TaxTMI 
TaxTMI 
2015 (11) TMI 274
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....tute) 1; 'Indo Danish tax treaty', in short] to the appellant. During the course of the hearing, learned counsel also argued at length as to how the present order, having been passed as qua the agent and qua a particular assessment year rather than qua a vessel, as is the scheme of Section 172(4), is de facto an assessment order under section 143(3), and, therefore, the provisions of Section 144C(1) apply for this reason as well. However, for the reasons we will set out in detail, it is not really necessary to deal with this line of reasoning. 3. So far as the first issue is concerned, it lies in a very narrow compass of material facts. There is no dispute that the assessee before us is a foreign company. It is also not in dispute that in terms of the provisions of Section 144C, a foreign company is required to be treated as an 'eligible assessee' inasmuch as in terms of the provisions of Section 144C(1), "The Assessing Officer shall, notwithstanding anything to the contrary contained in this Act, in the first instance, forward a draft of the proposed order of assessment (hereafter in this section referred to as the draft order) to the eligible assessee if he proposes to make, o....
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....essment of income under section 143(3), and that "it is difficult to accept the contention of the petitioner that the provisions of Section 147/148 cannot be invoked in the present case or in cases in where summary assessment is made under section 172(4) of the Act". It was also noted that "Section 147 does not refer to an assessment order under Section 143(1) or (3)" which is the same position so far as Section 144C is concerned. It was thus held that what is material is that section 172(4) assesses the income, even though it is a provisional assessment of income which can be followed by a, what is termed as. "regular" assessment of income under section 143(3). As the Privy Council pointed out in the case of Seth Badridas Daga Vs. CIT [(1949) 17 ITR 209 (PC)], the word assess and assessment refer primarily to the computation of income. Therefore an order computing the taxable income is essentially an assessment order. Whether it is a regular assessment or an adhoc or summary assessment, it is an assessment nevertheless, and, therefore, any order passed under section 172(4) is also an assessment order. Once we hold so, it is not really necessary to adjudicate on learned counsel's a....
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....r incidental or consequential matters pertaining to it are necessarily attracted. 7. In view of the above discussions, while it would indeed seem that an order passed under section 172(4) is required to be treated as an assessment order, there are issues with regard to the implementation of the corollaries to this conclusion. To appreciate these difficulties, we will have to take a look at the scheme of reference to Dispute Resolution Panel (DRP, in short) as set out in Section 144(1). For ready reference, this section is reproduced below: Reference to dispute resolution panel. 144C. (1) The Assessing Officer shall, notwithstanding anything to the contrary contained in this Act, in the first instance, forward a draft of the proposed order of assessment (hereafter in this section referred to as the draft order) to the eligible assessee if he proposes to make, on or after the 1st day of October, 2009, any variation in the income or loss returned which is prejudicial to the interest of such assessee. (2) On receipt of the draft order, the eligible assessee shall, within thirty days of the receipt by him of the draft order,- (a) file his acceptance of the variation....
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....out of the assessment proceedings relating to the draft order, notwithstanding that such matter was raised or not by the eligible assessee. (9) If the members of the Dispute Resolution Panel differ in opinion on any point, the point shall be decided according to the opinion of the majority of the members. (10) Every direction issued by the Dispute Resolution Panel shall be binding on the Assessing Officer. (11) No direction under sub-section (5) shall be issued unless an opportunity of being heard is given to the assessee and the Assessing Officer on such directions which are prejudicial to the interest of the assessee or the interest of the revenue, respectively. (12) No direction under sub-section (5) shall be issued after nine months from the end of the month in which the draft order is forwarded to the eligible assessee. (13) Upon receipt of the directions issued under sub-section (5), the Assessing Officer shall, in conformity with the directions, complete, notwithstanding anything to the contrary contained in section 153 or section 153B, the assessment without providing any further opportunity of being heard to the assessee, within one month from the end of the mo....
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....thereon shall be made under sub-section (4) after the expiry of nine months from the end of the financial year in which the return under sub-section (3) is furnished". While under section 144C(15), notwithstanding time limit set out in section 153 and 153B, the order giving effect to the directions of the DRP can be passed within one month from the end of the month in which such directions are received, there is no statutory provision under which such time limit under section 172 (4A) can be relaxed. When the DRP itself is allowed a period of nine months from the date on which the draft assessment order is served on the assessee, the entire time allowed to the Assessing Officer to pass order under section 172(4A) is nine months from the end of the financial year in which the vessel voyage return, i.e. return under section 172(3), is received by the Assessing Officer. When all these provisions of the statue are given literal interpretation, such a time limit, in the case of DRP reference being actually made by the assessee, is wholly unworkable. To give an example, if a vessel voyage return is received on 30th March of an year, the Assessing Officer will have just one day to furnish....
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....009 which clearly indicated that the provisions of Section 144C were intended for the foreign companies in respect of matters relating to international taxation and transfer pricing, and not merely for the assessments under section 143(3) or 153A- which appears to be wholly irrelevant in this context. These notes on clauses, at page 63 of the document (http://www.indiabudget.nic.in/ub2009-10/fb/bill10.pdf), state as follows: Clause 55 of the Bill seeks to insert a new section 144C in the Income-tax Act relating to Dispute Resolution Panel. The subjects of transfer pricing audit and the taxation of foreign company are at nascent stage in India. Often the Assessing Officers and Transfer Pricing Officers tend to take a conservative view. The correction of such views takes very long time with the existing appellate structure. With a view to provide speedy disposal, it is proposed to amend the Income-tax Act so as to create an alternative dispute resolution mechanism within the income-tax department and accordingly, section 144C has been proposed to be inserted so as to provide inter alia the Dispute Resolution Panel as an alternative dispute resolution mechanism. 10. There is ....
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....It can never be too late for the tax administration to take a call in this respect and take a clear cut stand on the matter. Be that as it may, once we hold that an order under section 172(4) is also covered by the scheme of Section 144C, the next question which needs to be adjudicated by us is whether in a situation in which an eligible assessee has not been forwarded a draft assessment order, the assessment order will stand quashed or whether the matter will have to be remitted to the file of the Assessing Officer for taking the matter further in accordance with the scheme of Section 144C. Learned counsel's submission is that this aspect of the matter is also no longer res integra inasmuch as Hon'ble Madras High Court, following Hon'ble AP High Court's judgment in the case of Zurai Cement Ltd Vs ACIT (unreported judgment dated 21st February 2013 in WP No 5557 of 2012) and in the case of Vijay Television Pvt Ltd Vs DRP & Ors [(2014) 369 ITR 113 (Mad)] has held that such an order will be "null and void". It is also pointed out that a Delhi bench of this Tribunal, in the case of Capsugel Healthcare Limited Vs ACIT and vice versa (unreported judgment dated 30th September 2014 in ITA ....
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....ection 144C rather than proceeding to pass the final order straightaway under section 172(4), remit the matter back to the file of the Assessing Officer. Any other view of the matter will also result in a situation that almost all the orders passed by the Assessing Officers under section 172(4) will end up being reduced to a nullity in the eyes of law. As we hold so, we may add that, as a lower judicial forum, expressing a view contrary to the views of Hon'ble Courts above, is simply unthinkable in judicial conduct for us, and, going a step further, we are extremely reluctant even in taking any view which may can even remotely be perceived to be at variance with the esteemed views of Hon'ble Courts above. However, in our limited but sincere understanding, the variations in material facts is on such fundamental aspects that a different approach was warranted on these facts inasmuch as the two category of situations, i.e. the situations in which provisions of Section 144C are admittedly applicable but the AO has not forwarded the draft order and the situations in which there is bonafide dispute about applicability of the provisions of Section 144 and, therefore, the AO has not forwar....
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.... Danish tax treaty, the income from operations of ships in international traffic was taxable only in Denmark. As to the question of remittance of freight in the account of LR2 Management K/s, the assessee submitted as follows: It may be noted that a shipping company generally operates across the globe through agents. ....these agents are authorised by the principal shipping company to collect the freight income from customers on its behalf. Thus as a general business practice, in case of foreign shipping companies, the freight income is collected by the agent in the bank account maintained for the principal. The agent is further authorized to meet various expenses for handling the cargo, port charges etc and thereafter remit the surplus to the principal shipping company who is ultimate freight beneficiary. In accordance with the above, LR2, on behalf of Torm A/s, collects gross revenue, being hire, freight, demurrage etc due from Torm A/s, as vessel operation and freight beneficiary. All such money collection is received vy LR2 is deposited in a bank account centrally managed by LR2. After meeting the required expenses, the surplus freight is remitted by LR2 to Torm A/s. E....
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....ight remitted from India, it cannot avail DTAA benefits". Learned CIT(A) further added that in any event "no evidences whatsoever have been produced by the appellant to prove that remittances of freight charges have been offered to tax in Denmark", and, for this reason also, treaty protection could not be extended to the income embedded in the freight receipts. The assessee is not satisfied by the stand so taken by the CIT(A) and is in further appeal before us. 15. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 16. We find that there is no dispute that the business model followed by the assessee is that the principal freight beneficiary in this case, i.e. the company which is carrying on the business of operations of ships in international traffic, is a Danish tax resident by the name of Torm A/s but he has carried on this business through a foreign commercial manager by the name of LR2 Management K/S, another Danish tax resident. As a matter of fact, there is a categorical finding by the CIT(A) to the effect that LR2 is not a beneficial owner of the freight remitted from....
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....o tax' on the basis of a locality related attachment which leads to residence type taxation. As long as this test is satisfied, the assessee is entitled to be termed as resident. The fact that some of the shareholders of the assessee company are outside that tax jurisdiction or the fact, or even the fact that some of the directors are nationals of other that tax jurisdiction, are wholly irrelevant in this context. The authorities below were completely in error in being swayed by these considerations. We may reiterate that the status of resident, for the purpose of article 4(1), is governed solely by being 'liable to tax', in that tax jurisdiction- i.e. contracting state, by the reason of a locality related attachment which leads to residence type taxation. Of course, article 9(1) does require a person claiming treaty protection to have place of management in Denmark as this article provides that, "profits derived from the operation of ships in international traffic shall be taxable only in the Contracting State in which the place of effective management of the enterprise is situated" but then the assessee did have the place of effective management in Denmark. We have also perused t....
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....mphasis has been placed by the authorities below on the proposition that since there is no specific provision for revision of a return filed under section 172(3), no amendments in the facts stated in such a return, howsoever justified, can be entertained. We are unable to see any merits in this hyper technical approach adopted by the authorities below. All the inputs, including the inputs set out in the return filed under section 172(3), are to be examined on merits for arriving at the taxability of correct amount in the hands of the correct person. This is particularly true when the return is under proviso to section 172(3) and is filed by a third party in the capacity as agent, because of the limited information that may be available to him. The proceedings for assessment of income are not adversarial proceedings. We, therefore, disapprove pedantic approach of the authorities below on this aspect. 18. We find that the assessee has produced a certificate dated 23rd January 2013 whereby "The Danish Business Authority certifies and attests "Torm A/s", Tuborg Havnevej 18, DK 2900 Hellerup, under CVR number 22460218 (former registration no. A/S 2206) in the municipality of Gentofte....