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TMI Blog2020 (6) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... ect in as much as it is apparent from the records that American Express (Indian) Pvt. Ltd. had filed the return of income in the capacity of the representative assessee for the assessee company on 28th November, 2003 wherein this royalty income had been offered to tax @ 15% under Article-12(3) (a) of the DTAA between India and USA. As seen that a proper discloser was made in this regard in the return of income filed by the assessee in response to the notice issued u/s 142(1) on 16.02.200 - royalty of USD 263,532 was duly disclosed and offered to tax to the return of income filed by the American Express (India) Pvt. Ltd. Company in the capacity of the representative assessee of the assessee company, it cannot be said that any new information had come in the possession of the AO so as to warrant invocation of reassessment jurisdiction on this issue. As contention was duly accepted by the AO during the course of assessment proceedings and thus the re-opening of the concluded assessment on this issue would tantamount to re-visiting the issue without there being any fresh material having been brought on record by the AO. The action of the AO in invoking the jurisdiction u/s 147 wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge of opinion. In the case of Le Passage To India Ltd. [ 2014 (4) TMI 750 - DELHI HIGH COURT] has held that where the reasons to believe do not reveal as to what tangible material the Assessing Officer came to obtain to justify the reassessment notice and where an aspect which was known to the Assessing Officer at the time of the original assessment and the explanations of the assessee appeared to have been taken into account, the assessment cannot be reopened. Reasons recorded nowhere reveal as to what tangible material, the Assessing Officer came to obtain to justify the reassessment notice and, therefore, the reassessment proceedings have been wrongly initiated - on the facts of the case and respectfully following the ratio of the judgment of the Hon ble Apex Court in CIT vs. Kelvinator India Ltd.[ 2010 (1) TMI 11 - SUPREME COURT] and of the Hon ble Delhi High Court in the case of Le Passage To India [ 2014 (4) TMI 750 - DELHI HIGH COURT] we quash the reassessment proceedings - Decided in favour of assessee. - ITA No.5941/Del/2010 - - - Dated:- 28-5-2020 - Shri G. S. Pannu, Vice President And Shri Sudhanshu Srivastava, Judicial Member For the Appellant : Sh. Nag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eassessment proceedings were initiated by the Assessing Officer. 2.2 As per records, the statutory notice u/s 148 of the Act was issued on 27.03.2008 and in response to the said notice the assessee filed the return of income on 22.04.2008 declaring the income at Rs. Nil. The assessee asked for copy of reasons for reopening the assessment on 22.04.2008. The notice u/s 142(1) of the Act was issued on 28.05.2008 without supplying the assessee with the copy of reasons. The assessee again requested for copy of reasons which were finally supplied on 22.08.2008. The copy of reasons as supplied by the Department vide letter dated 22.08.2008 are as under: The reasons recorded before issuance of notice u/s 148 in the subject case are: American Express Travel Related Services Company Inc., USA (hereinafter: AETRSCO/ company/ assessee ) is a company incorporated in the United States of America and having its principal place of business at American Express Tower, World Financial Centre, New York, NY 10285, USA. an American company and held by American Express Company USA. AETRSCO has global and domestic systems software and applications installed on various computing platfor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the queries and doubts about the product, which is proposed for sale to the customer. 7. If the executive succeeds in convincing the customer to purchase the product, he records the same in the system. Such recording is tantamount to securing and conclusion of contract, for which incentive accrues to the executive. The recording of a transaction on agreed term and condition is binding on the customer and on the assessee. 8. Accordingly the records of the customer get updated in the system. 9. Thereafter call is disconnected. For this service the employees of AEIPL were paid incentives. It is clear that the Indian employees were soliciting business on behalf of the assessee. The activity of soliciting business starts the moment the terminal of the personnel props that they should solicit business. The solicitation include not only imparting information but convincing the card member to avail the services available with the assessee company and for these services the assessee company gets huge amounts from the card members. That is why the executive doing these activities gets incentive on the basis of business and contracts concluded by them. The incentive detai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come attributable to such PE is not disclosed. 4. The assessee has set up an equipment in the form of midrange and mainframe computer and network at Phoenix USA and AEIPL was using this computer and network from 01.04.2002. The assessee was allowing the AEIPL use of mainframe and midrange computing facilities situated at Phoenix, storage of data on the mainframe or providing access to server incidental, electronic mail access, consolidated data and network access. An amount of USD 3,661,721 was payable by AEIPL to AETRSCO for the period 01.04.2002 to 31.03.2003. The consideration received as compensation for the use of computer, server, network, electronic mail access etc. is covered by the definition of royalties both as per the provisions of Income Tax Act, 1961 ( the Act ) and Article 12 of the tax treaty between India and USA. The royalties deemed to arise in India, as the payment is by the Indian company. Considering the provisions of Section 9(1)(vi) and provisions of Article 12(2) of the tax treaty between India and USA, such royalties are taxable in India @15% of the gross amount of such royalties. The assessee has filed return of income for A.Y. 2003-04 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id new AEGSC facility for exports to AETRSCO end AETRSCO Designated Offices. NOW THEREFORE, in consideration of the mutual convenants hereinafter set forth, the parties agree that the above recitals are made a part of this agreement, and that: 1. Under the terms of the 'Export Agreement' AEIPL shall perform Export Activities for AETRSCO in accordance with the strict specifications and standards provided by AETRSCO. AETRSCO acknowledges that such specifications and standards provided by them are stricter than as may be ordinarily required for performing Export Activities from the new facility. 2. In consideration of AEIPL setting up the new facility as aforesaid, AETRSCO had agreed to provide subsidy by way of reimbursement towards meeting a part of the initial set up costs for the new facility viz. AEGSC. 3. AETRSCO has accordingly reimbursed AEIPL a part of AEIPL's actual initial set up costs incurred for AEGSC, amounting to a sum of US$ 4,136,106.73 equivalent to ₹ 197,840,325. *Set up Costs include costs incurred while setting up AEGSC towards salary and employee related costs, financing costs, printing and stationery expenses, communicatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had not disclosed fully and truly all material facts and income accruing, arising or deemed to accrue or arise in India to the assessee as per the provisions of Section 5(2) r.w.s. 9 of the Act and relevant provisions of the tax treaty. Therefore, I have reason to believe that income chargeable to tax has escaped assessment for A.Y.2003-04. Accordingly, it is a fit case for issue of Notice u/s 148 of the Act and such notice is being issued. 2.3 The original assessment had earlier been complied vide order dated 31.03.2006 u/s 143(3) of the Act wherein the assessment was completed at the income returned by the assessee. 2.4 The assessee filed objections to the reopening of the assessment vide submissions dated 27.10.2009. In the objections it was submitted by the assessee that the initiation of the reassessment proceedings was bad in law as the reasons indicated that the Assessing Officer was seeking to reexamine the issues already concluded in the original assessment proceedings without any fresh material or information. It was also submitted that the royalty of USD 263, 523 was duly disclosed and offered to tax in the return of income filed by American Express (India) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y income attributable to the permanent establishment of the assessee, the resultant income had escaped assessment, it was submitted that the agreement relating to the second-ment of the personnel between American Express India Pvt. Ltd. and the assessee were duly furnished during the course of assessment proceedings and that in terms of the said agreement the second-ment of the employees was to be under the direct supervision of American Express (India) Pvt. Ltd. and their reporting was to the management of American Express (India) Pvt. Ltd.. It was also submitted that the actual reimbursement to the employee costs by American Express (India) Pvt. Ltd to the assessee company, though not resulting in any income in the hands of the assessee, was duly offered to tax in the return of income filed by the American Express (India) Pvt. Ltd. in the capacity of representative assessee for the assessee company. 2.8 In a nutshell, the crux of the objections of the assessee against the initiation of reassessment proceedings was that there was absence of reason to believe that income has escaped assessment as well as there was a change of opinion by the Revenue Authorities. 2.9 The order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment under section 147 of the Act and thus, making roving enquiries on matters, un-connected with the reasons for opening of the reassessment proceedings. Ad-hoc addition of business income from Customer Focused Sales ( CFS) alleging Indian Permanent Establishment ( PE ) of the appellant 2.3 That on the facts and circumstances of the case and in law, the Learned Assessing Officer has erred in constituting American Express (India) Private Limited ( AEIPL ) as a fixed place PE of the appellant in India. constituting AEIPL as a dependent agent PE of the appellant in India treating the entire amount of revenue so alleged to have arisen in the CFS process as profit. making an attribution to the extent of 50% of an adhoc amount amounting to INR 6,215,491 to the alleged Indian PE. Adhoc addition on account of Travellers Cheques ( TCS ) business of the Appellant 2.4 That on the facts and circumstances of the case and in law, the Learned Assessing Officer has erred in constituting PE of the appellant in India with respect to TCs related transaction on the incorrect allegation of not furnishing the information making an ad hoc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder section 234B of the Act. 3.1 That on the facts and circumstances of the case and in law, the Hon ble DRP has erred in alleging that AElPL s infrastructure is beneficially owned by the appellant and constitutes the set-up of assets of the appellant in India. since the reimbursement of costs of AEIPL in setting-up the facility are not included in the cost-base, transfer pricing is adversely affected. AEIPL promoted the American Express brand of the appellant group and has not created any brand identity of its own. the appellant did not submit the details of the income of the appellant from CFS activities without appreciating the fact that such activities were run on trial basis. AEIPL is a PE of the appellant in respect of TCs business without appreciating the fact that AEIPL did not carry on any TCs business for the appellant. The above grounds of appeal are mutually exclusive without prejudice to each other. The appellant prays for leave to add, alter, amend and/or modify any of the grounds of appeal at or before the hearing of the appeal. The appellant prays for appropriate relief based on the said grounds of appeal and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f original assessment proceedings. It was submitted that, therefore, the issues raised had already been examined by the Assessing Officer. It was also submitted that the issue of permanent establishment had also been examined in the original assessment proceedings as was apparent from the various replies filed by the assessee during the course of original assessment proceedings and which was a part of the record. The Ld. Authorized Representative submitted that para-3 of the draft assessment order sought to tax income from Customer Focused Sales (CFS) although this issue was not part of the reasons recorded by the Assessing Officer before the initiation of the reassessment proceedings and, therefore, the same could not be brought to tax in the reassessment proceedings. The Ld. Authorized Representative also submitted that the attribution of income by the Assessing Officer with respect to customer focused sales and business of travelers cheques was considered in other years also and although the business of customers focused sales was limited only to three months in the assessment year 2003-04, the business of travelers cheques has continued till date. However, no addition has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e original assessment proceedings. It is apparent that no new information or material has been brought on record by the Assessing Officer to establish or even indicate that any income for the year under consideration has escaped assessment. One of the allegations by the Assessing Officer has been that the assessee has not offered to tax the royalty of USD to 263,532 received from American Express (India) Pvt. Ltd. towards the right given for use of Global Makers System, Software and application. This allegation is factually incorrect in as much as it is apparent from the records that American Express (Indian) Pvt. Ltd. had filed the return of income in the capacity of the representative assessee for the assessee company on 28th November, 2003 wherein this royalty income equivalent to ₹ 1,27,11,393/- had been offered to tax @ 15% under Article-12(3) (a) of the DTAA between India and USA. It is also seen that a proper discloser was made in this regard in the return of income filed by the assessee in response to the notice issued u/s 142(1) of the Act on 16.02.2006. Thus, considering the fact that the royalty of USD 263,532 was duly disclosed and offered to tax to the return of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee company. Thus, on this count the reassessment has been initiated on an issue which was factually incorrect and was already concluded and would thus not be sustainable. 5.3 Fourthly, the reassessment proceedings have been initiated on the ground that the assessee had seconded some employees to American Express (India) Pvt. Ltd. which would constitute a fixed place of business of the assessee company. In this regard also, it is seen that the assessee had furnished copies of agreement relating to the second-ment of employees during the course of the original assessment proceedings vide submissions dated 13th March, 2006 and, thus, apparently, this issue also was examined by the AO and it was the view of the Assessing Officer then that there was no fixed place PE and the return of the assessee was accepted in the original assessment proceedings. Apparently, this information also was available at the time of the completion of original assessment proceedings and no fresh information came to be in possession of the Assessing Officer on this issue also. 5.4 Thus, on an overall view of the matter, we are of the considered opinion that reassessment proceedings in this case wer ..... X X X X Extracts X X X X X X X X Extracts X X X X
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