ADIT (IT) 3(1), V. M/s Linklaters Formerly know as Linklaters & Paines,

ITA 6556/MUM/2003

• Counselvise Citation: 655619914 RSA 2003
• Duration Of Justice: 10 year(s) 9 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-07-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: L
• Next Hearing Date: 23-06-2014
• Assessment Year: misc
• Appeal Filed On: 07-10-2003
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AJAY KUMAR SRIVASTAVA
• Keywords: Services rendered outside India
• Section: 54; 154; 234B

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL L BENCH, MUMBAI . . , , , BEFORE SHRI B.R. B ASKARAN , ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA , JUDICIAL MEMBER . / ITA NO. 6556 /MUM./ 2003 ( / ASSESSMENT YEAR : 1996 97 ) ASSTT. DIRECTOR OF INCOME TAX CIRCLE 3( 1 ), AAYAKAR BHAVAN 101, M.K. ROAD, MUMBAI 400 020 .. / APPELLANT V/S M/S. LINKLATERS (FORMERLY KN OWN AS LINKLATERS & PAINES) C/O C.C. CHOKSHI & CO. C.AS MAFATLAL HOUSE, MUMBAI .... / RESPONDENT . / PERMANENT ACCOUNT NUMBER GIR NO.39 044 CX 1480 / ASSESSEE BY : MR . S.E. DASTUR, SR. COUNSE L A/W MR. NIRAJ SHETH / REVENUE BY : MR. AJAY KUMAR SRIVASTAVA / DATE OF HEARING 23.06.2014 / DATE OF ORDER 09.07.2014 / ORDER , / PER AMIT SHUKLA , J.M. THE PRESENT APPEAL HAS BEEN PREFERRED BY THE REVENUE, CHALLENGING THE IMPUGNED ORDER DATED 30 TH MAY 2003 , PASSED BY THE COMMISSIONER (APPEALS) X X X I , MUMBAI, UNDER SECTION 1 54 OF THE M/S. LINKLATERS 2 INCOME TAX ACT, 1961 (FOR SHORT 'THE ACT' ) FOR THE ASSESSMENT YEAR 1996 97, ON THE FOLLOWING GROUNDS: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT THE RECEIPT FROM SERUM INSTITUTE AS NOT TAXABLE AS THE ASSESSEE HAD RENDERED SERVICES OUTSIDE INDIA. TH E LD. C.I.T.(A) HAS NOT APPRECIATED THE FORCE OF ATTRACTION PRINCIPLE IN ARTICLE 7 OF THE INDO - UK DT AA. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING IN FAVOUR OF THE ASSESSEE ON THE BASIS OF HIS VIEWS FOR THE ASSESSMENT YEARS 1995 - 96 AND 1996 - 97 U /S. 143(3)] WITHOUT APPRECIATING THAT THOSE HAVE NOT BEEN ACCEPTED BY THE DEPARTMENT. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING INTEREST U/S. 234B OF THE ACT ON THE BA SIS OF HIS ORDERS FOR A. YR. 1995 - 96 AND 1996 - 97 [U/S. 143(3)] WITHOUT APPRECIATING THAT THOSE HAVE NOT BEEN ACCEPTED BY THE DEPARTMENT. 2 . FACTS IN BRIEF : THE ASSESSEE IS A PARTNERSHIP FIRM BASED IN U.K., WHICH IS MAINLY ENGAGED IN PRACTICE OF LAW. FOR T HE ASSESSMENT YEAR 1996 97, IT HAD FILED ITS RETURN OF INCOME ON 30 TH OCTOBER 1996, DECLARING NIL' INCOME. THE ASSESSEE HAS BEEN PROVIDING PROFESSIONAL SERVICES TO CERTAIN CLIENTS WHOSE OPERATION EXTENDED TO INDIA. SUCH PROFESSIONAL SERVICES INVOLVED VISI TS TO INDIA OF THE FIRMS PARTNER AND STAFF MEMBERS , HOWEVER, NO OFFICE OR PLACE OF WORK WAS ESTABLISHED BY THE FIRM. THE SAID RETURN OF INCOME WAS SUBJECT TO SCRUTINY AND THE ASSESSMENT ORDER WAS PASSED UNDER SECTION 143(3), VIDE ORDER DATED 25 TH MARCH 19 99, AND THE TOTAL INCOME WAS DETERMINED AT ` 25,52,16,000 , HOLDING THAT THE RECEIPTS FROM THE INDIAN CLIENTS WERE TAXABLE IN INDIA. THEREAFTER, THE ASSESSEE FILED MISCELLANEOUS APPLICATION UNDER SECTION 154, BEFORE THE ASSESSING OFFICER POINTING OUT THE MI STAKES IN QUANTUM OF THE RECEIPTS IN RESPECT OF THE TOTAL BILLS RAISED. AFTER VERIFYING THE RECORDS, HE FOUND THAT THERE W ERE SOME M/S. LINKLATERS 3 DOUBLE ADDITIONS OF THE RECEIPTS AND ACCORDINGLY, HE RECTIFIED THE SAID MISTAKE , WHICH WERE APPARENT FROM RECORD. HOWEVER, HE HELD THAT A BILL OF ` 3,22,378, PERTAINING TO SEREEM INDUSTRIES INDIA LTD., HAS BEEN OMITTED TO BE TAKEN AS INCOME AND, THEREFORE, THE SAME IS TO BE INCLUDED IN THE TOTAL INCOME. 3 . BEFORE THE LEARNED COMMISSIONER (APPEALS), THE ASSESSEE CHALLENGED THE SAID ADDITION MADE IN THE TOTAL INCOME ON THE GROUND THAT THE ASSESSEES ENTIRE RECEIPTS AND THE INCOME HAS BEEN THE SUBJECT MATTER OF SCRUTINY BY THE ASSESSING OFFICER DENYING THE ASSESSMENT PROCEEDINGS AND SUCH AN INCLUSION AT TH IS STAGE OF PROCEEDINGS UNDER SECTION 154, CANNOT BE MADE. APART FROM THAT, ON MERITS ALSO, IT WAS CONTENDED THAT THE SAID RECEIPTS CANNOT BE TAXED IN INDIA BECAUSE NO WORK HAS BEEN CARRIED OUT IN INDIA AND, THEREFORE, THE SAME HAS NEITHER ARISEN N OR ACCRUED IN INDIA. THE LEARNED COMM ISSIONER (APPEALS) DIRECTED THE ASSESSING OFFICER TO EXCLUDE THE AMOUNT OF ` 3,22,278, FROM THE TOTAL INCOME AFTER OBSERVING AND HOLDING AS UNDER: FROM THE DESCRIPTION OF THE WORK MENTIONED IN THE INVOICE AND THE CONFIRMATION GIVEN BY SERUM INSTITUTE OF INDIA LTD. IT IS CLEAR THAT DURING THE PREVIOUS YEAR 1995 - 96 NO WORK WAS CARRIED OUT BY THE APPELLANT IN INDIA FOR SERUM INSTITUTE OF INDIA LTD. IN MY ORDER DATED MARCH 13, 2003 IN PPELLANT'S CASE IN APPEAL NO. CIT(A)XXXI/ITO(IT)1(2)/IT - 239/02 - 03 FOR THE ASSESSMENT YEAR 1995 - 96, I HAVE HELD THAT THE FEES RECEIVED FOR SERVICES RENDERED OUTSIDE INDIA IS NOT LIABLE TO TAX IN INDIA. SIMILARLY, IN APPEAL FILED BY THE APPELLANT AGAINST THE ASSESSMENT ORDER FOR THE CONCERNED ASSESSMENT YEAR 1996 - 97, IN MY APPEL LATE ORDER NO. CIT(A)XXXI/DCIT CIR 2(6)/IT - 10/99 - 00/03 - 04 DATED 30TH MAY, 2003 I HAVE HELD THAT ONLY THE INCOME RELATED TO SERVICES RENDERED IN INDIA IS TAXABLE IN INDIA. SINCE IN THE PRESENT CASE THE APPELLANT HAS RENDERED SERVICES TO SERUM INSTITUTE OF I NDIA LTD. OUTSIDE INDIA, THEREFORE, THE FEES OF RS.3,22,278 RECEIVED BY THE APPELLANT FROM SERUM INSTITUTE OF INDIA LTD. M/S. LINKLATERS 4 IS NOT TAXABLE I N INDIA. IN VIEW OF THE ABOVE THE ASSESSING OFFICER IS DIRECTED TO EXCLUDE THE AMOUNT OF R S. 3,22,278 FROM THE TOTAL IN COME OF THE APPELLANT. 4 . BEFORE US, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT WHILE CARRYING OUT THE RECTIFICATION OF THE RECEIPTS, THE ASSESSING OFFICER NOTICED THAT THE PAYMENT RECEIVED FROM SEREEM INDUSTRIES INDIA LTD. (SUPRA) HAS BEEN LEFT TO BE INCLUDED IN THE TOTAL INCOME, THEREFORE, HE HAS RIGHTLY ADDED THE SAID AMOUNT. THOUGH HE ADMITTED THAT IN THE ORIGINAL QUANTUM PROCEEDINGS UNDER SECTION 143(3), THE LEARNED COMMISSIONER (APPEALS) HAS HELD THAT THE FEES RECEIVED FOR SERVICES RENDERED OUTSIDE INDIA BY THE ASSESSEE IS NOT LIABLE TO BE TAXED IN INDIA, HOWEVER, THE FACT REMAINS THAT THE DEPARTMENTS VIEW HAD ALWAYS BEEN THAT SUCH KIND OF A RECEIPT ARE TAXABLE IN INDIA , NOT ONLY IN THIS YEAR BUT ALSO IN EARLIER YEAR AND SUBSEQUENT YEARS. T HUS, HE STRONGLY SUPPORTED THE ORDER OF THE ASSESSING OFFICER. 5 . BEFORE US, THE LEARNED SENIOR COUNSEL, MR. S.E. DASTUR, ON BEHALF OF THE ASSESSEE, SUBMITTED THAT, FIRST OF ALL, IN THIS CASE, THE ASSESSING OFFICER HAS NOT ISSUED ANY SHOW CAUSE NOTICE TO TH E ASSESSEE FOR ENHANCING THE INCOME WHICH IS IN CLEAR VIOLATION OF THE PROVISIONS OF SUB SECTION (3) OF SECTION 154. IN SUPPORT OF T HIS CONTENTION, HE STRONGLY RELIED UPON THE DECISION OF THE HON'BLE SUPREME COURT IN M. CHOCKALINGAM AND M. MEYYAPPAN V/S CI T, [1963] 48 ITR 34 (SC) AND PUNJAB HIGH COURT IN LALA RAJESHWAR PERSHAD V/S ITO, ]1959] 36 ITR 492 (PUNJAB). THAT APART, HE SUBMITTED THAT THE LEARNED COMMISSIONER (APPEALS), DURING THE QUANTUM PROCEEDINGS, HAS ALREADY HELD THAT THE WORK DONE BY THE ASSES SEE TO AN INDIAN , CLIENT WHOLLY OUTSIDE INDIA IS NOT TAXABLE IN INDIA , THEREFORE, FOR THIS YEAR, THE ISSUE STANDS CONCLUDED AS THE DEPARTMENT HAS NOT PREFERRED ANY SECOND APPEAL AGAINST THIS ORDER . THOUGH HE ADMITTED THAT SIMILAR VIEW TAKEN BY THE M/S. LINKLATERS 5 LEARNED COMMISSIONER (APPEALS) IN THE ASSESSMENT YEAR 1995 96, WAS REVERSED BY THE TRIBUNAL (SINCE REPORTED IN [2010] 40 SOT 51) . HOWEVER, THIS ITSELF GOES TO SHOW THAT THIS ISSUE OF TAXABILITY WAS HIGHLY DEBATABLE ISSUE AND, THEREFORE, PROCEEDINGS UNDER SECTION 1 54, CANNOT BE INITIATED , IF TWO VIEWS ARE POSSIBLE. IN SUPPORT OF HIS CONTENTION, HE ALSO REFERRED TO THE PENALTY ORDER PASSED BY THE ASSESSING OFFICER FOR THE ASSESSMENT YEAR 1996 97, WHEREIN THE ASSESSING OFFICER HAS ACCEPTED THE ASSESSEES CONTENTION IN SOFAR AS THE LEVY OF PENALTY IS CONCERNED. LASTLY, HE SUBMITTED THAT NOW THE DECISION OF THE TRIBUNAL IN ASSESSEES CASE FOR THE ASSESSMENT YEAR 1995 96, HAS BEEN DISSENTED WITH BY THE SPECIAL BENCH OF THE TRIBUNAL, MUMBAI, IN ADIT V/S CLIFFORD CHANCE, [ 20 13] 143 ITD 001, (MUM.). THUS, THE GROUNDS RAISED BY THE REVENUE CANNOT BE SUSTAINED ON ANY OF THE GROUNDS. 6 . WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE RELEVANT FINDINGS OF THE AUTHORITIES BELOW AND THE MATERIAL AVAILABLE ON RECORD. IT IS ADMITTED FA CT THAT THE PROCEEDINGS UNDER SECTION 154, HAS BEEN INITIATED ON THE APPLICATION FILED BY THE ASSESSEE , POINTING OUT THE MISTAKE IN THE QUANTUM OF THE RECEIPTS TAKEN IN THE ORIGINAL ASSESSMENT ORDER. THE SAME HAS BEEN RECTIFIED BY THE ASSESSING OFFICER. HO WEVER, T HE ASSESSING OFFICER WITHOUT ISSUING ANY NOTICE TO THE ASSESSEE, HAS ENHANCED THE ASSESSMENT BY A SUM OF ` 3,22,378, WHICH IS IN CLEAR VIOLATION OF THE PROVISIONS OF SUB SECTION (3) OF SECTION 154, WHICH PROVIDES THAT AN AMENDMENT HAVING EFFECT ON THE ENHANCEMENT OF ASSESSMENT SHALL NOT BE MADE , UNLESS A NOTICE IS GIVEN TO THE ASSESSEE AND A REASONABLE OPPORTUNITY OF HEARING IS GIVEN. THIS CONTENTION WAS ALSO RAISED BEFORE THE LEARNED COMMISSIONER (APPEALS) WHICH HAS BEEN TREATED BY HIM AS INFRACTUO US AS HE HAS ALLOWED THE ASSESSEES APPEAL ON MERIT. ON THIS GROUND ALONE, THE IMPUGNED ADDITION WHICH HAS BEEN MADE IN THE RECTIFICATION M/S. LINKLATERS 6 PROCEEDINGS UNDER SECTION 154, CANNOT BE SUSTAINED. FURTHER, AS POINTED OUT BY THE LEARNED SENIOR COUNSEL, IT IS SEEN THAT IN THE QUANTUM PROCEEDINGS, THE LEARNED COMMISSIONER (APPEALS) HAS HELD THAT NO INCOME HAS BEEN RECEIVED BY THE ASSESSEE , WHICH IS TAXABLE IN INDIA AND AGAINST THIS ORDER NO SUBSEQUENT APPEAL HAS BEEN PREFERRED BY THE DEPARTMENT IN THIS YEAR. IN THE E ARLIER YEAR THE TRIBUNAL HAS DECIDED THE ISSUE OF TAXABILITY OF INCOME IN INDIA BY VIRTUE OF FORCE OF ATTRACTION , AGAINST THE ASSESSEE, HOWEVER, THAT DECISION ALSO STANDS DISAPPROVED BY THE SPECIAL BENCH IN CLIFFORD CHANCE (SUPRA) . FROM THESE FACTS, IT C AN BE GATHERED THAT T HE ADDITION MADE BY THE ASSESSING OFFICER IN THE IMPUGNED PROCEEDINGS UNDER SECTION 154, IS HIGHLY DEBATABLE AND, THEREFORE, THE SAME IS BEYOND THE SCOPE OF RECTIFICATION UNDER SECTION 154. IT IS A SETTLED LAW THAT AN ERROR WHICH HAS T O BE ESTABLISHED BY A LONG DRAWN PROCESS OF REASONING ON POINTS WHERE THERE MAY BE CONSIDERABLE TWO OPINIONS, THEN IT CAN HARDLY BE SAID TO BE ERRONEOUS APPARENT ON THE FACE OF THE RECORD. THUS, IN VIEW OF OUR ABOVE CONCLUSION , WE DO NOT FIND ANY MERIT IN THE GROUNDS RAISED BY THE REVENUE AND THE SAME STANDS DISMISSED. 7 . WITH REGARD TO ALLOWABILITY OF INTEREST UNDER SECTION 234B, THE LEARNED COMMISSIONER (APPEALS) HAS CATEGORICALLY HELD THAT IN THE QUANTUM ORDER PASSED UNDER SECTION 143(3), FOR THE SAME ASSE SSMENT YEAR, HE HAS ALREADY HELD THAT LEVY OF INTEREST UNDER SECTION 234B, CANNOT BE LEVIED. MOREOVER, NOT ONLY THIS IS BEYOND THE SCOPE OF THE PROCEEDINGS UNDER SECTION 154, BUT ALSO THE SAME IS COVERED BY THE DECISION OF THE JURISDICTIONAL HIGH COURT IN DIT V/S NGC NETWORKS ASIA LLC, [2009] 313 ITR 187 (BOM.). THUS, THERE IS NO MERIT IN THE GROUNDS RAISED BY THE DEPARTMENT. ACCORDINGLY, ALL THE GROUNDS RAISED BY THE REVENUE ARE TREATED AS DISMISSED. M/S. LINKLATERS 7 8 . 8. IN THE R ESULT, REVENUES APPEAL IS DISMISSED. 9 TH JULY 2014 ORDER PRONOUNCED IN THE OPEN COURT O N 9 TH JULY 2014 SD/ - . . B.R. BASKARAN ACCOUNTANT MEMBER SD/ - AMIT SHUKLA JU DICIAL MEMBER MUMBAI, DATED : 9 TH JULY 2014 / COPY OF THE ORDER FORWARDED TO : ( 1 ) / THE ASSESSEE ; ( 2 ) / THE REVENUE; ( 3 ) ( ) / THE CIT(A ) ; ( 4 ) / THE CIT, MUMBAI CITY CONCERNED ; ( 5 ) , , / THE DR, ITAT, MUMBAI ; ( 6 ) / GUARD FILE . / TRUE COPY / BY ORDER . / PRADEEP J. CHOWDHURY / SR. PRIVATE SECRETARY / / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI M/S. LINKLATERS 8 DATE INITIAL ORIGINAL DICTATION PAID IS ENCLOSED AT THE END OF FIL E 1. DRAFT DICTATED ON 1.7.2014 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 2.7.2014 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 3.7.2014 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 3.7.2014 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 10 .7.2014 SR.PS 6. DATE OF PRONOUN CEMENT 9 .7.2014 SR.PS 7. FILE SENT TO THE BENCH CLERK 10 .7.2014 SR.PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER , / / 19997 98 2000 01 / / / / / / / / / /