2018-TII-INSTANT-ALL-523
22 January 2018   

CASE LAWS

2018-TII-03-HC-MUM-INTL

CIT Vs INVESTERINGSFORENINGEN BANKINVEST I: BOMBAY HIGH COURT (Dated: January 16, 2018)

Income tax - Sections 90, 147 & 148 - India-Denmark DTAA - Article 14

Keywords - capital gains - escaped assessment - registered FIIs - reasons for reopening - tax residency certificates

The Assessees in the present case are Foreign Institutional Investors and tax residents of Denmark. During the subject A.Y 2006-07, the assessees had earned capital gains both long and short term on shares listed on the Indian Stock Exchange, and accordingly filed their returns claiming that their capital gains was not taxable in view of Section 90 of the Act r/w Article 14 of the Indo Denmark DTAA. The AO however observed that the assessee was registered as 'FUND' for dealing in Indian stock market with SEBI and also taken PAN for taxation in India in the status of AOP (Trust) whose beneficiaries were indeterminate. It was therefore clear that in order to avail the benefit under the provisions of DTAA, the AOP should be a tax resident of Denmark and also liable to tax as AOP under the taxation laws in force in Denmark. In case, the Fund was not taxable unit under the taxation law in force in Denmark, then the assessee would be taxable in India in respect of the capital gain earned in India during the previous year. The possibility of AOP was not a taxable unit under the tax law of Denmark might not be ruled out. Accordingly, possibility of loss of revenue of Rs.4,62,14,144 should also not be ruled out. In view of this, the AO had reason to believe that income chargeable to tax of Rs.4621411 had escaped assessment within the meaning of provision of section 147, and accordingly he issued reopening u/s 148 to the assessees. In response, the Assessee filed their objections stating that they were not liable to tax in view of Articles 14 of the Indo Denmark DTAA. The AO however held that assessees were not taxable entities in Denmark, and therefore, assessed them to tax on the capital gains earned by them for the subject A.Y.

On appeal, the ITAT held that reasons recorded in support of reopening notice did not indicate any reason to believe that income chargeable to tax had escaped assessment. It held that the reasons recorded merely proceed on presumption and surmise without any tangible material that whether or not, Assessee was a taxable unit in Denmark and that income chargeable to tax had escaped Assessment. The impugned order held that reasons recorded completely ignored the fact that the tax residency certificate was filed by the Assessees and was evidence of being taxable units in Denmark.

On appeal, the HC held that,

Whether an act of reopening settled issues between the State and the non-resident Assessee with regard to the income tax dues, cannot be sustained, in absence of any reason to believe that income chargeable to tax has escaped assessment - NO: HC

+ it is seen that the reopening notice u/s 148 seeks to reopen settled issues between the State and the Assessee with regard to the income tax dues of Assessee. The basis of jurisdiction to reopen an Assessment is reason to believe of the AO that income chargeable to tax has escaped Assessment. This should be evident in the reasons recorded by him. These reasons which forms the basis must be strictly read. It is not open to either improve upon or change the reasons recorded. Therefore, the reasons for reopening notice as recorded at the time of issuing notice u/s 148 must be clear and have to be read strictly. Therefore, the submission made on behalf of the Revenue that there was a mistake in the reasons recorded and an attempt to substitute the reasons being made orally by the Counsel for the Revenue, cannot be accepted. Moreover, the reasons as recorded do not indicate any reasons to believe that income chargeable to tax has escaped assessment. It is more in the nature of seeking to find out after reopening the Assessment whether there are reasons to believe that income chargeable to tax has escaped Assessment or not. Therefore, the impugned order of ITAT calls for no interference.

Revenue's appeal dismissed

2018-TII-24-ITAT-DEL-INTL

DCIT Vs AMERICOM ASIA PACIFIC LLC: DELHI ITAT (Dated: January 5, 2018)

Income tax - Section 9(1)(vi), 147 & 148 - India-USA DTAA - Article 12

Keywords - attribution of income - business profits - PE - royalty - reasons for reopening

The Assessee, a non-resident Limited Liability Company incorporated in USA, had filed its return declaring nil income, stating that its revenues were in the nature of business profits and were not subjected to tax in India in accordance with article 7 of the Indo USA DTAA. During scrutiny assessment, the AO however held that the provision of Satellite Transmission Services were liable to tax in India as royalties for the use of process as well as equipment falling within the ambit of section 9(1)(vi) and Article 12 of the Indo USA DTAA. Subsequently by issuing notice u/s 148, the AO sought to reopen the assessment for the purpose of taxing royalty income at a higher rate of tax of 20% as being attributable to the PE of the assessee in India, and assessed income chargeable to tax at 20% on a gross basis.

On appeal, the CIT(A) held that no new fact which were concealed earlier have come to the notice of the AO, but this was a case where, on a reconsideration of the same set of facts, the AO had drawn a different inference on the application of the Act and the DTAA. He, consequently, held that it was not a valid ground to initiate the reassessment proceedings.

On appeal, the ITAT held that,

Whether the AO is permitted to draw a different inference upon reconsideration of the same set of facts, for initiating reopening proceedings - NO: ITAT

+ it is seen that the CIT(A) recorded that while passing the order u/s 143(3), the clauses of the agreement with the customer was examined in detail to hold that the revenues earned under the said agreement falls within the taxable ambit of "royalty" as defined u/s 9(1)(vi) as well as Article 12 of the Indo USA DTAA. The same agreement was considered for the reopening of the assessment. This assertion by the CIT(A) goes uncontroverted. It could be seen from the record that the original assessment u/s 143(3) was done by order dated Dec 28, 2007, whereas notice u/s 148 was issued on Mar 28, 2012. Such a notice was issued well beyond the expiry of the period of 4 years from the end of the assessment year. Proviso to section 147 requires that no action shall be taken u/s 147 after the expiry of 4 years from the end of the relevant assessment year, unless income chargeable to tax has escaped the assessment for such assessment year by reason of the failure on the part of assessee to make a return u/s 139 or in response to a notice issued u/s 142(1) or section 148 or to disclose fully and truly all material facts necessary for his assessment, for the assessment year;

+ it is clear that it is not in consideration of any new material or because of failure of the assessee to disclose fully and truly all material facts necessary for his assessment, the AO proposed to reopen the assessment proceedings, that too, beyond the period of 4 years. The conditions required under the proviso to section 147 are conspicuously absent in this matter, as such, we concur with the findings of CIT(A) that since it is a matter where, on the consideration of the same set of facts, a different inference was drawn and such a course is not permissible.

Revenue's appeal dismissed

 

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