objection Certificate was issued by the Assessing Officer. Hence ground No. 6 is partly allowed whereas Ground No. 5 is rejected. Non-deduction of TDS in respect of delayed payment charges remitted for crude oil purchase - We find that ld. first appellate authority has recorded a finding of fact that assessee failed to bring any evidence on record to prove that the payments made to the aforesaid parties are in the nature or penalty charges fir delayed payment. The ld. first appellate authority further on the basis of the agreement for supply of crude oil observed that payment of interest is for delay in payment of purchase price. In this connection clause 2(c) of Part-II of the agreement with Texco International has been referred by the ld. CIT(A). Therefore we do not find any merit in the contention of ld. counsel for the assessee. On facts it has been held that the delayed payment charges are nothing but in the nature of interest. We summarize the result as under - (i) The action of Assessing Officer for treating the assessee in default for the payments made prior to 31-3-1998 are barred by limitation as provided in the case of Raymond Woollen Mills 1995 (12) TMI 84 - ITAT AHMEDABAD-B therefore assessee should not be treated in default qua those payments and necessary relief be granted to the assessee. (ii) The payments made after moving an application u/s 195(2) and on issuance of Certificate of No Objection by the Assessing Officer the assessee should not be treated in default. The ld. Assessing Officer shall carry out this exercise afresh and exclude all those payments for which No Objection Certificates were issued while holding the assessee in default. (iii) With regard to payment made to Core Laboratories i.e. an amount of Rs. 1, 53, 665 ld. Assessing Officer shall re-decide this issue in the light of Tribunal s decision rendered in the case of McKinsey Co. Inc. (Philippines) 2005 (10) TMI 416 - ITAT MUMBAI . (iv) Except the above modification we uphold the order of ld. CIT(A). (v) As far as the appeal relating to charging of interest u/s 201(1A) it is consequential in nature and after carrying out the above exercise ld. Assessing Officer shall grant consequential relief to the assessee. In the result both the appeals of the revenue are dismissed for want of COD approval and both the appeals of the assessee are partly allowed.
Issues Involved:
1. Jurisdiction of the Assessing Officer under section 201. 2. Limitation period for passing an order under section 201. 3. Deduction of tax at source (TDS) on payments to non-residents. 4. Recovery of tax from the assessee without ascertaining if the recipient paid the tax. 5. Grossing up of tax rate under section 195A. 6. Non-deduction of TDS on miscellaneous remittances. 7. Non-deduction of TDS on delayed payment charges. Issue-wise Detailed Analysis: 1. Jurisdiction of the Assessing Officer under section 201: The assessee contended that the DDIT, Mumbai, had no jurisdiction to pass an order under section 201. This contention was rejected by the Assessing Officer and upheld by the CIT(A). During the hearing, the assessee did not press this ground, so the tribunal did not delve into it further. 2. Limitation period for passing an order under section 201: The assessee argued that any order under section 201 must be passed within a reasonable time, citing the ITAT decision in Raymond Woollen Mills v. ITO, which suggested a four-year limitation. The CIT(A) partly accepted this, applying a six-year limitation based on current provisions. The tribunal, following the Raymond Woollen Mills decision, held that the action of the Assessing Officer was barred by limitation for remittances made prior to 31-3-1998, directing not to treat the assessee in default for those payments. 3. Deduction of tax at source (TDS) on payments to non-residents: The assessee argued that it had obtained a No Objection Certificate (NOC) from the Assessing Officer for payments under the first contract phase, believing it was not required to deduct TDS for similar payments under the second phase. The tribunal rejected this, stating that only the Assessing Officer could permit payments without TDS, not the assessee's belief. However, for payments under the first phase where an NOC was obtained, the tribunal directed the Assessing Officer to exclude those amounts from default. 4. Recovery of tax from the assessee without ascertaining if the recipient paid the tax: The assessee argued that the Assessing Officer should have verified if the recipient (M/s. Toyo) paid the tax before treating the assessee in default. The tribunal held that it was the assessee's duty to demonstrate that the tax was paid on the remittance, not the Assessing Officer's duty to ascertain these facts. 5. Grossing up of tax rate under section 195A: The tribunal noted that this issue was consequential in nature and rejected the ground. 6. Non-deduction of TDS on miscellaneous remittances: The tribunal addressed payments to Niigata Engineering Co., Japan, and Core Laboratory Inc., U.S. The assessee did not press the issue for Niigata Engineering. For Core Laboratory, the tribunal set aside the issue for re-adjudication in light of the ITAT decision in McKinsey & Co. Inc. (Philippines). 7. Non-deduction of TDS on delayed payment charges: The tribunal upheld the CIT(A)'s finding that delayed payment charges were in the nature of interest, based on the agreement's terms and the Gujarat High Court decision in CIT v. Vijay Ship Breaking. The tribunal held that the assessee should have deducted TDS on these payments. Summary of Results: 1. The tribunal held that the action of the Assessing Officer for treating the assessee in default for payments made prior to 31-3-1998 was barred by limitation. 2. Payments made after moving an application under section 195(2) and obtaining an NOC should not be treated in default. 3. The issue regarding payment to Core Laboratories was set aside for re-adjudication. 4. The tribunal upheld the CIT(A)'s order except for the modifications mentioned. 5. Interest under section 201(1A) is consequential, and the Assessing Officer should grant relief accordingly. Conclusion: Both appeals of the revenue were dismissed for want of COD approval, and both appeals of the assessee were partly allowed.
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