The expressions 'technical' and 'consultancy' services are not defined in the Income Tax Act and this could result in bitter disputes when domestic companies avail of services of foreign firms. Even the examination of the nature of the contract would not ward off litigation as these terms are elastic and often depend upon the facts. Last week, the Supreme Court delivered a judgment in which an Indian company was denied no objection certificate (NOC) to remit the 'success fee' to a Swiss firm because it did not deduct tax at source. In this case, GVK Industries Ltd vs ITO, the Indian firm sought the services of ABB of Zurich to raise finance from Indian and foreign sources which involved public issue of shares.
After rendering the services, the foreign firm sent invoice to GVK for the success fee. When GVK approached the tax authorities for NOC, it was denied. Its argument that the Swiss firm had no place of business here, all services rendered were from abroad, and no part of success fee could be said to arise in this country attracting tax liability were rejected.
The revenue authorities contended that the Swiss firm actively arranged loans and provided various services that attracted the income tax provisions. Therefore, tax must be deducted before remitting the fee abroad. When the matter went to the Andhra Pradesh High Court, it ruled in favour of the tax authorities applying the definition of 'technical services' in Section 9(1) of the Act. That view was upheld by Supreme Court.
Earnest money lost if bid is withdrawn
The Supreme Court has held that a condition in a tender notice that earnest money would be forfeited if a bid is withdrawn is valid and not against the Contract Act.
In this case, NTPC vs M/s Ashok Kumar, the contractor passed the technical bid, but before the financial bid was opened, he withdrew his bid. When he asked for return of the earnest money, NTPC replied that it had been forfeited. The contractor moved the Allahabad High Court, which allowed his writ petition and asked the public sector firm to return the earnest money. The corporation appealed to Supreme Court, which set aside the high court judgment. The apex court clarified that the condition was valid. However, if the authority which issued the tender notice revoked it on its own, the situation would be different. In this case, the corporation had the authority to forfeit the earnest money though the financial bid was not even opened.
Vague terms in arbitration clause
Supreme Court last week rejected the prayer of a company to appoint an arbitrator in its dispute with another as the arbitration clause in the sales contract was vague.
In this judgment, System for International Agencies vs Rahul Coach Builders, the contract read: "Disputes arising out of this agreement shall be referred to arbitration under the by-laws of the Companies Act 1956 and all amendments of this Act up to date, or shall be settled and decided by arbitration as per international trade laws." The court pointed out that no by-laws have been framed so far and therefore an arbitrator cannot be appointed.
Insurer told to pay penalty and interest
The Supreme Court has raised the compensation to be paid by United India Insurance Company, along with higher interest and penalty, for the death of a transport worker under the Workmen's Compensation Act.
The worker died when the bonnet of the vehicle he was cleaning fell on him. His dependents claimed compensation as he died in the course of employment. The evidence showed that he actually died cleaning another vehicle of the same owner. However, both vehicles were insured by the same company. The labour court awarded Rs 6.43 lakh to the claimants and asked the employer to pay half the amount.
On his appeal, the court directed the insurer to pay the amount with penalty amounts. The court exercised the extraordinary power under Article 142 of the Constitution to indemnify the owner "as the claimants hailed from the lowest strata of society."
Where to display govt notices
When the authorities are required by law to display its notifications in a "conspicuous" place, how conspicuous the place must be? This question intrigued the courts for a decade and Supreme Court last week quashed the Karnataka High Court's view on this issue. The Sedam town authorities wanted to extend the limits of the council to include a large factory with a township. However, the notification was not pasted there. So it was struck down by the high court stating that display in other public places was not enough; it should have been affixed at the factory township also, as it was affected by the council's move. The Supreme Court set aside the high court judgment in the case, state of Karnataka vs Vasavadatta Cement, stating that display of the notice at the panchayat office, railway station and bus stand are good enough and it need not be displayed at every property.
Fraud charge must be convincing
When allegations of fraud are made by one party to the agreement against the other, the question arises whether arbitration is possible or whether the issue should be decided by a court of law. The Delhi High Court took the view last week that the decision depended upon the assessment of the court as to "whether a serious case of fraud is made out which required public trial."
It did not depend upon which party made the allegation. In this case, Punjab National Bank vs Kohinoor Foods Ltd, the latter had alleged that the bank had used undue influence and therefore opposed the appointment of an arbitrator under the International Swaps and Derivatives Association Master Agreement 2006.
While the bank named an arbitrator the firm alleged that the former had employed fraud, misrepresented facts, and used undue influence to make it enter into the transactions in issue. The court rejected this argument observing that it has not been able to make out a case of serious fraud which requires a trial by a public forum.
"If the one who levels the charge makes out a tenable case, that is, a prima facie case, in the very least, the court, could in the given facts of the case refuse to send the parties to arbitration," said the judgment.
Since this has not been done the court appointed a former judge of Supreme Court as the second arbitrator. The two arbitrators will choose the umpire.
