Case: NATIONAL PETROLEUM CONSTRUCTION COMPANY Vs. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 2(2), INTERNATIONAL TAXATION, NEW DELHI &amp; ANR

obligation to deduct TDS is limited to appropriate proportion of income chargeable to tax under the IT Act that forms part of the gross sum of money payable to the 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 the IT Act, as held by this Court in G E India Technology Centre Pvt. Ltd. v. Commissioner of Income Tax and Another (2010) 327 ITR 456 (SC) . 37. The High Court rightly held that the question of whether the Appellant had PE, could not possibly be undertaken in an enquiry for issuance of Certificate under Section 197 of the IT Act, having regard to the time-frame permissible in law for deciding an application, more so, when regular assessment had been completed in respect of the immediate preceding year and the Appellant found to be taxable under the IT Act at 10% of the contractual receipts. The Assessing Authority found that the Appellant had PE in India in the concerned Assessment Years. The appeal of the Appellant is possibly pending disposal. 38. As held by the High Court, it is well settled that the principle that 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. 39. Whether the Appellant had PE or not, during the Assessment Year in question, is a disputed factual issue, which has to be determined on the basis of the 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 the AADT, is a question of fact, that has to be determined separately for each Assessment Year. 40. It may be true, that for a non-resident entity to be taxed in India, it should carry on business through a Permanent Establishment in India, as held by this Court in Ishikawajima-Harima Heavy Industries Ltd. v. Director of Income Tax, Mumbai (2007) 288 ITR 408 (SC) and Commissioner of Income Tax and Anr. v. Hyundai Heavy Industries Co. Ltd. (2007) 291 ITR 482 (SC) . However, the judgments would only be attracted if there were a definite finding that the Appellant did not have any PE in India during the Assessment Year in question, which as stated above, would also depend on the duration and scope of the activities in India. The nature, extent and the duration of work done in India, could vary from year to year. 41. It is reiterated that in the immediately preceding Assessment Year, the Assessing Authority proceeded to assess the Appellant on the basis that it did have a Permanent Establishment (PE) in India. Moreover, as rightly held by the High Court, Ishikawajima-Harima Heavy Industries (supra) and Hyundai Heavy Industries (supra) related to assessment proceedings whereas this case pertains to issuance of certificate under Section 197 of the IT Act. The scope of enquiry and investigation in proceedings for grant of Certificate under Section 197 of the IT Act is different from the scope of assessment proceedings. The High Court rightly declined to direct the Revenue to hold that the Appellant did not have PE in India. 42. By its letter dated 22nd June 2019, referred to above, the Appellant made a request to the Revenue for issuance of Certificate under Section 197(1) of the IT Act permitting deduction of TDS at the rate of 4% plus applicable surcharge and cess, for all contractual receipts, in line with assessment proceedings for the Assessment Year 2016-2017 without prejudice to its legal position, since the Appellant had been facing financial hardship and urgently required funds. On 26th June 2019, the Respondent No.1 issued the impugned Certificate directing ONGC to deduct TDS at the rate of 4% for all sums receivable in respect of activities both outside and inside India. 43. The impugned Certificate being as per the request of the Appellant, it is not open to the Appellant to make a volte-face and challenge the impugned Certificate. 44. It may be true that the letter of request dated 22nd June 2019, of the Appellant, referred to above, for issuance of a Certificate under Section 197 of the IT Act, for TDS at the rate of 4% on all receipts was without prejudice to the rights in law and contentions of the Appellant. Such a request without prejudice to the rights and contentions of the Appellant would not operate as estoppel against the Appellant in any Assessment Proceedings, Appellate proceedings or any other proceedings. However, the impugned Certificate having been issued as per the Appellants own request, the Appellant is estopped from questioning the impugned Certificate by initiation of proceedings under Article 226 of the Constitution of India. The Appellant itself made a request for Certificate for TDS at the rate of 4% on all receipts. 45. There is no such infirmity in the reasoning of the High Court which calls for interference of this Court under Article 136 of the Constitution of India. As rightly held by the High Court, since the Appellant requested issuance of Certificate for deduction of TDS at 4% of taxable value it is not for the Appellant to challenge the certificate. Moreover, it appears that in the final assessment for one or two preceding Assessment Years it was found that the Appellant did have PE in India. Appeals are pending. In any event, Tax deducted at source is adjustable against the tax, if any, ultimately assessed as payable by the Assessee and any excess tax deducted is refundable with interest. Interference is not warranted at this stage. 46. Moreover, in course of hearing, Counsel for the Revenue handed us a Draft Assessment Order, issued in respect of the Assessment Year in question, that is 2020-21, holding that the Appellant had PE in India and was liable to tax in India under the IT Act.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]36. It is well settled that the obligation to deduct TDS is limited to appropriate proportion of income chargeable to tax under the IT Act that forms part of the gross sum of money payable to the 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 the IT Act, as held by this Court in G E India Technology Centre Pvt. Ltd. v. Commissioner of Income Tax and Another (2010) 327 ITR 456 (SC) .37. The High Court rightly held that the question of whether the Appellant had PE, could not possibly be undertaken in an enquiry for issuance of Certificate under Section 197 of the IT Act, having regard to the time-frame permissible in law for deciding an application, more so, when regular assessment had been completed in respect of the immediate preceding year and the Appellant found to be taxable under the IT Act at 10% of the contractual receipts. The Assessing Authority found that the Appellant had PE in India in the concerned Assessment Years. The appeal of the Appellant is possibly pending disposal.38. As held by the High Court, it is well settled that the principle that 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.39. Whether the Appellant had PE or not, during the Assessment Year in question, is a disputed factual issue, which has to be determined on the basis of the 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 the AADT, is a question of fact, that has to be determined separately for each Assessment Year.40. It may be true, that for a non-resident entity to be taxed in India, it should carry on business through a Permanent Establishment in India, as held by this Court in Ishikawajima-Harima Heavy Industries Ltd. v. Director of Income Tax, Mumbai (2007) 288 ITR 408 (SC) and Commissioner of Income Tax and Anr. v. Hyundai Heavy Industries Co. Ltd. (2007) 291 ITR 482 (SC) . However, the judgments would only be attracted if there were a definite finding that the Appellant did not have any PE in India during the Assessment Year in question, which as stated above, would also depend on the duration and scope of the activities in India. The nature, extent and the duration of work done in India, could vary from year to year.41. It is reiterated that in the immediately preceding Assessment Year, the Assessing Authority proceeded to assess the Appellant on the basis that it did have a Permanent Establishment (PE) in India. Moreover, as rightly held by the High Court, Ishikawajima-Harima Heavy Industries (supra) and Hyundai Heavy Industries (supra) related to assessment proceedings whereas this case pertains to issuance of certificate under Section 197 of the IT Act. The scope of enquiry and investigation in proceedings for grant of Certificate under Section 197 of the IT Act is different from the scope of assessment proceedings. The High Court rightly declined to direct the Revenue to hold that the Appellant did not have PE in India.42. By its letter dated 22nd June 2019, referred to above, the Appellant made a request to the Revenue for issuance of Certificate under Section 197(1) of the IT Act permitting deduction of TDS at the rate of 4% plus applicable surcharge and cess, for all contractual receipts, in line with assessment proceedings for the Assessment Year 2016-2017 without prejudice to its legal position, since the Appellant had been facing financial hardship and urgently required funds. On 26th June 2019, the Respondent No.1 issued the impugned Certificate directing ONGC to deduct TDS at the rate of 4% for all sums receivable in respect of activities both outside and inside India.43. The impugned Certificate being as per the request of the Appellant, it is not open to the Appellant to make a volte-face and challenge the impugned Certificate.44. It may be true that the letter of request dated 22nd June 2019, of the Appellant, referred to above, for issuance of a Certificate under Section 197 of the IT Act, for TDS at the rate of 4% on all receipts was without prejudice to the rights in law and contentions of the Appellant. Such a request without prejudice to the rights and contentions of the Appellant would not operate as estoppel against the Appellant in any Assessment Proceedings, Appellate proceedings or any other proceedings. However, the impugned Certificate having been issued as per the Appellants own request, the Appellant is estopped from questioning the impugned Certificate by initiation of proceedings under Article 226 of the Constitution of India. The Appellant itself made a request for Certificate for TDS at the rate of 4% on all receipts.45. There is no such infirmity in the reasoning of the High Court which calls for interference of this Court under Article 136 of the Constitution of India. As rightly held by the High Court, since the Appellant requested issuance of Certificate for deduction of TDS at 4% of taxable value it is not for the Appellant to challenge the certificate. Moreover, it appears that in the final assessment for one or two preceding Assessment Years it was found that the Appellant did have PE in India. Appeals are pending. In any event, Tax deducted at source is adjustable against the tax, if any, ultimately assessed as payable by the Assessee and any excess tax deducted is refundable with interest. Interference is not warranted at this stage.46. Moreover, in course of hearing, Counsel for the Revenue handed us a Draft Assessment Order, issued in respect of the Assessment Year in question, that is 2020-21, holding that the Appellant had PE in India and was liable to tax in India under the IT Act.