TaxTMI Login
Just a moment...
Press 'Enter' to add multiple search terms. Rules for Better Search
Use comma for multiple locations.
---------------- For section wise search only -----------------
Accuracy Level ~ 90%
of 
Press 'Enter' after typing page number.
of Press 'Enter' after typing page number.
No Folders have been created
Are you sure you want to delete "My most important" ?
NOTE:
of Press 'Enter' after typing page number.
of Press 'Enter' after typing page number.
All Case Laws
of Press 'Enter' after typing page number.
of Press 'Enter' after typing page number.
All Case Laws
Join Channel
Note
Bookmark
Share
Don't have an account? Register Here
of Press 'Enter' after typing page number.
Issues: (i) Whether reassessment for assessment years 1998-99, 1999-2000 and 2001-02 was valid where the original assessments had been completed under section 143(3); (ii) whether receipts from the operation and maintenance contract for the power plant were taxable as fees for technical services on gross basis or as business profits on net basis under the Act and the India-UK DTAA; (iii) whether interest income earned outside India, profit on sale of assets, foreign exchange fluctuation, alleged double taxation of income, liaison office mark-up, carry forward of business loss and depreciation, single tax audit report, and interest under sections 234B and 234D were to be sustained.
Issue (i): Whether reassessment for assessment years 1998-99, 1999-2000 and 2001-02 was valid where the original assessments had been completed under section 143(3).
Analysis: For the years beyond four years, reopening required failure by the assessee to fully and truly disclose all material facts. The record showed that the assessee had disclosed the nature of activities, the agreements, audited statements and the relevant particulars, and the reopening was founded only on a later view that the same receipts should be characterised differently. The material before the Assessing Officer was the same as that considered in the original assessments, and the reopening reflected a change of opinion. For assessment year 2000-01, however, there was no scrutiny assessment earlier and therefore no prior opinion to bar reopening.
Conclusion: The reassessment was quashed for assessment years 1998-99, 1999-2000 and 2001-02, but the challenge to reopening failed for assessment year 2000-01.
Issue (ii): Whether receipts from the operation and maintenance contract for the power plant were taxable as fees for technical services on gross basis or as business profits on net basis under the Act and the India-UK DTAA.
Analysis: The contract was treated as a works contract involving operation and maintenance of a power plant with substantial material and third-party costs, and not as a contract for rendering technical consultancy or know-how services. The work done by the assessee did not make available technical knowledge, experience, skill, know-how or processes to the Indian customer. The receipts therefore did not fall within fees for technical services under section 9(1)(vii) or article 13(4)(c). As the assessee carried on business in India through a permanent establishment, the income was taxable as business profits under article 7 on net basis, with deduction of allowable business expenditure. The attempt to tax the receipts on gross basis under section 44D was rejected, and the non-discrimination clause also supported equal treatment with a domestic enterprise carrying on similar work.
Conclusion: The receipts were held to be business income taxable on net basis and not fees for technical services; the assessee succeeded on this issue.
Issue (iii): Whether interest income earned outside India, profit on sale of assets, foreign exchange fluctuation, alleged double taxation of income, liaison office mark-up, carry forward of business loss and depreciation, single tax audit report, and interest under sections 234B and 234D were to be sustained.
Analysis: Interest earned on overseas bank accounts was not taxable in India, whereas interest earned in India was to be examined under the domestic law and taxed accordingly. Profit on sale of assets was taxable only in accordance with the block of assets mechanism and section 50 where applicable. Foreign exchange fluctuation had to be classified according to whether it arose on capital or trading account. Double taxation of the same income in two assessment years was impermissible. No notional 15 per cent mark-up could be added to liaison office costs in the absence of any basis. Carry forward of business loss and unabsorbed depreciation could not be denied where the income continued to be assessed as business income. A single tax audit report was sufficient for the assessee as a composite taxable entity. Interest under section 234B was not leviable on a foreign company whose income was subject to tax deduction at source, and interest under section 234D was not leviable for assessment year 2002-03.
Conclusion: The assessee succeeded on most of these ancillary issues, subject to verification directed for certain items such as sale of assets, foreign exchange fluctuation and double taxation.
Final Conclusion: The appeals were partly allowed. The reassessment was annulled for the years where reopening was invalid, the O&M receipts were held taxable as business profits on net basis, and several consequential additions and interest charges were deleted or remitted for verification.
Ratio Decidendi: A contract for operating and maintaining a power plant, involving substantial expenditure and no transfer of know-how to the customer, is a works contract giving rise to business profits taxable on net basis under the DTAA, and reassessment cannot rest on a mere change of opinion where full and true disclosure was made in the original proceedings.
TaxTMI 
