Income Tax Appellate Tribunal - Kolkata
B.V. Van Oord Atlanta vs Asstt. Director Of Income Tax on 24 August, 2007
ORDER
1. The appeals by the assessee for assessment years 2000-01 and 2001-02 and the appeal by the revenue for assessment year 2001-02 arise out of a single order of Commissioner (Appeals)-XI, Kolkata, dated 28-2-2007. As these appeals involve common issues, for the sake of convenience, the same are being disposed of by this consolidated order.
ITA No. 1517/Kol/2007Asst. yr. 2000-01 (Assessee's appeal):2. There are five grounds of appeal in this year. All the grounds relate to only one issue, i.e., rejection of the appellant's claim by the Commissioner (Appeals) that it did not have a PE in India in the relevant financial year, and that the profits earned by the appellant were not taxable in India.
3. At the time of hearing before us, the assessee's learned Counsel submitted that the appellant company was incorporated in Netherlands, and its entire control and management was in that country. As such, the appellant was a foreign company within the meaning of Section 2(23A) of the Act. The appellant had undertaken a sub-contract for dredging, which was executed in Haldia Port near Kolkata in the year 1999-2000. The work commenced on 26-2-1999 and ended on 28-7-1999. Thus, the appellant had a project office in India for a period of 153 days, which was less than six months, the maximum period available according to the Double Taxation Avoidance Agreement between Netherlands and India for not being treated as, 'PE'. It is a settled law that the provisions of the Double Taxation Avoidance Agreement would always override the provisions of the Act. Section 90(2) of the Act also provides as follows ; "where the Central Government has entered into an agreement with the government of any country outside India under Sub-section (1) for granting relief of tax, Or as the case may be, avoidance of double taxation, then, in relation to the assessee to whom such agreement applies, the. provisions of this Act shall apply to there extent they are more beneficial to that assessee." In view of this binding legal situation, the assessing officer ought to have held that the appellant did not have any PE in India and, therefore, no taxable income had arisen in the hands of the appellant in India. However, the assessing officer did not take any decision on this issue on the ground that the matter was not raised before him.
4. Before the Commissioner (Appeals) the appellant explained that the dredging work was completed on 18-7-1999, after which the dredger, Volvox Atlanta, was exported from Haldia on 28-7-1999. The appellant also submitted a copy of completion certificate issued by Calcutta Port Trust, certifying that the entire contract was completed on 18-7-1999. Attention of the Commissioner (Appeals) was drawn to the definition of 'PE' given in article 5 of the Double Taxation Avoidance Agreement between Netherlands and India, which provided that a building site or construction, installation or assembly project constituted PE only when such site or project continued for a period of more than six months.
4.1 Since the issue was first raised at the appellate stage, the Commissioner (Appeals) called for remand report from the assessing officer on the issue of maintenance of PE by the appellant in India. In the remand report the assessing officer made the following observations:
(i) Sailing of the dredger out of India on 28-7-1999 did not necessarily mean closure of the project office in India,
(ii) Reserve Bank of Indias approval was mandatory for closure of a project office,
(iii) Books of account revealed that the project office was operating till 31-3-2000,
(iv) Bank account with ABN Amro bank was maintained in Indian currency at least till 12-6-2000.
4.2 In a rejoinder to the remand report, the appellant denied that it had any fixed place of business after the dredger sailed out of India: It was also pointed out that the permission of Reserve Bank of India was not necessary for closure of the project office and that maintenance of books of account and bank accounts beyond a period of six months could not be considered as maintenance of a fixed place of business as required in article 5 of the Double Taxation Avoidance Agreement. In addition, the appellant relied on the decision of the Tribunal, Delhi Bench, in the case of BKI/HAM V.O.F. C/o Arthur Anderson & Co. v. Addl. CIT (2001) 70 TTJ 480 (Del), the decision of the Authority of Advance Rulings in the case of ABC, In re , and also the decision of the Hon'ble Tribunal Mumbai Bench, in the case of Dy. CJT v. Subsea Offshore Ltd. (1998) 66 TTD 296 (Mum-Trib). The learned Commissioner (Appeals), however, supported the stand taken by the assessing officer. He considered the grounds of appeal as not admissible and not sustainable on merit, and dismissed the grounds of appeal in its totality.
5. Before us, the learned Counsel for the appellant, Sri S.K. Tulsiyan, argued that the learned Commissioner (Appeals) erroneously held that the issue regarding 'PE' did not emerge out of the assessment records, when the nature of business and the source of income were disclosed by the appellant in the return of income along with supporting evidences. In para 4 of the- assessment order, the assessing officer categorically stated that the "assessee is a non-resident foreign company of Netherlands who was awarded a sub-contract by HAM, another non-resident foreign company of Netherlands, to carry out maintenance dredging work at Kolkata for Calcutta Port Trust. HAM was the main contractor for this project. In order to carry out the contractual work, a dredging ship 'Volvox Atlanta' was brought into India by the assessee on 26-2-1999. The said dredger sailed from Haldia in West Bengal on 28-7-1999 to leave India." The learned Counsel strongly contended that after this categorical statement of the assessing officer, the learned Commissioner (Appeals) should not have concluded that the issue regarding 'PE' did not emerge out of the assessment order or the assessment records.
5.1 The learned Counsel further contended that the Commissioner (Appeals) did not consider the landmark judicial pronouncements on this issue. He referred to the case of CIT v. Sayaji Mills Ltd. in which the Hon'ble Gujarat High Court was very specific when it held that "all questions, whether of law or of fact, which relate to the assessment of the assessee may ordinarily be allowed to be raised by him in appeal even though not raised before the Income Tax Officer, if grant of relief would be available on the determination of such questions. The Tribunal rightly felt that substantial justice required in the present case that the claim of the assessee, although it was advanced for the first time before the Appellate Assistant Commissioner should be investigated by the Appellate Assistant Commissioner and the Tribunal was competent to direct the Appellate Assistant Commissioner to rehear the parties and give a finding on the contention." The judgment of the Hon'ble Supreme Court in the case of Jute Corporation of India Ltd. v. CIT was also cited, in which the Hon'ble Apex Court held that "an appellate authority has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations, if any, prescribed by the statutory provisions. In the absence of any statutory provision, the appellate authority is vested with all the plenary powers which the subordinate authority may have in the matter. There is no good reason to justify curtailment of the power of the Appellate Assistant Commissioner in entertaining an additional ground raised by the assessee in seeking modification of the order of assessment passed by the Income Tax Officer". The learned Counsel pointed out that similar issue came up for adjudication before the Hon'ble Supreme Court in the case of CIT v. Nkbheram Daluram , in which the Hon'ble court relied on the Jute Corporation case (supra) and held that "the appellate powers conferred on the Appellate Assistant Commissioner under Section 251 of the Act were not confined to the matters considered by the Income Tax Officer." Reference was also made to the subsequent case of National Thermal Power Co. Ltd. v. CIT in which the Hon'ble Apex Court categorically stated that Tribunal has power to decide on issues not taken up by lower authorities. It was vehemently argued by the learned Counsel for the appellant that by overlooking these important judicial decisions the learned Commissioner (Appeal) acted against the principles of natural justice, and that in all fairness the learned Commissioner (Appeals) should have admitted all the grounds of appeal on the basis of the above judicial decisions.
5.2 Coming to the merits of the case, Sri Tulsiyan argued that both the learned Commissioner (Appeals) and the assessing officer wrongly interpreted the definition of 'PE' as given in article 5 of the Double Taxation Avoidance Agreement between Netherlands and India. Our attention was drawn to the provisions of Section 90(2) of the Act, which clearly indicated that the provisions contained in the Double Taxation Avoidance Agreement overrode the provisions of the Act. This fact was overlooked by the lower authorities, it was submitted. The learned Counsel explained before us that article 5 of the convention stated that "the term 'PE' means a fixed place of business through which the business of the enterprise is wholly or partly carried on". Firstly, there had to be a fixed place of business, and secondly, there had to be business carried on from that fixed place. It was submitted by the learned Counsel that in the appellant's case, the dredger sailed off on 28-7-1999, after which the appellant did not have any fixed place of business. As a proof of arrival and departure of the dredger, the appellant had submitted before the assessing officer copies of bill of entry, marine delivery receipt, completion certificate issued by Calcutta Port Trust on 16-8-1999 confirming completion of the job of dredging on 18-7-1999, and also the copy of the invoice issued on 30-7-1999 by Judicial Member Baxi & Co. on account of "incidental expenses for completion of entire customs and dock formalities, obtaining special permission from different authorities for exportation of dredger Volvox Atlanta from Haldia on 28-7-1999''. Copies of these documents were also submitted before us by the learned Counsel in the paper book. It was strongly argued that there was no question of carrying on any business by the appellant after the dredger had left Haldia, and that, if there was no business carried on by the appellant after 28-7-1999 and there had been no fixed place of business, there could not be any PE within the meaning of the definition given in article 5 of the Double Taxation Avoidance Agreement. According to the learned Counsel, even if, for the sake of argument, it was accepted that the project office of the appellant was a fixed place of business, no business was carried on from there after 28-7-1999. Therefore, the second part of the condition laid down in article 5 of the convention was not fulfilled. According to the definition of PE given in the article, there has to be not only a fixed place of business, but also business of the enterprise has to be carried on wholly or partly through that fixed place of business. As no business of the appellant was carried on through the project office (if that could be called a fixed place of business) either wholly or partly, after 28-7-1999, and as the total period during which the appellant carried on business was less than six months (26-2-1999 to 28-7-1999), it could not be said that the appellant had a PE in India.
5.3 In this connection, the learned Counsel brought to our notice the decision in the case of Bikham V.O.F. C/o Arthur Anderson & Co. v. Addl. CIT (supra), in which the Hon'ble Tribunal, Delhi 'D' Bench, dealt with similar issues and made the following observations:
The basic ingredients of the term 'PE' under article 5 are:
-the existence of an enterprise,
-its carrying on a business,
-for the latter, the existence of a place of business which is fixed; and
-through which the business is carried on.
A PE begins to exist when the enterprise commences to carry on its business through a fixed place of business. This is the case once the enterprise prepares the activity for which the facility is permanently to be used. The same principles apply when determining the points of time at which a PE ceases to exist. If the enterprise ends its business activities for good, its PE will also cease to exist.
According to the learned Counsel, this decision is squarely applicable in the appellant's case. As pointed out by him, the second ingredient was missing, as no business was carried on through the project office after 28-7-1999.
5.4 The learned Counsel contended that the argument that Reserve Bank of India approval was mandatory for closure of the project office was misplaced. The permission letter issued by Reserve Bank of India would show that there was no such clause in that letter. It only stated that Reserve Bank of India was agreeable to opening of a project office at Calcutta upto February, 2000 for the purpose of executing the sub-contract. A copy of the Reserve Bank of Indias letter dated 15-3-1999 was submitted before us. It was stated that the work relating to the sub-contract was completed long before Reserve Bank of Indias deadline of February, 2000, as would be evident from the completion certificate issued by Calcutta Port Trust on 16-9-1999. In any case, whether there was an approval from Reserve Bank of India or not. for closure of the project office, was immaterial, as no business was carried on by the appellant through that project office after the departure of the dredger from Haldia Port. The learned Counsel further stated that continuation of project office beyond the period of six months could not by itself lead to the conclusion that there was a PE. If there was a project office without any business being transacted through that office, it could not be called a "PE" within the definition given in article 5 of the convention. In the appellant's case, as indicated by the learned Counsel for the appellant, no evidence was brought on record to prove that any business was carried on through the project office after the departure of the dredger from Haldia on 28-7-1999. The learned Counsel concluded his arguments by saying that the assessing officer wrongly formed an opinion that the appellant had a PE as it maintained books of account and bank account in India beyond a period of six months, and that maintenance of books of account and bank account could not be considered as a fixed place of business, as contemplated in article 5 of the convention.
6. The learned Departmental Representative, on the other hand, drew our attention to the judgment of the Hon'ble Apex Court in the case of CIT v. Sun Engineering Works (P) Ltd. and submitted that in reassessment proceedings, it was not open to the assessee to seek a review of concluded items unconnected with the escapement of income for the purpose of computation of the income escaping assessment. The learned Departmental Representative argued, that a matter not agitated in the concluded original assessment proceedings could not be permitted to be agitated in the reassessment proceedings unless relatable to the items sought to be taxed as "escaped income". The learned Departmental Representative also argued strongly that the project office of the appellant company was a 'fixed place of business' and that the existence of such a fixed place of business was nothing but a PE. The findings and the observations of the assessing officer were fully supported by the learned departmental Representative in the course of his arguments.
7. In the rejoinder, the learned Counsel stated that taxes under the Income Tax Act are imposed by the Union under the Constitution as per Articles 265 and 265 of the Constitution says"No tax shall be levied or collected except by authority of law". Thus, the learned Counsel argued that Article 265 requires that(i) there must be a law; (ii) the law must authorize the tax; and (iii) the tax must be levied and collected according to law. It is also argued by him that tax illegally levied must be refunded. He further stated that the Hon'ble Apex Court's decision in the case of Sun Engineering-Works (P) Ltd. (supra) touches upon such relief of the item of income which is not a subject-matter of escaped assessment and it is in that context that the Hon'ble Supreme Court says that such a relief cannot be claimed in a reopened proceeding under Section 148 of the Act. Whereas the case of the appellant is that there being no PE of the appellant in India, in terms of article 5 read with Article 7 of the Double Taxation Avoidance Agreement, the beneficial provision, which in absence of PE does not provide for charging of tax on a non-resident foreign company in India due to Section 90 Sub-section (2) of the Income Tax Act. shall have to prevail. Therefore, the appellant is not chargeable to tax in India in terms of the aforesaid article of the Constitution of India. In view of the above, the entire assessment framed is null and void and the assessee ought to get relief accordingly.
8. We have heard the rival submissions of the parties and also perused the documents produced by both the parties. Before dealing with the main issue regarding the existence of any PE of the appellant company in India and the question of taxability of the appellant's income in India, we would like to decide the question of admissibility of the grounds of appeal. The learned Commissioner (Appeals) dismissed the grounds of appeal in its totality, presumably because the issues covered by these grounds were not raised before the assessing officer. In our view, the department's reliance on the judgment of the Hon'ble apex court in the case of Sun Engineering Works (P) Ltd. (supra) is misplaced on the facts and circumstances of the case. This decision pertains essentially to proceedings under Section 147 of the Act and entails as to what should be the role of the assessing officer and the assessee in reassessment proceedings. This is. exactly what the apex court said:
In proceedings under Section 147 of the Income Tax Act, 1961, the Income Tax Officer may bring to charge items of income which had escaped assessment other than or in addition to the item or items which led to the issuance of a notice under Section 148 and where reassessment is made under Section 147 in respect of income which had escaped tax, the Income Tax Officer's jurisdiction is confined only to such income which has escaped tax or has been underassessed and does not extend to revising, reopening or reconsidering the whole assessment or permitting the assessee to reagitate questions which had been decided in the original assessment proceedings. It is only the underassessment which is set aside and not the entire assessment when reassessment proceedings are initiated. The Income Tax Officer cannot make an order of reassessment inconsistent with the original order of assessment in respect of matters which are not the subject-matter of proceedings under Section 147. An assessee cannot resist reassessment proceedings validly initiated under this section merely by showing that other income which had been assessed originally was at too high a figure except in cases under Section 152(2). The words 'such income' in Section 147 clearly refer to the income which is chargeable to tax but has 'escaped assessment' and the Income Tax Officer's jurisdiction under the section is confined only to such income which has escaped assessment. It does not extend to reconsidering generally the concluded earlier assessment. Claims which have been disallowed in the original assessment cannot be permitted to be reagitated on the assessment being reopened for bringing to tax certain income which has escaped assessment, because the controversy on reassessment is confined to matters which are relevant only in respect of the income which had not been brought to tax during the course of the original assessment. A matter not agitated in the concluded original assessment proceedings also cannot be permitted to be agitated in the reassessment proceedings unless relatable to the items sought to be taxed as 'escaped income'. Indeed, in the reassessment proceedings for bringing to tax items which had escaped assessment, it would be open to the assessee to put forward claims for deduction of any expenditure in respect of that income or regarding the non-taxability of the items at all. Section 147, being for the benefit of the revenue and not the assessee, the assessee cannot be permitted to convert the reassessment proceedings into an appeal or revision in disguise and seek relief in respect of items earlier rejected or claim relief in respect of items not claimed in the original assessment proceedings, unless relatable to 'escaped income'. Even in cases where the claims of the assessee? during the course of reassessment proceedings relating to the escaped income are accepted, still the allowance of such claims has to be limited to the extent to which they reduce the income to that originally assessed. The income, for purposes of 'reassessment' cannot he reduced beyond the income originally assessed.
8.1 There is no conflict between what the Hon'ble Supreme Court said and what the appellant did. The appellant did not challenge the proceedings under Section 147 of the Act either at the assessment stage or at the appellate stage. It was not the case of the appellant raising any fresh issue before the assessing officer, as was in the case adjudicated by the Supreme Court. The appellant claimed before the Commissioner (Appeals) that it was not liable for taxation in India, as it did not have any PE in India during the relevant financial year. The assessing officer, although he had full facts in his possession, did not consider this aspect and proceeded with the reassessment of the total income of the appellant. The clear distinction between the two situations should be noted carefully. The facts narrated in the judgment of the Supreme Court in the case of Sun Engineering Works (P) Ltd. (supra) related to the proceedings under Section 147 of the Act before the assessing officer. The judgment reviewed the powers and jurisdiction of the assessing officer in a proceeding under Section 147 of the Act, and also discussed and defined the restrictions/limitations the assessee would have in these proceedings. The judgment did not go beyond and analyze the powers of the appellate authority in admitting a fresh ground of appeal. On the other hand, the facts of the present case are entirely different. The appellant accepted the jurisdiction of the assessing officer in reopening the assessment, but challenged the assessment before the Commissioner (Appeal) by claiming that there was no tax liability in its case as it had no PE in India. The subject-matter of discussion and deliberation in this case was the jurisdiction of the appellate authority in admitting a fresh ground of appeal, and also the question as to whether the appellant company was having a PE in India in terms of the provisions contained in article 5 of the Double Taxation Avoidance Agreement between India and Netherlands. On both the issues, the learned Counsel for the appellant placed his arguments to our satisfaction. The judgments in the Jute Corporation (supra) case and also the NTPC case (supra) are squarely applicable in the case of the appellant. In view of the above, we are of the considered opinion that due to the distinction drawn earlier in this para, the judgment in the case of Sun Engineering Works (P) Ltd. (supra), relied on by the learned Departmental Representative, is not applicable to the case before us. We are, therefore, of the view that it was erroneous on the part of the Commissioner (Appeals) not to have admitted the grounds of appeal.
9. As regards the merits of the case, we find sufficient force in the arguments of the learned Counsel for the appellant. The basic ingredients of a PE, as indicated in article 5 of the Double Taxation Avoidance Agreement are (i) a fixed place of business and (ii) carrying on of a business from that fixed place. From the facts available on record it transpires that the appellant did not have any fixed place of business after 28-7-1999 when the dredger left the Haldia Port. After the dredger left the port there was no activity which could be termed as 'business carried on" from the 'fixed place of business'. Maintenance of books of account or bank account cannot be a factor for determining a fixed place of business as PE. At best, these can be termed as activities of auxiliary character, which have been specially exempted from the definition of PE in Clause 4(e) of article 5. The appellant's project office was in operation from 26-2-1999 to 28-7-1999, i.e. for a period of 153 days only, which is much less than the period required for an establishment to be termed as 'PE'. Therefore, there was no valid reason for treating the project office of the appellant as a 'PE'. We are, therefore, of the view that the appellant company did not have any PE in India during the relevant financial year as defined in article 5 of the Double Taxation Avoidance Agreement between India and Netherlands. The income earned by the appellant during its stay of 153 days in India cannot, therefore, be held as taxable in India.
9.1 In view of our aforesaid finding, we find the arguments placed by the learned Counsel to the point. Article 265 of the Constitution of India provides as under:
265. Taxes not to be imposed save by authority of law.No tax shall be levied or collected except by authority of law.
Notes on Article 265 Article 265 requires that:
(i) there must be a law,
(ii) the law must authorize the tax; and
(iii) the tax must be levied and collected according to the law.
Tax illegally levied must be refunded."
In view of the fact that the Constitution debars undue enrichment of the Exchequer without there being any authority of law as provided in Article 265 of the Constitution, the assessment made in this case by the assessing officer is beyond his purview and power to do so. We, therefore, have no hesitation in holding that the appellant company was not liable to tax in India and hence the assessment made on the appellant-company is quashed. The appeal succeeds.
ITA No. 1518 (Kol)/2007Asst. yr. 2001-02 (Assessee's appeal):
10. In the appeal for assessment year 2001-02, the assessee has raised the following grounds of appeal:
1. The order of the learned Commissioner (Appeals) is bad in law, lacks jurisdiction and opposed to the facts of the case.
2. The. Learned Commissioner (Appeals) ought tohave held that recovery of bad debts made during the previous year could not be taxed in the hand of the appellant because the appellant did not have a PE in India during the initial year or any other assessment year.
3. The learned Commissioner (Appeals) failed to appreciate that the appellant was resident of the Netherlands and therefore governed by the Agreement for Avoidance of Double Taxation (ADT) between India and the Netherlands, and since the appellant had a fixed place of business in India only for 153 days, it did not have a PE in India, hence the profit from contract was not taxable in India in view of Article 7 read with Article 5 of Avoicance of Double Taxation (ADT). So also, the amount of bad debts written off in the earlier years which were recovered during the previous year could not be taxed in the hands of the appellant, because the appellant did not have a PE in India in any of the years.
4. The learned Commissioner (Appeals) failed to appreciate that all the relevant facts establishing that the appellant did not have a PE in India were on the records of the assessing officer, hence he ought to have held that the profits earned by the appellant were not taxable inlndia.
5. The learned Commissioner (Appeals) failed to appreciate that a fresh plea concerning a legal issue could be raised at the appellate stage and was maintainable.
11. Ground Nos. 1 and 5 are of general nature and do not require any separate discussion/adjudication.
12. Ground Nos. 3 and 4 relate to the issue regarding 'PE'. This issue has already been discussed in detail in the previous paras while dealing with the assessee's appeal for assessment year 2000-01. For the reasons and discussions held therein, we decline to uphold the orders of the revenue authorities and allow the appeal of the assessee on this issue.
13. Now, coming to ground No. 2, in view of our finding that the income earned by the appellant during its stay of 153 days in India cannot be held as taxable in India and thus the addition made by the assessing officer in the assessment is thus erroneous, this ground, therefore, has become acadernic. However, as ground has been raised, the same is being dealt with as under.
13.1 As is evident from the assessment order, a sum of Rs. 24,11,98,673 was recovered/credited in the books of account on the basis of assessee's letter dt.3010-2002, as against which the assessee offered only Rs. 22,97,77,487 in assessment year 2001-02. The difference of Rs. 1,14,21,186 was, therefore, added to the total income of the assessee for assessment year 2001-02. The learned Commissioner (Appeals) deleted the addition with the following observation:
(11) I have considered the submission and facts of the case. The contention of the appellant that entire amount has been offered for taxation in three years is found correct. This is merely matter of taxing the particular income in the year under consideration or in subsequent year. The income has been offered in subsequent two years on recovery basis and it is taxed accordingly. Thus, addition of Rs. 1,41,21,186 is not called for and same is deleted.
As regards to the appellant's claim of not having PE in India it may be mentioned that the Division Bench of the Tribunal, Mumbai, in the case of Van Dard Dredging and Marine Contractor BV. has held that foreign firms are liable to pay tax even if they do not have PE when they actually received the money. Hence, this plea is not sustainable.
13.2 The appellant contended that the learned Commissioner (Appeals) ought to have held that recovery of bad debt's made during the previous year could not be taxed in the hands of the appellant because the appellant did not have a 'PE' in India during the initial year or any other subsequent year. From the order of the Commissioner (Appeals) we find that after considering the submission of the appellant that the recovery was shown by the appellant in the three years, the addition of Rs. 1,14,21,336 on account of recovery of bad debts was deleted.
13.3 In this connection, we may reiterate that the basic ingredients of a PE as indicated in article 5 of the Double Taxation Avoidance Agreement are (i) a fixed place of business and (ii) carrying on of a business from that fixed place. From the facts available on record it transpires that the appellant did not have any fixed place of business after 28-7-1999 when the dredger left the Haldia Port. After the dredger left the port there was no activity which could be termed as 'business carried on' from the 'fixed place of business'. Further, if there was a project office without any business being transacted through that office, it could not be called a PE within the definition in article 5 of the convention. Maintenance of books of account or bank account cannot be a factor for determining a fixed place of business as PE. At best, these can be termed as activities of auxiliary character, which have been specially exempted from the definition of PE in Clause 4(e) of article 5 of the convention. In view of the above, the question of treating the recoveries in three years, as indicated by the learned Commissioner (Appeals), as income chargeable to tax in India does not arise. We, therefore, hold that the impugned recoveries of bad debt do not form part of the income chargeable to tax in India and, accordingly, direct the assessing officer to vacate the assessment.
ITA No. 1515/Kol/2007Assessment year 2001-02 (Revenue's appeal):14. In this appeal, the department has raised the following ground:
That on the facts and in the circumstances of the case, the learned Commissioner (Appeals) erred in deleting the sum of Rs. 1,14,21,186 ignoring the fact that the above sum was actually received by the assessee during the relevant previous year as a part of recovery of bad debt.
14.1 At the time of hearing before us, it was contended by the learned Departmental Representative that the learned Commissioner (Appeals) erred in deleting the sum of Rs. 1,14,21,186 ignoring the fact that the above sum was actually received by the assessee during the relevant previous year as a part of recovery of bad debt. In the assessment order it was observed by the assessing officer that a sum of Rs. 24,11,98,673 was recovered/credited in the books of account on the basis of the assessee's letter dated 30-10-2002 as against the sum of Rs. 22,97,77,487 offered in the return. The difference of Rs. 1,14,21,186 was added to the total income. The learned Departmental Representative, in order to justify the action taken by the assessing officer, argued that in this year, there was a PE in terms of the provisions contained in article 5 of the Double Taxation Avoidance Agreement between India and Netherlands, as the 'fixed place of business' continued and bad debts were recovered. The learned Counsel for the appellant explained before us that the appellant company had raised invoices for a sum of Rs. 41,89,43,626 for the entire contract and included the same in the turnover for the financial year relevant to assessment year 2000-01. In addition, the appellant was entitled to exchange gain of Rs. 3,82,49,336 from HAM. Thus, the total amount receivable was Rs. 45,71,92,962. During the financial year 1999-2000, HAM expressed its inability to pay the balance amount due to the appellant because the principal, Calcutta Port Trust, had defaulted to make payments to HAM, the main contractor. The subcontract agreement provided that payment to the appellant would be made only after receipt of money from Calcutta Port Trust. Therefore, a sum of Rs. 25,76,00.028 which was due as on 31-3-2000 was non-recoverable from HAM and thus had to be written off during the assessment year 2000-01. However, the appellant made persistent efforts in subsequent years to recover the bad debts. The matter was handled even at diplomatic levels between India and Netherlands, and ultimately the said amount was paid in the next three years. As and when the amount was received from HAM, the appellant voluntarily informed this fact to the assessing officer and paid income-tax on the same in each subsequent year of receipt of dues. The reconciliation of turnover offered to tax in all the three years was given as under:
Assessment Year--2000-01 Rs.
Project turnover 41,89,43,626 Less : Bad debts w/o 25,76,00,028 Turnover offered to tax' 16,13,43,598 Assessment Year2001-02 Bad debts recovered 6,81,39,305 (Expenses incurred Rs. 1,80,805) Exchange difference 3,82,49,336 Addl.
amount recovered 12,35,69,650 Turnover offered to tax 22,99,58,291 Assessment Year-2003-04 Bad debts recovered 6,58,91,070 Total turnover offered to tax 45,71,92,962 The learned Counsel further explained that in respect of the payment received in foreign exchange on various dates, a uniform rate of NLG 1 = INR 21.2766 was considered for calculation purposes for all the amounts received, irrespective of the amounts actually realized. On the basis of this hypothetical rate, the total amount worked out to Rs. 24,11,98,673. In fact, the aaual amount realized was Rs. 22,97,77,487 (22,99,58,291 less expenses 80,805). Hence, in the computation of revised income in the letter, the actual amount recovered from the contractor was offered to tax. Thus, there was a difference of Rs. 1,14,21,186 between the hypothetical rate and the amount actually realized from HAM. We find the appellant submitted the same explanation before the Commissioner (Appeals) who appreciated that the sum of Rs. 1,14,21,186 was a hypothetical amount which was not actually received by the appellant. He also appreciated the fundamental principle that the same income could not be taxed twice. In our view, the Commissioner (Appeals) rightly accepted the appellant's contention and deleted the addition made by the assessing officer. The arguments of the learned Departmental Representative do not appeal to us. We have already dealt with this issue in the assessee's appeal for assessment year 2001-02 wherein we have held that the recovery of bad debts can at the most be termed as an auxiliary activity which has been specifically exempted in Clause 4 (e) of Article 5 of the Double Taxation Avoidance Agreement. The issue regarding 'PE' has been discussed in detail earlier in this order." We do not want to repeat our observations here. We, therefore, do not find any valid reason for sustaining the addition made by the assessing officer, which is directed to be deleted. This ground of the department fails.
15. In the result, the assessee's appeals for assessment years 2000-01 and 2001-02 are allowed and the departmental appeal for assessment year 2001-02 is dismissed.
16. Before parting with the three orders as narrated above, it is pertinent here to give our observations as follows in view of the peculiar facts'? and circumstances of the case.
17. All these three appeals have been based on the fact that the assessee-company filed a loss return despite the fact that it did not require to file return as there was no PE of its own during the material point of time as narrated above and the assessee had a project office in India for a period of 153 days only. Simply because the assessee filed a loss return, the assessing officer proceeded with the assessment. The assessing officer in our considered opinion is not only a tax collector or tax gatherer, he is also treated as a quasi-judicial authority. As a quasi-judicial authority, he is to safeguard the interest of law in the right perspective, even if a wrong return has. been filed or no claim has been made due to the assessee. He is bound to allow such due claim or not to entertain a wrong return in case there does not accrue any liability on the part of the assessee. In the impugned case the assessee although filed a loss return, it was not liable to file any return at all. Therefore, the wrong return filed by the assessee was to be treated as a non est return. The assessing officer should not have proceeded with the non est return but he proceeded with the same. This part of the action on the part of the assessing officer itself is in contradiction to its role as a quasi-judicial authority. He has to apply the proper law whether it goes against the assessee or goes in favour of the assessee. Our this view finds support from the decision of Hon'ble Supreme Court in the case of CIT v. Mahalaxmi Sugar Mills Co. Ltd. (1986) 160 TFR 920 (SC) wherein the Hon'ble Apex Court has held that "there is a duty cast on the Income Tax Officer to apply the relevant provisions of the Indian Income Tax Act for the purpose of determining the true figure of the assessee's taxable income and the consequential tax liability. That the assessee fails to claim the benefit a set-off cannot relieve the Income Tax Officer of his duty to apply Section 24 in an appropriate case".
18. In the, case of Kerala,Chemicals &. Proteins Ltd. v. CIT , the Hon'ble Kerala High Court has held that "it is the duty of the Tribunal to consider the law as it existed then even though the assessee failed to bring it to its notice". But in the impugned case, the assessee has already raised the issue before the first appellate authority. Therefore, the Tribunal is duty-bound to take care of the prevalent position of law and decide the issue in favour of the assessee, particularly when the assessing officer has proceeded with a non est return knowing fully the status of the assessee not coming within the purview of the Act to be liable to file return of income before the department.
19. Needless to say that this Bench of the Tribunal is of the view that there is no estoppel against, the statutes. Simply because the assessee has filed a return wrongly, that does not automatically fasten the assessee with liability, particularly when the provision of law as in the impugned case (i.e. the question of status read with Double Taxation Avoidance Agreement between India and Netherland) was not attracted any liability to file return on the part of the assessee. Therefore, the revenue authorities are not precluded from correcting their views on the basis of the filing of the return by the assessee. Our this view fully finds support from the Hon'ble Delhi High Court in the case of CWT v. Meattles (P) Ltd . In this case the Hon'ble Delhi High Court has held that "there is no estoppel against a statute. Where the revenue authorities take a particular view of the statutory provisions in the income-tax assessment and later on realise that it was a mistaken view, they cannot be estopped from taking a correct view of the statutory provisions later on".