TMI Blog2010 (11) TMI 393X X X X Extracts X X X X X X X X Extracts X X X X ..... d that: assessee cannot be held to be an assessee in default in terms of section 201 and 201(1A) of the Act - Decided in favour of the assessee - IT APPEAL NO. 6698 (MUM.) OF 2002 - - - Dated:- 3-11-2010 - R.V. EASWAR, PRESIDENT AND J. SUDHAKAR REDDY, ACCOUNTANT MEMBER Arvind Sonde and Jitendra Sanghvi for the Appellant. Narender Singh for the Respondent. ORDER J. Sudhakar Reddy, Accountant Member. This is an appeal filed by the assessee directed against the order of the CIT (Appeals)-XXXI, Mumbai dated 30-9-2002 for the assessment year 2001-02. 2. The first appellate authority had dismissed the appeal filed by the assessee, against the order under section 201 and 201(1A) of the Income-tax Act, 1961 dated 14-2-2001 passed by the DCIT (TDS), Circle-I, Mumbai. 3. The facts of the case are brought out in the order of the CIT (Appeals) which are extracted below for ready reference : 2.1 the Air India has taken in December, 1995, three aircrafts on Wetlease from M/s Caribjet Inc. in accordance with Wetlease Agreement dated 22nd October, 1995. Because of certain non-compliance/defect, etc. Air India terminated the Wetlease on 4th September, 1996. Acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Treasury as the TDS liability is more than the amount of the Award. The details of the working of the TDS is as below : Payment Amount TDS deducted The lease rent paid earlier 52392129 1440784 The damage awarded by the Arbitral Tribunal 12364581 35.561006 (required to be deducted) 2.5 The Court of Appeal in London heard Air India s application on January 14 and 20 of 2000 wherein Air India submitted that in view of section 195(2) order passed by the DCIT of Income-tax Department in India the Air India should be permitted to deduct such tax from the Award amount. However, M/s Caribjet argued that Article 11.1 of the Agreement did not survive the reputation of the Wet Lease Agreement by Air India and therefore Air India cannot deduct any amount of tax from the Award on quantum. 2.6 Pending stay Air India was directed by the court of appeal in London to remit a sum of US $ 21.6 million (US $ 23.6 million minus US $ 2 million set apart for cost and other court orders) in the Escrow Account maintained in the names of the Solicitors of both the parties. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed on time. As in this case no tax was deducted and paid to the Government Treasury, the appeal was held to be invalid and non-maintainable. The assessee carried the matter further in appeal. The L-Bench of the Tribunal in ITA No. 5428/Mum/2002 for the assessment year 2000-01 upheld the findings of the CIT (Appeals). 5. In the impugned order under section 201 and 201(1A) of the Income-tax Act, 1961, the Assessing Officer at page 9 observed that, the pith and substance of the assessee s arguments is that, it tried its level best to convince the Tribunal/English Court, that it is under the statutory obligation under the Indian Income-tax Act, 1961, to deduct taxes from the quantum award payable to M/s Caribjet. However, the Court held that M/s Air India has no right to deduct taxes. The Assessing Officer held that M/s Air India, on their own had submitted an application for determination of tax liability out of the remittances to M/s Caribjet and have obtained an order under section 195(2) which, as per the Assessing Officer has been accepted. He held as follows : Having filed an application and accepted the order, the plea that they were prevented by English Court from deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . He submitted that the first appellate authority has appropriately summarized the facts. He submitted that though no assessment year is mentioned to the order under section 201. As the order was dated 14-2-2001 the assessee has mentioned the year as assessment year 2001-02. Further, to support this, he submitted that the amounts were withdrawn by Caribjet from the Escrow account on 19-7-2000 and thus the assessment year would be 2001-02 only. Thereafter he took this Bench through the order of the CIT (Appeals). The learned counsel challenged the order passed under section 201 as confirmed by the first appellate authority, by raising the following propositions of law. 8. The first proposition was that the assessee was not the assessee in default, in view of the specific wording to section 201 as it existed prior to the amendment vide Finance Act, 2008 w.r.e.f. 1-6-2002. He vehemently contended that prior to the amendment failure to deduct at source does not permit treating an assessee, as an assessee in default. He referred to section 200 and pointed out that it refers to only those persons who had deducted tax. He said persons who has deducted means, present and continues an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain other case laws which we would be dealing in this order. 11. The third proposition argued by Mr. Sonde is that proceedings under section 201 treating the assessee as an assessee in default, as well as under section 163, treating the assessee as a representative assessee, cannot be parallely pursued by the revenue. He submitted that the revenue has to choose one of the paths. 12. He pointed out that the order under section 201 was passed on 14-2-2001 and the order under section 163 was passed on 6-3-2003. He vehemently contends that the assessments cannot be made on duel capacity and if the assessee is treated as an agent then he cannot be called upon to deduct tax at source. He relied on the judgment of the Hon ble Calcutta High Court in the case of Bunge Co. Ltd. v. ITO [1971] 79 ITR 93. He brought to our notice that the language of section 195 had undergone a change and the wording unless he is himself is liable to pay any income-tax was omitted with effect from 1-6-1987 by the Finance Act, 1987. Nevertheless he argued that in the case of Bunge Co. Ltd. (supra), the Hon ble Court did not rest its decision only on these words of section 195 and submitted that the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned DR contended that the assessee in this case has not only violated the orders of the income-tax authorities but has also violated the orders of the Reserve Bank of India. He submitted that the RBI clearance clearly mentioned that the remittance is subject to income-tax clearance. He strongly contended that nowhere in the award, it has been decided as to whether the amount in question is taxable or not. He submitted that Senior Income-tax Officials have accompanied the assessee to U.K., during the arbitration proceedings, only in an advisory capacity and that they had no other role. Thus it cannot be said that the Income-tax department is involved in the arbitration. 16. Addressing the argument that the assessee cannot be treated as the assessee in default, for the reason that it did not deduct tax at source, he relied on the decision of the Special Bench of the Tribunal in the case of Mahindra Mahindra Ltd. v. Dy. CIT [2009] 30 SOT 374 (Mum.) and submitted that this issue is covered against the assessee in this decision. On the proposition that an AWARD is not an income, he submitted that nowhere in the various decisions cited by the assessee, a proposition has been la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as to whether tax could be deducted at source from the arbitration award. On the issue of the Tribunal examining the issue as to whether the amount paid is chargeable to tax or not, he submitted that the issue is covered by the decision of the Hon ble Supreme Court in the case of GE India Technology Cen. (P.) Ltd. v. CIT [2010] 193 Taxman 231 and that the learned CIT (Appeals) was wrong in not adjudicating the matter. 18. Rival contentions heard. On a careful consideration of the facts and circumstances of the case and on a perusal of the papers on record and the orders of the authorities below as well as the case laws cited, we hold as follows. 19. Though the assessee has raised different grounds of appeal, Mr. Arvind Sonde, learned counsel for the assessee, based his arguments only on four propositions which we will be dealing in seriatim. 20. We take up the first proposition canvassed by the learned counsel. The learned counsel argued that the assessee cannot be treated as an assessee in default, for the reason that he failed to deduct tax. The contention is that prior to the amendment to the Finance Act, 2008 with effect from 1-6-2002, failure to deduct tax is not cove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Then clause (b) states that any income derived from such land by agriculture etc. ..... The reference to such land in clause (b) is to the land which is used for agricultural purposes as is stated in clause (a). Thus the word such in the latter part of the section refers to a thing or person as stated in the former part of the section. We are concerned with section 201(1) in which the words such person have been used in the opening part of the section. Under these circumstances the words such person cannot have any reference to the person used in the earlier part of the section. Under these circumstances the words such person have to be interpreted by considering the language of section as a whole. 13.7 Before proceeding further it would be relevant to note the relevant portion of section 201(1) as applicable at the relevant time, which runs as under : If any such person and in the cases referred to in section 194, the principal officer and the company of which he is the principal officer does not deduct or after deducting fails to pay the tax as required by or under this Act, he or it shall, without prejudice to any other consequences which he or it may incur, be deem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pay tax as required by or under this Act . In our considered opinion the interpretation suggested by the learned Authorised Representative for restricting any such person to only the person deducting tax at source and thereafter failing to pay the tax with the Central Government and allowing the person not deducting tax at source to go scot free, is completely against the spirit of the section. If we read it in the way in which the learned Authorised Representative wants, then the latter part of sub-section (1) of section 201 will also necessitate modification as the words does not deduct would require obliteration. By harmoniously considering the scheme of this chapter in which section 201 falls, the only conclusion which follows is that any such person as used in this section cannot be construed as only the person deducting and failing to deposit the tax with the Government but also encompasses within its ambit the person failing to deduct the tax at source. Our view is fortified by the judgment of the Hon ble Kerala High Court in the case of Traco Cables Co. Ltd. v. CIT [1987] 62 CTR (Ker.) 174/[1987] 166 ITR 278 (Ker.) in which it has been held that sections 195, 200 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the root of the matter and one cannot be prevented from arguing this legal ground. Even otherwise the appeal under section 248 was dismissed on a technical ground of non-payment of tax. The assessee cannot be shut out from taking a legal plea that the payment is not chargeable to tax under the provisions of the Act, in a proceeding, wherein the revenue declares the assessee, to be an assessee in default, as otherwise the decision of the Assessing Officer on the issue will become final and cannot be appealed unless the tax is paid. This issue can be challenged even in a proceeding under section 163 read with section 143(3) and also in other such proceedings. Thus we are unable to agree with the submissions of Mr. Narendra Singh on this issue. It is open for the assessee to contend that the Quantum damages are not income under the act and also to rely on the applicable DTAA if any. As the first appellate has not decided this issue as to whether the payment is chargeable to tax in the hands of the non-resident, the issue should in the normal course, go back to the file of the first appellate authority for fresh adjudication. The first appellate authority should consider the nature o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... When Civil Procedure Code does not apply, the decision in the case of All India Reporter v. Ramchandra D. Datar and other judgments, in our humble opinion, do not come to the rescue of the assessee. We now discuss the other case laws relied by the assessee. 27. The learned counsel further relied on the decision of the Hon ble Calcutta High Court in the case of Saroj Kumar Maheshwari v. Hindusthan Motors Ltd. [1985] 154 ITR 363. In this case, the Hon ble Calcutta High Court followed the judgment of the Hon ble Supreme Court in the case of Ramchandra D. Datar (supra). For the reasons given by us, while holding that the decision in the case of Ramchandra D. Datar (supra) does not come to the rescue of the assessee, we have to necessarily hold that this decision in the case of Saroj Kumar Maheshwari (supra) also does not come to the rescue of the assessee. In this case of Saroj Kumar Maheshwari (supra) it is held that the compensation payable for wrongful termination of employment as merged with the decree of a Court and the claim assumed the character of the judgment debt. In the case on hand the award has not merged with the decree of any Court as contemplated in the Civil Procedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o placed reliance on this decision of the jurisdictional High Court. The Hon ble Judge after considering the submissions held that once a decree is passed, it is judgment and order of the Court which culminates into a final decree which when passed, has to be discharged only on payments of the amounts due under the said decree. The judgment debtor, therefore, cannot deduct tax at source, since it is an order in direction of the Court and, as such, would not be liable for penal consequences of non-deduction of tax at source. Tax if payable, can be decided by the Income-tax Officer after the amount is paid to the decree-holder. This decision applies to a case where there is a decree passed by the Court and the assessee is a judgment debtor. In the case on hand, there is no decree passed by the Court and it is only an award by a foreign Tribunal. 31. In the case of Islamic Investment Co. (supra) FCI had to pay a decretal amount to the petitioner who was a non-resident decree-holder. The Hon ble Court considered the decision of the Hon ble Supreme Court in the case of Ramchandra D. Datar (supra) and at page 257, plasitum G, made an important observation that, both in the case of Ramc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed this judgment. 34. In this case the Hon ble Court was considering the question where the situation was that the arbitration proceeding commenced prior to the coming into force of the Arbitration and Conciliation Act (26 of 1996) and the arbitration award had been delivered after the commencement of this Act. The Hon ble Court followed the judgment of the Hon ble Supreme Court in the case of Thyssen Stahlunion GMBH (supra) and at para 29 held as follows : 29. Prior to the enforcement of the Act, the Law of Arbitration in this country was substantially contained in three enactments namely (1) The Arbitration Act, 1940, (2) The Arbitration (Protocol and Convention) Act, 1937 and (3) The Foreign Awards (Recognition and Enforcement) Act, 1961. A party holding a foreign award was required to take recourse to these enactments. Preamble of the Act makes it abundantly clear that it aims at to consolidate and amend Indian laws relating to domestic arbitration, international commercial arbitration and enforcement of foreign arbitral awards. The object of the Act is to minimize supervisory role of Court and to give speedy justice. In this view, the stage of approaching Court for making ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sons, sections 47 to 49 and Scheme of the Act that every final arbitral award is to be enforced as if it were a decree of the Court. The submission that the execution petition could not be permitted to convert as an application under section 47 is technical and is of no consequence in the view we have taken. In our opinion, for enforcement of foreign award there is no need to take separate proceedings, one for deciding the enforceability of the award to make rule of the Court or decree and the other to take up execution thereafter. In one proceeding, as already stated above, the Court enforcing a foreign award can deal with the entire matter. Even otherwise, this procedure does not prejudice a party in the light of what is stated (in para 40 of SCC) : (Para 49 of AIR CLC) of the Thyssen judgment. From the perusal of the above, it is clear that the Hon ble Court has held that, there need not be, two proceedings i.e., the first to examine the enforceability of the award and secondly for execution of the award. The Court has to first decide that the foreign award is enforceable. Execution of the award has to proceed as per sections 47 to 49 of the Arbitration and Conciliation Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the purpose of enforcement of a foreign award given after the date of commencement of the new Act though arbitral proceedings in foreign land had commenced prior to that. It is correct that section 85(2)(a) uses the words the said enactments which would include all the three Acts, i.e., the old Act, Foreign Awards Act and the Arbitration (Protocol and Convention) Act, 1937. Foreign Awards Act and even the 1937 Act contain provisions only for the enforcement of the foreign award and not for the arbitral proceedings . Arbitral proceedings and enforcement of the award are two separate stages in the whole process of arbitration. When the Foreign Awards Act does not contain any provision for arbitral proceedings it is difficult to agree to the argument that in spite of what the applicability of the Foreign Award Act is saved by virtue of section 85(2)(a). As a matter of fact if we examine the provisions of Foreign Awards Act and the new Act there is not much difference for the enforcement of the foreign award. Under the Foreign Awards Act when the Court is satisfied that the foreign award is enforceable under that Act the Court shall order the award to be filed and shall proceed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or (c) the award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration : Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be enforced; or (d) the composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place; or (e) the award has not yet become binding on the parties; or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made. (2) Enforcement of an arbitral award may also be refused if the Court finds that- (a) the subject-matter of the difference is not capable of settlement by arb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied that the foreign award is enforceable under the said chapter of the Arbitration and Conciliation Act, 1996. In fact the Hon ble Bombay High Court in the case of Toepfer International Asia (P.) Ltd. v. Thapar Ispat Ltd. AIR 1999 Bom. 417 held as follows : C. Arbitration and Conciliation Act, 1996. Section 49 - Foreign Award - Enforcement of - High Court has no jurisdiction to enforce - Power of High Court only to declare that the Foreign Award is enforceable - On declaration it becomes a decree of the Court - Execution thereof only under the provisions of the Civil Procedure Code. That a prayer for enforcement of the award by the High Court cannot be granted under the provisions of the Arbitration and Conciliation Act, 1996. Section 49 of the Act merely empowers the Court to declare that the Foreign Award is enforceable under the provisions of Chapter II of the Act. The moment such a declaration is granted, an award shall be deemed to be a decree of the Court. Once its deemed to be a decree of the Court, it is open to the parties to seek its execution in accordance with the provisions of the Civil Procedure Code. [Emphasis supplied] From the above, the legal position is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce even on this count, the argument of the assessee fails. 38. We now take up the third proposition canvassed by the learned counsel for the assessee. The proposition is that simultaneous proceedings cannot be taken under section 201 of the Act holding the assessee as an assessee in default and at the same time pass an order under section 163, holding that the assessee is a representative assessee. The learned counsel mainly relied on the decision of the Hon ble Calcutta High Court in the case of Bunge Co. Ltd. (supra). We have perused this decision. The Calcutta High Court has held that the group of sections from section 160 to section 163 and the group of sections from sections 195 to 201 of the Act are mutually exclusive and operate in different fields. It further held that the same person cannot be treated as an agent under section 163 of the Act and prosecuted against under section 201 at the same time. On page 98 of the said judgment, it is clear that the counsel appearing on behalf of the Revenue did not contest this proposition and on the contrary had submitted that the Income-tax authorities have not yet made up their minds as to whether the petitioner is to be treate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon ble Court in the case of Bunge Co. Ltd. (supra) had not rested their decision on these wordings and hence the omission of the same with effect from 1-6-1987 by Finance Act, 1987 does not effect binding nature of the decision. We are not persuaded by this argument. In the case of Bunge Co., Ltd. (supra), as already stated, this issue has not been contested at all. At page 98 para 2 it was observed as follows : The former group of sections from sections 160 to 163 and the group of sections from sections 195 to 201 of the Act, it is contended mutually exclusive and operate on different fields. Pointed reference made in this connection to the proviso to section 195(1) of the Act prescribes that nothing in section 195(1) shall apply to any payment in the course of transactions in respect of which a person responsible for the payment is deemed to be an agent of the payee under the proviso to sub-section (1) of section 163 of the Act. This, it is pointed out, puts the matter beyond the pale of controversy. It is clearly an expression of the legislative intention that these two groups of sections are entirely independent of each other and are mutually exclusive. This proviso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ward is a judgment debt and hence consequentially the arguments that this is an obligation under law and thus cannot be termed as other arrangement , is to be rejected. 44. At this stage at the cost of repetition, we feel it appropriate to recapitulate the facts of the case briefly, so as to understand the peculiar position in which the assessee was placed. The assessee had taken three Air Crafts on wetlease from M/s Caribjet Inc. in December, 1995, it terminated the lease in September, 1996. Caribjet disputed the termination and the matter was referred to Arbitration under the UNCITRAL RULES which is governed by English Laws. The Arbitrators held that the termination of wetlease was wrong and awarded termination losses to Caribjet. On appeal, the London Commercial Court rejected the appeal of Air India. The assessee sought permission from Reserve Bank and also applied under section 195 to Income-tax authorities for remitting the amount. The Income-tax Department directed the assessee to remit the entire amount of US$ 2,36,35,251 into Government Treasury, in an order under section 195(2). The assessee approached the Court of Appeal in London for being permitted to deduct the ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le for the assessee to deduct tax at source and put the issues beyond the control of the assessee. 46. It is well-settled that an obligation gets discharged due to impossibility of performance. This is not the case where the assessee had mere difficulty of performance. The assessee involved senior I.R.S officials, by arranging their visit to U.K. in order to observe and help the assessee in the hearings, when the matter came before the Tribunal on February, 19 and 20 of 2000. The assessee also approached the Indian High Commissioner in U.K. to assist in getting appointments for the revenue officials who accompanied the assessee with the U.K. England Revenue authorities to discuss Caribjet tax liability. The assessee did everything possible in its control. The law of impossibility of performance does not necessarily require absolute impossibility, but also encompass the concept of severe impracticability. In our humble opinion, the doctrine of impossibility of performance applies in all fours in this case. Due to uncontrollable circumstances, the performance of the obligation to deduct tax at source and remit the same to the Government became impossible. The impossibility of perfo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the present case also, when the assessee was required to deduct the tax at source, it could not possibly have conceived the idea of retrospective legislation and, therefore, to hold the assessee to be in default would amount to doing injustice and making it a defaulter for no fault of it. 5. The aforesaid Calcutta High Court decision in the case of Modern Fibotex India Ltd. was approved by Their Lordships of the Supreme Court in the case of CIT v. Hindustan Electro Graphites Ltd. [2000] 243 ITR 481 by quoting the following the observations of the Constitutional Bench of the Supreme Court in the case of Pannalal Binjraj v. Union of India [1957] 31 ITR 565 at page 597 : A humane and considerate administration of the relevant provisions of the Income-tax Act would go a long way in allaying the apprehensions of the assessees and if that is done in the true spirit, no assessee will be in a position to charge the Revenue with administering the provisions of the Act with an evil eye and unequal hand . 6. We may also quote the following observations from the decision of the Hyderabad Bench of the Tribunal in the case of Asstt. CIT v. Jindal Irrigation Systems Ltd. [1996] 56 ITD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stances will be taken as a valid excuse. 69. The Supreme Court also observed similarly in the case of Life Insurance Corporation of India (supra) that It is obvious that in the surplus or deficit in any inter-valuation period relating to the Corporation which came to be formed only on the appointed day in 1956, this amount could not be reflected since it related to a period prior to the formation of the Corporation. The law does not contemplate or require the performance of an impossible act - lex non cogit ad impossibilia. It is now to be seen whether the expression included therein in rule 2(1)(b) is alone sufficient to negative the logical legal effect of section 7 of the LIC Act. In the case of Asstt. CIT v. Sri Ramachandra [2010] 128 TTJ 408 the Chennai Bench of the Tribunal appling this principle of Impossibility of performance held as fallows : 7. Having heard both the parties we find that the inability to invest the sum of Rs. 50 lakhs in accordance with the modes prescribed under section 11(5) was caused due to the garnishee proceedings initiated by the TRO. Because of such proceedings the assessee was unable to make the investment in conformity with the p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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