DCIT CC-20, V. Nokai Corporation,

ITA 828/DEL/2008

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 0925 (ITAT-DELHI)
• Duration Of Justice: 11 year(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-03-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 16-05-2017
• Assessment Year: 1998-1999
• Appeal Filed On: 03-03-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Permanent establishment; Question of law; Set aside
• Section: 271(1)(c); 143(3); 27

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCE E, NEW DELHI BEFORE SHRI R.K.PANDA, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.827, 828, 829, 830 & 831/DEL./2008 (ASSESSMENT YEAR : 1997-98, 1998-1999, 1999-2000, 2 000- 2001, 2001-02) DY.COMMISSIONER OF INCOME TAX VS. M/S. NOKIA CORP ORATION, CENTRAL CIRCLE -20, NEW DELHI C/O. S.R.BOTLIBOI & CO 2 ND FLOOR, THE CAPITAL COURT LSC PHASE III, OLD PALME MARG, MUNIRKA, NEW DELHI A PPELLANT RESPONDENT ASSESSEE BY : NONE REVENUE BY : SHRI AMIT KATOCH, SR.DR DATE OF HEARING : 16 .01.2019 DATE OF ORDER : 25 .03.2019 O R D E R PER BENCH : SINCE COMMON QUESTION OF LAW AND FACTS HAVE BEEN RAISED BY THE REVENUE BY APPELLANT DY. COMMISSIONER OF INC OME TAX (HEREINAFTER REFERRED TO AS THE REVENUE) IN THE A FORESAID APPEALS THE SAME ARE BEING DISPOSED OF BY WAY OF CO MPOSITE ORDER TO AVOID REPETITION OF DISCUSSION. ITA NO.827-831/DEL/2008 2 2. APPELLANT, DY. COMMISSIONER OF INCOME TAX (I TA NO. 827- 831/DEL/2008) (HEREINAFTER REFERRED TO AS THE REVEN UE) BY FILING THE PRESENT APPEAL SOUGHT TO SET ASIDE THE IMPUGNED ORD ER DATED 26.11.2007 PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS)- XXIX, NEW DELHI , AFFIRMING THE PENALTY ORDER DATED 18.01.2006 PASSED U/S 271(1)(C) OF THE INCOME TAX ACT, 1961 (F OR SHORT THE ACT), QUA THE A.YS. 1997-98, 1998-99, 1999-2000, 2 000-01 & 2001-02 RESPECTIVELY ON THE IDENTICAL GROUNDS INTE R ALIA THAT :- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS ERRED IN CANCELLING THE PENALTY LEVI ED BY THE ASSESSING OFFICER U/S 271(1)(C) OF THE I.T.A CT, 1961 AMOUNT TO RS. 4,20,46,690/- , RS. 3,39,09,035/ - , 4,06,60,146/-, 4,71,90,528/-, & 14,60,96,736/- F OR A.Y. 1997-98, 1998-99, 1999-2000, 2000-01 & 2001-02 RESPECTIVELY. 2. THE ORDER OF THE CIT(A) BE SET ASIDE AND THAT OF A.O. BE RESTORED. 3. THE APPELLANT PRAYS FOR LEAVE TO ADD, AMEND, MODIFY OR ALTER ANY GROUNDS OF APPEAL AT THE TIME O R BEFORE THE HEARING OF THE APPEAL. 3. BRIEFLY STATED THAT FACTS NECESSARY FOR ADJUDI CATION OF THE CONTROVERSY AT HAND ARE : THE ASSESSEE IS TAX RESI DENT OF FINLAND HAS OPTED TO BE TAXED IN INDIA UNDER THE PROVISION OF THE INDIA- FINLAND DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA) FOR THE YEAR UNDER ASSESSMENT. UNDER THE PROVISIONS OF TAX TREATY, ITA NO.827-831/DEL/2008 3 INCOME DERIVED BY THE APPELLANT FROM SUPPLY OF TELECOMMUNICATION EQUIPMENT TO INDIAN TELECOM OPERA TORS QUALIFIES AS BUSINESS PROFITS, WHICH ARE TAXABLE IN INDIA ONLY WHERE AND TO THE EXTENT THE SAME WERE ATTRIBUTABLE TO PERMANENT ESTABLISHMENT (PE) OF THE ASSESSEE IN INDIA, IF ANY. ON THE BASIS OF ASSESSMENT FRAMED U/S 143(3) OF THE INCOME TAX ACT BY HOLDING THAT THE ASSESSEE HAD A PE IN INDIA HAVING INCOME FROM SUPPLY OF HARDWARE WHICH WAS HELD TO BE BUSINESS IN COME AND AS SUCH TAXABLE TO THE EXTENT, THE SAME WAS ATTRIBUTAB LE TO THE PE IN INDIA. AO ALSO HELD IN AY 1997-98, 1998-99 THAT INC OME FROM SUPPLY OF SOFTWARE IS IN THE NATURE OF BUSINESS INC OME AND TAXABLE ON THE SAME BUSINESS AS INCOME FROM HARDWAR E. HOWEVER FOR AY 1999-2000 TO 2001-2002 SUPPLY TO SOF TWARE WAS HELD TO BE IN THE NATURE OF ROYALTY AND TAXABLE ON GROSS BASIS. HOWEVER, COORDINATE BENCH OF TRIBUNAL IN AY 1997-98 AND 1998-1999 DELETED THE ADDITION MADE BY THE AO / CIT(A) FOR SUPPLY OF SOFTWARE BY TREATING IT NOT IN THE NA TURE OF ROYALTY. CONSEQUENTLY PENALTY PROCEEDINGS HAVE BE EN INITIATED AND PENALTY OF RS. 4,20,46,690/-, RS. 3,39,09,035/- , RS. 4,06,60,146/-, RS. 4,71,90,528/- & 14,60,96,736/- U /S. 271(1)(C) OF THE ACT FOR THE A.YS. 1997-98, 1998-99, 1999-200 0, 2000-01 & 2001-02 @ 100% HAS BEEN LEVIED. ITA NO.827-831/DEL/2008 4 4. ASSESSEE CARRIED THE MATTER BEFORE LD. CIT(A) WH O HAS DELETED THE PENALTY LEVIED BY AO BY ACCEPTING THE A PPEALS OF THE ASSESSEE. FEELING AGGRIEVED THE REVENUE HAS COME UP BEFORE THE TRIBUNAL BY WAY OF FILING THE PRESENT APPEALS. 5. WE HAVE HEARD THE LD. DR FOR THE REVENUE AND GO NE THROUGH THE ORDER PASSED BY THE LOWER REVENUE AUTHO RITIES. 6. UNDISPUTEDLY SPECIAL BENCH CONSECUTED BY THE TRI BUNAL VIDE ITS ORDER DATED 22.06.2005 IN ITA NO. 1963 & 1964/DEL/2001 IN ASSESSEES OWN CASE REPORTED AS [2 005] 95 ITD 269 (DELHI) (SB) DECIDED THE ISSUE OF CHARACTERIZAT ION OF REVENUES EARNED FROM SUPPLY OF EMBEDDED SOFTWARE AS ROYALTY AND THE SPLITTING UP OF THE REVENUE FROM SUPPLY OF EQUIPMENT BETWEEN HARDWARE AND SOFTWARE IN FAVOUR OF THE ASSESSEE AND THE DECISION RENDERED BY SPECIAL BENCH HAS BEEN CONFIRMED BY HONBLE DELHI HIGH COURT IN DIT VS. NO KIA NETWORKS OY [2013] 358 ITR 259 (DELHI). IT IS ALS O NOT IN DISPUTE THAT QUA CERTAIN ISSUES (RELATING TO EXISTE NCE OF PE / BUSINESS CONNECTION, RESULTING ATTRIBUTION OF INCOM E AND VENDOR FINANCING) WERE REMANDED BACK TO BE DECIDED BY THE SPECIAL BENCH AND SAID ISSUE WAS ACCORDINGLY DECIDED BY THE SPECIAL BENCH VIDE ORDER DATED 05.06.2018 REPORTED AS [201 8] 65 ITR (T) 23 (DELHI-TRIB.) (SB). IT IS ALSO NOT IN DISPUT E THAT THE LOWER ITA NO.827-831/DEL/2008 5 REVENUE AUTHORITIES HAVE RELIED UPON THE ORDER PASS ED IN A.Y. 1997-98 AND 1998-99. HOWEVER, NOW THE ISSUE HAS BEE N DECIDED IN FAVOUR OF THE ASSESSEE BY THE SPECIAL BENCH VIDE ORDER DATED 05.06.2018 REPORTED AS (2018) 65 ITR (T) 23 (DELHI -TRIB.) (SB), ORDER DATED 22.06.2005 CITED AS [2005] 95 ITD 269 ( DELHI) (SB) ITA NO. 827 & 828 / DEL. / 2008 FOR A.Y. 1997-98 & 1998-99 7. WHEN UNDISPUTEDLY QUANTUM APPEAL OF THE ASSESSEE S QUA A.Y. 1997-98, 1998-99 HAVE BEEN DECIDED IN FAVOUR O F THE ASSESSEE AS THE ASSESSEE IS NOT FOUND AS ASSESSEES INDIAN SUBSIDIARY DOES NOT FOUND TO CONSTITUTE A PE IN IND IA ; AND THAT INCOME FROM SUPPLY OF SOFTWARE IS NOT TAXABLE AS RO YALTY AND THESE FINDINGS HAVE BEEN CONFIRMED BY HONBLE HIGH COURT, A PENALTY LEVIED ON THE ASSESSEE IS NOT SUSTAINABLE I N THE EYES OF LAW. 8. HONBLE JURISDICTIONAL HIGH COURT IN CASE CITED AS COMMISSIONER OF INCOME TAX VS. NOKIA INDIA PVT. LTD . [2012] 343 ITR 434 (DELHI) HELD THAT WHEN THE QUANTUM PROCEEDINGS HAD BEEN DECIDED IN FAVOUR OF THE ASSES SEE PENALTY LEVIED U/S 271(1)(C) IS NOT SUSTAINABLE. SO, WE ARE OF THE CONSIDERED VIEW THAT WHEN VERY BASIS OF LEVYING THE PENALTY I.E. ADDITION MADE IN THE QUANTUM PROCEEDINGS, HAVE BEEN DELETED / DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL A S WELL AS ITA NO.827-831/DEL/2008 6 HONBLE HIGH COURT THE PENALTY LEVIED U/S 271(1)(C) IS NOT SUSTAINABLE HAVING BEEN BECOME INFRUCTUOUS. SO, REV ENUE APPEAL NO. 827 & 828/DEL/2008 FOR A.Y. 1997-98 ARE HEREBY DISMISSED. 829, 830 & 831/DEL/2008 FOR A.Y. 1999-2000, 2000-01 , 2001-02 9. THE LD. CIT(A) DELETED THE PENALTY LEVIED U/S 27 1(1)(C) ON MERIT BY HOLDING THAT AO HAS FAILED TO POINT OUT AN Y FACTS OR MATERIAL ON THE BASIS OF WHICH HE HAD ARRIVED AT TH E CONCLUSION THAT ASSESSEE HAD EITHER CONCEALED ANY PARTICULARS OF IN COME OR HAD FURNISHED INACCURATE PARTICULARS OF INCOME, THUS, F AILED TO DISCHARGE THE PRIMARY ONUS AS REQUIRED U/S 271(1)(C). WE ARE OF THE CONSIDERED VIEW THAT FACTUAL FINDINGS OF THE LD. CI T(A) IN THIS REGARD ARE WELL REASONED AND DO NOT CALL FOR ANY INTERFERENCE. 10. AT THE SAME TIME, WE ARE OF THE CONSIDERED VIE W THAT WHEN TWO VIEWS WERE POSSIBLE, IN CASE ASSESSEE ADOPTED A FAVOURABLE VIEW AT THE TIME OF FILING OF RETURN, THE PENALTY CANNOT BE LEVIED U/S 271(1)(C). MOREOVER, WHEN UNDISPUTEDLY IT BEING A DEBATABLE ISSUE. 11. UNDISPUTEDLY IN A.Y. 1999-2000, 2000-2001 AND 2 001-02 LOWER REVENUE AUTHORITIES HAVE RELIED UPON DECISION RENDERED BY THE REVENUE AUTHORITIES IN A.Y. 1997-98 AND 1998-99 WHEREIN ISSUES ON THE BASIS OF WHICH PENALTY HAS BEEN LEVIE D HAVE BEEN DECIDED IN FAVOUR OF THE ASSESSEE, INTER ALIA, THAT LIAISON OFFICE ITA NO.827-831/DEL/2008 7 DO NOT CONSTITUTE ASSESSEES PE IN INDIA ; THAT ASS ESSEES INDIAN SUBSIDIARY DOES NOT CONSTITUTE A PE IN INDIA; AND T HAT THE INCOME FROM SUPPLY OF SOFTWARE IS NOT TAXABLE AS ROYALTY. IT IS ALSO NOT IN DISPUTE THAT ASSESSEES CASE IN A.Y. 1999-2000, 200 0-01 & 2001-02 IS MIRROR IMAGE OF A.Y. 1997-98 & 1998-99 R ELIED UPON BY THE REVENUE AUTHORITIES AND SAME HAVE ALSO BEEN DECIDED IN FAVOUR OF THE ASSESSEE IN THE LIGHT OF DECISION REN DERED BY SPECIAL BENCH IN ASSESSEES OWN CASE FOR A.Y. 1997- 98 & 1998- 98 DATED 05.06.2018 REPORTED AS (2018) 65 ITR (T) 23 (DELHI- TRIB.) (SB), ORDER DATED 22.06.2005 CITED AS [2005] 95 ITD 269 (DELHI) (SB) 12. HONBLE JURISDICTIONAL HIGH COURT IN CASE CITED AS ( 2012) 349 ITR 477 (DELHI) COMMISSIONER OF INCOME TAX VS. PRADEEP AGENCIES JOINT VENTURE THAT CONFIRMED THE FINDINGS RECORDED BY TRIBUNAL THAT WHERE TWO VIEWS WERE POSS IBLE AND MATTER WAS REFERRED TO SPECIAL BENCH PENALTY HAS BE EN RIGHTLY DELETED BY RETURNING FOLLOWING FINDINGS : 8. WE HAVE ALSO HEARD THE LEARNED COUNSEL FOR THE ASSESSEE WHO SUBMITTED THAT THE ONLY POINT THAT HAS TO BE EX AMINED IS WHETHER THE TRIBUNAL WAS RIGHT IN DELETING THE PENA LTY ON THE GROUND THAT TWO VIEWS WERE POSSIBLE WHEN THE ASSESS EE FILED THE NIL RETURN. HE SUBMITTED THAT THE BEST PROOF OF THIS ITA NO.827-831/DEL/2008 8 SUBMISSION IS THAT THE TRIBUNAL ITSELF, WHEN IT WAS CONSIDERING THE QUANTUM APPEAL IN RESPECT OF THE AS SESSMENT YEAR 2003-04, WAS IN DOUBT AS TO WHICH OF THE TWO V IEWS WERE POSSIBLE. IT IS FOR THIS REASON THAT THE MATTE R HAD BEEN REFERRED TO THE SPECIAL BENCH. THE LEARNED COUNSEL FOR THE REVENUE SOUGHT TO COUNTER THE SUBMISSION BY STATING THAT THE REFERRAL ORDER WAS PASSED ON 04.04.2007 WHICH IS MU CH AFTER THE DATE ON WHICH THE RETURN WAS FILED AND ON THAT DATE THERE WAS NO DOUBT AT ALL WITH REGARD TO THE POSITI ON IN LAW. 9. HAVING CONSIDERED THE ARGUMENTS ADVANCED BY THE COUNSEL FOR THE PARTIES, WE ARE OF THE VIEW THAT TH E SUBMISSIONS MADE BY THE LEARNED COUNSEL FOR THE ASS ESSEE CANNOT BE BRUSHED ASIDE THAT THERE WERE TWO VIEWS P OSSIBLE INASMUCH AS THE TRIBUNAL ITSELF WAS IN DOUBT AS TO WHICH OF THE TWO VIEWS WERE TO BE PREFERRED. AND IT IS FOR T HIS VERY REASON THAT THE TRIBUNAL HAD PASSED THE REFERRAL OR DER DATED 04.04.2007 REQUIRING THE MATTER TO BE CONSIDERED BY A SPECIAL BENCH. THE FACT THAT THE REFERRAL ORDER CAM E INTO BEING MUCH AFTER THE RETURNS WERE FILED WOULD BE OF NO HELP TO THE REVENUE INASMUCH AS ALL THAT THE REFERRAL OR DER INDICATES IS THAT A DOUBT EXISTED WITH REGARD TO WH ICH OF THE VIEWS WERE POSSIBLE. IT CANNOT BE SAID THAT PRIOR T O THAT DATE, THE ASSESSEE COULD NOT HAVE HAD SUCH A DOUBT IN ITS MIND WHEN IT HAD INDEED FILED ITS RETURN. 10. THEREFORE, WE SEE NO REASON TO DISAGREE WITH TH E INCOME TAX APPELLATE TRIBUNAL IN ITS CONCLUSION WITH REGAR D TO THE PENALTY PROCEEDINGS AND IN PARTICULAR IN ITS ORDER DELETING THE PENALTY IMPOSED ON THE ASSESSEE. WE FEEL THAT N O ITA NO.827-831/DEL/2008 9 SUBSTANTIAL QUESTION OF LAW ARISES FOR OUR CONSIDER ATION INASMUCH AS IT IS A SETTLED PRINCIPAL OF LAW THAT W HERE TWO VIEWS ARE POSSIBLE A PENALTY CANNOT BE IMPOSED ON T HE ASSESSEE. 13. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, FINDI NG NO ILLEGALITY OR PERVERSITY, AFORESAID APPEALS FILED B Y THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THIS 25 TH MARCH, 2019. SD/- SD/- (R.K.PANDA) (K ULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 25/03/ 2019 BR COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-XXVI, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI DATE OF DICTATION 12.03.2019 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 13.03.2019 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. PS/PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WE BSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK ITA NO.827-831/DEL/2008 10 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER