2013 (10) TMI 759 - AT - Income Tax

Re-opening of case u/s 147 of the Income Tax Act - The words used in Article 12(1) of DTAA was paid to a resident of other contracting state . The term royalties also means payment of any kind received Held that - Relying upon the Hon ble Bombay High Court judgment in the case of DIT (IT) vs. M/s Siemens Aktiengesellschaft 2012 (12) TMI 737 - BOMBAY HIGH COURT , it is held that taxation of Assessee regarding the royalties income will be done on receipt basis as far as recipient is concerned who is a resident of the other contracting state. No reason to re-open the assessment under section 147 as per the satisfaction recorded by AO - Entire information was furnished and was available with AO at the time of assessment, AO made inquiries particularly with reference to the claim of TDS of part amount when certificates were filed to an extent of ₹ 7.81 crores and also the fact that assessee s taxation on receipt basis was accepted and the order of the CIT (A) in assessment year 2003-04 was already on record by the time the re- assessment proceedings were initiated - Reopening the assessment can only be considered as change of opinion from that of his predecessor who inquired and accepted assessee s return under section 143(3) Decided in favor of Assessee. The payee s credited the amount to assessee, deducted the tax as per the provisions of the Act, remitted to the Govt. of India and issued certificates. What assessee has claimed was only offering the income which it received and also taking credit only to the extent of income offered as per the provisions of Section 199 of the I.T. Act. Failure on the part of AO in not giving credit to the entire TDS made when he brought the entire amount to tax on accrual basis gave rise to the demand afresh with unnecessary implications Therefore, credit of TDS allowed Decided in favor of Assessee.

Issues Involved:
1. Legality of reopening the assessment under section 147 of the Income Tax Act.
2. Addition of royalty income based on TDS certificates versus the cash basis of accounting.
3. Assessment of income on a mercantile basis versus cash basis.
4. Granting of corresponding credit for TDS.
5. Levy of interest under section 234B on a non-resident assessee.

Detailed Analysis:

1. Legality of Reopening the Assessment under Section 147:
The assessee contended that the reopening of the assessment was not based on any fresh material and was merely a change of opinion by the Assessing Officer (AO). The AO had already scrutinized the royalty income during the original assessment proceedings, and the assessee had fully disclosed all material facts. The Tribunal found that the assessee had consistently followed the cash basis of accounting, which was accepted in previous assessments, including the assessment year 2003-04. The Tribunal held that the reopening of the assessment was a change of opinion and not justified under section 147, citing the Supreme Court's decision in CIT vs. Kelvinator India Ltd.

2. Addition of Royalty Income Based on TDS Certificates Versus Cash Basis of Accounting:
The AO had added the entire royalty income reflected in the TDS certificates to the assessee's income, disregarding the cash basis of accounting regularly followed by the assessee. The Tribunal noted that the assessee had offered the royalty income on a receipt basis and claimed TDS only to the extent of the income offered. The Tribunal found that the AO's action was incorrect as the assessee's method of accounting was consistent and accepted in previous years. The Tribunal emphasized that the royalty income should be taxed on a receipt basis as per the India-USA DTAA.

3. Assessment of Income on a Mercantile Basis Versus Cash Basis:
The AO assessed the income on a mercantile basis, while the assessee followed the cash basis of accounting. The Tribunal noted that the assessee had consistently followed the cash basis for over 13 years, which was accepted by the CIT (A) for the assessment year 2003-04. The Tribunal found that the AO's assessment on a mercantile basis was not justified, especially when the cash basis was accepted in previous assessments.

4. Granting of Corresponding Credit for TDS:
The AO did not grant the corresponding credit for TDS in respect of the determined income. The Tribunal noted that the assessee had enclosed all TDS certificates and claimed credit only for the income offered. The Tribunal found that the AO's failure to grant TDS credit was incorrect, and the entire TDS should have been credited if the entire amount was taxed on an accrual basis.

5. Levy of Interest under Section 234B:
The AO levied interest under section 234B, disregarding the fact that the assessee was a non-resident and its revenues were subject to tax withholding under section 195. The Tribunal noted that the assessee was not liable to pay advance tax as its entire revenues were subject to TDS. The Tribunal held that the levy of interest under section 234B was not justified in the case of the assessee.

Conclusion:
The Tribunal annulled the reassessment proceedings, holding that the initiation under section 147 was bad in law. The Tribunal directed the AO to delete the addition of royalty income based on TDS certificates and to grant the corresponding TDS credit. The Tribunal also directed the deletion of interest levied under section 234B. The appeal filed by the assessee was allowed.

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