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TMI Blog2014 (2) TMI 434X X X X Extracts X X X X X X X X Extracts X X X X ..... also come to their rescue as the income earned by the said concern, are not liable to be taxed in India and would be taxable only in Singapore - the payment made to JOPL by the appellant/writ petitioner/assessee, will not come within the ambit of deduction of tax at source - the writ petition is allowed relating to Assessment Year 2010-11, insofar as it relates to the disallowance u/s 40(a)(i) for non-deduction of tax at source in terms of Section 195(1) of the Income Tax Act, is quashed – Decided in favour of Assessee. - Writ Appeal No. 952 of 2013, M.P.No.1 of 2013, W.P.No.11360 of 2013, M.P.No.2 of 2013 - - - Dated:- 5-2-2014 - R. K. Agrawal, CJ And M. Sathyanarayanan,JJ. For the Appellant : Dr. (Mrs.) Anita Sumanth for Mr. V. Sanjeevi For the Respondent : Mr. T. Pramod Kumar Chopda Senior Standing Counsel for Income Tax JUDGMENT Challenging the interim order dated 23.4.2013 in M.P.No.2/2013 in W.P.No.11360/2013, under which, the interim stay of the operation of the order of assessment in PAN AAAFA1037D dated 29.3.2013 relating to the assessment year 2010-2011, on the file of the respondent, was granted subject to the condition that without prejudice to right ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement, the profits earned by JOPL, are subject matter of assessment only in Singapore and not in India and consequently, there is no obligation on the part of the appellant to deduct any tax at source in terms of Section 195 of the Income Tax Act. (e) The appellant also contended that it has filed an application dated 22.5.2009, under Section 195(2) of the Income Tax Act, stating among other things, that in terms of Article 7 of the Double Taxation Avoidance Agreement (in short "DTAA") between India and Singapore, the freight payable to JOPL, is not taxable in India and therefore, there is no necessity to deduct tax at source and hence, prayed for issuance of nil deduction of tax at source. (f) The Assessing Officer, namely the Income Tax Officer-I(2), (International Taxation), Chennai 34, has passed an order dated 31.8.2009, holding that in terms of Section 44B of the Income Tax Act, the nature of works undertaken by JOPL, is chargeable to tax under the head "Profits and Gains of Business or Profession". Insofar as the stand of the appellant that in accordance with Double Taxation Avoidance Agreement, the appellant need not deduct tax at source, the Assessing Officer foun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the revision and it became final. (j) On 30.1.2012, the Additional Commissioner of Income Tax, Business Range II, Chennai has passed assessment orders under Section 143(3) of the Income Tax Act for the assessment year 2009-10, wherein the following disallowances were made: "(a) Disallowance of Rs.33,92,71,007/- u/s 40(a)(ia) on payments made to M/s Jaldhi Overseas Pte. Ltd. (JOPL), Singapore. (b) Disallowance of Rs.1,36,39,609/- of deemed interest on monies advanced to sister concern." (k) The appellant/assessee aggrieved by the said disallowances, preferred an appeal before the Commissioner of Income Tax (Appeals) VI, Chennai. (l) The Appellate Authority has passed the final order on 24.12.2012, wherein one of the issues that arose for consideration, was with regard to the disallowance under Section 40(a)(ia) of the Income Tax Act. The Appellate Authority has taken into consideration the order passed by the Revisional Authority The Director of Income Tax (International Taxation) dated 24.3.2010, and held that no evidence has been brought on record to show that JOPL is not a resident of Singapore and that it is not taxed in Singapore for the financial year 2008-09 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 2010-11 and further issued a notice under Section 274 read with Section 271 of the Income Tax Act, 1961, calling upon the assessee to appear before him on 10.4.2013, to show cause as to why an order of imposing penalty should not be made under Section 271 of the Income Tax Act 1961. (s) The assessee/appellant, aggrieved by the order of assessment dated 29.3.2013, relating to the assessment year 2010-11, insofar as it relates to disallowance under Section 40(a)(i) for the alleged non-deduction of tax at source under Section 195(1) of the Income Tax Act, filed W.P.No.11360/2013 and also moved M.P.No.2/2013 praying for stay of the operation of the above said order, pending disposal of the main writ petition. (t) The writ petition as well as the miscellaneous petition came up for admission and a Single Bench of this Court vide interim order dated 23.4.2013, granted the conditional order of stay by directing the appellant/writ petitioner/assessee to pay 30% of the impugned demand within a period of four weeks with default clause and challenging the legality and vires of the said order, the assessee has filed this writ appeal. 4.Dr. (Mrs.) Anitha Sumanth, learned Counsel appearin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his higher authority Director of Income Tax (International Taxation), clearly amounts to judicial indiscipline and though against the impugned order of assessment, which is the subject matter of challenge in the writ petition, appeal remedy is available, since the impugned order of assessment is ex-facie illegal, the appellant/writ petitioner did not avail the alternative remedy. 7.Learned Counsel appearing for the appellant/writ petitioner, in support of her submissions, has placed reliance upon the decisions in (i) (2009) 314 ITR 309 (SC) VIJAY SHIP BREAKING CORPORATION AND OTHERS V. COMMISSIONER OF INCOME TAX; (ii) (2010) 327 ITR 456 (SC) GE INDIA TECHNOLOGY CENTRE P. LTD. V. COMMISSIONER OF INCOME TAX AND ANOTHER and (iii) 1991 (55) ELT 433 (SC) UNION OF INDIA V. KAMALAKSHI FINANCE CORPORATION LTD. 8.Learned Counsel appearing for the appellant, would further contend that in respect of the financial year 2012-13, once again, order of similar nature came to be passed and it is also subject matter of challenge in W.P.No.4504/2013, wherein a Single Bench of this Court has granted interim order without any condition. Hence the learned Counsel appearing for the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quested the Income Tax Officer (TDS), International Taxation, Chennai 34, to issue nil deduction of tax at source on the ground that M/s.JOPL is assessed to tax at Singapore and does not have any permanent establishment in India and in terms of Article 7 of Double Taxation Avoidance Agreement between Singapore and India, the payments made to JOPL, are not taxable in India. 13.The Assessing Officer vide order dated 31.8.2009, rejected the said plea and ordered the appellant/writ petitioner to deduct tax at source at the rate of 3.167% on the gross payments for the first quarter from April 2009 to June 2009, amounting to Rs.16,38,30,625/-. 14.The said order was challenged by way or revision by the writ petitioner/assessee before the Director of Income Tax (International Taxation). The Revisional Authority elaborately considered the said issue and arrived at a categorical finding that none of the items contemplated in Clause 2 of Article 5 of the Double Taxation Avoidance Agreement, exists in the present case and therefore, it is not applicable to the assessee. The Revisional Authority further found that the ship was owned by the non-resident and crossed over the Indian waters for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, nor is it taxed in Singapore in the financial year 2008-09 and Articles 7 and 8 of the Double Taxation Avoidance Agreement supersede the provisions of Sections 9 and 44B of the Income Tax Act and further found that the income of JOPL is subject to tax in Singapore even in the assessment year 2009-10 and hence income from Indian operations are not taxable in India and ultimately, held that the provisions of Section 44B, 195 and 40(a)(ia) are not applicable. The Appellate Authority by citing the said reasons, has allowed the appeal of the appellant/assessee, vide order dated 24.12.2012, in favour of the appellant/writ petitioner/assessee and once again, the said order has not been put to challenge. 21.In respect of the assessment year 2010-11, the Assistant Commissioner of Income Tax, Circle I, has passed an order of assessment dated 29.3.2013, under Section 143(3) of the Income Tax Act. In the assessment order, it has been stated among other things, that the assessee made a payment of Rs.64,57,70,890/- to M/s.JOPL, Singapore, in the financial year 2009-10, and that the assessee had not deducted tax at source at the time of making the payment and in the course of hearing, a show ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in India? The Hon'ble Supreme Court of India has considered the expression in Section 195(1) of the Income Tax Act, i.e., "chargeable under the provisions of the Act" and interpreted the word by stating that a person paying interest or any other sum to a non-resident, is not liable to deduct tax if such sum is not chargeable to tax under the Income Tax Act and held as follows:- "In our view, section 195(2) provides a remedy by which a person may seek a determination of the appropriate proportion of such sum so chargeable where a proportion of the sum so chargeable is liable to tax. The entire basis of the Department's contention is based on administrative convenience in support of its interpretation. According to the Department huge seepage of revenue can take place if persons making payments to non-residents are free to deduct TAS or not to deduct TAS. It is the case of the Department that Section 195(2), as interpreted by the High Court, would plug the loophole as the said interpretation requires the payer to make a declaration before the Income-tax Officer (TDS) of payments made to non-residents. In other words, according to the Department, section 195(2) is a provision by wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y from April 1, 2008. It will not apply for the period with which we are concerned in these cases before us. Therefore, in our view, there are adequate safeguards in the Act which would prevent revenue leakage." 24.In the later para, it has been further clarified by the Hon'ble Supreme Court of India in the above said decision, that the words of Section 195(1) in clear terms, lay down that tax at source is deductible only from "sums chargeable" under the provisions of the Income-tax Act, i.e., chargeable under sections 4, 5 and 9 of the said Act. The Hon'ble Supreme Court of India, citing the said reasons, has allowed the appeal filed by the assessee. 25.Learned Senior Standing Counsel appearing for the Revenue, has placed reliance upon a decision reported in 60 ITR 156 (SC) (COMMISSIONER OF INCOME TAX V. STRAW PRODUCTS LTD.), wherein the appeals by special leave are directed against the judgment of the High Court of Madhya Pradesh in a reference made by the Income-tax Appellate Tribunal, and the following question was referred to the High Court: "Whether, on the facts of the case and having regard to the provisions of paragraph 2 of the Taxation Laws (Merged States) (Removal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deemed to have claimed depreciation and deemed to have been allowed depreciation according to the provisions of the said laws or rules, and it does not matter whether the assessee made a claim or not because it is fair that when the Indian Income-tax Act is applied, the assessee should be brought at par with the assessees, who had suffered taxation under the said Act. The Supreme Court has rejected the said submission and also the other points urged on behalf of the Revenue, and held that "The definition of "assessee" must mean a person by whom income-tax is payable under the Bhopal Act. If it had not been for the agreement, the respondent would have been liable to pay tax and it is the agreement alone which exempted it from taxation." 28.In the considered opinion of this Court, the said decision has not come to the rescue of the Revenue for the reason that in terms of the Double Taxation Avoidance Agreement, the remittances made to M/s.JOPL, are not chargeable to tax. The said issue was precisely considered by the Revisional Authority as well as by the Appellate Authority in respect of the assessment year 2009-10, wherein findings have been given that the income, if any, arisin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor of Central Excise passed an order with regard to the classification under a particular heading and the assessee preferred an appeal to the Collector (Appeals) and the order passed by the Assistant Collector of Central Excise, was set aside and the matter was remanded to the Assistant Collector to pass a reasoned and speaking order. On remand, the Assistant Collector passed an order reiterating the conclusion that has been reached by his predecessor, and also did not give any reason as to why the order of Collector (Appeals) in respect of a similar case, was not followed. The assessee challenging the legality of the same, filed a writ petition before the Bombay High Court and the High Court passed an order and directed the department to allocate the matter to a competent officer to pass a proper order and also passed severe stitches against two Assistant Collectors, who had dealt with the matter. On behalf of the Revenue, appeal was preferred before the Hon'ble Supreme Court of India, praying for expunging the said remarks. The Hon'ble Supreme Court of India in paragraphs 6 and 7 of the judgment, held as follows:- "6. Sri Reddy is perhaps right in saying that the officers were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate Tribunal for the determination of such points arising out of the decision or order as may be specified by the Board in its order. Under sub-section (2) the Collector of Central Excise, when he comes across any order passed by an authority subordinate to him, if not satisfied with its legality or propriety, may direct such authority to apply to the Collector (Appeals) for the determination of such points arising out of the decision or order as may be specified by the Collector of Central Excise in his order and there is a further right of appeal to the department. The position now, therefore, is that, if any order passed by an Assistant Collector or Collector is adverse to the interests of the Revenue, the immediately higher administrative authority has the power to have the matter satisfactorily resolved by taking up the issue to the Appellate Collector or the Appellate Tribunal as the case may be. In the light of these amended provisions, there can be no justification for any Assistant Collector or Collector refusing to follow the order of the Appellate Collector or the Appellate Tribunal, as the case may be, even where he may have some reservations on its correctness. He has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me to their rescue as the income earned by the said concern, are not liable to be taxed in India and would be taxable only in Singapore. Therefore, the payment of Rs.64,57,70,890/- made to JOPL by the appellant/writ petitioner/assessee, will not come within the ambit of deduction of tax at source. 35.The Revenue has raised a point that as against the impugned order, appeal remedy is available and therefore, the present writ petition is not maintainable. However, in the light of the orders passed by the Revisional Authority, dated 24.3.2010, the stand taken by the department that tax should be deducted at source in respect of the payment made to JOPL, on the face of it, is unsustainable and therefore, for the said reason, the non-availment of the appeal remedy cannot be put against the appellant/writ petitioner/assessee. 36.Therefore, for the reasons stated above, the writ petition is allowed and the impugned order in PAN AAAFA1037D dated 29.3.2013, relating to Assessment Year 2010-11, on the file of the respondent, insofar as it relates to the disallowance u/s 49(a)(i) for alleged non-deduction of tax at source in terms of Section 195(1) of the Income Tax Act, is quashed. No co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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