Delhi High Court
National Petroleum Construction ... vs Deputy Commissioner Of Income Tax, ... on 20 December, 2019
Equivalent citations: AIRONLINE 2019 DEL 2082
Author: Sanjeev Narula
Bench: Vipin Sanghi, Sanjeev Narula
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Reserved on: 5.11.2019
Pronounced on: 20.12.2019
+ W.P.(C) 8527/2019 & CM APPL. 35220/2019
NATIONAL PETROLEUM CONSTRUCTION COMPANY
..... Petitioner
Through: Mr. Balbir Singh, Senior Advocate
with Mr. Prakash Kumar, Ms. Monica
Benjamin and Ms. Rashi Singh,
Advocates.
versus
DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-2(2)(2),
INTERNATIONAL TAXATION, NEW DELHI & ANR.
..... Respondents
Through:
Mr. Raghvendra K. Singh, Senior
Standing Counsel.
CORAM: JUSTICE VIPIN SANGHI
JUSTICE SANJEEV NARULA
JUDGMENT
SANJEEV NARULA, J
1. The present writ petition under Article 226/227 of the Constitution of India seeks a writ of certiorari quashing the impugned certificate dated 26.06.2019 under Section 197 (1) of Income Tax Act, (hereinafter referred as „Act‟) issued by respondent No.1-Deputy Commissioner of Income Tax, Circle -2 (2) (2), International Tax, New Delhi rejecting the application of the petitioner to grant a certificate for „NIL‟ deduction of tax at source, on the payments made to it, by Oil and Natural Gas Corporation Ltd. (ONGC- Deductor) and for issuance of a writ of mandamus directing the Assessing Officer to grant a certificate authorizing the aforesaid deductor to make W.P.(C)8527/2019 Page 1 of 27 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 (TENDER-
3)/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 LEWPP Contract) of 10 platforms. Thus, ONGC is the deductor/payer in respect of the payments under the aforesaid contracts.
4. Petitioner was assessed for AYs- 2007-08, 2008-09 and 2009-2010 in respect of contracts similar to the abovenoted contracts, and was held to be W.P.(C)8527/2019 Page 2 of 27 not taxable in India. Petitioner contends that the lower tax authorities have continuously opined from AY- 2007-08 to AY-2015-16 that outside India contractual revenues are taxable in India. However, the appellate forums, all across these Assessment Years, have held to the contrary, observing that the petitioner has no permanent establishment (PE) in India, and no income earned from outside India activities will be chargeable to tax in India. The litigation history of the petitioner from AY- 2007-08 to AY 2015-2016, at various appellate levels, is illustrated in the following tabulation:
A. Year ONGC Contract (s) under Level of the Appellate Forum consideration (last order in place) 2007-08 4WPP Delhi High Court 2008-09 4WPP and C- Series Delhi High Court 2009-10 C- Series Delhi High Court 2010-11 B-22, RS-12, C-Series and 4WPP Delhi High Court 2011-12 B-22 and RS-12 Commissioner of Income Tax (Appeals) 2012-13 C-Series, RS-12, B-22 and B- ITAT (Delhi Bench) Series 2013-14 C-Series,RS-12, B-22 and WO-16 Commissioner of Income Tax & SB-14 (Appeals) 2014-15 B-Series, B-22 and WO-16 & SB- Commissioner of Income Tax 14 (Appeals) 2015-16 B-Series, B-22, WO-16 & SB-14, Commissioner of Income Tax C-Series and RS-12 (Appeals)
5. Particularly, petitioner relies upon the judgment rendered by this Court in petitioner‟s own case for AY-2007-08 and AY 2008-2009 reported in [2016] ITR 383 648 (Del), wherein this Court after re-evaluating petitioner‟s contract with ONGC, inter alia held that the project office of the petitioner did not constitute a fixed base PE under the provisions of the DTAA and in absence thereof, the splitting of profits arising from the contracts into two categories viz. profits attributable to India and profits attributable to W.P.(C)8527/2019 Page 3 of 27 overseas, does not arise. The petitioner also asserts that the decision in the appeal of the Revenue for AY-2009-10, follows the aforesaid judgment.
6. Petitioner also contends that both the R-series and 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, 2008-09 and 2009-10, there is no creation of permanent establishment (PE) in India and no income of foreign component is taxable in India. On this premise, petitioner filed an application under Section 197 before Respondent No-1, requesting for issuance of certificate directing W.P.(C)8527/2019 Page 4 of 27 ONGC to make payments without deduction of tax. The application was processed and queries were raised by the respondent to which the petitioner filed its replies dated 08.05.2019; 21.05.2019; 13.06.2019 and 22.06.2019. After providing a hearing to the petitioner and on consideration of its submissions, the respondent granted the certificate dated 26.06.2019, in the prescribed format, to the deductor/ONGC for deduction @ 4% of the gross receipts, which is impugned in the present petition.
Proceedings in the present petition.
9. Notice was issued to the revenue and in response thereto, a counter affidavit has been filed, enumerating in detail, the grounds and reasons justifying the issuance of the impugned certificate. Thereafter, on 31.10.2019, on hearing the submissions advanced by Mr. Balbir Singh, learned senior counsel for the petitioner, respondents were directed to produce original records before this Court dealing with petitioner‟s application under Section 197. In compliance thereto, on 05.11.2019, Mr. Raghvendra K. Singh, learned Sr. Standing counsel for the respondents produced the relevant original record and also tendered in Court a copy of the note-sheet setting out the reasons for rejecting the petitioner‟s request. A copy thereof was furnished to the Petitioner and the same has been taken on record.
10. During the course of hearing, Mr. Balbir Singh made his submissions also on the aforesaid reasons set forth in the note-sheets and with the consent of the learned counsels for the parties, we heard the matter for final W.P.(C)8527/2019 Page 5 of 27 disposal. Before proceeding further, it would be appropriate to first extract the recorded reasons that have to be analysed for the purpose of deciding the present petition. The same [true-typed] read as under [the struck-off portions are as they appear in the original copy]:
"6. In the instant application, the applicant has requested rate of deduction @ 2.65% for entire estimated receipts i.e. form onshore and offshore activities."
7. The Hon‟ble High Court, for A.Y. 2007-08 to 2010-11, held that there is no PE in the case of assessee. The departmental 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?
W.P.(C)8527/2019 Page 6 of 27ITI The above queries were raised before the applicant through online TDS Tracer portal against which he has submitted his submission on 21/05/2019. The same is being submitted for year kind perusal & direction please.
Sd/-
22/05/2019 DCIT, Cir-2(2)(2), IT-2, New Delhi.
Please check the assessement history in this case. Check whether the case has been assessed under 44BB of IT Act, 1961 in previous AY.
Sd/-
ITI 06/06/2019 From the perusal of assessment record, it was noticed that assessment of assessee in previous years i.e. AYs 2015-16 & 2016-17 has been completed by observing that since the activities carried out by the assessee are related to business exploration etc of mineral oils, the activities are covered under section 44BB of the Income Tax Act, 1961. Accordingly, 10% of receipts was attributed to the assessee as per section 44BB of the IT Act, 1961. For AY- 2017-18, the case of the assessee was selected under CASS which is still pending.
Sd/-
06/06/2019 DCIT, Cir-2(2)(2), IT-2, New Delhi.
The nature of contracts is such that it is difficult to bifurcate the revenue in onshore and onshore supply and service. The service component is embedded in the supply portion and the invoices are also raised as such. Therefore in order to project the interest of revenue as it is possible out assessement and ascertain complete facts FTS to be estimated @ 40% and taxable @ 10%. Therefore the rate of 4% is proposed.
W.P.(C)8527/2019 Page 7 of 27Submitted for your kind considerations u approved.
Sd/-
06/06/19 Addl. CIT (IT) 2 (1), Delhi.
N/4 National Petroleum Construction Company (197) As per dossier, there is a demand of 35.88 cr. pending in different years. Please verify the issue on which additions have been made and whether the same issues are relevant in current year as well. Pl. also examine the reasons of non-collection of demand and why low TDS certificate should be granted pending demand.
Sd/-
06.06.19 DGT Please check the status of the demand as per the dossiers. Identify the issues involved on which the demand has been raised. Check if the issues are still relevant for the current A.Y. Sd/-
06/06/19 ITI As per direction, status of demands & Assessment history is being submitted for year kind perusal & directions please.
Sd/-
11/06/2019 DCIT, Cir-2(2)(2), IT-2, New Delhi:
The issue involved in past few years is the taxability of the income. In case of 2015-16 & 16-17 assessment, it was held that W.P.(C)8527/2019 Page 8 of 27 activities of applicant comes Section 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 vis- à-vis previous contracts. The contracts under consideration have been entered in to by applicant in Feb 18 & Sept 16. Please verify whether these contracts form PE or not.
Sd/-
12.06.15 DGT Pl.verify from client whether the contracts form PE or not. Are the contracts similar to previous contracts and in what aspect.
Sd/-
12/06/2019 ITI W.P.(C)8527/2019 Page 9 of 27 Assesses has submitted his reply regarding the above mentioned query on 13.06.2019 which is put up for your kind perusal & necessary direction.
Sd/-
14.06.19 DCIT, cir-2(2) (2), it-2, New Delhi DCIT circle 2 (2) (2) IT Delhi As per the submission of the assesse, the scope of work of R-Series & LEWPP is similar to contracts entered in AY 2007-08 and 08-09. The applicant has further produced on chart of all contracts (ONGC) entered in AY 2015-16 and AY 2016-17 wherein scope and activities carried are similar in nature and bifurcation of off- shore and on-shore in made on the basis of nature of activities. In the assessment of the applicant for AY2015-16 and AY 2016-17, the entire revenue was charged u/s 44BB of the Act considering the contract a composite, turnkey contract and it was considered to establish a PE in India.
The applicant has stated that both the contracts with ONGC are for projects in Bombay High & nearby areas. For LEWPP contract the applicant has stated project-wise calculation of days. Considering that these projects for LEWPP Contract are in geographical and commercial coherence, the same may constitute Installation PE. Submitted for kind perusal and necessary direction please.
Sd/-
14/06/19 Addtl.CIT range 2 (2) IT Delhi Pl Verify-
The dates as per submission of applicant for computation of IE do not match with the activity sheet as per contracts. Pl verify & put up.
Sd/-
14.06.19 DGT W.P.(C)8527/2019 Page 10 of 27 Upload query as TRACES Sd/-
19.06.19 ITI As directed, queries have been raised on Traces. Reply the same has been furnished by the applicant through offline on 18.06.2019. The same is being forwarded to you for your kind perusal and direction please.
Sd/-
19.06.19 DCIT, cir - 2 (2) (2), IT-2, New Delhi The applicant has furnished activity wise dates for each platform under both contracts. For R-Series contract, the applicant has not mentioned commissioning period and period of as built documentation (which is mentioned for LEWPP contract and relevant for installation). Also, the transportation period is considered at India location for R-Series contract while for LEWPP contract, it transportation is 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 W.P.(C)8527/2019 Page 11 of 27 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 the agreements under consideration for AY 2007-08 and 2008-09. In AY. 2007-08 & 2008-09, Hon‟ble Delhi H.C. decided that PE is not formed in India. The AO was accordingly instructed to verify the existence of PE. However, due to discrepencies between the days calculated by the applicant and the activity schedule, the AO was asked to verify the same. The applicant has meanwhile requested for the issue of certificate @4% on entire revenue, in line with the stand taken by AO in assessment. Accordingly, certificate may be issued @4% , if approved.
Sd/-
24.06.19 CIT(IT)-2 Approved @ 4% as proposed.
Certificate Generated on
26/06/19 Sd/-
25.06.19
Addl CIT IT 2(2)
Sd/-
25.06.19
DCIT"
Submissions of the petitioner
11. Mr. Balbir Singh, learned senior counsel for the petitioner attacked the reasons spelt out in the note-sheet as also those disclosed in the counter W.P.(C)8527/2019 Page 12 of 27 affidavit on several grounds. He submitted that the reasons provided by the respondent were silent on the issue of the effect of this Court‟s order dated 09.05.2017 in W.P(C) 2117/2017, wherein the LEWPP contract was examined and Revenue was directed to issue a fresh certificate under Section 197 of the Act @0% (NIL) for outside India revenues. He also submitted that the reasons also do not take note of the certificate for FY 2018-19 issued @ 0% for outside India revenues in respect of both the contracts which are subject matter of the impugned certificate.
12. He argued that Respondents‟ contention regarding revenue bifurcation into onshore and offshore supply and services being not clear, is completely frivolous and untenable. Though contracts in question may be turnkey contracts, yet value of work done outside India is ascertainable. The reasons given by the respondent are misplaced as, for AY 2015-16, the first appellate authority followed this Court‟s decision in petitioner‟s own case and has held that the petitioner has no PE in India. Accordingly, outside India revenues will not be chargeable to tax under Section 44BB of the Act. Respondents are wrongly assuming that the subject contracts constitute installation PE under India-UAE DTAA. In each of the contracts, installation activities were completed in less than 9 months and hence, installation PE is not triggered. Respondents are wrongly distinguishing R- series contract, alleging it to be not identical to the contracts undertaken 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 W.P.(C)8527/2019 Page 13 of 27 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 were cogent reasons discernible from the record therefore the Court should not entertain the present petition. He submitted that there was no arbitrariness in the action of the respondents and on the contrary it was fair and reasonable. In such a situation, Court would ordinarily not like to interfere with the decision taken by the respondents. Mr. Singh further distinguished the decision rendered by this Court in petitioner‟s own case and submitted that same would have no applicability, inasmuch as, contracts that were the subject matter of proceedings before this Court in AY- 2007-08, 2008-09, 2009-10 were different. He further submitted that order dated 09.05.2017 passed by this W.P.(C)8527/2019 Page 14 of 27 Court would also not govern the present case because said case only dealt with LEWPP series contract dated 30.09.2016 whereas in present case, certificate for TDS at lower rate is also being sought for R-Series contract dated 07.09.2018. The principle of res judicata is not applicable to income tax proceedings and determination of existence of PE is required by law, to be determined for each year separately. Further, the income tax department has consistently challenged the stand of the petitioner and even for AY- 2007-08 and 2008-09, judgment of this Court has been challenged before the Supreme Court and the appeal is pending. He further submitted that position in law has undergone change to the detriment of the petitioner, in view of Explanation 2 added to Section 195 vide Finance Act, 2012. Lastly, he submitted that the petitioner has itself consented and acquiesced to the certificate @4% on gross receipts as opposed to @2.65% and thus petitioner has no right to challenge the same.
Analysis and Findings
15. We have learned counsels for the parties at length.
16. Having regard to history of litigation involving the petitioner-referred to above, we consider it necessary to examine the record of the Revenue to satisfy ourselves as to the manner in which the respondents have approached the present matter. Consequently, the original record of the respondents was summoned. We have carefully perused sameand the relevant provisions extracted in the earlier part of the judgment. The reasons indicate that Respondents have exercised jurisdiction under Section 197 with due W.P.(C)8527/2019 Page 15 of 27 application of mind. It is the cardinal principle of administrative law that, under Article 226 of the Constitution of 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 disputed questions of fact."
(Emphasis supplied)
17. Having perused and examined the file notings, we do not find any arbitrariness in the approach of the respondents in exercise of jurisdiction by them. The reasons given in the note-sheet cannot be said to be so grossly unfair or unreasonable that they require the intervention of the Court, and the present petition could have been rejected on this ground alone. However, W.P.(C)8527/2019 Page 16 of 27 since we have heard the learned counsels for the parties at considerable length on the merits of the case, we proceed to give our decision on the other aspects as well.
18. Sub Section (1) of Section 195 of the Act provides that any person responsible for paying to a non-resident, any sum chargeable to tax under the provisions of the Act, shall, at the time of credit of such income to the account of the payee, or at the time of the payment thereof in cash or by the issue of a cheque or draft or any other mode, whichever is earlier, deduct income-tax thereon at the rates enforced.
19. Section 197 of the Act deals with grant of certificate for deduction at lower rate. Sub-Section (1) of Section 197 of the Act provides that subject to the rules made under Sub-Section (2)(a), where, in the case of any income of any person, income-tax is required to be deducted at the time of credit or, as the case may be, at the time of payment at the rates in force under the provisions including Section 195, the Assessing Officer is satisfied that the total income of the recipient justifies the deduction of income-tax at any lower rates or no deduction of income-tax, as the case may be, he shall on an application made by the Assessee, give to him such certificate as may be appropriate. Sub-Section (2) of Section 197 provides that where any such certificate is given, the person responsible for paying the income shall, until such certificate is cancelled by the Assessing Officer, deduct income-tax at the rates specified in such certificates or deduct no tax, as the case may be.
W.P.(C)8527/2019 Page 17 of 2720. Thus, on a conjoint reading of the aforesaid provisions, it emerges that in absence of a certificate of deduction of tax at source at a lower rate or nil rate, a payer-whose liability it is to deduct tax at source under Section 195 of the Act, is likely to incur a risk of being declared a defaulter. However, if a certificate under Section 197 of the Act is in operation, such a consequence 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 Explanation is to provide for a safeguard that in case of tax liability ultimately being determined in the assessment proceedings, recovery of tax may not become difficult.
W.P.(C)8527/2019 Page 18 of 2723. Vide application dated 08.05.2019, filed in the prescribed Form-13 for FY-2019-20, copy whereof has been enclosed with Revenues‟ submissions, Petitioner sought issuance of a certificate for deduction at lower rate under Section 197 of the Act @ 2.6% on the gross receipts in respect of payments made by ONGC to the petitioner under two contracts, (i) R-series contract dated 07.02.2018 for a total estimated receipt in FY- 2019-20 of Rs.495.75 crores, and; (ii) LEWPP series contract dated 30.09.2016 for total estimated receipt in FY 2019-20 of Rs.60.54 crores.
24. Respondents have granted the impugned certificate for deduction @ 4% of the gross receipts. The assessment for the above noted contracts would be undertaken in the future viz. AY-2019-20 and 2017-18 respectively. As of now, we are not concerned with a regular assessment proceeding but, with determination of rate of tax deduction. On perusal of reasons, it becomes manifest that during the course of enquiry under Section 197 of the Act, the petitioner was asked to furnish the details regarding the scope and nature of the aforenoted contracts. Revenue contends that for the R-series contracts, the petitioner has made contradictory statement regarding commissioning period and period of as-built documentation etc. Petitioner, in its submission dated 22.06.2019, contends that commissioning work is not undertaken by them for the R-series contracts, and the same is to be performed by ONGC. Without going into the question as to whether the petitioner‟s stand is contradictory, we may note that the Assessing Officer while exercising its power under Section 197, during the course of the enquiry, cannot undertake an exhaustive exercise to determine this issue conclusively. We find force in W.P.(C)8527/2019 Page 19 of 27 the submissions of Mr. Raghvendra Kumar Singh that the question as to whether the petitioner has constituted a PE, cannot possibly be undertaken in the enquiry having regard to the time frame permissible under law for deciding the application under Section 197 of the Act. The reasons shown to us also take note of the fact that in the immediate preceding years i.e., AY- 2016-17 and AY- 2017-18, for which regular assessment has been completed, petitioner has 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 set up an estoppel." [Ref: New Jehangir Vakil Mills Co. Ltd v CIT, [1963] 49 ITR 137 (SC) (Full bench)]. "It is well settled that in matters of taxation there is no question of res judicata because each year's assessment is final only for that year and does not govern later years, W.P.(C)8527/2019 Page 20 of 27 because it determines only the tax for a particular period." [Ref:
Instalment Supply (P) Ltd. v. Union of India AIR 1962 SC 53 (Constitution bench)].
25. The petitioner has argued that the need for consistency and certainty requires that there must exist strong and compelling reasons for a departure from a settled position, which must be spelt out and they are conspicuously absent in the present case. Mr. Balbir Singh has strongly argued that the stand taken by the respondents in the previous year should have been followed and in this regard, he relies upon the decision of Supreme Court in the case of Radhasoami Satsang v CIT [1992] 193 ITR 321 (SC). Besides, Mr. Singh, as quoted earlier has also led considerable emphasis on the decision of this Court dated 09.05.2017, wherein this Court directed the respondents to issue certificate under Section 197 of the Act, accepting the alternative plea of the petitioner that the ONGC would deduct tax @4% +surcharge +Education cess on the revenues in respect of only the inside India activities of the petitioner.
26. We are, however, not impressed with the aforesaid contention and do not find the judgment of the Supreme Court in Radhasoami Satsang (supra) to be applicable in the present case. In the said case, the issue arose whether the assessee is a charitable trust, and this position had not been contested by the income tax department from AY- 1367-38 to AY 1963 -64. In these circumstances, the Court held as under:
"where a fundamental aspect permeating through the different assess ment years has been found as a fact one way or the other and W.P.(C)8527/2019 Page 21 of 27 parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. "
27. In the present case, there cannot be any dispute that existence of PE is required to be determined by law for each year separately on the basis of the scope, extent, nature and duration of activities in each year. In this regard, the contracts in question i.e. R-series contracts dated 07.02.2018 and LEWPP series contracts 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. This question would require to be determined and finding of the fact would have to be arrived at, by a careful consideration of terms of contract, determination whereof cannot be W.P.(C)8527/2019 Page 22 of 27 undertaken in the proceedings under Section 197 of the Act.
28. The judgment relied upon by the petitioner in GE India Technology Cen. (P) Ltd vs. CIT [327 ITR 456 (SC)] holds that the obligation to deduct tax at source on the remittance made to a non-resident does not arise unless such remittance is a sum chargeable under the Act. There is no quarrel on this proposition. However, at the same time, one also has to take into consideration Explanation 2 to Section 195 inserted vide Finance Act, 2012. At this juncture, it would be beneficial to refer to the judgment of the Supreme Court in Commissioner of Agriculture Income Tax v. Plantation Corporation, [2001] 247 ITR 155 (SC) wherein the effect of „Explanation‟ has been explained as under:
"This Court has always been reiterating that if the intendment is not in the words used, it is nowhere else and so long as there is no ambiguity in the statutory language, resort to any interpretative process to unfold the legislative intent becomes impermissible and the need for interpretation arises only when the words in the statute are on their own terms ambivalent and do not manifest the intention of the Legislature - Doypack Systems (P.) Ltd v. Union of India 1988 (2) SCC 299 and Keshavji Ravji & Co. v. CIT 1990 (2) SCC 231. That apart an Explanation is intended to either explain the meaning of certain phrases and expressions contained in a statutory provision or depending upon its language it might supply or take away something from the contents of a provision and at times even to, by way of abundant caution, clear any mental cobwebs surrounding the meaning of a statutory provision spun by interpretative process to make the position beyond controversy or doubt."
29. Further, the petitioner‟s contention that under each of the contracts, the W.P.(C)8527/2019 Page 23 of 27 installation activities were completed in less than 9 months, and that the scope of R-series contracts, did not include commissioning activities, are all factual aspects which cannot be examined while exercising judicial review over the decision of the respondent under Section 197 of the Act.
30. The petitioner has relied upon the judgments in Ishikawajima-Harima Heavy Industries: [2007] 288 ITR 408 (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 of existence of permanent establishment is not required to be gone into. Therefore, having regard to the aforesaid provision, we cannot direct the Revenue to hold that the petitioner does not have a PE and give the consequent effect of such finding while deciding an application W.P.(C)8527/2019 Page 24 of 27 under Section 197 of the Act. Determination of all these questions would have to be undertaken during the course of regular assessment. The manner of determination of issues relating to the tax deduction and regular assessment are inherently and fundamentally different. While there may be certain circumstances where the finding with respect to the previous year can be taken into consideration, however, in the instant case, we cannot find any reason to hold the approach of Respondents to be patently illegal or erroneous on the face of it. The question of existence of permanent establishment, which requires a detailed enquiry, is not envisaged at the stage of deciding the application for issuance of certificate under Section 197 of the Act. The full fledged investigation can be done by the Assessing Officer during the course of assessment.
31. Before parting, we may also take note of the petitioner‟s communication dated 22.06.2019, whereby a request for issuance of the certificate, was made. The same is extracted as under:
" Without prejudice to the legal submissions of the Applicant that it does not have and shall not constitute PE for these contracts in India, and thus the contract revenues shall not be taxable in India, the Applicant, in the alternative (without admitting), humbly submits that even if your goodself consider that Applicant may constitute PE in India, only inside India revenues (i.e., revenues towards installation and commissioning activities) can at best be held to be taxable in India as per section 44RB of the Act as held by the Hon'ble Suprenle Court in the case of Hyundui Heuvy Industries Ltd. (291 ITR 482). Your goodself would also appreciate that in Applicant's own case, Hon'ble Delhi High Court held that even in case of PE, outside India revenues cannot be held to be attributable to PE in India.W.P.(C)8527/2019 Page 25 of 27
The Applicant humbly submits that since it is facing financial hardship as the first quarter of FY 2019-20 has come to an end and it is yet to have the lower withholding tax certificate, the Applicant (without prejudice to its legal position), is willing 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 view, keeping in view the limited scope of jurisdiction exercised by the respondents under section 197 and even more limited scope of jurisdiction being exercised by us under Article 226 of the Constitution of India. All the questions urged by the petitioner relating to the constitution of PE vis-à-vis contracts in question and other related questions raised by it will have to be examined at the appropriate stage by tax authorities W.P.(C)8527/2019 Page 26 of 27 uninfluenced by observations expressed herein.
34. The writ petition is dismissed with no order as to costs. Accordingly, all pending applications are disposed of.
SANJEEV NARULA, J VIPIN SANGHI, J DECEMBER 20, 2019 Pallavi W.P.(C)8527/2019 Page 27 of 27