2021 (10) TMI 1265 - HC - Income Tax

TDS u/s 195 - Demand u/s 201(1) and u/s 201(1A) - DTAA between India and UAE - as argued all the replies given by petitioner to show cause notices issued have not been considered and dealt with in the impugned order - as stated show cause notice does not refer to this issue and petitioner has not been called upon to show cause why it should not be held that petitioner was dependent PE for PDR Solutions UAE etc. - HELD THAT - Issuance of a show cause notice is the preliminary step which is required to be undertaken. The purpose of show cause notice is to enable a party to effectively deal with the case made out by respondents ( See Om Shri Jigar Association Vs Union of India 1994 (5) TMI 24 - GUJARAT HIGH COURT In the circumstances, without making any observations on the merits of the case, we are quashing the impugned order dated 30th March 2021 and any consequential demand notice issued therein and remand the matter to respondent no.1 to pass fresh orders after hearing petitioner. If respondent no.1 feels need to add any further points in the show cause notice, respondent no.1 shall issue fresh show cause notice to petitioner and petitioner may respond to the said show cause notice. We keep open all rights and contentions of the parties including petitioner s right to raise the issue of limitation.

Summary

Issues:
Impugning an order under Income Tax Act for A.Y.-2016-2017 on various grounds including natural justice, limitation, and arbitrariness. Determination of petitioner as an assessee-in-default for tax deduction on payments made to an entity. Failure to consider all replies given by petitioner in the impugned order. Allegation of petitioner being a dependent agent within the meaning of DTAA between India and UAE. Quashing of the impugned order and remanding the matter for fresh orders after hearing petitioner.

Analysis:

1. The petitioner challenged an order passed under Section 201(1) and 201(1A) of the Income Tax Act, 1961 for the assessment year 2016-2017 on various grounds, including contravention of natural justice, being beyond the limitation period, and being arbitrary and unreasonable.

2. The petitioner, a wholly owned subsidiary of a larger group, operates as a collection agent for monies receivable from Indian customers by its Associated Enterprise, PDR Solutions FZC, a UAE registered entity.

3. The impugned order held the petitioner as an assessee-in-default for tax deduction on payments made to PDR Solutions. The order followed a series of notices and replies exchanged between the parties, with the final order demanding a substantial sum from the petitioner.

4. The impugned order failed to address all replies submitted by the petitioner, and it also categorized the petitioner as a dependent agent within the meaning of the Double Taxation Avoidance Agreement (DTAA) between India and UAE without providing an opportunity for the petitioner to respond to this specific allegation.

5. During the proceedings, arguments were made regarding the relationship between the petitioner and PDR Solutions, with contentions on the nature of their agreement and the role of the petitioner being raised. However, the primary issue highlighted was the failure of the impugned order to consider and address all replies submitted by the petitioner.

6. The court emphasized the importance of issuing a show cause notice to enable a party to effectively respond to the case made out by the respondents, citing relevant legal precedent.

7. Consequently, the court decided to quash the impugned order dated 30th March 2021 and any related demand notices, remanding the matter back to the tax authorities for fresh consideration after providing an opportunity for the petitioner to be heard. The court also allowed for the addition of further points in the show cause notice if deemed necessary, ensuring the petitioner's right to raise the issue of limitation.

8. As a result of quashing the impugned order, the petitioner agreed to withdraw the appeal filed within a stipulated timeframe, bringing the matter to a temporary resolution pending further proceedings.