2017 (5) TMI 993 - HC - Income Tax

Court invalidates jurisdiction assumption under Income Tax Act Section 148 due to mere change of opinion

The Court held that the assumption of jurisdiction under Section 148 of the Income Tax Act was invalid as the reassessment was based on a mere change of ... Reopening of assessment - payments received by the Assessee pursuant to the O&M Agreements - Held that:- As during the course of the original assessments under Section 143 (3), the AO did serve upon the Assessee a detailed questionnaire. The AO examined the nature of the transactions involving the Assessee and the payments received therefor. The reopening was not based on any fresh material. By revisiting the same materials the successor AO now concluded that the payments received by the Assessee pursuant to the O&M Agreements should be treated as FTS. In the circumstances, the view taken by a successor AO on the same material was indeed nothing but a mere change of opinion. It is a well-settled legal proposition, as explained in Calcutta Discount Co. Ltd. v. ITO [1960 (11) TMI 8 - SUPREME Court] that once an Assessee has discharged the burden of not only producing the account books and other documents, but also the specific material relevant to the assessment, 'it is for the Income-tax Officer to draw the proper inferences of fact and law therefrom and the Assessee cannot further be called upon to do so for him.' Here the Assessee had discharged its burden of disclosing fully and truly all the material facts before the AO during the original assessments. There was no basis for the successor AO to conclude that 'no opinion with regard to taxation' of the payments received for the services rendered had been formed by the AO - Decided in favour of assessee. Issues Involved:1. Validity of the assumption of jurisdiction under Section 148 of the Income Tax Act, 1961.2. Treatment of payments received by the Assessee from the operation and maintenance of power plant projects (business income or fees for technical services).Issue-wise Detailed Analysis:1. Validity of the Assumption of Jurisdiction under Section 148 of the Income Tax Act, 1961:The primary issue examined was whether the Income Tax Appellate Tribunal (ITAT) was correct in holding that the assumption of jurisdiction under Section 148 of the Income Tax Act, 1961 was not valid. The Court confined its examination to this issue and noted that the Assessee's returns for the relevant assessment years were initially scrutinized and assessed under Section 143(3) of the Act. Subsequently, the Assessing Officer (AO) sought to reopen the assessments under Section 147 read with Section 148, citing that the original assessments did not form an opinion regarding the taxation of technical services. The Assessee objected, arguing that the reopening was based on a mere 'change of opinion.'The ITAT referred to the Full Bench decision in CIT v. Kelvinator of India Ltd., which held that reassessment based on a mere change of opinion is not permissible. The ITAT concluded that the Assessee had disclosed all material facts during the original assessments, and the reopening was indeed based on a change of opinion. The Court upheld this view, emphasizing that the Assessee had discharged its burden by fully disclosing all relevant material facts. The Court found that the pre-condition for invoking Section 147 did not exist, rendering the assumption of jurisdiction under Section 148 invalid.2. Treatment of Payments Received by the Assessee from the Operation and Maintenance of Power Plant Projects:Although the Court primarily focused on the validity of the assumption of jurisdiction under Section 148, it noted that the other questions related to the treatment of payments received by the Assessee from the operation and maintenance of power plant projects. These payments were scrutinized to determine whether they were taxable as business income or fees for technical services (FTS). The Assistant Director of Income-Tax (ADIT) initially proposed treating these payments as FTS under Explanation 2 to Section 9(1)(vii) of the Act and Article 13(4)(c) of the Double Taxation Avoidance Agreement (DTAA) between India and the U.K.The Director of Income Tax (DIT), however, set aside the ADIT's order, concluding that the services rendered under the Operations and Maintenance (O&M) Agreements did not qualify as FTS. Despite this, the AO proceeded with reassessment, treating the payments as FTS. The ITAT, upon examining the records, concluded that the Assessee had disclosed the nature of its activities and the AO's reopening was based on a different perception of the same details, amounting to a change of opinion.Conclusion:The Court dismissed the appeals, holding that the assumption of jurisdiction under Section 148 was invalid and the reassessment orders were set aside. The Court clarified that other questions related to the treatment of payments received by the Assessee were left open to be decided in other connected appeals. The decision emphasized the principle that reassessment based on a mere change of opinion is not permissible, and the Assessee had fully discharged its burden of disclosure during the original assessments.