TaxTMI 
TaxTMI 
2016 (2) TMI 713
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....ther the conditions as laid down under Section 147 of the Act for re-opening the assessment for the Assessment Year ('AY') 2005-06 were satisfied. The principal contention advanced by the Assessee is that there was no failure on its part to disclose fully and truly all material facts necessary for assessment; consequently, the condition as stipulated in the Proviso to Section 147 is not satisfied. It is further pleaded that the concluded assessment is sought to be re-opened on account of a change in opinion, which is impermissible. It is urged that, therefore, the assumption of jurisdiction under Section 147 of the Act is invalid. 3. Briefly stated, the relevant facts necessary to consider the controversy are as under: 3.1 The Assessee is engaged in the manufacture and production of business support software. The Assessee has a wholly owned subsidiary in India, namely, Oracle India Private Limited ('OIPL'). 3.2 The Assessee filed its return of income for AY 2005-2006 on 30th November, 2006 declaring an income of Rs. 1,79,27,09,864/-. Along with its return of income, the Assessee also filed a statement of computation of income, TDS certificates and a Chartered Accountants r....
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....ssess the income of an assessee after the expiry of four years from the end of the relevant assessment year. By virtue of the said proviso, such assessment can be re-opened only when there is a failure on the part of the assessee to fully and truly disclose all material facts necessary for his assessment. In the present case, the Petitioner questions the assumption of jurisdiction to re-open the assessment principally on the ground that there has been no failure on the part of the Petitioner to fully and truly disclose all material facts necessary for its assessment. The Petitioner also disputes the claim of the Revenue that any of its income chargeable to tax under the Act has escaped assessment but for the purposes of the present petition, the learned counsel for the Petitioner has, without prejudice to other contentions, restricted his arguments to (a) the applicability of the first proviso to Section 147 of the Act, that is, the Petitioner has not failed to disclose fully and truly all material facts necessary for its assessment; and (b) that the re-opening of assessment has been occasioned by change in opinion, which is impermissible. 5. Accordingly, we are proceeding to ad....
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....broad. The Petitioner contended that royalty on such global deals was not exigible to tax in India as the same would amount to double taxation. 8. The AO also concluded that the Petitioner was carrying on software development activity through its PE in India and sought to tax so much of Petitioner's income as, according to the AO, was attributable to the Petitioner's PE in India. 9. It is relevant to note that the AO had consistently held from AY 1997-98 onwards that the Petitioner had a PE in India as it was conducting its business through the facility of its wholly owned subsidiary - OIPL. In addition, the AO had also concluded that the Petitioner was liable to pay tax on Royalty on what he termed as 'Global Deals'. The Petitioner had disputed that it had a PE in India and continued to agitate the issues by filing appeals before CIT (A). Further, the Petitioner had also invoked the Mutual Agreement Procedure (MAP) as per Article 27 of the Indo-US DTAA for avoidance of double taxation in respect of transactions which were sought to be taxed in USA as well as in India. 10. It is not in dispute that the Petitioner had produced all the relevant documents pertaining to the in....
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....ess connection and PE in form of OIPL, in India, under provisions of section 9(1) (1) of IT Act and in terms of Article 5 of the DTAA, respectively. The assessee company is earning Royalties in India which is linked to the PE. Therefore, this royalty income must be taxed @ 20% gross instead of 15%. Further, the royalty income offered by the assessee includes Rs. 4,18,51,933/- towards interest on delayed royalty which should be taxed @ 41.82 percent. It was the duty of the assessee to disclose fully and truly all material facts necessary for the assessment but it has not done so. The facts pertaining to existence of PE in India and income earned/linked to it have not been disclosed. This has led to underassessment of income. Therefore, I have reasons to believe that income of more than Rs. 1 lakh of the assessee company for AY 2005-06, has escaped assessment. I am therefore satisfied that it is a suitable case to be reopened for reassessment." 13. A bare perusal of the reasons indicate that the disputes relating to the income of the Petitioner escaping assessment are twofold: The first being whether the tax payable on royalty is chargeable at the rate of 20% ins....
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.... the royalties or fees is the Government of that Contracting State, a political subdivision or a public sector company ; and (b) 20 per cent of the gross amount of the royalties or fees for included services in all other cases ; and (ii) during the subsequent years, 15 per cent of the gross amount of royalties or fees for included services ; and (b) in the case of royalties referred to in sub-paragraph (b) of paragraph 3 and fees for included services as defined in this Article that are ancillary and subsidiary to the enjoyment of the property for which payment is received under paragraph 3(b) of this Article, 10 per cent of the gross amount of the royalties or fees for included services. xxxx xxxx xxxx 6. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the royalties or fees for included services, being a resident of a Contracting State, carries on business in the other Contracting State, in which the royalties or fees for included services arise, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the roy....
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....he facts disclose, 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." 20. In a later judgment, CIT v. Burlop Dealers Ltd.: AIR (1971) SC 1635, the Supreme Court referred to the above quoted passage from Calcutta Discount Company (supra) and explained that if an Assessee had disclosed the primary facts relevant for the assessment, he was under no obligation to instruct the Income Tax Officer about the inference which the Income Tax Officer would draw from the facts. The said view was again reiterated by the Supreme Court in ITO v. Madnani Engineering Works Ltd: (1979) 118 ITR 1 (SC). 21. It is not in dispute that the Assessee has produced all relevant material that was required. The AO had further examined the transactions in question and had accepted that the royalty payable to the Petitioner was chargeable to tax at the rate of 15%. The AO had concluded that the software development centres in Hyderabad and B....
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....force of attraction' which is embodied in paragraph 1 of Article 7 of the Indo-US DTAA. In other words, the Revenue is not seeking to tax such royalty as it has discovered another concealed permanent establishment but is seeking to link the royalty received to the Petitioner's alleged extant PE by applying the principle of force of attraction to that PE. The reasons for forming a belief that income of the Petitioner has escaped assessment also does not indicate that the AO had discovered that the royalty in question was earned by the Petitioner through a PE, it only alleges that it is observed that such royalty is "linked" to the Petitioner PE. 25. Clearly, there was no other primary fact which was material to the assessment and not disclosed by the Petitioner. The question whether the royalty receivable by the Petitioner is chargeable to tax at the rate of 20% is dependent on the AO's inference as to (a) whether the principle of 'force of attraction' is applicable to the royalty payable to the Petitioner, that is, whether the royalty can be attributed to business activities similar to those carried on through the Petitioner's PE in India; and (b) whether the royalty receivable ....
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....e Full Bench in CIT v. Usha International Ltd. 2012 348 ITR 485 held that "what the Assessing Officer is now seeking to do amounts to a clear change of opinion and that is not permissible.' 30. The Supreme Court in the case of CIT v. Kelvinator of India Limited:[2010] 320 ITR 561 (SC) had held that the expression "reason to believe" as used in Section 147 of the Act must be given an schematic interpretation. The Court held that an assessing officer had no power to review but only to re-assess an Assessee's income that had escaped assessment on fulfilment of certain conditions. Thus, re-assessment on the basis of change of opinion must be excluded from the scope of Section 147. 31. In view of the settled legal position as aforesaid, even if the proviso under Section 147 of the Act is not pressed into service, the re-opening of assessment for the reasons as disclosed would be impermissible as it merely reflects an endeavour to charge enhanced tax on the basis of a change in opinion. 32. Mr Syali, learned Counsel for the Petitioner had also contended that the assessments were sought to be re-opened on the basis of audit objections which had not been accepted by the Department....