INTERNATIONAL GLOBAL NETWORKS BV, MUMBAI V. DDIT (IT) 3(1), MUMBAI

ITA 6314/MUM/2010

• Counselvise Citation: 631419914 RSA 2010
• Duration Of Justice: 1 year(s) 3 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-11-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: L
• Next Hearing Date: 01-08-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 23-08-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: G GURUSWAMI
• Keywords: Double taxation relief; Permanent establishment; Difference of opinion; Reason to believe; Change of opinion; Reassessment proceedings
• Section: 143(3); 244A; 234B; 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIB UNAL MUMBAI BENCHES L, MUMBAI BEFORE SHRI R.S.SYAL, AM AND SHRI N.V.VASUDEVAN, JM ITA NO.6314/MUM/2010 : ASST.YEAR 2004-2005 M/S.INTERNATIONAL GLOBAL NETWORKS BV C/O.STAR INDIA PRIVATE LIMITED STAR HOUSE, OFF. DR.E.MOSES ROAD MAHALAXMI, MUMBAI 400 011. PAN :AABCI0556K. THE DEPUTY DIRECTOR OF INCOME-TAX (INTERNATIONAL TAXATION) 3(1) MUMBAI. (APPELLANT) VS. (RESPONDENT) APPELLANT BY : S/SHRI PORUS KAKA & DIVESH CHAWLA. RESPONDENT BY : SHRI G.GURUSWAMI DATE OF HEARING : 23.11.2011 DATE OF PRONOUNCEMENT :28.11.2011 O R D E R PER R.S.SYAL, AM : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY THE DISPUTE RESOLUTION PANEL-1, MUMBAI ON 07.05.2010 IN RELATION TO THE ASSESSMENT YEAR 2004-2005. 2. GROUND NO.3 IS AGAINST TAXING OF INTEREST INCOME ON INCOME-TAX REFUND AT THE RATE OF 41% AS AGAINST 10% DECLARED BY THE ASSE SSEE UNDER ARTICLE 11 OF INDIA NETHERLANDS DOUBLE TAXATION AVOIDANCE AGREE MENT. BRIEFLY STATED THE FACTS OF THIS GROUND ARE THAT THE ASSESSEE DECLARED INCOME TAX REFUND OF ` 3,94,33,643 AS INCOME UNDER ARTICLE 11 AND OFFERED IT FOR TAXATION AT THE RATE OF 10%. IN THE REASSESSMENT PROCEEDINGS U/S.147, THE A SSESSING OFFICER OPINED THAT THE INTEREST ON INCOME-TAX REFUND WAS LIABLE T O BE CONSIDERED AS BUSINESS PROFITS UNDER ARTICLE 7 AND HENCE CHARGEABLE TO TAX AT THE RATE OF 41%. THE LEARNED DISPUTE RESOLUTION PANEL ACCEPTED THE VIEW POINT TAKEN BY THE ASSESSING OFFICER ON THIS POINT. ITA NO.6314/MUM/2010 M/S.INTERNATIONAL GLOBAL NETWORKS BV. 2 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT THE ISSUE RAISED IN THI S GROUND HAS BEEN DECIDED BY THE SPECIAL BENCH OF THE TRIBUNAL IN ACIT VS. CLOUGH ENGINEERING LTD. [(2011) 9 ITR (TRIB) 618 (DELHI) (SB)] HOLDING THAT THE INTEREST ON INCOME TAX REFUND IS LIABLE TO BE CONSIDERED UNDER ARTICLE 11(2) OF DTAA WITH AUSTRALIA. SIMILAR VIEW HAS BEEN TAKEN BY THE MUMBAI BENCH OF THE TRIB UNAL IN HAPAG LLOYD CONTAINER LINIE GMBH VS. ASST.DIRECTOR OF INCOME TA X (IT) [(2011) 56 DTP (MUM.) (TRIB.) 85] IN WHICH CASE IT HAS BEEN HELD THAT INTEREST ON IN COME-TAX REFUND IS CHARGEABLE TO TAX UNDER ARTICLE 11 OF IND O-GERMANY DTAA. IN VIEW OF THESE PRECEDENTS IT BECOMES APPARENT THAT THE IN TEREST ON INCOME-TAX REFUND CANNOT BE CONSIDERED AS BUSINESS PROFIT BUT HAS TO BE COVERED UNDER ARTICLE 11. THE LD. DR HAS NOT SHOWN ANY DIFFERENCE IN THE LANG UAGE OF THE RELEVANT DTAA VIS--VIS THAT CONSIDERED BY THE TRIBUNAL IN THE AF ORENOTED TWO CASES ON ARTICLE 11. AFTER GOING THROUGH THE SPECIAL BENCH ORDER, TH E LD. DR WAS FAIR ENOUGH TO CONCEDE THAT THE ISSUE RAISED IN THIS GROUND IS SIM ILAR TO THAT CONSIDERED AND DECIDED BY THE TRIBUNAL IN THE SPECIAL BENCH CASE. WE, THEREFORE, OVERTURN THE IMPUGNED ORDER ON THIS ISSUE AND HOLD THAT THE INTE REST ON INCOME-TAX REFUND IS LIABLE TO BE TAXED UNDER ARTICLE 11 AT THE REDUCED RATE. THIS GROUND IS ALLOWED. 4. GROUND NO.1 OF THE ASSESSEES APPEAL IS AGAINST INITIATION OF REASSESSMENT PROCEEDINGS. THE FACTS OF THIS GROUND ARE THAT THE ASSESSEE FILED ITS RETURN ON 26.10.2004. THE ASSESSMENT ORDER U/S 143(3) WAS PAS SED ON 20.09.2006. THEREAFTER NOTICE U/S 148 WAS ISSUED ON 25.03.2009 ON THE FOLLOWING REASONS:- INCOME TAX IS CHARGEABLE FOR EVERY ASSESSMENT YEAR IN RESPECT OF THE TOTAL INCOME OF THE PREVIOUS YEAR OF AN ASSESSE E ACCORDING TO THE RATES PRESCRIBED IN THE RELEVANT FINANCE ACT. THE ASSESSEE FORMALLY KNOWN AS SATELLITE TELEVISIO N ASIAN REGION ADVERTISING SALES BV IS A COMPANY INCORPORATED IN T HE ITA NO.6314/MUM/2010 M/S.INTERNATIONAL GLOBAL NETWORKS BV. 3 NETHERLANDS. THE ASSESSMENT WAS COMPLETED UNDER SCR UTINY IN SEPTEMBER 2006 FOR INCOME OF ` 3,96,49,696/- AS FOLLOWS: INCOME FROM ADVERTISEMENT ` 2,16,053 INCOME FROM OTHER SOURCES ` 3,94,33,643 ----------------- TOTAL INCOME ` 3,96,49,696 ======== TAX WAS LEVIED @ 40% ON ` 2,16,053/- AND 10% ON ` 3,94,33,643/-. ON VERIFICATION, IT WAS REVEALED THAT THE ADVERTISE MENT INCOME NOT OFFERED BY THE ASSESSEE WAS BROUGHT TO TAX BY THE D EPARTMENT. IN PARA 3 OF THE ASSESSMENT ORDER, IT WAS STATED (BY T HE ASSESSING OFFICER) THAT THE INCOME OF THE ASSESSEE IN THE CUR RENT YEAR IS ALSO BEING EARNED THROUGH THE PE (PERMANENT ESTABLISHMEN T) IN INDIA. SINCE, THE ASSESSEE HAS A PE IN INDIA, THE TOTAL AS SESSABLE INCOME SHOULD HAVE BEEN TAXED AT 41%. HOWEVER, TAX LEVIED @ 10% ON ` 3,94,33,643/-. THE SHORT LEVY OF TAX INVOLVED AMOUN TED TO ` 1,22,24,429/-. IN VIEW OF THE ABOVE, THERE IS REASON TO BELIEVE T HAT THE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT WITHIN THE MEANING OF SEC. 147 EXPLANATION 2(C) OF THE IT ACT AND IT IS A FIT CASE TO RE- OPEN THE ASSESSMENT. 5. THE ASSESSEE OBJECTED TO THE INITIATION OF REASS ESSMENT PROCEEDINGS BEFORE THE AUTHORITIES BELOW BUT WITHOUT SUCCESS. 6. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE RELEVANT MATERIAL ON RECORD IT IS NOTICED THAT THE ASSESSEE FILED ITS RETURN DECLARING INTEREST ON INCOME-TAX REFUND AMOUNTING TO ` 3.94 CRORE AS CHARGEABLE TO TAX UNDER ARTICLE 11. IT WAS SPECIFICALLY STATED IN THE STATE MENT OF COMPUTATION OF TOTAL INCOME, COPY OF WHICH IS PLACED ON PAGE 2 OF THE PA PER BOOK, IN WHICH PARA 4 READS THAT INCOME FROM OTHER SOURCES REPRESENTS INT EREST ON REFUND ISSUED TO THE ASSESSEE FOR ASSESSMENT YEARS 1998-99, 1999-2000 AN D 2000-2001 U/S 244A AND INTEREST HAS BEEN OFFERED TO TAX AS PER ARTICLE 11 OF INDO-NETHERLANDS TREATY. DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDING S THE ASSESSING OFFICER ITA NO.6314/MUM/2010 M/S.INTERNATIONAL GLOBAL NETWORKS BV. 4 RAISED CERTAIN QUERIES ON THIS ISSUE. THE ASSESSEE REPLIED VIDE ITS LETTER DATED 07.11.2005, A COPY OF WHICH IS AVAILABLE ON PAGE 3 AND 4 OF THE PAPER BOOK, BY STATING THAT THE INTEREST ON INCOME TAX REFUND AMOU NTING TO ` 3.94 CRORE WAS TAXABLE UNDER ARTICLE 11 OF THE TREATY. THE ASSESSI NG OFFICER IN THE ORDER PASSED U/S 143(3) ON 20.09.2006 ACCEPTED THE TAXABILITY OF INTEREST ON INCOME-TAX REFUND UNDER ARTICLE 11 AT THE REDUCED RATE. THEREA FTER NOTICE U/S 148 WAS ISSUED ON THE REASONS SET OUT ABOVE. IT IS OBSERVED THAT A LL THE RELEVANT DETAILS CONCERNING THE FALLING OF INTEREST ON INCOME-TAX RE FUND UNDER ARTICLE 11 WERE DULY PLACED BEFORE THE ASSESSING OFFICER, WHO AFTER DUE APPLICATION OF MIND ACCEPTED THE ASSESSEES CONTENTION IN THE ORDER PAS SED BY HIM U/S 143(3) OF THE ACT. THERE IS NO MATERIAL TO INDICATE AS TO HOW THE INCLUSION OF INTEREST ON INCOME TAX REFUND UNDER ARTICLE 11 WAS INCORRECT WH ICH LED THE ASSESSING OFFICER TO ISSUE NOTICE U/S 148. IT IS AN OBVIOUS C ASE OF CHANGE OF OPINION ON THE SAME SET OF FACTS WHICH WERE AVAILABLE BEFORE THE A SSESSING OFFICER DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS ALSO. THE HONBLE SUPREME COURT IN CIT VS. KELVINATOR OF INDIA LTD. [(2010) 320 ITR 56 1 (SC)] HAS HELD THAT NO REASSESSMENT CAN BE DONE ON MERE CHANGE OF OPINION OF AO EVEN AFTER 01.04.1989. THE CONTENTION OF THE LEARNED DEPARTMEN TAL REPRESENTATIVE THAT THE INSERTION OF EXPLANATION 2 TO SECTION 147, DEEMING THE CASE UNDER THE PRESENT CIRCUMSTANCE, TO BE A CASE OF ESCAPEMENT OF INCOME, IS DEVOID OF MERITS. IT IS NO DOUBT TRUE THAT CLAUSE (C) OF EXPLANATION 2 TO SECTION 147 PROVIDES THAT WHERE AN ASSESSMENT HAS BEEN MADE BUT THE INCOME HA S BEEN ASSESSED AT TOO LOW A RATE, THEN IT WOULD BE DEEMED TO BE A CASE OF INCOME ESCAPING ASSESSMENT. HOWEVER, IT IS RELEVANT TO NOTE THAT EXPLANATION 2(C) WILL BE INVOKED IF THERE IS SOME MATERIAL WITH THE ASSESSING OFFICER WHICH CAN GIVE A BASIS FOR THE ESCAPEMENT OF INCOME, APART FROM A MERE CHANGE OF OPINION ON THE SAME FACTS WHICH WERE THERE DURING THE ORIGINAL ASSESSMENT PRO CEEDINGS. IF THE ASSESSING OFFICER AFTER DUE APPLICATION OF MIND DECIDES A PAR TICULAR ISSUE IN A PARTICULAR MANNER IN THE ORIGINAL ASSESSMENT, THEN HE CANNOT I NITIATE REASSESSMENT ITA NO.6314/MUM/2010 M/S.INTERNATIONAL GLOBAL NETWORKS BV. 5 PROCEEDINGS WITHOUT THERE BEING ANY FRESH MATERIAL COMING TO HIS NOTICE AFTER THE PASSING OF ASSESSMENT ORDER. OBVIOUSLY THE PRE SENT CASE IS A CHANGE OF OPINION BY THE ASSESSING OFFICER ON THE SAME SET OF FACTS WHICH WERE THERE AT THE TIME OF COMPLETING THE ORIGINAL ASSESSMENT. THI S COURSE OF ACTION IS IMPERMISSIBLE IN THE LIGHT OF THE JUDGMENT OF KELVINATOR OF INDIA LTD. (SUPRA) . WE, THEREFORE, HOLD THAT THE INITIATION OF REASSESS MENT PROCEEDINGS IN THIS CASE IS NOT VALID. GROUND NO.1 IS, THEREFORE, ALLOWED. 7. THE LD. AR STATED THAT IF THE OTHER GROUNDS ARE DECIDED IN ASSESSEES FAVOUR, THEN GROUND NO.2 AGAINST THE HOLDING OF STA R INDIA PVT. LTD. AS PERMANENT ESTABLISHMENT OF THE ASSESSEE IN INDIA BE NOT DECIDED, AS HAVING BECOME ACADEMIC. IN VIEW OF OUR DECISION ON THE ABO VE GROUNDS, WE ARE NOT INCLINED TO DECIDE THE ISSUE RAISED IN THIS GROUND. THE SAME IS THEREFORE, DISMISSED AS INFRUCTUOUS. 8. GROUND NO.4 IS ABOUT THE LEVY OF INTEREST U/S 23 4B. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE ASSESSEE IS A NON-RESIDENT WHOSE INCOME WAS DETERMINED BY THE ASSESSING OFFICER INTER ALIA CHARGING INTEREST U/S.234B. THE LEARNED CIT(A) UPHELD THE ACTION OF THE A.O. SECTION 195 PROVIDES THAT ANY PERSON RESPONSIBLE FOR PAYING TO A NON-RESIDENT, ANY SUM CHARGEABLE UN DER THE PROVISIONS OF THIS ACT, SHALL AT THE TIME OF CREDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE OR AT THE TIME OF PAYMENT THEREOF, DEDUCT INCOME-TAX THER EON AT THE RATES IN FORCE. THE ASSESSEE IN THE INSTANT CASE IS A NON-RESIDENT AND HENCE ANY PERSON RESPONSIBLE FOR PAYING TO IT IS UNDER OBLIGATION FO R DEDUCTING TAX AT SOURCE IF INCOME IS CHARGEABLE TO TAX UNDER THE ACT. SECTION 208 PROVIDES THAT THE ADVANCE TAX SHALL BE PAYABLE DURING A FINANCIAL YEA R IN EVERY CASE WHERE THE AMOUNT OF SUCH TAX PAYABLE BY THE ASSESSEE DURING T HAT YEAR IS FIVE THOUSAND RUPEES OR MORE. SECTION 209(1)(D) STATES THAT THE INCOME-TAX CALCULATED UNDER ITA NO.6314/MUM/2010 M/S.INTERNATIONAL GLOBAL NETWORKS BV. 6 CLAUSES (A) TO (C) SHALL BE REDUCED BY THE AMOUNT O F INCOME TAX WHICH WOULD BE DEDUCTIBLE AT SOURCE DURING THE SAID FINANCIAL YEAR UNDER ANY PROVISION OF THIS ACT FROM ANY INCOME. BY VIRTUE OF SECTION 195 ALL THE PAYMENTS MADE TO THE ASSESSEE ARE SUBJECTED TO DEDUCTION OF TAX AT SOURC E. UNDER THESE CIRCUMSTANCES, THE ASSESSEE CANNOT BE SAID TO HAVE COMMITTED ANY DEFAULT IN NOT PAYING THE ADVANCE TAX FOR WHICH THE LIABILITY TO P AY INTEREST U/S 234B COULD BE FASTENED ON IT. OUR VIEW IS FORTIFIED BY THE SPECIA L BENCH ORDER OF THE TRIBUNAL IN MOTOROLA INC. VS. DCIT [(2005) 95 ITD 269 (DEL.) (SB), WHICH STANDS IMPLIEDLY AFFIRMED BY THE HONBLE JURISDICTIONAL HI GH COURT IN D.I (INTERNATIONAL TAXATION) VS. NGC NETWORK ASIA LTD . (2009) 222 CTR 86 (BOM). RESPECTFULLY FOLLOWING THE PRECEDENTS, WE OR DER FOR THE DELETION OF LEVY OF INTEREST U/S.234B. 10. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 28 TH DAY OF NOVEMBER, 2011. SD/- SD/- (N.V.VASUDEVAN) (R.S.SYAL) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI : 28 TH NOVEMBER, 2011. DEVDAS* COPY TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT CONCERNED 4. THE DISPUTE RESOLUTION PANEL - I, MUMBAI. 5. THE DR/ITAT, MUMBAI. 6. GUARD FILE. TRUE COPY. BY ORDER ASSISTANT REGISTRAR, ITAT, MUMBAI.