Full Judgement
Delhi High Court
Joginder Singh Nijjar And Anr vs M/S Omaxe Ltd. on 26 July, 2024
Author: C.Hari Shankar
Bench: C. Hari Shankar
$~53
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ OMP (ENF.) (COMM.) 65/2021
JOGINDER SINGH NIJJAR AND ANR .....Decree Holders
Through: Ms. Shobhana Takiar, Adv.
versus
M/S OMAXE LTD. .....Judgment Debtor
Through: Mr. Ramesh Singh, Sr.
Advocate with Mr. Mukti Bodh and Ms.
Hage Nanya, Advs.
CORAM:
HON'BLE MR. JUSTICE C. HARI SHANKAR
JUDGMENT (ORAL)
% 26.07.2024
EX.APPL.(OS) 948/2024 (Revival of Petition) and EX.APPL.(OS) 952/2024 (Direction) in OMP (ENF.) (COMM.) 65/2021
1. These applications raise the short issue - though no longer res integra - of whether tax can be deducted at source1, by the judgment (award) debtor, on an amount awarded in an arbitral award.
The lis
2. By the following order dated 11 March 2024, OMP (Enf) (Comm) 65/2021 was disposed of:
"1. These are petitions seeking execution of the award dated 20.03.2020.
1 "TDS" hereinafter
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2. With consent of the parties, it is directed that the amount awarded in the award dated 20.03.2020, along with interest at the rate of 10% per annum with effect from 20.03.2020, shall be paid in 7 Equal Monthly Instalments (EMIs) starting from March, 2024 in the following terms:-
a. The instalment for the month of March, 2024 shall be paid on or before 31.03.2024.
b. The instalment for the month of April, 2024 shall be paid on or before 20.04.2024.
c. Thereafter, the remaining instalments shall be paid on or before 10th day of every month.
3. The statement made on behalf of the judgment-debtor by the learned senior counsel that the above payment schedule will be complied with, shall be binding upon the judgment-debtor.
4. In case the same is not complied with, the petitioner in addition to reviving the present enforcement petitions, shall also be entitled to initiate contempt proceedings.
5. It is made clear that there is no variation in the interest component pre-award.
6. In addition, the paragraph 16 of the order dated 24.01.2024 is modified and reads as under;-
"16. The applications are rejected and the captioned executions are allowed.""
3. As there has been no compliance with the direction for the deposit as contained in the above order, the present applications have come to be filed.
4. Ex. Appl. (OS) 948/2024, filed by the petitioners, seeks revival of OMP (Enf) (Comm) 65/2021.
5. Ex. Appl. (OS) 952/2024, filed by the respondent, on the other Signature Not Verified Signature Not Verified Digitally Signed By:AJIT OMP (ENF.) (COMM.) 65/2021 Page 2 of 10 Digitally Signed KUMAR By:CHANDRASHEKHARAN HARI SHANKAR Signing Date:31.07.2024 Signing Date:31.07.2024 14:08:24 14:01:40 hand, seeks a direction to the petitioner to provide the requisite documents, so that TDS could be deducted by the respondent while complying with the direction for refund, as passed by this Court.
6. The dispute has percolated down to the issue of whether TDS can be deducted by the respondent on the amounts awarded in favour of the petitioner by the arbitral award under execution.
Rival Stands
7. Ms. Sobhana Takiar, learned Counsel for the petitioner, places reliance on the judgment of S.A. Bobde J, (as he then was), sitting singly in the High Court of Bombay in Islamic Investment Company v. U.O.I.2, which, following an earlier decision of the Supreme Court in All India Reporter Ltd v. Ramchandra D. Datar3, holds that, once an amount becomes payable to a decree holder under a decree, it losses its original character and assumes the character of a judgment debt. In the absence of any provision of the Income Tax Act, 1961, which envisages deduction of TDS while paying a judgment debt, the Bombay High Court, following the Supreme Court, held that no TDS could be deducted from the said amount.
8. Mr. Ramesh Singh, learned Senior Counsel for the respondent submitted, yesterday, that if such a view were to be accepted, it would provide fodder for income tax evaders, who may file collusive suits
2 (2002) 4 Bom CR 685 3 (1961) 2 SCR 773
Signature Not Verified Signature Not Verified Digitally Signed By:AJIT OMP (ENF.) (COMM.) 65/2021 Page 3 of 10 Digitally Signed KUMAR By:CHANDRASHEKHARAN HARI SHANKAR Signing Date:31.07.2024 Signing Date:31.07.2024 14:08:24 14:01:40 and obtain decrees for payment of amounts due to them and thereafter, plead that no TDS could be deducted from the decretal amount and, consequently, no tax need be paid thereon.
9. This, however, is a larger issue which need not concern the Court. I may note that, even in All India Reporter, the Supreme Court in para 3 of the report, observed as under:
"We are not concerned to decide in this appeal whether in the hands of the respondent the amount due to him under the decree, when paid, will be liable to tax; that question does not fall to be determined in this appeal."
10. Significantly, Bobde J, too, in Islamic Investment Company, while holding that no tax could be deducted from the decretal amount, caveated the decision with the following directions in paras 14 to 16 of the report:
"14. The petitioners/decree holder is directed to give security in the sum of Rs. 2,06,269/- to the satisfaction of the Prothonotary and Senior Master before withdrawing any sum from the Sheriff of Bombay.
15. The petitioners/decree holder shall be allowed to withdraw the balance decretal amount lying with the Sheriff of Bombay. He shall however give security for the sum of Rs. 2,06,269/-.
16. The learned Counsel for the decree-holder may be granted liberty to apply for being released from the security, if it gets a certificate or an adjudication from the Income-tax Authority that it is not liable to pay tax in India on the decretal amount or any part thereof."
11. This Court has, however, followed All India Reporter and Islamic Investment Company without hedging in the decision with any such caveat. One such judgment is that rendered by Vibhu Signature Not Verified Signature Not Verified Digitally Signed By:AJIT OMP (ENF.) (COMM.) 65/2021 Page 4 of 10 Digitally Signed KUMAR By:CHANDRASHEKHARAN HARI SHANKAR Signing Date:31.07.2024 Signing Date:31.07.2024 14:08:24 14:01:40 Bakhru J in Voith Hydro Ltd v. NTPC Limited4. Paras 31 to 37 of the said report may be reproduced thus:
"31. The next question to be addressed is whether NTPC is entitled to credit for the TDS deducted from the payments made to Voith.
32. Mr Mukhopadhaya had referred to the decision of the Supreme Court in All India Reporter Ltd. v. Ramchandra D. Datar (supra), wherein the Supreme Court had held that once a claim - in that case, a claim for compensation to an employee for wrongful termination of an employment - is decreed, "the claim assumes the character of a judgment-debt by a Civil Court and must be executed subject to deductions and adjustments permissible under the Code of Civil Procedure". The Court further observed as under:
"The rule that the decree must be executed according to its tenor may be modified by a statutory provision. But there is nothing in the Income Tax Act which supports the plea that in respect of the amount payable under a judgment- debt of the nature sought to be enforced, the debtor is entitled to deduct income tax which may become due and payable by the judgment-creditor on the plea that the cause of action on which the decree was passed was the contract of employment and a part of the claim decreed represented amount due to the employee as salary or damages in lieu of salary".
33. In Islamic Investment Company v. Union of India and Anr.: (supra), the Bombay High Court following the decision in All India Reporter Ltd. v. Ramchandra D. Datar (supra) rejected the contention that the Judgment Debtor (in that case, the Food Corporation of India) must be allowed to deduct TDS on the interest payable to a non-resident. The Court observed that:
"when such amounts becomes part of a judgment debt, they lose their original character and assume the character of a judgment debt. Once such an amount assumes the character of judgment debt, the decree passed by the civil court must be executed subject only to the deductions and adjustments permissible under the Code of Civil Procedure".
4 2021 SCC OnLine Del 1325
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34. The Court further observed that there was no provision under the Income Tax Act or under the Code of Civil Procedure, 1908 where an amount of interest payable under a decree would be subject to TDS.
35. In Glencore International AG v. Dalmia Cement (Bharat) Limited5: Ex. P. 75/2015 dated 31.07.2019, this Court, inter alia, referred to the following decisions:
(i) All India Reporter v. Ramachandra D. Datar,
(ii) V.K. Dewan v. DDA, Execution Petition No. 194/2005, Delhi High Court.
(iii) Sino Ocean Limited v. Salvi Chemical Industries Limited, Chamber Summons No. 76/2013 in Execution Application (Lodg.) No. 263/2012.
(iv) American Home Products Corporation v. MAC Laboratories Pvt. Ltd. and Anr.6,
(v) Islamic Investment Company v. Union of India (UOI) and Anr.,
(vi) S.S. Miranda Ltd. v. Shyam Bahadur Singh7.
36. After referring to the aforesaid decision, this Court observed as under:
"I may, however, note that these judgments do enunciate the principle, which is, that once a claim merges into a decree of the Court it transcends into a judgment-debt and, therefore, only those adjustments and deductions can be made which are permissible under the Code of Civil Procedure, 1908. The judgments encapsulate the theme that a decree should be executed according to its tenor unless modified by a statute such as the 1962 Act."
37. Ms Anand also did not dispute that TDS was not liable to be deducted on judgment debts. However, she contended that the payments had been made in Indian currency and therefore, were subjected to TDS and that the same had been accepted by Voith without any protest."
5 2019 SCC OnLine Del 9634
6 (1986) 1 SCC 465
7 (1985) 154 ITR 849
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12. The contention of the respondent in the present case is that TDS is deductable from the amount payable to the petitioner in terms of Section 195(1)8 of the Income Tax Act, as the petitioner is a non- resident individual, who is not a company.
13. Mr. Ramesh has also placed reliance on the judgment of the Supreme Court in Prateek Infra Projects India Pvt Ltd v. Nidhi Mittal9, to the extent the said judgment, in its penultimate paragraph, vacated the direction of the National Consumer Disputes Redressal Commission10 in its judgment dated 15 January 2020 in Nidhi Mittal v. Prateek Infra Projects India Pvt Ltd11, restraining the builder in that case from deducting in tax at source on the compensation held by the NCDRC to be payable to the consumer before it. Para 32 of the judgment of the NCDRC reads thus:
8 195. Other sums. -
(1) Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest (not being interest referred to in Section 194-LB or Section 194-LC) or Section 194-LD or any other sum chargeable under the provisions of this Act (not being income chargeable under the head "Salaries" shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income tax thereon at the rates in force:
Provided that in the case of interest payable by the Government or a public sector bank within the meaning of clause (23-D) of Section 10 or a public financial institution within the meaning of that clause, deduction of tax shall be made only at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode:
Explanation-1 - For the purposes of this section, where any interest or other sum as aforesaid is credited to any account, whether called "Interest payable account" or "Suspense account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.
Explanation 2. - For the removal of doubts, it is hereby clarified that the obligation to comply with sub-section (1) and to make deduction thereunder applies and shall be deemed to have always applied and extends and shall be deemed to have always extended to all persons, resident or non-resident, whether or not the non-resident person has--
(i) a residence or place of business or business connection in India; or
(ii) any other presence in any manner whatsoever in India.
9 2020 SCC OnLine SC 1448 10 "the NCDRC" hereinafter 11 CC No. 1508/2018
Signature Not Verified Signature Not Verified Digitally Signed By:AJIT OMP (ENF.) (COMM.) 65/2021 Page 7 of 10 Digitally Signed KUMAR By:CHANDRASHEKHARAN HARI SHANKAR Signing Date:31.07.2024 Signing Date:31.07.2024 14:08:24 14:01:40 "32. Before parting, I may make it clear that the interest @12% p.a. on the refund of the amount which has been awarded as compensation is not factually interest on refund and, therefore, there is no question of deducting any tax on source."
14. The Supreme Court, in the Special Leave Petition preferred against the aforesaid decision, in the penultimate paragraph, "(vacated) the direction of the NCDRC restraining the builder from deducting tax at source, which shall be in accordance with law".
15. The Supreme Court has not, therefore, pronounced on deductibility or otherwise, of TDS on the amount payable to the builder but has vacated the omnibus restraint on the builder from deducting TDS, stating that the deduction would be in accordance with law.
16. This solitary sentence towards the closure of the judgment cannot be regarded as a declaration of the law within the meaning of Article 141 of the Constitution of India to the effect that TDS is deductible on the compensation payable to the builder. Besides, Ms. Takiar submits that the order passed by the NCDRC cannot be treated as a decree, so that the compensation granted by the said order does not partake of the character of a decretal debt.
17. Given the view adopted by the Supreme Court in All India Reporter as followed by this Court in Voith Hydro Ltd and Glencore International, the nature of the amount payable to the petitioner, once it stands awarded in an arbitral award, acquires the character of a
Signature Not Verified Signature Not Verified Digitally Signed By:AJIT OMP (ENF.) (COMM.) 65/2021 Page 8 of 10 Digitally Signed KUMAR By:CHANDRASHEKHARAN HARI SHANKAR Signing Date:31.07.2024 Signing Date:31.07.2024 14:08:24 14:01:40 judgment debt and, therefore, cannot be subjected to deduction of TDS.
18. As the judgments of this Court in Voith Hydro Ltd and Glencore International, are directly on the point and followed the decision of the Supreme Court in All India Reporter, I am constrained to hold that the respondent cannot be permitted to deduct TDS from the amount awarded to the petitioner by the arbitral award under execution and directed to be paid by this Court vide order dated 11 March 2024.
19. Ex.Appl.(OS) 952/2024 is, therefore, dismissed.
20. Ex. Appl. (OS) 948/2024, to the extent it seeks revival of the present enforcement petition is disposed of by clarifying that the respondent would make payments in accordance with the order dated 11 March 2024 without deducting any TDS thereon. The direction is modified only to the extent that the instalments shall start commencing from the month of August 2024. In other words,
(a) the instalment for the month of August 2024 shall be paid on or before 31 August 2024,
(b) the instalment for the month of September 2024 shall be paid on or before 20 September 2024 and
(c) thereafter, the remaining instalments shall be paid on or before 10th of every month.
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21. The application stands disposed of accordingly.
C.HARI SHANKAR, J JULY 26, 2024 rb Click here to check corrigendum, if any
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