w w w . L a w y e r S e r v i c e s . i n



M/s. Anand Transport (Private) Ltd., Represented by its Director V.R. Arunachalam v/s Assistant Commissioner of Income Tax, Nungambakkam

    Writ Appeal No. 952 of 2013 & M.P.No.1 of 2013 & W.P.No.11360 of 2013 & M.P.No.2 of 2013

    Decided On, 05 February 2014

    At, High Court of Judicature at Madras

    By, THE HONOURABLE CHIEF JUSTICE MR. R.K. AGRAWAL & THE HONOURABLE MR. JUSTICE M. SATHYANARAYANAN

    For the Appellant: Dr. (Mrs.) Anita Sumanth for V. Sanjeevi, Advocates. For the Respondents: T. Pramod Kumar Chopda, Senior Standing Counsel for Income Tax.



Judgment Text

(Prayer: Writ appeal preferred under Clause 15 of the Letters Patent against the order of this Court dated 23.4.2013, made in M.P.No.2/2013 in W.P.No.11360/2013.

Writ petition filed under Article 226 of the Constitution of India praying for issuance of a writ of certiorari calling for the records in PAN AAAFA1037D dated 29.3.2013 relating to Assessment Year 2010-11 on the file of the respondent insofar as it relates to the disallowance u/s 49(a)(i) for alleged non-deduction of tax at source in terms of Section 195(1) of the Income Tax Act and quashing the same.)

Common Judgment:

Challenging the interim order dated 23.4.2013 in M.P.No.2/2013 in W.P.No.11360/2013, under which, the interim stay of the operation of the order of assessment in PAN AAAFA1037D dated 29.3.2013 relating to the assessment year 2010-2011, on the file of the respondent, was granted subject to the condition that without prejudice to rights of either parties, the writ petitioner/assessee shall pay 30% of the impugned demand within a period of four weeks from 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 Counsel appearing for the parties, that since arguments in the writ appeal also pertain to the merits of the writ petition, the writ petition itself may be taken up for disposal and taking into consideration the same, the writ petition itself is taken up for disposal along with this writ appeal.

3. The facts of the case as culled out from the materials placed before this Court in the form of affidavit, counter and typed-set of documents, are as follows:

(a) The appellant/writ petitioner was originally a partnership firm and later on, became a private limited company and it is engaged in the business of transportation of coal from Paradip Port to Chennai Port through ships, for the various ongoing projects of Andhra Pradesh Power Generation Corporation. The appellant for the said purpose, entered into an agreement with M/s.Jaldhi Overseas Private Limited (in short "JOPL"), Singapore, on 7.9.2009, for transportation of coal and the validity of the agreement was for a period of five years, commencing from September 2008 to August 2013.

(b) According to the appellant, JOPL is a Singapore tax resident shipping company and in terms of the above said agreement, it agreed to provide suitable ships to the appellant for transportation of coal between the above said two Indian Ports. The agreement further provides that the appellant is to make periodic freight payments to JOPL in US Dollar, for transportation of coal on tonnage basis and the rates have been agreed upon in terms of Clause 30 of the above said agreement.

(c) It is the specific case of the appellant that JOPL is a company registered in Singapore and is assessed to income tax at Singapore only. It is also evidenced by the fact that it has been issued with the Certificate of Tax Residence and Certificate of Incorporation by the concerned authority at Singapore and that it is not having any permanent establishment in India to carry out the operations.

(d) The appellant would further contend that there is an agreement between India and Singapore with regard to the avoidance of double taxation and as per the perms of the said agreement, the profits earned by JOPL, are subject matter of assessment only in Singapore and not in India and consequently, there is no obligation on the part of the appellant to deduct any tax at source in terms of Section 195 of the Income Tax Act.

(e) The appellant also contended that it has filed an application dated 22.5.2009, under Section 195(2) of the Income Tax Act, stating among other things, that in terms of Article 7 of the Double Taxation Avoidance Agreement (in short "DTAA") between India and Singapore, the freight payable to JOPL, is not taxable in India and therefore, there is no necessity to deduct tax at source and hence, 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 dated 31.8.2009, holding that in terms of Section 44B of the Income Tax Act, the nature of works undertaken by JOPL, is chargeable to tax under the head "Profits and Gains of Business or Profession". Insofar as the stand of the appellant that in accordance with Double Taxation Avoidance Agreement, the appellant need not deduct tax at source, the Assessing Officer found that the assessee's contract is for a period of five years and if the activities continue for a period of 90 days in aggregate in a fiscal year, then JOPL will be deemed to have a permanent establishment in India and Article 8 of the Double Taxation Avoidance Agreement, has no application to the case on hand as it is not applicable to coastal traffic in a contracting state. Therefore, citing the said reasons, the Assessing Officer held that the appellant herein is authorised to deduct tax at the rate of 3.167% on the gross payments for the first quarter from April 2009, to June 2009, amounting to a sum of Rs.16,38,30,625/- and the said certificate shall remain in force upto 31.12.2009, unless it is cancelled by way of an intimation.

(g) The appellant herein aggrieved by the same, preferred a revision under Section 264 of the Income Tax Act before the Director of Income Tax (International Taxation), Chennai. The Revisional Authority on going through the nature of transaction and the Clauses contained in Double Taxation Avoidance Agreement between Singapore and India, found that JOPL is not having permanent establishment in India during the relevant period, and that JOPL is not in the business of shipping and therefore, the transportation of coal between two Indian Ports, does not amount to shipping business. The Revisional Authority further found that JOPL is a non-resident company registered and assessed to tax in Singapore as per the certificate dated 11.5.2009, issued by the Land Revenue Authority of Singapore, and hence, income, if any, arising out of the transaction between the appellant/assessee and the non-resident company - JOPL, is liable to be taxed in Singapore and not in India and hence, the business transaction between the appellant and JOPL is covered by Article 8 of the Double Taxation Avoidance Agreement and held that Section 44B of the Income Tax Act is not applicable to the facts of this case.

(h) The Revisional Authority citing the above said reasons, has allowed the revision, vide order dated 24.3.2010, and directed the Assessing Officer to give effect to the said order and as a result of the same, nil deduction of tax at source has been given to the appellant.

(i) It is also to be pointed out at this juncture, that the Revenue did not challenge the order of Director of Income Tax (International Taxation) dated 24.3.2010, passed in the revision and it became final.

(j) On 30.1.2012, the Additional Commissioner of Income Tax, Business Range - II, Chennai has passed assessment orders under Section 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 deemed interest on monies advanced to sister concern."

(k) The appellant/assessee aggrieved by the said disallowances, preferred an appeal before the Commissioner of Income Tax (Appeals) - VI, Chennai.

(l) The Appellate Authority has passed the final order on 24.12.2012, wherein one of the issues that arose for consideration, was with regard to the disallowance under Section 40(a)(ia) of the Income Tax Act. The Appellate Authority has taken into consideration the order passed by the Revisional Authority - The Director of Income Tax (International Taxation) dated 24.3.2010, and held that no evidence has been brought on record to show that JOPL is not a resident of Singapore and that it is not taxed in Singapore for the financial year 2008-09 and by virtue of Articles 7 and 8 of the Double Taxation Avoidance Agreement, the provisions of Sections 9 and 44B of the Income Tax Act stands superseded.

(m) It has been further held that JOPL is resident for taxation in Singapore even in respect of the assessment year 2009-10, and the income from Indian operations are not taxable in India and ultimately, the Appellate Authority arrived at a finding that the provisions of Sections 44B, 195 and 49(a)(ia) of the Income Tax Act are not applicable and as a corollary to said finding, has directed the deletion of disallowance of Rs.33,91,71,007/-.

(n) The said appeal was also filed with regard to the disallowance of interest on monies advanced to sister concern, and ultimately, the appeal was allowed, vide order dated 24.12.2012.

(o) For the assessment year 2010-11, the assessment was done under Section 143(3) of the Income Tax Act by the Assistant Commissioner of Income Tax, Circle I, Chennai and an assessment order came to be passed on 29.3.2013.

(p) The Assessing Officer during the course of hearing, has called upon the appellant/assessee to show cause why the payments made to JOPL, Singapore, without deducting tax at source, should not be disallowed under Section 40(a)(i) of the Income Tax Act and treated as income. In response to the show cause notice, the appellant/assessee submitted his response and took the very same stand taken before the Revisional Authority, namely the Director of Income Tax (International Taxation), Chennai 34, and also drawn his attention to the order dated 24.3.2010.

(q) The Assessing Officer after considering the materials placed before him, held that as per Explanation 2 to Amendment of Section 195, the said Section was amended with retrospective effect from 1.4.1962, and in accordance with the amendment, tax had to be deducted for the payments made to JOPL, and held that the payment of Rs.64,57,70,890/- made to JOPL, without deducting tax, is disallowed under Section 40(a)(i) of the Income Tax Act and added to the total income 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 of demand dated 29.3.2013, under Section 156 of the Income Tax Act to the appellant/assessee calling upon him to pay a sum of Rs.28,07,24,610/- for the assessment year 2010-11 and further issued a notice under Section 274 read with Section 271 of the Income Tax Act, 1961, calling upon the assessee to appear before him on 10.4.2013, to show cause as to why an order of imposing penalty should not be made under Section 271 of the Income Tax Act 1961.

(s) The assessee/appellant, aggrieved by the order of assessment dated 29.3.2013, relating to the assessment year 2010-11, insofar as it relates to disallowance under Section 40(a)(i) for the alleged non-deduction of tax at source under Section 195(1) of the Income Tax Act, filed W.P.No.11360/2013 and also moved M.P.No.2/2013 praying for stay of the operation of the above said order, pending disposal of the main writ petition.

(t) The writ petition as well as the miscellaneous petition came up for admission and a Single Bench of this Court vide interim order dated 23.4.2013, granted the conditional order of stay by directing the appellant/writ petitioner/assessee to pay 30% of the impugned demand within a period of four weeks with default clause and challenging the legality and vires of the said order, the assessee has filed this writ appeal.

4. Dr. (Mrs.) Anitha Sumanth, learned Counsel appearing for the appellant/writ petitioner, made the following submissions:

The provisions of Section 195(1) of the Income Tax Act have been attracted only in the event that the remittances made, are chargeable to tax and by virtue of the revision order dated 24.3.2010, passed by the Director of Income Tax (International Taxation) holding that the remittances are not chargeable to tax, the impugned order, which is the subject matter of challenge in the writ petition, on the face of it, is unsustainable in law and on facts and therefore, there is no necessity to pass conditional interim order. The order passed in the revision, though was brought to the knowledge of the Assessing Officer, he has chosen to ignore/circumvent the order by holding that by virtue of Explanation 2 in the form of amendment to Section 195, the order passed in the revision, is of no avail to the assessee, and the said finding on the face of it, is unsustainable.

5. Learned Counsel appearing for the appellant, would further submit that the Assessing Officer for the reasons best known to him, has chosen to ignore the Clauses in Double Taxation Avoidance Agreement between India and Singapore and further overlooked the fact that JOPL has no permanent establishment in India and that the competent authority at Singapore has also issued a certificate that JOPL is subjected to tax only at Singapore and thereby, committed a grave error in misapplying/misconstruing the relevant Clauses in the above said agreement.

6. It is the further submission of the learned Counsel appearing for the appellant/writ petitioner, that Explanation 2 to Section 195 as per 2012 Amendment, cannot be pressed into service for the 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 source notwithstanding the absence of place of business, residence or any other presence in India and it is also subject to a rider that it is applicable only in the event that the remittances are chargeable to tax and in other words, only if the remittances effected by the appellant/writ petitioner to JOPL, are chargeable to tax, then the said amendment would come into operation and in the case on hand, it is not so and the act or procedure adopted by the Assessing Officer in circumventing the order passed by his higher authority - Director of Income Tax (International Taxation), clearly amounts to judicial indiscipline and though against the impugned order of assessment, which is the subject matter of challenge in the writ petition, appeal remedy is available, since the impugned order of assessment is ex-facie illegal, the appellant/writ petitioner did not avail the alternative remedy.

7. Learned Counsel appearing for the appellant/writ petitioner, in support of her submissions, has placed reliance upon the decisions in (i) (2009) 314 ITR 309 (SC) - VIJAY SHIP BREAKING CORPORATION AND OTHERS V. COMMISSIONER OF INCOME TAX; (ii) (2010) 327 ITR 456 (SC) - GE INDIA TECHNOLOGY CENTRE P. LTD. V. COMMISSIONER OF INCOME TAX AND ANOTHER and (iii) 1991 (55) ELT 433 (SC) -UNION OF INDIA V. KAMALAKSHI FINANCE CORPORATION LTD.

8. Learned Counsel appearing for the appellant, would further contend that in respect of the financial year 2012-13, once again, order of similar nature came to be passed and it is also subject matter of challenge in W.P.No.4504/2013, wherein a Single Bench of this Court has granted interim order without any condition. Hence the learned Counsel appearing for the appellant, prays for setting aside the impugned order of assessment and for appropriate orders.

9. Per contra, learned Senior Standing Counsel appearing for the Revenue, has drawn the attention of this Court to the counter affidavit filed in the main writ petition, and would submit that the order passed in the revision under Section 264 of the Income Tax Act, pertains to first quarter of three months, namely between April and June 2009, whereas the assessment is for the entire financial year from 1.4.2009 to 31.3.2010, and hence obligation has been cast upon the assessee to deduct the tax at source in respect of the payments made to JOPL. It is further contended by the learned Senior Standing Counsel appearing for the Revenue, that JOPL is deemed to have a permanent establishment in terms of para 6 of Article 5 of the Double Taxation Avoidance Agreement as the contract is for five years, i.e., more than 90 days. It is further submitted by the learned Senior Standing Counsel appearing for the Revenue, that Section 195 of the Income Tax Act was amended subsequently in Finance Act, 2012, with retrospective effect from 1.4.1962 and as per the said amendment, tax had to be deducted whether the concerned individual, firm or company is a resident or non-resident having a permanent establishment or not and in support of his submission, placed reliance upon a decision reported in 60 ITR 156 (SC) (COMMISSIONER OF INCOME TAX V. STRAW PRODUCTS LTD.).

10. Lastly, it is submitted by the learned Senior Standing Counsel appearing for the Revenue, that as against the impugned order of assessment, the writ petitioner/appellant is having an effective alternative remedy under Section 246A of the Income Tax Act before the first Appellate Authority, namely Commissioner of Income Tax (Appeal), and no case has been made out to by-pass the appeal remedy and would further submit that the writ petition is not maintainable in view of the availability of the above said remedy and hence, prayed for the dismissal of the writ petition as well as the writ appeal.

11. This Court paid its anxious consideration and best attention to the submissions made by the learned Counsel appearing for the appellant/writ petitioner, and the learned Senior Standing Counsel appearing for the Revenue, and also perused the materials placed before it.

12. The appellant/writ petitioner vide letter dated 22.5.2009, requested the Income Tax Officer (TDS), International Taxation, Chennai 34, to issue nil deduction of tax at source on the ground that M/s.JOPL is assessed to tax at Singapore and does not have any permanent establishment in India and in terms of Article 7 of 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 to deduct tax at source at the rate of 3.167% on the gross payments for the first quarter from April 2009 to June 2009, amounting to Rs.16,38,30,625/-.

14. The said order was challenged by way or revision by the writ petitioner/assessee before the Director of Income Tax (International Taxation). The Revisional Authority elaborately considered the said issue and arrived at a categorical finding that none of the items contemplated in Clause 2 of Article 5 of the Double Taxation Avoidance Agreement, exists in the present case and therefore, it is not applicable to the assessee. The Revisional Authority further found that the ship was owned by the non-resident and crossed over the Indian waters for transportation of goods through the international waters and in terms of the Double Taxation Avoidance Agreement, M/s.JOPL has no permanent establishment in India during the relevant period, and also placed reliance upon the Tribunal judgments.

15. As regards applicability of Section 44B of the Income Tax Act, the Revisional Authority found that M/s.JOPL - Singapore Company is not in the business of shipping and transportation of coal in between two Indian Ports and therefore, it cannot be said that the said Company is in shipping business.

16. The Revisional Authority has also taken into consideration the certificate dated 11.5.2009, issued by the Land Revenue Authority of Singapore, wherein it has been stated that M/s.JOPL is a non-resident company registered and assessed to tax in Singapore, and ultimately, held that the income, if any, arising out of the transaction between the assessee and non-resident company, is taxable in Singapore and not in India and therefore, the business transaction is covered by Article 8 of the Double Taxation Avoidance Agreement and further held that Section 44B of the Income Tax Act, has no application to the facts of the case and a direction was also issued to the Assessing Officer to give effect to the order.

17. It is an admitted fact that the order of the Revisional Authority dated 24.3.2010, who is a superior authority to the Assessing Officer, has not been put to challenge by the Revenue and it has become final.

18. In respect of the assessment year 2009-10, the Assessing Officer made the disallowances to the revised return of income filed by the appellant/assessee on 30.1.2012, and it is relevant and useful to 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 deemed interest on monies advanced to sister concern."

19. The appellant/writ petitioner/assessee challenging the said assessment, preferred an appeal before the Commissioner of Income Tax (Appeals) - VI, wherein similar plea has been raised.

20. The Appellate Authority has taken into consideration the order passed in the Revision, and on analysis of the materials placed before him, has arrived at the finding that the Assessing Officer has not brought any evidence on record to show that M/s.JOPL is not a resident of Singapore, nor is it taxed in Singapore in the financial year 2008-09 and Articles 7 and 8 of the Double Taxation Avoidance Agreement supersede the provisions of Sections 9 and 44B of the Income Tax Act and further found that the income of JOPL is subject to tax in Singapore even in the assessment year 2009-10 and hence income from Indian operations are not taxable in India and ultimately, held that the provisions of Section 44B, 195 and 40(a)(ia) are not applicable. The Appellate Authority by citing the said reasons, has allowed the appeal of the appellant/assessee, vide order dated 24.12.2012, in favour of the appellant/writ petitioner/assessee and once again, the said order has not been put to challenge.

21. In respect of the assessment year 2010-11, the Assistant Commissioner of Income Tax, Circle I, has passed an order of assessment dated 29.3.2013, under Section 143(3) of the Income Tax Act. 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 had not deducted tax at source at the time of making the payment and in the course of hearing, a show cause notice was also issued to them as to why payments made to JOPL without deducting tax at source, should not be disallowed under Section 40(a)(i) of the Income Tax Act and treated as income. The assessee in response to the said show cause notice, submitted its reply taking the very same stand, which was considered by the Revisional Authority, and at later point of time, before the Appellate Authority. But, however, the Assessing Officer has taken into consideration the amendment made to Section 195 of the Income 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 deducting tax, is to be disallowed and accordingly, disallowed the same under Section 40(a)(i) of the Income Tax Act and further ordered that it should be added to the total income of the assessee. The Assessing Officer also issued demand notice under Section 156 and penalty notice under Section 274 read with Section 271 of the Income Tax Act, to the assessee.

22. In (2009) 314 ITR 309 (SC) (VIJAY SHIP BREAKING CORPORATION AND OTHERS V. COMMISSIONER OF INCOME TAX), the following questions arose for determination in a batch of civil appeals before the Hon'ble Supreme Court of India:

"(1) Whether the appellant-assessee was entitled to deduction under sections 80HH and 80-I of the Income-tax Act, 1961, in respect of ship breaking activity undertaken by it?

(2) Whether 'usance interest' partakes of the character of purchase price and, therefore, not liable 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, held that tax deducted at source arises only if the tax is assessable in India and on the facts of the case, found that since tax was not assessable in India, there was no question of TDS being deducted by the assessee.

23. In a subsequent decision reported in (2010) 327 ITR 456 (SC) (GE INDIA TECHNOLOGY CENTRE P. LTD. V. COMMISSIONER OF INCOME TAX AND ANOTHER), one of the questions that arose for consideration, was whether merely on account of such remittance to the non-resident abroad by an Indian company per se, could it be said that income chargeable to tax under the Income-tax Act, 1961, arises in India? The Hon'ble Supreme Court of India has considered the expression in Section 195(1) of the Income Tax Act, i.e., "chargeable under the provisions of the Act" and interpreted the word by stating that a person paying interest or any other sum to a non-resident, is not liable to deduct tax if such sum is not chargeable to tax under the Income Tax Act and held as follows:-

"In our view, section 195(2) provides a remedy by which a person may seek a determination of the ‘appropriate proportion of such sum so chargeable’ where a proportion of the sum so chargeable is liable to tax. The entire basis of the Department's contention is based on administrative convenience in support of its interpretation. According to the Department huge seepage of revenue can take place if persons making payments to non-residents are free to deduct TAS or not to deduct TAS. It is the case of the Department that Section 195(2), as interpreted by the High Court, would plug the loophole as the said interpretation requires the payer to make a declaration before the Income-tax Officer (TDS) of payments made to non-residents. In other words, according to the Department, section 195(2) is a provision by which the payer is required to inform the Department of the remittances he makes to the non-residents by which the Department is able to keep track of the remittances being made to non-residents outside India. We find no merit in these contentions. As stated hereinabove, section 195(1) uses the expression ‘sum chargeable under the provisions of the Act’. We need to give weightage to those words. Further, section 195 uses the word ‘payer’ and not the word ‘assessee’. The payer is not an assessee. The payer becomes an assessee-in-default only when he fails to fulfil the statutory obligation under section 195(1). If the payment does not contain the element of income the payer cannot be made liable. He cannot be declared to be an assessee-in-default. The abovementioned contention of the Department is based on an apprehension which is ill-founded. The payer is also an assessee under the ordinary provisions of the Income-tax Act. When the payer remits an amount to a non-resident out of India he claims deduction or allowances under the Income-tax Act for the said sum as an ‘expenditure’. Under section 40(a)(i), inserted, vide the Finance Act, 1988, with effect from April 1, 1989, payment in respect of royalty, fees for technical services or other sums chargeable under the Income-tax Act would not get the benefit of deduction if the assessee fails to deduct TAS in respect of payments outside India which are chargeable under the Income-tax Act. This provision ensures effective compliance with section 195 of the Income-tax Act relating to tax deduction at source in respect of payments outside India in respect of royalties, fees or other sums chargeable under the Income-tax Act. In a given case where the payer is an assessee he will definitely claim deduction under the Income-tax Act for such remittance and on inquiry if the Assessing Officer finds that the sums remitted outside India come within the definition of royalty or fees for technical service or other sums chargeable under the Income-tax Act then it would be open to the Assessing Officer to disallow such claim for deduction. Similarly, vide the Finance Act, 2008 with effect from April 1, 2008, sub-section (6) has been inserted in section 195 which requires the payer to furnish information relating to payment of any sum in such form and manner as may be prescribed by the Board. This provision is brought into force only from April 1, 2008. It will not apply for the period with which we are concerned in these cases before us. Therefore, in our view, there are adequate safeguards in the Act which would prevent revenue leakage."

24. In the later para, it has been further clarified by the Hon'ble Supreme Court of India in the above said decision, that the words of Section 195(1) in clear terms, lay down that tax at source is deductible only from "sums chargeable" under the provisions of the Income-tax Act, i.e., chargeable under sections 4, 5 and 9 of the said Act. The Hon'ble Supreme Court of India, citing the said reasons, has allowed the appeal filed by the assessee.

25. Learned Senior Standing Counsel appearing for the Revenue, has placed reliance upon a decision reported in 60 ITR 156 (SC) (COMMISSIONER OF INCOME TAX V. STRAW PRODUCTS LTD.), wherein the appeals by special leave are directed against the judgment of the High Court of Madhya Pradesh in a reference made by the Income-tax Appellate Tribunal, and the following question was referred to the High Court:

"Whether, on the facts of the case and having regard to the provisions of paragraph 2 of the Taxation Laws (Merged States) (Removal of Difficulties) Order, 1949, and clause 8 of the Agreement made on 20th September, 1938, between the assessee and the State of Bhopal, the correct basis for computing the written down value of the depreciable assets as at 1st November, 1948, is the one which is adopted by the Income-tax Officer or the one adopted by the Appellate Assistant Commissioner?"

26. The facts of the said case would disclose that the depreciation, which was allowed in the original assessment, was reduced and appeal was filed challenging the same, and the appellant Assistant Commissioner, who has disagreed with the Income-tax Officer, held that the assessee had not been allowed excess depreciation allowance as per the original assessment and there was no basis for initiating proceedings under Section 34. Thereafter, a reference was made to the High Court, wherein the High Court answered it by stating "In the circumstances of this case the correct basis for computing written down value of depreciable assets of the company is the one adopted by the Appellate Assistant Commissioner." During August 1962, the Central Government made an amendment amending the Taxation Laws (Merged States) (Removal of Difficulties) Order, 1949, and it was made in exercise of the powers conferred under Section 8 of the Taxation Laws (Explanation to Merged States) Ordinance, 1949. Section 8 provides that if any difficulty arises in giving effect to the provisions of this Ordinance, the Central Government may by order make such provisions, or give such directions, as appear to it to be necessary for removal of the difficulty. Subsequently, Section 34 of the repealed Ordinance XXI of 1949 and Ordinance XXXIII of 1949 were replaced by the Act. Sub-section 2 of Section 34 of the repealed Ordinance provides that anything done or any action taken in the exercise of any power conferred by any of the Ordinances referred to in this section, shall, for all purposes, be deemed to have been done or taken in exercise of the powers conferred by this Act, as if this Act were in force on the day, on which, such thing was done or action was taken.

27. It was contended on behalf of the Revenue, in the said case, that the High Court was wrong in answering the question in favour of the assessee and further contended that if the income of an assessee is exempted from taxation for a certain number of years, the assessee must be deemed to have claimed depreciation and deemed to have been allowed depreciation according to the provisions of the said laws or rules, and it does not matter whether the assessee made a claim or not because it is fair that when the Indian Income-tax Act is applied, the assessee should be brought at par with the assessees, who had suffered taxation under the said Act. The Supreme Court has rejected the said submission and also the other points urged on behalf of the Revenue, and held that "The definition of "assessee" must mean a person by whom income-tax is payable under the Bhopal Act. If it had not been for the agreement, the respondent would have been liable to pay tax and it is the agreement alone which exempted it from taxation."

28. In the considered opinion of this Court, the said decision has not come to the rescue of the Revenue for the reason that in terms of the Double Taxation Avoidance Agreement, the remittances made to M/s.JOPL, are not chargeable to tax. The said issue was precisely considered by the Revisional Authority as well as by the Appellate Authority in respect of the assessment year 2009-10, wherein findings have been given that the income, if any, arising out of the transaction between the assessee and non-resident company, is taxable in Singapore and not in India and the judgment of the Hon'ble Supreme Court of India in GE INDIA TECHNOLOGY CENTRE P. LTD. Case, cited supra, was also taken into consideration and it has been held that the transactions between the assessee firm (appellant/writ petitioner) and JOPL are held not taxable in India and the assessee firm is held not liable for payment of tax under Section 195.

29. Learned Senior Standing Counsel appearing for the Revenue, vehemently contended that the revision order of the Director of Income-tax has been restricted to first quarter, namely April to June 2009, and therefore, it cannot be made applicable. In the considered opinion of this Court, the said submission lacks merit and substance for the reason that the order passed in the revision, has to be read as a whole and a careful scrutiny of the said order would disclose that the Revisional Authority has arrived at a categorical finding that the transaction between the assessee and non-resident company would be taxable only in Singapore and not in India. As pointed out earlier, in respect of the assessment made for the assessment year 2009-10 also, appeal was filed by the assessee and the Commissioner of Income-tax (Appeals) - VI has passed an order dated 24.12.2012, holding that by virtue of the application of Articles 7 and 8 of Double Taxation Avoidance Agreement, the terms/clauses in the said agreement supersede the provisions of Sections 9 and 44B of the Income-tax Act and further held that JOPL is a resident for taxation in Singapore even in respect of the assessment year 2009-10, and that the income from Indian operations are not taxable in India and based on that reason, held that the provisions of Sections 44B, 195 and 40(a)(ia) of the Income-tax Act are not applicable. The above said orders were not put to challenge and they have become final and it is to be remembered at this juncture, that they are assessee's own cases also.

30. The findings rendered by the Revisional Authority, are based upon uncontroverted facts and it had also reached finality and the facts projected in this writ petition, are also not in any way different.

31. In 1991 (55) ELT 433 (SC) (UNION OF INDIA V. KAMALAKSHI FINANCE CORPORATION LTD.), the facts of the case read that the Assessing Officer - Assistant Collector of Central Excise passed an order with regard to the classification under a particular heading and the assessee preferred an appeal to the Collector (Appeals) and the order passed by the Assistant Collector of Central Excise, was set aside and the matter was remanded to the Assistant Collector to pass a reasoned and speaking order. On remand, the Assistant Collector passed an order reiterating the conclusion that has been reached by his predecessor, and also did not give any reason as to why 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 Court passed an order and directed the department to allocate the matter to a competent officer to pass a proper order and also passed severe stitches against two Assistant Collectors, who had dealt with the matter. On behalf of the Revenue, appeal was preferred before the Hon'ble Supreme Court of India, praying for expunging the said remarks. 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 the officers were not actuated by any mala fides in passing the impugned orders. They perhaps genuinely felt that the claim of the assessee was not tenable and that, if it was accepted, the Revenue would suffer. But what Sri Reddy overlooks is that we are not concerned here with the correctness or otherwise of their conclusion or of any factual mala fides but with the fact that the officers, in reaching their conclusion, by-passed two appellate orders in regard to the same issue which were placed before them, one of the Collector (Appeals) and the other of the Tribunal. The High Court has, in our view, rightly criticised this conduct of the Assistant Collectors and the harassment to the assessee caused by the failure of these officers to give effect to the orders of authorities higher to them in the appellate hierarchy. It cannot be too vehemently emphasised that it is of utmost importance that, in disposing of the quasi-judicial issues before them, revenue officers are bound by the decisions of the appellate authorities. The order of the Appellate Collector is binding on the Assistant Collectors working within his jurisdiction and the order of the Tribunal is binding upon the Assistant Collectors and the Appellate Collectors who function under the jurisdiction of the Tribunal. The principles of judicial discipline require that the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities. The mere fact that the order of the appellate authority is not "acceptable" to the department - in itself an objectionable phrase - and is the subject-matter of an appeal can furnish no ground for not following it unless its operation has been suspended by a competent Court. If this healthy rule is not followed, the result will only be undue harassment to assessees and chaos in administration of tax laws.

7. The impression or anxiety of the Assistant Collector that, if he accepted the assessee's contention, the department would lose revenue and would also have no remedy to have the matter rectified is also incorrect. Section 35E confers adequate powers on the department in this regard. Under sub-section (1), where the Central Board of Excise and Customs (Direct Taxes) come across any order passed by the Collector of Central Excise with the legality or propriety of which it is not satisfied, it can direct the Collector to apply to the Appellate Tribunal for the determination of such points arising out of the decision or order as may be specified by the Board in its order. Under sub-section (2) the Collector of Central Excise, when he comes across any order passed by an authority subordinate to him, if not satisfied with its legality or propriety, may direct such authority to apply to the Collector (Appeals) for the determination of such points arising out of the decision or order as may be specified by the Collector of Central Excise in his order and there is a further right of appeal to the department. The position now, therefore, is that, if any order passed by an Assistant Collector or Collector is adverse to the interests of the Revenue, the immediately higher administrative aut

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hority has the power to have the matter satisfactorily resolved by taking up the issue to the Appellate Collector or the Appellate Tribunal as the case may be. In the light of these amended provisions, there can be no justification for any Assistant Collector or Collector refusing to follow the order of the Appellate Collector or the Appellate Tribunal, as the case may be, even where he may have some reservations on its correctness. He has to follow the order of the higher appellate authority. This may instantly cause some prejudice to the Revenue but the remedy is also in the hands of the same officer. He has only to bring the matter to the notice of the Board or the Collector so as to enable appropriate proceedings being taken under S.35E(1) or (2) to keep the interests of the department alive. If the officers view is the correct one, it will no doubt be finally upheld and the Revenue will get the duty, though after some delay which such procedure would entail." 32. The Hon'ble Supreme Court of India in paragraph No.8 of the above said decision, held that "The observations of the High Court should be kept in mind in future and utmost regard should be paid by the adjudicating authorities and the appellate authorities to the requirements of judicial discipline and the need for giving effect to the orders of the higher appellate authorities which are binding on them." 33. In the case on hand, though the Revisional Authority is the superior officer to the Assessing Officer, he sought to distinguish the said order by taking a stand that it is applicable only for the first quarter commencing from April to June 2009. As already pointed out in the earlier paragraphs, the Appellate Authority in respect of the assessment year 2009-10, had taken into consideration the orders passed by the Revisional Authority, and arrived at the same finding and it was also not put to challenge. Therefore, this Court is of the considered view that the stand taken by the Assessing Officer, on the face of it, is unsustainable both in law and on facts. 34. Learned Senior Standing Counsel appearing for the Revenue, made his final attempt by submitting that in view of the amendment made to Section 195 under the Finance Act, 2012, wherein Explanation has been added to Section 195(1), giving retrospective effect to the said provision from 1.4.1962, the tax had to be deducted for the payments made to JOPL. The Supreme Court in the decision reported in GE INDIA TECHNOLOGY CENTRE P. LTD. Case, after referring to the VIJAY SHIP BREAKING CORPORATION Case (cited supra), held that the tax at source can be deducted only from "sums chargeable" under the provisions of the Act. The facts of the present case would disclose that the income earned by JOPL, is taxable at Singapore and the Double Taxation Avoidance Agreement would also come to their rescue as the income earned by the said concern, are not liable to be taxed in India and would be taxable only in Singapore. Therefore, the payment of Rs.64,57,70,890/- made to JOPL by the appellant/writ petitioner/assessee, will not come within the ambit of deduction of tax at source. 35. The Revenue has raised a point that as against the impugned order, appeal remedy is available and therefore, the present writ petition is not maintainable. However, in the light of the orders passed by the Revisional Authority, dated 24.3.2010, the stand taken by the department that tax should be deducted at source in respect of the payment made to JOPL, on the face of it, is unsustainable and therefore, for the said reason, the non-availment of the appeal remedy cannot be put against the appellant/writ petitioner/assessee. 36. Therefore, for the reasons stated above, the writ petition is allowed and the impugned order in PAN AAAFA1037D dated 29.3.2013, relating to Assessment Year 2010-11, on the file of the respondent, insofar as it relates to the disallowance u/s 49(a)(i) for alleged non-deduction of tax at source in terms of Section 195(1) of the Income Tax Act, is quashed. No costs. Consequently, the interim order is vacated and connected MP is closed. 37. Since the main writ petition itself is allowed, no further orders are necessary in the writ appeal as it arises out of the conditional interim order passed in the above said writ petition. Hence, this writ appeal is closed. However, in the circumstances of the case, there shall be no order as to costs. Consequently, connected MP is also closed.
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