There is nothing new in the trail of conflicting decisions by various High Courts of India.
The Law Commission of Government of India took note of this unfortunate position as long back as in 1990 when the Law Commission had brought this issue to the notice of the Centre by stating “Commission felt exercised by the frustrating situation stemming from the identical Central Law being interpreted, applied and administered in different and inconsistent fashion in different parts of India as a result of conflicting judgments of the concerned High Courts. The resultant legal chaos has created a situation where similarly situated citizens governed by the same Central Law ‘have’ a right in one part of the country and ‘do not have’ such a right in another part of the country.”
The Law Commission observed that to allow a conflict of views between High Courts to arise and languish in comfort for many years, even decades, before resolving it is less than an exemplary solution. A much better, much speedier, and much more satisfactory solution which will systematically address this problem deserves to be evolved.
The above situation has an extremely negative impact on foreign companies involved in doing business in India. To cite a recent example, there has been a conflict of opinion between Karnataka High Court and Delhi High Court in relation to withholding of tax under section 195 of the Income tax Act, 1961 in respect of payments to non-residents.
The Karnataka High Court, in the case of Samsung Electronics, 320 ITR 209 (Kar), held on 24.02.2009 that when payment is to be made to a non-resident, payer is obliged to deduct tax at source unless he obtains an order from the tax authorities for non deduction.
On the other hand, the Delhi High Court in the case of Van Oord 323 ITR 130 (Del) on 15.03.2010 held that “liability to deduct tax at source arises only when the sum paid to the non-resident was char-geable to tax.”
It is also worth mentioning that the Delhi High Court was conscious about the dissenting opinion and therefore observed that “Even otherwise, because of our analysis of what Transmission Corporation of AP Ltd. (Supra) decides, we, with due respect, are not in agreement with some of the observations made in the aforesaid judgment of the Karnataka High Court”.
As is commonly known, the decision of a High Court is binding in its jurisdictional State. Therefore, a tax payer who is assessed to tax in Karnataka will be obliged to deduct tax on payment under section 195 but a tax payer of Delhi may not deduct tax on similar payments. The payers in other part of the country will be in a lurch not knowing as to what they should do. In such a situation, one can easily imagine the plight of foreign companies operating in India.
Therefore, as rightly observed by the Law Commission, the question that requires to be addressed is as regards the need for evolving suitable machinery so as to maintain, strengthen and restore uniformity on questions of law.
In the above context it is necessary that a suitable mech-anism should be found to solve the problem of conflicting decisions. Now that the new Direct Tax Code is ready for enactment, it is recommended that the issue discussed above should be seriously taken note of. It may also be recalled that a draft bill, namely, The Conflict of Decisions (Restoration of Uniformity) Bill was also prepared and proposed by the Law Commission in 1990. But nothing seems to have happened on that Bill.
It is high time the Government should bring a suitable legislation to avoid conflict of decisions amongst various High Courts in India so that “evident injustice occasioned by denial of equal treatment under the identical provisions of an identical all-India law is suitably remedied.”
The author is a Sr. Partner in S.S. Kothari Mehta & Co. E-mail: hp.agrawal@sskmin.com
