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TMI Blog2024 (9) TMI 1128X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 9593/2022. The petitioner is a foreign company incorporated under the laws of the United States and is a U.S. tax resident. It had, for the Assessment Years AYs in question, entered into independent contracts with various customers for the supply of spare parts from outside India. It was its case that it had no Permanent Establishment PE and that the revenue earned from the aforenoted supplies would not be taxable in India. 3. For AYs 2001-02 to 2008-09, various assessment orders came to be framed holding that the petitioner had a PE in India. Applying the provisions of Section 44BB and 44BBB, deemed profitability of 10% of the gross receipts from the supply of spares and offshore repairs was assumed by the respondents and 35% of such profits was held as attributable to the PE in India. 4. On the basis of the aforenoted assessments, it is averred that the respondents, starting from Financial Year FY 2010-11 up to FY 2020- 21, had granted a lower with holding tax certificate at the rate of 1.5% of the gross receipts. However, while dealing with cases pertaining to AYs 2001-02 to 2008-09, the Income Tax Appellate Tribunal ITAT in terms of its order dated 27 January 2017 held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if the rate of attribution of profits to the PE in India is pegged at 26%, then the withholding rate of tax cannot exceed 1.04% 2.3. It is, therefore, Mr Jolly‟s contention that the conclusion reached, via the impugned order, by the AO that the withholding rate of tax should be 4%, is completely unsustainable. It is Mr Jolly's contention that this aspect of the matter has not been dealt with by the AO in the impugned order. 2.4. Furthermore, Mr Jolly says that the view taken by the AO that the petitioners have artificially split their contracts with various entities in India cannot improve the cause of the respondents/revenue, for the reason that those entities have already paid the requisite tax demanded of them. 3. On the other hand, Mr Puneet Rai, who appears on behalf of the respondents/revenue, has relied upon the impugned order(s) i.e., order(s) dated 23.09.2021, to support his contention that the conclusion reached by the AO is valid and legally tenable. 3.1. Mr Rai, however, cannot but accept the fact that in the earlier proceedings, to which we have made a reference above, the profitability attributed to the PE, said to be located in India, and connected to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot only made a prayer that the impugned order/certificate be set a side, but has also sought a direction that the certificate ought to have been issued at "nil" rate. 4. Besides this, the petitioner sought an alternative prayer, which is, that it would be willing to withhold tax at the rate of 1.5% during the pendency of the writ petition. This, admittedly, was the rate of withholding tax for the period spanning between Financial Year (FY) 2018-19 and 2020-21. 5. We may also note that in FY 2021-22, the rate of withholding tax was fixed at 4%. 6. The petitioner had instituted a writ petition in this Court i.e., W.P.(C) 13188/2021, to assail the tax rate in the withholding certificate/order issued for 2021-2022, which was disposed of via order dated 25.03.2022, where in the following was recorded: Xxx xxx xxx 7. Mr Sachit Jolly, who appears on behalf of the petitioner, contends that the aforementioned directions have not been followed while issuing the impugned order/certificate. 8. One of the aspects which has come to fore, is the ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to the revenue to file counter-affidavit (s) in the above-captioned matters, it has failed to comply. 16.1 In W.P.(C) 9593/2022, the order to this effect was passed on 24.06.2022. Like wise, in W.P.(C) 10055/2022 via order dated 05.07.2022, time was granted to the revenue to file a counter- affidavit. 17. Since a request is made on behalf of the counsels for the revenue to grant further time to file counter-affidavits in the above- captioned matters, the same is acceded to. 17.1. The counter-affidavits will be filed by the revenue within the next four weeks. 17.2. Rejoinder there to, if any, be filed before the next date of hearing. 18. However, in the interregnum, we are inclined to direct as follows: the petitioner will receive income from the concerned remitters after imposition of withholding tax at the rate of 1.5%; with the caveat, that if the petitioner were to fail in the aforementioned writ actions, the balance amount calculated at the differential rate of 2.5% will be deposited with the revenue post- haste. ...................". 9. Pursuant to the aforesaid interim direction, the petitioner has received remittances with a withholding tax at the rate of 1.5% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the India-USA DTAA. From the facts of the case, there is no doubt that the assessee has a "business connection" under section 9(1)(i) of the Act and have a PE' under the provisions of Art. 5(2) of the India-USA DTAA." 13. Notwithstanding the authority having noticed the profit attribution rate, it proceeded to frame a with holding tax rate of 4%. Since the factum of the with holding tax rate not exceeding 1.04%, when computed alongside the profit attribution rate of 26%, was not seriously questioned, we find ourselves unable to sustain the order impugned. 14. We accordingly allow the writ petitions and quash the impugned order dated 13 May 2022. However, we hold that the decision taken for FYs 2022-23 and 2023-24, which forms the subject matter of the instant writ petitions, shall consequently not be treated as a precedent for subsequent years. The withholding tax rate question for any other year which may be pending would have to be decided independently. 15. We further observe that since the orders impugned before us stood restricted to an adjudication under Section 197 of the Act alone, all rights and contentions of respective parties on merits are kept open to be address ..... X X X X Extracts X X X X X X X X Extracts X X X X
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