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TMI Blog2017 (9) TMI 53X X X X Extracts X X X X X X X X Extracts X X X X ..... Company, Axis Bank, which is an Indian Bank, Lloyds Bank, an international Bank incorporated in U.K. and Royal Bank of Scotland (RBS), another international Bank incorporated under U.K. laws. These three appeals are filed by RBS, Lloyds Bank and Axis Bank in which other parties are impleaded as respondents. Therefore, for the sake of clarity and to avoid confusion, it would be apt to refer these parties by their aforesaid names, rather than addressing them as appellants or respondents. 3) Though the nature of grievances of the three appellants in these three appeals is different, the root cause thereof is the same. The issues raised in these appeals have arisen as a result of income tax liability which was disputed by the FOWC (or, for that matter, by Jaypee as well, albeit at the behest of FOWC) in respect of income earned by FOWC in India for conducting Formula One races in India, as a result of contractual arrangement between FOWC and Jaypee. Though, it was disputed by FOWC as well as Jaypee that the income generated for conducting such races is not exigible to tax in India because of the provisions contained in Double Taxation Avoidance Agreement (DTAA) between India and U.K., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment Order, RBI by its letter dated April 2, 2014, inter alia, directed the Axis Bank not to make any remittance of money to FOWC without the approval of the Tax Department. 7) It may be mentioned that on April 30, 2014, one LC (for USD 15,450,000) was to expire. The same was invoked by FOWC on RBS. RBS made the payment to FOWC and, in turn, claimed reimbursement from the Axis Bank with value date of May 7, 2014. 8) As per Axis Bank, it resulted in two conflicting demands faced by it. By its letter dated May 5, 2014, the Axis Bank wrote to RBI, inter alia, highlighting various issues regarding the LCs and its obligations therein and also the fact that its failure to honour the invocation thereof by RBS would undermine the international reputation of the Bank in banking circles, and further requested RBI to permit the Bank to make the payment under the LCs. RBI, however, did not issue any communication permitting the Bank to do so. 9) By a letter dated May 6, 2014, the U.K. Solicitors for Lloyds Bank replied to the Axis Bank's letter dated April 5, 2014, and contended that the order dated March 10, 2014 did not apply to the Axis Bank's obligation to make payment under the LCs. By ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Delhi High Court passed the order dated October 7, 2016 restraining FOWC from drawing up the LCs which order remained operative till the writs were decided by the High Court on November 30, 2016. After the decision in the writ petition by the High Court, Axis Bank was served with a letter from the Tax Department referring to the judgment of the High Court in which the Axis Bank was directed to have the drawing of LCs restricted to the extent of the liability of Jaypee to deduct Tax Deducted at Source (TDS) of FOWC. Similar communications were addressed by the Income Tax Department to RBS and Lloyds Bank as well. Axis Bank informed RBS as well as Lloyds Bank about the aforesaid communication from the Income Tax Department. Essence of these letters was that the Delhi High Court had concluded that FOWC is liable to pay tax on the payments which it had received from the Jaypee under the RPC and, therefore, amount to the extent of said liability had to be secured inasmuch as while making the payments, Jaypee had not deducted the tax at source which was, otherwise, its obligation under the Act. 14) Fearing that FOWC may not get at least part of the amount under the LCs in view of tax l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7) While the aforesaid developments were taking place in the High Court of Delhi, another litigation chapter was opened in the Bombay High Court. 18) As noted above, the Conforming Banks had made payment to FOWC in terms of LCs and these Banks were pressing upon the Axis Bank to honour its commitment as those LCs were opened at the instance of the Axis Bank. Since the payment was not made by the Axis Bank in view of the Attachment Orders passed by the Income Tax Department, the Axis Bank filed Commercial Suit (L) No. 292 of 2016 (re-numbered as Commercial Suit No. 8 of 2017) seeking declaration to the effect that Axis Bank was prevented from making payment under the LCs and/or was not obliged to make such payments and the payments in respect of the LCs by the said Banks to FOWC was wrongful or illegal etc. Some other prayers of similar nature were also made. This suit was filed on December 13, 2016 and along with that Notice of Motion was taken for emergent interim prayers. In the said Notice of Motion (L) No. 233 of 2016 (re-numbered as 10 of 2016), the order dated December 14, 2016 was passed by Bombay High Court inter alia restraining the Confirming Banks from taking any coerci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Confirming Banks at the instance of Axis Bank. However, at the same time, due to attachment orders dated December 1, 2016, Axis Bank is precluded from making this payment. 23) The position that emerges from the above is that, on the one hand, Axis Bank is supposed to make the payment for the Confirming Banks and, on the other hand, the amount under attachment orders has to be secured thereby protecting the interests of the Revenue as well. 24) There is only one methodology which can be adopted in breaking this impasse or deadlock viz. to direct FOWC to secure the amount. After all, this stalemate is the creation of FOWC. Even when judgment of the Delhi High Court had come on December 21, 2016 fastening liability of income tax on the income generated by FOWC, FOWC tried to play smart by invoking the LCs. This was done by FOWC even after it was made aware of the attachment orders dated December 1, 2016 passed under Section 281B of the Act. No doubt, FOWC had challenged the orders of the High Court by filing special leave petition in this Court. Such a challenge was laid by Jaypee as well. Least that was expected of FOWC was to await the decision of this Court and act thereafte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the Income Tax Department that after the judgment rendered by the High Court, draft assessment order in case of FOWC was passed on January 27, 2017 determining the tax liability of Rs. 215,64,70,016/- (USD 31,690,890). FOWC filed objections before the Dispute Resolution Panel on February 28, 2017 and the said proceedings are still pending adjudication. The details of draft assessment orders are as under: FOWC Draft Assessment Orders for the A.Y. 2012-13, 2013-14 and 2014-15 Date of Orders 27.01.2017 Date of Service of Draft Assessment orders 28.01.2017 Date of objections filed by the assessee (FOWC) in DRP 27.02.2017 27) If the income proposed to be assessed in the draft assessment orders are accepted by the assessee or the Draft Resolution Panel, the income of the assessee and the tax thereon would be as under: S. No. Assessment Year Proposed Income Proposed Tax + surcharge + Interest (in Rs.) Proposed Tax + surcharge + Interest (In USD) 1 2012-13 123,13,60,140/- 90,40,44,912/- 13,285,595/- 2 2013-14 88,37,92,350/- 60,08,02,039/- 8,829,221/- 3 2014-15 104,19,03,410/- 65,16,23,065/- 9,576,073 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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