GIA India Laboratory Private Limited Vs ACIT (International Taxation) (Bombay High Court)
Summary: The Bombay High Court quashed an order dated 20.03.2026 passed under Section 201 of the Income-tax Act, 1961 for AY 2020-21, which treated GIA India Laboratory Private Limited as an assessee in default and raised a demand of Rs.67.56 crore for failure to deduct tax from payments made to its parent company, Gemological Institute of America, Inc. (GIA US). The Department alleged that GIA India constituted a Permanent Establishment of GIA US in India and that the grading and management fees received by GIA US were taxable in India. However, the Tribunal had consistently rejected the existence of a fixed place, service or agency PE, and the Bombay High Court had upheld those findings in CIT Vs Gemological Institute of America Inc. The Court held that the TDS officer acted without authority of law by disregarding binding Tribunal orders merely because the Department had filed appeals. Applying the principle of judicial discipline recognised in Union of India Vs Kamalakshi Finance Corporation Ltd., it reiterated that an appellate order remains binding unless stayed. Relying on GE India Technology Centre (P.) Ltd. Vs CIT, the Court also held that no application under Section 195(2) was required because the income was not chargeable to tax in India. The Section 201 order was accordingly set aside.
Section 201 proceedings cannot be sustained against a payer where the recipient’s income is not chargeable to tax in India and the Tribunal has consistently held that the non-resident recipient has no Permanent Establishment (PE) in India; the Assessing Officer is bound to follow the Tribunal’s decision unless its operation is stayed or reversed by a competent court. Mere pendency of a departmental appeal against the Tribunal’s order does not authorise the Assessing Officer to disregard the binding Tribunal ruling. Further, Section 195(2) has no application where the entire payment is not chargeable to tax in India.
2. Core Citation
GIA India Laboratory Private Limited v. Assistant Commissioner of Income Tax (International Taxation), Circle-2(3)(1), Mumbai & Ors., Writ Petition No. 1917 of 2026, Bombay High Court, order dated 07.09.2026, B.P. Colabawalla and Farhan P. Dubash, JJ. The writ petition challenged the order dated 20.03.2026 passed under Section 201 for AY 2020-21, whereby the petitioner was treated as an assessee in default and a demand of ₹67,56,21,869 was raised.
3. Facts
The petitioner, GIA India Laboratory Private Limited, was engaged in diamond grading and had entered into an agreement with its US parent, Gemological Institute of America Inc. (GIA US), for obtaining diamond grading services. The petitioner made payments towards grading fees, management fees and royalties to GIA US. The fundamental question was whether GIA US had a PE in India and, consequently, whether the amounts received by GIA US from GIA India were chargeable to tax in India under the India-US DTAA. For AY 2010-11, although the AO and DRP had held that GIA India constituted a PE of GIA US, the ITAT reversed the finding and held that GIA US did not have a PE in India and that its grading-fee and management-fee income was not taxable in India. The ITAT consistently followed the same view for subsequent years, including AY 2020-21. The Bombay High Court subsequently upheld the Tribunal’s finding for AY 2010-11 to AY 2017-18.
4. AO / TDS Officer Finding
Despite the consistent Tribunal decisions, the TDS Officer once again passed an order under Section 201 for AY 2020-21 treating GIA India as an assessee in default on the basis that payments made to GIA US were taxable in India and, therefore, tax ought to have been deducted under Section 195. The TDS Officer relied upon the original assessment order and DRP directions in the case of GIA US for AY 2010-11, even though those findings had already been overturned by the ITAT. The Department’s position was essentially that the Tribunal’s decisions need not be followed because appeals had been filed by the Revenue before the High Court.
5. Earlier Proceedings and Binding Nature of Tribunal Order
The Bombay High Court noted that identical Section 201 proceedings against GIA India for AY 2014-15, AY 2016-17, AY 2018-19 and AY 2019-20 had already been quashed. In the earlier proceedings, the Supreme Court had also confirmed the quashing of the Section 201 orders, while remitting the matter to the TDS Officer to proceed in accordance with law after the outcome of the pending proceedings concerning the recipient. The High Court further noted that for AY 2018-19 and AY 2019-20, it had again quashed the Section 201 orders because the facts were identical to the earlier years. Thus, the Department was fully aware of the consistent judicial position concerning the PE of GIA US.
6. ITAT Finding on PE
The underlying ITAT ruling examined all three possible forms of PE under Article 5 of the India-US DTAA. It held that GIA India was an independent and separate legal entity, bearing the relevant business and client-facing risks. The arrangement for forwarding diamonds to GIA US because of capacity, technology or expertise limitations was held to be in the nature of an independent/sub-contracting arrangement and not a joint venture. The ITAT found that GIA India did not constitute a fixed-place PE, service PE or agency PE of GIA US. The Bombay High Court, while considering the Revenue’s appeals, expressly endorsed these factual findings and held that GIA India could not be regarded as a PE of GIA US. The High Court also noted that these findings had not been shown to be perverse or contrary to the record.
7. Bombay High Court Finding on Binding Effect
The Bombay High Court held that the TDS Officer was acting without authority of law in passing an order contrary to the consistent decisions of the Tribunal. The Court specifically observed that it had repeatedly quashed Section 201 proceedings against the same petitioner on this very issue. More importantly, the High Court relied upon the Supreme Court judgment in Union of India v. Kamalakshi Finance Corporation Ltd., which establishes that an Assessing Officer is bound by the decision of the appellate authority. The mere fact that the Department considers the Tribunal’s decision unacceptable, or has challenged it before a higher court, does not permit the lower authority to disregard it unless the operation of the appellate order has been stayed or the order has otherwise ceased to operate.
8. Section 195(2) Finding
The Revenue argued that GIA India ought to have approached the Assessing Officer under Section 195(2) before making payments to GIA US and that, having failed to do so, it was rightly treated as an assessee in default under Section 201. The High Court rejected this contention. It relied upon the Supreme Court judgment in GE India Technology Centre (P.) Ltd. v. CIT, holding that Section 195 applies only where the sum paid to the non-resident is chargeable to tax in India. An application under Section 195(2) is contemplated where the payer accepts that some portion of the payment is taxable but is uncertain regarding the taxable portion or the amount of tax deductible. Where the payment itself is not chargeable to tax in India, there is no requirement to make an application under Section 195(2).
9. Application to the Present Case
The Court held that, in the present case, the Tribunal had already held for AY 2020-21 that GIA US did not have a PE in India and that its grading and management-fee income was not chargeable to tax in India. The facts for AY 2020-21 were admittedly identical to those of the earlier years in which the Section 201 orders had been quashed. Therefore, there was no basis for requiring GIA India to deduct tax under Section 195. Consequently, failure to make an application under Section 195(2) could not make the petitioner an assessee in default under Section 201.
10. Outcome
The writ petition was allowed and the order dated 20.03.2026 passed under Section 201 for AY 2020-21 was quashed and set aside. The petitioner could not be treated as an assessee in default merely because it had not deducted tax from payments to GIA US when the recipient’s income had been held not chargeable to tax in India. The Court also rejected the Revenue’s contention that an application under Section 195(2) was mandatory in such circumstances. The Rule was made absolute and the petition was disposed of without costs. The petitioner undertook to withdraw its appeal before the CIT(A), with the appeal to stand revived if the High Court’s order is subsequently challenged by the Revenue and set aside.
11. Cases Discussed
1. CIT Vs Gemological Institute of America Inc. (Bombay High Court) – GIA India did not constitute a fixed place PE, service PE or agency PE of GIA US under the India–USA DTAA.
2. DIT Vs E-Funds IT Solution Inc. (Delhi High Court), affirmed in ADIT Vs E-Funds IT Solution Inc. (Supreme Court) – A subsidiary does not constitute a PE merely because of ownership or control; the prescribed PE conditions must be independently satisfied.
3. Union of India Vs Kamalakshi Finance Corporation Ltd. [1992 Supp (1) SCC 443] (Supreme Court) – Orders of appellate authorities are binding on subordinate authorities unless their operation has been stayed or suspended by a competent court.
4. GE India Technology Centre (P.) Ltd. Vs CIT [(2010) 327 ITR 456] (Supreme Court) – Section 195 applies only where the payment to a non-resident contains income chargeable to tax in India; Section 195(2) applies where only a portion of the remittance is considered taxable.
FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT
1. Rule. Respondents waive service. With the consent of parties, Rule made returnable forthwith and heard finally.
2. This Petition challenges the impugned order dated 20th March, 2026 passed under Section 201 of the Income Tax Act, 1961 (“the Act”)for the Assessment Year 2020-21 (“A.Y.”),holding the Petitioner to be an Assessee in default and raising a demand of Rs. 67,56,21,869/-.
3. The Petitioner is engaged in the business of grading diamonds. It has entered into a Gem Grading Agreement with its parent company, Gemological Institute of America, Inc. (“GIA US”)as per which it pays fees for diamond grading services to GIA US. Apart from grading fees, management fees and royalties are also paid by the Petitioner to GIA US, from which appropriate taxes, as applicable, are deducted.
4. A question arose in case of GIA US for A.Y. 2010-11 as to whether the Petitioner is a Permanent Establishment (“PE”) of GIA US and, consequently, whether the income of GIA US was chargeable to tax in India. It was held by the Assessing Officer of GIA US that the Petitioner would constitute a PE of GIA US and the business profits were taxable in India under Article 7 of the Double Tax Avoidance Agreement between India and the USA (“the India-US DTAA”).While the Assessing Officer and the Dispute Resolution Panel (“DRP”) in case of GIA US took the view that GIA US had a PE in India, the Tribunal reversed this view and held that GIA US did not have a PE in India. Consequently, GIA US’s income of grading fees and management fees was held not to be taxable in India. The Tribunal has, thereafter, consistently followed this ruling in the Appeals filed by GIA US for the subsequent years, including for the A.Y. 2020-21, and held that GIA US does not have a PE in India and, therefore, its income from grading fees and management fees is not chargeable to tax in India. The Department had filed Appeals before this Court against the Tribunal’s orders, which have been dismissed by this Court vide its order dated 16th June, 2026 for A.Y. 2010-11 to A.Y. 2017-18, wherein it has been held as under:-
“40. Since these are the two issues that need to be decided, we will first focus our attention on the issue whether the GIA India is a PE of GIA US in India, in terms of Article 5 of the India-US DTAA. For the Assessment Year 2011-2012 (and the other Assessment Years which we are considering), the ITAT, on the PE issue, only followed its earlier order passed for A.Y. 2010 2011. It would, therefore, be necessary to see the findings of the ITAT for A.Y. 2010-2011. The ITAT, in its order dated 21st June 2019 (for A.Y. 2010-2011), carefully considered the submissions of the Department as well as those of the Assessee (GIA US) in relation to whether GIA India was a PE of GIA US, in India. The discussion of the ITAT on this aspect can be found in paragraphs 9 to 18. To put it in a nutshell, the ITAT factually found that the transaction of grading services between GIA US and GIA India could not be considered to be in the nature of a joint venture since GIA India had its own independent expertise. It was only due to its technology/capacity constraints that GIA India forwarded stones to GIA US for grading purposes. The ITAT, after examining the facts, came to the conclusion that the arrangement between GIA India and GIA US was not one where each party contributes its share in order to undertake the economic activity which is subject to joint control. In fact, the arrangement was akin to an assignment or sub-contracting of grading services by GIA India to GIA US, whenever GIA India did not have the requisite expertise, technology or capacity for carrying out grading services. The ITAT further noted that the aforesaid arrangement was also accepted as a mere rendering of grading services by the Transfer Pricing Officer, both in the case of GIA India as well as GIA US.
41. With this background in mind, the ITAT first examined whether GIA India can be termed as a “fixed place” PE of GIA US in terms of Article 5(1) of the India-US DTAA. As per Article 5(1), a fixed place PE arose when the foreign entity had a fixed place through which its business was wholly or partly carried on. The ITAT, being the last fact-finding authority, after examining the facts, came to the conclusion that, in the present case, there was no joint venture arrangement between GIA US and GIA India vis-à-vis gem grading services rendered by GIA US to GIA India. To come to this conclusion, ITAT found that GIA India, which enters into an agreement with its client, bears all the risk, including credit risks, client facing risks, etc., and also GIA India bears the risk of loss or damage to articles while in transit to and from GIA US and also during the time when the articles are at or in the facilities of GIA US. Looking at these facts, the ITAT found that the economic risks of gem grading services rendered by GIA US vis-à-vis stones/diamonds of the customers of GIA India were borne by GIA India, and hence there was no joint venture arrangement between GIA US and GIA India. The ITAT also took into consideration the provisions of Article 5(6) of India-US DTAA, which provided that the mere fact that a company has a controlling interest in the other company did not, by itself, without anything more, construe the other company to be its PE. The ITAT therefore found that GIA US does not have a “fixed place” PE in India. To come to this finding, the ITAT also took support of a decision of the Delhi High Court in the case of DIT Vs. E Funds IT Solution [(2014) 364 ITR 256 (Delhi)],and which was affirmed by the Hon’ble Supreme Court in (2017) 399 ITR 34 (SC),where the facts were very similar to the facts in the case before the ITAT.
42. Thereafter, the ITAT also went on to examine whether under Article 5(1) of the India-US DTAA, GIA India can be termed as a “service PE” of GIA US. The ITAT found that a service PE arises only on the furnishing of services in India by GIA US through employees or other personnel, but only if the activities of that nature continue in India for periods aggregating to more than 90 days within any twelve-month period or the services are performed within India for a related enterprise. The ITAT, on examining the facts, came to the conclusion that GIA US renders grading services and management services to GIA India. In fact, two graders who were earlier employed with GIA US, are now employed with GIA India and are on the payroll of GIA India and are working under the control and supervision of GIA India. After examining the facts, the ITAT found that no “service PE” is created in India in terms of Article 5 of the India-US DTAA. In fact, the ITAT once again relied upon the decision of the Delhi High Court in E-Funds IT Solution (supra) where it was held that the two employees deputed to e-Fund India did not create a service PE, as the entire salary cost was borne by e-Fund India, and they were working under the control and supervision of e-Fund India. In the instant case, since the grading services were rendered outside India and none of the employees/personnel of GIA US had visited India, the service PE provisions were not triggered in the present case, was the finding of the ITAT.
43. Thereafter, the ITAT also went on to examine whether an “agency PE” was created in terms of Article 5(4) of the India-US DTAA. The ITAT, after examining such provisions, came to the conclusion that an agency PE is created where a person, other than an agent of an independent status to whom paragraph 5 applies, is acting in India on behalf of an enterprise of the US, then that enterprise shall be deemed to have a permanent establishment in India if:
(a) he has and habitually exercises in India an authority to conclude contracts on behalf of the enterprise, unless his activities are limited to those mentioned in paragraph 3 which, if exercised through a fixed place of business, would not make that fixed place of business a permanent establishment under the provisions of that paragraph;
(b) he has no such authority but habitually maintains in India a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the enterprise, and some additional activities conducted in the State on behalf of the enterprise have contributed to the sale of goods or merchandise; or
(c) he habitually secures those orders in India wholly or almost wholly for the enterprise.
The Tribunal also noted the provisions of Article 5(5), which stipulates that an agency PE excludes any business activity carried out through a broker, general commission agent, or any other agent having an independent status, if such broker, general commission agent, or any other agent having independent status acts in the ordinary course of business. Having examined the provisions of Articles 5(4) and 5(5), the ITAT thereafter applied those provisions to the facts of the present case. The ITAT came to the conclusion that GIA India is an independent and separate legal entity in India, which is engaged in rendering grading services. Further, considering the functions and the risks assumed by GIA India vis-à-vis its business activities in India, the ITAT found that GIA India is an independent entity which is rendering grading services to its clients in India and bears all the service risks, as well as the client-facing risks vis-à-vis the stones sent to GIA US for grading purposes. In these facts, the ITAT found that GIA India is not acting in India on behalf of GIA US. Further, GIA India does not have any authority to conclude contracts on behalf of the GIA US, and neither has it done so. Further, it has not secured any orders for GIA US in India. Looking at these facts, and also taking into consideration the transfer pricing study report and the fact that the Transfer Pricing Officer has also accepted the functional and risk analysis in the case of GIA India and GIA US, the ITAT came to the conclusion that GIA India cannot be regarded as an “agency PE” of GIA US in India.
44. Before concluding on this issue, the ITAT also noted that a similar query, i.e. why GIA India should not be construed as a PE of GIA US, was raised for A.Y. 2009-2010. However, after considering the detailed response furnished by GIA US (vide its reply dated 2nd November 2012), no addition whatsoever was made, and which fact is evident from the Assessment Order for A.Y. 2009-2010 dated 26th March 2013. The ITAT therefore held that it was all the more incumbent upon the Revenue in A.Y. 2010-2011 to discharge its onus as to why a different stand was being adopted, especially in the face of the facts that the nature and source of the income in question remained the same. On this ground also, the ITAT was not satisfied with the argument of the Revenue that GIA India is a PE of GIA US in India.
45. Having gone through this order in great detail, we find that the ITAT [for A.Y. 2010-2011] has very carefully examined the facts and thereafter come to the conclusion that GIA India is not a PE of GIA US in India. When one looks at the factual finding rendered by the ITAT (which is the last fact-finding authority), we are clearly of the view that in the facts of the present case, GIA India could not be termed as a PE of GIA US in India, as it clearly:
(a) did not have a fixed place of business in India;
(b) was not a service PE as contemplated under Article 5(2)(1); and
(c) was not an agency PE as contemplated under Article 5(4) of the India-US DTAA.
From the facts narrated, it is clear that GIA India was an independent, separate legal entity rendering grading services to its clients upto a particular capacity (at the relevant time upto 1.99 carats). If the stones to be graded were of a higher capacity (more than 1.99 carats), it is only in those circumstances that GIA India would forward those stones for grading purposes to GIA US or to other enterprises of the GIA Group, depending upon the service requirement. These were independent and individual transactions and can never be termed as one which could take the colour of a joint venture arrangement, a service PE or an agency PE as contemplated under Article 5 of the India-US DTAA. This is more so when one takes into consideration that the entire risk in relation to the stones forwarded by GIA India to GIA US on behalf of its own customers was borne entirely by GIA India, and no risk was attached whatsoever to GIA US.
46. Once these are the facts, and it has not even been contended before us, and correctly so, that these factual findings are either perverse or contrary to the record, we are clearly of the view that the questions raised by the Revenue on the PE issue, namely questions (d) to (g), as well as the additional question raised in A.Y. 2017-2018, do not give rise to any substantial question of law requiring an answer by this Court. Hence, questions (d) to (g) reproduced earlier, as well as the additional question raised in A.Y. 2017-2018, also reproduced earlier, are not entertained.”
(Emphasis supplied)
5. Despite the Tribunal having consistently held that GIA US does not have a PE in India, for A.Y. 2014-15 and A.Y. 2016-17, the TDS officer passed orders under Section 201 of the Act treating the Petitioner as an Assessee in default for not deducting tax at source from payments made to GIA US. The said orders were challenged by the Petitioner by filing Writ Petition Nos. 1430 and 1153 of 2021. These Petitions were allowed, and this Court, vide judgment and order dated 2nd February 2022, quashed the orders passed under Section 201. Being dissatisfied, the Revenue carried the matter to the Hon’ble Supreme Court. The Apex Court vide its judgment and order dated 6th December 2022 passed in SLP (C) NO. 19873 of 2022ordered as under:
“Having heard Shri Rupesh Kumar, learned Counsel appearing for the Revenue and Shri Jehangir D. Mistri, learned Senior Advocate appearing on behalf of the assessee and in the facts and circumstances of the case and considering the fact that the liability of the recipient is the subject-matter of Appeal before the High Court and to avoid any further question which may arise on limitation we confirm the impugned judgment and order passed by the High Court quashing and setting aside the order under Section 201 of the Income Tax Act. However, we also direct that the matter be remitted to the Assessing Officer (TDS) at the stage of issuance of show cause notice under Section 201 so that after the decision of the High Court in the pending Appeal, the same can be proceeded further in accordance with law and on merits.”
Thus, by virtue of the decision of this Court and the Apex Court, the orders under Section 201 for the A.Y. 2014-15 and A.Y. 2016-17 were quashed and the matters stood remitted to the Assessing Officer (TDS).
6. On similar lines as A.Y. 2014-15 and A.Y. 2016-17, proceedings under Section 201 of the Act were thereafter initiated against the Petitioner for the A.Y. 2018-19 and A.Y. 2019-20 and orders dated 24th March 2025 were passed under Section 201 holding the Petitioner to be an Assessee in default on the same ground, namely, that the Petitioner was a PE of GIA US. Reliance was placed on the Assessment Order as well as the DRP directions Section in the case of GIA US for the AY. 2010-11 and, even though these orders were overturned by the Tribunal, the Tribunal’s rulings were not followed on the ground that the same have not been accepted by the Department and appeals have been filed before this Court. The Petitioner challenged the said orders before this Court and by an order dated 8th October 2025, this Court quashed them observing:
“11. It is common ground before us that the facts of the case for the present years [A.Y. 2018-19 and A.Y. 2019-20] are identical to the facts of the case for A.Y. 2014-15 and A.Y. 2016-17 and, therefore, the impugned orders cannot survive. Hence, they are quashed and set aside. However, keeping in mind the decision of the Hon’ble Supreme Court, we direct that for A.Y. 2018-19 and A.Y. 2019-20, the matter be remitted to the Assessing Officer (TDS) at the stage of issuance of Show Cause Notice under Section 201 so that after the decision of the High Court in the pending appeal, the same can be proceeded further in accordance with law and on merits, if need be.”
7. Despite this Court having quashed the proceedings under Section 201 for earlier years, proceedings under Section 201 of the Act have once again been initiated against the Petitioner for the A.Y. 2020-21 and an order dated 20th March 2026 has been passed under Section 201 holding the Petitioner to be an Assessee in default on account of its failure to deduct tax from payments made to GIA US. Reliance is placed on the Assessment Order as well as the DRP directions in the case of GIA US for the A.Y. 2010-11 and the Tribunal’s rulings overturning these orders have not been followed on the ground that the same have not been accepted by the Department and Appeals have been filed before this Court.
8. It is in these circumstances that the present Petition has been filed challenging the order dated 20th March 2026 passed under Section 201 of the Act on the ground that the entire basis of the impugned order under Section 201, i.e. that the fees received by GIA US from the Petitioner are taxable in India in the hands of GIA US by virtue of the Petitioner being a PE of GIA US (and hence tax ought to have been deducted at source under Section 195 of the Act), is contrary to the Tribunal’s rulings in the case of GIA US.
9. Mr. Mistri, learned Senior Advocate appearing for the Petitioner, relied on the decisions of this Court in the Petitioner’s own case for A.Y. 2014-15 and A.Y. 2016-17, the decision of the Hon’ble Supreme Court, as well as the decision of this Court for A.Y. 2018-19 and A.Y. 2019-20. He strongly relied on the decision of this Court dated 16th June 2026 (supra) in the case of GIA US holding that the Petitioner cannot be regarded as PE of GIA US in India and submitted that the Court should quash the impugned order, which has been passed in blatant contravention of the Tribunal’s decisions as well as the later decision of this Court. He relied on the decision of the Hon’ble Supreme Court in Union of India vs. Kamalakshi Finance Corporation Ltd. [1992 Supp (1) SCC 443],wherein it has been held that the judgment delivered by the Tribunal is binding on the Assessing Officer and he is bound to follow it in its true letter and spirit. The mere fact that the order of the Appellate Authority is not “acceptable” to the Department, in itself is an objectionable phrase, and merely because the same is the subject matter of an Appeal is no ground for not following the Tribunal’s order, unless its operation has been suspended by a competent Court. He submitted that the Petitioner has filed an Appeal against the impugned order out of abundant caution with a view to save limitation, and without prejudice to the rights and contentions raised in this Petition. He submitted that the Petitioner undertakes to withdraw the Appeal in the event this Petition is allowed.
10. On the other hand, Mr. Subir Kumar, learned Counsel appearing for the Respondent, submitted that the Petitioner ought to have made an Application under Section 195(2) of the Act to the Assessing Officer if it was of the opinion that tax was not required to be deducted at source and, having failed to do so, it had been rightly treated as an Assessee in default. He submitted that if the proceedings under Section 201 are quashed, then, the Department would not have any recourse against the Petitioner in the event the decisions of the Tribunal in GIA US’ case were eventually reversed by the Hon’ble Supreme Court. On an enquiry as to whether the Department had challenged this Court’s judgment dated 16th June 2026 before the Hon’ble Supreme Court, Mr. Kumar stated that to the best of his knowledge, the Department is in the process of challenging the order dated 16th June 2026 passed by this Court.
11. Mr. Mistri, in rejoinder, pointed out that the question of making an Application under Section 195(2) would not arise in the present case since the payments in question were held not to be chargeable to tax in the hands of the recipient, GIA US, by the Tribunal for the very AY 2020-21. He pointed out that attention of the TDS officer was specifically drawn to the Tribunal’s order dated 25th August, 2023 for A.Y. 2020-21 by way of a letter dated 17th March, 2026 in the course of the impugned TDS proceedings. He submitted that if the impugned order is quashed and set aside, no prejudice will be caused to the Respondents even if it is eventually held that the income is chargeable to tax in the hands of GIA US, since the Respondents can then proceed against GIA US and, once dues are recovered from GIA US, there would be no occasion to once again recover the same from the Petitioner by treating it to be an Assessee in default. He, thus, submitted that the present proceedings cannot survive in any view of the matter.
12. We have heard both the sides and have also perused the record with the assistance of the learned Counsel. This Court has repeatedly held that proceedings contrary to the Tribunal’s decisions cannot be taken and, on that footing, the orders passed under Section 201 against this very Petitioner for A.Y. 2014-15, A.Y. 2016-17, A.Y. 2018-19 and A.Y. 2019-20 were quashed. We are of the view that the Assessing Officer (TDS) was acting without authority of law in passing orders contrary to the decisions of the Tribunal, which warrants our interference.
13. It is common ground before us that the facts of the case for the present year [A.Y. 2020-21] are identical to the facts of the case for A.Y. 2014-15, A.Y. 2016-17, A.Y. 2018-19 and A.Y. 2019-20 and, therefore, the impugned order cannot survive. Moreover, as noted earlier, in the Appeals filed by the Department in the case of GIA US for A.Y. 2010-11 to A.Y. 2017-18, this Court has upheld the decision of the Tribunal that the Petitioner does not constitute a PE of GIA US and, therefore, income of GIA US is not chargeable to tax in India. We do not agree with the submissions of Mr. Kumar, that the Petitioner would be an Assessee in default since it did not apply to the Assessing Officer under Section 195(2) of the Act. As rightly pointed out by Mr. Mistri, Section 195 applies when the sum paid to the non-resident is “chargeable to tax in India”. The Hon’ble Supreme Court in GE India Technology Cen. (P.) Ltd. vs. CIT [(2010) 327 ITR 456]has held that Section 195(2) applies when the payer is in no doubt that tax is payable in respect of some part of the amount to be remitted but is not sure as to what should be the portion so taxable or is not sure as to the amount of tax to be deducted, and it is in such a situation that he is required to make an application to the ITO(TDS) for determining the amount. Therefore, there is no question of the Petitioner being liable to deduct tax at source from the payments made by it to GIA US or of treating the Petitioner to be an Assessee in default for failing to deduct tax at source from such payments in the instant case. Accordingly, the impugned order dated 20th March, 2026 passed under Section 201 of the Act for A.Y. 2020-21 is quashed and set aside.
14. Rule is made absolute in the aforesaid terms and the Writ Petition is also disposed of in terms thereof. However, there shall be no order as to costs.
15. In view of this order, Mr. Mistri undertakes that the Appeal filed by the Petitioner will be withdrawn within 2 weeks of this order being uploaded on the High Court website. The said undertaking is accepted. In the event this order is challenged by the Revenue and is set aside, the Appeal filed by the Petitioner before the CIT (A) shall stand revived and thereafter, be heard on merits and in accordance with law.
16. This order will be digitally signed by the Private Secretary/Personal Assistant of this Court. All concerned will act on production by fax or email of a digitally signed copy of this order.
