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TMI Blog2019 (12) TMI 1212X X X X Extracts X X X X X X X X Extracts X X X X ..... r to grant a certificate authorizing the aforesaid deductor to make payments to the petitioner without deducting tax at source. Brief facts 2. Briefly stated, the facts leading to the filing of the instant writ petition are that the petitioner- National Petroleum Construction Company is incorporated and existing under the laws of United Arab Emirates (UAE). Therefore, the provisions of the agreement for avoidance of double tax between India and UAE (DTAA) apply in determining the taxable income of the petitioner. The principal activities of the Petitioner comprise of fabrication and installation of onshore and offshore oil facilities and submarine pipelines and pipelines coating. 3. Petitioner entered into a Contract No. MR/ES/MM/LEWPP (TENDER3)/01/P85 1 C 1600 1/20 16 dated September 30, 20 16 ('LEWPP Contract') and Contract No. MR/ES/MM/R-SERIES (Tender No. 07P85 1 C 17005120 1719030008323) dated February 07, 201 8 ('the R -Series Contract') , with ONGC for carrying out work of project management, survey, design, engineering, procurement, fabrication, transportation, removal/replacement of existing topside decks, hookup, testing, and commissioning (only for LEW ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... LEWPP are similar to the aforementioned 4WPP and C-Series contracts, and has given comparative analysis to depict the similarities in the scope of work and bifurcation of the price for each platform viz. inside and outside India. 7. Petitioner also draws strength from the order passed by this Court dated 09.05.2017 for AY- 2017-18, whereby a direction was issued to Tax Department to issue a fresh certificate under Section 197 (1) of the Act, accepting the alternative plea of the petitioner, without prejudice to its right to contest the said deduction in accordance with law. In the said order, the Court directed that ONGC would deduct tax @4% + surcharge + education cess of the revenues in respect of only inside India activities. The Tax department has since issued the certificate under Section 197 of the Act @ 4% on activities inside India, and 'NIL' on outside India, for LEWPP contracts as well as R- series contracts for AY-2019-2020. 8. Petitioner argues that considering that R-series and LEWPP contracts, relevant to the Assessment Year in question, are identical to the contracts considered by this Court in its decision pertaining to petitioner's own case for AY-2007-08, 2008-0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal appeals for these years are pending before Hon'ble Apex Court. 7. Accordingly, following the decision of Hon'ble Delhi High Court order dated 09.05.2017 in W.P.(C) 2117/2017 & CM No. 9268/2017, certificate u/s 197 for F.Y. 2016-17 was issued @ 4% (excluding surcharge and cess) for inside India Revenue and @ 0% for outside India Revenue. Further for F.Y. 2017-18 as well as F.Y. 2018-19, certificate was issued accordance with order of Hon'ble Delhi High Court dated 09.05.2017 for both the contracts under consideration i.e. for LEWPP and R-Series contracts. In view of the above, if approved, certificate u/s 197 may be issued to @ 2.65 % on the payment mentioned above i.e. INR 5562942700. Such certificate would be provisional in nature and subject to final assessment. File is put up for kind perusal and approval please. Sd/- ITI 16/05/2019 DCIT, Circle-2(2)(2), (Intl. Tax.), New Delhi Pl. verify what is the basis of offshore & onshore revenue breakup and how the estimated cost c is arrived at. Also verify from applicant on how the onshore supply /services provided? ITI The above queries were raised before the applicant through online TDS Tracer portal against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 44BB & taxed accordingly. The outstanding demand of Rs. 35.88 cr. is currently reduced to Rs. 2,67 crores out of which Rs. 2.63 crores pertains to AY 2017-18, which is under scrutiny for assessment. Submitted for kind perusal & necessary directions. Sd/- 11/06/2019 Addtl. CIT Range 2(2)IT Delhi n/5 National Petroleum Construction Co.(197) Applicant preferred WP(C) 2117/2017 against 197 certificated dtd. 30th Sept, 2016 31st Jan, 2017 cost ---- with ONGC dated 30th September, 2016. The certificate u/s 197 dtd. 31st Jan, 2017 was issued @ 4% plus education cess and surcharge. Hon'ble Delhi High Court while deciding writ petition ruled upon its judgment in applicant's case for AY 2007-08 and 2008-09 wherein wrt similar contracts with NPCC and ONCG, court held that NPCC did not constitute PE U/A 5(3)(e) rws 5(2)(c) and 5(1) of DTAA. Court also held that installation PE was also not formed since installation activity in India was less than 9 months threshold. The court also held that there is no distinguishing feature of present contracts visà-vis previous contracts. The contracts under consideration have been entered in to by applicant in Feb 18 & Sept 16. Please ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s considered at UAE location. Pl verify above from client through TRACES. Sd/- 20.06.19 DCIT circle 2(2)(2) IT-2 The applicant has furnished its reply. In its reply dated 13/06/2016, the it has stated in its comparative analysis that commissioning activities were undertaken. While in its reply dated 22/06/2016 it has stated that the commissioning work was not applicable for R-Series contract thus making contradictory statements. The LEWPP contract is dated Sep'2016 & R-Series contract is dated Feb'2018 and since the contracts are different from previous years, the question of whether the applicant constitutes PE requires exhaustive information and not feasible to verify at 197 application stage considering paucity of time and applicant's request. In its reply, the applicant has further requested to issue certificate @4% plus applicable surcharge and cess for the entire contractual revenues which is in line with recently concluded assessment proceeding for AY 2016-17 where revenues were charged v/s 44BB of Act. Submitted for kind perusal and necessary direction please. Sd/- 24.06.19 Addtl. UIT Range 2(2) IT Delhi The agreements under consideration are different from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n by the petitioner in prior years. Petitioner carried out commissioning activities under each of the prior ONGC contracts, including LEWPP contracts, and the appellate forums have ruled in favour of the petitioner that outside India revenues are not taxable in India. Thus, if lesser activities are undertaken in R-series contracts, in comparison to previous contracts, it is beyond imagination as to how Respondents perceive that outside India revenues are liable to be taxed in India. 13. Mr. Singh further submitted that Section195 of the Act provides for tax withholding on "any other sum chargeable" under the Act in case of non- resident. Thus, only in respect of the sum which is chargeable to tax as per the provisions of the Act, there is an obligation on the payer to deduct the taxes. The action of the respondents is a blatant disregard of judicial discipline by not following the earlier decisions. Besides, such an action will cause financial hardship to the petitioner as it would block the funds and cause other serious prejudice. Contentions of the Respondent 14. Mr. Raghvendra K. Singh, learned senior standing counsel for the respondents on the other hand argued that there we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India, judicial review is directed not against the decision, but the decision making process, as reiterated in the recent judgment of the Supreme Court in Sarvepalli Ramaiah (dead) as per legal representatives and Ors. v. District Collector, Chittor District and Ors. (2019) 4 Supreme Court Cases 500, relevant portion whereof is reproduced as under: "40. Administrative decisions are subject to judicial review under Article 226 of the Constitution, only on grounds of perversity, patent illegality, irrationality, want of power to take the decision and procedural irregularity. Except on these grounds administrative decisions are not interfered with, in exercise of the extra ordinary power of judicial review. xxxxxx 43. Judicial review under Article 226 is directed, not against the decision, but the decision making process. Of course, a patent illegality and/or error apparent on the face of the decision, which goes to the root of the decision, may vitiate the decision making process. In this case there is no such patent illegality or apparent error. In exercise of power under Article 226, the Court does not sit in appeal over the decision impugned, nor does it adjudicate hotly di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equence would not arise. At the same time, the certificate under Section 197 of the Act for deduction of tax at lower rate or nil rate, also benefits the Assessee, who would be entitled to receive full payment from the payer without deduction. 21. Explanation 2 to Section 195, inserted vide Finance Act 2012 clarifies that the obligation to comply with Sub-Section (1) to make deductions applies to non-residents, irrespective of whether such non-resident has residence, or place of business, or business connection in India, or any other presence in any manner whatsoever in India. The said Explanation inserted vide Finance Act, 2012 w.r.e.f. from 01.04.1962, read as under: "Explanation 2.-For the removal of doubts, it is hereby clarified that the obligation to comply with sub-section (1) and to make deduction thereunder applies and shall be deemed to have always applied and extends and shall be deemed to have always extended to all persons, resident or non-resident, whether or not the non-resident person has- (i) a residence or place of business or business connection in India; or (ii) any other presence in any manner whatsoever in India." 22. The purpose of the aforesaid Expla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been held to have a Permanent Establishment (PE) in India, and its total income from the contracts with ONGC have been held to be taxable under the IT Act. Section 44BB of the Act is applied, and 10% of the contractual receipts were considered as business profits. The rate of tax being 40%, a certificate was, accordingly, issued @ 4%. For the other assessment years as well, assessment has been completed and appeal is pending before the appellate authorities. The Petitioner, obviously, disputes the finding of the Respondent as erroneous and misplaced, on the ground that for AY- 2015-16, the first appellate authority-following the decision of this Court in petitioner's own case, has held that the petitioner has no PE in India. Be that as it may, for AY-2016-17 and 2017-18, this question has been determined against the petitioner. It is well-settled proposition that in tax jurisprudence, the principle of res judicata is not applicable to income tax proceedings. "In matters of recurring annual tax a decision on appeal with regard to one year's assessment is said not to deal with eadem questio as that which arises in respect of an assessment for another year and consequently not to s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 30.09.2016 would have to be taken into consideration. Concededly, this Court in its decision dated 09.05.2017 did not have the occasion to consider the R-series contract dated 07.02.2018. The Court only considered the contract dated 30.09.2016 as noted in para -1 of the said decision. There is thus, a distinguishing feature - the R-series contract has not been considered by this Court in its order dated 09.05.2017. Moreover, in the instant case, the reasons record that the two contracts are indivisible, and the petitioner cannot divide the contractual receipts in two categories viz. inside India and Outside India services. The installation PE will come into existence, if "project or activity continues for a period of more than 9 months" under Indo-UAE DTAA. This question of fact will have to be determined separately for each assessment year, and we are informed that for AY-2016-17 and AY-2017-18, the determination is presently against the petitioner. We cannot accept the petitioner's contention that the assessment proceedings for the AYs 2007-08, 2008-09 and 2009-10 have already determined this question in favour of the petitioner and there is no change in any circumstances. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SC) and Hyundai Heavy Industries: [2007] 291 ITR 482 (SC), which do not appear to be applicable to the facts of the present case. In Ishikawajima (supra), the Supreme Court held that for a non-resident entity to be taxed in India, it should carry on business through a permanent establishment in India, and income taxed is on the basis of extent appropriate to the part played by permanent establishment in those transactions, and that only such part of the income, as is attributable to the operations carried out in India can be taxed in India. In the said case, a clear distinction could be identified between onshore and offshore activities. In the present case, the respondents contend that no such distinction is clearly identifiable from the contracts in question. Further, the said cases (Ishikawajima (supra) and Hyundai heavy Industries (supra)) relate to assessment proceedings, whereas, in the present case, we are concerned with proceedings for grant of certificate under section 197. The scope of enquiry and investigation in both these proceedings is different, especially after the introduction of Explanation 2 to section 195 and at the stage of section 197 proceedings, the question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to offer a concession to have the certificate at the tax rate of 4% plus applicable surcharge and cess for the entire contractual revenues, which is in line with the recently concluded assessment proceedings for AY 2016-17 in Applicant's own case, where pour goodself concluded that the entire contractual revenues were chargeable to tax under section 44BB of the Act at an effective tax rate of 4% plus applicable surcharge and cess." 32. Petitioner contends that the aforesaid concession was made "without prejudice to its legal position", and cannot deprive the petitioner to contest the legal position. However, we cannot ignore the fact that Petitioner took categorical stand and prevailed upon the revenue to accept the declaration made in the said communication. Although the declaration was qualified, yet, since the petitioner requested the respondent to deduct the tax @ 4%+applicable surcharge & cess for the entire contractual revenues, revenue was justified in accepting the same and the petitioner cannot be permitted to resile there from, once the department has accepted petitioner's proposal. 33. Needless to say, the opinion expressed in this judgment is only a tentative vi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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