Assessee is bound to furnish a return in response to a s. 148 notice. The reasons for reopening can be given only thereafter. A writ involving disputed factual issues cannot be entertained CASE: Adobe Systems Software Ireland Ltd vs. ADIT (Delhi High Court)

TITLE:  Assessee is bound to furnish a return in response to a s. 148 notice. The reasons for reopening can be given only thereafter. A writ involving disputed factual issues cannot be entertained

CASE:  Adobe Systems Software Ireland Ltd vs. ADIT (Delhi High Court)

(i) The petitioner did not file any returns of income in response to the notices issued u/s 148. Even under the judgment of the Supreme Court in G.K.N. Driveshafts 259 ITR 19, the petitioner would get the reasons recorded for reopening the assessment only upon filing the return of income pursuant to the notice issued u/s 148. The conduct of the petitioner has been one of defiance; it did not file returns in response to the notices issued u/s 148. The mere filing of the return can never amount to submitting to the jurisdiction. The filing of the return in response to the notice u/s 148 defines the stand taken by the assessee. S. 148 says that the return called for by the notice issued under that section shall be treated as if such a return were a return required to be furnished u/s 139 of the Act. Under the scheme of the Act, a return of income conveys the position taken by the assessee to the assessing authority – whether he has taxable income or not. It is not a mere scrap of paper. There is a sanctity attached to the return. If the assessing authority calls upon the assessee to file a return of income, the same shall be complied with by the assessee and it is no answer to the notice to say that since in his (assessee’s) opinion there is no taxable income, he is under no obligation to file the return. The petitioner, not having made the Noida officer aware that no income chargeable to tax had escaped assessment and having merely told him that he has no jurisdiction to issue reassessment notices, was not acting strictly in accordance with law. The writ remedy being a discretionary remedy, the discretion can be exercised in favour of the writ petitioner only if his conduct has been in conformity with law. If it is not, the Court may refuse to exercise the discretion in favour of the writ petitioner;

(ii) The question whether the initiation of reassessment proceedings by the Noida officer was valid or not would depend upon whether the petitioner had a PE within the jurisdiction of the Noida officer. In the absence of any evidence unmistakably and indisputably establishing the existence or otherwise of the PE, we would hesitate to enter this prohibited arena in writ proceedings. It needs no citation of authority to support the proposition that the Court exercising its jurisdiction under Article 226 of cannot enter into disputed questions of fact which is best left to be resolved in the alternative remedies available to the petitioner. In fact the assessment and appellate authorities, including the Income Tax Appellate Tribunal, constituted under the Act as fact-finding bodies are best suited to examine whether the petitioner had a PE in Noida or not and the question of jurisdiction would depend upon the findings of those authorities. Moreover, when we are exercising discretionary jurisdiction, it is not impermissible to consider whether any real prejudice has been caused to the petitioner to justify the exercise of the extraordinary jurisdiction which is to be sparingly wielded. We do not see any such prejudice to the petitioner. There can be no vested right that escaped income cannot be taxed, provided all the jurisdictional conditions and the procedural requirements of the Act are satisfied. This fundamental question is purely one of fact which ideally should be determined in proceedings relating to assessment and appeal prescribed under the Act. This Court cannot, on the facts of the present case, enter that domain.

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Entire law on formation of AOP & taxability of off-shore supply & services explained : Linde A. G. vs. DDIT (Delhi High Court)

TITLE:  Entire law on formation of AOP & taxability of off-shore supply & services explained

CASE:  Linde A. G. vs. DDIT (Delhi High Court)

(a) Before an association can be considered as a separate taxable entity (i.e an Association of Persons), the same must exhibit the following essential features: (i) must be constituted by two or more persons; (ii) the constituent members must have come together for a common purpose; (iii) the association must move by common action and there must be some scheme of common management; (iv) the cooperation and association amongst the constituent members must not be perfunctory and/or merely in form. The association amongst members must be real and substantial which is sufficient to treat the association as a separate homogenous taxable entity (Indira Balkrishna 39 ITR 546 (SC) & other judgements followed;

(b) On facts, as per the terms of the Contract, the scope of work to be executed by Linde and Samsung was separate and was accordingly specified in the annexures to the Contract. The payments to be made for separate items of work were also specified. The currency in which the payments were to be made was also separately indicated. Thus, insofar as execution of the work was concerned, it was recognised that different items constituting the Contract would be performed independently by Linde and Samsung. The consideration for the work performed was to be made directly to the concerned member of the Consortium in accordance with the work performed by him. Annexure C of the Contract specified the payment schedule i.e. the amount to be paid for the supply of goods and services rendered by both the members of consortium. Linde and Samsung were to be paid on the basis of the separate invoices raised by them respectively. There was no arrangement for sharing of profits and losses between Linde and Samsung. And, each of them would make profits or incur losses based on the price as agreed by them and the costs incurred by them for performance of the contract falling within their independent scope of work;

(c) It follows that Linde and Samsung had joined together to (i) bid for the contract; (ii) present a façade of a consortium to OPAL for execution of the contract and accept joint and several liability towards OPAL for due performance of the contract and completion of the project; and (iii) put in place a management structure for inter se coordination and execution of the project. However, in all other respects, both Linde and Samsung were independent of each other and were responsible for their own deliverables under the Contract, without reference to each other. Consequently, no AOP is formed (Instruction No.1829 dated 21.09.1989 issued by the CBDT referred to);

(d) As regards taxability, the principle of apportionment of income on the basis of territorial nexus is now well accepted. Explanation 1(a) to section 9(1)(i) of the Act also specifies that only that part of income which is attributable to operations in India would be deemed to accrue or arise in India. It necessarily follows that in cases where a contract entails only a part of the operations to be carried on in India, the assessee would not be liable for the part of income that arises from operations conducted outside India. In such a case, the income from the venture would have to be appropriately apportioned. Merely because a project is a turnkey project would not necessarily imply that for the purposes of taxability, the entire contract be considered as an integrated one. Where the equipment and material is manufactured and procured outside India, the income attributable to the supply thereof could only be brought to tax if it is found that the said income therefrom arises through or from a business connection in India. It cannot be concluded that the Contract provides a “business connection” in India and accordingly, the Offshore Supplies cannot be brought to tax under the Act (Ishikawajima-Harima Heavy Industries 288 ITR 408 (SC) and Hyundai Heavy Industries 291 ITR 482 (SC) followed);

(e) In order to fall outside the scope of Section 9(1)(vii) of the Act, the link between the supply of equipment and services must be so strong and interlinked that the services in question are not capable of being considered as services on a standalone basis and are therefore subsumed as a part of the supplies. Given the fact that its Linde’s case that the consideration for the supplies are separately specified, this aspect would require a closer scrutiny and determination of facts. In the event, it is found that the offshore services rendered by Linde are not inextricably linked to the manufacture and fabrication of equipment overseas so as to form an integral part of the supply of the said equipment, the income arising from the said services would be taxable in India as fees for technical services. By virtue of Section 9(1)(vii) of the Act, fees for technical services paid by a resident are taxable in India (except where such fees are payable in respect of services utilised by such person in business and profession carried outside India). In view of the Explanation to Section 9(2) as substituted by Finance Act 2010 with retrospective effect from 01.06.1976, the decision of the Supreme Court in Ishikawajima-Harima Heavy Industries, in so far as it holds that in order to tax fees for technical services under the Act the services must be rendered in India, is no longer applicable. Therefore, in the event the services in question are not considered as an integral and inextricable part of equipment and material supplied, it would be necessary to examine whether any relief in respect of such income would be available to Linde by virtue of the DTAA between Germany and India;

(f) The AAR exercises judicial power and necessarily has to follow the principle of law already accepted by it. This is also a necessary facet of Article 14 of the Constitution of India. The equal protection clause in the Constitution would necessarily imply that the judicial authorities interpreting the law must also follow a consistent view. Thus, in the event the Authority was of the opinion that the earlier view was erroneous, it was incumbent upon the Authority to refer the matter to a larger bench. In the present case, the Authority has sought to distinguish its earlier decision in the case of Hyundai Rotem (supra) without pointing out any material dissimilarity in facts which would render the earlier decision inapplicable. We are also unable to find any material dissimilarity in facts that would warrant such a conclusion (Columbia Sportswear Co 337 ITR 407 (SC) followed)

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After rejecting stay application AO must give reasonable time before taking steps for coercive recovery - Sony India Pvt. Ltd vs. ACIT (Delhi High Court)

TITLE:  S. 220: After rejecting stay application AO must give reasonable time before taking steps for coercive recovery

CASE: Sony India Pvt. Ltd vs. ACIT (Delhi High Court)

Having said that this is a case in which technically no fault could be found with the assessing officer, we feel that there was there was an element of impropriety in his action in issuing the garnishee order under section 226(3) on 17.2.2014, the very day on which he rejected the stay application filed by the petitioner under section 220(3).

It is expected of him, having rejected the stay application, to wait for a reasonable period before he takes coercive steps to recover the amounts since the petitioner, faced with an order rejecting the stay application, may need some time to make arrangements to pay the entire tax demand or come up with proposals for paying the same in instalments. That opportunity was not afforded by the assessing officer in the present cases. The assessing officer is a prospector of the revenue and he is no doubt expected to protect the interests of the revenue zealously, but such zeal has to be tempered with the rules of fair play and an anxiety to ensure that a opportunity is not lost to the assessee to make alternative arrangements for clearing the tax dues, once the stay applications filed under section 220(3) are rejected.

Taking away the amount of Rs.43.87 crores from the bank account of the petitioner may perhaps not be legally faulted, but taking into account the haste with which the assessing officer acted in the present case it seems to us that there was an element of arbitrariness in the action of the assessing officer. In our opinion, since the stay applications filed by the petitioners are pending before the Tribunal, the more appropriate course would be to issue the following directions.

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Court can examine existence but not adequacy of reasons - Acorus Unitech Wireless Pvt. Ltd vs. ACIT (Delhi High Court)

TITLE:  S. 147: Court can examine existence but not adequacy of reasons. AO is only required to provide material on which he relies to reopen the assessment

CASE:  Acorus Unitech Wireless Pvt. Ltd vs. ACIT (Delhi High Court)

(i) It is important to restate an accepted, but often neglected, principle, that in its writ jurisdiction, the scope of proceedings before the Court while considering a notice under Section 147/148 is limited. The Court cannot enter into the merits of the subjective satisfaction of the AO, or judge the sufficiency of the reasons recorded, but rather, determine whether such opinion is based on tangible, concrete and new information that is capable of supporting such a conclusion. This was recognized by the Supreme Court in Phool Chand Bajrang Lal v. ITO 203 ITR 456 (SC);

(ii) The law only requires that the information or material on which the AO records his or her satisfaction is communicated to the asseseee, without mandating the disclosure of any specific document. While the 2G Spectrum Report has not been supplied in this case on grounds of confidentiality, the reasons recorded have been communicated and do provide – independent of the 2G Report – details of the new and tangible information that support the AO’s opinion. These facts are capable of justifying the satisfaction recorded on their own terms, as discussed above. In this context, there is no legal proposition that mandates the disclosure of any additional document. This is not the say that the AO may in all cases refuse to disclose documents relied upon by him on account of confidentiality, but rather, that fact must be judged on the basis of whether other tangible and specific information is available so as to justify the conclusion irrespective of the contents of the document sought to be kept confidential. In cases such as the present, however, where the information and facts communicated by the AO are themselves in accordance with the minimum requirement under Section 147/148, the petitioner cannot compel the disclosure of other documents that the assessee may have also relied upon.

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