2012 (12) TMI 785 - HC - Income Tax

Re opening of assessment - whether a pre-condition for issuance of notice u/s 147/ 148 are satisfied ? - Royalty or Technical Fee received - India USA DTAA - Held that - The declaration of law by the Supreme Court in Calcutta Discount Co. v. ITO, (1960 (11) TMI 8 - SUPREME COURT) applies squarely to the facts in this case it was held by the Supreme Court that the duty of the assessee to make full disclosure extends to primary facts. Once that is done, it is the AO s duty to draw the conclusion and inference flowing from the disclosure so made. The assessment record reveals that the Master licensing agreement (MLA) had been placed on the record of the AO in the very first instance when the assessment was completed under section 143(3). Thereafter the reassessment proceedings were initiated in November, 2003 and completed in March, 2005; for those proceedings too what drove the Revenue to issue notice and reopen the proceedings was the master licensing agreement and the nature of royalty income . The assessing officer in that instance consciously after going through the material concluded that the rate of taxation was 15% in the reassessment proceedings. The scope was the same as in the original proceeding and in the first reassessment proceedings i.e. the taxability of the royalty income under section 44D - the assessment record reveals that the MLA had been placed on the record of the assessing officer in the very first instance when the assessment was completed under section 143(3). Thereafter the reassessment proceedings were initiated in November, 2003 and completed in March, 2005, for those proceedings too what drove the Revenue to issue notice and reopen the proceedings was the master licensing agreement and the nature of royalty income . AO in that instance consciously after going through the material concluded that the rate of taxation was 15% in the reassessment proceedings. The scope was the same as in the original proceeding and in the first reassessment proceedings i.e. the taxability of the royalty income under section 44D - the conclusions drawn by the CIT (Appeals) and ITAT cannot be faulted in law. The substantial question of law is answered in favour of the assessee.

Summary

Issues:
1. Jurisdictional pre-condition for issuance of notice under Section 147/148 of the Income Tax Act, 1961.
2. Reopening of assessment proceedings based on royalty income.
3. Failure to disclose fully and truly all material facts for assessment.
4. Interpretation of the expression "reason to believe" by the Assessing Officer.

Analysis:

1. The High Court examined whether the Income Tax Appellate Tribunal was correct in holding that the jurisdictional pre-condition for issuing a notice under Section 147/148 of the Income Tax Act was not satisfied in the case. The Tribunal dismissed the appeals by the Revenue, emphasizing that the Assessing Officer did not record satisfaction regarding the failure of the assessee to disclose all material facts necessary for assessment. As a result, the assessments made were deemed bad in law.

2. The case involved the reassessment proceedings for the assessment years 2000-01 and 2001-02 based on royalty income received by the assessee. The Assessing Officer sought to reopen the proceedings under Section 147, arguing that the royalty income should have been taxed at a higher rate. However, the CIT (Appeals) and the Tribunal held that since all relevant facts were disclosed during the original assessment, the reassessment was not justified.

3. The Assessing Officer relied on the Double Taxation Avoidance Agreement between India and the USA to argue for taxing the royalty income at a higher rate. The Tribunal found that the material used for the second reassessment was available during the original assessment, and there was no failure on the part of the assessee to disclose necessary facts. Therefore, the reassessments were deemed invalid.

4. The High Court analyzed the concept of "reason to believe" as interpreted by the Assessing Officer. It was noted that the duty of the assessee is to disclose all primary relevant facts, and once done, it is the Assessing Officer's responsibility to draw conclusions. The Court cited the Supreme Court's ruling in Calcutta Discount Co. v. ITO to emphasize that the assessee is not required to communicate inferences drawn from primary facts. The Court upheld the decisions of the CIT (Appeals) and ITAT, ruling in favor of the assessee.

In conclusion, the High Court dismissed the appeals by the Revenue, affirming the decisions of the lower authorities that the reassessment proceedings were invalid due to the lack of jurisdictional pre-conditions and failure to disclose all material facts necessary for assessment.