TMI Blog2007 (1) TMI 198X X X X Extracts X X X X X X X X Extracts X X X X ..... Thus, respectfully following all these orders we hold that action of Assessing Officer treating the assessee in default for the remittance made prior to 31-3-1998 is barred by limitation. Accordingly we direct the Assessing Officer not to treat the assessee in default for the payments made prior to 31-3-1998. This ground is partly allowed. Since payments have been made after 31-3-1998 hence we have to decide the issue on merit also. No Objection Certificate with regard to remittance of payment of first contract - In the present case the assessee contended that it has obtained a No Objection Certificate from the Assessing Officer u/s 195(2) of the Act for remitting the payment relating to the first contract and, therefore, it believed that for making similar payment it is not necessary to approach the Assessing Officer for similar payments. If this argument is accepted then some other assessee would say that in case of 'A', Assessing Officer has permitted the remittance of payment without deducting the tax his contract is also similar to that of 'A', hence he is not obliged to approach the Assessing Officer. In that situation the very purpose of the section w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee cannot be treated in default u/s 201 of the Act because it has applied u/s 195(2) of the Income-tax Act, before the Assessing Officer prior to remitting the payment. The ld. Assessing Officer shall recompute the liability of the assessee and exclude all those amounts for which assessee has moved application u/s 195(2) of the Act and no No Objection Certificate was issued by the Assessing Officer. Hence ground No. 6 is partly allowed, whereas Ground No. 5 is rejected. Non-deduction of TDS in respect of delayed payment charges remitted for crude oil purchase - We find that ld. first appellate authority has recorded a finding of fact that assessee failed to bring any evidence on record to prove that the payments made to the aforesaid parties are in the nature or penalty charges fir delayed payment. The ld. first appellate authority further on the basis of the agreement for supply of crude oil observed that payment of interest is for delay in payment of purchase price. In this connection clause 2(c) of Part-II of the agreement with Texco International has been referred by the ld. CIT(A). Therefore, we do not find any merit in the contention of ld. counsel for the assessee. On f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al of the assessee, the Department is required to take permission from the Committee on Disputes as per the decision of Hon'ble Supreme Court in the case of Oil Natural Gas Commission v. CCE 1992 (Suppl. 11) SCC 432. It was pointed out that assessee has obtained such permission for prosecuting its appeal before the Tribunal, however, ld. DR expressed his inability to inform whether such permission was granted to the revenue or not. According to his information the Department has applied for the permission but he is not possessing any information whether such permission was granted or rejected by the COD. We find that number of opportunities were given to the Department for ascertaining information, however, the department failed to supply the information. Due to this reason the appeals of the assessee also could not be taken for hearing. In view of the above we deem it appropriate to dismiss the appeal of the revenue for want of COD approval subject to the conditions that in case department is able to get such approval then it will be at liberty to approach the Tribunal for revival of its appeals. On such application the appeals of the department would be revived. Hence, both ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aggregating to Rs. 5,57,62,342 have also been made to non-residents. These have also been noticed by the DDIT in Annexures - D and E at pages 33 and 34. In view of this a show cause notice under section 201 of the Income-tax Act was issued on 11-9-2002 asking the assessee as to why the payments on account of offshore designs and drawings should not be taxed as royalty. It emerges out that this notice was, challenged in a writ petition before the Hon'ble High Court and subsequently one more show cause notice was issued on 11-10-2002 which was served on 14-10-2002. Vide this show-cause notice assessee was asked to submit the details of payment made to non-residents from 1993 onwards on which no TDS was deducted along with the reasons for non-deduction. 5. In response to the show-cause notice assessee had submitted a detailed reply on 25-11-2002. In its reply, the assessee has contended that DDIT, Mumbai has no jurisdiction over the assessee to pass an order under section 201 and, therefore, he should drop the proceedings. The ld. Assessing Officer by way of a well reasoned order rejected this contention of the assessee. On appeal ld. first appellate authority again re-apprecia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of the Act six years period is provided for re-opening of any assessment. On the basis of this ld. CIT(A) concluded that the DDIT has passed the order under section 201/201A on 30-12-2002. She directed the DDIT that assessee should not be held in default in respect of any remittance made by it prior to 31-3-1996. 10. The assessee in the present appeals has raised Ground No. 2 on the issue of limitation, i.e., whether an order under section 201 can be passed within a period of six years from the end of relevant P.Y. as held by ld. CIT(A) or it should have been restricted to 4 years on the basis of the Tribunal's decision passed in Raymond Woollen Mills's decision. 11. The ld. counsel for the assessee while impugning the order of ld. CIT(A) contended that ITAT in the case of Raymond Woollen Mills has examined this issue from all possible angles and after a detailed discussion has held that at the most Assessing Officer can pass order under section 201 within four years from the end of relevant P.Y. The ld. counsel for the assessee took us through the order of the ITAT and further contended that this decision has been followed by the Tribunal in a recent orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ltural Income-tax Act, 1950. However, the ratio is equally applicable under the Income-tax Act. The Hon'ble Kerala High Court came to the said conclusion on the basis of the general principle of law that it is trite law that statutory powers must be exercised bona fide, reasonably, without negligence, and for the purpose for which they were conferred. In following the said principle, the Hon'ble High Court also referred to the decision of the Hon'ble Supreme Court in the case of State of Gujarat v. Patel Raghav Natha AIR 1969 SC 1297 and S.B. Gurbaksh Singh v. Union of India AIR 1976 SC 1115; (1976) 37 STC 424 (SC), where the Supreme Court held that for the exercise of suo motu power of revision, the revisional authority should initiate proceedings within a reasonable time even in the absence of a 'time-limit' prescribed by the statute. The Hon'ble Bombay High Court considered the question of 'reasonable time' in the context of surtax assessment where there is no time-limit prescribed for completion of assessment in the case of Indian Hume Pipe Co. Ltd. In that case, the Hon'ble High Court held that the surtax assessment completed within less tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In holding that a period of 4 years constitute a reasonable time, we take into account the various periods of limitation highlighted above which ranges from 2 to 4 years except in exceptional cases. We also hold that the intention of the Parliament not to put a specific bar of limitation is not to give licence to the Assessment Officer to hold the assessee to ransom for all time to come but to ensure that all pre-assessment taxes are collected promptly and such proceedings are finalised much before taking up the regular assessment proceedings. This order of the Tribunal was passed on 1-12-1995 and still holding the field on the issue. It is followed recently in the case of Workhardt Life Science Ltd. by ITAT Mumbai. From the order of Workhardt Life Science Ltd. it reveals that ITAT Delhi has also followed the Raymond Woollen Mills order in the case of Sahara Airlines v. Dy. CIT [2002] 83 ITD 11 (Delhi). In the case of Indian Rayon in ITA No. 2479/M/2000 for assessment year 199495. ITAT, Mumbai again followed the order of M/s. Raymond Woollen Mills and held that an order under section 201 ought to be passed within 4 years. Thus respectfully following all these orders we hold t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . We have duly considered the rival contentions and gone through the record carefully. Section 195 nowhere provides that any assessee would himself harbour the belief that payment made by him does not involve element of income chargeable to tax. It is the Assessing Officer only who can permit an assessee to make the payment without deducting tax under sub-section (2) of section 195. If discretion of the Assessing Officer is extended to the asses sees as propounded by the ld. counsel for the assessee then there would be no end. In the present case the assessee contended that it has obtained a No Objection Certificate from the Assessing Officer under section 195(2) of the Act for remitting the payment relating to the first contract and, therefore, it believed that for making similar payment it is not necessary to approach the Assessing Officer for similar payments. If this argument is accepted then some other assessee would say that in case of 'A', Assessing Officer has permitted the remittance of payment without deducting the tax his contract is also similar to that of 'A', hence he is not obliged to approach the Assessing Officer. In that situation the very purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edded therein. If so, taxis required to be deducted on the said sum, what would be the income is to be computed on the basis of various provisions of the Act including provisions for computation of the business income, if the payment is a trade receipt. However, what is to be deducted is income-tax payable thereon at the rates in force. Under the Act, total income for the previous year would become chargeable to tax under section 4. Sub-section (2) of section 4, inter alia, provides that in respect of income chargeable under sub-section (1), income-tax shall be deducted at source where it is so deductible under any provision of the Act. If the sum that is to be paid to the non-resident is chargeable to tax, tax is required to be deducted. The sum which is to be paid may be income out of different heads of income provided under section 14 of the Act, that is to say, income from salaries, income from house property, profits and gains of business or profession, capital gains and income from other sources. The scheme of tax deduction at source applies not only to the amount paid which wholly bears 'income' character such as salaries, dividends, interest on securities, etc., but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Tribunal. 12. The above provisions contained in sub-sections (1), (2) and (3) of section 195 are closely inter-connected and are complementary to each other and, therefore, have to be read together and as a whole. The duty to deduct tax under section 195(1) is an essential liability cast by statute on a person who is making payments to non-residents. A person responsible for making payments to a nonresident, other than interest on securities and income chargeable under the head 'Salaries' has necessarily to examine the liability to deduct tax at source. He has to satisfy himself that the payments made by him are not such sums which are chargeable under the provisions of the Income-tax Act. The liability to deduct tax at source arises only in the case of such payments where those payments are in the nature of income chargeable under the Income-tax Act. The provisions of section 195(1) may create an avoidable inconvenience in such cases where the payments made by a person are not such amounts which are chargeable to income-tax. It is in order to avoid such inconvenience to a person that sub-section (2) of section 195 has been provided. Where the person making such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned within the authoritative proposition propounded by the Hon'ble Supreme Court. It is to be seen whether assessee has deducted the tax at the time of making of the payment. If assessee is able to demonstrate at that point of time that recipient has paid the tax on the remittance only then it could argue that assessee cannot be treated in default. It is for the assessee to demonstrate that on the remittance the tax has already been paid. It is not the duty of the Assessing Officer to ascertain these facts and then adjudicate the dispute. As far as arguments of ld. counsel for the assessee based on the decision of Hon'ble M.P. High Court is concerned we find that in the case of Hon'ble M.P. High Court the employer has deducted the tax under section 192 from the salary according to his honest estimate. Section 192 authorizes the deductor to make a fair and honest estimate of the salary income while deducting the tax. There the argument can be raised whether the estimate is bona fide and reasonable. Because the discretion of estimating the income vests in the deductor. But in section 195 no such discretion vests in the deductor. The ld. Assessing Officer while passing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter getting approval from Finance Ministry for availing foreign currency loan for import of capital goods, design and drawings. Thus, the payments made by the assessee are for the purchase of capital goods, they cannot be held as payment made for consultancy services. 22. The ld. counsel for the assessee submitted that the payment made to Toyo are not chargeable to tax. It is made just for supply of equipments. The Jd. counsel for the assessee contended that the design and other information received by the assessee was not with a view to enable it to commence the manufacturing of the equipment itself with the aid of such designs and information. Rather, the limited purpose of the design and drawing is only to get the Refinery installed. Thus the payment made by the assessee was for the construction of the Refinery which include the designs and drawings. If it is considered a consolidated contract for the construction of the Refinery then exclusion provided in Explanation 2 to section 9(1)(vii) would come to the rescue of assessee enabling it to argue that the payments made to Toyo is not chargeable to tax, hence assessee is not supposed to deduct the TDS. In support of his conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... signs and drawings based on basic designs and drawings provided by the assessee. Thus the different clauses of the agreement do indicate that the scope of work of Toyo Engineering is that of rendering services to the assessee and not that of supply of designs and drawings as propounded by the assessee. The ld. revenue authorities below have dealt with this issue in detail and ld. CIT(A) has rightly construed the scope of FECS work and services from the terms of the contract and rightly held that it amounts to rendering of services. The case of assessee does not fall under the exclusion provided in Explanation 2 to section 9(1)(vii) of the Act. Apart from all these things as observed earlier an order passed under section 201 read with section 195 is a tentative order subject to regular assessment. The Assessing Officer has to see prima facie whether any element of income chargeable to tax under section 4 is involved in the amounts paid to the non-resident. If that be so, assessee then deduct TDS before making the payment. Whether such receipts are actually taxable or not and to which extent element of income is involved in such payment is the issue which can be agitated in the regul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer. Hence ground No. 6 is partly allowed, whereas Ground No. 5 is rejected. 25. Ground No. 7.-The grievance of assessee in this ground relates to grossing up the tax rate by applying provisions of section 195A of the Act. At the time of hearing ld. counsel for the assessee contended that is consequential in nature, hence it is rejected. 26. Ground No. 8.-In this ground grievance of the assessee is that ld. CIT(A) has erred in upholding the action of DDIT of passing order under section 201 for alleged non-deduction of TDS in respect of certain miscellaneous remittance aggregating to Rs. 10,33,793. In Annexure-E appended with the impugned order passed under section 201 the ld. Assessing Officer considered certain miscellaneous payment upon which no TDS was deducted by the assessee. These payments read as under:- (1) Niigata Engineering Co., Japan Rs. 4,73,962 (2) Niigata Engineering Co., Japal Rs. 4,06,166 (3) Core Laboratry Inc., Jersey Rs. 1,53,665 Total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment shall not be regarded as interest for the purpose of this Article. He pointed out that as far as the definition of interest provided under section 2(28) is concerned that definition could not be applied upon the assessee in view of sub-section (2) of section 90 of the Income-tax Act because the provisions of the Act shall apply to the extent they are more beneficial to the assessee. In view of the above he pointed out that the penalty charges paid by the assessee cannot be equated with interest and assessee cannot be treated in default for non-deduction of TDS while making the payment of such penalty charges. On the other hand, ld. D.R. relied upon the orders of revenue authorities below. He emphasized that late payment charges are nothing but the interest paid by the assessee on delay in payment of cost of crude oil. 31. We have duly considered the rival contentions and gone through the record carefully. We find that ld. first appellate authority has recorded a finding of fact that assessee failed to bring any evidence on record to prove that the payments made to the aforesaid parties are in the nature or penalty charges fir delayed payment. The ld. first appellate auth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account of credit facility availed of by it for the purchase of the ships. Therefore, he raised queries by letter dated 2-1-1998, inquiring as to whether tax was deducted at source on such interest payments and if it was not so deducted, then calling upon them to show as to why the provision of section 40(a)(i) of the Income-tax Act, 1961 ('the Act' for short), should not be invoked in the assessee's case and why the entire interest paid outside India should not be disallowed in the course of assessment. After considering the submissions made by the assessee and the material on record, the Assessing Officer negatived the contention of the assessee that both the principal amount of the purchase price of the ship and the interest amount paid on the usance credit constituted the purchase price of the ship. It was held that the purchase price of the ship was separately mentioned in the MOA and that the usance interest amount which was also separately mentioned was not part of the purchase price. The officer held that any other view would be illogical because if the contention of the assessee is to be accepted, then it would lead to a situation where as soon as the delivery ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rest' in para 3 of article 11 of the Model Convention, which is the definition adopted in the DTAAs between India on the one side and the U.K. and Singapore and other countries on the other, the OECD Commentary in para 11 C.21 records that the definition of 'interest' is, in principle, exhaustive and covers practically all the kinds of income which are regarded as interest in the various domestic laws and that the formula employed offers greater security from the legal point of view and ensures that Conventions would be unaffected by future changes in any countries in domestic law. The expression 'debt claims of every kind' cannot, therefore, be whittled down to mere debt claim in the form of loans. The addition of the words 'including interest on deferred payment of sales', in parentheses after the words 'debt claim of every kind' in the DTAAs with Indonesia or the words to the same effect in the DTAA with Philippines, is, in our view, only explanatory and makes explicit what is implicit in the phrase 'debt claims of every kind', to prevent unnecessary arguments of the type raised by these asses sees. Even the Model Convention did not co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or this payment also. 36. We summarize the result as under:- (i) The action of Assessing Officer for treating the assessee in default for the payments made prior to 31-3-1998 are barred by limitation as provided in the case of Raymond Woollen Mills, therefore, assessee should not be treated in default qua those payments and necessary relief be granted to the assessee. (ii) The payments made after moving an application under section 195(2) and on issuance of Certificate of No Objection by the Assessing Officer the assessee should not be treated in default. The ld. Assessing Officer shall carry out this exercise afresh and exclude all those payments for which No Objection Certificates were issued while holding the assessee in default. (iii) With regard to payment made to Core Laboratories, i.e., an amount of Rs. 1,53,665, ld. Assessing Officer shall re-decide this issue in the light of Tribunal's decision rendered in the case of McKinsey Co. Inc. (Philippines). (iv) Except the above modification we uphold the order of ld. CIT(A). (v) As far as the appeal relating to charging of interest under section 201(1A), it is consequential in nature and after carrying ou ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
