Income Tax Appellate Tribunal - Mumbai
Asstt. Cit vs Dhl Operations Bv on 6 March, 2007
ORDER
Pramod Kumar, A.M.
1. By way of this order, we seek to dispose of petition dated 24-8-2006, filed by the revenue appellant praying for admission of the following additional grounds of appeal:
1. The learned Commissioner (Appeals) has erred in law and on facts in concluding that the assessee has no permanent establishment in India.
2. Without prejudice to the above, the learned Commissioner (Appeals) has failed to consider that a part of entire revenue arising to the assessee from inbound and outbound consignments were taxable in India, as royalties under Section 9(1)(vi) of the Income Tax Act, 1961, read with Expln. 2(1)(i) and/or (iv) and read with art. 12 of the India Netherlands Double Taxation Avoidance Agreement.
3. Without prejudice to the above, the learned Commissioner (Appeals) has failed to consider that remaining part of the entire revenue arising to the assessee from inbound and outbound consignments were taxable in India, as fees for technical services under Section 9(1)(vii) read with Expln. (2) of the Income Tax Act, 1961, and read with art. 12 of the India Netherlands Double Taxation Avoidance Agreement.
2. The facts and circumstances leading to our being in seisin of this petition are like this. The assessee is a non-resident company, incorporated in and under the laws of the Netherlands. The assessee company is a part of DHL Worldwide Express Group which is engaged in the business of operating courier services worldwide. The operations of DHL Worldwide Express Group in the United States of America are carried out through DHL Operations Inc, a company incorporated in the United States of America, and its operations outside the United States of America are carried out by DHL Operations Ltd., a Hong Kong based company. The DHL Operations Ltd. in turn, does business through various wholly owned subsidiaries, and the assessee company before us is one such wholly owned subsidiary of the DHL Operations Ltd.
3. The assessee company had an arrangement with an Indian company by the name of Air Freight Ltd., AFL in short, under which the assessee company used to hand over its inbound shipments (i.e. courier shipments accepted by the assessee company which were to be delivered to consignees in India) at Indian gateways to AFL for delivering the courier shipments to India-based consignees. Likewise, the assessee company also used to accept AFL's outbound shipments (i.e. courier shipments booked by AFL which are to be delivered outside India) from Indian gateways, and deliver them to the consignees outside India. According to the assessee, the basis on which these commercial arrangements were reached was agreement dated 19th May, 1989 entered into between the AFL, which was duly approved by the Government of India (Ministry of Finance) vide its letter dated 21st Sept., 1989.
4. The assessee's stand before the assessment authorities was that the assessee did not have any business connection in India, that the assessee did not carry out any business operations in India, that the assessee's transactions with AFL were on 'principal to principal' basis, and that no part of its income accrues or arises, or is deemed to accrue or arise, in India. The assessee also contended that since the assessee did not have any PE in India, no part of its business profits in India could be taxable in India in the light of art. 7 of the India Netherlands Double Taxation Avoidance Agreement.
5. None of these contentions, however, impressed the assessing officer. Relying upon the assessment order for the assessment year 1990-91, the assessing officer computed the taxable income of the assessee as follows Income from outbound shipments 55 per cent of the amount of bills raised by the assessee company to the AFL, in respect of outbound shipments , was taken as relatable to the activity carried on in India Income, on the amount so arrived at in respect of the activity carried out in India, was estimated at 8.36 per cent Income from inbound shipment In the absence of actual figures for revenue generated by India by inbound shipments accepted abroad, the gross revenue in respect of inbound shipments was assumed at 110 per cent of the actual billing in respect of outbound shipment.
22.5 per cent of such gross billing was assumed to be relatable to the activity carried out in India.
Income, on the amount so arrived at in respect of the activity carried out in India, was estimated at 8.36 per cent.
6. Aggrieved by the order of the assessing officer, assessee carried the matter in appeal before the Commissioner (Appeals). Following his predecessor's orders dated 7-8-1992 in assessee's own case for the assessment years 1989-90 and 1990-91, the Commissioner (Appeals) upheld the contentions of the assessee and mainly held:
(i) That the AFL cannot be regarded as a 'PE' of the assessee company;
(ii) That Section 9(1)(i), dealing with income deemed to accrue or arise in India, did not have any application in this matter as the commercial relationship between the assessee company and the AFL was on 'principal to principal' basis; and
(iii) That no part of the services of the appellant company can be said to have been rendered in India; and
(iv) That, therefore, no portion of appellant's income can be taxed in India.
7. This order did not satisfy the assessing officer. The assessing officer's grievance against the Commissioner (Appeals)'s orders for these years, as set out in grounds of appeal against these orders and as filed before us, was broadly as follows:
On the facts and in the circumstances of the case and in law, the Commissioner (Appeals) erred in holding that no portion of the assessee's income can be taxed in India, without offering any reasons, and in, accordingly, holding that entire income is not taxable in India, whereas the assessing officer has given the detailed reasons as to how the Section 9(1)(i) is applicable to the assessee, and thereby the income is taxable in India."
8. The Commissioner (Appeals)'s order for the assessment years 1989-90 and 1990-91, based on which the impugned rehef was given in the orders appealed against before us now. were also carried in appeals by the assessing officer before a Division Bench of this Tribunal, and the assessing officer succeeded in these appeals to the extent that the Tribunal concluded that the assessee company's income from inbound shipment was partly taxable in India so far as relatable to the operations carried out in India, and that the assessee had a PE in India in the form of AFL. This order was passed by the Division Bench on 3-10-2000.
9. When the present appeals came up for hearing before a Division Bench of this Tribunal, the respondent assessee, inter alia, submitted that Tribunal's decision on the issue of existence of assessee's PE in India needed to be reconsidered by a larger Bench. This plea was accepted by the Division Bench on 21st May, 2004, and the parties were asked to file draft questions to be referred to the Special Bench. On 4th June, 2004, Director of IT (International Taxation), DIT in short, filed a letter seeking reference of the following questions to the Special Bench:
Whether, on the facts and in the circumstances of the case and in law, the Tribunal was right in holding the view in regard to outbound shipment, that no operations were being carried out in India by the assessee company, and, therefore, no income is attributable in India within the meanings of Expln. (a) of Section 9(1)(i) of the Income Tax Act, despite the fact that the assessee company has business connection in India, and that Honble Tribunal has confirmed the existence of business connection and for the assessment year 1990-91 existence of PE in India.
Whether, on the facts and in the circumstances of the case and in law, the Tribunal should have held that the entire revenues arising to assessee from inbound and outbound consignments were taxable in India as 'fees for technical services' in view of the decision of the Hon'ble Mumbai Tribunal in the case of the Blue Dart Express Ltd. v. Jt. CIT (2001) 71 TTJ (Mumbai) 548 : (2000) 75 ITD 414 (Mumbai), and the decision of the Authority of Advance Rulings in the case of SRK Consulting Engineers. & Scientists, In re
10. The Division Bench's recommendation to Hon'ble President for constitution of a larger Bench was, however, only to consider the question whether or not it can be said that the assessee company had a PE in India, and if it is held that the assessee company had a PE in India, whether assessees income from inbound shipments can be said to be attributable to such a PE. This recommendation was made on 25th Aug., 2004. The recommendation was accepted and the constitution of a Three Members Special Bench was, accordingly, notified on 1st March, 2005 to consider the aforesaid question. The question before the Special Bench was worded as follows:
Whether or not, on the facts and in the circumstances of the case and on a proper appreciation of arts. 5.5 and 5.6 of the DTA (with the Netherlands) and having regard to its activities, it can be said that Airfreight Limited was agent of the assessee so that it can be held that the assessee had a PE in India ? And if the answer is in affirmative, whether or not the income from inbound shipments can be treated as attributable to India
11. Subsequent to the constitution of the Special Bench, however, the appellant revenue filed revised grounds of appeal as follows:
On the facts and in the circumstances of the case and in law, whether the learned Tribunal is right in holding that no income accrues or arises to the DHL Operations BV, Netherlands, from outbound shipments despite having recorded a finding of fact that AFL is a PE of DHL in India, both for outbound and inbound consignments.
12. The changes sought in questions to be adjudicated by us did not end at that. During the course of hearing by this Special Bench, the appellant revenue yet again sought to raise the following additional ground of appeal:
Without prejudice to the above, the amount remitted by AFL to DHL Operations BV, Netherlands, i.e. the assessee, towards network fee in respect of outbound shipments are liable to be taxed as royalties under Section 9(1)(vi) Expln. 2(1)(i) and/or (iv) of the Income Tax Act, 1961, read with art. 12 of the India-Netherlands DTAA.
13. It was in the backdrop of these efforts by the revenue appellant, to raise the questions which were not originally referred to the Special Bench, that the scope of the Special Bench was subsequently enlarged by the Hon'ble President, vide order dated 8-8-2006, by accepting the following recommendation made by us ;
Today, in the course of the hearing of the above matter, the revenue was agitating the issue that there is an additional ground which needs to be disposed of by the Special Bench. Shri Dastur, advocate appearing on behalf of the assessee, vehemently argued that there is no question of additional ground being entertained and it is out of the scope of question referred to the Special Bench by the Hon'ble President. The learned Counsel submits that the scope of reference before the Special Bench is limited, and, within this limited scope, the Special Bench cannot consider any question other than the question referred by the Hon'ble President. The learned CIT, on the other hand, submits that if Special Bench is only to deal with the question before it, this will be an academic exercise inasmuch as certain relevant aspects of the matter will be left out of Special Bench's consideration. Our attention is invited to the additional ground filed by the revenue on 25-4-2005. However, since we are in seisin of the limited question referred by the Hon'ble President, we cannot even adjudicate on the admission of additional ground and the admission question will have to be sent back to the Division Bench. This will create multiplicity of the proceedings. Keeping all these factors in mind, as also entirety of the case, we are of the considered view that it is a fit case for referring the entire appeal to be decided by the Special Bench, instead of reference of a particular question in the appeals. We, therefore, suggest and request the Hon'ble President to enlarge the scope of this Special Bench to dispose of the grounds of appeal that may arise in all these appeals, not confining the Special Bench only to the question referred to it."
14. That is how we have come to be in seisin of these appeals, and are required to dispose of the same in accordance with the law, and, having received revenue appellant's petition for admission of additional grounds, we are required to dispose of the said petition for admission of additional grounds as well.
15. The additional grounds sought to be raised by the revenue appellant, at the cost of repetition, are as follows
1. The learned Commissioner (Appeals) has erred in law and on facts in concluding that the assessee has no PE in India.
2. Without prejudice to the above, the learned Commissioner (Appeals) has failed to consider that a part of entire revenue arising to the assessee from inbound and outbound consignments were taxable in India, as royalties under Section 9(1)(vi) of the Income Tax Act, 1961, read with Expln. 2(1)(i) and/or (iv) and read with art. 12 of the India-Netherlands DTAA.
3. Without prejudice to the above, the learned Commissioner (Appeals) has failed to consider that remaining part of the entire revenue arising to the assessee from inbound and outbound consignments were taxable in India, as fees for technical services under Section 9(1)(vii) read with Expln. (2) of the Income Tax Act, 1961, and read with art. 12 of the India Netherlands DTAA."
16. In this long journey of proceedings, spanning almost one and a half decade, from the assessment stage to the hearing of these appeals before this Special Bench, the case of the assessing officer has completely changed. While at the assessment stage, the only question considered by the assessing officer was confined to taxability of business profits, as represented by income attributable to India operations in respect of inbound and outbound shipments of the assessee company, the assessing officers case today extends to treating all revenues generated by assessee company from India related consignments partly as royalties and partly as fees for technical services.
17. The question then arises whether it can be open to the assessing officer to raise these new issues at this stage, and whether it can be open to the this Tribunal to consider the questions which even the assessing officer or the Commissioner (Appeals) have not examined when they were in seisin of the proceedings.
18. Shri Girish Dave, learned Director of IT (International Taxation) appearing as. departmental Representative in this case, fairly does not dispute that in, an overwhelming majority of cases, it cannot indeed be open to this Tribunal to consider the questions which even the assessing officer or the Commissioner (Appeals) have not examined when they were in seisin of the proceedings, but he hastens to add that this general principle will not govern the fact situation before us inasmuch as the case before us is unique by itself and is on very peculiar facts which needs to be noted. It is submitted that all along, assessee's contention was that its commercial relationship with the AFL was governed by the agreement dated 19-5-1989, a copy of which was filed before the revenue authorities. What the assessee deliberately withheld was the. fact that the agreement filed by the assessee was to be read in conjunction with a supplementary agreement of even date between the assessee company and the AFL, 'supplementary agreement' in short. The assessee did not, at any stage, share the information about existence of this supplementary agreement. This supplementary agreement, which was said to have been deliberately withheld by the assessee, changes the whole complexion of the case. Shri Dave also invited our attention to the fact that the revenue appellant had filed an application dated 22-8-2006 before this Tribunal for admission of this supplementary agreement as an additional evidence, and that we have already admitted this/supplementary agreement as an additional evidence. It was also pointed out that existence of this supplementary agreement came to the knowledge of the revenue authorities only during the course of assessment proceedings for the assessment year 2002-03 and almost one and a half decade after the relevant assessment proceedings. It was also submitted that, as indicated by the Latin maxim nullum commodum cupere potest de injuria sua propia, no man could take advantage of his own wrong. Shri Dave also submitted that any objection of the assessee to the admission of these additional grounds does not deserve to be entertained as wrong act done in the suppression of vital evidence, in the form of supplementary agreement, cannot go to the advantage of the respondent assessee. He adds that it is a well settled legal principle that if a man by his own tortuous act withholds evidence by which the nature of his case would be manifested, every presumption to the disadvantage of such person will be adopted. The main thrust of Shri Dave's argument, therefore, was that it was due to assessees mala fide conduct that revenue was prevented and preempted from examining this aspect of the matter earlier and since this lapse is on account of assessees malicious conduct, the revenue should not be placed at any disadvantageous position. Learned departmental Representative laboriously took us through various documents and judicial precedents in upport of the factual and legal contentions embedded in this ne of argument.
19. Shri S.E. Dastur, learned senior advocate for the assessee, strongly opposed the petition for admission for additional grounds so far as ground Nos. 2 and 3 the concerned i.e. the grounds which seek adjudication by the Tribunal on the question whether or not the assessee's revenues from inbound and outbound shipments can be treated as 'royalty' and/or 'fees for technical services'. It is contended that the revenue has no right to raise additional grounds before the Tribunal which do not arise out of the impugned orders of the Commissioner (Appeals). The reason is stated to be this. In case a claim is not made by the assessee during the course of assessment proceedings or in the course of first appellate proceedings, the assessee has no remedy other than to raise the ground for the first time before the Tribunal. On the other hand, revenue always has recourse to other remedies in the event certain income has escaped assessment which needs to be brought to tax. It is submitted that the revenue could have recourse to the reassessment under Section 147 of the Act, to revision proceedings under Section 263 of the Act, or simply a rectification of mistake under Section 154 of the Act. Learned senior counsel submits that if revenue is permitted to raise an additional ground of appeal before the Tribunal, which does not emanate from the orders of the authorities below, sanctity of a completed assessment will be set at naught, and the time-limits set out for exercise of powers under sections 147, 263 and 154 will be rendered nugatory. He further submits that in revenue's appeal, the appellant assessing officer can at best seek restoration of the order passed by him, and it is beyond his powers to seek anything beyond that. Learned counsel submits that in any event, an additional ground of appeal cannot be raised before a Special Bench, as the jurisdiction of the Special Bench is confined to the question referred to the Special Bench, or, where entire appeal is referred to the Special Bench, to the grounds of appeal as referred as it is on that basis that the President has referred the appeal to the Special Bench. Learned counsel also submits that the question whether the revenues for inbound and outbound shipments can be treated as royalties and fees for technical services would entirely change the case of the assessing officer and will lead to its taxation on gross basis whereas the assessment has been completed on net basis by estimating profits earned on such revenues attributable to operations in India. This shift in the stand, according to the learned Counsel, will also result in enhancement of income which the Tribunal is not empowered to make. It is also submitted that Tribunal's decision in the case of Blue Dart Ltd. (supra) cannot be said to be proximate reason of filing of the additional ground of appeal because while this decision was rendered on 3-12-1999, the additional grounds were filed only now and also in any of the assessments subsequently framed by the assessing officer no effort is made to assess the revenues of the assessee as fees for technical services. Further, according to the learned Counsel, the grounds raised by the assessing officer are vague inasmuch as it is not pointed out as to which part of the revenues is required to be treated as royalties and which part is required to be treated as fees for technical services. Learned counsel also submits that to decide the issue whether amounts received by the assessee are required to be treated as fees for technical services or royalties will require a fresh investigation into facts, and, for this reason also, these additional grounds should not be admitted by the Tribunal. It is further submitted that it would result in grave hardship and prejudice to the respondent if the assessing officer is allowed to raise these additional grounds fourteen years after completion of the assessment and six years after rendering of Tribunal's decision on the basis of which additional grounds are raised, particularly when these issues are not even considered in any of the assessments framed after rendering of Tribunal's decision. Learned counsel also submitted that it is incorrect to state that the supplementary agreement having been withheld per se can be reason enough for taking up these additional grounds of appeal, because even after this supplementary agreement coming to the notice assessing officer, the income is assessed on the net basis i.e. on the profits earned by the assessee from inbound and outbound operations. A copy of the assessment order for the assessment year 2002-03 was filed before us to demonstrate that the assessing officer, having taken note of the supplementary agreement, did not treat any part of the revenues on the gross basis and that no part of the revenues so earned by the assessee was treated as royalty or fees for technical service. It is submitted that there was no mala fide in not submitting supplementary agreement before the assessing officer. When the assessing officer requisitioned this agreement, the same was furnished. Without prejudice to assessees stand on lack of mala fide in his conduct, learned Counsel submitted that even assuming the assessee deliberately withheld the supplementary agreement, time-limit for assessing income which has escaped assessment cannot be set at naught by allowing revenue to raise this issue after the end of the time-limits set out in Section 149 of the Act. Even in a case the assessee is completely at fault and it is due to assessee's manoeuvring the income has escaped assessment, the assessing officer cannot seek to assess the income so escaping assessment after the end of six years from the end of the relevant assessment year. If this is the scheme of the Act, submits the learned Counsel, the assessing officer cannot seek to tax the income so escaping the assessment, by way of raising an additional ground of appeal before the Tribunal after the expiry of that limit. It is well settled in law that what an authority cannot do directly, that authority cannot be allowed to do indirectly either. On the basis of these elaborate arguments, learned Counsel submits that not only that the Tribunal does not have the powers to admit the additional grounds in question, but, assuming that such a power vested in the Tribunal under rule 11, this is not a fit case for exercise of that discretion. Learned counsel also referred to various judicial precedents and laboriously took us through the same, but it is not really necessary to deal with these erudite contentions at this stage.
20. We find that Section 255(1) of the Act provides that powers and functions of the Tribunal are to be exercised and performed by the Benches constituted by the President from among the Members thereof. Sec. 255(3), inter alia, further provides that the President may constitute a Special Bench for 'disposal of a particular case'. It is therefore clear that it is the Bench so formed which will exercise the powers of the Tribunal, unless, of course, reference to the Special Bench itself restricts powers of such a Special Bench, as may be expedient and necessary, to deal only with a limited aspect of the appeal. In our considered view, therefore, once this Special Bench comes to be in seisin of the entire appeal, it is for this Bench to decide whether or not to admit the grounds of appeal; all the powers of the Tribunal, so far as these appeals are concerned, are to be exercised by the Special Bench alone. The objection taken by the assessee respondent to the effect that this Special Bench has no powers to admit an additional ground of appeal, in this view of the matter, is devoid of legally sustainable merits. We reject the same.
21. As regards the question whether an additional ground of appeal can be raised before the Tribunal, which does not arise out of the order of the Commissioner (Appeals), the law is by now well settled. The powers of the Tribunal are not confined to deal only with the issues arising out of the order of the Commissioner (Appeals) or, for that purpose, even the order passed by the assessing officer. Their Lordships of Hon'ble Supreme Court, in the case of National Thermal Power Co. Ltd. v. ClT , have observed as follows The view that the Tribunal is confined only to the issues arising out of the appeal before the Commissioner (Appeals) takes too narrow a view of the powers of the Tribunal (vide e.g. CIT v. Anand Prakash , CIT v. Karamchand Premchand (P) Ltd. and CIT v. Cellulose Products of India Ltd. . Undoubtedly, the Tribunal will have the discretion to allow or not to allow such ground to be raised. But where the Tribunal is only required to consider a question of law arising from the facts which are already on record, we fail to see why such a question should not be allowed to be raised when it is necessary to consider that question in order to correctly assess tax liability of the assessee.
(Emphasis, italicised in print, supplied)
22. Explaining the reasoning of coming to this conclusion, Their Lordships, earlier in the same order, observed as follows:
Under Section 254 of the Income Tax Act, the Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit. The power 'of the Tribunal in dealing with the appeals is thus expressed in widest possible terms. The purpose of assessing authorities is to assess correctly the tax liability of an assessee in accordance with the law. If, for example, as a result of judicial decision given while the appeal is pending before the Tribunal, it is found that a non-taxable item is taxed 'or a permissible deduction declined, we do not see any reasons why the assessee should be prevented from raising that question before the Tribunal for the first time, so long as relevant facts are on record in respect of that item. We do not see any reasons to restrict the powers of the Tribunal under Section 254 only to decide those grounds which arise from the order of the Commissioner (Appeals). Both the assessee, as well a ' s the department, have a right to file an appeallcrossobjection before the Tribunal. We fail to see why the Tribunal should be prevented from considering questions of law arising in assessment proceedings though not raised earlier.
In the case of Jute Corporation of India Ltd. v. CIT , this Court, while dealing with the powers of the Appellate Assistant Commissioner, observed 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 power of the Appellate Assistant Commissioner in entertaining an additional ground raised by the assessee in seeking modification of the order of the assessment passed by the Income Tax Officer. This court further observed that there may be several factors justifying the raising of new plea in an appeal and each case is to be considered on its own facts. The Appellate Assistant Commissioner must be satisfied that the ground raised was bona fide and the same could not have been raised earlier for good reasons. The Appellate Assistant Commissioner should exercise discretion in permitting or not permitting the assessee to raise an additional ground in accordance with law and reason. The same observations would apply to the appeals before the Tribunal also."
(Emphasis, italicised in print, supplied)
23. Clearly, therefore, the powers of the Tribunal are not confined to deal with the issues arising out of the orders of the authorities below. As long an issue has relevance to the correct determination of taxes in respect of the year, and particularly when relevant facts can be ascertained from the material already on record, it is open to the appellant and the cross-objector, to raise that issue, provided the issue so raised is bona fide and the same could not have been raised earlier for good reasons. As held by Honble Madras High Court in the case of Wilson Industries v. CIT , it is open to the Tribunal to permit even the assessing officer to raise a new ground of appeal 'if no new facts are required to be, ascertained'. We agree that the Tribunal does indeed have the powers of admitting an additional ground of appeal which may not arise out of the orders of the authorities below. There is no longer any dispute or controversy about the powers of the Tribunal to admit an additional ground of appeal, as has been laid down by the Hon'ble Supreme Court 'in the case of National Thermal Power Corporation Ltd (supra). However, whether, in a particular situation, the Tribunal should exercise such powers or not, would essentially depend on the facts of such a case, as there cannot be any, and there is no, straight jacket formula of universal application to decide the question of admission of additional grounds, or a criterion for admission thereof, which operates de hors the peculiarities of a fact situation.
24. The observations extracted above were made by Their Lordships in the context of the additional grounds raised by the taxpayer, even though these observations, being general in nature, have also been applied, with equal force, to the additional grounds raised by the assessing officer. A Division Bench of this Tribunal, in the case of Jt. CIT v. Sakura Bank Limited (2006) 99 TTJ (Mumbai) 689 : (2006) 100 ITD 215 (Mumbai), has observed that "As long an issue has relevance to the correct determination of taxes in respect of the year, and particularly when relevant facts can be found from the material already on record, it is open to the appellant and the cross-objector, whether assessee or the revenue, to raise that issue, provided the issue so raised is bona fide and the same could not have been raised earlier for good reasons". These views are in conformity with the views of Hon'ble Madras High Court, as expressed in the case of Wilson Industries (supra), holding that it is open to the Tribunal to permit even the assessing officer to raise a new ground of appeal 'if no new facts are required to be ascertained'. One limitation on the admission of the additional ground, therefore, is that no new facts are required to be investigated upon such admission of the additional grounds.
25. The question then arises whether admission of these two additional grounds of appeal will require any fresh investigation of facts. In our considered view, the admission of additional ground of appeal on the question of taxability of assessee's revenues on gross basis as 'royalty' and as 'fees for technical services' would require a fresh investigation of facts inasmuch as this aspect of the matter has not been examined by any of the authorities below, including the assessing officer. In our considered view, this is purely a factual matter and it would require reappraisal of facts, on the touchstone of the legal principles set out in the definitions of 'royalties' and 'fees for technical services' as set out under the Act and the applicable Indo-Dutch Tax Treaty.
26. The other important aspect of the matter is whether there are good and sufficient reasons for raising these additional grounds at this stage and whether these grounds of appeal have been taken up bona fide on account of the reasons as are stated to be the true and proximate reasons by the appellant petitioner. On this test also, in our humble understanding, revenue's case fails. We find that it is a new twist and a completely new turn to the revenue's case that What was sought to be taxed by the assessing officer all along, including in the assessments framed after the Tribunal's decision in Blue Dart Ltd. (supra) and after the said 'supplementary agreement' came to the notice of the assessing officer, as profit earned in India on net basis is now sought to be taxed as 'royalty' or 'fees for technical services' on gross basis. The fact of Tribunal's decision in Blue Darts case (supra) as well as assessing officer's coming to know of the 'supplementary agreement' does not have a cause and effect relationship with the filing of these two additional grounds, because, if it was so, in the assessments framed after these two events should have addressed the issues which are being sought to be raised now. The reasons assigned by the appellant petitioner may have contributed to the additional grounds being raised but these grounds are certainly not the proximate and immediate reasons for all the three additional grounds of appeal being raised by the appellant petitioner. Despite these two events having taken place, the assessing officer did not examine the taxability of revenues generated by the assessee as 'royalties' or as 'fees for technical services'. The assessing officer's reliance on the supplementary agreement has been only with a view to fortify his case that the assessee company had a 'PE' in India. To the extent PE controversy is involved, we consider it appropriate to admit the related additional ground of appeal, i.e. first additional ground of appeal.
27. However, the assessing officer's explanation for taking up the other two additional grounds of appeal, i.e. ground numbers two and three relating to the revenues of the assessee being in nature of 'royalties' and 'fees for technical services', does not simply seem to be these two events. Having given our careful consideration to the factual matrix of the case before us, we are of the considered view that, much more than the decision of the Blue Dart Ltd. (supra), which was delivered. about half a decade before the ground of appeal was taken before us, and discovery of 'supplementary agreement', even after which scrutiny assessments were completed without taking the stand as is taken in these additional grounds of appeal, it is a simple case of fresh application of mind by the successor assessing officer and/or his supervising authorities and an effort to make up the deficiencies real or perceived in the assessment originally framed.
28. That takes us to the question whether such an exercise can be conducted at this stage. In our considered view, it will be contrary to the scheme of the Act because irrespective of whether the escapement of an income is due to an assessee's fault or not, the scheme of the Act provides for finality of an assessment beyond expiry of a specific period. An assessing officer can initiate any matter relating to the assessment with the first appellate authority because in the first appellate proceedings, the appellate authority has the same rights as that of the assessing officer. It is an extension of the assessment proceedings. To that extent, the case of the assessing officer can be improved at the stage of first appellate proceedings. However, an additional ground of appeal being filed before the higher appellate authorities to take up the issues which the revenue authorities have no power to take up under the scheme of the Act would certainly be contrary to the scheme of the Act. The concept of finality of an assessment, at the expiry of the time-limits set out under the scheme of the Act, will get disturbed much in violation of the law emphasized by the Hon'ble Supreme Court time and again. All the time-limits set out in the Income Tax Act, 1961, to make good the deficiencies in the assessment of the assessee are exhausted. Learned CIT's suggestion that there cannot be any prejudice caused to the assessee on account of the admission of additional ground, because, after all, even upon admission of additional ground, assessee's tax liability is to be settled in accordance with the law by the Tribunal, and it is open to the assessee to demonstrate that the revenues generated by the assessee on account of inbound shipments and outbound shipments is not in the nature of 'fees for technical services' or 'royalties'. If we are to accept this suggestion as simplistically as he urges us to accept, we will have to bury the concept of finality of assessment deep, and ignore the time-limits set out under the scheme of the Act altogether. Today, even if the assessee is admittedly at fault and as a result of this fault, some income has. escaped assessment, neither the income so escaping assessment can be brought to tax under the reassessment proceedings, nor the assessment can be subject to revision proceedings. No remedy hes with the revenue authorities. As a creature of the statute, it cannot be open to this Tribunal to exercise its powers in such a manner so as to run contrary to, or to frustrate, the scheme of the Act. The position of Hon'ble High Courts and Hon'ble Supreme Court is obviously much different as Their Lordships, in dispensation of effective justice, are certainly not constrained by the provisions of the Income Tax Act. Their Lordships' powers are unfettered. We are therefore not impressed by the learned departmental Representative's argument that since the assessee's conduct is not above board, assuming it is so, it cannot be open to the assessee to oppose admission of additional grounds by us. The large number of judicial precedents relied upon by him deal with the unfettered powers of the Hon'ble High Courts and Hon'ble Supreme Court in dealing with unscrupulous litigants. These decisions do not have bearing on our powers of admitting additional grounds of appeal. We have to perform our duties within the framework of, and in accordance with, the scheme of the Act. However, admission of the remaining two additional grounds of appeal by us will result in a situation that the assessing officer and his CIT will be able to indirectly do what they cannot directly do under the scheme of the Act.
29. There is one more important aspect of the matter that needs to be taken note of. Even as the assessing officer has now sought to raise additional grounds of appeal regarding the assessee's revenues being in the nature of 'royalties' and 'fees for technical services', the assessing officer has not made out a case as to which part of the revenue/taxable income is 'fees for technical' service' and which part of the revenue is 'royalties'. As a matter of fact, even at the stage when admission of these additional grounds was being argued before us and despite specific question by us, the appellant petitioner has not categorically stated as to which part of the assessee's revenues is 'royalties' and which part of the assessee's revenues/taxable income is 'fees for technical services'. If it does not indeed involve any further investigation of facts to ascertain these two components of the revenues generated by the assessee, the assessing officer could have as well been specific. Non-compliance of the assessing officer with this requisition reasonably indicates that it is not possible even for the assessing officer to find out which part of the income is royalty' and which part of the income is 'fees for technical services' without some further investigation of facts.
30. In our considered view, by way of raising the second and third additional grounds of appeal, the subject-matter of tax proceedings is being sought to be enlarged by the assessing officer. In our considered view, the shift of subject-matter of taxation from taxability of profit earned by the assessee from operations in India to the taxability of gross revenues generated by the Indian operations of the assessee, certainly amounts to expansion of subject-matter of tax proceedings, but then an additional ground of appeal cannot enlarge the subject-matter of tax proceedings. In case, however, we are to admit the last two additional grounds of appeal, we will end up enlarging the scope of tax proceedings in this case. We, therefore, deem it fit and proper to only admit first additional ground of appeal. We decline to admit the remaining two additional grounds of appeal. As regards all other revised grounds of appeal and the letters filed by the assessing officer-appellant from time to time, these were not pressed by the learned departmental Representative. In any event, neither any specific reasons are cited justifying filing of these letters and revised grounds, nor are we satisfied that it is necessary to admit these letters and revised grounds. We decline to admit the same.
31. In the light of the above discussions, we deem it fit and proper to admit only the following additional ground of appeal and decline to admit the remaining two additional grounds of appeal:
That the learned Commissioner (Appeals) has erred in law and on facts in concluding that the assessee has no PE in India.
The appeal shall, accordingly, be heard on the merits on the ground raised in the original memorandum of appeal and the above additional ground of appeal.