ADIT, New Delhi V. Master Card International Inc., Gurgaon

ITA 3285/DEL/2009

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 5503 (ITAT-DELHI)
• Duration Of Justice: 7 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-03-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 03-03-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 21-07-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: ANUMEHA JAIN; ABHISHEK CHAWLA
• Keywords: Business income; Double taxation relief; Rule of consistency; Revised return
• Section: 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E DELHI BEFORE SHRI C.L. SETHI AND SHRI K.G. BANSAL I.T.A.NO. 3384(DEL)/2009 ASSESSMENT YEAR: 2005-06 MASTERCARD INTERNATIONAL INC., ASSISTANT DIRECTOR OF INCOME- C/O AUTHORISED REPRESENTATIVES TAX, CIRCLE 3(1), INTERNATIONAL S.R. BATLIBOI & ASSOCIATES, VS. TAXATION, NEW DELHI. 8 TH FLOOR, GOLF VIEW CORPORATE, TOWER-B, SECTOR-42, SECTOR ROAD, GURGAON. I.T.A.NO. 3285(DEL)/2009 ASSESSMENT YEAR: 2005-06 ASSISTANT DIRECTOR OF INCOME- MASTERCARD INTERNATIONAL INC., TAX, CIRCLE 3(1), INTERNATIONAL C/O AUTHORISED REPRESENTATIVES TAXATION, NEW DELHI. VS. S.R. BATLIBOI & ASSOCIATES, 8 TH FLOOR, GOLF VIEW CORPORATE, TOWER-B, SECTOR-42, SECTOR ROAD, GURGAON. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI ABHISHEK CHAWLA & MS. ANUMEHA JAIN DEPARTMENT BY : SHRI ASHWAN I KUMAR, CIT, DR ORDER PER K.G. BANSAL : AM THESE CROSS APPEALS OF THE ASSESSEE AND THE RE VENUE EMANATE FROM THE ORDER OF CIT(APPEALS)-XXIX, NEW DELHI, PASSED ON 9.4.2009 IN APPEAL NO. 185/2007-08, AND PERTAIN TO ASSESSMENT YEAR 2005-06. THE ITA NOS. 3384&3285(DEL)/2009 2 APPEALS WERE ARGUED IN A CONSOLIDATED MANNER BY THE LD. COUNSEL FOR THE ASSESSEE AND THE LD. DR. THEREFORE, A CONSOLIDAT ED ORDER IS PASSED. 1.1 THE ASSESSEE HAS TAKEN THREE GROUNDS IN I TS APPEAL, WHICH READ AS UNDER:- 1. THAT THE LEARNED COMMISSIONER OF INCOME-TAX (AP PEALS)- XXIX, NEW DELHI [LD. CIT(A)] HAS ERRED IN LA W AND ON FACTS AND CIRCUMSTANCES OF THE CASE IN PROCEE DING WITH THE ASSUMPTION THAT THE APPELLANT HAS A PERMANENT ES TABLISHMENT (PE) IN INDIA AND HENCE THE APPELLANT IS LIABLE TO BE TAXED IN INDIA WITH RESPECT TO BUSINESS INCOME REC EIVED FROM INDIAN MEMBER BANKS. 1.1 THE LD. CIT(A) ALSO FAILED TO APPRECIATE THA T THE APPELLANT HAS ACCEPTED TAXABILITY IN INDIA IN EARLIER YEARS MERELY TO BUY PEACE AND AVOID LITIGATION. THE R ETURN OF INCOME FOR THE SUBJECT YEAR WAS FILED ON THE B ASIS THAT TOTAL PROFITS ON REVENUE RECEIVED FROM INDIA, WIT HOUT ANY ATTRIBUTION OF PROFITS TO INDIAN OPERATIONS CAR RIED OUT BY ITS LIAISON OFFICE IN INDIA, ARE TO BE TAXED IN IND IA. HOWEVER, THIS DOES NOT MEAN THAT THE APPELLANT AGREES TH AT IT HAS A PE IN INDIA. 1.2 WITHOUT PREJUDICE TO ABOVE, EVEN IF IT IS ASSUMED THAT MCII HAS A PE IN INDIA, THE LD. CIT(A) HAS F AILED TO APPRECIATE THE FACT THAT SINCE THE MAJOR OP ERATIONS OF THE APPELLANT AND MAJORITY OF ITS ASSETS (ALONG WIT H ASSOCIATED RISKS AND REWARDS) ARE SITUATED OUTSIDE INDIA, ONLY MARGINAL PROFITS ARISING FROM INDIAN MEMBER BANKS AND A TTRIBUTED TO ACTIVITIES CARRIED OUT IN INDIA, SHOULD BE TAXAB LE IN INDIA. 2. WITHOUT PREJUDICE TO THE ABOVE, THE LD. CIT( A) HAS ERRED IN LAW AND ON THE FACTS AND CIRCUMSTANCE S OF THE CASE BY SETTING ASIDE THE ASSESSMENT AND REDIREC TING THE CASE TO THE ASSESSING OFFICER (AO). THIS WAS D ONE DESPITE THE FACT THAT THE LD. CIT(A)HAD COME TO THE CONCLUSIO N THAT THE ITA NOS. 3384&3285(DEL)/2009 3 GROSS NET OPERATING MARGIN (GNOM) METHOD WHICH WAS FOLLOWED BY APPELLANT IN THE REVISED RETURN OF IN COME ON THE BASIS OF ASSESSMENT ORDERS FOR TWO IMMEDIATELY PR ECEDING YEARS ( I.E., AY 2003-04 AND AY 2004-05) FOR DETERMINING TAXABLE INCOME OF THE APPELLANT APPEARS TO BE RE ASONABLE ON GROUNDS OF REASONABILITY AND CONSISTENCY. 2.1 THAT THE LD. CIT(A) SHOULD HAVE DIRECTED THE AO TO FOLLOW THE GNOM METHOD FOR ESTIMATING TAXABLE INCOME OF THE APPELLANT ON GROUNDS OF CONSISTENCY AND REASO NABILITY. 2.2 THAT THE LD. CIT(A) HAS ERRED IN LAW AND FACTS OF THE CASE IN COMING TO THE CONCLUSION THAT ALTHOUGH THE GNOM METHOD IS AN APPROPRIATE METHOD ON THE GROUNDS OF REASONABILITY AND CONSISTENCY, THE AO IS WITHIN H IS JURISDICTION TO COMPUTE THE INCOME BY THE METHOD ADOPTED IN THE ORIGINAL RETURN OF INCOME IN CASE THE METHOD ADOPTED IN THE REVISED RETURN IS NOT IN ACCORDANCE WITH LA W. THIS WAS DONE DESPITE THE FACT THAT THE LD. CIT(A) HAD OBSERVED THAT NO SPECIFIC DEFICIENCY, INACCURACY, OR MISTAKE HAS BEEN POINTED OUT BY THE ASSESSING OFFICER IN THE REVIS ED RETURN. 3. THAT THE LD. CIT(A) HAS NOT ADJUDICATED ON TH E GROUND RAISED AGAINST LEVY OF INTEREST UNDER SECTION 234B OF THE ACT. THE LD. CIT(A) SHOULD HAVE DECIDED THE ISSUE ON MERITS AS AGAINST DISPOSING THE GROUND AS BEING CONSEQUENT IAL. 1.2 THUS, IT WILL BE SEEN THAT THE ASSESSEES GROUNDS RELATE TO THREE ISSUES REGARDING -(I) LIABILITY TO BE ASSE SSED IN INDIA; (II) COMPUTATION OF INCOME IN CASE IT IS LIABLE TO BE SO ASSES SED; AND (III) LIABILITY TO PAY INTEREST U/S 234B. 1.3 THE ONLY GROUND TAKEN BY THE REVENUE IS THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD . CIT(APPEALS) ERRED IN ITA NOS. 3384&3285(DEL)/2009 4 VIRTUALLY SETTING ASIDE THE CASE BACK TO THE AO, WHICH IS BEYOND THE SCOPE OF HIS POWERS, BY DIRECTING HIM TO RE-COMPU TE THE DISALLOWANCE OF EXPENSES AND DEDUCTION U/S 44C WITHOUT APPRECIA TING THE FACT THAT THE AO HAD DONE THIS EXERCISE ALREADY AT THE TI ME OF PASSING THE ASSESSMENT ORDER. 2. BOTH THE PARTIES REFERRED TO THE BACKGROUND FACTS WHICH ARE IN DISPUTE. THESE HAVE BEEN STATED IN THE WRITT EN SUBMISSIONS OF THE ASSESSEE FILED ON 13.1.2010. THE FACTS MENTIONE D THEREIN ARE THAT THE ASSESSEE OBTAINED APPROVAL FROM THE RESERVE BAN K OF INDIA FOR OPENING A LIAISON OFFICE IN MUMBAI ON 26.5.1992, AND SUCH OFFICE WAS SUBSEQUENTLY OPENED. THIS OFFICE WAS ALLOWED TO UNDERTAKE O NLY LIAISON ACTIVITIES AND TO ACT AS A CHANNEL OF COMMUNICATION BETWEEN T HE ASSESSEE, WHICH IS HEAD OFFICE AND MEMBER BANKS WITHOUT INVOLVING A NY PROFIT MAKING ACTIVITY. THE ASSESSEE ALSO OBTAINED PERMISSIO N TO OPEN AN ADDITIONAL LIAISON OFFICE AT GURGAON ON SIMILAR TERMS AND C ONDITIONS. THE ASSESSEE WAS OF THE VIEW THAT SINCE IT WAS NOT CARRYI NG ON ANY BUSINESS ACTIVITIES IN INDIA AS IT DID NOT HAVE ANY PERM ANENT ESTABLISHMENT (PE FOR SHORT) IN INDIA, IT WAS NOT LIABLE TO BE ASSESSED UNDER THE INCOME-TAX ACT, 1961 (THE ACT FOR SHORT). HOWEVER, THE AO ASSESSED THE ASSESSEE ITA NOS. 3384&3285(DEL)/2009 5 FOR ASSESSMENT YEARS 1996-97 TO 2000-01 ON THE TOTAL FEES RECEIVED FROM INDIAN CUSTOMER BANKS AND FINANCIAL INSTITU TIONS. IN ORDER TO RESOLVE THE CONTROVERSY, THE ASSESSEE MOVED AN APPLIC ATION FOR MUTUAL AGREEMENT PROCEDURE (MAP FOR SHORT) UNDER ARTIC LE 27 OF THE INDO-US TAX TREATY (DTAA FOR SHORT). THE COMPETENT AU THORITIES OF THE TWO COUNTRIES ARRIVED AT A RESOLUTION FOR THE AFO RESAID FIVE YEARS, WHICH WAS ACCEPTED BY THE ASSESSEE AS ALL THE PENDING AP PEALS WERE WITHDRAWN. THE MAIN CONCLUSIONS ARRIVED AT BY THE COMPETEN T AUTHORITIES WERE THAT- (I) ALL AMOUNTS RECEIVED BY THE ASSESSEE FROM I NDIAN MEMBER BANKS AND INSTITUTIONS SHALL CONSIST BUSINESS PROFITS UND ER ARTICLE 7 OF THE DTAA; (II) THE BUSINESS PROFITS WILL BE TAXED IN INDIA ON THE FOOTING THAT THE ASSESSEE HAD A PE IN INDIA DUE TO PRESENCE OF ITS PERSONNEL WHO VISITED INDIA AND CARRIED OUT ACTIVITIES WHICH WERE BE YOND THE PREPARATORY AND AUXILIARY ACTIVITIES; (III) IN DETERMINING TH E NET PROFIT, ALL EXPENSES INCURRED FOR THE PURPOSE OF BUSINESS OF THE PE IN INDIA SHALL BE ALLOWED, SUBJECT TO LIMITATION ON EXPENSES UNDER THE DOM ESTIC LAW OF INDIA AND UNDER ARTICLE 7 OF THE DTAA. THE TOTAL INCOME OF THE ASSESSEE FOR THE AFORESAID YEARS WAS REVISED ACCORDINGLY. 2.1 FOR ASSESSMENT YEARS 2001-02 AND 2002-03, TH E ASSESSEE SUBMITTED RETURNS SHOWING INCOMES ON THE BASI S MENTIONED IN THE ITA NOS. 3384&3285(DEL)/2009 6 RESOLUTION OF THE COMPETENT AUTHORITIES. RETURNS FOR ASSESSMENT YEARS 2003-04 AND 2004-05 WERE ALSO FURNISHED IN THE SAME MANNER, SHOWING LOSSES. 2.2 THE RETURN FOR ASSESSMENT YEAR 2005-06 WA S ALSO SUBMITTED COMPUTING INCOME ON THE BASIS OF RESOLUTION OF THE COMPETENT AUTHORITIES. HOWEVER, IN THE ASSESSMENTS FOR ASSESSMENT YE ARS 2003-04 AND 2004- 05, THE AO APPLIED RULE 10 OF THE INCOME-TAX RULES, 1962, FOR COMPUTING THE INCOME. IN VIEW THEREOF, THE A SSESSEE REVISED THE RETURN FOR ASSESSMENT YEAR 2005-06 ON THE BASIS OF AS SESSMENT FOR ASSESSMENT YEARS 2003-04 AND 2004-05. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO CALLED FOR EVIDENCE IN SUPPORT OF COMMON EXPENSES INCURRED ABROAD. IT WAS EXPLAINED THAT THE ASSESSE E IS NOT IN A POSITION TO PRODUCE SUCH EVIDENCE AS WAS THE CASE IN EA RLIER YEARS. HOWEVER, THE AO DID NOT ACCEPT THIS EXPLANATION. HE FOLLO WED THE METHOD MENTIONED IN THE RESOLUTION OF COMPETENT AUTHORITIES AND A LSO MADE DISALLOWANCES FROM PERSONNEL EXPENSES, PROFESSIONAL FEES, DA TA PROCESSING CHARGES, TRAVEL AND MEETING EXPENSES, ADVERTISEMENT AN D MARKETING EXPENSES AND OTHER OPERATING EXPENSES. THIS LED TO DISA LLOWANCE OF EXPENSES ITA NOS. 3384&3285(DEL)/2009 7 AMOUNTING TO RS. 12.65 CRORE. THE INCOME WORKED OUT BY HIM CAME TO 59.43% OF THE GROSS REVENUE. 3. THE FIRST ISSUE TO BE DECIDED IN THIS CAS E IS WHETHER, ANY INCOME OF THE ASSESSEE IS LIABLE TO BE TAXED IN INDIA? THE CASE OF THE LD. COUNSEL WAS THAT THE ASSESSEE ACCEPTED THE RESOLUTION O F COMPETENT AUTHORITIES AND SUBSEQUENT ASSESSMENT ORDERS WITH A VIEW TO AVO ID LITIGATION AND TO HAVE CERTAINTY IN THE MATTER. THIS DOES NOT MEAN THAT THE ISSUE CANNOT BE PRESSED NOW AND DECIDED ON MERITS. HOWEVER, A FTER STATING SO, THIS ISSUE WAS NOT PRESSED BY HIM. THE CASE OF THE LD. DR IN REPLY, MENTIONED IN DETAIL IN THE WRITTEN SUBMISSIONS, WAS THAT THE GROUND REGARDING NON- EXISTENCE OF PE WAS DECIDED AGAINST THE ASSESS EE IN EARLIER YEARS AND IT HAS NOT BEEN PRESSED BY THE LD. COUNSEL IN THIS YEA R ALSO. IN VIEW OF THE PAST HISTORY OF THE CASE AND THE FACT THAT TH IS GROUND HAS NOT BEEN PRESSED, THIS ISSUE IS DECIDED IN FAVOUR OF TH E REVENUE AND AGAINST THE ASSESSEE. 4. COMING TO THE ISSUE REGARDING THE COMPUTATIO N OF INCOME, THE FACTS ARE THAT THE RESOLUTION OF THE COMPETENT AU THORITIES ALLOWED DEDUCTION FROM THE GROSS REVENUE IN RESPECT OF (I) EXPENSES INCURRED ITA NOS. 3384&3285(DEL)/2009 8 BY LIAISON OFFICE IN INDIA, AND (II) EXPENSES IN CURRED OUTSIDE INDIA RELATING TO REVENUES SOURCED IN INDIA, AND (III ) EXPENSES INCURRED FOR CARRYING OUT GLOBAL OPERATIONS, WHICH COULD BE AL LOCATED TO THE INDIAN OPERATIONS. THIS METHOD HAS BEEN TERMED AS N ET MARGIN METHOD BY THE LOWER AUTHORITIES. THIS METHOD WAS EMPLO YED IN ASSESSMENT YEARS 1996-97 TO 2002-03. HOWEVER, THIS METHOD WAS CHA NGED IN ASSESSMENT YEARS 2003-04 AND 2004-05 BY THE AO. IN THESE YEARS, HE ESTIMATED THE INCOME OF THE ASSESSEE UNDER RULE 10 AND THIS M ETHOD HAS BEEN TERMED AS GLOBAL NET OPERATING MARGIN METHOD (GNOM FOR S HORT). THIS LED TO ASSESSMENTS AT POSITIVE INCOMES AGAINST THE LO SSES DECLARED FOR THESE YEARS. THIS VERY METHOD WAS ALSO ADOPTED BY THE ASSESSEE WHILE FILING THE REVISED RETURN. HOWEVER, THE AO DID NOT FO LLOW THIS METHOD BY STATING THAT COMPETENT AUTHORITIES OF THE TWO COU NTRIES DID NOT RESOLVE TO ADOPT THIS METHOD AS THEY HAD RESOLVED T O COMPUTE TOTAL INCOME ON NET MARGIN METHOD. IN APPEAL, THE LD. CI T(APPEALS) HELD THAT THE REVISED RETURN FILED BY THE ASSESSEE WAS A V ALID RETURN, WHICH OUGHT TO HAVE BEEN TAKEN INTO ACCOUNT FOR THE COMPUTATION OF THE TOTAL INCOME. IT WAS FURTHER HELD THAT THE TOTAL INCOME HAS TO B E DETERMINED AS PER PROVISIONS OF LAW AND, THEREFORE, THE AO HAD J URISDICTION TO COMPUTE THE INCOME ON NET MARGIN METHOD IF GNOM METHOD WAS NOT IN ACCORDANCE ITA NOS. 3384&3285(DEL)/2009 9 WITH LAW. THEREAFTER, THE LD. CIT(A) CONSIDERE D THE CLAIM OF THE ASSESSEE IN REGARD TO VARIOUS EXPENSES AND APPLICABILITY OF THE LOCAL LAW. HE CAME TO THE CONCLUSION THAT LOOKING TO THE PECULIARITY OF FACTS AND THE PROVISION CONTAINED IN SECTION 44C, TH IS MATTER HAS TO BE RE- EXAMINED BY THE AO. 4.1 THE CASE OF THE LD. COUNSEL BEFORE US WAS THAT THE AO HIMSELF HAD CHANGED THE METHOD OF COMPUTATION OF TOTAL INCOME FROM NET MARGIN METHOD TO GNOM METHOD. THEREFORE, IT WAS IN THE INTEREST OF JUSTICE THAT THE SAME SHOULD BE FOLLOWED IN THIS YEAR. THE ASSESSEE HAD FOLLOWED THIS METHOD IN THE REVISED RETURN. ACCORDINGLY, IT WAS ARGUED THAT THE TOTAL INCOME RETURNED THEREIN OUGHT TO HAVE BEEN ACCEPTED. IT WAS ALSO ARGUED THAT THE PRINCIPLE OF RES-JUDICATA WAS N OT APPLICABLE TO THE INCOME-TAX PROCEEDINGS AS EACH YEAR IS A SELF-C ONTAINED UNIT OF ASSESSMENT. THIS VIEW WAS STATED TO BE SUPPORTED BY THE DECISION IN THE CASE OF UMA CHARAN SHAW AND BROS., 37 ITR 271; R AJA BAHADUR VISHESHWARA SINGH AND OTHERS, 41 ITR 685; DWARKAD AS KESARDEO MORARKA, 44 ITR 529; AND NEW JEHANGIR MILLS, 49 ITR 137. IT WAS FAIRLY POINTED OUT THAT THE AFORESAID RULE IS SUBJECT TO SOME LIMITATIONS AS HELD IN THE CASE OF H.S. SHAH AND CO., 30 ITR 618. ITA NOS. 3384&3285(DEL)/2009 10 4.2 IT WAS ALSO SUBMITTED THAT AFTER COMPUTING P ROFIT OF THE INDIAN OPERATION, ONLY A PART OF THE SAME COULD BE ALLO CATED TO THE PE IN INDIA AS PROVIDED IN ARTICLE 7 OF THE DTAA. THIS HAS NOT BEEN DONE BY THE LOWER AUTHORITIES. 4.3 IN REPLY, THE LD. DR SUBMITTED THAT IN TH E PAST THE WHOLE OF THE PROFITS ATTRIBUTABLE TO REVENUES RECEIVED FROM C LIENTS IN INDIA WAS CONSIDERED TO BE THE PROFIT OF THE PE. THIS POS ITION WAS ACCEPTED BY THE ASSESSEE ON THE BASIS OF RESOLUTION OF THE COMPETE NT AUTHORITIES FOR ASSESSMENT YEARS 1996-97 TO 2000-01. THE ASSE SSEE CONTINUED TO FILE THE RETURNS FOR SUBSEQUENT YEARS ON THIS BASIS. HOWEVER, FOR THE FIRST TIME IN ASSESSMENT YEAR 2005-06, IT WAS PLEADED T HAT PROFITS ATTRIBUTABLE TO PE IN INDIA ONLY SHOULD BE BROUGHT TO TAX. THIS IS CONTRARY TO THE POSITION ACCEPTED IN PAST RIGHT UP TO ASSESSM ENT YEAR 2004-05. FURTHER, IT WAS SUBMITTED THAT THE ASSESSEE FAILED TO SUBSTANTIATE ITS CLAIM THAT CERTAIN EXPENSES INCURRED OUTSIDE INDIA COULD BE ATTRIBUTED TO THE PE IN INDIA. THEREFORE, THE AO WAS JUSTIFIED IN MA KING CERTAIN DISALLOWANCES BEFORE COMPUTING THE INCOME. THE LD. CIT(APPEA LS), EXCEEDING HIS JURISDICTION, RESTORED THE MATTER TO THE FILE OF THE AO, WITH A VIEW TO TAKE THE REVISED RETURN INTO ACCOUNT AND RE-COMPUTE THE INCOME, ALTHOUGH HE ITA NOS. 3384&3285(DEL)/2009 11 ACCEPTED THAT THE COMPUTATION OF INCOME MAY BE MADE ON A FAIR BASIS, WHICH WAS WITHIN THE JURISDICTION OF THE AO. IT WAS HIS CASE THAT THE ORDER OF THE AO IS REQUIRED TO BE CONFIRMED ON THE BAS IS OF PRINCIPLE OF CONSISTENCY. 4.4 IN ORDER TO SUPPORT HIS CONTENTIONS, RELIANCE WAS PLACED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF RADHASOAMI SATSANG VS. CIT (1992) 193 ITR 321, IN WHICH THE HONBL E COURT DID TAKE INTO ACCOUNT THE POSITION OF LAW THAT THE PRINCIPLE OF RES-JUDICATA DOES NOT APPLY TO INCOME-TAX PROCEEDINGS, AS EACH YEAR WAS A SELF-CONTAINED YEAR OF ASSESSMENT. HOWEVER, IT WAS HELD THAT WHERE A FUNDAMENTAL ASPECT PERMEATES THROUGH DIFFERENT ASSESSMENT YEARS, ON WHICH A DECISION HAS TAKEN ONE WAY OF THE OTHER AND THE PARTIES HA VE ALLOWED THAT DECISION TO HOLD GOOD, IT WOULD NOT BE APPROPRIATE TO CHAN GE THAT POSITION IN A SUBSEQUENT YEAR. THE COURT WAS AT PAINS TO ST ATE THAT THIS RATIO IS CONFINED TO THE FACTS OF THE CASE ONLY AND SHO ULD NOT BE TREATED AS AN AUTHORITY FOR GENERAL APPLICATION. FURTHER, RELIANCE WAS PLACED ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. NEW POLY PACK (P) LTD. (2000) 245 ITR 492. IN THAT CA SE, RENTAL INCOME FROM FACTORY BUILDING WAS BEING ASSESSED AS BUSINES S INCOME, BUT THE AO ITA NOS. 3384&3285(DEL)/2009 12 ASSESSED THE RENT UNDER THE HEAD INCOME FROM HO USE PROPERTY. THE CIT(A) AND THE TRIBUNAL HELD THE MATTER IN FAVOU R OF THE ASSESSEE BY POINTING OUT THAT THE INCOME WAS HELD TO BE BU SINESS INCOME IN EARLIER YEARS. THE HONBLE COURT HELD THAT FOR THE SAK E OF CONSISTENCY, THE SAME VIEW SHOULD CONTINUE TO PREVAIL IN SUBSEQUENT YEAR S UNLESS THERE IS SOME MATERIAL CHANGE IN THE FACTS OF THE CASE. RELI ANCE WAS ALSO PLACED ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CAS E OF CIT VS. ARJ SECURITY PRINTERS (2003) 264 ITR 276. IN THA T CASE, THE TRIBUNAL HAD ALLOWED RELIEF TO THE ASSESSEE U/S 80-I. T HEREFORE, SIMILAR RELIEF WAS GRANTED IN SUBSEQUENT YEARS. THE EARLIER ORDERS WERE NOT CHALLENGED AND HAD ATTAINED FINALITY. THE HONBLE COURT HELD TH AT WHEN THERE IS NO CHANGE IN THE BUSINESS OF THE ASSESSEE, RELIEF U/S 80I CANNOT BE DENIED TO IT IN RESPECT OF SOME ASSESSMENT YEARS. THEREFORE, THE ORDER OF THE TRIBUNAL WAS UPHELD. 4.5 WE HAVE CONSIDERED THE FACTS OF THE CASE A ND RIVAL SUBMISSIONS. IT IS THE CASE OF THE LD. DR THAT A CONSISTENT APPR OACH HAS TO BE FOLLOWED IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE. THE ASSESSEE HAS BEEN ASSESSED TO TAX SINCE ASSESSMENT YEAR 1996-97 . AS THERE WERE DISPUTES ABOUT THE VERY EXISTENCE OF THE LIABILITY AS WE LL AS THE QUANTUM OF THE ITA NOS. 3384&3285(DEL)/2009 13 LIABILITY, THE ASSESSEE MOVED AN APPLICATION F OR RESOLUTION OF THE DISPUTE UNDER MAP. THE COMPETENT AUTHORITIES OF THE TW O COUNTRIES CAME TO AN AGREED RESOLUTION THAT (I) THE PERSONNEL OF THE ASSESSEE WHO VISITED INDIA AND CARRIED OUT ACTIVITIES ON BEHALF OF THE ASSESSEE CONSTITUTED ITS PE AS THEIR ACTIVITIES EXCEEDED PREPARATORY A ND AUXILIARY ACTIVITIES, (II) ALL AMOUNTS RECEIVED BY THE ASSESSEE FROM ITS MEMBERS IN INDIA SHALL CONSTITUTE THE REVENUE OF THE PE, AND (III) D EDUCTION SHALL BE ALLOWED FOR ALL EXPENSES INCURRED IN INDIA AND OUTSIDE IND IA ATTRIBUTABLE TO THE RECEIPTS FROM INDIAN MEMBERS SUBJECT TO LIMITA TION PLACED BY THE DOMESTIC LAW OF INDIA. THIS RESOLUTION WA S ACCEPTED BY THE ASSESSEE AS ALL APPEALS IN THIS MATTER FOR ASSESSMENT YEARS 1996-97 TO 2000-01 WERE WITHDRAWN. THE ASSESSMENTS FOR ASSESSMENT YEARS 2001-02 AND 2002-03 WERE MADE ON THE SAME LINES. HOWEVER , THE AO CHANGED THE METHOD OF ASSESSMENT IN ASSESSMENT YEARS 200 3-04 AND 2004-05 AND FOLLOWED THE GNOM METHOD, OSTENSIBLY FOR TH E REASON THAT THE ASSESSEE WAS NOT IN A POSITION TO FURNISH EVIDE NCE IN RESPECT OF COMMON EXPENSES INCURRED OUTSIDE INDIA. SUCH WAS AL SO THE POSITION IN EARLIER YEARS. THE ASSESSEE ALSO ACCEPTED THESE ORDER S. HOWEVER, ON RECEIPT OF THESE ORDERS, THE ASSESSEE REVISED ITS RETURN O F INCOME FOR ASSESSMENT YEAR 2005-06 TO BRING IT IN LINE WITH GNOM METHOD OF COMPUTING THE ITA NOS. 3384&3285(DEL)/2009 14 TOTAL INCOME. THE AO TREATED THIS RETURN AS INVALID AND MENTIONED THAT THIS METHOD, PERMITTED UNDER RULE 10, WAS NOT THE METHOD PRESCRIBED BY THE COMPETENT AUTHORITIES. THEREFORE, THE QU ESTION IS WHETHER, NET MARGIN METHOD IS THE CONSISTENT METHOD OF GNOM MET HOD IS THE CONSISTENT METHOD LOOKING TO THE HISTORY OF THE CASE? THIS IS A FUNDAMENTAL QUESTION WHICH HAS ARISEN AND WHICH WILL ARISE IN ALL THE YEARS. THEREFORE, ACCORDING TO US THE RULE OF CONSISTENCY SHALL PREV AIL IN THIS MATTER. WE ARE OF THE VIEW THAT ASSESSMENTS FOR 7 YEARS FRO M ASSESSMENT YEAR 1996-97 TO ASSESSMENT YEAR 2002-03 WERE MADE ON THE B ASIS OF THE RESOLUTION OF THE COMPETENT AUTHORITIES, I.E., NET MARGIN METH OD. THIS METHOD WAS REVISED BY THE AO IN ASSESSMENT YEARS 2003-04 AND 2004-05 TO GNOM METHOD. THESE YEARS ARE NOT PENDING BEFORE US BECAUSE AS MENTIONED EARLIER THESE ORDERS WERE ACCEPTED BY THE ASSE SSEE. HOWEVER, ACCEPTANCE OF THESE ORDERS DOES NOT BY ITSELF LEAD TO THE CONCLUSION THAT GNOM WAS THE CONSISTENT METHOD FOLLOWED IN THE PAST FOR CO MPUTING THE INCOME, THE REASON BEING THAT NET MARGIN METHOD WAS FOLLOWED EARLIER FOR SEVEN YEARS FROM ASSESSMENT YEAR 1996-97 TO ASSESSMENT YEAR 2 002-03. THE CONCURRENCE OF THE COMPETENT AUTHORITIES IN RESPE CT OF THIS METHOD OF ACCOUNTING FURTHER STRENGTHENS OUR VIEW THAT N ET MARGIN METHOD WAS THE CONSISTENT METHOD FOR COMPUTATION OF INCOME NO TWITHSTANDING THE FACT ITA NOS. 3384&3285(DEL)/2009 15 THAT SUCH COMPUTATION INVOLVED CERTAIN PROBLEMS REGARDING ASCERTAINMENT OF COMMON EXPENSES. THUS, WE ARE OF THE VIEW TH AT THE AFORESAID NET MARGIN METHOD IS THE CONSISTENT METHOD OF COMPUTA TION OF THE TOTAL INCOME OF THE ASSESSEE, WHICH SHOULD ALSO BE FOLLOW ED IN ASSESSMENT YEAR 2005-06. IN THIS YEAR, THE ORIGINAL RETURN WAS FI LED ON THE BASIS OF AFORESAID METHOD, BUT A REVISED RETURN WAS ALSO FILED ON GNOM METHOD BECAUSE OF ASSESSMENT ORDERS PASSED BY THE AO FOR ASSESSM ENT YEARS 2003-04 AND 2004-05. LOOKING TO OUR FINDING ABOVE, IT IS HEL D THAT THE METHOD FOLLOWED IN THE REVISED RETURN WAS NOT THE CONSISTENT MET HOD OF COMPUTING THE TOTAL INCOME. THEREFORE, THE AO IS DIRECTED TO COMPUTE THE PROFIT ON THE BASIS OF NET MARGIN METHOD. THE DIFFICULTY IN THIS REGARD IS TO ALLOCATE GENERAL EXPENSES INCURRED OUTSIDE INDIA TO THE INCOME AT TRIBUTABLE TO THE PE AND APPLICABILITY OF THE PROVISION CONTAINED IN SECTIO N 44C. WE ARE OF THE VIEW THAT SUCH DIFFICULTY EXISTED IN EARLIER YEARS ALSO WHEN THIS METHOD WAS EMPLOYED. THEREFORE, WE ARE ALSO OF THE VIEW T HAT THE INCOME FOR THIS YEAR SHOULD BE COMPUTED IN THE SAME MANNER IN WHI CH INCOMES OF SEVEN YEARS WERE COMPUTED ON NET MARGIN METHOD BASIS. WE ARE FORTIFIED IN THIS VIEW BY THE FACT THAT EVEN IF BOOKS OF ACCOUNT ARE TO BE REJECTED ON THE GROUND THAT COMPLETE DETAILS OF COMMON EXPENS ES AND VOUCHERS ARE NOT AVAILABLE, THE ONLY RECOURSE LEFT TO THE AO WILL BE TO REJECT THE ITA NOS. 3384&3285(DEL)/2009 16 ACCOUNTS AND ESTIMATE INCOME ON A REASONABLE BASIS, WHICH WILL INVARIABLY INVOLVE CONSIDERATION OF THE COMPUTA TION OF INCOME IN THE EARLIER YEARS. SUCH A CONSIDERATION WOULD NOT JUSTIFY SUCH A HIGHER RATIO OF PROFIT TO THE RECEIPT FROM THE INDIAN CLIENTS , AS COMPUTED BY THE AO FOR THIS YEAR. HAVING STATED AS AFORESAID, IT IS EXPECTED THAT THE ASSESSEE SHALL PLACE WHATEVER EVIDENCE IT HAS BEFORE THE AO, WHO SHALL THEREAFTER TAKE A REASONABLE VIEW IN THE MATTER. IN ORDER TO ACHIEVE THIS PURPOSE, BOTH THE SIDES WILL BE AT LIBERTY TO LEAD ANY EVIDENCE IN THIS REGARD AS THOUGHT FIT. HOWEVER, THIS ORDER WILL BE SUBJECT TO THE LIMITATION THAT THE ASSESSED INCOME SHALL IN NO CASE EXCEED THE EAR LIER ASSESSED INCOME FOR THE REASON THAT THE TRIBUNAL HAS NO POWER TO ENH ANCE THE ASSESSMENT. THUS, THIS ISSUE IS RESTORED TO THE FILE OF THE AO FOR FRESH ADJUDICATION. 5. GROUND NO. 3 IS REGARDING NON-CHARGEABILITY OF INTEREST U/S 234-B. THE CASE OF THE ASSESSEE IS THAT THE WHOLE O F ITS REVENUE WAS LIABLE TO DEDUCTION OF TAX AT SOURCE U/S 195 OF THE ACT. THEREFORE, THERE WAS NO LIABILITY TO PAY ADVANCE-TAX U/S 209. IN SUCH A SITUATION, THE ASSESSEE COULD NOT BE FASTENED WITH THE LIABILITY U/S 234 -B. WE FIND THAT THIS ISSUE STANDS COVERED BY THE ORDER OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MOTOROLA INC., 95 ITD 269. FOLLOWING TH AT DECISION, IT IS HELD THAT THE ASSESSEE IS NOT LIABLE TO PAY INTEREST U/S 234B OF THE ACT. ITA NOS. 3384&3285(DEL)/2009 17 6. THE ONLY GRIEVANCE RAISED BY THE REVENUE IS TH AT THE LD. CIT(APPEALS) EXCEEDED HIS JURISDICTION WHEN COMPUTATION OF INCO ME WAS RESTORED TO THE FILE OF THE AO. WE HAVE RESTORED THE COMPUTATIO N OF INCOME TO THE FILE OF THE AO AND, THUS, THIS GROUND BECOMES INFRUCTUO US. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND THE APPEAL OF THE RE VENUE IS DISMISSED AS INFRUCTUOUS. THE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 19TH MARCH, 2010. SD/- SD/- (C.L. SETHI) (K.G.BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE OF ORDER: 19TH MARCH, 2010. SP SATIA COPY OF THE ORDER FORWARDED TO:- 1. MASTERCARD INTERNATIONAL INC.,GURGAON. 2. ADIT, CIRCLE 3(1), INTERNATIONAL TAXATION, NEW DELHI. 3. CIT(A) 4. CIT- 5. DR, ITAT, NEW DELHI. ASSISTANT REGISTRA R.