2022 (7) TMI 1160 - HC - Income Tax

Stay of demand - disputed demand has arisen on account of the failure of the petitioner to deduct tax at source on the interest payments made to China Development Bank (hereinafter referred to as CDB ), which as per the petitioner was a bank wholly owned by the Government of China - HELD THAT - We find force in the submissions of the counsel for the respondents that this Court cannot at this stage cannot arrive at any conclusion, prima facie or otherwise with respect to ownership of the CDB, which will be determined in the present appeal after due consideration of the documents relied upon by both the parties. The respondents do not admit the inference of ownership drawn by the petitioner on the basis of the documents placed on record by the petitioner being the annual reports of the CDB. The ownership of the CDB being a disputed question of fact cannot be decided by this Court and it cannot be a matter of prima facie determination as it is the material fact to be determined in the appeal filed by the petitioner. With respect to the plea of hardship, it is noted from the petitioner s standalone statement of profit loss that its earnings before interest, tax, depreciation and amortisation for the year ended 31st March, 2021 is Rs. 330.76 crores. It is further noted that the revenue from operations of the petitioner for the same year stand at Rs. 1604.66 crores. So also the current assets of the petitioner are reported as Rs. 4,930.34 crores. With respect to the contention of the petitioner as regards brought forward losses of Rs. 9,671.83 crores as reported in its ITR for AY 2021-22, it is noted that out of the same, Rs. 7167 crores have been set off in the AY 2021-22. The petitioner has not suffered any operational losses in the relevant financial year. In these circumstances, the plea of hardship as raised by the petitioner is not made out. Accordingly, the impugned order dated 2nd June, 2022 does not call for any interference. We, however, direct the Commissioner (Appeals) to dispose of the appeal within a period of 12 weeks from today.

Summary

Issues:
Petitioner challenges order demanding tax payment and seeks stay, CIT's rejection of stay application, ownership of China Development Bank, financial hardship faced by petitioner.

Analysis:
1. The petitioner contested an order demanding tax payment and sought a stay against the demand of INR 42,40,72,259 arising from interest payments to China Development Bank (CDB) for the assessment year 2016-17. The petitioner argued that under the India-China Double Taxation Avoidance Agreement (DTAA), interest income payable to a financial institution wholly owned by the Government of China is exempt from tax in India. The petitioner claimed that CDB was wholly owned by the Government of China, citing shareholding details from CDB's Annual Reports.

2. The petitioner highlighted that an amended Protocol of the India-China DTAA confirmed CDB as a 100% Government-owned entity both before and after the amendment. The petitioner's application for stay was rejected by the assessing officer citing CBDT guidelines, leading to a review application dismissed by the CIT. The petitioner argued that the CIT failed to consider the ownership details of CDB and the financial hardship faced, as evidenced by significant tax losses and unabsorbed depreciation reported in financial statements.

3. The respondent contended that the issue of CDB's ownership should be determined in the pending appeal, and the amended protocol would apply prospectively from April 1, 2020. The respondent disputed the petitioner's interpretation of ownership based on the Annual Reports of CDB, emphasizing that shareholding by companies owned by a state does not qualify for DTAA benefits. The respondent also argued against the petitioner's claim of financial hardship, stating the amount to be deposited was manageable for a group company of the TATA business group.

4. The Court held that it could not make a prima facie determination on CDB's ownership, noting it as a disputed fact to be decided in the appeal. Referring to a previous judgment, the Court emphasized that matters of tax liability determination fall within the statutory scheme and should be addressed through statutory remedies. The Court found no merit in the petitioner's plea of financial hardship based on the petitioner's financial statements, concluding that the impugned order did not warrant interference. The Court directed the Commissioner (Appeals) to dispose of the appeal within 12 weeks.

5. In conclusion, the Court dismissed the writ petition and related applications, maintaining the impugned order while instructing timely disposal of the appeal by the Commissioner (Appeals).