2022 Supreme(SC) 632

SUPREME COURT OF INDIA
INDIRA BANERJEE, J.K. MAHESHWARI, JJ.
National Petroleum Construction Company - Appellant
Versus
Deputy Commissioner Of Income Tax, Circle 2(2), International Taxation, New Delhi & Anr – Respondents
Civil Appeal No. 4964 of 2022 (Arising Out Of SLP (C) No. 9233 of 2020)
Decided on : 29-07-2022

IMPORTANT POINTS
(1) A person paying any sum to a non-resident is not liable to deduct any tax at source if such sum is not chargeable to tax under IT Act.
(2) For the purpose of issuance of certificate under Chapter XVII of Section 197 of IT Act, procedure for determination has been prescribed to assessing officer on which satisfaction may be recorded by him.

Headnote:

Per Indira Banerjee, J.

(A) Income Tax Act, 1961 – Section 197 – Tax Deduction at Source (TDS) – Obligation to deduct TDS is limited to appropriate proportion of income chargeable to tax under IT Act that forms part of gross sum of money payable to non-resident – A person paying any sum to a non-resident is not liable to deduct any tax at source if such sum is not chargeable to tax under IT Act – Question of whether Appellant had Permanent Establishment, could not possibly be undertaken in an enquiry for issuance of Certificate under Section 197 of IT Act, having regard to time-frame permissible in law for deciding an application, more so, when regular assessment had been completed in respect of immediate preceding year and Appellant found to be taxable under IT Act at 10% of contractual receipts – Res judicata is not applicable to income tax proceedings because assessment for each year is final only for that year and does not cover later years – Whether Appellant had Permanent Establishment or not, during Assessment Year in question, is a disputed factual issue, which has to be determined on the basis of scope, extent, nature and duration of activities in India – Whether project activity in India continued for a period of more than nine months, for taxability in India in terms of Agreement for Avoidance of Double Taxation, is a question of fact, that has to be determined separately for each Assessment Year. (Paras 36, 37, 38 and 39)

(B) Income Tax Act, 1961 – Section 197 – Tax Deduction at Source (TDS) – Rate – For a non-resident entity to be taxed in India, it should carry on business through a Permanent Establishment in India – Nature, extent and duration of work done in India, could vary from year to year – Scope of enquiry and investigation in proceedings for grant of Certificate under

Section 197 of IT Act is different from scope of assessment proceedings – High Court rightly declined to direct Revenue to hold that Appellant did not have Permanent Establishment in India – Impugned Certificate being as per request of Appellant, it is not open to Appellant to make a volte-face and challenge impugned Certificate – Since Appellant requested issuance of Certificate for deduction of TDS at 4% of taxable value it is not for Appellant to challenge certificate – Appeals are pending – Tax deducted at source is adjustable against tax, ultimately assessed as payable by Assessee and any excess tax deducted is refundable with interest – Interference is not warranted at this stage – Appeals dismissed. (Paras 40, 41, 43, 44, 45 and 48)

Per J.K. Maheshwari, J.(Dissenting View_)

Income Tax Act, 1961 – Section 197 – Income Tax Rules, 1962 – Rule 28 AA – Tax Deduction at Source (TDS) – For the purpose of issuance of certificate under Chapter XVII of Section 197 of IT Act, procedure for determination has been prescribed to assessing officer on which satisfaction may be recorded by him – Since there was no change in circumstances and situation of appellant in financial years 2017-2018 and 2018-2019 (assessment years 2018-19 and 2019-20) respectively and at financial year 2019-20 in question (assessment year 2020-21), are same, however, principle of consistency ought to be followed while considering application under Section 197 of IT Act – Order passed by High Court is without

considering perspective and scope of issuance of certificate for deduction of tax at lower rate or no deduction at tax and also without following prescribed procedure – Order of High Court set aside with a direction to respondent to reconsider application of appellant and issue certificate following prescribed procedure. (Paras 11, 16, 18 and 20)

Facts of the case:

Present appeal is against the judgment and final order dated 20th December 2019 passed by High Court of Delhi dismissing the Writ Petition being Writ Petition (C) No.8527 of 2019 filed by the Appellant against the refusal of the Respondent No.1 to modify the Certificate dated 26th June 2019 issued to the Appellant for the Financial/Previous Year 2019-20, corresponding to the Assessment Year 2020-21, under Section 197 of the Income Tax Act, 1961, for Tax Deduction at Source (TDS) at the rate of 4% in respect of payments received by the Appellant from Oil and Natural Gas Company Ltd. (“ONGC”) towards work done out of India as well as within India.

Findings of Court:

Registry is directed to place the matter before Hon’ble the Chief Justice of India so that an appropriate Bench could be constituted to hear the matter.

Result – Matter referred to Larger Bench.