TMI Blog2016 (4) TMI 592X X X X Extracts X X X X X X X X Extracts X X X X ..... deposit the same with the department. However, it will be open to the concerned foreign company to subject itself to assessment by claiming the permissible deductions, notwithstanding Section 44D(b) of the Act, whereupon the burden, as always, will be on the foreign company to establish the permissibility of the deductions that it claims. The option to claim deductions cannot be denied to a foreign company covered by Section 44D(b) of the Act; but as to whether it can establish the deductions that it claims, is an entirely different matter. WP is disposed of by reading down Section 44D(b) of the Act and by holding that notwithstanding the machinery of presumptive tax being provided thereunder, a foreign company would be entitled to claim deductions under the applicable provisions of the Act upon establishing its entitlement in such regard on the basis of the material that it may produce. Usually, such exercise would imply a claim for refund as the tax on presumptive basis would already have been deducted at the time of remittance by the resident assessee and deposited with the department. - WP 13932 (W) of 2005 - - - Dated:- 28-3-2016 - Sanjib Banerjee, J. For the Petit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such proposed remittance, the Indian company approached its assessing officer vide its letter of March 21, 2002 for an order under Section 195(2) of the Act, authorising the Indian company to remit the payment without deducting tax at source under Section 195(1) of the Act, inter alia, since the remittance was on account of reimbursement of the costs and expenses actually incurred by the foreign company and the same did not contain any mark-up or profit element. 5. By an order of May 10, 2002, the assessing officer declined the request on the ground that whether the money proposed to be remitted contained any profit element or not, is a subject matter of a regular assessment in the hands of the recipient company and this cannot be a subject matter for discussion in course of issuance of a certificate related to tax deductible at source The material paragraph in the said order under Section 195(2) of the Act recorded as follows: Considering the matter as a whole and in view of expressed (sic, the express) provisions of Sec. 115A read with Section 44D and Section 9(1)(vii) of the Act, it is held that the assessee company should deduct tax at the rate as provided in Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... then, an assessee covered by such provision had no option to seek any deductions from the relevant head of income; all assessees covered thereby were subject to the machinery of presumptive tax without any exception. 10. However, such deeming provision was confined to goods being obtained in auction and where the sale price of the goods to be sold by the buyer was fixed under any statute. The percentages of the total price which would be deemed to be the gains or profits of the buyer were different from one class of goods to the other. The provision covered alcoholic liquor for human consumption other than foreign liquor, timber obtained under a forest lease, timber obtained other than under a forest lease and any forest produce not being timber. Such provision of Section 44AC of the said Act and the corresponding sub-sections of Section 206C thereof were introduced into the said Act by the Finance Bill, 1988. The scope of the relevant provisions was explained in a memorandum to the bill. The relevant passage is quoted in the Supreme Court judgment in A. Sanyasi Rao. It appears that it was department s experience that persons who were involved in the sale of liquor, scrap, fore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able to other assessees, has no nexus to the object sought to be achieved by the Legislature. To this extent, it appears to us that the non obstante clause in section 44AC denying such reliefs has no basis and is unfair and arbitrary and equality of treatment is denied to such persons, necessitating grant of appropriate relief 12. The Supreme Court, thereafter, accepted the view expressed by the Andhra Pradesh High Court in 178 ITR 31 (A. Sanyasi Rao v. Government of Andhra Pradesh) by quoting therefrom: The non-obstante clause in section 44AC(1), notwithstanding anything to the contrary contained in sections 28 to 43 would be confined to the limited purpose of sustaining the deductions provided for in section 206C. The level of profits and gains would be relevant only for explaining and justifying the level of deductions provided for in section 206C. Collections will be made at the rates specified in section 206C and then a regular assessment will be made like in the case of any other assessee. 13. The petitioners have also relied on a judgment reported at 291 ITR 482 (Commissioner of Income Tax v. Hyundai Heavy Industries Company Limited). The issue in the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pears to have been stated in the relevant passage; and, as such, the same cannot be seen to be the law laid down by the Supreme Court. 16. A recent judgment reported at (2015) 64 taxmann.com 93 (Delhi) (Director of Income-Tax v. Royal Jordanian Airlines) has been placed by the petitioners for the acceptance therein by a Division Bench of the Delhi High Court that notwithstanding Section 44BBA of the Act providing for presumptive tax on a fixed basis, it cannot preclude an assessee from producing books of accounts to show that in any particular AY, there is no taxable income. 17. The petitioners also refer to the judgments reported at (2015) 10 SCC 241 (Laxmi Devi v. State of Bihar) and (1996) 6 SCC 44 (Union of India v. Dhanwanti Devi) to demonstrate how the ratio decidendi in a judgment should be discerned. Paragraphs 22 to 24 of Laxmi Devi have been placed on behalf of the petitioners. The Supreme Court referred to the doctrine of precedents as explained by a Constitution Bench by referring to English cases. The essence of the discussion was that every judgment of a superior court has three segments: the facts and the point in issue; the reasons for the decision; and, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year when a special provision was made through the Finance Act, 1975, for computing the shipping profits in the case of non-resident. The Bill seeks to advance this process further by making special provisions for taxation of dividends, royalties and fees for technical services and for determination of head office expenses in the case of non-residents. 20. The Union also relies on a Division Bench judgment of the Delhi High Court reported at 340 ITR 507 (Director of Income Tax v. Rio Tinto Technical Services). In that case, the revenue had preferred appeals under Section 260A of the Act against orders of the Income Tax Appellate Tribunal. However, as would be evident from the judgment, the court held that the constitutional validity of the provision was not challenged before it and cannot be examined in an appeal under Section 260A of the Act. But the Division Bench also found that the judgment in A. Sanyasi Rao had drawn a distinction between non-resident assessees and assessees who were residents in India. 21. The Union says that the income earned by non-resident assessees only in certain cases have been made applicable for presumptive tax. The Union submits that when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income at all, the preliminary ground urged by the Union as to the propriety of the present petition needs to be addressed. There can be no doubt that by virtue of Section 245S of the Act, the advance ruling pronounced by the Authority on December 6, 2004 is binding on the Indian company as the Indian company had sought such ruling. Simultaneously, the ruling is binding on the relevant principle commissioner or commissioner, and the income tax authorities subordinate to him, in respect of the Indian company and the relevant transaction. However, nothing more needs to be read in the ruling than the answers to the questions rendered therein. It will be evident from the five questions set out in the ruling that all of them pertained to the Indian company and its obligation while remitting payment under the agreement of August 2, 2000 to the foreign company. 25. Apart from the fact that the opinion of the Authority is not binding on the foreign company, the opinion has to be confined to the obligation of the Indian company, notwithstanding such opinion having dwelt on the dictum in A. Sanyasi Rao and finding the same to be in applicable to the matter before it. The foreign company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Article 14 of the Constitution. But, on the other count the court held that the denial of the reliefs as to deductions had no nexus with the object sought to be achieved by the legislature. 29. In ascertaining the ratio decidendi in a particular case, the facts of the case and the process of reasoning need to be analysed. The instructive passage extracted in Laxmi Devi recognises that the process of reasoning in a judgment may involve a major premise consisting of a pre-existing rule of law, either statutory or judgment; and a minor premise consisting of the material facts of the case under immediate consideration. In A. Sanyasi Rao the court gave due respect to the primacy of the legislature in introducing a special provision to arrest the evasion of tax. The court accepted the explanation contained in the memorandum to the Finance Bill, 1988 that since at the time of assessment in such cases the accounts were not available or were grossly incorrect or incomplete, it was justified to combat the large-scale tax evasion. The court held that a class of persons deriving income from certain specified businesses could be subjected to a special determination of income chargeable to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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