Motorola Inc, USA V. DDIT, New Delhi

ITA 5680/DEL/2010

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 6748 (ITAT-DELHI)
• Duration Of Justice: 7 year(s) 6 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-07-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 10-04-2017
• Assessment Year: 2003-2004
• Appeal Filed On: 15-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G K DHALL
• Assessee Lawyers: TARUN SINGH
• Keywords: Double taxation relief; Permanent establishment; Tangible material; Difference of opinion; Change of opinion; Reassessment proceedings
• Section: 143(3); 234B; 147; 148; 144; 90

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH: E: NEW DELHI) BEFORE SHRI G.D. AGRAWAL, HONBLE PRESIDENT & SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO:- 5679 /DEL/2010, ( ASSESSMENT YEAR: 2002-03) & ITA NO:- 5680 /DEL/2010, ( ASSESSMENT YEAR: 2003-04) MOTOROLA INC 1303, ALGONQUIN ROAD SCHAUMBURG, ILLINOIS, USA, VS. DEPUTY DIRECTOR OF INCOME - TAX, CIRCLE 3(2), NEW DELHI. PAN NO: AACCM7668M APPELLANT RESPONDENT ASSESSEE BY : SH. TARANDEEP SINGH, (CA) & SH. TARUN SINGH, (ADV.) REVENUE BY : SH. G.K. DHALL (CIT DR) DATE OF HEARING : 24.05.2018. DATE OF PRONOUNCEMENT : 04/07/2018. ORDER PER: KULDIP SINGH, JM SINCE IDENTICAL QUESTIONS OF FACTS AND LAW HAVE BEE N RAISED IN BOTH THE AFORESAID INTER CONNECTED APPEALS, THE SAME ARE BEING DISPOSED OF BY 2 ITA NOS. 5679 & 5680/DEL/2010 MOTOROLA INC. WAY OF CONSOLIDATED ORDER FOR THE SAKE OF BREVITY A ND TO AVOID REPETITION OF DISCUSSION. 2 . THE APPELLANT, MOTOROLA INC 1303, ALGONQUIN ROAD SCHAUMBURG, ILLINOIS, USA, (HEREINAFTER REFERRED TO AS THE ASS ESSEE) BY FILING THE PRESENT APPEALS, SOUGHT TO SET ASIDE THE IMPUGNED O RDERS DATED 20.09.2010 QUA ASSESSMENT YEARS 2002-03 & 2003-04 R ESPECTIVELY PASSED BY LD. DISPUTE RESOLUTION PANEL-II, NEW DELHI, ON T HE IDENTICAL GROUNDS THAT:- ASSESSMENT YEAR 2002-03 BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE, M OTOROLA INC (HEREINAFTER REFERRED TO AS THE APPELLANT), RESPE CTFULLY SUBMITS IN RESPECT OF THE ORDER PASSED BY THE LEARNED DEPUTY DIRECTOR OF INCOME -TAX, CIRCLE 3(2), NEW DELHI UNDER SECTION 144C(13)/147 OF THE INCOME- TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) ON THE FOLLO WING GROUNDS: REASSESSMENT PROCEEDINGS BAD IN LAW 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED ASSESSING OFFICER (AO) HAS ERRED AND THE HON'BLE DISPUTE RESOLUTION PANEL (DRP) HAS FURTHER ERRED IN CONFIRMING THE A O'S ACTION OF REOPENING THE ASSESSMENT PROCEEDINGS UNDER SECTION 147 OF THE ACT BY ISSUANCE OF NOTICE UNDER SECTION 148 OF THE ACT DATED 03 OCTOBE R 2008, AFTER THE EXPIRY OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSME NT YEAR. THUS, THE IMPUGNED ORDER PASSED UNDER SECTION 144C READ WITH SECTION 147 OF THE ACT IS WITHOUT JURISDICTION, BAD IN LAW AND LIABLE TO B E QUASHED; 1.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO HAS ERRED AND THE HON'BLE DRP HAS FURTHER ERRED IN CONFIRMING THE AO'S ACTION OF REOPENING THE ASSESSMENT PROCEEDINGS UNDE R SECTION 147 OF THE ACT, AFTER THE EXPIRY OF FOUR YEARS EVEN WHEN THERE WAS NO FAILURE ON THE PART OF THE APPELLANT TO FULLY AND TRULY FURNISH ALL THE MATERIAL FACTS NECESSARY FOR ASSESSMENT; 1.2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LEARNED AO HAS ERRED AND THE HON'BLE DRP HAS FURTHER ERRED IN CONFIRMING THE AOS 3 ITA NOS. 5679 & 5680/DEL/2010 MOTOROLA INC. ACTION OF REOPENING THE CONCLUDED ASSESSMENT MERELY ON THE BASIS OF CHANGE OF OPINION ON FACTS ALREADY PRESENT AT THE TIME OF ORIGINAL ASSESSMENT PROCEEDINGS U/S 143(3) OF THE ACT; 1.3 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LEARNED AO HAS ERRED IN NOT CONSIDERING THE DETAILE D SUBMISSIONS MADE BY THE APPELLANT DURING THE REASSESSMENT PROCEEDING S AND COMPLETELY DISREGARDING THE JUDICIAL PRECEDENTS RELIED UPON BY THE APPELLANT TO MEET THE ENDS OF REVENUE AND THE HON'BLE DRP HAS FU RTHER ERRED IN CONFIRMING THE ABOVE ACTION OF THE LEARNED AO. 1.4 THAT THE IMPUGNED REASSESSMENT ORDER AS PASSED BY T HE LEARNED AO U/S 144C READ WITH SECTION 147 OF THE ACT CONCLUDING TH E REASSESSMENT PROCEEDINGS AS CONFIRMED BY THE HON'BLE DRP U/S 144 C(13) READ WITH SECTION 147 OF THE ACT IS, THEREFORE, BAD IN LAW AN D REQUIRES TO BE ANNULLED. FEE RECEIVED BY THE APPELLANT 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED AO HAS ERRED AND THE HON'BLE DRP HAS FURTHER ERRED IN CONFIRMING THE ACTION OF THE LEARNED AO OF TREATING THE FEES RECEI VED BY THE APPELLANT FROM MOTOROLA INDIA ELECTRONICS PRIVATE LIMITED (M IEL) AND MOTOROLA INDIA PRIVATE LIMITED (MIPL) AS FEE FOR INCLUDED SERVICES (FIS) AND TAXING THE SAME AT THE RATE OF 20% AS PER THE PROVI SIONS OF ARTICLE 7 OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA) BE TWEEN INDIA AND USA READ WITH SECTION 115A AND SECTION 44D OF THE A CT; 2.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED AO HAS ERRED AND THE HON'BLE DRP HAS FURTHER ERRED IN NOT APPRECIATING THAT THE AMOUNTS RECEIVED BY THE APPELLANT ARE MERE REIMBURSEMENT OF EXPENSES ON A COST TO COST BASIS AND HENCE, THE SAM E ARE NOT CHARGEABLE TO TAX IN INDIA; 2.2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED AO HAS ERRED AND THE HON'BLE DRP HAS FURTHER ERRED IN HOLDING THAT THE FEES RECEIVED BY THE APPELLANT FROM THE INDIAN COMP ANIES I.E. MIPL AND MIEL ARE IN THE NATURE OF FIS WITHIN THE MEANING OF ARTICLE 13 OF THE DTAA); 2.3 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED AO HAS ERRED AND THE HON'BLE DRP HAS FURTHER ERRED IN PROCEEDING ON THE ASSUMPTION THAT THE APPELLANT HAS A PERMANENT E STABLISHMENT IN INDIA; 2.4 WITHOUT PREJUDICE TO THE OBJECTION MENTIONED IN 2.3 ABOVE, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, TH E LEARNED AO HAS ERRED AND THE HONBLE DRP HAS FURTHER ERRED BY HOLD ING THAT THE FEES RECEIVED BY THE APPELLANT FROM THE INDIAN COMPANIES ARE CONNECTED WITH ALLEGED PERMANENT ESTABLISHMENT IN INDIA; 2.5 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED 4 ITA NOS. 5679 & 5680/DEL/2010 MOTOROLA INC. AO HAS ERRED IN IGNORING THE SUBMISSIONS OF THE APP ELLANT AND THE JUDICIAL PRECEDENTS CITED DURING THE REASSESSMENT P ROCEEDINGS AND THE HON'BLE DRP HAS FURTHER ERRED IN CONFIRMING THE ABO VE ACTION OF THE LEARNED AO. GENERAL 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED DRP HAS ERRED IN PLACING RELIANCE ON ITS OBSERVATIO N IN APPELLANTS CASE FOR AY 2006-07 WITHOUT GRANTING THE APPELLANT ANY O PPORTUNITY OF BEING HEARD AND PRESENT ITS CASE. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED AO HAS ERRED AND THE HON'BLE DRP HAS FURTHER ERRED IN CONFIRMING THE ACTION OF THE LEARNED AO IN CHARGING INTEREST UNDER SECTION 234A, 234B AND 234D OF THE ACT. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED AO HAS ERRED AND THE HON'BLE DRP HAS FURTHER ERRED IN CONFIRMING THE ACTION OF THE LEARNED AO OF INITIATING THE PENALTY PROCEEDINGS U/S 271(1)(C) OF THE INCOME-TAX ACT ON THE GROUND THAT THE APPELLANT HAS CONCEALED THE TRUE AND CORRECT PARTICULARS OF ITS T AXABLE INCOME. 6. ALL THE ABOVE GROUNDS OF OBJECTION ARE INDEPENDE NT AND WITHOUT PREJUDICE TO ONE ANOTHER 7. THE APPELLANT CRAVES LEAVE TO SUPPLEMENT, TO CAN CEL, TO AMEND, TO ADD AND/OR OTHERWISE TO ALTER/MODIFY ANY OR ALL THE GRO UND(S) OF OBJECTION STATED HEREIN ABOVE. THE ABOVE GROUNDS ARE INDEPENDENT AND WITHOUT PREJU DICE TO EACH OTHER. THE APPELLANT PRAYS FOR LEAVE TO ADD, ALTER, AMEND AND / OR MODIFY ANY OF THE GROUNDS OF APPEAL AT OR BEFORE THE HEARING OF T HE APPEAL. ASSESSMENT YEAR 2003-04 BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE, M OTOROLA INC (HEREINAFTER REFERRED TO AS THE APPELLANT), RESPE CTFULLY SUBMITS IN RESPECT OF THE ORDER PASSED BY THE LEARNED DEPUTY DIRECTOR OF INCOME -TAX, CIRCLE 3(2), NEW DELHI UNDER SECTION 144C(13)/147 OF THE INCOME- TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) ON THE FOLLO WING GROUNDS: REASSESSMENT PROCEEDINGS BAD IN LAW 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED 5 ITA NOS. 5679 & 5680/DEL/2010 MOTOROLA INC. ASSESSING OFFICER (AO) HAS ERRED AND THE HON'BLE DISPUTE RESOLUTION PANEL (DRP) HAS FURTHER ERRED IN CONFIRMING THE AO'S AC TION OF REOPENING THE ASSESSMENT PROCEEDINGS UNDER SECTION 147 OF THE ACT BY ISSUANCE OF NOTICE UNDER SECTION 148 OF THE ACT DATED 03 OCTOBER 2008, AFTER THE EXPIRY OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR. THUS, THE IMPUGNED ORDER PASSED UNDER SECTION 144C READ WITH SECTION 147 OF THE ACT IS WITHOUT JURISDICTION, BAD IN LAW AND LIABLE TO BE QUASHED; 1.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO HAS ERRED AND THE HON'BLE DRP HAS FURTHER ERRED IN CONFIRMING THE AO'S ACTION OF REOPENING THE ASSESSMENT PROCEEDINGS UNDE R SECTION 147 OF THE ACT, AFTER THE EXPIRY OF FOUR YEARS EVEN WHEN THERE WAS NO FAILURE ON THE PART OF THE APPELLANT TO FULLY AND TRULY FURNISH ALL THE MATERIAL FACTS NECESSARY FOR ASSESSMENT; 1.2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LEARNED AO HAS ERRED AND THE HON'BLE DRP HAS FURTHER ERRED IN CONFIRMING THE AOS ACTION OF REOPENING THE CONCLUDED ASSESSMENT MERELY ON THE BASIS OF CHANGE OF OPINION ON FACTS ALREADY PRESENT AT THE TIME OF ORIGINAL ASSESSMENT PROCEEDINGS U/S 143(3) OF THE ACT; 1.3 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LEARNED AO HAS ERRED IN NOT CONSIDERING THE DETAILE D SUBMISSIONS MADE BY THE APPELLANT DURING THE REASSESSMENT PROCEEDING S AND COMPLETELY DISREGARDING THE JUDICIAL PRECEDENTS RELIED UPON BY THE APPELLANT TO MEET THE ENDS OF REVENUE AND THE HON'BLE DRP HAS FU RTHER ERRED IN CONFIRMING THE ABOVE ACTION OF THE LEARNED AO. 1.4 THAT THE IMPUGNED REASSESSMENT ORDER AS PASSED BY T HE LEARNED AO U/S 144C READ WITH SECTION 147 OF THE ACT CONCLUDING TH E REASSESSMENT PROCEEDINGS AS CONFIRMED BY THE HON'BLE DRP U/S 144 C(13) READ WITH SECTION 147 OF THE ACT IS, THEREFORE, BAD IN LAW AN D REQUIRES TO BE ANNULLED. FEE RECEIVED BY THE APPELLANT 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED AO HAS ERRED AND THE HON'BLE DRP HAS FURTHER ERRED IN CONFIRMING THE ACTION OF THE LEARNED AO OF TREATING THE FEES RECEI VED BY THE APPELLANT FROM MOTOROLA INDIA ELECTRONICS PRIVATE LIMITED (MIEL) AND MOTOROLA INDIA PRIVATE LIMITED (MIPL) AS FEE FOR INCLUDED SERVIC ES (FIS) AND TAXING THE SAME AT THE RATE OF 20% AS PER THE PROVISIONS O F ARTICLE 7 OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA) BETWEEN INDIA AND USA READ WITH SECTION 115A AND SECTION 44D OF THE ACT; 2.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED AO HAS ERRED AND THE HON'BLE DRP HAS FURTHER ERRED IN NOT APPRECIATING THAT THE AMOUNTS RECEIVED BY THE APPELLANT ARE MERE REIMBURSEMENT OF 6 ITA NOS. 5679 & 5680/DEL/2010 MOTOROLA INC. EXPENSES ON A COST TO COST BASIS AND HENCE, THE SAM E ARE NOT CHARGEABLE TO TAX IN INDIA; 2.2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED AO HAS ERRED AND THE HON'BLE DRP HAS FURTHER ERRED IN HOLDING THAT THE FEES RECEIVED BY THE APPELLANT FROM THE INDIAN COMP ANIES I.E. MIPL AND MIEL ARE IN THE NATURE OF FIS WITHIN THE MEANING OF ARTICLE 13 OF THE DTAA); 2.3 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED AO HAS ERRED AND THE HON'BLE DRP HAS FURTHER ERRED IN PROCEEDING ON THE ASSUMPTION THAT THE APPELLANT HAS A PERMANENT ESTAB LISHMENT IN INDIA; 2.4 WITHOUT PREJUDICE TO THE OBJECTION MENTIONED IN 2.3 ABOVE, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LE ARNED AO HAS ERRED AND THE HONBLE DRP HAS FURTHER ERRED BY HOLDING THAT T HE FEES RECEIVED BY THE APPELLANT FROM THE INDIAN COMPANIES ARE CONNECTED W ITH ALLEGED PERMANENT ESTABLISHMENT IN INDIA; 2.5 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LEARNED AO HAS ERRED IN IGNORING THE SUBMISSIONS OF THE APP ELLANT AND THE JUDICIAL PRECEDENTS CITED DURING THE REASSESSMENT P ROCEEDINGS AND THE HON'BLE DRP HAS FURTHER ERRED IN CONFIRMING THE ABO VE ACTION OF THE LEARNED AO. SUPPLY/ LICENSING OF SOFTWARE 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED AO HAS ERRED AND THE HONBLE DRP HAS FURTHER ERRED IN CONF IRMING THE ACTION OF THE LEARNED AO OF TREATING THE SUMS RECEIVED BY THE APP ELLANT FROM LICENSING OF SOFTWARE IN INDIA TO INDIAN CUSTOMERS AS ROYALTY AND TAXING THE SAME AT THE RATE OF 30% AS PER THE PROVISIONS OF SECTION 115A READ WITH SECTIO N 44D OF THE ACT; 3.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED AO HAS ERRED AND THE HON'BLE DRP HAS FURTHER ERRED IN CONF IRMING THE ACTION OF THE LEARNED AO OF TREATING THE SUMS RECEIVED BY THE APPELLANT A S ROYALTY SINCE THE LICENSING OF SOFTWARE IS IN THE NATURE OF OUTRIGHT SALE OF COPYR IGHTED ARTICLE AND NOT SALE OF THE COPYRIGHT; 3.2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED AO HAS ERRED AND THE HON'BLE DRP HAS FURTHER ERRED IN CONF IRMING THE ACTION OF THE LEARNED AO OF TREATING THE SUMS RECEIVED BY THE APPELLANT A S ROYALTY SINCE THE SOFTWARE IS AN ESSENTIAL REQUIREMENT TO MAKE THE HARDWARE OPERATIO NAL AND HENCE, THE SALE OF BOTH THE HARDWARE AND SOFTWARE ARE INEXTRICABLY LINKED T O EACH OTHER; 3.4 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED AO HAS ERRED AND THE HON'BLE DRP HAS FURTHER ERRED IN PROC EEDING ON THE ASSUMPTION THAT THE APPELLANT HAS A PERMANENT ESTABLISHMENT IN INDI A; 7 ITA NOS. 5679 & 5680/DEL/2010 MOTOROLA INC. WITHOUT PREJUDICE TO THE GORUNDS OF THE APPELLANT I N 3.1, 3.2 AND 3.3 ABOVE, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN L AW, THE LEARNED AO HAS ERRED AND THE HON'BLE DRP HAS FURTHER ERRED BY TREATING THE S UMS RECEIVED BY THE APPELLANT AS ROYALTY AND TAXING THE SAME AT THE RATE OF 30% AS P ER THE PROVISIONS OF SECTION 115A READ WITH SECTION 44D OF THE ACT SINCE, AS PER THE EFFECTIVE DATE OF AGREEMENTS ENTERED INTO BY THE APPELLANT WITH INDIAN CUSTOMERS , ENTIRE SUMS SHOULD NOT HAVE BEEN TAXED AT A RATE WHICH IS THAN 20%; 3.5 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED AO HAS ERRED AND THE HON'BLE DRP HAS FURTHER ERRED IN IGNO RING THE SUBMISSIONS OF THE APPELLANT AND THE JUDICIAL PRECEDENTS CITED DURING THE REASSESSMENT PROCEEDINGS. GENERAL 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED DRP HAS ERRED IN PLACING RELIANCE ON ITS OBSERVATIO N IN APPELLANTS CASE FOR AY 2006-07 WITHOUT GRANTING THE APPELLANT ANY O PPORTUNITY OF BEING HEARD AND PRESENT ITS CASE. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED AO HAS ERRED AND THE HON'BLE DRP HAS FURTHER ERRED IN CONFIRMING THE ACTION OF THE LEARNED AO IN CHARGING INTEREST UNDER SECTION 234A, 234B AND 234D OF THE ACT. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED AO HAS ERRED AND THE HON'BLE DRP HAS FURTHER ERRED IN CONFIRMING THE ACTION OF THE LEARNED AO OF INITIATING THE PENALTY PROCEEDINGS U/S 271(1)(C) OF THE INCOME-TAX ACT ON THE GROUND THAT THE APPELLANT HAS CONCEALED THE TRUE AND CORRECT PARTICULARS OF ITS T AXABLE INCOME. 7. ALL THE ABOVE GROUNDS OF OBJECTION ARE INDEPENDE NT AND WITHOUT PREJUDICE TO ONE ANOTHER 8. THE APPELLANT CRAVES LEAVE TO SUPPLEMENT, TO CAN CEL, TO AMEND, TO ADD AND/OR OTHERWISE TO ALTER/MODIFY ANY OR ALL THE GRO UND(S) OF OBJECTION STATED HEREIN ABOVE. THE ABOVE GROUNDS ARE INDEPENDENT AND WITHOUT PREJU DICE TO EACH OTHER. THE APPELLANT PRAYS FOR LEAVE TO ADD, ALTER, AMEND AND / OR MODIFY ANY OF THE GROUNDS OF APPEAL AT OR BEFORE THE HEARING OF T HE APPEAL. 3. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICATIO N OF THE CONTROVERSY AT HAND ARE: AFTER FRAMING THE ASSESSME NT BY THE ASSESSING 8 ITA NOS. 5679 & 5680/DEL/2010 MOTOROLA INC. OFFICER (AO) VIDE ORDERS DATED 22.3.2006 FOR A.Y. 2002-03 AND 2003-04 U/S 143(3) OF THE INCOME TAX ACT, 1961 (FOR SHORT T HE ACT), ASSESSMENT PROCEEDINGS HAVE BEEN REOPENED BY THE AO BY RECORDI NG FOLLOWING FINDINGS:- DURING THE COURSE OF ASSESSMENT PROCEEDING U/S 143( 3) CONCLUDED VIDE PASSING OF ASSESSMENT ORDER DATED 30 MRCH 2005, THE ASSESSEE SUBMITTED COPIES OF AGREEMENTS W ITH THE GROUP COMPANIES I.E. MOTOROLA INDIA ELECTRONICS IND IA PVT. LTD. (MIEL) AND MOTOROLA INDIA LIMITED (MIL). A PERUSAL OF THE ABOVE AGREEMENTS REVEALED THAT THE ASSESSEE HAD MADE THOSE AGREEMENTS AFTER 31 MAY 199 7, THEREFORE, INCOME FROM THESE AGREEMENTS SHOULD HAVE BEEN TAXED AT 20% U/S 115A READ WITH 44D OF THE ACT INST EAD OF 15% AS DONE BY ERSTWHILE AO. 4. THE ASSESSEE FILED COMPREHENSIVE WRITTEN SUBMISSIO NS CHALLENGING THE IMPUGNED REOPENING BY THE AO. AO DECLINING THE CONTENTIONS RAISED BY THE ASSESSEE, REASSESS RECEIPT OF THE ASSESSEEE COMPANY OF RS. 7,20,41,146/- ON ACCOUNT OF RENDERING SERVICES TO I TS GROUP COMPANIES IN INDIA TO BE TAXED @ 20% FOR A. Y. 2003-04 AND ORDER TO TAX THE INCOME OF THE ASSESSEE OF RS. 105,252,213/- @ OF 15% FOR A.Y. 2003-04. 5. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. DIS PUTE RESOLUTION PANEL (DRP) BY FILING THE OBJECTIONS ON MERIT AS WE LL AS LEGAL GROUNDS WHICH HAVE BEEN DISPOSED OFF. FEELING AGGRIEVED, T HE ASSESSEE HAS COME UP BEFORE THE TRIBUNAL BY WAY OF FILING THE PRESENT APPEAL. 9 ITA NOS. 5679 & 5680/DEL/2010 MOTOROLA INC. 6. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES O F THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS RELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN THE LIGHT OF TH E FACTS AND CIRCUMSTANCES OF THE CASE . 7 . THE LD. AR FOR THE ASSESSEE CHALLENGING THE IMPUG NED ORDER CONTENDED INTER ALIA THAT THERE IS NO FAILURE OR OM ISSION ON THE PART OF THE ASSESSEE COMPANY TO DISCLOSE THE TRUE AND CORRECT F ACTS NECESSARY FOR ASSESSMENT; THAT IN A. Y. 2003-04, THE ASSESSMENT W AS ALSO REOPENED BEYOND THE PERIOD OF 4 YEARS AND THERE ARE NO ALLEG ATION OF FAILURE OR OMISSION ON THE PART OF THE ASSESSEE COMPANY TO DIS CLOSE THE TRUE AND CORRECT FACTS NECESSARY FOR ASSESSMENT OF THE INCOM E; THAT THE ONLY DISPUTE IN BOTH THE YEARS WAS AS TO THE RATE OF TAX APPLICABLE. 8. HOWEVER, ON THE OTHER HAND, LD. DR FOR THE REVENUE CONTENDED THAT THE ASSESSEE HAS NOT BROUGHT ON RECORD THE FAT E OF THE APPEAL FILED BY THE ASSESSEE, BEFORE THE LD. CIT(A), AGAINST THE OR DER PASSED U/S 143(3) OF THE ACT, AS AT THE APPLICATION OF THE ASSESSEE T HAT THE PRESENT APPEALS MAY BE KEPT IN ABEYANCE TILL THE DISPOSAL OF THE AP PEAL BEFORE THE LD. CIT(A) FILED AGAINST THE ORDER PASSED U/S 143(3) OF THE ACT, AND RELIED UPON THE DECISION RENDERED BY HONBLE HIGH COURT ON REOPENING OF CASES U/S 147 OF THE ACT, CITED AS ORACLE SYSTEMS CORPORATION VS. ASSISTANT 10 ITA NOS. 5679 & 5680/DEL/2010 MOTOROLA INC. DIRECTOR OF INCOME-TAX (INTERNATIONAL TAXATION) [20 16] 380 ITR 232. 9. FROM THE FACTS AND CIRCUMSTANCES OF THE CASE, GROU NDS RAISED BY THE ASSESSEE IN THE APPEAL, ARGUMENTS ADDRESSED BY THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES AND THE ORDER PASSED BY THE LOWER REVENUE AUTHORITIES, THE SOLE QUESTION ARISES FOR DETERMINA TION IN THIS CASE IS:- AS TO WHETHER REASSESSMENT PROCEEDING INITIATED BY THE AO U/S 147 OF THE ACT ARE MERELY CHANGE OF OPINION AS HELD BY LD.CIT(A) AND THAT THERE IS NO FAILURE ON ITS PART TO DISCLOSE ALL MATERIAL FACTS FULLY AND TRULY NECESSARY FOR ASSESSMENT? 10. TO PROCEED FURTHER, WE WOULD LIKE TO EXTRACT THE R EASONS RECORDED BY THE AO FOR REOPENING THE ASSESSMENT PROCEEDINGS FOR AY. 2002-03 READY PERUSAL AS UNDER:- REASON FOR REOPENING THE CASE U/S 148 OF THE INCOME TAX ACT, 1961 IN THE CASE OF M/S MOTOROLA INC., A.Y. 200 2-03 RETURN OF INCOME IN THIS CASE WAS FILED ON 2-12-200 3 DECLARING AN INCOME OF RS. 26,31,124/-. THE ASSESS MENT WAS COMPLETED U/S 143(3) OF THE INCOME-TAX ACT ON 30.3.2005 DETERMINING TOTAL TAX LIABILITY OF RS. 23,48,71,812/-. DURING THE YEAR THE ASSESSEE COMPA NY SHOWED A RECEIPT OF RS. 7,20,41,146/- ON ACCOUNT OF RENDERING CERTAIN SERVICES TO ITS GROUP COMPANIES I N INDIA I.E MOTOROLA INDIA ELECTRONICS PVT. LTD. AND MOTOROLA I NDIA LTD. THE SERVICES WERE IN THE NATURE OF FEE FOR INCLUDED SERVICES AS CUSTOMIZED TECHNICAL & ENGINEERING SERVICES AND OTHER RELATED SERVICES EARLIER RENDERED. THE TDS CERTIFI CATES ISSUED BY THE MIEL AND MIL ALSO SHOWED THE NATURE O F PAYMENT AS PROFESSION & TECHNICAL SERVICES. SINCE THE ASSESSEE HAS A PERMANENT ESTABLISHMENT IN INDIA AND THE AGREEMENT LEADING TO THE PAYMENT OF SUCH FEES WAS M ADE AFTER 31 ST MAY, 1997, THE RECEIPT SHOULD HAVE BEEN TAXED @ 11 ITA NOS. 5679 & 5680/DEL/2010 MOTOROLA INC. 20% U/S 115 R.W. SECTION 44D OF THE INCOME-TAX ACT I NSTEAD OF 15% WHICH WAS APPLIED IN THE ASSESSMENT ORDER. THIS RESULTED IN ESCAPEMENT OF INCOME LEADING TO LOSS OF TAX OF RS. 54.16 LAKHS. IN VIEW OF THIS, I HAVE REASONS TO BELIEVE THAT INC OME CHARGEABLE TO TAX AS MENTIONED ABOVE HAS ESCAPED ASSESSMENT FOR THE A.Y. 2002-03. APPROVAL MAY KIND LY BE GIVEN TO ISSUE NOTICE U/S 148. PUT UP FOR KIND APPROVAL OF DIT. SD/- (NEEHAR RANJAN PANDEY) DEPUTY DIRECTOR OF INCOME-TAX INTL. TAX, CIR. 3(1), NEW DELHI. 11 . BARE PERUSAL OF THE REASONS RECORDED FOR THE PURP OSE OF REOPENING SHOWS THAT THE FACTS RECORDED IN THE REASONS HAVE B EEN PICKED UP BY THE AO FROM THE ASSESSMENT ORDER COMPLETED U/S 143(3) O F THE ACT, WHEREBY THAT THE DISPUTE AS TO THE RATE OF TAX HAS BEEN RAI SED BY THE AO BY HOLDING THAT THE ASSESSEE COMPANY HAS A PERMANENT ESTABLISH MENT IN INDIA AND THE AGREEMENT LEADING TO THE PAYMENT OF SUCH FEES W AS MADE AFTER 31 ST MAY, 1997 AND AS SUCH THE RECEIPT SHOULD HAVE BEEN TAXED AT 20% U/S 115A READ WITH SECTION 44D OF THE INCOME-TAX ACT IN STEAD OF 15% WHICH WAS APPLIED IN THE ASSESSMENT ORDER, WHICH RESULTED IN ESCAPEMENT OF INCOME LEADING TO THE LOSS OF TAX OF RS. 54.16 LACS IN A.Y. 2002-03 AND 2.69 CRORES IN A.Y. 2003-04. 12 ITA NOS. 5679 & 5680/DEL/2010 MOTOROLA INC. 12 . WE ARE OF THE CONSIDERED VIEW THAT WHEN ALL THE F ACTS HAVE BEEN BROUGHT ON RECORD BY THE ASSESSEE DURING THE ASSESS MENT PROCEEDING COMPLETED U/S 143(3) OF THE ACT, REOPENING THE ASSE SSMENT AFTER A PERIOD OF 4 YEARS AMOUNTS TO CHANGE OF OPINION WHICH IS NOT PERMISSIBLE UNDER LAW. 13. THERE IS NOT EVEN A VAGUE ALLEGATION LEVELED BY AS SESSING OFFICER IN THE REASONS RECORDED, THAT THE ASSESSEE HAS FAILED ON ITS PART TO DISCLOSE ALL MATERIAL FACTS FULLY AND TRULY NECESSARY FOR AS SESSMENT. ONLY DISPUTE RACKED UP BY THE AO FOR REOPENING IS THE DIFFERENCE IN THE RATE OF TAX WHICH CERTAINLY AMOUNTS TO CHANGE OF OPINION FOR A.Y. 2002-03. 14. WHEN WE EXAMINE ASSESSMENT ORDER PASSED IN THIS CA SE U/S 143(3) OF THE ACT, IT HAS COME ON RECORD THAT THE ASSESSEE COMPANY HAS BROUGHT ON RECORD THE COMPLETE FACTS AS TO RENDERING CERTAI N SERVICES TO ITS GROUP COMPANIES I.E MOTOROLA INDIA ELECTRONICS PRIVATE LIM ITED (MIEL) AND MOTOROLA INDIA LIMITED (MIL), FOR READY PERUSAL, TH E OPERATIVE PART OF THE ASSESSMENT ORDER PASSED U/S 143(3) OF THE ACT IS EX TRACTED AS UNDER:- TAXABILITY OF FEES RECEIVED FROM GROUP COMPANIES THE AR OF THE ASSESSEE VIDE LETTER DATED 22.03.2005 , THE ASSESSEE STATED THAT IT HAD RENDERED CERTAIN SERVIC ES TO ITS GROUP COMPANIES IN INDIA I.E. MOTOROLA INDIA ELECTRONICS PRIVATE LIMITED (MIEL) AND MOTOROLA INDIA LIMITED (MIL). AS PER THE ASSESSEE THE SERVICES WERE RENDERED IN USA ONLY. FURTHER IT WAS CLAIMED THAT THESE SERVICES WERE IN THE NATURE OF PAYMENT TOWARD S TELECOM 13 ITA NOS. 5679 & 5680/DEL/2010 MOTOROLA INC. CHARGES, CONSISTING OF SUPPORTING COMPUTER RESOURCE S, E MAIL, LEASED LINE CHARGES AND BALANCE TOWARDS REPAIRS AND MAINTENANCE, TRAINING CHARGES, MANUAL CHARGES, DEPARTMENT CHARGE S ETC. THE ASSESSEE CLAIMS THAT THE PAYMENT ARE NOT IN THE NAT URE OF FEES FOR INCLUDED SERVICES AS DEFINED UNDER INDIA-US TR EATY. THE AR OF THE ASSESSEE HAS BEEN ASKED TO FURNISH TH E COPY OF AGREEMENT UNDER WHICH ABOVE REFERRED SERVICES WE RE RENDERED. AS PER AGREEMENT THE FOLLOWING SERVICES WERE RENDER ED- MARKETING FEASIBILITY STUDIES TECHNICAL AND ENGINEERING SERVICES ELECTRONIC DATA BASE MANAGEMENT SERVER MANAGEMENT/DESK TOP SERVICES TRAINING FINANCIAL /ADMINISTRATIVE (ALLOCATED MANAGEMENT COS T AND GAC COSTS) SERVICES OTHER SERVICES AS MAY BE AGREED TO BY THE PARTIES. A CLOSE PERUSAL OF THE KIND OF SERVICES RENDERED WI LL REVEAL THAT THE SERVICES ARE IN THE NATURE OF FEE FOR INCLUDED SERVICES. AS CUSTOMIZED TECHNICAL & ENGINEERING SERVICES AND OTH ER RELATED SERVICES HAS BEEN RENDER. EVEN THE TDS CERTIFICATE S ISSUED BY MIL AND MIEL SHOW THE NATURE OF PAYMENT AS PROFESSIONAL AND TECHNICAL SERVICES. AS A RESULT OF ABOVE DISCUSSION, FEE RECEIVED BY TH E ASSESSEE IS CHARGEABLE TO TAX AS FIS. TOTAL AMOUNT OF FEE CHARGED RS. 7,20,41,146 TAX THEREON @ 15% RS. 1,08,06,172/-..D TOTAL TAX LIABILITY= A+B+C+D= RS. 23,48,71,812/- ASSESSED. 15. HONBLE DELHI HIGH COURT IN THE CASE CITED AS ORACLE SYSTEMS CORPORATION VS. ASSISTANT DIRECTOR OF INCOME-TAX (I NTERNATIONAL TAXATION) [2016] 380 ITR 232 DECIDED THE IDENTICAL ISSUE IN FAVOUR OF THE ASSESSEE BY HOLDING AS UNDER:- HELD, ALLOWING THE PETITION, THAT WHEN THE ASSESS ING OFFICER ACCEPTED THE ASSESSEES CONTENTIONS THAT THE ROYALT Y WAS TO BE TAXED UNDER ARTICLE 12(2) (A)(II) AT THE RATE OF 15 %. IT HAS TO BE PRESUMED THAT THE ASSESSING OFFICERS ATTENTION WAS ATTRACTED TO 14 ITA NOS. 5679 & 5680/DEL/2010 MOTOROLA INC. THE ENTIRE ARTICLE 12OF THE DOUBLE TAXATION AVOIDAN CE AGREEMENT. MOREOVER, THE REVENUE HAD BEEN UNABLE TO PINT OUT W HICH MATERIAL FACT HAD NOT BEEN DISCLOSED FULLY OR TRULY. EVEN T HE REASONS DID NOT SPECIFY OR INDICATE WHICH MATERIAL FACT HAD NOT BEE N DISCLOSED FULLY OR TRULY BY THE ASSESSEE. THE NOTICE WAS NOT VALID . 16. SIMILARLY, THE HONBLE DELHI HIGH COURT IN CASE CI TED AS TRACTEBEL INDUSTRY ENGG VS. ADIT 198 TAXMAN 408(DEL) DECIDED THE IDENTICAL ISSUE IN FAVOUR OF THE ASSESSEE, THE OPERATIVE PART OF THE JUDGMENT AS UNDER:- SECTION 147, READ WITH SECTION 90 OF THE INCOME-TA X ACT, 1961 AND ARTICLE 12 IF DTAA BETWEEN INDIA AND BELGIUM- INCOM E ESCAPING ASSESSMENT-NON-DISCLOSURE OF PRIMARY FACTS-ASSESSME NT YEAR 2002- 03- WHETHER SCOPE SECTION 147/148 DOES NOT PERMIT R EVIEW OF AN EARLIER ORDER ON SECOND THOUGH SUO MOTU, WHEN THERE IS NO NEW FACTUAL MATERIAL TO COME TO A DIFFERENT CONCLUSION - HELD, YES ASSESSEE, A COMPANY INCORPORATED IN BELGIUM, WAS EN GAGED IN PROVIDING TECHNICAL SERVICES TO VARIOUS CUSTOMERS I N INDIA FOR RELEVANT ASSESSMENT YEAR, ITS ASSESSMENT IN RESPECT OF INCOME FROM INDIAN OPERATIONS WAS COMPLETED UNDER SECTION 143(3 ) AT RATE OF 10 PER CENT AS PER ARTICLE 12 OF DTAA BETWEEN INDIA AND BELGIUM - THEREAFTER, ASSESSING OFFICER REOPENED ASSESSMENT U NDER SECTION 147 ON GROUND THAT ASSESSEE WAS DOING BUSINESS IN I NDIA THROUGH A PERMANENT ESTABLISHMENT AND, HENCE, IT WAS NOT ELIG IBLE FOR LOWER TAX AT RATE OF 10 PER CENT UNDER ARTICLE 12(2) OF D TAA AND SHOULD BE TAXED AT RATE OF 20 PER CENT ON GROSS RECEIPTS A S PER SECTION 9(1) (VII)/44D - WHETHER SINCE PROCEEDINGS ON RECOR D, QUESTIONNAIRE RAISED A ANSWERS GIVEN AT TIME OF ORI GINAL ASSESSMENT PROCEEDINGS SHOWED THAT BEFORE ORIGINAL ASSESSMENT ORDER WAS PASSED, ASSESSING OFFICER HAD SPECIFICALLY RAISED A ND EXAMINED ISSUE OF PERMANENT ESTABLISHMENT AND HELD THAT ASSE SSEE HAD NO PERMANENT ESTABLISHMENT IN INDIA, IT WAS A CASE OF MERE CHANGE OF OPINION A ASSESSING OFFICER HAD NO JURISDICTION TO REOPEN ASSESSMENT - HELD, YES 15 ITA NOS. 5679 & 5680/DEL/2010 MOTOROLA INC. 17. IN VIEW OF THE LAW LAID DOWN BY HONBLE DELHI HIGH COURT IN THE JUDGMENT OF ORACLE SYSTEMS CORPORATION (SUPRA) AND TRACETEBEL INDUSTRY ENGG (SUPRA), WE ARE OF THE CONSIDERED VIEW THAT WHEN NO INTANGIBLE MATERIAL CO ME TO THE NOTICE OF THE AO T O FORM THE OPINION THAT THE INCOME OF THE ASSESSEE COMPANY HAS ESCAPED ASSE SSMENT RATHER ALL THE FACTS AND FIGURES HAVE BEEN BROUGHT ON RECORD B Y THE ASSESSEE COMPANY DURING ASSESSMENT PROCEEDINGS AND SAME HAVE BEEN GOT EXPLAINED BY THE AO BY WAY OF ISSUANCE OF DETAILED QUESTIONNAIRE AND THE PROCEEDING WERE COMPLETED U/S 143(3) OF THE ACT, T HE REOPENING IN THESE CASES HAVE APPARENTLY BEEN MADE ON THE BASIS OF CH ANGE OF OPINION WHICH IS NOT PERMISSIBLE UNDER LAW. 18. THE CONTENTIONS OF THE LD. DR THAT DECISION IN THE SE APPEALS SHOULD BE KEPT IN ABEYANCE TILL THE APPELLATE PROCEEDING B EFORE LD. CIT(A) U/S 143(3) OF THE ACT ARE NOT COMPLETED, IS NOT TENABLE BECAUSE THESE ARE THE SEPARATE PROCEEDING AND THE ASSESSEE AS WELL AS REV ENUE IS HAVING SEPARATE CAUSE OF ACTION TO CHALLENGE THE REOPENING . THE JUDGMENTS RELIED UPON BY THE LD. DR FOR THE REVENUE ARE NOT A PPLICABLE TO THE FACTS AND CIRCUMSTANCES OF THE CASE. 19. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, WE ARE O F THE CONSIDERED VIEW THAT, WITHOUT GOING INTO THE MERITS OF THIS CASE, THE REOPENING IN THESE CASES IS ITSELF NOT SUSTAINABLE, HAVING BEEN MADE AFTER 16 ITA NOS. 5679 & 5680/DEL/2010 MOTOROLA INC. A PERIOD OF 4 YEARS FROM THE RELEVANT ASSESSMENT YE ARS AS THE ASSESSEE COMPANY HAS BROUGHT ON RECORD ALL THE MATERIAL FACT S FULLY AND TRULY NECESSARY FOR ASSESSMENT. SO, ORDER PASSED BY THE AO/DRP U/S 144/147 OF THE ACT IS NOT SUSTAINABLE IN THE EYES OF LAW, H ENCE ORDERED TO BE QUASHED. ORDER PRONOUNCED IN THE OPEN COURT ON 04/7/2018 SD/- SD/- (G.D. AGRAWAL) (KULDIP SINGH) PRESIDENT JUDICIAL M EMBER DATED: 04.07.2018 POOJA/- COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI 17 ITA NOS. 5679 & 5680/DEL/2010 MOTOROLA INC. DATE OF DICTATION 19/6/2018 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 2/7/2018 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. PS/PS 2/7/2018 DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 2/7/2018 DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/PS 4/7/2018 DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER