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TMI Blog2011 (4) TMI 441X X X X Extracts X X X X X X X X Extracts X X X X ..... of by a common order. For the sake of clarity and convenience, the facts of WP(C) 12859/2009 are enumerated herein. 2. The petitioner company was awarded four contracts encompassing Onshore supply, Onshore services and Offshore supply, one each for Northern and North Eastern regions and two for Eastern region by Power Grid Corporation of India Ltd. (PGCIL). The contracts were awarded on 29.1.1998, 15.5.2000, 16.1.2001 and 20.1.2002. The contracts for Onshore supply and Onshore services were given on sub-contract to Areva T D Systems India Ltd. at the same price at which the said contracts were awarded to the petitioner by PGCIL. 3. The PGCIL had moved an application under section 195(2) of the Income-tax Act, 1961 (for brevity the Act ) with regard to the payments to be made to the petitioners. The revenue, vide orders dated 6.6.2000, 23.5.2001 and 28.12.2001, passed orders for tax deduction only in respect of the payments made to the petitioner on Offshore contract and Onshore services contract at 10% on gross basis in respect of the payment made for training charges and 10% on gross basis in respect of the payments made for maintenance and service charges respectively and on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2007. After the reply was sent, the respondent No.1 considered the matter afresh and came to the conclusion that the contract for Offshore supply was not a case of simple sale but also involved providing other services to PGCIL. It was also observed that the property and the goods did not pass to PGCIL immediately and the petitioner remained in possession and control of the goods and further that the petitioner was responsible for supply of the whole system to be put in place by the petitioner and, therefore, the permanent establishment (PE) of the petitioner would be constituted in India and the profits attributable to the PE can be brought to tax in India. That apart, the first respondent came to hold that in respect of payments for Offshore supply, tax should be deducted at 1.055%. Keeping the same analysis in view, the first respondent directed the said rate to be applicable not only to payments yet to be received but also for payments received in the earlier assessment years for which Nil rate of tax deduction had been prescribed and which had been received by the petitioner without any deduction of tax at source. Thus, the earlier orders stood reviewed or modified to that ext ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upply. It is averred that the petitioner had undertaken the contractual obligations and responsibilities in terms of erection, testing and commissioning thereof and there is a clear cut case of splitting up of turnkey contract with a view to avoiding correct payment of taxes in India. Various other assertions have been made to justify the issuance of notice and how there has been an escapement of turnover to invite action under sections 147 and 148 of the Act. It is also put forth that a draft order under section 144C has been passed and the same has been duly served and communicated to the petitioner and he has right to file an appeal before the Income-tax Appellate Tribunal and to urge all contentions and not entitled to invoke the writ jurisdiction under Article 226 of the Constitution especially when the revenue while dealing with the objection of the assessee has dealt with the same in detail and ascribed elaborate reasons. It is the stand of the respondents that the basic contention of the petitioner that the notice under section 148 has been issued only on change of opinion is totally untenable inasmuch as authorization / certificate issued under section 195 / 197 of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terim opinion or prima facie opinion. 10. We have heard Mr. Ajay Vohra, learned counsel for the petitioner, and Mr. N.P. Sahni, learned counsel for the respondents. 11. At the very outset, it is obligatory on our part to state with certitude that though the petitioner has made numerous averments and contentions with regard to the aspect that in the case at hand there is no liability on the part of the petitioner to pay any tax if the nature and character of the contract and the transaction in entirety is scanned, and the revenue has resisted the said stand and stance with immense vehemence bringing on record certain facts that the tax liability exists in law and the same has escaped, yet we think, regard being had to the lis in question and the nature of the order we are going to pass, we would refrain from adverting to the same. We shall only confine ourselves to dwell upon the initiation of proceeding under section 147 of the Act and the legal substantiality of the order of rejection or the objections filed by the assessee petitioner. 12. The submission that has been propounded by Mr. Vohra is that there has been a change of opinion and a mere change of opinion does not con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... educted at source is concerned. He has commended us to the decisions rendered in Dodsal (P.) Ltd. v. Commissioner of Income-tax, [2003] 260 ITR 507 (Bom.), Commissioner of Income-tax v. Elbee Services (P.) Ltd., [2001] 247 ITR 109 (Bom.), Aggarwal Chamber of Commerce Ltd. v. Ganpat Rai Hira Lal, 33 ITR 245 (SC) and Commissioner of Income-tax v. Tata Engineering Locomotive Co. Ltd., 245 ITR 823 (Bom.). 15. To appreciate the rivalised submissions at the Bar, it is apposite to reproduce sections 195 and 197 of the Act. section 195, which occurs in Chapter 17 collection and recovery of tax, reads as follows:- "195 Other sums (1) Any person responsible for paying to a non-resident not being a company, or to a foreign company, any interest or any other sum chargeable under the provisions of this Act (not being income chargeable under the head "Salaries") shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force: Provided that in the case of interest payable by the Government or a public secto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nces under which, an application may be made for the grant of a certificate under sub-section (3) and the conditions subject to which such certificate may be granted and providing for all other matters connected therewith. (6) The person referred to in sub-section (1) shall furnish the information relating to payment of any sum in such form and manner as may be prescribed by the Board." 16. Section 197, which deals with Certificate for deduction at lower rate, is as follows: - "197. Certificate for deduction at lower rate. (1) Subject to rules made under sub-section (2A) where, in the case of any income of any person or sum payable to any person, income-tax is required to be deducted at the time of credit or, as the case may be, at the time of payment at the rates in force under the provisions of sections 192, 193, 194, 194A, 194C, 194D, 194G, 194H, 194-I, 194J, 194K, 194LA and 195, the Assessing Officer is satisfied that the total income of the recipient justifies the deduction of income-tax at any lower rates or no deduction of income-tax, as the case may be, the Assessing Officer shall, on an application made by the assessee in this behalf, give to him such certifica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contractual obligations and responsibilities in terms of erection, testing and commissioning thereof. It was not a case of "sale simplicitor". (iv) The applicant was required to provide the service relating to port handling, customs clearance, inland transit insurance, handling and transportation to the site, storage, preservation, insurance, testing and commission etc. (v) As per the taking over certificate, the PGCIL has taken over the equipment only when it issued the final taking over certificate. The equipments forming part of offshore supply were not at all taken over by the PGCIL before the ultimate commissioning and testing thereof. (vi) The goods always remained in the possession and control of the assessee or its sub-contractor and it was responsible for delivering the facilities as per the contract. (vii) In no circumstances, three different suppliers could have performed the part of one contract. The assessee s part of the contract did not get over at the time of loading the equipments on the mode of transport. (viii) It was not a case of export of finished goods/raw materials from outside India to PGCIL who will be using the same as per their requir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all the contracts. The offshore supplies have been made regularly and spread over a long period of time and the contracts with PGCIL were entered at different periods of time, therefore, the role of such PE in the tendering process, meetings with PGCIL, during the supply and execution is not ruled out. The PE had already established, therefore, as per the decision of Hon ble Supreme Court in the case of Commissioner of Income-tax v. Hyundai Heavy Industries Co. Ltd. [2007] 161 Taxman 191 (SC), the profit attributable to such PE is taxable in India. In the case, another issue is, how the contract price were splitted up into three parts i.e. offshore supply, onshore supply and onshore services. There is a possibility that the most of the profits are loaded to the offshore supply resulting into less than the normal profits to the Indian subsidiary. In addition to the loading of profit to offshore supply, part of which is taxable in India, the profits attributable to the marketing / sales functions / after sale services by the PE in India are taxable in India. The ITAT, Delhi Bench, New Delhi in the case of Rolls Royce Plc. on similar facts has held that the profit accruing direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts are in the knowledge of the assessee. The assessee could have disclosed the complete facts on its own." 19. After so stating, he has addressed himself to the various decisions cited before him with regard to reason to believe and has opined that there is prima facie material on the basis of which the revenue has reopened the case. 20. At this juncture, we may refer with profit to one of the orders passed on 6.8.2002 under section 197 of the Act, which reads as under: "The assessee, Alstom T D S.A, France, has filed an application under section 197(1) of the Income-tax Act, 1961 in regard to payments to be made by Power Grid Corporation of India Limited (PGCIL) under the Onshore Supply and Onshore Services Contracts relating to EMS/SCADA Package under System Co-ordination and Control Project for Northern Region. The assessee has also submitted the estimated Profit Loss Accounts for the both the contracts showing the profitability at NIL. This is so as the sub-contracts had been awarded by the assessee at the same price, at which the contracts were awarded to the assessee by PGCIL. The assessee has submitted that there is total certainty that the profit shall be NIL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered opinion, the said decision does not render any assistance to the assessee as we are concerned with a different factual matrix altogether. Mr. Vohra, the learned counsel for the petitioner, would contend that once it is given the status of an order, the opinion expressed therein is final but the said contention leaves us unimpressed because an order for granting certificate for the purpose of inviting interference or challenge under section 264 has to be qua the steps taken therein and would not have any kind of impact on the formation of an opinion for the purpose of an assessment. 25. In McKinsey Company Inc. (supra) before the High Court of Bombay, the subject matter related to imposition of a withholding tax or of tax deducted at source in respect of payments made to the petitioner for firm function services. The petitioner had made an application under section 197 for the assessment year 2010-2011 to the Deputy Director of Income-tax (International) seeking a nil tax withholding certificate in respect of payments received for firm function services rendered by the petitioner to the Indian branches of McKinsey and Company Inc. for the financial year 2009-2010. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1] 247 ITR 109. But the Assessing Officer must also bear in mind that a departure has to be made on the basis of valid and cogent reasons where there is material on record which would justify such a departure. There is an absence of material on record which would have justify a departure in the facts of the present case." 26. We have reproduced the facts and the law laid down therein. If the factual canvass is appreciated in a proper manner, it would be quite clear that it was not the issue pertaining to the initiation of a proceeding under section 147 of the Act where no return is filed. Thus, the decision is distinguishable. 27. In the case at hand, we find that no return has been filed. We may refer to section 147 of the Act: 147. Income escaping assessment - If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Act has been computed. [Explanation 3. For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section (2) of section 148.] 28. Explanation 2(a) of the aforesaid section clearly takes care of the situation where no return has been filed. On a conjoint reading of sections 195 and 197 of the Act, we are of the view that if any opinion is expressed at the time of grant of certificate it is tentative or provisional or interim in nature and the same would not debar the assessing officer from initiating a proceeding under section 147 of the Act on the ground that there has been a change of opinion. Thus, we are compelled to repel the submission though assiduously urged by Mr. Vohra, the learned counsel for the petitioner. 29. At this juncture, we think it is pertinent to state that as the present Writ Petition has been disposed of on the basis of explanatio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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