M/S.hitachi Power Europe Gmbhrepresented By The Authorised Signatoryof Its Project Office, Chennaimr.pravesh P. Jain v. Income Tax Settlement Commission Additional Bench Chennai Ministry Of

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 17.02.2020 CORAM THE HONOURABLE DR.JUSTICE ANITA SUMANTHW.P.No.3706 of 2019and WMP Nos.4084 and 4087 of 2019and WMP Nos.10425 and 10426 of 2019 M/s.Hitachi Power Europe GmbHRepresented by the Authorised Signatoryof its Project Office, ChennaiMr.Pravesh P. Jain ...Petitioner Vs. 1 Income tax Settlement Commission Additional Bench Chennai Ministry of Finance Department of Revenue 640 Anna Salai Nandanam Chennai-35 2 Dispute Resolution Panel-2 Office of the Dispute Resolution Panel 7th Floor Income Tax Office BMTC Building 80 Feet Road Koramangala Bengaluru- 560 095 3 Deputy Commissioner of Income Tax International Taxation – 1(1) chennai 121 M.G.Road Nungambakkam Chennai-344 Deputy Commissioner of Income Tax International Taxation-2(1) Chennai 121 M.G.Road Nungambakkam Chennai-34 5 Deputy Commissioner of Income Tax International Taxation- 1(2) Chennai 121 M.G.Road Nungambakkam Chennai-34 6 Deputy Commissioner of Income Tax Transfer Pricing Officer 2(1) 5th Floor BSNL Building Tower-I Greams Road, Chennai-06 .. Respondents Prayer: PETITION filed under Article 226 of The Constitution ofIndia praying for the issuance of Writ of CertiorarifiedMandamus , calling for the records of the 1st Respondent 1/10 contained in the impugned order u/s. 245D (2C) of the Income TaxAct 1961 bearing TN/ CN- INTL.TAX/ 2018-19/ 23/ IT dated 09January 2019 and to quash the same as arbitrary unjust andillegal and to consequently direct the 1st Respondent to pass afresh order under Section 245D (2C) of the Income Tax Act 1961admitting the application filed by the petitioner in accordancewith law. For Petitioner : Mr.P.S.Raman, S.C. Mr.R.Sivaraman For Respondent : Mrs.Hema Muralikrishnan Senior Standing Counsel ORDER Heard the detailed submissions of the petitionerrepresented by Mr.P.S.Raman, learned Senior Counsel forMr.R.Sivaraman, learned counsel and the respondents representedby Mrs.Hema Muralikrishnan, learned Senior Standing Counsel 2. The petitioner has challenged an order passed by theIncome Tax Settlement Commission (SC/Commission) in terms ofSection 245D(2C) of the Income Tax Act, 1961 (Act) dated09.01.2019. 3. The petitioner is a company incorporated under the lawsof Germany engaged in the design and construction of fossil-fired power plant as well as supply of key components, such asutility steam generators, and other ancilliary equipment.During June, 2010, the National Thermal Power Corporation (NTPC)had invited bids under international competitive bidding for thesupply and installation of 11*660 MW steam generators at fivelocations in India. A bid was successfully submitted by one BGREnergy Systems Limited (BGRE), a company incorporated in Indiaand engaged in providing turnkey solutions for coal basedthermal power plants. 4. I desist from adverting to the specifics of thecontracts themselves or the manner in which the work has beenapportioned and allocated by NTPC/BGRE to other parties, sinceit is not entirely necessary to decide the legal issue that hasbeen raised in this Writ Petition. Suffice it to say that BGREhad sub-contracted a portion of the scope of work under threecontracts to its joint venture company BGR Boilers PrivateLimited (BGRB), which, in turn, sub-contracted a portion of thesame to the petitioner. 2/10 5. One of the contentions raised by the petitioner onmerits was that the scope of work under each of the contracts isseparate and distinct in all respects including the delineationof the work itself, the modes of execution of the contract andthe payments therefor. For this reason, the petitioner hadtaken the stand that the income from offshore supplies would notbe liable to tax in India and this stream of revenue thus didnot figure in its return of income or accompanying financials. 2/10 5. One of the contentions raised by the petitioner onmerits was that the scope of work under each of the contracts isseparate and distinct in all respects including the delineationof the work itself, the modes of execution of the contract andthe payments therefor. For this reason, the petitioner hadtaken the stand that the income from offshore supplies would notbe liable to tax in India and this stream of revenue thus didnot figure in its return of income or accompanying financials. 6. Returns of income had thus been filed by the petitionerin respect of Assessment Years (AY) 2015-16, 2016-17, 2017-18and 2018-19 offering to tax the income from onshore supply andservices only. 7. The contention of the Revenue on merits is that thescope of work entrusted to the petitioner remains indivisibleand that the bifurcation of the same between offshore supply onthe one hand and onshore supply and services on the other wasartificial and solely for the purpose of reduction of income taxliability. 8. The petitioner has earlier filed an application underSection 197 of the Act on 16.11.2018 seeking a determination ofthe liability by way of tax deduction in respect of income fromall three revenue streams, namely, offshore supply, onshoresupply and onshore service. This aspect of the matter ismentioned solely for the purpose of ascertaining disclosure ofthe petitioner of all relevant facts before the Department. 9. A Survey came to be conducted in the project office ofthe petitioner on 12[th] and 13[th] of October, 2017 wherein certainmaterials appear to have been found, indicating to theDepartment that the transaction as between itself and BGRB was asingle, indivisible transaction. The Department thus, being ofthe view that tax ought to have been remitted on the income fromoffshore supply as well, issued a show cause notice containingthe aforesaid proposal. The petitioner states that noopportunity was granted to it to respond to the notice and anorder of draft assessment under Section 144C of the Act waspassed on 31.12.2017. This was assailed by way of Writ Petitionin W.P.No.1248 of 2018 before the Madras High Court. Though aninterim order was granted on 22.01.2018 staying all furtherproceedings in relation to A.Y.2015-16, the petitioner withdrewits Writ Petition on 24.10.2018 and instead approached theDispute Resolution Panel (DRP) by way of objections filed on05.11.2018. 3/10 10. At that stage, the petitioner approached the SC by wayof an application under Section 245C of the Act. Theapplication was taken up for admission and an order passed on26.11.2018 after hearing only the petitioner and at a stageanterior to receipt of the Departments’ report on theapplication filed. 11. At paragraph 4.1.5 of order dated 26.11.2018, theCommission notes the submissions of the petitioner in regard tothe non-taxability of income from offshore supply. It alsonotes the specific submission that further and detailedsubmissions in that regard would be made in the course ofsubsequent proceedings. Again, at paragraph 6 reference is madeto the transaction in relation to offshore supply and thetaxability of the same. It was also specifically noted that noadditional income has been offered along with the application inthis regard. The decision to admit the matter for furtherhearing is in the following terms: 11. At paragraph 4.1.5 of order dated 26.11.2018, theCommission notes the submissions of the petitioner in regard tothe non-taxability of income from offshore supply. It alsonotes the specific submission that further and detailedsubmissions in that regard would be made in the course ofsubsequent proceedings. Again, at paragraph 6 reference is madeto the transaction in relation to offshore supply and thetaxability of the same. It was also specifically noted that noadditional income has been offered along with the application inthis regard. The decision to admit the matter for furtherhearing is in the following terms: ‘7. On examination of the SOF and related material andon thoughtful consideration of the facts as discussedduring the course of hearing, we find that technicalparameters in the Application with regard to pendencyof assessment proceedings, tax liability exceeding thethreshold limit, payment of application fee ofRs.500/- and intimation to the Assessing Officer havebeen duly fulfilled by the applicant. The applicanthas also explained the manner in which the additionalincome is derived in the SOF. On the basis of thematerial placed before us we are of the view that atpresent, there is prima facie no material whichwarrants the conclusion that true and full disclosurehas not been made by the applicant or it has notdisclosed the manner of earning such income. Hence,all the requirements laid down u/s 245C(1) have beenfulfilled by the applicant. We accordingly hold thatthe above application is fit to be allowed to beproceeded with further. This order is beingaccordingly passed and is without prejudice to thefinding that may be given in the later stage ofproceedings. 8. In view of the above, we allow the aboveSettlement Application to be proceeded with furtheru/s 245D(1) of the I.T.Act.’ 4/10 https://hcservices.ecourts.gov.in/hcservices/ 12. A report on the application was thereafter filed by theCommissioner in terms of Section 245 D(2B) of the Act.Thereafter, the matter was listed for decision on the aspect of‘validity’ or otherwise of the application. The report of theCommissioner deals with the aspects of correctness and adequacyof the additional taxes and interest remitted as well ascompliance with the requirement under Section 245C(4) ofthe Act. 13. As regards full and true disclosure of income, theCommissioner reiterates the stand of the Revenue in the draftassessment order to the effect that the division of the contractbetween offshore and onshore components is but an artificialbifurcation, and the contract is composite, liable to beconstrued as one whole, with the entirety of the income beingoffered to tax in India. 14. The petitioner, in the application for settlement, hasframed the following issues for resolution: ‘2.1 Whether the Applicant is taxable in India onaccount of income earned from offshore supply of goods? 2.2 Determination of the total income of the Applicantfor each of the AYs, being AY 2015-16 to AU 2018-19 asper the provisions of the Act. 2.3. Determination of the total tax liability of theApplicant for each of the four assessment years underconsideration. 2.4 Any other issue that may be considered fit by theHon’ble Settlement Commission in the interest of justiceor to make the settlement effective’ 15. Thus the question of whether the contract is divisibleor indivisible is a matter laid before the Commission forconsideration and what the Commissioner has done in his reportis only to reiterate the stand of the Department that thecontracts are, in fact, and in his opinion, indivisible. 5/10 2.2 Determination of the total income of the Applicantfor each of the AYs, being AY 2015-16 to AU 2018-19 asper the provisions of the Act. 2.3. Determination of the total tax liability of theApplicant for each of the four assessment years underconsideration. 2.4 Any other issue that may be considered fit by theHon’ble Settlement Commission in the interest of justiceor to make the settlement effective’ 15. Thus the question of whether the contract is divisibleor indivisible is a matter laid before the Commission forconsideration and what the Commissioner has done in his reportis only to reiterate the stand of the Department that thecontracts are, in fact, and in his opinion, indivisible. 5/10 16. The SC however, in considering the ‘validity’ orotherwise of the application proceeds to delve into the meritsof the matter even at that stage, concluding that the contractwas composite and indivisible and hence the applicant, i.e,. thepetitioner herein, had failed to make a full and true disclosureof income. 17. In my considered view, this tantamounts to putting thecart before the horse. Certainly, if the Commission decidesadverse to the petitioner in final hearing, holding that thecontract and transactions were composite and indivisible, therewould be an additional tax liability upon the petitioner. Thisdemand however can be raised only once a decision has beenrendered in terms of Section 245D(4) by the Commission on theissues posed before it, the first of which is, whether at allthe income from offshore supply is liable to tax in India. Thequestion of full and true disclosure and the discharge of taxliability at all stages prior to final hearing, should be seenonly in the context of the issues offered for settlement and theremittances of additional tax thereupon. Issues decided by theCommission and liability arising therefrom, will be payable onlyat the stage of such determination, which, in my consideredview, is the stage of final hearing under Section 245D(4).18. In fact, Section 245D (6) clarifies this point, asfollows:‘245D. Procedure on receipt of an application under section245C (6)Every order passed under sub- section (4) shallprovide for the terms of settlement including any demandby way of2tax, penalty or interest], the manner inwhich any sum due under the settlement shall be paid andall other matters to make the settlement effective andshall also provide that the settlement shall be void ifit is subsequently found by the Settlement Commissionthat it has been obtained by fraud or misrepresentationof facts.’ 19. Thus a final order passed by the SC will provide forthe terms of settlement that can include any demand by way oftax, penalty or interest as well. Evidently, this demand raisedafter final settlement, can only refer to such issues as hasbeen decided by the Commission over and above the additionalincome disclosed and tax paid by the assessee at the time offiling of application. This been envisaged and provided for inthe statutory scheme of settlement under the Act. 6/10 20. The scheme of Chapter XIX A is to provide a wholisticresolution of issues that arise from an assessment in the caseof an assessee that has approached the Commission. 21. Throughout Chapter XIX A, the words 'case','assessment', 'matter' and 'proceedings' have been usedinterchangeably with ‘case’ being defined under Section 245A(b)as follows: 245A. In this Chapter, unless the context otherwiserequires,— (b) "case" means any proceeding for assessment underthis Act, of any person in respect of any assessmentyear or assessment years which may be pending before anAssessing Officer on the date on which an applicationunder sub-section (1) of section 245C is made. 6/10 20. The scheme of Chapter XIX A is to provide a wholisticresolution of issues that arise from an assessment in the caseof an assessee that has approached the Commission. 21. Throughout Chapter XIX A, the words 'case','assessment', 'matter' and 'proceedings' have been usedinterchangeably with ‘case’ being defined under Section 245A(b)as follows: 245A. In this Chapter, unless the context otherwiserequires,— (b) "case" means any proceeding for assessment underthis Act, of any person in respect of any assessmentyear or assessment years which may be pending before anAssessing Officer on the date on which an applicationunder sub-section (1) of section 245C is made. 22. A three Judge Bench of the Supreme Court in the case ofCommissioner of Income Tax V. Express Newspapers Limited (206ITR 443) considered the scope and width of proceedings beforethe SC in a case that travelled to the Supreme Court from theMadras High Court. At paragraph 9, the Bench states as follows: ‘9.For a proper delineation of the jurisdiction of theCommission, it is necessary to bear in mind thelanguage of sub-section (1) ofSection 245-C. Itprovides that at any stage of a case relating to him,an assessee may make an application to the Commissiondisclosing fully and truly income which has not beendisclosed before the Assessing Officer. He must alsodisclose how the said income has been derived by himbesides certain other particulars. This means that anassessee cannot approach the Commission for settlementof his case with respect to income already disclosedbefore the Assessing Officer. An applicationunderSection 245-Cis maintainable only if itdiscloses income which has not been disclosed beforethe Assessing Officer. The disclosure contemplatedbySection 245-Cis thus in the nature of voluntarydisclosure of concealed income. Unless the income sodisclosed exceeds Rs 50,000, the applicationunderSection 245-Cis not maintainable. It is equallyevident that once an application made underSection245-Cis admitted for consideration (after givingnotice to and considering the report of theCommissioner of Income Tax as provided bySection 245- 7/10 https://hcservices.ecourts.gov.in/hcservices/ D) the Commission shall have to withdraw the caserelating to that assessment year (or years, as the casemay be) from the assessing/appellate/revising authorityand deal with the case, as a whole, by itself. In otherwords, the proceedings before the Commission are notconfined to the income disclosed before it alone. Oncehis application is allowed to be proceeded with by theCommission, the proceedings pending before anyauthority under the Act relating to that assessmentyear has to be transferred to Commission and the entirecase for that assessment year will be dealt with by theCommission itself. The words "at any stage of a caserelating to him" only make it clear that the pendencyof proceedings relating to that assessment year,whether before the Assessing Officer or before theappellate or revisional authority, is no bar to thefiling of an application underSection 245-Cso long asthe application complies with the requirementsofSection 245-C.’ 23. Thus, once an assessee has approached the SettlementCommission at the appropriate stage (in the case of thispetitioner, there is no dispute on this score) all issues inrelation to the assessment for that assessment year are at largebefore the SC. This is evidently to ensure that a single forum,a high powered one at that, will take into account thesubmissions of both parties and arrive at a decosopm on allissues that arise from such case/proceeding, in a comprehensivemanner. 23. Thus, once an assessee has approached the SettlementCommission at the appropriate stage (in the case of thispetitioner, there is no dispute on this score) all issues inrelation to the assessment for that assessment year are at largebefore the SC. This is evidently to ensure that a single forum,a high powered one at that, will take into account thesubmissions of both parties and arrive at a decosopm on allissues that arise from such case/proceeding, in a comprehensivemanner. 24. I may also make useful reference to a decision of theDelhi High Court that had had occasion to consider the case of are-assessment in Omaxe Ltd. V. Assistant Commissioner of IncomeTax ((2012) 25 Taxmann.com 190). In that case, the assessee hadapproached the Settlement Commission on various counts. Afteran order of settlement was passed, a notice under Section 148had been issued calling upon the petitioner to file a return ofincome in regard to the alleged escapement caused by a claim ofdeduction under Section 80IB(10) of the Act. The assesseeresisted the notice on the ground that the assessment for thatyear had become final by virtue of the order of the SC. Thedefence of the Department was that no additional income had beenoffered in regard to the deduction under Section 80IB(10) as itconstituted an issue not covered by the order of the SettlementCommission. The stand of the revenue was negated on the groundthat income from the unit in respect of which deduction was 8/10 claimed as well as the claim of deduction were duly reflected inthe return of income and this issue thus also stood encompassedby the final order of the Commission. 25. The plenitude of powers that the Settlement Commissionenjoys has been long settled by the Supreme Court inR.B.Shreeram Durga Prasad V. Settlement Commission (176 ITR169), Jyotendrasinghji V. S.I.Tripathi (201 ITR 611) and KuldeepIndustrial Corpn. V. ITO (223 ITR 840) and there can thus be noquestion that the Commission is empowered to both adjudicateupon as well as settle issues arising from a ‘case’ in respectof which an Application is made. 26. The revenue relies on a decision of this Court in thecase of Abdul Rahim V. ITSC ((2018) 96 Taxmann.com 571). Thefacts in that case are different and distinguishable from theone before me. A preliminary order of admission under section245D(1) was passed on the application of the assessee therein.The Commissioners’ report however brought to light certainmaterials including a pen drive and compact discs that had notbeen duly disclosed by the petitioner in his application. Thuswhen the matter was taken up for admission by the Commission, itwas contested by the Revenue on the ground that there was nofull and true disclosure by the petitioner. This was acceptedby the Court in the light of the patent non-disclosure by theassessee therein to have disclosed the pen drive and compactdiscs, rending the application ‘invalid’, a term that has notbeen defined, but in respect of which one would have to assignits natural meaning, as used in common parlance. 27. In the light of the discussion as above, I am of thecategoric view that the impugned order of the SettlementCommission is beyond the scope of Section 245D(2C) having beenpassed on the merits of the issue raised and set aside the same.This Writ Petition is allowed. No costs. ConnectedMiscellaneous Petitions are closed. 28. The matter will be now taken up for final hearing bythe Settlement Commission in terms of Section 245D(4) of theAct. Let the petitioner appear, for this purpose, before theSettlement Commission on Monday, the 02[nd] of March, 2020 or on adate as proximate to the aforesaid date as may be convenient tothe Settlement Commission to be fixed by issue of prior notice.The Commission will hear both parties on merits, consider allmaterials before it or that may be placed by the parties before 9/10 28. The matter will be now taken up for final hearing bythe Settlement Commission in terms of Section 245D(4) of theAct. Let the petitioner appear, for this purpose, before theSettlement Commission on Monday, the 02[nd] of March, 2020 or on adate as proximate to the aforesaid date as may be convenient tothe Settlement Commission to be fixed by issue of prior notice.The Commission will hear both parties on merits, consider allmaterials before it or that may be placed by the parties before 9/10 it and pass orders within a period of twelve (12) weeks fromdate of first hearing, in accordance with law. Sd/-Assistant Registrar /True Copy/ To Sub Assistant Registrar 1 The Income tax Settlement Commission Additional Bench Chennai Ministry of Finance Department of Revenue 640 Anna Salai Nandanam Chennai-35 2 The Dispute Resolution Panel-2 Office of the Dispute Resolution Panel 7th Floor Income Tax Office BMTC Building 80 Feet Road Koramangala Bengaluru- 560 095 3 The Deputy Commissioner of Income Tax International Taxation – 1(1) chennai 121 M.G.Road Nungambakkam Chennai-34 4 The Deputy Commissioner of Income Tax International Taxation-2(1) Chennai 121 M.G.Road Nungambakkam Chennai-34 5 The Deputy Commissioner of Income Tax International Taxation- 1(2) Chennai 121 M.G.Road Nungambakkam Chennai-34 6 The Deputy Commissioner of Income Tax Transfer Pricing Officer 2(1) 5th Floor BSNL Building Tower-I, Greams Road, Chennai-06 +1cc to M/s.Hema Murali Krishnan, Advocate Sr.No.13357 AKM/28.02.2020/10P-8C/ W.P.No.3706 of 2019and WMP Nos.4084 and 4087 of 2019and WMP Nos.10425 and 10426 of 2019 10/10 https://hcservices.ecourts.gov.in/hcservices/