* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment reserved on: 07th May, 2015
Judgment delivered on: 08th October, 2015
+ WP(C) No. 1874/2013
TURNER BROADCASTING SYSTEMS ASIA PACIFIC INC. ..... Petitioner
versus
DEPUTY DIRECTOR OF INCOME TAX ..... Respondent
Advocates who appeared in this case:
For the Petitioner : Mr M.S. Syali, Sr Advocate with Mr Mayank Nagi,
Ms Husnal Syali and Mr Harkunal Singh
For the Respondent: Mr Rohit Madan, Mr Ruchir Bhatia, Mr Akash
Vajpai and Mr Alay Kshatriya
AND
+ WP(C) No. 1984/2014
TURNER BROADCASTING SYSTEMS ASIA PACIFIC INC. ..... Petitioner
versus
DEPUTY DIRECTOR OF INCOME TAX ..... Respondent
Advocates who appeared in this case:
For the Petitioner : Mr M.S. Syali, Sr Advocate with Mr Mayank Nagi, Ms
Husnal Syali and Mr Harkunal Singh
For the Respondent: Mr Rohit Madan, Mr Ruchir Bhatia, Mr Akash Vajpai
and Mr Alay Kshatriya
WP(C) 1874/2013 & WP(C)1984/2014 Page 1 of 17
CORAM:-
HON'BLE MR JUSTICE BADAR DURREZ AHMED
HON'BLE MR JUSTICE SANJEEV SACHDEVA
JUDGEMENT
SANJEEV SACHDEVA, J
1. Since both the petitions involve common questions and pertain to the
same petitioner, the same are being disposed of by a common judgment.
WP(C) 1874/2013 pertains to assessment year 2007-08 and WP(C)
1984/2014 pertains to assessment year 2008-09.
2. The petitioner, Turner Broadcasting Systems Asia Pacific Inc.,
formerly known as Turner Entertainment Networking Asia Inc. (hereinafter
referred to as ,,TENA) is a company incorporated in the state of Georgia,
U.S.A. and is a tax resident of the U.S.A. During the relevant financial
years, TENA derived income from the grant of exclusive rights to Turner
International India Private Limited (TIIPL) in India to sell advertising on the
products and to distribute the products, namely, (a) Satellite Delivered
Televisions Services called Cartoon Networks, TCM Turner, TCM Turner
Classic Movies, POGO and Boomerang ; (b) from Interactive Entertainment
Services known as cartoonnetworkindia.com and POGO.T.V.; and (c) from
Entertainment Mobile Telecommunication Services "Cartoon Network
Mobile and Boomerang Mobile.
WP(C) 1874/2013 & WP(C)1984/2014 Page 2 of 17
WP(C) No. 1874/2013 (Assessment year 2007-2008)
3. The petitioner filed its return of income on 27.03.2009 declaring an
income of Rs. 12,40,99,555/-.
4. On 11.08.2009, a questionnaire was issued by the respondent/revenue
seeking details/evidence/explanations on various aspects pertaining to
taxability of the petitioner. In total 38 queries were raised. For the present
context, the following queries may be noticed:-
(i) Give detailed note regarding the nature of business
activities performed by the Petitioner. Furnish
details regarding the projects executed in India
during the year;
(ii) File copy of return of Income for AY 2007-08 with
Balance-sheet, Profit and Loss account and Notes
on accounts.
(iii) Furnish Statement/ Computation of Income with
supporting/ evidence in support of the return of
income.
(iv) Furnish report in Form 3CEB under Section 92E
read with Rule 10E.
(v) Copy of agreement / contract with Indian customer
or any other party in India from whom payment is
received during the year.
WP(C) 1874/2013 & WP(C)1984/2014 Page 3 of 17
(vi) Copy of all orders under Section 195(2), which
Assessee might have received from payers relevant
to the AY in question.
(vii) Explain in detail whether you have Permanent
Establishment in India.
(viii) Give the list of AE's in India, if any, and also give
details of transactions entered with them.
(ix) Copy of Tax Residency Certificate.
(x) Copy of last Assessment Order."
5. On 5.10.2009, the petitioner filed a detailed reply to the questionnaire
and reply given to the above referred queries was as under:-
(i) In reply to query no. 1, it was submitted that
Petitioner was company incorporated under the
laws of state of Georgia. During the AY in
question, the Petitioner derived the largest portion
of its Indian income from the grant of exclusive
rights to Turner International India Private Ltd.
(`TIIPL') in India to sell advertising on the
products and to distribute the products.
(ii) In reply to query no 2, a print of Corporate Tax
Return e-filed for AY 2007-08 was submitted.
(iii) In reply to query no. 3, a copy of computation of
income along with Notes to computation was filed.
WP(C) 1874/2013 & WP(C)1984/2014 Page 4 of 17
(iv) In reply to query no. 5, a copy of report in Form
3CEB was filed.
(v) In reply to query no. 12, copy of Order under
Section 195(2) of the Act, determining the
withholding tax rate for making remittance to the
Petitioner was filed.
(vi) In reply to query no. 14, a detailed explanation was
given showing how the Petitioner did not have any
PE in India.
(vii) In reply to query no. 19, list of AE's of the
Petitioner in India was provided to the Respondent.
(viii) In reply to query no. 25, a copy of Tax Residency
Certificate was filed.
(ix) In reply to query no. 37, copy of last Assessment
Order for AY 2006-07 was furnished.
(x) Further, in response to query no. 10, inter alia, the
Distribution and Advertising Sales Agreement,
dated as of April 1, 2006 was filed before the
Respondent vide letter dated 14.12.2009.
6. On 24.12.2009, the proceedings u/s 143 (3) of the Income Tax Act
were concluded and the assessment was framed. The Assessing Officer
came to the conclusion that only 10% of the total advertisement and
distribution revenue earned in India was taxable in India. In the detailed
assessment order, specific reference is made to the notes to computation of
WP(C) 1874/2013 & WP(C)1984/2014 Page 5 of 17
income tax filed during the course of assessment proceedings. The
Assessing Officer in the assessment order has referred to the mutual
agreement to avoid double taxation under Article 27 of India/USA DTAA
for the assessment years 2001-2002 to 2004-2005 and the fact that
subsequently for the assessment year 2005-06, assessment was concluded
following the MAP resolution. The Assessing Officer in the assessment
order has specifically recorded that since the facts of the year under
consideration remain the same, therefore, following the agreement reached
by the respective competent authorities in the earlier years, the tax was
computed at 10% as per the MAP resolutions.
7. On 27.03.2012 notice under Section 147/148 was issued, within the
period of four years and the said notice was served on 30.03.2012. The
reasons recorded for re-opening of assessment were as under:-
"The assessment in this case of M/s Turner
Entertainment network Asia Inc., a foreign company for
the assessment year 2007-08 was completed u/s 143(3)
in December, 2009 determining the income of Rs.
12,40,99,555/-. Form the perusal of Assessment records
it is observed that the income of the assessee from
advertisement and distribution revenue was taxed by
taking only 10% of the revenue as the net profit
chargeable to tax in India as per the MAP resolution for
the A.Y. 2001-02 and A.Y. 2004-05. Even the ITO-TDS
u/s 195 of the I.T.Act has held that there receipts are
taxable as royalty and also as per article 12(3) of the
WP(C) 1874/2013 & WP(C)1984/2014 Page 6 of 17
DTAA with USA, tax is deductible at 10%. As the MAP
Resolution was only for A.Y. 2001-02 to 2004-05 and
the revenue was accruing the assessee in A.Y. 2007-08
in pursuance of the agreement, which is effective from
01.04.2006, it should have been offered and taxed at
10% as per section 115A of the I. T. Act, 1961. Thus, the
assessee has chargeable income, in excess of 1 lakh
rupees, which has escaped assessment.
In view of the above, I have reasons to believe that the
income chargeable to tax the escaped assessment within
the meaning of section 147/148.
(Mazhar Akram)
Deputy Director of Income Tax Cir-
2(2) Intl. Taxation New Delhi"
8. On 14.05.2012, the petitioner filed objections to the reasons. By order
dated 22.02.2013, the objections have been disposed of. The petitioner has
thus impugned the notice under Section 148 as well as the order disposing of
the objections in this petition.
WP(C) 1984/2014 (Assessment Year 2008-09)
9. On 05.03.2010, the petitioner filed its return of income declaring an
income of Rs. 11,17,78,295/-.
10. On 25.08.2010, notice under Section 143 (2) of the Act was issued by
the respondent asking the petitioner to produce documents, accounts and any
WP(C) 1874/2013 & WP(C)1984/2014 Page 7 of 17
other evidence on which the petitioner relied in support of the return of
income.
11. On 22.10.2010, the petitioner filed the computation of income
alongwith notes to computation disclosing the income from advertisements
and distribution alongwith its tax treatment both in the notes as well as in the
computation. The petitioner by letter dated 3.12.2010 furnished the India
Specific Revenue Statement and by letter dated 15.12.2010 submitted a copy
of the distribution and advertisement sales agreement effective April 01,
2006 with the department.
12. On consideration of the material filed during the assessment
proceedings, the Assessing Officer framed the assessment on 20.12.2010
concluding and holding that 10% of the total advertisement and distribution
revenue received from India was taxable in India. The Assessing Officer in
the Assessment Order has specifically noted that in case for Assessment
Years 2001-02 to 2004-05, the respective competent authorities of India and
USA have reached a mutual agreement to avoid double taxation under
Article 27 of India/USA DTAA. As per the terms of the mutual agreement,
10% of the advertisement revenues received from Indian Sources during the
relevant previous years by the appellant is deemed to net profit chargeable to
tax in India.
WP(C) 1874/2013 & WP(C)1984/2014 Page 8 of 17
13. Subsequently for assessment years 2005-06, 2006-07 and 2007-08
(WP(C) 1784/2013), assessments were concluded following the afore-
mentioned MAP resolution. Further, the Assessing Officer has noted that
since the facts of the year under consideration remain the same as for
assessment year 2007-08, therefore, following the agreement reached by the
respective competent authorities in the earlier years, the returned income was
being assessed. The advertisement revenues received were assessed at 10%.
14. On 28.03.2013, notice was issued by the respondents under Section
147/148 seeking to reopen assessment concluded under Section 143 (3). The
reasons recorded for reopening as supplied to the petitioner are as under:-
"The assessment of M/s Turner Entertainment Network
Asia Inc. for the assessment year 2008-09 was completed
under section 143 (3) of the Income Tax Act, 1961. In
December 2010, determining the income at Rs.
11,17,78,295/- The income of the assessee from the
advertisement & distribution revenue was taxed by taking
only 10% of the revenue as the net profit chargeable to
tax in India as per the MAP resolution for the assessment
years 2001-02 and 2004-05. During the course of perusal
of records, it is revealed that the MAP resolution was
application only for assessment years 2001-02 & 2004-
05, and the current revenue was accruing to the assessee
in assessment year 2008-09 (FY 2007-08) in pursuance
of the agreement, which is effective from 01.04.2006.
Hence, it would have been taxed at the rate of 10% on
gross basis as per the provisions of section 115A of the
Income Tax Act, 1961,
WP(C) 1874/2013 & WP(C)1984/2014 Page 9 of 17
In view of the above, I have reason to believe that the
income chargeable to tax has escaped has assessment
within the meanings of section 147/148 of the Act, 1961.
(Mazhar Akram)
Deputy Director of Income Tax
Circ 2(2) Intl. Taxation, New Delhi"
15. On 30.1.2014, the petitioner filed its objections against the notice
seeking to reopen the assessment. By the order dated 20.02.2014, the
objections have been disposed of. The petitioner in the present petition has
impugned the notice under Section 147/148 seeking to re-open the
assessment and the order dated 20.02.2014 disposing of the objections filed
by the petitioner.
Discussion
16. Perusal of the assessment orders in both the petitions clearly show that
an opinion was formed by the Assessing Officer that taxation of
advertisement and distribution revenue was to be governed by MAP
resolution and the competent authorities of USA and India had agreed to an
attribution of 10% of the total revenue generated from the said distribution
and advertisement sales agreement. The same was agreed to be treated as
business income.
WP(C) 1874/2013 & WP(C)1984/2014 Page 10 of 17
17. A detailed questionnaire had been issued to the petitioner, which was
duly replied to. As many as 38 queries had been raised and a detailed reply
alongwith all annexures and supporting documents were furnished by the
petitioner in response to the queries raised. The copies of the relevant
agreements, the generation of income and the tax treatment given by the
petitioner to the said income was duly disclosed to the assessing officer. The
material based on which the reopening has been sought to be done by the
department was available before the assessing officer at the time of the
framing of the assessment under Section 143. Not only was the same before
the Assessing Officer, the Assessing Officer has referred to the same in the
Assessment Year and taken note of the same.
18. In Commissioner of Income Tax Versus Usha International Ltd.
348 ITR 485 (Del.) (FB), Full Bench of Court laid down the following
propositions of law:
(i) The expression 'change of opinion' postulates
formation of opinion and then a change thereof. In
the context of section 147, it implies that the
Assessing Officer should have formed an opinion
at the first instance, i.e., in the proceedings under
section 143(3) and now by initiation of the
reassessment proceeding, the Assessing Officer
proposes or wants to take a different view.
(ii) Reassessment proceedings will be invalid in case
the assessment order itself records that the issue
WP(C) 1874/2013 & WP(C)1984/2014 Page 11 of 17
was raised and is decided in favour of the assessee.
Reassessment proceedings in the said cases will be
hit by principle of 'change of opinion'.
(iii) Reassessment proceedings will be invalid in case
an issue or query is raised and answered by the
assessee in original assessment proceedings but
thereafter the Assessing Officer does not make any
addition in the assessment order. In such
situations, it should be accepted that the issue was
examined but the Assessing Officer did not find
any ground or reason to make addition or reject the
stand of the assessee. He forms an opinion. The
reassessment will be invalid because the Assessing
Officer, had formed an opinion in the original
assessment, whether or not he had recorded his
reasons in the assessment order."
19. In Jindal Photo Films Ltd. Versus Deputy Commissioner of
Income-tax (1999) 234 ITR 170 (Del) a division bench of this court held as
under:
14. Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR
191 (SC) is the leading authority which still holds the
field. It is well-settled that while submitting to the
jurisdiction of an Assessing Officer, it is the duty of the
assessee to disclose all the primary facts (in
contradistinction with inferential facts) which have a
bearing on the liability of the income earned by the
assessee being subjected to tax. It is for the Assessing
Officer to draw inferences from the facts and apply the
law determining the liability of the assessee. The law
WP(C) 1874/2013 & WP(C)1984/2014 Page 12 of 17
does not require the assessee to state the conclusions that
can reasonably be drawn from the primary facts. Once
that is done and assessment order framed, the Assessing
Officer cannot at a later point of time merely on forming
an opinion, by giving a second thought to the primary
facts disclosed by the assessee, arrive at a finding that he
had committed an error in computing the taxable income
of the assessee and reopen the assessment by resort to
section 147. Discovery of new and important matters or
knowledge of fresh facts which were not present at the
time of original assessment Would constitute a ,,reason to
believe the income has escaped assessment within the
meaning of section 147. Here also such facts which could
have been discovered by the assessing authority but were
not so discovered at the time of original assessment may
not constitute a new information. Phool Chand Bajrang
Lal v. ITO [1993] 203 ITR 456, 477 (SC), A.L.A. Firm
v. CIT [1991] 189 ITR 285, 298/ 55 Taxman 497 (SC),
Indian & Eastern Newspaper Society v. CIT [1979] 119
ITR 996, 1004 (SC), ITO v. Lakshmani Mewal Das
[1976] 103 ITR 437, 445 (SC), CIT V. Bhanji Lavji
[1971] 79 ITR 582, 588 (SC).
15. In Kalyanji Mavji & Co. v. CIT West Bengal II
[1976] 102 ITR 287 (SC), one of the points decided was
that where in the original assessment, the income liable
to tax had escaped assessment due to oversight,
inadvertence or a mistake committed by the ITO, the
assessment can be reopened. It was a decision by a Bench
of two Honourable Judges. At least on two occasions,
Benches of three Honourable Judges have clarified that
Kalyanji Mavji & Co.s case (supra) cannot be taken to
have overridden the consistently laid down law. Where
WP(C) 1874/2013 & WP(C)1984/2014 Page 13 of 17
the ITO (very often successor officer) attempts to reopen
the assessment because the opinion formed earlier by
himself (or more often, by a predecessor ITO), was in his
opinion incorrect, judicial decisions have consistently
held that this could not be done. Indian Eastern
Newspaper Societys case (supra) and A.L.A. firms case
(supra).
16. The power to reopen an assessment was conferred
by the Legislature but not with the intention to enable the
ITO to reopen the final decision made against the
revenue in respect of questions that directly arose for
decision in earlier proceedings. If that were not the legal
position, it would result in placing an unrestricted power
of review in the hands of the assessing authorities
depending on their changing moods CIT v. Rao
Thakur Narayan Singh [1965] 56 ITR 234 , 239(SC).
17. In Phool Chand Bajrang Lal. v. ITO [1993] 203
ITR 456 (SC), their Lordships have held while
interpreting section 147 as it stood in the assessment year
1963-64:-
". . . An Income-tax Officer acquires jurisdiction to
reopen an assessment under section 147(a) read
with section 148 of the Income-tax Act, 1961, only
if on the basis of specific, reliable and relevant
information coming to his possession
subsequently, he has reasons, which he must
record, to believe that, by reason of omission or
failure on the part of the assessee to make a true
and full disclosure of all material facts necessary
for his assessment during the concluded
assessment proceedings, any part of his income,
WP(C) 1874/2013 & WP(C)1984/2014 Page 14 of 17
profits or gains chargeable to income-tax has
escaped assessment. He may start reassessment
proceedings either because some fresh facts had
come to light which were not previously disclosed
or some information with regard to the facts
previously disclosed comes into his possession
which tends to expose the untruthfulness of those
facts. In such situations, it is not a case of mere
change of opinion or the drawing of a different
inference from the same facts as were earlier
available but acting on fresh information. Since the
belief is that of the Income-tax Officer, the
sufficiency of reasons for forming the belief is not
for the Court to judge but it is open to an assessee
to establish that there in fact existed no belief or
that the belief was not a bona fide one or was
based on vague, irrelevant and non-specific
information. To that limited extent, the Court may
look into the conclusion arrived at by the Income-
tax Officer and examine whether there was any
material available on the record from which the
requisite belief could be formed by the Income-tax
Officer and further whether that material had any
rational connection or a live link for the formation
of the requisite belief. . . ." (p. 477)
18. Following the settled trend of judicial opinion and
the law laid down by their Lordships of the Supreme
Court time and again, different High Courts of the
country have taken the view that if an expenditure or a
deduction was wrongly allowed while computing the
taxable income of the assessee, the same could not be
brought to tax by reopening the assessment merely on
WP(C) 1874/2013 & WP(C)1984/2014 Page 15 of 17
account of subsequently the assessing officer forming an
opinion that earlier he had erred in allowing the
expenditure or the deduction - Siesta Steel Construction
(P.) Ltd. v. K.K. Shikare [1985] 154 ITR 547 (Bom.),
Satpal Automobile Co. v. ITO [1983] 141 ITR 450 (All.),
Gopal Films v. ITO [1983] 139 ITR 566 (Kar.), CWT v.
Manilal C. Desai [1973] 91 ITR 135 (MP).
(underlining supplied)
20. On applying, the above principles to the facts of the present case and
on perusal of the reasons we find that no fresh information or material has
been referred to in the reasons recorded for seeking to reopen the
assessment. The material that is referred to is the very same material that
was already before the Assessing Officer at the time of framing of the
assessment under Section 143 (3) of the Act and even the reasons record that
,,from the perusal of the assessment record, it is observed that. This clearly
shows that the assessing officer has sought to re-appreciate the material that
was already there at the time when the assessment was framed under Section
143 (3). Thus, as seen from above, it is clearly a case of change of opinion,
which is clearly not permissible.
21. In view of the above, we are of the considered opinion that the
assessing officer has merely intended to revisit the concluded assessments
and it is a clear case of change of opinion, which is not permissible in law.
The impugned order dated 22.02.2013 and notice dated 27.03.2012 in
WP(C) 1874/2013 & WP(C)1984/2014 Page 16 of 17
WP(C) 1874/2013 and the impugned order dated 20.02.2014 and the notice
dated 28.03.2013 in WP(C) 1984/2014 are set aside and the proceedings
initiated pursuant thereto to are hereby quashed.
22. In view of the above, the writ petitions are allowed, leaving the parties
to bear their own costs.
SANJEEV SACHDEVA, J
BADAR DURREZ AHMED, J
October 08 , 2015
sk
WP(C) 1874/2013 & WP(C)1984/2014 Page 17 of 17
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