TaxTMI 
TaxTMI 
TaxTMI 
2018 (6) TMI 1276
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....s a matter of convenience, therefore, we disposing of both the appeals by way of this consolidated order. The orders impugned are two separate but materially identical orders passed by the CIT(A), both dated 22nd January 2018, in the matter of tax withholding demands under section 201 r.w.s. 195 of the Income Tax Act, 1961, for the assessment years 2013-14 and 2014-15. 3. Grievance of the assessee tax-deductor, in substance, is that, on the facts and in the circumstances of the case, learned CIT(A) erred in confirming the action of the Assessing Officer in treating the payment aggregating to Rs. 74,70,220 (AY 2013-14) and Rs. 2,97,45,710 (AY 2014-15), made to Teems Electric Inc USA, as liable to tax withholding under section 195 of the Act, and in raising resultant tax withholding demands under section 201 r.w.s. 195, on account of non-deduction of tax at source from these payments made by the assessee tax-deductor. Learned representatives fairly agree to this proposition. 4. The issue in appeals lies in a rather narrow compass of material facts. The assessee tax-deductor has made certain payments to a US based entity by the name of Teems Electric Inc. ("TEI" or "the US entity", ....
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.... clause 4(b) of Article 12 of the (applicable) tax treaty". It was in this backdrop that the assessee was treated as an assessee in default for not deducting tax at source from these payments, and, accordingly, a demand under section 201 r.w.s, 195 was raised on the assessee. Coming to the plea with respect to capitalization, the Assessing Officer was of the view that this plea is "irrelevant from the point of view of tax deductibility" as "the character of receipt has to be seen in the hands of the receiver and not the payer" and that "it may be that the services are being utilized in setting up of a plant but for the US entity, it is an income on the revenue account". The judicial precedents cited by the assessee were distinguished on facts. It was in this backdrop that the Assessing Officer held that the assessee was taxable in India in respect of the fees for technical services under section 9(1)(vii) read with Section 115A, and the applicable tax rate under section 115A at 10% being lesser than the tax rate at 15% envisaged by the Indo US tax treaty. The payment having already been made by the assessee without deducting tax at source, the Assessing Officer also directed the as....
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....ere made by the assessee company, was entitled to the benefits of Indo US tax treaty. There are two aspects to this fundamental question- first, whether the treaty protection could be declined to TEI simply on the short ground that the TEI was not able to, or did not, furnish the tax residency certificate under section 90(4) of the Act; second, whether TEI did not, on merits, satisfy the requirements of the Indo US tax treaty. As for the first aspect, the stand of the learned Departmental Representative is that non furnishing of the Tax Residency Certificate under section 90(4) itself, on a standalone basis, can be reason enough for declining the treaty protection. In support of this proposition, reliance is placed on the wordings of Section 90(4) which provide that "An assessee, not being a resident, to whom an agreement referred to in sub section (1) applies, shall not be entitled to claim any relief under such agreement unless a certificate of his being a resident in any country outside India or specified territory outside India, as the case maybe, is obtained by him from the Government of that country or specified territory". It is thus contended that furnishing of the tax resi....
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.... (3) Any term used but not defined in this Act or in the agreement referred to in subsection (1) shall, unless the context otherwise requires, and is not inconsistent with the provisions of this Act or the agreement, have the same meaning as assigned to it in the notification issued by the Central Government in the Official Gazette in this behalf. (4) An assessee, not being a resident, to whom an agreement referred to in sub-section (1) applies, shall not be entitled to claim any relief under such agreement unless a certificate of his being a resident in any country outside India or specified territory outside India, as the case may be, is obtained by him from the Government of that country or specified territory. (5) The assessee referred to in sub-section (4) shall also provide such other documents and information, as may be prescribed. Explanation 1.-For the removal of doubts, it is hereby declared that the charge of tax in respect of a foreign company at a rate higher than the rate at which a domestic company is chargeable, shall not be regarded as less favourable charge or levy of tax in respect of such foreign company. Explanation 2.-For the purposes of this se....
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....agrave;-vis the provisions of the Indian Income Tax Act, 1961, is the exception carved out for the application of general anti avoidance rules set out in Chapter X-V. 8. In the light of our this analysis, when we turn to Section 90(4), as indeed other sub sections of Section 90, we find that these provisions do not start with a obstante clause vis-àvis Section 90(2) and, therefore, these sub sections cannot be construed as limitation to, or rider to, somewhat unqualified treaty override stipulated in Section 90(2). Whatever interpretation one assigns to this sub section, essentially the fundamental approach has to be that this sub section will be applicable only when the same are more beneficial to the assessee vis-à-vis the provisions of the applicable tax treaty; that principle of treaty override, as set out in Section 90(2), remains unaffected by these provisions. As we hold so, we make it clear that whether the same position will also apply with respect to Explanations to Section 90 or not is still an open question, uninfluenced by these discussions, as Explanations to Section 90 may perhaps not have the same legal connotations as the sub sections to Section 90. ....
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....obviously, therefore, conscious of the Circular No. 789 of 2000 and the effect thereof, namely, that the certificate of Residence issued by the Mauritian authorities would constitute sufficient evidence for accepting the status of residence as well as the beneficial ownership for applying the DTAC accordingly. Though an amendment in the Finance Bill was proposed which would affect the circular, the same was never implemented. (C) The reason for Parliament not implementing the amendment is also evident from the clarification dated 01.03.2013 issued by the Finance Ministry specifically regarding Tax Residency Certificates. It is necessary to set out the entire circular as it is of vital importance. It establishes beyond doubt now that the Circular No. 789 was in full force and ought to have been given effect to. The circular reads as under:- "Finance Ministry Clarification Regarding Tax Residency Certificate (TRC) March 2, 2013 Concern has been expressed regarding the clause in the Finance Bill that amends section 90 of the Income-tax Act that deals with Double Taxation Avoidance Agreements. Sub-section (4) of section 90 was introduced last year by Finance Act, 2012. That su....
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....ied upon by Blackstone Mauritius and Barclays were issued by the Mauritius authorities. [Emphasis, by underlining, supplied by us] 10. The judicial approval was, therefore, to the use of Section 90(4) in favour of the assessee in the manner set out above. In view of the provisions of Section 90(2), there cannot be any controversy on this aspect. That is qualitatively much different from the stand of the CIT(A) called into question before us. Our research did not indicate any judicial precedent which has approved the interpretation in the manner sought to be canvassed before us i.e. Section 90(4) being treated as a limitation to the treaty superiority contemplated under section 90(2), and that issue is an open issue as on now. In the light of this position, and in the light of our foregoing analysis which leads us to the conclusion that Section 90(4), in the absence of a non-obstante clause, cannot be read as a limitation to the treaty superiority under Section 90(2), we are of the considered view that an eligible assessee cannot be declined the treaty protection under section 90(2) on the ground that the said assessee has not been able to furnish a Tax Residency Certificate in....
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....me derived or paid by a partnership, estate, or trust, this term applies only to the extent that the income derived by such partnership, estate, or trust is subject to tax in that State as the income of a resident, either in its hands or in the hands of its partners or beneficiaries. 13. Article 4(1) thus provides that, as a preliminary requirement and in order to be treated as 'resident of a contracting state', a taxpayer has to demonstrate that he is liable to tax in that jurisdiction by the reason of domicile, residence, citizenship, place of management, place of incorporation or any other criterion of similar nature. The residuary clause i.e. "any other criterion of similar nature", as has been judicially noted in the case of DCIT Vs General Electric Co plc & Ors [(2001) 71 TTJ 973 (Cal)], should be understood to "mean any locality-related attachment that attracts residence-type taxation". Unless it is established that the assessee is able to satisfy the above preliminary requirement for being treated as resident of a contracting state (i.e. USA in this case), the assessee cannot be held to be entitled for the treaty protection in the other contracting state (i.e. India in th....
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....omply with this requisition. Whether the conduct of the assessee, therefore, can be faulted or not, the requirements for establishing treaty entitlements under article 4(1) are to be satisfied established nevertheless. Let us, therefore, examine whether form W9, as submitted by the assessee, can lead us to the conclusion that the conditions laid down in Article 4(1) are satisfied. 14. The purpose of form W9, which is given under US Internal Revenue Code, is for providing the correct TIN to the person who is required to file an information return with the IRS. The information contained on the US IRS website points out that "An individual or entity (Form W-9 requester) who is required to file an information return with the IRS must obtain your correct taxpayer identification number (TIN) which may be your social security number (SSN), individual taxpayer identification number (ITIN), adoption taxpayer identification number (ATIN), or employer identification number (EIN), to report on an information return the amount paid to you, or other amount reportable on an information return". In plain words, it is merely a declaration so as to provide inputs to the tax-deductor for fulfilling ....
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....tever its worth, TRC is certainly a far easier mode of discharging the onus about establishing residential status, under a tax treaty, of a foreign enterprise. Yet, we have a litigation including this facet as well. 17. Learned counsel has thus succeeded in his legal submissions but, for all practical purposes, this success is rather hollow, on the facts of this case, inasmuch as it does not bring any relief, as on this stage, to the assessee tax-deductor. Even when we keep the requirements of Section 90(4) aside, the eligibility of TEI for Indo US tax treaty entitlement is not established, and, therefore, all the erudite arguments of distinguished senior counsel, on the scope of various provisions of Indo US tax treaty are, at this stage, purely academic and wholly infructuous. 18. In all fairness, however, we must also remain alive to the fact that at no stage was the assessee asked to submit evidences in support of his residential status so as to satisfy the conditions laid down under article 4(1). The Assessing Officer did not deal with this aspect of the matter at all, and simply proceeded to apply law on the assumption that the US entity was entitled to the benefits of the ....