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Judgment
K. Raviraja Pandian, J.—The Revenue filed this appeal questioning the correctness of the order passed by the Tribunal in I.T.A.No.
573/Mds/1999 dismissing the appeal filed by the Revenue on the ground that COD approval has not been obtained, however, giving liberty to the
Department to recall the order of the Tribunal after obtaining the COD approval by framing the following question of law:
Whether on the facts and in the circumstances of the case, the Income Tax Tribunal is right in law in holding that COD clearance is necessary for
entertaining an appeal filed by M/s.Combustion Engineering Inc., (USA) which is not a government department?
Whether on the facts and in the circumstances of the case, the Income Tax Tribunal is right in holding that the assessee being represented by
their agent BHEL Trichy, they should also obtained COD clearance, especially lwhen the assessee is not a Government department?
Whether on the facts and in the circumstances of the case, the Income Tax Tribunal is right in holding that COD clearance is necessary
especially when the agent namely BHEL only represents the foreign collaborator
The material facts, which are necessary for resolution of the questions of law, are as follows:
The assessee Combustion Engineering Inc.,U.S.A., entered into an agreement with Bharat Heavy Electricals Limited, Trichy for manufacture of
high pressure boilers required for thermal power generation. M/s.Bharat Heavy Electricals Limited, a public sector undertaking representing the
assessee - foreign company being their collaborators filed return for the assessment year 1984-85 in the representative capacity on 30.06.1984
admitting an income of Rs.2,09,27,650/-. During the previous year, BHEL paid the assessee M/s.Combustion Engineering Incorporation (USA)
Rs.1,24,29,628/- as payment for supply of technical documentation/know-how and other services rendered in USA. The assessing officer taxed
the above receipts at 50% and 70% for the assessment year 1983-84 and 1984-85 respectively.
Aggrieved by the same, appeals were filed by the assessee before the Commissioner of Income Tax (Appeals) who allowed the appeals. The
Department filed appeal before the Income Tax Tribunal and the Tribunal upheld the income of Rs.61,01,250/- being the fees for special
engineering services to BHEL Trichy in pursuance of an agreement approved by the Government of India on 27.9.1983 though the agreement was
dated 16.8.1982. The Tribunal in its earlier order had held that the income was correctly returned by the assessee for the assessment year 1984-
However, the assessee''s agent BHEL, Trichy by letter dated 5.8.1994 had stated that the sum of Rs.6,01,250/- was not included in the
income of the assessee returned for the assessment year 1984-85. Thus the assessing officer had reason to believe that there was failure to admit
the income chargeable to tax and such income had escaped assessment for the assessment year 1984-85. Hence, notice u/s 148 was served on
the assessee after obtaining approval from the Commissioner of Income Tax. Pursuant to the notice issued, a return of income was filed on
27.4.1995 by the assessee. Thereafter notice u/s 143(2) was served and the assessment was finalised including the said amount. Thereafter an
order u/s 154 dated 10.09.1998 was passed stating that as sum of Rs.16,05,693/- was the balance tax payable, but due to typographical mistake
it was indicated as ''balance refundable''. Aggrieved by the same, the assessee filed appeal before the CIT Appeals, who allowed the appeal. The
Department filed appeal before the Tribunal, which dismissed the appeal on the ground that COD clearance was not obtained, without going into
the merits of the case. The correctness of the said order is put in issue before this Court in this appeal by formulating the questions of law extracted
above.
The learned Counsel appearing for the Revenue submitted that the assessee in this case is M/s.Combustion Engineering Incorporation (USA).
The Bharat Heavy Electricals Limited is only a representative assessee, the same is evident from the Income tax Assessment order dated
21.10.1986, where the BHEL was shown as a representative assessee. The position is equally evident from the Commissioner''s order and other
subsequent proceedings dated 10.09.1998 initiated u/s 154 of the Income Tax Act. Hence, it is beyond any iota of doubt that M/s.Combustion
Engineering Incorporation (USA) is only an assessee and BHEL is a representative assessee of their collaborator. The treatment of the amount
paid by BHEL to M/s.Combustion Engineering Incorporation (USA), is the dispute in issue in this case. Hence the Tribunal ought to have
considered the issue on merits without shirking the responsibility on the ground that COD had not been obtained. The COD approval is essential
only for a dispute between the Government of India undertaking as against the Government, etc. Here the dispute is not pertaining to the
assessment order made of the agent BHEL. Hence, in respect of the dispute between M/s.Combustion Engineering Incorporation and the
Revenue, the COD certificate is not essential. He relied on the following decisions.
(1) Mahanagar Telephone Nigam Ltd. Vs. Chairman, Central Board, Direct Taxes and Another, ,
(2) Union of India (UOI) and Another Vs. Union of India (UOI) and Others,
However, the learned Counsel appearing for the assessee submitted that the representative assessee is deemed to be the assessee in all
respects. Hence COD certificate is essential as directed by the Supreme Court in the case of Oil and Natural Gas Commission and Anr. v.
Collector of Central Excise reported in 1995 Supp (4) SCC 541. Hence the order of the Tribunal dismissing the appeal cannot be complained of.
He further contended that order of the Tribunal cannot be regarded as prejudicial to the revenue as the Tribunal has given liberty to recall the order
on obtaining the certificate from the appropriate authority for filing an appeal.
We have heard the arguments of the learned Counsel on either side and perused the material on record.
On perusal of the order of the Tribunal, we are of the view that the Tribunal has disposed of the appeal filed by the revenue for the purpose of
disposal only, which is evident from the following:
This appeal by the Revenue relates to the assessment 1984-85. It arose out of the order of the learned CIT(A) XI, Chennai dated 22.01.1999.
After several opportunities, the Department could not clarify the details and lost the opportunities several times given to the Department.
While stating the case, the learned Counsel for the assessee submitted that the assessee''s appeals were dismissed by the Tribunal in ITA
Nos.185 &186/Mds/05 order dated 20.10.2006 on the ground that the COD approval was not obtained. This assessee also represents Bharat
Heavy Electrical Limited, Trichy. So applying the same ratio and in the absence of COD approval, keeping the file pending for long will not serve
any purpose. Hence, we are dismissing the appeal of the Revenue for want of COD approval. It is further clarified that the Department has the
liberty to recall this order of the Tribunal after obtaining the COD approval.
From the facts narrated above, it is clear that the assessee is M/s.Combustion Engineering Inc. (USA). The Bharat Heavy Electricals Limited,
Trichy, a Government of India undertaking is only its agent represented the assessee M/s.Combustion Engineering Inc. (USA) as a representative
assessee. As per Section 160(1)(i), for the purpose of Income Tax Act, in respect of the income of a non-resident specified in Sub-section (1) of
Section 9, the agent of the non-resident, including a person who is treated as an agent u/s 163 of the Act would be regarded as representative
assessee. The agent in relation to non-resident includes any person in India, who has any business connection with the non-resident as per Section
163(1) of the Income Tax Act.
Thus, the Bharat Heavy Electricals Limited, Trichy, which is having a business connection with the assessee Combustion Engineering Inc.
(USA), is only an agent to the non-resident assessee for the purpose of assessment under the Income Tax Act. To put it otherwise, in the case on
hand, the assessee is M/s.Combustion Engineering Inc. (USA). The assessment and other proceedings have been made in the name of the
assessee M/s.Combustion Engineering Inc. (USA). Appeals have been filed by the assessee represented by agent Bharat Heavy Electricals
Limited. It is also pertinent to state here that the Income Tax Act defines public sector company to mean any corporation established by or under
any Central, State or Provincial Act or a Government company as defined in Section 617 of the Companies Act, 1956 (1 of 1956) u/s 2(36A).
Now, let us consider whether the COD approval is necessary to entertain a case filed by the Revenue against the assessee M/s.Combustion
Engineering Inc. (USA). In this context, it is useful to extract here the relevant paragraphs of Oil and Natural Gas Commission v. Collector of
Central Excise (1995) Supp 4 SCC 541, which reads thus:
We direct that, the Government of India shall set up a Com-mittee consisting of representatives from the Ministry of Industry, the Bureau of
Public Enterprises and the Ministry of Law, to monitor disputes between Ministry and Ministry of the Government of India, Ministry and public
sector undertakings of the Government of India and public sector undertakings in between themselves, to ensure that no litigation comes to court or
to a Tribunal without the matter having been first examined by the Committee and its clearance for litigation. The Government may include a
representative of the Ministry concerned in a specific case and one from the Ministry of Finance in the Committee. Senior officers only should be
nominated so that the Committee would function with status, control and discipline.
It shall be the obligation of every court and every Tribunal where such a dispute is raised hereafter to demand a clearance from the Committee in
case it has not been so pleaded and in the absence of the clearance, the proceedings would not be proceeded with.
In Mahanagar Telephone Nigam Ltd. Vs. Chairman, Central Board, Direct Taxes and Another, , a notice of reassessment u/s 148 of the
Income Tax Act, 1961, for the assessment year 1994-95 was issued against the appellant therein, a public sector company, the matter was
referred to the High Powered Committee formed by the Government of India pursuant to the order of the Supreme Court, from which clearance
had to be obtained for litigation by Government Departments or public sector bodies. The Committee resolved that since the appellant was
contemplating a writ petition against a show cause notice the appellant was advised to await the appealable order and accordingly did not permit
the contemplated litigation. The appellant, however, filed a writ petition challenging the notice and the High Court dismissed the same on the merits.
On appeal, the Supreme Court held that as the High Powered Committee had not given clearance to the appellant, the proceedings could not be
proceeded with. The High Court was wrong in dealing with the merits of the matter.
In Union of India (UOI) and Another Vs. Union of India (UOI) and Others, , when the two Departments of Union of India, Railway and Finance
brought out a litigation, the Allahabad High Court after referring the judgment of Supreme Court in Oil and Natural Gas Commission v. Collector
of Clkentral Excise (1995) Supp (4) SCC 541 and Chief Conservator of Forests, Govt. of A.P. Vs. The Collector and Others, held that it was
mandatory obligation of every court and every Tribunal to demand a clearance from the Committee in case it has not been so pleaded and in the
absence of the clearance, the proceedings would not be proceeded with. The reason for such direction was also amplified in the judgment of the
Supreme Court in Chief Conservator of Forests, Govt. of A.P. Vs. The Collector and Others, in the following manner:
The facts of this appeal, noticed above, make out a strong case that there is a felt need of setting up of similar committees by the State
Government also to resolve the controversy arising between various departments of the State or the State and any of its undertakings. It would be
appropriate for the State Governments to set up a committee consisting of the Chief Secretary of the State, the Secretaries of the departments
concerned, the Secretary of Law and where financial commitments are involved, the Secretary of Finance. The decision taken by such a committee
shall be binding on all the departments concerned and shall be the stand of the Government.
Now, reverting to the facts of the case on hand, we are of the view that after the said statutory order of the Commissioner of Survey,
Settlement and Land Records, the matter should have rested there. We have, therefore, no hesitation in coming to the conclusion that it was not
only inappropriate but also illegal for the Chief Conservator of Forests, though he might have done so in all good faith, to have questioned the
order of the Commissioner of Survey, Settlement and Land Records before the High Court of Andhra Pradesh in Writ Petition (C) No. 3414 of
1982. The Chief Conservator of Forests as the petitioner can neither be treated as the State of Andhra Pradesh nor can it be a case of
misdescription of the State of Andhra Pradesh. The fact is that the State of Andhra Pradesh was not the petitioner. Therefore, the writ petition was
not maintainable in law. The High Court, had it deemed fit so to do, would have added the State of Andhra Pradesh as a party; however, it
proceeded, in our view erroneously, as if the State of Andhra Pradesh was the petitioner which, as a matter of fact, was not the case and could not
have been treated as such. As the writ petition itself was not maintainable, it follows as a corollary that the appeal by the Chief Conservator of
Forests is also not maintainable. We are unable to accept the contention of Ms.Amareswari that merely because the officer concerned had
obtained the permission of the Government to file an appeal, which is not placed before us, the writ petition and the appeal should be treated as an
appeal by the Government of Andhra Pradesh. The permission granted to the authority concerned might be a permission to file an appeal which
cannot reasonably be construed as authorisation to file the appeal in his own name, contrary to law. It could only be a permission to file the appeal
in the name of the State of Andhra Pradesh in accordance with the provisions of the Constitution and the Civil Procedure Code. We may also
record that in spite of the pattedars taking objection to that effect at the earliest, no steps were taken to substitute or implead the State of Andhra
Pradesh in the writ petition in the High Court or in the appeal in this Court.
As could be seen from the above rulings, clearance from the Committee constituted pursuant to the direction of the Supreme Court is
necessary only when there exists a dispute between the Ministry and Ministry of Government of India, Ministry and Public sector undertakings of
the Government of India and public sector undertakings in between themselves. The assessee, a non-resident cannot by any stretch of imagination
be considered as a public sector undertaking with reference to the definition u/s 2(36A). Likewise, the requirement cannot be extended to cases
where an assessee is represented by a public sector undertaking as an agent to them. Of course, it might be correct on the part of the Tribunal to
dismiss the appeal filed by the revenue against Bharat Heavy Electricals Limited, a public sector undertaking in I.T.A.Nos.185 and 186/Madras/05
on the ground that the COD approval was not obtained. But the appeal filed by the revenue against the assessee, a non-resident, who is
represented by an agent, a public sector undertaking, pursuant to an agreement entered into for certain business connection, cannot by any stretch
of imagination be regarded as a public sector undertaking. The order of the Tribunal disposing the appeal non-suiting the revenue to prosecute
further on the ground that COD approval was not obtained is nothing but misconception of the direction of the Supreme Court in ONGC case
referred above.
In the light of the above discussion, all the questions of law have been answered in favour of the revenue and the appeal is allowed and the
order of the Tribunal is set aside with a direction to restore the appeal on file and dispose it off on merits.