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2016 (4) TMI 592 - CALCUTTA HIGH COURT

2016 (4) TMI 592 - CALCUTTA HIGH COURT - TMI - Validity of Sections 44AC and 206C - Held that:- The minor premise of the ratio decidendi was that a distinction had to be made in respect of assessees covered by Section 44AC of the Act between those who would be able to justify the deductions claimed and others who may not stay back for the same or have their books in order for such purpose.

It is the same rule that needs to be applied to Section 44D(b) of the Act in similar circumstanc .....

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vered by Section 44D(b) of the Act to a foreign company will be obliged to withhold the tax on presumptive basis and 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 d .....

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aterial 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 Petitioners: Mr J. P. Khaitan, Sr Adv., Ms Nilanjana Banerjee Pal, Adv., Mr Akhilesh Gupta, Adv. For the Respondents: Mr Kaushik Chanda, Adv., Mr Nizamuddin, Adv. JUDGMENT Sanjib Banerjee, J. T .....

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ion of the petitioners that the apparent shutting out of an assessee s option to claim deductions from the gross income in respect of the matters covered by the provision is unreasonable and, as such, falls foul of Article 14 of the Constitution of India. 3. Under an agreement of August 2, 2000, the second petitioner foreign company agreed to provide certain services to the first petitioner Indian company against compensation to be charged at cost without any mark-up or profit. The technical ser .....

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e from Provider. Provider shall provide invoices to Recipient listing the services that Provider has provided to Recipient and/or which Provider has obtained from third parties on behalf of Recipient, during each calendar month. Each invoice shall be submitted no later than the fifteenth (15th) day following the end of each calendar month. Each invoice shall identify the compensation that is due to Provider to compensate it for all costs of providing such services. Only costs, without any mark-u .....

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eimbursement 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 .....

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ian company preferred an appeal under Section 248 of the Act before the Commissioner of Income Tax (Appeals) VIII, Kolkata against the order dated May 10, 2002 passed by the assessing officer under Section 195(2) of the Act. However, the Indian company did not pursue such appeal, but approached the Authority for Advance Rulings constituted under Section 245-O of the Act by withdrawing the appeal. The application for advance ruling was filed by the Indian company on July 2, 2003. The relevant aut .....

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petitioning assessee s case, a judgment reported at 219 ITR 330 (Union of India v. A. Sanyasi Rao), and held that the Supreme Court had rejected the contention that the collection of tax due from specified traders on a presumptive basis was violative of Article 14 of the Constitution. The Authority also held that in dealing with Section 44AC in A. Sanyasi Rao, the Supreme Court observed that the provisions for presumptive tax on non-residents were irrelevant in the context of Section 44AC of the .....

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ion was considered by the Supreme Court, it provided for a percentage of the amount paid or payable by the buyer as purchase price for the relevant goods to be deemed to be the profit or gain of the buyer. On a plain reading of such provision, as it stood 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 p .....

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eing 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, forest products and the like were not subsequently t .....

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aid Act before his total income chargeable to tax was assessed. In considering the issue, the Supreme Court observed as follows at page 356 of the report: Considered in the light of the practical difficulties envisaged by the Revenue to locate the persons and to collect the tax due in certain trades, if the Legislature in its wisdom thought that it will facilitate the collection of the tax due from such specified traders on a "presumptive basis", there is nothing in the said legislativ .....

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so, why should the normal reliefs afforded to all assessees be denied to such traders? Prima facie, all assessees similarly placed under the Income-Tax Act are entitled to equal treatment. In the matter of granting various reliefs provided under sections 28 to 43C, the assessees carrying on business are similarly placed and should there be a law, negativing such valuable reliefs to a particular trade or business, it should be shown to have some basis and fair and rational. It has not been shown .....

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tante 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 .....

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ustries Company Limited). The issue in the case before the Supreme Court was whether the payment received by a non-resident foreign company on account of fabrication of a platform in connection with setting up facilities for offshore drilling for oil on the Bombay High was chargeable to tax. 14. The court found that by reason of Article 7 of the Convention for Avoidance of Double Taxation, the income that was received by the foreign company in Korea pertaining to design and fabrication was not t .....

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in India. It was in such context that the court referred to several provisions for presumptive tax in Sections 44BB, 44BBA and 44BBB of the Act. The parties have relied heavily on the following passage of the report: 13. … Thirdly, it is important to note that Chapter IV of the Act contains provisions for presumptive taxation of business income in certain cases as prescribed in sections 44B, 44BB, 44BBA and 44BBB of the Act. In the scheme of presumptive taxation, the assessee is presumed .....

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oss receipt in respect of the relevant item of income, but that would not prevent the assessee from claiming, by producing his books of accounts, that his income on such head was less than the presumed figure. The Union, however, contends that the relevant sentence in Hyundai cannot be seen to be a part of the ratio decidendi of the judgment. The Union says that what was in issue in that case was far removed from the principle that appears to have been stated in the relevant passage; and, as suc .....

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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 th .....

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were binding and not every observation found therein. The following passage from paragraph 9 of the report is relevant in the present context: 9. … It is not everything said by a Judge while giving judgment that constitutes a precedent … The enunciation of the reason or principle on which a question before a court has been decided is alone binding as a precedent. The concrete decision alone is binding between the parties to it, but it is the abstract ratio decidendi, ascertained on .....

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lauses accompanying the Finance Bill, 1976 by which Section 44D was incorporated in the said Act. It may be profitable to notice the relevant note: Under the existing provisions of the Income-tax Act, 1961, income chargeable to tax under the various heads is computed on a net basis, i.e., after allowing deduction for admissible costs and expenses. The determination of the taxable income on net basis in the case of non-resident taxpayers, however, creates certain practical difficulties. The non-r .....

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-residents was taken last 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 Inc .....

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essees 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 such a conscious distinction is made by the Parliament, the court should not rush to undo the same. The Union claims that for a foreign company providing technical services, it would be an impossible task to assess which part of the fees obtained for such technical services could be s .....

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of the Parliament and should not be interfered with by reading something into the relevant provision which is not expressly stated therein. 22. Since the legislative competence to provide for presumptive tax has been accepted by the Supreme Court, the petitioners have not directly questioned the validity of Section 44D(b) thereof on such ground. The petitioners only suggest that on a conjoint reading of Section 44D and Section 115A of the Act, it would be evident that if the provision as to pres .....

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n, in any event, enjoy no latitude under Section 115A thereof. 23. The petitioners submit that while it is possible that in most cases a nonresident assessee entitled to any payment for technical services may not be able to establish the permissibility of the deductions claimed; but if a non-resident assessee did have the requisite material, the denial of the deduction would be unjust and unreasonable. 24. Before coming to the key question as to whether the foreign company in this case would be .....

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iple 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 tha .....

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under the agreement of August 2, 2000 - cannot be seen to be covered by the opinion of December 6, 2004 rendered by the Authority on Advance Rulings. Even if the name of the Indian company is deleted as a co-petitioner, the foreign company would be entitled to maintain a petition under Article 226 of the Constitution to complain of a taxing provision being unreasonable or ultra vires the Constitution. 26. There is considerable force in the Union s submission that when certain situations have be .....

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sions, which did not originally permit assessees covered thereby to claim lower profits and gains than the stipulated rate of presumptive tax, subsequently introduced provisions permitting such claims to be made by the relevant assessees. For instance, Section 44BB was introduced in the 1980s but the option to an assessee to claim lower profits and gains was introduced in 2004 by incorporating sub-section (3) therein. 28. It is, thus, that the judgment in A. Sanyasi Rao needs to be seen for the .....

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raders; and the denial of the reliefs as to the deductions to such persons. As to the first part, the court held that the legislative measure to impose tax on a presumptive basis did not offend 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 nee .....

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ained 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 tax. However, the court also held that, as a corollary, to the extent an assessee covered by the relevant provi .....

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be thus: that those who could later be untraceable or whose accounts may not be available or such accounts may be incorrect or incomplete would be subjected to the tax on the presumptive basis and they would not be in a position to claim deductions as their books would not be in order; but those assessees, who were covered by the same provision and who could produce their books of accounts to justify their claims of deductions, had to be afforded the reliefs if they could establish the same. Th .....

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