Income Tax Appellate Tribunal - Mumbai
Saipem Uk Limited vs Deputy Director Of Income Tax ... on 13 September, 2006
Equivalent citations: [2007]108ITD545(MUM), [2008]298ITR113(MUM), (2007)110TTJ(MUM)407
ORDER
K.K. Boliya, Accountant Member
1. These cross appeals arising from the Order dated 30th March 2005 of CIT(A)-XXXI, Mumbai are disposed of by this common order as under:
I.T.A. No. 4061:
2. The grounds of appeal accompanying Form No. 36 were not in consonance of Rule 8 of the ITAT Rules and therefore, the assessee has filed revised and concise grounds of appeal vide letter dated 21st September 2005. The grounds of appeal challenging the validity of the order dated 28th March 2002 passed by the Assessing Officer Under Section 144 r.w.s. 147 and 163 of the Income Tax Act.
3. The relevant facts briefly stated are that: The assessee company is incorporated under the laws of United Kingdom. Its operations in India pertain to execution of certain contract works awarded by certain Indian companies. In order to execute these contracts, the assessee company entered into various sub-contracts, which include the sub-contracts with M/s. Valentine Maritime (Gulf) LLC, UAE (for short "Valentine"). It appears that the assessee company as well as the aforesaid Valentine were being separately assessed to income tax regularly. The Assessing Officer issued a notice Under Section 163 of the Income Tax Act on 5th February 2002 proposing to treat the assessee company as representative assessee of Valentine Under Section 163. At the beginning of the Assessing Officer's order dated 5th March 2002 passed Under Section 163, the Assessing Officer has mentioned that the aforesaid notice was issued on the Indian address of the assessee company as well as on the London address. The notice issued on Indian address was addressed to Jamnagar, which was returned undelivered by the postal authorities and was received back in the Assessing Officer's office on 18th February 2002 as per the photograph of the relevant document filed by the learned Departmental Representative vide letter dated 14th July 2006. The Assessing Officer while passing his order Under Section 163 stated that there was no response to the notice issued on the London address and therefore, the Assessing Officer passed ex-parte order Under Section 163, treating the assessee company as representative assessee of Valentine. Simultaneously on 5th March 2002 itself the Assessing Officer issued a notice Under Section 148 in the name of the assessee company and addressed it to their London office. As per this notice, the assessee was required to file return of income within seven days from the date of receipt of the said notice. Thereafter on 28th March 2002, the Assessing Officer passed his impugned order Under Section 144 r.w. Section 147 and 163. The Assessing Officer passed the order ex-parte on the ground that there was no response from the assessee to the notice issued Under Section 148.
4. In the backdrop of the abovementioned factual scenario, the learned Counsel Shri P.R.V. Raghvan forcefully argued before us that the notice Under Section 163 dated 5th February 2002 allegedly issued on the London address of the assessee company was never received by it and thus the assessee company was wholly unaware about any such proceedings. The assessee company received the notice Under Section 148 as also the order passed by the Assessing Officer Under Section 163 dated 5th March 2002, on 27th March 2002 on the London address. Under the said notice, issued by the Assessing Officer Under Section 148, the assessee was required to furnish return of income within a period of seven days and the assessee filed reply to the Assessing Officer vide its letter dated 2nd April 2002 from its Mumbai Head Office, which was informed from the London office. A copy of this letter has been compiled as Annexure 3 to Form No. 36. In this letter, the assessee pointed out that the notice was received by it at London on 27th March 2002. The assessee also informed the Assessing Officer that direct assessment proceedings were in progress in the case of Valentine and therefore, there was no justification for the order passed by the Assessing Officer Under Section 163 and issue of notice Under Section 148. In this letter, the assessee also referred to the Calcutta High Court decision in the case of CIT v. Alfred Herbert India Pvt. Ltd. 159 ITR 583. The assessee also pointed out that since the assessment proceedings in the case of Valentine were in progress, any income chargeable to tax should only be assessed in the case of Valentine. The assessee further stated that order passed Under Section 163 on 5th March 2002 without allowing any opportunity to the assessee was against principles of natural justice. The assessee also demanded the reasons recorded before reopening the assessment Under Section 147.
5. The learned Counsel for the assessee submitted before us that even though the assessee was allowed seven days time for filing the return of income Under Section 148, without waiting for the assessee's reply, the Assessing Officer framed the assessment ex-parte on 28th March 2002, whereas the notice Under Section 148 itself was received by the assessee on 27th March 2002. The learned Counsel submitted that the order passed Under Section 163 without allowing any opportunity to the assessee is bad in law and the consequential order passed Under Section 144 r.w. Section 147 and 163 is also ab initio void.
6. The learned Counsel for the assessee also challenged the validity of the order on the ground that the relevant income has been independently brought to a charge of tax in the case of Valentine vide order dated 28th March 2002 passed Under Section 143(3) of the Income Tax Act by the same Assessing Officer. Valentine appealed against this order, which was also dismissed by the learned CIT(A) as mentioned by him at para 7.2 of his order. The learned Counsel submitted that the Assessing Officer made substantive assessment in the case of Valentine and protective assessment in the case of the assessee company. Since the substantive assessment made by the Assessing Officer has been upheld by the learned CIT(A), he was wholly unjustified in confirming the protective assessment in the case of the assessee company. This amounts to double taxation of the same income, which is not permissible under law. For this proposition, the learned Counsel relied on the following judgments:
(1) CIT v. Smt. Saraswati Devi 212 ITR 445 (Raj) (2) CIT v. Ramchandraji Maharaj Ka Bada Mandir 175 ITR 293 (MP) (3) Smt. Dayabai v. CIT 154 ITR 248 (MP) (4) Sunil Kumar v. CIT 139 ITR 880 (Bom)
7. In the abovementioned cases, the High Courts held that when the substantive assessment becomes final, the protective assessment must be vacated. The learned Counsel, therefore, urged that the order passed by the Assessing Officer deserves to be quashed.
8. The learned CIT Departmental Representative Shri Anil Mehta strongly supported the order of the learned CIT(A). He contended that all the proceedings have been legally initiated by the Assessing Officer and sufficient opportunity was also allowed to the assessee. The order Under Section 163 was passed on 5th March 2002 and the Assessing Officer issued notices as early as on 5th February 2002 at the Indian address as well as the London address. It is submitted that even though the notice issued at the Indian address could not be delivered, the normal assumption is that the notice addressed at the London address must have been received by the assessee and such assumption is fortified by Section 27 of the General Clauses Act 1897, which has also been referred to by the learned CIT(A) at para 6.4 of his order. It is also submitted that when no reply was received from the assessee, the Assessing Officer was fully justified in passing order Under Section 163 and also in issuing notice Under Section 148. It is submitted that the notice Under Section 148 was issued on 5th March 2002 and the Assessing Officer waited till 28th March 2002, on which date ex-parte order was passed. The learned CIT Departmental Representative reiterated that the normal presumption is that the notice Under Section 148 must have been received by the assessee at the London address much earlier than 27th March 2002 as claimed by the assessee. It is argued that the assessee has failed to produce any evidence that the said notice was received by it only on 27th March 2002. The assessee also failed to adduce any evidence that the notice issued on 5th February 2002 Under Section 163 was never received by the assessee.
9. Coming to the merits of the double assessments, the learned CIT Departmental Representative invited our attention to the detailed discussions given by the learned CIT(A) at paras 5.2 to 5.5 of his order, which may be reproduced below:
5.2 The Appellant has relied on the decision of the Allahabad High Court in the case of CIT v. Dhampur Sugar Mills Ltd. 170 ITR 449 and contended that simultaneous assessment on principal as well as the agent cannot be made. It has been submitted that in view of this decision, since the income has been assessed in the hands of Valentine, it cannot be assessed in the hands of the Appellant.
5.3 I have considered the submission of the appellant's counsel and the order of the Assessing Officer. On a careful consideration this contention of the appellant is not acceptable. The scheme of the Act provides for taking action against the non-resident as well as its agent as representative assessee. Section 163 no where provides for a bar on taking action against a person where the conditions prescribed in the section are satisfied, merely for the reason that the non-resident has filed the return of income independently. In fact, the courts have held that there is no bar on the simultaneous assessment of the principal and agent. In the case of Barium Chemicals Ltd. v. ITO 100 ITR 637 (AP), the assessee entered into an agreement with a non-resident firm to rectify certain defects in the plant and machinery supplied to it and also to supply designs, drawings and other technical know-how. Pursuant to the above said agreement, the non-resident firm supplied necessary designs, drawings etc. and also sent one of its partners, Mr. Davis for supervising the erection of the plan. The Income Tax Officer passed an order treating the assessee as an agent of the non-resident firm and directed both the assessee and the firm to file returns. The Hon'ble Andhra Pradesh High Court held that there is no question of exercise of option by the Income Tax Officer to assess and recover tax either from the non-resident principal cannot be a bar for either continuing those proceedings or initiating fresh proceedings against the resident agent of the non-resident. Similarly, the Hon'ble Kerala High Court in the case of CIT v. Fertilizers & Chemicals (Travancore) Ltd.166 ITR 823 has held that the direct assessment on the non- resident would not affect the jurisdiction of the ITO to assess the agent of the non-resident under Section 163.
5.4 It is true that in the case of CIT v. Dhampur Suqal Mills Limited 170 ITR 449 , relied upon by the appellant, the Hon'ble Allahabad High Court has observed that it cannot be disputed that under the provisions of the Act, only one assessment order is contemplated for a given year against an assessee. The Act does not provide for multiplicity of assessment orders (for a given year) against the same assessee. However, the observation of the Hon'ble High Court has to be seen in the context of the facts and issue before the Hon'ble Court. The issue in that case was when the revisional order of CIT has been cancelled by the Tribunal, can the ITO pass an order in pursuance of CIT's order? The Hon'ble High Court held that as on the date of passing the second order by ITO, the CIT's order did not exist. Hence he should not have given effect to it and it is in that context the Hon'ble High Court made the impugned observation. The matter did not relate to framing of assessment on the principle as well as the agent, as is the case here.
5.5. Therefore, in view of the above, the assessments made by the A.O. on the appellant and Valentine simultaneously are valid and these grounds of appeal are rejected.
10. The learned CIT Departmental Representative pointed out that the learned CIT(A) has supported his order by relying on the Andhra Pradesh High Court decision in the case of Barium Chemicals Ltd. (supra) and the Kerala High Court decision in the case of Fertilizers & Chemicals (Travancore) Ltd. (supra). It is claimed by the learned CIT Departmental Representative that these decisions settled the issue and that two assessments are permissible under law.
11. We have given our careful consideration to the rival submissions. We have also carefully gone through the relevant facts as emerging from the records and have considered the precedents relied upon before us by both the sides. We have no hesitation in holding that the Assessing Officer was wholly unjustified in passing the impugned orders Under Section 163 and Under Section 144 r.w. Section 147 and 163, with a view to bring to the charge of tax the income which is also simultaneously assessed on substantive basis in the case of Valentine. The learned CIT(A) has also erred in confirming the order passed by the Assessing Officer. We state our reasons as under.
12. There is no dispute that the assessee company can be treated as an agent and thus a representative assessee of Valentine Under Section 163 of the Income Tax Act. Section 163 has been enacted to protect the interest of the Revenue, in case assessment on the non-resident assessee and recovery of tax from him is difficult. Sub-section (2) of Section 163 stipulates that no person shall be treated as the agent of a non-resident unless he has had an opportunity of being heard by the Assessing Officer as to his liability to be treated as such. It is a mandatory requirement that before passing an order Under Section 163, the Assessing Officer must allow an opportunity of being heard. In the present case, the Assessing Officer issued a notice Under Section 163 on 5th February 2002 not at the Mumbai office of the assessee company, but at the old address at Jamnagar and the same was returned by the postal authority undelivered. The undelivered notice was received by the Assessing Officer's office on 18th February 2002. The Assessing Officer has mentioned in his order that the notice was also issued on the London address, but no documentary evidence in support of this statement has been filed before us even though the learned Departmental Representative was instructed by the Bench as per order sheet noting dated 5th June 2006. The assessee has denied having received any such notice at the London address and has stated that it became aware only when the order passed by the Assessing Officer Under Section 163 was received at London on 27th March 2006. The opportunity of being heard as required Under Section 163 has to be a meaningful opportunity and the statute requires that the Assessing Officer must allow such meaningful opportunity and must hear the assessee if the assessee avails of such opportunity. In our view in the present case, no such opportunity was granted to the assessee and therefore, the order passed Under Section 163 is bad in law.
13. Coming to the proceedings initiated by the Assessing Officer Under Section 147 of the Income Tax Act, the notice Under Section 148 issued by the Assessing Officer was received by the assessee on 27th March 2002 at London, as informed by the assessee to the Assessing Officer vide letter dated 2nd April 2002. The Assessing Officer passed his ex-parte order on 28th March 2002, even though the limitation period for passing such order would be expiring on 31st March 2003. On the same day, the Assessing Officer passed a separate assessment order in the case of Valentine bringing to the charge of tax the same income on substantive basis. Before completing the ex-parte assessment, the Assessing Officer did not think it necessary to issue any other notice to the assessee. In our view, the ex-parte assessment has been framed by the Assessing Officer without allowing any opportunity to the assessee and even before the expiry of the period of 7 days given to the assessee for filing return of income. Such ex-parte order in our view cannot be sustained in law.
14. Another important issue is as to whether the Assessing Officer having already assessed the income in the hands of the real assessee, can make a protective assessment in the case of the assessee holding it to be agent of Valentine. It would be appropriate to deal with the cases referred to by the learned CIT(A) and also relied upon by the learned Departmental Representative. In the case of Barium Chemicals Ltd. (supra), while disposing the writ petitions filed by the assessee, the Andhra Pradesh High Court held that merely because the agent of the non-resident can be assessed Under Section 160 and 163 of the Income Tax Act, assessment and recovery of tax in the hands of the non-resident principal is not barred. In that case, the assessments were still pending and only notices were issued. We find that at pages 641 and 642 of the report, the Andhra Pradesh High Court has considered and distinguished the Bombay High Court judgment in the case of Chaturbhuj Raghavji Trust v. CIT 50 ITR 693 on similar issue. It would be appropriate to reproduce below the relevant part of the Andhra Pradesh High Court decision from pages 641 and 642 of the report:
Reliance, however, was placed upon a decision of the Bombay High Court in Chaturbhuj Raghavji Trust v. Commissioner of Income-tax. That case can be distinguished easily on the facts. In that case, an amount of Rs. 25,000 was paid by the trustees to Bai Champavahoo. The amount was treated as an income and was brought to tax from the hands of Bai Champavahoo directly. The argument was that the same amount could not be brought again to tax in the hands of the trustees.
The above case could have been disposed of on one short ground that the beneficiary having already been assessed and tax recovered from the beneficiary, a fresh assessment and recovery of tax on the same transaction was neither possible nor permissible. The learned judges of the Bombay High Court, however, considered the argument that, since the said income had already been brought to tax in the hands of Champavahoo, it could not be brought to tax again in the hands of the trustees. While considering this argument, their Lordships of the Bombay High Court considered Section 41(2) of the Indian Income-tax Act, 1922, which is in pari material with Section 166 of the Income-tax Act, 1961. Their Lordships observed that:
Section 41 having provided for two alternative methods, namely, either to tax the income in the hands of the trustees or directly in the hands of the person on whose behalf the income was receivable under the trust, and one of them having been availed of by the income-tax department in directly assessing Champavahoo in respect of the income, the other was no longer available to the department.
Their Lordships further observed:
Section 41 was a special enabling provision which permitted the assessment in the hands of the trustees but did not preclude the direct assessment in the hands of the beneficiaries.
Their Lordships concluded:
There is nothing in Section 41 which would indicate that the choice between the alternative methods provided therein has to be made only at the time of the assessment of the trustees or that the choice only belongs to the Income-tax Officer who is assessing the trust.
If these observations are read in the context in which they are made, it would not be difficult to understand that what all their Lordships said was that Champavahoo having already been assessed and tax recovered from her, the Income-tax Officer could not have proceeded against the trustees for recovery of tax on the same transaction. It is true that their Lordships have read Section 41(2) to suggest that there are two alternative methods, namely, either to tax the income in the hands of the trustees, or directly in the hands of the person on whose behalf the income was receivable. But their Lordships immediately said that the income-tax department having availed of one of the methods, viz, having proceeded against Champavahoo and recovered the tax from her, the trustees could not have been proceeded against.
15. From the above discussion, it may be seen that in the case of Chaturbhuj Raghavji Trust, the relevant amount was assessed in the hands of Bai Champavahoo directly and the Bombay High Court held that such income could not be brought to the charge of tax again in the hands of the trustees Under Section 41(2) of the Indian Income Tax Act, 1922 which is in pari materia with Section 166 of the Income Tax Act, 1961. In our view, the judgment in the case of Barium Chemicals Ltd. will not be applicable to the facts of the assessee's case and on the other hand, the Bombay High Court decision in the case of Chaturbhuj Raghavji Trust supports the view that the income having been brought to a charge of tax in the hands of the real person, the same income cannot be once again assessed in the case of a representative assessee.
16. The learned CIT Departmental Representative has also strongly relied on the Kerala High Court decision in the case of CIT v. Fertilizers & Chemicals (Travancore) Ltd. (supra). We deem it proper to reproduce the facts and the ratio of this case from the headnote as under:
The basis of the charge under the Income-tax Act is the total income of a previous year of a person and it includes all income from whatever sources derived. However, it is pertinent to note that the total income is determined "subject to the provisions of the Income-tax Act". The charge in respect of the total income is expressly declared to be "in accordance with and subject to the provisions of this Act". These expressions "in accordance with" and "subject to the provisions of this Act" make it clear that the assessment of the income of a non-resident accrued or arisen in India through an agent, shall be subject to and in accordance with the provisions contained in Chapter XV of the Income-tax Act They are special provisions and, therefore, they should be adhered to while assessing the income earned by a non-resident through an agent, in the hands of the agent. The object sought to be achieved in enacting Section 160, 161, 162 and 163 of the Income-tax Act, 1961, in Chapter XV of the Act is to fasten on the person, who actually carries on the business, the liability to pay the tax on the income received by him, regardless of its destination or enjoyment. A non-resident may have several representative assesses in respect of several heads under which income is derived by him. There can, therefore, be more than one assessment in respect of the income accrued or arisen to a non-resident provided there are more than one representative assessee. Direct assessment on the non-resident in respect of other income would not affect the jurisdiction of the Income-tax Officer to assess the agent of the non-resident on income arising to the non-resident through him. Inasmuch as a representative assessee can have recourse to Section 162 which confers on him the right to get reimbursement of the tax paid by him as also the right to get a "certificate from the Income-tax Officer for retention", it cannot be said that he is aggrieved by the assessment made upon him in accordance with the provisions contained in Chapter XV.
The assessee-company had entered into a collaboration agreement with a foreign company for construction of a synthesis gas plant. The assessee was to pay certain amount to the foreign company. The Income-tax Officer treated the assessee-company as the agent of the non-resident foreign company under Section 163 of the Income-tax Act and assessed the aforesaid amount in the hands of assessee-company. The Appellate Assistant Commissioner cancelled the assessment as also the orders under Section 163 on the ground that the assessee-company could not be treated as an agent of the foreign company as there was no business connection between the foreign company as there was no business connection between the foreign company and the assessee. The Appellate Assistant Commissioner also found that since the non-resident foreign company had already been assessed directly in India, the said foreign company should not have again been assessed "through an agent". The Appellate Tribunal upheld the order of the Appellate Assistant Commissioner. On a reference:
Held, that the Tribunal had not considered the question whether the assessee had any business connection with the non-resident so as to treat is as an agent of the non-resident under Section 163. Only on deciding this issue, the question whether the orders passed by the Income-tax Officer under Section 163 and the assessment for the year of assessment 1968-69 could be said to be valid or not. The question required to be considered afresh.
17. In the above case the non-resident was having several representative assessees in respect of several heads of income and in this context, the High Court observed that there can be more than one assessment in respect of the income accrued or arisen to a nonresident provided there are more than one representative assessee. The High Court held that direct assessment on the non-resident in respect of other income would not affect the jurisdiction of the ITO to assess the agent of the non-resident on income arisen to the nonresident through him (emphasis supplied). What the High Court meant was if some other income has been assessed in the case of the non-resident, the Assessing Officer has jurisdiction to frame assessment on the agent of the non-resident in respect of some income flowing to the non-resident through the agent. This decision of the Kerala High Court, in our view cannot be interpreted to mean that the same income can be assessed simultaneously in the hands of the non-resident and in the hands of the agent. In our view such double taxation militates against the cardinal principles for levying tax on income. It is true that the department may not be sure as to in whose hands the income should be brought to the charge of tax or for which assessment year such income is assessable. In such a situation, the department is legally justified in making two assessments out of which one is substantive assessment and the other is protective assessment. This is what has happened in the present case. The Assessing Officer has brought to a charge of tax the relevant income on substantive basis in the hands of Valentine and on protective basis in the hands of the assessing company. The learned CIT(A) at para 7.2 of his order has made following observations:
However, I find that vide appellate order No. CIT(A)XXXI/DDIT(IT)2(1)/IT.214/02-03/03-04 dated 28th July 2003, I have held that the benefit of Indo UAE DTAA is not available to the Valentine and therefore there is no question of any exemption being available to the Valentine under Article 8(2) of the DTAA. I have also upheld the taxability of the contract amounts by applying provisions of Section 44BB of the I.T. Act. Since Valentine's income from subcontract with Saipem is held as taxable in India and the appellant has been assessed as representative assessee of Valentine, the order in the case of M/s. Valentine Maritime (Gulf) LLC, UAE equally apply in the case of appellant company. Therefore, the assessment in the hands of the agent, i.e. the appellant, is confirmed after it is held that the income in the hands of the principal i.e. M/s. Valentine Maritime (Gulf) LLC, UAE is taxable in India.
18. From the above, it is seen that the appeal in the case of Valentine was dismissed by the CIT(A) on 28th July 2003 and thus the assessment in the case of Valentine achieved finality. In our view, the learned CIT(A) was wholly unjustified in relying on the Andhra Pradesh and Kerala High Courts decisions referred to supra, which are clearly distinguishable on the facts and further in confirming the protective assessment made in the case of the assessee company even though substantive assessment was confirmed by him.
19. For the various reasons discussed by us above, we quash the relevant orders passed by the Assessing Officer and the learned CIT(A) which are subject matter of this appeal.
ITA No. 4974:
20. The only issue raised in this departmental appeal pertains to deletion by the learned CIT(A) the interest charged Under Section 234B. Since the relevant orders have already been quashed by us while deciding the assessee's appeal, the departmental appear is rendered infructuous and is liable to be dismissed on that ground.
21. In the result, the assessee's appeal is allowed and Revenue's appeal is dismissed.
Order pronounced on 13th September 2006.