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TMI Blog2019 (12) TMI 1212X X X X Extracts X X X X X X X X Extracts X X X X ..... o would be entitled to receive full payment from the payer without deduction. It is well settled that in matters of taxation there is no question of res judicata because each year s assessment is final only for that year and does not govern later years, because it determines only the tax for a particular period. [ Ref: Instalment Supply (P) Ltd. v. Union of India [ 1961 (5) TMI 53 - SUPREME COURT] ]. We cannot direct the Revenue to hold that the petitioner does not have a PE and give the consequent effect of such finding while deciding an application under Section 197 of the Act. Determination of all these questions would have to be undertaken during the course of regular assessment. The manner of determination of issues relating to the tax deduction and regular assessment are inherently and fundamentally different. While there may be certain circumstances where the finding with respect to the previous year can be taken into consideration, however, in the instant case, we cannot find any reason to hold the approach of Respondents to be patently illegal or erroneous on the face of it. The question of existence of permanent establishment, which requires a detailed enquiry, is not env ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oil facilities and submarine pipelines and pipelines coating. 3. Petitioner entered into a Contract No. MR/ES/MM/LEWPP (TENDER3)/01/P85 1 C 1600 1/20 16 dated September 30, 20 16 ('LEWPP Contract') and Contract No. MR/ES/MM/R-SERIES (Tender No. 07P85 1 C 17005120 1719030008323) dated February 07, 201 8 ('the R -Series Contract') , with ONGC for carrying out work of project management, survey, design, engineering, procurement, fabrication, transportation, removal/replacement of existing topside decks, hookup, testing, and commissioning (only for LEWPP Contract) of 10 platforms. Thus, ONGC is the deductor/payer in respect of the payments under the aforesaid contracts. 4. Petitioner was assessed for AYs- 2007-08, 2008-09 and 2009-2010 in respect of contracts similar to the abovenoted contracts, and was held to be not taxable in India. Petitioner contends that the lower tax authorities have continuously opined from AY- 2007-08 to AY-2015-16 that outside India contractual revenues are taxable in India. However, the appellate forums, all across these Assessment Years, have held to the contrary, observing that the petitioner has no permanent establishment (PE) in India, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax department has since issued the certificate under Section 197 of the Act @ 4% on activities inside India, and 'NIL' on outside India, for LEWPP contracts as well as R- series contracts for AY-2019-2020. 8. Petitioner argues that considering that R-series and LEWPP contracts, relevant to the Assessment Year in question, are identical to the contracts considered by this Court in its decision pertaining to petitioner's own case for AY-2007-08, 2008-09 and 2009-10, there is no creation of permanent establishment (PE) in India and no income of foreign component is taxable in India. On this premise, petitioner filed an application under Section 197 before Respondent No-1, requesting for issuance of certificate directing ONGC to make payments without deduction of tax. The application was processed and queries were raised by the respondent to which the petitioner filed its replies dated 08.05.2019; 21.05.2019; 13.06.2019 and 22.06.2019. After providing a hearing to the petitioner and on consideration of its submissions, the respondent granted the certificate dated 26.06.2019, in the prescribed format, to the deductor/ONGC for deduction @ 4% of the gross receipts, which is impugned in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture and subject to final assessment. File is put up for kind perusal and approval please. Sd/- ITI 16/05/2019 DCIT, Circle-2(2)(2), (Intl. Tax.), New Delhi Pl. verify what is the basis of offshore & onshore revenue breakup and how the estimated cost c is arrived at. Also verify from applicant on how the onshore supply /services provided? ITI The above queries were raised before the applicant through online TDS Tracer portal against which he has submitted his submission on 21/05/2019. The same is being submitted for year kind perusal & direction please. Sd/- 22/05/2019 DCIT, Cir-2(2)(2), IT-2, New Delhi. Please check the assessement history in this case. Check whether the case has been assessed under 44BB of IT Act, 1961 in previous AY. Sd/- ITI 06/06/2019 From the perusal of assessment record, it was noticed that assessment of assessee in previous years i.e. AYs 2015-16 & 2016-17 has been completed by observing that since the activities carried out by the assessee are related to business exploration etc of mineral oils, the activities are covered under section 44BB of the Income Tax Act, 1961. Accordingly, 10% of receipts was attributed to the assessee as p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lar contracts with NPCC and ONCG, court held that NPCC did not constitute PE U/A 5(3)(e) rws 5(2)(c) and 5(1) of DTAA. Court also held that installation PE was also not formed since installation activity in India was less than 9 months threshold. The court also held that there is no distinguishing feature of present contracts visà-vis previous contracts. The contracts under consideration have been entered in to by applicant in Feb 18 & Sept 16. Please verify whether these contracts form PE or not. Sd/- 12.06.15 DGT Pl.verify from client whether the contracts form PE or not. Are the contracts similar to previous contracts and in what aspect. Sd/- 12/06/2019 ITI Assesses has submitted his reply regarding the above mentioned query on 13.06.2019 which is put up for your kind perusal & necessary direction. Sd/- 14.06.19 DCIT, cir-2(2) (2), it-2, New Delhi DCIT circle 2 (2) (2) IT Delhi As per the submission of the assesse, the scope of work of R-Series & LEWPP is similar to contracts entered in AY 2007-08 and 08-09. The applicant has further produced on chart of all contracts (ONGC) entered in AY 2015-16 and AY 2016-17 wherein scope and activities carried ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and applicant's request. In its reply, the applicant has further requested to issue certificate @4% plus applicable surcharge and cess for the entire contractual revenues which is in line with recently concluded assessment proceeding for AY 2016-17 where revenues were charged v/s 44BB of Act. Submitted for kind perusal and necessary direction please. Sd/- 24.06.19 Addtl. UIT Range 2(2) IT Delhi The agreements under consideration are different from the agreements under consideration for AY 2007-08 and 2008-09. In AY. 2007-08 & 2008-09, Hon'ble Delhi H.C. decided that PE is not formed in India. The AO was accordingly instructed to verify the existence of PE. However, due to discrepencies between the days calculated by the applicant and the activity schedule, the AO was asked to verify the same. The applicant has meanwhile requested for the issue of certificate @4% on entire revenue, in line with the stand taken by AO in assessment. Accordingly, certificate may be issued @4% , if approved. Sd/- 24.06.19 CIT(IT)-2 Certificate Generated on 26/06/19 Approved @ 4% as proposed. Sd/- 25.06.19 Addl CIT IT 2(2) Sd/- 25.06.19 DCIT" Submissions of the petitioner 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, there is an obligation on the payer to deduct the taxes. The action of the respondents is a blatant disregard of judicial discipline by not following the earlier decisions. Besides, such an action will cause financial hardship to the petitioner as it would block the funds and cause other serious prejudice. Contentions of the Respondent 14. Mr. Raghvendra K. Singh, learned senior standing counsel for the respondents on the other hand argued that there were cogent reasons discernible from the record therefore the Court should not entertain the present petition. He submitted that there was no arbitrariness in the action of the respondents and on the contrary it was fair and reasonable. In such a situation, Court would ordinarily not like to interfere with the decision taken by the respondents. Mr. Singh further distinguished the decision rendered by this Court in petitioner's own case and submitted that same would have no applicability, inasmuch as, contracts that were the subject matter of proceedings before this Court in AY- 2007-08, 2008-09, 2009-10 were different. He further submitted that order dated 09.05.2017 passed by this Court would also not govern the present case bec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial review under Article 226 is directed, not against the decision, but the decision making process. Of course, a patent illegality and/or error apparent on the face of the decision, which goes to the root of the decision, may vitiate the decision making process. In this case there is no such patent illegality or apparent error. In exercise of power under Article 226, the Court does not sit in appeal over the decision impugned, nor does it adjudicate hotly disputed questions of fact." (Emphasis supplied) 17. Having perused and examined the file notings, we do not find any arbitrariness in the approach of the respondents in exercise of jurisdiction by them. The reasons given in the note-sheet cannot be said to be so grossly unfair or unreasonable that they require the intervention of the Court, and the present petition could have been rejected on this ground alone. However, since we have heard the learned counsels for the parties at considerable length on the merits of the case, we proceed to give our decision on the other aspects as well. 18. Sub Section (1) of Section 195 of the Act provides that any person responsible for paying to a non-resident, any sum chargeable to tax un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clarified that the obligation to comply with sub-section (1) and to make deduction thereunder applies and shall be deemed to have always applied and extends and shall be deemed to have always extended to all persons, resident or non-resident, whether or not the non-resident person has- (i) a residence or place of business or business connection in India; or (ii) any other presence in any manner whatsoever in India." 22. The purpose of the aforesaid Explanation is to provide for a safeguard that in case of tax liability ultimately being determined in the assessment proceedings, recovery of tax may not become difficult. 23. Vide application dated 08.05.2019, filed in the prescribed Form-13 for FY-2019-20, copy whereof has been enclosed with Revenues' submissions, Petitioner sought issuance of a certificate for deduction at lower rate under Section 197 of the Act @ 2.6% on the gross receipts in respect of payments made by ONGC to the petitioner under two contracts, (i) R-series contract dated 07.02.2018 for a total estimated receipt in FY- 2019-20 of ₹ 495.75 crores, and; (ii) LEWPP series contract dated 30.09.2016 for total estimated receipt in FY 2019-20 of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n India. Be that as it may, for AY-2016-17 and 2017-18, this question has been determined against the petitioner. It is well-settled proposition that in tax jurisprudence, the principle of res judicata is not applicable to income tax proceedings. "In matters of recurring annual tax a decision on appeal with regard to one year's assessment is said not to deal with eadem questio as that which arises in respect of an assessment for another year and consequently not to set up an estoppel." [Ref: New Jehangir Vakil Mills Co. Ltd v CIT, [1963] 49 ITR 137 (SC) (Full bench)]. "It is well settled that in matters of taxation there is no question of res judicata because each year's assessment is final only for that year and does not govern later years, because it determines only the tax for a particular period." [Ref: Instalment Supply (P) Ltd. v. Union of India AIR 1962 SC 53 (Constitution bench)]. 25. The petitioner has argued that the need for consistency and certainty requires that there must exist strong and compelling reasons for a departure from a settled position, which must be spelt out and they are conspicuously absent in the present case. Mr. Balbir Singh has strongly argued that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of more than 9 months" under Indo-UAE DTAA. This question of fact will have to be determined separately for each assessment year, and we are informed that for AY-2016-17 and AY-2017-18, the determination is presently against the petitioner. We cannot accept the petitioner's contention that the assessment proceedings for the AYs 2007-08, 2008-09 and 2009-10 have already determined this question in favour of the petitioner and there is no change in any circumstances. This question would require to be determined and finding of the fact would have to be arrived at, by a careful consideration of terms of contract, determination whereof cannot be undertaken in the proceedings under Section 197 of the Act. 28. The judgment relied upon by the petitioner in GE India Technology Cen. (P) Ltd vs. CIT [327 ITR 456 (SC)] holds that the obligation to deduct tax at source on the remittance made to a non-resident does not arise unless such remittance is a sum chargeable under the Act. There is no quarrel on this proposition. However, at the same time, one also has to take into consideration Explanation 2 to Section 195 inserted vide Finance Act, 2012. At this juncture, it would be beneficial to r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entifiable from the contracts in question. Further, the said cases (Ishikawajima (supra) and Hyundai heavy Industries (supra)) relate to assessment proceedings, whereas, in the present case, we are concerned with proceedings for grant of certificate under section 197. The scope of enquiry and investigation in both these proceedings is different, especially after the introduction of Explanation 2 to section 195 and at the stage of section 197 proceedings, the question of existence of permanent establishment is not required to be gone into. Therefore, having regard to the aforesaid provision, we cannot direct the Revenue to hold that the petitioner does not have a PE and give the consequent effect of such finding while deciding an application under Section 197 of the Act. Determination of all these questions would have to be undertaken during the course of regular assessment. The manner of determination of issues relating to the tax deduction and regular assessment are inherently and fundamentally different. While there may be certain circumstances where the finding with respect to the previous year can be taken into consideration, however, in the instant case, we cannot find any rea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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