Friday, April 16, 2010


In a recent development the competition commission of India (CCI) has moved an appeal before the Supreme Court against the Competition Appellate tribunal (CAT). The dispute arose when the CAT halted an investigation carried out by CCI pursuant to a complaint lodged by Jindal Steel. It was the case of Jindal steel that SAIL and Indian Railways were engaged in a cartel like behaviour. S. 19(1)(a) confers power on the CCI to inquire into any alleged contravention of S.3 (anti- competitive agreement) and S.4 (abuse of dominant position) either suo moto or on a receipt of a complain from any other person. The matter before the Supreme Court could give rise to interesting questions of law as to the specific powers conferred to the CCI and the CAT under the Competition Act, 2002. This post discusses some of the legal aspects that may arise before the Honourable Supreme Court.

The issue before the Supreme Court would be whether the CAT has powers to halt an investigation carried out by the CCI. Interestingly the CAT did not find a place in the statute as it was originally drafted in 2002. The CAT was only brought about by the Competition (Amendment) Act, 2007 through the incorporation of Chapter VIIA. One of the arguments in this regard could be that the intention of the legislature from the very inception of the Act was to confer all the investigative powers on the CCI and the introduction of the CAT was only to exclude the jurisdiction of the High Court for a faster disposal of competition matters (an appeal from the CAT directly lies before the Supreme Court as u/s 53T). Nevertheless a closer analysis of the relevant provisions of the Act also reveals that CAT has superseded its powers.

S. 53A(1)(a) stipulates that the central government shall by notification establish a Competition Appellate Tribunal to hear appeals against any direction issued or decisions made or order passed by the commission under sub- section (2) and (6) of section 26,S. 27,S. 28,S. 31,S. 32,S. 33, S.38,S. 39, S.43,S. 43A,S.. 44,S. 45 and S. 46 of the act. In this regard it is worthwhile to examine some of the orders/directions that the CCI may pass under the above mentioned sections. S. 26(2) states that if the CCI finds no prima facie case after the receipt of any complains or information, it shall “close the matter” and pass necessary orders. Similarly S. 27 stipulates that CCI may pass appropriate orders if “after the inquiry” it finds a certain agreement in contravention of S. 3 & S. 4 of the Act. Further s. 33 confers power on the CCI to pass interim orders incase it finds “during the course of inquiry” that prima facie an anti-competitive practise is being carried out by the party against whom an allegation has been made. It is evident from S. 26 and S. 27 read with S. 53A (1)(a) that the jurisdiction of the CAT can be invoked only when the CCI has concluded the inquiry and passed any orders or directions. S. 33 read with S. 53A (1)(a) does provide the CAT with the power to hear appeals during the course of the inquiry, but that is only in cases where the CCI has passed an interim order. The CAT has no power under any of the provisions of the Act to intervene prematurely and halt any investigation carried out by the CCI. In case the Supreme Court finds otherwise, it would then necessarily require a legislative correction. As in principle the CCI being the regulator under the Act just as SEBI, IRDA etc. under their respective statutes should have the power to decide whether to investigate in a given case or not, otherwise the CCI will be stripped of all its powers and will end up as a toothless body.

Thursday, April 15, 2010


Beyond the Samsung judgment: An analysis by the Special Bench Tribunal Ruling in the case ITO v. Prasad Production Ltd.

In another recent judgment which put to rest the ambiguity in the interpretation of Section 195 of the Income Tax Act, 1961, a special bench constituted under section 255(3) of the Income Tax Act, 1961 ruled in favour of the assessee holding that section 195 of the said Act would apply only if the sum received was chargeable in India. Furthermore if the payer had a bona fide belief that he is not liable to tax he is under no obligation to follow the procedure in section 195 of the Act except comply with the RBI manual. The bench further held that section 195(2) was not mandatory in character as the CBDT circular had provided for an alternative procedure.
This case was similar to the recently decided Samsung case of the Karnataka High Court. The bench however after detailed analysis of the Samsung case diverted from the same stating that the Karnataka High Court had sub-silentio disregarded the CBDT Circular of July 2009 which prescribed an alternate procedure for remittance to a foreign entity without applying to the Assessing Officer for a No Objection Certificate. Further it was also per incurium as several precedents of the High courts and Supreme Court had been disregarded by the High Court.
In the present case the assessee company had been awarded a contract by the government of Andhra Pradesh to establish an IMAX theatre at Hyderabad. The assessee company entered into an agreement with IMAX ltd, Canada for the subsequent purchase, of equipment, maintenance and installation for which a certain consideration was remitted without withholding tax. The Assessing Officer concluded that the amount remitted was for the service provided by IMAX, Canada thereby qualifying it under section 9(vii) of the Act. The bench ruled that the sum remitted was auxiliary to the sale of the equipment and not independent services thereby not qualifying it under section 9. Further the Bench relied on a number of precedents and the decision in the Mahindra case whereby the pre-requisite of section 195(2) was held to be the chargeability of the sum remitted.
It is interesting to note that the Special bench debated in detail on the applicability of section 195 in consonance with the most cited Supreme Court judgments like the Transmission case; et al. It further made a detailed analysis of the binding nature of precedents for tribunals to follow keeping in mind the necessity for a thorough reasoning encompassed by different courts of law and their interpretation of the same. The bench systematically interpreted the different judgments in consonance with the principles governing tax law in India. In its considered decision it concluded that the tax payer had the first right to determine the chargeability of the sum of money being remitted, thereby enhancing the power of the tax payer.