ADIT, New Delhi V. M/s. Nortel Networks Ltd., Gurgaon

ITA 5631/DEL/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 2728 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 7 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 23-07-2013
• Assessment Year: 2003-2004
• Appeal Filed On: 15-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAMEER SHARMA
• Assessee Lawyers: SALIL KAPOOR SHRI SANAT KAPOOR
• Keywords: Business income; Residential status; Wholly owned subsidiary; Difference of opinion; Change of opinion
• Section: 143(3); 5(2); 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH E NEW DELHI) BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A. NO.5631/DEL/2011 ASSESSMENT YEAR : 2003-04 ASST. DIRECTOR OF M/S NORTEL NETWORKS LTD., INCOME/TAAX, CIRCLE-2 (1), C/O SR BATLIBOI & CO. NEW DELHI. V. GOLF VIEW CORPORATION TOWER-B, SECTOR-42, GURGAON. (APPELLANT) (RESPONDENT) PAN /GIR/NO. PAN /GIR/NO. PAN /GIR/NO. PAN /GIR/NO.AACCN AACCN AACCN AACCN- -- -0722 0722 0722 0722- -- -B BB B APPELLANT BY : SHRI SAMEER SHARMA, SR. DR. RESPONDENT BY : SHRI SALIL KAPOOR, SHRI SANAT KAPOOR & SHRI VIKAS JAIN, ADVOCATES. ORDER PER TS KAPOOR, AM: THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORD ER OF LD CIT(A) DATED 1.8.2011. THE GROUNDS RAISED BY THE REVE NUE ARE AS UNDER:- 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN HOLDING THAT THE ASSESSEE DID NOT CONCEAL O R FURNISH INACCURATE PARTICULARS OF ITS INCOME. 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN IGNORING THAT THE AMOUNT OF PENALTY IMP OSED U/S 271(1)( C) IS WORKED OUT WITH REFERENCE TO THE TAX SO UGHT TO BE ITA NO5631/DEL/2011 2 EVADED AND THAT FURNISHING OF INACCURATE PARTICULARS OF INCOME IS A PRECLUDE TO TAX SOUGHT TO BE EVADED. 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS FAILED TO APPRECIATE THAT BY NOT DISCLOSING ITS COR RECT TAX LIABILITY, THE ASSESSEE HAS DEFAULTED IN TERMS OF PROVISIO N OF SECTION 271(1)( C) OF THE INCOME TAX ACT, 1961 . 4. THE APPELLANT PRAYS FOR LEAVE TO AD, AMEND, MODIFY OR ALTER ANY GROUNDS OF APPEAL AT THE TIME OF BEFORE THE HEARING OF THE APPEAL. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSMENT W AS COMPLETED U/S 143(3) AND THE CASE WAS REOPENED U/S 148 OF THE ACT. THE INCOME OF THE ASSESSEE WAS RE-ASSESSED. THE ASSESSEE IS AN AFFILIATED COMPANY OF NORTEL NETWORKS GROUP WHICH IS INCORPORATED IN SINGAPORE HAVING ITS HEADQUARTERS IN CANADA. THE ASSESSIN G OFFICER IN THE RE-ASSESSMENT ORDER HELD AS UNDER:- IN INDIA THE PRESENCE OF NORTEL GROUP HAS BEEN IN T HE FOLLOWING MANNER: I) THERE WAS A LIAISON OFFICE OF NORTEL NETWORK LTD. CAN ADA WHO IS A FLAGSHIP COMPANY OF THE GROUP AND IS VIRTUALLY T HE ULTIMATE PARENT COMPANY. THE SCOPE OF THE ACTIVITIES OF THE L.O. AS CLAIMED BY THE ASSESSEE WAS LIMITED TO CARRYING O UT OF LIAISON ACTIVITIES IN INDIA AND TO SPREAD AWARENESS ABOU T THE PRODUCTS OF THE NORTEL GROUP IN INDIA. II) THE COMPANY INCORPORATED IN INDIA NON 25.7.1996 BY THE NAME OF NORTEL NETWORK INDIA PRIVATE LIMITED (NORTE L INDIA). THIS IS A WHOLLY OWNED SUBSIDIARY OF NOTEL NETWORK MAUR ITIUS NORTEL INDIA IS STATED TO HAVE BEEN ENGAGED IN PROVID ING: A) MARKETING SERVICES TO NORTEL GROUP COMPANIES. ITA NO5631/DEL/2011 3 B) INSTALLATION, TESTING AND COMMISSIONING SERVICESD. C) TECHNICAL SERVICES INCLUDING REPAIR & MAINTENANCE OF EQUIPMENT SUPPLIED BY THE GROUP. ON THE BASIS OF ABOVE FACT, THE ASSESSING OFFICER HELD T HAT NATURE OF SERVICES PROVIDED BY THE ASSESSEE WERE NOT IN THE NATURE OF PROVIDING ONLY TECHNICAL SERVICES AND RATHER IT HAD A PE IN IND IA AND ITS INCOME WAS ASSESSABLE @ 20% INSTEAD OF 15% AS CALCULATED EARLIER. IN CONSEQUENT, OF THE RE-ASSESSMENT ORDER, THE PENALTY PROC EEDINGS U/S 271(1)(C ) WERE INITIATED AND PENALTY ORDER WAS PASSED ON 29.7.2010 IMPOSING A PENALTY OF ` .51,44,294/- BEING 100% OF TAX LIKELY TO BE EVADED. DURING PENALTY PROCEEDINGS, THE ASSESSEE HAD SU BMITTED THAT THERE WAS NO DELIBERATE CONCEALMENT OF INCOME AND TH E INCREASE IN AMOUNT OF TAX WAS ONLY DUE TO POSSIBLE TWO VIEWS AND MO REOVER IT WAS SUBMITTED THAT THERE WAS NO CHANGE IN THE TAXABLE INC OME AND ONLY THE RATE OF TAX HAS BEEN INCREASED IN THE RE-ASSESSMENT. RELIANCE IN THIS RESPECT WAS PLACED ON A NUMBER OF CASE LAWS BUT THE ASSESSING OFFICER RELYING UPON THE CASE LAW OF UNION OF INDIA V. DHARMENDRA TEXTILE & PROCESSORS REPORTED IN 306 ITR 277 HELD THAT PENALTY PROCEEDINGS WERE NO LONGER QUASI CRIMINAL PROCEEDINGS AND HENCE PRESENCE OF MENS REA WAS NOT REQUIRED TO BE ESTABLISHED AND THEREFORE HE IMPOSED THE PENALTY. 3. BEFORE LD CIT(A), THE ASSESSEE REITERATED ITS SUBMISSION S MADE AT THE TIME OF ASSESSMENT AND FURTHER SUBMITTED THAT:- I) THERE WAS NO DISPUTE AS REGARDS THE QUANTUM OF INCOME DECLARED BY IT IN ITS RETURN OF INCOME I.E. THERE WA S NO DIFFERENCE BETWEEN THE RETURNED INCOME AND THE ASSESSED INCOME AND THE ONLY DISPUTE WAS REGARDING THE RATE AT WHICH INCOME WAS TO BE TAXED. ITA NO5631/DEL/2011 4 II) THE APPELLANT HAD MADE A FULL AND COMPLETE DISCLOSURE OF ALL THE FACT DURING THE COURSE OF ASSESSMENT PROCEEDINGS U ./S 143(3) AND THEREFORE INITIATION OF PROCEEDINGS U/S 14 7 WAS MERELY DUE TO CHANGE OF OPINION BY THE ASSESSING OFFICE R AND THEREFORE WAS NOT JUSTIFIED. III) THE APPELLANT NEITHER DELIBERATELY ATTEMPTED TO CON TRAVENE THE PROVISIONS OF THE ACT OR TAX TREATY TO EVADE PAYM ENT OF TAX LEVIED THERE UNDER. THE APPELLANT WAS OF THE BON A FIDE BELIEF THAT THE TECHNICAL SERVICES RENDERED BY IT TO NORTEL INDIA DURING THE YEAR UNDER APPEAL QUALIFIED AS FIS UNDER ARTICLE 12 OF THE TREATY AND THEREFORE TAXABLE AT THE RATE OF 15% IN VIEW OF THE SPECIFIC EXCLUSION PROVIDED UNDER ARTICLE 5(2) (1) OF TREATY FOR INCLUDED SERVICES DEFINED IN ARTICLE 12 AN D RENDERED BY THE EMPLOYEES OF THE NON RESIDENT OF INDIA. IV) THE ISSUE INVOLVED WERE OF COMPLEX NATURE AND REQUIRE D IN DEPTH EXAMINATION OF FACTS AND LEGAL PRINCIPLES AS REG ARDS CONSTITUTION OF A PE, THE DEFINITION OF FIS UNDER TH E TREATY ETC. AND IT WAS POSSIBLE TO HAVE MORE THAN ONE OPINION ABOU T THE ISSUE. THEREFORE, NO PENALTY COULD BE LEVIED U/S 271(1 )( C) IN SUCH A CASE FOR CONCEALMENT OF PARTICULARS OF INCOME O R FURNISHING OF INACCURATE PARTICULARS. V) THAT ASSESSING OFFICER ERRED IN CALCULATING TAX SOUGHT T O BE EVADED EQUAL TO THE TAX LIABILITY @ 20% IGNORING TH E FACT THAT APPELLANT HAD ALREADY PAID TAX @ 15% OF GROSS RECEIPT IN ITS RETURN OF INCOME. THEREFORE, TAX OUGHT TO BE EVADED IF ANY WAS ` .12,86,073/- AND NOT ` .51,44,294/-. 4. THE LD CIT(A) AFTER GOING THROUGH THE SUBMISSIONS OF ASSESSEE DELETED THE PENALTY BY HOLDING AS UNDER:- ITA NO5631/DEL/2011 5 IT IS MADE CLEAR AT THIS JUNCTURE THAT PURPOSE OF DISC USSION IN THE ABOVE PARAGRAPHS IS NOT TO ADJUDICATE OR CONSIDER THE MERITS OF THE DECISION OF THE LD ASSESSING OFFICER AND THE ARGUMEN TS OF THE APPELLANT REGARDING THE CHARACTERIZATION AND TAXABI LITY OF THE INCOME AS (I) BUSINESS INCOME ATTRIBUTABLE TO THE PE OF THE APPELLANT IN INDIA AND WHETHER IT WAS TAXABLE U/S 44D READ WITH SECTION 115A OF THE ACT OR (I) FIS IN TERMS OF ARTICL E 12 OF THE TREATY., THE PURPOSE IS ONLY TO ASCERTAIN THAT WHETHER ISSUE INVOLVED WAS SUCH THAT IT WAS POSSIBLE TO HAVE TWO DIFFE RENT VIEWS ABOUT IT. THE VERY FACT THAT THE LD ASSESSING OFFI CER AT THE TIME OF ASSESSMENT ORDER U/S 143(3), AFTER HAVING CONSIDE RED ALL THE FACTS BEFORE HIM HELD THAT INCOME OF THE APPELLA NT WAS IN THE NATURE OF FIS AND WAS TAXABLE AT THE RATE OF 15% UND ER THE TREATY LEADS TO A CONCLUSION THAT IT WAS POSSIBLE TO HAVE DIFFE RENT VIEW OTHER THAN THE ONE TAKEN BY THE ASSESSING OFFICER AT TH E TIME OF MAKING ASSESSMENT ORDER U/S 147. SUBSEQUENTLY THE ASSESSIN G OFFICER CHANGED ITS MIND AND HELD THAT THE APPELLANT HAD A PE IN INDIA AS THE APPELLANTS CASE WAS COVERED U/S 5(2)(1) OF THE TREATY AND ITS INCOME WAS TAXABLE U/S 4D READ WITH SEC TION 115A AT THE RATE OF 20% . THEREFORE, WITHOUT GOING TO TH E DETAILS OF CASES CITED BY THE APPELLANT, ONE CAN EASILY REACH A C ONCLUSION THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ISSUE INVOLVED WAS SUCH THAT IT WAS POSSIBLE TO ENTERTAIN TWO OR MORE DIFFERENT INTERPRETATIONS. AT NO STAGE, I.E. EITHER T HE ASSESSMENT PROCEEDINGS U/S 147 OR PENALTY PROCEEDINGS U/S 271(1)( C) , A CASE HAS BEEN MADE BY THE LD ASSESSING OFFICER THAT THE APPELLANT HAD CONCEALED THE PARTICULARS OF ITS INCOME . SECTION 271(1)( C) DOES NOT ENVISAGE LEVY OF PENALTY IN RESPEC T OF THE ISSUES WHERE THERE IS POSSIBILITY OF MORE THAN ONE INTERP RETATION AND THE ADDITIONS MADE BY THE REVENUE ARE ON ACCOUN T OF ITA NO5631/DEL/2011 6 DIFFERENCE OF OPINION ABOUT THE PROVISIONS OF THE ACT OR IN THIS CASE THE TREATY., FURTHER, THE FACT THAT THE APPELLA NT HAS NOT CHALLENGED THE ASSESSMENT ORDER PASSED U/S 147 SHOULD NO T INFLUENCE OUR DECISION AT THIS STAGE WHILE DECIDING T HAT WHETHER THE APPELLANT WAS LIABLE FOR PENALTY U/S 271(1)( C) O F THE ACT. THE LIABILITY OF THE APPELLANT IS TO BE JUDGED SOLELY ON THE BASIS OF FACTS OF THE CASE. FROM THE DISCUSSION IN ABOVE PARAGRAPHS, IT IS CLEAR THA T (I) THE APPELLANT HAD NEITHER CONCEALED THE PARTICULARS OF I TS INCOME NOR FURNISHED ANY FALSE INFORMATION/EXPLANATION THEREBY MEANING FURNISHING OF INACCURATE PARTICULARS OF INCOME AND (I I) THE ISSUES INVOLVED WERE SUCH THAT THERE WAS POSSIBILITY OF HAVING MORE THAN ONE VIEW. THEREFORE, IN VIEW OF THE FACTS AND C IRCUMSTANCES OF THE CASE AND PROVISIONS OF SECTION 271(1)( C), IT IS HELD THAT LD ASSESSING OFFICER HAS ERRED IN LEVYING PENALTY U/S 271(1 )( C) OF THE ACT AND HE IS DIRECTED TO DELETE THE PENALTY. 5. AGGRIEVED THE REVENUE IS IN APPEAL BEFORE US. 6. AT THE OUTSET, THE LD DR SUBMITTED THAT THERE WAS A PE IN INDIA AND THEREFORE, ASSESSING OFFICER INCREASED TAXATION FROM 15% TO 20% AND LD CIT(A) STRUCK THE PENALTY ON THE BASIS THAT TH ERE WAS TWO OPINIONS. IT WAS FURTHER ARGUED THAT ASSESSEE HAD DELIBE RATELY DECLARED ITS INCOME ON THE BASIS THAT IT HAD NO PE IN INDIA WHE REAS THE COMPLETE FACTS AND CIRCUMSTANCES POINTED OUT THE FACTS THAT ASSESSEE HAD PE IN INDIA. THEREFORE, THE ASSESSING OFFICER HAS RIGHTLY PAS SED THE PENALTY ORDER. 7. THE LD AR, ON THE OTHER HAND, RELIED HEAVILY ON THE ORDER OF LD CIT(A) AND SUBMITTED THAT THERE WAS NO CHANGE IN THE INCOME RETURNED ITA NO5631/DEL/2011 7 AND INCOME ASSESSED SO THEREFORE THE PROVISION OF SECTION 271(1)(C ) WERE NOT APPLICABLE AS NO INACCURATE PARTICULARS WERE FURNISHED AND LD ASSESSING OFFICER COMPLETED THE ASSESSMENT AT THE SAME FIGU RE AT WHICH RETURN WAS FILED. THE DISPUTE WAS ONLY WITH RESP ECT TO RATE OF TAX AND THIS DIFFERENCE WAS ALSO DUE TO THE FACT THAT THER E WERE TWO OPINIONS POSSIBLE. THEREFORE, IT WAS ARGUED THAT LD CIT (A) AFTER GOING THROUGH THE COMPLETE FACTS AND CIRCUMSTANCES DELETED THE PENALTY. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PAR TIES AND HAVE GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE INCOME OF THE ASSESSEE DURING RE-ASSESSMENT PROCEEDINGS WAS NOT ENHANCED AS IS APPARENT FROM THE ASSESSMENT ORDER AND IT WAS ONLY THE RATE OF TAX WHICH HAS BEEN INCREASED FROM 15% TO 20%. SINCE THERE IS NO CHANGE IN THE INCOME DECLARED AND INCOME ASSESSED BY THE ASSESSING OFFICER, IT CANNOT BE SAID THAT THERE WERE ANY CONCEALMENT OF INCOME. IN VIEW OF THE ABOVE, WE DO NOT SEE ANY INFI RMITY IN THE ORDER OF LD CIT(A). 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. 10. ORDER PRONOUNCED IN THE OPEN COURT ON 31ST DAY O F JULY, 2013. SD/- SD/- (RAJPAL YADAV) (T.S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER DT. 31.7.2013. HMS COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)-, NEW DELHI. ITA NO5631/DEL/2011 8 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DEL HI. TRUE COPY. BY ORDER (ITAT, NEW DELHI). DATE OF HEARING 23.7.2013 DATE OF DICTATION 30.7.2013 DATE OF TYPING 30.7.2013 DATE OF ORDER SIGNED BY 31.7.2013 BOTH THE MEMBERS & PRONOUNCEMENT. DATE OF ORDER UPLOADED ON NET & SENT TO THE BENCH CONCERNED.