Supreme Court enforces foreign award, rejects tax liability on award components. Release of balance amount directed.

Glencore International AG Versus Dalmia Cement (Bharat) Limited

Glencore International AG Versus Dalmia Cement (Bharat) Limited - TMI Issues:
Execution of foreign award, Objections under Section 48 of the Arbitration and Conciliation Act, 1996, Appeal to Supreme Court, Deposit of decretal amount, Withholding tax by Income Tax Department, Tax liability on foreign award components, Interpretation of Double Taxation Avoidance Agreement (DTAA), Taxability of breach of contract compensation, Tax treatment of arbitration and legal costs, Taxability of interest, Assessment proceedings, Defense against withholding tax deduction, Release of balance amount without withholding tax deduction.

Analysis:

1. Execution of Foreign Award:
The decree holder sought execution of a foreign award dated 17.11.2014. The judgment debtor had previously filed objections under Section 48 of the Arbitration and Conciliation Act, 1996, which were dismissed by the court. The Supreme Court also dismissed the Special Leave Petition, upholding the earlier judgment.

2. Deposit of Decretal Amount and Withholding Tax:
Following court orders, the judgment debtor deposited the decretal amount with interest, part of which was released after withholding tax. The decree holder approached the court seeking release of the balance amount, contested by the Income Tax Department for withholding tax liability.

3. Tax Liability on Foreign Award Components:
The Income Tax Department argued for tax liability on various components of the foreign award, including breach of contract compensation, arbitration costs, legal costs, and interest. They relied on the DTAA between India and Switzerland to support their position.

4. Interpretation of DTAA and Taxability Issues:
The court analyzed the DTAA provisions and rejected the Income Tax Department's stance on tax liability for breach of contract compensation, arbitration and legal costs, and interest. The court found that the DTAA did not support taxation on these components as claimed by the Income Tax Department.

5. Assessment Proceedings and Defense Against Withholding Tax:
The court clarified that assessment proceedings would involve the judgment debtor, who could raise defenses, including withholding tax deductions as the award became a decree. The court referenced various judgments supporting the principle that a decree should be executed according to its terms, with deductions as permissible under the law.

6. Release of Balance Amount:
Ultimately, the court directed the Registry to release the balance amount to the decree holder without any withholding tax deduction, concluding the matter in favor of the decree holder.

This detailed analysis covers the issues of execution of the foreign award, tax liability on different award components, interpretation of the DTAA, assessment proceedings, and the final decision to release the balance amount without withholding tax deduction.