Authority For Advance Rulings
Airports Authority Of India, In Re
Section 90, 195, 245N, 245R(2), proviso, DTAA between India & USA, Art. 5, DTAA between India & USA, Art. 7, DTAA between India & USA, Art. 12
P.V. Reddi, J., Chairman; A. Sinha & Rao Ranvijay Singh, Members
AAR Nos. 753 & 754 of 2007
28th February, 2008Â
Counsel Appeared :
H.P. Aggarwal, Ashish K. Gupta & Ms. Surbhi Agarwal, for the Applicant : T.N. Chopra & Shivendra Kumar Singh, for the CIT concerned
Ruling
P.V. Reddi, J., Chairman :
The applicant is a statutory Authority set up under the Airport Authority of India Act, 1994 and a public sector enterprise. It has filed this application in Form 34-D applicable to resident applicants seeking advance ruling in respect of a matter falling within the purview of sub-cl. (ii) of cl. (a) of s. 245N of the IT Act, 1961.
2. The advance ruling is sought primarily on the issue whether the applicant is under an obligation to deduct tax at source under s. 195 of the IT Act in connection with two contracts (i) Hardware Repair Support Contract; and (ii) Software Maintenance Support Contract, which the applicant entered into on 26th April, 2006 (in continuation of previous contracts of 2003) with Raytheon Company, USA, which is a non-resident foreign company (hereinafter referred to as “Raytheon”). In fact, this is the second round of proceedings initiated by the applicant before this Authority. The applicant approached the AAR earlier for giving ruling on similar issues arising out of similar contracts entered into between the applicant and Raytheon on 4th Feb., 2003. In fact, the contracts of 2003 were extended in 2006 on substantially similar terms and conditions for a period of three years pursuant to cl. 11 contained in the previous contracts of 2003. The applicant has perceived the need to obtain the ruling afresh probably for the reason that the transaction evidenced by the contract is technically a fresh one and secondly for the reason that the concerned IT authorities had taken a different view in the course of assessment proceedings of Raytheon which might have repercussions on the applicant as well.
3. The scope of work under the first contract relating to repair of hardware is discernible from the preamble and art. 3 to the Agreement which read as under :
“Whereas Raytheon had supplied to the AAI the MATS-BD system and the AAI is in possession of the said system since March, 1998 for the Delhi site and June, 1999 for the Mumbai site And whereas the AAI has been operating and maintaining the said system independently, And whereas the hardware supplied by Raytheon under the said system needs repair from time to time And whereas Raytheon has proposed to repair the hardware outside India And whereas the AAI shall make arrangements to send the various parts/components of hardware to Raytheon outside of India And whereas the AAI shall also make arrangements to take delivery of parts/components of hardware duly repaired by Raytheon outside of India Now this contract sets forth the terms and conditions for Raytheon to repair the hardware of the MATS-BD system of the AAI. Article 3.0 Scope 3.1 Raytheon shall provide the AAI Hardware Repair Support to be carried out in accordance with the statement of work (SOW), Annex. A, attached hereto and incorporated herein by reference………”
3.1 Thus, under the terms of the contract, the applicant has to send the defective hardware parts/components to Raytheon outside of India and to take delivery of the repaired items “outside of India”. Clause 2.2. of Annex. A stipulates that Raytheon will return the repaired part from whichever point (Delhi or Mumbai) the re-export originated within India. The repaired part shall include the shipping documents for customs purposes to be provided to AAI within 48 hours of shipment. The systems and equipment in respect of which the hardware repair support will be provided by Raytheon are specified in para 2.1 of Annex. A to the contract and the quantities that fall within the scope of the contract are specified in attachments 1 to 3 of Annex. A. The contract price is specified in art. 4 and the payment has to be made in US dollars. The price specified in art. 4 is exclusive of all taxes and duties including the taxes required to be withheld and paid to Government of India and all such taxes and duties shall be paid by the applicant (vide art. 5.1).
4. The scope of work under the contract for software maintenance support broadly is to resolve anomalies and modify the software supplied by Raytheon under the MATS-BD Agreement of 1993.
5. In the earlier application (AAR/624/2003), two questions were raised in relation to the hardware repair contract which were as follows :
“(i) Whether payment received by M/s Raytheon Company under the transaction mentioned in Annex. I is liable to tax in India in the hands of the recipient non-resident US company ?
(ii) If the answer to question No. 1 is in the affirmative, at what rate the income-tax will be chargeable in India and at what rate tax at source is deductible by the applicant ?”
5.1 In relation to the software contract, the following three questions were framed :
“(i) Whether, under the facts and circumstances of the case, deputation of an engineer by the M/s Raytheon Company to India for the purpose of installation and testing of the repaired software will constitute Raytheon’s PE in India ?
(ii) Whether payment received by M/s Raytheon Company under the transaction mentioned in Annex. I is liable to tax in India in the hands of the recipient, non-resident US company ?
(iii) If the answer to question No. 2 is in the affirmative, at what rate the income-tax will be chargeable in India and at what rate tax at source is deductible by the applicant ?”
5.2 This Authority by its order dt. 15th Dec., 2004 [reported as Airports Authority of India, In re (2005) 193 CTR (AAR) 487 : (2005) 273 ITR 437 (AAR)] gave the following ruling in respect of the above questions : “we rule in AAR/624/2003 on question (i) that the payment received by M/s Raytheon Company under the transaction mentioned in Annex. I is not liable to tax in India in the hands of the recipient, non-resident US company. (ii) As the question is not pressed by the applicant, we decline to pronounce advance ruling on it. In AAR/625/2003 on question (i) that under the facts and circumstances of the case, deputation of an engineer by M/s Raytheon Company to India for the purpose of installation and testing of the repaired software will not constitute Raytheon’s PE in India : (ii) that payment received by M/s Raytheon under the transaction mentioned in Annex. I is liable to tax in India in the hands of the recipient, non-resident US company. (iii) As the question is not pressed by the applicant, we decline to pronounce advance ruling on it.”
6. The questions as reframed by the applicant in the present applications are as follows : In application No. AAR/753/2007 :
(i) Whether payment received by M/s Raytheon Company under the transaction mentioned in Annex. I is liable to tax in India in the hands of the recipient, non-resident US company.?
(ii) Whether any tax is required to be deducted at source by the applicant on payments to be made to M/s Raytheon Company ?” In application No. AAR/754/2007 :
(i) Whether, under the facts and circumstances of the case, deputation of an engineer by M/s Raytheon Company to India for the purpose of installation and testing of the repaired software will constitute Raytheon’s PE in India,
(ii) Whether payment received by M/s Raytheon Company under the transaction mentioned in Annex. I is liable to tax in India in the hands of the recipient non-resident US company ? .
(iii) Whether any tax is required to be deducted at source by the applicant on payments to be made to M/s Raytheon Company ? If yes, then what is the rate of withholding tax applicable ?”
Ultimately, the applicant’s counsel invited the ruling of this Authority on question No. (ii) of application No. AAR/624/2003 and the second part of question No. (iii) in application No. AAR/754/2007.
7. A brief factual background which led to the two contracts for repair of hardware and rectification of defective software imbedded in the Modernized Air Traffic System (MATS) in Delhi and Mumbai, entered into in the year 2003 may be noted.
7.1 The applicant entered into two contracts with Raytheon Company, USA on 19th March, 1993 : one was supply contract and another was service contract. Supply and installation of equipment together with provision of spares, training, documentation, software, etc. were involved in these contracts. Pursuant to those contracts, Raytheon delivered the equipment, software, etc. during the years 1998 and 1999 at Delhi and Mumbai and thereafter the applicant was operating and maintaining the equipment on its own without any assistance from Raytheon. After 4 or 5 years, some assemblies failed and needed repairs. Further the need for repairs from time to time was also felt by the applicant. That is why the two contracts were entered into with Raytheon on 4th Feb., 2003—one for the repair of hardware of MATS and second for modification and anomaly resolution of the software of MATS. We have already adverted to the scope of work involved in the two contracts. The procedural and other details relating to execution of these contracts are found in the earlier order of this Authority [Airports Authority of India, In re (supra)]. 7.2 It was the contention of the applicant before this Authority that the payments made by the applicant to Raytheon under the terms of contract did not give rise to income-tax liability in India as all the activities took place outside India and even the property in the equipment passed outside India and the installation of the equipment was done by the applicant itself. In the case of software maintenance support contract also, it was the contention of the applicant that substantial part of the activities took place outside India, though Raytheon deputed its software engineers at site for verification of the fixes/software build and testing the same in a simulator. The applicant relied on the provisions of the Convention between USA and India for the Avoidance of Double Taxation with respect to taxes on income (DTAA) concluded on 18th Dec., 1990.
The case of the applicant was that the amounts paid by it to Raytheon were in the nature of business profits and the same will not be liable to tax in India in view of art. 7 of the Convention as Raytheon had no Permanent Establishment (PE) in India. 7.3 This Authority referred to the provisions of the said Convention in extenso and accepted the contention of the applicant that the payments received by Raytheon from the applicant in connection with hardware repair contract were not liable to be taxed in India under the IT Act, 1961. This Authority held that the hardware and other equipment were the subject matter of outright sale in favour of the applicant and that the repair of hardware undertaken by Raytheon outside India did not amount to furnishing services as defined in art. 12 of the Convention. The payment was held to be in the nature of business profits within the meaning of art. 7 and in view of the admitted case that Raytheon had no PE in India, it was ruled that the payments under the hardware repair contract were not taxable in India by virtue of art. 7 of the treaty. On the point of PE, the Authority observed thus : “Mr. Gupta has conceded that RC does not have a PE in India. The effect of the concession would be that if the amount in question is held to be business profits of RC, it would not be taxable in India. Further, this concession will also cover deputation of an engineer by RC to India for the purpose of installation and testing of repaired software. It follows that such deputation cannot constitute RC’s PE in India.” Insofar as the software maintenance support contract is concerned, this Authority held that the payment received by Raytheon answers the description of “fees for included services” within the meaning of para 4(a) of art. 12. This finding was given on the premise that so far as software and documentation was concerned, the applicant acquired a right to use the same subject to certain conditions whereas in the case of hardware, there was an outright sale under the 1993 contract.
8. The reasons given and the ruling pronounced by the Authority in the case of applicant itself (AAR Nos. 624 and 625 of 2003), squarely apply to the present applications as well. The Authorized Representative of the applicant stated that the applicant does not want to contest the findings of this Authority and would abide by the ruling, although a stand has been taken in the application relating to software contract contrary to the said ruling. The learned Authorized Representative for the applicant made it clear that the only clarification the applicant would like to have in AAR/754 of 2007 is about the rate of tax applicable for deduction at source. As regards the rate, there is no dispute. The applicable rate of tax is 10 per cent as per s. 195(1) of the Act r/w Sch. I, Part II, 1(b), H(II). Therefore, in relation to AAR/754 of 2007, it is noted that the applicant has not pressed the first question nor contested its obligation to deduct the tax at source and pay to the Department. The only answer to be given to the second question framed in AAR/754 of 2007 is that the quantum of tax liable to be deducted at source under s. 195(1) by the applicant is 10 per cent together with applicable surcharge. Re : AAR/753 of 2007—(hardware repairs contract)
9. The counsel for Revenue seeks to canvass the correctness of the conclusion Reached by this Authority in the earlier ruling No. AAR/624 of 2003 on the ground that this Authority was not apprised of the relevant facts relating to the existence of PE, that the concession made by the Revenue’s counsel appearing in that case was wrong and that the subsequent investigation in the context of assessment proceedings of Raytheon revealed the existence of PE even in regard to hardware repair contract. In order to satisfy ourselves whether the assertion and contention of Revenue’s counsel on the PE issue is prima facie sustainable and whether the ruling requires reconsideration on that ground, we have gone through the assessment orders relating to Raytheon placed before us by the Revenue’s counsel and the material referred to therein. 9.1 We find nothing in those orders which substantiates the Revenue’s version that there was a PE of Raytheon in India in connection with the hardware repairs support contract or for that matter the software maintenance contract both of which originated in 2003 and were renewed in 2006. In fact, there is no definite finding supported by reasons which throws light on the existence of PE in connection with the execution of these contracts. It is not appropriate for us to say anything more about the assessment orders as the appeals filed by Raytheon are said to be pending. 9.2 The learned counsel for Revenue has submitted that there was liaison office set up by Raytheon International Inc. since 1995 and the said liaison office was catering to the business needs of various other group companies of Raytheon. Our attention has been drawn to the statement of Mr. A.K. Mathur who has been a manager in the liaison office since 1996. His statement was recorded by the Dy. Director of IT, Circle 2(1), International Taxation, New Delhi on 9th Oct., 2006. The liaison work, according to him, consisted of arranging meetings with customers, hospitality and travel arrangements and security clearance for foreign visitors for “GOI customer meetings”. He then stated that Raytheon supplied MATS-BD system and therefore had dealings with AAI, but he could not give any details in relation thereto, in answer to question No.
14. His statement, in our view, does not come to the aid of Revenue to establish the existence of PE in relation to the contracts in question. The fact that the assessee (Raytheon) admitted having a PE in India in the form of installation PE as seen from the assessment order for the asst. yr. 19992000 has no bearing on the aspect whether in furtherance of the two contracts with which we are concerned, any PE was set up by Raytheon in India. The PE referred to in the assessment order for the asst. yr. 1999-2000 was in connection with a major contract for modernization of air traffic system awarded to Raytheon in the year 1993. The magnitude of that contract and the activities and operations involved therein do not bear any comparison with the present contracts entered into in the year 2003 (extended in 2006) relating to equipment repairs and rectification of anomalies. We find nothing in the assessment order or the statement of manager, Mr. Mathur, or from the salient features and terms of the present contracts which unerringly point to the existence of PE. On the other hand, the probability is that as the entire activity of repair of equipment and rectification of anomalies took place outside India and the applicant or its agent took delivery of the repaired equipments, there was very little part which the liaison office could have played in the implementation of contracts in question. Morever, under art. 5(3) of DTAA with USA, preparatory and auxiliary type of work stands excluded from the purview of PE. 9.3 In para 4.1 of the Annex. A to the contract for hardware repair support, under the heading “Other AAI responsibilities”, it is stipulated that AAI (applicant) will supply necessary details and test equipment to Raytheon engineers while they are at site. In response to our query, the Deputy General Manager of the applicant has filed an affidavit giving the details of visits of the personnel in connection with both contracts between the financial years 2003 and 2006. Four or five technical personnel deputed by Raytheon made visits for 14 days, 18 days, 25 days respectively during those 3 years. The learned Authorized Representative clarified that most of the visits were in connection with software maintenance contract. From these sporadic visits of Raytheon’s personnel for a few days, it is difficult to draw any inference of existence of a PE. 9.4 The learned counsel for the Revenue has also drawn our attention to the fact that Raytheon had entered into an agreement described as “International Representative Agreement” on 28th Jan., 2002 with Grintex (India) Ltd. (for short “Grintex”). As per the said agreement, which was extended/modified from time to time, the representative, namely, Grintex will promote and market the products and services and solicit orders from the customers and use its best efforts to secure sales contracts and to render other marketing assistance to Raytheon Company. We find no relevance of this contract in considering the question whether in relation to the contracts with which we are concerned, Raytheon has a PE through a dependent agent. Apart from the fact that the modified agreement describes the representative (Grintex) as an independent contractor having no authority to enter into contracts, there is nothing in the agreement which indicates that Grintex has been assigned any role or responsibility in the matter of implementation of hardware repair contract. True, there is a separate agreement between AAI (applicant) and Grintex India Ltd. for “in-country maintenance support services for MATS-BD related hardware and software”— whereunder Grintex is required to provide support services in India in respect of the contracts with Raytheon. For instance, Grintex may have to provide services such as identifying and dismantling the defective part, arranging for packing and shipping the item for repairs outside India at Raytheon’s workshop, getting necessary clearances for export and import etc. It is made clear in that agreement that Raytheon’s activities under the contracts (for hardware and software repairs) shall remain confined to their work outside India.
The agreement between the applicant and Grintex negates the inference that Grintex discharges any responsibility in connection with hardware repair support contract or the software maintenance contract as an agent of Raytheon.
9.5 We have repeatedly posed a query to the Revenue’s counsel to clarify whether any activity related to the contract was undertaken by the so-called PE, which according to the Revenue’s counsel, is its liaison office. We pointed out to him that there was no whisper in any of the relevant assessment orders or in the comments of the Department or written submissions filed by him about the activities done under the aegis of the alleged PE in connection with hardware repair contract. We could not get satisfactory reply from the counsel on this aspect. We are, therefore, of the view that the earlier ruling reported in Airports Authority of India, In re (supra) does not require reconsideration on the ground that the concession given by the Department was wrong or that the applicant did not make frank disclosure of material facts on the issue of PE. The endeavour of Revenue’s counsel to project some doubts on the correctness of earlier ruling has proved to be an infructuous exercise. The Revenue’s counsel, faced with the difficulty of assailing the correctness of the earlier ruling of this Authority, has concentrated more on the point of maintainability of the application by contending that the applicant cannot invoke the jurisdiction of this Authority in view of the embargo laid down in cl. (i) of the proviso to s. 245R(2). It is the contention of the learned counsel that the identical question regarding Raytheon’s liability to pay income-tax in India was pending before the appellate authority even before the present application was filed. The application for advance ruling is, therefore, liable to be rejected in limine. It must be mentioned here that before the order was passed on 1st Oct., 2007 under s. 245R(2) in regard to the admission of application, the Department did not object to the maintainability. In fact, no comments were sent by the concerned CIT in spite of opportunity given well in advance. Still, as a jurisdictional issue has been raised on behalf of the Revenue, we consider it appropriate and proper to deal with this point notwithstanding the fact that the application was allowed earlier under s. 245R(2).
11. It is true that the question whether Raytheon is liable to pay income-tax in India on the payments received by it under the contract with the applicant was decided by the AO in the case of Raytheon under ss. 147 r/w s. 143(3) of the IT Act for two assessment years i.e. 2003 to 2005 and aggrieved by such assessments, Raytheon filed appeals which are now pending. The AO took his own view practically discarding the ruling of this Authority in relation to hardware repair contract, even without giving any reasons for departing from the view taken in that ruling. Technically, the ruling was in the case of the applicant but not Raytheon. This gave room to the AO to take its own independent view contrary to the ruling of AAR, presumably taking shelter under cls. (a) and (b) of s. 245S. Be that as it may, we have to examine whether there is any jurisdictional fetter or legal impediment to incidentally raises the point whether the order allowing the application under s. 245R(2) need to be recalled and the application be held to be not maintainable in law. In order to resolve the issue, we have to consider the definition of “advance ruling” as given in cl. (a) of s. 245N, the definition of “applicant” as per cl. (b) and the bar contained in the first proviso to s. 245R(2). These provisions are extracted hereunder : “245N. In this chapter, unless the context otherwise requires— (a) ‘advance ruling’ means— (i) a determination by the Authority in relation to a transaction which has been undertaken or is proposed to be undertaken by a non-resident applicant; or (ii) a determination by the Authority in relation to (the tax liability of a non-resident arising out of) a transaction which has been undertaken or is proposed to be undertaken by a resident applicant with a such non-resident, and such determination shall include the determination of any question of law or of fact specified in the application; (iii) a determination or decision by the Authority in respect of an issue relating to computation of total income which is pending before any IT authority or the Appellate Tribunal and such determination or decision shall include the determination or decision of any question of law or of fact relating to such computation of total income specified in the application :
Provided that where an advance ruling has been pronounced, before the date on which the Finance Act, 2003 receives the assent of the President, by the Authority in respect of an application by a resident applicant referred to in sub-cl. (ii) of this clause as it stood immediately before such date, such ruling shall be binding on the persons specified in s. 245S; (b) ‘applicant’ means any person who— (i) is a non-resident referred to in sub-cl. (i) of cl. (a); or (ii) is a resident referred to in sub-cl. (ii) of cl. (a); or (iii) is a resident falling within any such class or category of persons as the Central Government may, by notification in the Official Gazette, specify in this behalf; and (iv) makes an application under sub-s. (1) of s. 245Q. 245R(2) The Authority may, after examining the application and the records called for, by order, either allow or reject the application : Provided that the Authority shall not allow the application where the question raised in the application – (i) is already pending before any IT authority or Appellate Tribunal except in the case of a resident applicant falling in sub-cl. (iii) of cl. (b) of s. 245N or any Court; (emphasis, italicized in print, supplied) (ii) involves determination of fair market value of any property ; (iii) relates to a transaction or issue which is designed prima facie for the avoidance of income-tax except in the case of a resident applicant falling in sub-cl. (iii) of cl. (b) of s. 245N.” 11.2 The foremost contention of the Revenue’s counsel is that the embargo laid down in the first proviso to s. 245R(2) is squarely attracted and the application could not have been entertained for giving a ruling on merits. The answer of the applicant’s representative is two fold : firstly, the question relating to Raytheon’s liability to pay income-tax is pending before the IT appellate authority not in the case of the applicant but in the case of Raytheon; and secondly, the reframed question in regard to the applicant’s responsibility to deduct tax at source is not the question or issue to be decided by the appellate authority in Raytheon’s appeal. 11.3 Sub-cl. (ii) of cl. (a) of s. 245N envisages determination by the Authority in relation to the tax liability of a non-resident arising out of a transaction, which had been undertaken or is proposed to be undertaken by a resident applicant with such non-resident. Sub-cl. (ii) to cl. (b) of s. 245N confers the qualification of “applicant” on such resident.
Thus, a resident who has entered into a transaction with a non-resident, as in the present case, is an applicant within the meaning of s. 245N(b) and such applicant can approach the Authority to determine a question which has bearing on the tax liability of its non-resident collaborator under sub-cl. (ii) of cl. (a). There is no bar, either express or implied against a resident applicant falling within the scope of sub-cl. (iii) invoking the jurisdiction of this Authority for a determination under sub-cl. (ii) of cl. (a) of the same section. The fact that such resident is a PSU notified under sub-cl. (iii) of cl. (b) should not make any difference. In addition to cl. (iii), a PSU, being a resident, can very well fall within the sweep of cl. (b)(ii) of s. 245N if it has undertaken a transaction with a non- resident and it can seek a ruling in respect of tax liability of non-resident as per cl. (a)(ii) of s. 245N. In fact, this position is conceded by the learned counsel for Revenue. There was some debate on the question whether the applicant being a notified resident falling under sub-cl. (iii) of cl. (b) of s. 245N can invoke the exception contained in cl. (i) of the second proviso to s. 245R(2). It is pointed out by the Revenue’s counsel that the exception comes into play only in a case of determination falling under sub-cl. (iii) of cl. (a) but not to a matter falling within the domain of sub-cl. (ii). In the view we are taking, it is unnecessary to go into that question. Now we shall examine whether the very question raised in the application is pending before the IT appellate authority in the case of Raytheon. We are of the view that the question raised by the applicant relating to TDS is not the question which is pending for consideration by the appellate authority. The obligation of the applicant to deduct tax at source at the prescribed rate and to make it over to the Department is cast under s. 195(1) of the IT Act. Sec. 195(1) enjoins that “any person responsible for paying to a non-resident, not being a foreign company, or to a foreign company, any interest or any other sum chargeable under the provisions of the Act……………… shall, at the time of credit of such income to the account of the payee………….deduct income-tax thereon at the rates in force”. Failure to deduct the tax and pay it to the Government entails serious consequences under the provisions of s. 40(a) and s. 271C.
That is why the applicant is before this Authority. Sec. 195(1) presupposes that the sum payable to the non- resident/foreign company must be chargeable to tax under the provisions of the IT Act. That means the question of tax deduction is linked up with the tax liability of the non-resident/foreign company to whom the payment has to be made by the applicant under the transaction entered into with the non-resident. The applicant, therefore, seeks determination that the foreign company—Raytheon is not liable to pay income-tax in India on the amounts received by it from the applicant and, therefore, the applicant is under no obligation to deduct tax under s. 195(1). It is true that in the process of deciding the applicant’s legal obligation under s. 195(1), the non-resident’s liability to pay income-tax on the said sum has to be decided, but, on that account the question or issue about tax deduction cannot be said to be pending before the IT appellate authority. In the case of appeal of Raytheon, its liability under the provisions of IT Act, read with DTAA arises for consideration directly and that is the sole question to be decided in appeal but in the present application the question to be decided at the instance of the applicant is about TDS. No doubt, Raytheon’s liability to pay income-tax looms large in the proceedings before this Authority also but the decision on this question is incidental to the determination of the applicant’s obligation to deduct tax at source. They may be inter-related or allied issues but the question raised before this Authority cannot be said to be identical nor can it be said to be the very same question pending determination by the appellate authority. This distinction, though appears to be subtle, is real. The applicant’s right to have recourse to advance ruling on the point of tax deduction cannot be defeated by reason of pendency of an appeal filed by Raytheon, though a related issue has to be decided in that appeal. The embargo under the proviso to s. 245R(2) should be strictly construed so that an eligible applicant is not denied the remedy to have an early ruling in the matter. The applicant need not be called upon to go on deducting and paying income-tax until and unless the appeal of Raytheon is decided. Assuming that the applicant has the alternative remedy of filing an application before the ITO under s. 195(2), it does not operate as a legal bar to the maintainability of the application before this Authority. The concept of TDS under the IT Act, has its own scheme and nuances. It stands as a separate issue although aligned with the substantive tax liability of the recipient of income.
13. We are, therefore, of the view that the application is not hit by the embargo laid down in the first part of cl. (i) to the second proviso to s. 245R(2). 13.2 There is one more aspect which needs to be addressed while discussing the scope and width of the embargo laid down by the proviso to s. 245R(2) i.e., about the meaning of the expression “in relation to”. The phrase “in relation to” is of wide import. The Supreme Court had occasion to construe the same expression in the case of Doypack Systems Ltd. vs. Union of India 1988 (36) ELT 201 (SC). The Supreme Court observed at para 48 : “The expression ‘in relation to’ (so also ‘pertaining to’) is, a very broad expression which presupposes another subject matter. These are words of comprehensiveness which might both have a direct significance as well as an indirect significance depending on the context, see State Wakf Board vs. Abdul Aziz AIR 1968 Madras 79, 81 paras 8 and 10, following and approving Nitai Charan Bagchi vs. Suresh Chandra Paul (66 C.W.N. 767), Shyam Lal vs. M. Shyamlal AIR 1933 All 649 and 76 Corpus Juris Secudum 621. Assuming that the investments in shares and in lands do not form part of the undertakings but are different subject matters, even then, these would be brought within the purview of the vesting by reason of the above expressions. In the connection reference may be made to 76 Corpus Juris Secundum at pp. 620 and 621 where it is stated that the term ‘relate’ is also defined as meaning to bring into association or connection with. It has been clearly mentioned that ‘relating to’ has been held to be equivalent to or synonymous with as to ‘concerning with’ and ‘pertaining to’. The expression ‘pertaining to’ is an expression of expansion and not of contraction.”
In the Division Bench decision of the Madras High Court [AIR 1968 Mad 79] referred to by the Supreme Court, the words “in every suit or proceeding relating to title to Wakf property” employed in s. 57(1) of the Wakf Act, 1954 were construed. It was held that the second suit instituted by a third party for a declaration that the decree in the previous suit was fraudulent and collusive would necessarily have bearing on the declaration of title to the property claimed as Wakf property in the earlier suit and therefore the subsequent suit is also a suit or proceeding “in relation to” Wakf property. The learned Judges of the Madras High Court referred to dicta of Suleiman, CJ in Syam Lal vs. Shyam Lal AIR 1933 All 649 to the effect that “matters may not, strictly speaking, be the subject matter of the suit itself as brought, and yet they may relate to the suit”. 13.3 The above exposition of the meaning of the crucial phrase clearly points to the conclusion that the issue relating to TDS regarding which determination is sought by the applicant, is an issue “in relation to” the tax liability of non-resident, namely, Raytheon. Therefore, it falls within the purview of sub-cl. (ii) of cl. (a) to s. 245N.
14. With a view to overcome the bar under cl. (i) of proviso to s. 245R(2), the counsel for the applicant has also argued that in order to attract the said proviso, the issue shall be pending in the case of the applicant. He, therefore, contended that the pendency of the appeal filed by the nonresident – Raytheon with whom the applicant had entered into a contract does not affect the maintainability of the present application. In answer, the learned counsel for the Revenue has argued with considerable force that by virtue of the legislative amendment brought about by the Finance Act, 2000, the expression “in the applicant’s case” was deleted and, therefore, the argument has no merit. It is unnecessary for us to delve into this aspect as we have taken the view that the question regarding tax deductibility cannot be said to be pending.
15. There is one more fact we would like to mention. The counsel for the applicant has stated that the real question to be decided is the second question regarding the applicant’s obligation to deduct tax at source and once that is answered, the applicant is not desirous of getting an answer to the first question originally framed, though it is an inter-related question. We, therefore, treat the first question as withdrawn by the applicant.
16. In the result, the answer to the second question in AAR/753/2007 should be in the negative and it is answered in favour of the applicant. That means, the applicant is not legally required to deduct tax on the payments made to Raytheon Company, USA. In application No. AAR/754/2007, only the second part of third question needs to be answered. As already noted, the other questions are not pressed. We answer that question by clarifying that the rate at which the tax has to be withheld in relation to the payments made to Raytheon Company on the software maintenance contract should be 10% (ten per cent), apart from the applicable surcharge (vide para 8 at p. 11). Accordingly, the ruling is pronounced.
[Citation : 299 ITR 102]
