Delhi High Court - Orders
Ge Energy Parts Inc vs Income Tax Officer Ward 1(3)(2), ... on 28 July, 2022
Author: Rajiv Shakdher
Bench: Rajiv Shakdher
$~59 & 60
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ W.P.(C) 9593/2022 & CM no.28640/2022
GE ENERGY PARTS INC ......Petitioner
versus
INCOME TAX OFFICER WARD 1(3)(2), INTERNATIONAL
TAXATION & ORS. ......Respondents
+ W.P.(C) 10055/2022 & CM no.29277/2022
GE GLOBAL PARTS AND PRODUCTS GMBH ......Petitioner
versus
INCOME TAX OFFICER WARD 1(3)(2) INTERNATIONAL
TAXATION & ORS. ......Respondents
Counsel for the petitioner: Mr Sachit Jolly with, Mr Rohit Garg, Ms
Disha Jham and Mr Sohum Dua, Advs.
Counsel for the respondents: Mr Sunil Agarwal and Mr Puneet Rai,
Senior Standing Counsel with Mr Tushar
Gupta, Mr Uthkarsh Tiwari and Ms
Adeeba Mujhahid, Advs. for Revenue.
CORAM:
HON'BLE MR. JUSTICE RAJIV SHAKDHER
HON'BLE MS. JUSTICE TARA VITASTA GANJU
ORDER
% 28.07.2022 [Physical Hearing/Hybrid Hearing (as per request)]
1. These writ petitions seek to challenge the order/certificate dated 13.05.2022, passed under Section 197 of the Income Tax Act, 1961 [in short "Act"].
2. As per the impugned order/certificate, the lower rate of withholding tax is pegged at 4%.
3. The petitioner has not only made a prayer that the impugned order/certificate be set aside, but has also sought a direction that the certificate ought to have W.P.(C) 9593/2022 & W.P.(C) 10055/2022 1/6 Signature Not Verified Digitally Signed By:VIPIN KUMAR RAI Signing Date:01.08.2022 11:37:16 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, wherein the following was recorded:
"1. The above-captioned writ petitions are directed against the order(s) dated 23.09.2021, passed by the Assessing Officer (AO) in respect of the application(s) preferred by the petitioners under Section 197 of the Income Tax Act, 1961 [in short "the Act"]. To be noted, the said application(s) relate to Financial Year (FY) 2021-2022.
1.1. The purpose with which the aforementioned application(s) were preferred by the petitioners for the FY 2021-2022, was that the payer should not withhold any money towards tax i.e., the withholding tax should be pegged at "Nil" rate. 1.2. Via the impugned order(s), the AO has concluded that the withholding tax rate should be pegged at 4%.
2. Mr Sachit Jolly, who appears on behalf of the petitioners, submits that the order passed by the AO is wholly erroneous, as, in another proceedings carried on before the Income Tax Appellant Tribunal [in short "the Tribunal"] i.e., ITA No.671 (Delhi) of 2011 concerning the petitioner in W.P.(C) 13188/2021i.e., GE Energy Parts Inc., the Tribunal has attributed the profits to the Permanent Establishment (PE) of the petitioner therein in India, at the rate of 26%. The said judgment of the Tribunal is dated 27.01.2017. 2.1. According to Mr Jolly, the Revenue cannot, in the very least, veer away from this position/principle, although the petitioners continue to maintain that they have no PE in India. 2.2. Therefore, if the rate of attribution of profits to the PE in India is pegged at 26%, then the withholding rate of tax cannot W.P.(C) 9593/2022 & W.P.(C) 10055/2022 2/6 Signature Not Verified Digitally Signed By:VIPIN KUMAR RAI Signing Date:01.08.2022 11:37:16 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 the petitioners, is 26%. If that figure is taken into account, then surely the withholding rate of tax cannot exceed 1.04% [26% x 10% x 40%].
3.2. However, Mr Jolly says that since the FY is coming to an end, at this juncture, he does not wish to press the above-captioned writ petitions, but would file a fresh application before the AO for F.Y. 2022-2023.
3.3. Mr Jolly says that, if such an application is filed, the petitioners would like the AO to deal with the contentions raised in the writ petitions.
4 Therefore, while closing the present writ petitions, we wish to observe that in case the petitioners were to move an application under Section 197 of the Act for FY 2022-2023, and if the contentions raised in the writ petitions form part of the said application, including what is noted hereinabove by us with regard to the attribution of profits to the PE, the same will be dealt with by the AO, as per law.
5. At this stage, Mr Jolly says that the petitioners will move an application for the F.Y.2022-2023, within four weeks of receipt of a copy of this order. In case, such an application is moved, the AO will dispose of the same within four weeks of the receipt of the application.
6. Needless to add, the aforesaid observations will not impact the decision that the AO would take qua the fresh application. The W.P.(C) 9593/2022 & W.P.(C) 10055/2022 3/6 Signature Not Verified Digitally Signed By:VIPIN KUMAR RAI Signing Date:01.08.2022 11:37:16 AO will take a decision in the matter, after affording a hearing to the petitioners, in support of the application.
7. Parties will act, based on the digitally signed copy of this order.
8. The writ petition(s) are disposed of in the aforesaid terms.
9. Consequently, pending application(s) shall stand closed."
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 order dated 27.01.2017 passed by the Income Tax Appellate Tribunal [in short "Tribunal"] in IT Appeal no.671 (Delhi) of 2011, wherein profits attributed to the petitioner have been pegged at 26%.
8.1. This order of the Tribunal concerned the period spanning between Assessment Years (AYs) 2001-02 and 2008-09.
8.2. Mr Jolly informs us, that pursuant to the Tribunal‟s order, the Dispute Resolution Panel (DRP), via the order dated 05.05.2022, has accepted that profits could be attributed to the petitioner at the rate of 26%. 8.3. Therefore, what is evident is that if the profit attribution rate applicable to the petitioner is kept at 26%, clearly the withholding rate of tax would get pegged at 1.04% [26% x 10% x 40%.]
9. Mr Jolly, correctly points out, that via the impugned order, the profit attributed to the petitioner is 100%.
10. Messrs Sunil Agarwal and Puneet Rai, who appear on behalf of the respondents/revenue, on the other hand, say that the impugned order alludes to the fact that the petitioner has artificially split the subject contracts into offshore and onshore supplies.
11. It is also Messrs Agarwal and Rai‟s submission, that a rectification application under Section 154 of the Act has been filed with the DRP, vis-à-vis W.P.(C) 9593/2022 & W.P.(C) 10055/2022 4/6 Signature Not Verified Digitally Signed By:VIPIN KUMAR RAI Signing Date:01.08.2022 11:37:16 the order dated 05.05.2022.
11.1. We have queried Messrs Agarwal and Rai, as to how the DRP would revise its findings based on the rectification application. 11.2. Messrs Agarwal and Rai say that crucial facts were missed by the DRP while passing the order dated 05.05.2022 and therefore, a rectification application has been filed.
12. Furthermore, we have been asked to stand over the matter, to await the decision of the DRP qua the revenue‟s rectification application.
13. Mr Jolly, on the other hand, says that he is willing to go on with the matter based on the demurrer that the result of the rectification application would be adverse to the interests of the petitioner.
14. Messrs Agarwal and Rai, however, insist that the matter should be stood over.
15. To enable the revenue to bring the order passed in its rectification application on the record, the matter is stood over. 15.1. Needless to add, the DRP will take an independent decision in the matter de hors the observations made above vis-à-vis the revenue‟s rectification application.
16. We may also note that despite an opportunity being given 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. Likewise, 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 W.P.(C) 9593/2022 & W.P.(C) 10055/2022 5/6 Signature Not Verified Digitally Signed By:VIPIN KUMAR RAI Signing Date:01.08.2022 11:37:16 weeks.
17.2. Rejoinder thereto, 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. 18.1. An affidavit of undertaking in this behalf will be filed with the Court, within the next one week.
18.2. A copy of the same will be furnished to the counsels for the revenue i.e., Messrs Agarwal and Rai.
18.3. Upon a copy of the undertaking being furnished to Messrs Agarwal and Rai, necessary consequential steps will be taken by the revenue.
19. List the matter on 15.09.2022, albeit at the end of board.
RAJIV SHAKDHER, J TARA VITASTA GANJU, J JULY 28, 2022/pmc Click here to check corrigendum, if any W.P.(C) 9593/2022 & W.P.(C) 10055/2022 6/6 Signature Not Verified Digitally Signed By:VIPIN KUMAR RAI Signing Date:01.08.2022 11:37:16