2018 (3) TMI 1355 - HC - Income Tax

Reassessment u/s 147 - validity of reasons for initiation of the proceedings - FTS u/s 9(1)(vii) - non-filing of return of payment of taxes - AO observed that the payments made by ML to the AEs for on- site services and marketing services (a.k.a. Selling Commission ) were covered by the definition of Fees for technical services ( FTS ) as defined in Explanation 2 to Section 9(1)(vii) of the Income Tax Act, 1961 ( Act ). Held that - the reasons for initiation of the proceedings as assigned by the Respondent-Assessing Authority and quoted above, prima facie , indicates that the Assessing Authority had sufficient and reasonable reasons to initiate such proceedings, as certain payments were made to the Associate Enterprises (A.Es.) of the parent Company of U.S.A. without making suitable Tax Deduction at Source (TDS) rendering such expenses as non-admissible in the hands of the assessee. The said reasons cannot be said to be irrelevant or non-germane for the formation o f a reasonable belief about escapement of income as required under Section 147/148 of the Act or initiation of such proceedings for bringing to the tax the income which has escaped assessment. Therefore, this Court cannot pre-judge as to how the objections of the assessee in this regard will be met by the Respondent-Assessing Authority. Since, admittedly, the proceedings are pending as of now, no pronouncement with regard to merit of such objections can be made at this stage. - petition dismissed as premature - Decided against the assessee.

Summary

Issues:
Challenge to reassessment proceedings under Section 148 of the Income Tax Act, 1961 for Assessment Year 2008-2009.

Analysis:
The petitioner, M/s. Mphasis Corporation, challenged the reassessment proceedings initiated by the Assistant Commissioner of Income Tax, International Taxation, Circle 1(2), Bengaluru, under Section 148 of the Income Tax Act, 1961. The reasons for reassessment included payments made to foreign Associated Enterprises (AEs) without deduction of tax at source, leading to an alleged escapement of income. The petitioner raised objections regarding the premature approval obtained by the Assistant Commissioner, the wording of the notice issued under Section 148, lack of jurisdiction of the Assessing Authority in Bengaluru, and the absence of Permanent Establishment in India. The court noted that the objections were still pending before the Assessing Authority, and it was premature for the court to interfere at that stage. The court found that the objections did not render the proceedings as patently without jurisdiction. The reasons for initiating the proceedings were deemed sufficient and relevant, indicating a reasonable belief about income escapement. The court emphasized that the determination of factual questions should be left to the authorities under the Act, such as the Income Tax Appellate Tribunal, and dismissed the petition as premature, allowing the petitioner to address objections before the appropriate authorities.

Conclusion:
The High Court of Karnataka dismissed the petition challenging the reassessment proceedings under Section 148 of the Income Tax Act, 1961 for the Assessment Year 2008-2009. The court found the objections raised by the petitioner premature and emphasized the importance of allowing the Assessing Authority and Appellate Authorities to adjudicate on the issues raised. The court highlighted the relevance of the reasons for initiating the proceedings and the need for factual determinations to be made by the appropriate authorities. The dismissal of the petition allowed the petitioner to address objections through the established legal process under the Act.