2014 (2) TMI 434 - HC - Income Tax

Court quashes assessment order, payments not subject to tax deduction. Emphasis on judicial discipline.

M/s. Anand Transport (Private) Ltd. Versus Assistant Commissioner of Income Tax

The court allowed the writ petition, quashed the assessment order dated 29.3.2013, and held that the payments made to JOPL were not subject to tax ... Requirement to deduct tax – Permanent Establishment – DTAA between India and Singapore – Applicability of Section 44B of the Act – Held that:- The income arising out of the transaction between the assessee and non-resident company, is taxable in Singapore and not in India – Relying upon GE INDIA TECHNOLOGY CENTRE P. LTD. V. COMMISSIONER OF INCOME TAX AND ANOTHER [2010 (9) TMI 7 - SUPREME COURT OF INDIA] - In 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 transactions between the assessee firm (appellant/writ petitioner) and JOPL are held not taxable in India and the assessee firm is held not liable for payment of tax under Section 195. The tax at source can be deducted only from 'sums chargeable' under the provisions of the Act - The facts would disclose that the income earned by JOPL, is taxable at Singapore and the Double Taxation Avoidance Agreement would 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. Issues Involved:1. Applicability of Section 195 of the Income Tax Act.2. Interpretation of the Double Taxation Avoidance Agreement (DTAA) between India and Singapore.3. Validity of the assessment order dated 29.3.2013 for the assessment year 2010-11.4. Judicial discipline and adherence to higher authority's orders.5. Availability and necessity of appeal remedy.Detailed Analysis:1. Applicability of Section 195 of the Income Tax Act:The appellant argued that Section 195(1) of the Income Tax Act applies only if the remittances are chargeable to tax. The appellant contended that the remittances to JOPL, a Singapore tax resident, were not taxable in India based on a revision order dated 24.3.2010 by the Director of Income Tax (International Taxation), which held that the remittances were not chargeable to tax. The Assessing Officer, however, disallowed the payments made to JOPL under Section 40(a)(i) of the Income Tax Act, citing the retrospective amendment to Section 195, effective from 1.4.1962, which mandated tax deduction at source for such payments.2. Interpretation of the Double Taxation Avoidance Agreement (DTAA) between India and Singapore:The appellant contended that under Article 7 of the DTAA, the profits earned by JOPL were subject to tax only in Singapore and not in India. The Revisional Authority supported this view, stating that JOPL had no permanent establishment in India, and thus, the income from the transactions was taxable only in Singapore. The Assessing Officer, however, argued that JOPL was deemed to have a permanent establishment in India under Article 5 of the DTAA due to the duration of the contract.3. Validity of the assessment order dated 29.3.2013 for the assessment year 2010-11:The assessment order dated 29.3.2013 disallowed payments made to JOPL without deducting tax at source, adding Rs.64,57,70,890/- to the total income of the appellant. The appellant challenged this order, arguing that it ignored the binding revision order and the DTAA provisions. The court found the assessment order unsustainable, as it contradicted the final and unchallenged findings of the Revisional and Appellate Authorities, which had held that the income was taxable in Singapore and not in India.4. Judicial discipline and adherence to higher authority's orders:The court emphasized the importance of judicial discipline, stating that subordinate authorities must follow the orders of higher appellate authorities. The court criticized the Assessing Officer for disregarding the Revisional Authority's order by limiting its applicability to the first quarter of 2009. The court noted that the Revisional Authority's findings were comprehensive and applicable to the entire period in question.5. Availability and necessity of appeal remedy:The Revenue argued that the appellant should have availed the appeal remedy under Section 246A of the Income Tax Act. However, the court held that since the impugned order was ex-facie illegal and contradicted the binding orders of higher authorities, the appellant was justified in bypassing the appeal remedy. The court concluded that the appellant's writ petition was maintainable and allowed it, quashing the assessment order dated 29.3.2013.Conclusion:The court allowed the writ petition, quashed the assessment order dated 29.3.2013, and held that the payments made to JOPL were not subject to tax deduction at source under Section 195 of the Income Tax Act. The court emphasized the binding nature of the Revisional and Appellate Authorities' orders and the importance of judicial discipline. The writ appeal was consequently closed, and no costs were awarded.