2010 (10) TMI 611 - AT - Income Tax

DTAA - Reopening - Income escaping assessment - Royalty or fees for Technical Services - it is well settled that the decision of Hon ble Supreme Court is considered as a law of the land and it is binding upon all the Courts exercising jurisdiction within India - At the stage of issuing of notice u/s. 148 of the Act, the only issue is whether there was relevant material on which a reasonable person could have formed a requisite belief - It is well settled that the finding or view taken in any subsequent assessment year by the AO is relevant material on which a reasonable could have form a requisite belief required u/s. 147 of the Act - In the case of ACIT vs. Rajesh Jhavert Stock Brokers Pvt Ltd (2007 (5) TMI 197 - SUPREME Court) - the assessee has shown the receipts as business income as against the AO s finding that receipts are assessable as fees for technical services to be taxed u/s. 44D - Held that the notice issued by the AO u/s. 148 of the Act is valid and is within his jurisdiction - Appeal is rejected There is no dispute that these consultancy services are non technical in nature inasmuch as these services are, as noted in the assessment order itself, are in the nature of strategy and business consulting which are intended to improve the performance of its clients by focusing on fundamentals of business - the nature of services rendered by the assessee do not fit into the description of fees for technical services under the provisions of the India Singapore tax treaty - It is well settled in law that when two views are possible, and one of these views is in favour of the assessee, the ambiguity is to be resolved in favour of the assessee - The assessee is hereby directed to produce all necessarily details as to the claim of set off of brought forward unabsorbed depreciation as per law Regarding interest u/s 234B - The AO shall apply the provisions of Section 234B to the facts of the present case and shall decide the matter accordingly after giving an opportunity of being heard to the assessee - Appeals are disposed of

Issues Involved:
1. Validity of reopening assessments under Section 147/148 of the Income Tax Act.
2. Classification of maintenance service charges as business income or fees for technical services.
3. Application of Indo-US Double Taxation Avoidance Agreement (DTAA) and its precedence over domestic law.
4. Set-off of brought forward unabsorbed depreciation.
5. Charging of interest under Section 234B.

Issue-wise Detailed Analysis:

1. Validity of Reopening Assessments under Section 147/148:
The assessee contested the reopening of assessments for the years 1989-90, 1993-94, and 1994-95 under Section 147/148, arguing it was based on a mere change of opinion without new evidence. The AO initiated proceedings after noticing that the nature of income was "fee for technical services" during the assessment for A.Y. 1995-96. The CIT(A) upheld the AO's action, stating that since the original assessments were summary in nature under Section 143(1)(a), no opinion was formed initially, and thus, the question of change of opinion did not arise. The Tribunal, referencing the Supreme Court decision in ACIT vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd., confirmed that intimation under Section 143(1)(a) is not an assessment order, and hence, reopening under Section 147 was valid.

2. Classification of Maintenance Service Charges:
The core issue was whether the maintenance service charges received from the Department of Science & Technology should be classified as business income or fees for technical services. The AO treated these as fees for technical services under Section 44D read with Section 115A, while the assessee argued they should be classified as business income under Article 7 of the Indo-US DTAA. The CIT(A) for A.Y. 1995-96 ruled in favor of the assessee, but for A.Y. 1996-97 and other years, the CIT(A) upheld the AO's view. The Tribunal, relying on the Indo-US DTAA, held that the maintenance charges did not qualify as fees for technical services under Article 12(4) of the DTAA, and thus, should be taxed as business profits under Article 7, allowing for the deduction of related expenses.

3. Application of Indo-US DTAA:
The Tribunal emphasized that the provisions of the DTAA take precedence over domestic law if they are more beneficial to the assessee. It was noted that the maintenance services did not meet the DTAA's definition of fees for technical services, which requires the service to "make available" technical knowledge, experience, skill, know-how, or processes. The Tribunal referenced decisions like Boston Consulting Group P. Ltd. and Essar Oil Ltd., affirming that if receipts do not fit the DTAA's definition, they cannot be taxed under Section 44D of the Act.

4. Set-off of Brought Forward Unabsorbed Depreciation:
The assessee requested the set-off of brought forward unabsorbed depreciation for A.Y. 1996-97. The Tribunal remanded this issue back to the AO for verification and consideration in accordance with the Income Tax Act, instructing the AO to provide the assessee with a reasonable opportunity to present necessary details.

5. Charging of Interest under Section 234B:
The issue of charging interest under Section 234B was deemed consequential and was remanded to the AO for examination while computing the business profits as directed. The AO was instructed to apply the provisions of Section 234B appropriately after giving the assessee an opportunity to be heard.

Conclusion:
The Tribunal dismissed the department's appeal for A.Y. 1995-96, partly allowed the assessee's cross-objection for statistical purposes, and allowed the assessee's appeals for A.Y. 1989-90, 1993-94, 1994-95, and 1996-97, directing the AO to compute the business profits without applying Section 44D read with Section 115A and to verify the set-off of brought forward unabsorbed depreciation.

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