$~34
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Date of decision: 17.07.2018
+ W.P.(C) 7216/2018
THE COMMISSIONER OF INCOME TAX ..... Petitioner
Through: Mr. Zoheb Hossain, Sr. Standing
Counsel with Mr. Deepak Anand, Jr.
Standing Counsel for Revenue.
versus
STEAG ENERGY SERVICES GMBH ..... Respondent
Through: Mr. Deepak Chopra, Mr. Harpreet
Singh Ajmani and Mr. Rohan Khare,
Advocates.
CORAM:
HON'BLE MR. JUSTICE S. RAVINDRA BHAT
HON'BLE MR. JUSTICE A.K. CHAWLA
HON'BLE MR. JUSTICE S. RAVINDRA BHAT (ORAL)
%
The Revenue's writ petition challenges the order of the
Settlement Commission dated 26.10.2017 made for the Assessment
Year (A.Y.) 2009-10 to 2014-15.
2. The respondent is headquartered in Essen in Germany it is the
Engineering and Nuclear Technology Division of STEAG GmbH,
which provides professional and specialised energy services in
Germany and elsewhere. It has a wholly owned subsidiary in India
i.e. M/s STEAG Energy Services (India) Pvt. Ltd. (hereinafter
W.P.(C) 7216/2018 Page 1 of 5
"SESI") set up in 2001 to provide cost-effective consultancy services
by integrating resources of its parent company and those of SESI units
in India. It entered into an operation and maintenance (O&M)
contract with HPL Cogeneration Limited (HPLCL) on 30.06.2006 for
operation and maintenance in Engineering support for the 116 MW
Combined Cycle Cogeneration Power Plant at Haldia, West Bengal.
As per the contract, the SESI had to operate and maintain the plant on
behalf of HPLCL. For that activity, SESI sub-contracted a part of the
contract to the respondent on 01.09.2006; the latter deputed the three
personnel to work at the plant site for the period of 3½ years i.e. from
September, 2006 to April, 2010. In relation to this arrangement the
engineering and technical services were rendered by the respondent to
SESI. A survey was conducted on 04.01.2016 under Section 133A of
the Income Tax Act of the respondent in its office at NOIDA, U.P. As
a consequence of the survey, the respondent applied under Section
245C(1) of the Act for the period in question (A.Y. 2009-10 to 2014-
15).
3. An order was made under Section 245D(2C) of the Act and the
Commissioner of Income Tax furnished a report under Rule 9 of the
Income Tax Settlement Commission Rules. After considering the
materials on record, the Settlement Commission rendered its findings.
The issues which it dealt with concerned (i) the existence of a
permanent establishment; (ii) the TDS on payment of salary, wages
etc.; (iii) royalty for supply of software and (iv) Transfer Pricing
issues (reference to Transfer Pricing Officer, Adjustments made in
W.P.(C) 7216/2018 Page 2 of 5
respect of reimbursements, delay in receivables from Associated
Enterprises and fee for technical services (FTS) that was offered by
the assessee.
4. The final order which is impugned in this case held the
assessee/petitioner liable to pay for a total income of `53,75,27,974/-.
The Commission had made an addition of `59,38,707/- upon an
additional income of `53,15,89,267/- offered by the assessee/
petitioner.
5. The Revenue urges that the Settlement Commission's order
impugned in the present petition was unsustainable on two grounds;
firstly, as the respondent had violated the provisions of Section
40a(iii) of the Act since it was not paid within the time the additions
needed to be made; secondly, the question of royalty, which according
to the Revenue was erroneously held against the Revenue and in
favour of the assessee given the true meaning of the term under
Explanation 2 to Section 9(1)(vi) of the Act. It was lastly contended
that the Settlement Commission also fell into error in permitting the
assessee to exclude adjustments in respect of Jharsuguda project,
Orissa (for A.Y. 2010-11 to 2013-14).
6. So far as the first two issues i.e. the question with respect to
TDS and the payment of royalty (on software) goes, this Court notices
at the outset that the findings of the Settlement Commission fully
accord with the law declared by this Court in ANZ Grindlays Bank vs.
DCIT; 382 ITR 156 (Del) and with DIT vs. Infrasoft Ltd., 220
W.P.(C) 7216/2018 Page 3 of 5
Taxman 273 as far as the second issue urged with respect to royalty on
software is concerned.
7. On the third issue i.e. exclusion of the outstanding receivable of
the Jharsuguda project, this is what the Settlement Commission had to
say:-
"We have considered the submissions made by the A.R
and find considerable force in the argument that at least
on account of outstanding receivables of Jharusugoda
project there is absolutely no case for an adjustment as
the applicant has already shown super-normal profits of
500%. We are therefore of the view that no adjustment is
warranted on account of outstanding receivables in the
case of Jharsugoda project for A.Y. 2010-11 to 2013-
14..................................................................."
8. The Revenue's complaint is that even whilst the assessee
conceded that without prejudice to its contentions it was open to
adjustments in respect of the receivables the exclusion of Jharsugoda
project only on the ground that in that unit it had reflected "super -
normal profits of 500%" is entirely without logic or rati onale. It is
submitted that the question of accepting such reasoning is contrary to
the spirit of the provisions of the Income Tax Act. Having agreed to
the adjustments, the mere fact that in the Jharsugoda project the
assessee had reflected substantive profits which were offered by it to
tax did not mean that the adjustments in that regard ought not to have
been gone into.
W.P.(C) 7216/2018 Page 4 of 5
9. This Court notices, at the outset, that out of the three errors
sought to be highlighted two issues are covered by the previous
decisions of the Court - against the Revenue. As far as the third issue
i.e. the exclusion of adjustments in respect of Jharsugoda project goes,
the matter is factored. The case law as to the scope of the Court's
remit under Article 226 of the Constitution of India while dealing with
the orders of the Settlement Commission are categorical, it is only in
the case where there is manifest and egregious findings of law that are
erroneous; which call for interference. The other grounds on which
the Court is permitted to interfere with the Settlement Commission's
findings are non-application of mind or lack of bona fides, or as
emphasised in ,,CIT, Mumbai vs. Anjum M.H. Ghaswala, (2001) 252
ITR 1 (SC) and ,,Brij Lal & Others vs. Commissioner of Income Tax,
(2011) 1 SCC 1 where no true and full disclosure was made by the
assessee.
10. In the opinion of this Court none of these vitiating factors have
been disclosed by the Revenue calling for interference with the
Settlement Commission's order impugned in the presen t case.
Consequently, the petition has to fail and is accordingly dismissed.
S. RAVINDRA BHAT, J
A. K. CHAWLA, J
JULY 17, 2018
nn
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