- (1.) Challenging the interim order dated 23.4.2013 in M.P.No.2/2013 in W.P.No.11360/2013, under which, the interim stay of the operation of the order of assessment in PAN AAAFA1037D dated 29.3.2013 relating to the assessment year 2010-2011, on the file of the respondent, was granted subject to the condition that without prejudice to rights of either parties, the writ petitioner/assessee shall pay 30% of the impugned demand within a period of four weeks from the date of receipt of copy of that order with default clause, this Writ Appeal is filed by the writ petitioner.
(2.) It is submitted by the respective learned Counsel appearing for the parties, that since arguments in the writ appeal also pertain to the merits of the writ petition, the writ petition itself may be taken up for disposal and taking into consideration the same, the writ petition itself is taken up for disposal along with this writ appeal.
(3.) The facts of the case as culled out from the materials placed before this Court in the form of affidavit, counter and typed-set of documents, are as follows: (a) The appellant/writ petitioner was originally a partnership firm and later on, became a private limited company and it is engaged in the business of transportation of coal from Paradip Port to Chennai Port through ships, for the various ongoing projects of Andhra Pradesh Power Generation Corporation. The appellant for the said purpose, entered into an agreement with M/s.Jaldhi Overseas Private Limited (in short "JOPL"), Singapore, on 7.9.2009, for transportation of coal and the validity of the agreement was for a period of five years, commencing from September 2008 to August 2013. (b) According to the appellant, JOPL is a Singapore tax resident shipping company and in terms of the above said agreement, it agreed to provide suitable ships to the appellant for transportation of coal between the above said two Indian Ports. The agreement further provides that the appellant is to make periodic freight payments to JOPL in US Dollar, for transportation of coal on tonnage basis and the rates have been agreed upon in terms of Clause 30 of the above said agreement. (c) It is the specific case of the appellant that JOPL is a company registered in Singapore and is assessed to income tax at Singapore only. It is also evidenced by the fact that it has been issued with the Certificate of Tax Residence and Certificate of Incorporation by the concerned authority at Singapore and that it is not having any permanent establishment in India to carry out the operations. (d) The appellant would further contend that there is an agreement between India and Singapore with regard to the avoidance of double taxation and as per the perms of the said agreement, the profits earned by JOPL, are subject matter of assessment only in Singapore and not in India and consequently, there is no obligation on the part of the appellant to deduct any tax at source in terms of Section 195 of the Income Tax Act. (e) The appellant also contended that it has filed an application dated 22.5.2009, under Section 195(2) of the Income Tax Act, stating among other things, that in terms of Article 7 of the Double Taxation Avoidance Agreement (in short "DTAA") between India and Singapore, the freight payable to JOPL, is not taxable in India and therefore, there is no necessity to deduct tax at source and hence, prayed for issuance of nil deduction of tax at source. (f) The Assessing Officer, namely the Income Tax Officer-I(2), (International Taxation), Chennai 34, has passed an order dated 31.8.2009, holding that in terms of Section 44B of the Income Tax Act, the nature of works undertaken by JOPL, is chargeable to tax under the head "Profits and Gains of Business or Profession". Insofar as the stand of the appellant that in accordance with Double Taxation Avoidance Agreement, the appellant need not deduct tax at source, the Assessing Officer found that the assessee's contract is for a period of five years and if the activities continue for a period of 90 days in aggregate in a fiscal year, then JOPL will be deemed to have a permanent establishment in India and Article 8 of the Double Taxation Avoidance Agreement, has no application to the case on hand as it is not applicable to coastal traffic in a contracting state. Therefore, citing the said reasons, the Assessing Officer held that the appellant herein is authorised to deduct tax at the rate of 3.167% on the gross payments for the first quarter from April 2009, to June 2009, amounting to a sum of Rs.16,38,30,625/- and the said certificate shall remain in force upto 31.12.2009, unless it is cancelled by way of an intimation. (g) The appellant herein aggrieved by the same, preferred a revision under Section 264 of the Income Tax Act before the Director of Income Tax (International Taxation), Chennai. The Revisional Authority on going through the nature of transaction and the Clauses contained in Double Taxation Avoidance Agreement between Singapore and India, found that JOPL is not having permanent establishment in India during the relevant period, and that JOPL is not in the business of shipping and therefore, the transportation of coal between two Indian Ports, does not amount to shipping business. The Revisional Authority further found that JOPL is a non-resident company registered and assessed to tax in Singapore as per the certificate dated 11.5.2009, issued by the Land Revenue Authority of Singapore, and hence, income, if any, arising out of the transaction between the appellant/assessee and the non-resident company JOPL, is liable to be taxed in Singapore and not in India and hence, the business transaction between the appellant and JOPL is covered by Article 8 of the Double Taxation Avoidance Agreement and held that Section 44B of the Income Tax Act is not applicable to the facts of this case. (h) The Revisional Authority citing the above said reasons, has allowed the revision, vide order dated 24.3.2010, and directed the Assessing Officer to give effect to the said order and as a result of the same, nil deduction of tax at source has been given to the appellant. (i) It is also to be pointed out at this juncture, that the Revenue did not challenge the order of Director of Income Tax (International Taxation) dated 24.3.2010, passed in the revision and it became final. (j) On 30.1.2012, the Additional Commissioner of Income Tax, Business Range II, Chennai has passed assessment orders under Section 143(3) of the Income Tax Act for the assessment year 2009-10, wherein the following disallowances were made: "(a) Disallowance of Rs.33,92,71,007/- u/s 40(a)(ia) on payments made to M/s Jaldhi Overseas Pte. Ltd. (JOPL), Singapore. (b) Disallowance of Rs.1,36,39,609/- of deemed interest on monies advanced to sister concern." (k) The appellant/assessee aggrieved by the said disallowances, preferred an appeal before the Commissioner of Income Tax (Appeals) VI, Chennai. (l) The Appellate Authority has passed the final order on 24.12.2012, wherein one of the issues that arose for consideration, was with regard to the disallowance under Section 40(a)(ia) of the Income Tax Act. The Appellate Authority has taken into consideration the order passed by the Revisional Authority The Director of Income Tax (International Taxation) dated 24.3.2010, and held that no evidence has been brought on record to show that JOPL is not a resident of Singapore and that it is not taxed in Singapore for the financial year 2008-09 and by virtue of Articles 7 and 8 of the Double Taxation Avoidance Agreement, the provisions of Sections 9 and 44B of the Income Tax Act stands superseded. (m) It has been further held that JOPL is resident for taxation in Singapore even in respect of the assessment year 2009-10, and the income from Indian operations are not taxable in India and ultimately, the Appellate Authority arrived at a finding that the provisions of Sections 44B, 195 and 49(a)(ia) of the Income Tax Act are not applicable and as a corollary to said finding, has directed the deletion of disallowance of Rs.33,91,71,007/-. (n) The said appeal was also filed with regard to the disallowance of interest on monies advanced to sister concern, and ultimately, the appeal was allowed, vide order dated 24.12.2012. (o) For the assessment year 2010-11, the assessment was done under Section 143(3) of the Income Tax Act by the Assistant Commissioner of Income Tax, Circle I, Chennai and an assessment order came to be passed on 29.3.2013. (p) The Assessing Officer during the course of hearing, has called upon the appellant/assessee to show cause why the payments made to JOPL, Singapore, without deducting tax at source, should not be disallowed under Section 40(a)(i) of the Income Tax Act and treated as income. In response to the show cause notice, the appellant/assessee submitted his response and took the very same stand taken before the Revisional Authority, namely the Director of Income Tax (International Taxation), Chennai 34, and also drawn his attention to the order dated 24.3.2010. (q) The Assessing Officer after considering the materials placed before him, held that as per Explanation 2 to Amendment of Section 195, the said Section was amended with retrospective effect from 1.4.1962, and in accordance with the amendment, tax had to be deducted for the payments made to JOPL, and held that the payment of Rs.64,57,70,890/- made to JOPL, without deducting tax, is disallowed under Section 40(a)(i) of the Income Tax Act and added to the total income of the appellant/assessee and consequent upon the said order, also ordered addition on account of disallowance of interest. (r) Subsequently, the Assessing Officer issued a notice of demand dated 29.3.2013, under Section 156 of the Income Tax Act to the appellant/assessee calling upon him to pay a sum of Rs.28,07,24,610/- for the assessment year 2010-11 and further issued a notice under Section 274 read with Section 271 of the Income Tax Act, 1961, calling upon the assessee to appear before him on 10.4.2013, to show cause as to why an order of imposing penalty should not be made under Section 271 of the Income Tax Act 1961. (s) The assessee/appellant, aggrieved by the order of assessment dated 29.3.2013, relating to the assessment year 2010-11, insofar as it relates to disallowance under Section 40(a)(i) for the alleged non-deduction of tax at source under Section 195(1) of the Income Tax Act, filed W.P.No.11360/2013 and also moved M.P.No.2/2013 praying for stay of the operation of the above said order, pending disposal of the main writ petition. (t) The writ petition as well as the miscellaneous petition came up for admission and a Single Bench of this Court vide interim order dated 23.4.2013, granted the conditional order of stay by directing the appellant/writ petitioner/assessee to pay 30% of the impugned demand within a period of four weeks with default clause and challenging the legality and vires of the said order, the assessee has filed this writ appeal.;