Case Note & Summary
The petitioner, Larsen & Toubro Limited, a public limited company and engineering conglomerate, entered into a contract with Oil and Natural Gas Corporation Ltd. (ONGC) on 6th February 2006 for survey, design, engineering, procurement, fabrication, installation, and commissioning of offshore facilities. The petitioner made certain payments to non-resident sub-contractors and, under Section 195 of the Income Tax Act, 1961, sought a determination from the Assessing Officer as to whether tax was deductible at source on such payments. The Assessing Officer, by order dated 15th February 2008, held that tax was deductible on the entire payment without considering the petitioner's objections that the payments were not chargeable to tax in India under the relevant Double Taxation Avoidance Agreements. The petitioner filed an application under Section 264 before the Director of Income-tax (International Taxation), who rejected the application by order dated 18th July 2008, without addressing the merits of the petitioner's contentions. The petitioner then filed a writ petition under Article 226 of the Constitution of India challenging both orders. The High Court held that the Assessing Officer had failed to consider the petitioner's objections and had not passed a speaking order, thereby violating principles of natural justice. The revisional authority under Section 264 also failed to remedy this defect. Consequently, the court set aside both orders and remanded the matter to the Assessing Officer for fresh consideration, directing that the petitioner be given a reasonable opportunity of being heard and that a speaking order be passed in accordance with law.
Headnote
A) Constitutional Law - Writ Jurisdiction - Article 226 - Principles of Natural Justice - The High Court can interfere under Article 226 when an order is passed in violation of principles of natural justice, even if alternative remedies exist. (Paras 1-2) B) Income Tax - Withholding Tax - Section 195 - Obligation of Assessing Officer - Before passing an order under Section 195 directing the deductor to deduct tax at source, the Assessing Officer must consider the objections raised by the deductor and pass a speaking order. Failure to do so vitiates the order. (Paras 3-10) C) Income Tax - Revision - Section 264 - Powers of Commissioner/Director - The revisional authority under Section 264 must examine whether the order under revision suffers from any illegality or irregularity, including violation of natural justice. If the Assessing Officer failed to consider objections, the revisional authority ought to set aside the order and remand the matter. (Paras 11-15)
Issue of Consideration
Whether the order passed by the Director of Income-tax under Section 264 of the Income Tax Act, 1961, rejecting the petitioner's application against the Assessing Officer's order under Section 195, was sustainable in law when the Assessing Officer failed to consider the petitioner's objections and violated principles of natural justice.
Final Decision
The High Court allowed the writ petition, set aside the order dated 15th February 2008 passed by the Assessing Officer under Section 195 and the order dated 18th July 2008 passed by the Director under Section 264, and remanded the matter to the Assessing Officer for fresh consideration after giving the petitioner a reasonable opportunity of being heard and passing a speaking order in accordance with law.
Law Points
- Principles of natural justice
- Section 195 Income Tax Act
- 1961
- Section 264 Income Tax Act
- Withholding tax on payments to non-residents
- Obligation of Assessing Officer to consider objections before passing order under Section 195
