GVK INDUSTRIES LTD. &ANR. vs. THE INCOME TAX OFFICER & ANR.

CIVIL APPEAL No. 7796/1997Supreme Court[2015] 3 S.C.R. 32118 February 2015Bench: 2 JudgesAuthor: S. J. MUKHOPADHAYA, DIPAK MISRA30 pages
AI SummaryDismissed

What did the Supreme Court hold?

The Supreme Court held that the services rendered by the NRC clearly fell within the ambit of 'consultancy services' as defined under Section 9(1)(vii)(b) of the Income Tax Act, 1961. The Court reasoned that the NRC possessed the requisite skill, acumen, and knowledge in the specialized field of preparing schemes for finances and tying up loans. The nature of their activities, including developing financial models, assessing credit agencies, and assisting in loan negotiations, constituted human interaction leading to the rendering of advice. Therefore, the payment made to the NRC was taxable as 'fee for technical service'. Consequently, tax at source should have been deducted. The Court further held that once the payable tax was paid, the grant of a 'No-Objection Certificate' was not legally permissible. The appeal was dismissed, and the High Court's judgment was deemed impregnable. No issue was expressly left undecided.

What were the facts?

The appellant, GVK Industries Ltd., engaged a Non-Resident Company (NRC) from Switzerland to procure loans for its power project. The NRC provided services including developing a financial model, assessing credit agencies, and assisting with loan negotiations. A success fee of Rs. 5.4 crores was paid to the NRC upon successful financial closing. The Income Tax Officer (ITO) initiated proceedings, and the appellant sought a 'No-Objection Certificate' (NOC) which was denied. The High Court upheld the ITO's decision. The appeal is before the Supreme Court. The assessment years are not explicitly stated.

What were the issues?

1. Whether the success fee paid by the appellant company to the Non-Resident Company (NRC) for rendering professional advice for procurement of loan and other financial services is chargeable under the Income Tax Act, 1961, specifically under Section 9(1)(vii)(b) as 'fee for technical service'. Assessee's Contention: The judgment does not explicitly record the assessee's specific arguments regarding the chargeability of the success fee. However, their pursuit of an NOC implies a belief that the fee was not taxable or that tax had been adequately dealt with. Revenue's Contention: The revenue contended that the services rendered by the NRC constituted 'consultancy services' and were therefore taxable as 'fee for technical service' under Section 9(1)(vii)(b) of the Act, necessitating tax deduction at source. The revenue also argued that once tax was payable, the grant of an NOC was not permissible.

Which sections of the Income-tax Act were involved?

Section 9(1)(vii)(b)

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(2015) 3 S.C.R. 321 GVK INDUSTRIES LTD. &ANR. v. THE INCOME TAX OFFICER &ANR. (Civil Appeal No. 7796 of 1997) FEBRUARY 18, 2015 [SUDHANSU JYOTI MUKHOPADHAYA AND DIPAK MISRA, JJ.] A B c Income Tax Act, 1961: s.9(1)(vii)(b) - Success fee payable by appellant company to Non-Resident Company (NRC) for rendering professional advice for procurement of loan and for providing other financial and general services - Whether success fee is chargeable under the Act and whether · D appellant-company is entitled to 'No-Objection Certificate' - Held: The services rendered by NRC included, inter alia, financial structure and security package to be offered to the lender, study of various lending alternatives for the local and foreign borrowings, making assessment of expert credit E agencies world-wide and obtaining commercial bank support on the most competitive terms, assisting the appellant company in loan negotiations and documentations with the lenders, structuring, negotiating and closing financing for the F project in a coordinated and expeditious manner - The nature of service rendered by the NRC would come within the ambit of the term 'consultancy service' and, ther

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