Herve Pomerleau International CCCL, CHENNAI V. ACIT, CHENNAI

ITA 1008/CHNY/2017

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 6563 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 5 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2010-2011
• Appeal Filed On: 24-04-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: R CLEMENT RAMESH KUMAR
• Assessee Lawyers: S SRIDHAR; K VENKATRAMAN C A
• Keywords: Maximum Marginal Rate; Difference of opinion; Reason to believe; Change of opinion; Reassessment proceedings
• Section: 143(3); 147; 148

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : CHENNAI , , BEFORE SHRI GEORGE MATHAN, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ./I.T.A. NOS.1008/CHNY/2017, 17, 18 & 19/CHNY/2019 ! ' / ASSESSMENT YEARS :2010-11, 2011-12, 2012-13 & 2013-14 M/S. HERVE POMERLEAU INTERNATIONAL CCCL JOINT VENTURE, NO.5, SECOND LINK STREET, CIT COLONY, MYLAPORE, CHENNAI 600 004. VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, NON CORPORATE CIRCLE 1, CHENNAI. [PAN AACCN 5454A] ( / APPELLANT) ( /RESPONDENT) # $ % / APPELLANT BY : SHRI. S. SRIDHAR, ADVOCATE AND SHRI. K. VENKATRAMAN, C.A. &' # $ % /RESPONDENT BY : SHRI.R. CLEMENT RAMESH KUMAR, ADDL. CIT. ( ) $ * /DATE OF HEARING : 24-07-2019 +,'! $ * /DATE OF PRONOUNCEMENT : 21-10-2019 / O R D E R PER INTURI RAMA RAO , ACCOUNTANT MEMBER: THESE ARE APPEALS FILED BY THE ASSESSEE DIRECTED AGAINST DIFFERENT ORDERS OF THE COMMISSIONER OF INCOME TAX (APPEALS)-2, ITA NOS.1008/17, 17 TO 19/2019 :- 2 -: CHENNAI (CIT(A) FOR SHORT) DATED 28.02.2017 & 29. 11.2018 FOR ASSESSMENT YEARS 2010-2011 2011-12, 2012-13 & 2013 -14. 2. SINCE, THE IDENTICAL FACTS AND ISSUES ARE INVOLVED IN THESE APPEALS, WE PROCEED TO DISPOSE THE SAME VIDE THIS C OMMON ORDER. 3. FOR THE SAKE OF CONVENIENCE AND CLARITY, THE FACTS RELEVANT TO THE APPEAL IN ITA NO.1008/CHNY/2017 FOR ASSESSMENT YEAR 2010-2011 ARE STATED HEREIN. 4. THE ASSESSEE RAISED THE FOLLOWING GROUNDS OF APPEAL : 1. THE ORDER OF THE COMMISSIONER OF INCOME TAX (A PPEALS) 2, CHENNAI DATED 28.02.2017 IN L.T.A.NO.66/2015-16 FOR THE ASSESSMENT YEAR 2010-11 IS CONTRARY TO LAW, FACTS, AND IN THE CIRCUMSTANCES OF THE CASE. 2. REOPENING THE ASSESSMENT U/S 147 IS NOT VALID. 2.1 THE CIT (A) IS NOT JUSTIFIED IN CONCLUDING THAT THE RE-OPENING OF ASSESSMENT BY ISSUE OF NOTICE U/S 148 IS VALID 2.2 THE CIT (APPEALS) ERRED IN CONSIDERING THE ARGU MENT OF ADDL.CIT THAT MERELY BECAUSE THE ASSESSEE MAKES SUBMISSION T O ASSESSING OFFICER DOES NOT AUTOMATICALLY IMPLY THAT AN OPINIO N IS FORMED ON THE SAID ISSUE, WHEN THE LEARNED ASSESSING OFFICER IN H IS ORDER U/S 143(3) HAS HIMSELF STATED THAT ALL THE DETAILS SUBMITTED B Y THE ASSESSEE WERE EXAMINED. 3. SHARES OF MEMBERS OF AOP ARE DETERMINATE ONLY AN D NOT INDETERMINATE AS CONFIRMED BY THE CIT (APPEALS). 3.1 THE CIT (APPEALS) WRONGLY INTERPRETED THE SUBMI SSIONS MADE BY THE APPELLANT AND THEREBY CONCLUDED THAT THERE IS A N UNGUARANTEED ITA NOS.1008/17, 17 TO 19/2019 :- 3 -: PORTION OF FINAL CONTRACT PRICE TO BE PAID TO HERVE POMERLEAU INTERNATIONAL, BEING ONE OF THE MEMBERS OF THE AOP. 3.2 THE CIT (APPEALS) IS NOT JUSTIFIED IN CONCLUDIN G THAT THE APPELLANT SHARE OF PROFIT ARE INDETERMINATE, WHILE THERE IS A SPECIFIC PROFIT SHARING AGREEMENT ENTERED BETWEEN THE MEMBERS OF AO P AND WITHOUT CONSIDERING THE DETAILED SUBMISSION MADE BY THE APP ELLANT ON THE SHARING METHODOLOGY ADOPTED BY THE APPELLANT. 3.3 THE CIT (APPEALS) HAS FAILED TO UNDERSTAND THE INTENTION OF INSERTION OF SECTION 167B OF THE ACT AND ALSO ERRED IN THE INTERPRETATION OF THE SUB-SECTIONS (1) & (2) OF SECTION 167B OF TH E ACT., EXPLAINED VIDE CBDT CIRCULAR NO.551 DATED 23.01.1990, AS PER WHICH SUBSECTION (1) OF SECTION 167B WILL BE APPLICABLE, ONLY IN CAS ES WHERE THE MEMBERS OF AOP HAVING INCOME TAXABLE LOWER THAN THE MAXIMUM MARGINAL RATE OR DOES NOT HAVE TAXABLE INCOME. HENC E THE CIT (APPEALS) OUGHT TO HAVE ACCEPTED THAT SUB SECTION 2 OF SECTION 167B ONLY WILL BE APPLICABLE IN THE APPELLANTS CASE. 3.4 THE CIT (APPEALS) HAS ALSO FAILED TO CONSIDER T HE SUBMISSIONS MADE BY THE APPELLANT WITH RESPECT TO THE AMOUNTS T RANSFERRED TO THE MEMBERS OF THE AOP OVER THE YEARS, WHEREIN ALSO THE DETERMINATE SHARE OF PROFITS OF THE MEMBERS OF THE AOP ARE CLEA RLY ESTABLISHED. 4. THE APPELLANT CRAVES LEAVE TO FILE ADDITIONAL GR OUNDS/ARGUMENTS AT THE TIME OF HEARING. 5. THE BRIEF FACTS OF THE CASE ARE AS UNDER: THE APPELLANT NAMELY HERVE POMERLEAU INTERNATION AL CCL JOINT VENTURE IS A COMPANY FORMED BY TWO PARTIES NA MELY CONSOLIDATED CONSTRUCTION CONSORTIUM LIMITED ( HEREINAFTER CALLE D AS CCCL) AND M/S.HERVE POMERLEAU INTERNATIONAL INC. (HEREINAFTER CALLED AS HPI) , A COMPANY REGISTERED IN CANADA. THEY FORMED A JOINT VENTURE TO EXECUTE A CONTRACT OF AIRPORT AUTHORITY OF INDIA F OR CHENNAI AIRPORT EXPANSION. THE RETURN OF INCOME FOR THE AY 2010-20 11 WAS FILED ON 30.09.2010 DISCLOSING TOTAL INCOME OF RS.20,79,54,4 70/-. AGAINST THE ITA NOS.1008/17, 17 TO 19/2019 :- 4 -: SAID RETURN OF INCOME, THE ASSESSMENT WAS COMPLETED BY THE ASSESSING OFFICER VIDE ORDER DATED 21.02.2013 PASSED U/S. 14 3(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) ACCEPTING RETUR NED INCOME. SUBSEQUENTLY, THE ASSESSING OFFICER NOTED THAT TAX ES HAS BEEN LEVIED AT MAXIMUM MARGINAL RATE ON INCOME ATTRIBUTABLE T O INDIAN COMPANY I.E. CCCL INSTEAD OF RATE APPLICABLE TO FOREIGN CO MPANIES AT 42.23%. THEREFORE, THE ASSESSING OFFICER ISSUED NOTICE U/S. 148 OF THE ACT. IN RESPONSE TO THE NOTICE ISSUED U/S.148 OF THE ACT, ASSESSEE SUBMITTED THAT ORIGINAL RETURN OF INCOME FILED ON 30.09.2010 BE TREATED AS RETURN IN RESPONSE TO NOTICE ISSUED U/S.148 OF THE ACT. THE ASSESSEE ALSO SOUGHT REASON FOR REOPENING THE ASSESSMENT AND FILED OBJECTIONS WHICH WERE DISPOSED OF BY THE ASSESSING OFFICER ON 18.03.2015. THE ASSESSING OFFICER TAKING NOTICE OF ARTICLE-5 OF CON SORTIUM AGREEMENT DATED 30.11.2007 ENTERED BETWEEN TWO PARTNERS, WHER EIN IT IS MENTIONED THAT NET PROFITS, ASSETS AND LIABILITIES ARISING OUT OF JOINT PERFORMANCE OF CONTRACT SHALL BE SHARED AS MUTUALLY AGREED UPON AND ALSO TAKING NOTE OF PROFIT SHARING AGREEMENT DATED 29.12.2008 ENTERED BETWEEN TWO PARTIES HAD COME TO CONCLUSION THAT PRO FIT WERE SHARED AMONG THE PARTNERS AND FOREIGN COMPANY WILL BE PAID GUARANTEED PROFIT SHARE OF 2% OF FINAL CONTRACT PRICE AND THE REFORE HELD THAT TAX SHOULD BE LEVIED UNDER SUB SECTION (1) OF SECTION 167B OF THE ACT AND ITA NOS.1008/17, 17 TO 19/2019 :- 5 -: ACCORDINGLY LEVIED TAX VIDE ORDER DATED 25.03.2015 U/S.143(3) R.W.S.147 OF THE ACT. 6. BEING AGGRIEVED, AN APPEAL WAS PREFERRED BEFORE THE LD.CIT(A) CHALLENGING THE VERY VALIDITY OF THE INI TIATION OF REASSESSMENT PROCEEDINGS ON THE GROUND THAT REASSES SMENT PROCEEDINGS ARE PROMPTED BY MERE CHANGE OF OPINION AND THERE WAS NO REASON TO DISBELIEVE THAT TAX ESCAPED ASSESSME NT AND CHALLENGING THE ACTION OF THE ASSESSING OFFICER IN LEVYING TAXE S UNDER SUB SECTION (1) OF SECTION 167B OF THE ACT. THE LD. COMMISSIONE R OF INCOME TAX (APPEALS) CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE AND PERUSAL OF THE RELEVANT CLAUSES OF CONSORTIUM AGRE EMENT, PROFIT SHARING AGREEMENT ETC DISMISSED THE APPEAL OF THE A SSESSEE. 7. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US IN THE PRESENT APPEAL. LD. A UTHORISED REPRESENTATIVE SUBMITTED THAT INITIATION OF REASS ESSMENT PROCEEDINGS WERE BAD IN LAW AND THERE WAS NO REASON TO BELIEVE THAT TAX ESCAPED ASSESSMENT. HE FURTHER SUBMITTED THAT THIS ISSUE W AS CONSIDERED BY THE ASSESSING OFFICER DURING THE ORIGINAL ASSESSMEN T PROCEEDINGS AND THEREFORE REASSESSMENT ARE PROMOTED BY MERE CHANGE OF OPINION. IN SUPPORT OF THIS, HE PLACED RELIANCE ON THE FOLLOWI NG DECISIONS. ITA NOS.1008/17, 17 TO 19/2019 :- 6 -: 01 CIT VS. KELVINATOR OF INDIA LTD, 320 ITR 561 (S C) 02 TANMAC INDIA VS. DCIT, 78 TAXMANN.COM 155 (MAD RAS HC) 03 CIT VS. ORIENT CRAFT LTD, 354 ITR 536, (DEL HC) 04 SHIVSU CANADIAN CLEAR WATERS LTD VS. DCIT, 90 T AXMANN. COM 352, (CHENNAI ITAT) 05 SUN PHARMACEUTICAL INDUSTRIES LTD VS. DICT, 381 ITR 387, (DEL HC) 06 PCIT VS. SHODIMAN INVESTMENTS P. LTD 93 TAXMANN .COM 153 (BOM HC) 8. ON THE MERITS OF THE CASE, LD. AUTHORISED REPRESENT ATIVE SUBMITTED THAT HAVING REGARD TO THE CLAUSE OF MOU E NTERED INTO BETWEEN PARTIES ON 30.11.2007 AND PROFIT SHARING AG REEMENT ENTERED BETWEEN THE PARTIES ON 29.12.2008, IT IS CLEAR AS C UMULATIVE CONSIDERATION OF THE CLAUSES OF AGREEMENTS THAT THE PROFIT SHARING RATIOS OF THE MEMBERS OF THE MOU ARE DETERMINED AN D THEREFORE TAX SHOULD BE LEVIED UNDER SUB SECTION (2) OF SECTION 167B OF THE ACT. 9. ON THE OTHER HAND, THE LD. CIT- DEPARTMENTAL REPRES ENTATIVE HAD VEHEMENTLY CONTENDED THAT HAVING REGARD TO THE CLAUSE OF AGREEMENT ENTERED BETWEEN THE PARTIES, IT CANNOT BE SAID THAT PROFIT SHARING RATIOS OF THE MEMBERS OF THE AOP ARE DETERM INED AND TAX SHOULD BE LEVIED ONLY UNDER SUB SECTION (1) OF SECT ION 167B OF THE ACT. ITA NOS.1008/17, 17 TO 19/2019 :- 7 -: 10. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATE RIAL ON RECORD. 11. ADMITTEDLY, ASSESSEE BEFORE US WAS ASSESSED IN T HE STATUS OF AOP. PROVISIONS OF SECTION 167 OF THE ACT PROVID ES THAT IN CASE WHERE INDIVIDUAL SHARES OF THE MEMBERS OF AOP IS IN DETERMINATE TAX SHOULD BE CHARGED ON SUCH AOP AT MAXIMUM MARGINAL R ATE. 12. GROUNDS OF APPEAL NO.1 & 4 ARE GENERAL IN NATURE TH EREFORE, DOES NOT REQUIRE ANY ADJUDICATION. 13. GROUND NO. 2, CHALLENGES THE VALIDITY OF THE REASSE SSMENT PROCEEDINGS. THE CONTENTION OF THE ASSESSEE THAT REASSESSMENT PROCEEDINGS ARE PROMPTED BY MERE CHANGE OF OPINION CANNOT BE ACCEPTED FOR REASONS THAT IN THE ORIGINAL ASSESSMEN T PROCEEDINGS, THERE IS NOTHING TO SHOW THAT ASSESSING OFFICER HA D EXAMINED THE ISSUE, WHETHER THE SHARES OF MEMBERS OF AOP ARE D ETERMINED OR NOT. THEREFORE, IT CANNOT BE SAID THAT REASSESSMENT PROC EEDINGS ARE PROMOTED BY MERE CHANGE OF OPINION. HENCE THE RATIO OF THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF KELVINATOR INDIA LTD (SUPRA ) CANNOT BE APPLIED TO THE FACTS OF THE PRESENT CASE. WE DO NOT FIND ANY MERITS IN THE CONTENTION CHALLENGING THE VALIDITY O F REASSESSMENT ITA NOS.1008/17, 17 TO 19/2019 :- 8 -: PROCEEDINGS. IN THE RESULT, GROUNDS OF APPEAL NO.2 OF THE ASSESSEE STANDS DISMISSED. 14. IN GROUND NO.3, ASSESSEE CHALLENGES THE ACTION OF THE LOWER AUTHORITIES APPLYING PROVISIONS OF SECTION 167B(1) OF THE ACT WHILE COMPUTING TAX LIABILITY. ADMITTEDLY, IN THE PRESE NT CASE, ASSESSEE WAS ASSESSED IN THE STATUS OF AOP. THE PROVISIONS OF S ECTION 167B OF THE ACT PROVIDES THAT WHERE THE INDIVIDUAL SHARES OF T HE MEMBERS OF THE AOP IN THE WHOLE OR ANY PART OF THE INCOME OF THE AOP OR INDETERMINATE OR UNKNOWN, TAX SHALL BE CHARGED ON T HE TOTAL INCOME OF THE ASSOCIATION AT THE MAXIMUM MARGINAL RATE OF TA X. PROVISO TO SECTION 167B(1) OF THE ACT FURTHER PROVIDES THAT W HERE TOTAL INCOME OF ANY MEMBER OF THE AOP IS CHARGEABLE TO TAX AT THE RATE WHICH IS HIGHER THAN THE MAXIMUM MARGINAL RATE, TAX SHALL BE LEVIED ON THE TOTAL INCOME OF THE AOP AT SUCH HIGHER RATE APPLIC ABLE TO SUCH MEMBERS. IN THE PRESENT CASE, ONE OF THE MEMBER OF AOP IS AN NON RESIDENT I.E. HPI, A COMPANY REGISTERED IN CANADA AND THE INCOME OF THIS MEMBER IS TAXABLE AT 42.23%. IN ORDER TO DET ERMINE THE APPLICABILITY OF SECTION 167B(1) OF THE ACT, IT IS ESSENTIAL TO DECIDE WHETHER THE SHARES OF THE MEMBERS OF THE AOP ARE IN DETERMINATE OR UNKNOWN. THIS ISSUE CAN BE DECIDED THAT WITH REF ERENCE TO THE TERMS OF UNDERSTANDING THE PARTIES HAD. THE PARTIE S HAD ENTERED INTO ITA NOS.1008/17, 17 TO 19/2019 :- 9 -: LONG TERM AGREEMENT ON 30.11.2007 WHICH IS PLACED A T PAPER BOOK PAGE NO.1. FROM THE PERUSAL OF THE AGREEMENT, IT IS CLEAR THAT THE AGREEMENT IS SILENT ON THE PROFIT SHARING RATIO O F ITS MEMBERS, IN TERMS OF MOU ENTERED BETWEEN THE PARTIES ON 30.11.2 007, CLAUSE VII OF THE MOU PROVIDES THAT SUM EQUIVALENT TO 2% OF T HE PROJECT COST SHALL BE PAID TO HPI BY CCCL. THIS AGREEMENT IS A LSO SILENT REGARDING SHARING RATIO OF ITS MEMBERS. OTHER DOCUMENT I.E. P ROFIT SHARING AGREEMENT ENTERED BETWEEN THE ABOVE PARTIES ON 29.1 2.2008 ONLY SAYS THAT PROFIT BEFORE TAX ARISING ON THE ABOVE PR OJECT WOULD BE FINALLY DETERMINED AFTER COMPLETION OF THE PROJECT AND IT FURTHER PROVIDED THAT HPI SHALL BE PAID GUARANTEED PROFIT SHARE IN T HE FORM OF 2% OF CONTRACT PRICE. CLAUSE 2 OF THE PROFIT SHARING AGREEMENT FURTHER PROVIDES FOR THE MODE OF PAYMENT 2% GUARANTEED PRO FIT. HAVING REGARD TO THE ABOVE CLAUSES OF THE THREE AGREEMENTS , IT IS CLEAR THAT AS CUMULATIVE CONSIDERATION OF THE TERMS OF THE TH REE AGREEMENTS, THE PARTIES HAVE NOT AGREED AS TO THE SHARES OF THE PRO FITS OF THE AOP. MORE IMPORTANTLY, CONSORTIUM AGREEMENT ENTERED INTO BETWEEN THE PARTIES IS TOTALLY SILENT AS TO THE SHARES OF THE P ROFITS OF THE AOP. IN TERMS OF MOU IN CLAUSE VII ENTERED BETWEEN PARTIES ON 30.11.2007, THERE IS CLEAR OBLIGATION ON THE PART OF CCCL TO P AY A SUM EQUIVALENT TO 2% OF THE PROJECT COST TO HPL, WHICH WOULD GO TO SHOW THAT IT IS NOT THE AOP WHICH IS UNDER OBLIGATION TO PAY 2% OF CONTRACT PRICE TO ITA NOS.1008/17, 17 TO 19/2019 :- 10 -: HPL BUT IT IS CCCL. THE TERM SHARE OF NET PROF IT IMPLIES A SHARE IN THE NET PROFITS WHICH IS AN INTEREST IN THE PROFI TS AS PROFITS, AND IMPLIES A PARTICIPATION IN THE PROFITS AND LOSSES. BUT IN THE PRESENT CASE, THE MEMBER OF THE AOP I.E. HPL IS ENTITLED TO 2% OF THE PROFIT COST REGARDLESS OF THE FACT WHETHER AOP MADE PROFITS OR LOSSES. THIS IS ONLY A CHARGE AGAINST THE PROFITS OF THE ASSESSEE, AOP B UT NOT SHARE IN PROFITS. THEREFORE, IT CANNOT BE SAID THAT THE SHA RES OF THE PROFIT IN AO OF MEMBERS IS DETERMINATE OR KNOWN. THUS ON CUMULAT IVE CONSIDERATION OF ALL CLAUSE THE THREE AGREEMENT E NTERED INTO IT IS CRYSTAL CLEAR THAT SHARES MEMBERS OF AOP ARE INDE TERMINATE AND UNKNOWN, THEREFORE THE PROVISIONS OF SUB SECTION (1 ) TO SECTION 167B OF THE ACT ARE SQUARELY APPLICABLE AND WE DO NOT FI ND ANY REASON TO INTERFERE WITH THE ORDERS OF THE LOWER AUTHORITIES. THUS, GROUNDS OF APPEAL NO.3 RAISED BY THE ASSESSEE STANDS DISMISSED . 15. IN THE RESULT, THE ITA NO. 1008/CHNY/2017 FOR AS SESSMENT YEAR 2010-2011 FILED BY THE ASSESSEE STAND DISMISSE D. ITA NOS.17, 18 & 19/CHNY/ 2019 FOR ASSESSMENT YE ARS 2011-12, 2012-13 & 2013-14 16. SINCE, THE FACTS IN THE PRESENT APPEALS ARE IDENTI CAL TO THE FACTS IN ITA NO.1008/CHNY/2017 FOR ASSESSMENT YEAR 2010-2 011, FOR THE ITA NOS.1008/17, 17 TO 19/2019 :- 11 -: REASONS MENTIONED THEREIN, WE DISMISS THE APPEALS IN THE SAME LINES INDICATED IN APPEAL ITA NO.1008/CHNY/2017 SUPRA. HE NCE, THE ABOVE CAPTIONED APPEALS FILED BY THE ASSESSEE STAND DIS MISSED. 17. TO SUMMARIZE THE RESULT, THE APPEALS FILED BY THE ASSESSEE IN ITA NOS. 1008/CHNY/2017, ITA NOS. 17, 18 & 19/CHNY /2019 FOR ASSESSMENT YEARS 2010-11, 2011-12, 2012-13 & 2013- 14 STAND DISMISSED. ORDER PRONOUNCED ON 21ST DAY OF OCTOBER, 2019, AT CHENNAI. SD/- SD/- ( ) (GEORGE MATHAN) /JUDICIAL MEMBER ( ) (INTURI RAMA RAO) /ACCOUNTANT MEMBER -) / CHENNAI . / DATED: 21ST OCTOBER, 2019. KV /0 $0& *12032'* / COPY TO: 0 1 . # / APPELLANT 3. 0 ( 4*056 / CIT(A) 5. 278 0& * 9 / DR 2. &' # / RESPONDENT 4. 0 ( 4* / CIT 6. 8:0;) / GF