2010 (2) TMI 884 - AT - Income Tax

Income of a foreign principal - validity of reassessment proceedings - reassessment is challenged on the ground that no reasons are recorded in the case of the foreign principal and once successful in that reassessment in the hands of the representative assessee is challenged on the ground that the income in question was also being taxed in the hands of the foreign principal as well - Held that - When an AO is required to satisfy himself that income has escaped assessment is the point of time when the reasons for reopening the assessment are recorded. It is only when the AO decides to reopen the assessment proceedings that he has to satisfy himself that the income has escaped assessment. When it was pointed out to the learned counsel that all the decisions cited by him relate to the situation as on at the point of recording the reasons of reopening and not at there is no support for the proposition that such a situation must also prevail at the point of time of service of notice learned counsel merely submitted that the impliedly reference in some judicial precedents is to the service of notice. We do not share learned counsel s perception. A decision is an authority for what it actually decides and not even for what may logically follow from the same. Learned counsel has rather half-heatedly pointed out that there is no date on the reasons of reopening but then these reasons are forwarded by the AO on 6th Jan. 2004 which is also the date of approval by his Addl. Director of IT and it is therefore futile to even suggest that the date of the reasons of reopening can be a date later than 6th Jan. 2004. It is thus clear that as on the time of recording of reasons the reassessment proceedings in the case of the foreign principal were not in progress and even by the logic advanced before us the income had escaped assessment. No fault can thus be found in the reasons recorded by the AO. One plea against the reopening of assessment in the hands of the representative assessee is taken which travels upto the Special Bench and once the Special Bench has given its verdict on the said plea then another plea on the same issue is taken up that too without even taking up a specific ground of appeal and without there being any evidence save and except for what learned counsel terms as statement at Bar that this aspect of the grievance was argued before the original Division Bench - Reopening proceeding held as valid - Decided in favor of revenue.

Summary

Issues Involved:
1. Validity of reassessment proceedings.
2. Whether the appellant constitutes a Permanent Establishment (PE) in India under Article 5 of the India-Singapore DTAA.
3. Taxability of income earned in India by the foreign principal under Article 7 of the DTAA read with Section 9(1)(i) of the IT Act.
4. Applicability of Article 8 of the India-Singapore DTAA.

Detailed Analysis:

1. Validity of Reassessment Proceedings:
The primary issue raised by the assessee was the validity of the reassessment proceedings. The Tribunal noted that the question of validity had already been considered by a Division Bench and a Special Bench. The Special Bench had decided in favor of the Revenue, rejecting the assessee's contention that no notice under Section 148 could be issued to the assessee as an agent of the non-resident.

The assessee's new plea was that the initiation of reassessment proceedings was invalid because similar proceedings had been initiated directly in the hands of the foreign principal. The Tribunal noted that this plea was not raised in the grounds of appeal or in earlier proceedings. The Tribunal held that the relevant point of time for the AO to satisfy himself that income had escaped assessment is when the reasons for reopening the assessment are recorded, not when the notice under Section 148 is served. The Tribunal found no merit in the assessee's plea and rejected the challenge to the validity of reassessment proceedings.

2. Permanent Establishment (PE) in India:
The assessee contended that the CIT(A) erred in holding that it constituted a PE in India under Article 5 of the India-Singapore DTAA. The Tribunal noted that this issue was already covered by its earlier order in the case of Dy. Director of IT (International Taxation) vs. Thoresen Chartering Singapore Pte. Ltd., where it was decided that the assessee did not qualify for the benefits of Article 8 of the DTAA and the matter was remitted to the AO for fresh determination regarding the application of Article 7.

3. Taxability of Income under Article 7:
The assessee also contended that the CIT(A) erred in holding that the income earned in India by the foreign principal was taxable under Article 7 of the DTAA read with Section 9(1)(i) of the IT Act. The Tribunal upheld the view that the matter regarding the application of Article 7 should be decided afresh by the AO, in line with its earlier order in the Thoresen Chartering case.

4. Applicability of Article 8:
The Revenue's appeal challenged the CIT(A)'s direction to extend the benefits of Article 8 of the India-Singapore DTAA to the principal, arguing that the principal was only a commission agent and not in the business of ship operation. The Tribunal agreed with the Revenue, following its earlier decision in the Thoresen Chartering case, and held that the assessee was not entitled to the benefits of Article 8. The CIT(A)'s order was vacated on this issue.

Conclusion:
- The Tribunal rejected the assessee's challenge to the validity of reassessment proceedings.
- The Tribunal upheld the view that the matter regarding the application of Article 7 should be decided afresh by the AO.
- The Tribunal agreed with the Revenue that the assessee was not entitled to the benefits of Article 8 of the India-Singapore DTAA.
- The appeal of the assessee was partly allowed for statistical purposes, while the appeal of the Revenue was allowed.