AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2019 (7) TMI 1503
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....hat for Assessment Year ('AY') 2002-03, the Income Tax Department ('Department') by the assessment order dated 5th October, 2011 under Section 143 (3)/147 read with Section 144-C (13) of the Act computed profits of the Petitioner by adopting 'deemed profitability' @ 10% of the revenues/sales. This was done with reference to Section 44BB of the Act. 35% of such profits were held to be related to marketing activities. 75% of the marketing activities were held attributable to a Permanent Establishment ('PE') of the Petitioner in India. Effectively, 2.625% of the sales revenue was held to be the profit attributable to the PE in India and this was held to be taxable @ 40%. As a result, 1.054% of the gross sales became the effective tax payable in India (40% of 26.25% of 10% of the sales). 4. The Petitioner states that it has been regularly obtaining lower withholding certificates under Section 197 of the Act from the Department whereby the Petitioner was permitted to receive remittances from its customers after deduction of tax @ 1.5% of the sum remitted. 5. The Income Tax Appellate Tribunal ('ITAT') rejected the Petitioner's appeals and upheld the assessment order for the above A....
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....on of getting the financial statements audited would arise only in respect of the consolidated national statements prepared by the holding company i.e. Baker Hughes LLC which were required to be filed with the United States Securities and Exchange Commission ('USSEC'). 9. The Petitioner in its letter dated 6th June 2019 then referred to the assessment proceedings undertaken by the Department from AY 2002-03 till 2015-16 where the profit percentage of 10% had been regularly determined by the AO as per Rule 10 of the Income Tax Rules, 1962 ('Rules'). A reference was made to the order of the ITAT which inter alia had stated that the approach of the AO in estimating income @ 10% in the sales made in India in respect of the Assessee "is perfectly in order and does not require any interference." An extract was also given from the judgment of this Court concurring with the above view. It was pointed out that since profitability of 10% had been accepted in the above assessment proceedings by the ITAT, there was no reason for Respondent Nos.1 and 2 to take a different stand in the absence of any change in facts of the applicable law. 10. With its reply dated 6th June 2019, the Petitio....
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....ate beyond 1.5% which was the rate which had been consistently adopted by the Department while issuing such certificates under Section 197 of the Act for the earlier years. (v) For the rule of consistency, reliance is placed on the decision in Radha Saomi Satsang v. CIT (1992) 193 ITR 321 (SC). In view of the global profitability of the holding company of the Petitioner being 3.06%, the impugned order directing deduction of tax @ 5% defeated the purpose of Section 197 of the Act and denied the Petitioner much needed working capital thereby crippling its business. (vi) No appeal was preferable under the Act in respect of an order passed under Section 197 of the Act. Since the impugned certificate, which has been issued with the prior approval of the Commissioner of Income Tax (International Transaction) (Respondent No.2), even the revisionary jurisdiction under Section 264 of the Act is unavailable. 12. This petition was listed first on 19th July 2019 when notice was issued. Mr. Sachit Jolly, learned counsel for the Petitioner pressed for an urgent interim relief since the amount involved since the beginning of FY 2019-20 was already substantial. However, given ....
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....another noting was made by the Addl. CIT, Range-1 (1), Delhi which reads: "Discussed with CIT. He desires that file may be put up again with 2% TDS rate." The file was then sent back to Respondent No.1 who stated "as directed, fresh note sheet has been put-up on next page for kind perusal and further direction please." This was dated 27th May 2019. The fresh note virtually repeated the entire earlier note dated 21st May 2019 except that para 4 of this fresh note reads as under: "4. The assessee has sought the Certificate of TDS deduction at "NIL." However, considering the facts and circumstances of the case, we may, if approved, issue the Certificates @ 2.0%." (emphasis in original) 16. Thus, it would be seen that Respondent No.1 who is supposed to exercise a quasi-judicial function acted under the dictation of his superior i.e. Respondent No.2, who simply asked him to increase the TDS percentage from 1.5% to 2% without any reason whatsoever. Consequently, in the fresh note dated 27th May 2019 of Respondent No.1, no reasons were given as to why the TDS rate should not be NIL as requested for by the Assessee and instead why it should be increased from 1.5% to 2%. Interes....
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.... it appears that the decision to charge TDS at 5% had already been taken by that date (it was taken by the CIT on 28th May 2019), it is only on 4th June 2019 that a query was addressed to the Petitioner on the TRACES asking it for the accounts. The reply thereto by the Petitioner on 6th June 2019 has already been referred to earlier in this order. However, without referring to the said reply dated 6th June 2019 of the Petitioner (copy of which along with its enclosures is available on the Department's file) the CIT (IT) initialled the note on the file on 10th June 2019 and on that basis the impugned certificate dated 11th June 2019, under challenge in the present petition, was issued. 23. The Court finds that there is both arbitrariness and non-application of mind at various levels which vitiates the impugned certificate. Some of them, at the cost of repetition, may be recapitulated. The first is Respondent No.1 changing his initial decision as contained in the note dated 21st May 2019 directing TDS at 1.5% to 5% by his subsequent note dated 27th May 2019 without any reasons and only because his superior, the CIT (IT) asked him to do so. At that stage, no reasons whatsoever appe....
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....en it will be a case of failure to exercise discretion altogether. In other words, the discretion vested in the DSP in this case by Section 20A (1) was not exercised by the DSP at all. 12. Reference may be made in this connection to Commissioner of Police vs. Gordhandas Bhanji 1952 SCR 135, in which the action of Commissioner of Police in cancelling the permission granted to the respondent for construction of cinema in Greater Bombay at the behest of the State Government was not upheld, as the concerned rules had conferred this power on the Commissioner, because of which it was stated that the Commissioner was bound to bear his own independent and unfettered judgment and decide the matter for himself, instead of forwarding an order which another authority had purported to pass. 13. It has been stated by Wade and Forsyth in 'Administrative Law', 7th Edition at pages 358 and 359 under the heading 'Surrender, Abdication, Dictation' and sub-heading "Power in the wrong hands" as below: "Closely akin to delegation, and scarcely distinguishable from it in some cases, is any arrangement by which a power conferred upon one authority is in substance exercised by an....
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....ction 197 for deduction of tax at such lower rate or no deduction of tax. (2) The existing and estimated liability referred to in sub-rule (1) shall be determined by the Assessing Officer after taking into consideration the following:- (i) tax payable on estimated income of the previous year relevant to the assessment year; (ii) tax payable on the assessed or returned 2or estimated income, as the case may be, of last four previous years; (iii) existing liability under the Income-tax Act, 1961 and Wealth-tax Act, 1957; (iv) advance tax payment tax deducted at source and tax collected at source for the assessment year relevant to the previous year till the date of making application under sub-rule (1) of rule 28." 28. The file produced before this Court by the Department shows that the above factors were not kept in view and no reference in fact was made to Rule 28AA of the Rules. The impugned certificate simply states that the rate of TDS should be 5%, which obviously does not satisfy the requirements of the law. 29. Even if one were to accept the explanation offered by Mr. Bhatia that on the online portal only a certificate is post....
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....a petitioner should exhaust the alternate remedies available is a self-imposed restraint which does not bar the exercise of the writ jurisdiction under Article 226. In a case such as the present where the Assessing officer has chosen to act in complete departure from a duly considered determination made by a superior officer, it is necessary for this court to step in to ensure that the discipline of the hierarchy imposed by fiscal legislation is duly observed. Unless a sense of hierarchical discipline is observed, while implementing fiscal legislation, the exercise of powers would be rendered arbitrary and subject to the whim and caprice of Assessing officers. This would be impermissible and contrary to the norm of fairness which article 14 of the Constitution embodies. The prescriptions of Article 14 must at all times infuse statutory interpretation and must rigorously apply to the exercise of statutory discretion. It is in these circumstances, that this court has been constrained to exercise its writ jurisdiction under article 226 to correct a manifest failure of justice. The Assessing Officer is correct in adopting the position that section 197(2) will not preclude a departure o....