HYDER CONSULTING LTD Vs. GOVERNOR FOR THE STATE

JUDGEMENT

(1.) THIS Misc. Appeal arises out of the judgement dated 9.1.2002 passed by the District Judge, Khurda at Bhubaneswar, allowing the application filed by the present respondent under Section 34 of the Arbitration and Conciliation Act, 1996 (in short, 'the Act') in M.J.C. No. 232/2000 and setting aside the award dated 26. 4.2000 passed by an Arbitral Tribunal.

(2.) THE brief facts necessary for disposal of the present appeal may be stated thus: The appellant -Hyder Consulting Ltd. having its Registered Office in London (U.K.) entered into a contract on 10.1.1 995 with the respondent -the Governor of Orissa represented by the Chief Engineer (N.H.), Orissa P.W.D., whereunder the appellant was engaged as Technical Consultant by the present respondent for rendering consultancy service to the road project, namely, Four Laning of Bhubaneswar -Cuttack Section including the Mahanadi Bridge. Since dispute arose between the parties, in terms of Clause 8 of the Contract, which contained arbitration clause for settlement of disputes, the matter was referred to an Arbitral Tribunal consisting of three Arbitrators. The appellant field its claim statement before the Arbitral Tribunal raising the following claims: Claim No. 1 : Amount withheld by the Respondent from the rupee portion or consideration payable under the contract. Claim No. 2 :Claim for full reimbursement of Income Tax pertaining to expatriate employees of the claimant. Claim No. 3 : Claim for reimbursement of service tax. Claim No. 4 : Claim for payment of interest. The Arbitral Tribunal on going through the materials on record passed the award on 26.4.2000. The Tribunal by majority view awarded claim item Nos. 1, 2, and 4 in favour of the claimant -appellant and rejected claim item No. 3. The 3rd Arbitrator passed a dissenting award in which he decided claim item Nos. 1.2 and 4 against the claimant - appellant but agreed with the majority view expressed on claim item No. 3 The respondent filed an application before the District Judge, Khurda at Bhubaneswar, under Section 34(2)(b)(ii) of the Act, registered as M.J.C. No. 232/2000, challenging the aforesaid award of the Arbitral Tribunal on several grounds. The District Judge after hearing the parties ultimately came to the conclusion that the award passed by the Tribunal was hit by Clause (b)(i) and (ii) of Sub -section (2) of Section 34 of the Act as the dispute was not capable of arbitration before the tax is finally assessed by the taxing authority under the Income tax Act, 1961 and accordingly by judgement dated 9.1.2002 set aside the award passed by the Tribunal. The aforesaid Judgement is under challenge in this proceeding.

(3.) SO far as claim item No. 2 is concerned, the said claim is based upon clause 1.10 of the contract and pertained to reimbursement of the personal income tax of expatriate personnel working/worked in the project whose stay in India had exceeded 183 days rendering their income liable for Income Tax. In this regard, the submission of the claimant - appellant before the Tribunal was that the respondent had not even disputed its liability to pay tax concerning personnel of foreign nationality and in the written statement the respondent indicated that 'it is necessary to locate and differentiate the amount of Income Tax under the V.D.I.S, 97 towards I.T. on expatriate personnel relating to the particular work under the respondent'. Therefore, according to the claimant appellant the respondent had clearly admitted its liability. The claimant having paid the tax for the assessment years 1996 -97 and 1997 -98 under V.D.I.S. 1997 totaling to Rs. 51 lakhs to avoid the consequences of not filing the returns in time due to disputes about payment and as the payment under V.D.I.S. was also d payment of income tax, the claimant was entitled to get the reimbursement of the aforesaid payment. The respondent -State took a stand that no evidence was produced by the claimant as regards the amount of tax paid in respect of expatriate employees under the V.D.I.S. 1997 in connection with the present work for which the question of reimbursement by the respondent did not arise. It was further argued that the question of payment of tax was only made at one stage, i.e., while payment of tax pertaining to payment made to the consultant. The respondent having already paid the income tax pertaining to payment made to the consultant, which included the payment with respect to the personnel, the state could not be forced to make double payment of tax. All these questions were taken into consideration by the Tribunal and the tribunal ultimately awarded claim item No. 2 in favour of the claimant -appellant declaring therein that as per the terms of the Contract, the respondent was liable to bear the Income Tax liability on the expatriate personnel and, therefore, reimburse the amount paid as Income Tax on the income of expatriate personnel. The Tribunal further directed the respondent to continue to reimburse to the claimant the amount of the Income tax on the expatriate personnel for the future financial years also.