DCIT, DEHRADUN vs. M/S. EXPRO GULF LTD., MUMBAI

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 assessment year 2011-12 in

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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 received 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 read with section 9(1)(vii) of the Act.

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 above 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 Ltd. 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.

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without adjudicating the aspect of eligibility under 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-HC-UKHAND-INTL].

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 held 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.

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receipts in the absence of books of accounts and details of expenses incurred in providing the services.

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 specific 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 there 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 role 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 assessee/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).”

of ld. CIT(A) on the following grounds :

“ 1. That the Ld. Commissioner of Income-tax, Appeals-II, Dehradun [CIT(A)] erred 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.

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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 with 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

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(iii). Whether interest u/s. 234B is chargeable in the case of payments made to non-resident where TDS has been fully deducted on such payments.

on 30.09.2011. Case was selected for scrutiny and statutory notices were

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 revenue 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.

ii. 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 firm 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.

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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 & exploration 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 testing 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

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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 of 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 equipment 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 operations, flow studies, data acquisition etc.

iv) To overcome operational complications such as hydrate formation, paraffin problem, sand incursion, high concentration of H2S 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 services. The technicians/service engineers are to be paid as per the rate shown in Annexure 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 and 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

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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. The 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 with 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 technical 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 thereof shows that they are mainly in respect of payments to operating personnel for the services.

The income of the assessee is considered as taxable under the head 'fees for technical services' for the following reasons:

The assessee has ignored the ruling 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 Ruling 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 reproduced here under :

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"The exclusion of royalty and fees for technical services from the scope of section 44BB will not, therefore, render section 44BB otiose or redundant, as suggested. On the other hand, the proviso in section 44BB will be meaningless if royalty 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 tax 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 without 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 shows 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 income falling under section 44D from the purview of section 44BB."

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 services 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 were to be performed by the assessee company through its personnel listed in Exhibit-A, which has been stated in the 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, 1961 reads as under:

"Explanation 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

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consultancy services (including the provision of services of technical or other personnel) but does not including consideration for any construction, assembly, mining, or like project undertaken by the recipient or consideration which would be Income of the recipient chargeable under the head 'Salaries'."

From the perusal of the above explanation, it is clear that fee for technical services will not include the consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration, which would be Income of the recipient chargeable under the head Salaries. It has not been established by the assessee foreign company or its agent ONGC that the payment was made under the head of Salary rather it has clearly been mentioned in the agreement that the fee shall be paid at the rate of US $ 3.450.00 per day. The purpose for which the contract was entered into between the parties enumerated in the contract quoted above clearly speaks that the assessee had to render the technical services by the personnel expert in operation and management and expatriate supervisory staff to the owner, i.e., ONGC and the owner was to utilize the services of such expatriate personnel of Contractor for manning, assisting in the operations and management of the Rig. It has not been mentioned that these personnel, shall also carry out the work of drilling of well. Therefore, the 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."

In view of the above decisions 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 it 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

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Supreme Court in the case of Hindustan Ideal Insurance Co Ltd v L I C of India 1963 AIR SC 7083.

Proviso to Section 44BB 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 44BB in relation to those persons who are either engaged in the business 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 115A) and persons covered by the notification issued by the central Government (Section 293A).

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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 AG. From the context of this instruction, it can be seen that the same would not be applicable 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.

In view of the above, the income of the assesses covered u/s 9(1)(vii) of the Income-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 come 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

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to maintain books of accounts and get accounts audited for computing profits therein which assessee has not done.”

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 written 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 accordingly 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 that 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 at 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.

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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/- Total income Rs. 7,03,94,694/- Income Rounded Off Rs. 7,03,94,690/-

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 carefully 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/Del./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).”

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the Tribunal.

form in rebuttal of all the grounds raised by the Revenue. He also relied on the

decisions of Delhi Bench of Tribunal 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 also 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.

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

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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 substantial 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 the 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.”

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, the Revenue does

not get help from these case laws on this issue. Therefore, respectfully

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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.

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 company 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 assessee 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 separately charged in the bills or not and

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(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 our

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 for 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.

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 chargeable 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. 38. 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.

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Section 195. A second obligation is directly 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 tax 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 amount 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 in 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 the 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 without 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 Alcatel 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 assessee 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,

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that the computation of income, by attributing business profits to a PE, was incorrect, and second, that the interest levied under Section 234B was incorrect, 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 deleted 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 of 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).

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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 remembered 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 establishment 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 this 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 surprising 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 probability 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, underlined 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 payers 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 interest 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 accepting 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

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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 that, 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 payer'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 because 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 assertions 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 authorizes 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 need 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

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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 proportion 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 deduction 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 assessee 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 section 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 interpretation 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 times. 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 assessee 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

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its 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 existence 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 Section 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 Court 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, no 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 obligation 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 Court 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 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 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 Section 201 read with Section 221 of the I.T. Act. In addition, he would

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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 under 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 voluntarily, 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 embedded 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 chargeable 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 Act". 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 Section 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 even 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 out 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

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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 fairly 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.' 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 24-9-2009 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 Chapter 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 stated 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 obligation 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 only 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

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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 applies 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 refund. 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 chargeable 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 liable to tax. The entire basis of the Department's contention is based on administrative convenience in support of its interpretation. According to the Department huge seepage of revenue can take place if persons making payments to non-residents are free to deduct TAS or not to deduct TAS. It is the case of the Department that Section 195(2), as interpreted by the High Court, would plug the loophole as the said interpretation requires the payer to make a declaration before the 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 being 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 an assessee. The payer becomes an assessee-in-default only when he fails to fulfil the statutory obligation under Section 195(1). If the payment does not contain the element of income the payer cannot be made liable. He cannot be declared to be an assessee-in- default. The 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-

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resident out of India he claims deduction or allowances under the Income Tax Act for the said sum as an "expenditure". Under Section 40(a)(i), inserted vide Finance Act, 1988 w.e.f. 1.4.89, payment in respect of royalty, fees technical services or other sums chargeable under the Income Tax Act would not get the benefit of deduction if the assessee fails to deduct TAS in respect of payments outside India which are chargeable under the IT. Act. This provision ensures effective compliance of Section195 of the I.T. Act relating to tax deduction 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 on 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 into 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 addressed 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 herein 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 income 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 under 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

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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 interest (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 credit 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 addition, 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 to 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 discernable. 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 fact, 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

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question was addressed in Samsung Electronics Co. Ltd. (supra) by 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 fairly 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 such 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 regarded 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-resident 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.”

33 ITA No.6589/Del./2014 & CO No. 221/Del./2015

issue against the Revenue and in favour of the assessee. Accordingly, ground

No. 7 of appeal of Revenue stands dismissed.

cross objection, which has been filed in support of the impugned order.

Accordingly, the cross-objection of the assessee stands dismissed as

withdrawn.

purposes and the cross-objection of the assessee is dismissed as indicated

above.

Order pronounced in the open court 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