DCIT, Dehradun V. M/s. Expro Gulf Ltd., Mumbai

ITA 6589/DEL/2014

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 6836 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 2 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-02-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 02-02-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 05-12-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income; Double taxation relief; Permanent establishment; Advance ruling; Non-deduction of tax; Revised return; Reassessment proceedings
• Section: 234B; 194C; 28; 90

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH B NEW DELHI BEFORE : SHRI H.S. SIDHU , JUDICIAL MEMBER & SHRI L.P. SAHU, ACCOUNTANT MEMBER ITA NO. 6589/DEL./2014 ASSTT. YEAR : 2011 - 12 D.C.I.T., CIRCLE - 1, VS. EXPRO GULF LTD., INTL. TAXATION, DEHRADUN. C/O OKAY INDS. PLOT NO. A - 35, STREET NO. 2, MIDC, ANDHERI (EAST), MUMBAI. (PAN: AAACE 5272B). C.O. NO. 221/DEL./2015 (IN ITA NO. 6589/DEL./2014) ASSTT. YEAR : 2011 - 12 EXPRO GULF LTD., VS. D.C.I.T., CIRCLE - 1, C/O OKAY INDS. PLOT NO. A - 35, INTL. TAXATION, DEHRADUN. STREET NO. 2, MIDC, ANDHERI (EAST), MUMBAI. (APPELLANT) (RESPONDENT) REVENUE BY : SH. ANIL KUMAR SHARMA, SR. DR ASSESSEE BY : SH. AMIT ARORA, C.A. DATE OF HEARING : 02.02.2017 DATE OF PRONOUNCEMENT : 13 .02.2017 ORDER PER L.P. SAHU, ACCOUNTANT MEMBER: THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER OF LD. CIT(A) - II, DEHRADUN DATED 04.09.2014 FOR THE ASSESSME NT YEAR 2011 - 12 IN ITA NO. 6589/DEL./2014 & CO NO. 221/DEL./2015 2 RELATION TO ORDER PASSED U/S. 143(3)/144C(3)(A) OF THE INCOME - TAX ACT, 1961 (IN SHORT THE ACT ) ON THE FOLLOWING GROUNDS : 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD CIT(A) HAS ERRED IN HOLDING THAT THE REVENUE RECEI VED BY THE ASSESSEE ON ACCOUNT OF THE PROVISION OF FACILITIES AND TECHNICAL SERVICES UNDER CONTRACTS WITH M/S ONGC AND M/S HALLIBURTON OFFSHORE SERVICES INC. ('HOSI') WAS TAXABLE U/S 44BB OF THE INCOME TAX ACT, 1961 ('THE ACT') AS OPPOSED TO SECTION 44DA R EAD WITH SECTION 9(1)(VII) OF THE ACT. 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD CIT(A) HAS ERRED IN IGNORING THE EFFECT OF THE AMENDMENT BROUGHT IN VIDE FINANCE ACT, 2010 W.E.F. 01.04.2011, IN TERMS OF WHICH INCOME COVERED BY SECTION 44DA HAS BEEN SPECIALLY EXCLUDED FROM THE SCOPE OF SECTION 44BB FOR ASSTT YEARS 2011 - 12 (THE YEAR UNDER CONSIDERATION) ONWARDS. 2.1 WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD CIT(A) HAS ERRED IN IGNORING THE DISTINCT SCHEME OF TAXATION OF FEES FOR TECHNICAL SERVICES ('FTS') AND ROYALTY AND DISREGARDING THE INSERTION OF PROVISO IN SECTION 44BB /44DA/115A AND THE RATIONALE BEHIND THE INTRODUCTION OF SAID AMENDMENT IN THE FINANCE BILL 2010 IN HOLDING THAT THE INCOME OF THE ASSESSEE FROM THE A BOVE SERVICES WAS COVERED UNDER THE PRESUMPTIVE PROVISIONS OF SECTION 44BB. 2.2 THE LD CIT(A) HAS ERRED IN NOT APPRECIATING THE FACT THAT EVEN IN TERMS OF RATIO OF THE JUDGMENT IN THE SAID OF OHM LTD [352, ITR 406 (DELHI)] CITED BY HIM, THE PROVISIONS OF SECTION 44BB ARE NOT APPLICABLE WHERE THE SCOPE OF THE SERVICES/FACILITIES PROVIDED BY AN ASSESSEE IS GENERAL IN NATURE FALLING UNDER SECTION 44DA(L)OF THE ACT. 2.3 THE LD CIT(A) HAS ERRED IN MECHANICALLY FOLLOWING THE DECISIONS IN THE CASE OF M/S OHM LT D. WITHOUT FIRST ADJUDICATING UPON THE ISSUE AS TO WHETHER AND HOW THE SCOPE OF THE SERVICES/FACILITIES RENDERED UNDER THE CONTRACTS IS NOT GENERAL IN NATURE AND THEREFORE, DOES NOT QUALIFY AS FTS U/S 9( 1 )(VII) OF THE ACT TAXABLE UNDER SECTION 44DA. 3. WH ETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD CIT(A) HAS ERRED IN HOLDING THAT THE INCOME EARNED BY THE ASSESSEE FOR IMPARTING OF SERVICES WAS ELIGIBLE FOR TREATMENT U/S 44BB OF THE ACT, ITA NO. 6589/DEL./2014 & CO NO. 221/DEL./2015 3 WITHOUT ADJUDICATING THE ASPECT OF ELIGIBILITY UNDE R THE SECOND LIMB OF THE EXCLUSIONARY PROVISO (EXPLANATION TO SECTION 9( 1 )(VII) OF THE I.T. ACT, 1961) I.E. 'FOR A PROJECT UNDERTAKEN BY THE RECIPIENT' IN TERMS OF DECISIONS OF HON'BLE DELHI HIGH COURT IN CIT VS RIO TINTO TECHNICAL SERVICES [2012 - TII - 03 - H C - UKHAND - INTL]. 5. WITHOUT PREJUDICE TO THE GENERALITY OF THE GROUND RELATING TO TAXATION OF ENTIRE RECEIPTS AS FTS, WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD CIT(A) HAS ERRED IN HOLDING THAT THE AMOUNTS RECEIVED AS RE - IMBURSEMENT OF SERVICE TAX ARE NOT INCLUDIBLE IN GROSS TURNOVER EVEN FOR THE PURPOSE OF COMPUTING TAXABLE INCOME U/S 44BB. A. THE LD. CIT(A) HAS ERRED IN NOT APPRECIATING THE FACT THE PROVISIONS OF SECTION 44BB ARE A SELF - CONTAINED CODE PROVIDING FOR COMPUTATION OF PROFITS AT A FIXED PERCENTAGE OF GROSS RECEIPTS OF THE ASSESSEE AND ALL THE DEDUCTIONS AND EXCLUSIONS FROM INCOME ARE DEEMED TO HAVE BEEN ALLOWED TO THE ASSESSEE. B. WHETHER THE LD. CIT(A) HAS ERRED IN NOT APPRECIATING THE FACT THAT ONCE THE RECEIPTS HE LD AS TAXABLE U/S 44BB OF THE ACT, THERE IS NO SCOPE FOR COMPUTING OR RE - COMPUTING THE PROFITS BY EXCLUDING ANY ELEMENT OF THE RECEIPTS FROM THE TOTAL TURNOVER AS THE SAME WOULD AMOUNT TO DEFEATING THE VERY PURPOSE OF PROVIDING FOR A SCHEME OF SIMILAR MODE OF COMPUTATION OF PROFITS U/S 44BB OF THE ACT AND OBVIATING THE NEED FOR ACCOUNTING FOR INDIVIDUAL RECEIPTS AND PAYMENTS ETC. C. WHETHER THE LD. CIT(A) HAS ERRED IN IGNORING THE RATIO OF THE JUDGMENT IN THE CASE OF M/S CHOWRINGHEE SALES BUREAU (P) LTD (82 ITR 542,SC) WHEREIN THE HON'BLE APEX COURT HAS HELD THAT THE SALES TAX COLLECTED BY AN ASSESSEE IN THE ORDINARY COURSE OF ITS BUSINESS FORMS PART OF ITS BUSINESS RECEIPTS. OWING TO THE INHERENT SIMILARITY IN THE NATURE OF THE SALES TAX AND SERVICES TAX , THE RATIO OF THE JUDGMENT IN THE SAID CASE IS DIRECTLY APPLICABLE IN THE FACTS OF THE INSTANT CASE. 6. WHETHER ON THE FACTS AND CIRCUMSTANCES ON THE FACTS, THE LD. CIT(A) HAS ERRED IN REVERSING THE ACTION OF THE AO WHO, HAVING HELD THAT THE ASSESSEE'S REVENUES ON ACCOUNT OF AFORESAID SERVICES UNDER CONTRACTS WITH VARIOUS ENTITIES ARE LIABLE TO BE TAXED U/S 44DA, RIGHTLY ESTIMATED THE INCOME OF THE ASSESSEE BY APPLYING 25% RATE OF PROFIT ON GROSS ITA NO. 6589/DEL./2014 & CO NO. 221/DEL./2015 4 RECEIPTS IN THE ABSENCE OF BOOKS OF ACCOUNTS AND DETAILS O F EXPENSES INCURRED IN PROVIDING THE SERVICES. 7. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT(A) HAS ERRED IN HOLDING THAT INTEREST U/S 234B OF THE INCOME TAX ACT, 1961 ('THE ACT ) WAS NOT CHARGEABLE IN THIS CASE BY R ELYING UPON THE CASE OF M/S MAERSK [334 ITR 79]. A. THE LD. CIT(A) HAS ERRED IN NOT APPRECIATING THE FACT THAT THE CASE OF M/S MAERSK WAS DISTINGUISHABLE ON FACTS AS IT DEALT WITH A CASE WHERE THE EMPLOYER FAILED TO DEDUCT TAX AT SOURCE DESPITE THE SPEC IFIC PROVISIONS OF THE ACT IN TERMS OF WHICH THE EMPLOYER WAS MANDATORILY REQUIRED TO DEDUCT TAX FROM THE SALARY PAID TO THE EMPLOYEE. IN THE SAID CASE, THE HON'BLE COURT HELD THAT AN EMPLOYEE IS NOT LIABLE TO PAY ADVANCE TAX ON SALARY BECAUSE U/S 192 THER E IS AN OBLIGATION ON THE EMPLOYER TO DEDUCT TAX AT SOURCE. THE CASE DOES NOT LAY DOWN A GENERAL PROPOSITION OF LAW THAT INTEREST U/S 234B IS NOT CHARGEABLE IN ALL CASES, PARTICULARLY IN CASES WHERE THE NON - RESIDENT ASSESSEE/PAYEE/DEDUCTEE HAS PLAYED A ROL E IN INDUCING NON - DEDUCTION OR SHORT - DEDUCTION ON THE PART OF THE PAYER/DEDUCTOR. B. THE LD.CIT(A) HAS ERRED IN FAILING TO TAKE NOTE OF THE OBSERVATIONS OF THE HON'BLE HIGH COURT IN THE CASE OF M/S MITSUBISHI [330 ITR 578, DEL] THAT THE ROLE OF THE ASSES SEE/PAYEE/DEDUCTEE IN SHORT - DEDUCTION OR NON - DEDUCTION OF TAX NEEDS TO BE ASCERTAINED BEFORE CLAIM REGARDING NON - LIABILITY TO INTEREST U/S 234B OF THE ACT IS ACCEPTED, A PROPOSITION AFFIRMED SUBSEQUENTLY IN THE CASE OF M/S ALCATEL LUCENT (JUDGMENT OF DELHI HIGH COURT DATED 07.11.2013 IN ITA NO. 327&ORSOF2012). 2. THE ASSESSEE HAS ALSO FILED THE CROSS OBJECTIONS IN SUPPORT OF THE ORDER OF LD. CIT(A) ON THE FOLLOWING GROUNDS : 1. THAT THE LD. COMMISSIONER OF INCOME - TAX, APPEALS - II, DEHRADUN [CIT(A)] ERR ED IN NOT HOLDING THAT THE NATURE OF OPERATIONS UNDERTAKEN BY THE RESPONDENT UNDER THE VARIOUS CONTRACTS WITH ITS CUSTOMERS WAS NOT FEES FOR TECHNICAL SERVICES AND/OR ROYALTY AS DEFINED IN EXPLANATION (2) TO SECTION 9(1)(VII) AND EXPLANATION (2) TO SECTION 9(1)(VI) RESPECTIVELY. ITA NO. 6589/DEL./2014 & CO NO. 221/DEL./2015 5 2. WITHOUT PREJUDICE TO THE ABOVE, THAT THE LD. CIT(A) HAS ERRED IN NOT HOLDING THAT THE ACTIVITIES PERFORMED BY THE RESPONDENT ARE IN THE NATURE OF A BUILDING, CONSTRUCTION, INSTALLATION AND/OR A MINING OR LIKE PROJECT AND FOR T HIS REASON, EXCLUDED FROM THE AMBIT OF THE DEFINITION OF FEES FOR TECHNICAL SERVICES AS DEFINED IN EXPLANATION (2) TO SECTION 9(1 )(VII). 3. WITHOUT PREJUDICE TO ANY OF THE ABOVE, THAT THE LD. CIT(A) HAS ERRED IN NOT HOLDING THAT THE SCOPE OF OPERATIONS OF THE RESPONDENT ARE SQUARELY COVERED BY THE DECISION OF THE JURISDICTIONAL HIGH COURT OF UTTARAKHAND IN THE CASE OF CIT VS. ONGC AS AGENT OF SCAN DRILLING COMPANY IN ITR NO. 2 OF 2001. 4. WITHOUT PREJUDICE TO ANY OF THE ABOVE, THAT THE LD. CIT(A) HAS ERRED IN NOT HOLDING THAT SECTION 44DA COULD NOT HAVE APPLIED IN RESPECT OF PAYMENTS RECEIVED BY A NON - RESIDENT ASSESSEE FROM ANOTHER NON - RESIDENT. 5. WITHOUT PREJUDICE TO ANY OF THE ABOVE, THAT THE LD. CIT(A) HAS ERRED IN NOT HOLDING THAT IN THE EVENT THAT THE INCOME IS TAXABLE AS FEES FOR TECHNICAL SERVICES, THE TAXABLE INCOME IN INDIA IS TO BE DETERMINED BY UNDERTAKING A FAR (FUNCTIONS, ASSETS, RISKS) ANALYSIS OF THE INDIAN PERMANENT ESTABLISHMENT OF THE RESPONDENT AND NOT AT THE ADHOC PROFIT ESTIMAT ION OF 25 PER CENT AS DONE BY THE LD. ASSESSING OFFICER. FROM THE ABOVE GROUNDS RAISED BY THE REVENUE, FOLLOWING ISSUES EMERGE OUT FOR ADJUDICATION IN APPEAL OF THE REVENUE : (I). WHETHER THE REVENUE RECEIVED BY THE ASSESSEE ON ACCOUNT OF CONTRACTS WIT H TWO COMPANIES, I.E., ONGC LTD. AND HALLIBURTON OFFSHORE SERVICES INC. WOULD BE COVERED U/S. 44DA OR SECTION 44B OF THE ACT; (II). WHETHER SERVICE TAX RECEIPTS WOULD FORM THE PART OF GROSS RECEIPTS/TURNOVER ; AND ITA NO. 6589/DEL./2014 & CO NO. 221/DEL./2015 6 (III). WHETHER INTEREST U/S. 234B IS CHAR GEABLE IN THE CASE OF PAYMENTS MADE TO NON - RESIDENT WHERE TDS HAS BEEN FULLY DEDUCTED ON SUCH PAYMENTS. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME ON 30.09.2011. CASE WAS SELECTED FOR SCRUTINY AND STATUTORY NOTICES WER E ISSUED. IN COMPLIANCE, THE ASSESSEE SUBMITTED REPLY BY WAY OF WRITTEN SUBMISSIONS AS REQUIRED BY THE ASSESSING OFFICER. THE ASSESSEE COMPANY IS A NON - RESIDENT COMPANY INCORPORATED UNDER LAW OF CYPRUS. DURING THE YEAR, THE ASSESSEE COMPANY RECEIVED REVENU E ON ACCOUNT OF CONTRACTS WITH TWO COMPANIES, THE DETAILS OF WHICH ARE AS UNDER : I. HALLIBURTON OFFSHORE SERVICES INC CONTRACT DATED 23.12.2008 VIDE NO. MR/DS/MAT/SERVICE/H - 258/2008/DYKDF0403 - EXPRO FOR THE PROVISION OF EQUIPMENT & SERVICES FOR PRODUCTION TESTING OF HPHT WELLS ALONGWITH PROVISION OF OPERATING PERSONNEL FOR PRODUCTION TESTING SURFACE EQUIPMENT, TESTING SUPERVISOR, WELL TEST SPECIALIST ETC. AND CEMENTING SERVICES ALONGWITH MUD SERVICES. I I . OIL & NATURAL GAS CORPORATION LTD. CONTRACT NO. MR/ MM/WS/SER / NWSSTT / 058 / 09 - 10 / P66NC09007 / 9010013262 FOR HIRING OF TWO FIRM SETS AND ONE OPTIONAL SET ALONGWITH PROVISIONS OF NORMAL WATER SUB SEA TEST TREE (NWSTT) EQUIPMENT, ALONGWITH PROVISION OF OPERATING PERSONNEL, EQUIPMENT AND SERVICES FOR A F IRM PERIOD OF THREE YEARS. III . OIL & NATURAL GAS CORPORATION LTD, CONTRACT NO. MR / MM / WS / SER/DWSST / 044 / 07 - 08 / P66NL07004 / 901001C046 FOR PROVISIONS OF DEEPWATER SSTT AND PRODUCTION TESTING SURFACE EQUIPMENT AND SERVICES SUITABLE FOR CARRYING OUT PRODUCTION TESTING OF EXPLORATORY AND DEVELOPMENT WELLS DRILLED BY FLOATER DRILLING RIGS AT OFFSHORE LOCATIONS. ITA NO. 6589/DEL./2014 & CO NO. 221/DEL./2015 7 THE GROSS RECEIPTS FROM BOTH THE ABOVE COMPANIES FOR PROVIDING WELL TESTING EQUIPMENT AND SERVICES WERE SHOWN AT RS.28,15,78,778/ - AND THE ASSESSEE APPLIED DEEMED PROFIT RATE OF 10% U/S. 44BB OF THE ACT. THE ASSESSEE FILED CONTRACT - WISE AND INVOICE - WISE REVENUE RECEIPTS IN RESPECT OF THE CONTRACTS BEFORE THE AO. THE CONTRACT MADE WITH ONGC LTD. WAS THE FIRST LEG CONTRACT AND HE ENTERED WITH M /S. HALLIBURTON OFFSHORE SERVICES INC . WHICH WAS NOT A PRODUCTION SHARING CONTRACT. THUS, IT WAS A SECOND LEG CONTRACT. IN THIS RESPECT, THE OBSERVATIONS AND CONCLUSIONS ARRIVED AT BY THE AO ARE AS UNDER : THE CONTRACT EXECUTED WITH ONGC IS A FIRST LEG CONTRACT WITH THE ASSESSEE. ALTHOUGH, DURING THE YEAR UNDER CONSIDERATION, AS MENTIONED ABOVE, ASSESSEE HAS ALSO EXECUTED CONTRACT WITH M/S HALLIBURTON OFFSHORE SERVICES INC WHICH IS NOT A PRODUCTION SHARING CONTRACT COMPANY ENGAGED IN PRODUCTION & EXPLORA TION ACTIVITY ITSELF. THUS, THIS IS A SECOND LEG CONTRACT. THE PERUSAL OF SCOPE OF WORK IN RESPECT OF THE ABOVE MENTIONED CONTRACTS IS AS UNDER. - A. FOR HALLIBURTON OFFSHORE SERVICES INC. CONTACT SCOPE OF WORK THE CONTRACTOR SHALL PROVIDE PRODUCTION TEST ING SURFACE (PTS) EQUIPMENT ALONGWITH ACCESSORIES FOR CARRYING OUT PRODUCTION TESTING OF HPHT WELLS. TO PROVIDE SURFACE FLOW HEAD, SURFACE TREE EQUIPMENT ALONGWITH OPERATING PERSONNEL FOR PTS EQUIPMENT COMPRISING OF TESTING SUPERVISOR, WELL TEST SPECIALIST AND WELL TEST OPERATORS. BESIDES THE SCOPE OF HIGH PRESSURE WELL TESTING INCLUDES ALL THE ACTIVITIES AS MENTIONED IN PARA (A) ABOVE. B. FOR ONGC CONTACTS SCOPE OF WORK THE CONTRACTOR SHALL PROVIDE SUBSEA TEST TREE (DEEPWATER SSTT) AND PRODUCTION TESTING SURFACE (PTS) EQUIPMENT ALONGWITH ACCESSORIES FOR CARRYING OUT PRODUCTION TESTING AND EXPLORATORY AND DEVELOPMENT WELLS DRILLED BY FLOATER DRILLING RIGS AND ANY OTHER RIGS, TO PROVIDE TECHNICALLY QUALIFIED AND EXPERIENCE ITA NO. 6589/DEL./2014 & CO NO. 221/DEL./2015 8 PERSONNEL CAPABLE OF WELL TESTING IN WATER DEPTH OF 1000 METER OR MORE. TO PROVIDE EQUIPMENT SUITABLE FOR SOUR SERVICES, PTS EQUIPMENT FOR 10000 PSI WORKING PRESSURE ALONGWITH CHEMICAL INJECTION EQUIPMENT SURFACE PRESSURE RECORDER EQUIPMENT AND PROVISION OF TECHNICAL PERSONNEL COMPRISING O F TESTING SUPERVISOR, DEEPWATER SSTT CHIEF OPERATOR, DEEPWATER SSTT OPERATOR, WELL TEST SPECIALIST AND WELL TEST OPERATOR. THE SCOPE OF WELL TESTING WILL INCLUDE THE FOLLOWING POINTS: - I) TO RECOMMEND WELL TESTING PLAN INCLUDING STRING DESIGN AND PTS EQU IPMENT LAYOUT TO ONGC FOR APPROVAL. II) TO SUGGEST WELL TESTING METHODOLOGY AND STRING DESIGN TO TEST SUCCESSFULLY GAS HYDRATE FORMATIONS, OIL AND/OR GAS FORMATIONS JUST BELOW GAS HYDRATE FORMATIONS. III ) TO CARRY OUT DEEPWATER SSTT AND WELL TESTING OPE RATIONS, FLOW STUDIES, DATA ACQUISITION ETC. IV) T O OVERCOME OPERATIONAL COMPLICATIONS SUCH AS HYDRATE FORMATION, PARAFFIN PROBLEM, SAND INCURSION, HIGH CONCENTRATION OF H 2S ETC. V) TO PREPARE AND SUBMIT WELL TESTING REPORTS. FROM THE ABOVE SCOPE OF WORK, IT IS CLEAR THAT THE ASSESSEE IS PROVIDING WELL TESTING EQUIPMENT AND SERVICES THROUGH THE VARIOUS SERVICES/EQUIPMENT MENTIONED ABOVE AND PROVISION OF TECHNICAL PERSONNEL AND ENGINEER WHO ARE TECHNICALLY QUALIFIED AND EXPERIENCE TO CARRY OUT THE S ERVICES. THE TECHNICIANS/SERVICE ENGINEERS ARE TO BE PAID AS PER THE RATE SHOWN IN ANNEX URE ATTACHED TO THE CONTRACT. ACCORDINGLY VIDE ORDER SHEET ENTRY DATED 03.01.2014 A.R. OF THE ASSESSEE WAS REQUESTED TO EXPLAIN AS TO WHY NATURE OF THE SERVICES UNDER THE ABOVE CONTRACT MAY NOT BE CONSIDERED AS FTS AS DEFINED IN SEC. 9(1)(VII) OF I. T. ACT AND TAXED ACCORDINGLY. THE ISSUE OF TAXABILITY OF WELL TESTING SERVICES/PRODUCTION TESTING SERVICES THROUGH THE ABOVE PROCEDURES ALONG WITH PROVISION OF EQUIPMENT AN D SERVICE PERSONNEL HAS BEEN TAXED AS FTS AND CONFIRMED TO BE SO IN THE CASE OF THE ASSESSEE IN EARLIER YEARS PRECEDING THE CURRENT YEAR UNDER CONSIDERATION. SIMILAR ITA NO. 6589/DEL./2014 & CO NO. 221/DEL./2015 9 ACTIVITIES AND SAME CONTRACTS WERE PERFORMED IN THOSE YEARS AS WELL AND SOME CONTRACTS ARE CONTINUING FROM EARLIER YEARS. THUS PART OF THE REVENUES FROM THOSE CONTRACTS ARE CONTINUED TO BE RECEIVED IN THE PRESENT YEAR UNDER CONSIDERATION. THE ASSESSEE HAS RELIED UPON THE PROVISIONS OF SEC. 44BB, THE DECISION OF HON'BLE UTTRAKHAND HIGH COURT IN THE CASE OF SCAN DRILLING, THE RULING OF AAR IN LLOYD HELICOPTER ETC. THE ASSESSEE HAS ALSO STATED THAT THE PRIMARY ACTIVITY UNDER THESE CONTRACTS IS PROVISION OF PLANT AND MACHINERY WHEREAS THE PROVISION OF OPERATING PERSONNEL IS A SECONDARY ACTIVITY. TH E FACTS OF THE CASE ARE DIFFERENT IN EACH CASE AND NONE OF THE ABOVE RULINGS ARE APPLICABLE TO THE FACTS OF THE CASE OF THE ASSESSEE. WITH REGARD TO THE CONTENTION ABOUT PROVISION OF OPERATING PERSONNEL BEING A SECONDARY ACTIVITY, IT IS SUBMITTED THAT THE NATURE OF CONTRACT, FROM ITS HEADING ITSELF, CLEARLY INDICATES AND ESTABLISHES THAT IT A 'SERVICES CONTRACT' FOR CARRYING OUT WELL TESTING SERVICES, NORMAL WATER SUBSEA TEST TREE SERVICES PRODUCTION TESTING OF HPHT WELLS, TO BE PERFORMED AND CARRIED OUT WI TH THE HELP OF EQUIPMENT REQUIRED AND OF COURSE TECHNICAL PERSONNEL WHICH ARE TO BE PROVIDED BY THE ASSESSEE ALONGWITH. THUS IN FACT PROVISION OF TECHNICAL PERSONNEL AND ENGINEERS IS THE PRIMARY ACTIVITY IN SUCH TYPE OF CONTRACT AS THE CONTRACT IS TECHNICA L SERVICES CENTRIC. PROVISION OF EQUIPMENT IS A ANCILLARY ACTIVITY AND A TOOL IN AID ONLY. COPY OF INVOICES WAS CALLED FOR FROM THE ASSESSEE IN RESEPCT OF EACH CONTRACT AND THE SAME HAVE BEEN FILED ALONGWITH WRITTEN SUBMISSION DATED 09.01.2014. PERUSAL THE REOF SHOWS THAT THEY ARE MAINLY IN RESPECT OF PAYMENTS TO OPERATING PERSONNEL FOR THE SERVICES. THE INCOME OF T HE ASSESSEE IS CONSIDERED AS TAXABLE UNDER THE HEAD 'FEES FOR TECHNICAL SERVICES' FOR THE FOLLOWING REASONS: THE ASSESSEE HAS IGNORED THE RULI NG OF THE SAME AUTHORITY BY A LARGER BENCH HEADED BY HON'BLE JUSTICE, RANGNATH MISHRA IN THE RULING. THE ASSESSEE'S SUBMISSIONS HAVE BEEN CONSIDERED VERY CAREFULLY. THE CASE LAWS RELIED UPON BY THE ASSESSEE IS NOT APPLICABLE IN ITS CASE. ALSO THERE IS A RU LING NO. P - 6/AAR/1995, WHICH HAS CLEARLY HELD THAT TECHNICAL SERVICES IS OUTSIDE THE PURVIEW OF SEC. 44BB OF THE I.T. ACT, 1961 THE RELEVANT EXTRACT OF THE RULINGS GIVEN BY THE HON'BLE AUTHORITY FOR ADVANCE RULINGS PRONOUNCED BY THREE MEMBER BENCH IS REPRO DUCED HERE UNDER : ITA NO. 6589/DEL./2014 & CO NO. 221/DEL./2015 10 'THE EXCLUSION OF ROYALTY AND FEES FOR TECHNICAL SERVICES FROM THE SCOPE OF SECTION 44 B B WILL NOT, THEREFORE, RENDER SECTION 44BB OTIOSE OR REDUNDANT, AS SUGGESTED. ON T HE OTHER HAND, THE PROVISO IN SECTION 44BB WILL BE MEANINGLESS IF R OYALTY AND TECHNICAL SERVICE FEES ARISING OUT OF A BUSINESS CANNOT AT ALL FALL WITHIN THE PURVIEW OF SECTION 44D, THE ENTIRE SCHEME OF THE ACT - SECTION 9(1)(VI) AND (VII), SECTION 44D, SECTION 115A - CLEARLY SHOWS THAT THE UNDERLYING IDEA IS TO GIVE SPECIAL T AX TREATMENT TO INCOME BY WAY OF ROYALTIES AND FEES BY WAY OF TECHNICAL SERVICES OF FOREIGN COMPANIES IN TWO WAYS : BY PRESCRIBING A FLAT RATE LOWER THAN THE GENERAL RATE OF TAX ON THE OTHER INCOME BY TAXING THE GROSS AMOUNT OF RECEIPTS OF THIS NATURE WITH OUT PROVIDING FOR ANY DEDUCTIONS THERE FROM, A MODE OF TAXATION EVOLVED AFTER A GOOD DEAL OF THOUGHT AND DISCUSSIONS BETWEEN NATIONS WHERE DOUBLE TAXATION IS INVOLVED. THE MODE OF TAXATION AND RELIEF PROVIDED IN THE DOUBLE TAX AVOIDANCE AGREEMENT A/SO SHOW S THAT ROYALTIES AND FEES FOR TECHNICAL SERVICES ARE TAXED ON A BASIS DIFFERENT FROM BUSINESS EXCEPT WHERE THEY ARISE IN THE COURSE OF A BUSINESS WITH A PERMANENT ESTABLISHMENT IN INDIA. SECTION 44BB AND SECTION 44D HAVE THUS BOTH TO BE GIVEN EFFECT TO AND THE ONLY WAY OF DOING IT IS BY RESTRICTING SECTION 44BB TO INCOME THAT DOES NOT FALL WITHIN THE SCOPE OF SECTION 44D; IT IS THIS THAT IS MADE CLEAR BY THE PROVISO TO SECTION 44BB(1) WHICH SPECIFICALLY EXCLUDES ANY PROFITS AND GAINS OF BUSINESS OR OTHER IN COME FALLING UNDER SECTION 44D FROM THE PURVIEW OF SECTION 44 BB .' RELIANCE IS ALSO PLACED ON THE DECISION OF HON'BLE UTTRAKHAND HIGH COURT IN THE CASE OF CIT VS. ONGC AS AN AGENT OF M/S FORAMER FRANCE, WHEREIN IT HAS BEEN HELD THAT FEES FOR TECHNICAL SERV ICES ARE OUTSIDE THE PURVIEW OF SEC. 4466. THE RELEVANT EXTRACT FROM THE SAID DECISION IS BEING REPRODUCED AS UNDER: '7. THUS, IT IS CLEAR THAT CLAUSES 4.3 TO 4.10 OF THE CONTRACT W ERE TO BE PERFORMED BY THE ASSESSEE COMPANY THROUGH ITS PERSONNEL LISTED I N EXHIBIT - A, WHICH HAS BEEN S T ATED IN T HE AFFIDAVIT THAT, THE PERSONNEL WHICH HAVE BEEN HIRED ON FEE BY THE ONGC WERE CARRYING OUT THE DRILLING OPERATIONS . THE EXPLANATION 2 TO SECTION 9(A)(VII) OF (HE INCOME TAX ACT, 1 961 READS AS UNDER : 'E X PLANATION 2: FOR THE PURPOSES OF THIS CLAUSE, 'FEES FOR TECHNICAL SERVICES' MEANS ANY CONSIDERATION FINCLUD.INO ANY LUMP SUM CONSIDERATION FOR THE RENDERING OF ANY MANAGERIAL, TECHNICAL OR ITA NO. 6589/DEL./2014 & CO NO. 221/DEL./2015 11 CONSULTANCY SERVICES (INCLUDING THE PROVISION OF SERVICES OF TECHNI CA L OR OTHER PERSONNEL) BUT DOES NOT INCLUDING CONSIDERATION FOR ANY CONSTRUCTION, ASSEMBLY, MINING, OR LIKE PROJECT UNDERTAKEN BY T HE RECIPIENT OR CONSIDERATION WHICH WOULD BE INCOME OF THE RECIPIENT CHARGEABLE UNDER T HE HEAD 'SALARIES'.' FROM THE PERUSAL O F THE ABOVE EXPLANATION, IT IS CLEAR THAT FEE FOR TECHNICAL SERVICES WILL NOT INCLUDE T HE CONSIDERATION FOR ANY CONSTRUCTION, ASSEMBLY, MINING OR LIKE PROJECT UNDERTAKEN BY THE RECIPIENT OR CONSIDERATION, WHICH WOULD BE INCOME O F THE RECIPIENT CH ARGEABLE UNDER THE HEAD SALARIES. IT HAS NOT BEEN ESTABLISHED B Y THE ASSESSEE FOREIGN COMPANY OR ITS AGENT O N GC THAT THE PAYMENT WAS MADE UNDER T HE HEAD OF SALARY RATHER IT HAS CLEARLY BEEN MENTIONED IN T HE AGREEMENT THAT T HE FEE SHALL BE PAID AT THE RATE OF US $ 3.450.00 PER DAY. THE PURPOSE FOR WHICH T HE CONTRACT WAS ENTERED INTO BETWEEN THE PARTIES ENUMERATED IN THE CO N TRACT QUOTED ABOVE C LEARLY SPEAKS THAT THE ASSESSEE HAD T O RENDER T HE TECHNICAL SERVICES BY THE PERSONNEL EXPERT IN OPERATION AND MANAGEM ENT AND EXPATRIATE SUPERVISORY STAFF TO THE OWNER , I.E., ONGC AND THE OWNER WAS T O UTILIZE THE SERVICES O F SUCH EXPATRIATE PERSONNEL O F CONTRACTOR FOR MANNING, ASSISTING IN THE OPERATIONS AND MANAGEMENT OF THE RIG . IT H AS NOT BEEN MENTIONED THAT THESE PERSONNEL, SHALL ALSO CARRY OUT T HE WOR K OF DRILLING OF WEL L . THEREFORE, T HE COMPANY HAS RECEIVED FEE FOR RENDERING TECHNICAL AND HENCE IS LIABLE TO PAY TAX UNDER SECTION 44 - D READ WITH SECTION 115 - A OF THE INCOME TAX ACT.' I N VIEW OF THE ABOVE DEC ISIONS OF THE HON'BLE COURTS AND THE REASONS MENTIONED ABOVE AND RESPECTFULLY FOLLOWING THE DECISION OF JURISDICTION HIGH COURT OF UTTRAKHAND, THE INCOME OF THE ASSESSEE IS TREATED AS FEES FOR TECHNICAL SERVICES AS DEFINED U/S 9(1)(VII) OF THE ACT AND NOT UNDER SECTION 44BB OF THE ACT. REVENUE SUBMISSIONS: 1. ON THE INTERPRETATION OF THE PROVISO TO SECTION 44BB : RULE IS THAT WHERE THE MAIN PROVISION IS CLEAR, ITS EFFECT CANNOT BE CUT DOWN BY THE PROVISO. BUT WHERE I T IS NOT CLEAR, THE PROVISO, WHICH CANNOT BE PRESUMED TO BE A SURPLUS AGE, CAN PROPERLY BE LOOKED INTO, TO ASCERTAIN THE MEANING AND SCOPE OF THE MAIN PROVISION. IN SUPPORT OF THE ABOVE PROPOSITION, RELIANCE IS PLACED ON THE DECISION OF HON'BLE ITA NO. 6589/DEL./2014 & CO NO. 221/DEL./2015 12 SUPREME COUR T IN THE CASE OF HINDUSTAN IDEAL INSURANCE CO LTD V L I C OF INDIA 1963 AIR SC 7083. PROVISO TO SECTION 44 BB IS NOT INSERTED PER MAJOREM CAUTELAM AS CANVASSED BY AND ON BEHALF OF THE APPLICANT BUT IT EXPLAINS AND CLARIFIES THE MAIN PROVISION AS THE TERMS 'SERVICES OR FACILITIES' USED THEREIN ARE NOT DEFINED AND THE TWO TERMS USED ARE TOO GENERAL IN NATURE. THE PROVISO THUS RESTRICTS THE APPLICABILITY OF THE SUBSTANTIVE PROVISION OF SECTION 44 BB IN RELATION TO THOSE PERSONS WHO ARE EITHER ENGAGED IN THE BUS INESS FOR PROSPECTING, ETC., FOR MINERAL OIL (SECTION 42) OR FOREIGN COMPANIES WHO RECEIVED FEE FOR TECHNICAL SERVICES FROM AN INDIAN CONCERN ETC., (44D) OR IN THE CASES OF NON - RESIDENTS AND FOREIGN COMPANIES RECEIVING FEE FOR TECHNICAL SERVICES (SECTION 1 15A) AND PERSONS COVERED BY THE NOTIFICATION ISSUED BY THE CENTRAL GOVERNMENT (SECTION 293A). 2. PROVISO WOULD BE RENDERED USELESS IF WE ARE TO HOLD THAT SECTION DEALS WITH ALL SORTS OF SERVICES BE IT OF GENERAL NATURE, AS A CLASS IN ITSELF AS WELL SERVIC ES OF TECHNICAL, CONSULTANCY OR MANAGERIAL NATURE WHICH FORM A DISTINCT AND SEPARATE SPECIES OF SERVICES. THIS CAN ALSO BE EXPLAINED BY PROVISIONS CONTAINED AT LEAST IN THREE (3) TAX TREATIES WHICH INDIA HAS ENTERED INTO WITH AUSTRIA, GERMANY AND JAPAN. RE LEVANT EXTRACTS OF PARAGRAPH 3 OF ARTICLE 5 RELATING TO PERMANENT ESTABLISHMENT AND ARTICLE DEALING WITH ROYALTIES AND FEE FOR TECHNICAL SERVICES OF THESE TAX TREATIES MAY BE REFERRED TO. IT MAY BE PERTINENT TO MENTION THAT THE LANGUAGE USED IN PARAGRAPH 3 OF ARTICLE 5 IN THESE TAX TREATIES IS SAME AS THAT USED IN SECTION 44BB OF THE INCOME TAX ACT, 1961. THE EXISTENCE OF PES IS COVERED IN THE ARTICLE DEALING WITH ROYALTIES AND FEE FOR TECHNICAL SERVICES SEPARATELY AND THE TAXABILITY OF PE BY VIRTUE OF ARTI CLE 5, PARAGRAPH 3 WOULD BE COVERED SEPARATELY BY ARTICLE 7 OF THESE TAX TREATIES. 3 . THE PHRASE 'IN CONNECTION WITH' USED IN SECTION 44BB ONLY BROADENS THE SCOPE OF THE SECTION TO COVER SERVICES WHICH ARE NOT OF TECHNICAL NATURE AND ENACTS A SPECIAL PROV ISION FOR DETERMINATION OF TAX LIABILITY OF PERSONS ENGAGED IN PROVIDING SUCH SERVICES WHICH WOULD BE OUTSIDE THE SCOPE OF TECHNICAL SERVICES. 4. INSTRUCTION NO. 1862 DATED 22 - 10 - 1990 DEALING WITH THE INTERPRETATION OF THE TERM 'MINING OR LIKE PROJECT', I S ISSUED IN AN ITA NO. 6589/DEL./2014 & CO NO. 221/DEL./2015 13 ENTIRELY DIFFERENT CONTEXT AS CAN BE SEEN FROM THE STATEMENT OF THE CASE REFERRED FOR THE OPINION OF LEARNED ATTORNEY GENERAL AND THE OPINION OF LEARNED A G . FROM THE CONTEXT OF THIS INSTRUCTION, IT CAN BE SEEN THAT THE SAME WOULD NOT BE APPL ICABLE TO THE FACTS OF THE CASE OF THOSE APPLICANTS WHO ARE ENGAGED IN THE CARRYING OUT SEISMIC SURVEYS AS THE INSTRUCTION WOULD APPLY ONLY TO THOSE WHO ARE ENGAGED IN THE DRILLING OPERATIONS. THE SERVICES PROVIDED BY SUCH APPLICANTS WOULD NOT COME WITHIN THE EXCLUSIONARY PART OF THE EXPLANATION (2) TO SECTION 9 (1) (VII) OF THE ACT AS NO MINING OR LIKE PROJECT IS UNDERTAKEN BY SUCH APPLICANTS . 5. SECTION 44D HAS BEEN MADE INOPERATIVE IN RESPECT OF AGREEMENTS AFTER THE 31ST DAY OF MARCH 2003 AND WITH THIS TWO STREAMS FOR TAXATION OF PERSONS ENGAGED IN PROVIDING SERVICES OF TECHNICAL NATURE IS EVIDENT, ONE FOR THOSE HAVING A PE IN INDIA (SECTION 44DA) AND THE OTHER WHO DO NOT HAVE A PE [SECTION 9 (1) (VII) READ WITH SECTION 115A]. 6. BOARD'S CIRCULAR NO 649 DATED 31 - 3 - 1993 ALSO CLARIFIES WHAT SITUATION WOULD GOVERN THE ASPECT OF TAXABILITY OF FEE FOR TECHNICAL SERVICES WHERE THERE IS A TREATY EXISTENT AND WHERE THERE IS NONE. IN VIEW OF THE ABOVE, THE INCOME OF THE ASSESSES COVERED U/S 9(1)(VII) OF THE INCO ME - TAX ACT, 1961 AND THEREFORE, THE ASSESSEE IS NOT ENTITLED FOR CONFESSIONAL BENEFIT UNDER SECTION 44BB OF THE INCOME - TAX ACT, 1961. THE ISSUE OF TAXABILITY OF RECEIPTS IN RESPECT OF THE ABOVE CONTRACTS AS FEES FOR TECHNICAL SERVICES U/S 9(1)(VII) HAD CO ME UP BEFORE THE DRP WHEN THE AO HAS DETERMINED RECEIPTS FOR A.Y 2008 - 09 AS FTS, THE DRP HAS CONFIRMED THE STAND TAKEN BY THE AO AND HELD THAT INCOME OF THE ASSESSEE IS FTS. THE CONTRACT WITH HOSI ALSO COMPRISE OF PERFORMANCE OF SAME TYPE OF ACTIVITIES VIZ PROVISION OF WELL TESTING SERVICES ALONGWITH TECHNICAL PERSONNEL AND EQUIPMENT. THUS, IT IS CLEAR THAT ASSESSEE IS RENDERING TECHNICAL SERVICES AND THEREFORE, ITS INCOME IS NOT COVERED UNDER SECTION 44BB OF THE INCOME - TAX ACT, 1961 AND TAXABLE AS FTS. THE STAND HAS BEEN CONFIRMED BY DRP IN THE YEARS MENTIONED ABOVE. THE PRESENT ASSESSMENT PROCEEDINGS ARE IN RESPECT OF A.Y. 2011 - 12 DURING WHICH REVENUES HAVE BEEN EARNED BY THE NRC AND THEREFORE, PROVISIONS OF SECTION 44DA ARE APPLICABLE TO IT IN THE YEAR UNDER CONSIDERATION. THE ASSESSEE ALSO HAS PE IN INDIA AS ALREADY HELD ABOVE. AS PER THE PROVISIONS OF SECTION 44DA OF I. T. ACT ASSESSEE WAS REQUIRED ITA NO. 6589/DEL./2014 & CO NO. 221/DEL./2015 14 TO MAINTAIN BOOKS OF ACCOUNTS AND GET ACCOUNTS AUDITED FOR COMPUTING PROFITS THEREIN WHICH ASSESSEE HAS NOT DONE. 4. THE ASSESSING OFFICER FURTHER NOTED THAT THE ASSESS EE FILED THE RETURN OF INCOME ON THE BASIS OF GROSS RECEIPTS INCLUDING SERVICE TAX AMOUNTING TO RS.2,49,00,589/ - . HOWEVER, LATER ON, THE ASSESSEE OFFERED INCOME AT RS.2,56,67,819/ - AFTER REDUCING THE SERVICE TAX RECEIPTS FROM THE GROSS RECEIPTS BY WAY OF W RITTEN SUBMISSIONS DATED 03.01.2014. THIS CLAIM WAS NOT ACCEPTED BY THE ASSESSING OFFICER DUE TO THE REASON THAT WITHOUT FILING OF REVISED RETURN, NO SUCH CLAIM OF DEDUCTION CAN BE ACCEPTED. HE ALSO RELIED ON THE DECISION IN THE CASE OF GOETZ INDIA LTD. VS . CIT, 284 ITR 323. HE ALSO RELIED ON VARIOUS OTHER JUDGMENTS TO SAY THAT THE SERVICE TAX IS THE PART OF THE GROSS RECEIPTS. THE AO AFTER CONSIDERING THE DETAILED SUBMISSIONS OF THE ASSESSEE AND AFTER MAKING DETAILED DISCUSSION HELD AS UNDER AND ACCORDINGL Y COMPUTED THE TOTAL INCOME OF THE ASSESSEE: SINCE THE ASSESSEE IS RENDERING SERVICES THROUGH ITS PE THE PROVISIONS OF SEC. 44DA ARE APPLICABLE IN THE CASE OF THE ASSESSEE AS FTS. THE ASSESSEE HAS NOT PRODUCED BOOKS OF ACCOUNTS AND HAS ONLY REITERATED THA T PROVISIONS OF SEC. 44BB OF IT ACT ARE APPLICABLE AND MAINTENANCE OF BOOKS OF ACCOUNTS IS NOT REQUIRED. THEREFORE, AO IS LEFT WITH NO OPTION BUT TO COMPUTE INCOME ON ESTIMATE BASIS (RELYING ON RULE 10 OF I.T. RULES) BY CONSIDERING INCOME OF THE ASSESSEE A T DEEMED PROFIT RATE OF 25% OF GROSS RECEIPTS AS BUSINESS INCOME WITHIN THE PROVISIONS OF SECTION 28 TO 43C OF I.T. ACT WHICH HAVE BEEN CONSIDERED AS IN THE NATURE OF ROYALTY/FTS AS PER DISCUSSION ABOVE. 5. WITH THESE REMARKS, THE TOTAL INCOME OF THE ASSE SSEE IS COMPUTED AS UNDER : ITA NO. 6589/DEL./2014 & CO NO. 221/DEL./2015 15 GROSS REVENUE (AS PER COMPUTATION FILED DURING ASSESSMENT PROCEEDINGS) RS. 25,66,78,189/ - ADD: AS PER PARA 4 RS. 2,49,00,589/ - TOTAL REVENUES RS. 28,15,78,778/ - INCOME @ 25% RS. 7,03,94,694/ - TOTA L INCOME RS. 7,03,94,694/ - INCOME ROUNDED OFF RS. 7,03,94,690/ - 5. AGGRIEVED BY THE ABOVE ORDER, THE ASSESSEE APPEALED BEFORE THE FIRST APPELLATE AUTHORITY, WHO AFTER CONSIDERING THE DETAILED SUBMISSIONS OF THE ASSESSEE ALLOWED THE APPEAL OF THE ASSESSEE ON THE ISSUES RAISED BY THE REVENUE. THE RELEVANT FINDINGS RECORDED BY THE LD. CIT(A) IN PARA 4.2, PARA 5 AND 7 OF THE IMPUGNED ORDER READ AS UNDER : 4.2 THE FINDINGS OF LD. AO AND THE AVERMENTS OF LD. ARS HAVE BEEN CAR EFULLY CONSIDERED. IT IS NOT IN DOUBT THAT ALL THE SERVICES RENDERED BY THE APPELLANT (AS DETAILED IN THE EXTRACT ABOVE) HAD A DIRECT NEXUS WITH OIL EXTRACTION OR EXPLORATION. THUS FOLLOWING THE DETAILED REASONING GIVEN AND INTERPRETATION OF LAW IN THE OHM LTD. CASE (SUPRA) IT IS HELD THAT THE APPELLANT S CASE DESERVES TO BE DEALT WITH U/S. 44BB OF THE ACT FOR THE ENTIRE QUANTUM OF INCOME. THESE GROUNDS ARE ACCORDINGLY ALLOWED. 5. GROUND NO. 5 CHALLENGES THE INCLUSION OF SERVICE TAX REIMBURSEMENT IN THE TURNOVER FOR THE PURPOSES OF COMPUTING INCOME U/S. 44BB OF THE ACT OR AS ROYALTY/FTS. THIS GROUND IS ALLOWED FOLLOWING THE CASE OF PRECISION ENERGY SERVICES LTD. (ITA NO. 5609/DE L./2012). 7. GROUND NO. 7 CHALLENGES THE LEVY OF INTEREST U/S. 234B OF THE ACT. THIS GROUND IS ALLOWED FOLLOWING THE CASE OF MAERSK REPORTED IN 334 ITR 79 (UK). ITA NO. 6589/DEL./2014 & CO NO. 221/DEL./2015 16 6. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL . 7. THE LD. DR RELIED ON THE ORDER OF THE ASSESSING OFFICER. 8. ON THE OTHER HAND, THE LD. AR FILED ITS WRITTEN SYNOPSIS IN THE TABULATED FORM IN REBUTTAL OF ALL THE GROUNDS RAISED BY THE REVENUE. HE ALSO RELIED ON THE DECISIONS OF DELHI BENCH OF TRIBU NAL DATED 27.06.2016 IN THE CASE OF DCIT VS. AL MANSOORI SPECIALIZED ENGG. CO. LLC (ITA NO. 6587/DEL./2014) FOR THE ASSESSMENT YEAR 2011 - 12 TO CONTEND THAT THE ISSUE UNDER CONSIDERATION IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THIS DECISION. HE ALS O RELIED ON THE DECISION OF DELHI HIGH COURT IN THE CASE OF DIT VS. MITCHELL DRILLING INTERNATIONAL, 380 ITR 130(DEL.) AND DELHI TRIBUNAL IN THE CASE OF SUNDOWNER OFFSHORE INTERNATIONAL (BERMUNDA) LTD. VS. ADIT, 41 ITR (TRIB) 71 TO CONTEND THAT SERVICE TAX DOES NOT FORM PART OF THE GROSS RECEIPT. HE ALSO CONTENDED THAT NO INTEREST IS LEGALLY LEVIABLE U/S. 234B IN CASE OF PAYMENTS MADE TO NON - RESIDENT COMPANY WHERE FULL TDS HAS BEEN DEDUCTED. 9. WE HAVE HEARD THE SUBMISSIONS OF BOTH THE PARTIES, PERUSED THE MATERIALS AVAILABLE ON RECORD AND CONSIDERED THE CASE LAWS CITED BY ASSESSEE AS WELL AS THE REVENUE. AS REGARDS THE ISSUE RAISED IN GROUNDS NOS. 1 TO 4 AND ITA NO. 6589/DEL./2014 & CO NO. 221/DEL./2015 17 6 OF APPEAL, WE FIND THAT THIS ISSUE OF TAXABILITY OF THE RECEIPTS ON IDENTICAL FACTS AND CIRCUMSTANCES HAS BEEN CONSIDERED IN ASSESSEE S OWN CASE IN ITA NO.5561/DEL./2011 FOR A.Y. 2008 - 09 IN FAVOUR OF THE ASSESSEE HOLDING THAT THE EQUIPMENT AND SERVICE PROVIDED BY THE ASSESSEE FALLS WITHIN THE AMBIT OF PROVISION OF SECTION 44BB OF THE ACT. THIS ORDER OF TRIBUNAL STANDS AFFIRMED BY HON BLE JURISDICTIONAL HIGH COURT IN ITA NO. 34/2015 VIDE ORDER DATED 06.08.2015, WHEREIN THE HON BLE HIGH COURT RELYING ON THE DECISION OF HON BLE APEX COURT IN THE CASE OF ONGC LIMITED (376 ITR 306) HELD AS UNDER : ' 4. IN THE LIGHT OF THE JUDGMENT OF THE HON'BLE APEX COURT IN CIVIL APPEAL NO. 731 OF 2007 AND CONNECTED CASES (OIL & NATURAL GAS CORPORATION LIMITED VS. COMMISSIONER OF INCOME TAX & ANOTHER), THE SUB STANTIAL QUESTIONS OF LAW RELATING TO THE ASSESSABILITY OF THE AMOUNTS UNDER SECTION 44BB HAVE TO BE ANSWERED AGAINST THE APPELLANT / REVENUE. ACCORDINGLY, WE ANSWER THE SAID QUESTIONS OF LAW AGAINST THE REVENUE IN THE LIGHT OF THE AFORESAID JUDGMENT OF TH E HON'BLE APEX COURT. 5........... 6. IN SUCH CIRCUMSTANCES, THE APPEALS ARE DISPOSED OF AS FOLLOWS: (I) WE ANSWER THE QUESTIONS OF LAW RELATING TO THE ASSESSABILITY OF THE AMOUNTS UNDER SECTION 44BB AGAINST THE REVENUE. 10. AS SUBMITTED BY THE LD. AR, THE DECISIONS RELIED BY THE AO IN THE CASES OF ONGC AS AGENT OF FORAMER FRANCE IN ITA NO. 231 OF 2001 AND ONGC AS AGENT OF ROLLS ROYCE IN ITA NO. 86/2007, STOOD OVERRULED BY HON BLE SUPREME COURT IN CIVIL APPEALS NOS. 731 OF 2007 AND 1240 OF 2008. HENCE, T HE REVENUE DOES NOT GET HELP FROM THESE CASE LAWS ON THIS ISSUE. THEREFORE, RESPECTFULLY ITA NO. 6589/DEL./2014 & CO NO. 221/DEL./2015 18 FOLLOWING THE ABOVE DECISIONS OF COORDINATE BENCH AND THE DECISION OF JURISDICTIONAL HIGH COURT, WE FIND NO JUSTIFICATION TO INTERFERE WITH THE ORDER OF THE LD. CIT(A) ON THIS ISSUE. ACCORDINGLY, THE APPEAL OF THE REVENUE HAS TO BE DISMISSED ON THIS MATTER. 11. AS REGARDS THE ISSUE OF SERVICE TAX AS CONTAINED IN GROUND NO. 5 , WE FIND THAT THE SERVICE TAX IS STATUTORY DUES WHICH ARE PAID TO THE GOVERNMENT AS LIABILITY OF THE ASSESSEE. A PERUSAL OF THE RECORD AS WELL AS THE ASSESSMENT ORDER NOWHERE REVEALS THAT THE SERVICE TAX HAS BEEN SEPARATELY CHARGED BY THE APPELLANT COMPAN Y ON THE BILLS. THE RECORD FURTHER DOES NOT REVEAL WHETHER THE ASSESSEE HAS SEPARATELY ACCOUNTED FOR THE AMOUNTS OF SERVICE TAX SO CHARGED, IN THE BOOKS OF ACCOUNT. THE ASSESSMENT ORDER ALSO DOES NOT WHISPER ANYTHING AS TO WHETHER THE SERVICE TAX HAS BEEN CHARGED BY THE APPELLANT COMPANY IN TERMS AND CONDITIONS OF THE AGREEMENTS. THESE ASPECTS, IN OUR OPINION, NEED PROPER EXAMINATION AND VERIFICATION AT THE STAGE OF ASSESSING OFFICER BEFORE DECIDING THE QUESTION WHETHER THE SERVICE TAX CHARGED BY THE ASSESS EE WOULD FORM PART OF THE RECEIPTS OR NOT. WE, THEREFORE, DIRECT THE AO TO EXAMINE (I) THE PROCEDURE FOR COLLECTING THE SERVICE TAX; (II) WHETHER THE ASSESSEE HAS ISSUED BILLS FOR CHARGING SERVICE TAX AND IF YES, WHETHER THE SERVICE TAX HAS BEEN SEPARATE LY CHARGED IN THE BILLS OR NOT AND ITA NO. 6589/DEL./2014 & CO NO. 221/DEL./2015 19 (III) WHETHER THE SERVICE TAX HAS BEEN SEPARATELY ACCOUNTED FOR AND HAVE BEEN ACCORDINGLY PAID TO THE GOVERNMENT. IN CASE, THE SERVICE - TAX HAS BEEN SEPARATELY CHARGED IN THE BILLS AND ACCORDINGLY ACCOUNTED FOR, THEN, IN O UR OPINION, THIS WOULD NOT FORM PART OF THE RECEIPTS AND IF IT IS FOUND THAT THESE ITEMS ARE INCLUDED IN THE CONSOLIDATED AMOUNT OF BILLS, THEN IT SHOULD FORM THE PART OF THE RECEIPTS. ACCORDINGLY, THIS ISSUE IS RESTORED TO THE FILE OF ASSESSING OFFICER FO R DECIDING THE SAME AFRESH AFTER MAKING PROPER EXAMINATION AS OBSERVED ABOVE. AS A RESULT, GROUND NO. 5 OF APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. 12. ADVERTING TO THE LAST ISSUE INVOLVED IN GROUND NO. 7, WE FIND THAT THIS ISSUE IS COVERED BY THE DECISION OF TRIBUNAL IN THE GROUP APPEALS OF HALLIBURTON OFFSHORE SERVICES VIDE ORDER DATED 30.06.2016 WHEREIN THE CO - ORDINATE BENCH ON THE ISSUE OF INTEREST U/S. 234B ON THE PAYMENTS TO NON - RESIDENTS HAS OBSERVED AS UNDER : 36. GROUND NO. 14 IS AGAINST THE CHARGING OF INTEREST U/S 234B OF THE INCOME TAX ACT. 37. LD AR SUBMITTED THAT THERE WAS NO LIABILITY ON THE ASSESSEE FOR PAYMENT OF ADVANCE TAX U/S 234B OF THE ACT. HE SUBMITTED THAT INCOME RECEIVED BY THE ASSESSEE IF HELD TO BE CHARGEAB LE TO TAX IN INDIA THE ASSESSEE WAS NOT REQUIRED TO PAY ANY ADVANCE TAX IN VIEW OF TAX DEDUCTIBLE FOR IT U/S 195 OF THE ACT BY THE PAYER. HE FURTHER RELIED ON THE DECISION OF HON BLE DELHI HIGH COURT IN DIT VS. GE PACKAGE POWER INCORPORATION 373 ITR 65. 3 8. THE LD DR RELIED ON THE ORDER OF THE LOWER AUTHORITIES AND SUBMITTED THAT INTEREST U/S 234B - C IS CONSEQUENTIAL AND IS RIGHTLY CHARGED. ITA NO. 6589/DEL./2014 & CO NO. 221/DEL./2015 20 39. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS. THE HON BLE DELHI HIGH COURT IN DIT VS. GE PACKAGE POWER INCO RPORATION 373 ITR 65 (DELHI) HAS HELD AS UNDER: - 7. THE QUESTION THAT ARISES FOR CONSIDERATION IS WHETHER INTEREST SHOULD BE LEVIED ON THE ASSESSEE UNDER SECTION 234B, ON THE GROUND OF NON - PAYMENT OF ADVANCE TAX. THE CASE OF THE REVENUE, IN SHORT, IS THA T THE POSITION OF LAW IN ALCATEL LUCENT USA INC (SUPRA) IS APPLICABLE, SINCE THE ASSESSEE, HAVING DENIED TAX LIABILITY DURING REASSESSMENT, CAUSED THE PAYER TO ERRONEOUSLY REFRAIN FROM DEDUCTING TAX UNDER SECTION 195; IT MUST THUS SUFFER AN INTEREST FOR NO N - PAYMENT OF ADVANCE TAX. THE CASE OF THE ASSESSEES ON THE OTHER HAND IS THAT THE POSITION OF LAW IN JACABS CIVIL INCORPORATED/MITSUBISHI CORPORATION (SUPRA) MUST APPLY, AND THAT THE OBLIGATION WAS UPON THE PAYER TO DEDUCT TAX AT SOURCE BEFORE MAKING REMIT TANCES TO THEM; THE PAYER'S FAILURE TO DO SO CANNOT INVITE AN INTEREST UPON THE PAYEES. 8. SECTION 195(1) ENVISAGES DEDUCTION OF TAX AT SOURCE BY 'ANY PERSON CHARGEABLE' UNDER THE PROVISIONS OF THE ACT, AT THE TIME OF CREDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE. THE COURT, IN JACABS CIVIL INCORPORATED/MITSUBISHI CORPORATION (SUPRA), INTERPRETED THIS OBLIGATION OF THE PAYER TO DEDUCT TAX AS ABSOLUTE, IN THESE TERMS: '8. THE SCHEME OF THE ACT IN RESPECT OF NON RESIDENTS IS CLEAR. SECTION 195 OF THE A CT PUTS AN OBLIGATION ON THE PAYER, I.E. ANY PERSON RESPONSIBLE FOR PAYING TO A NON - RESIDENT, TO DEDUCT INCOME TAX AT SOURCE AT THE RATES IN FORCE FROM SUCH PAYMENTS EXCLUDING THOSE INCOMES WHICH ARE CHARGEABLE UNDER THE HEAD 'SALARIES'. THEREFORE, THE ENT IRE TAX IS TO BE DEDUCTED AT SOURCE WHICH IS PAYABLE ON SUCH PAYMENTS MADE BY THE PAYEE TO THE NON - RESIDENT. SECTION 201 OF THE ACT LAYS DOWN THE CONSEQUENCES OF FAILURE TO DEDUCT OR PAY. THESE CONSEQUENCES INCLUDE NOT ONLY THE LIABILITY TO PAY THE AMOUNT WHICH SUCH A PERSON WAS REQUIRED TO DEDUCT AT SOURCE FROM THE PAYMENTS MADE TO A NON - RESIDENT BUT ALSO PENALTIES ETC. ONCE IT IS FOUND THAT THE LIABILITY WAS THAT OF THE PAYER AND THE SAID PAYER HAS DEFAULTED IN DEDUCTING THE TAX AT SOURCE, THE DEPARTMENT IS NOT REMEDY - LESS AND THEREFORE CAN TAKE ACTION AGAINST THE PAYER UNDER THE PROVISIONS OF SECTION 201 OF THE INCOME TAX ACT AND COMPUTE THE AMOUNT ACCORDINGLY. NO DOUBT, IF THE PERSON (PAYER) WHO HAD TO MAKE PAYMENTS TO THE NON - RESIDENT HAD DEFAULTED IN D EDUCTING THE TAX AT SOURCE FROM SUCH PAYMENTS, THE NON - RESIDENT IS NOT ABSOLVED FROM PAYMENT OF TAXES THEREUPON. HOWEVER, IN SUCH A CASE, THE NON - RESIDENT IS LIABLE TO PAY TAX AND THE QUESTION OF PAYMENT OF ADVANCE TAX WOULD NOT ARISE. THIS WOULD BE CLEAR FROM THE READING OF SECTION 191 OF THE ACT ALONG WITH SECTION 209 (1) (D) OF THE ACT. FOR THIS REASON, IT WOULD NOT BE PERMISSIBLE FOR THE REVENUE TO CHARGE ANY INTEREST UNDER SECTION 234B OF THE ACT.' 9. TO UNDERSTAND WHETHER SECTION 234B MAY BE HAD RE COURSE TO, FOR FAILURE TO PAY ADVANCE TAX, ONE MUST UNDERSTAND THE SCHEME OF ADVANCE TAX PAYMENT. ONE OBLIGATION IS IMPOSED UPON THE PAYER OF A SUM TO A FOREIGN COMPANY, REQUIRING A DEDUCTION OF TAX AT SOURCE UNDER ITA NO. 6589/DEL./2014 & CO NO. 221/DEL./2015 21 SECTION 195. A SECOND OBLIGATION IS DIREC TLY IMPOSED UPON THE ASSESSEE, BY REQUIRING IT TO COMPUTE ITS ADVANCE TAX LIABILITY AS STIPULATED UNDER SECTION 209. HOWEVER, A FOREIGN COMPANY ASSESSEE THAT RECEIVES REMITTANCES THAT ARE ATTRIBUTABLE AS BUSINESS PROFITS TO A PE IN INDIA, IS PERMITTED A TA X CREDIT WHILE COMPUTING ITS ADVANCE TAX LIABILITY UNDER SECTION 209, SINCE A TAX IS DEDUCTIBLE AT SOURCE UNDER SECTION 195.SECTION 209(1)(D), PRIOR TO THE FINANCE ACT, 2012, READ: 'SECTION 209. COMPUTATION OF ADVANCE TAX (1) THE AMOUNT OF ADVANCE TAX PAYABLE BY AN ASSESSEE IN THE FINANCIAL YEAR SHALL, SUBJECT TO THE PROVISIONS OF SUB - SECTIONS (2) AND (3), BE COMPUTED AS FOLLOWS, NAMELY: - THE INCOME - TAX CALCULATED UNDER CLAUSE (A) OR CLAUSE (B) OR CLAUSE (C) SHALL, IN EACH CASE, BE REDUCED BY THE AMOU NT OF INCOME - TAX, WHICH WOULD BE DEDUCTIBLE [OR COLLECTIBLE] AT SOURCE DURING THE SAID FINANCIAL YEAR UNDER ANY PROVISION OF THIS ACT FROM ANY INCOME (AS COMPUTED BEFORE ALLOWING ANY DEDUCTIONS ADMISSIBLE UNDER THIS ACT) WHICH HAS BEEN TAKEN INTO ACCOUNT I N COMPUTING THE CURRENT INCOME OR, AS THE CASE MAY BE, THE TOTAL INCOME AFORESAID; AND THE AMOUNT OF INCOME - TAX AS SO REDUCED SHALL BE THE ADVANCE TAX PAYABLE:' 'PROVIDED THAT FOR COMPUTING LIABILITY FOR ADVANCE TAX, INCOME - TAX CALCULATED UNDER CLAUSE (A) OR CLAUSE (B) OR CLAUSE (C) SHALL NOT, IN EACH CASE, BE REDUCED BY THE AFORESAID AMOUNT OF INCOME - TAX WHICH WOULD BE DEDUCTIBLE OR COLLECTIBLE AT SOURCE DURING T HE SAID FINANCIAL YEAR UNDER ANY PROVISION OF THIS ACT FROM ANY INCOME, IF THE PERSON RESPONSIBLE FOR DEDUCTING TAX HAS PAID OR CREDITED SUCH INCOME WITHOUT DEDUCTION OF TAX OR IT HAS BEEN RECEIVED OR DEBITED BY THE PERSON RESPONSIBLE FOR COLLECTING TAX WI THOUT COLLECTION OF SUCH TAX.' 12. THIS COURT IS OF THE OPINION THAT THE LAW PRIOR TO THE 2012 AMENDMENT MUST BE READ TO PREVENT SUCH ANOMALIES FROM ARISING. WITH THIS BACKGROUND, THIS COURT HAS TO EXAMINE THE APPLICABILITY OF THE POSITION OF LAW IN ALCA TEL LUCENT USA INC (SUPRA). THE FACTS IN ALCATEL LUCENT USA INC (SUPRA) WERE THAT THE ASSESSEE WAS A NON - RESIDENT COMPANY WHICH SUPPLIED SOME EQUIPMENT TO INDIAN CONSUMERS, AND RECEIVED PAYMENT FOR IT IN THE AY 2007 - 08. BASED ON THE MATERIALS FOUND IN THE SURVEY AT THE PREMISES OF ALCATEL LUCENT INDIA LTD., THE INDIAN SUBSIDIARY, THE AO FOR ALCATEL LUCENT FRANCE CONCLUDED THAT THE ASSESSEE HAD A PE IN INDIA. REASSESSMENT PROCEEDINGS WERE INITIATED AGAINST THE ASSESSEE FOR AYS 2004 - 05 TO 2007 - 08. THE ASSESSE E MAINTAINED THE POSITION THAT IT WAS NOT LIABLE TO TAX IN INDIA, AS IT DID NOT HAVE A PE IN INDIA. CONSEQUENTLY, IT FILED NIL RETURNS. HOWEVER, THE AO FOUND THAT A PERCENTAGE OF ITS INCOME WAS TAXABLE IN INDIA, ATTRIBUTABLE TO ITS PE, AND LEVIED INTEREST UNDER SECTION 234A, 234B AND 234C. IN THE APPEAL TO THE CIT(A), THE ASSESSEE CLAIMING INTER ALIA, FIRST, ITA NO. 6589/DEL./2014 & CO NO. 221/DEL./2015 22 THAT THE COMPUTATION OF INCOME, BY ATTRIBUTING BUSINESS PROFITS TO A PE, WAS INCORRECT, AND SECOND, THAT THE INTEREST LEVIED UNDER SECTION 234B WAS INC ORRECT, SINCE THE WHOLE CONSIDERATION RECEIVED BY IT WAS LIABLE TO TAX DEDUCTION AT SOURCE UNDER SECTION 195, THUS PRECLUDING ANY ADVANCE TAX LIABILITY ON ITS PART. HOWEVER, IT DID NOT PRESS THE FIRST GROUND IN THE PROCEEDINGS. THE CIT(A) ULTIMATELY DELETE D THE INTEREST UNDER SECTION 234B, ON THE GROUND THAT WHILE THE NON - RESIDENT ASSESSEE WAS LIABLE TO TAX, IT COULD NOT BE HELD TO BE LIABLE TO ADVANCE TAX, AS FIRST, THE OBLIGATION WAS ABSOLUTE UPON THE PAYER TO DEDUCT TAX AT SOURCE, UNDER SECTION 195, READ WITH SECTION 201 (WHICH PERMITTED RECOVERY FROM THE PAYER, AS ASSESSEE - IN - DEFAULT, OF BOTH THE TAX AS WELL AS INTEREST, FOR NOT DEDUCTING TAX) AND SECOND, WHETHER OR NOT ANY TAX WAS ACTUALLY DEDUCTED, THE ASSESSEE WAS ALLOWED A TAX CREDIT OF THAT AMOUNT O F TAX THAT WAS DEDUCTIBLE OR COLLECTIBLE AT SOURCE, BY THE PRE - AMENDED SECTION 209(1)(D), THUS NEGATING THE ASSESSEE'S LIABILITY TO PAY ADVANCE TAX. THE ITAT, ON APPEAL BY THE REVENUE, CONFIRMED THE VIEW OF THE CIT(A). 13. THE DIVISION BENCH OF THIS COURT HOWEVER, HELD IN FAVOUR OF THE REVENUE, REASONING: '20. THE OTHER ARGUMENT ON BEHALF OF THE ASSESSEE THAT THE LIABILITY OF THE PAYER UNDER SECTION 201 IS ABSOLUTELY DIFFERENT FROM THE LIABILITY OF THE NON - RESIDENT ASSESSE E UNDER SECTION 234B NEED NOT BE EXAMINED AND FOR THE PURPOSE OF THE PRESENT CASE IT WOULD NOT MAKE ANY DIFFERENCE, ON ACCOUNT OF THE PECULIAR FACTS OF THE PRESENT CASE. IT MAY BE RECALLED THAT THE ARGUMENT PUT FORTH BY THE REVENUE BEFORE THE INCOME TAX AP PELLATE TRIBUNAL WAS THAT AT THE TIME OF THE RECEIPT OF MONIES FROM INDIA, THE ASSESSEE TOOK THE PLEA THAT IT DID NOT HAVE ANY PE IN INDIA AND, THEREFORE, THE PAYMENT WAS NOT CHARGEABLE TO TAX IN INDIA, WITH THE CONSEQUENCE THAT SECTION 195(1) WAS NOT APPL ICABLE, WHEREAS IN THE APPEALS BEFORE THE CIT (APPEALS), A CONTRADICTORY STAND WAS ADOPTED BY THE ASSESSEE, BY ACCEPTING THE FACT THAT IT HAD A PE IN INDIA AND BY ADMITTING THAT THE INCOME EARNED IN INDIA WAS CHARGEABLE TO TAX. IT WAS FURTHER ARGUED BY THE REVENUE THAT SUCH A CONTRADICTORY PLEA CANNOT BE PERMITTED TO BE TAKEN BY THE ASSESSEE. IT WAS POINTED OUT THAT CONSISTENT WITH THE STAND TAKEN IN THE RETURN, THE ASSESSEE WOULD HAVE TOLD THE INDIAN PAYER THAT NO TAX SHOULD BE DEDUCTED FROM THE REMITTANCE AND IT WAS, THEREFORE, NOT OPEN TO THE ASSESSEE, MERELY BECAUSE AT THE FIRST APPEAL STAGE IT CHOSE NOT TO CONTEST THE ASSESSMENT OF THE INCOME ATTRIBUTABLE TO THE INDIAN PE, TO TURN AROUND AND SAY THAT SINCE IT HAS NOW ACCEPTED ITS LIABILITY TO PAY TAX ON THE INDIAN INCOME, IT WAS FOR THE INDIAN PAYERS TO HAVE DEDUCTED THE TAX AND IF THEY HAD NOT DONE SO THE ASSESSEE CANNOT BE HELD LIABLE FOR THE INTEREST. THIS ARGUMENT OF THE REVENUE WAS REJECTED BY THE TRIBUNAL ON THE GROUND THAT THERE WAS NO MATERIAL IN SUPPORT OF THE PLEA THAT THE ASSESSEE ITA NO. 6589/DEL./2014 & CO NO. 221/DEL./2015 23 REPRESENTED TO THE INDIAN PAYERS NOT TO DEDUCT TAX, NOR DID ANY SUCH FACTS OR CIRCUMSTANCES EMERGED FROM THE IMPUGNED ORDERS. 21. WE ARE UNABLE TO UPHOLD THIS PART OF THE DECISION OF THE TRIBUNAL. IT MUST BE REMEMBE RED THAT IN THE NOTE APPENDED TO THE RETURN THE ASSESSEE WAS QUITE CATEGORICAL IN DENYING ITS LIABILITY TO BE ASSESSED IN INDIA. IT RELIED ON THE DOUBLE TAXATION AVOIDANCE AGREEMENT BETWEEN INDIA AND USA AND POINTED OUT THAT THERE WAS NO PERMANENT ESTABLIS HMENT IN INDIA. IT FURTHER STATED THAT THE TELECOM EQUIPMENTS WERE SOLD OUTSIDE INDIA AND THE PAYMENTS WERE ALSO RECEIVED OUTSIDE INDIA AND THUS THE ASSESSEE DID NOT HAVE ANY TAXABLE PRESENCE IN INDIA SO AS TO BE LIABLE FOR TAX ON ITS INDIAN INCOME. IF THI S WAS THE STAND OF THE ASSESSEE, IT IS NOT IMPERMISSIBLE OR UNREASONABLE TO VISUALISE A SITUATION WHERE, THE ASSESSEE WOULD HAVE REPRESENTED TO ITS INDIAN TELECOM DEALERS NOT TO DEDUCT TAX FROM THE REMITTANCES MADE TO IT. ON THE CONTRARY IT WOULD BE SURPRI SING IF THE ASSESSEE DID NOT MAKE ANY SUCH REPRESENTATION; SUCH A REPRESENTATION WOULD ONLY BE CONSISTENT WITH THE ASSESSEE'S STAND REGARDING ITS TAX LIABILITY IN INDIA. MOREOVER, NO PURPOSE WOULD HAVE BEEN SERVED BY THE ASSESSEE TAKING SUCH A CATEGORICAL STAND REGARDING ITS TAX LIABILITY IN INDIA AND AT THE SAME TIME SUFFERING TAX DEDUCTION UNDER SECTION 195(1). THEREFORE, IN OUR OPINION, EVEN THOUGH THERE MAY NOT BE ANY POSITIVE OR DIRECT EVIDENCE TO SHOW THAT THE ASSESSEE DID MAKE A REPRESENTATION TO ITS INDIAN TELECOM DEALERS NOT TO DEDUCT TAX FROM THE REMITTANCES, SUCH A REPRESENTATION OR INFORMAL COMMUNICATION OF THE REQUEST CAN BE REASONABLY INFERRED OR PRESUMED. THE TRIBUNAL OUGHT TO HAVE ACCORDED DUE WEIGHTAGE TO THE STRONG POSSIBILITY OR PROBABILIT Y OF SUCH A REQUEST HAVING BEEN MADE BY THE ASSESSEE TO THE INDIAN PAYERS SINCE OTHERWISE THE DENIAL OF ITS TAX LIABILITY ON ITS INDIAN INCOME WOULD HAVE SERVED LITTLE PURPOSE FOR THE ASSESSEE. 23. THE TRIBUNAL, KEEPING IN MIND THE ABOVE OBSERVATIONS, U NDERLINED BY US, OUGHT TO HAVE DRAWN THE INFERENCE THAT THE INDIAN PAYERS DID NOT DEDUCT THE TAX UNDER SECTION 195(1) BECAUSE OF THE REQUEST MADE BY THE ASSESSEE, CONSISTENT WITH ITS STAND THAT IT WAS NOT LIABLE TO BE TAXED IN INDIA.' [EMPHASIS ADDED] 14. THE COURT WENT ON TO STATE IN PARA 25: '25. IT IS OPEN TO THE ASSESSEE TO DENY ITS LIABILITY TO TAX IN INDIA ON WHATEVER GROUNDS IT THINKS FIT AND PROPER. HAVING DENIED ITS TAX LIABILITY, IT SEEMS UNFAIR ON THE PART OF THE ASSESSEE TO EXPECT THE INDIAN PA YERS TO DEDUCT TAX FROM THE REMITTANCES. IT IS ALSO OPEN TO THE ASSESSEE TO CHANGE ITS STAND AT THE FIRST APPELLATE STAGE AND SUBMIT TO THE ASSESSMENT OF THE INCOME. WHEN IT DOES SO, ALL CONSEQUENCES UNDER THE ACT FOLLOW, INCLUDING ITS LIABILITY TO PAY INT EREST UNDER SECTION 234B SINCE IT WOULD NOT HAVE PAID ANY ADVANCE TAX. SUCH LIABILITIES WOULD ARISE RIGHT FROM THE TIME WHEN THE INCOME WAS EARNED. ADVANCE TAX WAS INTRODUCED AS A PAYE SCHEME - 'PAY AS YOU EARN'. IT IS NOT OPEN TO THE ASSESSEE, AFTER ACCEP TING THE ASSESSMENT AT THE FIRST APPELLATE STAGE TO CLAIM THAT THE INDIAN PAYERS OUGHT TO HAVE DEDUCTED THE TAX IRRESPECTIVE OF THE FACT THAT THE ASSESSEE ITSELF CLAIMED ITA NO. 6589/DEL./2014 & CO NO. 221/DEL./2015 24 THE INDIAN INCOME TO BE NOT TAXABLE. WE CAN UNDERSTAND AN ASSESSEE WHO ADMITS ITS TAX LIABILITY RIGHT FROM THE BEGINNING TO CONTEND THAT IT WAS THE RESPONSIBILITY OF THE PAYERS TO DEDUCT THE TAX AND IF THEY DID NOT, EVEN THEN THE TAX WHICH OUGHT TO HAVE BEEN DEDUCTED BY THEM SHOULD BE SET OFF AGAINST THE ASSESSEE'S ADVANCE TAX LIABILITIES.' [EMPHASIS ADDED] 15. APPARENTLY, IT IS THIS PART OF THE DECISION THAT THE REVENUE SEEKS TO RELY UPON, IN ARGUING THAT THE VIEW INALCATEL LUCENT USA INC (SUPRA) DID NOT TURN ON THE VOLTE FACE BY THE ASSESSEE AS TO ITS PE STATUS, BUT INSTEAD ON THE FACT TH AT, AT THE TIME OF ASSESSMENT, THE ASSESSEE DENIED ITS TAX LIABILITY ALTOGETHER. THIS COURT, UPON CONSIDERATION, IS OF THE VIEW THAT THE FACT THAT WAS CENTRAL TO THE DECISION OF THIS COURT IN ALCATEL LUCENT USA INC (SUPRA) IS THE ASSESSEE'S INITIAL DENIAL OF PE STATUS, AND CONSEQUENTLY OF ITS TAX LIABILITY, THAT WAS AGGRAVATED BY ITS SUBSEQUENTVOLTE FACE BY WAY OF ITS ADMISSION THAT IT WAS A PE LIABLE TO TAX IN INDIA. THIS RESULTED IN THE COURT'S VIEW THAT THE ASSESSEE HAD PLAYED A ROLE IN INFLUENCING THE P AYER'S NON - DEDUCTION OF TAX AT SOURCE, AND WAS THUS REQUIRED TO COMPENSATE FOR SUCH A VOLTE FACE, BY PAYING INTEREST UNDER SECTION 234B. 16. THIS COURT RESPECTFULLY CANNOT APPLY THE VIEW TAKEN IN ALCATEL LUCENT USA INC (SUPRA) TO THIS CASE. THIS IS BECAU SE IF THE PAYER DEDUCTS TAX AT SOURCE ONLY WHEN THE ASSESSEE ADMITS TAX LIABILITY, THEN DEDUCTIONS WOULD NOT BE MADE IN CASES WHERE THE ASSESSEE EITHER FALSELY OR UNDER A BONA FIDE MISTAKE DENIES TAX LIABILITY. TAX OBLIGATIONS CANNOT BE FOUNDED ON ASSERTIO NS OF INTERESTED PARTIES. IN SUCH CASES, THE PAYER'S OBLIGATION TO DEDUCT TAX WOULD DEPEND ON THE PAYEE'S OPINION OF WHETHER IT IS LIABLE TO TAX, WHICH MAY DIFFER FROM ITS ACTUAL LIABILITY TO TAX AS DETERMINED BY THE A.O'S FINAL ORDER. THIS EFFECTIVELY AUT HORIZES THE ASSESSEE AND THE PAYER TO CONTRACT OUT OF THE STATUTORY OBLIGATION TO DEDUCT TAX AT SOURCE, WHICH IN THIS CASE, IS LOCATED IN SECTION 195(1). SURELY THIS COULD NOT BE THE PARLIAMENTARY INTENT. IF SUCH WERE THE CASE, THERE WOULD HAVE BEEN NO NEE D TO TREAT THE PAYER AS AN ASSESSEE - IN - DEFAULT FOR FAILURE TO DEDUCT TAX AT SOURCE, UNDER SECTION 201.THIS COURT IS THUS IN AGREEMENT WITH THE POSITION OF LAW IN JACABS CIVIL INCORPORATED/MITSUBISHI CORPORATION (SUPRA), THAT THE OBLIGATION OF THE PAYER TO DEDUCT TAX IS ABSOLUTE . 17. THE IMPLICATION OF AN ABSOLUTE OBLIGATION UPON THE PAYER TO DEDUCT TAX AT SOURCE UNDER SECTION 195(1) IS THAT IT BECOMES THE RESPONSIBILITY OF THE PAYER TO DETERMINE THE AMOUNT IT OUGHT TO DEDUCT FROM THE REMITTANCE TO BE PAID TO THE ASSESSEE, TOWARDS TAX. THIS DETERMINATION WOULD DEPEND DIRECTLY ON THE INCOME OF THE ASSESSEE THAT IS TAXABLE IN INDIA ON ACCOUNT OF BEING ATTRIBUTABLE TO ITS PE IN INDIA. THAT THIS DETERMINATION IS THE RESPONSIBILITY OF THE PAYER IS PROVIDED FOR, IN THE STATUTE, IN SECTION 195(2), WHICH READS: '(2) WHERE THE PERSON RESPONSIBLE FOR PAYING ANY SUCH SUM CHARGEABLE UNDER THIS ACT OTHER THAN SALARY TO A NON - RESIDENT CONSIDERS THAT THE WHOLE OF SUCH SUM WOULD NOT BE INCOME CHARGEABLE IN THE CASE OF THE RECIPIENT, HE MAY MAKE AN APPLICATION TO THE ASSESSING OFFICER TO DETERMINE, BY GENERAL OR ITA NO. 6589/DEL./2014 & CO NO. 221/DEL./2015 25 SPECIAL ORDER, THE APPROPRIATE PROPORTION OF SUCH SUM SO CHARGEABLE, AND UPON SUCH DETERMINATION, TAX SHALL BE DEDUCTED UNDER SUB - SECTION (1) ONLY ON THAT PROPORTIO N OF THE SUM WHICH IS SO CHARGEABLE.' THUS, THE ASSESSEE'S LIABILITY TO TAX DOES NOT DEPEND ON ITS OWN VIEW OF ITS PE STATUS, OR ITS ADMISSION OR DENIAL OF TAX LIABILITY. IF AN ASSESSEE FILES NIL RETURNS AT THE STAGE OF ASSESSMENT, AND MAINTAINS THAT IT IS NOT LIABLE TO TAX IN INDIA, THE PAYER IS OBLIGED TO APPLY TO THE AO TO DETERMINE WHAT PORTION, IF ANY, OF ITS REMITTANCE TO THE ASSESSEE, IS LIABLE TO BE DEDUCTED AT SOURCE TOWARDS TAX. 18. THE VIEW OF THIS COURT FINDS CONFIRMATION IN THE POSITION OF LAW AS IT STANDS AT PRESENT, AFTER THE FINANCE ACT, 2012; SHOULD A SITUATION AKIN TO THAT IN ALCATEL LUCENT USA INC (SUPRA) ARISE, THE PAYER WOULD BE TREATED AS THE ASSESSEE - IN - DEFAULT ACCORDING TO SECTION 201, AND THE PAYEE/ASSESSEE WOULD NOT BE PERMITTED A TAX CREDIT UNDER THE PROVISO IN SECTION 209(1)(D). CLEARLY, THE ANOMALY OF AN ASSESSEE DENYING TAX LIABILITY (WHETHER UNDER A BONA FIDE MISTAKE OR BY DECEIT), THEREBY NOT SUFFERING A TAX DEDUC TION AT SOURCE, AND STILL BEING PERMITTED A TAX CREDIT FOR THE TAX DEDUCTIBLE, IS REMEDIED AFTER THE FINANCE ACT, 2012. 19. ALCATEL LUCENT USA INC (SUPRA), IN ANY EVENT, CAN BE DISTINGUISHED ON THE GROUND THAT THE COURT WAS PERSUADED TO CONFIRM THE LEVY OF INTEREST UNDER SECTION 234B, ONLY ON ACCOUNT OF THE EQUITIES THAT NEEDED TO BE BALANCED IN THOSE PECULIAR FACTS, IN FAVOUR OF TAXABILITY. THIS IS EVIDENT FROM THE FOLLOWING WORDS OF THE COURT: '26. IT FURTHER SEEMS TO US INEQUITABLE THAT THE ASSESSEE, WHO ACCEPTED THE TAX LIABILITY AFTER INITIALLY DENYING IT, SHOULD BE PERMITTED TO SHIFT THE RESPONSIBILITY TO THE INDIAN PAYERS FOR NOT DEDUCTING THE TAX AT SOURCE FROM THE REMITTANCES, AFTER LEADING THEM TO BELIEVE THAT NO TAX WAS DEDUCTIBLE. THE ASSESSE E MUST TAKE RESPONSIBILITY FOR ITS VOLTE FACE. ONCE LIABILITY TO TAX IS ACCEPTED, ALL CONSEQUENCES FOLLOW; THEY CANNOT BE AVOIDED. AFTER HAVING ACCEPTED THE LIABILITY TO TAX AT THE FIRST APPELLATE STAGE, IT IS UNFAIR ON THE PART OF THE ASSESSEE TO INVOKE S ECTION 201 AND POINT FINGERS AT THE INDIAN PAYERS. THE ARGUMENT ADVANCED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE INDIAN PAYERS FAILED TO DEDUCT TAX AT THEIR OWN RISK SEEMS TO US TO BE ONLY AN ARGUMENT OF CONVENIENCE OR DESPAIR. AS WE HAVE POINTED OUT EARLIER, IT IS DIFFICULT TO IMAGINE THAT THE INDIAN TELECOM EQUIPMENT DEALERS OF THE ASSESSEE WOULD HAVE FAILED TO DEDUCT TAX AT SOURCE EXCEPT ON BEING PROMPTED BY THE ASSESSEE. IT MAY BE TRUE THAT THE GENERAL RULE IS THAT EQUITY HAS NO PLACE IN THE IN TERPRETATION OF TAX LAWS. BUT WE ARE OF THE VIEW THAT WHEN THE FACTS OF A PARTICULAR CASE JUSTIFY IT, IT IS OPEN TO THE COURT TO INVOKE THE PRINCIPLES OF EQUITY EVEN IN THE INTERPRETATION OF TAX LAWS. TAX LAWS AND EQUITY NEED NOT BE SWORN ENEMIES AT ALL TI MES. THE RULE OF STRICT INTERPRETATION MAY BE RELAXED WHERE MISCHIEF CAN RESULT BECAUSE OF THE INCONSISTENT OR CONTRADICTORY STANDS TAKEN BY THE ASSESSEE OR EVEN THE REVENUE. MOREOVER, INTEREST IS, INTER ALIA, COMPENSATION FOR THE USE OF THE MONEY. THE ASS ESSEE HAS HAD THE USE OF THE MONEY, WHICH WOULD OTHERWISE HAVE BEEN PAID AS ADVANCE TAX, UNTIL IT ACCEPTED THE ASSESSMENTS AT THE FIRST APPELLATE STAGE. WHERE THE REVENUE HAS BEEN DEPRIVED OF THE USE OF THE MONIES AND THEREBY PUT TO LOSS FOR NO FAULT ON ITA NO. 6589/DEL./2014 & CO NO. 221/DEL./2015 26 IT S PART AND WHERE THE LOSS AROSE AS A RESULT OF VACILLATING STANDS TAKEN BY THE ASSESSEE, IT IS NOT EXPECTED OF THE ASSESSEE TO SHIFT THE RESPONSIBILITY TO THE INDIAN PAYERS. WE ARE NOT TO BE UNDERSTOOD AS PASSING A VALUE - JUDGMENT ON THE ASSESSEE'S CONDUCT. WE ARE ONLY SAYING THAT THE ASSESSEE SHOULD TAKE RESPONSIBILITY FOR ITS ACTIONS.' [EMPHASIS ADDED] THIS COURT FINDS THAT NO NEED IS MADE OUT IN THESE FACTS TO BALANCE ANY EQUITIES IN THESE FACTS, AS THE ASSESSEE HAS NOT VACILLATED IN ITS STAND AS TO THE E XISTENCE OF A PE IN INDIA OR OTHERWISE. IN ANY EVENT, AS OBSERVED EARLIER, THE POSITION OF LAW ITSELF REQUIRES THAT THE TAX BE DEDUCTED AT SOURCE, WHATEVER MAY BE THE ASSESSEE'S STANCE, FAILING WHICH THE PAYER IS TREATED AS AN ASSESSEE - IN - DEFAULT UNDER SEC TION 201, AND THE PAYEE IS REQUIRED TO DISCHARGE ITS LIABILITY TO PAY THE TAX THAT WAS NOT DEDUCTED UNDER SECTION 191. 20. THIS COURT ALSO NOTICES THAT THE MADRAS HIGH COURT DECISION IN MADRAS FERTILIZERS LTD. (SUPRA) AND THAT OF THE UTTARAKHAND HIGH COU RT IN SEDCO FOREX INTERNATIONAL DRILLING CO. LTD. (SUPRA) WAS CONSIDERED AND AFFIRMED BY THE BOMBAY HIGH COURT IN NGC NETWORK ASIA LLC (SUPRA) THAT 'WE ARE CLEARLY OF THE OPINION THAT WHEN A DUTY IS CAST ON THE PAYER TO PAY THE TAX AT SOURCE, ON FAILURE, N O INTEREST CAN BE IMPOSED ON THE PAYEE - ASSESSEE.' AN IMPORTANT DECISION IS THAT OF THE KARNATAKA HIGH COURT IN CIT V. SAMSUNG ELECTRONICS CO. LTD. [2012] 345 ITR 494/[2011] 203 TAXMAN 477/16 TAXMANN.COM 141, WHICH ALSO CONSIDERED THE SAME ISSUE, I.E. THE O BLIGATION UNDER SECTION 195 (1). THE HIGH COURT IN THE FIRST INSTANCE HAD REJECTED THE REVENUE'S APPEAL; THE SUPREME COURT REMITTED THE MATTER - FOR DETERMINATION AS TO WHETHER INCOME BY WAY OF ROYALTY HAD BEEN MADE OUT IN THE FACTS OF THE CASE. THE HIGH C OURT DECISION FIRST SET OUT THE ORDER OF THE SUPREME COURT INTER ALIA, AS TO THE NATURE OF OBLIGATION CAST UPON THE PAYER UNDER SECTION 195: 'WHILE REMANDING THE MATTER, HON'BLE SUPREME COURT HAS MADE CERTAIN OBSERVATIONS WHILE ANALYSING THE PROVISIONS OF SECTION 195 OF THE ACT AS FOLLOWS: '7. UNDER SECTION 195(1), THE TAX HAS TO BE DEDUCTED AT SOURCE FROM INTEREST (OTHER THAN INTEREST ON SECURITIES) OR ANY OTHER SUM (NOT BEING SALARIES) CHARGEABLE UNDER THE I.T. ACT IN THE CASE OF NON - RESIDENTS ONLY AND NOT IN THE CASE OF RESIDENTS. FAILURE TO DEDUCT THE TAX UNDER THIS SECTION MAY DISENTITLE THE PAYER TO ANY ALLOWANCE APART FROM PROSECUTION UNDER SECTION 276B. THUS, SECTION 195 IMPOSES A STATUTORY OBLIGATION ON ANY PERSON RESPONSIBLE FOR PAYING TO A NON - RESIDENT, ANY INTEREST (NOT BEING INTEREST ON SECURITIES) OR ANY OTHER SUM (NOT BEING DIVIDEND) CHARGEABLE UNDER THE PROVISIONS OF THE I.T. ACT, TO DEDUCT INCOME TAX AT THE RATES IN FORCE UNLESS HE IS LIABLE TO PAY INCOME TAX THEREON AS AN AGENT. PAYMENT T O NON - RESIDENTS BY WAY OF ROYALTY AND PAYMENT FOR TECHNICAL SERVICES RENDERED IN INDIA ARE COMMON EXAMPLES OF SUMS CHARGEABLE UNDER THE PROVISIONS OF THE I.T. ACT TO WHICH THE AFORESTATED REQUIREMENT OF TAX DEDUCTION AT SOURCE APPLIES. THE TAX SO COLLECTED AND DEDUCTED IS REQUIRED TO BE PAID TO THE CREDIT OF CENTRAL GOVERNMENT IN TERMS OF SECTION 200 OF THE I.T. ACT READ WITH RULE 30 OF THE I.T. RULES, 1962. FAILURE TO DEDUCT TAX OR FAILURE TO PAY TAX WOULD ALSO RENDER A PERSON LIABLE TO PENALTY UNDER SECTI ON 201 READ WITH SECTION 221 OF THE I.T. ACT. IN ADDITION, HE WOULD ITA NO. 6589/DEL./2014 & CO NO. 221/DEL./2015 27 ALSO BE LIABLE UNDER SECTION 201(1A) TO PAY SIMPLE INTEREST AT 12 PER CENT PER ANNUM ON THE AMOUNT OF SUCH TAX FROM THE DATE ON WHICH SUCH TAX WAS DEDUCTIBLE TO THE DATE ON WHICH SUCH TAX IS ACTUALLY PAID. THE MOST IMPORTANT EXPRESSION IN SECTION 195(1) CONSISTS OF THE WORDS 'CHARGEABLE UNDER THE PROVISIONS OF THE ACT'. A PERSON PAYING INTEREST OR ANY OTHER SUM TO A NON - RESIDENT IS NOT LIABLE TO DEDUCT TAX IF SUCH IS NOT CHARGEABLE TO TAX U NDER THE I.T. ACT. FOR INSTANCE, WHERE THERE IS NO OBLIGATION ON THE PART OF THE PAYER AND NO RIGHT TO RECEIVE THE SUM BY THE RECIPIENT AND THAT THE PAYMENT DOES NOT ARISE OUT OF ANY CONTRACT OR OBLIGATION BETWEEN THE PAYER AND THE RECIPIENT BUT IS MADE VO LUNTARILY, SUCH PAYMENTS CANNOT BE REGARDED AS INCOME UNDER THE I.T. ACT. IT MAY BE NOTED THAT SECTION 195 CONTEMPLATE NOT MERELY AMOUNTS, THE WHOLE OF WHICH ARE PURE INCOME PAYMENTS, IT ALSO COVERS COMPOSITE PAYMENTS WHICH HAS AN ELEMENT OF INCOME EMBEDDE D OR INCORPORATED IN THEM. THUS, WHERE AN AMOUNT IS PAYABLE TO A NON - RESIDENT, THE PAYER IS UNDER AN OBLIGATION TO DEDUCT TAS IN RESPECT OF SUCH COMPOSITE PAYMENTS. THE OBLIGATION TO DEDUCT TAS IS, HOWEVER, LIMITED TO THE APPROPRIATE PROPORTION OF INCOME C HARGEABLE UNDER THE ACT FORMING PART OF THE GROSS SUM OF MONEY PAYABLE TO THE NON - RESIDENT. THIS OBLIGATION BEING LIMITED TO THE APPROPRIATE PROPORTION OF INCOME FLOWS FROM THE WORDS USED IN SECTION 195(1), NAMELY, 'CHARGEABLE UNDER THE PROVISIONS OF THE A CT'. IT IS FOR THIS REASON THAT VIDE CIRCULAR NO. 728 DATED OCTOBER 30, 1995 THE CBDT HAS CLARIFIED THAT THE TAX DEDUCTOR CAN TAKE INTO CONSIDERATION THE EFFECT OF WHILE DEDUCTING TAS. IT MAY ALSO BE NOTED THAT SECTION 195(1) IS IN IDENTICAL TERMS WITH SEC TION 18(3B) OF THE 1922 ACT, IN CIT V. COOPER ENGINEERING [1968] 68 ITR 457 (BOM.) IT WAS POINTED OUT THAT IF THE PAYMENT MADE BY THE RESIDENT TO THE NON - RESIDENT WAS AN AMOUNT WHICH WAS NOT CHARGEABLE TO TAX IN INDIA, THEN NO TAX IS DEDUCTIBLE AT SOURCE E VEN THOUGH THE ASSESSEE HAD NOT MADE AN APPLICATION UNDER SECTION 18(3B) (NOW SECTION 195(2) OF THE I. T. ACT). THE APPLICATION OF SECTION 195(2) PRE - SUPPOSES THAT THE PERSON RESPONSIBLE FOR MAKING THE PAYMENT TO THE NON - RESIDENT IS IN NO DOUBT THAT TAX IS PAYABLE IN RESPECT OF SOME PART OF THE AMOUNT TO BE REMITTED TO A NON - RESIDENT BUT IS NOT SURE AS TO WHAT SHOULD BE THE PORTION SO TAXABLE OR IS NOT SURE AS TO THE AMOUNT OF TAX TO BE DEDUCTED. IN SUCH A SITUATION, HE IS REQUIRED TO MAKE AN APPLICATION TO THE ITO (TDS) FOR DETERMINING THE AMOUNT. IT IS ONLY WHEN THESE CONDITIONS ARE SATISFIED AND AN APPLICATION IS MADE TO THE ITO (TDS) THAT THE QUESTION OF MAKING AN ORDER UNDER SECTION 195(2) WILL ARISE. IN FACT, AT ONE POINT OF TIME, THERE WAS A PROVISION IN THE I. T. ACT TO OBTAIN A NOC FROM THE DEPARTMENT THAT NO TAX WAS DUE. THAT CERTIFICATE WAS REQUIRED TO BE GIVEN TO RBI FOR MAKING REMITTANCE. IT WAS HELD IN THE CASE OF CZECHOSLOVAK OCEAN SHIPPING INTERNATIONAL JOINT STOCK COMPANY V. ITO [1971] 81 ITR 162 (CALCUTTA) THAT AN APPLICATION FOR NOC CANNOT BE SAID TO BE AN APPLICATION UNDER SECTION 195(2) OF THE ACT. WHICH DECIDING THE SCOPE OF SECTION 195(2) IT IS IMPORTANT TO NOTE THAT THE TAX WHICH IS REQUIRED TO BE DEDUCTED AT SOURCE IS DEDUCTIBLE ONLY O UT OF THE CHARGEABLE SUM. THIS IS THE UNDERLYING PRINCIPLE OF SECTION195. HENCE, APART FROM SECTION 9(1), SECTIONS 4, 5, 9, 90, 91 AS WELL AS THE PROVISIONS OF DTAA ARE ALSO RELEVANT, WHILE APPLYING TAX DEDUCTION AT SOURCE PROVISIONS. REFERENCE TO ITO (TDS ) UNDER SECTION 195(2) OR 195(3) EITHER BY THE NON - RESIDENT OR BY THE RESIDENT PAYER IS TO AVOID ANY FUTURE HASSLES FOR BOTH RESIDENT AS WELL AS NON - RESIDENT. IN OUR VIEW, SECTIONS 195(2) AND 195(3) ARE ITA NO. 6589/DEL./2014 & CO NO. 221/DEL./2015 28 SAFEGUARDS. THE SAID PROVISIONS ARE OF PRACTICAL IMPO RTANCE. THIS REASONING OF OURS IS BASED ON THE DECISION OF THIS COURT IN TRANSMISSION CORPORATION (SUPRA) IN WHICH THIS SAFEGUARD. FROM THIS IT FOLLOWS THAT WHERE A PERSON RESPONSIBLE FOR DEDUCTION IS FAIRLY CERTAIN THEN HE CAN MAKE HIS OWN DETERMINATION A S TO WHETHER THE TAX WAS DEDUCTIBLE AT SOURCE AND, IF SO, WHAT SHOULD BE THE AMOUNT THEREOF.' THE SUPREME COURT AFTER CONSIDERING THE SUBMISSIONS OF LEARNED COUNSEL APPEARING FOR THE PARTIES REGARDING THE VALIDITY OF THE ORDER PASSED BY THIS COURT DATED 2 4 - 9 - 2009 HAS OBSERVED AS FOLLOWS: '9. ONE MORE ASPECT NEEDS TO BE HIGHLIGHTED. SECTION 195 FALLS IN CHAPTER XVII WHICH DEALS WITH COLLECTION AND RECOVERY. CHAPTER XVII - B DEALS WITH DEDUCTION AT SOURCE BY THE PAYER. ON ANALYSIS OF VARIOUS PROVISIONS OF CH APTER XVII ONE FINDS USE OF DIFFERENT EXPRESSIONS HOWEVER, THE EXPRESSION 'SUM CHARGEABLE UNDER THE PROVISIONS OF THE ACT' IS USED ONLY IN SECTION 195. FOR EXAMPLE, SECTION 194C CASTS AN OBLIGATION TO DEDUCT TAS IN RESPECT OF 'ANY SUM PAID TO ANY RESIDENT' . SIMILARLY, SECTIONS 194EE AND 194F INTER ALIA PROVIDE FOR DEDUCTION OF TAX IN RESPECT OF 'ANY AMOUNT' REFERRED TO IN THE SPECIFIED PROVISIONS. IN NONE OF THE PROVISIONS WE FIND THE EXPRESSION 'SUM CHARGEABLE UNDER THE PROVISIONS OF THE ACT', WHICH AS STA TED ABOVE, IS AN EXPRESSION USED ONLY IN SECTION 195(1). THEREFORE, THIS COURT IS REQUIRED TO GIVE MEANING AND EFFECT TO THE SAID EXPRESSION. IT FOLLOWS, THEREFORE, THAT THE OBLIGATION TO DEDUCT TAS ARISES ONLY WHEN THERE IS A SUM CHARGEABLE UNDER THE ACT. SECTION 195(2) IS NOT MERELY A PROVISION TO PROVIDE INFORMATION TO THE ITO(TDS). IT IS A PROVISION REQUIRING TAX TO BE DEDUCTED AS SOURCE TO BE PAID TO THE REVENUE BY THE PAYER WHO MAKES PAYMENT TO A NON - RESIDENT. THEREFORE, SECTION 195 HAS TO BE READ IN CONFORMITY WITH THE CHARGING PROVISIONS, IE., SECTIONS 4, 5 AND 9. THIS REASONING FLOWS FROM THE WORDS 'SUM CHARGEABLE UNDER THE PROVISIONS OF THE ACT' IN SECTION 195(1). THE FACT THAT THE REVENUE HAS NOT OBTAINED ANY INFORMATION PER SE CANNOT BE A GROUND TO CONSTRUE SECTION 195 WIDELY SO AS TO REQUIRE DEDUCTION OF TAS EVEN IN A CASE WHERE AN AMOUNT PAID IS NOT CHARGEABLE TO TAX IN INDIA AT ALL WE CANNOT READ SECTION 195, AS SUGGESTED BY THE DEPARTMENT, NAMELY, THAT THE MOMENT THERE IS REMITTANCE THE OBLIGA TION TO DEDUCT TAS ARISES. IF WE WERE TO ACCEPT SUCH A CONTENTION IT WOULD MEAN THAT ON MERE PAYMENT INCOME WOULD BE SAID TO ARISE OR ACCRUE IN INDIA. THEREFORE, AS STATED EARLIER, IF THE CONTENTION OF THE DEPARTMENT WAS ACCEPTED IT WOULD MEAN OBLITERATION OF THE EXPRESSION 'SUM CHARGEABLE UNDER THE PROVISIONS OF THE ACT' FROM SECTION 195(1). WHILE INTERPRETING A SECTION ONE HAS TO GIVE WEIGHTAGE TO EVERY WORD USED IN THAT SECTION. WHILE INTERPRETING THE PROVISIONS OF THE INCOME TAX ACT ONE CANNOT READ THE CHARGING SECTIONS OF THAT ACT DE HORS THE MACHINERY SECTIONS. THE ACT IS TO BE READ AS AN INTEGRATED CODE. SECTION 195 APPEARS IN CHAPTER XVII WHICH DEALS WITH COLLECTION AND RECOVERY. AS HELD IN THE CASE OF C.I.T V. ELI LILLY & CO. (INDIA) (P.) LTD. [2009 ] 312 ITR 225 (SC) THE PREVISIONS FOR DEDUCTION OF TAS WHICH IS IN CHAPTER XVII DEALING WITH COLLECTION OF TAXES AND THE CHARGING PROVISIONS OF THE I.T ACT FORM ONE SINGLE INTEGRAL, INSEPARABLE CODE AND, THEREFORE, THE PROVISIONS RELATING TO TDS APPLIES ON LY TO THOSE SUMS WHICH ARE 'CHARGEABLE TO TAX' UNDER THE I.T. ACT. IT IS TRUE THAT THE JUDGMENT IN ELI LILLY (SUPRA) WAS CONFINED TO SECTION 192 ITA NO. 6589/DEL./2014 & CO NO. 221/DEL./2015 29 OF THE I.T. ACT. HOWEVER, THERE IS SOME SIMILARITY BETWEEN THE TWO. IF ONE LOOKS AT SECTION 192 ONE FINDS THAT IT IMPOSES STATUTORY OBLIGATION ON THE PAYER TO DEDUCT TAS WHEN HE PAYS ANY INCOME 'CHARGEABLE UNDER THE HEAD SALARIES'. SIMILARLY, SECTION 195 IMPOSES A STATUTORY OBLIGATION ON ANY PERSON RESPONSIBLE FOR PAYING TO A NON - RESIDENT ANY SUM 'CHARGEABLE UNDER THE PROVISIONS OF THE ACT', WHICH EXPRESSION, AS STATED ABOVE, DO NOT FIND PLACE IN OTHER SECTIONS OF CHAPTER XVII. IT IS IN THIS SENSE THAT WE HOLD THAT THE I.T. ACT CONSTITUTES ONE SINGLE INTEGRAL INSEPARABLE CODE. HENCE, THE PROVISIONS RELATING TO TDS A PPLIES ONLY TO THOSE SUMS WHICH ARE DEPARTMENT THAT ANY PERSON MAKING PAYMENT TO A NON - RESIDENT IS NECESSARILY REQUIRED TO DEDUCT TAS THEN THE CONSEQUENCE WOULD BE THAT THE DEPARTMENT THAT ANY PERSON MAKING PAYMENT TO A NON - RESIDENT IS NECESSARILY REQUIRED TO DEDUCT TAS THEN THE CONSEQUENCE WOULD BE THAT THE DEPARTMENT WOULD BE ENTITLED TO APPROPRIATE THE MONEYS DEPOSITED BY THE PAYER EVEN IF THE SUM PAID IS NOT CHARGEABLE TO TAX BECAUSE THERE IS NO PROVISION IN THE I.T. ACT BY WHICH A PAYER CAN OBTAIN REFU ND. SECTION 237 READ WITH SECTION 199 IMPLIES THAT ONLY THE RECIPIENT OF THE SUM. I.E., THE PAYEE COULD SEEK A REFUND. IT MUST THEREFORE FOLLOW, IF THE DEPARTMENT IS RIGHT THAT THE LAW REQUIRES TAX TO BE DEDUCTED ON ALL PAYMENTS. THE PAYER, THEREFORE, HAS TO DEDUCT AND PAY TAX, EVEN IF THE SO - CALLED DEDUCTION COMES OUT OF HIS OWN POCKET AND HE HAS NO REMEDY WHATSOEVER, EVEN WHERE THE SUM PAID BY HIM IS NOT A SUM CHANGEABLE UNDER THE ACT. THE INTERPRETATION OF THE DEPARTMENT, THEREFORE, NOT ONLY REQUIRES THE WORDS 'CHARGEABLE UNDER THE PROVISIONS OF THE ACT' TO BE OMITTED, IT ALSO LEADS TO AN ABSURD CONSEQUENCE. THE INTERPRETATION PLACED BY THE DEPARTMENT WOULD RESULT IN A SITUATION WHERE EVEN WHEN THE INCOME HAS NO TERRITORIAL NEXUS WITH INDIA OR IS NOT CHAR GEABLE IN INDIA, THE GOVERNMENT WOULD NONETHELESS COLLECT TAX. IN OUR VIEW, SECTION 195(2) PROVIDES A REMEDY BY WHICH A PERSON MAY SEEK A DETERMINATION OF THE 'APPROPRIATE PROPORTION OF SUCH SO CHARGEABLE' WHERE A PROPORTION OF THE SUM SO CHARGEABLE IS LIA BLE 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 ITO(TDS) OF PAYMENTS MADE TO NON - RESIDENTS. IN OTHER WORDS, ACCORDING TO THE DEPARTMENT SECTION 195(2) IS A PROVISION BY WHICH 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 BEIN G MADE TO NON - RESIDENTS OUTSIDE INDIA. 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 'PRAYER' AND NOT THE WORD 'ASSESSEE'. THE PAYER IS NOT A N 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 ABOVE MENTIONED 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 I.T. ACT. WHEN THE PAYER REMITS AN AMOUNT TO A NON - ITA NO. 6589/DEL./2014 & CO NO. 221/DEL./2015 30 RESIDENT OUT OF INDIA HE CL AIMS DEDUCTION OR ALLOWANCES UNDER THE INCOME TAX ACT FOR THE SAID SUM AS AN 'EXPENDITURE'. UNDER SECTION 40(A)(I), INSERTED VIDE FINANCE ACT, 1988 W.E.F. 1.4.89, PAYMENT IN RESPECT OF ROYALTY, FEES TECHNICAL SERVICES OR OTHER SUMS CHARGEABLE UNDER THE INC OME 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 IT. ACT. THIS PROVISION ENSURES EFFECTIVE COMPLIANCE OF SECTION195 OF THE I.T. ACT RELATING TO TAX DE DUCTION AT SOURCE IN RESPECT OF PAYMENTS OUTSIDE INDIA IN RESPECT OF ROYALTIES, FEES OR OTHER SUMS CHARGEABLE UNDER THE I.T. ACT. IN A GIVEN CASE WHERE THE PAYER IS AN ASSESSEE HE WILL DEFINITELY CLAIM DEDUCTION UNDER THE I.T. ACT FOR SUCH REMITTANCE AND O N INQUIRY IF THE AO FINDS THAT THE SUMS REMITTED OUTSIDE INDIA COMES WITHIN THE DEFINITION OF ROYALTY OR FEES FOR TECHNICAL SERVICE OR OTHER SUMS CHARGEABLE UNDER THE I.T. ACT THEN IT WOULD BE OPEN TO THE AO TO DISALLOW SUCH CLAIM FOR DEDUCTION. SIMILARLY, VIDE FINANCE ACT, 2008, W.E.F. 1.4.2008 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 IN TO FORCE ONLY FROM 1.4.2008. 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.' THE KARNATAKA HIGH COURT FIRST ADDRES SED THIS QUESTION AND STATED THAT: '17. IT IS CLEAR FROM THE SCRUTINY OF THE MATERIAL ON RECORD AND THE CONTENTIONS OF THE PARTIES VIZ., REVENUE AND THE RESPECTIVE RESPONDENT IN THESE CASES THAT THE FACT THAT PAYMENTS HAVE BEEN MADE BY THE RESPONDENT HER EIN TO NON - RESIDENT FOR HAVING IMPORTED SHRINK WRAPPED SOFTWARE/OFF - THE - SHELF SOFTWARE IS NOT DISPUTED. THERE IS ALSO NO DISPUTE THAT NO TAX WAS DEDUCTED AT SOURCE BY THE RESPONDENT UNDER SECTION 195(1) OF THE ACT IN RESPECT OF SUCH PAYMENTS ON THE GROUND THAT THE SAME WERE MADE FOR THE PURPOSE OF PURCHASE OF SHRINK WRAPPED SOFTWARE/OFF - THE - SHELF SOFTWARE. IT IS CONTENDED BY THE RESPONDENT THAT SINCE THERE IS NO PERMANENT ESTABLISHMENT OF THE NON - RESIDENT IN INDIA, THE SAID PAYMENTS HAVE TO BE TREATED AS IN COME FROM BUSINESS AND IS NOT TAXABLE UNDER THE INCOME TAX ACT IN INDIA AND CONSEQUENTLY, THERE IS NO OBLIGATION ON THE PART OF THE RESPONDENT TO DEDUCT THE ADVANCE TAX UNDER SECTION 195 OF THE ACT AND ALSO CONSEQUENTIAL PROCEEDINGS WOULD NOT BE ATTRACTED. THEREFORE, THE DISPUTE BETWEEN THE REVENUE AND THE RESPONDENT IN THESE CASES IS WHETHER PAYMENTS MADE BY THE RESPONDENT TO THE NON - RESIDENT WOULD CONSTITUTE 'ROYALTY' OR 'INCOME FROM BUSINESS' AND IF IT IS TO BE TREATED AS 'INCOME FROM BUSINESS', WHETHER THE NON - RESIDENT IS REQUIRED TO HAVE A PERMANENT ESTABLISHMENT IN INDIA. FURTHER, IN THE ABSENCE OF ANY PERMANENT ESTABLISHMENT OF THE NON RESIDENT IN INDIA, IS THERE NO OBLIGATION ON THE PART OF THE PAYEE, THE RESPONDENT HEREIN TO DEDUCT TAX AT SOURCE UND ER SECTION 195 OF THE ACT. THEREFORE, THE FACT THAT THE PAYMENTS MADE BY THE PAYEE, THE RESPONDENT HEREIN TO THE NON - RESIDENT WOULD CONSTITUTE INCOME OF THE NON - RESIDENT IS INDISPUTABLE. HOWEVER, THE DISPUTE IS AS TO WHETHER SUCH INCOME IN THE HANDS OF THE NON - RESIDENT IS TO BE TREATED AS SALE AND INCOME FROM BUSINESS COVERED UNDER ARTICLE 7 OF THE DTAA ITA NO. 6589/DEL./2014 & CO NO. 221/DEL./2015 31 WITH RESPECTIVE COUNTRIES OR WHETHER THE PAYMENTS WOULD AMOUNT TO ROYALTY IN THE HANDS OF THE NON - RESIDENT, FOR WHICH NO PERMANENT ESTABLISHMENT IS REQUIRED FOR MAKING PAYMENT IN INDIA. THERE IS ALSO NO DISPUTE THAT IF THE PAYMENTS MADE BY THE RESPONDENT ARE HELD TO BE ROYALTY AND NOT 'INCOME FROM BUSINESS', THERE IS AN OBLIGATION ON THE PART OF THE PAYEE, THE RESPONDENT HEREIN TO DEDUCT THE TAX AT SOURCE AND IN DEFAULT, THE RESPONDENT HEREIN WOULD BE CONSIDERED AS A DEFAULT ASSESSEE. ONCE THERE IS AN OBLIGATION TO DEDUCT TAX AT SOURCE UNDER SECTION 195 OF THE ACT, WHICH IMPOSES A STATUTORY RIGHT ON ANY PERSON RESPONSIBLE FOR PAYING TO A NON - RESIDENT, ANY INTE REST (NOT BEING INTEREST ON SECURITIES) OR ANY OTHER SUM (NOT BEING DIVIDEND) CHARGEABLE UNDER THE PROVISIONS OF THE ACT, TO DEDUCT INCOME - TAX AT THE RATES IN FORCE UNLESS HE IS LIABLE TO PAY INCOME - TAX THEREON AS AN AGENT. PAYMENT TO NON - RESIDENTS BY WAY OF ROYALTY AND PAYMENT FOR TECHNICAL SERVICES RENDERED IN INDIA ARE COMMON EXAMPLES OF SUMS CHARGEABLE UNDER THE PROVISIONS OF THE ACT TO WHICH THE AFORESTATED REQUIREMENT OF TDS APPLIES. THE TAX SO COLLECTED AND DEDUCTED IS REQUIRED TO BE PAID TO THE CRED IT OF CENTRAL GOVERNMENT IN TERMS OF SECTION 200 OF THE ACT READ WITH RULE 30 OF THE INCOME TAX RULES, 1962. FAILURE TO DEDUCT TAX OR FAILURE TO PAY TAX WOULD ALSO RENDER A PERSON LIABLE TO PENALTY UNDER SECTION 201 READ WITH SECTION 221 OF THE ACT. IN ADD ITION, HE WOULD ALSO BE LIABLE UNDER SECTION 201(1A) TO PAY SIMPLE INTEREST AT 12 PER CENT PER ANNUM ON THE AMOUNT OF SUCH TAX FROM THE DATE ON WHICH SUCH TAX WAS DEDUCTIBLE TO THE DATE ON WHICH SUCH TAX IS ACTUALLY PAID. THEREFORE, IF THE AMOUNT IS HELD T O BE ROYALTY, THE OTHER CONSEQUENCES AS REFERRED TO ABOVE WOULD FOLLOW.' AFTER HOLDING THAT THE TRANSACTION IN THAT CASE AMOUNTED TO ROYALTY AND, THEREFORE, TAXABLE, THE COURT RULED THAT THE OBLIGATION TO DEDUCT TAX WAS WITH THE PAYER: 'IN ANY VIEW OF THE MATTER, IN VIEW OF THE PROVISIONS OF SECTION 90 OF THE ACT, AGREEMENTS WITH FOREIGN COUNTRIES DTAA WOULD OVERRIDE THE PROVISIONS OF THE ACT. ONCE IT IS HELD THAT PAYMENT MADE BY THE RESPONDENTS TO THE NON - RESIDENT COMPANIES WOULD AMOUNT TO 'ROYALTY' WITHIN THE MEANING OF ARTICLE 12 OF THE DTAA WITH THE RESPECTIVE COUNTRY, IT IS CLEAR THAT THE PAYMENT MADE BY THE RESPONDENTS TO THE NON - RESIDENT SUPPLIER WOULD AMOUNT TO ROYALTY. IN VIEW OF THE SAID FINDING, IT IS CLEAR THAT THERE IS OBLIGATION ON THE PART OF THE RESPONDENTS TO DEDUCT TAX AT SOURCE UNDER SECTION 195 OF THE ACT AND CONSEQUENCES WOULD FOLLOW AS HELD BY THE HON'BLE SUPREME COURT WHILE REMANDING THESE APPEALS TO THIS COURT.' 21. A COURT'S TASK IS TO UNRAVEL THE LEGISLATIVE INTENT, IF IT IS NOT DI SCERNABLE. WHERE, HOWEVER, THE PROVISIONS ARE CLEAR, THE COURT'S DUTY IS TO ADMINISTER THE LAW IN ITS TERMS. IT IS BOUND TO ADHERE TO ITS PRECEDENTS; YET ITS DEVOTION TO A PREVIOUS HOLDING CANNOT BLIND IT TO THE CLEAR TERMS OF THE STATUTE, WHEREVER FOUND. IF ALCATEL LUCENT USA INC(SUPRA) IS CORRECT AND IS TO BE APPLIED IN ALL SITUATIONS, THERE WOULD BE DISSIMILAR AND ASYMMETRICAL RESULTS ENTIRELY DEPENDENT ON THE FACTS PRESENTED IN EACH CASE. IT IS UNCLEAR WHAT WOULD BE THE OUTCOME WHERE THE PAYEE IS, IN FA CT, UNDER THE BONA FIDE BELIEF THAT IT DOES NOT HAVE A PE, OR HOW THE PAYER IS TO DISCERN THAT A PAYEE'S ASSERTION IS INTENDED TO DEFEAT THE LAW. THIS COURT THEREFORE, NOTES THAT THIS PRECISE ITA NO. 6589/DEL./2014 & CO NO. 221/DEL./2015 32 QUESTION WAS ADDRESSED IN SAMSUNG ELECTRONICS CO. LTD. (SUPRA) B Y THE SUPREME COURT, WHILE REMITTING THE MATTER FOR RECONSIDERATION BY THE HIGH COURT. THE COURT PERCEPTIVELY HELD THAT: 'HENCE, APART FROM SECTION 9(1), SECTIONS 4, 5, 9, 90, 91 AS WELL AS THE PROVISIONS OF DTAA ARE ALSO RELEVANT, WHILE APPLYING TAX DEDUCTION AT SOURCE PROVISIONS. REFERENCE TO ITO (TDS) UNDER SECTION 195(2) OR 195(3) EITHER BY THE NON - RESIDENT OR BY THE RESIDENT PAYER IS TO AVOID ANY FUTURE HASSLES FOR BOTH RESIDENT AS WELL AS NON RESIDENT. IN OUR VIEW, SECTIONS 195(2) AND 195(3) ARE SAFEGUARDS. THE SAID PROVISIONS ARE OF PRACTICAL IMPORTANCE. THIS REASONING OF OURS IS BASED ON THE DECISION OF THIS COURT IN TRANSMISSION CORPORATION(SUPRA) IN WHICH THIS SAFEGUARD. FROM THIS IT FOLLOWS THAT WHERE A PERSON RESPONSIBLE FOR DEDUCTION IS FAI RLY CERTAIN THEN HE CAN MAKE HIS OWN DETERMINATION AS TO WHETHER THE TAX WAS DEDUCTIBLE AT SOURCE AND, IF SO, WHAT SHOULD BE THE AMOUNT THEREOF.' 22. THIS COURT, THEREFORE, HOLDS THAT JACABS CIVIL INCORPORATED/MITSUBISHI CORPORATION (SUPRA) APPLIES IN SUC H SITUATIONS; ALCATEL LUCENT USA INC (SUPRA) CAN BE EXPLAINED AS A DECISION TURNING UPON ITS FACTS; ITS SEEMINGLY WIDE OBSERVATIONS, LIMITED TO THE CIRCUMSTANCES OF THE CASE. THIS COURT, THEREFORE, HOLDS THAT THE VIEW TAKEN BY ITAT WAS CORRECT; THE PRIMARY LIABILITY OF DEDUCTING TAX (FOR THE PERIOD CONCERNED, SINCE THE LAW HAS UNDERGONE A CHANGE AFTER THE FINANCE ACT, 2012) IS THAT OF THE PAYER. THE PAYER WILL BE AN ASSESSEE IN DEFAULT, ON FAILURE TO DISCHARGE THE OBLIGATION TO DEDUCT TAX, UNDER SECTION 201 OF THE ACT. 23. FOR THE ABOVE REASONS, THIS COURT FINDS THAT NO INTEREST IS LEVIABLE ON THE RESPONDENT ASSESSEES UNDER SECTION 234B, EVEN THOUGH THEY FILED RETURNS DECLARING NIL INCOME AT THE STAGE OF REASSESSMENT. THE PAYERS WERE OBLIGED TO DETERMINE WHETHER THE ASSESSEES WERE LIABLE TO TAX UNDER SECTION 195(1), AND TO WHAT EXTENT, BY TAKING RECOURSE TO THE MECHANISM PROVIDED IN SECTION 195(2) OF THE ACT. THE FAILURE OF THE PAYERS TO DO SO DOES NOT LEAVE THE REVENUE WITHOUT REMEDY; THE PAYER MAY BE REG ARDED AN ASSESSEE - IN - DEFAULT UNDER SECTION 201, AND THE CONSEQUENCES DELINEATED IN THAT PROVISION WILL VISIT THE PAYER. THE APPEAL OF THE REVENUE IS ACCORDINGLY DISMISSED WITHOUT ANY ORDER AS TO COSTS. 40. THEREFORE ACCORDINGLY ANY INCOME OF A NON - RESID ENT ON WHICH TAX IS DEDUCTIBLE U/S 195 OF THE INCOME TAX ACT THEN NON RESIDENT ASSESSEE IS NOT REQUIRED TO PAY ADVANCE TAX U/S 209(1)(D) OF THE INCOME TAX ACT AND CONSEQUENTLY HE IS NOT LIABLE TO PAY INTEREST U/S 234B - C OF THE ACT. IN VIEW OF THE DECISION OF HON BLE HIGH COURT WE HOLD THAT ASSESSEE IS NOT SUBJECT TO PAY INTEREST U/S 234B AND 234C OF THE ACT. GROUND NO. 14 OF THE APPEAL IS ALLOWED. ITA NO. 6589/DEL./2014 & CO NO. 221/DEL./2015 33 13. RESPECTFULLY FOLLOWING THE DECISION OF CO - ORDINATE BENCH, WE DECIDE THIS ISSUE AGAINST THE REVENUE AND I N FAVOUR OF THE ASSESSEE. ACCORDINGLY, GROUND NO. 7 OF APPEAL OF REVENUE STANDS DISMISSED. 14. DURING THE COURSE OF HEARING, THE LD. AR OF THE ASSESSEE WITHDREW THE CROSS OBJECTION, WHICH HAS BEEN FILED IN SUPPORT OF THE IMPUGNED ORDER. ACCORDINGLY, THE CROSS - OBJECTION OF THE ASSESSEE STANDS DISMISSED AS WITHDRAWN. 15. IN THE RESULT, THE APPEAL OF THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND THE CROSS - OBJECTION OF THE ASSESSEE IS DISMISSED AS INDICATED ABOVE . ORDER PRONOUNCED IN THE OPEN CO URT ON 13.02.2017 . SD/ - SD/ - ( H.S. SIDHU ) (L.P. SAHU) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 13.02.2017 *AKS/ - COPY OF ORDER FORWARDED TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT. REGISTRAR INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES, NEW DELHI