Income Tax Appellate Tribunal - Delhi
Sheraton International Inc. vs Deputy Commissioner Of Income-Tax on 23 October, 2002
Equivalent citations: [2003]85ITD110(DELHI)
ORDER
K.C. Singhal, Judicial Member
1. Since common issue is involved in both these appeals, the same are being disposed of by the common order for the sake of convenience.
2. At the outset and before coming to the main issue on merits, the learned counsel for the assessee Shri Ajay Vohra has challenged the validity of assessment for the assessment year 1997-98 by contending that the notice issued under Section 142(1), on the basis of which assessment was made by Assessing Officer, was barred by period of limitation and, therefore, the entire assessment proceedings were yoidab initio. It has been contended that though there is no express provision providing period of limitation for issuance of notice under Section 142(1), it can be deduced from the scheme of the Act. According to him, such notice cannot be issued after the end of the assessment year or alternatively, after the expiry of one year from the end of the assessment year. Since notice under Section 142(1) calling the assessee to file the return for assessment year 1997-98 was issued on 28-1-2000, it was barred by limitation.
3. In support of the above contention, he has relied on the scheme of the Act under Chapter XIV. According to him, before the amendment effective from 1-4-1990, Section 142(1) authorized the Assessing Officer to call for the return of income where a person had failed to file the return till the end of the assessment year. After the amendment, the time for calling the return under Section 142(1) was preponed and the return could be called if the person failed to file the same before the expiry of time under Section 139(1). Sub-section (5) provided the time of one year from the end of the assessment year to revise such return. Section 139(4) provides the time limit of one year from the end of the assessment year where assessee has failed to file the return under Section 139(1) or in response to notice under Section 142(1). According to him, if harmonious construction of these provisions is made, then notice under Section 142(1) can be issued only before the expiry of one year from the end of the assessment year.
4. Proceeding further, it is contended that after the expiry of one year from the end of the assessment year, the provisions of Section 147 would come into play as it would be a case of escaped assessment and consequently, the assessment could be made only in pursuance of notice under Section 148. Therefore, according to him, the provisions of Sections 147 and 142 are mutually exclusive and do not impinge upon each other. Reliance was placed on the full bench decision of Karnataka High Court in the case of Kareem Sons (P.) Ltd. v. CIT [1992] 198 ITR 5431,of Calcutta High Court in the case of Satyanarayan Bhalotia v. CIT [1994] 207 ITR 10302 and in the case of Himmat Singhka Motors Works Ltd. 26 Taxman 259 (sic). According to him, the contention of the revenue that such notice can be issued before the expiry of the period provided in Section 153 for making the assessment cannot be accepted as in such a situation the provisions of Section 142(1) would impinge upon the provisions of Section 147.
5. Proceeding further, it was contended that Legislature has provided limitation for completion of assessment and has ensured that sufficient time is available for making assessment i.e., 12 months from the expiry of the month in which return is filed. If the stand of the revenue is accepted, then it would amount to curtailment of time provided in Section 143(2). Reliance is also placed on the decision of the Tribunal, Hyderabad Bench in the case of Vijay Kumar Datlain [IT Appeal Nos. 4379 to 4381 (Delhi) of 2000], copy of which has been placed on record.
6. On the other hand, the special counsel for the revenue Mr. Sharma has strongly opposed the contentions raised by Mr. Vohra. At the outset, it has been argued that the decision of a court or Tribunal has to be considered in the context of the pleadings of the parties raised before such court/ Tribunal. According to him, where the relevant aspects of the matter were neither raised by the parties nor considered by such court or the Tribunal then such decision becomes distinguishable. Proceeding further, it was firstly contended by him that provisions of Section 142(1) are clear and unambiguous and, therefore, there is no room for any intendment or implied meaning. Since no period is prescribed by the Legislature, no limitation can be placed for issuance of notice under Section 142(1). If any period of limitation is to be read in by implication then such period would be the period provided for completion of assessment under Section 153. According to him, the purpose of Section 142(1) is only for making assessment and that purpose can be served till the end of the two years from the end of assessment year. Therefore, according to him, so long as the purpose is served, the notice can be issued at any time.
7. It was then contended that Section 139(4) permits the assessee to file the return up to expiry of the one year from the end of the assessment year where no notice under Section 142(1) has been issued but there is no prohibition for issuance of notice under Section 142(1) after the expiry of the period prescribed under Section 139(4) and such notice can be issued till the purpose of assessment is served. Reliance is placed on the Calcutta High Court decision in the case of Satyanarayan Bhalotia (supra). Proceeding further, he submitted that provisions of Section 142(1) are in the nature of power conferred on the Assessing Officer whereas the provisions of Section 139(4) are merely in the nature of right conferred on the assessee who wishes to file the return after the expiry of the period under Section 139(1). So there is no conflict between these two provisions and powers of the Assessing Officer under Section 142(1) are not controlled by Section 139(4).
8. It was then contended that provisions of Explanation 2 to Section 147 would not apply to the present case since the assessment has been made in time. Once it is held that such provisions are not applicable in this case, the entire arguments of the assessee's counsel fails. Reliance was placed on the decision of Supreme Court in the case of Ghanshyam Das v. Regional Asstt. CST[1964] 51 ITR 557 and Calcutta High Court decision in the case of Hum Boldt Wedag India Ltd. v. Asstt. CIT [1999] 236 ITR 845. It was also contended that Section 142(1) can be issued even in reassessment proceedings since what is true to the assessment is also true to the re-assessment. It was also contended that provisions of Section 144 also suggests that notice under Section 142(1) can be issued even before making assessment under Section 144.
9. After considering the rival submissions of the parties, we are not inclined to accept the legal contention raised by the learned counsel for the assessee. Admittedly, there is no express provision providing period of limitation for issuance of notice under Section 142(1). The question for determination is whether there is any implicit bar for issuance of such notice keeping in view the scheme of the Act. Though we are in agreement with the contention of the learned counsel for the revenue that where the language of the provisions are clear and unambiguous then there is no place for intendment or implied meaning but we are unable to accept his suggestion that in such cases powers of the Assessing Officer remain unfettered. The Hon'ble Supreme Court in the case of Gurbux Singh v. Union of India AIR 1976 SC 1115 has held that such powers must be exercised within a reasonable period. Reference can also be made to another judgment of the Supreme Court in the case of State of Gujarat v. Patel Raghav Nath AIR 1969 SC 1297 and the decision of Kerala High Court, in the case of K. Ishwara Bhatt v. CAIT [1993] 200 ITR 2381. The principle underlying these judgments is that the statutory powers must be exercised bona fide, reasonably, without negligence and for the purposes for which such powers are conferred. Such view has also been taken by the Tribunal in the case of Raymond Woollen Mills v. ITO [1996] 57 ITD 536 (Bom.) and in the case of Sahara Airlines Ltd. v. Dy. OT[2002] 83 ITD 11 (Delhi). Following the same, it is held that though there is no express provision for issuance of notice under Section 142(1), it should be issued within reasonable period considering the scheme of the Act.
10. In the above background, let us now examine the provisions of Section 142(1) along with the scheme of the Act. For the benefit of this order, the relevant portion of Section 142(1) is being reproduced as under :
Section 142(1).-For the purpose of making an assessment under this Act, the Assessing Officer may serve on any person who has made a return under Section 139 or in whose case the time allowed under Sub-section (1) of that section for furnishing the return has expired a notice requiring him, on a date to be therein specified,-
(i) where such person has not made a return within the time allowed under Sub-section (1) of Section 139, to furnish a return of his income or the income of any other person in respect of which he is assessable under this Act, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed, or
(ii) to produce, or cause to be produced, such accounts or documents as the Assessing Officer may require, or
(iii) to furnish in writing and verified in the prescribed manner information in such form and on such points or matters (including a statement of all assets and liabilities of the assessee, whether included in the accounts or not) as the Assessing Officer may require.
A bare reading of the above provisions shows that issuance of notice is controlled by the words "for the purpose of making an assessment under this Act". So the purpose of making an assessment is sine qua non for issuance of notice under Section 142(1). Hence, this aspect of the matter has always to be kept in mind while deciding the issue of limitation for issue of such notice. If this aspect is kept in mind then it is clear that such notice can be issued at any point of time if the Assessing Officer has jurisdiction/power to assess any person. If the Assessing Officer, at any point of time, cannot make the assessment in view of certain provisions of the Act then certainly he would not be entitled to issue such notice. That is the only implicit bar, in our opinion, for issuance of such notice. If any other meaning is assigned then it would amount to violence of the language of this section and would lead to absurd result, which is not permissible.
11. Further, reading of this section shows that such notice can be issued either where any person has made a return under Section 139 or where no return has been filed within the period allowed under Section 139(1). A bare reading of these conditions shows that the Legislature has issued the words "return under Section 139" for a situation where any person has already filed the return while it has used the words "under Sub-section (1) of that section" for a situation where no return has been filed. The words "return under Section 139" would include return filed under any of the sub-sections of Section 139. Such view has been taken by the Hon'ble Supreme Court and various High Courts while construing such words in Section 80. Reference can be made to the Supreme Court judgment in the case of CIT v. Kulu Valley Transport Co. (P.) Ltd. [1970] 77 ITR 518. So the return filed under Section 139(4) would clearly be included within the meaning of the words "return under Section 139". The return under Section 139 for the year under consideration could be filed within one year from the end of the assessment year. That means, the notice under Section 142(1) can be issued where the return has been filed after the end of the assessment year but before the expiry of one year after the end of the assessment year. Therefore, the contention of the learned counsel for the assessee that notice under Section 142(1) cannot be issued after the expiry of assessment year, cannot be accepted.
12. Proceeding further, let us examine the alternate contention of assessee's counsel where such notice can be issued after the expiry of One year from the end of the assessment year. This contention also, in our opinion, cannot be accepted. As already stated by us, that return under Section 139(4) can be filed within one year from the end of the assessment year. But the assessment of such assessee can be made by the Assessing Officer before the expiry of two years from the end of the assessment year. For the purpose of making an assessment, the Assessing Officer has to issue notice under Section 143(2) within a period of 12 months from the end of the month in which the return is filed. If notice under Section 143(2) has been issued within time then certainly the Assessing Officer has the authority to issue notice under Section 142 for the purpose of making assessment. Undoubtedly, in such cases, the notice under Section 143(2) can be issued after the expiry of one year from the end of the assessment year since 12 months from the end of the month in which return is filed would always fall after the end of one year from the end of the assessment year. Let us take an example. An assessee files a return under Section 139(4) for assessment year 1997-98 in June 1998. Such return would be a valid return and would be construed as a return under Section 139. Therefore, the Assessing Officer can issue notice under Section 143(2) by 30th June, 1999. If the Assessing Officer issues notice under Section 143(2). In May 1999, then certainly Assessing Officer can validly issue notice under Section 142(1) for the purpose of making an assessment which would certainly be after an expiry of one year from the end of the assessment year. Such interpretation would negate the contention of the assessee's counsel that notice under Section 142(1) cannot be issued after the expiry of one year from the end of the assessment year. If the contention of the assessee's counsel is accepted then it would tantamount violence to the words 'return under Section 139' and defeat the scheme of the section itself.
13. This aspect of the issue can also be seen from another angle. As already stated, the notice under Section 142(1) can be issued for the purpose of making assessment under the Act. The assessment under this Act would include re-assessment as per the definition Clause (8) of Section 2. Section 148 provides issuance of notice for making re-assessment. It further provides in the following terms :
and the provisions of this Act shall, so far as may be, applied accordingly as if the notice were a notice issued under that sub-section.
A bare reading of such provision clearly shows that once the return is furnished in response to notice under Section 148 then such return has to be treated as return under Section 139 and all the relevant provisions of the Act would become applicable. That means, notice under Section 142(1) can be issued even in respect of such return since such return has to be treated as return under Section 139. That is what has also been held by the Tribunal in the case of Qr. K.C. Verma (supra) on which reliance, was placed by the learned counsel for the assessee. In view of such scheme of the Act, notice under Section 142(1) would certainly be beyond the period of one year from the end of the assessment year. Therefore, in our considered opinion, the contention of the assessee's counsel has to be rejected.
14. At this stage, we may observe that construction of the provisions of a section has to be made considering the entire provisions of the section as a whole and no part of it can be ignored. If the outer limit for issuance of such notice is to be seen then it is necessary to consider both the purposes mentioned in Clauses (i) and (zz) of Sub-section (1). According to these clauses, the notice can be issued with a view either to direct the assessee to file the return, who has failed to comply with the provisions of Section 139(1) or with a view to direct the assessee to produce or cause to produce such books of account or documents as may be required by Assessing Officer. Both these directions are to facilitate the assessment which/would serve the ultimate object of this section provided in the opening words "For the purpose of making an assessment under this Act". The direction to produce the books of account or documents by way of notice can be given where the return has been filed within the period specified under Section 139(4) while the direction to file the return through notice can be issued immediately after the expiry of the period under Section 139(1). If outer limit for issuance of notice is to be considered, then such limit should facilitate arid serve both these purposes. Therefore, the period provided either under Section 139(1) or 139(2) as existed up to 31-3-1989 cannot be said to be outer limit for issuing notice under Section 142 as contended by the learned counsel for the assessee. One must consider the outer limit keeping in mind the provisions of sub-sections of Section 139 and the time available to the Assessing Officer for making the assessment because the ultimate object is to make the assessment. Such construction would be in consonance with the scheme of the Act. Therefore, on the principle of harmonious construction, we are of the considered view that notice can be issued at any time if the object of making the assessment under the Act can be achieved. So the notice under Section 142(1) can be issued even where the Assessing Officer is in the process of making assessment including re-assessment.
15. We have also examined this issue from another angle. An assessment under Section 144 would also fall within the ambit of the opening words "For the purpose of making an assessment under this Act". One of the conditions provided in Section 144 is non-filing of the return within the period prescribed under Section 139(1) and further non-furnishing of return under Sub-section (4) or (5) of Section 139. In such case, the Assessing Officer is authorized to proceed to make the assessment as provided in Section 144. Such assessment can be made after the end of one year from the previous assessment year because of the period provided under Section 139(4). Since in such cases, the return is not filed, the question of issuing notice under Section 143(2) would not arise. The only course open to Assessing Officer would be to issue notice under Section 142(1). Thus, for the purpose making an assessment under Section 144, the Assessing Officer would be within his jurisdiction/power to issue notice under Section 142(1) as such case would also fall within the ambit of words "or in whose case the time allowed under Sub-section (1) of that section for furnishing the return has expired" contained in Section 142(1). Such construction would mean that notice can be issued even after the end of one year from the end of the assessment year. This view is, in our opinion, fortified by the provisions of the second proviso to Section 144 which clearly suggests that notice under Section 142(1) can be issued before making assessment under this section. In view of such discussion, the contention of assessee's counsel that no assessment can be made in such cases without the issue of notice under Section 148 cannot be accepted. Having held so, it is not necessary for us to express any opinion on the issue whether non-filing of the return within the period prescribed under Section 139 amounts to escapement of income or not.
16. Before concluding this issue, we would like to mention few words about the various decisions relied upon by the learned counsel for the assessee. The decision of the Tribunal Delhi Bench in the case of Dr. K.C. Verma (supra) is distinguishable on facts and rather supports the case of revenue. In that case, the returns were filed by the assessee under Section 139(4) and the time limit prescribed for issuance of notice under Section 143(2) had already expired before the issuance of notice under Section 142(1). On these facts, it was held that Assessing Officer had no jurisdiction to proceed to make the assessment after the expiry of the period specified in Section 143(2) and consequently, a notice issued under Section 142(1) after the expiry of such period was bad in law. This proposition nowhere supports the case of the assessee. In the case before the Hyderabad Bench, the scheme of the Act as discussed by us was neither raised by the parties nor considered by the Bench and, therefore, the said decision becomes distinguishable. The decisions of the Karnataka High Court in Kareemsons (P.) Ltd, 's case (supra) and Calcutta High Court in Satyanarayan Bhalotia 's case (supra) are not directly on the point before us. In those cases, the courts held that right of assessee under Section 139(4) cannot be taken away by issuance of notice under Section 148 and consequently, the claim of set-off of losses under Section 80 would still be available to the assessee. In our considered opinion, these decisions cannot be applied for deciding the issue before us and, therefore, are quite distinguishable.
17. In view of the above discussion, it is held that notice under Section 142(1) can be issued at any time so long as the Assessing Officer has jurisdiction/power to proceed with the assessment of the assessee. Therefore, the outer limit cannot be seen with reference to any date but is to be linked with the purpose of the assessment. If the Assessing Officer, on any particular date, cannot proceed with the assessment then in such cases he would not be authorized to issue notice under Section 142(1). In the present case, no return was filed by assessee till the issue of notice under Section 142(1). The period prescribed under Section 139(1) as well as under Section 139(4) had already expired before the issue of notice under Section 142(1). Thus, there was failure on the part of the assessee as contemplated by Section 144(1)(a). Therefore, the Assessing Officer was within his jurisdiction to proceed to make assessment under Section 144. The notice was issued on 28-1-2000 on which date the case of the assessee fell within the ambit of the words "Where such person has not made a return within the time allowed under Sub-section (1) of Section 139" contained in Section 142(1)(z). Therefore, in our considered opinion, such notice was validly issued.
18. The assessment for assessment year 1997-98 has also been challenged on the ground that order under Section 143(3) could not be made by the Assessing Officer without issuing notice under Section 143(2). We are unable to accept this argument of the assessee's counsel since in fact the order passed by the Assessing Officer was under Section 144 and by mistake, it was mentioned as an order under Section 143(3). The defect, if any, in our opinion, would not invalidate the assessment order in view of the provisions of Section 292B.
19. It has also been contended by the learned counsel for the assessee that even if the order of assessment was under Section 144, the same was bad in law since the opportunity provided in the second proviso to Section 144 was not given to the assessee. This argument too cannot be accepted since notice under Section 142(1) had already been issued to the assessee and the second notice is not permissible in view of the clear language of the second proviso to Section 144.
20. Now we come to the main issue arising out of these appeals. The issue to be considered is whether the amount received by the assessee, who is a non-resident, from the Indian hotels @ 3% of room charges on account of services rendered for publicity, marketing and reservations is taxable in India.
21. Briefly stated, the facts are these. The assessee is a company incorporated in USA engaged in the business of managing/operating hotels and rendering hotel-related services. The assessee had entered into agreement with ITC group of hotels for rendering certain services in the field of publicity, marketing and reservation against consideration of 3% of room charges. Since no return was filed for assessment year 1997-98 in pursuance of notice under Section 142(1), the Assessing Officer proceeded to make the ex parte assessment against the assessee. The Assessing Officer held that such receipts were taxable under Section 9(1)(i) since (i) agreement was signed in India; (ii) the payment was received on the basis of hotel business carried out in India; (iii) the assessee had business connection in India. Alternatively, it was also held that such receipts fell within the definition of "royalties and fees for included services" as defined under Article 12 of>the Double Taxation Avoidance Agreement (in short DTAA) between India and USA. In the absence of any details, the Assessing Officer estimated the receipts at Rs. 30 crores and the same was taxed @ 1596.
22. The matter was carried before the CIT(A), who held that assessee was not taxable under Section 9(1)(z) as it had no permanent establishment in India. However, he agreed with the view of the Assessing Officer that major services fell within the ambit of the word "royalties" as defined in Article 12 of DTA while one service led to commercial profits. Hence, it was held by him that 75% of the receipts were taxable in India.
23. Facts pertaining to assessment year 1998-99 are almost similar except the fact that assessee filed the return for this year in pursuance of notice under Section 142(1) and necessary details were filed. The Assessing Officer in this year also held that receipts of the assessee were royalties within the meaning of Article 12 of DTAA. Since income from certain services were to be treated as business profits, it was held that the same were not taxable as assessee had no permanent establishment in India. Hence, 75% of the receipts were held to be taxable @ 15%. For the reasons given in th e earlier order for the preceding year, the CIT(A) also upheld the action of the Assessing Officer. Aggrieved by the same, the assessee is in appeals for both the years before the Tribunal.
24. Both the parties have been heard at length. After going through the orders of authorities below and considering the arguments of the parties, we are of the view that the issue had not been dealt with in the right perspective inasmuch as the Assessing Officer as well as CIT(A) had proceeded on the assumption as if the covenants of DTAA authorises the levy of tax on the income of the non-resident. The parties before us also have not addressed any argument as to whether the income of nonresident assessee is chargeable to tax under the provisions of Income-tax Act, 1961 or not. They simply have proceeded on the same footings on which lower authorities decided the issue. We are unable to uphold such approach adopted by the lower authorities for the simple reason that taxability of the income of non-resident has to be first determined in the light of the charging provisions of Income-tax Act. The scheme of the Act is that taxability of the income of the non resident has to be determined with reference to the charging provisions of sections 4, 5 and 9. However, Section 5 is subject to the other provisions of the Act. Section 90 authorizes the Central Government to enter into an agreement with the Government of any other country for-
(a) The granting of relief in respect of income on which have been paid both income-tax under this Act and income-tax in that country; or
(b) For the avoidance of double taxation of income under this Act and under the corresponding law in force in that country; or
(c) For exchange of information for the prevention of evasion or avoidance of income-tax chargeable under this Act or under the corresponding law in force in that country or investigation of cases of such evasion or avoidance; or
(d) For recovery of income-tax under this Act and the corresponding law in force in that country.
The combined reading or these provisions clearly reveals that provisions of Section 90 are to be invoked for granting relief to the assessee if the income of the non-resident assessee is chargeable to tax under Sections 4, 5 and 9. If the income of non-resident itself is not chargeable to tax under the Income-tax Act, then the question of invoking the provisions of Section 90 would not arise at all. None of the parties below decided the issue as to whether the income of non-resident was taxable as royalty under the charging provisions of the Income-tax Act. Therefore, we set aside the orders of the CIT(A) for both the years and restore the matter to the file of Assessing Officer for fresh adjudication in accordance with law. At this stage, we may also refer to a decision rendered by the Authority for Advance Ruling in the case of Cyril Eugene Pereira, wherein it has been held that provisions of DTAA cannot be availed of if the non-resident is taxable only in one country. The other view has also been expressed by the said authority in the cases Mohsinally Alimohammed Rafik, In re [1995] 213 ITR 3171 (AAR) and Dr. Rajnikant R. Bhatt, In re [1996] 222 ITR 5622 (AAR). The Assessing Officer will take into consideration these decisions while deciding the issue. The assessee shall also be given a reasonable opportunity of being heard and to lead the evidence in support of its case.
25. In the result, both the appeals are allowed for statistical purposes.