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2015 Supreme(Del) 3184
IN THE HIGH COURT OF DELHI AT NEW DELHI
BADAR DURREZ AHMED and SANJEEV SACHDEVA, JJ.
DISCOVERY ASIA INC. – Petitioner
versus
ASSISTANT DIRECTOR OF INCOME TAX – Respondent
W.P.(C) 2062/2014 & CM No.4320/2014
Decided on : 19.11.2015
For the Petitioners:Mr M.S. Syali, Sr Advocate with Mr Mayank Nagi and Ms Husnal Syali, Advocates.
For the Respondents:Mr Kamal Sawhney, Mr Raghvendra Singh and Mr Shikhar Garg, Advocates.
The court emphasized that the reassessment proceedings cannot be sustained in law if the necessary ingredients for invoking the provisions of Section 147 beyond the period of four years are missing, and if the reassessment amounts to a mere change of opinion.
Headnote:
Income Tax Act - Reassessment Proceedings - Section 148, Section 143(3), Section 147, Section 44D(3), Section 115A(b), Article 12(6) of DTAA - The court quashed the notice and proceedings for reassessment as the necessary ingredients for invoking the provisions of Section 147 beyond the period of four years were missing. The court also found that the reassessment proceedings were without the authority of law and amounted to a mere change of opinion.
Fact of the Case:
The writ petition is directed against the notice issued under Section 148 of the Income Tax Act, 1961 pertaining to the Assessment Year 2005-06 and the order rejecting the objections preferred by the petitioner.
Finding of the Court:
The court quashed the notice and proceedings for reassessment as they were without the authority of law and amounted to a mere change of opinion.
Issues: Validity of the notice and proceedings for reassessment under Section 148 of the Income Tax Act, 1961.
Ratio Decidendi: The necessary ingredients for invoking the provisions of Section 147 beyond the period of four years were missing, and the reassessment proceedings were without the authority of law and amounted to a mere change of opinion.
Final Decision: The court allowed the writ petition and quashed the notice and proceedings for reassessment. There shall be no order as to costs.
BADAR DURREZ AHMED, J.
1. This writ petition is directed against the notice dated 28.03.2012 issued under Section 148 of the Income Tax Act, 1961 (hereinafter referred to as ‘the said Act’) pertaining to the Assessment Year 2005-06. It is also directed against the order dated 10.02.2014 whereby the objections preferred by the petitioner were rejected by the Assessing Officer.
2. The assessment under Section 143(3) was originally done on 19.12.2008. The notice under Section 148, which is impugned herein, has been issued beyond the period of four years from the end of the relevant assessment year. The reasons for initiating the reassessment proceedings which were supplied to the petitioner on 16.01.2014 are as under:-
“INCOME TAX DEPARTMENT
1. Name & Address of the Assessee Discovery Asia Inc. One Discovery Place Silver Spring, Maryland 20910-3354 USA
2 Permanent Account No. AABCD4333P
3. Status Foreign Company
4. Residential Status Non-resident
5 Assessment year 2005-06
6. Date of order 26.03.2012
Reasons for issue of notice u/s 148 of the Income Tax Act, 1961 :- Return declaring Nil income for AY 2005-06 was filed by the assessee on 30.10.2005, which was later revised on 30.03.2007 declaring an income of Rs.3,62,68,927/- and the assessment was completed u/s 143(3) on 19.12.2008 at an income of Rs.37,61,13,121/-. The reasons for the variance in the assessed income from the returned income was that Discovery Communications India (DCIN) was held to be the assessee's PE in India and profits were attributable to it. Further, the subscription revenues received by the assessee were taxed as royalty income.
2. Article 12(6) of the DTAA between India and US provides that the provisions of Article 12(1) and 12(2) shall not apply if the royalties or fees for technical services arise through a permanent establishment (PE) and are attributable to such PE and in such a case, the provisions of Article 7 shall apply. Further, as per the provisions of section 115A(b) of the Act, where the total income of a non-resident or a foreign company includes any income by way of royalty/fees for technical services received from government or an Indian concern in pursuance of an agreement after 31st March, 1976, subject to the provisions of sub-section (2), the Income tax payable shall be 20% where such royalty is received in pursuance of an agreement made after 31.05.1997 but before 01.06.2005. Therefore, in such a case, the provisions of section 44D(3) of the Act would apply, which provides that notwithstanding anything to the contrary contained in sections 28 to 44C, in the case of an assessee being a foreign company, no deduction in respect of any expenditure or allowance shall be allowed under any of the said sections in computing the income by way of royalty received from government or an Indian concern in pursuance of an agreement made by a foreign company after 31.03.1976 but before 01.04.2003. 3. Perusal of the assessment record reveals that in the assessee's case, the royalty income amount to Rs.336,754,388/- was taxed @ 15% under the DTAA. However, as the royalty income had been earned through PE based on agreement dated 18.08.2004 identical and renewal / remaining to the main agreement that was entered into on 02.12.1996, it should have been taxed @ 30% on gross basis. The correct calculation regarding royalty income would be as under:-
Calculation Sheet
Amount of Royalty 336,754,388
Tax @ 30% on above 101,026,316
Add: Surcharge @ 2.5% 2,525,658
Total 103,551,974
Add : Education Cess @ 2% 2,071,039
Total Tax 105,623,013
3. The petitioner preferred objections on 04.02.2014 which were rejected by the Assessing Officer by virtue of the impugned order dated 10.02.2014. One of the points urged by Mr Syali, appearing on behalf of the petitioner, was that the reasons do not mention anything about failure on the part of the assessee to fully and truly disclose all the material facts necessary for the assessment. He submitted that this is a pre-condition pr
