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TMI Blog2016 (6) TMI 301X X X X Extracts X X X X X X X X Extracts X X X X ..... ing a PE in India. In any event this was known to the AO and yet in the reasons recorded for reopening the assessment this is not referred to as a failure on the part of ALF to disclose true and material particulars. The reasons for reopening the assessment for AY 2004-05 do not made any reference to Section 44DA(1). Although it has been mentioned in the reasons for the other three AYs in question, this was not an issue that arose for the first time based on any tangible material that came to the notice of the AO subsequent to the original assessment orders which were themselves under Section 147 read with Section 143 (3) of the Act. As far as the issue regarding the agreements, this appears to be brought up for the first time at the stage of rejection of the objections. It did not form part of the original reasons for reopening the assessments. Section 147 is not to be casually invoked to suit the convenience of the Revenue and at every stage to correct the errors of AOs which could have easily been avoided had there been a proper discharge of the statutory duty. Once that legal perspective is kept in view, repeatedly invoking Section 147 of the Act on the same materials, only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ('Act') seeking to reopen the assessments for various Assessment Years ('AYs'). The orders rejecting the objections of the Petitioners to such reopening are also under challenge. Consequently, the questions that arise for determination are similar. Facts concerning Alcatel-Lucent France 2. To begin with the Court proposes to discuss in some detail the facts concerning ALF. As already noticed, the facts concerning the other Petitioners are more or less similar, and will be adverted to in brief at the appropriate stage in this judgment. 3. ALF, a company incorporated under the laws of France, through its authorised signatory Mr. Nitin Gupta has filed four of these writ petitions, viz., W.P.(C) Nos. 1938/2013 (concerning AY 2004-05), 1862/2014 (concerning AY 2005-06), 2993/2015 (concerning AY 2006-07) and 3000/2015 (concerning AY 2008-09). The challenge in these writ petitions is to the notices issued to ALF under Section 148 of the Income Tax Act 1961 ('Act') seeking to reopen the assessments for the respective AYs. The orders rejecting the objections of ALF to such reopening are also under challenge. 4. ALF states that it is a tax resident of Fran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at for some reason the Revenue did not issue a notice under Section 148 of the Act to ALF as regards AY 2007-08. The order passed by the Assessing Officer ( AO ) for AY 2006-07 (forming subject matter of W.P.(C) 2993/2015) formed the basis of the orders for the other three AYs, i.e., 2004-05, 2005-06 and 2008-09. 9. In the assessment order dated 23rd March 2010 for AY 2006-07, specific to the issue of taxability of the software, the AO came to the conclusion that the sale of software was in reality only a licence to use the software for consideration. Consequently, it was held that the consideration for software fell in the category of equipment royalty. It was further held that there was concealment of facts by furnishing inaccurate particulars. On this basis the AO also passed similar but separate assessment orders dated 23rd March 2010 for AYs 2004-05, 2005-06 and 2008-09. 10. The said assessment orders dated 23rd March 2010 were reversed by the Commissioner of Income Tax (Appeals) [ CIT(A) ] by a common order dated 29th September 2012 for AYs 2004-05 to 2006-07 and 2008-09. The CIT (A) accepted the plea of ALF that the supply of hardware and software was an integrated one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion mentions AY 2003-04, this is obviously a typographical error as is plain from the second and penultimate paragraphs which refer to AY 2004-05. The reasons read as under: Reasons recorded for issue of Notice u/s 148 of the Income Tax Act, 1961 in the case of M/s. Alcatel- Ay 2003-04 (Sic 2004-05) 29.03.2011 The assessee is a company incorporated under the laws of France and is the supplier of hardware and software products for GSM cellular radio telephone system. During the relevant year it had supplied telecommunication hardware and software to various customers in India. The assessee had filed return of income claiming that the assessee does not have a permanent establishment in India. In the assessment order passed on 23.03.2010 it is held that the assessee had a PE in India and the profits are attributable to the PE in India and the software income earned by the assessee was taxed as royalty income under the provisions of the Act and the tax treaty. It is perused from the record of the case that while deciding the tax rate the date of execution of the agreement with Indian customers was not taken into account which resulted into an underassessment of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court by its order dated 27th February, 2015 in ITA No. 119/2015 (CIT v. Alcatel Lucent Canada). 15. Therefore, as far as AY 2003-04 was concerned, the Revenue should be taken to have accepted the case of ALF that the income received from the sale of software which was embedded in the hardware supplied by it to the telecom companies in India should be treated as business income and not as royalty. 16. However, during the pendency of the above appeals, for AY 2003-04, a notice under Section 148 of the Act was issued to ALF on 31st March 2010 seeking to reopen the assessment. The 'reasons to believe' recorded by the AO preceding the issuance of the said notice reads as under: The assessee is a company incorporated under the laws of France and is the supplier of hardware and software products for GSM cellular radio telephone system. During the relevant year it had supplied telecommunication hardware and software to various customers in India. The assessee had filed return of income claiming that the assessee does not have a permanent establishment in India. In the assessment order passed on 30.03.2006 it is held that the assessee had a PE in India and the profits ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration of the some facts would not justify initiating the reassessment proceedings. Accordingly, the notice dated 31st March 2010 under Section 148 of the Act for AY 2003-04 as well as the order dated 5th December 2011 rejecting ALF's objections thereto were quashed by the Court. The aforementioned judgment dated 15th May 2012 in W.P.(C) No. 8739 of 2011 does not appear to have been challenged by the Revenue. Re-opening of the assessment for AYs in question 18. Now reverting to the AYs in question i.e., 2004-05, 2005-06, 2006-007 and 2008-09. ALF states that it did not receive the notice dated 30th March 2011 issued to it under Section 148 of the Act for AY 2004-05. However, it acknowledged receiving a subsequent notice dated 26th September 2011 issued under Section 143(2). In its reply dated 16th November 2011, ALF denied receiving the notice dated 30th March 2011 issued under Section 148 of the Act and contended that on that ground the proceedings initiated thereunder were void ab initio. Thereafter, a further notice dated 22nd November 2011 was issued to ALF under Section 142(1) wherein ALF was called upon to file its return of income to which it replied on 14th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he CIT(A) or the ITAT. The present writ petitions 21. The present writ petitions have been filed by ALF questioning the above notices under Section 148 of the Act and the consequent orders of the AO rejecting its objections to the reopening of the assessments for the aforementioned AYs. 22. While notice was issued in W.P.(C) No. 1938 of 2013 on 22nd March 2013, stay was granted of the assessment proceedings. Similar interim orders were passed in the other writ petitions. Replies have been filed by the Revenue and rejoinders thereto have been filed by ALF. Submissions of counsel 23. Broadly the submissions of Mr. C.S. Aggarwal, learned Senior counsel for ALF is that reopening of the assessment was sought to be done merely on a change of opinion since the assessment orders earlier passed under Section 148/143 (3) were after a detailed examination by the AO of whether there was any concealment of income from the sale of software as royalty income with effective linkage to the PE in India. Secondly, it was submitted that in terms of the third proviso to Section 147, since the correctness of the assessment order of the AO was subject matter of appeal either before the CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d was available in the record and that record was before the Court, it could not be said that the reopening of the assessment on that score was not legally permissible. Analysis and reasons 27. The above submissions have been considered. The Court finds that there is no answer given by the Revenue to one of the main grounds of challenge stemming from the third proviso to Section 147, which reads as under: 147. Income escaping assessment.- If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) : Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section (2) of section 148. (emphasis supplied) 28. The third proviso acts as a restraint on the AO from seeking to reopen an assessment which is itself the subject matter of further scrutiny in an appeal that is pending. In the present case, the orders initiating the reopening of the assessments were passed even when the appeals against the assessment orders were pending either before the CIT(A) or ITAT. The said determination by the AO in the earlier assessment proceedings was, at the time of issuance of the second round of notice under Section 148 of the Act, still the subject matter of the appeal before the CIT(A). In other words, these notices were issued for AYs 2004-05 and 2005-06 on 30th March 2011 and 20th March 2012, whereas, an appeal was pending in respect of the said two years before the CIT(A) as of those dates. The order of the CIT(A) came only on 29th September 2012. As regards AY 2006-07 and 2008-09, the notices under Section 148 of the Act were issued on 28th March 2013 at a stage when the Revenue s appeal against the order of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment proceedings for AYs 2004-05, 2005-06, 2006-07 and 2008-09 were under Sections 148/143(3) of the Act. The AO, should therefore, be presumed to have examined in some detail whether there had been any escapement of income for assessment. In the circumstances, the inescapable conclusion is that the attempt for the second time to reopen the assessments for the AYs in question is based only on a change of opinion and nothing else. 31. As far as the reliance of the decision in Biju Patnaik (supra) is concerned, as rightly pointed out by Mr. Aggarwal, that dealt with Section 147(a) as it then stood. Section 147 (a) has undergone a change that has been explained in some detail by the Supreme Court in Kelvinator India (supra) and in particular the following extract: On going through the changes, quoted above, made to section 147 of the Act, we find that, prior to the Direct Tax Laws (Amendment) Act, 1987, reopening could be done under the above two conditions and fulfilment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 of the Act (with effect from 1st April, 1989), they are given a go-by and only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in a number of court rulings in the past and was well settled and its omission from section 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on mere change of opinion. To allay these fears, the Amending Act, 1989, has again amended section 147 to reintroduce the expression 'has reason to believe' in place of the words 'for reasons to be recorded by him in writing, is of the opinion'. Other provisions of the new section 147, however, remain the same. 32. In view of the above authoritative enunciation of the legal position in light of the amended Section 147, the reliance by the Revenue on the decision of Biju Patnaik (supra) is to no avail. 33. Where reopening of the assessment is sought to be done more than four years after the end of the relevant assessment year, then the requirement of the Revenue having to say that there was a failure to disclose fully and truly all material facts by the Assessee leading to escapement of income is a sine qua non. In Ritu Investments v. DCIT (supra), the Court took note of the fact that the AO would not get jurisdiction to reopen the assessment only on the basis of mere error of judgm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... else. This hinged upon whether, in fact, the income from the sale of software at all could be said to be royalty . Where the CIT(A) has agreed with ALF that this did not amount to royalty, the question of applicable rate of tax on such royalty would not arise. It is therefore, not possible to agree with the contention of the Revenue on the strength of the decision of the Usha International (supra) that in the first instance there was no opinion formed by the AO. 36. In fact, in the order rejecting the objections preferred by the ALF, the AO rejects this plea only on the ground that the earlier orders only made a cursory reference to the issue. This understanding by the AO of what constitutes reasons for reopening an earlier assessment order is both factually and legally erroneous. As long as the earlier assessment order made a reference to an issue, it did not matter, as far as the AO is concerned, whether the reference to it was cursory or otherwise. In fact, as already noticed, it was not cursory. There was a detailed discussion on this aspect. Secondly, the AO failed to appreciate that he could not assume jurisdiction to reopen the assessment when the earlier assessment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... first proviso would not apply where any income in relation to any asset (including financial interest of any entity located outside India) chargeable to tax has escaped assessment for any assessment year. This according to him has to be read along with Clause (d) of Explanation 2 which states that for the purposes of Section 147 where a person is found to have any asset (including financial interest of any entity located outside India) then it would be deemed to be a case of income having escaped assessment. He also referred to Explanation 4 of Section 147 to urge that the above provisions were introduced by way of the Finance Act, 2012 would be applicable to any assessment year prior to 1st April 2012. 41. Mr. Manchanda was, however, unable to point out how any of the above provisions are applicable to the case in hand. Mr. Manchanda tried to urge that the income by way of royalty as a result of the sale of embedded software should be held to arise from the intellectual property held by ALF outside India. As already pointed out, this does not constitute the reasons for reopening the assessment. This has been suggested only at the stage of arguments before this Court. The Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 147 and 148 of the Act for the second time in respect of ALF for AYs 2004-05, 2005-06, 2006-07 and 2008-09. The impugned notices issued and the corresponding orders of the AO rejecting ALF's objections to the said notices are hereby quashed. The writ petitions of ALF are allowed but in the circumstances with no orders as to costs. Facts concerning ALC 46. The facts, concerning the other petitions are mentioned at this stage only to highlight that the issues involved in them are identical to those in the petitions by ALF. Consequently, the decision in their petitions cannot be any different. 47. As far as ALC is concerned, notices under Section 148 were first issued on 8th January 2010 in relation to AY 2005-06 and AY 2007-08. ALC filed its return of income for the AYs 2005-06 and 2007-08 declaring nil income on 8th March 2010. The AO thereafter issued letters dated 16th March 2010 during the course of the assessment proceedings in relation to each of the AYs seeking an explanation as to why the assessment order passed in the case of ALF for AY 2006-07 should not be relied upon and a similar order passed. ALC replied to the AO by a letter dated 18th March 2010 relying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eedings under Section 147 and requested the AO to dispose of the said objections by passing a speaking order. Thereafter, the AO passed the impugned order dated 11th March 2014 rejecting ALC 's objections. 52. ALC filed WP(C) No. 1853 of 2014 for AY 2007-08 and WP(C) No. 1868 of 2014 for AY 2005-06 challenging the notices under Section 148 and the orders rejecting the objections of the Assessee to the initiation of the reassessment proceedings. Facts concerning ALB 53. In the case of ALB, notices were issued under Section 148 for the AYs 2004-05, 2005-06, 2006-07, 2007-08 and 2008-09 pursuant to which it filed its return of income for the said AYs. The AO then passed separate assessment orders dated 23rd March 2010 computing the income of ALB at ₹ 45,60,020 for AY 2004-05; ₹ 48,80,614 for AY 2005-06; ₹ 45,02,671 for AY 2006-07; ₹ 88,437 for AY 2007-08 and ₹ 9,03,620 for AY 2008-09. ALB also filed appeals before the CIT(A) on 21st April, 2010 against the orders of the AO for each of the aforementioned AYs. 54. Even while the appeals were pending, the impugned notices under Section 148 dated 30th March, 2011 for AY 2004-05; dated 28th Mar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... within the ambit of royalties. 58. ALB's objections were disposed of by an order dated 28th February 2013 for AY 2004-05, dated 11th March 2014 for AYs 2005-06 and 2007-08; and dated 4th March 2015 for AYs 2006-07 and 2008-09, rejecting the same. Hence, ALB filed WP (C) No. 2016 of 2013 pertaining to AY 2004-05, WP(C) No. 1863 of 2014 for AY 2005-06, WP(C) No. 2998 of 2015 for AY 2006-07, WP (C) No. 1871 of 2014 for AY 2007-08 and WP (C) No. 2997 of 2015 pertaining to AY 2008-09 challenging the impugned notices under Section 148 and the orders disposing of the objections to the initiation of proceedings under Section 147. Facts concerning ALE 59. As far as ALE is concerned, notices under Section 148 were issued to it on 20th October 2009 pursuant to the survey took place at the premises of ALI. This prompted ALE to file returns of income for the AYs 2004-05, 2005-06, 2006-07, 2007-08 and 2008-09 declaring nil income. During the course of the assessment proceedings, the AO issued letters dated 16th March 2010 seeking an explanation as to why the reasoning in the case of ALF for the AY 2006-07, being on similar facts, should not be relied upon and an order passed in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to 2008-09 on 18th February 2014 which primarily were threefold: that the proceedings were barred in terms of the third proviso to Section 147 of the Act; that no new material had come to light, and, that a mere change in opinion cannot be the basis for reopening of an assessment under Section 147. 64. By orders dated 11th March 2014, the AO disposed of the objections and rejected the contentions of the Assessee Company. Thereafter, ALE filed WP(C) No. 1967/2013 challenging the initiation of proceedings u/s l47/l48 of the Act for the AY 2004-05. This Court by an order dated 22nd March 2013 issued notice in the matter and stayed the assessment proceedings initiated by issuance of notice u/s 148 of the Act. ALE also filed WP(C) No. 1873 of 2014 challenging the reopening of the assessment for the AY 2005-06, WP(C) No. 2994 of 2015 for AY 2006-07, WP(C) No. 1867 of 2014 for AY 2007-08 and WP (C) No. 2995 of 2015 for AY 2008-09. 65. The issues on the above three batches of writ petitions by ALC, ALB and ALE are identical to the issues that arose in the writ petitions filed by ALF which have been allowed by this Court by the present judgment. For the same reasons, the Court allows ..... X X X X Extracts X X X X X X X X Extracts X X X X
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