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TMI Blog2022 (8) TMI 41X X X X Extracts X X X X X X X X Extracts X X X X ..... in G E India Technology Centre Pvt. Ltd.[ 2010 (9) TMI 7 - SUPREME COURT ] High Court rightly held that the question of whether the Appellant had PE, could not possibly be undertaken in an enquiry for issuance of Certificate under Section 197 having regard to the time-frame permissible in law for deciding an application, more so, when regular assessment had been completed in respect of the immediate preceding year and the Appellant found to be taxable under the IT Act at 10% of the contractual receipts. The Assessing Authority found that the Appellant had PE in India in the concerned Assessment Years. The appeal of the Appellant is possibly pending disposal. As held by the High Court, it is well settled that the principle that res judicata is not applicable to income tax proceedings because assessment for each year is final only for that year and does not cover later years. Whether the Appellant had PE or not, during the Assessment Year in question, is a disputed factual issue, which has to be determined on the basis of the scope, extent, nature and duration of activities in India. Whether project activity in India continued for a period of more than nine months, for ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pears that in the final assessment for one or two preceding Assessment Years it was found that the Appellant did have PE in India. Appeals are pending. In any event, Tax deducted at source is adjustable against the tax, if any, ultimately assessed as payable by the Assessee and any excess tax deducted is refundable with interest. Interference is not warranted at this stage. In course of hearing, Counsel for the Revenue handed us a Draft Assessment Order, issued in respect of the Assessment Year in question, that is 2020-21, holding that the Appellant had PE in India and was liable to tax in India under the IT Act. In the event, it is found that the Appellant is not liable to tax, the Appellant will be entitled to refund of TDS with interest. Appeal dismissed. J.K. MAHESHWARI, J. HELD THAT:- As issuance of a certificate under Section 197 of the IT Act, an application shall be made to assessing officer under subrule (1) of Rule 28. The assessing officer after recording satisfaction that existing and estimated tax liability justifies the deduction of tax at lower rate or no deduction of tax as the case may be shall issue certificate. While exercising the power to issue a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al No. 4964 of 2022 (Arising Out of SLP (C) No. 9233 of 2020) - - - Dated:- 29-7-2022 - Hon ble Ms. Justice Indira Banerjee And Hon ble Mr. Justice J.K. Maheshwari For the Petitioner(s) : Mr. Bhargava V. Desai, AOR, Mr. Shivam Jasra, Adv. And Mr. Utkarsh Vats, Adv. For the Respondent(s) : Mr. N. Venkataraman, ASG, Mr. Akshay Amritanshu, Adv., Mr. Shyam Gopal, Adv., Mr. Chandra Kant Sharma, Adv., Mr. Rashmi Malhotra, Adv., Ms. Preeti Rani, Adv. And Mr. Raj Bahadur Yadav, AOR JUDGMENT INDIRA BANERJEE, J. Leave granted. 2. This appeal is against the judgment and final order dated 20th December 2019 passed by High Court of Delhi dismissing the Writ Petition being Writ Petition (C) No.8527 of 2019 filed by the Appellant against the refusal of the Respondent No.1 to modify the Certificate dated 26th June 2019 issued to the Appellant for the Financial/Previous Year 2019-20, corresponding to the Assessment Year 2020-21, under Section 197 of the Income Tax Act 1961, hereinafter referred to as the IT Act , for Tax Deduction at Source (TDS) at the rate of 4% in respect of payments received by the Appellant from Oil and Natural Gas Company Ltd. hereinafter refer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missioning were done entirely in India, the platforms were designed, engineered and fabricated overseas - at Abu Dhabi. 9. The Appellant has been filing its Income Tax Returns from the Assessment Year 1997-98. The Appellant s income has been computed on a presumptive basis by taxing the gross receipts pertaining to the activities in India, less verifiable expenses at the rate of 10% and the receipts pertaining to activities out of India at the rate of 1%. 10. The Appellant adopted the said basis for computing its assessable income and filed its returns for the Assessment Year 1999-2000 onwards. Accordingly the returns filed by the Appellant for the Assessment Years 2004-05, 2005-06 and 2006-07 were processed under Section 143(1) of the IT Act. However, the returns filed by the Appellant for Assessment Years 2007-08 and 2008-09, were not accepted by the Assessing Officer, hereinafter referred to as the AO . 11. The AO passed a Draft Assessment Order dated 31st December 2009 for the Assessment Year 2007-08 holding that the Appellant had a Fixed Place Permanent Establishment in India in the form of a Project Office at Mumbai. The AO further held that Arcadia Shipping Ltd. (A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appellant s income for the activities carried on out of India could not be attributed to its PE in India. 18. The ITAT rejected the Appellant s contention that the tax payable should be computed as per the formula adopted in the preceding years, i.e. 10% of the receipts attributable to activities in India, less expenses in India and 1% of the receipts attributable to activities carried on overseas. 19. By a judgment and order dated 29th January 2016, in the Appeal being ITA No. 143 of 2013, filed by the Appellant and other related Appeals filed by the Revenue, the Division Bench of the High Court of Delhi concurred with the view of the ITAT that consideration for activities carried on overseas could not be attributed to the Appellant s PE in India. The Court observed that it was not disputed that invoices raised by the Appellant specifically indicated whether the work was done outside India or in India. Thus, even though the contracts might be turnkey contracts, the value of the work done outside India was segregable. 20. Two contracts were concluded by and between the Appellant and ONGC, one dated 30th September 2016, hereinafter referred to as LEWPP Contract, and the ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appellant answered further queries. However, in view of the financial crunch faced by the Appellant, the Appellant requested : The Applicant humbly submits that since it is facing financial hardship as the first quarter of FY 2019-20 has come to an end and it is yet to have the lower withholding tax certificate, the Applicant (without prejudice to its legal position), is willing to offer a concession to have the certificate at the tax rate of 4% plus applicable surcharge and cess for the entire contractual revenues, which is in line with the recently concluded assessment proceedings for AY 2016-17 in Applicant s own case, where your goodself concluded that the entire contractual revenues were chargeable to tax under Section 44BB of the Act at an effective tax rate of 4% plus applicable surcharge and cess. In light of the above, it is our humble request to your goodself to kindly issue the certificate at your earliest convenience. 26. The Appellant contends that a certificate of Nil TDS, for payments received in respect of activities outside India, should have been issued to the Appellant, in deference to decisions rendered by various Appellate Authorities from the Assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Establishment under the provisions of the Double Taxation Avoidance Agreement. The question of splitting profits arising from the contract into two categories, that is, profits attributable to India and profits attributable to overseas activities did not arise. The judgment was followed in respect of appeal of the Respondent for the Assessment Year 2009-10. Mr. Ganesh argued that R-Series and LEWPP Contracts relevant to the Assessment Year in question that is Assessment Year 2020-21 corresponding to the Previous Year 2019-20, are identical to the contracts considered by the Appellate Authority in Appellant s own case in relation to the Assessment Years 2007-08, 2008-09 and 2009-10. 33. The Delhi High Court issued notice to the Revenue Authorities, in response to which a counter affidavit was filed enumerating the grounds and reasons justifying the issuance of the impugned certificate. 34. After hearing the parties at length, the High Court held that an administrative decision was subject to judicial review under Article 226 of the Constitution of India only on grounds of perversity, patent illegality, irrationality, want of power to take the decision and procedural irregulari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner has been held to have a Permanent Establishment (PE) in India, and its total income from the contracts with ONGC have been held to be taxable under the IT Act. Section 44BB of the Act is applied, and 10% of the contractual receipts were considered as business profits. The rate of tax being 40%, a certificate was, accordingly, issued @ 4%. For the other assessment years as well, assessment has been completed and appeal is pending before the appellate authorities. The Petitioner, obviously, disputes the finding of the Respondent as erroneous and misplaced, on the ground that for AY- 2015-16, the first appellate authority-following the decision of this Court in petitioner's own case, has held that the petitioner has no PE in 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... [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 fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itioner has relied upon the judgments in Ishikawajima- Harima Heavy Industries: [2007] 288 ITR 408 (SC) and Hyundai Heavy Industries: [2007] 291 ITR 482 (SC), which do not appear to be applicable to the facts of the present case. In Ishikawajima (supra), the Supreme Court held that for a non-resident entity to be taxed in India, it should carry on business through a permanent establishment in India, and income taxed is on the basis of extent appropriate to the part played by permanent establishment in those transactions, and that only such part of the income, as is attributable to the operations carried out in India can be taxed in India. In the said case, a clear distinction could be identified between onshore and offshore activities. In the present case, the respondents contend that no such distinction is clearly identifiable 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 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant had PE or not, during the Assessment Year in question, is a disputed factual issue, which has to be determined on the basis of the scope, extent, nature and duration of activities in India. Whether project activity in India continued for a period of more than nine months, for taxability in India in terms of the AADT, is a question of fact, that has to be determined separately for each Assessment Year. 40. It may be true, that for a non-resident entity to be taxed in India, it should carry on business through a Permanent Establishment in India, as held by this Court in Ishikawajima-Harima Heavy Industries Ltd. v. Director of Income Tax, Mumbai (2007) 288 ITR 408 (SC) and Commissioner of Income Tax and Anr. v. Hyundai Heavy Industries Co. Ltd. (2007) 291 ITR 482 (SC) . However, the judgments would only be attracted if there were a definite finding that the Appellant did not have any PE in India during the Assessment Year in question, which as stated above, would also depend on the duration and scope of the activities in India. The nature, extent and the duration of work done in India, could vary from year to year. 41. It is reiterated that in the immediately prec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he High Court which calls for interference of this Court under Article 136 of the Constitution of India. As rightly held by the High Court, since the Appellant requested issuance of Certificate for deduction of TDS at 4% of taxable value it is not for the Appellant to challenge the certificate. Moreover, it appears that in the final assessment for one or two preceding Assessment Years it was found that the Appellant did have PE in India. Appeals are pending. In any event, Tax deducted at source is adjustable against the tax, if any, ultimately assessed as payable by the Assessee and any excess tax deducted is refundable with interest. Interference is not warranted at this stage. 46. Moreover, in course of hearing, Counsel for the Revenue handed us a Draft Assessment Order, issued in respect of the Assessment Year in question, that is 2020-21, holding that the Appellant had PE in India and was liable to tax in India under the IT Act. 47. Needless to mention that any observation made by this Court or by the High Court will not influence the final assessment which has to be made in accordance with law taking into account all relevant facts and circumstances or any appeal therefr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax return and its preparation, assessment, rectification of mistake etc. While the present case relates to certificates for deduction at lower rate or no deduction of income at source, which falls in Chapter XVII of the IT Act. Therefore, what is the recourse and considerations available to the assessing officer at the time of issuance of the certificate under Section 197(1) of the IT Act or he has to rely upon the assessment orders of the previous years. 5. While examining the said issue in the facts and context of the present case, some provisions are required to be referred. As per Section 6(3) of the IT Act for the resident in India, the income inside the country is taxable. Under subsection (3), it is specified that if any Indian company is said to be a resident in India in any previous year or its place for effective management in that year was in India the income of such is taxable. By the explanation, the place of effective management has been clarified whereby it is clear that if any commercial decision necessary for the conduct of a business of an entity as a whole or in substance is made, it would be called as a place of effective management. 6. As per Section 5(2) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion (in short AADT ) was executed. Clause (1) and (6) of Article 7 of the said agreement are relevant to the present case, which are reproduced for ready reference as under: (1). The profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other State but only so much of them as is attributable to that permanent establishment. (6). For the purposes of preceding paragraphs, the profits to be attributed to the permanent establishment shall be determined by the same method year by year unless there is good and sufficient reason to the contrary. Perusal of the aforesaid makes it clear that enterprises of a contracting state shall be taxable in the said state unless the business is carried out in other contracting state through a permanent establishment situated there. It is further clarified that the profit of the enterprises may be taxed in other state to the extent of the profit attributable to that PE. The determina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer, deduct income-tax at the rates specified in such certificate or deduct no tax, as the case may be. (2A) The Board may, having regard to the convenience of assessees and the interests of revenue, by notification in the Official Gazette, make rules specifying the cases in which, and the circumstances under which, an application may be made for the grant of a certificate under sub-section (1) and the conditions subject to which such certificate may be granted and providing for all other matters connected therewith . Bare reading of it makes clear that in the case of any income of the 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 as per various sections specified, including Section 195 subject to the rules made under Sub-Section 2A. The rules have been framed to carry out the purpose of the act which are known as Income Tax Rules, 1962. The present case relates to Section 195 of the IT Act which pertains to the payment of tax deducted at source by non-residents. As per the provision of Section 197, if the assessing officer is satisfied that the total income of the recipient justi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (vi) omitted on 25.10.2018 (3) The certificate shall be valid for such period of the previous year as may be specified in the certificate, unless it is cancelled by the Assessing Officer at any time before the expiry of the specified period. ['(4) The certificate for deduction of tax at any lower rates or no deduction of tax, as the case may be, shall be issued direct to the person responsible for deducting the tax under advice to the person who made an application for issue of such certificate: Provided that where the number of persons responsible for deducting the tax is likely to exceed one hundred and the details of such persons are not available at the time of making application with the person making such application, the certificate for deduction of tax at lower rate may be issued to the person who made an application for issue of such certificate, authorising him to receive income or sum after deduction of tax at lower rate. (5) The certificates referred to in sub-rule (4) shall be valid only with regard to the person responsible for deducting the tax and named therein and certificate referred to in proviso to the sub-rule (4) shall be valid with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after recording satisfaction by assessing officer following the procedure so prescribed, in rules, but the procedure for assessment as specified in Chapter XIV of the IT Act is different. 13. The High Court in the impugned order relied upon the proceedings of the Revenue Department, which has been referred in para 10 of the judgment. As per the proceedings referred, the department has acknowledged the High Court order dated 29.01.2016 and said that for assessment years 2007-2008 to 2010-2011 there was no PE in India, but the department filed the appeal C.A. No.8761/2016 is pending before this Court. In para 10(7), the High Court further referred the decision of Delhi High dated 09.05.2017 passed in W.P.(C) No.2117/2017 and CM No.9268/2017. The said judgment is solely on the issue of issuance of the certificate under Section 197 relates to the financial year 2016-2017. As per the ratio of the said judgment, it is clear that the certificate issued by the respondent no.1 regarding deductions of the TDS at the rate of 4% on the entire payment made by the ONGC was set aside. Following the said decision, the department issued the certificate for financial year 2016-2017 at the rate of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ars without bringing on record the fact of estimated liability. In my view, distinction drawn, accepting the contention of the revenue by the High Court ignoring admission of issuing certificate for both types of contracts is completely misplaced. In fact, the certificate under Section 197(1) is issued during a financial year and on closing of the said financial year, assessment may be made after submission of the return of income and documents with respect to the income from the contract of that particular year. The department may enquire about establishment of PE and income attributable to that PE in assessment proceeding but while dealing the issue of issuance of certificate under Section 197(1) relying upon said issues by the High Court is not justified. During course of hearing, the counsel for the appellant handed over two orders dated 08.09.2021 passed by Commissioner of Income Tax (Appeals) for assessment year 2016-2017 and 2017-2018 allowing the appeals filed by the appellant challenging the assessment order for respective assessment year. While allowing the appeal, Commissioner of Income Tax held that the appellant did not have PE during relevant financial year and accord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in the absence of any material change justifying the Revenue to take a different view of the matter - and if there was no change it was in support of the assessee - we do not think the question should have been reopened and contrary to what had been decided by the Commissioner of Income Tax in the earlier proceedings, a different and contradictory stand should have been taken. We are, therefore, of the view that these appeals should be allowed and the question should be answered in the affirmative, namely, that the Tribunal was justified in holding that the income derived by the Radhasoami Satsang was entitled to exemption under Sections 11 and 12 of the Income Tax Act of 1961. 18. Counsel for the Revenue had told us that the facts of this case being very special nothing should be said in a manner which would have general application. To are inclined to accept this submission and would like to state in clear terms that the decision is confined to the facts of the case and may not be treated as an authority on aspects which have been decided for general application 17. Further, upholding the dictum laid down in Radhasoami (supra), in case of Bharat Sanchar Nigam L ..... X X X X Extracts X X X X X X X X Extracts X X X X
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