Ge Hydro France (Formerly Known As Alstomhydro France v. Income Tax Officer, Tds Ward 1(3)(2), Internationaltaxation & Ors

$~35 *IN THE HIGH COURT OF DELHI AT NEW DELHI +W.P.(C) 8578/2019 & CM APPL. 35454/2019 GE HYDRO FRANCE (FORMERLY KNOWN AS ALSTOMHYDRO FRANCE) ..... PetitionerThrough:Mr. Sachit Jolly, Advocate. versus INCOME TAX OFFICER, TDS WARD 1(3)(2), INTERNATIONALTAXATION & ORS...... Respondents Through:Mr. Ruchir Bhatia, Senior StandingCounsel with Mr. Shlok Chandra andMs. Madhura M.N., Advocates. CORAM:HON'BLE MR. JUSTICE VIPIN SANGHIHON'BLE MR. JUSTICE SANJEEV NARULAO R D E R%23.01.2020 1. We have heard learned counsel for the parties. The Petitioner has assailedthe order dated 05.07.2019 passed by Respondent No. 1 under Section 197of the Income Tax Act directing deduction/withholding of tax at the rate of10 % on the payments made to the Petitioner by THDC India Limited from05.07.2019 to 31.03.2020. The Petitioner also seeks a direction toRespondent No. 1 to issue order/certificates under Section 197 of the Act ata ‘nil’ rate in respect of THDC India Limited in pursuance of Petitioner’sapplication filed on 23.04.2019. Alternatively, the Petitioner seeks adirection to the Respondent No. 1 to issue order/certificates under Section197 of the Act at the lower rate of 1.5% to THDC India Limited, inpursuance of Petitioner’s application filed on 23.04.2019. 2. In the immediately preceding year, the Petitioner was issued withholdingtax certificate at rate of 1.5 % of payments made by THDC India Limited inpursuance of the contract which continues to remain in force and isoperational in the current year. The justification sought to be offered by Mr.Bhatia, learned Senior Standing Counsel - who appears for the Revenue, forissuing the impugned withholding tax certificate at the rate of 10 % onpayments made by THDC India Limited, is that the Respondents hadconducted a survey, and the Respondents are in the process of issuingnotices for reopening of assessments on the premise that the income derivedfrom THDC India Limited is liable to tax in India, since it is derived by thePermanent Establishment (PE) of the Petitioner in India. He has also placedreliance on the notification No. 8/2018 dated 31.12.2018 issued by theDirectorate of Income Tax (Systems) of the CBDT in pursuance of Rule 28(2) of the Income Tax Rules which reads as follows: 28. Application for grant of certificates for deduction ofincome-tax at any lower rates or no deduction of income-tax. xxxxxxxx xxxx (2) The Principal Director General of Income-tax (Systems) orthe Director General of Income-tax (Systems), as the case maybe, shall lay down procedures, formats and standards forensuringsecurecaptureandtransmissionofdataanduploading of documents and the Principal Director General ofIncome-tax (Systems) or the Director General of Income-tax(Systems)shallalsoberesponsibleforevolvingandimplementing appropriate security, archival and retrievalpolicies in relation to the furnishing of Form No.13. 3. We find that in the counter affidavit as filed, neither of these pleas havebeen taken. The reasons for issuing withholding tax certificates at the rateof 10 % on payments to the Petitioner by THDC India Limited cannot beimproved upon, in view of the judgment of the Supreme Court in MohinderSingh Gill v. Chief Election Commr., AIR 1978 SC 851. Further in thecounter affidavit, the Respondents have tried to justify the granting ofcertificate for deduction of tax at source at the rate of 10 % by contendingthat the total turnover of the Petitioner for the assessment years 2013-14 to2018-19 from its business operations in India is Rs. 601.91 crores. The AOhas assessed 10% of the revenue/sales as profit, and has attributed 35% ofsuch profit as attributable to business done through the Petitioner’s PE inIndia in the respective years covered in the survey. 4. We find merit in the submission of Mr. Jolly, learned counsel for thePetitioner that if, for the sake of argument, we were to accept the avermentsmade in the counter affidavit, yet the impugned order is not sustainable forthe reason that the total revenue for all the five years i.e. from F.Y. 2015-16to F.Y. 2019-20 that could be taken into consideration, put together comes toRs. 504.70 crores (as calculated by the summation of the amounts pertainingto each relevant financial year, appearing in the counter affidavit filed by therespondents). The Respondents have themselves admitted that the profitattribution of 26 % has been upheld by this Court to PE in India in respect ofcases of GE Group and, therefore, if one were to assume deemedprofitability of 10 % and apply attribution of 26 % as relied upon by theRespondents in the counter affidavit, the total tax payable for the five yearswould still not justify the Respondents applying withholding rate of 10 % on the expected receipts by the Petitioner from THDC India Limited. If highestattribution of 35 % is applied, even then the Respondents cannot justify thewithholding rate of 10%. Further, the respondents have alleged that the salesand service break up of the receipt from THDC contract is not clear from thedetails provided by the Petitioner.The Petitioner has, on the contrary,maintained that the Respondents have completely glossed over the fact thatthe THDC contract was a purely supply contract, which has been explainedin the application filed by the Petitioner under Section 197 of the Act. Wefind that the Respondents have not examined the aforesaid fact in the correctperspective and have applied a profit attribution rate of 35 % straightawayand issued the certificate withholding tax at the rate of 10 %. 5. Pertinently, the Respondents have sought to justify withholding tax at therate of 10 % for the current year in respect of payments received fromTHDC India Limited by taking into account the assumed tax and interestliability under Section 234B and 234C by considering the business turnoverof the Petitioner in India from assessment year 2013-14 onwards.Primafacie, this is not permissible in view of rule 28AA (2) (ii) which reads asfollows: “28AA. Certificatefordeductionatlowerratesornodeduction of tax from income other than dividends. (1) Where the Assessing Officer, on an application made by aperson under sub-rule (1) of rule 28 is satisfied that existingand estimated tax liability of a person justifies the deduction oftax at lower rate or no deduction of tax, as the case may be, theAssessing Officer shall issue a certificate in accordance withthe provisions of sub-section (1) of section 197 for deduction oftax at such lower rate or no deduction of tax. (2) The existing and estimated liability referred to in sub-rule (1) shall be determined by the Assessing Officer after takinginto consideration the following:-(i) xxxxxx (ii) tax payable on the assessed or returned[2][or estimatedincome, as the case may be, of last four] previous years; (iii) xxxxxx (iv) xxxxxx” (emphasis supplied) 6. The notification dated 31.12.2018 issued by the Directorate of IncomeTax (Systems) of the CBDT by resort to Rule 28 (2) of the Income TaxRules, 1962 cannot enlarge the scope of the Respondents to consider theassessed, returned or estimated income for a period in excess of the last fourprevious years. Rule 28 (2) is merely an empowering rule, which empowersthe named authorities looking after the “systems” to lay down procedure,format and standards for insuring secured capture and transmission of data,and uploading of documents and for evolving and implementing appropriatesecurity, archival and retrieval policies in relation to furnishing of form No.13. (iii) xxxxxx (iv) xxxxxx” (emphasis supplied) 6. The notification dated 31.12.2018 issued by the Directorate of IncomeTax (Systems) of the CBDT by resort to Rule 28 (2) of the Income TaxRules, 1962 cannot enlarge the scope of the Respondents to consider theassessed, returned or estimated income for a period in excess of the last fourprevious years. Rule 28 (2) is merely an empowering rule, which empowersthe named authorities looking after the “systems” to lay down procedure,format and standards for insuring secured capture and transmission of data,and uploading of documents and for evolving and implementing appropriatesecurity, archival and retrieval policies in relation to furnishing of form No.13. 7. We also find that the Respondents have not taken into consideration thetax already paid by the Petitioner in the previous years and the computationtendered in Court proceeds on the assumption that no payment has beenmade by the Petitioner. On that premise, tax as well as interest under Section234B and 234C have been added, which cannot be the case. 8. In the above circumstances, following the earlier orders of this court inBently Nevada LLC v. Income Tax Officer, Ward-1(1)(2), International Taxation & Anr. bearing number W.P.(C) 7744/2019 dated 29.07.2019 andLufthansa Cargo AG V. Deputy Commissioner Of Income Tax And Anr.,bearing number W.P.(C) 9136/2019 dated 06.11.2019, we quash theimpugned order dated 05.07.2019 issued by the Respondents prescribingwithholding tax at the rate of 10 % in respect of the Petitioner’s contractwith THDC India Limited. We also direct the Respondents to consider thematter afresh and issue a fresh withholding tax certificates under Section197 of the Act after taking into account the aspects taken note ofhereinabove. Till then, the Petitioner shall continue to remain bound by thewithholding tax certificate issued in respect of the immediately precedingyear i.e. at the rate of 1.5% qua the payments received by it from THDCIndia Limited. The Respondents should ensure compliance of this order bytaking appropriate steps for modifying the systems within the next oneweek. 9. The writ petition is disposed of in the above terms. 10. This order be given dasti under the signatures of Court Master. JANUARY 23, 2020nk VIPIN SANGHI, JSANJEEV NARULA, J