TaxTMI 
TaxTMI 
TaxTMI 
2014 (2) TMI 434
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the writ appeal also pertain to the merits of the writ petition, the writ petition itself may be taken up for disposal and taking into consideration the same, the writ petition itself is taken up for disposal along with this writ appeal. 3.The facts of the case as culled out from the materials placed before this Court in the form of affidavit, counter and typed-set of documents, are as follows: (a) The appellant/writ petitioner was originally a partnership firm and later on, became a private limited company and it is engaged in the business of transportation of coal from Paradip Port to Chennai Port through ships, for the various ongoing projects of Andhra Pradesh Power Generation Corporation. The appellant for the said purpose, entered into an agreement with M/s.Jaldhi Overseas Private Limited (in short "JOPL"), Singapore, on 7.9.2009, for transportation of coal and the validity of the agreement was for a period of five years, commencing from September 2008 to August 2013. (b) According to the appellant, JOPL is a Singapore tax resident shipping company and in terms of the above said agreement, it agreed to provide suitable ships to the appellant for transportation of coal bet....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... traffic in a contracting state. Therefore, citing the said reasons, the Assessing Officer held that the appellant herein is authorised to deduct tax at the rate of 3.167% on the gross payments for the first quarter from April 2009, to June 2009, amounting to a sum of Rs.16,38,30,625/- and the said certificate shall remain in force upto 31.12.2009, unless it is cancelled by way of an intimation. (g) The appellant herein aggrieved by the same, preferred a revision under Section 264 of the Income Tax Act before the Director of Income Tax (International Taxation), Chennai. The Revisional Authority on going through the nature of transaction and the Clauses contained in Double Taxation Avoidance Agreement between Singapore and India, found that JOPL is not having permanent establishment in India during the relevant period, and that JOPL is not in the business of shipping and therefore, the transportation of coal between two Indian Ports, does not amount to shipping business. The Revisional Authority further found that JOPL is a non-resident company registered and assessed to tax in Singapore as per the certificate dated 11.5.2009, issued by the Land Revenue Authority of Singapore, and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tions are not taxable in India and ultimately, the Appellate Authority arrived at a finding that the provisions of Sections 44B, 195 and 49(a)(ia) of the Income Tax Act are not applicable and as a corollary to said finding, has directed the deletion of disallowance of Rs.33,91,71,007/-. (n) The said appeal was also filed with regard to the disallowance of interest on monies advanced to sister concern, and ultimately, the appeal was allowed, vide order dated 24.12.2012. (o) For the assessment year 2010-11, the assessment was done under Section 143(3) of the Income Tax Act by the Assistant Commissioner of Income Tax, Circle I, Chennai and an assessment order came to be passed on 29.3.2013. (p) The Assessing Officer during the course of hearing, has called upon the appellant/assessee to show cause why the payments made to JOPL, Singapore, without deducting tax at source, should not be disallowed under Section 40(a)(i) of the Income Tax Act and treated as income. In response to the show cause notice, the appellant/assessee submitted his response and took the very same stand taken before the Revisional Authority, namely the Director of Income Tax (International Taxation), Chennai 34,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on) holding that the remittances are not chargeable to tax, the impugned order, which is the subject matter of challenge in the writ petition, on the face of it, is unsustainable in law and on facts and therefore, there is no necessity to pass conditional interim order. The order passed in the revision, though was brought to the knowledge of the Assessing Officer, he has chosen to ignore/circumvent the order by holding that by virtue of Explanation 2 in the form of amendment to Section 195, the order passed in the revision, is of no avail to the assessee, and the said finding on the face of it, is unsustainable. 5.Learned Counsel appearing for the appellant, would further submit that the Assessing Officer for the reasons best known to him, has chosen to ignore the Clauses in Double Taxation Avoidance Agreement between India and Singapore and further overlooked the fact that JOPL has no permanent establishment in India and that the competent authority at Singapore has also issued a certificate that JOPL is subjected to tax only at Singapore and thereby, committed a grave error in misapplying/misconstruing the relevant Clauses in the above said agreement. 6.It is the further submis....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... passed in the revision under Section 264 of the Income Tax Act, pertains to first quarter of three months, namely between April and June 2009, whereas the assessment is for the entire financial year from 1.4.2009 to 31.3.2010, and hence obligation has been cast upon the assessee to deduct the tax at source in respect of the payments made to JOPL. It is further contended by the learned Senior Standing Counsel appearing for the Revenue, that JOPL is deemed to have a permanent establishment in terms of para 6 of Article 5 of the Double Taxation Avoidance Agreement as the contract is for five years, i.e., more than 90 days. It is further submitted by the learned Senior Standing Counsel appearing for the Revenue, that Section 195 of the Income Tax Act was amended subsequently in Finance Act, 2012, with retrospective effect from 1.4.1962 and as per the said amendment, tax had to be deducted whether the concerned individual, firm or company is a resident or non-resident having a permanent establishment or not and in support of his submission, placed reliance upon a decision reported in 60 ITR 156 (SC) (COMMISSIONER OF INCOME TAX V. STRAW PRODUCTS LTD.). 10.Lastly, it is submitted by the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he Income Tax Act, the Revisional Authority found that M/s.JOPL Singapore Company is not in the business of shipping and transportation of coal in between two Indian Ports and therefore, it cannot be said that the said Company is in shipping business. 16.The Revisional Authority has also taken into consideration the certificate dated 11.5.2009, issued by the Land Revenue Authority of Singapore, wherein it has been stated that M/s.JOPL is a non-resident company registered and assessed to tax in Singapore, and ultimately, held that the income, if any, arising out of the transaction between the assessee and non-resident company, is taxable in Singapore and not in India and therefore, the business transaction is covered by Article 8 of the Double Taxation Avoidance Agreement and further held that Section 44B of the Income Tax Act, has no application to the facts of the case and a direction was also issued to the Assessing Officer to give effect to the order. 17.It is an admitted fact that the order of the Revisional Authority dated 24.3.2010, who is a superior authority to the Assessing Officer, has not been put to challenge by the Revenue and it has become final. 18.In ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....very same stand, which was considered by the Revisional Authority, and at later point of time, before the Appellate Authority. But, however, the Assessing Officer has taken into consideration the amendment made to Section 195 of the Income Tax Act, in the financial year 2012, especially Explanation 2, and held that by virtue of the retrospective amendment from 1.4.1962, tax had to be deducted for the payments made to JOPL, and therefore, the payment of Rs.64,57,70,890/- made to M/s.JOPL, without deducting tax, is to be disallowed and accordingly, disallowed the same under Section 40(a)(i) of the Income Tax Act and further ordered that it should be added to the total income of the assessee. The Assessing Officer also issued demand notice under Section 156 and penalty notice under Section 274 read with Section 271 of the Income Tax Act, to the assessee. 22.In (2009) 314 ITR 309 (SC) (VIJAY SHIP BREAKING CORPORATION AND OTHERS V. COMMISSIONER OF INCOME TAX), the following questions arose for determination in a batch of civil appeals before the Hon'ble Supreme Court of India: "(1) Whether the appellant-assessee was entitled to deduction under sections 80HH and 80-I of the Income-tax ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the expression sum chargeable under the provisions of the Act . We need to give weightage to those words. Further, section 195 uses the word payer and not the word assessee . The payer is not an assessee. The payer becomes an assessee-in-default only when he fails to fulfil the statutory obligation under section 195(1). If the payment does not contain the element of income the payer cannot be made liable. He cannot be declared to be an assessee-in-default. The abovementioned contention of the Department is based on an apprehension which is ill-founded. The payer is also an assessee under the ordinary provisions of the Income-tax Act. When the payer remits an amount to a non-resident out of India he claims deduction or allowances under the Income-tax Act for the said sum as an expenditure . Under section 40(a)(i), inserted, vide the Finance Act, 1988, with effect from April 1, 1989, payment in respect of royalty, fees for technical services or other sums chargeable under the Income-tax Act would not get the benefit of deduction if the assessee fails to deduct TAS in respect of payments outside India which are chargeable under the Income-tax Act. This provision ensures effective com....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ficer or the one adopted by the Appellate Assistant Commissioner?" 26.The facts of the said case would disclose that the depreciation, which was allowed in the original assessment, was reduced and appeal was filed challenging the same, and the appellant Assistant Commissioner, who has disagreed with the Income-tax Officer, held that the assessee had not been allowed excess depreciation allowance as per the original assessment and there was no basis for initiating proceedings under Section 34. Thereafter, a reference was made to the High Court, wherein the High Court answered it by stating "In the circumstances of this case the correct basis for computing written down value of depreciable assets of the company is the one adopted by the Appellate Assistant Commissioner." During August 1962, the Central Government made an amendment amending the Taxation Laws (Merged States) (Removal of Difficulties) Order, 1949, and it was made in exercise of the powers conferred under Section 8 of the Taxation Laws (Explanation to Merged States) Ordinance, 1949. Section 8 provides that if any difficulty arises in giving effect to the provisions of this Ordinance, the Central Government may by order ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ctions 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. 29.Learned Senior Standing Counsel appearing for the Revenue, vehemently contended that the revision order of the Director of Income-tax has been restricted to first quarter, namely April to June 2009, and therefore, it cannot be made applicable. In the considered opinion of this Court, the said submission lacks merit and substance for the reason that the order passed in the revision, has to be read as a whole and a careful scrutiny of the said order would disclose that the Revisional Authority has arrived at a categorical finding that the transaction between the assessee and non-resident company would be taxable only in Singapore and not in India. As pointed out earlier, in respect of the assessment made for the assessment year 2009-10 also, appeal was filed by the assessee and the Commissioner of Income-tax (Appeals) VI has passed an order dated 24.12.2012, holding that by virtue of the application of Articles 7 and 8 of Double Taxation Avoidance Agreement, the terms/clauses in the said agre....
X X X X Extracts X X X X
X X X X Extracts X X X X
....or otherwise of their conclusion or of any factual mala fides but with the fact that the officers, in reaching their conclusion, by-passed two appellate orders in regard to the same issue which were placed before them, one of the Collector (Appeals) and the other of the Tribunal. The High Court has, in our view, rightly criticised this conduct of the Assistant Collectors and the harassment to the assessee caused by the failure of these officers to give effect to the orders of authorities higher to them in the appellate hierarchy. It cannot be too vehemently emphasised that it is of utmost importance that, in disposing of the quasi-judicial issues before them, revenue officers are bound by the decisions of the appellate authorities. The order of the Appellate Collector is binding on the Assistant Collectors working within his jurisdiction and the order of the Tribunal is binding upon the Assistant Collectors and the Appellate Collectors who function under the jurisdiction of the Tribunal. The principles of judicial discipline require that the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities. The mere fact that the order of the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ppropriate proceedings being taken under S.35E(1) or (2) to keep the interests of the department alive. If the officers view is the correct one, it will no doubt be finally upheld and the Revenue will get the duty, though after some delay which such procedure would entail." 32.The Hon'ble Supreme Court of India in paragraph No.8 of the above said decision, held that "The observations of the High Court should be kept in mind in future and utmost regard should be paid by the adjudicating authorities and the appellate authorities to the requirements of judicial discipline and the need for giving effect to the orders of the higher appellate authorities which are binding on them." 33.In the case on hand, though the Revisional Authority is the superior officer to the Assessing Officer, he sought to distinguish the said order by taking a stand that it is applicable only for the first quarter commencing from April to June 2009. As already pointed out in the earlier paragraphs, the Appellate Authority in respect of the assessment year 2009-10, had taken into consideration the orders passed by the Revisional Authority, and arrived at the same finding and it was also not put to challenge. T....