TaxTMI 
TaxTMI 
2022 (8) TMI 41
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....-21, under Section 197 of the Income Tax Act 1961, hereinafter referred to as the "IT Act", for Tax Deduction at Source (TDS) at the rate of 4% in respect of payments received by the Appellant from Oil and Natural Gas Company Ltd. hereinafter referred to as the "ONGC" towards work done out of India as well as within India. 3. The Appellant, National Petroleum Construction Company, is a company incorporated under the laws of the United Arab Emirates (UAE) and is a tax resident of that country. The provisions of the Agreement for Avoidance of Double Taxation hereinafter referred to as the "AADT" between India and the UAE apply in determining the taxable income of the Appellant under the IT Act. 4. The Appellant is, inter alia, engaged in the fabrication of Petroleum Platforms, Pipelines and other equipment, installation of Petroleum Platforms, Submarine Pipelines, onshore and offshore oil facilities and coating of Pipelines. 5. Pursuant to different tender notices issued by ONGC from time to time, the Appellant submitted tenders, inter alia, for installation of Petroleum Platforms and submarine Pipelines. The tenders submitted by the Appellant were accepted and contracts were exec....
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....er dated 31st December 2009 for the Assessment Year 2007-08 holding that the Appellant had a Fixed Place Permanent Establishment in India in the form of a Project Office at Mumbai. The AO further held that Arcadia Shipping Ltd. (ASL), agent of the Appellant had a Permanent Establishment in India, which constituted a Dependent Agent Permanent Establishment, hereinafter referred to as "DAPE", of the Appellant. 12. With regard to the Appellant's contention that the fabricated material was sold to ONGC outside India, the AO found that the contract was a turnkey and a composite contract and was not divisible as claimed by the Appellant. Accordingly, the AO held that the entire contractual receipts including the payments for activities performed outside India were taxable in India. The consideration received by the Appellant for design and engineering was held to be Fees for Technical Services, hereinafter referred to as the 'FTS'. Since, the Appellant had not maintained separate books pertaining to the contract, the AO estimated the Appellant's profit at 25% of the consideration received from ONGC. 13. The Appellant did not accept the Draft Assessment Order and filed its objec....
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....e value of the work done outside India was segregable. 20. Two contracts were concluded by and between the Appellant and ONGC, one dated 30th September 2016, hereinafter referred to as LEWPP Contract, and the other dated 7th February 2018, hereinafter referred to as the R-series Contract, which have led to this Appeal. The Appellant received payments for work done under the said two contracts in the Previous/Financial Year 2019-20 corresponding to the Assessment Year 2020-21. 21. By a judgment and order dated 9th May 2017 in Writ Petition being Writ Petition (C) No. 2117 of 2017, the High Court of Delhi set aside a Certificate dated 31st January 2017 issued by the Respondent No.1 under Section 197 of the IT Act, requiring deduction of TDS at the rate of 4% on all payments made by ONGC to the Appellant for activities out of India and in India in respect of the contract dated 30th September 2016. The R-series Contract was executed after the judgment of the High Court dated 9th May 2017, referred to above. The High Court had no occasion to consider the R-series contract. 22. On or about 8th May 2019, the Appellant applied for a certificate under Section 197 of the IT Act for deduct....
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....Nil TDS, for payments received in respect of activities outside India, should have been issued to the Appellant, in deference to decisions rendered by various Appellate Authorities from the Assessment Years 2007-08 to 2015-16, opining that income in respect of activities out of India was not taxable in India and as also the judgments of the Delhi High Court referred to above. 27. In the Assessment Year 2018-19, the Respondent had followed the same approach as in the Assessment Year 2017-18 and issued a certificate dated 10th April 2018 under Section 197 of the Act for Nil TDS in respect of payments for activities outside India. This direction was in respect of both LEWPP Contract as well as R-Series Contract. 28. However, in departure from the position taken in the previous years, the Respondent No.1 issued a certificate dated 26th June 2019 under Section 197(1) of the IT Act for the Financial Year 2019-2020 corresponding to the Assessment Year 2020-2021 directing ONGC to deduct TDS at the rate of 4% on receipts in respect of activities both outside and inside India. 29. The Appellant filed a Writ Petition under Article 226 of the Constitution of India being Writ Petition (C) No....
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....l review under Article 226 of the Constitution of India only on grounds of perversity, patent illegality, irrationality, want of power to take the decision and procedural irregularity. Judicial review is directed not against the decision but the decision making process. The High Court did not find any such arbitrariness in the approach of the concerned Respondents in the exercise of their jurisdiction, that called for interference under Article 226 of the Constitution of India. The High Court found that the reasons in the note-sheet could not be said to be so fallacious, unfair or unreasonable that they required intervention of the High Court. 35. The High Court further observed and held: "18. Sub Section (1) of Section 195 of the Act provides that any person responsible for paying to a non-resident, any sum chargeable to tax under the provisions of the Act, shall, at the time of credit of such income to the account of the payee, or at the time of the payment thereof in cash or by the issue of a cheque or draft or any other mode, whichever is earlier, deduct income-tax thereon at the rates enforced. *** 24. ... As of now, we are not concerned with a regular assessment proceed....
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.... v. CIT: [1963] 49 ITR 137 (SC) (Full bench)]. "It is well settled that in matters of taxation there is no question of res judicata because each year's assessment is final only for that year and does not govern later years, because it determines only the tax for a particular period." [Ref: Instalment Supply (P) Ltd. v. Union of India : AIR 1962 SC 53 (Constitution bench)]. *** 27. In the present case, there cannot be any dispute that existence of PE is required to be determined by law for each year separately on the basis of the scope, extent, nature and duration of activities in each year. In this regard, the contracts in question i.e. R-series contracts dated 07.02.2018 and LEWPP series contracts dated 30.09.2016 would have to be taken into consideration. Concededly, this Court in its decision dated 09.05.2017 did not have the occasion to consider the R-series contract dated 07.02.2018. The Court only considered the contract dated 30.09.2016 as noted in para -1 of the said decision. There is thus, a distinguishing feature - the R-series contract has not been considered by this Court in its order dated 09.05.2017. Moreover, in the instant case, the reasons record that the t....
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....ceedings for grant of certificate under section 197. The scope of enquiry and investigation in both these proceedings is different, especially after the introduction of Explanation 2 to section 195 and at the stage of section 197 proceedings, the question of existence of permanent establishment is not required to be gone into. Therefore, having regard to the aforesaid provision, we cannot direct the Revenue to hold that the petitioner does not have a PE and give the consequent effect of such finding while deciding an application under Section 197 of the Act. Determination of all these questions would have to be undertaken during the course of regular assessment. *** 32. ...However, we cannot ignore the fact that Petitioner took categorical stand and prevailed upon the revenue to accept the declaration made in the said communication. Although the declaration was qualified, yet, since the petitioner requested the respondent to deduct the tax @ 4% + applicable surcharge & cess for the entire contractual revenues, revenue was justified in accepting the same and the petitioner cannot be permitted to resile there from, once the department has accepted petitioner's proposal." 36. ....
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....nt and the duration of work done in India, could vary from year to year. 41. It is reiterated that in the immediately preceding Assessment Year, the Assessing Authority proceeded to assess the Appellant on the basis that it did have a Permanent Establishment (PE) in India. Moreover, as rightly held by the High Court, Ishikawajima-Harima Heavy Industries (supra) and Hyundai Heavy Industries (supra) related to assessment proceedings whereas this case pertains to issuance of certificate under Section 197 of the IT Act. The scope of enquiry and investigation in proceedings for grant of Certificate under Section 197 of the IT Act is different from the scope of assessment proceedings. The High Court rightly declined to direct the Revenue to hold that the Appellant did not have PE in India. 42. By its letter dated 22nd June 2019, referred to above, the Appellant made a request to the Revenue for issuance of Certificate under Section 197(1) of the IT Act permitting deduction of TDS at the rate of 4% plus applicable surcharge and cess, for all contractual receipts, in line with assessment proceedings for the Assessment Year 2016-2017 without prejudice to its legal position, since the Appe....
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....o be made in accordance with law taking into account all relevant facts and circumstances or any appeal therefrom. In the event, it is found that the Appellant is not liable to tax, the Appellant will be entitled to refund of TDS with interest. 48. The Appeal is dismissed. JUDGMENT J.K. MAHESHWARI, J. Leave granted. 2. After going through the judgment and the opinion formed by esteemed Justice Ms. Indira Banerjee, I respectfully disagree to the conclusions as drawn for the reasons to follow. 3. On perusal of detailed facts as stated in the order, it is clear that appellant-company is incorporated under the laws of United Arab Emirates (in short 'UAE') and is engaged in the business of Surveys (pre-engineering, preconstruction/preinstallation and post-installation), Design, Engineering, Procurement, Fabrication, Anticorrosion & Weight coating (in case of rigid pipeline, Loadout, Tiedown/Sea fastening Towout/Sailout, Transportation, Installation, Hookup, Installation of submarine pipeline, installation and hookup of submarine cables, Modifications on existing facilities, Testing, Pre-commissioning, Commissioning of entire facilities as described in the biding document. ....
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....ce is made, it would be called as a place of effective management. 6. As per Section 5(2) of the IT Act, it is clear that subject to the other provisions of the Act, the total income of any previous year of a person who is a non-resident includes all income from whatever sources derived either is received or is deemed to be received in India in such year by or on behalf of such person; or accrues or arises or is deemed to accrue or arise to him in India during such year. Explanation (1) of it clarifies that income accruing or arising outside India shall not be deemed to be received in India within the meaning of this section on account of the fact that it has been taken into account in the balance sheet prepared in India. Explanation (2) removes the doubts whereby the income which has been included in the total income of a person on the basis that it has accrued or arisen or is deemed to have accrued or arisen to him shall not again be so included on the basis that it is received or deemed to be received by him in India. The aforesaid provision has been brought with an intent to check the double taxation. Thus, from above for clarity, it is reiterated that any income outside India....
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....her state to the extent of the profit attributable to that PE. The determination thereof shall be on year to year basis and the deviation, if any, may be based on good and sufficient reasons to the contrary. Thus, it is clear that the income earned in India may be taxable even by an entity which is not incorporated in India but the profit earned for a contract carried out outside India by such entity shall not be taxable. The issue regarding establishment of PE at a place where the work is required to be executed, and profit earned attributable to that PE is a matter of enquiry based on the material brought on record during assessment for the said assessment year. 9. But for the purpose of tax deduction at source at lower rate or no deduction during contractual period, the assessing officer has been empowered under Section 197(1) to issue a certificate to that effect in the manner so prescribed as specified in Chapter XVII of Income Tax Act which relates to collection and recovery of tax. On perusal of the scope of the said Chapter, it is clear that the assessment in respect of the income is required to be made later in relevant assessment year but the tax on such income may be pa....
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.... is satisfied that the total income of the recipient justifies any lower rate or no deduction of income tax as the case may be, he shall issue a certificate to the assessee on an application submitted by him. The said certificate shall be valid until it is cancelled by the assessing officer. Section 2A was introduced conferring powers to the Board having regard to the convenience of the assessee and the interest of revenue, and the rule is made to submit application and the conditions for issuance of certificate, notifying it in Official Gazette. Pursuant thereto, a notification dated 29.03.2011 was published in the Official Gazette specifying the cases and the circumstances under which the application may be made for grant of certificate and, the conditions for satisfaction of assessing officer who may grant certificate. 10. By way of the said notification dated 29.03.2011, amendment in the Income Tax Rules, 1962 was made and these Rules are known as Income Tax (Second Amendment) Rules, 2011 by which Rule 28 AA has been added. The said rule was further amended by notification dated 25.10.2018. The said amended rules are relevant for this case, however, reproduced as thus: "Cert....
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....be valid with regard to the person who made an application for issue of such certificate. (6) The Principal Director General of Income-tax (Systems) or the Director General of Income-tax (Systems), as the case may be, shall lay down procedures, formats and standards for issuance of certificates under sub-rule (4) and proviso thereto and the Principal Director General of Income-tax (Systems) or the Director General of Income-tax (Systems) shall also be responsible for evolving and implementing appropriate security, archival and retrieval policies in relation to the issuance of said certificate." 11. From the above, it is clear for issuance of a certificate under Section 197 of the IT Act, an application shall be made to assessing officer under subrule (1) of Rule 28. The assessing officer after recording satisfaction that existing and estimated tax liability justifies the deduction of tax at lower rate or no deduction of tax as the case may be shall issue certificate. While exercising the power to issue a certificate, the assessing officer is required to follow the procedure as per subrule (2). The assessing officer shall consider the existing and estimated liability that what ma....
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....e of 4% excluding surcharge and cess for inside India revenue and at the rate of 0% for outside India revenue. Further for financial years 2017-2018 and 2018-2019 certificates were issued following the said decision of Delhi High Court for both type of contracts i.e. LEWPP and R-Series. Thereafter, it was recorded that assessments for assessment years 2015-2016 and 2016-2017 have been completed with a finding that activities of the appellant were covered under Section 44BB of the IT Act. It was further recorded that the assessment for assessment year 2017-2018 was selected under CASS which is still pending. Thereafter, noting was made that it is difficult to bifurcate the revenue generated by onshore and offshore activities. However, the rate of deduction proposed was at the rate of 4%. The relevant excerpt of note sheets further reflect that the demand of existing liability was Rs.35.88 crores for the year 2015-16 and 2016-17 but later it was reduced to Rs.2.67 crores out of which Rs.2.63 crores pertained to assessment year 2017-18 which was still under scrutiny for assessment, thus there appear no existing demand. The said note sheets of the Revenue do not reflect that clause (i)....
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....rdingly in absence of PE contract receipts were not taxable in India. 15. The record of the case indicates that for the financial year 2017-18 two certificates each dated 08.06.2017 (Annexures P6 & P7) were issued for zero TDS which is related to the assessment year 201819. Similarly, for financial year 2018-19 (assessment year 2019-20) two certificates dated 10.04.2018 and 08.05.2019 (Annexures P8 & P9 respectively) were issued for zero TDS. Therefore, after the order of the High Court dated 09.05.2017, it may be a relevant consideration to assessing officer to record satisfaction, which has not been considered by the High Court. The reply of the appellant dated 22.06.2019 has been referred in the impugned order stating that the appellant reserve its right subject to legal objections and requested for issuance of certificate at the rate of 4% plus applicable surcharges and cess because of financial hardship. In my opinion, the said letter cannot influence the wisdom of the Court, where the prescribed procedure under Rule 28AA has not been followed by the assessing officer. However, on the basis of letter dated 22.06.2019 no lineage contrary to prescribed procedure can influence t....
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....a and Ors., (2006) 3 SCC 1, this Court has held that if facts and law in a subsequent assessment year are the same, no authority whether quasi-judicial or judicial can generally be permitted to take a different view in following words: "20. The decisions cited have uniformly held that res judicata does not apply in matters pertaining to tax for different assessment years because res judicata applies to debar courts from entertaining issues on the same cause of action whereas the cause of action for each assessment year is distinct. The courts will generally adopt an earlier pronouncement of the law or a conclusion of fact unless there is a new ground urged or a material change in the factual position. The reason why the courts have held parties to the opinion expressed in a decision in one assessment year to the same opinion in a subsequent year is not because of any principle of res judicata but because of the theory of precedent or the precedential value of the earlier pronouncement. Where facts and law in a subsequent assessment year are the same, no authority whether quasi-judicial or judicial can generally be permitted to take a different view. This mandate is subject only t....