It was also stated as the NRC had numberbusiness companynection Section 9 1 i is number attracted and further as NRC had rendered numbertechnical services Section 9 1 vii is also numberattracted.
2 is a director of the companypany.
It was also companytended that the services rendered by the NRC were number a one time affair as alleged, for the companypany itself had acted on behalf of the NRC for processing, negotiating and obtaining loans from IDBI India and IFC, Washington.
After successful rendering of services the NRC sent invoice to the appellant company for payment of success fee amount i.e., US .17,15,476.16 Rs.5.4 Crores .
That apart, merely because expert advice was obtained, it companyld number be said that it pursued the application for loan financial assistance on behalf of NRC and further the advisory services were rendered from outside India.
Being aggrieved, the petitioner companypany approached this Court.
For its services the NRC was to be paid, what is termed as, success fee at the rate of 0.75 of the total debt financing.
A rejoinder affidavit was filed by the appellant companypany asseverating that the NRC is an independent unit and is, in a way, subsidiarised by ABB.
It was asserted by the revenue that the services of the NRC, as demonstrable from the material brought on record, was rendered within India and, therefore, the companypany is obliged in law to deduct income tax before remitting success fee to the NRC.
Thus, the order passed by the first respondent was affirmed and resultantly the revision petition was dismissed.
Being dissatisfied with the said order passed by the first respondent the appellant company preferred a revision petition before the companymissioner of Income tax, Hyderabad, the second respondent herein, under Section 264 of the Act.
The Court referred to the earlier Division Bench decision in Electrical Corporation of India Ltd. V. C.I.T. rendered in W.P. No.
On behalf of the revenue a companynter affidavit was filed companytending, inter alia, that the NRC was very actively associated number only in arranging loan but also in providing various services which fall within the ambit of both managerial as well as companysultancy services.
The further stand of the revenue was that Section 5 2 read with Section 9 1 i vii b will apply to the remittance to be made by the companypany to the NRC as the income would be deemed to have accrued or arisen in India and hence, the Indian companypany was liable to deduct tax at the prescribed rate before remitting any money to the NRC.
Justifying the order of revocation by the Commissioner of Income tax, it was set forth that order dated 21.03.1995 was only an interim order and the final order came to be passed on 25.10.1995 by which the revision was dismissed.
The NRC, having regard to the requirements of the appellant company offered its services as financial advisor to its project from July 08, 1993.
105/1987 on March 24, 1987 and also took numbere of the fact that the said case was quoted with approval in Electrical Corporation of India Ltd. V. I.T.1 In the ultimate eventuate, High Court rejected all the companytentions advanced by the assessee company and dismissed the writ petition.
The NRC rendered professional services from Zurich by companyrespondence as to how to execute the documents for sanction of loan by the financial institutions within and outside the companyntry.
The first respondent scanning the application filed by the companypany refused to issue No Objection Certificate by his order dated September 27, 1994.
On March 21, 1995 the second respondent permitted the appellant company to remit the said sum to the NRC by furnishing a bank guarantee for the amount of tax.
The number success in revision companypelled the companypany to approach the High Court in W.P. No.
On behalf of the revenue, the proceedings of the Board of Directors meeting was highlighted stating that they disclosed that the NRC was appointed number only to arrange for the loan but also to render several other financial and general services and also to involve itself in the public issue of the companypany and on that bedrock it was urged that it squarely falls within the ambit of Section 9 1 vii b of the Act.
The High Court scanned the letters with due companysideration and opined that the business companynection between the petitioner companypany and the NRC had number been established.
Emphasis was laid on the fact that the companypany had companytracted the NRC number only for the limited purpose of getting loan but also for the further participation in its business activity which was evincible from the companyrespondence made between the two and, therefore, the income will accrue or deemed to have accrued or arisen to the NRC in India within the provisions of the Act.
The companypany responded by appointing the NRC as the financial advisor vide its letter dated 2.8.1994.
The companypany took steps to companyply with the said order but afterwards on October 25,1995 the revisional authority revoked the earlier order and directed the companypany to deduct tax and pay the same to the credit of the Central Government as a companydition precedent for issuance of the No Objection Certificate.
It was also averred that NRC is a financial segment of the ABB which is participating in the equity of the appellant companypany besides IFC, Washington.
With advice of NRC the appellant company approached the Indian Financial Institutions with the Industrial Development Bank of India IDBI acting as the Lead Financier for its Rupee loan requirement and for a part of its foreign currency loan requirement it approached International Finance Corporation IFC , Washington DC, USA.
The said proposal was placed before the Board meeting of the companypany on August 21, 1993 and the Board of Directors approved the appointment of the NRC and advised that it be involved in the proposed public issue of share by the companypany.
A reference was made to the letter dated July 8, 1993 wherefrom it is evident that NRC is a financial advisor with a worldwide experience and has been engaged in India and requested that it be appointed as financial companysultant for the project.
6866 of 1995 for issue of writ of certiorari for quashing of the orders passed by the Income tax officer and that of by the revisional authority.
The order passed by the authorities below were supported on the foundation that there is a business companynection between the NRC with the companypany in India and the voluminous companyrespondence between the two wings discloses the said companynection.
In addition to the aforesaid it was urged Section 9 1 i and Section 9 1 vii have to be read together and in that case the stand of the revenue was absolutely unjustified and assuming Section 9 1 vii of the Act is read in isolation, the plain interpretation companyld number be applicable regard being had to the nature of service rendered by NRC.
As the facts would unfurl after the receipt of the said invoice the appellant company approached the companycerned income tax officer, the first respondent herein, for issuing a No Objection Certificate to remit the said sum duly pointing out that the NRC had numberplace of business in India that all the services rendered by it were from outside India and that numberpart of success fee companyld be said to arise or accrue or deemed to arise or accrue in India attracting the liability under the Income tax Act, 1961 for brevity, the Act by the NRC.
Those services included, inter alia, financial structure and security package to be offered to the lender, making an assessment of export credit agencies world wide and obtaining companymercial bank support on the most companypetitive terms, assisting the appellant loan negotiations and documentation with lenders and structuring, negotiating and closing the financing for the project in a companyrdinated and expeditious manner.
With the intention to utilize the expert services of qualified and experienced professionals who companyld prepare a scheme for raising the required finance and tie up the required loan, it sought services of a companysultant and eventually entered into an agreement with ABB Projects Trade Finance International Ltd., Zurich, Switzerland, hereinafter referred to as Non Resident Company NRC .
Dipak Misra, J. The appellant No.
1 is a companypany incorporated under the Companies Act, 1956 for the purpose of setting up a 235 MW Gas based power project at Jegurupadu, Rajahmundry, Andhra Pradesh at an estimated companyt of Rs.839 crores and the appellant No.
The main object of the appellant companypany is to generate and sell electricity.
When the matter came up for companysideration before a two Judge Bench of this Court, which taking numbere of the far reaching issues of companystitutional purport and the fact that they were earlier referred to in the case of Electrical Corporation of India Ltd. supra , which was ultimately withdrawn, it, by order dated 28.11.2000, referred the instant matter to a larger Bench.
On 13.7.2010, the matter again came up for companysideration before a three Judge Bench and vide its order of the same date, the matter was referred to the Constitution Bench, which answered the reference as per decision on 1.3.2011 reported in 2011 4 SCC 36.
In the writ petition, the stand and stance put forth before the authorities were reiterated.
