2021 (4) TMI 1044 - HC - Income Tax

Production of additional evidence before the Tribunal - denial of natural justice - TDS u/s 195 - Proceedings under Sections 201 and 201(1A) initiated - payments made by the Appellate under the Distribution Agreement to GIL constituted Royalty under the provisions of Section 9(1)(vi) of the Income-tax Act, 1961 and Article 12 of the Double Taxation Avoidance Agreement between India and Ireland - whether the Tribunal while passing the common order dated 23.10.2017 has violated the principles of natural justice and fair play as it has not afforded an opportunity to the appellant to rebut fresh evidence especially when the fresh evidence was based on Google study? - HELD THAT - The Tribunal in order has held that no literature or books or documents were filed by the assessee except some of the documents mentioned in the order of the Tribunal and as the parties have failed to bring any tangible material except in the form of written note, the Bench had gone through the books available in public domain at Google Adword or Google analytics and also gone through the website of the Google and the Adword links and based upon the above research carried out by the Tribunal, they have summarized the Google Adword functions. The material on which Google Adword functions were summarized does not find place in the order of the Tribunal nor the material was brought to the notice of the appellant, meaning thereby some material collected behind back of the appellant has been used by the Tribunal and the material brought on record through proper application has not been looked into. Keeping in view Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963 and also keeping in view the fact that the material on the basis of which the order has been passed was not furnished to the appellant at any point time, the order passed by the Tribunal is certainly violative of principles of natural justice and fair play as the appellant was not afforded an opportunity to rebut fresh evidence especially when such evidence was based on Google study. Another important aspect of the case is that details of the material has also not been reflected in the order passed by the Tribunal and therefore, this Court is of the opinion that as there is a violation of principles of natural justice and fair play, the matter deserves to be remanded back to the Tribunal for hearing it afresh in accordance with law. The questions are answered in favour of the assessee and against the revenue and the other questions are left open

Issues Involved:
1. Whether the payments made under the "Distribution Agreement" constituted "Royalty" under the Income-tax Act and DTAA.
2. Whether the Tribunal's conclusions were based on assumptions rather than facts.
3. Whether the Tribunal relied on unverified public domain material, violating principles of natural justice.
4. Whether the initiation of proceedings under section 201 was barred by limitation.
5. Whether the Tribunal erred in applying amended limitation provisions to the period under consideration.
6. Whether the amended provisions of section 201(3) applied to the financial year under consideration.

Detailed Analysis:

1. Royalty Classification:
The Tribunal concluded that payments made by the appellant under the "Distribution Agreement" to Google Ireland Limited (GIL) constituted "Royalty" under Section 9(1)(vi) of the Income-tax Act, 1961, and Article 12 of the Double Taxation Avoidance Agreement (DTAA) between India and Ireland. This classification was pivotal in determining the tax liability of the appellant.

2. Tribunal's Conclusions Based on Assumptions:
The appellant argued that the Tribunal's conclusions were based on assumptions, conjectures, and surmises rather than on factual evidence. Specifically, the Tribunal conducted independent research on Google AdWords and Google Analytics, which was not part of the record, leading to a decision not based on the facts presented by the parties.

3. Reliance on Unverified Public Domain Material:
The Tribunal relied on material from public domains, such as Google AdWords and Google Analytics, without confronting the appellant with this information. This reliance on unverified material without giving the appellant an opportunity to rebut it was deemed a violation of the principles of natural justice and fair play.

4. Limitation on Section 201 Proceedings:
The appellant contended that the initiation of proceedings under section 201 of the Income-tax Act was barred by limitation. The Tribunal failed to consider whether the proceedings were initiated within the permissible time frame as per the law.

5. Application of Amended Limitation Provisions:
The Tribunal applied amended provisions relating to limitation under section 201 to the period under consideration, even though the limitation for completion of such proceedings had already expired. The appellant argued that these amendments could not retroactively restore the limitation period.

6. Applicability of Amended Provisions of Section 201(3):
The appellant argued that the amended provisions of section 201(3) as amended by the Finance Act, 2012, applicable retrospectively from 1.4.2010, did not apply to the financial year under consideration. In the absence of a prescribed limitation period, a reasonable period of four years should be considered for initiating proceedings under section 201.

Judgment Summary:

Violation of Natural Justice:
The Court found that the Tribunal violated the principles of natural justice by relying on material not furnished to the appellant. The Tribunal's reliance on public domain material without giving the appellant an opportunity to rebut it was deemed unfair.

Remand for Fresh Hearing:
The Court remanded the matter back to the Tribunal for fresh adjudication. The Tribunal was directed to allow the appellant and the revenue to file additional documents and submissions. Any material relied upon by the Tribunal must be made available to both parties before passing a final order.

Specific Directions:
The Court directed the parties to appear before the Tribunal on 3.5.2021, allowing the appellant to file documents within 15 days. The Tribunal was requested to expedite the hearing and decide the matter at the earliest.

Connected Appeals:
In light of the order in ITA.No.879/2017, the connected appeals (ITA.Nos.882/2017, 883/2017, 897/2017, 898/2017, and 899/2017) were also allowed, and the matters were remanded back to the Tribunal for fresh adjudication.

Subsequent Orders:
The subsequent batch of cases (ITA Nos.502/2018, 505/2018, 549/2018, 550/2018, 504/2018, 503/2018, 507/2018, 560/2018, 562/2018, 561/2018, 563/2018, 564/2018, and 506/2018) were also remanded back to the Tribunal. The Tribunal was instructed to decide these appeals afresh without being influenced by its earlier orders dated 23.10.2017 and 11.5.2018.

Penalty Proceedings:
In ITA.No.125/2020, related to penalty proceedings for the assessment year 2008-09, the order dated 6.9.2019 was set aside, and the matter was remanded back to the Tribunal for fresh adjudication in accordance with law.

Conclusion:
The appeals were allowed, the orders of the Tribunal were set aside, and the matters were remanded back for fresh adjudication, ensuring adherence to the principles of natural justice and fair play.

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