M/S.anand Transport (Private) Ltd v. Assistant Commissioner Of Income Taxbusiness Circle

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 5-2-2014 CORAM THE HONOURABLE MR.R.K.AGRAWAL, THE CHIEF JUSTICEANDTHE HONOURABLE MR.JUSTICE M.SATHYANARAYANAN WRIT APPEAL No.952 of 2013andM.P.No.1 of 2013andW.P.No.11360 of 2013andM.P.No.2 of 2013 M/s.Anand Transport (Private) Ltd.,Represented by its DirectorV.R. ArunachalamNo.1, 9[th] Street,Dr.Radhakrishnan SalaiMylapore, Chennai 600 004. .. Appellant in WA 952/2013 and Petitioner in WP 11360/2013 vs Assistant Commissioner of Income TaxBusiness Circle-1,121, Nungambakkam High Road,Nungambakkam, Chennai 600 034. .. Respondent in both WA & WP Writ appeal preferred under Clause 15 of the Letters Patentagainst the order of this Court dated 23.4.2013, made inM.P.No.2/2013 in W.P.No.11360/2013. Petition praying to grant stayof operation of the order of assesssment in PAN AAAFA1037Ddt.29.03.2013 relating to Assessment year 2010-11 on the file of theRespondent in so far as it relates to the disallowance u/s 40(a) (i)for alleged non-deduction of tax at source u/s. 195(1) of the IncomeTax Act only pending in W.P.No.11360/13. Writ petition filed under Article 226 of the Constitutionof India praying for issuance of a writ of certiorari calling for therecords in PAN dated 29.3.2013 relating to Assessment Year2010-11 on the file of the respondent insofar as it relates to thedisallowance u/s 49(a)(i) for alleged non-deduction of tax at sourcein terms of Section 195(1) of the Income Tax Act and quashing thesame. https://hcservices.ecourts.gov.in/hcservices/ For Respondent : Mr.T.Pramod Kumar Chopda Senior Standing Counsel for Income Tax COMMON JUDGMENT Challenging the interim order dated 23.4.2013 inM.P.No.2/2013 in W.P.No.11360/2013, under which, the interim stay ofthe operation of the order of assessment in PAN dated29.3.2013 relating to the assessment year 2010-2011, on the file ofthe respondent, was granted subject to the condition that withoutprejudice to rights of either parties, the writ petitioner/assesseeshall pay 30% of the impugned demand within a period of four weeksfrom the date of receipt of copy of that order with default clause,this Writ Appeal is filed by the writ petitioner. 2.It is submitted by the respective learned Counselappearing for the parties, that since arguments in the writ appealalso pertain to the merits of the writ petition, the writ petitionitself may be taken up for disposal and taking into consideration thesame, the writ petition itself is taken up for disposal along withthis writ appeal. 3.The facts of the case as culled out from the materialsplaced before this Court in the form of affidavit, counter and typed-set of documents, are as follows: (a) The appellant/writ petitioner was originally apartnership firm and later on, became a private limited company andit is engaged in the business of transportation of coal from ParadipPort to Chennai Port through ships, for the various ongoing projectsof Andhra Pradesh Power Generation Corporation. The appellant forthe said purpose, entered into an agreement with M/s.Jaldhi OverseasPrivate Limited (in short "JOPL"), Singapore, on 7.9.2009, fortransportation of coal and the validity of the agreement was for aperiod of five years, commencing from September 2008 to August 2013. (b) According to the appellant, JOPL is a Singapore taxresident shipping company and in terms of the above said agreement,it agreed to provide suitable ships to the appellant fortransportation of coal between the above said two Indian Ports. Theagreement further provides that the appellant is to make periodicfreight payments to JOPL in US Dollar, for transportation of coal ontonnage basis and the rates have been agreed upon in terms of Clause30 of the above said agreement. (b) According to the appellant, JOPL is a Singapore taxresident shipping company and in terms of the above said agreement,it agreed to provide suitable ships to the appellant fortransportation of coal between the above said two Indian Ports. Theagreement further provides that the appellant is to make periodicfreight payments to JOPL in US Dollar, for transportation of coal ontonnage basis and the rates have been agreed upon in terms of Clause30 of the above said agreement. (c) It is the specific case of the appellant that JOPL is acompany registered in Singapore and is assessed to income tax atSingapore only. It is also evidenced by the fact that it has beenissued with the Certificate of Tax Residence and Certificate ofIncorporation by the concerned authority at Singapore and that it ishttps://hcservices.ecourts.gov.in/hcservices/not having any permanent establishment in India to carry out theoperations. (d) The appellant would further contend that there is anagreement between India and Singapore with regard to the avoidance ofdouble taxation and as per the perms of the said agreement, theprofits earned by JOPL, are subject matter of assessment only inSingapore and not in India and consequently, there is no obligationon the part of the appellant to deduct any tax at source in terms ofSection 195 of the Income Tax Act. (e) The appellant also contended that it has filed anapplication dated 22.5.2009, under Section 195(2) of the Income TaxAct, stating among other things, that in terms of Article 7 of theDouble Taxation Avoidance Agreement (in short "DTAA") between Indiaand Singapore, the freight payable to JOPL, is not taxable in Indiaand therefore, there is no necessity to deduct tax at source andhence, prayed for issuance of nil deduction of tax at source. (f) The Assessing Officer, namely the Income Tax Officer-I(2), (International Taxation), Chennai 34, has passed an order dated31.8.2009, holding that in terms of Section 44B of the Income TaxAct, the nature of works undertaken by JOPL, is chargeable to taxunder the head "Profits and Gains of Business or Profession".Insofar as the stand of the appellant that in accordance with DoubleTaxation Avoidance Agreement, the appellant need not deduct tax atsource, the Assessing Officer found that the assessee's contract isfor a period of five years and if the activities continue for aperiod of 90 days in aggregate in a fiscal year, then JOPL will bedeemed to have a permanent establishment in India and Article 8 ofthe Double Taxation Avoidance Agreement, has no application to thecase on hand as it is not applicable to coastal traffic in acontracting state. Therefore, citing the said reasons, the AssessingOfficer held that the appellant herein is authorised to deduct tax atthe rate of 3.167% on the gross payments for the first quarter fromApril 2009, to June 2009, amounting to a sum of Rs.16,38,30,625/- andthe said certificate shall remain in force upto 31.12.2009, unless itis cancelled by way of an intimation. (g) The appellant herein aggrieved by the same, preferred arevision under Section 264 of the Income Tax Act before the Directorof Income Tax (International Taxation), Chennai. The RevisionalAuthority on going through the nature of transaction and the Clausescontained in Double Taxation Avoidance Agreement between Singaporeand India, found that JOPL is not having permanent establishment inIndia during the relevant period, and that JOPL is not in thebusiness of shipping and therefore, the transportation of coalbetween two Indian Ports, does not amount to shipping business. TheRevisional Authority further found that JOPL is a non-residentcompany registered and assessed to tax in Singapore as per thecertificate dated 11.5.2009, issued by the Land Revenue Authority ofSingapore, and hence, income, if any, arising out of the transactionbetween the appellant/assessee and the non-resident company – JOPL,is liable to be taxed in Singapore and not in India and hence, thebusiness transaction between the appellant and JOPL is covered byArticle 8 of the Double Taxation Avoidance Agreement and held thathttps://hcservices.ecourts.gov.in/hcservices/Section 44B of the Income Tax Act is not applicable to the facts ofthis case. (h) The Revisional Authority citing the above said reasons,has allowed the revision, vide order dated 24.3.2010, and directedthe Assessing Officer to give effect to the said order and as aresult of the same, nil deduction of tax at source has been given tothe appellant. (i) It is also to be pointed out at this juncture, that theRevenue did not challenge the order of Director of Income Tax(International Taxation) dated 24.3.2010, passed in the revision andit became final. (j) On 30.1.2012, the Additional Commissioner of IncomeTax, Business Range – II, Chennai has passed assessment orders underSection 143(3) of the Income Tax Act for the assessment year 2009-10,wherein the following disallowances were made: "(a) Disallowance of Rs.33,92,71,007/- u/s 40(a) (ia) on payments made to M/s Jaldhi Overseas Pte.Ltd. (JOPL), Singapore. (b) Disallowance of Rs.1,36,39,609/- of deemedinterest on monies advanced to sister concern." (k) The appellant/assessee aggrieved by the saiddisallowances, preferred an appeal before the Commissioner of IncomeTax (Appeals) – VI, Chennai. (l) The Appellate Authority has passed the final order on24.12.2012, wherein one of the issues that arose for consideration,was with regard to the disallowance under Section 40(a)(ia) of theIncome Tax Act. The Appellate Authority has taken into considerationthe order passed by the Revisional Authority – The Director of IncomeTax (International Taxation) dated 24.3.2010, and held that noevidence has been brought on record to show that JOPL is not aresident of Singapore and that it is not taxed in Singapore for thefinancial year 2008-09 and by virtue of Articles 7 and 8 of theDouble Taxation Avoidance Agreement, the provisions of Sections 9 and44B of the Income Tax Act stands superseded. (m) It has been further held that JOPL is resident fortaxation in Singapore even in respect of the assessment year 2009-10,and the income from Indian operations are not taxable in India andultimately, the Appellate Authority arrived at a finding that theprovisions of Sections 44B, 195 and 49(a)(ia) of the Income Tax Actare not applicable and as a corollary to said finding, has directedthe deletion of disallowance of Rs.33,91,71,007/-. (n) The said appeal was also filed with regard to thedisallowance of interest on monies advanced to sister concern, andultimately, the appeal was allowed, vide order dated 24.12.2012. (o) For the assessment year 2010-11, the assessment wasdone under Section 143(3) of the Income Tax Act by the AssistantCommissioner of Income Tax, Circle I, Chennai and an assessment ordercame to be passed on 29.3.2013.https://hcservices.ecourts.gov.in/hcservices/ (n) The said appeal was also filed with regard to thedisallowance of interest on monies advanced to sister concern, andultimately, the appeal was allowed, vide order dated 24.12.2012. (o) For the assessment year 2010-11, the assessment wasdone under Section 143(3) of the Income Tax Act by the AssistantCommissioner of Income Tax, Circle I, Chennai and an assessment ordercame to be passed on 29.3.2013.https://hcservices.ecourts.gov.in/hcservices/ (p) The Assessing Officer during the course of hearing, hascalled upon the appellant/assessee to show cause why the payments made to JOPL, Singapore, without deducting tax at source, should notbe disallowed under Section 40(a)(i) of the Income Tax Act andtreated as income. In response to the show cause notice, theappellant/assessee submitted his response and took the very samestand taken before the Revisional Authority, namely the Director ofIncome Tax (International Taxation), Chennai 34, and also drawn hisattention to the order dated 24.3.2010. (q) The Assessing Officer after considering the materialsplaced before him, held that as per Explanation 2 to Amendment ofSection 195, the said Section was amended with retrospective effectfrom 1.4.1962, and in accordance with the amendment, tax had to bededucted for the payments made to JOPL, and held that the payment ofRs.64,57,70,890/- made to JOPL, without deducting tax, is disallowedunder Section 40(a)(i) of the Income Tax Act and added to the totalincome of the appellant/assessee and consequent upon the said order,also ordered addition on account of disallowance of interest. (r) Subsequently, the Assessing Officer issued a notice ofdemand dated 29.3.2013, under Section 156 of the Income Tax Act tothe appellant/assessee calling upon him to pay a sum ofRs.28,07,24,610/- for the assessment year 2010-11 and further issueda notice under Section 274 read with Section 271 of the Income TaxAct, 1961, calling upon the assessee to appear before him on10.4.2013, to show cause as to why an order of imposing penaltyshould not be made under Section 271 of the Income Tax Act 1961. (s) The assessee/appellant, aggrieved by the order ofassessment dated 29.3.2013, relating to the assessment year 2010-11,insofar as it relates to disallowance under Section 40(a)(i) for thealleged non-deduction of tax at source under Section 195(1) of theIncome Tax Act, filed W.P.No.11360/2013 and also moved M.P.No.2/2013praying for stay of the operation of the above said order, pendingdisposal of the main writ petition. (t) The writ petition as well as the miscellaneous petitioncame up for admission and a Single Bench of this Court vide interimorder dated 23.4.2013, granted the conditional order of stay bydirecting the appellant/writ petitioner/assessee to pay 30% of theimpugned demand within a period of four weeks with default clause andchallenging the legality and vires of the said order, the assesseehas filed this writ appeal. 4.Dr. (Mrs.) Anitha Sumanth, learned Counsel appearing forthe appellant/writ petitioner, made the following submissions: The provisions of Section 195(1) of the Income Tax Act havebeen attracted only in the event that the remittances made, arechargeable to tax and by virtue of the revision order dated24.3.2010, passed by the Director of Income Tax (InternationalTaxation) holding that the remittances are not chargeable to tax, theimpugned order, which is the subject matter of challenge in the writpetition, on the face of it, is unsustainable in law and on facts andhttps://hcservices.ecourts.gov.in/hcservices/therefore, there is no necessity to pass conditional interim order.The order passed in the revision, though was brought to the knowledgeof the Assessing Officer, he has chosen to ignore/circumvent the The provisions of Section 195(1) of the Income Tax Act havebeen attracted only in the event that the remittances made, arechargeable to tax and by virtue of the revision order dated24.3.2010, passed by the Director of Income Tax (InternationalTaxation) holding that the remittances are not chargeable to tax, theimpugned order, which is the subject matter of challenge in the writpetition, on the face of it, is unsustainable in law and on facts andhttps://hcservices.ecourts.gov.in/hcservices/therefore, there is no necessity to pass conditional interim order.The order passed in the revision, though was brought to the knowledgeof the Assessing Officer, he has chosen to ignore/circumvent the order by holding that by virtue of Explanation 2 in the form ofamendment to Section 195, the order passed in the revision, is of noavail to the assessee, and the said finding on the face of it, isunsustainable. 5.Learned Counsel appearing for the appellant, wouldfurther submit that the Assessing Officer for the reasons best knownto him, has chosen to ignore the Clauses in Double Taxation AvoidanceAgreement between India and Singapore and further overlooked the factthat JOPL has no permanent establishment in India and that thecompetent authority at Singapore has also issued a certificate thatJOPL is subjected to tax only at Singapore and thereby, committed agrave error in misapplying/misconstruing the relevant Clauses in theabove said agreement. 6.It is the further submission of the learned Counselappearing for the appellant/writ petitioner, that Explanation 2 toSection 195 as per 2012 Amendment, cannot be pressed into service forthe reason that the said amendment is in the nature of clarification,wherein it has been clarified that both the resident as well as non-resident payers would have a liability to deduct tax at sourcenotwithstanding the absence of place of business, residence or anyother presence in India and it is also subject to a rider that it isapplicable only in the event that the remittances are chargeable totax and in other words, only if the remittances effected by theappellant/writ petitioner to JOPL, are chargeable to tax, then thesaid amendment would come into operation and in the case on hand, itis not so and the act or procedure adopted by the Assessing Officerin circumventing the order passed by his higher authority – Directorof Income Tax (International Taxation), clearly amounts to judicialindiscipline and though against the impugned order of assessment,which is the subject matter of challenge in the writ petition, appealremedy is available, since the impugned order of assessment is ex-facie illegal, the appellant/writ petitioner did not avail thealternative remedy. 7.Learned Counsel appearing for the appellant/writpetitioner, in support of her submissions, has placed reliance uponthe decisions in (i) (2009) 314 ITR 309 (SC) – VIJAY SHIP BREAKINGCORPORATION AND OTHERS V. COMMISSIONER OF INCOME TAX; (ii) (2010) 327ITR 456 (SC) – GE INDIA TECHNOLOGY CENTRE P. LTD. V. COMMISSIONER OFINCOME TAX AND ANOTHER and (iii) 1991 (55) ELT 433 (SC) – UNION OFINDIA V. KAMALAKSHI FINANCE CORPORATION LTD. 8.Learned Counsel appearing for the appellant, wouldfurther contend that in respect of the financial year 2012-13, onceagain, order of similar nature came to be passed and it is alsosubject matter of challenge in W.P.No.4504/2013, wherein a SingleBench of this Court has granted interim order without any condition.Hence the learned Counsel appearing for the appellant, prays forsetting aside the impugned order of assessment and for appropriateorders.https://hcservices.ecourts.gov.in/hcservices/ 9.Per contra, learned Senior Standing Counsel appearing forthe Revenue, has drawn the attention of this Court to the counter 8.Learned Counsel appearing for the appellant, wouldfurther contend that in respect of the financial year 2012-13, onceagain, order of similar nature came to be passed and it is alsosubject matter of challenge in W.P.No.4504/2013, wherein a SingleBench of this Court has granted interim order without any condition.Hence the learned Counsel appearing for the appellant, prays forsetting aside the impugned order of assessment and for appropriateorders.https://hcservices.ecourts.gov.in/hcservices/ 9.Per contra, learned Senior Standing Counsel appearing forthe Revenue, has drawn the attention of this Court to the counter affidavit filed in the main writ petition, and would submit that theorder passed in the revision under Section 264 of the Income Tax Act,pertains to first quarter of three months, namely between April andJune 2009, whereas the assessment is for the entire financial yearfrom 1.4.2009 to 31.3.2010, and hence obligation has been cast uponthe assessee to deduct the tax at source in respect of the paymentsmade to JOPL. It is further contended by the learned Senior StandingCounsel appearing for the Revenue, that JOPL is deemed to have apermanent establishment in terms of para 6 of Article 5 of the DoubleTaxation Avoidance Agreement as the contract is for five years, i.e.,more than 90 days. It is further submitted by the learned SeniorStanding Counsel appearing for the Revenue, that Section 195 of theIncome Tax Act was amended subsequently in Finance Act, 2012, withretrospective effect from 1.4.1962 and as per the said amendment, taxhad to be deducted whether the concerned individual, firm or companyis a resident or non-resident having a permanent establishment or notand in support of his submission, placed reliance upon a decisionreported in 60 ITR 156 (SC) (COMMISSIONER OF INCOME TAX V. STRAWPRODUCTS LTD.). 10.Lastly, it is submitted by the learned Senior StandingCounsel appearing for the Revenue, that as against the impugned orderof assessment, the writ petitioner/appellant is having an effectivealternative remedy under Section 246A of the Income Tax Act beforethe first Appellate Authority, namely Commissioner of Income Tax(Appeal), and no case has been made out to by-pass the appeal remedyand would further submit that the writ petition is not maintainablein view of the availability of the above said remedy and hence,prayed for the dismissal of the writ petition as well as the writappeal. 11.This Court paid its anxious consideration and bestattention to the submissions made by the learned Counsel appearingfor the appellant/writ petitioner, and the learned Senior StandingCounsel appearing for the Revenue, and also perused the materialsplaced before it. 12.The appellant/writ petitioner vide letter dated22.5.2009, requested the Income Tax Officer (TDS), InternationalTaxation, Chennai 34, to issue nil deduction of tax at source on theground that M/s.JOPL is assessed to tax at Singapore and does nothave any permanent establishment in India and in terms of Article 7of Double Taxation Avoidance Agreement between Singapore and India,the payments made to JOPL, are not taxable in India. 13.The Assessing Officer vide order dated 31.8.2009,rejected the said plea and ordered the appellant/writ petitioner todeduct tax at source at the rate of 3.167% on the gross payments forthe first quarter from April 2009 to June 2009, amounting toRs.16,38,30,625/-. 14.The said order was challenged by way or revision by thewrit petitioner/assessee before the Director of Income Taxhttps://hcservices.ecourts.gov.in/hcservices/(International Taxation). The Revisional Authority elaboratelyconsidered the said issue and arrived at a categorical finding thatnone of the items contemplated in Clause 2 of Article 5 of the Double 13.The Assessing Officer vide order dated 31.8.2009,rejected the said plea and ordered the appellant/writ petitioner todeduct tax at source at the rate of 3.167% on the gross payments forthe first quarter from April 2009 to June 2009, amounting toRs.16,38,30,625/-. 14.The said order was challenged by way or revision by thewrit petitioner/assessee before the Director of Income Taxhttps://hcservices.ecourts.gov.in/hcservices/(International Taxation). The Revisional Authority elaboratelyconsidered the said issue and arrived at a categorical finding thatnone of the items contemplated in Clause 2 of Article 5 of the Double Taxation Avoidance Agreement, exists in the present case andtherefore, it is not applicable to the assessee. The RevisionalAuthority further found that the ship was owned by the non-residentand crossed over the Indian waters for transportation of goodsthrough the international waters and in terms of the Double TaxationAvoidance Agreement, M/s.JOPL has no permanent establishment in Indiaduring the relevant period, and also placed reliance upon theTribunal judgments. 15.As regards applicability of Section 44B of the IncomeTax Act, the Revisional Authority found that M/s.JOPL – SingaporeCompany is not in the business of shipping and transportation of coalin between two Indian Ports and therefore, it cannot be said that thesaid Company is in shipping business. 16.The Revisional Authority has also taken intoconsideration the certificate dated 11.5.2009, issued by the LandRevenue Authority of Singapore, wherein it has been stated thatM/s.JOPL is a non-resident company registered and assessed to tax inSingapore, and ultimately, held that the income, if any, arising outof the transaction between the assessee and non-resident company, istaxable in Singapore and not in India and therefore, the businesstransaction is covered by Article 8 of the Double Taxation AvoidanceAgreement and further held that Section 44B of the Income Tax Act,has no application to the facts of the case and a direction was alsoissued to the Assessing Officer to give effect to the order. 17.It is an admitted fact that the order of the RevisionalAuthority dated 24.3.2010, who is a superior authority to theAssessing Officer, has not been put to challenge by the Revenue andit has become final. 18.In respect of the assessment year 2009-10, the AssessingOfficer made the disallowances to the revised return of income filedby the appellant/assessee on 30.1.2012, and it is relevant and usefulto extract the same: "(a) Disallowance of Rs.33,92,71,007/- u/s 40(a)(ia) on payments made to M/s Jaldhi Overseas Pte.Ltd. (JOPL), Singapore.(b) Disallowance of Rs.1,36,39,609/- of deemedinterest on monies advanced to sister concern." 19.The appellant/writ petitioner/assessee challenging thesaid assessment, preferred an appeal before the Commissioner ofIncome Tax (Appeals) – VI, wherein similar plea has been raised. 20.The Appellate Authority has taken into consideration theorder passed in the Revision, and on analysis of the materials placedbefore him, has arrived at the finding that the Assessing Officer hasnot brought any evidence on record to show that M/s.JOPL is not aresident of Singapore, nor is it taxed in Singapore in the financialyear 2008-09 and Articles 7 and 8 of the Double Taxation Avoidancehttps://hcservices.ecourts.gov.in/hcservices/Agreement supersede the provisions of Sections 9 and 44B of theIncome Tax Act and further found that the income of JOPL is subjectto tax in Singapore even in the assessment year 2009-10 and hence 20.The Appellate Authority has taken into consideration theorder passed in the Revision, and on analysis of the materials placedbefore him, has arrived at the finding that the Assessing Officer hasnot brought any evidence on record to show that M/s.JOPL is not aresident of Singapore, nor is it taxed in Singapore in the financialyear 2008-09 and Articles 7 and 8 of the Double Taxation Avoidancehttps://hcservices.ecourts.gov.in/hcservices/Agreement supersede the provisions of Sections 9 and 44B of theIncome Tax Act and further found that the income of JOPL is subjectto tax in Singapore even in the assessment year 2009-10 and hence income from Indian operations are not taxable in India andultimately, held that the provisions of Section 44B, 195 and 40(a)(ia) are not applicable. The Appellate Authority by citing the saidreasons, has allowed the appeal of the appellant/assessee, vide orderdated 24.12.2012, in favour of the appellant/writ petitioner/assesseeand once again, the said order has not been put to challenge. 21.In respect of the assessment year 2010-11, the AssistantCommissioner of Income Tax, Circle I, has passed an order ofassessment dated 29.3.2013, under Section 143(3) of the Income TaxAct. In the assessment order, it has been stated among other things,that the assessee made a payment of Rs.64,57,70,890/- to M/s.JOPL,Singapore, in the financial year 2009-10, and that the assessee hadnot deducted tax at source at the time of making the payment and inthe course of hearing, a show cause notice was also issued to them asto why payments made to JOPL without deducting tax at source, shouldnot be disallowed under Section 40(a)(i) of the Income Tax Act andtreated as income. The assessee in response to the said show causenotice, submitted its reply taking the very same stand, which wasconsidered by the Revisional Authority, and at later point of time,before the Appellate Authority. But, however, the Assessing Officerhas taken into consideration the amendment made to Section 195 of theIncome Tax Act, in the financial year 2012, especially Explanation 2,and held that by virtue of the retrospective amendment from 1.4.1962,tax had to be deducted for the payments made to JOPL, and therefore,the payment of Rs.64,57,70,890/- made to M/s.JOPL, without deductingtax, is to be disallowed and accordingly, disallowed the same underSection 40(a)(i) of the Income Tax Act and further ordered that itshould be added to the total income of the assessee. The AssessingOfficer also issued demand notice under Section 156 and penaltynotice under Section 274 read with Section 271 of the Income Tax Act,to the assessee. 22.In (2009) 314 ITR 309 (SC) (VIJAY SHIP BREAKINGCORPORATION AND OTHERS V. COMMISSIONER OF INCOME TAX), the followingquestions arose for determination in a batch of civil appeals beforethe Hon'ble Supreme Court of India: "(1) Whether the appellant-assessee was entitledto deduction under sections 80HH and 80-I of theIncome-tax Act, 1961, in respect of ship breakingactivity undertaken by it?(2) Whether 'usance interest' partakes of thecharacter of purchase price and, therefore, notliable to deduction at source under section 195(1)of the Income-tax Act, 1961?" The Hon'ble Supreme Court of India in answer to question No.2, heldthat tax deducted at source arises only if the tax is assessable inIndia and on the facts of the case, found that since tax was notassessable in India, there was no question of TDS being deducted bythe assessee. https://hcservices.ecourts.gov.in/hcservices/ 23.In a subsequent decision reported in (2010) 327 ITR 456(SC) (GE INDIA TECHNOLOGY CENTRE P. LTD. V. COMMISSIONER OF INCOMETAX AND ANOTHER), one of the questions that arose for consideration, The Hon'ble Supreme Court of India in answer to question No.2, heldthat tax deducted at source arises only if the tax is assessable inIndia and on the facts of the case, found that since tax was notassessable in India, there was no question of TDS being deducted bythe assessee. https://hcservices.ecourts.gov.in/hcservices/ 23.In a subsequent decision reported in (2010) 327 ITR 456(SC) (GE INDIA TECHNOLOGY CENTRE P. LTD. V. COMMISSIONER OF INCOMETAX AND ANOTHER), one of the questions that arose for consideration, was whether merely on account of such remittance to the non-residentabroad by an Indian company per se, could it be said that incomechargeable to tax under the Income-tax Act, 1961, arises in India?The Hon'ble Supreme Court of India has considered the expression inSection 195(1) of the Income Tax Act, i.e., "chargeable under theprovisions of the Act" and interpreted the word by stating that aperson paying interest or any other sum to a non-resident, is notliable to deduct tax if such sum is not chargeable to tax under theIncome Tax Act and held as follows:- "In our view, section 195(2) provides a remedy bywhich a person may seek a determination of the“appropriate proportion of such sum sochargeable” where a proportion of the sum sochargeable is liable to tax. The entire basis ofthe Department's contention is based onadministrative convenience in support of itsinterpretation. According to the Department hugeseepage of revenue can take place if personsmaking payments to non-residents are free todeduct TAS or not to deduct TAS. It is the caseof the Department that Section 195(2), asinterpreted by the High Court, would plug theloophole as the said interpretation requires thepayer to make a declaration before the Income-taxOfficer (TDS) of payments made to non-residents.In other words, according to the Department,section 195(2) is a provision by which the payeris required to inform the Department of theremittances he makes to the non-residents bywhich the Department is able to keep track of theremittances being made to non-residents outsideIndia. We find no merit in these contentions. Asstated hereinabove, section 195(1) uses theexpression “sum chargeable under the provisionsof the Act”. We need to give weightage to thosewords. Further, section 195 uses the word “payer”and not the word “assessee”. The payer is not anassessee. The payer becomes an assessee-in-default only when he fails to fulfil thestatutory obligation under section 195(1). If thepayment does not contain the element of incomethe payer cannot be made liable. He cannot bedeclared to be an assessee-in-default. Theabovementioned contention of the Department isbased on an apprehension which is ill-founded.The payer is also an assessee under the ordinaryprovisions of the Income-tax Act. When the payerremits an amount to a non-resident out of Indiahe claims deduction or allowances under theIncome-tax Act for the said sum as an“expenditure”. Under section 40(a)(i), inserted,vide the Finance Act, 1988, with effect fromhttps://hcservices.ecourts.gov.in/hcservices/April 1, 1989, payment in respect of royalty,fees for technical services or other sums chargeable under the Income-tax Act would not getthe benefit of deduction if the assessee fails todeduct TAS in respect of payments outside Indiawhich are chargeable under the Income-tax Act.This provision ensures effective compliance withsection 195 of the Income-tax Act relating to taxdeduction at source in respect of paymentsoutside India in respect of royalties, fees orother sums chargeable under the Income-tax Act.In a given case where the payer is an assessee hewill definitely claim deduction under the Income-tax Act for such remittance and on inquiry if theAssessing Officer finds that the sums remittedoutside India come within the definition ofroyalty or fees for technical service or othersums chargeable under the Income-tax Act then itwould be open to the Assessing Officer todisallow such claim for deduction. Similarly,vide the Finance Act, 2008 with effect from April1, 2008, sub-section (6) has been inserted insection 195 which requires the payer to furnishinformation relating to payment of any sum insuch form and manner as may be prescribed by theBoard. This provision is brought into force onlyfrom April 1, 2008. It will not apply for theperiod with which we are concerned in these casesbefore us. Therefore, in our view, there areadequate safeguards in the Act which wouldprevent revenue leakage." 24.In the later para, it has been further clarified by theHon'ble Supreme Court of India in the above said decision, that thewords of Section 195(1) in clear terms, lay down that tax at sourceis deductible only from "sums chargeable" under the provisions of theIncome-tax Act, i.e., chargeable under sections 4, 5 and 9 of thesaid Act. The Hon'ble Supreme Court of India, citing the saidreasons, has allowed the appeal filed by the assessee. 25.Learned Senior Standing Counsel appearing for theRevenue, has placed reliance upon a decision reported in 60 ITR 156(SC) (COMMISSIONER OF INCOME TAX V. STRAW PRODUCTS LTD.), wherein theappeals by special leave are directed against the judgment of theHigh Court of Madhya Pradesh in a reference made by the Income-taxAppellate Tribunal, and the following question was referred to theHigh Court: "Whether, on the facts of the case and havingregard to the provisions of paragraph 2 of theTaxation Laws (Merged States) (Removal ofDifficulties) Order, 1949, and clause 8 of theAgreement made on 20[th] September, 1938, betweenthe assessee and the State of Bhopal, the correctbasis for computing the written down value of thehttps://hcservices.ecourts.gov.in/hcservices/depreciable assets as at 1[st] November, 1948, isthe one which is adopted by the Income-tax Officeror the one adopted by the Appellate Assistant "Whether, on the facts of the case and havingregard to the provisions of paragraph 2 of theTaxation Laws (Merged States) (Removal ofDifficulties) Order, 1949, and clause 8 of theAgreement made on 20[th] September, 1938, betweenthe assessee and the State of Bhopal, the correctbasis for computing the written down value of thehttps://hcservices.ecourts.gov.in/hcservices/depreciable assets as at 1[st] November, 1948, isthe one which is adopted by the Income-tax Officeror the one adopted by the Appellate Assistant 26.The facts of the said case would disclose that thedepreciation, which was allowed in the original assessment, wasreduced and appeal was filed challenging the same, and the appellantAssistant Commissioner, who has disagreed with the Income-taxOfficer, held that the assessee had not been allowed excessdepreciation allowance as per the original assessment and there wasno basis for initiating proceedings under Section 34. Thereafter, areference was made to the High Court, wherein the High Court answeredit by stating "In the circumstances of this case the correct basisfor computing written down value of depreciable assets of the companyis the one adopted by the Appellate Assistant Commissioner." DuringAugust 1962, the Central Government made an amendment amending theTaxation Laws (Merged States) (Removal of Difficulties) Order, 1949,and it was made in exercise of the powers conferred under Section 8of the Taxation Laws (Explanation to Merged States) Ordinance, 1949.Section 8 provides that if any difficulty arises in giving effect tothe provisions of this Ordinance, the Central Government may by ordermake such provisions, or give such directions, as appear to it to benecessary for removal of the difficulty. Subsequently, Section 34 ofthe repealed Ordinance XXI of 1949 and Ordinance XXXIII of 1949 werereplaced by the Act. Sub-section 2 of Section 34 of the repealedOrdinance provides that anything done or any action taken in theexercise of any power conferred by any of the Ordinances referred toin this section, shall, for all purposes, be deemed to have been doneor taken in exercise of the powers conferred by this Act, as if thisAct were in force on the day, on which, such thing was done or actionwas taken. 27.It was contended on behalf of the Revenue, in the saidcase, that the High Court was wrong in answering the question infavour of the assessee and further contended that if the income of anassessee is exempted from taxation for a certain number of years, theassessee must be deemed to have claimed depreciation and deemed tohave been allowed depreciation according to the provisions of thesaid laws or rules, and it does not matter whether the assessee madea claim or not because it is fair that when the Indian Income-tax Actis applied, the assessee should be brought at par with the assessees,who had suffered taxation under the said Act. The Supreme Court hasrejected the said submission and also the other points urged onbehalf of the Revenue, and held that "The definition of "assessee"must mean a person by whom income-tax is payable under the BhopalAct. If it had not been for the agreement, the respondent would havebeen liable to pay tax and it is the agreement alone which exemptedit from taxation." 28.In the considered opinion of this Court, the saiddecision has not come to the rescue of the Revenue for the reasonthat in terms of the Double Taxation Avoidance Agreement, theremittances made to M/s.JOPL, are not chargeable to tax. The saidissue was precisely considered by the Revisional Authority as well ashttps://hcservices.ecourts.gov.in/hcservices/by the Appellate Authority in respect of the assessment year 2009-10,wherein findings have been given that the income, if any, arising outof the transaction between the assessee and non-resident company, is 28.In the considered opinion of this Court, the saiddecision has not come to the rescue of the Revenue for the reasonthat in terms of the Double Taxation Avoidance Agreement, theremittances made to M/s.JOPL, are not chargeable to tax. The saidissue was precisely considered by the Revisional Authority as well ashttps://hcservices.ecourts.gov.in/hcservices/by the Appellate Authority in respect of the assessment year 2009-10,wherein findings have been given that the income, if any, arising outof the transaction between the assessee and non-resident company, is taxable in Singapore and not in India and the judgment of the Hon'bleSupreme Court of India in GE INDIA TECHNOLOGY CENTRE P. LTD. Case,cited supra, was also taken into consideration and it has been heldthat the transactions between the assessee firm (appellant/writpetitioner) and JOPL are held not taxable in India and the assesseefirm is held not liable for payment of tax under Section 195. 29.Learned Senior Standing Counsel appearing for theRevenue, vehemently contended that the revision order of the Directorof Income-tax has been restricted to first quarter, namely April toJune 2009, and therefore, it cannot be made applicable. In theconsidered opinion of this Court, the said submission lacks merit andsubstance for the reason that the order passed in the revision, hasto be read as a whole and a careful scrutiny of the said order woulddisclose that the Revisional Authority has arrived at a categoricalfinding that the transaction between the assessee and non-residentcompany would be taxable only in Singapore and not in India. Aspointed out earlier, in respect of the assessment made for theassessment year 2009-10 also, appeal was filed by the assessee andthe Commissioner of Income-tax (Appeals) – VI has passed an orderdated 24.12.2012, holding that by virtue of the application ofArticles 7 and 8 of Double Taxation Avoidance Agreement, theterms/clauses in the said agreement supersede the provisions ofSections 9 and 44B of the Income-tax Act and further held that JOPLis a resident for taxation in Singapore even in respect of theassessment year 2009-10, and that the income from Indian operationsare not taxable in India and based on that reason, held that theprovisions of Sections 44B, 195 and 40(a)(ia) of the Income-tax Actare not applicable. The above said orders were not put to challengeand they have become final and it is to be remembered at thisjuncture, that they are assessee's own cases also. 30.The findings rendered by the Revisional Authority, arebased upon uncontroverted facts and it had also reached finality andthe facts projected in this writ petition, are also not in any waydifferent. 30.The findings rendered by the Revisional Authority, arebased upon uncontroverted facts and it had also reached finality andthe facts projected in this writ petition, are also not in any waydifferent. 31.In 1991 (55) ELT 433 (SC) (UNION OF INDIA V. KAMALAKSHIFINANCE CORPORATION LTD.), the facts of the case read that theAssessing Officer – Assistant Collector of Central Excise passed anorder with regard to the classification under a particular headingand the assessee preferred an appeal to the Collector (Appeals) andthe order passed by the Assistant Collector of Central Excise, wasset aside and the matter was remanded to the Assistant Collector topass a reasoned and speaking order. On remand, the AssistantCollector passed an order reiterating the conclusion that has beenreached by his predecessor, and also did not give any reason as towhy the order of Collector (Appeals) in respect of a similar case,was not followed. The assessee challenging the legality of the same,filed a writ petition before the Bombay High Court and the High Courtpassed an order and directed the department to allocate the matter toa competent officer to pass a proper order and also passed severestitches against two Assistant Collectors, who had dealt with thehttps://hcservices.ecourts.gov.in/hcservices/matter. On behalf of the Revenue, appeal was preferred before theHon'ble Supreme Court of India, praying for expunging the saidremarks. The Hon'ble Supreme Court of India in paragraphs 6 and 7 of the judgment, held as follows:- "6. Sri Reddy is perhaps right in saying that theofficers were not actuated by any mala fides inpassing the impugned orders. They perhapsgenuinely felt that the claim of the assessee wasnot tenable and that, if it was accepted, theRevenue would suffer. But what Sri Reddyoverlooks is that we are not concerned here withthe correctness or otherwise of their conclusionor of any factual mala fides but with the factthat the officers, in reaching their conclusion,by-passed two appellate orders in regard to thesame issue which were placed before them, one ofthe Collector (Appeals) and the other of theTribunal. The High Court has, in our view,rightly criticised this conduct of the AssistantCollectors and the harassment to the assesseecaused by the failure of these officers to giveeffect to the orders of authorities higher tothem in the appellate hierarchy. It cannot betoo vehemently emphasised that it is of utmostimportance that, in disposing of the quasi-judicial issues before them, revenue officers arebound by the decisions of