Turner Broadcasting System Asia Pacific, Inc., New Delhi V. DCIT, New Delhi

ITA 630/DEL/2015

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 1654 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 9 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Assessment Year: 2006-2007
• Appeal Filed On: 30-01-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G K DHALL
• Keywords: Business income; Reason to believe; Reassessment proceedings
• Section: 147; 148

Judgement Text

ITA NO. 630/DEL/2015 ASSESSMENT YEAR 2006-07 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D NEW DELHI BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER ITA NO. 630/DEL/2015 ASSESSMENT YEAR: 2006-07 TURNER BROADCASTING SYSTEM ASIA VS DC IT, PACIFIC INC. CIRCLE 3(1)(2), C/O PRICEWATERHOSUE COOPERS (P) LTD., INTERN ATIONAL SUCHETA BHAWAN, GATE NO.2, TAXATION, 1 ST FLOOR, 11-A, NEW DELHI. VISHNU DIGAMBER MARG, NEW DELHI. (PAN: AABCT6254F) (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI KANCHAN KAUSHAL, FCA SHRI RISHABH MALHOTRA, A R DEPARTMENT BY: SHRI G.K. DHALL, SR. DR DATE OF HEARING: 23.08.2018 DATE OF PRONOUNCEMENT : 20.11.2018 ORDER PER SUDHANSHU SRIVASTAVA, J.M.: THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE FINAL ASSESSMENT ORDER DATED 22/12/2014 PASSED BY T HE ASSESSING OFFICER UNDER SECTION 148 READ WITH SECTI ON 143 (3) OF THE INCOME TAX ACT, 1961 (THE ACT) FOR ASSESSMENT YEAR 2006 07. ITA NO. 630/DEL/2015 ASSESSMENT YEAR 2006-07 2 2.0 THE BRIEF FACTS OF THE CASE ARE THAT THE ASSES SEE COMPANY IS A COMPANY INCORPORATED UNDER THE LAWS OF THE UNITED STATES OF AMERICA (USA) AND IS A TAX RESIDENT OF US A. THE RETURN OF INCOME WAS FILED DECLARING TOTAL INCOME OF RS. 8 6,81,330/- AND THE ORIGINAL ASSESSMENT WAS COMPLETED ON 24/12/2008 UNDER SECTION 143 (3) OF THE ACT AT AN INCOME OF RS. 1,92 ,04,231/-. IN THIS ASSESSMENT, THE ROYALTY INCOME OF RS. 1,56,81, 330/- WAS TAXED AT THE RATE OF 15% BY THE ASSESSING OFFICER ( AO). THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. FIRST A PPELLATE AUTHORITY CHALLENGING THE RATE OF TAX FOR ROYALTY I NCOME AT THE RATE OF 15% UNDER SECTION 115A AND THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ALLOWED THE ASSESSEES APPEAL BY HOLD ING THAT THE ASSESSEE WAS ENTITLED TO BENEFICIAL PROVISION OF TA XATION AT THE RATE OF 10% ON THE ROYALTY. 2.1 SUBSEQUENTLY, THE AO REACHED A CONCLUSION THAT THE ASSESSEE COMPANY HAD NOT DISCLOSED ITS INCOME FULLY AND TRULY AND, THEREFORE, NOTICE UNDER SECTION 148 OF THE ACT WAS ISSUED ON 28/03/2013. THE REASON FOR INITIATING THE REASSESSM ENT PROCEEDINGS WAS THAT IT WAS OBSERVED BY THE AO THAT THE INCOME OF THE ASSESSEE HAD ROYALTY INCOME OF RS. 1,56,81,3 30/- WHICH HAD BEEN TAXED AT THE RATE OF 15% ON GROSS BASIS UN DER THE ITA NO. 630/DEL/2015 ASSESSMENT YEAR 2006-07 3 DOUBLE TAXATION AVOIDANCE AGREEMENT WITH THE USA. H OWEVER, AS PER THE AO, THE INCOME HAD BEEN EARNED FROM PERMANE NT ESTABLISHMENT (PE) BASED ON AN AGREEMENT AND THE SA ME SHOULD HAVE BEEN TAXED AT THE RATE OF 20% UNDER THE INCOME TAX ACT INSTEAD OF AT THE RATE OF 15% UNDER THE DOUBLE TAXA TION AVOIDANCE AGREEMENT. THE ASSESSEE FILED OBJECTIONS AGAINST THE INITIATION OF REASSESSMENT PROCEEDINGS BEFORE THE A O WHICH WERE REJECTED. THE LD. DISPUTES RESOLUTION PANEL (DRP) G AVE DIRECTIONS TO THE AO TO COMPUTE THE INCOME AFTER DULY EXAMININ G THE ISSUE AS TO WHETHER THE IMPUGNED INCOME WAS ROYALTY INCOM E OR BUSINESS INCOME. THE FINAL ASSESSMENT WAS PASSED TA XING THE ROYALTY INCOME AT THE RATE OF 20%. 2.2 THE ASSESSEE HAS NOW APPROACHED THE ITAT AND H AS CHALLENGED THE INITIATION OF REASSESSMENT PROCEEDIN GS IN THIS APPEAL BEFORE US. 3.0 THE LD. AUTHORISED REPRESENTATIVE (AR) SUBMITT ED THAT THE ORIGINAL ASSESSMENT WAS FRAMED HOLDING THE ROYA LTY INCOME TAXABLE AT THE RATE OF 15% UNDER THE PROVISIONS OF DOUBLE TAXATION AVOIDANCE AGREEMENT. IT WAS SUBMITTED THAT , THUS, THE ISSUE HAD ALREADY BEEN CONSIDERED AND EXAMINED AT T HE ASSESSMENT STAGE. IT WAS SUBMITTED THAT, SUBSEQUENT LY, THE ITA NO. 630/DEL/2015 ASSESSMENT YEAR 2006-07 4 MATTER WAS ALSO CONSIDERED AND ADJUDICATED BY THE L D. FIRST APPELLATE AUTHORITY WHO HAD ALLOWED THE ASSESSEES APPEAL CHALLENGING THE IMPOSITION OF TAX ON THE ROYALTY IN COME AT THE RATE OF 15% INSTEAD OF 10%. THE LD. AUTHORISED REPR ESENTATIVE SUBMITTED THAT THE RETURN OF INCOME HAD BEEN FILED ON 31/03/2008 AND THE ASSESSMENT UNDER SECTION 143 (3) WAS COMPLETED ON 24/12/2008. IT WAS AFTER LAPSE OF 4 YE ARS FROM THE CLOSE OF THE RELEVANT ASSESSMENT YEAR THAT THE ASSE SSEE WAS SERVED WITH THE NOTICE DATED 28/03/2013 UNDER SECTI ON 148 OF THE ACT PROPOSING REASSESSMENT OF INCOME. IT WAS SU BMITTED THAT THE NOTICE FOR REASSESSMENT HAD BEEN ISSUED WITHOUT ANY FRESH INFORMATION/MATERIAL ON RECORD OR WITHOUT ANY NEW F ACTS HAVING COME TO THE KNOWLEDGE OF THE AO AFTER THE COMPLETIO N OF THE ORIGINAL ASSESSMENT PROCEEDINGS UNDER SECTION 143 ( 3) OF THE ACT AND, THUS, THE REASSESSMENT UNDER SECTION 147 OF TH E ACT WAS BARRED BY LIMITATION. IT WAS SUBMITTED THAT THERE W AS NO FAILURE OR OMISSION ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS WHICH WERE NECESSARY FOR THE ASS ESSMENT AND THAT FURTHER THERE WAS NO ALLEGATION OF THE SAME IN THE REASSESSMENT ORDER. IT WAS SUBMITTED THAT THE PRIMA RY MATERIAL AND FACTS HAD ALREADY BEEN CONSIDERED WHILE COMPLET ING THE ITA NO. 630/DEL/2015 ASSESSMENT YEAR 2006-07 5 ORIGINAL ASSESSMENT. IT WAS SUBMITTED THAT THE PRE- REQUISITE CONDITION FOR INITIATING REASSESSMENT PROCEEDINGS W AS THAT THE AO SHOULD HAVE REASON TO BELIEVE THAT INCOME HAD ESC APED ASSESSMENT. HOWEVER, THERE WAS NO MATERIAL ON RECOR D WHICH WOULD PRIMA FACIE SHOW THAT INCOME HAD ESCAPED ASSESSMENT. IT WAS SUBMITTED THAT IT WAS A CASE OF CHANGE OF OPINI ON BY THE AO. THE LD. AUTHORISED REPRESENTATIVE VEHEMENTLY ARGUED THAT THE REASSESSMENT ORDER DESERVED TO BE SET-ASIDE. 4.0 IN RESPONSE, THE LD. CIT DR SUBMITTED THAT THE TERM FAILURE ON THE PART OF THE ASSESSEE WAS NOT RESTR ICTED ONLY TO THE RETURN OF INCOME AND THE COLUMNS OF THE RETURN OR T HE TAX AUDIT REPORT AND THERE COULD BE OMISSION AND FAILURE ON T HE PART OF THE ASSESSEE TO DISCLOSE MATERIAL FACTS FACTUALLY AND T RULY DURING THE COURSE OF ASSESSMENT PROCEEDINGS ALSO. IT WAS SUBMI TTED THAT THE ASSESSEE HAD EARLIER SUBMITTED BEFORE THE AO THAT T HERE WAS NO PE WHICH HAD BEEN ACCEPTED BY THE AO BUT SUBSEQUENT LY THE AO HAD REACHED THE CONCLUSION THAT THERE EXISTED A PE OF THE ASSESSEE AND, THEREFORE, IT COULD NOT BE SAID THAT THE REASSESSMENT PROCEEDINGS WERE WRONGLY INITIATED. HE ALSO DREW OUR ATTENTION TO PARAGRAPH 5.2 OF THE DIRECTIONS OF THE LD. DRP AND SUBMITTED THAT THE LD. DRP HAS DIRECTED THE AO TO VERIFY AND ITA NO. 630/DEL/2015 ASSESSMENT YEAR 2006-07 6 REACH A CONCLUSION AS TO WHETHER THE INCOME WAS TO BE TAXED SIMPLY AS ROYALTY UNDER SECTION 115A OR IT WAS TO B E TAXED AS BUSINESS INCOME UNDER SECTION 44DA IF SUCH ROYALTY WAS EFFECTIVELY CONNECTED WITH THE PE AND, THEREAFTER, APPLY THE CORRECT RATE OF TAX EXPERT THE PROVISIONS OF THE AC T AND THE DOUBLE TAXATION AVOIDANCE AGREEMENT. THE LD. CIT DR PLACED RELIANCE ON THE ORDERS OF THE AO AND DIRECTIONS OF THE LD. D RP AND SUBMITTED THAT THE ISSUE OF EXISTENCE OF PE HAD NOT BEEN DISCLOSED BY THE ASSESSEE DURING THE COURSE OF ORIG INAL ASSESSMENT PROCEEDINGS AND, THEREFORE, THE REASSESS MENT WAS VALID IN THE EYES OF LAW. 5.0 WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE A LSO PERUSED THE MATERIAL ON RECORD. IT IS UNDISPUTED TH AT THE ISSUE OF TAXABILITY OF ROYALTY WAS CONSIDERED BOTH DURING TH E ORIGINAL ASSESSMENT PROCEEDINGS AS WELL AS DURING THE COURSE OF FIRST APPELLATE PROCEEDINGS EMANATING FROM THE ORIGINAL A SSESSMENT PROCEEDINGS. IT IS ALSO APPARENT FROM THE RECORDS T HAT AO HAS EARLIER ACCEPTED THE ASSESSEES CLAIM THAT THERE WA S NO PE OF THE ASSESSEE IN INDIA BUT LATER ON INITIATED THE REASSE SSMENT PROCEEDINGS ON THE GROUND THAT THE ASSESSEE DID HAV E A PE IN INDIA. HOWEVER, IT IS SEEN THAT WHILE PASSING THE R EASSESSMENT ITA NO. 630/DEL/2015 ASSESSMENT YEAR 2006-07 7 ORDER THE AO DID NOT CONSIDER WHETHER THE ASSESSEE S INCOME WAS TO BE TAXED AS ROYALTY UNDER SECTION 115A OR WAS TO BE TAXED AS BUSINESS INCOME UNDER SECTION 44DA IF SUCH ROYALTY WAS EFFECTIVELY CONNECTED WITH THE PE. THIS IS EVIDENT FROM THE DIRECTIONS OF THE LD. DRP ALSO. THUS, IT IS VERY MU CH APPARENT THAT THE ASSESSING OFFICER, EVEN AFTER INITIATING T HE REASSESSMENT PROCEEDINGS, DID NOT EXAMINE THE MATTER IN THE WAY IT WAS EXPECTED DURING THE COURSE OF REASSESSMENT PROCEEDI NGS BUT REACHED THE CONCLUSION WITHOUT GIVING ANY COGENT RE ASON FOR REACHING THE SAID CONCLUSION. IT IS ALSO APPARENT T HAT THE AO WAS NOT IN POSSESSION OF ANY FRESH EVIDENCE OR MATERIAL WHICH CAME INTO HIS POSSESSION SUBSEQUENT TO THE ORIGINAL ASSE SSMENT PROCEEDINGS WHICH WOULD INDICATE THAT THE ASSESSEE HAD CONCEALED MATERIAL FACTS DURING THE COURSE OF ORIGI NAL ASSESSMENT PROCEEDINGS LEADING TO UNDER-ASSESSMENT OF INCOME. IT IS UNDISPUTED IN THIS CASE THAT THE REASSESSMENT PROCE EDINGS WERE INITIATED AFTER THE EXPIRY OF FOUR YEARS AND, THERE FORE, THE PROVISO TO SECTION 147 WILL NECESSARILY COME INTO PLAY. A PERUSAL OF THE ORIGINAL ASSESSMENT ORDER SHOWS THAT THE ISSUE OF R OYALTY WAS DULY CONSIDERED IN THE ORIGINAL ASSESSMENT ORDER AN D, THUS, IT IS NOT THE CASE OF THE DEPARTMENT THAT THE ISSUE WAS N OT CONSIDERED ITA NO. 630/DEL/2015 ASSESSMENT YEAR 2006-07 8 AT ALL DURING THE ORIGINAL ASSESSMENT PROCEEDINGS. FURTHER, THE REASONS RECORDED ALSO DO NOT RECORD AOS SATISFACTI ON TO THE EFFECT THAT THE ASSESSEE HAD FAILED TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR THE ASSESSMENT. THUS, IT CANNO T BE SAID THAT THERE WAS ANY FAILURE ON THE PART OF THE ASSESSEE T O DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR THE PURP OSE OF ASSESSMENT. THE HONBLE DELHI HIGH COURT IN THE CA SE OF HARYANA ACRYLIC MANUFACTURING COMPANY VS. CIT REPOR TED IN 308 ITR 38 (DEL.) HAS OPINED AS UNDER: IN THE REASONS SUPPLIED TO THE PETITIONER, THERE I S NO WHISPER, WHAT TO SPEAK OF ANY ALLEGATION, THAT THE PETITIONER HAD FAILED TO DISCLOSE FULLY AND TRU LY ALL MATERIAL FACTS NECESSARY FOR ASSESSMENT AND THAT BECAUSE OF THIS FAILURE THERE HAS BEEN AN ESCAPEMENT OF INCOME CHARGEABLE TO TAX. MERELY HAVING A REASON TO BELIEVE THAT INCOME HAD ESCAPED ASSESSMENT IS NOT SUFFICIENT TO REOPEN ASSESSMENTS BEYOND THE FOUR YEAR PERIOD INDICATED ABOVE. THE ESCAPEMENT OF INCOME FROM ASSESSMENT MUST ALSO BE OCCASIONED BY THE FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE MATERIAL FACTS, FULLY AND TRUL Y. THIS A NECESSARY CONDITION FOR OVERCOMING THE BAR SET UP BY THE PROVISO TO SECTION 147. IF THIS CONDITION IS NOT SATISFIED, THE BAR WOULD OPERATE AND NO ACTION U/S 147 COULD BE TAKEN. WE HAVE ITA NO. 630/DEL/2015 ASSESSMENT YEAR 2006-07 9 ALREADY MENTIONED ABOVE THAT THE REASONS SUPPLIED TO THE PETITIONER DOES NOT CONTAIN ANY SUCH ALLEGATION. CONSEQUENTLY, ONE OF THE CONDITIONS PRECEDENT FOR REMOVING THE BAR AGAINST TAKING ACTION AFTER THE SAID FOUR YEAR PERIOD REMAINS UNFULFILLED. IN OUR RECENT DECISION IN WEL INTERTR ADE PRIVATE LTD. (2009) 308 ITR 22 (DEL.) WE HAD AGREED WITH THE VIEW TAKEN BY THE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF DULI CHAND SINGHANIA (2004) 269 ITR 192 THAT, IN THE ABSENCE OF AN ALLEGATION IN THE REASONS RECORDED THAT THE ESCAPEMENT OF INCOME HAD OCCURRED BY REASON OF FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FUL LY AND TRULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT, ANY ACTION TAKEN BY THE ASSESSING OFFICER U/S 147 BEYOND THE FOUR YEAR PERIOD WOULD BE WHOLLY WITHOUT JURISDICTION. REITERATING OUR VIEW-POINT, WE HOLD THAT THE NOTICE DATED MARCH 29, 2004, U/S 148 BASED ON THE RECORDED REASONS AS SUPPLIED TO THE PETITIONER AS WELL AS THE CONSEQUEN T ORDER DATED MARCH 2, 2005, ARE WITHOUT JURISDICTION AS NO ACTION U/S 147 COULD BE TAKEN BEYOND THE FOUR YEARS PERIOD IN THE CIRCUMSTANCES NARRATED ABOVE. 5.1 A PERUSAL OF THE REASONS RECORDED IN THE INSTAN T CASE ALSO SHOWS THAT THERE IS NO MENTION OR ALLEGATION THAT T HERE HAS BEEN ANY FAILURE OR OMISSION ON THE PART OF THE ASSESSEE TO DISCLOSE ITA NO. 630/DEL/2015 ASSESSMENT YEAR 2006-07 10 FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR TH E PURPOSE OF ASSESSMENT. THE CONTENTS OF THE REASON FAIL TO MEE T THE STATUTORY REQUIREMENT. RESPECTFULLY FOLLOWING THE RATIO OF TH E JUDGMENT IN HARYANA ACRYLIC MANUFACTURING COMPANY VS. CIT (SUPR A), WE HAVE NO ALTERNATIVE BUT TO QUASH THE REASSESSMENT P ROCEEDINGS. 6.0 IN THE FINAL RESULT, THE APPEAL OF THE ASSESSE E STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH NOVEMBER, 2018. SD/- SD/- (G.D. AGRAWAL) (SUDHANSHU SRI VASTAVA) VICE PRESIDENT JUDICIAL M EMBER DATED: 20 TH NOVEMBER, 2018 GS COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT BY ORDER ASSTT. REGISTRAR