2012 (5) TMI 685 - HC - Income Tax

Reopening of assessment - taxability of income - DTAA - Held that - The question of taxability of the income and the rate of tax was specifically examined and gone into in the original assessment proceedings. The assessee may not have disclosed the said receipt in the original return but the receipt was disclosed in the revised return and the aspect/ question of taxability/ exemption specifically considered. During the course of the original reassessment proceedings the entire transaction itself and the consideration paid under the said transaction were examined in depth. In the assessment order dated 30.03.2006, it was held that the fee for licensing the software to the Indian customers was taxable as royalty/ fee for technical services under Article 13 of DTAA and Section 9(i)(vi) and (vii) of the Act. The income was subjected to tax @ 10%. Article 7 and Section 44D was not invoked. No new fact had come to the knowledge of the Assessing Officer after completion of the original reassessment proceedings. It is not shown or alleged that new facts which were concealed had come the notice of the Assessing Officer. The Assessing Officer, on reconsideration of the same material facts, has drawn a legal inference/ conclusion on the basis of his interpretation of the Act and DTAA. This cannot be a valid ground to initiate re- assessment proceedings. - Decided in favour of assessee.

Summary

Issues:
1. Validity of notice under Section 148 of the Income Tax Act, 1961 for the assessment year 2003-04.
2. Whether reassessment proceedings were valid based on change of opinion or failure to disclose material facts.

Analysis:
1. The petitioner challenged the notice dated 31st March, 2010, issued under Section 148 of the Income Tax Act, 1961, for the assessment year 2003-04. The Assessing Officer dismissed the objections raised by the petitioner regarding the initiation of reassessment proceedings. The proviso to Section 147 was invoked due to the notice being issued after four years of the assessment year and scrutiny assessment of the original return under Section 143(3) in 2006.

2. Two main contentions were raised and addressed. Firstly, whether the reassessment was a case of change of opinion, and secondly, whether there was a failure to disclose all relevant material facts. The reasons to believe for reassessment focused on the underassessment of income for the assessment year 2003-04, satisfying the conditions under Explanation 2 to Section 147 of the Act.

3. The respondent-revenue contended that the petitioner did not disclose income earned from technical services initially but revised the return later. The original assessment proceedings had examined the taxability of income under a specific contract, determining it as taxable royalty income. The Assessing Officer had previously considered the tax implications and rate of tax during the original assessment.

4. The court noted that the Assessing Officer's reasons for reassessment did not indicate any new facts coming to light or concealed information. The reassessment was based on a different interpretation of the law rather than undisclosed material facts. The responsibility of the assessee is to disclose true and correct material facts, not interpret the law, as highlighted in relevant case law.

5. As per the court's analysis, the reassessment notice and the order dismissing objections were quashed as the reassessment was not based on new material facts but a different legal interpretation. The writ petition was allowed without costs, emphasizing the importance of full and true disclosure during assessment proceedings.

This detailed analysis of the judgment highlights the key legal aspects and arguments considered by the court in deciding the validity of the reassessment proceedings under the Income Tax Act, 1961 for the specified assessment year.