Section 94-A(1) is Constitutional Valid : Madras High Court

Country with whom India has DTAA can be notified as Notified Jurisdictional Area u/s 94A

Brief of the case:

• The Hon’ble Madras High court in the above cited case held that central govt can notify a country as notified jurisdictional area u/s 94A inspite of the fact that there exist a Double Tax Avoidance Agreement provided the DTAA is not serving the intended purpose for which it was entered into. It is because 90(1), which empowers the Central Government to enter into an Agreement with the Government of a foreign country and Section 94A , which empowers the Central Government to specify any country as a notified jurisdictional area.
• It could, at the most, be a conflict between the manner in which, the delegated power conferred under one provision is exercised and a similar power under another provision is exercised.
  

Facts of the case:

• The petitioners entered into an agreement with a company incorporated in the country of and under the laws of Cyprus named as Skyngelor Limited. As per the agreement the petitioners agreed to buy 15,200 equity shares of the face value of INR 10 each and about 21,39,200 compulsorily convertible debentures held by the Cyprus company in Kovai Real Estate Private Limited (Indian company).
• After three months of the execution of the aforesaid Securities Purchase Agreement, the petitioners received independent but identical show cause notices dated 29.1.2015, inviting their attention to Section 94-A(1) of the Income Tax Act, 1961 and the Notification No.86/2013 dated 1.11.2013 and calling upon them to show cause as to why each one of them should not be treated as an assessee in default for non-deduction of tax at source on payments made to Cyprus company warranting the initiation of proceedings under Section 201(1)/201(1A) of the Income Tax Act.
• The petitioners contended that that they would have had an obligation to deduct tax at source, only if there was chargeability of a payment under Section 195. The petitioners claimed that they had in fact purchased the securities at a rate below their face value and that the Cyprus company had in fact suffered a loss. But, overruling the objections, the Income Tax Officer passed three separate orders dated 27.4.2015 under Section 201(1)/201(1A), directing the petitioners to pay tax and interest, as determined. A notice of demand under Section 156 was also issued.
• The petitioners immediately filed statutory appeals under Section 246A of the Act before the Commissioner of Income Tax (Appeals). Simultaneously, the petitioners have come up with the above writ petitions challenging the validity of Section 94-A(1), the Notification dated and press release dated 01.11.2013.
  

Contention of the Assessee: