TaxTMI 
TaxTMI 
TaxTMI 
2016 (6) TMI 301
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....writ petitions are by M/s. Alcatel-Lucent France ("ALF"), five by M/s. Alcatel-Lucent Bell NV ('ALB'), five by M/s. Alcatel-Lucent Enterprise ('ALE') and the remaining two by M/s. Alcatel-Lucent Canada ('ALC'). The challenge in all these writ petitions is to the notices issued by the Income-tax Department (hereafter 'the Revenue') to each of the Petitioners under Section 148 of the Income Tax Act, 1961 ('Act') seeking to reopen the assessments for various Assessment Years ('AYs'). The orders rejecting the objections of the Petitioners to such reopening are also under challenge. Consequently, the questions that arise for determination are similar. Facts concerning Alcatel-Lucent France 2. To begin with the Court proposes to discuss in some detail the facts concerning ALF. As already noticed, the facts concerning the other Petitioners are more or less similar, and will be adverted to in brief at the appropriate stage in this judgment. 3. ALF, a company incorporated under the laws of France, through its authorised signatory Mr. Nitin Gupta has filed four of these writ petitions, viz., W.P.(C) Nos. 1938/2013 (concerning AY 2004-05), 18....
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....ing the earlier return already filed by it for the said two AYs. Thereafter, further notices were issued by the Revenue to which replies were filed by ALF. 8. Separate assessment orders were passed by the Assessing Officer ('AO') on 23rd March, 2010 under Section 148 read with Section 143(3) of the act for the four AYs, i.e., 2004-05, 2005-06, 2006-07 and 2008-09. It may be noticed at this stage that for some reason the Revenue did not issue a notice under Section 148 of the Act to ALF as regards AY 2007-08. The order passed by the Assessing Officer ("AO") for AY 2006-07 (forming subject matter of W.P.(C) 2993/2015) formed the basis of the orders for the other three AYs, i.e., 2004-05, 2005-06 and 2008-09. 9. In the assessment order dated 23rd March 2010 for AY 2006-07, specific to the issue of taxability of the software, the AO came to the conclusion that the sale of software was in reality only a licence to use the software for consideration. Consequently, it was held that the consideration for software fell in the category of equipment royalty. It was further held that there was concealment of facts by furnishing inaccurate particulars. On this basis the AO also passed....
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....or AY 2004-05 was issued on 30th March 2011; for AY 2005-06 on 28th March 2012 and for AY 2006-07 and 2008-09 on 28th March 2013. The reasons recorded under Section 148 for reopening of the above assessments were identical. It is therefore sufficient if the reasons recorded on 29th March 2011 for reopening of the assessment for AY 2004-05 are referred to. It must be noted here that although the caption mentions AY 2003-04, this is obviously a typographical error as is plain from the second and penultimate paragraphs which refer to AY 2004-05. The reasons read as under: "Reasons recorded for issue of Notice u/s 148 of the Income Tax Act, 1961 in the case of M/s. Alcatel- Ay 2003-04 (Sic 2004-05) 29.03.2011 The assessee is a company incorporated under the laws of France and is the supplier of hardware and software products for GSM cellular radio telephone system. During the relevant year it had supplied telecommunication hardware and software to various customers in India. The assessee had filed return of income claiming that the assessee does not have a permanent establishment in India. In the assessment order passed on 23.03.2010 it is held that the assessee had a PE in Indi....
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....visions of the DTAA. The further appeal by the Revenue against the said order dated 13rd August, 2010 of the CIT(A) for AY 2003-04 was dismissed by the ITAT by the same common judgment dated 4th April 2014 by which it dismissed the Revenue's appeals for the AYs 2004-05, 2005-06, 2006-07 and 2008-09. This decision dated 4th April, 2014 of the ITAT was upheld by this Court by its order dated 27th February, 2015 in ITA No. 119/2015 (CIT v. Alcatel Lucent Canada). 15. Therefore, as far as AY 2003-04 was concerned, the Revenue should be taken to have accepted the case of ALF that the income received from the sale of software which was embedded in the hardware supplied by it to the telecom companies in India should be treated as business income and not as royalty. 16. However, during the pendency of the above appeals, for AY 2003-04, a notice under Section 148 of the Act was issued to ALF on 31st March 2010 seeking to reopen the assessment. The 'reasons to believe' recorded by the AO preceding the issuance of the said notice reads as under: "The assessee is a company incorporated under the laws of France and is the supplier of hardware and software products for GSM cellul....
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....was subjected to tax @ 10%. As already noticed, the said order of the AO was reversed in appeal before the CIT(A) whose order has been affirmed both by the ITAT as well as by this Court. The Court further held that "no new fact had come to the knowledge of the Assessing Officer after completion of the original reassessment proceedings" and the mere reconsideration of the some facts would not justify initiating the reassessment proceedings. Accordingly, the notice dated 31st March 2010 under Section 148 of the Act for AY 2003-04 as well as the order dated 5th December 2011 rejecting ALF's objections thereto were quashed by the Court. The aforementioned judgment dated 15th May 2012 in W.P.(C) No. 8739 of 2011 does not appear to have been challenged by the Revenue. Re-opening of the assessment for AYs in question 18. Now reverting to the AYs in question i.e., 2004-05, 2005-06, 2006-007 and 2008-09. ALF states that it did not receive the notice dated 30th March 2011 issued to it under Section 148 of the Act for AY 2004-05. However, it acknowledged receiving a subsequent notice dated 26th September 2011 issued under Section 143(2). In its reply dated 16th November 2011, ALF denied....
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....on of the royalty to the PE was not examined. One more objection of ALF which was considered by the AO was the third proviso to Section 147. Here again, the AO simply discussed the order of the CIT(A) without taking into account all the facts, viz., that on the date the reopening was sought to be initiated, appeals were pending either before the CIT(A) or the ITAT. The present writ petitions 21. The present writ petitions have been filed by ALF questioning the above notices under Section 148 of the Act and the consequent orders of the AO rejecting its objections to the reopening of the assessments for the aforementioned AYs. 22. While notice was issued in W.P.(C) No. 1938 of 2013 on 22nd March 2013, stay was granted of the assessment proceedings. Similar interim orders were passed in the other writ petitions. Replies have been filed by the Revenue and rejoinders thereto have been filed by ALF. Submissions of counsel 23. Broadly the submissions of Mr. C.S. Aggarwal, learned Senior counsel for ALF is that reopening of the assessment was sought to be done merely on a change of opinion since the assessment orders earlier passed under Section 148/143 (3) were after a detailed exami....
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.... a party. Although, this was a fact not specifically adverted to in the 'reasons to believe' recorded for reopening of the assessments for the above AYs, Mr Manchanda submitted on the strength of the decision in Biju Patnaik (supra) that as long as the material on the basis of which the reasons to believe had been formed was available in the record and that record was before the Court, it could not be said that the reopening of the assessment on that score was not legally permissible. Analysis and reasons 27. The above submissions have been considered. The Court finds that there is no answer given by the Revenue to one of the main grounds of challenge stemming from the third proviso to Section 147, which reads as under: "147. Income escaping assessment.- If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreci....
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.... been computed. Explanation 3.-For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section (2) of section 148." (emphasis supplied) 28. The third proviso acts as a restraint on the AO from seeking to reopen an assessment which is itself the subject matter of further scrutiny in an appeal that is pending. In the present case, the orders initiating the reopening of the assessments were passed even when the appeals against the assessment orders were pending either before the CIT(A) or ITAT. The said determination by the AO in the earlier assessment proceedings was, at the time of issuance of the second round of notice under Section 148 of the Act, still the subject matter of the appeal before the CIT(A). In other words, these notices were issued for AYs 2004-05 and 2005-06 on 30th March 2011 and 20th March 2012, whereas, an appeal was pending in respect of....
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....his Court in its order dated 15th May 2012 while quashing an identical notice for AY 2003-04, the reasons do not refer to any new fact coming to the knowledge of the AO after the completion of original assessment proceedings. 30. It also requires to be noticed that the original assessment proceedings for AYs 2004-05, 2005-06, 2006-07 and 2008-09 were under Sections 148/143(3) of the Act. The AO, should therefore, be presumed to have examined in some detail whether there had been any escapement of income for assessment. In the circumstances, the inescapable conclusion is that the attempt for the second time to reopen the assessments for the AYs in question is based only on a change of opinion and nothing else. 31. As far as the reliance of the decision in Biju Patnaik (supra) is concerned, as rightly pointed out by Mr. Aggarwal, that dealt with Section 147(a) as it then stood. Section 147 (a) has undergone a change that has been explained in some detail by the Supreme Court in Kelvinator India (supra) and in particular the following extract: "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, 19....
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....ions were received against the omission of the words 'reason to believe' from section 147 and their substitution by the 'opinion' of the Assessing Officer. It was pointed out that the meaning of the expression, 'reason to believe' had been explained in a number of court rulings in the past and was well settled and its omission from section 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on mere change of opinion. To allay these fears, the Amending Act, 1989, has again amended section 147 to reintroduce the expression 'has reason to believe' in place of the words 'for reasons to be recorded by him in writing, is of the opinion'. Other provisions of the new section 147, however, remain the same."" 32. In view of the above authoritative enunciation of the legal position in light of the amended Section 147, the reliance by the Revenue on the decision of Biju Patnaik (supra) is to no avail. 33. Where reopening of the assessment is sought to be done more than four years after the end of the relevant assessment year, then the requirement of the Revenue having to say that there was a failure to disclose fully an....
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.... treatment of the income from the sale of the embedded software as royalty has been dealt with in detail. It cannot, therefore, be said that no opinion was formed by the AO on this aspect. The reasons for reopening only refer to escapement of income and nothing else. This hinged upon whether, in fact, the income from the sale of software at all could be said to be "royalty". Where the CIT(A) has agreed with ALF that this did not amount to royalty, the question of applicable rate of tax on such royalty would not arise. It is therefore, not possible to agree with the contention of the Revenue on the strength of the decision of the Usha International (supra) that in the first instance there was no opinion formed by the AO. 36. In fact, in the order rejecting the objections preferred by the ALF, the AO rejects this plea only on the ground that the earlier orders only made a cursory reference to the issue. This understanding by the AO of what constitutes reasons for reopening an earlier assessment order is both factually and legally erroneous. As long as the earlier assessment order made a reference to an issue, it did not matter, as far as the AO is concerned, whether the reference to....
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....osition is again well settled in Indian Oil Corporation v. ITO [1986] 159 ITR 956(SC). 40. Mr. Manchanda, learned counsel for the Revenue, sought to develop another line of argument referring to the second proviso to Section 147 which states that the first proviso would not apply where "any income in relation to any asset (including financial interest of any entity located outside India) chargeable to tax has escaped assessment for any assessment year." This according to him has to be read along with Clause (d) of Explanation 2 which states that for the purposes of Section 147 where a person is found to have any asset (including financial interest of any entity located outside India) then it would be deemed to be a case of income having escaped assessment. He also referred to Explanation 4 of Section 147 to urge that the above provisions were introduced by way of the Finance Act, 2012 would be applicable to any assessment year prior to 1st April 2012. 41. Mr. Manchanda was, however, unable to point out how any of the above provisions are applicable to the case in hand. Mr. Manchanda tried to urge that the income by way of royalty as a result of the sale of embedded software shoul....
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....2012 for AY 2003-04 already held that the reopening of the assessment for these very reasons was bad in law. 45. For the above reasons the Court holds that there was no justification for the Revenue to have invoked the power under Sections 147 and 148 of the Act for the second time in respect of ALF for AYs 2004-05, 2005-06, 2006-07 and 2008-09. The impugned notices issued and the corresponding orders of the AO rejecting ALF's objections to the said notices are hereby quashed. The writ petitions of ALF are allowed but in the circumstances with no orders as to costs. Facts concerning ALC 46. The facts, concerning the other petitions are mentioned at this stage only to highlight that the issues involved in them are identical to those in the petitions by ALF. Consequently, the decision in their petitions cannot be any different. 47. As far as ALC is concerned, notices under Section 148 were first issued on 8th January 2010 in relation to AY 2005-06 and AY 2007-08. ALC filed its return of income for the AYs 2005-06 and 2007-08 declaring "nil" income on 8th March 2010. The AO thereafter issued letters dated 16th March 2010 during the course of the assessment proceedings in relat....
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....y of the reasons recorded for reopening of assessment by letter dated 16th January, 2014 to which ALC filed detailed objections by a letter dated 18th February 2014 to the validity of the initiation of reassessment proceedings under Section 147 and requested the AO to dispose of the said objections by passing a speaking order. Thereafter, the AO passed the impugned order dated 11th March 2014 rejecting ALC 's objections. 52. ALC filed WP(C) No. 1853 of 2014 for AY 2007-08 and WP(C) No. 1868 of 2014 for AY 2005-06 challenging the notices under Section 148 and the orders rejecting the objections of the Assessee to the initiation of the reassessment proceedings. Facts concerning ALB 53. In the case of ALB, notices were issued under Section 148 for the AYs 2004-05, 2005-06, 2006-07, 2007-08 and 2008-09 pursuant to which it filed its return of income for the said AYs. The AO then passed separate assessment orders dated 23rd March 2010 computing the income of ALB at Rs. 45,60,020 for AY 2004-05; Rs. 48,80,614 for AY 2005-06; Rs. 45,02,671 for AY 2006-07; Rs. 88,437 for AY 2007-08 and Rs. 9,03,620 for AY 2008-09. ALB also filed appeals before the CIT(A) on 21st April, 2010 against ....
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....are) as profits attributable to the PE. The ITAT passed an order dated 4th April 2014 for the AYs 2002-03 to 2008-09 holding that revenues earned out of software equipment did not fall within the ambit of "royalties." 58. ALB's objections were disposed of by an order dated 28th February 2013 for AY 2004-05, dated 11th March 2014 for AYs 2005-06 and 2007-08; and dated 4th March 2015 for AYs 2006-07 and 2008-09, rejecting the same. Hence, ALB filed WP (C) No. 2016 of 2013 pertaining to AY 2004-05, WP(C) No. 1863 of 2014 for AY 2005-06, WP(C) No. 2998 of 2015 for AY 2006-07, WP (C) No. 1871 of 2014 for AY 2007-08 and WP (C) No. 2997 of 2015 pertaining to AY 2008-09 challenging the impugned notices under Section 148 and the orders disposing of the objections to the initiation of proceedings under Section 147. Facts concerning ALE 59. As far as ALE is concerned, notices under Section 148 were issued to it on 20th October 2009 pursuant to the survey took place at the premises of ALI. This prompted ALE to file returns of income for the AYs 2004-05, 2005-06, 2006-07, 2007-08 and 2008-09 declaring "nil" income. During the course of the assessment proceedings, the AO issued letters da....