High Court Of Delhi
Escorts Ltd. vs. Union Of India
Sections 9(1)(vii), 10(6A)
S.B. Sinha, C.J. & A.K. Sikri, J.
Civil Writ Petn. No. 1166 of 1988
26th September, 2002
Counsel Appeared : Santosh K. Aggarwal, for the Petitioner : R.D. Jolly & R.C. Pandey, for the Respondent
JUDGMENT
BY THE COURT :
The petitioner in this writ petition has, inter alia, questioned the orders dt. 5th Jan., 1988, 18th Jan., 1988 and 11th Aug., 1987, passed by the respondent Nos. 2 & 3 respectively. The basic fact of the matter is as follows : The petitioner is a public limited company registered and incorporated under the Companies Act, 1956. It entered into an agreement with Smit Tak Towage and Salvage(s) (P) Ltd., a Singapore based company in terms whereof the mooring job of the floating dock at Port Blair was entrusted to the latter. The said company was incorporated at Nhava Sheva Port near Bombay. The said contract was entered for at lump sum price of US $ 1,73,500.
2. However, in terms of cl. 7 thereof, the work was to be completed within an estimated period of 16 days. Clause 6(C) of the said contract reads thus : Performance (a) Smit Tak shall undertake to use their best endeavours to perform and complete the work within the shortest possible time as described in cl. (3). (b) Escorts shall ensure that equipment and facilities shall be provided in time and shall render all possible assistance in the execution of this contract. (c) Escorts shall undertake to ensure also that the work to be carried out by Smit Tak will not be stopped or delayed during the course of the progress. Should the work needs to be stopped or delayed by circumstances, other than force majeure, which is beyond Smit Tak’s control. Smit Tak reserves the right to consider this stoppage as change order. (d) For any change order applicable to this contract, the following rates of the vessels described in Appendix ‘A’ and hereunder shall apply : Smit-Lloyd 100 Class : US $ 5,000 per day. Tug and Barge : US $ 1,000 per working day. Team of Divers : US $ 600 per working day. Team of Riggers : US $250 per working day. Project Manager : US $ 1,000 per day.
3. According to the petitioner, the said Singapore based company, having regard to the delay occurred in the mooring work, claimed additional payment for extra period of 7 days. However, the same by negotiation, entered into between the parties, was settled at 4 days 21 hours and accordingly M/s Smit Tak claimed payment of US $24,375 vide debit note dt. 16th June, 1987, which is as follows : “Being change orders (Demurrage) charges incurred in Port Blair for the above work, amounting to 4 days 21 hours at US $ 5,000 per day or pro rata, as agreed upon, this being full and final settlement”.
4. According to the petitioner, although expression ‘demurrage’ has been used therein in truth and substance, it was fee for technical services. In support of the said contention, the petitioner has relied upon a letter of the said company dt. 3rd Sept., 1987, which is to the following terms : The sum of US $ 24,375 is claimed from Escorts Ltd., on account of the change orders’ work performed, in pursuant to the Mooring Contract of Escorts Ltd. floating dock “Escorts 1” at Port Blair, Andaman Islands between 17th May, 1987, and 7th June, 1987. The sum of US $ 24,375 herewith claim covered an additional work period beyond the stipulated work period of sixteen days, for which a lump sum of US $ 1,73,500 was separately specified in the contract. The additional work required and carried out with the concurrence of Escorts Ltd., was due to unexpected technical deficiencies at the site and for rectifying these deficiencies, Smit Tak provided additional services of identical nature as was provided for earning the lump sum fee of US $ 1,73,500 under the same Mooring Contract. The change orders described herein (which under marine contracts, are also referred as demurrage) are standard marine contractual provisions and these change orders occurrences are normal for such nature of work or in any other such type of mooring work. The claims put forward to Escorts Ltd. are reasonable when compared to various other marine contracts of this nature completed by Smit Tak
5. The respondent No. 3, however, by reason of the impugned letter, dt. 11th Aug., 1987, treated such payment under the heading “any other payment” and provisions of s. 10(6A) of the IT Act were held to be not applicable. The petitioner in its letter, dt. 7th Aug., 1987, inter alia, stated as under : “With reference to our application, dt. 8th July, 1987, we have to bring to your kind notice that the said payment is to be made to the Singapore Company in view of the provisions contained in the mooring agreement with them dt. 29th Aug., 1986. As per cls. 6 and 7 of the said agreement and delay beyond the stipulated period of 16 days in completion of the mooring work which was not attributable to M/s Smit Tak Towage and Salvage (S) (P) Ltd. will be charged at the rate of US $ 5,000 per day. As already explained to you the delay of about 7 days was caused firstly because of non- availability of the required length of chains for mooring purposes readily for the unexpected depth of sea at the site of mooring at Port Blair, and secondly because M/s Smit Tak were not allowed to work on week ends by the Indian Navy. In support of the above we have already filed photocopies of the Telex messages dt. 26th May, 1987, (Para 2AAA) and 28th May, 1987. From the above it is very apparent that the payment which is now being made to Smit Tak is in respect of provision of services of technical personnel made available by them for a period longer than what was stipulated in the agreement with them for which payment was to be made in addition to the lump sum payment agreed for the mooring work. Thus, the payment under reference cannot be anything else than the payment on account of ‘fee for technical services’. The rate of tax on such payment is 30 per cent which has been duly deposited and the challan receipt filed before you. It is once again confirmed that the provisions of s. 10(6A) are applicable in this case as the recipient is a company and as such grossing up of tax is not required. We hope you will find the above in order and issue the necessary. No objection certificate at an early date.”
6. The petitioner, however, filed an appeal. The appellate authority vide its order dt. 6th Oct., 1987, opined that the said appeal was not maintainable. In view of the observations made therein, the petitioner filed an application under s. 264 of the IT Act. By reason of the impugned order, dt. 5th Jan., 1987, respondent No. 2 herein while holding that the revision petition is not maintainable, arrived at the following findings : “4.I have considered this petition filed under s. 264 of the IT Act. I have also perused the records of the case. The following features of the case have to be noted : (i) The petitioner company had not raised any objection before the IAC against treating the demurrage charges as “other sums” and not as fees for technical services. (ii) the “order” (it is only a letter dt. 11th Aug., 1987, as per which the views of the IAC were communicated to the assessee before issuing the no-objection certificate has been made the subject of an appeal to the CIT(A) and hence in terms of s. 264(4)(c) of the IT Act, the “order” of the IAC cannot be revised. (iii) The petitioner-company had not made any application to the IAC under s. 195(2) either of the IT Act. (iv) At any rate, the IAC cannot be directed to refund the tax to the petitioner- company at this stage since the action of the IAC is, if at all, prejudicial not to the petitioner-company but to the company to whom the amount has been remitted after deducting the tax. (v) As per the debit note, dt. 16th June, 1987, of M/s Smit Tak Towage & Salvage (S) (P) Ltd., the payment represents the “change orders (demurrage) charges incurred in Port Blair for the above work, amounting to 4 days 21 hours at US $ 5,000 per day or pro rata, as agreed upon, this being full and final settlement”. This payment in terms of cl. 6(c) of the contract, dt. 29th Aug., 1986, for stoppage of the work and consequent delay by circumstances other than force majeure. This payment, evidently, cannot be considered as fees for technical services.
Before the appellate authority, the petitioner has also raised the contention that having regard to the cls. 6 and 7 of the said agreement, the afore-mentioned M/s Smit Tak & Salvage (P) Ltd. was entitled to an additional payment in the event of “any delay beyond the stipulated period of 16 days in completion of the mooring work, which was not attributable to M/s Smit Tak will be charged by the Singapore Company at the rate of US $ 5,000 per day and on pro rata for part of the day”. It has not been disputed that the lump sum payment made to the said company being US $ 1,73,500 was a part of the fee for technical services rendered to the petitioner. The said amount was treated as such and taxes were paid accordingly. The question which ought to have been raised by the respondent Nos. 2 & 3 were as to whether only because the said company used the word expression ‘demurrage’ instead and in place of ‘fee for technical services’ despite the relevant facts that the said company has been paid in terms of the said contract could the benefit of s. 10 (6A) of the IT Act denied to the assessee ? Having heard the learned counsel for the parties, we are of the opinion that the respondent Nos. 2 & 3 have committed a jurisdictional error insofar as it failed to take into consideration the nature of transaction as contended by the assessee. As noticed hereinbefore, the Singapore based company also clarified in its afore-mentioned letter dt. 3rd Sept., 1987, that the expression demurrage charges had been used, having regard to the provisions normally made in a marine contract although in effect and substance, the same comes within the purview of fee for technical services. Fee for technical services have been defined in Expln. II appended to s. 9 of the IT Act. Clause 7 of the contract (sic) is in the following terms : “(vii) Income by way of fees for technical services payable by : (a) the Government; or (b) a person who is a resident, except where the fees are payable in respect of services utilised in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India; or (c) A person who is a non-resident, where the fees are payable in respect of services utilised in a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India :
Provided that nothing contained in this clause shall apply in relation to any income by way of fees for technical services payable in pursuance of an agreement made before the 1st day of April, 1976, and approved by the Central Government. Explanation 1.—For the purposes of the foregoing proviso, an agreement made on or after the 1st day of April, 1976, shall be deemed to have been made before that date if the agreement is made in accordance with proposal approved by the Central Government before that date. Explanation 2.—For the purposes of this clause, ‘fees for technical services’ means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head ‘Salaries’.” A bare perusal of the aforementioned provision will clarify and go to show that the same carries definite import. The transaction entered by and between the petitioner and the aforementioned company was, therefore, required to be considered in the light of the afore-mentioned provision. The question was not considered from this angle. As by reason of the impugned order, the respondent Nos. 2 and 3 failed to exercise their jurisdiction vested therein by law, in our opinion, a jurisdictional error has been committed. By reason of the said orders, the said respondents had failed to perform their statutory duties to which they were otherwise obliged to. For the reasons afore-mentioned, the impugned order cannot be sustained which is accordingly set aside. The matter is remitted back to the competent authority for consideration of the matter afresh. The writ petition is allowed. No costs.
[Citation : 269 ITR 495]
