2021 (12) TMI 59 - HC - Income Tax

Reopening of assessment u/s 147 - TDS u/s 195 - whether petitioner should have deducted tax at source on 65% being remitted to Reuters UK? - HELD THAT - Conclusion of the AO for reopening assessment is based on the agreements between petitioner as well as Reuters UK. We have to note that all these agreements were made available to the AO by petitioner when it applied for no objection certificate as noted earlier. ACIT (TDS) had all these documents before him to consider, before issuance of no objection certificate. Even if we interpret clauses in the agreement between petitioner and Reuters UK and for the sake of argument concur with the opinion of Assessing Officer in the reasons recorded for reopening, still the certificate issued by ACIT (TDS) cannot be invalidated when the certificate otherwise satisfy the requirement of Section 197 - Even if we agree with the views expressed and the reasons for reopening, still, determination of ACIT (TDS) is error in law, would not cease to be determination on which assessee could legitimately act and it is not open to the Revenue to hold the assessee liable for short deduction of tax made on the basis of such certificate and that by itself would not enable the Revenue to impose liability on the assessee, who had acted upon the certificate. Moreover to the further affidavit of petitioner filed through one Ojas Chowkshi REUTERS LIMITED VERSUS DY. COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION) -RANGE 2 (1) , MUMBAI 2015 (9) TMI 844 - ITAT MUMBAI has concluded for Assessment Year 1997-1998 that petitioner cannot be regarded as being in default when it has made payment to Reuters UK based on the Nil certificate issued by Revenue under section 195 of the Act. It has also held that Reuters UK does not have permanent establishment in India and therefore the distribution fees received by Reuters UK cannot be held to be taxable in India - Even on merits, reasons recorded for reopening cannot be accepted.

Summary

Issues:
Challenge to notice under Section 148 of the Income Tax Act, 1961 for Assessment Years 1996-1997 and 1997-1998 based on alleged tax evasion and misrepresentation of facts by the petitioner.

Analysis:
The petitioner, an Indian company and subsidiary of Reuters Limited, U.K., contested a notice issued under Section 148 of the Income Tax Act, 1961, for the Assessment Years 1996-1997 and 1997-1998. The dispute arose from whether the petitioner should have deducted tax at source on 65% of the subscription amount remitted to Reuters UK. The petitioner had obtained a no objection certificate in 1996 to remit payments to Reuters UK without tax deduction, based on which it made the remittances. However, the respondent sought to reopen the assessment years, alleging tax evasion and misrepresentation by the petitioner in obtaining the "NIL" TDS certificate. The Assessing Officer claimed that Reuters UK had a permanent establishment in India through the petitioner, which was not disclosed earlier. The petitioner argued that the certificate issued by the ACIT (TDS) cannot be invalidated, even if the reopening reasons were considered valid, as it complied with the requirements of Section 197 of the Act.

The High Court scrutinized the agreements between the petitioner and Reuters UK, noting that these agreements were provided to the Assessing Officer when the no objection certificate was sought. The court emphasized that the ACIT (TDS) had all relevant documents before issuing the certificate, and even if the Assessing Officer's interpretation of the agreements was accepted, the certificate could not be deemed invalid. The court highlighted that the petitioner acted in good faith based on the certificate and could not be held liable for any alleged tax shortfall resulting from reliance on the certificate. Additionally, the court referred to an ITAT order for Assessment Year 1997-1998, which concluded that the petitioner was not in default for relying on the "Nil" certificate and that Reuters UK did not have a permanent establishment in India, thereby rejecting the tax liability claim on distribution fees.

Based on the merits of the case and the ITAT order, the High Court held that the reasons for reopening the assessment could not be accepted. Consequently, the court ruled in favor of the petitioner, making the rule absolute in terms of the prayer clause.