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TMI Blog2024 (7) TMI 654X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of the assessee. The reasons recorded by Ld. AO to reopen the case have been placed - During assessment proceedings, a view was formed that the assessee was only created to be a conduit entity for royalty payments and to inflate royalty expenses of RPPL. Therefore, it was not eligible for the benefit of DTAA. The assessee, in return of income, offered the income @15% instead of 25% in terms of Sec.115A of the act. On the basis of these facts, Ld. AO formed a belief that the assessee was granted excess relief in the form of lower rate of tax as per Explanation 2(b) of Sec.147 of the Act. The reopening has been done after taking due approval of appropriate authority. In our considered opinion, aforesaid reasons constitute sufficient material to reopen the case of the assessee. The corresponding grounds stand dismissed. What will be the rate on which income returned by the assessee is to be taxed ? - While the assessee has claimed taxation @ 15% under India Cyprus DTAA, Ld. AO has declined the said treaty protection on the ground that the assessee was not beneficial owner of the royalty income and accordingly, brought the income to tax @ 25% instead. There is, quite clearly, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee is in further appeal before us. The assessee has filed revised / additional grounds of appeal and finally, filed consolidated grounds on 24-07-2023 which read as under: - 1. For that the re-opening the assessment u/s 147 of the Act is bad in law and invalid. 2. For that the Learned Assessing Officer had erred in holding that the appellant is not the 'beneficial owner' of the royalty received as per Article 12 of the Indo-Cyprus DTAA and consequently denying the treaty benefits, thereby taxing the Royalty Income of the appellant at 25% as per section 115A(1)(b) of the Act. 3. Without prejudice to the above, for that the Learned Assessing Officer, having held the appellant as the 'beneficial owner' of the royalty received, ought to have held the resident Holding company responsible for failure to deduct the due tax at source on payments made to the appellant being a foreign company and ought to have recovered the tax dues from them. 4. For that the Learned Assessing Officer, having treated the appellant as a conduit entity, ought to have taxed the royalty income at 10% as per Article 12 of India-Germany DTAA. 5. Without prejudice to the above, the Learned A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovision of know-how, license and technical assistance on certain terms and conditions. The assessee was to pay lump sum payment of Rs. 6.5 million Euros and a variable payment per WEC produced by the licensee. The lump sum payment was paid by the assessee out of equity capital and share premium infused by RPPL. Similarly, the quarterly royalty was also paid by the assessee to Vensys out of royalty paid by the RPPL. Till 31-03-2015, RPPL paid royalty of 2,70,10,000 Euros to the assessee whereas the assessee paid royalty of 2,09,45,000 Euros to Vensys. 3.3 On these facts, Ld. AO noted that the assessee simply acted as an intermediary instead of RPPL who was ultimate beneficiary of such licensing agreement. The equity share capital and share premium invested by RPPL was nothing but royalty payment. The Ld. AO, referring to Article 12, held that such royalty may also be taxed in the contracting state in which the same arises. The OECD guidelines provide that a company of a member state shall be treated as the beneficial owner of interest or royalties only if it receives those payments for its own benefit and not as an intermediary such as an agent, trustee or authorized signatory for s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view of the findings rendered in earlier year. The same, in our considered view, was good reason enough to reopen the case of the assessee. The reasons recorded by Ld. AO to reopen the case have been placed on page nos. 1 to 4 of the paper-book. During assessment proceedings, a view was formed that the assessee was only created to be a conduit entity for royalty payments and to inflate royalty expenses of RPPL. Therefore, it was not eligible for the benefit of DTAA. The assessee, in return of income, offered the income @15% instead of 25% in terms of Sec.115A of the act. On the basis of these facts, Ld. AO formed a belief that the assessee was granted excess relief in the form of lower rate of tax as per Explanation 2(b) of Sec.147 of the Act. The reopening has been done after taking due approval of appropriate authority. In our considered opinion, aforesaid reasons constitute sufficient material to reopen the case of the assessee. The corresponding grounds stand dismissed. 5. Another legal ground as urged by Ld. AR is that there was no variation in the returned income and the assessed income and therefore, final assessment order was time-barred. The only dispute is qua the applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the AO. It is proposed that the provisions of section 144C of the Act may be suitably amended to:- (A) include cases, where the AO proposes to make any variation which is prejudicial to the interest of the assessee, within the ambit of section 144C; (B) expand the scope of the said section by defining eligible assessee as a non-resident not being a company, or a foreign company. This amendment will take effect from 1st April, 2020. Thus, if the AO proposes to make any variation after this date, in case of eligible assessee, which is prejudicial to the interest of the assessee, the above provision shall be applicable. From the above, it is quite clear that w.e.f. 01-04-2020, Ld. AO is quite empowered to issue draft assessment order even in cases where Ld. AO proposes to make any variation which is prejudicial to the interest of the assessee. The application of higher rate of tax is certainly prejudicial to the assessee and the same, in fact, is the grievance of the assessee. We also find that case was reopened and notice has been issued on 20- 03-2020. The Ld. AO has passed draft assessment order on 29-09-2021 which is after the aforesaid amendment has taken place. Therefore, no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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