TMI Blog2010 (4) TMI 235X X X X Extracts X X X X X X X X Extracts X X X X ..... Director of Income Tax (International taxation) u/s 264, for assessment year 2008-09. therefore no valid basis for the assessing officer to determine that tax be withheld at the rate of 15 percent. - 805 of 2010 - - - Dated:- 27-4-2010 - CHANDRACHUD D. Y. DR., DEVADHAR J. P. JJ JUDGMENT The judgment of the court was delivered by 1. Dr. D. Y. Chandrachud J .-Rule. With the consent of the learned counsel appearing on behalf of the petitioner and the learned counsel appearing on behalf of the Revenue, the petition is taken up for hearing and final disposal. Counsel for the respondents waives service. 2. The petitioner is a non-resident company incorporated under the laws of the United States. The petitioner forms part of the McKinsey group and provides international management consultancy services. The parent of the petitioner is McKinsey and Company Inc. McKinsey and Company Inc. has a branch in India McKinsey India. Broadly speaking, the petitioner provides two kinds of services to the Indian branch: (i) borrowed services which are services rendered by the petitioner to McKinsey India as part of the consultancy services, which the latter provides to its cli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t pool multiplied by the company's allocation fraction. 6. The petitioner made an application under section 197 for assessment year 2010-11 on January 8, 2010, to the Deputy Director of Income-tax (International Taxation)-4(1), Mumbai (the second respondent) seeking a nil tax withholding certificate in respect of payments received for firm function services rendered by the petitioner to the Indian branches of the McKinsey and Company Inc. for financial year 2009-10. The petitioner informed the second respondent that in the meantime, orders have been passed under section 264 by the Commissioner and under section 197 by the Assessing Officer for assessment years 2007-08 to 2009-10, specifying tax withholding rates at 1.5 per cent. and 1.30 per cent. on similar gross payments made to the petitioner for earlier years. By the impugned order dated March 29, 2010, the application filed by the petitioner for a nil tax withholding certificate for the assessment year 2010-11 has been rejected on the ground that for the assessment year 2006-07 the schedules to the preparation of the consolidated accounts, indicating the financials of the petitioner were not made available and hence the clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an be no higher than three per cent. Consequently without prejudice to its submission as noted earlier, the petitioner is willing to submit itself to a deduction of tax at source to the extent of the income element involved in the payments received by it, which can be no higher than three per cent ; (iv) the Transfer Pricing Officer, in the course of a determination made under section 92CA for assessment year 2006-07 has accepted the consideration involved in the transaction between the petitioner and the Indian branches of McKinsey and Company Inc. as being reflective of an arm's length price and that determination would be binding on the Assessing Officer ; (v) the Commissioner, in the exercise of powers under section 264 has for assessment year 2008-09 directed that tax should be deducted at 1.5 per cent of the gross receipts of McKinsey and Company Inc., from India for firm function services ; (vi) the Assessing Officer for the assessment year 2009-10 has also passed an order under section 197 to the effect that taxes are to be withheld on gross payments made to the petitioner computed at 1.30 per cent, placing reliance on the agreement between the petitioner and the Indian bra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h has been taken in an order passed on February 26, 2009, by the Assessing Officer under section 197 for the assessment year 2009-10. The contention of the petitioner that the agreement with the Indian branches of McKinsey and Company Inc. involved a net profit element of three per cent. was considered. While estimating the net profit provisionally at three per cent. the Assessing Officer directed that tax be withheld on the gross payments made to the petitioner at 1.30 per cent. At this stage, it would also be necessary to note that during the course of the assessment year 2006-07, the Transfer Pricing Officer passed an order on October 29, 2009, accepting the consideration reflected in the agreement entered into by the petitioner as being reflective of an arm's length price under section 92CA. 12. The impugned order that has been passed by the Assessing Officer, directing the withholding of tax computed at 15 per cent. on the gross amount for the assessment year 2010-11 is not founded on any logical or cogent basis. The submission of counsel for the Revenue that the Assessing Officer has relied upon his own order for the assessment year 2006-07 dated November 27, 2009, cannot p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tute an order for the purposes of section 264. That 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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