TaxTMI 
TaxTMI 
2007 (3) TMI 420
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion Avoidance Agreement. 3. Without prejudice to the above, the learned CIT(A) has failed to consider that remaining part of the entire revenue arising to the assessee from inbound and outbound consignments were taxable in India, as fees for technical services under section 9(1)(vii) read with Explanation (2) of the Income-tax Act, 1961, and read with article 12 of the India - Netherlands Double Taxation Avoidance Agreement." 2. The facts and circumstances leading to our being in seisin of this petition are like this. The assessee is a non-resident company, incorporated in and under the laws of the Netherlands. The assessee-company is a part of DHL Worldwide Express Group which is engaged in the business of operating courier services worldwide. The operations of DHL Worldwide Express Group in the United States of America are carried out through DHL Operations Inc., a company incorporated in the United States of America, and its operations outside the United States of America are carried out by a DHL Operations Limited, a Hong Kong based company. The DHL Operations Limited, in turn, does business through various wholly owned subsidiaries, and the assessee-company before us is....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 22.5 per cent of such gross billing was assumed to be relatable to the activity carried out in India. Income, on the amount so arrived at in respect of the activity carried out in India, was estimated at 8.36 per cent." 6. Aggrieved by the order of the Assessing Officer, assessee carried the matter in appeal before the CIT(A). Following his predecessor's orders dated 7th August, 1992 in assessee's own case for the assessment years 1989-90 and 1990-91. The CIT(A) upheld the contentions of the assessee and mainly held : (i)That the AFL cannot be regarded as a 'permanent establishment' of the assessee-company; (ii)That section 9(1)(i), dealing with income deemed to accrue or arise in India, did not have any application in this matter as the commercial relationship between the assessee-company and the AFL was on 'principal to principal' basis; and (iii)That no part of the services of the appellant-company can be said to have been rendered in India; and (iv)That, therefore, no portion of appellant's income can be taxed in India. 7. This order did not satisfy the Assessing Officer. The Assessing Officer's grievance against the CIT(A)'s orders for these years, as set....
X X X X Extracts X X X X
X X X X Extracts X X X X
....her, on the facts and in the circumstances of the case and in law, the Tribunal should have held that the entire revenues arising to assessee from inbound and outbound consignments were taxable in India as 'fees for technical services' in view of the decision of the Hon'ble Mumbai Tribunal in the case of Blue Dart Express Ltd. v. Jt. CIT 75 ITD 414 , and the decision of the Authority of Advance Rulings in the case of SRK Consulting Engg. 230 ITR 206." 10. The Division Bench's recommendation to Hon'ble President for constitution of a larger bench was, however, only to consider the question whether or not it can be said that the assessee-company had a permanent establishment in India, and if it is held that the assessee-company had a permanent establishment in India, whether assessee's income from inbound shipments can be said to be attributable to such a permanent establishment. This recommendation was made on 25th August, 2004. The recommendation was accepted and the constitution of a three member Special Bench was, accordingly, notified in 1st March, 2005 to consider the aforesaid question. The question before the Special Bench was worded as follows : "Whether or not, on the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....annot consider any question other than the question referred by the Hon'ble President. The learned CIT, on the other hand, submits that if Special Bench is only to deal with the question before it, this will be an academic exercise inasmuch as certain relevant aspects of the matter will be left out of Special Bench's consideration. Our attention is invited to the additional ground invited to the additional ground filed by the revenue on 25th April, 2005. However, since we are in seisin of the limited question referred by the Hon'ble President, we cannot even adjudicate on the admission of additional ground and the admission question will have to be sent back to the Division Bench. This will create multiplicity of the proceedings. Keeping all these factors in mind, as also entirety of the case, we are of the considered view that it is a fit case for referring the entire appeal to be decided by the Special Bench, instead of reference of a particular question in the appeals. We, therefore, suggest and request the Hon'ble President to enlarge the scope of this Special Bench to dispose of the grounds of appeal that may arise in all these appeals, not confining the Special Bench only to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hri Girish Dave, learned Director of Income-tax (International Taxation) appearing as Departmental Representative in this case, fairly does not dispute that in an overwhelming majority of cases, it cannot indeed be open to this Tribunal to consider the questions which even the Assessing Officer or the Commissioner (Appeals) have not examined when they were in seisin of the proceedings, but he hastens to add that this general principle will not govern the fact situation before us inasmuch as the case before us is unique by itself and is on very peculiar facts which need to be noted. It is submitted that all along, assessee's contention was that its commercial relationship with the Airfreight Limited was governed by the agreement dated 19th May, 1989, a copy of which was filed before the revenue authorities. What the assessee deliberately withheld was the fact that the agreement filed by the assessee was to be read in conjunction with a supplementary agreement of even date between the assessee-company and the Airfreight Limited, 'supplementary agreement' in short. The assessee did not, at any stage, share the information about existence of this supplementary agreement. This supplemen....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ch do not arise out of the impugned orders of the CIT(A). The reason is stated to be this. In case a claim is not made by the assessee during the course of assessment proceedings or in the course of first appellate proceedings, the assessee has no remedy other than to raise the ground for the first time before the Tribunal. On the other hand, revenue always has recourse to other remedies in the event certain income has escaped assessment which needs to be brought to tax. It is submitted that the revenue could have recourse to the reassessment under section 147 of the Act, to revision proceedings under section 263 of the Act, or simply a rectification of mistake under section 154 of the Act. Learned senior counsel submits that if revenue is permitted to raise an additional ground of appeal before the Tribunal, which does not enmate from the orders of the authorities below, sanctity of a completed assessment will be set at naught, and the time limits set out for exercise of powers under sections 147, 263 and 154 will be rendered nugatory. He further submits that in revenue's appeal, the appellant Assessing Officer can at best seek restoration of the order passed by him, and it is bey....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... even consi-dered in any of the assessments framed after rendering of Tribunal's decision. Learned counsel also submitted that it is incorrect to state that the supplementary agreement having been withheld per se can be reason enough for taking up these additional grounds of appeal, because even after this supplementary agreement coming to the notice of the Assessing Officer, the income is assessed on the net basis i.e. on the profits earned by the assessee from inbound and outbound operations. A copy of the assessment order for the assessment year 2002-03 was filed before us to demonstrate that the Assessing Officer, having taken note of the supplementary agreement, did not treat tax any part of the revenues on the gross basis and that no part of the revenues so earned by the assessee was treated as royalty or fees for technical service. It is submitted that there was no mala fide in not submitting supplementary agreement before the Assessing Officer. When the Assessing Officer requisitioned this agreement, the same was furnished. Without prejudice to assessee's stand on lack of mala fide in his conduct, learned counsel submitted that even assuming the assessee deliberately withhe....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... ground of appeal, in this view of the matter, is devoid of legally sustainable merits. We reject the same. 21. As regards the question whether an additional ground of appeal can be raised before the Tribunal, which does not arise out of the order of the CIT(A), the law is by now well settled. The powers of the Tribunal are not confined to deal only with the issues arising out of the order of the Commissioner (Appeals) or, for that purpose, even the order passed by the Assessing Officer. Their Lordships of Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383 , have observed as follows : "The view that that the Tribunal is confined only to the issues arising out of the appeal before the CIT(A) takes too narrow a view of the powers of the Tribunal [vide e.g. CIT v. Anand Prakash [1981] 128 ITR 388 (Delhi), CIT v. Karamchand Premchand (P.) Ltd. [1969] 74 ITR 254 (Guj.) and CIT v. Celluose Products of India Ltd. [1985] 151 ITR 499 (Guj.) (FB). Undoubtedly, the Tribunal will have the discretion to allow or not to allow such ground to be raised. But where the Tribunal is only required to consider a question of law arising from the facts whi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed on its own facts. The AAC must be satisfied that the ground raised was bona fide and the same could not have been raised earlier for good reasons. The AAC should exercise discretion in permitting or not permitting the assessee to raise an additional ground in accordance with law and reason. The same observations would apply to the appeals before the Tribunal also." [Emphasis supplied] 23. Clearly, therefore, the powers of the Tribunal are not confined to deal with the issues arising out of the orders of the authorities below. As long an issue has relevance to the correct determination of taxes in respect of the year, and particularly when relevant facts can be ascertained from the material already on record, it is open to the appellant and the cross-objector, to raise that issue, provided the issue so raised is bona fide and the same could not have been raised earlier for good reasons. As held by the Hon'ble Madras High Court in the case of Wilson Industries v. CIT [2003] 259 ITR 318, it is open to the Tribunal to permit even the Assessing Officer to raise a new ground of appeal 'if no new facts are required to be ascertained'. We agree that the Tribunal does indeed have the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... matter has not been examined by any of the authorities below, including the Assessing Officer. In our considered view, this is purely a factual matter and it would require reappraisal of facts, on the touchstone of the legal principles set out in the definitions of 'royalties' and 'fees for technical services' as set out under the Act and the applicable Indo Dutch tax treaty. 26. The other important aspect of the matter is whether there are good and sufficient reasons for raising these additional grounds at this stage and whether these grounds of appeal have been taken up bona fide on account of the reasons as are stated to be the true and proximate reasons by the appellant petitioner. On this test also, in our humble understanding, revenue's case fails. We find that it is a new twist and a completely new turn to the revenue's case that what was sought to be taxed by the Assessing Officer all along, including in the assessments framed after the Tribunal's decision in Blue Dart Express Ltd.'s case (supra) and after the said 'supplementary agreement' came to the notice of the Assessing Officer, as profit earned in India on net basis is now sought to be taxed as 'royalty' or 'fees....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pement of an income is due to an assessee's fault or not, the scheme of the Act provides for finality of an assessment beyond expiry of a specific period. An Assessing Officer can initiate any matter relating to the assessment with the first appellate authority because in the first appellate proceedings, the appellate authority has the same rights as that of the Assessing Officer. It is an extension of the assessment proceedings. To that extent, the case of the Assessing Officer can be improved at the stage of first appellate proceedings. However, an additional ground of appeal being filed before the higher appellate authorities to take up the issues which the revenue authorities have no power to take up under the scheme of the Act would certainly be contrary to the scheme of the Act. The concept of finality of an assessment, at the expiry of the time limits set out under the scheme of the Act, will get disturbed much in violation of the law emphasized by the Hon'ble Supreme Court time and again. All the time limits set out in the Income-tax Act, 1961, to make good the deficiencies in the assessment of the assessee are exhausted. Learned Commissioner's suggests that there cannot be....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Officer has now sought to raise additional grounds of appeal regarding the assessee's revenues being in the nature of 'royalties' and 'fees for technical service,' the Assessing Officer has not made out a case as to which part of the revenue/taxable income is 'fees for technical services' and which part of the revenue is 'royalties'. As a matter of fact, even at the stage when admission of these additional grounds was being argued before us and despite specific question by us, the appellant petitioner has not categorically stated as to which part of the assessee's revenue is 'royalties' and which part of the assessee's revenue/taxable income is 'fees for technical services'. If it does not indeed involve any further investigation of facts to ascertain these two components of the revenues generated by the assessee, the Assessing Officer could have as well been specific. Non-compliance of the Assessing Officer with this requisition reasonably indicates that it is not possible even for the Assessing Officer to find out which part of the income is 'royalty' and which part of the income is 'fees for technical services' without some further investigation of facts. 30. In our considere....