2023 (7) TMI 136 - HC - Income Tax

Court Rules in Favor of Petitioner, Quashes Tax Demand; Cites Non-Taxability Under India-Germany DTAA, Section 195 Implications.

Hapag Lloyd India Private Limited Versus Deputy Commissioner of Income Tax, International Tax Ward 2 (2) (2) and Anr.

The HC quashed the impugned order and demand notice against the petitioner, ruling in their favor. The Court highlighted the necessity of adhering to ... TDS u/s 195 - demand u/s 201(1) and interest u/s 201(1A) - taxability of the freight income earned by the principal relatable to transportation of cargo and goods - Denial of exemption under Article 8 of DTAA between India and Germany - It is petitioner’s case that consistently the Income Tax Appellate Tribunal (ITAT) as well as High Courts have held that this income was not taxable under the DTAA HELD THAT:- Having considered GE India Technology Cen. (P.) Ltd. [2010 (9) TMI 7 - SUPREME COURT] the law is very clear in as much as the payer is bound to deduct tax only if the tax is exigible in India. If the tax is not exigible, there is no question of tax at source being deducted. This has been the position that has been followed and accepted by the Department since Assessment Year 2005-2006 until Assessment Year 2018-2019. We do not find anything contrary even in the impugned order. Moreover, the relationship between petitioner and the principal has also been accepted right from AY 2005-2006 until Assessment Year 2018-2019 that petitioner was only remitting to the principal the money that belonged to the principal. Even in the affidavit in reply, the only stand taken is the pendency of the appeal. Decided in favour of assessee. Issues Involved:The issues involved in the judgment are the liability of the petitioner to pay a sum under the Income Tax Act, 1961, the taxability of freight income earned by the principal, the non-deduction of tax at source by the petitioner, and the compliance with the Double Tax Avoidance Agreement (DTAA) between India and Germany.Judgment Details:Issue 1: Liability of Petitioner under Income Tax Act:The petitioner challenged an order holding them liable to pay a sum under Section 201 of the Income Tax Act, 1961. The petitioner argued that as an agent of the principal, all freight collected was on behalf of the principal and not subject to tax deduction at source. The petitioner diligently informed the Income Tax Department of remittances made to the principal, which were previously not questioned.Issue 2: Taxability of Freight Income:The Income Tax Department previously taxed the freight income earned by the principal, which was disputed by the petitioner citing exemptions under the DTAA between India and Germany. The petitioner contended that the income was not taxable under the DTAA, a position supported by previous orders of the Tribunal and High Courts.Issue 3: Non-Deduction of Tax at Source:The petitioner faced proceedings under Section 201 of the Act for non-deduction of tax at source from remittances related to transshipment through feeder vessels. Despite providing explanations and citing previous judicial decisions, an order was passed against the petitioner. The petitioner argued that the order was in violation of the DTAA and the Constitution of India.Issue 4: Compliance with DTAA:The petitioner emphasized that the principal, a resident of Germany, was entitled to DTAA benefits, and the principal's income was exempt from tax in India. The respondent accepted the principal's claim of exemption, but the petitioner was still held liable. The petitioner stressed that the order disregarded binding judicial decisions and the principle of tax deduction only if the income was exigible in India.Conclusion:The High Court quashed the impugned order and demand notice, ruling in favor of the petitioner. The Court emphasized the importance of following higher appellate authorities' decisions to avoid undue harassment to taxpayers. The Court also kept open the rights of respondents to take further steps in accordance with the law if they succeed in the Supreme Court.