Hyundai Heavy Industries Company Ltd. V. The Union of India & others

WPMS/2231/2009

AI Insights

M/s Hyundai Heavy Industries Company Ltd., a non-resident company engaged in providing offshore supply of equipment and onshore services related to mineral oil, challenged the legality of reassessment proceedings initiated by the Income Tax Department for the assessment year 2004-2005. The company had initially declared income attributable to its business operations in India, excluding receipts from activities outside India, based on the Indo-South Korean DTAA. After a detailed scrutiny, the income was assessed significantly higher than reported, leading to appeals that upheld the company's position on non-taxable income from outside India operations. Despite these appeals, the Assessing Officer issued a notice for reassessment, which the company contested, leading to the current writ petition.

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 803266 (HC-UTTARAKHAND)
• Appeal Type: Others
• Pronouncement Date: 31-12-2012
• Assessment Year: misc
• Other Referred Cases: ICICI Bank Ltd. Vs. Deputy Commissioner of Income Tax & another, National Dairy Development Board Vs. Deputy Commissioner of Income Tax
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: H BHATIA
• Assessee Lawyers: SHASHI KAPLILA; P MULLICK
• Keywords: Non-Resident Company; Permanent establishment; Re-assessment proceedings; Sub judice; Taxable income
• Section: 147; 148; 143(3); 139(1); 260A

Judgement Text

"RESERVED HIGH COURT OF UTTARAKHAND AT NAINITAL Writ Petition No.2231 of 2009 (M/S) M/s Hyundai Heavy Industries Company Ltd. … Petitioner Vs. The Union of India & others … Respondents Hon’ble Sudhanshu Dhulia, J. (Oral) 1. Heard Mr. Shashi M. Kaplila, Advocate with Mr. P. R. Mullick, Advocate for the petitioner and Mr. H. M. Bhatia, Advocate for the respondents. 2. By means of the present writ petition, the assessee M/s Hyundai Heavy Industries Company Ltd. has challenged the legality and validity of re-assessment proceedings initiated by the Income Tax Department under Section 147 / 148 of the Income Tax Act, 1961 (hereinafter referred to as the Act). 3. Brief facts of the case are that the petitioner is a non- resident company incorporated under the laws of Republic of South Korea having its Head Office at Cheonha Dong, Ulsan, Korea. The petitioner is engaged in providing offshore supply of equipments and / or onshore services/facilities relating to exploration, extraction and / or production of mineral oils to various public sector undertakings in India. For the assessment year 2004-2005, the petitioner had filed its return of income on 30.10.2004 under Section 139(1) of the Act. The petitioner inter- alia declared and offered to tax income attributable to business operations in India in accordance with Article 5 & 7 of the Indo- South Korean DTAA (hereinafter referred to as the Treaty). However, the receipts in respect of activities carried on outside India, such as fabrication and supply of equipment outside India, was not included in taxable income in view of the provisions of Article 5(3) read with Articles 7 & 25 of the Treaty. The petitioner’s case for the assessment year 2004-2005 was selected -2- for scrutiny. After a detailed enquiry, the assessment was framed under Section 143(3) of the Act vide assessment order dated 30.03.2006. The income of the petitioner for the period under consideration was assessed at Rs.7,71,36,150/- as against the returned loss of Rs.1,05,73,61,194/-. Feeling aggrieved, the petitioner preferred an appeal before the Commissioner of Income Tax (Appeals), who vide order dated 20.07.2006 held that the income from the operations carried outside India could not be brought to tax in India. Further, the Commissioner of Income Tax (Appeals) gave a finding that on the facts of the petitioner’s case the Mumbai office did not constitute “permanent establishment” as contemplated in Article 5(3) of the Treaty. Feeling aggrieved by the order of Commissioner of Income Tax (Appeals), the Revenue filed an appeal before the Income Tax Appellate Tribunal, Delhi (hereinafter referred to as the Tribunal). The Tribunal passed an order dated 29.05.2009 confirming the judgment and findings of the Commissioner of Income Tax (Appeals). 4. This Court has also been informed that against the said order, an appeal has been preferred before the High Court of Uttarakhand under Section 260A of the Act and is presently pending consideration before the court. However, even during the pendency of the appeal before the Tribunal, the respondent no.2 i.e. Assessing Officer issued a notice on 30.03.2009 under Section 148 read with Section 147 of the Act for the assessment year 2004-2005. Against re-opening of the tax assessment by the respondent no.2 for the assessment year 2004-2005, the petitioner replied the same and sought reasons for initiation of re-assessment proceedings. After repeated reminders and letters, the Revenue finally passed an order dated 20.10.2009 explaining reasons for re-opening of the assessment proceedings -3- that the income outside India operations had escaped assessment. 5. Now, the petitioner has challenged the re-assessment proceedings primarily on the ground that they are in violation of second proviso of Section 147 of the Act, according to which reassessment in a matter which is sub-judice, in as much as in which an appeal, revision or reference is pending. Section 147 of the Act reads as follows :- “147. If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) : Provided that where an assessment under sub- section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year. Provided further that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment.” 6. The contention of the learned counsel for the petitioner is that admittedly when a notice for reassessment was issued -4- under Section 148 of the Act on 30.03.2009, the appeal of the revenue authority was pending before the Tribunal in as much as the learned Tribunal has disposed of the appeal on 29.05.2009. Moreover even as on today, the appeal under Section 260A of the Act is pending before this Court and therefore, since the matter is sub-judice, proceedings for reassessment under Section 147/148 of the Act are barred in view of the second proviso, referred above. 7. Reliance has been taken on various decisions, particularly, in ICICI Bank Ltd. Vs. Deputy Commissioner of Income Tax & another reported in 2012 (246) C.T.R.(Bom) 292, wherein it has been held:- “17. In this regard, it needs to be noticed that the second proviso to section 147 stipulates that the AO may assess or reassess such income other than the income involving matters which are the subject matter of any appeal, reference or revision, which is chargeable to tax and has escaped assessment. In the present case, it has emerged from the affidavit in reply of the Revenue that the assessee had filed an appeal to the CIT (A) against the order of assessment. Para 4(v) of the reply states that by his order dt. 29th Sept., 2010, the CIT (A) partly allowed the appeal filed by the petitioner by accepting the claim under section 36(1)(vii) and section 36(1)(viii) and by allowing a proportionate deduction under section 10(23G) on the basis of the ratio adopted in the earlier assessment years. That being the position, in view of the clear provisions of the second proviso to Section 147, the AO cannot purport to reopen the assessment in respect of a matter which squarely formed the subject matter of the appeal before the CIT (A). Under section 251, the powers of the CIT (A) are wide. The CIT (A) is entitled while disposing of an appeal against an order of assessment to confirm, reduce, enhance or annul the assessment. Consequently, it was open to the Revenue in the appeal before the appellate authority to urge that the claim to a write off under section -5- 36(1)(vii) ought to have been disallowed to the extent to which income had been claimed to be exempt under section 10(23G). The object and purpose underlying the second proviso to section 147 is that upon an assessment being reopened, the AO is entitled to assess or reassess such income which is chargeable to tax which has escaped assessment. However, matters which are the subject matter of an appeal, reference or revision, are excepted from the jurisdiction of the AO. In the present case, the exercise of the power to reopen the assessment on the first and third grounds, both of which relate to the write off of bad debts under section 36(1)(vii) is in excess of jurisdiction, once the write off formed the subject matter of an appeal before the CIT (A) and which resulted in an order of 29th Sept., 2010 of the appellate authority. The power to reopen an assessment cannot be exercised to reopen what formed the subject matter of an appeal to the CIT (A). 8. Learned counsel for the petitioner further relied upon judgment of the Gujarat High Court in National Dairy Development Board Vs. Deputy Commissioner of Income Tax 2011 (54) DTR Judgments, wherein it has been held that since the income which was being reassessed was still a subject matter in an appeal, the assessing officer lacked jurisdiction to proceed under Section 147 read with Section 148 of the Act. In any case, the second proviso to Section 147 of the Act is absolutely clear and since it is admitted case that the appeal is pending before this Court and the notices were issued under Section 147/148 of the Act on 30.03.2009 while an appeal was pending before the Tribunal, hence, the assessing officer clearly lacks jurisdiction to proceed for reassessment in the matter. 9. In light of the aforesaid decisions, the writ petition is liable to succeed in as much as the assessing officer cannot reopen the assessment since an appeal was there pending -6- consideration. Therefore, the writ petition is allowed. Notice dated 30.03.2009 under Section 148 of the Act and all the subsequent notices in pursuance and furtherance of the above notice are hereby quashed. No order as to costs. (Sudhanshu Dhulia, J.) Dated 31st December, 2012 Rawat "