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Issues: Whether the reassessment proceedings initiated under section 148A(b) and section 148 of the Income-tax Act, 1961 were sustainable where the assessee had specifically disputed taxability on the grounds that receipts from software sale were not royalty and that no permanent establishment existed in India.
Analysis: The assessee had raised substantive objections in response to the show-cause notice, relying on the legal position that sale or resale of shrink-wrapped software does not, by itself, amount to royalty and asserting absence of a permanent establishment in India. Those objections went to the root of jurisdiction to reopen assessment. The order passed under section 148A(d) did not engage with these objections in a meaningful manner and instead deferred both the royalty issue and the permanent establishment issue for further verification. At the stage of deciding whether income had escaped assessment, the authority was required to form a subjective satisfaction on the material before it and to address the core objections before assumption of jurisdiction.
Conclusion: The reassessment initiation was unsustainable and was quashed; the writ petition was allowed in favour of the assessee.
Ratio Decidendi: Where an assessee raises a jurisdictional objection that the income is not taxable because the receipt is not royalty and there is no permanent establishment in India, the reopening authority must adjudicate those objections at the stage of section 148A(d) itself and cannot postpone them to later verification.
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