TaxTMI 
TaxTMI 
2016 (4) TMI 592
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....e 14 of the Constitution of India. 3. Under an agreement of August 2, 2000, the second petitioner foreign company agreed to provide certain services to the first petitioner Indian company against compensation to be charged at cost without any mark-up or profit. The technical services that the foreign company agreed to provide to its Indian subsidiary included management services, management information services, systems development and computer usage, communication services, engineering services, manufacturing services and the like. Section 1.2 of the said agreement of August 2, 2000 is of relevance in the present context: "Section 1.2. Compensation Recipient shall pay Provider for all services and materials provided pursuant to this agreement, upon receipt of an invoice from Provider. Provider shall provide invoices to Recipient listing the services that Provider has provided to Recipient and/or which Provider has obtained from third parties on behalf of Recipient, during each calendar month. Each invoice shall be submitted no later than the fifteenth (15th) day following the end of each calendar month. Each invoice shall identify the compensation that is due to Provider to comp....
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....contends that in view of the decision of the relevant authority, the present proceedings should not have been entertained. The Authority for Advance Rulings noticed the sheet-anchor of the petitioning assessee's case, a judgment reported at 219 ITR 330 (Union of India v. A. Sanyasi Rao), and held that the Supreme Court had rejected the contention that the collection of tax due from specified traders on a presumptive basis was violative of Article 14 of the Constitution. The Authority also held that in dealing with Section 44AC in A. Sanyasi Rao, the Supreme Court observed that the provisions for presumptive tax on non-residents were irrelevant in the context of Section 44AC of the Act. 8. In A. Sanyasi Rao, the Supreme Court considered a clutch of petitions under Article 32 of the Constitution. The opening paragraph of the report referred to the legal issue: the validity of Sections 44AC and 206C of the Act. The challenge was that such provisions were ultra vires the Constitution, beyond legislative competence and violative of Articles 14 and 19(1)(g) of the Constitution. 9. Section 44AC of the said Act has now been omitted by the Parliament. At the time that such provision was c....
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....h specified traders on a "presumptive basis", there is nothing in the said legislative measure to offend article 14 of the Constitution. In the light of the legal principles stated above, we are unable to hold that section 44AC read with section 206C is wholly hit by article 14 of the Constitution of India. "However, the denial of relief provided by sections 28 to 43C to the particular businesses or trades dealt with in section 44AC calls for a different consideration. Even according to Revenue, the provisions (sections 44AC and 206C) are only "machinery provisions". If so, why should the normal reliefs afforded to all assessees be denied to such traders? Prima facie, all assessees similarly placed under the Income-Tax Act are entitled to equal treatment. In the matter of granting various reliefs provided under sections 28 to 43C, the assessees carrying on business are similarly placed and should there be a law, negativing such valuable reliefs to a particular trade or business, it should be shown to have some basis and fair and rational. It has not been shown as to why the persons carrying on business in the particular goods specified in section 44AC are denied the reliefs avail....
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.... in such context that the court referred to several provisions for presumptive tax in Sections 44BB, 44BBA and 44BBB of the Act. The parties have relied heavily on the following passage of the report: "13. ... Thirdly, it is important to note that Chapter IV of the Act contains provisions for presumptive taxation of business income in certain cases as prescribed in sections 44B, 44BB, 44BBA and 44BBB of the Act. In the scheme of presumptive taxation, the assessee is presumed to have earned income at the rate of a certain percentage of his total turnover or gross receipts. If the assessee agrees to be taxed on presumed income, he is not required to maintain books of account. ..." 15. The petitioners assert that in Hyundai the Supreme Court noticed certain provisions pertaining to presumptive tax and enunciated, as a general principle, that in the scheme of presumptive taxation the assessee is presumed to have earned income at the rate of a certain percentage of his gross receipt in respect of the relevant item of income, but that would not prevent the assessee from claiming, by producing his books of accounts, that his income on such head was less than the presumed figure. The Un....
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....d which, when it is clear what it was, is binding. It is only the principle laid down in the judgment that is binding law under Article 141 of the Constitution. ..." 19. The Union submits that several provisions from Sections 44B to 44DA of the Act need to be seen to understand why the machinery pertaining to presumptive tax was introduced. The Union refers to the Notes on Clauses accompanying the Finance Bill, 1976 by which Section 44D was incorporated in the said Act. It may be profitable to notice the relevant note: "Under the existing provisions of the Income-tax Act, 1961, income chargeable to tax under the various heads is computed on a net basis, i.e., after allowing deduction for admissible costs and expenses. The determination of the taxable income on net basis in the case of non-resident taxpayers, however, creates certain practical difficulties. The non-resident taxpayer is not always sure of the type and extent of expenses which would be admissible under our tax laws and the nature of evidence which he will be called upon to produce in support of his claim for expenses. Income-tax Officers are also handicapped as, in the absence of account books of the foreign taxpay....
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....as been accepted by the Supreme Court, the petitioners have not directly questioned the validity of Section 44D(b) thereof on such ground. The petitioners only suggest that on a conjoint reading of Section 44D and Section 115A of the Act, it would be evident that if the provision as to presumptive tax were to apply to a nonresident assessee, such assessee would have to pay the tax as a percentage of the quantum of fees that it obtains from an Indian assessee for providing technical services, without being able to demonstrate that permissible deductions should be allowed therefrom. The petitioners say that they have challenged only the propriety of Section 44D(b) of the Act and not the validity of Section 115A(3) thereof since an assessee who is covered by Section 44D of the Act can, in any event, enjoy no latitude under Section 115A thereof. 23. The petitioners submit that while it is possible that in most cases a nonresident assessee entitled to any payment for technical services may not be able to establish the permissibility of the deductions claimed; but if a non-resident assessee did have the requisite material, the denial of the deduction would be unjust and unreasonable. 2....
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....ould be scarcely tinkered with by court unless unavoidable. 27. There are several provisions that incorporate the machinery of presumptive taxation in Chapter IV of the Act. Several of such provisions, which did not originally permit assessees covered thereby to claim lower profits and gains than the stipulated rate of presumptive tax, subsequently introduced provisions permitting such claims to be made by the relevant assessees. For instance, Section 44BB was introduced in the 1980s but the option to an assessee to claim lower profits and gains was introduced in 2004 by incorporating sub-section (3) therein. 28. It is, thus, that the judgment in A. Sanyasi Rao needs to be seen for the law that it laid down. The challenge to the combined effect of Sections 44AC and 206C in that case was on the ground of discrimination "in having selected certain businesses or trade for hostile treatment". The court held that Article 14 of the Constitution applied to tax laws as well, though taxing statutes enjoyed more judicial indulgence. The Supreme Court addressed the issue by breaking it down into two parts: the practical difficulties faced by the revenue to collect tax from the specified tra....
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....tify their claims of deductions, had to be afforded the reliefs if they could establish the same. The minor premise of the ratio decidendi was that a distinction had to be made in respect of assessees covered by Section 44AC of the Act between those who would be able to justify the deductions claimed and others who may not stay back for the same or have their books in order for such purpose. 31. It is the same rule that needs to be applied to Section 44D(b) of the Act in similar circumstances as the rule was applied to Section 44BBA thereof in the case of Royal Jordanian Airlines. Nothing regarding the possible availability of the option to an assessee covered by Section 44D(b) of the Act to claim permissible deductions, will affect the obligation of the resident assessee while making the relevant payment to a foreign company, whether under Section 195 of the Act or otherwise. The resident assessee making a payment in respect of a matter covered by Section 44D(b) of the Act to a foreign company will be obliged to withhold the tax on presumptive basis and deposit the same with the department. However, it will be open to the concerned foreign company to subject itself to assessment ....