CELESTIAL VISION LIMITED,BVI V. ASSISSTANT COMMISSIONER OF INCOME TAX INT TAX CIRCLE 2(1)(1), MUMBAI

ITA 1625/MUM/2025

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Celestial Vision Limited, a non-resident company registered in the British Virgin Islands, appealed against the assessment order passed by the Assistant Commissioner of Income Tax, which treated their income from charter hire charges as royalty income taxable under section 115A of the Income Tax Act, 1961, instead of under section 44BB. The case was initially assessed under section 143(3) following a draft assessment order. The assessee contested the classification of their income and the applicability of the DTAA, arguing that the income should be deemed under section 44BB, which pertains to income from the business of providing services related to the exploration and exploitation of mineral oils. The DRP upheld the AO's decision, leading to the appeal before the Tribunal.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 792987 (ITAT-MUMBAI)
• Duration Of Justice: 6 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-09-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2022-2023
• Appeal Filed On: 07-03-2025
• Other Referred Cases: Formula One World Championship Ltd. v. CIT, Union of India v. Rajeev Bansal
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Matter Remanded
• Court: TRIBUNAL
• Department Lawyers: KRISHNA KUMAR
• Assessee Lawyers: VIPUL J. SHAH
• Keywords: Set aside; Opportunity of being heard; Reassessment proceedings; Principle of natural justice; Competent authority; Deemed to accrue or arise in india; Reason to believe; Double taxation relief; Procedural lapse
• Section: 147; 148; 143(3)

Judgement Text

"IN THE INCOME-TAX APPELLATE TRIBUNAL “I” BENCH, MUMBAI BEFORE SMT. BEENA PILLAI, JUDICIAL MEMBER & SMT. RENU JAUHRI, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.1625/MUM/2025 (निर्धारण वर्ा/Assessment Year: 2022-23) Celestial Vision Limited PO Box No. 146, Road Town, Tortola, British Virgin Islands 111000. v/s. बिधम Assistant Commissioner of Income Tax Circle 2(1)(1) 604, Kautilya Bhawan, G Block, Bandra Kurla Complex, Bandra (East)400051. स्थधयी लेखध सं./जीआइआर सं./PAN/GIR No: AAICC1160A Appellant/अपीलधथी .. Respondent/प्रनिवधदी निर्धाररिी की ओर से /Assessee by: Shri. Vipul J. Shah-Adv. रधजस्व की ओर से /Revenue by: Shri Krishna Kumar SR DR सुिवधई की िधरीख / Date of Hearing 05.08.2025 घोर्णध की िधरीख/Date of Pronouncement 24.09.2025 आदेश / O R D E R PER RENU JAUHRI [A.M.]:- This appeal is filed by the assessee against the order of the CIT(A) (DRP- 1), Mumbai-2 [hereinafter referred to as “CIT(A)”] dated 18.12.2024 passed Direction of the Dispute Resolution Panel u/s. 144C(5) of the Income-tax Act, 1961 [hereinafter referred to as “Act”] for Assessment Year [A.Y.] 2022-23. 2. The assessee has raised the following grounds of appeal: “1. On the facts and in the circumstances of the case and in law, the learned Assessing Officer (‘AO’) erred in finalising the assessment without appreciating the fact that the directions given by the Hon'ble Dispute Resolution Panel (‘DRP’) are irrelevant to the issues of the Appellant and are ultra vires the scope of the reference made by the Appellant. Printed from counselvise.com P a g e | 2 ITA No 1625/Mum/2025 Ay 2022-23 Celestial Vision Limited 2. On the facts and circumstances of the case and in law the learned AO/DRP decided the issue which was neither raised by the Appellant nor applicable in the case of the Appellant. The assessment order passed based on such directions of the DRP is bad in law and liable to be quashed and set aside. 3. On the facts and circumstances of the case and in law the AO/DRP has failed to consider and adjudicate upon the specific grounds raised by the Appellant in the application. The impugned directions demonstrate a clear non-application of mind and a disregard for the Appellant's submissions. This failure to address the core issues raised by the Appellant renders the DRP's directions and the assessment order perverse and unsustainable in law. Without Prejudice 4. On the facts and circumstances of the case and in law the AO/DRP erred in treating the Charter Hire Charges received by the Assessee as “Royalty Income” u/s. 115A instead of and not u/s. 44BB of the Act. 5. On the facts and circumstances of the case and in law the AO/DRP erred in holding that the services provided by the Appellant were not related to extraction and exploration of oil. 6. On the facts and circumstances of the case and in law the AO/DRP erred in not appreciating the essence of Circular No. 7/2003 dated 5-9-2003. 7. On the facts and circumstances of the case and in law the AO/DRP erred in not following the binding judicial precedents of jurisdictional high court and other cases referred to and relied upon by the Appellant. The Appellant prays that based on the above grounds the order passed by the Assessing Officer be quashed and set aside. The Appellant craves leave to add to alter by deletion, substitution or otherwise the above Grounds of Appeal before or during the hearing of the Appeal.” 3. Brief facts of the case are that the assessee is a non-resident company registered in the British Virgin Island (BVI). It is a tax resident of BVI for the year under consideration. The assessee filed its return on 31.12.2022 declaring income of Rs. 89,64,307/- u/s. 44BB of the Act. The case was selected for scrutiny and, vide draft assessment order, the Ld. AO proposed to tax the receipts of Rs. 8,96,43,062/- as income from Royalty. Ld. AO observed that the receipts from providing the right to use the commercial equipment to Afcons is covered under clause (iv a) of Explanation 2 to section 9(1)(vi) r.w. sub clause (vi) of the same section and therefore, this amount is liable to be taxed as per Printed from counselvise.com P a g e | 3 ITA No 1625/Mum/2025 Ay 2022-23 Celestial Vision Limited section 115A r.w.s. 91 of the Act as there is no Double Taxation Avoidance Agreement (DIAA) with the BVI of which assessee in a tax resident. 4. The assessee filed objections before the DRP which are reproduced below: “1. On the facts and circumstances of the case and in law, the learned Assessing Officer erred in treating the Charter Hire Charges received by the Assessee as \"Royalty Income\" instead of Income Offered on presumptive basis u/s 44BB of the Income Tax Act, 1961. 2. On the facts and circumstances of the case and in law, the learned Assessing Officer erred in not applying the special deeming provisions of section 44BB of the Act, wherein 10% of the gross receipts shall be deemed to be income of the Assessee. 3. On the facts and circumstances of the case and in law the learned Assessing Officer did not appreciate the contents of the Charter Party Agreement and recorded that the services provided by the Assessee Company were not related to the extraction and exploration of oil. 4. On the facts and circumstances of the case and in law, the learned Assessing Officer erred in not appreciating the essence of Circular No. 7/2003 dated 05.09.2003. 5. On the facts and circumstances of the case and in law the learned Assessing Officer erred in not following the binding judicial precedents referred to and relied upon by the Assessee. The Assessee craves leave to add to alter by deletion, substitution or otherwise the above Grounds of Appeal before or during the hearing of the Appeal.” 5. After hearing the assessee, Ld. DRP issued the following direction to the Ld. AO: “5.4 Discussion & Direction of DRP: 5.4.1 The issues as raised by the appellant are summarised and discussed below Assessee contended that the income is not accrued or justifiably sourced in India an laid down in Section 9 of the Income Tax Act, 1961 or escaping under the effective provisions of the DTAA. Section 9(1) of the Income Tax Act provides that income will be deemed to accrue or arise in India if it is received from any source or business connection or property in India. The AO has established a territorial nexus between the income and Indian operations. Income attributable to economic activities undertaken in India are taxable as per the source rule. The benefits of the Double Taxation Avoidance Agreement are subject to fulfilment of residency and substance criteria by the assessee. AO has already demonstrated that the income is liable to tax in India under Article 12 (Royalties/FTS) of the DTAA. The Supreme Court in Formula One World Printed from counselvise.com P a g e | 4 ITA No 1625/Mum/2025 Ay 2022-23 Celestial Vision Limited Championship Ltd. v. CIT (394 (TR 80) found that operationally attributable income to India is taxable irrespective of claims of DTAAS. The assessee argues that the income has been incorrectly classified as royalties or FTS, resulting in higher taxation. As per Section 9(1)(vi) and (vii), royalties and FTS will cover the consideration for intellectual property, technical services, and services that has been made use of in India. The AO's designation is consistent with these statutory definitions. Article 12 of DTAA occupies space regarding taxability of royalty and FTS in the source country. Royalties/FTS includes payments for the use of software, databases or technical know-how. The AO has done a functional analysis of the income streams to ascertain their true nature. The onus to disprove this analysis lie with the assessee which has not provided any substantial evidence. The assessee has also been agitating that the AO did not give him reasonable opportunity to present his case thereby violating the principles of natural justice. In the assessment proceedings, the AO issued numerous notices and called for the replies. Simply put, the assessee's argument is unsustainable unless the assessee can show concrete instances of procedural lapses resulting in prejudice. It is contended by the assessee that the AD has contravened the procedural law as enshrined under sections 147, 148 and 144C of the respective Income Tax Act which invalidates reassessment proceedings The AO reopened the assessment on the basis of tangible and specific material which alleged that income had escaped assessment. This is sufficient to satisfy the \"reason to believe\" test laid down. The notice under Section 148 was issued after obtaining the necessary approvals from the prescribed authority. With insertion of section 148A and amendment of section 147 and section 148, vide Finance Act 2021; the law and procedure of reopening has changed. Notice u/section 148 and order under Clause 148A(d) has been issued afler due process and sanction of the competent authority. The Hon'ble Apex Court in Union of India v. Rajeev Bansal [2024] 167 taxmann. com 70 (SC) has approved the sanctioning authorities. Moreover, in the current scheme of re-assessment under section 148A r.w.s. 148, all contentions of Assessee are addressed in the clause 148A(d) order and there is no room for de novo \"objection\" post the issuance of section 148 notice. In the current scheme of section 148A, the order under clause 148A(d) cannot be passed without prior approval of the mentioned authority. There is not any matter of any prejudice to the applicant because of non- sharing of the order of the punishment. Thus, the fact does not cause any prejudice to the applicant assessee. 5.4.2 Directions of the Panel The Panel agrees with the AOs contention that the income is taxable in India under Section 9(1) and the DTAA, as royalties/FTS, in conformity with the statutory definitions and judicial pronouncements that were relied upon by the AO, finds that the AO has followed the principles of natural justice and provided sufficient opportunity to the assessee to reply and thus the reassessment proceedings were valid, and also the basis of reassessment was tangible and was in compliance with the requirements of the procedural prerequisites as per the provisions of Sections 147 and 148.” Printed from counselvise.com P a g e | 5 ITA No 1625/Mum/2025 Ay 2022-23 Celestial Vision Limited 6. Accordingly, Ld. AO passed the assessment order u/s. 143(3) r.w.s. 144C (13) dated 09.01.2025 determining the total income of Rs. 8,96,43,062/- from royalty taxable @ 10%. Aggrieved with the order of AO/DRP, the assessee has preferred an appeal before the Tribunal. 7. Before us, Ld. AR has argued that the AO/DRP have decided the issue which was not raised by the assessee and the directions issued by DRP show clear non-application of mind. Specifically, with regard to Ground No. 1,2 & 3 raising legal issues, Ld. AR has argued that the AO/ DRP have not addressed the issues raised by the assessee and the directions issued by the DRP are irrelevant. It has been pointed out that the AO/DRP have failed to consider the assessee’s submission and adjudicate upon the specific grounds raised by the assessee. 8. We have heard the rival submissions and perused the material on record. It is noted that the order of the DRP is not clear with regard to the issues discussed and decided therein. It is seen that in the draft order, Ld. AO has mentioned in the concluding para that there is no DTAA with BVI of which the assessee is a Tax Resident, but the order of Ld. DRP in paras 5.4.1 & 5.4.2. have discussed the applicability of DTAA in the case at hand. Further, in para 5.4.1, the Ld. DRP has mentioned about reopening of the assessment u/s. 147 of the Act and have held that the case was rightly reopened under the relevant provisions. We however, note that this is not a case of reassessment but of normal assessment u/s. 143(3) of the Act. Printed from counselvise.com P a g e | 6 ITA No 1625/Mum/2025 Ay 2022-23 Celestial Vision Limited 8.1. Thus, it appears that Ld. DRP has mixed up the facts of the case and made observations not related to the instant case while the core issue has not been properly examined and the findings/directions on merits are also not clear. 9. In view of above facts and circumstances, in the interest of justice, we deem it appropriate to restore the matter to Ld. DRP with a direction to properly examine all the issues raised by the assessee and issue fresh directions to the Ld. AO vide a speaking order after providing due opportunity of being heard to the assessee. 10. Accordingly, assessee’s appeal is allowed for statistical purposes. Order pronounced in the open court on 24.09.2025. Sd/- Sd/- BEENA PILLAI RENU JAUHRI (न्यधनयक सदस्य/JUDICIAL MEMBER) (लेखधकधर सदस्य/ACCOUNTANT MEMBER) Place: म ुंबई/Mumbai दिन ुंक /Date 24.09.2025 दिव्य रमेश न ुंिग वकर/ स्टेनो आदेश की प्रनिनलनप अग्रेनर्ि/Copy of the Order forwarded to : 1. अपील र्थी / The Appellant 2. प्रत्यर्थी / The Respondent. 3. आयकर आय क्त / CIT 4. दवभ गीय प्रदिदनदि, आयकर अपीलीय अदिकरण DR, ITAT, Mumbai 5. ग र्ड फ ईल / Guard file. सत्यधनपि प्रनि //True Copy// आदेशधिुसधर/ BY ORDER, सहधयक पंजीकधर (Asstt. Registrar) आयकर अपीलीय अनर्करण/ ITAT, Bench, Mumabi. Printed from counselvise.com "