The Hon'ble Mr.justice T.s.sivagnanam W.p v. The Chief Commissioner Of Income Tax-I

IN THE HIGH COURT OF JUDICATURE AT MADRAS CORAM THE HON'BLE MR.JUSTICE T.S.SIVAGNANAMW.P.No.14165 of 2009 &M.P.No. 1 of 2009 M/s.”Van Oord ACZ Marine Contractors bv”formerly called as “Van Oord ACZ bv”having its registered office at Jan Blankenweg 2, 4207 HN Gorinchem, the Netherlands,c/o CNGSN & AssociatesChartered Accountants“Agastiar Manor”New No.20, Old No.13 Raja Street,T.Nagar, Chennai – 600 017. ..PetitionerCause title amended as per order dt.7.7.10 by DHPJ in MP.1/10 in WP.NO.14165/09vs. The Chief Commissioner of Income Tax-I,121, Mahatma Gandhi Road,Chennai – 600 034. ..Respondent PRAYER : Petition filed Under Article 226 of the Constitutionof India praying for issuance of a Writ of CertiorarifiedMandamus to call for the records on the file of the respondentherein in CHE/coord/106(W-27)/1/2002 and quash the impugnedorder passed dated 09.02.2009 and consequently direct therespondent herein to waive the interest u/s 234B and 234C of theAct. For Petitioner : Mr.R.SivaramanFor Respondent: Mr.J.Narayanaswamy Senior Standing CounselO R D E R Heard Mr.R.Sivaraman, learned counsel for the petitioner andMr.J.Narayanaswamy, learned Senior Standing Counsel appearing onbehalf of the respondent. https://hcservices.ecourts.gov.in/hcservices/ 2.The petitioner has filed this Writ Petition, challengingan order passed by the respondent, namely, the ChiefCommissioner of Income Tax-I, rejecting the petitioner'sapplication for waiver of interest levied under Sections 234Band 234C of the Income Tax Act, 1961 (hereinafter referred to as"the Act"). 3.The facts of the case being the petitioner is a non-resident Company, filed its return of income for the assessmentyear 2000-2001 within the time limit prescribed under Section139(1) of the Act. The return was processed under Section 143(1)of the Act and interest of Rs.23,53,882/- was charged underSection 234B and Rs.12,17,545/- was charged under Section 234Cof the Act. The petitioner filed an application before therespondent seeking waiver of the interest. The sum and substanceof the contention raised by the assessee before the respondentwas that the assessee could not pay any tax unless the case wasdecided by the Advance Ruling Authority (AAR) and assuming thateven before the decision of AAR, the petitioner is required topay taxes on its income, the petitioner's book results were aloss and hence, there was no requirement to pay advance tax andconsequently, there would be no liability or interest underSection 234B or 234C of the Act. Further, it is stated that theinterest under Section 234B or 234C of the Act is chargeableprovided the assessee who is liable to pay advance tax underSection 208 of the Act has failed to pay such tax. Further, itis submitted that the petitioner qualifies the conditionsspecified in the CBDT circulars dated 02.05.1994, 23.05.1996,30.01.1997 and 26.06.2006 and due to unavoidable circumstanceswhich prevented the petitioner from remitting advance tax.Therefore, the petitioner seeks to bring their case under Clause2(e) of the circular dated 23.05.1996. Further, it wascontended that the liability to pay tax is fastened on theassessee only due to the decision of the AAR and it could notpay any tax unless the case was decided by the AAR. Thus, it wassubmitted that the levy of interest under both these provisionsis not sustainable. 4.The respondent rejected the application by observing thatatleast 90% of the amount should have been paid as advance taxwhich the assessee failed to do and the Chennai Port Trust hadalso informed the assessee as early as on 30.01.1999 that taxdeduction liability was only to the extent of 2.2% of thecontract payments and the assessee themselves made provision fortax of Rs.3,63,372/- and Rs.28,623,937/- in the years ended31.03.1999 and 31.03.2000 in its accounts. Further, therespondent held that the assessee commenced its operation in1997 and having chosen to apply for AAR in April 1999 cannotattribute the delay in payment of taxes to the receipt of rulingof AAR in September 2000. The clear liability to pay advance tax on contract receipts by computing the income as per Section44BBB cannot be postponed by filing an application before theAAR. Therefore, the respondent held that the application forwaiver of interest under Section 234B and 234C of the Act is notacceptable. 5.It may not be necessary for this Court to labour much todecide the controversy in the issue in the light of the twodecisions. One being the decision of the Hon'ble DivisionalBench of this Court in the case of Chennai Port Trust Vs.Income-Tax Officer, TDS-VIII reported in [2012] 25 taxmann.com261 (Mad.) which pertains to the very same contract between theJoint Venture Company and Chennai Port Trust and the otherdecision in the case of the petitioner's sister concern, whowere the assessees on the file of the Income Tax Authorities atMumbai. One of the ground which was canvassed before theTribunal is with regard to levy of interest under Sections 234Band 234C of the Act and the decision was rendered in favour ofthe Group Company, sister concern which was affirmed by thedecision of Division Bench of High Court of Bombay inITA.No.3172 of 2010 dated 23.06.2011 and the appeal filedagainst the said order before the Hon'ble Supreme Court in SLPNo.7409 of 2010 is dismissed. 6.The learned Senior Standing Counsel for the revenuevehemently contended that the Court should examine the conductof the assessee which has been rightly noted by the respondentwhile rejecting the application for waiver. Further, at thetime, when the petitioner insisted upon the Chennai Port Trustto deduct 7% as tax at source, they have conveyed theirinability to do so by restricting the recovery only to 2.2% andat that point of time, the ruling in the case of NV Jan De Nul(236 ITR 489 AAR) was holding the field and therefore, thepetitioner assessee ought to have paid advance tax. Furthermore,it was submitted that merely because the petitioner assessee hadmoved the Advance Ruling Authority cannot be a reason to wipeaway the tax liability. In fact, the very same contention wasadvanced before the Advance Ruling Authority by the revenue whenthe petitioner had approached for necessary advance ruling whichwas negatived and it was held that the status of the jointventure is not that of association of person. One morecontention was advanced stating that the petitioner had obtainedthe Advance Ruling from the authority by misrepresentation andfraud. All these contentions were considered by the DivisionBench in the case of Chennai Post Trust (supra) and it was heldthat the decision of the Advance Ruling Authority as to thestatus of the Foreign Company and the debate persisted on thesaid issue between the Department and the assessee (Chennai PortTrust), the Chennai Port Trust cannot be declared as an assesseein default under Section 192 read with Section 201 of the Act to attract interest under Section 201(1A) of the Act. attract interest under Section 201(1A) of the Act. 7.The learned Senior Standing Counsel sought to distinguishthe decision by contending that the said decision arouse out ofan issue relating to deduction of Tax at Source. I am unable toaccept the said contention for the simple reason that thesubstantial question of law which was framed for considerationby the Division Bench is exactly on the very same issue asregards the status of joint venture whether it is an associationof person or not. Therefore, the decision in the case ofChennai Port Trust would come to the assistance of the assesseeherein. At this juncture, it would be beneficial to refer tothe operative portion of the Judgment which reads as follows:“10.The Advance Ruling Authority pointed outthat the contention of the assessee that Van OordACZ BV, being a foreign company, was aware of theruling of the AAR only when the Revenue relied onthe decision of AAR 469/1999 dated 14.09.2000.Further, the Revenue filed before the Tribunal thecopies of the returns filed by the foreign companyin the letter addressed by the foreign company toITO, TDS-VIII, Chennai, along with the return of thejoint venture and the status of the joint venturewas shown as AOP and a refund of Rs.3.24 crores wasclaimed. Form No.30 was signed by an authorisedrepresentative of the joint venture and thedeclaration was dated 08.12.1999. Since these factswere not there before the AAR at the time of passingof the original order, the present assessee soughtfor recalling of the order that there was amisrepresentation. The Advance Ruling Authoritypassed an order on 29.04.2009 and rejected theassessee's petition that the order passed by theAdvance Ruling Authority could not be said to havebeen obtained by fraud or misrepresentation. Itobserved that the document brought on record by thePort Trust showed its stand that the joint ventureconsisting of HCC and VOA was an AOP, resident inIndia. It also pointed out that the foreign companyfiled a return of income for 1998-99 on 25.11.1998as a non-resident company and for 1999-2000, on29.12.2000. It also filed a return showing thestatus of joint venture as an AOP on 02.11.1998before the Income Tax Officer, Ward-34, Mumbai,along with a return for claim of refund. TheAuthorised Representative for the foreign companyalso clarified that such application had to be filedto avoid the practical difficulty involved in theforeign company obtaining refund as a separateentity. The Advance Ruling Authority further pointed out that the return filed in the name of the jointventure as Association of Persons was invalid, itnot being in the Saral form and it was wrongly filedin the status of Association of Persons. In order toclear the conflicts thus arising from the positionstaken by the assessee on the one hand and theDepartment's stands on the other, the foreigncompany thus went before the Advance RulingAuthority for a decision. In the background of thesefacts, the Advance Ruling Authority held that thesewas no deliberate suppression of material facts asregards the non-filing of the return before theDepartment. In that context, the Advance RulingAuthority held that the order of the Advance RulingAuthority was not obtained by the foreign company bymisrepresentation or fraud. out that the return filed in the name of the jointventure as Association of Persons was invalid, itnot being in the Saral form and it was wrongly filedin the status of Association of Persons. In order toclear the conflicts thus arising from the positionstaken by the assessee on the one hand and theDepartment's stands on the other, the foreigncompany thus went before the Advance RulingAuthority for a decision. In the background of thesefacts, the Advance Ruling Authority held that thesewas no deliberate suppression of material facts asregards the non-filing of the return before theDepartment. In that context, the Advance RulingAuthority held that the order of the Advance RulingAuthority was not obtained by the foreign company bymisrepresentation or fraud. 11. A reading of this order thus brings out twothings very clear. The assessee had taken aconsistent stand that the joint venture was to beassessed only as Association of Person. For somereason, the foreign company filed its returnoriginally as a non-resident company, which wasfollowed subsequently by yet another return, which,no doubt, was in a form not conforming to Saral,making the status of the joint venture asAssociation of Persons. The claim for refund wasmade in the status of joint venture only and thiswas sought to be explained by the foreign companythat it was done to avoid delay in getting itsrefund. The order of the Advance Ruling Authoritythus clearly shows the conflicting and confusedclaims then persisting and absolutely, there was noaction either from the foreign company, or for thatmatter, for the assessee herein, to approach theconcerned authority for a ruling as to whether thereshould have been a TDS at all either under Section194C or under Section 195 of the Income Tax Act. Itwas submitted that going by the understanding of theterms of the joint venture agreement between thecompanies and the contract awarded to the jointventure, the assessee entertained a bona fide beliefthat it was only a joint venture; hence, to beassessed as an Association of Persons, a course ofaction which could not be taken exception to. Evengoing by the order of the Tribunal, we see that muchof a discussion was as to whether the joint venturecould be taken as an Association of Persons or not.The assessee pointed out that at least till theAdvance Ruling Authority passed an order, theDepartment itself did not deem it fit to reject the assessee's claim that the payments were made underSection 194C, treating the joint venture asAssociation of Persons. In the background of thesecircumstances, we hold that the reliance placed onthe decision of the Apex Court in CIT v. BritishAirways [2010] 190 Taxman 304 in almost similarcircumstances, comes to the aid of the assesseeherein. assessee's claim that the payments were made underSection 194C, treating the joint venture asAssociation of Persons. In the background of thesecircumstances, we hold that the reliance placed onthe decision of the Apex Court in CIT v. BritishAirways [2010] 190 Taxman 304 in almost similarcircumstances, comes to the aid of the assesseeherein. 12. The Supreme Court observed that till thedecision of the Apex Court in CIT v. Eli Lilly & Co.(India) (P.) Ltd. [2009] 312 ITR 225 / 178 Taxman505, there was a debate on the question as towhether TDS was deductible on foreign salary paymentas a component of total salary paid to an expatriateworking in India. In the face of such debatableissue, the assessee could not be declared as anassessee in default under Section 192 read withSection 201 of the Income Tax Act. Further, the ApexCourt pointed out that since the foreign company-assessees therein had paid the differntial tax andthe interest and had further undertook not to claimrefund for the amount paid, the Supreme Court heldthat the orders passed under Section 201(1) and 201(1A) could not be upheld. Applying the decision ofthe Apex Court to the case on hand, which we hadalready narrated in the preceding paragraph, withthe debate on the status of the assessee existing atleast till 2000 and the assessee not having anyinformation as regards the order passed by theAdvance Ruling Authority, we have no hesitation inaccepting the plea of the assessee that the assesseeherein could not be declared as an assessee indefault for the purpose of interest under Section201(1A) of the income Tax Act. It may be ofrelevance to note herein that the assessee haddeducted tax at 2%. The foreign company had paid taxunder Section 44BBB at 4.8% and sought for a refund.Taking note of the decision of the Apex Court in EliLilly & Co. (India) (P) Ltd. (supra) and the objectunderlying Section 201 to recover the taxes wherethere is a shortfall, it is but necessary to findout whether the foreign company had already remittedthe tax as per Section 44BBB. 13. It is a matter of record that the foreigncompany had remitted tax as per Section 44BBB at4.8% and had also sought for refund therein. In thelight of the said decision, we hold that theassessee cannot be mulcted with any liability by wayof interest to be charged under Section 201(1A).Thus, applying the decision in British Airways (supra), considering the consistent stand taken bythe assessee and the parties to the agreement thatthe status of the joint venture was only Associationof Persons, we hold that there could be no case forlevying interest under Section 201(1A). 14. Even though the question of law raisedbefore this Court reads as to whether the Income TaxAppellate Tribunal is right in law in holding thatthe joint venture of H.C.C. Ltd and Van Oord ACZ(VOACZ) is not an Association of Persons and thepayment made to the joint venture should be treatedas a payment made to the foreign company and taxdeducted at source on that basis, yet, consideringthe above decision, we hold that with the decisionof the Advance Ruling Authority available as to thestatus of the foreign company and the debatepersisting on the said issue between the Departmentand the assessee, the assessee could not be declaredas an assessee in dafault under Section 192(sic)read with Section 201 of the Income Tax Act, toattract interest under Section 201(1A).In the result, the Tax Case Appeals standallowed. No costs.” 8.As pointed out earlier in the case of assessee's sisterconcern, who were also engaged in similar dredging contracts andregistered with the Income Tax authorities and assessed on thefile of the Income Tax Authority at Mumbai, an appeal waspreferred by the Revenue before the ITAT, Mumbai against theorder passed by the Commissioner of Income Tax (A) forassessment year 1999-2000. One of the grounds raised in theappeal was with regard to the levy of interest under Sections234B and 234C of the Act. The Income Tax Appellate Tribunal tooknote of the decision in the case of DIT (International Taxation)vs. NGC Network Asia reported in (2009) 18 DTR (Bom) 203 anddismissed the revenue's appeal. The revenue filed an appealbefore the High Court of Bombay in ITA No.3172 of 2010 which wasdismissed and this order was affirmed by the Hon'ble SupremeCourt. 9.In the case of DIT (International Taxation) & NGC NetworkAsia (supra), the Hon'ble Division Bench of High Court of Mumbaiagreed with the view taken by the Uttaranchal HighCourt in thecase of CIT & Anr. vs. Sedco Forex International Drilling Co.Ltd. & Ots reported in (2003) 264 ITR 230 (U) and held that whena duty is cast on the payer to pay the tax at source, onfailure, no interest can be imposed on the payee/assessee. 10.This Court in the case of John Baptist Lasrado vs IncomeTax Settlement Commission and others in W.P.No.18472 of 2009 https://hcservices.ecourts.gov.in/hcservices/ dated 27.11.2017 had an occasion to consider somewhat anidentical issue and after taking note of the decision in thecase of CIT & Anr. Vs Sedco Forex International Drilling Co. Ltdallowed the writ petition and held that the assessee therein wasnot liable for payment of interest under Section 234B of theAct. Thus, I am of the clear view that the above decisionswould clearly cover the case on hand and the circumstances whichwere considered by the Division Bench in the case of ChennaiPort Trust, namely, with regard to conflict and confusion thatwas persisting till the Advance Ruling Authority passed theorder. In fact, the Division Bench pointed out that till theAdvance Ruling Authority pass an order, the Department itselfdid not deem it fit to reject the assessee's (Chennai PortTrust) claim that payments were made under Section 194C of theAct treating the joint venture as an association of persons. 11.Thus, the attempt of the Revenue in the instant case ifto be accepted can be at best for statistical purposes. Thus,for the above reasons, the petitioner is entitled to succeed andaccordingly, the writ petition is allowed, the impugned order isset aside and consequently it is held that the petitioner is notliable to pay interest under Section 234B and 234C of the Act.No costs. Consequently, connected Miscellaneous Petition isclosed. Sd/- Assistant Registrar(CS IX) //True Copy// Sub Assistant Registrar nl/cseToThe Chief Commissioner of Income Tax-I,121, Mahatma Gandhi Road,Chennai – 600 034. +1cc to Mr.R.Sivaraman, Advocate Sr.No.490+1cc to Mr.J.Narayanaswamy, Advocate Sr.No.552