TMI Blog2010 (4) TMI 223X X X X Extracts X X X X X X X X Extracts X X X X ..... of India and the US. The order was not valid and liable to quash. - 799 of 2010 - - - Dated:- 13-4-2010 - DR. D. Y. CHANDRACHUD and J. P. DEVADHAR JJ. Porus Kaka with Dinesh Chawla and Ms. Anushka Sharda, instructed by DSK Legal, for the petitioner. Suresh Kumar for the respondent. JUDGMENT 1. Dr. D. Y. Chandrachud J.- Rule made returnable forthwith. By consent of the learned counsel, taken up for hearing and final disposal. 2. The petitioner is a non-resident company incorporated under the laws of the United States of America. The petitioner operates in India with branches at New Delhi and Mumbai. According to the petitioner, it has received all the requisite approvals from the Government of India and the Reserve Bank. The petitioner is engaged in the business of providing consultancy on strategic planning and related activities. The petitioner has filed returns in India from the assessment year 1993-94. On January 8, 2010, the petitioner made an application under section 195(3) of the Income-tax Act, 1961, for the assessment year 2011-12 to the second respondent the Deputy Director of Income-tax, International Taxation 4(1) seeking a nil withholdi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessment years under section 195(3) and there is no justification in law for the denial of a certificate for the assessment year 2011-12 ; (iii) The denial of a certificate in substance violates the provisions of the direct tax treaty between India and the U. S. since the effect of the impugned order is the imposition of a withholding tax with respect to matters which are pending at the Mutual Agreement Procedure (MAP) Level ; (iv) The reasons which have been set out in the impugned order are, ex facie, perverse ; (v) The Assessing Officer has relied upon a draft assessment order which has been passed for the assessment year 2006-07. The order being a draft order, no demand could be raised on the basis of the order ; (vi) The Assessing Officer has also relied upon an assessment order for the assessment year 2005-06 which is also subject to a Mutual Agreement Procedure (MAP) initiated by the petitioner ; (vii) The nature of the receipts to which the Assessing Officer has made a reference has been duly considered both at the inter-governmental level and in an order of the Assessing Officer. On these grounds, the exercise of jurisdiction by the second respondent to deny a certifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... grant of a certificate under sub-section (3) of section 195 in respect of income received not being interest or dividends. Sub-rule (2) of rule 29B stipulates the conditions which are required to be fulfilled before a certificate can be granted. Sub-rule (2) is to the following effect: "(2) The conditions referred to in sub-rule (1) are the following, namely:- (i) the person concerned has been regularly assessed to income-tax in India and has furnished the returns of income for all assessment years for which such returns became due on or before the date on which the application under sub-rule (1) is made ; (ii) he is not in default or deemed to be in default in respect of any tax (including advance tax and tax payable under section 140A), interest, penalty, fine or any other sum payable under the Act; (iii) he has not been subjected to penalty under clause (iii) of sub-section (1) of section 271; (iv) where the person concerned is not a banking company referred to in clause (i) of sub-rule (1)- (a) he has been carrying on business or profession in India continuously for a period of not less than five years immediately preceding the date of the application, and (b) th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ie, the order itself makes it clear that what has been issued is a draft assessment order and that the matter in question is pending before the Dispute Resolution Panel. 11. The second circumstance to which a reference has been made is that for the assessment year 2005-06 a gross demand of Rs. 26.23 crores was raised and after accounting for payments which were made until March 31, 2009, the net balance outstanding was Rs. 9.33 crores which is under the mutual agreement procedure (MAP). In order to consider as to whether there is any basis or tenability in the second ground which has been set out in support of the order, a reference to the relevant provisions of the memorandum of understanding that was arrived at between the Government of India and the U. S. on September 25, 2002 would be in order. Before referring to the memorandum of understanding it would be necessary to note that section 90 of the Act, inter alia, empowers the Central Government to enter into an agreement with the Government of any country outside India for the grant of relief in respect of income on which have been paid both income-tax under the Act and income-tax in that country, as the case may be, or i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India and the Government of the U. S. is a suspension of the collection of tax demands and withholding taxes on income. The petitioner invoked the provisions of article 27 of the U. S. India Tax Treaty for the assessment year 2005-06 by a communication dated February 24, 2009. In a response dated March 20, 2009 the Internal Revenue Service in the Department of Treasury of the U. S. Government acknowledged receipt of the application for competent authority assistance and stated that the Government of India was being requested to intervene to suspend collection actions on such portion until the proceeding was completed. The petitioner was granted certificates under section 195(3) both before and after the assessment order was passed for the assessment year 2005-06. The Assessing Officer has declined to grant a certificate under section 195(3) on the ground that the balance outstanding for the assessment year 2005-06 is Rs. 9.33 crores. The Assessing Officer has acknowledged the pendency of MAP proceedings. The basis on which a certificate under section 195(3) was declined is, ex facie, contrary to law and amounts to a patent disregard of the binding provisions of the MOU between t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... That apart, the exhaustion of alternative remedies is a matter of judicial discretion. In a case such as the present, the record before the court clearly discloses that the denial of a certificate under section 195(3) is without considering the relevant provisions of law and has been based on considerations which are extraneous to a lawful exercise of power. 16. Counsel appearing on behalf of the petitioner urged that in these circumstances it would be appropriate and proper for this court to direct the grant of a certificate under section 195(3). Having heard counsel appearing on behalf of the assessee and counsel appearing on behalf of the Revenue, we are of the view that the appropriate course of action for this court would be to quash and set aside the impugned order declining the grant of a certificate and to direct the Assessing Officer to pass a fresh order in accordance with law after furnishing an opportunity of being heard to the petitioner. The court has been apprised of the fact that the denial of a certificate under section 195(3), despite the grant of such a certificate for nearly twelve years in the immediate past would have serious ramifications to the business ..... X X X X Extracts X X X X X X X X Extracts X X X X
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