TaxTMI 
TaxTMI 
2012 (12) TMI 257
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.... The assessment was completed under section 143(3) on the Returned income on 23-03-2005. 2. The assessee is a Singapore based company, having a Branch Officer (B.O.) in India and is engaged in providing technical consultancy in the area of road construction in India. It has offered the income out of its activities in India for tax as Fee for Technical Services (FTS) under section 44D of the Act. 3.1 During the year, the assessee was indulged in providing technical consultancy services to National Highway Authority of India (NHAI) in respect of NHAI Allahabad project, the contract in respect of which was signed on January 30, 2001. In terms of provisions contained under section 44D read with 115A of the Act, the receipts from this project are taxable as FTS on gross basis @ 20%. 3.2 From the Profit & Loss account filed during the assessment proceedings, it is noticed that the Assessee declared total receipts of Rs.74,77,925/- under section 44D which were offered for tax @ 15%. However, in the assessment order u/s 143(3) dated 23-03-2005 the same was taxed @ 20%. 4.1 It is observed that the assessee entered into a Sub-consultancy contract dated February 01, 2001 w....
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....ces. 4.4 The above conclusion is reinforced by clause 1.2 of the contract. As can be seen, it declares that the Consultants (i.e. the assessee) have complete charge of Personnel and Sub-consultants performing the services; and shall be fully responsible for Services performed by them or on their behalf. This shows that the fetters placed on the power of the assessee to appoint personnel and Sub-consultants are only to the extent so as to ensure the desired quality and by no means could it be interpreted as proof of an independent relationship between the NHAI and Quest International. 4.5 Clause 4.1 of the contract requires the assessee to employ and provide for qualified and suitably experienced personnel and sub-consultants to carry out the Services. Had there been an independent relationship between the NHAI and Quest International, this clause would have been meaningless. It clearly shows that it was the assessee who had to decide its team in fulfilling the contract, and role of NHAI was limited to assess their quality only. As per clause 4.3, certain Key Personnel and Sub-consultants, including Quest International are approved by NHAI. If assessee's argument th....
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....een the assessee and Quest International and not between the NHAI and Quest International, in itself, supports the conclusions drawn in above paragraphs. It doesn't held assessee's case-that the relationship between the NHAI and Quest International is independent-one bit. Once a contract is signed between the NHAI and the assessee, no matter how much work the assessee sub-contracts, the contractual responsibilities and consequent benefits shall be with the assessee only. Contract between the Quest International and the assesse 4.8 The fact that the contract is between the assessee and Quest International and not between the NHAI and Quest International, in itself, supports the conclusions drawn in the above paragraphs. It doesn't help assessee's case - that the relationship between the NHAI and Quest International is independent - one bit. Once a contract is signed between the NHAI and the assesse, no matter how much work the assessee sub-contracts, the contractual responsibilities and consequent benefits shall be with the assessee only. 4.9 It can be seen that the contract was entered into after the assessee has already signed a contract with NHAI and the a....
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....event which might have prevented the Sub-consultant from fulfilling its obligations, responsibility was on the assessee to execute the contract. The overall picture which emerges makes it clear that though contract was later on sub contracted in part, the intention of parties was very clear that the entire gamut of services were to be rendered on the pattern of one composite contract. 4.14 The mere fact the Quest International Consultants was assessed to tax is not a reason alliunde to which assessee could be exonerated from the payment of rightful tax dues. Hon'ble Supreme Court in the cases of ITO v. Ch. Atchaiah (218 ITR 239) (SC) and S.P. Jaiswal v. CIT (224 ITR 619)(SC) has held that the right person has to be assessed even if some other person has already filed returns and paid taxes thereon. 4.15 For the purpose of ascertaining the intention of parties, regard shall be had to the terms of the contract, the conduct of the parties and the circumstances of the case. It is the duty to construe the contract according to the intention of the parties. The law of contract is intended to ensure that what has been promised shall be performed, and in the event of breach, part....
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....While deciding the writ petitions, we have kept in mind that each assessment year is separate and independent. It may be appropriate to reproduce the following observations of the Bombay High Court in Income Tax Reference No. 2/1995 titled M/s Unitech Products Ltd. Vs. Commissioner of Income Tax, decided on 30th July, 2012:- "21. Once the absence of the relevant material before the AO is established, the burden is on the assessee to establish that the AO in some manner and for some reason had knowledge of such material and considered it while making the assessment orders. There may well be circumstances which would lead to such an inference. That, however, would depend on the facts of each case. In the facts of this case, we are not inclined to speculate in the respondent's favour. 22. An AO is not concerned with only one assessee or three assessment orders. If judicial notice may be taken it must be of the fact that an AO has considerable other work including the assessment proceedings of several assessees. We see no reason to presume that the AO would remember all the material and all the facts in respect of the assessment proceedings for a particular year while dealing....
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....@ 20%. For the assessment year 2004-05, the assessee had declared total receipts of Rs.1,61,24,993/- under Section 44D, which was offered to tax @ 20%, whereas the remaining receipts of Rs.65,48,410/- were offered to tax under Section 44DA on net basis. For the same assessment year, i.e. 2004-05, the petitioner-assessee had also claimed indirect expenses of Rs.1,11,65,895/- against the receipts offered for tax under Section 44DA. Similarly, for the assessment year 2005-06, the petitioner had declared total receipts of Rs.1,08,96,441/- under Section 44D, which were offered to tax @ 20%. The remaining receipts of Rs.3,45,30,515/- were offered to tax under Section 44DA on net basis. The assessee had claimed indirect expenses of Rs.3,83,31,294/- against the receipts offered for taxation under Section 44DA. On this amount, the assessee had itself disallowed Rs.51,18,679/- being expenses incurred in relation to projects taxable under Section 44D. The assessments for AY 2004-05 and 2005-06 were completed under Section 143(3) on the returned income on 5th December, 2006 and 24th December, 2007, respectively. 8. From the reasons recorded, it is apparent that the Assessing Officer was of th....
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....pted the position that the agreement between the petitioner and Quest is available in the records for the assessment year 2004-05. They cannot question their own records and state that they do not know how the agreement is available on record for the said year, without valid, good reason and justification. The onus is on them. It is claimed and stated that this by itself does not show that the Assessing Officer had applied his mind to the said question of taxability of receipts of Quest in the hands of the assessee. It is not possible to accept the statement made by the learned counsel for the Revenue. There are a number of reasons for the same. Firstly, the fact that the contract between Quest and the petitioner is available on record shows that the Assessing Officer must have called for the same. Secondly, there is correspondence, in the form of a letter dated 30 October, 2006, written by the petitioner to the Assessing Officer in the AY 2004-05 on the issue in question. The petitioner, in paragraph 4 of the said letter, had stated as under:- "4. Copy of the Audited accounts of M/s Quest International, Allahabad and the certificate for them certify that M/s Quest International ....
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....st International and Meinhardt Singapore Pte. Ltd. 11. Thirdly, the order sheet entry dated 30th December, 2005 for the assessment year 2004-05 reads as under:- "30/12/05 Sh Saxena appeared and discussed the case. The counsel contends that in the profit & loss a/c no expenses have been claimed for NHAI-Allahabad project as this project agreement was entered into before 31/3/03. Proof in respect of this is to be given as the expenses appear to be common. Also, details of contract between M/s Meinhardt Singapore and M/s Quest International are to be given. Since the counsel has stated that M/s Quest International is handling the NHAI project and bearing all expenses. Fixed for 6/1/06" 12. It may be relevant here to refer to the questionnaire served on the petitioner on 20th November, 2006, in which the petitioner was questioned:- "1. Please refer to the computation of income & documents filed during the asstt. proceedings of the case. Please submit the following:- "The copy of agreements entered into with the South city Projects Calcutta Ltd., Bengal silver spring project, Queens Park Estate Pvt. Ltd. & NHAI, New Delhi to show that these agreements are entered after 31s....
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.... agreements contracts with the Indian parties, if not furnished alongwith the returned of income. Also furnish copies of invoices raised on these parties. 3. Details of your employees and the employees of the associated enterprises (AEs) who visited India during the financial year 2004-05, purpose of their visit and duration of stay in India (support with documentary evidence). 4. Name and address of the AE in India and details of transaction with such AE." 17. The petitioner claims that it had filed replies dated 29th November, 2007, 6th December, 2007 and 20th December, 2007. However, the same are not on records/files of the respondents. Order sheet entries dated 30th November, 2007, 6th December, 2007 and 20th December, 2007 state that letters were filed. The questionnaire and order sheet entries themselves disclose that the issue in question was examined by the Assessing Officer. In the letter dated 17th December, 2007, the petitioner in response to one of the queries had stated:- "1. x x x x x x 2. Explain the two contracts with NHAI a) We have entered in the first contract with NHAI in January' 2001 for supervision of National Highway Construction Supervision for 4 Lani....
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....e agreement between the petitioner and Quest, on their record. 20. Thus, for the assessment years 2004-05 and 2005-06, the Assessing Officer in the original proceedings had examined and was aware of the two agreements. He was also aware that Quest had received payments from NHAI and that these were not included in the taxable income or receipts of the income. He was also aware that the petitioner's income was taxed on the gross receipt basis under Section 115J. There was no lapse or fault on the part of the assessee. Full facts were on record and the Assessing Officer accepted the returns. If at all, there was a lapse on the part of the Assessing Officer to understand the legal position. At best, the case of the Revenue can be that the Assessing Officer had wrongly applied, and did not appreciate the legal position. This cannot be a ground to reopen finalised regular assessments for the said years. The Supreme Court in the case of CIT Vs. Kelvinator India Ltd. (2010) 2 SCC 723 has held has under:- "5. On going through the changes, quoted above, made to Section 147 of the Act, we find that, prior to the Direct Tax Laws (Amendment) Act, 1987, reopening could be done under the above....
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....cord, and neither is there any order sheet entry on the basis of which it could be stated that the agreement between the petitioner and Quest was filed on record. There is otherwise no material or evidence to show that the agreement between the petitioner and Quest was filed with the Assessing Officer in the said two assessment years. The Assessing Officer vide letter dated 27th December, 2004 for the AY 2002-03 had called upon the assessee to give the details of their business relationship with M/s Quest International Consultants, Faridabad along with copy of agreement with this concern, if any. The petitioner was also asked to confirm whether any supplies were made by the petitioner or any of its associate entity, to any other concern in India. If yes, details were asked to be provided. 22. By its response dated 24th January, 2005, the petitioner had categorically stated that 'M/s. Quest International Consultant is a sub Consultant of M/s NHAI and the company is not having any business relationship with them.' It was also stated that the petitioner had not made supplies in India, and the petitioner did not have any other business associates in India. The contention of the petiti....
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....as a subcontractor. The agreement between the petitioner and NHAI does refer to, and state that, Quest is the sub-contractor. This became the basis, or the starting point, from which the Assessing Officer made a query from the petitioner regarding their association or business relationship with Quest. The petitioner, however, took an affirmative and categorical stand that they had no business relationship with Quest. The Assessing Officer, therefore, did not examine the said question. The present case would, therefore, be one where there has been concealment of fact, and the Assessing Officer has proceeded on the basis of the wrong factual statement made by the assessee. The plea, and submission, that the agreement with Quest was filed, is not correct. There is no proof or letter filing the agreement. The reply dated 24.1.2005 does not state that agreement with Quest was being filed. The agreement is not on record. In this situation the following observations of the Full Bench in ITA No. 2026/2010 titled CIT Vs. Usha International, decided on 21 September, 2012 are apposite and applicable:- "16. Here we must draw a distinction between erroneous application/interpretation/unders....
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....e assessee, or discovered by him on the basis of the facts disclosed, or otherwise 'the assessing authority has to draw inferences as regards certain other facts; and ultimately, from the primary facts and the further facts inferred from them, the authority has to draw the proper legal inferences, and ascertain on a correct interpretation of the taxing enactment, the proper tax leviable. Thus, when a question arises whether certain income received by an assessee is capital receipt, or revenue receipt, the assessing authority has to find out what primary facts have been proved, what other facts can be inferred from them, and taking all these together, to decide what the legal inference should be." 27. The position in the assessment year 2003-04 is that the agreement between the petitioner and Quest is not on record. The petitioner again claims that they had filed a copy of the said agreement with the Assessing Officer, but they do not have any letter, or any other proof, that they had filed the same. The Order sheet entries also do not make any reference to the filing of the agreement between the petitioner and Quest. The petitioner squarely relies upon the questionnaire written by....
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....ract between Quest and the petitioner in paragraph 4.8 onwards. The reasons to believe have to be read holistically and in a pragmatic manner. No doubt the reasons to believe should be clear and not ambiguous and should show a nexus between escapement of income and under assessment, but it is not just and fair to read the reasons to believe in such as manner as to examine them under a magnifying lens, with a view to find fault. Some latitude and play in the language can be granted, when it is justified and required. Dogmatic approach should not be adopted. The assessment records are also required to be examined and considered, along with the reasons to believe. Read in this manner, we do not think that the Revenue is trying to build up a new case, or is supporting the reasons to believe on the basis of grounds which are not stated or recorded in the reasons to believe. The decision in the case of Mohinder Singh Gill and Another Vs. Chief Election Commissioner 1978 (1) SCC 405, is, therefore, not applicable. 29. Lastly, it was submitted on behalf of the petitioner that the reasons to believe do not show any nexus, or formation of belief, that income had escaped assessment. It is no....