GE ENERGY PARTS INC V. ASSISTANT COMMISSIONER OF INCOME TAX & ORS.

W.P.(C)/13188/2021

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The case involves two writ petitions filed by GE Energy Parts Inc and GE Global Parts and Products GmbH against the order passed by the Assessing Officer (AO) which set the withholding tax rate at 4% for the Financial Year 2021-2022. The petitioners argued that the withholding tax should be at a 'Nil' rate based on their applications under Section 197 of the Income Tax Act, 1961, and referenced a previous Tribunal decision that attributed profits to their PE in India at 26%. The respondents supported the AO's decision, but acknowledged the inconsistency with the previously acknowledged profit attribution rate. The court did not decide on the merits of the withholding tax rate for FY 2021-2022 but allowed the petitioners to reapply for FY 2022-2023, emphasizing that the AO should address the issues raised in the new application.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 749919 (HC-DELHI)
• Appeal Type: Others
• Pronouncement Date: 25-03-2022
• Assessment Year: misc
• Other Referred Cases: ITA No.671 (Delhi) of 2011
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: HIGH COURT
• Department Lawyers: PUNEET RAI; ADEEBA MUJAHID
• Assessee Lawyers: SACHIT JOLLY; ROHIT GARG; DISHA JHAM; MEHAK SACHDEVA; SOHUM DUA
• Keywords: Assessing Officer; Permanent establishment; Withholding Tax; Income Tax Appellant Tribunal
• Section: 197

Judgement Text

"W.P.(C) 13188/2021 Page 1 of 4 $~21 & 22 * IN THE HIGH COURT OF DELHI AT NEW DELHI % Decision delivered on: 25.03.2022 + W.P.(C) 13188/2021 & CM APPL. 41597/2021 GE ENERGY PARTS INC ......Petitioner Through : Mr Sachit Jolly, Mr Rohit Garg, Ms Disha Jham, Ms Mehak Sachdeva and Mr Sohum Dua, Advs. Versus ASSISTANT COMMISSIONER OF INCOME TAX & ORS. ..... Respondents Through : Mr Puneet Rai, Sr. Standing Counsel with Ms Adeeba Mujahid, Jr. Standing Counsel. W.P.(C) 13189/2021 & CM APPL. 41599/2021 GE GLOBAL PARTS AND PRODUCTS GMBH ..... Petitioner Through : Mr Sachit Jolly, Mr Rohit Garg, Ms Disha Jham, Ms Mehak Sachdeva and Mr Sohum Dua, Advs. Versus ASSISTANT COMMISSIONER OF INCOME TAX & ORS. ..... Respondents Through : Mr Puneet Rai, Sr. Standing Counsel with Ms Adeeba Mujahid, Jr. Standing Counsel. CORAM: HON'BLE MR. JUSTICE RAJIV SHAKDHER HON'BLE MR. JUSTICE JASMEET SINGH [Physical Court Hearing/Hybrid Hearing (as per request] RAJIV SHAKDHER, J. (ORAL): 1. The above-captioned writ petitions are directed against the order(s) dated 23.09.2021, passed by the Assessing Officer (AO) in respect of the This is a digitally signed Judgement. NEUTRAL CITATION NO: 2022/DHC/001086 W.P.(C) 13188/2021 Page 2 of 4 application(s) preferred by the petitioners under Section 197 of the Income Tax Act, 1961 [in short “the Act”]. To be noted, the said application(s) relate to Financial Year (FY) 2021-2022. 1.1. The purpose with which the aforementioned application(s) were preferred by the petitioners for the FY 2021-2022, was that the payer should not withhold any money towards tax i.e., the withholding tax should be pegged at “Nil” rate. 1.2. Via the impugned order(s), the AO has concluded that the withholding tax rate should be pegged at 4%. 2. Mr Sachit Jolly, who appears on behalf of the petitioners, submits that the order passed by the AO is wholly erroneous, as, in another proceedings carried on before the Income Tax Appellant Tribunal [in short “the Tribunal”] i.e., ITA No.671 (Delhi) of 2011 concerning the petitioner in W.P.(C) 13188/2021 i.e., GE Energy Parts Inc., the Tribunal has attributed the profits to the Permanent Establishment (PE) of the petitioner therein in India, at the rate of 26%. The said judgment of the Tribunal is dated 27.01.2017. 2.1. According to Mr Jolly, the Revenue cannot, in the very least, veer away from this position/principle, although the petitioners continue to maintain that they have no PE in India. 2.2. Therefore, if the rate of attribution of profits to the PE in India is pegged at 26%, then the withholding rate of tax cannot exceed 1.04%. 2.3. It is, therefore, Mr Jolly’s contention that the conclusion reached, via the impugned order, by the AO that the withholding rate of tax should be 4%, is completely unsustainable. It is Mr Jolly’s contention that this aspect of the matter has not been dealt with by the AO in the impugned order. 2.4. Furthermore, Mr Jolly says that the view taken by the AO that the petitioners have artificially split their contracts with various entities in India cannot improve the cause of the respondents/revenue, for the reason that those entities have already paid the requisite tax demanded of them. 3. On the other hand, Mr Puneet Rai, who appears on behalf of the This is a digitally signed Judgement. NEUTRAL CITATION NO: 2022/DHC/001086 W.P.(C) 13188/2021 Page 3 of 4 respondents/revenue, has relied upon the impugned order(s) i.e., order(s) dated 23.09.2021, to support his contention that the conclusion reached by the AO is valid and legally tenable. 3.1. Mr Rai, however, cannot but accept the fact that in the earlier proceedings, to which we have made a reference above, the profitability attributed to the PE, said to be located in India, and connected to the petitioners, is 26%. If that figure is taken into account, then surely the withholding rate of tax cannot exceed 1.04% [26% x 10% x 40%]. 3.2. However, Mr Jolly says that since the FY is coming to an end, at this juncture, he does not wish to press the above-captioned writ petitions, but would file a fresh application before the AO for F.Y. 2022-2023. 3.3. Mr Jolly says that, if such an application is filed, the petitioners would like the AO to deal with the contentions raised in the writ petitions. 4 Therefore, while closing the present writ petitions, we wish to observe that in case the petitioners were to move an application under Section 197 of the Act for FY 2022-2023, and if the contentions raised in the writ petitions form part of the said application, including what is noted hereinabove by us with regard to the attribution of profits to the PE, the same will be dealt with by the AO, as per law. 5. At this stage, Mr Jolly says that the petitioners will move an application for the F.Y.2022-2023, within four weeks of receipt of a copy of this order. In case, such an application is moved, the AO will dispose of the same within four weeks of the receipt of the application. 6. Needless to add, the aforesaid observations will not impact the decision that the AO would take qua the fresh application. The AO will take a decision in the matter, after affording a hearing to the petitioners, in support of the application. 7. Parties will act, based on the digitally signed copy of this order. 8. The writ petition(s) are disposed of in the aforesaid terms. This is a digitally signed Judgement. NEUTRAL CITATION NO: 2022/DHC/001086 W.P.(C) 13188/2021 Page 4 of 4 9. Consequently, pending application(s) shall stand closed. RAJIV SHAKDHER, J JASMEET SINGH, J MARCH 25, 2022/aj Click here to check corrigendum, if any This is a digitally signed Judgement. NEUTRAL CITATION NO: 2022/DHC/001086 "