2016 (5) TMI 543 - AT - Income Tax

Appellate Tribunal rules on income assessment for Air India, emphasizes no double taxation.

The Appellate Tribunal upheld the assessment of income amounting to Rs. 97,35,04,000 in the hands of Air India as an agent, reversing the CIT(A)'s ... Assessment of same income in the hands of principal and agent - representative assessee and simultaneous/parallel assessment - functus officio upon assessment of one of principal or agent - recovery from principal notwithstanding assessment of agent (operation of Section 165)Assessment of same income in the hands of principal and agent - representative assessee and simultaneous/parallel assessment - functus officio upon assessment of one of principal or agent - recovery from principal notwithstanding assessment of agent (operation of Section 165) - Whether the assessment of the arbitral award amount could be sustained in the hands of Air India as representative assessee when the same income was also assessed in the hands of the non-resident principal, Carbijet Inc. - HELD THAT: - The Tribunal applied the principle in Claggett Brachi that the tax authority may assess either the non-resident principal or the agent but, once an assessment is validly made on one, an assessment on the other for the same income generally cannot thereafter be sustained because the assessing officer becomes functus officio on that income. The Tribunal examined the chronology and found that the assessment in the name of Air India, as representative assessee, was completed on 27th March 2003 while the assessment directly on Carbijet Inc. was completed on 28th March 2003. Given that the assessment on Air India preceded that on Carbijet Inc., the later assessment on the principal does not invalidate the earlier assessment on the agent. The Tribunal further held that the CIT(A) erred in treating the two assessments as impermissibly simultaneous and in concluding that the assessment on the representative assessee must be deleted. Finally, the Tribunal explained that even where assessment is in the agent's name, the revenue retains the statutory right to recover tax from the principal (as recognised by the court in Claggett Brachi and reflected in the operation of Section 165), so assessment in the agent's name does not prejudice recovery rights against the principal nor leave revenue's interest jeopardised. [Paras 9, 10]The assessment of the disputed amount in the hands of Air India as representative assessee is legally sustainable and the CIT(A)'s deletion of that assessment is reversed.Final Conclusion: The appeal is allowed: the assessment of the arbitral award amount in the hands of Air India as representative assessee for A.Y. 2000-01 is upheld; this does not preclude direct recovery of tax from Carbijet Inc. where permissible. Issues Involved:1. Whether the same income can be assessed first in the hands of the non-resident and simultaneously through its agent.2. Whether the income of Rs. 97,35,04,000 is required to be assessed and subsequently deleted.3. Justification for deleting the addition made of Rs. 97,35,04,000.Detailed Analysis:Issue 1: Simultaneous Assessment of IncomeThe core issue revolves around whether the same income can be assessed both in the hands of the non-resident (Carbijet Inc) and its agent (Air India). The learned CIT(A) held that the same income cannot be assessed first in the hands of the non-resident and simultaneously through its agent. The CIT(A) cited several judicial precedents, including decisions from the Hon’ble Supreme Court and various High Courts, which support the principle that once income has been assessed in the hands of the non-resident, it cannot thereafter be assessed in the hands of the agent. The CIT(A) concluded that the assessment of the same income in both the hands of Carbijet Inc and Air India constituted double assessment and was, therefore, not permissible.Issue 2: Taxability of Rs. 97,35,04,000The CIT(A) upheld the taxability of the arbitral award in the hands of Carbijet Inc but admitted additional grounds of appeal regarding the simultaneous assessment. The CIT(A) called for a report from the Assessing Officer (AO) to justify the assessment of the same income twice. The AO argued that the simultaneous assessment was to safeguard the interests of the revenue, ensuring that Air India would be absolved of its liability once Carbijet Inc paid the corresponding demand. However, the CIT(A) noted that the assessment orders for both Carbijet Inc and Air India were identical and passed simultaneously, leading to a clear case of double assessment of the same income.Issue 3: Deletion of AdditionThe CIT(A) analyzed the judicial precedents and concluded that the same income could not be assessed in the hands of both the non-resident and its agent. The CIT(A) observed that the assessment proceedings for Carbijet Inc were initiated by filing a return on 28.11.2000, and the assessment was completed on 28.03.2003. Simultaneously, Air India was issued a notice on 15.03.2001, and the assessment was completed on 27.03.2003. The CIT(A) noted that both assessment orders were identical, leading to double assessment. The CIT(A) held that the income of Rs. 97,35,04,000 was not required to be assessed and deleted the same.Appellate Tribunal’s Decision:The Tribunal examined the legal position and noted that the Supreme Court in Claggett Brachi & Co Ltd held that the AO can only assess either the non-resident or the agent, not both. The Tribunal observed that once the AO taxes the income in the hands of one, he loses the right to tax the same income in the hands of the other. In this case, the assessment on Air India was completed a day before the assessment on Carbijet Inc. Therefore, the Tribunal upheld the assessment in the hands of Air India, as the representative assessee, and reversed the CIT(A)’s conclusion.Conclusion:The Tribunal concluded that the income of Rs. 97,35,04,000 was rightly assessed in the hands of Air India as an agent under section 163 of the Act. However, it clarified that this does not prevent direct recovery of taxes from Carbijet Inc, and to the extent taxes are recovered from Carbijet Inc, Air India’s liability would be correspondingly exonerated. The appeal was allowed, and the order was pronounced on 5th April 2016.