2025 (3) TMI 1010 - HC - Income Tax

Reopening of assessment u/s 147 - no valid serving of notice to assessee - HELD THAT - Revenue has not been able to demonstrate that the impugned notice u/s 148A (b); impugned order under section 148A (d) and impugned notice u/s 148 were ever served upon the assessee at its registered office at Singapore. The fact that the assessee has no Permanent Account Number nor any credentials in the IT Portal has neither been contradicted nor controverted by the revenue. Undisputedly the assessee is a foreign company which is a resident of Singapore and appears to be covered under the provisions of DTAA. Since the facts and incidental issues raised by the assessee has neither been placed before the concerned AO nor considered in the absence thereof we deem it apposite not to enter into the examination of substantial question of income received for Maintenance Repair and Overhaul (MRO) services rendered outside India inasmuch as the notice u/s 148A (b) requiring the assessee to provide relevant information and satisfactory explanation appears to have not been received by the assessee. Thus we remit the matter to the stage of consideration of notice u/s 148A (b) of the Act.

ISSUES PRESENTED and CONSIDERED

The core issues considered in this judgment are:

Whether the notice and order issued under sections 148A(b), 148A(d), and 148 of the Income Tax Act, 1961, were validly served upon the assessee.
Whether the income received by the assessee for Maintenance, Repair, and Overhaul (MRO) services rendered outside India is taxable under the provisions of the Income Tax Act and the Indo-Singapore Double Taxation Avoidance Agreement (DTAA).
Whether the principles of natural justice were violated in the assessment proceedings initiated by the revenue.

ISSUE-WISE DETAILED ANALYSIS

1. Validity of Service of Notices and Orders

Relevant Legal Framework and Precedents: The Income Tax Act requires that notices be served properly to the assessee to ensure compliance with procedural fairness and principles of natural justice.
Court's Interpretation and Reasoning: The Court found that the revenue did not demonstrate that the notices and orders were served at the assessee's registered office in Singapore. The absence of a Permanent Account Number and credentials in the IT Portal for the assessee was not contested by the revenue.
Key Evidence and Findings: The revenue failed to provide evidence of proper service of notices and orders to the assessee in Singapore.
Application of Law to Facts: The Court concluded that the notices and orders were not validly served, which is a prerequisite for proceeding with assessment actions.
Treatment of Competing Arguments: The revenue argued that the assessee failed to respond to the notices, but the Court found that the lack of service negated this argument.
Conclusions: The impugned notices and orders were quashed due to improper service.

2. Taxability of Income under DTAA

Relevant Legal Framework and Precedents: Article 12(4) of the Indo-Singapore DTAA addresses the taxation of fees for technical services (FTS) and income from services rendered outside India.
Court's Interpretation and Reasoning: The Court refrained from examining whether the MRO services rendered outside India constitute FTS under the DTAA, as the notices requiring such examination were not received by the assessee.
Key Evidence and Findings: The assessee claimed that the income from MRO services rendered outside India should not be taxed as FTS under the DTAA.
Application of Law to Facts: The Court did not delve into the merits of the DTAA application due to procedural lapses in serving notices.
Treatment of Competing Arguments: The assessee argued that remittances received for MRO services should not be taxed under the DTAA, while the revenue maintained that the income was taxable as FTS.
Conclusions: The issue was not adjudicated due to the procedural remand.

3. Violation of Principles of Natural Justice

Relevant Legal Framework and Precedents: Principles of natural justice require that parties be given a fair opportunity to present their case and respond to notices.
Court's Interpretation and Reasoning: The Court found a violation of natural justice principles as the assessee was not properly served with the notices and orders, denying it the opportunity to present its case.
Key Evidence and Findings: The lack of service of notices and orders was central to the Court's finding of a natural justice violation.
Application of Law to Facts: The Court applied natural justice principles to conclude that the assessee was denied a fair opportunity to respond to the notices.
Treatment of Competing Arguments: The revenue argued that the assessee had remedies post-assessment, but the Court emphasized the need for procedural fairness at the notice stage.
Conclusions: The Court quashed the notices and orders due to the violation of natural justice principles.

SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: "The revenue has not been able to demonstrate that the impugned notice under section 148A (b); impugned order under section 148A (d) and impugned notice under section 148 of the Act were ever served upon the assessee at its registered office at Singapore."
Core Principles Established: Proper service of notices is essential for valid assessment proceedings, and failure to do so constitutes a violation of natural justice.
Final Determinations on Each Issue: The Court quashed the impugned notices and orders and remitted the matter back to the stage of consideration of notice under section 148A(b) of the Act, allowing the assessee three weeks to file a substantive reply.

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