LIOYD'S REGISTER OF SHIPPING (NOW KNOWN AS LIOYD 'S REGISTER GROUP LTD ,MUMBAI V. DEPUTY COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION)-3(1)(2), MUMBAI

ITA 1457/MUM/2024

AI Insights

The case involves Lloyd's Register of Shipping, a non-resident corporate entity based in the UK, which appealed against the order of the Commissioner of Income Tax (Appeals) - 57, Mumbai. The appeal pertained to the assessment year 2010-11 and challenged the legality of the reopening of the assessment under section 147 of the Income Tax Act. The primary issue was the taxability of management charges received from Indian branches of group companies, which the Assessing Officer had treated as FTS and taxed accordingly. The Tribunal's decision was influenced by the fact that similar issues in previous years had been resolved in favor of the assessee, and the Revenue had not appealed those decisions, leading to the conclusion that the reopening was based on a non-existent foundation.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 772300 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-08-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Assessment Year: 2010-2011
• Other Referred Cases: CIT vs. B. P. Poddar Foundation For Education, Shri Sureshkumar Jethanand Rawlani vs. ITO, Mahesh Kumar vs. ITO
• Laws Referred To: Income Tax Act, 1961, DTAA between India and UK
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KRISHNA KUMAR
• Assessee Lawyers: NITESH JOSHI
• Keywords: Reassessment proceedings; Question of law; Unexplained expenditure; Reopening of assessment; Reason to believe; Double taxation relief; Non-deduction of tax; Bogus
• Section: 147; 143(3); 68; 69; 234B; 40(a)(ia)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “I” BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, VP AND SHRI GIRISH AGRAWAL, AM ITA No. 1457/Mum/2024 (Assessment Year: 2010-11) Lloyd’s Register of Shipping (Now known as Lloyd’s Register Group Ltd.) 17th Floor, Unit No. 1702, 1703 and 1704, Building Q2, Aurum Q Parc, Gen 4/1, TTC, Thane Belapur Road, Ghansoli, Navi Mumbai-400 710 Vs. Dy. CIT (IT)-3(1)(2) 16th Floor, Air India Building, Nariman Point, Mumbai-400 021 PAN/GIR No. AAACL 2209 B (Appellant) : (Respondent) Appellant by : Shri Nitesh Joshi Respondent by : Shri Krishna Kumar Date of Hearing : 18.08.2025 Date of Pronouncement : 25.08.2025 O R D E R Per Saktijit Dey, VP: The captioned appeal by the assessee, arises out of order dated 30.01.2024 of learned Commissioner of Income Tax (Appeals)-57, Mumbai (‘ld.CIT(A) for short), pertaining to assessment year (A.Y.) 2010-11. 2. The substantive grounds raised by the assessee are as under: The appellant objects to the order passed by the learned Commissioner of Income-tax (Appeals) - 57, Mumbai [the CIT(A)] dated 30th January, 2024 on the following among other grounds: 1. The learned CIT(A) erred in confirming that the reopening of the assessment by the learned AO is legal and tenable. 2 The learned CIT(A) erred in confirming the tax of Rs. 1,60,65,014 on the amount of IT recharge at the rate of 42.024% applied by the AO instead of 10.5575%. He ought not to have done so. 3. The learned CIT(A) erred confirming the levy of interest under section 234B and section 234C of the Income tax Act, 1961 for Rs. 4,77,18,318/- and Rs. 56,43,456/- respectively. He ought not to have done so. Printed from counselvise.com 2 ITA No. 1457/Mum/2024 (A.Y. 2010-11) Lloyd’s Register of Shipping vs. Dy. CIT (IT) 3. Ofcourse vide letter dated 17.09.2024, the assessee has raised an additional ground as under: 1. On the facts and in the circumstnaces of the case, the IT Recharge of Rs.3,82,28,189/- is not chargeable to tax as it is not in nature of fees for technical services in view of Article 13 of the DTAA between India and UK. 4. Be that as it may, at the outset, we propose to deal with ground no. 1, which raises a legal issue, challenging the validity of the reopening of assessment u/s. 147 of the Act. 5. Briefly stated the facts are, the assessee is a non-resident corporate entity and is a resident of United Kingdom (UK). For the assessment year under dispute, the assessee filed its return of income on 13.10.2010, declaring income of Rs.20,05,15,906/-. The return so filed by the assessee was processed u/s. 143(1) of the Act on 10.02.2011. No assessment u/s. 143(3) of the Act was made. Subsequently, based on materials on record, the Assessing Officer (AO) found that in the year under consideration, the assessee had received management charges from Indian branches of two other group companies, viz. M/s. Lloyd’s Register, U.K. (hereinafter referred to as ‘LR’) and M/s. Lloyd’s Register Quality Assurance Ltd. U.K., which has not been offered to tax in India by the assessee, claiming that they are not chargeable to tax in terms with Article 13(4)(c) of India-UK Double Taxation Avoidance Agreement (DTAA for short). The A.O. was of the view that the assessee’s claim that the management charges are not taxable under Article 13(4)(c) of India-UK DTAA, is not acceptable, as such receipts qualify as Fee for Technical Services (FTS) under the treaty provisions. Hence, have to be taxed @ 15%. He further observed that in A.Y. 2009-10, in assessee’s case, the A.O. had treated the management charges received by the assessee from Indian branches of two other group companies as FTS under the treaty provisions and taxed at 15%. Thus, based on such reasoning, the A.O. reopened Printed from counselvise.com 3 ITA No. 1457/Mum/2024 (A.Y. 2010-11) Lloyd’s Register of Shipping vs. Dy. CIT (IT) the assessment u/s. 147 of the Act after recording reasons on 26.03.2014. Ultimately, A.O. passed the final assessment order on 29.04.2016, bringing to tax the management charges received of Rs.2,46,84,475/-. 6. The assessee contested the aforesaid addition before learned First Appellate Authority. 7. After considering the submissions of the assessee, in the context of the facts and materials on record, learned First Appellate Authority, being convinced with the submissions of the assessee that the management charges would not qualify as FTS, as, managerial services are not included in the definition of FTS under the present India-UK DTAA. Learned First Appellate Authority further took note of the fact that while deciding the appeals of the two Indian branches contesting the additions made u/s. 40(a)(ia) of the Act for non-deduction of tax, while remitting similar payment, the Tribunal in A.Ys. 2010- 11 to 2015-16 has held that since the payments do not qualify as FTS, there is no requirement for deduction of tax at source. Accordingly, learned First Appellate Authority deleted the addition made by the A.O. 8. In the context of the aforesaid factual position, ld. Counsel appearing for the assessee submitted that since the issue based on which the A.O. had reopened the assessment and made the addition stands deleted by learned First Appellate Authority, the reopening of the assessment u/s. 147 of the Act would be invalid, as, in absence of the addition which is subject matter of reopening, no other addition can survive. In support of such contention, the ld. Counsel relied upon the following decisions: Printed from counselvise.com 4 ITA No. 1457/Mum/2024 (A.Y. 2010-11) Lloyd’s Register of Shipping vs. Dy. CIT (IT) • CIT vs. B. P. Poddar Foundation For Education 2023] 148 taxmann.com 125 (Calcutta) • Shri Sureshkumar Jethanand Rawlani vs. ITO (in ITA Nos. 1053 & 1054/Mum/2024 vide order dated 24.07.2024) • Mahesh Kumar vs. ITO (in ITA No. 2650/Del/2024 vide order dated 22.07.2025)(TM) 9. Proceeding further, ld. Counsel submitted the very foundation of reopening of assessment to bring to tax the management charges is similar addition made by the A.O. in assessee’s case in A.Y. 2009-10. He submitted, while deciding the appeal for A.Y. 2009- 10, learned First Appellate Authority has deleted similar addition and the department is not in appeal against such decision of learned First Appellate Authority. Therefore, the very basis of reopening stands obliterated. That being the case, the reopening of assessment u/s. 147 of the Act, should be declared invalid. 10. The learned Departmental Representative ('ld. DR' for short) submitted, the validity of assumption of jurisdiction u/s. 147 of the Act has to be examine at the level of the A.O. and not at the stage of what happened to the issue in the appellate proceeding. He submitted, in the present case, the A.O. has reopened the assessment to bring to tax the management charges and in the assessment order has made the addition. Therefore, only because the addition so made was deleted by learned First Appellate Authority, the reopening of assessment cannot be invalid. 11. We have considered rival submissions and perused the materials on record. We have also applied our mind to the decisions relied upon. Perusal of the reasons dated 26.03.2014 recorded for reopening of assessment u/s. 147 of the Act, copy of which is placed at pg. Printed from counselvise.com 5 ITA No. 1457/Mum/2024 (A.Y. 2010-11) Lloyd’s Register of Shipping vs. Dy. CIT (IT) no. 19 of the paper book, clearly reveals that based on the assessment made in case of the assessee in A.Y. 2009-10, treating the management charges received from Indian branches of M/s. Lloyd’s Register, U.K. (hereinafter referred to as ‘LR’) and M/s. Lloyd’s Register Quality Assurance Ltd. U.K., as FTS under Article 13 of India-UK DTAA, the A.O. has reopened the assessment for bringing the management charges received from the very same entities to tax as FTS. In fact, while completing the assessment vide order dated 29.04.2016, the A.O. has made the addition of Rs.2,46,84,475/-, being the management charges received from the aforesaid mentioned entities. However, while deciding the issue in appeal, learned First Appellate Authority has deleted the addition on the reasoning that the receipts do not qualify as FTS under Article 13 of India-UK DTAA, as managerial services do not come within the definition of FTS. It has been submitted before us that against the aforesaid decision on merits of learned First Appellate Authority, the Revenue has not come in appeal and the issue has attained finality. It has further been submitted before us that similar additions made in A.Y. 2009-10, has been deleted by learned First Appellate Authority and the Revenue has accepted. The department has not controverted the aforesaid contentions of the assessee. 12. Be that as it may, fact remains that the A.O. has reopened the assessment only for the reason that management charges received from two entities in India, though, are in the nature of FTS under Article 13 of India-UK DTAA, but has escaped assessment. In fact, the A.O. has made addition of the amount while making the assessment. However, it is equally true that while deciding the issue on merits, learned First Appellate Authority has deleted the addition. The short issue arising for consideration is if the addition which is subject matter of reopening gets deleted in appellate proceeding, whether it would affect Printed from counselvise.com 6 ITA No. 1457/Mum/2024 (A.Y. 2010-11) Lloyd’s Register of Shipping vs. Dy. CIT (IT) the validity of reopening of assessment. We find, identical question was posed before Hon’ble Calcutta High Court in case of B. P. Poddar Foundation For Education (supra) and ultimately Hon'ble High Court affirmed the view of the Tribunal in holding the reopening of assessment as bad-in-law, since the addition which was the subject matter of reopening was deleted by the appellate authority. Identical view was expressed by the co- ordinate benches in the decisions cited supra. In case of Mahesh Kumar (supra) learned Third Member following the ratio laid down in case of CIT vs. Jet Airways (I) Limited 331 ITR 236 (Bom) and Ranbaxy Laboratories Ltd. 336 ITR 136 (Del), has held as under: 9. The facts, apart from being matters of record, are not in dispute. In this case, there was no regular assessment under Section 143(3) of the Act. The assessment was sought to be reopened by notice dated 28.03.2019 only on the ground of escapement of income pertaining to exemption of LTCG under Section 10(38) of the Act. In the course of assessment proceedings, the Assessing Officer made two other additions – Rs.15,40,000/- under Section 68 of the Act on account of deposit of cash/cheques which went unexplained and Rs.20,62,375/- being unexplained expenditure on purchase of property under Section 69 of the Act. The learned CIT(A) has deleted the addition on account of the alleged bogus LTCG which was the original basis of the reopening. However, the learned CIT(A) has sustained the other two additions. The question is whether the reassessment can be sustained in such circumstances. 10. I have carefully gone through the differing orders passed by the learned Members of the Bench. While the learned Judicial Member has placed reliance on the decision, viz. ATS Infrastructure Ltd. (supra), B.P. Poddar Foundation for Education (supra) and Jet Airways (I) Ltd. (supra), the learned Accountant Member has found that the decisions in the case of ATS Infrastructure Ltd. (supra) and Jet Airways (I) Ltd. (supra) are distinguishable on the ground that in those cases the Assessing Officer himself had not made any addition on the basis of the reasons recorded for reopening. In other words, the learned Accountant Member has made a distinction between the cases where the Assessing Officer did not make any addition on the basis of original reasons recorded, but made certain other additions and a case where the Assessing Officer indeed makes addition on the basis of original reasons recorded alongwith other additions and the addition made on the basis of the original reasons recorded is deleted by the learned CIT(A). I am of the considered view that such a distinction could not have been made for the reason that the appellate proceedings before the CIT(A) are a continuation of the original assessment proceedings. Thus, no distinction as sought to be carved out by the learned Accountant Member can be accepted. 11. In Jet Airways (I) Ltd. (supra), following was the substantial question of law posed before the Bombay High Court :- “Where upon the issuance of a notice under section 148 of the Income-tax Act, 1961 read with section 147, the Assessing Officer does not assess or, as the case may be reassess the income which he has reason to believe had escaped assessment and which formed the basis of a notice under section 148, is it open to the Assessing Officer to assess or reassess independently any other income, which does not form the subject-matter of the notice?” 12. The Bombay High Court in the context of Explanation 3 to Section 147 of the Act added by the Finance (No. 2) Act, 2009 held as under :- Printed from counselvise.com 7 ITA No. 1457/Mum/2024 (A.Y. 2010-11) Lloyd’s Register of Shipping vs. Dy. CIT (IT) \"Explanation 3 does not and cannot override the necessity of fulfilling the conditions set out in the substantive part of section 147. An Explanation to a statutory provision is intended to explain its contents and cannot be construed to override it or render the substance or core nugatory. Section 147 has this effect that the Assessing Officer has to assess or reassess the income (\"such income\") which escaped assessment and which was the basis of the formation of belief and if he does so, he can also assess or reassess any other income which has escaped assessment and which comes to his notice during the course of the proceedings. However, if after issuing a notice under section 148, he accepted the contention of the assessee and holds that the income which he has initially formed a reason to believe had escaped assessment, has as a matter of fact not escaped assessment, it is not open to him independently to assess some other income. If he intends to do so, afresh notice under section 148 would be necessary, the legality of which would be tested in the event of a challenge by the assessee.” 13. Thus, the distinction sought to be made out by the learned Accountant Member, in my considered opinion, cannot be accepted. 14. The learned Accountant Member in para 3.4 of his order has found that the case of B.P. Poddar Foundation for Education (supra) decided by the Kolkata Bench involves identical facts. Incidentally, the decision in the said case has been confirmed by the Calcutta High Court. This aspect has been considered by the learned Accountant Member in para 5 onwards of his order. Before the Calcutta High Court, the Revenue had raised the following substantial question of law :- (i) Whether on the facts and circumstances as well as in law the Income-tax Appellate Tribunal was correct in law in holding that the other additions made in the order under section 147/143(3) of the Income-tax act, 1961, which were not part of the reasons recorded for reopening the assessment were not sustainable in the eyes of law even after insertion of Explanation 3 to section 147 of the Act by Finance Act, 2009 when addition was made by the Assessing Officer on the ground of reopening? (ii) Whether on the facts and circumstances of the case the Learned Income-tax Appellate Tribunal correctly interpret the decision reported in the case of Jet Airways (I) Limited reported 331 ITR 236 (Bom) and Ranbaxy Laboratories Ltd. reported in 336 ITR 136 (Del) on facts in the instant case?” 15. The Calcutta High Court, inter alia, relying upon the decision of Bombay High Court in the case of Jet Airways (I) Ltd. (supra) and that of Delhi High Court in Ranbaxy Laboratories Ltd. (supra) had found that the Tribunal was justified in finding that the reopening was bad in law. However, here again, the learned Accountant Member in para 5.8 of the order has found that the reliance placed by the Kolkata Tribunal on the decision of Bombay High Court in Jet Airways (I) Ltd. (supra) and the Delhi High Court in Ranbaxy Laboratories Ltd. (supra) “is not acceptable” because no such proposition was laid down in these decisions. The following observations in para 5.8 of his order are relevant :- “5.8 However, as discussed above, in the present case, the AO had made addition in respect of the issue on which the assessment was reopened and also in respect of two other issues which came to his notice during the assessment proceedings on the basis of materials available on record. In the present case, it is not the case that the AO did not make the addition on the issue on which the assessment was reopened u/s 148 of the Act but the said addition was deleted by the Ld. CIT(A). Therefore, the reliance placed by the Kolkata Tribunal on the decisions of Hon'ble Bombay High Court in the case of CIT vs Jet Airways (I) Ltd. (supra) and of Hon'ble Delhi High Court in the case of Ranbaxy Laboratories Ltd. vs CIT (supra) to hold that if the addition on the basis of which the Printed from counselvise.com 8 ITA No. 1457/Mum/2024 (A.Y. 2010-11) Lloyd’s Register of Shipping vs. Dy. CIT (IT) reassessment was made was deleted in appeal, then the AO could not make addition in respect of other issues which came to his notice during the reassessment proceedings, unless the AO has issued a separate notice u/s 148 of the Act to assess each of the said new issue coming to the notice of the AO during the reassessment proceedings is not acceptable because no such proposition was laid down in the decisions of Hon'ble Bombay High Court in the case of CIT vs Jet Airways (I) Ltd. (supra) and of Hon'ble Delhi High Court in the case of Ranbaxy Laboratories Ltd. vs CIT (supra).” 16. In my considered view, once the learned Accountant Member had found that the facts in the case of B.P. Poddar Foundation for Education (supra) were identical, it was not open to express any contrary view. That being an order of the co-ordinate Bench was binding. 17. The learned Accountant Member has also reproduced in para 3.2 of the order the observations of learned CIT(A) while deleting the addition in respect to bogus LTCG. The learned Accountant Member found that the findings are “a little abrupt”. Although the reasons given by the learned CIT(A) could have been more specific and clear, the said aspect cannot be gone into for the reason that ultimately the learned CIT(A) has partly allowed the appeal and deleted the addition and that order has not been challenged by the Revenue and has thus attained finality. 18. In the result, Ground no. 3 as raised by the assessee deserves to be allowed and the impugned addition cannot be sustained. The question as referred to is answered accordingly, holding that the reopening u/s 147 r.w.s 148 of the Act, in this case, is not valid. The appeal, therefore, deserves to be allowed as proposed by the learned Vice President (Judicial Member). 13. In terms with the decision of learned Third Member, the appeal in case of Mahesh Kumar (supra) was decided vide order dated 06.08.2025 (supra) in favour of the assessee as per majority view. It goes without saying that confirmatory order passed as per majority view in pursuance to the decision of Third Member carries the weight of Special Bench. 14. That being the legal position, respectfully following the decisions of Hon'ble High Court and the co-ordinate benches referred to above, we hold that the reopening of assessment is invalid. Even otherwise also, we find substantial merit in the second plank of contention of ld. Counsel for the assessee that the reopening of assessment is invalid in view of the fact that it was based on similar additions made in the A.Ys. 2009-10, which subsequently was deleted by learned First Appellate Authority. As discussed earlier, the reopening of assessment for the impugned assessment year, is more or less, based on the assessment order passed for A.Y. 2009-10 in assessee’s case, wherein, the management charges were brought to tax by treating them as FTS under Article 13 of India-UK DTAA. Printed from counselvise.com 9 ITA No. 1457/Mum/2024 (A.Y. 2010-11) Lloyd’s Register of Shipping vs. Dy. CIT (IT) However, while deciding the appeal for A.Y. 2009-10, learned First Appellate Authority has deleted the addition. That being the case, the very foundation on which the reopening of assessment was made does not exist. More so, when it has been brought to our notice that the decision of learned First Appellate Authority in respect of taxability of management charges has attained finality. For this reason also, the reopening of assessment, in our view, is unsustainable. Moreover, on going through the impugned order of learned First Appellate Authority, it is evident, while deciding the appeals in case of payers of management charges, the Tribunal in A.Ys. 2010-11 to 2015-16, has held that since the payments are not in the nature of FTS under India-UK DTAA, there is no obligations on the payers to deduct tax at source. Hence, the disallowance made u/s. 40(a)(ia) of the Act for non-deduction of tax at source was deleted. 15. The aforesaid facts considered cumulatively leads to irresistible conclusion that the reopening of assessment in the instant case is invalid. In view of the aforesaid, we quash the impugned assessment order. Keeping in view our decision on the legal issue, the other grounds having become academic, do not require adjudication, hence, are kept open. 16. In the result, the appeal is allowed as indicated above. Order pronounced in the open court on 25.08.2025 Sd/- Sd/- (Girish Agrawal) (Saktijit Dey) Accountant Member Vice President Mumbai; Dated : 25.08.2025 Roshani, Sr. PS Printed from counselvise.com 10 ITA No. 1457/Mum/2024 (A.Y. 2010-11) Lloyd’s Register of Shipping vs. Dy. CIT (IT) Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. The CIT(A) 4. CIT - concerned 5. DR, ITAT, Mumbai 6. Guard File BY ORDER, (Dy./Asstt. Registrar) ITAT, Mumbai Printed from counselvise.com "