Guardian Industries Corp., New Delhi V. Asst. DIT, New Delhi

ITA 4963/DEL/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4013 (ITAT-DELHI)
• Duration Of Justice: 6 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-05-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 12-05-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 12-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K MAHAJAN
• Assessee Lawyers: AVDHESH BANSAL
• Keywords: Reopening of assessment; Double taxation relief; Difference of opinion; Change of opinion
• Section: 143(3); 147; 148; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL [ DELHI BENCH C DELHI ] BEFORE SHRI I. P. BANSAL, JM & SHRI K. D. RANJAN, AM I. T. A. NOS. 4962, 4963 & 4964 (DEL) OF 2010 ASSESSMENT YEARS : 2002-03, 2003-04 & 2004-05. M/S. GUARDIAN INDUSTRIES CORP., ASSTT. DIRECTOR OF INCOME-TAX, C / O. VAISH ASSOCIATES, ADVOCATES, VS. C I R C L E : 1 (2), 10, HAILEY ROAD, FLAT NOS. 5 7, INTERNATIONAL TAX ATION, N E W D E L H I 110 001. N E W D E L H I. P A N / G I R NO. AAB CG 8238 Q. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY : SHRI AJAY VOHRA, ADV.; & SHRI AVDHESH BANSAL, A. R.; DEPARTMENT BY : SHRI A. K. MAHAJAN [CIT] D. R.; O R D E R. PER K. D. RANJAN, AM : THESE THREE APPEALS BY THE ASSESSEE FOR ASSESSMENT YEARS 2002-03, 2003-04 AND 2004-05 ARISE OUT OF SEPARATE ORDERS PASSED BY THE ASSESSING OFFICER UNDER SECTION 143(3) READ WITH SECTION 144-C OF THE INCOME-TAX ACT, 1961 [HEREINAFTER REFERRED TO AS THE ACT]. THESE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF , FOR THE SAKE OF CONVENIENCE, BY THIS CONSOLIDATED ORDER. 2. THE GROUNDS OF APPEAL RAISED IN THESE APPEALS AR E IDENTICAL AND FOR THE SAKE OF CONVENIENCE, THE GROUNDS OF ASSESSMENT YEAR 2002-03 ARE REPRODUCED AS UNDER :- 2 I . T. A. NOS. 4962, 4963 & 4964 (DEL) OF 2010 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ORDER PASSED BY THE ASSESSING OFFICER UNDER SECTION 148/143(3) READ WITH SECTION 144-C OF THE INCOME-TAX ACT, 1961 (THE ACT) WAS BEYOND JURISDI CTION, BAD IN LAW AND VOID-AB-INITIO; 2. THAT ON THE FACTS AND CIRCUMSTANCES OF T HE CASE, THE RE-ASSESSMENT PROCEEDINGS HAVING BEEN INITIATED BY THE ASSESSING OFFICER ON A MERE CHANGE OF OPINION WITHOUT FORMING REASONABLE BELIEF OF ESCAPE MENT OF INCOME THE ORDER PASSED WAS ILLEGAL AND BAD IN LAW; 3. THAT ON THE FACTS AND CIRCUMSTANCES OF T HE CASE, THE ORDER PASSED BY THE ASSESSING OFFICER UNDER SECTION 148 / 143(3) / 144-C PURSUANT TO NOTICE DATED 30/03/2009 ISSUED UNDER SECTION 148 OF THE AC T AFTER EXPIRY OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR, IS BARRED BY LIMITATION AND BAD IN LAW; 4. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN ALLEGING THAT THERE WAS FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE THE RATE OF TAXATION OF ROYALTY @ 20 PER CENT INSTEAD OF 15 PER CENT AS PER THE DTAA; 5. THAT ON THE FACTS AND CIRCUMSTANCES OF T HE CASE, THE ORIGINAL ORDER OF ASSESSMENT HAVING ALREADY MERGED WITH THE ORDER OF THE TRIBUNAL, THE IMPUGNED ORDER PASSED UNDER SECTIONS 148 / 143(3) READ WITH 144-C OF THE ACT IS ILLEGAL, BAD IN LAW AND VOID-AB-INITIO SINCE THE SAME ONLY S EEKS TO CIRCUMVENT THE ORDER OF THE TRIBUNAL; 6. THAT THE ASSESSING OFFICER HAS ERRED ON FACTS AN D IN LAW IN HOLDING THAT THE ROYALTY INCOME FOR THE RELEVANT ASSESSMENT YEAR WAS TAXABLE @ 20 PER CENT IN TERMS OF ARTICLE 12 OF THE DOUBLE TAXATION AVOIDANC E AGREEMENT BETWEEN INDIA AND USA [DTAA]. 3.1 THE ASSESSEE HAS CHALLENGED RE-OPENING OF ASSE SSMENT UNDER SECTION 147 OF THE ACT IN THESE APPEALS. THE FACTS OF THE CASE STATED IN BRI EF ARE THAT ORIGINAL ASSESSMENTS IN THESE YEARS WERE PASSED UNDER SECTION 143(3), DETAILED AS UNDER :- ASSESSMENT YEAR SECTION DATE OF FILING OF RETURN DATE OF ORDER 2002-03 143(3) 30/10/2002 30 TH MARCH, 2005. 2003-04 143(3) 02/12/2003 24 TH MARCH, 2006. 2004-05 143(3) 26/10/2004 19 TH DECEMBER, 2006. 3 I . T. A. NOS. 4962, 4963 & 4964 (DEL) OF 2010 3.2 THE ASSESSEE IS A COMPANY INCORPORATED IN USA A ND IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF FLOAT GLASS. IN TERMS OF C OLLABORATION AGREEMENT DATED 5/06/1990, FLOAT PLANT SERVICE AGREEMENT DATED 4/12/1990 WAS ENTERED INTO BY THE ASSESSEE WITH GUJARAT GUARDIAN LTD. [GGL]. THE ASSESSEE WAS TO RECEIVE ROYALTY FRO M GGL FOR A PERIOD OF 8 YEARS FROM THE EFFECTIVE DATE OF AGREEMENT I.E. 1ST MARCH, 1993 TO 28 TH FEBRUARY, 2001. THE ASSESSEE VIDE LETTER DATED 30 TH OCTOBER, 1992 ADDRESSED TO INDUSTRIAL DEVELOPMENT BANK OF INDIA (IDBI, THE LEAD BANK AMONGST THE CONSORTIUM OF LENDERS) HAD GIVEN A N UNDERTAKING THAT THE ASSESSEE WOULD NOT ACCEPT, CLAIM OR REQUEST FOR PAYMENT DUE UNDER THE FLOAT GLASS SERVICE AGREEMENT DURING ANY TIME WHEN GGL HAD FAILED TO SUBMIT PAYMENT OF ANY INSTAL LMENT OF PRINCIPAL OR INTEREST WHEN DUE TO THE LENDER FINANCIAL INSTITUTIONS. SUBSEQUENTLY, I DBI VIDE ITS LETTER DATED 14/2/1992 REQUIRED AN UNDERTAKING FROM GGL TO THE EFFECT THAT SAID GGL WO ULD NOT MAKE PAYMENT OF ROYALTIES TO THE ASSESSEE DURING ANY TIME TILL SUCH TIME PAYMENT OF INSTALLMENT OF PRINCIPAL, INTEREST AND ANY OTHER MONEYS WERE OUTSTANDING TO THE INSTITUTIONS. GGL A CCORDINGLY VIDE LETTER DATED 27 TH FEBRUARY, 1993 HAD GIVEN AN UNDERTAKING TO THE FINANCIAL UNDE RTAKING NOT TO MAKE PAYMENT OF ROYALTIES TO THE ASSESSEE UNDER THE FLOAT GLASS SERVICE AGREEMEN T DURING ANY TIME WHEN PAYMENT OF PRINCIPAL, INTEREST AND ANY OTHER MONEYS WERE OUTSTANDING TO T HE FINANCIAL INSTITUTIONS. THE CONTRACTUAL AGREEMENT BETWEEN THE ASSESSEE AND GGL FOR PAYMENT OF ROYALTY WAS A CONSEQUENCE MODIFIED BY VIRTUE OF THE STIPULATION OF THE IDBI. DUE TO I NADEQUATE PROFITS/CASH AND SUBSEQUENT DEFAULTS IN PAYMENT OF FINANCIAL INSTITUTIONS DUES GGL COUL D NOT PAY ANY ROYALTY TO THE ASSESSEE FOR THE PERIOD COMMENCING FROM 1 ST MARCH, 1993 IN TERMS OF FLOAT GLASS SERVICE AGREEM ENT. ON IMPROVEMENT OF CASH POSITION GGL VIDE LETTER DATED 29 TH SEPTEMBER, 1999 REQUESTED THE FINANCIAL INSTITUTIONS FOR APPROVAL FOR PAYMENT OF ROYALTY TO THE ASSESSEE. 3.3 SUBSEQUENTLY IDBI VIDE ITS LETTER DATED 26/11/1 999 ALLOWED PAYMENT OF ROYALTY FROM 1ST APRIL, 1999 TO 28 TH FEB., 2001 AND AS REGARD THE PAST ROYALTY UPTO 31 ST MARCH, 1999 IT WAS ADVISED THAT A VIEW WOULD BE TAKEN AT A LATER DATE. GGL STARTED PAYING ROYALTY FROM FINANCIAL YEAR 1999-2000 AND HAD PAID ROYALTY FOR THE PERIOD 1 ST APRIL, 1999 TO 28 TH FEBRUARY, 2001. 4.1 DURING THE PREVIOUS YEAR 2001-02 IDBI VIDE LETT ER DATED 26 TH APRIL, 2001 GAVE APPROVAL FOR PAYMENT OF PAST ROYALTY OF RS.284.8 MILLIONS FO R THE PERIOD 1 ST MARCH, 1993 TO MARCH, 1999 4 I . T. A. NOS. 4962, 4963 & 4964 (DEL) OF 2010 TO THE ASSESSEE IN 6 SEMI-ANNUAL INSTALLMENTS COMME NCING FROM 1 ST OCT., 2001 TILL APRIL, 2004 SUBJECT TO AVAILABILITY OF CASH AND THERE BEING NO OVER DUES PAYABLE BY GGL. ACCORDINGLY, THE ASSESSEE RECEIVED ROYALTY OF RS.11,96,32,949/- FROM GGL FOR THE PERIOD 1 ST APRIL, 1997 TO 31 ST MARCH, 1999 DURING THE PREVIOUS YEAR RELEVANT TO A SSESSMENT YEAR 2002-03. THE ASSESSING OFFICER ASSESSED THE ENTIRE AMOUNT OF ROYALTY OF RS .284.8 MILLIONS IN ASSESSMENT YEAR 2002-03, WHEN THE IDBI VIDE LETTER DATED 26 TH APRIL, 2001 ACCORDED APPROVAL FOR PAYMENT OF SUCH PAST UNPAID ROYALTY. THE MATTER REACHED ITAT. ITAT VID E ORDER DATED 31 ST MARCH, 2008 IN I. T. APPEAL NO. 4623 (DEL) OF 2005 HELD THAT ROYALTY INC OME ACCRUED IN FAVOUR OF THE ASSESSEE ONLY IN THE YEAR IN WHICH RIGHT TO RECEIVE INCOME ACCRUED T O THE ASSESSEE. ACCORDINGLY, ROYALTY OF RS.5.98 CRORES FOR THE PERIOD 1/04/1993 TO 31 ST MARCH, 1994 WAS TO BE TAXED IN ASSESSMENT YEAR 2002-03; (II) ROYALTY OF RS.10.17 CRORES ACCRUED I N ASSESSMENT YEAR 2003-04; AND (III) ROYALTY OF RS.11.96 CRORES ACCRUED IN ASSESSMENT YEAR 2004-05. 4.2 SUBSEQUENTLY, THE ASSESSING OFFICER ON 27 TH MARCH, 2009 ISSUED NOTICE UNDER SECTION 148 FOR REOPENING OF THE ASSESSMENT FOR THE REASON THAT AS PER PROVISIONS OF DTAA THE ROYALTY INCOME PERTAINING TO THE PERIOD MARCH, 1993 TO DECE MBER, 1999 SHOULD HAVE BEEN TAXED AT THE RATE OF 20 PER CENT INSTEAD OF 15 PER CENT APPLIED IN THE ASSESSMENT ORDER FOR ASSESSMENT YEAR 2002-03. THE ASSESSEE OBJECTED TO REOPENING OF ASS ESSMENT VIDE LETTER DATED 4/12/2009, WHICH WERE DISPOSED OF ON 22/12/2009. WHILE COMPLETING T HE REASSESSMENT THE ASSESSING OFFICER NOTED THAT THE APPLICATION FOR PROPER RATE OF TAX WAS NEV ER AN ISSUE BEFORE THE ITAT, WHOSE MAIN THRUST WAS ON THE ACCRUAL OF ROYALTY IN DIFFERENT ASSESSME NT YEARS BASED ON THE STIPULATIONS IMPOSED BY THE IDBI. THE ACT PROVIDES ASSESSMENT OF INCOME IN THE CASE OF ROYALTY ON ACCRUAL BASIS AND IT IS APPARENT THAT ROYALTY WAS PAYABLE IN THE YEAR IN WH ICH SERVICES WERE RENDERED / TECHNOLOGY TRANSFERRED / COMMERCIAL PRODUCTION STATED. IN THE CASE OF THE ASSESSEE THE DATE OF COMMERCIAL PRODUCTION STARTED ON 1/04/1993. THE PAYER HAD RIG HTLY BOOKED THE EXPENSES IN ITS BOOKS OF ACCOUNTS IN THE RELEVANT ASSESSMENT YEAR AND THE BU RDEN WAS ON THE ASSESSEE TO BRING THIS MATERIAL FACT TO THE NOTICE OF THE ASSESSING OFFICE R AND TAX HAD TO BE LEVIED AT THE RATE OF 20 PER CENT AS PER DTAA APPLICATION WHEN THE TECHNOLOGY TRANSFERRED / PRODUCTION BEGAN AND NOT THE CONDITION STIPULATED BY IDBI WERE GIVEN EFFECT TO. AS PER DTAA FOR FIRST FIVE YEARS THE ROYALTY 5 I . T. A. NOS. 4962, 4963 & 4964 (DEL) OF 2010 WAS REQUIRED TO BE TAXED AT THE RATE OF 20 PER CENT AND NOT AT THE RATE OF 15 PER CENT AS WAS DONE IN ORIGINAL ASSESSMENT ORDER. 4.3 THE ASSESSING OFFICER SENT DRAFT ASSESSMENT ORD ER TO DRP FOR ASSESSING THE ROYALTY INCOME AT THE RATE OF 20 PER CENT. THE ASSESSEE RAISED OB JECTIONS BEFORE THE DRP AGAINST REOPENING OF ASSESSMENT AS WELL AS TAXABILITY OF ROYALTY AT THE RATE OF 20 PER CENT AS AGAINST 15 PER CENT ASSESSED ORIGINALLY. AS REGARDS REOPENING OF ASSES SMENT DRP HAS OBSERVED THAT THERE WAS FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE THE RATE OF TAXATION OF ROYALTY AND, THEREFORE, REOPENING OF ASSESSMENT WAS VALID. AS REGARDS THE ASSESSMENT OF ROYALTY AT THE RATE OF 20 PER CENT DRP HAS OBSERVED THAT IT IS THE CASE OF PAYMENT OF ROYALTY, WHICH HAS ACCRUED IN EARLIER YEARS. THE ISSUING OF LETTER TO THE BANK HAS SIMPLY POSTPONED THE RECE IPT OF ROYALTY, WHICH HAS ALREADY ACCRUED IN EARLIER YEARS. THE DRP ACCORDINGLY UPHELD THE ORDE R OF THE ASSESSING OFFICER, ASSESSING THE ROYALTY AT THE RATE OF 20 PER CENT, AS AGAINST 15 P ER CENT EARLIER ASSESSED. 5.1 BEFORE US THE LD. AR OF THE ASSESSEE SUBMITTED THAT THE AMOUNT OF ROYALTY OF RS.284.8 MILLIONS HAS BEEN ASSESSED IN ASSESSMENT YEARS 2002 -03, 2003-04 AND 2004-05 AS PER THE DECISION OF THE ITAT. THE DECISION OF THE ITAT HAS BEEN ACCEPTED BY THE REVENUE AND HAS BECOME FINAL. THE ASSESSING OFFICER ISSUED NOTICE UNDER SECTION 147 OF THE ACT FOR THESE YEARS ON 27 TH MARCH, 2009. THEREFORE, THE NOTICE HAS BEEN ISSUE D FOR ASSESSMENT YEARS 2002-03 AND 2003- 04 AFTER EXPIRY OF FOUR YEARS FROM THE END OF THE A SSESSMENT YEAR IN WHICH THE INCOME WAS FIRST ASSESSABLE. FOR ASSESSMENT YEAR 2002-03 THE NOTICE SHOULD HAVE BEEN ISSUED BY 31 ST MARCH, 2007 AND FOR ASSESSMENT YEAR 2003-04 BY 31 ST MARCH, 2008. SINCE THE ASSESSMENT FOR ASSESSMENT YEARS 2002-03 AND 2003-04 HAS BEEN ISSUED AFTER EXP IRY OF FOUR YEARS, THE ASSESSEES CASE FALLS UNDER PROVISO TO SECTION 147, ACCORDING TO WHICH, T HERE SHOULD BE FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL F ACTS NECESSARY FOR HIS ASSESSMENT. FOR ASSESSMENT YEAR 2004-05 THE NOTICE HAS BEEN ISSUED WITHIN THE PERIOD OF FOUR YEARS. HOWEVER, SINCE THE ASSESSING OFFICER HAS ASSESSED THE ROYALT Y ASSESSABLE IN ASSESSMENT YEAR 2004-05 AT THE RATE OF 15 PER CENT, REOPENING OF ASSESSMENT UNDER SECTION 147 OF THE ACT AMOUNTS TO CHANGE OF OPINION, WHICH IS NOT PERMITTED IN VIEW OF THE JUDI CIAL PRONOUNCEMENTS. THE LD. AR OF THE ASSESSEE FURTHER SUBMITTED THAT INDO-US DOUBLE TAXA TION AVOIDANCE AGREEMENT CAME INTO EFFECT 6 I . T. A. NOS. 4962, 4963 & 4964 (DEL) OF 2010 WITH EFFECT FROM 20 TH DECEMBER, 1990. ROYALTIES AND FEE FOR INCLUDED SE RVICES ARE ASSESSED TO TAX UNDER ARTICLE 12 OF INDO-US DTAA. HE REFERRED TO PARAGRAPH 2(A) OF ARTICLE 12, WHICH PRESCRIBES THE RATE OF TAXATION IN CASE OF ROYALTIE S AND FEE FOR INCLUDED SERVICES. AS PER PARAGRAPH 2(A)(I) THE RATE OF TAX DURING THE FIRST FIVE TAXAB LE YEARS FOR WHICH INDO-US DOUBLE TAXATION AGREEMENT HAS EFFECT THE ROYALTY AND FEE FOR TECHNI CAL SERVICES WILL BE ASSESSABLE TO TAX AT THE RATE OF 20 PER CENT AND IN SUBSEQUENT YEARS AT THE RATE OF 15 PER CENT OF THE GROSS AMOUNT OF ROYALTIES OR FEE FOR INCLUDED SERVICES. HE FURTHER SUBMITTED THAT TAXABLE YEAR FOR THE PURPOSES OF INDO-US DOUBLE TAXATION AGREEMENT MEANS THE PREVIOU S YEAR AS DEFINED IN INCOME-TAX ACT, 1961. SINCE INDO-US DOUBLE TAXATION AGREEMENT CAME INTO EFFECT ON 20 TH DECEMBER, 1990 I.E. DURING THE PREVIOUS YEAR 1990-91 RELEVANT TO ASSESS MENT YEAR 1991-92 THE PERIOD OF FIVE YEARS WILL EXPIRE IN ASSESSMENT YEAR 1996-97. 5.2 FROM ASSESSMENT YEAR 1997-98 ONWARDS UNDER INDO US CONVENTION ROYALTY AND FEE FOR TECHNICAL SERVICES WILL BE TAXABLE AT THE RATE OF 1 5 PER CENT. IN OTHER WORDS AFTER EXPIRY OF A PERIOD OF FIVE YEARS, THE ROYALTY AND FEE FOR TECHN ICAL SERVICES WILL BE TAXABLE AT THE RATE OF 15 PER CENT AND NOT AT THE RATE OF 20 PER CENT. SINCE THE ROYALTIES RECEIVED PERTAINING TO EARLIER YEARS HAVE BEEN HELD TO BE ASSESSABLE IN ASSESSMENT YEARS 2002-03, 2003-04 AND 2004-05, THE RATE OF TAXATION WILL BE 15 PER CENT AND NOT 20 PER CENT. THE LD. AR OF THE ASSESSEE ACCORDINGLY SUBMITTED THAT THE REOPENING OF ASSESSMENT IS NOT V ALID, AS THERE IS NO FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL F ACTS NECESSARY FOR HIS ASSESSMENT IN RESPECT OF ASSESSMENT YEARS 2002-03 AND 2003-04 AND THERE IS C HANGE OF OPINION IN ASSESSMENT YEAR 2004-05. ON THE OTHER HAND, THE LD. SR. DR SUPPORT ED THE ORDER OF THE LD. CIT (APPEALS). 6. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. THE ROYALTY INCOME FOR THE PERIOD 1 ST MARCH, 1993 TO 28 TH FEBRUARY, 2001 WAS ASSESSED BY THE ASSESSING OFFICER IN ASSESSMENT YEAR 2002-03. HOWE VER, ON APPEAL ITAT HAS HELD THAT THE AMOUNT OF ROYALTY WAS TO BE ASSESSED IN ASSESSMENT YEARS 2002-03, 2003-04 AND 2004-05. THE AO WHILE ASSESSING THE ENTIRE ROYALTY INCOME TO TAX IN ASSESSMENT YEAR 2002-03 HAS CHARGED RATE OF TAX AT 15 PER CENT. FURTHER INDO-US DOUBLE TAXA TION AVOIDANCE AGREEMENT WAS ENTERED INTO ON 20 TH DECEMBER, 1990. IN TERMS OF ARTICLE 12 READ WITH ARTICLE 13 THE FIRST FIVE TAXABLE YEARS 7 I . T. A. NOS. 4962, 4963 & 4964 (DEL) OF 2010 WOULD BE FIVE CONSECUTIVE PREVIOUS YEARS STARTING F ROM APRIL, 1990 I.E. PREVIOUS YEARS 1990-91 TO 1996-97 RELEVANT TO ASSESSMENT YEARS 1991-92 TO 199 6-97. THEREFORE, THE RATE OF 20 PER CENT WAS APPLICABLE IN RESPECT OF ROYALTY INCOME TAXABLE IN ASSESSMENT YEARS 1991-92 TO 1996-97. THEREAFTER I.E. FROM ASSESSMENT YEAR 1997-98 ONWARD S THE RATE OF TAX AT WHICH ROYALTY INCOME IS TO BE ASSESSED WILL BE 15 PER CENT AS SPECIFIED IN PARAGRAPH 2 (II) OF ARTICLE 12 OF DTAA. AS DISCUSSED ABOVE THAT THE ROYALTY WHICH ACCRUED TO T HE ASSESSEE FROM MARCH, 1991 TO 28 TH FEBRUARY, 2001 HAS BEEN ASSESSED IN ASSESSMENT YEAR S 2002-03, 2003-04 AND 2004-05 AND UPHELD BY THE TRIBUNAL. THEREFORE, THE RATE OF TAX AT WHI CH ROYALTY IS TO BE ASSESSED AFTER THE EXPIRY OF FIRST FIVE TAXABLE YEARS WILL BE 15 PER CENT AND NO T 20 PER CENT. THE CONTENTION OF REVENUE THAT ROYALTIES ACCRUED IN THE YEARS IN WHICH SERVICES WE RE RENDERED / TECHNOLOGY TRANSFERRED / COMMERCIAL PRODUCTION STARTED. THE ASSESSING OFFICE R HAD NOT ASSESSED ROYALTIES ON ACCRUAL BASIS. HAD ROYALTY BEEN ASSESSED ON ACCRUAL BASIS IT WOULD HAVE BEEN TAXED UP TO ASSESSMENT YEAR 1996- 97 @ 20% UNDER INDO-US TREATY. THE RATE OF TAX OF F IRST FIVE YEARS CANNOT BE SHIFTED TO SUBSEQUENT ASSESSMENT YEARS IN A CASE WHERE TAXABIL ITY OF AMOUNT SHIFTS TO SUBSEQUENT YEAR ON RECEIPT BASIS. IF THE ASSESSING OFFICER WANTED TO A SSESS ROYALTY @ 20% IN THE YEARS OF ACCRUAL HE SHOULD HAVE TAKEN STEPS TO ASSESS THE SAME IN THOSE YEARS. HAVING MISSED THE BUS HE CANNOT ASSESS THE SAME AT @ 20% WHEN HE ASSESSED THE ROYA LTY ON RECEIPT BASIS. 7.1 WE HAVE ALSO GONE THROUGH THE REASONS RECORDED BY THE ASSESSING OFFICER. THE ASSESSING OFFICER WHILE RECORDING THE REASONS HAS NOWHERE MEN TIONED THAT THERE WAS FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERI AL FACTS NECESSARY FOR HIS ASSESSMENT. HONBLE DELHI HIGH COURT IN THE CASE OF HARYANA ACRYLIC MAN UFACTURING CO. V CIT 308 ITR 038 HAS HELD AS UNDER (HEAD NOTES):- ACTION UNDER SECTION 147 OF THE INCOME-TAX ACT, 19 61, CAN BE TAKEN AFTER THE EXPIRY OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR ONLY IF ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR SUCH ASSESSMENT YEAR BY REASON OF THE FAILURE ON THE PART OF THE ASSESSEE (A) TO MAKE A RETURN UNDER SECTION 139 OR IN RESPONSE TO A NOTICE UNDER SUB-SECTION (1) OF SECTION 142 OR SECTION 148, OR ( II) TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT, FOR TH AT ASSESSMENT YEAR. THE PROVISO TO SECTION 147 CARVED OUT AN EXCEPTION FROM THE MAIN P ROVISIONS OF SECTION 147. IF A CASE 8 I . T. A. NOS. 4962, 4963 & 4964 (DEL) OF 2010 WERE TO FALL WITHIN THE PROVISO, WHETHER OR NOT IT WAS COVERED UNDER THE MAIN PROVISIONS OF SECTION 147 WOULD NOT BE MATERIAL. ONCE THE EXCE PTION CARVED OUT BY THE PROVISO CAME INTO PLAY, THE CASE WOULD FALL OUTSIDE THE AMBIT OF SECTION 147. HOWEVER, NO ACTION CAN BE TAKEN UNDER SECTION 147 AFTER THE EXPIRY OF FOUR YE ARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR IF THE CONDITIONS THAT (A) AN ASSES SMENT UNDER SUB-SECTION (3) OF SECTION 143 OR THIS SECTION HAS BEEN MADE FOR THE RELEVANT ASSESSMENT YEAR, AND (B) UNLESS ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR SUCH ASSESSMENT YEAR BY REASON OF THE FAILURE ON THE PART OF THE ASSESSEE : (I) TO MA KE A RETURN UNDER SECTION 139 OR IN RESPONSE TO A NOTICE ISSUED UNDER SUB-SECTION (1) O F SECTION 142 OR SECTION 148, OR (II) TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSA RY FOR HIS ASSESSMENT FOR THAT ASSESSMENT YEAR, ARE SATISFIED. MERELY HAVING A REASON TO BELI EVE THAT INCOME HAD ESCAPED ASSESSMENT IS NOT SUFFICIENT TO REOPEN ASSESSMENTS BEYOND THE PERIOD OF FOUR YEARS. THE ESCAPEMENT OF INCOME MUST ALSO BE OCCASIONED BY THE FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE MATERIAL FACTS FULLY AND TRULY. THIS IS A NECESSARY CONDITION FOR OVERCOMING THE BAR SET BY THE PROVISO TO SECTION 147. IF THIS COND ITION IS NOT SATISFIED, THE BAR WOULD OPERATE AND NO ACTION UNDER SECTION 147 COULD BE TA KEN. 7.2 THERE IS NO ALLEGATION IN REASONS RECORDED THAT FOR ASSESSMENT YEARS 2002-03 AND 2003-04 THERE WAS FAILURE ON PART OF THE ASSESSEE TO DISCLO SE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT. IN THE ABSENCE OF ANY SUCH REAS ONS RECORDED THE RE-OPENING OF ASSESSMENT IS NOT JUSTIFIED IN VIEW OF DECISION OF HONBLE DEL HI HIGH COURT IN THE CASE OF HARYANA ACRYLIC MANUFACTURING CO. V CIT (SUPRA). SIMILARLY FOR ASS ESSMENT YEAR 2004-05 THE ASSESSING OFFICER HAS APPLIED RATE OF TAX AT THE RATE OF 15 PER CENT AS APPLICABLE UNDER INDO-US DOUBLE TAXATION AVOIDANCE AGREEMENT AND REOPENING OF ASSESSMENT WIT HIN THE PERIOD OF FOUR YEARS FROM THE END OF THE ASSESSMENT YEAR IN WHICH THE INCOME WAS FIRST ASSESSABLE WOULD BE CHANGE OF OPINION. THE ASSESSING OFFICER HAVING APPLIED RATE OF 15 PER CENT WHILE ASSESSING THE ENTIRE INCOME FOR ASSESSMENT YEAR 2002-03 WHICH HAS BEEN A SSESSED IN ASSESSMENT YEARS 2002-03, 2003-04 AND 2004-05, THE REOPENING OF ASSESSMENT FO R A.Y. 2004-05 WOULD BE BASED ON CHANGE OF OPINION AS UPHELD BY THE HONBLE SUPREME COURT I N THE CASE OF CIT VS. KELVINATOR OF INDIA 320 ITR561 (SC). 9 I . T. A. NOS. 4962, 4963 & 4964 (DEL) OF 2010 8. IN VIEW OF ABOVE DISCUSSION, WE ARE OF THE CONSI DERED VIEW THAT THE REOPENING OF ASSESSMENT IS BAD IN LAW AS THE RATE APPLICABLE UND ER INDO-US DOUBLE TAXATION AVOIDANCE AGREEMENT FOR THE RELEVANT YEARS IS 15 PER CENT AND NOT 20 PER CENT. THEREFORE, THE ASSESSING OFFICER WAS NOT JUSTIFIED TO ISSUE REASSESSMENT PRO CEEDINGS FOR BRINGING THE ROYALTY INCOME AT THE RATE OF 20 PER CENT AS AGAINST 15 PER CENT ALREADY APPLIED BY THE ASSESSING OFFICER, WHICH IS IN LINE WITH THE RATE PRESCRIBED UNDER INDO US DOUBLE TAXAT ION AVOIDANCE AGREEMENT FOR THE YEARS UNDER APPEAL. ACCORDINGLY, ALL THE APPEALS ARE ALL OWED. 9. IN THE RESULT, ALL THE APPEALS FILED BY THE ASSE SSEE ARE ALLOWED. THE ORDER PRONOUNCED IN THE OPEN COURT ON : 20 TH MAY, 2011. SD/- SD/- [ I. P. BANSAL ] [ K. D. RANJAN ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 20 TH MAY, 2011. *MEHTA * COPY OF THE ORDER FORWARDED TO : - 1. APPELLANT. 2. RESPONDENT. 3. CIT, 4. CIT (APPEALS), 5. DR, ITAT, NEW DELHI. TRUE COPY. BY ORDER. ASSISTANT REGI STRAR, ITAT. 10 I . T. A. NOS. 4962, 4963 & 4964 (DEL) OF 2010