Holding

The Supreme Court held that the High Court erred; the certificate must be issued after complying with Rule 28AA, and the appellant is not estopped, thereby allowing the appeal.

Summary

National Petroleum Construction Co., a UAE‑incorporated firm, sought a Section 197 certificate for a 4% TDS rate on payments from ONGC for contracts involving both onshore and offshore work in FY 2019‑20. The Deputy Commissioner issued a certificate directing 4% TDS on the entire amount, despite the appellant’s earlier request for a nil‑rate certificate for offshore activities. The Delhi High Court dismissed the appellant’s writ petition, holding that the question of Permanent Establishment (PE) could not be decided in the Section 197 proceedings and that the appellant was estopped by its own request. The Supreme Court held that the High Court erred, noting that the assessing officer must follow the procedural requirements of Rule 28AA and that the PE issue, while relevant to taxability, is not determinable within the limited time‑frame of a Section 197 application. The Court also rejected the estoppel argument and emphasized the principle of consistency across assessment years. Consequently, the appeal was allowed and the certificate was ordered to be reconsidered in accordance with the prescribed procedure.

Issues considered

The validity of the High Court's dismissal of the writ petition challenging the Section 197 certificate.
Whether the existence of a Permanent Establishment can be examined in a Section 197 certificate application.
Whether the appellant is estopped from contesting a certificate issued pursuant to its own request.
The applicability of the principle of consistency/res judicata across assessment years for Section 197 certificates.
Whether the assessing officer complied with the procedural requirements of Rule 28AA while issuing the certificate.

Legislation cited

Income Tax Act, 1961s. 143(1), s. 195, s. 197, s. 44BB, s. 5(2), s. 6(3)
Income Tax (Second Amendment) Rules, 2011s. Rule 28AA

Subjects

TDSSection 197 certificatePermanent EstablishmentDouble Taxation Avoidance AgreementIncome Tax ActEstoppelConsistency principleAssessment yearRule 28AAJudicial review

Judgment

236 [2022]
SUPREME COURT 17 S.C.R. 236
REPORTS [2022] 17 S.C.R.

A NATIONAL PETROLEUM CONSTRUCTION COMPANY
v.
DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 2(2),
INTERNATIONAL TAXATION, NEW DELHI & ANR.
B (Civil Appeal No. 4964 of 2022)
JULY 29, 2022
[INDIRA BANERJEE AND J. K. MAHESHWARI, JJ.]
Income Tax Act, 1961 – ss.197, 195(1) – Income Tax (Second
Amendment) Rules, 2011 – r.28AA – Writ Petition filed by Appellant
C against the refusal of the Respondent no.1 to modify the Certificate
issued to it for the financial year 2019-20 (corresponding to the
Assessment Year 2020-21) u/s.197 for Tax Deduction at Source
(TDS) at the rate of 4% in respect of payments received by the
Appellant from ONGC towards work done out of India as well as
within India, dismissed by High Court – Correctness of – Held:Per
D Indira Banerjee, J. High Court rightly held that the question of
whether the appellant had Permanent Establishment (PE), could
not possibly be undertaken in an enquiry for issuance of certificate
u/s.197 of the IT Act –Further, the Appellant itself made a request
for Certificate for TDS at the rate of 4% on all receipts – Thus, the
impugned certificate having been issued as per the appellant’s own
E request, the appellant is estopped from questioning the certificate
by initiation of proceedings u/Article 226 – No infirmity in the
reasoning of the High Court calling for interference – Per J. K.
Maheshwari, J. Since there was no change in circumstances and the
situation of the appellant in the financial years 2017-18 and 2018-
19 respectively and in the financial year 2019-20 in question
F (assessment year 2020-21) are the same, the principle of consistency
ought to be followed while considering the application u/s.197 of
the IT Act – Order passed by High Court is without considering the
perspective and scope of issuance of certificate for deduction of
tax and also without following the prescribed procedure – High
Court committed error in dismissing the writ petition – In view of
G
difference of opinion, matter to be placed before Hon’ble the Chief
Justice of India to constitute an appropriate bench to hear the matter
– Constitution of India – Article 226.
(In the judgment of Indira Banerjee, J. )
G.E. India Technology Centre Pvt. Ltd. v. Commissioner
H of Income Tax and Anr. (2010) 327 ITR 456 (SC);
236
NATIONAL PETROLEUM CONST. CO. v. DEPUTY COMM’R OF INCOME 237
TAX, CIRCLE 2(2), INTERNATIONAL TAXATION

Ishikawajima-Harima Heavy Industries v. Director of A
Income Tax, Mumbai (2007) 288 ITR 408 (SC);
Commissioner of Income Tax and Anr. v. Hyundai Heavy
Industries Co. Ltd (2007) 291 ITR 482 (SC) – referred
to.
(In the judgement of J.K. Maheshwari, J.)
B
M/s Radhasoami Satsang, Saomi Bagh, Agra v.
Commissioner of Income Tax (1992) 1 SCC 659 : [1991]
2 Suppl. SCR 312; Bharat Sanchar Nigam Limited and
Anr. v. Union of India and Ors. (2006) 3 SCC 1 : [2006]
2 SCR 823 – relied on.
Case Law Reference C
In the judgment of Indira Banerjee, J.
(2010) 327 ITR 456 (SC) referred to Para 36
(2007) 288 ITR 408 (SC) referred to Para 40
(2007) 291 ITR 482 (SC) referred to Para 40
In the judgment of J. K. Maheshwari, J. D
[1991] 2 Suppl. SCR 312 relied on Para 16
[2006] 2 SCR 823 relied on Para 16
CIVIL APPELLATE JURISDICTION : Civil Appeal No.4964
of 2022.
From the Judgment and Order dated 20.12.2019 of the High Court E
of Delhi at New Delhi in WP (C) No.8527 of 2019.
S. Ganesh, Sr. Adv., Bhargava V. Desai, Shivam Jasra, Ms. Aditi
Diwan, Advs. for the Appellant.
N. Venkataraman, ASG, Shyam Gopal, Chandra Kant Sharma,
Ms. Rashmi Malhotra, Ms. Preeti Rani, Akshya Amritanshu, Raj Bahadur F
Yadav, Advs. for the Respondents.
The Judgments and Order of the Court were delivered by
INDIRA BANERJEE, J.
Leave granted.
2. This appeal is against the judgment and final order dated 20th G
December 2019 passed by High Court of Delhi dismissing the Writ Petition
being Writ Petition (C) No.8527 of 2019 filed by the Appellant against
the refusal of the Respondent No.1 to modify the Certificate dated 26th
June 2019 issued to the Appellant for the Financial/Previous Year 2019-
20, corresponding to the Assessment Year 2020-21, under Section 197
H
238 SUPREME COURT REPORTS [2022] 17 S.C.R.

A of the Income Tax Act 1961, hereinafter referred to as the “IT Act”, for
Tax Deduction at Source (TDS) at the rate of 4% in respect of payments
received by the Appellant from Oil and Natural Gas Company Ltd.
hereinafter referred to as the “ONGC” towards work done out of India
as well as within India.
B 3. The Appellant, National Petroleum Construction Company, is a
company incorporated under the laws of the United Arab Emirates (UAE)
and is a tax resident of that country. The provisions of the Agreement
for Avoidance of Double Taxation hereinafter referred to as the “AADT”
between India and the UAE apply in determining the taxable income of
the Appellant under the IT Act.
C
4. The Appellant is, inter alia, engaged in the fabrication of
Petroleum Platforms, Pipelines and other equipment, installation of
Petroleum Platforms, Submarine Pipelines, onshore and offshore oil
facilities and coating of Pipelines.

D 5. Pursuant to different tender notices issued by ONGC from
time to time, the Appellant submitted tenders, inter alia, for installation
of Petroleum Platforms and submarine Pipelines. The tenders submitted
by the Appellant were accepted and contracts were executed by and
between the Appellant and ONGC. The first contract was executed by
and between the Appellant and ONGC in the Financial Year 1996-97,
E corresponding to the Assessment Year 1997-98.
6. On 28th August 2005, the Appellant was awarded a contract
termed as Contract No. MR/OW/MM/NHBS4WPP for Well Platform
Project-II hereinafter referred to as ‘LEWPP Contract’ pursuant to a
global tender floated by ONGC in July 2005. This was the third contract
F between the Appellant and ONGC. Later on 23rd November 2006, the
Appellant entered into another contract termed as Contract No. MR/
OW/MM/C-Series/03/2006, hereinafter referred to as ‘C-Series
Contract’, for C-Series Project.
7. The scope of work as described in the “General Conditions of
G Contract” for LEWPP Contract and C-Series Contract included “Surveys
(pre-engineering, pre-construction/pre-installation and post-installation),
Design, Engineering, Procurement, Fabrication, Anticorrosion & Weight
coating (in case of rigid pipeline), Load-out, Tie-down/Sea fastening,
Tow-out/Sail-out, Transportation, Installation, Hook-up, Installation of
submarine pipelines, Installation and hook-up of submarine cables,
H
NATIONAL PETROLEUM CONST. CO. v. DEPUTY COMM’R OF INCOME 239
TAX, CIRCLE 2(2), INTERNATIONAL TAXATION [INDIRA BANERJEE, J.]

Modifications on existing facilities, Testing, Pre-commissioning, A
Commissioning of entire facilities as described in the bidding document”.
8. The contracts referred to above included various activities.
Whilst the activities relating to survey, installation and commissioning
were done entirely in India, the platforms were designed, engineered
and fabricated overseas - at Abu Dhabi. B
9. The Appellant has been filing its Income Tax Returns from the
Assessment Year 1997-98. The Appellant’s income has been computed
on a presumptive basis by taxing the gross receipts pertaining to the
activities in India, less verifiable expenses at the rate of 10% and the
receipts pertaining to activities out of India at the rate of 1%. C
10. The Appellant adopted the said basis for computing its
assessable income and filed its returns for the Assessment Year 1999-
2000 onwards. Accordingly the returns filed by the Appellant for the
Assessment Years 2004-05, 2005-06 and 2006-07 were processed under
Section 143(1) of the IT Act. However, the returns filed by the Appellant D
for Assessment Years 2007-08 and 2008-09, were not accepted by the
Assessing Officer, hereinafter referred to as the ‘AO’.
11. The AO passed a Draft Assessment Order dated 31 st
December 2009 for the Assessment Year 2007-08 holding that the
Appellant had a Fixed Place Permanent Establishment in India in the E
form of a Project Office at Mumbai. The AO further held that Arcadia
Shipping Ltd. (ASL), agent of the Appellant had a Permanent
Establishment in India, which constituted a Dependent Agent Permanent
Establishment, hereinafter referred to as “DAPE”, of the Appellant.
12. With regard to the Appellant’s contention that the fabricated F
material was sold to ONGC outside India, the AO found that the contract
was a turnkey and a composite contract and was not divisible as claimed
by the Appellant. Accordingly, the AO held that the entire contractual
receipts including the payments for activities performed outside India
were taxable in India. The consideration received by the Appellant for
design and engineering was held to be Fees for Technical Services, G
hereinafter referred to as the ‘FTS’. Since, the Appellant had not
maintained separate books pertaining to the contract, the AO estimated
the Appellant’s profit at 25% of the consideration received from ONGC.
13. The Appellant did not accept the Draft Assessment Order
and filed its objections before the Dispute Resolution Panel hereinafter H
240 SUPREME COURT REPORTS [2022] 17 S.C.R.

A referred to as the “DRP”. The DRP held that Article 5 of the AADT
provided an inclusive definition of ‘Permanent Establishment’ (PE) and
that the Appellant’s Project Office constituted a PE of the Appellant in
India. The DRP concurred with the AO that ASL was a DAPE of the
Assessee.
B 14. The DRP observed that pre-engineering or pre- design survey,
claimed to be done by a sub-contractor employed by the Appellant, was
an integral part of the contract and the time spent by the sub- contractor
would also constitute the time spent by the Appellant in India in computing
residence in India for over nine months during the Assessment Year, in
terms of the AADT.
C
15. The DRP rejected the contention that the contract was a
divisible contract and the income of the Appellant for the activities done
outside India was not taxable under the IT Act.
16.The Appellant filed an appeal against the order of the
D assessment passed by the AO before the Income Tax Appellate Tribunal
hereinafter referred to as the “ITAT”. The ITAT concurred with the AO
and rejected the Appellant’s contention that it did not have a PE in India.
The ITAT also concurred with the AO that the establishment of ASL in
India was a DAPE of the Appellant.

E 17. The ITAT, however, accepted the Appellant’s contention that
the contract could be segregated into offshore and onshore activities
and the Appellant’s income for the activities carried on out of India could
not be attributed to its PE in India.
18. The ITAT rejected the Appellant’s contention that the tax
F payable should be computed as per the formula adopted in the preceding
years, i.e. 10% of the receipts attributable to activities in India, less
expenses in India and 1% of the receipts attributable to activities carried
on overseas.
19. By a judgment and order dated 29th January 2016, in the Appeal
being ITA No. 143 of 2013, filed by the Appellant and other related
G
Appeals filed by the Revenue, the Division Bench of the High Court of
Delhi concurred with the view of the ITAT that consideration for activities
carried on overseas could not be attributed to the Appellant’s PE in
India. The Court observed that it was not disputed that invoices raised
by the Appellant specifically indicated whether the work was done outside
H
NATIONAL PETROLEUM CONST. CO. v. DEPUTY COMM’R OF INCOME 241
TAX, CIRCLE 2(2), INTERNATIONAL TAXATION [INDIRA BANERJEE, J.]

India or in India. Thus, even though the contracts might be turnkey A
contracts, the value of the work done outside India was segregable.
20. Two contracts were concluded by and between the Appellant
and ONGC, one dated 30th September 2016, hereinafter referred to as
LEWPP Contract, and the other dated 7th February 2018, hereinafter
referred to as the R-series Contract, which have led to this Appeal. The B
Appellant received payments for work done under the said two contracts
in the Previous/Financial Year 2019-20 corresponding to the Assessment
Year 2020-21.
21. By a judgment and order dated 9th May 2017 in Writ Petition
being Writ Petition (C) No. 2117 of 2017, the High Court of Delhi set C
aside a Certificate dated 31st January 2017 issued by the Respondent
No.1 under Section 197 of the IT Act, requiring deduction of TDS at the
rate of 4% on all payments made by ONGC to the Appellant for activities
out of India and in India in respect of the contract dated 30th September
2016. The R-series Contract was executed after the judgment of the
High Court dated 9th May 2017, referred to above. The High Court had D
no occasion to consider the R-series contract.
22. On or about 8th May 2019, the Appellant applied for a certificate
under Section 197 of the IT Act for deduction of Nil tax on payments
received from ONGC for activities carried on outside India, in the
Financial Year 2019-20 in relation to the aforesaid contracts. E

23. The Respondent, Income Tax Authorities raised queries on its
portal, to which the Appellant responded by a letter dated 21st May 2019
addressed to the Respondent No.1. On further query from the Income
Tax Department, the Appellant filed a reply on 13th June 2019 pointing
out that no income from activities outside India could be brought to tax in F
India. The Appellant also submitted a table showing the similarities
between the contracts forming the subject-matter of the decision of the
High Court and the contracts in the year under consideration, that is, the
Financial Year 2019-20.
24. By the said letter dated 13th June 2019, the Appellant pointed G
out that for over two and half months since the start of the Financial
Year 2019-20, no certificates had been issued to the Appellant under
Section 197 of the IT Act as a result of which the Appellant was suffering
undue hardship as its cash flow was being hampered. The Appellant,
therefore, requested the Respondent No.1 to issue certificate at the
H
242 SUPREME COURT REPORTS [2022] 17 S.C.R.

A earliest. On 17th June 2019, the Appellant submitted activity-wise key
dates for each platform under the R-Series and LEWPP Contracts to
the Respondent No.1.
25. By letter dated 22nd June 2019, addressed to the Respondent
No.1, the Appellant answered further queries. However, in view of the
B financial crunch faced by the Appellant, the Appellant requested :
“The Applicant humbly submits that since it is facing financial
hardship as the first quarter of FY 2019-20 has come to an
end and it is yet to have the lower withholding tax certificate,
the Applicant (without prejudice to its legal position), is willing
to offer a concession to have the certificate at the tax rate of
C 4% plus applicable surcharge and cess for the entire
contractual revenues, which is in line with the recently
concluded assessment proceedings for AY 2016-17 in
Applicant’s own case, where your goodself concluded that
the entire contractual revenues were chargeable to tax under
D Section 44BB of the Act at an effective tax rate of 4% plus
applicable surcharge and cess.
In light of the above, it is our humble request to your goodself
to kindly issue the certificate at your earliest convenience.”
26. The Appellant contends that a certificate of Nil TDS, for
E payments received in respect of activities outside India, should have
been issued to the Appellant, in deference to decisions rendered by various
Appellate Authorities from the Assessment Years 2007-08 to 2015-16,
opining that income in respect of activities out of India was not taxable
in India and as also the judgments of the Delhi High Court referred to
above.
F
27. In the Assessment Year 2018-19, the Respondent had followed
the same approach as in the Assessment Year 2017-18 and issued a
certificate dated 10th April 2018 under Section 197 of the Act for Nil
TDS in respect of payments for activities outside India. This direction
was in respect of both LEWPP Contract as well as R-Series Contract.
G 28. However, in departure from the position taken in the previous
years, the Respondent No.1 issued a certificate dated 26th June 2019
under Section 197(1) of the IT Act for the Financial Year 2019-2020
corresponding to the Assessment Year 2020-2021 directing ONGC to
deduct TDS at the rate of 4% on receipts in respect of activities both
H outside and inside India.
NATIONAL PETROLEUM CONST. CO. v. DEPUTY COMM’R OF INCOME 243
TAX, CIRCLE 2(2), INTERNATIONAL TAXATION [INDIRA BANERJEE, J.]

29. The Appellant filed a Writ Petition under Article 226 of the A
Constitution of India being Writ Petition (C) No.8527 of 2019, inter alia,
challenging the said certificate dated 26th June 2019. The Writ Petition
has been dismissed by the judgment and order impugned in this Court.
30. Mr. Ganesh appearing on behalf of the Appellant forcefully
argued that the Respondent No.1 had erred in law in not granting Nil B
rate TDS to the Appellant for the financial year 2019-20 under Section
197 of the IT Act.
31. Mr. Ganesh argued that Appellant was assessed for
Assessment Years 2007-08, 2008-09 and 2009-10 in respect of contracts
similar to the above noted contracts and was held not to be taxable in C
India. Even though the Assessing Authority had, from the Assessment
Year 2007-08 taken the view that revenue in respect of activities outside
India were taxable in India, the ITAT being the Appellate Authority, held
to the contrary. The Appellate Authority had all along taken the stand
that the Appellant has no Permanent Establishment in India and no such
income from activities outside India would be chargeable to tax in India. D
32. Mr. Ganesh relied upon the judgment rendered by the High
Court in the Appellant’s own case in respect of the Assessment Years
2007-08 and 2008-09 which is reported in (2016) 383 ITR 648. The
Delhi High Court analyzed the contract of the Appellant with Respondent
ONGC and held that the project office of the Appellant did not constitute E
a Fixed Base Permanent Establishment under the provisions of the
Double Taxation Avoidance Agreement. The question of splitting profits
arising from the contract into two categories, that is, profits attributable
to India and profits attributable to overseas activities did not arise. The
judgment was followed in respect of appeal of the Respondent for the
Assessment Year 2009-10. Mr. Ganesh argued that R-Series and LEWPP F
Contracts relevant to the Assessment Year in question that is Assessment
Year 2020-21 corresponding to the Previous Year 2019-20, are identical
to the contracts considered by the Appellate Authority in Appellant’s
own case in relation to the Assessment Years 2007-08, 2008-09 and
2009-10. G
33. The Delhi High Court issued notice to the Revenue Authorities,
in response to which a counter affidavit was filed enumerating the
grounds and reasons justifying the issuance of the impugned certificate.
34. After hearing the parties at length, the High Court held that an
administrative decision was subject to judicial review under Article 226 H
244 SUPREME COURT REPORTS [2022] 17 S.C.R.

A of the Constitution of India only on grounds of perversity, patent illegality,
irrationality, want of power to take the decision and procedural irregularity.
Judicial review is directed not against the decision but the decision making
process. The High Court did not find any such arbitrariness in the
approach of the concerned Respondents in the exercise of their
jurisdiction, that called for interference under Article 226 of the
B
Constitution of India. The High Court found that the reasons in the note-
sheet could not be said to be so fallacious, unfair or unreasonable that
they required intervention of the High Court.
35. The High Court further observed and held:
C “18. Sub Section (1) of Section 195 of the Act provides that
any person responsible for paying to a non-resident, any sum
chargeable to tax under the provisions of the Act, shall, at
the time of credit of such income to the account of the payee,
or at the time of the payment thereof in cash or by the issue of
a cheque or draft or any other mode, whichever is earlier,
D deduct income-tax thereon at the rates enforced.
***
24. … As of now, we are not concerned with a regular
assessment proceeding but, with determination of rate of tax
E deduction. On perusal of reasons, it becomes manifest that
during the course of enquiry under Section 197 of the Act,
the petitioner was asked to furnish the details regarding the
scope and nature of the aforenoted contracts. Revenue
contends that for the R-series contracts, the petitioner has
made contradictory statement regarding commissioning period
F and period of as-built documentation etc. Petitioner, in its
submission dated 22.06.2019, contends that commissioning
work is not undertaken by them for the R-series contracts,
and the same is to be performed by ONGC. Without going
into the question as to whether the petitioner’s stand is
G contradictory, we may note that the Assessing Officer while
exercising its power under Section 197, during the course of
the enquiry, cannot undertake an exhaustive exercise to
determine this issue conclusively. We find force in the
submissions of Mr. Raghvendra Kumar Singh that the question
as to whether the petitioner has constituted a PE, cannot
H possibly be undertaken in the enquiry having regard to the
NATIONAL PETROLEUM CONST. CO. v. DEPUTY COMM’R OF INCOME 245
TAX, CIRCLE 2(2), INTERNATIONAL TAXATION [INDIRA BANERJEE, J.]

time frame permissible under law for deciding the application A
under Section 197 of the Act. The reasons shown to us also
take note of the fact that in the immediate preceding years
i.e., AY-2016-17 and AY- 2017-18, for which regular
assessment has been completed, petitioner has been held to
have a Permanent Establishment (PE) in India, and its total
B
income from the contracts with ONGC have been held to be
taxable under the IT Act. Section 44BB of the Act is applied,
and 10% of the contractual receipts were considered as
business profits. The rate of tax being 40%, a certificate was,
accordingly, issued @ 4%. For the other assessment years as
well, assessment has been completed and appeal is pending C
before the appellate authorities. The Petitioner, obviously,
disputes the finding of the Respondent as erroneous and
misplaced, on the ground that for AY- 2015-16, the first
appellate authority-following the decision of this Court in
petitioner’s own case, has held that the petitioner has no PE
D
in India. Be that as it may, for AY-2016-17 and 2017-18, this
question has been determined against the petitioner. It is well-
settled proposition that in tax jurisprudence, the principle of
res judicata is not applicable to income tax proceedings...
[Ref: New Jehangir Vakil Mills Co. Ltd. v. CIT: [1963] 49
ITR 137 (SC) (Full bench)]. “It is well settled that in matters E
of taxation there is no question of res judicata because each
year’s assessment is final only for that year and does not
govern later years, because it determines only the tax for a
particular period.” [Ref: Instalment Supply (P) Ltd. v. Union
of India : AIR 1962 SC 53 (Constitution bench)].
F
***
27. In the present case, there cannot be any dispute that
existence of PE is required to be determined by law for each
year separately on the basis of the scope, extent, nature and
duration of activities in each year. In this regard, the contracts G
in question i.e. R-series contracts dated 07.02.2018 and
LEWPP series contracts dated 30.09.2016 would have to be
taken into consideration. Concededly, this Court in its decision
dated 09.05.2017 did not have the occasion to consider the
R-series contract dated 07.02.2018. The Court only
H
246 SUPREME COURT REPORTS [2022] 17 S.C.R.

A considered the contract dated 30.09.2016 as noted in para -
1 of the said decision. There is thus, a distinguishing feature
- the R-series contract has not been considered by this Court
in its order dated 09.05.2017. Moreover, in the instant case,
the reasons record that the two contracts are indivisible, and
the petitioner cannot divide the contractual receipts in two
B
categories viz. inside India and Outside India services. The
installation PE will come into existence, if “project or activity
continues for a period of more than 9 months” under Indo-
UAE DTAA. This question of fact will have to be determined
separately for each assessment year, and we are informed
C that for AY-2016-17 and AY-2017-18, the determination is
presently against the petitioner. We cannot accept the
petitioner’s contention that the assessment proceedings for
the AYs 2007-08, 2008-09 and 2009-10 have already
determined this question in favour of the petitioner and there
is no change in any circumstances. This question would
D
require to be determined and finding of the fact would have
to be arrived at, by a careful consideration of terms of
contract, determination whereof cannot be undertaken in the
proceedings under Section 197 of the Act.
***
E
29. Further, the petitioner’s contention that under each of
the contracts, the installation activities were completed in less
than 9 months, and that the scope of R-series contracts, did
not include commissioning activities, are all factual aspects
which cannot be examined while exercising judicial review
F over the decision of the respondent under Section 197 of the
Act.
30. The petitioner has relied upon the judgments in
Ishikawajima-Harima Heavy Industries: [2007] 288 ITR 408
(SC) and Hyundai Heavy Industries: [2007] 291 ITR 482 (SC),
G which do not appear to be applicable to the facts of the present
case. In Ishikawajima (supra), the Supreme Court held that
for a non-resident entity to be taxed in India, it should carry
on business through a permanent establishment in India, and
income taxed is on the basis of extent appropriate to the part
H played by permanent establishment in those transactions, and
NATIONAL PETROLEUM CONST. CO. v. DEPUTY COMM’R OF INCOME 247
TAX, CIRCLE 2(2), INTERNATIONAL TAXATION [INDIRA BANERJEE, J.]

that only such part of the income, as is attributable to the A
operations carried out in India can be taxed in India. In the
said case, a clear distinction could be identified between
onshore and offshore activities. In the present case, the
respondents contend that no such distinction is clearly
identifiable from the contracts in question. Further, the said
B
cases (Ishikawajima (supra) and Hyundai heavy Industries
(supra)) relate to assessment proceedings, whereas, in the
present case, we are concerned with proceedings for grant
of certificate under section 197. The scope of enquiry and
investigation in both these proceedings is different, especially
after the introduction of Explanation 2 to section 195 and at C
the stage of section 197 proceedings, the question of existence
of permanent establishment is not required to be gone into.
Therefore, having regard to the aforesaid provision, we
cannot direct the Revenue to hold that the petitioner does not
have a PE and give the consequent effect of such finding
D
while deciding an application under Section 197 of the Act.
Determination of all these questions would have to be
undertaken during the course of regular assessment.
***
32. ...However, we cannot ignore the fact that Petitioner took E
categorical stand and prevailed upon the revenue to accept
the declaration made in the said communication. Although
the declaration was qualified, yet, since the petitioner
requested the respondent to deduct the tax @ 4% + applicable
surcharge & cess for the entire contractual revenues, revenue
was justified in accepting the same and the petitioner cannot F
be permitted to resile there from, once the department has
accepted petitioner’s proposal.”
36. It is well settled that the obligation to deduct TDS is limited to
appropriate proportion of income chargeable to tax under the IT Act
that forms part of the gross sum of money payable to the non-resident. G
A person paying any sum to a non-resident is not liable to deduct any tax
at source if such sum is not chargeable to tax under the IT Act, as held
by this Court in G E India Technology Centre Pvt. Ltd. v.
Commissioner of Income Tax and Another1.
1
(2010) 327 ITR 456 (SC) H
248 SUPREME COURT REPORTS [2022] 17 S.C.R.

A 37. The High Court rightly held that the question of whether the
Appellant had PE, could not possibly be undertaken in an enquiry for
issuance of Certificate under Section 197 of the IT Act, having regard to
the time-frame permissible in law for deciding an application, more so,
when regular assessment had been completed in respect of the immediate
preceding year and the Appellant found to be taxable under the IT Act
B
at 10% of the contractual receipts. The Assessing Authority found that
the Appellant had PE in India in the concerned Assessment Years. The
appeal of the Appellant is possibly pending disposal.
38. As held by the High Court, it is well settled that the principle
that res judicata is not applicable to income tax proceedings because
C assessment for each year is final only for that year and does not cover
later years.
39. Whether the Appellant had PE or not, during the Assessment
Year in question, is a disputed factual issue, which has to be determined
on the basis of the scope, extent, nature and duration of activities in
D India. Whether project activity in India continued for a period of more
than nine months, for taxability in India in terms of the AADT, is a question
of fact, that has to be determined separately for each Assessment Year.
40. It may be true, that for a non-resident entity to be taxed in
India, it should carry on business through a Permanent Establishment in
E India, as held by this Court in Ishikawajima-Harima Heavy Industries
Ltd. v. Director of Income Tax, Mumbai2 and Commissioner of
Income Tax and Anr. v. Hyundai Heavy Industries Co. Ltd. 3.
However, the judgments would only be attracted if there were a definite
finding that the Appellant did not have any PE in India during the
F Assessment Year in question, which as stated above, would also depend
on the duration and scope of the activities in India. The nature, extent
and the duration of work done in India, could vary from year to year.
41. It is reiterated that in the immediately preceding Assessment
Year, the Assessing Authority proceeded to assess the Appellant on the
G basis that it did have a Permanent Establishment (PE) in India. Moreover,
as rightly held by the High Court, Ishikawajima-Harima Heavy
Industries (supra) and Hyundai Heavy Industries (supra) related to
assessment proceedings whereas this case pertains to issuance of
2
(2007) 288 ITR 408 (SC)
3
H (2007) 291 ITR 482 (SC)
NATIONAL PETROLEUM CONST. CO. v. DEPUTY COMM’R OF INCOME 249
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certificate under Section 197 of the IT Act. The scope of enquiry and A
investigation in proceedings for grant of Certificate under Section 197 of
the IT Act is different from the scope of assessment proceedings. The
High Court rightly declined to direct the Revenue to hold that the
Appellant did not have PE in India.
42. By its letter dated 22nd June 2019, referred to above, the B
Appellant made a request to the Revenue for issuance of Certificate
under Section 197(1) of the IT Act permitting deduction of TDS at the
rate of 4% plus applicable surcharge and cess, for all contractual receipts,
in line with assessment proceedings for the Assessment Year 2016-2017
without prejudice to its legal position, since the Appellant had been facing
financial hardship and urgently required funds. On 26th June 2019, the C
Respondent No.1 issued the impugned Certificate directing ONGC to
deduct TDS at the rate of 4% for all sums receivable in respect of
activities both outside and inside India.
43. The impugned Certificate being as per the request of the
Appellant, it is not open to the Appellant to make a volte-face and D
challenge the impugned Certificate.
44. It may be true that the letter of request dated 22nd June 2019,
of the Appellant, referred to above, for issuance of a Certificate under
Section 197 of the IT Act, for TDS at the rate of 4% on all receipts was
without prejudice to the rights in law and contentions of the Appellant. E
Such a request without prejudice to the rights and contentions of the
Appellant would not operate as estoppel against the Appellant in any
Assessment Proceedings, Appellate proceedings or any other proceedings.
However, the impugned Certificate having been issued as per the
Appellant’s own request, the Appellant is estopped from questioning the F
impugned Certificate by initiation of proceedings under Article 226 of
the Constitution of India. The Appellant itself made a request for
Certificate for TDS at the rate of 4% on all receipts.
45. There is no such infirmity in the reasoning of the High Court
which calls for interference of this Court under Article 136 of the G
Constitution of India. As rightly held by the High Court, since the Appellant
requested issuance of Certificate for deduction of TDS at 4% of taxable
value it is not for the Appellant to challenge the certificate. Moreover, it
appears that in the final assessment for one or two preceding Assessment
Years it was found that the Appellant did have PE in India. Appeals are
pending. In any event, Tax deducted at source is adjustable against the H
250 SUPREME COURT REPORTS [2022] 17 S.C.R.

A tax, if any, ultimately assessed as payable by the Assessee and any
excess tax deducted is refundable with interest. Interference is not
warranted at this stage.
46. Moreover, in course of hearing, Counsel for the Revenue
handed us a Draft Assessment Order, issued in respect of the Assessment
B Year in question, that is 2020-21, holding that the Appellant had PE in
India and was liable to tax in India under the IT Act.
47. Needless to mention that any observation made by this Court
or by the High Court will not influence the final assessment which has to
be made in accordance with law taking into account all relevant facts
C and circumstances or any appeal therefrom. In the event, it is found that
the Appellant is not liable to tax, the Appellant will be entitled to refund
of TDS with interest.
48. The Appeal is dismissed.
J. K. MAHESHWARI, J.
D
Leave granted.
2. After going through the judgment and the opinion formed by
esteemed Justice Ms. Indira Banerjee, I respectfully disagree to the
conclusions as drawn for the reasons to follow.
E 3. On perusal of detailed facts as stated in the order, it is clear
that appellant-company is incorporated under the laws of United Arab
Emirates (in short ‘UAE’) and is engaged in the business of Surveys
(pre-engineering, pre-construction/pre-installation and post-installation),
Design, Engineering, Procurement, Fabrication, Anticorrosion & Weight
coating (in case of rigid pipeline, Load-out, Tie-down/Sea fastening Tow-
F
out/Sail-out, Transportation, Installation, Hook-up, Installation of submarine
pipeline, installation and hook-up of submarine cables, Modifications on
existing facilities, Testing, Pre-commissioning, Commissioning of entire
facilities as described in the biding document. Since the year 2007-2008,
the ONGC was granting contract to the appellant to carry out the work.
G For the assessment years 2007-2008 and 2008-2009, the C-Series and
LEWPP contracts were granted to the appellant on year to year basis.
After completion of those contracts as per the record of the case, the
payment of zero percent tax on the income outside India in terms of the
assessments were in question. The High Court of Delhi passed the order
on 29.01.2016 for the said assessment years i.e. 2007-2008 and 2008-
H
NATIONAL PETROLEUM CONST. CO. v. DEPUTY COMM’R OF INCOME 251
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2009 to the said contracts wherein it was held that assessee did not have A
the PE in India and earned profit attributable to that PE and in fact the
income was from the activities carried out outside of India. However,
the orders of assessment for the years 2007-2008 and 2008-2009
respectively as well as the corresponding orders passed by the ITAT in
the corresponding appeals were set aside. It has been brought to
B
knowledge that Civil Appeal No.8761/2016 filed against the said order is
pending before this Court.
4. On perusal of the provisions of the Income Tax Act (for short
“IT Act”), it reveals the proceedings of the assessment falls under Chapter
XIV of the IT Act, which includes return of income, permanent account
number, scheme for submission of returns through tax return and its C
preparation, assessment, rectification of mistake etc. While the present
case relates to certificates for deduction at lower rate or no deduction of
income at source, which falls in Chapter XVII of the IT Act. Therefore,
what is the recourse and considerations available to the assessing officer
at the time of issuance of the certificate under Section 197(1) of the IT D
Act or he has to rely upon the assessment orders of the previous years.
5. While examining the said issue in the facts and context of the
present case, some provisions are required to be referred. As per Section
6(3) of the IT Act for the resident in India, the income inside the country
is taxable. Under sub-section (3), it is specified that if any Indian company E
is said to be a resident in India in any previous year or its place for
effective management in that year was in India the income of such is
taxable. By the explanation, the place of effective management has been
clarified whereby it is clear that if any commercial decision necessary
for the conduct of a business of an entity as a whole or in substance is
made, it would be called as a place of effective management. F

6. As per Section 5(2) of the IT Act, it is clear that subject to the
other provisions of the Act, the total income of any previous year of a
person who is a non-resident includes all income from whatever sources
derived either is received or is deemed to be received in India in such
year by or on behalf of such person; or accrues or arises or is deemed to G
accrue or arise to him in India during such year. Explanation (1) of it
clarifies that income accruing or arising outside India shall not be deemed
to be received in India within the meaning of this section on account of
the fact that it has been taken into account in the balance sheet prepared
in India. Explanation (2) removes the doubts whereby the income which H
252 SUPREME COURT REPORTS [2022] 17 S.C.R.

A has been included in the total income of a person on the basis that it has
accrued or arisen or is deemed to have accrued or arisen to him shall not
again be so included on the basis that it is received or deemed to be
received by him in India. The aforesaid provision has been brought with
an intent to check the double taxation. Thus, from above for clarity, it is
reiterated that any income outside India to a non-resident would not be
B
taxable in India even if it is specified in the balance sheet prepared in
India.
7. By a judgment of this Court in the case of G.E. India
Technology Centre Pvt. Ltd. (supra) in the context of Section 195(1),
interpretation of the word “chargeable” under the provisions of IT Act
C has been made by which it is clarified that a person paying interest or
any other sum to a non-resident is not liable to deduct tax if such sum is
not chargeable to tax under the I.T. Act. Further, the Court clarified
where there is no obligation on the part of the payer and no right to
receive the sum by the recipient and that the payment does not arise out
D of any contract or obligation between the payer and the recipient but is
made voluntarily, such payments cannot be regarded as income under
the I.T. Act.
8. It is not in dispute in the present case that incorporation of the
appellant’s company is under the laws of UAE. In the context, the treaty/
E agreement entered by India with foreign countries including UAE, are
recognized under Chapter IX starting from Section 90 onwards and for
avoidance of double tax, the procedure has been prescribed in Chapter
X. In the above said agreement/treaty between India and UAE known
as Agreement of Avoidance of Double Taxation (in short “AADT”)
was executed. Clause (1) and (6) of Article 7 of the said agreement are
F relevant to the present case, which are reproduced for ready reference
as under:
“(1). The profits of an enterprise of a Contracting State shall
be taxable only in that State unless the enterprise carries on
business in the other Contracting State through a permanent
G establishment situated therein. If the enterprise carries on
business as aforesaid, the profits of the enterprise may be
taxed in the other State but only so much of them as is
attributable to that permanent establishment.”
“(6). For the purposes of preceding paragraphs, the profits
H to be attributed to the permanent establishment shall be
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determined by the same method year by year unless there is A
good and sufficient reason to the contrary.”
Perusal of the aforesaid makes it clear that enterprises of a
contracting state shall be taxable in the said state unless the business is
carried out in other contracting state through a permanent establishment
situated there. It is further clarified that the profit of the enterprises may B
be taxed in other state to the extent of the profit attributable to that PE.
The determination thereof shall be on year to year basis and the deviation,
if any, may be based on good and sufficient reasons to the contrary.
Thus, it is clear that the income earned in India may be taxable even by
an entity which is not incorporated in India but the profit earned for a
contract carried out outside India by such entity shall not be taxable. C
The issue regarding establishment of PE at a place where the work is
required to be executed, and profit earned attributable to that PE is a
matter of enquiry based on the material brought on record during
assessment for the said assessment year.
9. But for the purpose of tax deduction at source at lower rate or D
no deduction during contractual period, the assessing officer has been
empowered under Section 197(1) to issue a certificate to that effect in
the manner so prescribed as specified in Chapter XVII of Income Tax
Act which relates to collection and recovery of tax. On perusal of the
scope of the said Chapter, it is clear that the assessment in respect of E
the income is required to be made later in relevant assessment year but
the tax on such income may be payable by deduction at source by way
of advance payment or as specified in Sub-Section 1A of Section 92 of
IT Act as the case may be. As the present case relates to quashment of
the TDS certificate dated 26.06.2019 and seeking relief to issue the
fresh certificate under Section 197, therefore, for ready reference, it is F
hereby reproduced as thus:
197. Certificate for deduction at lower rate. (1) Subject to
rules made under sub-section (2A), where, in the case of any
income of any person or sum payable to any person, income-
tax is required to be deducted at the time of credit or, as the G
case may be, at the time of payment at the rates in force under
the provisions of sections 192, 193, 194, 194A, 194C, 194D,
194G, 194H, 194-I, 194J, 194K, 194LA, 194LBB, 194LBC,
194M, 49[194-O] and 195, the Assessing Officer is satisfied
that the total income of the recipient justifies the deduction of H
254 SUPREME COURT REPORTS [2022] 17 S.C.R.

A income-tax at any lower rates or no deduction of income-tax,
as the case may be, the Assessing Officer shall, on an
application made by the assessee in this behalf, give to him
such certificate as may be appropriate.
(2) Where any such certificate is given, the person responsible
B for paying the income shall, until such certificate is cancelled
by the Assessing Officer, deduct income-tax at the rates
specified in such certificate or deduct no tax, as the case may
be.
(2A) The Board may, having regard to the convenience of
C assessees and the interests of revenue, by notification in the
Official Gazette, make rules specifying the cases in which,
and the circumstances under which, an application may be
made for the grant of a certificate under sub-section (1) and
the conditions subject to which such certificate may be granted
and providing for all other matters connected therewith.
D
Bare reading of it makes clear that in the case of any income of
the person, income tax is required to be deducted at the time of credit or
as the case may be at the time of payment at the rates in force as per
various sections specified, including Section 195 subject to the rules made
under Sub-Section 2A. The rules have been framed to carry out the
E purpose of the act which are known as Income Tax Rules, 1962. The
present case relates to Section 195 of the IT Act which pertains to the
payment of tax deducted at source by non-residents. As per the provision
of Section 197, if the assessing officer is satisfied that the total income
of the recipient justifies any lower rate or no deduction of income tax as
F the case may be, he shall issue a certificate to the assessee on an
application submitted by him. The said certificate shall be valid until it is
cancelled by the assessing officer. Section 2A was introduced conferring
powers to the Board having regard to the convenience of the assessee
and the interest of revenue, and the rule is made to submit application
and the conditions for issuance of certificate, notifying it in Official
G Gazette. Pursuant thereto, a notification dated 29.03.2011 was published
in the Official Gazette specifying the cases and the circumstances under
which the application may be made for grant of certificate and, the
conditions for satisfaction of assessing officer who may grant certificate.
10. By way of the said notification dated 29.03.2011, amendment
H in the Income Tax Rules, 1962 was made and these Rules are known as
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Income Tax (Second Amendment) Rules, 2011 by which Rule 28 AA A
has been added. The said rule was further amended by notification dated
25.10.2018. The said amended rules are relevant for this case, however,
reproduced as thus:
“Certificate for deduction at lower rates or no deduction of
tax from income other than dividends. B
28AA . (1) Where the Assessing Officer, on an application
made by a person under sub-rule (1) of rule 28 is satisfied
that existing and estimated tax liability of a person justifies
the deduction of tax at lower rate or no deduction of tax, as
the case may be, the Assessing Officer shall issue a certificate C
in accordance with the provisions of sub-section (1) of section
197 for deduction of tax at such lower rate or no deduction
of tax.
(2) The existing and estimated liability referred to in sub-rule
(1) shall be determined by the Assessing Officer after taking D
into consideration the following:—
(i) tax payable on estimated income of the previous year
relevant to the assessment year;
(ii) tax payable on the assessed or returned 2[or estimated
income, as the case may be, of last four] previous years; E
(iii) existing liability under the Income-tax Act, 1961 and
Wealth-tax Act, 1957;
(iv) advance tax payment 3[tax deducted at source and tax
collected at source for the assessment year relevant to
F
the previous year till the date of making application
under sub-rule (1) of rule 28];
(v) omitted on 25.10.2018
(vi) omitted on 25.10.2018
(3) The certificate shall be valid for such period of the previous G
year as may be specified in the certificate, unless it is
cancelled by the Assessing Officer at any time before the
expiry of the specified period.
[‘(4) The certificate for deduction of tax at any lower rates
or no deduction of tax, as the case may be, shall be issued H
256 SUPREME COURT REPORTS [2022] 17 S.C.R.

A direct to the person responsible for deducting the tax under
advice to the person who made an application for issue of
such certificate:
Provided that where the number of persons responsible for
deducting the tax is likely to exceed one hundred and the
B details of such persons are not available at the time of making
application with the person making such application, the
certificate for deduction of tax at lower rate may be issued to
the person who made an application for issue of such
certificate, authorising him to receive income or sum after
deduction of tax at lower rate.
C
(5) The certificates referred to in sub-rule (4) shall be valid
only with regard to the person responsible for deducting the
tax and named therein and certificate referred to in proviso
to the sub-rule (4) shall be valid with regard to the person
who made an application for issue of such certificate.
D
(6) The Principal Director General of Income-tax (Systems)
or the Director General of Income-tax (Systems), as the case
may be, shall lay down procedures, formats and standards
for issuance of certificates under sub-rule (4) and proviso
thereto and the Principal Director General of Income-tax
E (Systems) or the Director General of Income-tax (Systems)
shall also be responsible for evolving and implementing
appropriate security, archival and retrieval policies in relation
to the issuance of said certificate.”
11. From the above, it is clear for issuance of a certificate under
F Section 197 of the IT Act, an application shall be made to assessing
officer under sub-rule (1) of Rule 28. The assessing officer after
recording satisfaction that existing and estimated tax liability justifies the
deduction of tax at lower rate or no deduction of tax as the case may be
shall issue certificate. While exercising the power to issue a certificate,
G the assessing officer is required to follow the procedure as per sub-rule
(2). The assessing officer shall consider the existing and estimated liability
that what may be tax payable on estimated income of the previous year;
tax payable on the assessed or returned income of the last four years
from previous year; existing liability under the IT Act; advance tax payment
i.e. tax deducted and collected at source for the assessment year relevant
H to the previous year till the date of making application under sub-rule (1)
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of Rule 28. Thus, for the purpose of issuance of certificate under Chapter A
XVII of Section 197 of the IT Act, the procedure for determination has
been prescribed to the assessing officer on which satisfaction may be
recorded by him.
12. It is further required to say that for assessment under Section
143, the assessment of total income or loss may be computed by the B
assessing officer in a return filed by the assessee for the said assessment
year after making adjustment and disallowing exemptions wrongly
claimed. Thereafter, the recovery can be made by an order of the
competent officer as per Second Schedule of the IT Act read with
Sections 222 and 276 alongwith Sections 220 & 221 with interest and
penalty. Thus, in my considered view the issuance of the certificate C
under Section 197(1) is based on the existing and estimated tax liability
after recording satisfaction by assessing officer following the procedure
so prescribed, in rules, but the procedure for assessment as specified in
Chapter XIV of the IT Act is different.
13. The High Court in the impugned order relied upon the D
proceedings of the Revenue Department, which has been referred in
para 10 of the judgment. As per the proceedings referred, the department
has acknowledged the High Court order dated 29.01.2016 and said that
for assessment years 2007-2008 to 2010-2011 there was no PE in India,
but the department filed the appeal C.A. No.8761/2016 is pending before E
this Court. In para 10(7), the High Court further referred the decision of
Delhi High dated 09.05.2017 passed in W.P.(C) No.2117/2017 and CM
No.9268/2017. The said judgment is solely on the issue of issuance of
the certificate under Section 197 relates to the financial year 2016-2017.
As per the ratio of the said judgment, it is clear that the certificate issued
by the respondent no.1 regarding deductions of the TDS at the rate of F
4% on the entire payment made by the ONGC was set aside. Following
the said decision, the department issued the certificate for financial year
2016-2017 at the rate of 4% excluding surcharge and cess for inside
India revenue and at the rate of 0% for outside India revenue. Further
for financial years 2017-2018 and 2018-2019 certificates were issued G
following the said decision of Delhi High Court for both type of contracts
i.e. LEWPP and R-Series. Thereafter, it was recorded that assessments
for assessment years 2015-2016 and 2016-2017 have been completed
with a finding that activities of the appellant were covered under Section
44BB of the IT Act. It was further recorded that the assessment for
H
258 SUPREME COURT REPORTS [2022] 17 S.C.R.

A assessment year 2017-2018 was selected under CASS which is still
pending. Thereafter, noting was made that it is difficult to bifurcate the
revenue generated by onshore and offshore activities. However, the
rate of deduction proposed was at the rate of 4%. The relevant excerpt
of note sheets further reflect that the demand of existing liability was
Rs.35.88 crores for the year 2015-16 and 2016-17 but later it was reduced
B
to Rs.2.67 crores out of which Rs.2.63 crores pertained to assessment
year 2017-18 which was still under scrutiny for assessment, thus there
appear no existing demand. The said note sheets of the Revenue do not
reflect that clause (i), (ii), (iii) and (iv) of Rule 28AA(2) of Rules regarding
estimated and assessed liability of last four previous years; existing liability
C and advance tax payment i.e. deducted and collected at source till the
date of submitting application have been considered for determination,
and the assessing officer had applied its mind prior to issuance of desired
certificate.
14. On perusal of the findings recorded in the impugned order, it
D reveals that Delhi High Court made unreasonable attempt to distinguish
previous order dated 09.05.2017 relying the note sheets of the revenue
and tried to distinct LEWPP and R-Series contracts. In my considered
view on admitting the certificates @ 0% tax deductions for both LEWPP
and R-Series contracts for the preceding financial years, the High Court
was not justified to make distinction between two types of contracts. In
E fact the Court must see the satisfaction recorded by the assessing officer
after determination of the issues specified in Rule 28AA(2). The appellant
reiterated that the terms of LEWPP contract and R-Series contract were
identical while department without disputing the said fact relied upon the
orders of assessment passed in previous years without bringing on record
F the fact of estimated liability. In my view, distinction drawn, accepting
the contention of the revenue by the High Court ignoring admission of
issuing certificate for both types of contracts is completely misplaced.
In fact, the certificate under Section 197(1) is issued during a financial
year and on closing of the said financial year, assessment may be made
after submission of the return of income and documents with respect to
G the income from the contract of that particular year. The department
may enquire about establishment of PE and income attributable to that
PE in assessment proceeding but while dealing the issue of issuance of
certificate under Section 197(1) relying upon said issues by the High
Court is not justified. During course of hearing, the counsel for the
H appellant handed over two orders dated 08.09.2021 passed by
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Commissioner of Income Tax (Appeals) for assessment year 2016-2017 A
and 2017-2018 allowing the appeals filed by the appellant challenging
the assessment order for respective assessment year. While allowing
the appeal, Commissioner of Income Tax held that the appellant did not
have PE during relevant financial year and accordingly in absence of
PE contract receipts were not taxable in India.
B
15. The record of the case indicates that for the financial year
2017-18 two certificates each dated 08.06.2017 (Annexures P-6 & P-
7) were issued for zero TDS which is related to the assessment year
2018-19. Similarly, for financial year 2018-19 (assessment year 2019-
20) two certificates dated 10.04.2018 and 08.05.2019 (Annexures P-8
& P-9 respectively) were issued for zero TDS. Therefore, after the C
order of the High Court dated 09.05.2017, it may be a relevant
consideration to assessing officer to record satisfaction, which has not
been considered by the High Court. The reply of the appellant dated
22.06.2019 has been referred in the impugned order stating that the
appellant reserve its right subject to legal objections and requested for D
issuance of certificate at the rate of 4% plus applicable surcharges and
cess because of financial hardship. In my opinion, the said letter cannot
influence the wisdom of the Court, where the prescribed procedure under
Rule 28AA has not been followed by the assessing officer. However, on
the basis of letter dated 22.06.2019 no lineage contrary to prescribed
procedure can influence the Court. E

16. As per discussion made above, in my view, since there was no
change in circumstances and the situation of the appellant in the financial
years 2017-2018 and 2018-2019 (assessment years 2018-19 and 2019-
20) respectively and at the financial year 2019-20 in question (assessment
year 2020-21), are the same, however, the principle of consistency ought F
to be followed while considering the application under Section 197 of the
IT Act. This Court in the case of M/s Radhasoami Satsang, Saomi
Bagh, Agra v. Commissioner of Income Tax, (1992) 1 SCC 659 has
categorically upheld the principle of consistency in following words:
“16. We are aware of the fact that strictly speaking res G
judicata does not apply to income tax proceedings. Again,
each assessment year being a unit, what is decided in one
year may not apply in the following year but where a
fundamental aspect permeating through the different
assessment years has been found as a fact one way or the H
260 SUPREME COURT REPORTS [2022] 17 S.C.R.

A other and parties have allowed that position to be sustained
by not challenging the order, it would not be at all appropriate
to allow the position to be changed in a subsequent year.
17. On these reasonings in the absence of any material change
justifying the Revenue to take a different view of the matter
B — and if there was no change it was in support of the assessee
— we do not think the question should have been reopened
and contrary to what had been decided by the Commissioner
of Income Tax in the earlier proceedings, a different and
contradictory stand should have been taken. We are, therefore,
of the view that these appeals should be allowed and the
C question should be answered in the affirmative, namely, that
the Tribunal was justified in holding that the income derived
by the Radhasoami Satsang was entitled to exemption under
Sections 11 and 12 of the Income Tax Act of 1961.
18. Counsel for the Revenue had told us that the facts of this
D case being very special nothing should be said in a manner
which would have general application. To are inclined to
accept this submission and would like to state in clear terms
that the decision is confined to the facts of the case and may
not be treated as an authority on aspects which have been
E decided for general application”
17. Further, upholding the dictum laid down in Radhasoami (supra),
in case of Bharat Sanchar Nigam Limited and Anr. v. Union of
India and Ors., (2006) 3 SCC 1, this Court has held that if facts and
law in a subsequent assessment year are the same, no authority whether
F quasi-judicial or judicial can generally be permitted to take a different
view in following words:
“20. The decisions cited have uniformly held that res judicata
does not apply in matters pertaining to tax for different
assessment years because res judicata applies to debar courts
G from entertaining issues on the same cause of action whereas
the cause of action for each assessment year is distinct. The
courts will generally adopt an earlier pronouncement of the
law or a conclusion of fact unless there is a new ground urged
or a material change in the factual position. The reason why
the courts have held parties to the opinion expressed in a
H decision in one assessment year to the same opinion in a
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subsequent year is not because of any principle of res judicata A
but because of the theory of precedent or the precedential
value of the earlier pronouncement. Where facts and law in a
subsequent assessment year are the same, no authority whether
quasi-judicial or judicial can generally be permitted to take
a different view. This mandate is subject only to the usual
B
gateways of distinguishing the earlier decision or where the
earlier decision is per incuriam. However, these are fetters
only on a coordinate Bench which, failing the possibility of
availing of either of these gateways, may yet differ with the
view expressed and refer the matter to a Bench of superior
strength or in some cases to a Bench of superior jurisdiction.” C
18. In view of the foregoing discussion, in my considered opinion
the order passed by the High Court is without considering the perspective
and scope of issuance of the certificate for deduction of tax at lower
rate or no deduction at tax and also without following the prescribed
procedure. The High Court has wrongly distinguished the previous D
judgement dated 09.05.2017 on the premises which is not tenable, and
relied upon undertaking dated 22.06.2019 of appellant submitted perforce.
After due consideration in my view High Court has committed error in
dismissing the writ petition; therefore, I am unable to concur the opinion
of the esteemed sister Judge.
E
19. During hearing, it is said that against the previous judgment of
Delhi High Court dated 29.01.2016 C.A. No.8761/2016 is pending, which
relates to assessment orders pertaining to financial years 2007-2008 to
2009-2010, but it cannot be connected to the issue of certificate under
Section 197(1) of the IT Act for the year 2019-2020. The other judgment
of Delhi High Court dated 09.05.2017 directly deals the issuance of the F
certificate under Section 197(1) of the IT Act. For the reasons mentioned
in detail I endorse the view taken by Delhi High Court as correct and
plausible view. Thus, it is made clear here that the TDS certificate granted
under Section 197 (1) shall be provisional subject to the assessment of
the returned income. G
20. In view of the foregoing, the appeal filed by the appellant is
hereby allowed setting aside the order of the High Court with a direction
to the respondent to reconsider the application of the appellant and issue
certificate following the prescribed procedure.
H
262 SUPREME COURT REPORTS [2022] 17 S.C.R.

A 21. Resultantly, this appeal is hereby allowed to the extent indicated
hereinabove.
ORDER
Leave granted.
B In view of the difference of opinion between us, the Registry is
directed to place the matter before Hon’ble the Chief Justice of India so
that an appropriate Bench could be constituted to hear the matter.

Divya Pandey and Amarendra Kumar Matter to be placed before Hon’ble CJI for
(Assisted by : Rituja Choukesy, LCRA) constitution of appropriate Bench.
C

D

E

F

G

H