W.P.No.742 of 2013 IN THE HIGH COURT AT CALCUTTA Constitutional Writ Jurisdiction Original Side Director of Income Tax (International Taxation).Kolkata versus Income Tax Settlement Commission, Additional Branch, Kolkata & ORS.For the Petitioner : Md.Nizamuddin, Advocate For the Respondents : Mr.J.P.Khaitan, Sr.Advocate Ms.Nilanjana Banerjee Pal, Advocate Hearing concluded on : June 29, 2017 Judgment on : September 12, 2017 DEBANGSU BASAK, J.:- An Order dated December 30, 2011 passed by the Settlement Commission (Income Tax and Wealth Tax) Additional Bench, Kolkata in respect of three applicants is under challenge at the behest of the Director of Income Tax.
Learned Advocate appearing for the petitioner submits that, the Settlement Commission was considering three separate applications filed by the respondent Nos.2, 3 and 4 on June 29, 2010.
The respondent Nos.2, 3 and 4 were neither assessee nor have permanent account numbeRs.They obtained the permanent account numbers just before filing the application before the Settlement Commission.
In their applications, the respondent Nos.2, 3 and 4 contended that, they had entered into three types of contracts with Indian companies.
They classified such contracts firstly, as sale of drawings and designs, secondly as sale of equipments and thirdly as spares and rendering supervisory services.
The disputes relate to the contract for sale of equipments and spares.
The respondent Nos.2, 3 and 4 claim that, it sold the plant to the Indian purchaser aboard and that, the sale being concluded abroad on CIF basis Income Tax cannot be charged on such proceeds.
Learned Advocate for the petitioner contends that, the contract does not conclusively establish that, the title to the plant stood transferred abroad.
On the contrary, since the plants are to be installed in India, the sale stands concluded on Indian territory and, therefore, the income derived therefrom is amenable to Income Tax under the Income Tax Act, 1961.
He refers to various clauses of the contract in support of such contention.
Referring to the impugned order passed by the Settlement Commission, learned Advocate for the petitioner submits that, the Settlement Commission has erred both in fact and in law in allowing the application for settlement.
According to him, the Settlement Commission has failed to consider that, the sale of the plant did take place in India in view of the various terms and conditions of the contract.
The Settlement Commission has misapplied the various ratios of the decisions of the Courts cited before it.
Such decisions are of the view that, when a sale takes place in India, the income derived there from is amenable to the imposition of the Income Tax under the Act of 1961.
In the facts of the present case, according to him, the respondent Nos.2, 3 and 4 having sold the plant and machinery in India to the Indian clients, they are obliged to pay Income Tax thereon.
He draws the attention of the Court to the various provisions of the Sale of Goods Act, 1930, namely, Sections 4, 16, 19, 21, 42 in respect of the contention that, the sale stood completed and the title to the goods stood transferred in India only.
Learned Advocate for the petitioner submits that, the Settlement Commission did not consider the agreement between the respondent Nos.2, 3 and 4 and the Indian Companies in the true context.
He submits that, in view of the nature of the contract between the respondent Nos.2, 3 and 4 and the Indian Companies, the plant and machineries are to be installed in India.
The sales stand completed only after release of the balance 15 per cent of the sale amount by the Indian Companies.
Consequently, it cannot be said that, the title of the goods stood transferred abroad prior to receipt of full payment.
Title to the goods would pass in the given facts only upon payment of the balance 15% of the sale amount.
Under the contract, obligation to make such payment arises only after the plant and machineries are successfully installed and commissioned in India.
Therefore, in the facts of the present case, the sales stand concluded in India.
The income derived from such sale is, therefore, amenable to taxation in India.
Section 59 of the Sale of Goods Act, 1930 does not take away the conclusion of the sale from being treated to be made in India.
He submits that, the Settlement Commission has misapplied and misconstrued 2007 Volume 288 Income Tax Reports page 408 (SC) (Ishikawajima-Harima Heavy Industries Ltd.v.Director of Income-Tax, Mumbai) and 2011 Volume 197 Taxman page 100 (Delhi) (Director of Income-tax, New Delhi v.
L.G.Cable Ltd.).He submits that, L.G.Cable LTD.(supra) follows Ishikawajima-Harima Heavy Industries LTD.(supra).However, the facts situations obtaining in the present case are different from those decisions.
Learned Senior Advocate appearing for the respondent Nos.2, 3 and 4 submits that, the impugned order does not suffer from any infirmity warranting an interference by a Writ Court under Article 226 of the Constitution of India.
He relies upon 1993 Volume 201 Income Tax Reports page 611 (SC) (Jyotendrasinhji v.
S.I.Tripathi & Ors.) and submits that, since the order of the Settlement Commission is not contrary to the provisions of the Income Tax Act, 1961, the Writ Court need not interfere with the impugned order.
Learned Senior Advocate appearing for the respondent Nos.2, 3 and 4 submits that, the private respondents are Non-Resident Entities.
They had entered into certain contracts.
They did not file any Income Tax Return in India on the premise that, the sale of equipment, designs and drawings took place outside India.
In respect of contract for supervisory services, since the Indian customers had paid due tax, the private respondents need not pay the same.
However, they were advised otherwise subsequently.
Upon receipt of such advice, the private respondents had filed several applications before the Settlement commission.
Referring to the transaction had between the private respondents and the Indian Companies, learned Senior Advocate for the private respondents submits that, the private respondents are not liable to pay tax for the entirety of the subject contracts as a major portion of the contracts had happened outside India.
The Settlement Commission considered the issues in details.
The order of the Settlement Commission is detailed and speaking.
There is no perversity in the impugned order calling for an interference by the Writ Court.
The Settlement Commission after considering the various provisions of the contract had directed taxes to be paid at the stipulated rate in respect of a portion and has held that, the other portions are exempt for the reasons given.
He draws the attention of the Court to the various findings returned by the Settlement Commission and that, the provisions of the Sale of Goods Act, 1930 were also taken into account.
So far as the payment of the 15% of the price after completion of test and issue of acceptance certificate is concerned, he submits that, the same is a deferred payment.
The intentions of the parties in the contract are to be garnered from the terms and conditions of the contract.
The Sale of Goods Act, 1930 contemplates a situation where title to the goods passes, while the payment in respect of such goods may be deferred.
He relies upon the equipment sale agreement as well as the supervisory services agreement and the various terms and conditions thereunder and submits that, none of those terms and conditions can be construed to mean that, the entirety of the transacted goods are within the taxation laws in India.
He contends that, in view of the provisions of the double taxation avoidance agreement, the Settlement Commission has correctly held that, the NonResident Entities not having permanent establishment in India are not liable to pay taxation in respect of offshore transactions.
He contends that, the Settlement Commission has correctly applied the ratio of Ishikawajima-Harima Heavy Industries LTD.(supra) as well as L.G.Cable LTD.(supra).He relies upon 2007 Volume 291 Income Tax Reports page 482 (SC) (Commissioner Income-Tax & Anr.v.Hyundai Heavy Industries Co.Ltd.) and 1988 Volume 172 Income Tax Reports page 358 (AP) (Additional Commissioner of Income-Tax v.
Skoda Export, Praha) in support of his contentions.
Does the order of the Settlement Commission allowing the settlement application filed by the private respondents require any interference under Article 226 of the Constitution of India, is the issue falling for consideration in the present writ petition.
The private respondents as Non-Resident Entities had applied to the Settlement Commission on June 29, 2010 for settlement of tax liability in respect of the Assessment Years 2004-05 to 2009-10 for the respondent Nos.2 and 3 and the Assessment Years 2005-06 to 20092010 for the respondent No.4.
By an Order dated June 29, 2010 the Settlement Commission admitted such application under Section 245D(1) of the Income Tax Act, 1961.
The settlement application was disposed of by the impugned Order dated December 13, 2011.
The parties were heard during the settlement proceedings.
The impugned order is detailed.
It records the rival contentions of the parties.
It takes into consideration the provisions of the Sale of Goods Act, 1930 as raised by the department as also by the private respondents.
It considers the contracts in question.
It takes into account to the authorities cited before it by the parties on the proposition of law canvassed by them.
It is of the view that, if the intentions of the parties, as garnered from the terms and conditions of the contract in question, justifies an interference that, the sale of the goods took place offshore then the NonIndia Entities to the contract are not amenable to taxation in India.
The Settlement Commission takes such view on the basis of IshikawajimaHarima Heavy Industries LTD.(supra).L.G.Cable LTD.(supra) and Hyundai Heavy Industries Co.LTD.(supra).Ishikawajima-Harima Heavy Industries LTD.(supra) notices that, there can be a composite contract which is separable in the sense that a portion of the contract can be said to be performed offshore and a portion inshore.
The portion which is performed offshore need not attract the Indian Taxation Laws.
The extent of taxation, however, will depend on the fact situation of a given case.
This principle is followed in Hyundai Heavy Industries Co.LTD.(supra) and L.G.Cable LTD.(supra).The Settlement Commission considers the contracts.
It looks into the aspect of the taxability of the portion said to be performed within India.
It takes a particular view upon understanding the contract between the parties and gives reasons for such particular view as returned.
As noted above, it is of view that, so far as the plant and machineries are concerned, the sale took place offshore and, therefore, is not taxable in India.
So far as the supervisory contracts are concerned, the Settlement Commission is of the view that, the same is taxable and has determined the tax liability.
The private respondents have accepted the same.
Provisions in the contract allowing deferred payment to be made in India, by itself may not allow an inference that, the title to the goods stand transferred only upon such payment being made.
An order passed by the Settlement Commission is justiciable.
Jyotendrasinhji (supra) is of the view that, an order of the Settlement Commission which is contrary to any of the provisions of the Income Tax Act, 1961 and prejudicial to the interest of the assessee is amenable to interference under Article 226 of the Constitution of India.
An order of the Settlement Commission can also be interfered with if it is substantiated, the same is vitiated by fraud or bias or malice.
None of the grounds noted for sustaining a challenge to an order passed by the Settlement Commission stands substantiated in the facts of the present case.
The Writ Court is not called upon to reapprise the evidence produced before the Settlement commission, as an Appellate Court and arrived at a finding contrary thereto.
In such circumstances, I am not minded to interfere with the impugned order in the present writ petition.
W.P.No.742 of 2013 is dismissed.
No order as to costs.
[DEBANGSU BASAK, J.].