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* IN THE HIGH COURT OF DELHI AT NEW DELHI
7
+ W.P.(C) 5423/2016
PIONEER OVERSEAS CORPORATION USA
(INDIA BRANCH) ..... Petitioner
Through: Mr. Ajay Vohra, Senior Advocate with
Ms. Kavita Jha and Ms. Mehak Gupta, Advocates.
versus
COMMISSIONER OF INCOME TAX (INTERNATIONAL
TAXATION)- 2 DELHI ..... Respondent
Through: Mr. Dileep Shivpuri, Senior standing
counsel with Mr. Sanjay Kumar, Junior Standing
counsel.
CORAM:
JUSTICE S. MURALIDHAR
JUSTICE CHANDER SHEKHAR
ORDER
% 17.05.2017
Dr. S. Muralidhar, J.:
1. This is a writ petition by M/s. Pioneer Overseas Corporation USA,
seeking a direction to quash the impugned order dated 6 th May 2016 passed
by the Respondent, Commissioner of Income Tax (International Taxation)
2, Delhi (,,CIT) whereby the application filed by the Petitioner for waiver of
interest under Section 220 (2) of the Income Tax Act, 1961 (,,Act) was
rejected on the ground that the Petitioner failed to meet the very first
condition laid down in Section 220 (2A) of the Act viz., that it failed to
show that it had suffered ,,genuine hardship.
W.P. (C) 5423/2016 Page 1 of 7
2. The background facts are that the Petitioner is the branch office of
Pioneer Overseas Corporation, United States of America (,,POC US) . The
Petitioner is engaged in Contract Research Activities and cultivation of
parent seeds. Since the Petitioner has been regularly filing its returns of
income. Since the Assessment Year (,,AY) 1993-94, it has been claiming
exemption by treating its entire income as agricultural income in terms of
Section 10 (1) read with Section 2 (1A) of the Act. It is stated that this claim
was accepted by the Department for the said AY as well as for the
succeeding AYs 1994-95, 1995-96 and 1996-97.
3. While concluding the assessment for the AY 1997-98 and onwards, the
Assessing Officer (,,AO) treated the entire income of the Assessee as
,,business income. The AO attributed the deemed income from research
activity holding the Petitioner to be a Permanent Establishment (,,PE) of
POC US carrying on research activity in India.
4. The appeal filed by the Petitioner against the aforementioned assessment
order was partly allowed by the Commissioner of Income Tax (Appeals)
[CIT (A)] by deleting 50% of the addition made by the AO on account of
estimated attribution of income holding inter alia that only that much profit
could be attributed to the PE which was derived from the assets and
activities of the PE in India.
5. In the further appeal filed by the Petitioner, the Income Tax Appellate
Authority (,,ITAT) for the AYs 1997-98 to 2001-02 held by its orders dated
30th November 2009 and 24th December 2009 that only 10% of income was,
W.P. (C) 5423/2016 Page 2 of 7
therefore, to be treated as agricultural income and the balance was to be
taxed as ,,business income. On the issue of at tribution of income on account
of research activity carried out by the Petitioner, the ITAT remanded the
matter to the AO for attribution of profits based on the transfer pricing
method employed by the AO in subsequent AYs 2002-03 to 2006-07.
6. In the remand proceedings, the AO attributed reimbursed cost plus mark-
up of 17% as appropriate arms length price for the research services
provided by the Petitioner to POC US for the AYs 1997-98 to 2001-02. In
the year 2005 POC US invoked the Mutual Agreement Procedure (,,MAP)
under Article 27 of the India-US Double Taxation Avoidance Agreement
(,,DTAA) and sought resolution of the tax matters pertaining to the
Petitioner. Consequent upon negotiations between the Competent
Authorities of the two countries , an agreement was concluded with respect
to allocation of taxing rights qua the income taxable in India in the hands of
the Petitioner branch (PE) and setting off of the taxes paid in India by the
Petitioner against the taxes payable in the US by POC US. On this basis, the
assessment for AYs 1997-98 to 2006-07 were finalized and taxes along with
interest were paid by the Petitioner under Section 220 of the Act.
7. By a letter dated 10th August 2011, the MAP ruling was finalized by the
US authorities by providing tax credit in USA to the Petitioner for the tax
assessed in India on 90% of income held to be business income. The relief
was granted on double taxation in the US tax years corresponding to the
Indian assessment years under consideration.
8. On 26th December 2011, the Petitioner filed an application before the CIT
W.P. (C) 5423/2016 Page 3 of 7
under Section 220 (2A) of the Act for waiver of interest levied under Section
220 (2) of the Act. This was followed by a letter dated 27 th April 2012
wherein the Petitioner reiterated its request.
9. By the impugned order dated 6th May 2016, the CIT dismissed the
aforementioned application on the ground that no genuine hardship had been
caused to the Petitioner.
10. This Court has heard the submissions of Mr. Ajay Vohra, learned Senior
counsel for the Petitioner and Mr. Dileep Shivpuri, learned Senior standing
counsel for the Respondent.
11. Mr. Vohra first submitted that the reasons that weighed with the CIT for
declining the relief to the Petitioner were based on the misconception that
the mere fact that the Petitioner was part of the global conglomerate
,,DuPont, which made humongous profits in billions of dollars meant that it
did not suffer any ,,genuine hardship. Referring to the decision of the
Supreme Court in B.M. Malani v. Commissioner of Income Tax (2008) 306
ITR 196 (SC), Mr. Vohra submitted that "a genuine hardship would, inter
alia, mean a genuine difficulty. That per se would not lead to a conclusion
that a person having large assets would never be in difficulty as he can sell
those assets and pay the amount of interest levied." Mr. Vohra has also
relied on the decision of the High Court of Kerala in Commonwealth Trust
(India) Limited v. Deputy Commissioner of Income-tax (Assessment),
Special Branch, Calicut (2006) 280 ITR 70 (Ker.) to urge that "whether the
non-payment of the tax is due to circumstances beyond the control of the
Assessee and whether the payment of interest would cause genuine hardship
W.P. (C) 5423/2016 Page 4 of 7
have to be analyzed and appreciated taking into account various other
factors also, some of which are indicated above, regarding the accumulated
loss, liability to other statutory bodies, the conduct of the parties, the nature
of the transaction, the financial position etc."
12. Mr. Vohra referred to Instruction No. 2 dated 28 th April 2003 issued by
the Director (FTD), which inter alia provided that in the context of the
Memorandum of Understanding between India and USA regarding
suspension of collection during the course of pendency of the MAP, the
collection of outstanding taxes in case of taxpayers, who were residents of
USA and whose request under the MAP was under consideration of the
Competent Authorities, shall be kept in abeyance subject to the Assessee
furnishing a bank guarantee of an amount equal to the amount of tax under
dispute and interest accruing thereon as per the provisions of the Act.
13. Mr. Vohra pointed out that all the three conditions under Section 220
(2A) of the Act stood satisfied in the present case, viz., (i) that the payment
of interest under Section 220 (2) of the Act would cause genuine hardship;
(ii) the default in the payment of the amount on which interest was paid or
payable was due to circumstances beyond the Petitioners control; and (iii)
the Petitioner cooperated in any inquiry relating to the assessment or any
proceeding for recovery of the amount due from it. With the Petitioner
having paid interest, there was no bar to the CIT considering application on
its merits in accordance with law.
14. Mr Vohra referred to the decision in K.L. Jaiswal v. Wealth-Tax Officer
(1996) 221 ITR 426 (MP), where is was explained that the words ,,genuine
W.P. (C) 5423/2016 Page 5 of 7
hardship cannot be construed only as financial hardship but would include
other forms of hardships in the facts and circumstances of a case. Further,
the long period when the negotiations were in progress i.e., nearly the six
years was not on account of any default of the Petitioner. Furthermore, the
disputed demand during such period was covered by bank guarantee in
terms of the Instruction No. 2 dated 28th April 2003. It is stated that the
amount of interest levied under Section 220 (2) of the Act was exceptionally
high as it constituted approximately 50% of the total taxable income for
some of the relevant AYs.
15. Having considered the respective submissions, the Court is not
persuaded to hold that any error was committed by the CIT in rejecting the
Petitioners request for waiver of interest under Section 220 (2) of the Act.
Under Section 220 (2A) of the Act, the three conditions that are required to
be satisfied are (i) payment of the amount towards interest under Section
220 (2A) of the Act should cause the Assessee ,,genuine hardship (ii)
default in the payment of the amount should be due to circumstances beyond
the control of the Assessee; and (iii) the Assessee should have cooperated in
the proceedings for recovery of the amount.
16. What was urged before the CIT and was reiterated by Mr. Vohra in this
Court was that interest under Section 220 (2) of the Act was paid besides
incurring costs on maintaining a bank guarantee was more than 1.5 times of
the tax amount. As rightly noted by the CIT, the mere fact that the interest
was 1.5 times the tax by itself does not have any relevance for determining
whether the Assessee was suffering from any ,,genuine hardship.
W.P. (C) 5423/2016 Page 6 of 7
17. The fact that the Assessee is a part of ,,DuPont, a global conglomerate
which had in 2011 $37.96 billion in net sales and $6.253 billion as operating
profit , cannot be said to be an irrelevant factor in considering whether any
,,genuine hardship was undergone by the Petitioner. Further, in comparison
to the profitability of the Petitioner over the years, the amount paid by it
towards interest under Section 220 (2) of the Act was merely $0.004 billion
(approx). In the circumstances, the conclusion arrived at by the CIT that no
,,genuine hardship can be said to have been caused to the Petitioner cannot
be said to be an erroneous exercise of discretion by the CIT. It was a
plausible view to take and does not call for interference by this Court in
exercise of its extraordinary jurisdiction under Article 226 of the
Constitution.
18. For the aforesaid reasons, the writ petition is dismissed but, in the
circumstances of the case, with no orders as to costs.
S.MURALIDHAR, J
CHANDER SHEKHAR, J
MAY 17, 2017
Rm
W.P. (C) 5423/2016 Page 7 of 7
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