TaxTMI 
TaxTMI 
2010 (4) TMI 223
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....bsp; the Deputy Director of Income-tax, International Taxation 4(1) seeking a nil withholding certificate for payments received for services rendered to clients/ customers, group entities and for interest received on deposits made with banks. The petitioner has received certificates under section 195(3) for the assessment year 1998-99 to the assessment year 2010-11. During the course of the proceedings, the petitioner was called upon to furnish details, by a letter dated January 27, 2010. The petitioner filed its response on February 3, 2010. On March 24, 2010 the petitioner was called upon to show cause as to why its application for a nil withholding certificate under section 195(3) should not be rejected. The petitioner filed its response on March 25, 2010. By an order dated March 29, 2010, the second respondent has rejected the application of the petitioner for the grant of a nil withholding certificate for the assessment year 2011-12. 3. The impugned order rejecting the application of the petitioner for the grant of a certificate under section 195(3) contains in paragraph 3 the following reasons for declining the request : "In this connection, in your case, ....
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....g Officer. On these grounds, the exercise of jurisdiction by the second respondent to deny a certificate under section 195(3) has been called into question. 5. An affidavit-in-reply has been filed by the second respondent. Counsel appearing on behalf of the Revenue has supported the order of the second respondent and has made a reference to the reply which has been filed in response to the petition. 6. Section 195(1) of the Income-tax Act, 1961, provides that any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest or any other sum chargeable under the provisions of the Act, other than income under the head of salaries, shall at the time of credit of such income to the account of the payee or at the time of payment, deduct income-tax thereon at the rates in force. Sub-section (3) provides that subject to the rules which are made under sub-section (5) a person entitled to receive a sum on which income-tax has to be deducted under sub-section (1) may make an application to the Assessing Officer for the grant of a certificate authorizing him to receive such sum without deduction of tax. Where any such certificate is grante....
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....of not less than five years immediately preceding the date of the application, and (b) the value of the fixed assets in India of such business or profession as shown in his books for the previous year which ended immediately before the date of the application or, where the accounts in respect of such previous year have not been made up before the said date, the previous year immediately preceding that year, exceeds fifty lakhs of rupees." 8. Under sub-rule (4), the Assessing Officer is vested with the discretion to give a certificate authorizing the person concerned to receive the income without deduction of tax under section 195(1) if he is satisfied that all the conditions laid down in sub-rule (2) are fulfilled and the issuance of a certificate will not be prejudicial to the interests of the Revenue. 9. The conditions which have been spelt out in sub-rule (2) of rule 29B are that (i) the person concerned must be regularly assessed to income-tax in India and ought to have furnished returns of income for assessment years for which the returns became due prior to the date on which an application under sub-rule (1) is made; (ii) there should be no default or deemed default in res....
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....h income-tax under the Act and income-tax in that country, as the case may be, or income-tax chargeable under the Act and under the corresponding law in force in that country, in order to promote mutual economic relations, trade and investment. The MOU which was entered into between the Government of India and the U. S. on September 25, 2002 is in pursuance of the Convention for the Avoidance of Double Taxation. The object of the MOU is to ensure the efficient processing of the Mutual Agreement Procedure (MAP) cases, which is to be facilitated by deferring assessment or by suspending collection of any amount of tax including related interest or penalties for taxable years which form the subject-matter of MAP proceedings. Recital B to the MOU, inter alia, stipulates that the competent authorities have arranged and desired to agree with regard to amounts of tax covered under article 2 of the Convention and potentially payable to the Government of India, that "the Assessing Officer will suspend collection until putting into effect a mutually agreed disposition on the MAP proceedings concerning the amounts in question". The MOU provides that the tax authorities in the two countries wou....
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....ontrary to law and amounts to a patent disregard of the binding provisions of the MOU between the Governments of India and the U. S. 13. Counsel appearing on behalf of the petitioner has also urged before the court that the effort of the Assessing Officer to refer to the nature of the receipts is misconceived since this has been dealt with in the assessment order passed for the assessment year 2003 on March 24, 2006 by the Assessing Officer. The assessment order, in paragraph 2.1, records that the competent authorities of India and the U. S. have concluded by mutual agreement, on the application filed by the assessee that the income of the assessee from its Indian operations should be computed on net income basis in India. The Assessing Officer has also made a reference to the fact that the conclusion of the competent authorities and the terms of the settlement have been documented by a letter dated December 16, 2005, issued by the Government of India in the Ministry of Finance, Department of Revenue. The assessee received a letter dated January 24, 2006, from the Department of Treasury, Internal Revenue Service, Washington D. C. a copy of which was stated to be filed before the A....