American Express Travel Related Services Company Inc., USA V. ADIT, New Delhi

ITA 5941/DEL/2010

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 1166 (ITAT-DELHI)
• Duration Of Justice: 9 year(s) 5 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-05-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 05-06-2017
• Assessment Year: 2003-2004
• Appeal Filed On: 27-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SATPAL GULATI
• Keywords: Business income; Double taxation relief; Permanent establishment; Advance ruling; Tangible material; Difference of opinion; Reason to believe; Change of opinion; Reassessment proceedings; TDS
• Section: 143(3); 142(1); 5(2); 234B; 144C; 9(1); 9(1); 9(1); 13; 22; 147; 148; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D: NEW DELHI BEFORE, SHRI G. S. PANNU, VICE PRESIDENT AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMB ER ITA NO.5941/DEL/2010 (ASSESSMENT YEAR-2003-04) AMERICAN EXPRESS TRAVEL RELATED SERVICES COMPANY INC. 200, VESEY STREET, MAIL STOP 50-01 NEW YORK NY 10285, USA PAN AAMFA 3478N VS. A SST. DIRECTOR OF INCOME TAX, CIRCLE-1(1), INTERNATIONAL TAXATION, NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY SH. NAGESWAR RAO, ADV. RESPONDENT BY SH. SATPAL GULATI, CIT-DR DATE OF HEARING 17.02.2020 DATE OF PRONOUNCEMENT 28 .05.2020 ORDER PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER: THIS APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AGAI NST THE FINAL ASSESSMENT ORDER DATED 28.10.2010 PASSED U/S 143(3) /144C OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED AS THE ACT) WHI CH HAS BEEN PASSED IN PURSUANCE TO THE DIRECTIONS OF THE LD. DISPUTE RESO LUTION PANEL (DRP) FOR ASSESSMENT YEAR 2003-04. 2.0 THE BRIEF FACTS OF THE CASE ARE THAT THE AS SESSEE IS A COMPANY INCORPORATED IN THE UNITED STATES OF AMERICA AND HA VING ITS PRINCIPAL PLACE 2 ITA NO.5941/DEL/2010 AMERICAN EXPRESS T RAVEL RELATED SERVICES VS. ADIT OF BUSINESS AT AMERICAN EXPRESS TOWER, WORLD FINANC E CENTER, NEW YORK, NY 10285, USA. THUS, IT IS A NON-RESIDENT COMPANY F OR THE PURPOSE OF TAXATION IN INDIA AS PER THE RECORDS. THIS COMPANY HAS GLOBAL AND DOMESTIC SYSTEMS SOFTWARE AND APPLICATIONS INSTALLED ON VARIO US COMPUTING PLATFORMS. THE COMPANY HAD ENTERED INTO AN AGREEMEN T WITH AMERICAN EXPRESS (INDIA) PVT. LTD., A COMPANY INCORPORATED I N INDIA AND HAVING A PRESENCE IN NEW DELHI AND WHICH CATERED TO NEEDS OF JAPAN, ASIA PACIFIC, AUSTRIA, NEW ZEALAND, EMEA, US AND LAC REGIONS AND V ARIOUS OTHER COUNTRIES AND LOCATIONS. 2.1 THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDE RATION WAS FILED IN THE CAPACITY OF THE REPRESENTATIVE ASSESSEE ON 16.02.20 06 AND ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE ACT. SUBSEQUE NTLY, THE ASSESSING OFFICER NOTICED THAT THERE WAS AN AGREEMENT UNDER WH ICH THE ASSESSEE COMPANY WOULD DEVELOP AND MAINTAIN APPLICATIONS AND WOULD ALSO ALLOW THE USE OF SYSTEMS SOFTWARE AND SUCH APPLICATIONS IN CLUDING USE OF INCIDENTAL SOFTWARE TO AMERICAN EXPRESS (INDIA) PVT. LTD. AS PER THE SAID AGREEMENT, A CONSIDERATION OF US DOLLARS 263, 523 WA S PAID BY AMERICAN EXPRESS (INDIA) PVT. LTD. TO THE ASSESSEE COMPANY. THE ASSESSING OFFICER 3 ITA NO.5941/DEL/2010 AMERICAN EXPRESS T RAVEL RELATED SERVICES VS. ADIT WAS OF THE OPINION THAT THE CONSIDERATION RECEIVED A S COMPENSATION FOR THE USE OF OR THE RIGHT TO USE OF THE SYSTEMS SOFTWARE A ND APPLICATIONS SOFTWARE BY AMERICAN EXPRESS (INDIA) PVT. LTD. WAS COVERED BY THE DEFINITION OF ROYALTY BOTH AS PER THE PROVISIONS OF THE ACT AS WELL AS ARTICLE-12 OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA) BETWEEN I NDIAN AND THE US. THE ASSESSING OFFICER WAS FURTHER OF THE OPINION THA T THIS ROYALTY WAS TAXABLE IN INDIA @ 15% OF GROSS AMOUNT OF INDIA BUT SINCE THIS ROYALTY INCOME HAD NOT BEEN OFFERED TO TAX IN INDIA BY THE ASSESSEE COMPANY, REASSESSMENT PROCEEDINGS WERE INITIATED BY THE ASSE SSING OFFICER. 2.2 AS PER RECORDS, THE STATUTORY NOTICE U/S 148 OF THE ACT WAS ISSUED ON 27.03.2008 AND IN RESPONSE TO THE SAID NOTICE THE A SSESSEE FILED THE RETURN OF INCOME ON 22.04.2008 DECLARING THE INCOME AT RS. NIL. THE ASSESSEE ASKED FOR COPY OF REASONS FOR REOPENING THE ASSESSM ENT ON 22.04.2008. THE NOTICE U/S 142(1) OF THE ACT WAS ISSUED ON 28.05.200 8 WITHOUT SUPPLYING THE ASSESSEE WITH THE COPY OF REASONS. THE ASSESSEE AGAIN REQUESTED FOR COPY OF REASONS WHICH WERE FINALLY SUPPLIED ON 22.08 .2008. THE COPY OF REASONS AS SUPPLIED BY THE DEPARTMENT VIDE LETTER D ATED 22.08.2008 ARE AS UNDER: 4 ITA NO.5941/DEL/2010 AMERICAN EXPRESS T RAVEL RELATED SERVICES VS. ADIT THE REASONS RECORDED BEFORE ISSUANCE OF NOTICE U/S 148 IN THE SUBJECT CASE ARE: AMERICAN EXPRESS TRAVEL RELATED SERVICES COMPANY I NC., USA (HEREINAFTER: AETRSCO / COMPANY/ ASSESSEE) IS A COMPANY INCORPORATED IN THE UNITED STATES OF A MERICA AND HAVING ITS PRINCIPAL PLACE OF BUSINESS AT AMERICAN EXPRESS TOWER, WORLD FINANCIAL CENTRE, NEW YORK, NY 10285, USA. AN AMERICAN COMPANY AND HELD B Y AMERICAN EXPRESS COMPANY USA. AETRSCO HAS GLOBAL AND DOMESTIC SYSTEMS SOFTWARE AN D APPLICATIONS INSTALLED ON VARIOUS COMPUTING PLATFORMS. IT HAS ENTERED INTO AN AGREEME NT WITH AMERICAN EXPRESS (INDIA) PVT. LTD. (HEREINAFTER: AEIPL'), A COMPANY INCORPORATED IN INDIA AND HAVING A FINANC IAL CENTRE IN NEW DELHI CATERING TO THE NEEDS OF JAPAN, ASIA PACIFIC, AUSTRALIA, NEW ZEALAND, EMEA, US AND LAC REGION AND VARIOUS COUNTRIES/ LOCATIONS. AS PER THE AGREEMENT, AETRSCO WOULD DEVELOP AND MAINTAIN APPLICATIONS AND ALSO ALLOWED USE OF THE S AID SYSTEMS SOFTWARE AND APPLICATIONS AND WILL ALSO ALLOW AEIPL INCIDENTAL SOFTWARE USE. AS P ER THE AGREEMENT, A CONSIDERATION OF USD 263,523 WAS PAID BY AEIPL TO AETRSCO. THE CONSIDERATION RECEIVED AS COMPENSATION FOR THE USE OF OR THE RIGHT TO USE OF THE SYSTEMS SOFTWARE AND APPLICATION SOFTWARE BY AEIPL IS COVER ED BY THE DEFINITION OF ROYALTIES BOTH AS PER THE PROVISIONS OF INCOME TAX ACT, 1961 (THE ACT') AND ARTICLE 12 OF THE TAX TREATY BETWEEN INDIA AND USA. THE ROYALTIES DEEMED TO ARISE IN IND IA, AS THE PAYMENT IS BY THE INDIAN COMPANY. CONSIDERING THE PROVISIONS OF SECTION 9(1) (VI) AND PROVISIONS OF ARTICLE 12(2) OF THE TAX TREATY BETWEEN INDIERAND USA, SUCH ROYALTIES ARE TA XABLE IN INDIA @15% OF THE GROSS AMOUNT OF SUCH ROYALTIES. THE ASSESSEE HAS FILED RETURN OF INCOME FOR A. Y. 2 003-04 ON 16.02.2006, HOWEVER, THIS ROYALTY INCOME IS NOT OFFERED TO TAX. IN THE NOTES ATTACHED TO THE STATEMENT OF TOTAL INCOME, EVEN THE FACTS RELATING TO THE RECEIPTS OF SUCH INCOME IS NOT DISC LOSED. THE ASSESSEE WAS ALSO CARRYING OUT THE BUSINESS REL ATED TO CUSTOMER FOCUSED SALES '('CFS ) BUSINESS THROUGH AEIPL. IN THIS SERVICE AMERICAN EX PRESS, US PROVIDED BETTER TO ITS EXISTING CARD MEMBERS. AS PER THE ASSESSEE SUCH SERVICES WE RE RENDERED DURING THE PERIOD 01.10.2002 TO 31.01.2003 AND AROUND 90 EMPLOYEES AT THE GURGAO N FACILITY PARTICIPATED IN THIS SERVICE. THE PROCESS IS EXPLAINED BELOW: 1. RECEIVE CARD MEMBER CALL 2. UNDER TAKE STEPS TO VERIFY CALLERS IDENTITY 5 ITA NO.5941/DEL/2010 AMERICAN EXPRESS T RAVEL RELATED SERVICES VS. ADIT 3. CARD MEMBER REQUEST FOR INFORMATION / MAINTENANCE OF ITS ACCOUNT 4. CUSTOMER SERVICE EXECUTIVE PROVIDES INFORMATION/ P ERFORMS MAINTENANCE ON ACCOUNT AS PER CARD MEMBER REQUEST. 5. AN AMERICAN EXPRESS SYSTEM IN THE US PROMPTS THE EX ECUTIVE TO PERSUADE THE CARD MEMBER TO AVAIL ADDITIONAL BENEFITS AND SERVICES AVAILABLE TO THE CARD MEMBER. 6. THE EXECUTIVE THEN COMMUNICATES WITH THE CUSTOMER T O PERSUADE BY DESCRIBING THE BENEFITS, TERMS AND CONDITIONS AND ANSWERS ALL THE QUERIE S AND DOUBTS ABOUT THE PRODUCT, WHICH IS PROPOSED F OR SALE TO THE CUSTOMER. 7. IF THE EXECUTIVE SUCCEEDS IN CONVINCING THE CUSTOME R TO PURCHASE THE PRODUCT, HE RECORDS THE SAME IN T HE SYSTEM. SUCH RECORDING IS TANTAMOUNT TO SECURING AN D CONCLUSION OF CONTRACT, FOR WHICH INCENTIVE ACC RUES TO THE EXECUTIVE. THE RECORDING OF A TRANSACTION ON AG REED TERM AND CONDITION IS BINDING ON THE CUSTOMER AND ON THE ASSESSEE. 8. ACCORDINGLY THE RECORDS OF THE CUSTOMER GET UPDATED IN THE SYSTEM. 9. THEREAFTER CALL IS DISCONNECTED. FOR THIS SERVICE THE EMPLOYEES OF AEIPL WERE PAID I NCENTIVES. IT IS CLEAR THAT THE INDIAN EMPLOYEES WERE SOLICITING BUSINESS ON BEHALF OF THE ASSESSEE. THE ACTIVITY OF SOLICITING BUSINESS STARTS THE MOMENT THE TERMINAL OF THE PERSONNEL PRO PS THAT THEY SHOULD SOLICIT BUSINESS. THE SOLICITATION INCLUDE NOT ONLY IMPARTING INFORMATION BUT CONVINCING THE CARD MEMBER TO AVAIL THE SERVICES AVAILABLE WITH THE ASSESSEE COMPANY AND FO R THESE SERVICES THE ASSESSEE COMPANY GETS HUGE AMOUNTS FROM THE CARD MEMBERS. THAT IS WH Y THE EXECUTIVE DOING THESE ACTIVITIES GETS INCENTIVE ON THE BASIS OF BUSINESS AND CONTRACTS CO NCLUDED BY THEM. THE INCENTIVE DETAILS AND ITS RATE ARE AS UNDER: BENEFIT/SERVICES INCENTIVE RANGE (IN R) CARD UPGRADE 1.5 TO 20 SIGN AND TRAVEL 17 EXTENDED PAYMENT OPTION 11 TO 15 BALANCE TRANSFER 8 CAR RENTAL PROTECTION 1.5 TO 7 CREDIT CARD REGISTRY 3 MEMBERSHIP REWARDS 1.5 TO 8 AIR FLIGHT INSURANCE/ FLIGHT PROTECTION 3 TO 13.5 TRAVEL DELAY 1.5 TO 3 PREMIUM BAGGAGE PROTECTION 1.5 TO 11 ADVISORY LEADS 1 AS ALL THE ACTIVITIES RELATING TO THE SERVICES WERE PERFORMED BY AEIPL ON BEHALF OF THE ASSESSEE, THEREFORE, AEIPL CONSTITUTES A FIXED PLACE OF BUSIN ESS OF THE ASSESSEE IN INDIA. AS THE PRODUCTS OF THE ASSESSEE WERE SOLD BY AEIPL AND THE RECORD W AS MAINTAINED IN THE SYSTEMS IS AMOUNTS TO CONCLUDING THE CONTRACTS ON BEHALF OF THE ENTERP RISE, THEREFORE, AEIPL ALSO CONSTITUTES THE AGENCY PERMANENT ESTABLISHMENT ( U PE N ) OF THE ASSESSEE IN INDIA. 6 ITA NO.5941/DEL/2010 AMERICAN EXPRESS T RAVEL RELATED SERVICES VS. ADIT THE INCOME RELATING TO CFS SERVICES HAS BEEN TAXED IN THE CASE OF AMERICAN EXPRESS INTERNATIONAL INC., AN AFFILIATED COMPANY OF THE AS SESSEE FOR A.Y. 2003-04. THAT COMPANY HAS CLAIMED THAT NO SUCH BUSINESS BELONGED TO THEM, HOW EVER SUCH CLAIM IS NOT SUBSTANTIATED BY AMERICAN EXPRESS INTERNATIONAL INC. AS THE AEIPL HAD THE AGREEMENT WITH THE ASSESSEE ONLY, THEREFORE, THE CFS BUSINESS IS ALSO CONSIDERED TO THE BELONGING TO THE ASSESSEE AND SUCH INCOME HAS ESCAPED ASSESSMENT. THIS IS WITHOUT PRE JUDICE TO THE FINDING GIVEN IN THE ASSESSMENT ORDER OF AMERICAN EXPRESS I NTERNATIONAL INC. IN THE RETURN OF INCOME, THE INCOME ATTRIBUTABLE TO SUCH PE IS NOT DISCLOSED. 4. THE ASSESSEE HAS SET UP AN EQUIPMENT IN TH E FORM OF MIDRANGE AND MAINFRAME COMPUTER AND NETWORK AT PHOENIX USA AND AEIPL WAS USING THIS COMPUTER AND NETWORK FROM 01.04.2002. THE ASSESSEE WAS ALLOWING THE AEIPL USE OF MAINFRAM E AND MIDRANGE COMPUTING FACILITIES SITUATED AT PHOENIX, STORAGE OF DATA ON THE MAINFRA ME OR PROVIDING ACCESS TO SERVER INCIDENTAL, ELECTRONIC MAIL ACCESS, CONSOLIDATED DATA AND NETWO RK ACCESS. AN AMOUNT OF USD 3,661,721 WAS PAYABLE BY AEIPL TO AETRSCO FOR THE PERIOD 01.04.20 02 TO 31.03.2003. THE CONSIDERATION RECEIVED AS COMPENSATION FOR THE USE OF COMPUTER, SERVER, NETWORK, ELECTRONIC MAIL ACCESS ETC. IS COVERED BY THE DEFINITION OF RO YALTIES BOTH AS PER THE PROVISIONS OF INCOME TAX ACT, 1961 ('THE ACT') AND ARTICLE 12 OF THE TAX TREATY BETWEEN INDIA AND USA. THE ROYALTIES DEEMED TO ARISE IN INDIA, AS THE PAYMENT IS BY THE INDIAN COMPANY. CONSIDERING THE PROVISIONS OF SECTION 9(1)(VI) AND PROVISIONS OF ARTICLE 12(2) OF THE TAX TREATY BETWEEN INDIA AND USA, SUCH ROYALTIES ARE TAXABLE IN INDIA @15% OF THE GROSS AM OUNT OF SUCH ROYALTIES. THE ASSESSEE HAS FILED RETURN OF INCOME FOR A.Y. 20 03-04 ON 16.02.2006, HOWEVER, THIS ROYALTY INCOME IS NOT OFFERED TO TAX. IN THE NOTES ATTACHED TO THE STATEMENT OF TOTAL INCOME, EVEN THE FACTS RELATING TO THE RECEIPTS OF SUCH INCOME IS NOT DISC LOSED. 5. THE ASSESSEE HAS ALSO SECONDED SOME EMPLOY EES TO AEIPL. THESE SECONDED PERSONS CONTINUED TO BE THE EMPLOYEES OF THE ASSESSEE AND A EIPL WAS REIMBURSING THE ASSESSEE AN AMOUNT EQUIVALENT TO THE COMPENSATION AND OTHER BEN EFITS ACTUALLY INCURRED BY THE ASSESSEE FROM TIME TO TIME FOR SECONDED EMPLOYEES. AEIPL WAS ALSO REIMBURSING ACTUAL EXPENSES INCURRED BY THE ASSESSEE IN SECONDMENT OF THE EMPLOYEES. AS AEIPL HAS ENTERED INTO AN EXPORT AGREEMENT WITH THE ASSESSEE AND HAS SET UP FACILITI ES FOR PROVIDING INFORMATION TECHNOLOGY 7 ITA NO.5941/DEL/2010 AMERICAN EXPRESS T RAVEL RELATED SERVICES VS. ADIT ENABLED ACTIVITIES OF CALL CENTRE, DATA PROCESSING AND BACK OFFICE OPERATIONS INCLUDING DATA MANAGEMENT, INFORMATION ANALYSIS AND CONTROL, REVEN UE ACCOUNTING, SUPPORT CENTRE, DESIGN AND IMPLEMENTATION OF MANAGEMENT, INFORMATION SYSTEMS E TC. THIS CENTRE IS CALLED AMERICAN EXPRESS GLOBAL SERVICE CENTRE ('AEGSC') AND AETRSCO HAD DESIRED (VIDE EXPORT AGREEMENT DATE D 20.12.2002) THE AEIPL INTER ALIA MAKE THE SAID AEGS C FACILITY AVAILABLE TO AND UNDERTAKE EXPORT ACTIVITIES FOR EXPORTS TO THE ASSESSEE AND O THER DESIGNATED BRANCHES, SUBSIDIARIES, AFFILIATES AND LICENSEES OF THE COMPANY. THE ASSESSEE HAD ENTERED INTO AN AGREEMENT ON 21.08 .2003 WITH AEIPL. THE RELEVANT PORTION OF THE AGREEMENT READS AS BELOW: AND WHEREAS AETRSCO HAD BEEN DESIROUS OF ENGAGING A EIPL TO PERFORM EXPORT ACTIVITIES FROM AEIPL'S NEW FACILITY : AND WHEREAS IT WAS UNDERSTOOD BETWEEN THE PARTIES T HAT AETRSCO MAY PROVIDE STRICT SPECIFICATIONS AND STAND ARDS THAN AS MAY BE ORDINARILY REQUIRED FOR PERFORMING EXPORT AC TIVITIES BY AEIPL FROM THE NEW FACILITY IN THE NORMAL COURSE.' AND WHEREAS IT WAS AGREED BY AETRSCO TO REIMBURSE C ERTAIN INITIAL SET-UP COSTS, INCURRED BY AEIPL FOR THE NEW FACILITY VIZ. AMERICAN EXPRESS GLOBAL SERVICE CENTRE (AEGSC). AND WHEREAS AEIPL HAS SET UP THE NEW FACILITY TO PE RFORM THE ABOVE EXPORT ACTIVITIES IN ACCORDANCE WITH THE SPEC IFICATIONS AND STANDARDS AS SUGGESTED BY AETRCO FROM TIME TO TIME; AND WHEREAS AETRSCO AND AEIPL HAVE CONCLUDED A SEPA RATE EXPORT AGREEMENT' DATED 2CP DAY OF DECEMBER 2002 TO DOCUMENT THE TERMS AND CONDITIONS OF THEIR ARRANGEMENT INTER ALIA FOR AEIPL TO UNDERTAKE EXPORT ACTIVITIES FROM THE SAID NEW AEGS C FACILITY FOR EXPORTS TO AETRSCO END AETRSCO DESIGNATED OFFICES. NOW THEREFORE, IN CONSIDERATION OF THE MUTUAL CONVE NANTS HEREINAFTER SET FORTH, THE PARTIES AGREE THAT THE A BOVE RECITALS ARE MADE A PART OF THIS AGREEMENT, AND THAT: 8 ITA NO.5941/DEL/2010 AMERICAN EXPRESS T RAVEL RELATED SERVICES VS. ADIT 1. UNDER THE TERMS OF THE 'EXPORT AGREEMENT' AEIPL SHA LL PERFORM EXPORT ACTIVITIES FOR AETRSCO IN ACCORDANCE WITH TH E STRICT SPECIFICATIONS AND STANDARDS PROVIDED BY AETRSCO. A ETRSCO ACKNOWLEDGES THAT SUCH SPECIFICATIONS AND STANDARDS PROVIDED BY THEM ARE STRICTER THAN AS MAY BE ORDINARILY REQUIRE D FOR PERFORMING EXPORT ACTIVITIES FROM THE NEW FACILITY. 2. IN CONSIDERATION OF AEIPL SETTING UP THE NEW FACILI TY AS AFORESAID, AETRSCO HAD AGREED TO PROVIDE SUBSIDY BY WAY OF REI MBURSEMENT TOWARDS MEETING A PART OF THE INITIAL SET UP COSTS FOR THE NEW FACILITY VIZ. AEGSC. 3. AETRSCO HAS ACCORDINGLY REIMBURSED AEIPL A PART OF AEIPL'S ACTUAL INITIAL SET UP COSTS INCURRED FOR AEGSC, AMO UNTING TO A SUM OF US$ 4,136,106.73 EQUIVALENT TO RS. 197,840,325. *SET UP COSTS' INCLUDE COSTS INCURRED WHILE SETTING UP AEGSC TOWAR DS SALARY AND EMPLOYEE RELATED COSTS, FINANCING COSTS, PRINTING A ND STATIONERY EXPENSES, COMMUNICATION COSTS, LEGAL AND PROFESSION AL CHARGES, INSURANCE EXPENSES, RENT, RATES AND TAXES, REPAIR A ND MAINTENANCE EXPENSES, OUTSIDE DATA PROCESSING COSTS, DEPRECIATI ON, MISCELLANEOUS EXPENSES, TRAVEL AND ENTERTAINMENT EX PENSES, DIRECTLY ATTRIBUTABLE TO SETTING UP AEGSC, UP TO TH E DATE OF COMMENCEMENT OF COMMERCIAL PRODUCTION I.E. JULY 29, 2002. 4. NO LIABILITY SHALL BE INCURRED BY AETRSCO IN EXCES S OF THE AFOREMENTIONED AMOUNT OF RS.197,840,325. FROM THE ABOVE STATED FACTS, IT IS OBVIOUS THAT THE ASSESSEE HAS SET-UP THE AEGSC I THROUGH AEIPL, BY REIMBURSING THE FULL COST OF SETTING UP T HE FACILITY UPTO THE STAGE OF / COMMERCIAL PRODUCTION AND HAS NOT ONLY DEPUTED ITS EMPLOYEES F OR MANAGING AND RUNNING THE / FACILITY BUT HAS USED ITS COMPUTER, SERVER, NETWORK ETC. IN PHOE NIX FOR AVAILING THE SERVICES. THE AEGSC CONSTITUTES A FIXED PLACE OF BUSINESS OF THE ASSESSEE, THROUGH WHICH ITS BUSINESS IS BEING CARRIED ON. ACCORDINGLY, ASSESSEE HAS PE AS P ER THE PROVISIONS OF PARAGRAPH 1 OF ARTICLE 5 OF THE TAX TREATY BETWEEN INDIA AND USA. 9 ITA NO.5941/DEL/2010 AMERICAN EXPRESS T RAVEL RELATED SERVICES VS. ADIT THE FACILITIES OF AEIPL HAVE BEEN SET UP BY THE ASSESSEE. THE TOP MANAGERIAL PERSONS AND DECISIONS MAKERS OF AEIPL ARE THE EMPLOYEES OF THE ASSESSEE, DEPUTED TO AEIPL. THE ASSESSEE HAS ALSO PROVIDED ITS COMPUTERS, SERVER, NETWORK AN D SOFTWARE TO AEIPL. IT CAN ALSO BE SAID THAT THE AEIPL IS ACTING EXCLUSIVELY FOR THE ASSESSEE. T HE AEIPL IS RENDERING THE SERVICES DIRECTLY TO THE CUSTOMERS OF THE ASSESSEE AND ACCORDINGLY THE S AME ARE BEING RENDERED AS PER THE SPECIFICATIONS AND REQUIREMENTS OF SUCH CUSTOMERS. THE AEIPL IS ALSO FULLY ECONOMICALLY DEPENDENT ON THE ASSESSEE. AS MENTIONED IN THE AGRE EMENTS, THE AEIPL FACILITIES HAVE BEEN SET UP AS PER THE STRICT SPECIFICATIONS AND STANDARDS O F THE ASSESSEE AND ALSO THE RENDERING OF SERVICES ARE SUBJECT TO INSTRUCTION OF THE ASSESSEE AND THE DEPUTED EMPLOYEES OF THE ASSESSEE ARE COMPREHENSIVELY CONTROLLING THE BUSINESS OF AEI PL, THEREFORE, THE AEIPL IS ALSO A DEPENDENT AGENT PE OF THE ASSESSEE. THE ASSESSEE IN THE RETURN OF INCOME FILED HAS NOT SHOWN ANY INCOME, WHICH IS ATTRIBUTABLE TO THE PE OF THE ASSESSEE, AS DISCUSSED. THE ASSESSEE HAS NOT SHOWN THE INCOME FROM VARIOUS SOURCES MENTIONED ABOVE IN THE RETURN OF INCOME FILED FOR A.Y. 2003-04 ON 16.02.2006. THE OR DER U/S 143(3) WAS PASSED ON 31.03.2006. AS DISCUSSED IN THE PRECEDING PARAGRAPHS, THE ASSESSEE HAD NOT DISCLOSED FULLY AND TRULY ALL MATERIAL FACTS AND INCOME ACCRUING, ARISING OR DEEM ED TO ACCRUE OR ARISE IN INDIA TO THE ASSESSEE AS PER THE PROVISIONS OF SECTION 5(2) R.W.S. 9 OF T HE ACT AND RELEVANT PROVISIONS OF THE TAX TREATY. THEREFORE, I HAVE REASON TO BELIEVE THAT INCOME CH ARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR A.Y.2003-04. ACCORDINGLY, IT IS A FI T CASE FOR ISSUE OF NOTICE U/S 148 OF THE ACT AND SUCH NOTICE IS BEING ISSUED. 2.3 THE ORIGINAL ASSESSMENT HAD EARLIER BEEN COMPL IED VIDE ORDER DATED 31.03.2006 U/S 143(3) OF THE ACT WHEREIN THE A SSESSMENT WAS COMPLETED AT THE INCOME RETURNED BY THE ASSESSEE. 10 ITA NO.5941/DEL/2010 AMERICAN EXPRESS T RAVEL RELATED SERVICES VS. ADIT 2.4 THE ASSESSEE FILED OBJECTIONS TO THE REOPENING OF THE ASSESSMENT VIDE SUBMISSIONS DATED 27.10.2009. IN THE OBJECTIONS IT WAS SUBMITTED BY THE ASSESSEE THAT THE INITIATION OF THE REASSESSMENT PR OCEEDINGS WAS BAD IN LAW AS THE REASONS INDICATED THAT THE ASSESSING OFFICER WAS SEEKING TO RE- EXAMINE THE ISSUES ALREADY CONCLUDED IN THE ORIGINA L ASSESSMENT PROCEEDINGS WITHOUT ANY FRESH MATERIAL OR INFORMATIO N. IT WAS ALSO SUBMITTED THAT THE ROYALTY OF USD 263, 523 WAS DULY DISCLOSED AND OFFERED TO TAX IN THE RETURN OF INCOME FILED BY AMERICAN EX PRESS (INDIA) LTD. IN THE CAPACITY OF THE REPRESENTATIVE ASSESSEE FOR THE ASS ESSEE AND, THEREFORE, IT WAS FACTUALLY INCORRECT TO ALLEGE THAT INCOME HAD ES CAPED ASSESSMENT. 2.5 REGARDING THE SECOND REASON FOR RE-OPENING OF T HE ASSESSMENT THAT THE ASSESSEE HAD ALSO BEEN CARRYING OUT BUSINESS RE LATED TO CUSTOMERS FOCUSED SALES (CFS) BUSINESS THROUGH AMERICAN EXPRE SS (INDIA) PVT. LTD. AND THAT INCOME FROM SUCH OPERATIONS HAD ESCAPED AS SESSMENT, IT WAS SUBMITTED BY THE ASSESSEE THAT SUCH OBSERVATIONS OF THE ASSESSING OFFICER WERE INCORRECT AS THE ACTIVITY CARRIED OUT BY AMERIC AN EXPRESS (INDIA) PVT. LTD. FOR THE ASSESSEE COMPANY DURING THE ASSESSMENT YEAR UNDER CONSIDERATION WERE LIMITED TO PROVIDING GENERAL CAL L CENTER ACTIVITIES WHICH 11 ITA NO.5941/DEL/2010 AMERICAN EXPRESS T RAVEL RELATED SERVICES VS. ADIT IN ANY MANNER DID NOT INVOLVE ANY CONCLUSION OR SEC URING OF CONTRACTS ON BEHALF OF THE ASSESSEE COMPANY. IT WAS ALSO SUBMITTE D THAT THERE WAS NO FIXED PLACE IN INDIA WHICH WAS HELD AT THE DISPOSAL OF THE ASSESSEE COMPANY AND, THEREFORE, IT WAS FACTUALLY INCORRECT T O ALLEGE THAT AMERICAN EXPRESS (INDIA) PVT. LTD. CONSTITUTED FIXED PLACE O F BUSINESS FOR THE ASSESSEE COMPANY. 2.6 WITH RESPECT TO THE THIRD REASON THAT THE AS SESSEE HAD SET UP EQUIPMENT IN THE FORM OF MID-RANGE AND MAINFRAME CO MPUTER AND NETWORK AT USA AND AN AMOUNT OF USD 3,661,721 WAS PAYABLE BY THE AEIPL TO THE ASSESSEE COMPANY AS COMPOSITION FOR USE OF COMPUTER , SERVER NETWORK, ELECTRIC MAIL ETC. WAS COVERED BY THE DEFINITION OF ROYALTIES AND THAT SINCE THIS ROYALTY INCOME WAS NOT OFFERED TO TAX, THE INCO ME HAD ESCAPED ASSESSMENT, IT WAS THE ASSESSEES SUBMISSIONS THAT THIS ROYALTY OF USD 3,661,721 EQUIVALENT TO RS.176,145,689/- WAS DULY DI SCLOSED AND OFFERED TO TAX IN THE RETURN OF INCOME FILED BY THE AMERICA EXPRESS (INDIA) PVT. LTD. IN THE CAPACITY OF REPRESENTATIVE ASSESSEE FOR THE ASSESSEE COMPANY. 2.7 WITH RESPECT TO THE FOURTH REASON, AS STATE D IN THE REASONS RECORDED, THAT THE ASSESSEE HAD SECONDED SOME EMPLOYEES TO AM ERICAN EXPRESS 12 ITA NO.5941/DEL/2010 AMERICAN EXPRESS T RAVEL RELATED SERVICES VS. ADIT (INDIA) PVT. LTD. WHICH CONTINUED TO BE THE EMPLOYEE S OF THE ASSESSEE AND THAT AMERICAN EXPRESS (INDIA) PVT. LTD. WAS REIMBURS ING THE ASSESSEE COMPANY AN AMOUNT EQUAL TO THE COMPENSATION AND OTH ER BENEFITS INCURRED BY THE ASSESSEE FROM TIME TO TIME FOR THE SECONDED EMPLOYEES WHICH THUS CONSTITUTED A PERMANENT ESTABLISHMENT IN TERMS OF PROVISIONS OF ARTICLE-5(1) OF DTAA BETWEEN INDIA AND USA AND S INCE THE ASSESSEE HAD NOT SHOWN ANY INCOME ATTRIBUTABLE TO THE PERMANENT E STABLISHMENT OF THE ASSESSEE, THE RESULTANT INCOME HAD ESCAPED ASSESSME NT, IT WAS SUBMITTED THAT THE AGREEMENT RELATING TO THE SECOND-MENT OF T HE PERSONNEL BETWEEN AMERICAN EXPRESS INDIA PVT. LTD. AND THE ASSESSEE W ERE DULY FURNISHED DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND THA T IN TERMS OF THE SAID AGREEMENT THE SECOND-MENT OF THE EMPLOYEES WAS TO B E UNDER THE DIRECT SUPERVISION OF AMERICAN EXPRESS (INDIA) PVT. LTD. A ND THEIR REPORTING WAS TO THE MANAGEMENT OF AMERICAN EXPRESS (INDIA) PVT. LTD .. IT WAS ALSO SUBMITTED THAT THE ACTUAL REIMBURSEMENT TO THE EMPL OYEE COSTS BY AMERICAN EXPRESS (INDIA) PVT. LTD TO THE ASSESSEE COMPANY, THOUGH NOT RESULTING IN ANY INCOME IN THE HANDS OF THE ASSESSE E, WAS DULY OFFERED TO 13 ITA NO.5941/DEL/2010 AMERICAN EXPRESS T RAVEL RELATED SERVICES VS. ADIT TAX IN THE RETURN OF INCOME FILED BY THE AMERICAN E XPRESS (INDIA) PVT. LTD. IN THE CAPACITY OF REPRESENTATIVE ASSESSEE FOR THE ASSESSEE COMPANY. 2.8 IN A NUTSHELL, THE CRUX OF THE OBJECTIONS O F THE ASSESSEE AGAINST THE INITIATION OF REASSESSMENT PROCEEDINGS WAS THAT THER E WAS ABSENCE OF REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMEN T AS WELL AS THERE WAS A CHANGE OF OPINION BY THE REVENUE AUTHORITIES. 2.9 THE ORDER DISPOSING THE OBJECTIONS WAS PASSE D BY THE ASSESSING OFFICER ON 25.09.2009 AND, THEREAFTER, THE DRAFT AS SESSMENT ORDER WAS PASSED ON 31.12.2009. THE DRAFT ASSESSMENT ORDER CO MPUTED ITHE NCOME OF THE ASSESSEE AT RS.21,28,42,290/- WHICH INCLUDED PRO POSED ADDITION OF RS.62,15,492/- WITH RESPECT TO CFS BUSINESS, RS.50, 00,000/- IN RESPECT OF ESTIMATED INCOME FROM TRAVELERS CHEQUES WITH RESPEC T TO ATTRIBUTION TO THE PERMANENT ESTABLISHMENT AND RS.20,16,26,798/- BEING INCOMES OF THE ASSESSEE WHICH HAD BEEN OFFERED TO TAX BY THE AMERIC AN EXPRESS (INDIA) PVT. LTD. IN THE CAPACITY OF THE REPRESENTATIVE ASS ESSEE. 2.10 AGGRIEVED, THE ASSESSEE APPROACHED THE LEA RNED DISPUTE RESOLUTION PANEL-1, NEW DELHI (DRP). THE LD. DRP VI DE ITS DIRECTIONS U/S 144C (5) OF THE ACT CONFIRMED ALL THE ADDITIONS PRO POSED BY THE ASSESSING 14 ITA NO.5941/DEL/2010 AMERICAN EXPRESS T RAVEL RELATED SERVICES VS. ADIT OFFICER. THE FINAL ASSESSMENT ORDER, THEREAFTER, WAS PASSED ON 28.10.2010. 2.11 THE ASSESSEE IS NOW IN APPEAL BEFORE THE ITA T AND HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE APPELLANT, RESPECTFULLY CRAVES LEAVE TO PREFER AN APPEAL UNDER SECTION 253 OF THE INCOME-TAX ACT, 1961 (ACT) AGAINST THE ORDER DATED 28 OCTOBER 2010, PASSED BY THE LEARNED ASSISTANT DIREC TOR OF INCOME- TAX (INTERNATIONAL TAXATION) - CIRCLE 1(1) (ASSESSING OFFICER) IN PURSUANCE OF THE DIRECTIONS ISSUED BY THE HONBLE DISPUTE RESOLUTION PANEL - I (DRP), DELHI ON THE FOLLOWING GROUNDS: 1 THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ORDER PASSED BY THE LEARNED ASSESSING OFFICER ON TH E DIRECTIONS OF THE HONBLE DRP IS BAD IN LAW IN AS M UCH AS FAILED TO APPRECIATE THE FACTS INVOLVED AND THE LAW THEREON. VALIDITY OF RE-ASSESSMENT PROCEEDINGS 2.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED ASSESSING OFFICER HAS ERRED IN COMPLETI NG RE- ASSESSMENT PROCEEDINGS WHICH IS WITHOUT JURISDICTIO N AND BAD IN LAW AS THE PROCEEDINGS ARE INITIATED WITHOUT BRINGING ON RECORDS ANY FRESH INFORMATION AND MATERIAL TO FORM BASIS OF REASONS TO BELIEVE OF INC OME HAVING ESCAPED ASSESSMENT. MERELY ON A CHANGE OF OPINION VIZ-A-VIZ ORIGINAL A SSESSMENT. 2.2 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED ASSESSING OFFICER HAS ERRED IN REQ UIRING THE 15 ITA NO.5941/DEL/2010 AMERICAN EXPRESS T RAVEL RELATED SERVICES VS. ADIT APPELLANT TO FURNISH THE DETAILS NOT RELATING TO TH E REASONS FOR INITIATION OF REASSESSMENT UNDER SECTION 147 OF THE ACT AND THUS, MAKING ROVING ENQUIRIES ON MATTERS, UN-CONNECTED WI TH THE REASONS FOR OPENING OF THE REASSESSMENT PROCEEDINGS . AD-HOC ADDITION OF BUSINESS INCOME FROM CUST OMER FOCUSED SALES (CFS) ALLEGING INDIAN PERMANENT ESTABLISHMEN T (PE) OF THE APPELLANT 2.3 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED ASSESSING OFFICER HAS ERRED IN CONSTITUTING AMERICAN EXPRESS (INDIA) PRIVATE LIMIT ED (AEIPL) AS A FIXED PLACE PE OF THE APPELLANT IN I NDIA. CONSTITUTING AEIPL AS A DEPENDENT AGENT PE OF THE APPELLANT IN INDIA TREATING THE ENTIRE AMOUNT OF REVENUE SO ALLEGED T O HAVE ARISEN IN THE CFS PROCESS AS PROFIT. MAKING AN ATTRIBUTION TO THE EXTENT OF 50% OF AN AD HOC AMOUNT AMOUNTING TO INR 6,215,491 TO THE ALLEGED INDIAN PE. ADHOC ADDITION ON ACCOUNT OF TRAVELLERS CHEQUES ( TCS) BUSINESS OF THE APPELLANT 2.4 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED ASSESSING OFFICER HAS ERRED IN CONSTITUTING PE OF THE APPELLANT IN INDIA WITH RESP ECT TO TCS RELATED TRANSACTION ON THE INCORRECT ALLEGATION OF NOT FURNISHING THE INFORMATION 16 ITA NO.5941/DEL/2010 AMERICAN EXPRESS T RAVEL RELATED SERVICES VS. ADIT MAKING AN AD HOC ATTRIBUTION OF INR 5,000,000 TO TH E ALLEGED PE. ADDITION ON AMOUNTS ALREADY OFFERED IN REPRESENTATI VE ASSESSEE RETURN FILED BY AEIPL FOR THE APPELLANT. 2.5 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED ASSESSING OFFICER HAS ERRED IN DISREGAR DING THE FACT THAT THE FOLLOWING ADDITIONS AMOUNTING TO INR 201,626,798 HAVE ALREADY BEEN OFFERED TO TAX BY AEI PL AS A REPRESENTATIVE ASSESSEE OF THE APPELLANT AND ACCORD INGLY MAKING THE ADDITION OF THE SAME AMOUNTS IN THE HAND S OF THE APPELLANT THEREBY LEADING TO DOUBLE ASSESSMENT OF T HE SAME INCOME: CONSIDERATION RECEIVED FROM AEIPL FOR THE USE OF COMPUTER, SERVER NETWORK, ELECTRONIC MAIL ACCESS ET C. SET UP AND MAINTAINED BY THE APPELLANT (I.E. CHARGES FO R USE OF CDN/CPU OF THE APPELLANT). CONSIDERATION RECEIVED FROM AEIPL FOR THE USE OF OR RIGHT TO USE OF THE SYSTEMS SOFTWARE AND APPLICATION SOFT WARE DEVELOPED AND MAINTAINED BY THE APPELLANT (I.E. CHARGES FOR USE OF GMAX SOFTWARE OF THE APPELLANT). REIMBURSEMENT OF SALARY EXPENSES ACTUALLY INCURRED FOR THE EMPLOYEES SECONDED BY THE APPELLANT TO AEIPL. DISREGARDING THE ADVANCE RULING OBTAINED BY THE APPELLANT ON TAXABILITY OF CDN/CPU CHARGES ETC. (NO T PRESSED) 2.6 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED ASSESSING OFFICER HAS ERRED IN DISREGARDING THE ADVANCE RULING (CITED IN 238 ITR 2 96) OBTAINED BY THE APPELLANT FROM THE HONBLE AUTHORIT Y OF 17 ITA NO.5941/DEL/2010 AMERICAN EXPRESS T RAVEL RELATED SERVICES VS. ADIT ADVANCE RULING ON TAXABILITY OF PAYMENTS BY AEIPL I N RESPECT OF USE OF CDN/CPU ETC UNDER WHICH THE PAYMENTS WERE HELD TO BE ROYALTY TAXABLE @ 15% UNDE R ARTICLE 12 OF THE INDIA US TREATY. (NOT PRESSED) NON GRANT OF CREDIT OF TAX DEDUC TED AT SOURCE (TDS) 2.7 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED ASSESSING OFFICER HAS ERRED IN NOT ALLOWING THE CORRESPONDING CREDIT OF TDS BY AEIPL O N THE AFORESAID RECEIPTS OF INR 201,626,798 ADDED TO THE INCOME OF THE APPELLANT (WITHOUT PREJUDICE TO THE G ROUND NO. 2.6 AND WITHOUT ADMITTING ADDITIONS SO MADE). ( NOT PRESSED) INTEREST UNDER SECTION 234A AND 234B 2.8 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED ASSESSING OFFICER HAS ERRED IN LEVYING INTEREST UND ER SECTION 234A OF THE ACT. 2.9 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED ASSESSING OFFICER HAS ERRED IN CHARGING THE INTEREST UNDER SECTION 234B OF THE ACT . 3.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE C ASE AND IN LAW, THE HONBLE DRP HAS ERRED IN ALLEGING THAT AELPLS INFRASTRUCTURE IS BENEFICIALLY OWNED BY THE APPELLANT AND CONSTITUTES THE SET-UP OF ASSETS OF T HE APPELLANT IN INDIA. SINCE THE REIMBURSEMENT OF COSTS OF AEIPL IN SETTIN G-UP THE FACILITY ARE NOT INCLUDED IN THE COST-BASE, TRA NSFER PRICING IS ADVERSELY AFFECTED. AEIPL PROMOTED THE AMERICAN EXPRESS BRAND OF THE APPELLANT GROUP AND HAS NOT CREATED ANY BRAND IDENT ITY OF ITS OWN. 18 ITA NO.5941/DEL/2010 AMERICAN EXPRESS T RAVEL RELATED SERVICES VS. ADIT THE APPELLANT DID NOT SUBMIT THE DETAILS OF THE IN COME OF THE APPELLANT FROM CFS ACTIVITIES WITHOUT APPRECIAT ING THE FACT THAT SUCH ACTIVITIES WERE RUN ON TRIAL BAS IS. AEIPL IS A PE OF THE APPELLANT IN RESPECT OF TCS BU SINESS WITHOUT APPRECIATING THE FACT THAT AEIPL DID NOT CA RRY ON ANY TCS BUSINESS FOR THE APPELLANT. THE ABOVE GROUNDS OF APPEAL ARE MUTUALLY EXCLUSIVE & WITHOUT PREJUDICE TO EACH OTHER. THE APPELLANT PRAYS FOR LEAVE TO ADD, ALTER, AMEND AND/OR MODIFY ANY OF THE GROUNDS OF APPEAL AT OR BE FORE THE HEARING OF THE APPEAL. THE APPELLANT PRAYS FOR APPROPRIATE RELIEF BASED ON THE SAID GROUNDS OF APP EAL AND THE FACTS AND CIRCUMSTANCES OF THE CASE. 2.12 SUBSEQUENTLY, AFTER THE PASSING OF THE RE-A SSESSMENT ORDER, THE ASSESSEE COMPANY FILED RECTIFICATION APPLICATION U/ S 154 OF THE ACT WHEREIN IT WAS SUBMITTED THAT THE TAX ON OTHER INCOME OF RS. 20,16,26,798/- WAS WORKED OUT AT RS.3,02,44,020/- IN THE BODY OF THE AS SESSMENT ORDER BUT IN THE TAX COMPUTATION FORM ITNS 150, THE AFORESAID IN COME HAD BEEN ERRONEOUSLY TAXED AT 41.82% WHICH WAS, THUS, AN ERROR APPARENT FROM THE RECORD AND WAS RECTIFIABLE. IT WAS ALSO SUBMITTED IN THE RECTIFICATION APPLICATION THAT THE TAX OF RS.3,02,44,020/- HAD AL READY BEEN DEDUCTED AND CREDITED INTO THE ACCOUNT OF THE GOVERNMENT AND THAT THE CREDIT FOR THE SAID TAX DEDUCTED AT SOURCE WAS CLAIMED BY AMERICAN EXPRESS INDIA (PVT.) 19 ITA NO.5941/DEL/2010 AMERICAN EXPRESS T RAVEL RELATED SERVICES VS. ADIT LTD. IN THE RETURN OF INCOME OF THE ASSESSEE COMPAN Y FILED BY THE AMERICAN EXPRESS (INDIA) PVT. LTD. IN THE CAPACITY OF THE RE PRESENTATIVE ASSESSEE. IT WAS ALSO SUBMITTED THAT IN THE IMPUGNED ASSESSMENT O RDER THIS INCOME HAD AGAIN BEING TAXED IN THE HANDS OF THE ASSESSEE COMPANY BUT NO CREDIT HAD BEEN GRANTED IN RESPECT OF THE CORRESPONDING TD S OF RS.30,24,020/- RESULTING IN TAX BEING LEVIED TWICE ON THE SAME INCO ME. THE ASSESSEES APPLICATION U/S 154 WAS ACCEPTED AND ORDER U/S 154/ 147/144C(1) OF THE ACT WAS PASSED ON 01.06.2011 IN WHICH THE CREDIT OF R S.3,02,44,020/- WAS ALLOWED. 3.0 THE LD. AUTHORIZED REPRESENTATIVE (AR), A T THE OUTSET, SUBMITTED THAT IN VIEW OF THE ORDER PASSED U/S 154 OF THE ACT AS AFORESAID, GROUND NOS.2.5, 2.6 & 2.7 WERE NOT BEING PRESSED. THE LD. AUTHORIZED REPRESENTATIVE FURTHER SUBMITTED THAT GROUND NOS.2. 1, 2.2, 2.3 AND 2.4 ONLY WERE BEING PRESSED. 3.1 THE LD. AR SUBMITTED THAT THE REASSESSMENT PROCEEDINGS WERE WITHOUT JURISDICTION AND WERE BAD IN LAW AS THE PROCE EDINGS WERE INITIATED WITHOUT BRINING ON RECORD ANY FRESH INFORMATION OR/A ND MATERIAL TO FORM BASIS OF REASONS TO BELIEVE OF INCOME HAVING ESCAPE D ASSESSMENT. THE LD. 20 ITA NO.5941/DEL/2010 AMERICAN EXPRESS T RAVEL RELATED SERVICES VS. ADIT AUTHORIZED REPRESENTATIVE ARGUED THAT IT WAS MERELY A CASE OF CHANGE OF OPINION VIS A VIS THE ORIGINAL ASSESSMENT. IT WAS ALSO SUBMITTED THAT THE ASSESSING OFFICER, WHILE INITIATING THE REASSESSMENT PROCEEDINGS, HAD MADE INCORRECT ALLEGATIONS IN AS MUCH AS THE ASSESS EE HAD DULY FILED THE COPIES OF VARIOUS AGREEMENTS (WHICH ARE NOW PART OF T HE PAPER BOOK) IN RESPONSE TO THE QUERY RAISED BY THE ASSESSING OFFIC ER DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS. IT WAS SUBMITTED TH AT, THEREFORE, THE ISSUES RAISED HAD ALREADY BEEN EXAMINED BY THE ASSE SSING OFFICER. IT WAS ALSO SUBMITTED THAT THE ISSUE OF PERMANENT ESTABLIS HMENT HAD ALSO BEEN EXAMINED IN THE ORIGINAL ASSESSMENT PROCEEDINGS AS WAS APPARENT FROM THE VARIOUS REPLIES FILED BY THE ASSESSEE DURING TH E COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS AND WHICH WAS A PART OF THE RE CORD. THE LD. AUTHORIZED REPRESENTATIVE SUBMITTED THAT PARA-3 OF THE DRAFT ASSESSMENT ORDER SOUGHT TO TAX INCOME FROM CUSTOMER FOCUSED S ALES (CFS) ALTHOUGH THIS ISSUE WAS NOT PART OF THE REASONS RECORDED BY T HE ASSESSING OFFICER BEFORE THE INITIATION OF THE REASSESSMENT PROCEEDIN GS AND, THEREFORE, THE SAME COULD NOT BE BROUGHT TO TAX IN THE REASSESSMEN T PROCEEDINGS. THE LD. AUTHORIZED REPRESENTATIVE ALSO SUBMITTED THAT T HE ATTRIBUTION OF 21 ITA NO.5941/DEL/2010 AMERICAN EXPRESS T RAVEL RELATED SERVICES VS. ADIT INCOME BY THE ASSESSING OFFICER WITH RESPECT TO CUST OMER FOCUSED SALES AND BUSINESS OF TRAVELERS CHEQUES WAS CONSIDERED IN OTHER YEARS ALSO AND ALTHOUGH THE BUSINESS OF CUSTOMERS FOCUSED SALES WAS LIMITED ONLY TO THREE MONTHS IN THE ASSESSMENT YEAR 2003-04, THE BU SINESS OF TRAVELERS CHEQUES HAS CONTINUED TILL DATE. HOWEVER, NO ADDITI ON HAS BEEN MADE ON THE ISSUE IN ANY SUBSEQUENT YEARS. THE LD. AUTHORIZ ED REPRESENTATIVE ALSO FILED A CHART INDICATING AND STATING THAT NO A DDITIONS HAD BEEN MADE WITH RESPECT TO INCOME ATTRIBUTION IN RESPECT OF TRA VELERS CHEQUES. THE LEARNED AUTHORIZED REPRESENTATIVE ALSO PLACED RELIA NCE ON THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF LE PASSAGE TO INDIA TOURS & TRAVELS (PVT.) LTD. VS. ADDL. COMMISSIONER OF INCOM E TAX REPORTED IN [2015] 58 TAXMAN.COM 144 (DELHI) FOR THE PROPOSITION THAT WHERE THE REASONS TO BELIEVE NOWHERE REVELED AS TO WHAT TANGIBLE MATERIAL THE ASSESSING OFFICER HAD OBTAINED TO JUSTIFY THE REASSESSMENT NOTICE, TH E REASSESSMENT WAS LIABLE TO BE QUASHED. 4.0 IN RESPONSE, THE LD. CIT-DR SUBMITTED THAT THE REASSESSMENT PROCEEDINGS INITIATED IN THE ASSESSEES CASE WERE V ALID REASSESSMENT PROCEEDINGS WHICH WERE INITIATED IN ACCORDANCE WITH L AW. IT WAS SUBMITTED 22 ITA NO.5941/DEL/2010 AMERICAN EXPRESS T RAVEL RELATED SERVICES VS. ADIT THAT IF ONE WOULD GO THROUGH THE REASONS RECORDED F OR THE INITIATION OF REASSESSMENT PROCEEDINGS, IT WOULD BE SEEN THAT THEY WERE VALID REASONS FOR THE ASSUMPTION OF JURISDICTION FOR REASSESSMENT . IT WAS SUBMITTED THAT AS PER THE JUDGMENT OF THE HONBLE APEX COURT IN RA YMOND WOOLEN MILLS LTD. VS. ITO REPORTED IN (1999) 236 ITR 34 (SC) SUF FICIENCY OF REASONS WAS NOT NECESSARY. IT WAS ALSO SUBMITTED THAT THE ASSESS EE HAD FILED THE RETURN OF INCOME IN RESPONSE TO THE NOTICE ISSUED U /S 142(1) AT NIL INCOME AND THEREFORE, THE ASSESSING OFFICER HAD NO OPTION BUT TO INITIATE RE- ASSESSMENT PROCEEDINGS WHEN HE FELT THAT INCOME FROM ROYALTY AND CFS BUSINESS HAS ESCAPED ASSESSMENT. IT WAS ALSO SUBMITT ED THAT AS PER THE AGREEMENT OF SECOND-MENT OF EMPLOYEES BETWEEN THE A SSESSEE COMPANY AND AMERICAN EXPRESS (INDIA) PVT. LTD. IT WAS APPARE NT THAT THERE WAS A FIXED PLACE PE OF THE ASSESSEE IN INDIA. IT WAS ALSO APPARENT THAT NO COMPENSATION WAS GIVEN FOR ASSETS AND RISK ASSUMED BY THE OTHER COMPANY AND, THEREFORE, ATTRIBUTION WAS REQUIRED. TH E LD. CIT-DR VEHEMENTLY ARGUED THAT THE REASSESSMENT PROCEEDINGS WERE LEGALLY CORRECT. 23 ITA NO.5941/DEL/2010 AMERICAN EXPRESS T RAVEL RELATED SERVICES VS. ADIT 5.0 WE HAVE HEARD THE RIVAL SUBMISSIONS AND HA VE ALSO PERUSED THE MATERIAL ON RECORD. WE HAVE ALSO GONE THROUGH THE R EASONS AS WERE RECORDED PRIOR TO THE ASSUMPTION OF JURISDICTION FO R REASSESSMENT. IT IS SEEN THAT THE REASSESSMENT PROCEEDINGS WERE INITIAT ED ON THE BASIS OF THE INFORMATION WHICH WAS ALREADY AVAILABLE WITH THE DEPAR TMENT AT THE TIME OF COMPLETION OF THE ORIGINAL ASSESSMENT PROCEEDING S. IT IS APPARENT THAT NO NEW INFORMATION OR MATERIAL HAS BEEN BROUGHT ON R ECORD BY THE ASSESSING OFFICER TO ESTABLISH OR EVEN INDICATE THA T ANY INCOME FOR THE YEAR UNDER CONSIDERATION HAS ESCAPED ASSESSMENT. ON E OF THE ALLEGATIONS BY THE ASSESSING OFFICER HAS BEEN THAT THE ASSESSEE HAS NOT OFFERED TO TAX THE ROYALTY OF USD TO 263,532 RECEIVED FROM AMERICA N EXPRESS (INDIA) PVT. LTD. TOWARDS THE RIGHT GIVEN FOR USE OF GLOBAL MAKER S SYSTEM, SOFTWARE AND APPLICATION. THIS ALLEGATION IS FACTUALLY INCOR RECT IN AS MUCH AS IT IS APPARENT FROM THE RECORDS THAT AMERICAN EXPRESS (IN DIAN) PVT. LTD. HAD FILED THE RETURN OF INCOME IN THE CAPACITY OF THE R EPRESENTATIVE ASSESSEE FOR THE ASSESSEE COMPANY ON 28 TH NOVEMBER, 2003 WHEREIN THIS ROYALTY INCOME EQUIVALENT TO RS.1,27,11,393/- HAD BEEN OFFE RED TO TAX @ 15% UNDER ARTICLE-12(3) (A) OF THE DTAA BETWEEN INDIA A ND USA. IT IS ALSO SEEN 24 ITA NO.5941/DEL/2010 AMERICAN EXPRESS T RAVEL RELATED SERVICES VS. ADIT THAT A PROPER DISCLOSER WAS MADE IN THIS REGARD IN T HE RETURN OF INCOME FILED BY THE ASSESSEE IN RESPONSE TO THE NOTICE ISS UED U/S 142(1) OF THE ACT ON 16.02.2006. THUS, CONSIDERING THE FACT THAT THE ROYALTY OF USD 263,532 WAS DULY DISCLOSED AND OFFERED TO TAX TO THE RETURN OF INCOME FILED BY THE AMERICAN EXPRESS (INDIA) PVT. LTD. COMPANY I N THE CAPACITY OF THE REPRESENTATIVE ASSESSEE OF THE ASSESSEE COMPANY, IT CANNOT BE SAID THAT ANY NEW INFORMATION HAD COME IN THE POSSESSION OF TH E ASSESSING OFFICER SO AS TO WARRANT INVOCATION OF REASSESSMENT JURISDIC TION ON THIS ISSUE. 5.1 IT HAS BEEN FURTHER STATED IN THE REASONS RECORDED THAT THE ASSESSEE COMPANY HAS BEEN CARRYING OUT BUSINESS REL ATED TO CUSTOMER FOCUSED SALES (CFS) THROUGH AMERICAN EXPRESS (IND IA) PVT. LTD. AND THAT THE EMPLOYEES OF THE AMERICAN EXPRESS (INDIA) PVT. LTD. WERE SOLICITING BUSINESS ON BEHALF OF THE ASSESSEE COMPANY. IN THIS REGARD IT IS SEEN THAT DURING THE COURSE OF ORIGINAL ASSESSMENT PROCE EDINGS, THE ASSESSEE HAD DULY FURNISHED COPIES OF THE RELEVANT AGREEMENT S ENTERED INTO WITH AMERICAN EXPRESS (INDIA) PVT. LTD. ALONG WITH THE DE SCRIPTION OF PROCESS UNDERTAKEN IN INDIA. THE ASSESSEE HAD SUBMITTED THA T IT DID NOT CARRY OUT ANY CREDIT CARD BUSINESS IN INDIA AND THAT THE ASSESSEE DID NOT HAVE 25 ITA NO.5941/DEL/2010 AMERICAN EXPRESS T RAVEL RELATED SERVICES VS. ADIT ANY ACTIVITY THAT WOULD CONSTITUTE PE UNDER ARTICLE- 5 OF THE DTAA. THIS CONTENTION WAS DULY ACCEPTED BY THE ASSESSING OFFIC ER DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND THUS THE RE-OPENING O F THE CONCLUDED ASSESSMENT ON THIS ISSUE WOULD TANTAMOUNT TO RE-VIS ITING THE ISSUE WITHOUT THERE BEING ANY FRESH MATERIAL HAVING BEEN B ROUGHT ON RECORD BY THE ASSESSING OFFICER. THUS, ON THIS COUNT ALSO, TH E ACTION OF THE ASSESSING OFFICER IN INVOKING THE JURISDICTION U/S 147 OF THE ACT WOULD FALL OUTSIDE THE PURVIEW OF THE SAID SECTION. 5.2 THE THIRD REASON, AS STATED IN THE REASONS R ECORDED FOR INITIATION OF THE REASSESSMENT PROCEEDINGS, IS THAT THE ASSESSEE HAD SET UP EQUIPMENT IN THE FORM OF MID-RANGE AND MAINFRAME C OMPUTER AND NETWORK IN THE USA AND AMOUNT OF USD 3661,721 WAS PA YABLE BY AMERICAN EXPRESS (INDIA) PVT. LTD. TO THE ASSESSEE COMPANY FOR THE RELEVANT PERIOD AS CONSIDERATION FOR THE USE OF COM PUTER, SERVER, NETWORK ETC. WHICH WAS COVERED BY THE DEFINITION OF ROYALTY B OTH UNDER THE ACT AS WELL AS THE DTAA BUT WAS NOT OFFERED TO TAX. IN THIS REGARD AGAIN IT IS SEEN THAT THIS OBSERVATION OF THE ASSESSING OFFICER IS INCORRECT IN AS MUCH AS THE ASSESSEE HAD DULY OFFERED THE ROYALTY O F USD 3661,721 26 ITA NO.5941/DEL/2010 AMERICAN EXPRESS T RAVEL RELATED SERVICES VS. ADIT EQUIVALENT TO RS.17,61,45,689/- IN THE RETURN OF IN COME FILED BY THE AMERICAN EXPRESS (INDIA) PVT. LTD. IN THE CAPACITY OF THE REPRESENTATIVE ASSESSEE FOR THE ASSESSEE COMPANY. THUS, ON THIS CO UNT THE REASSESSMENT HAS BEEN INITIATED ON AN ISSUE WHICH WAS FACTUALLY INCORRECT AND WAS ALREADY CONCLUDED AND WOULD THUS NO T BE SUSTAINABLE. 5.3 FOURTHLY, THE REASSESSMENT PROCEEDINGS HAVE BEEN INITIATED ON THE GROUND THAT THE ASSESSEE HAD SECONDED SOME EMPLOYEE S TO AMERICAN EXPRESS (INDIA) PVT. LTD. WHICH WOULD CONSTITUTE A FI XED PLACE OF BUSINESS OF THE ASSESSEE COMPANY. IN THIS REGARD AL SO, IT IS SEEN THAT THE ASSESSEE HAD FURNISHED COPIES OF AGREEMENT RELATING TO THE SECOND-MENT OF EMPLOYEES DURING THE COURSE OF THE ORIGINAL ASSE SSMENT PROCEEDINGS VIDE SUBMISSIONS DATED 13 TH MARCH, 2006 AND, THUS, APPARENTLY, THIS ISSUE ALSO WAS EXAMINED BY THE AO AND IT WAS THE VIEW OF THE ASSESSING OFFICER THEN THAT THERE WAS NO FIXED PLACE PE AND TH E RETURN OF THE ASSESSEE WAS ACCEPTED IN THE ORIGINAL ASSESSMENT PR OCEEDINGS. APPARENTLY, THIS INFORMATION ALSO WAS AVAILABLE AT T HE TIME OF THE COMPLETION OF ORIGINAL ASSESSMENT PROCEEDINGS AND N O FRESH INFORMATION CAME TO BE IN POSSESSION OF THE ASSESSING OFFICER O N THIS ISSUE ALSO. 27 ITA NO.5941/DEL/2010 AMERICAN EXPRESS T RAVEL RELATED SERVICES VS. ADIT 5.4 THUS, ON AN OVERALL VIEW OF THE MATTER, WE ARE OF THE CONSIDERED OPINION THAT REASSESSMENT PROCEEDINGS IN THIS CASE WERE INITIATED WITHOUT THERE BEING ANY FRESH MATERIAL IN POSSESSION OF THE ASSESSING OFFICER. THUS, THERE WAS NO TANGIBLE MATERIAL WITH THE ASSESSI NG OFFICER WHICH COULD JUSTIFY THE INITIATION OF REASSESSMENT PROCEE DINGS. THE ASPECTS RECORDED BY THE ASSESSING OFFICER IN THE REASONS TO BELIEVE WERE KNOWN TO THE ASSESSING OFFICER AT THE TIME OF ORIGINAL ASSES SMENT ALSO AND APPARENTLY THE EXPLANATIONS OFFERED BY THE ASSESSEE APPEAR TO HAVE BEEN TAKEN INTO ACCOUNT. THE ASSESSING OFFICER CANNOT BE PERMITTED TO REVIEW HIS EARLIER ASSESSMENT ORDER IN THE GARB OF REASSES SMENT. ALSO THE REASSESSMENT JURISDICTION CANNOT BE INVOKED BY A ME RE CHANGE OF OPINION. THE HONBLE APEX COURT IN THE CASE OF CIT VS. KELVI NATOR OF INDIA LTD. REPORTED IN [2010] 320 ITR 561 HAS HELD THAT REASO NS TO BELIEVE CANNOT COMPREHEND A MERE CHANGE OF OPINION WHICH WOULD ONLY AMOUNT TO AN IMPERMISSIBLE REVIEW. THE HONBLE APEX COURT HELD TH AT: THEREFORE, POST-1-4-1989, POWER TO RE-OPEN IS MUC H WIDER. HOWEVER, ONE NEEDS TO GIVE A SCHEMATIC INTERPRETATI ON TO THE WORDS REASON TO BELIEVE FAILING WHICH, WE ARE AFR AID, SECTION 147 WOULD GIVE ARBITRARY POWERS TO THE ASSESSING OF FICER TO RE- 28 ITA NO.5941/DEL/2010 AMERICAN EXPRESS T RAVEL RELATED SERVICES VS. ADIT OPEN ASSESSMENTS ON THE BASIS OF MERE CHANGE OF OP INION WHICH CANNOT BE PER SE REASON TO RE-OPEN. 6. WE MUST ALSO KEEP IN MIND THE CONCEPTUAL DIFFERE NCE BETWEEN POWER TO REVIEW AND POWER TO RE-ASSESS. THE ASSESSI NG OFFICER HAS NO POWER TO REVIEW; HE HAS THE POWER TO RE-ASSE SS. BUT RE- ASSESSMENT HAS TO BE BASED ON FULFILLMENT OF CERTAI N PRE-CONDITION AND IF THE CONCEPT OF CHANGE OF OPINION IS REMOVE D, AS CONTENDED ON BEHALF OF THE DEPARTMENT, THEN IN THE GARB OF RE -OPENING THE ASSESSMENT, REVIEW WOULD TAKE PLACE. 5.5 SIMILARLY, THE HONBLE DELHI HIGH COURT IN THE CASE OF LE PASSAGE TO INDIA LTD. (SUPRA) HAS HELD THAT WHERE THE REASONS T O BELIEVE DO NOT REVEAL AS TO WHAT TANGIBLE MATERIAL THE ASSESSING OFFICER C AME TO OBTAIN TO JUSTIFY THE REASSESSMENT NOTICE AND WHERE AN ASPECT WHICH WAS KNOWN TO THE ASSESSING OFFICER AT THE TIME OF THE ORIGINAL ASSES SMENT AND THE EXPLANATIONS OF THE ASSESSEE APPEARED TO HAVE BEEN TAKEN INTO ACCOUNT, THE ASSESSMENT CANNOT BE REOPENED. ACCORDINGLY, IN VIEW OF THE ABOVE CITED REASONS, WE ARE OF THE CONSIDERED OPINION THAT THE REASONS RECORDED NOWHERE REVEAL AS TO WHAT TANGIBLE MATERIAL, THE ASSE SSING OFFICER CAME TO OBTAIN TO JUSTIFY THE REASSESSMENT NOTICE AND, THER EFORE, THE REASSESSMENT PROCEEDINGS HAVE BEEN WRONGLY INITIATED. ACCORDINGLY , ON THE FACTS OF THE CASE AND RESPECTFULLY FOLLOWING THE RATIO OF THE JUD GMENT OF THE HONBLE APEX COURT IN CIT VS. KELVINATOR INDIA LTD. (SUPRA) AND OF THE HONBLE DELHI 29 ITA NO.5941/DEL/2010 AMERICAN EXPRESS T RAVEL RELATED SERVICES VS. ADIT HIGH COURT IN THE CASE OF LE PASSAGE TO INDIA (SUPRA ), WE QUASH THE REASSESSMENT PROCEEDINGS. ACCORDINGLY, GROUND NOS.2 .1, 2.2 STAND ALLOWED. 5.6 SINCE, OTHER GROUNDS HAVE BECOME ACADEMIC BY TH E REASON OF OUR QUASHING THE REASSESSMENT PROCEEDINGS, THEY ARE NOT BEING ADJUDICATED. 6.0 IN THE FINAL RESULT, THE APPEAL OF THE ASSES SEE STANDS ALLOWED. ORDER PRONOUNCED ON 28/05/2020. SD/- SD/- (G.S.PANNU) (SUDHANSHU SRIVASTAVA) VICE PRESIDENT JUDICIAL MEM BER DATED: 28/05/2020 PK/PS COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI