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Dy. Commissioner of Income Tax (International Taxation) –4 (2) , Mumbai Versus M/s. Abu Dhabi Ship Building PJSC, C/o Approach Properties Pvt. Ltd.

2016 (6) TMI 728 - ITAT MUMBAI

TDS u/s 195 - non tds deduction - PE in India - maintainability of appeal - appealable order u/s 246A - whether CIT(A) has erred in adjudicating the appeal filed by M/s Abu Dhabi Ship Building PJSC who is not Applicant of the application u/s 195(2)? - Held that:- The order appealed against is an order passed under section 195(2) against ONGC requiring it to deduct tax at source on payments made to the assessee. Further, there is no final determination of liability under the Act as far as the ass .....

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the learned Commissioner (Appeals) against the order passed under section 195(2) in the case of ONGC is not maintainable. The learned Commissioner (Appeals), in our view, was not competent under the provisions of section 246A of the Act to entertain such an appeal. We, therefore, set aside the impugned order passed by the learned Commissioner (Appeals) and restore the order of the Assessing Officer under section 195(2). - Decided in favour of revenue - ITA no.5418/Mum./2013 - Dated:- 8-6-2016 - .....

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icating the appeal filed by M/s Abu Dhabi Ship Building PJSC who is not Applicant of the application u/s 195(2). The application was filed by ONGC. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in adjudicating the appeal filed by M/s Abu Dhabi Ship Building PJSC. The section 246A(1) and 248 of the I.T. Act, 1961 do not enable M/s Abu Dhabi Ship Building to file the appeal against the order of Section 195(2) of IT Act. 3. On the facts and in the circums .....

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rtium is working through 'dependent agent' namely M/s Abu Dhabi Ship Building PJSC and the dependent agent is a form of Permanent Establishment of Abu Dhabi Ship Building PJSC in India. 3. Brief facts are, Oil and Natural Gas Commission (ONGC) entered into a contract with Abu Dhabi Ship Building PJSC and Rodman Polyship, Vigo, Spain, a consortium of two companies for construction of nine number of Immediate Support Vessels (ISV). After completion of trials, the vessels in sea worthy stat .....

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oes not have a Permanent Establishment (P.E) in India. Along with the application for non-deduction of tax, the ONGC also filed other details. The Assessing Officer after verifying the details furnished was of the view that the provisions of section 9(1) would be applicable to the payments made as there is a business connection in India as a result of which income is deemed to accrue or arise in India. For coming to such conclusion, the Assessing Officer relied upon the following facts:- • .....

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or. • The registration of vessels with director general of Shipping has to be done by the contractor before delivery. • Inspection service & repair work before delivery would also be the responsibility of the contactor. • During the guarantee period the personnel of contractor may visit the vessel for checking and carrying out remedial work of facilities & equipment, all such expenses would be borne by the contractor. • The consortium has appointed an Indian agent to .....

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bject supply contract will be done in India, even partly. However perusal of the article 6.4 (page no.9) of the contract describes assignment. The above clause is read as under; "The contractor shall not, save with the previous consent in writing of the ONGC, sublet/subcontract, transfer or assign the contract or any part thereof in any manner whatsoever. However such consent shall not relieve the contractor from any obligation, duty or responsibility under the contract." Further as pe .....

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of ONGC) wherever feasible." As per article 30 (page no.98 of the agreement) the following conditions should apply as regards subcontracting of any portion of work pertaining to design, engineering, procurement, fabrication, transportation, installation, lop side modification, pre commissioning, start up & commissioning of works entrusted to the contractor. From the reading of above clauses of the contract it is clear that the consortium is not barred from carrying out any activity thro .....

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ing Officer, in order to know the income attributable to the business in India, the Assessing Officer sought for necessary details from the ONGC vide letter dated 8th November 2012. In response to the said letter, it was submitted that percentage of profit accruing arising out of the contract cannot be disclosed as it is confidential. However, it was submitted that there would be net loss of 10%. It was further submitted that the payee would not be subject to tax in India due to the treaty benef .....

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e available to the consortium. For such conclusion, the Assessing Officer relied upon some decisions of the Authority for Advance Ruling (AAR). As far as the claim of the applicant that no P.E. of the consortium is in India, the Assessing Officer countered it by stating that the Indian agent of consortium will constitute P.E. Further elaborating, the Assessing Officer observed that examination of the agency agreement between the consortium and India agent, namely, Trishakti Electronics and Indus .....

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r its activities in India. The activities of the agent are not limited to purchase of goods or merchandise for the consortium. Verification of the P&L account of the agent shows that the agent has no commission income or to say any other source of income which can show that the agent has acted in his normal course of business. As per the audited P&L account of year ending 31st march 2012, shows only income from crane hire charges of ₹ 1,66,10,493/- & crane mobilization charges .....

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procedural aspects of doing business in India. • Review &, analyse lender requirements issued by the ONGC regarding the project. • Provide advice to the consortium & to assist the consortium in the preparation of the required proposal in the form required by the ONGC. • Inform the consortium as far as possible about the status of lender & the progress of the consortium's proposal once it is submitted. • Attend meetings at reasonable intervals as may be requir .....

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Indian agent of the consortium and the quantum of agency commission goes to show that the Indian agent will constitute a P.E. of the non-resident. The Assessing Officer observed that as the treaty benefit would not be available for consortium, the profit attributable to its activities in India would be taxable in India. In this context, it was observed by the Assessing Officer that the claim of 10% loss by the assessee not being supported by any evidence will not be accepted. The Assessing Offi .....

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facts on record, after receiving the aforesaid order, ONGC deducted tax at source on the payments made to Abu Dhabi Ship Building PJSC. Being aggrieved of the order passed by the Assessing Officer, directing ONGC to deduct tax at source, Abu Dhabi Ship Building PJSC filed an appeal before the learned Commissioner (Appeals). 6. In the course of hearing of appeal before the first appellate authority, making elaborate submissions, it was stated that as per the contract with the ONGC, the consortium .....

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o the contract entered with the ONGC it was submitted that as per the terms of the contract and inter-se arrangement between the partners of the consortium Abu Dhabi Ship Building PJSC is to build four ISVs at its Abu Dhabi Shipyard, UAE and Rodman Polyships is to build five ISVs at its Shipyard in Spain. It was submitted by the assessee as per the terms of section 195(1), any income chargeable under the provisions of the Act is subject to deduction of tax at source. It was submitted, as per the .....

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in all respect at its Abu Dhabi Shipyard, UAE and Rodman Poly Shipyard at Spain and vessels are to be given delivery at Mumbai. It was submitted, if the entire process of construction of vessels and its delivery to ONGC at Mumbai is visualized it will be clear not even a fraction of entire process of construction of vessels was done anywhere in India and as per the terms of the contract the vessels are to be supplied complete in all respect. It was submitted, ONGC was all through examining the c .....

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nd done outside India. Not even a single part of the vessels was manufactured and constructed in India. Therefore, section 9 of the Income Tax Act, 1961 will have no application to the assessee. The assessee has no business connection in India, hence, no part of the income from the sale of vessels from the assessee to ONGC can be brought to tax in India. It was submitted, property in the vessels passed to ONGC at Abu Dhabi while making final payment towards the cost of vessels as per the payment .....

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transactions of sale between the assessee and ONGC being on principal-to-principal basis and no part of such transaction having taken place in India, it cannot be said that any business connection is there to attract the provisions of section 9(1)(i). The assessee submitted, even transportation cost of vessels from Abu Dhabi to Mumbai though paid by the assessee was also included in the contract value. It was submitted, as per the scope of work, delivery of nine ISVs along with spares / accessor .....

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side India at Abu Dhabi Shipyard and Spain, there is no business connection in India. It was also submitted, there is no service contract between the assessee and ONGC. Once the vessels are constructed at Abu Dhabi and are delivered to ONGC, there remains nothing to be done and performed by the assessee except its shipment to India. Even there is no after-sales-service contract. The assessee submitted, it has no P.E. in India, hence, provisions of section 9(1)(vii) is not applicable as it has no .....

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the assessee for the tender and its acceptance. TEIL has no obligation or duty to perform in the matter of construction of the vessels and its supply to ONGC. The contract is between the two principals. It was submitted, even going by the Explanation 2 to section 9(1), defining the term fee for technical services , the payment received by the assessee cannot be treated as FTS as the definition of FTS does not include consideration for any construction, assembling, mining or like project underta .....

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ough, the vessels were delivered in India after trial and inspection. Thus, according to the learned Commissioner (Appeals), no work related to construction of the ship was carried out in India. Though, the Assessing Officer held that 20% of the contract amount paid to the assessee is attributable to services rendered in India on the ground that assessee has appointed TEIL as agent and paid commission of 0.5% of total contract value, however, learned Commissioner (Appeals) observed, the commissi .....

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these services do not in any manner constitute the services of an agent to be treated as agency P.E. as per the treaty. He observed that though TEIL has been termed as agent in the agreement, but it cannot be regarded as agent for the purpose of Article-5 of the treaty since TEIL has no authority to conclude contract or for delivery of vessels or maintenance of vessels, etc. Further, the commission is payable directly by ONGC after TDS by adjusting from the bills raised by the assessee. Further, .....

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to constitute a P.E. in terms of Article-5 of Indo-UAE treaty. The learned Commissioner (Appeals) observed, the role of Indian agent is limited to providing information, guidance, counsel and liaisoning. It has got no role either in construction of the vessels or shipment of vessels or signing of contract or execution of contract. Therefore, it cannot be said that TEIL constitutes an agency P.E. or a dependant agent P.E. of the assessee in terms of Article-5 clause (4) and (5) of the treaty. Fur .....

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rawings, specification of technical information and to the satisfaction of the representative of ONGC are to be delivered in seaworthy state complete in all respect in India at Mumbai. Before the delivery static and dynamic control testing is to be done and vessels are to be handed over to the ONGC at the designated shipyard. The delivery of all the nine vessels is to be completed on/or before 2nd October 2013, i.e., within 20 months from the date of contract. The contractor is under obligation .....

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tives of the ONGC regarding its seaworthy state at Mumbai whereas vessels are to be handed over complete in all respect including attainment of full dead weight and completion of the vessels is to be done by the assessee as per specification of manufacturers of various equipments and machinery and specified operational parameters in the presence and to the satisfaction of the class. societies, representatives after minimum four weeks notice to the ONGC to remain present during the trial. Any def .....

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ls) concluded though, the final acceptance and trials were to be conducted at Mumbai and vessels were delivered to ONGC at Mumbai at the cost of the assessee, but actually the assessee has handed over the vessels to the representatives of the ONGC in its shipyard outside India after conducting trials and removal of the defects pointed out by ONGC. The learned Commissioner (Appeals) observed that on examination of delivery conditions and trials of various equipments and the control exercised by O .....

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y remained in possession of the assessee. He observed as per the terms of the agreement, ONGC has no right to reject the vessels but it has right only for the removal of the defect either by the assessee or at the cost of the assessee. Thus, it was observed by the learned Commissioner (Appeals) that property in vessels passes to ONGC when they were handed over to the representative of ONGC after trial at shipyard of the assessee, though, the vessels remained in possession of the assessee till fi .....

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at no income taxable in India is earned by the assessee in connection with supply of nine ISVs constructed to the specification of the ONGC. Accordingly, upholding the claim of the assessee he allowed the appeal. Being aggrieved of the aforesaid order of the learned Commissioner (Appeals), the Department is in appeal before us. 8. The learned Departmental Representative raising preliminary objection regarding maintainability of appeal before the learned Commissioner (Appeals) submitted, appeal f .....

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have been dismissed at the threshold. Learned Departmental Representative submitted, the learned Commissioner (Appeals) while deciding the issue in favour of the assessee has relied upon the clauses of Indo-UAE DTAA, however, the said DTAA is not applicable to consortium. He submitted, though, the assessee had claimed that ONGC has made payment to it directly, hence, it is an affected party but the said submissions of the assessee is misleading and incorrect as ONGC had made payments to the ass .....

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ive submitted, it had business connection in India as part of the contract was executed in India. He submitted, as per the terms of contract, the vessels built by the consortium underwent seaworthy testing in Indian water, therefore, part of the contract was performed by the assessee in India. Further, it had done registration of the vessels in India as per Indian laws which proves that part of the contract was performed in India. He submitted, as per the contract, it was mandatory to purchase c .....

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they fail then ONGC will apply. Therefore, primary duty was of the assessee to apply for no deduction certificate. The learned Departmental Representative submitted, at the stage of issuance of certificate under section 195(2), the liability of assessee under the Indian Income Tax Act, cannot be determined as such certificate is to be issued on prima-facie verification, hence, is not final. He submitted, the final tax liability is decided in assessment proceedings. Therefore, whether income has .....

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ned Commissioner (Appeals). He submitted, as per the definition of the assessee under section 2(7), it would mean a person by whom any tax or any some of money is payable under the Act. Therefore, since the assessee is a person by whom tax is payable under the Act it is an assessee as per section 2(7) of the Act. Learned Authorised Representative submitted, all invoices pertaining to the contract for construction of the ISVs were raised by the assessee only and payments were also received part o .....

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ane v/s ITO, 89 ITD 611 (Hyd. Trib.); v) Chittaluri Peda Venkaa Subhaiah v/s ITO, 6 ITD 507 (Hyd. Trib.); and vi) Jyoti Tin & Allied Industries v/s ITO, 44 ITD 743 (Hyd. Trib.) 10. As far as the contention of the learned Departmental Representative that an order passed under section 195(2), is not appealable under section 246(A), as it is not specifically mentioned in section 246A, the learned Authorised Representative referring to the language employed under section 246A submitted that an o .....

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TO, 53 ITD 428 (Mad. Trib.); and iv) ITO v/s Shri Bhogavati Sah. Sakhar Karkhana Ltd., 101 ITD 302 (Pune Trib.). 11. Distinguishing the decisions of the Hon'ble Jurisdictional High Court in CIT v/s Tata Engineering and Locomotive Co. Ltd., 245 ITR 823 (Bom.), learned Authorised Representative submitted the decision is not applicable as it is not an authority to support the Department s view that order under section 195(2) is not appealable. As far as the merits of the issue is concerned, lea .....

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ection in India. For such proposition, he relied upon the following decisions:- i) Ishikawajma-Harima Heavy Industries Ltd. v/s Director of I.T., 158 Taxman 259 (SC); and ii) DÏT v/s Ericson A.B., 343 ITR 470 (Del.) 12. Learned Authorised Representative submitted, merely because the assessee had purchased some utilities from Indian entities, it cannot be said to have business connection in India. He submitted, an entity may import goods from many foreign entities in various countries for ma .....

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tions pertaining to construction of vessels were carried out outside India. Learned Authorised Representative submitted, only because vessels were delivered in Mumbai, it does not establish business connection in India. Referring to the payment schedule as per the terms of agreement the learned Authorised Representative submitted that payment of last 10% of the contract value has to be made at the time of delivery of the vessels complete in all respect including certification, documentation, rea .....

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ge to its destination port in Mumbai. Countering the argument of the Department that delivery of the vessels was made at Mumbai as per clause 63 of the Contract, the learned Authorised Representative submitted, the said clause cannot be read in isolation and should be read along with clause 62A to 62F of the contract dealing with the control and trials where it has been provided inter-alia that acceptance trial would not be carried out until the vessels are completely finished and ready for deli .....

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ry requirement in India, hence, cannot result in business connection in India. As far as allegation of the Department that TEIL is a dependent agent, hence, has to be treated as P.E. of the assessee since 0.5% of the project value has been paid to the agent, the learned Authorised Representative submitted, TEIL is an independent agent and does not work exclusively for the assessee or the consortium. He submitted, TEIL provides agency services to various entities in various countries such as Chin .....

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onship with the TEIL does not result in either a business connection under section 9(1)(i) or P.E. under the DTAA. Learned Authorised Representative submitted, in the contract between the ONGC and assessee, the scope of work of the assessee as well as Rodman Polyship has been clearly defined and divided. Assessee and Rodman Polyship have to construct the vessels in the specified proportion at their respective shipyards. The responsibility of each Member of the consortium has also been described .....

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pon by the Assessing Officer, learned Authorised Representative submitted the ruling of the AAR in the case of Schellenberg Wittmer, 253 CTR 178 is not applicable to the facts of the present case as in that case, as per Indo Spain DTAA partnership firm is not a person. Whereas, there is no such provisions in Indo UAE DTAA. As far as the AAR ruling in the case of Linde A.G. 249 ITR 172 by the AAR, the learned Authorised Representative submitted the said decision has been overruled by the Hon' .....

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s received from ONGC are not chargeable to tax in India. Learned Authorised Representative submitted, in any case of the matter, the amount received by the assessee since is not an income either under section 9(1)(i) or 9(1)(i), the receipts from ONGC are not subject to tax in India, therefore, there is no requirement for deduction of tax at source on such payments made to the assessee by the ONGC. He, therefore, submitted the order passed by the learned Commissioner (Appeals) deserves to be uph .....

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u/s 246A. 14. It is also the contention of the learned Departmental Representative that the only provision under which the order under section 195(2) can be challenged before the learned Commissioner (Appeals) is under section 248 of the Act. Before deciding the preliminary issue raised by the Department on the maintainability of the appeal filed by the assessee before the first appellate authority, it is necessary to look into some of the statutory provisions which has relevance to the issue at .....

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the non-resident considers that the whole of such sum would not be income chargeable of the recipient he can make an application to the Assessing Officer to determine by an order the appropriate portion of such sum chargeable to tax so that tax shall be deducted on such proportion of the sum determined as chargeable to tax. Sub-section (3) of section 195 also provides an option to the recipient of income to make an application in the prescribed manner to the Assessing Officer for grant of a cer .....

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we find there is no mention of an order passed under section 195(2) as an appealable order. The only provision we could locate in the Act under which an appeal is provided before the learned Commissioner (Appeals) against an order passed under section 195 is section 248. However, an appeal under section 248 can only be filed by a deductor upon fulfillment of certain conditions laid down therein. 15. Keeping the aforesaid statutory provisions in view, if we examine the facts of the present case, .....

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n of tax certificate in terms of sub-section (3) of section 195 or under section 197. Therefore, against the order passed under section 195(2) the payer / deductor i.e., ONGC could have filed an appeal under section 248 before the learned Commissioner (Appeals) provided the conditions laid down therein are fulfilled. However, no such appeal, as it appears, has been filed by the ONGC before the learned Commissioner (Appeals). On the contrary, one of the constituents i.e., Abu Dhabi Ship Building .....

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Representative appearing for the assessee that the expression an order against the assessee where the assessee denies his liability to be assessed under this Act used in clause (a) of section 246A(1) enables the assessee to file appeal against the order under section 195(2) before the learned Commissioner (Appeals). However, we are not impressed with the aforesaid contention of the learned Authorised Representative. The expression, an order against the assessee where the assessee denies his lia .....

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ainst ONGC. Moreover, the liability of the assessee to be assessed under the Act can only be determined in an assessment proceeding and not under section 195(2). Therefore, the party which could have challenged the order passed under section 195(2) before the learned CIT(A) u/s 248 is ONGC subject to fulfillment of conditions mentioned therein. Right to appeal under the Income-tax Act is a statutory right. Therefore, right to appeal does not exist unless it is specifically conferred by the statu .....

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ther manner. In the present case, facts on record indicate that after the order was passed under section 195(2) the payer / deductor i.e., ONGC has deducted tax at source on the payments made to the respondent and has remitted tax to the Government account. This is also evident from the letter dated 29th November 2012 of ONGC a copy of which is at Page-125 of the paper book. Further, at the time of hearing, we were informed by the Counsels appearing for the parties that assessment in case of the .....

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is noticed that in all these cases, the orders demanding tax or determining liability were directly against the assessee, hence, in that context, the Courts held that appeal before the learned Commissioner (Appeals) is maintainable. However, in the present case, as already stated, the order appealed against before the learned Commissioner (Appeals) was not against the assessee but against ONGC under section 195(2) of the Act. For the sake of completeness, we think it appropriate to deal in nutsh .....

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issioner (Appeals) entertaining the appeal of the assessee, allowed his claim. The Department challenged the decision of the learned Commissioner (Appeals) before the Tribunal raising the issue of maintainability of the appeal. However, the Tribunal upheld the order of the learned Commissioner (Appeals) by holding that the appeal is in respect of an order against the assessee where the assessee denies his liability to assessee under the Act. In the present case, the order passed under section 19 .....

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before the first appellate authority was passed against the assessee. 18. In the case of Shri Bhogavati Sah. Sakhar Karkhana Ltd. (supra), the issue was an order raising demand under section 206C of the Act was passed against the assessee on his failure to collect tax at source. Though, order passed under section 206C was not specifically mentioned under section 246, however, the Tribunal took a view that the expression assessee denies his liability under the Act would make the order appealable .....

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tax at source. Thus, there is neither any order against the assessee nor there is determination of chargeability to tax under the Act. 20. In case of Kanpur Coal Syndicate (supra), the issue is completely different as it dealt with power of the learned Commissioner (Appeals) or the Tribunal in disposing of the appeal. Facts of the case are, the Assessing Officer made an assessment in the name of an Association Of Persons (AOP). The said AOP filed an appeal before the learned Commissioner (Appea .....

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al had no power under the Act to direct the ITO to exercise his power in one way or other. When the matter went in reference to the High Court, the High Court held that the Appellate Tribunal has jurisdiction to give directions to appropriate authority to cancel the assessment made on the AOP and make a fresh assessment on the members of that association independently. Thus, as could be seen, the issue in the aforesaid decision was in relation to powers of the Appellate Authority. Moreover, the .....

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