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From the Courts »
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ADOBE SYSTEMS SOFTWARE IRELAND LTD. Vs. ASSISTANT DIRECTOR OF INCOME TAX
April, 01st 2014
*            IN THE HIGH COURT OF DELHI AT NEW DELHI

                                                    Reserved on: 12th March, 2014
%                                              Date of Decision: 28th March, 2014

+      W.P.(C) 2326/2013
+      W.P.(C) 2328/2013
+      W.P.(C) 2330/2013

       ADOBE SYSTEMS SOFTWARE IRELAND LTD. ..... Petitioner
                      Through: Mr. M.S. Syali, Sr. Advocate with
                               Mr. Vishal Kalra, Mr. Mayank
                               Nagi and Mr. Harkunal Singh,
                               Advocates.
               versus

       ASSISTANT DIRECTOR OF INCOME TAX ..... Respondent
                     Through: Mr. N.P. Sahni, Sr. Standing
                              Counsel.

CORAM:
MR. JUSTICE S. RAVINDRA BHAT
MR. JUSTICE R.V. EASWAR

R.V. EASWAR, J.

1.     In this petition presented under Article 226 of the Constitution, the

petitioner assails the jurisdiction of the respondent to continue

reassessment proceedings initiated by notices dated 30.03.2011 issued by

the Dy. Director (Intnl. Taxation), Noida under Section 148 of the Income

Tax Act, 1961 (,,Act, for short) and the order dated 08.03.2013 passed by

the respondent herein, (hereinafter referred to as "the Delhi officer" or

W.P.(C) Nos.2326/2013, 2328/2013 & 2330/2013                         Page 1 of 14
"respondent") dismissing the petitioners objections to the reassessment

notices.


2.     The petition arises this way.           The petitioner is a non-resident

company, incorporated in Ireland.              It functions in India from DLF

Cybercity, Gurgaon, Haryana. It is engaged in the business of Adobe

Products - shrink-wrapped/ off-the-shelf computer software. For the first

time it filed a return of income for the assessment year 2008-09 on

31.03.2010 with the respondent declaring "nil" taxable income. A notice

under Section 143(2) was served on the petitioner on 20.08.2010 in

respect of the return. A draft assessment order under Section 144C was

proposed by the respondent on 17.12.2010 and the proceedings were

referred to the Disputes Resolution Panel (DRP). In the meantime i.e.

after the issue of notice under section 143(2) by the respondent and before

the preparation of the draft assessment order, a notice under Section

142(1) was issued on 14.09.2010 by the Deputy Director of Income Tax,

International Taxation, Noida (hereinafter referred to as "the Noida

officer") calling for a return for the income for the assessment year 2009 -

10. The petitioner pointed out that the jurisdiction to assess a non-resident

company is determined either on the basis of the location of the





W.P.(C) Nos.2326/2013, 2328/2013 & 2330/2013                      Page 2 of 14
"permanent establishment" (PE) of the non-resident company or the

location of a source of income accruing to the company in India and that

the petitioner did not have any source of income in Noida as none of its

clients in India were located there, nor did the petitioner have a PE in

India. It was accordingly submitted that the notice issued by the Noida

officer was without jurisdiction. It would appear that there was no reply

to this notice.


3.     However, on 30.03.2011 the Noida officer issued notices under

Section 148 of the Act seeking to reopen the petitioners assessment for

the assessment years 2004-05, 2005-06 and 2006-07. These notices were

received by the petitioner on 07.04.2011 and on 26.04.2011 the petitioner

wrote to the Noida officer informing him that the petitioner was already

assessed in India by the respondent (Delhi officer) and, therefore, he had

no jurisdiction to issue the notices.          No reply appears to have been

received for a period of 4 months from the Noida officer. However, on

26.09.2011 the Noida officer wrote a letter to the petitioner enclosing the

reasons recorded for reopening the assessments for all the three years.

The reasons are identical and they are as follows: -




W.P.(C) Nos.2326/2013, 2328/2013 & 2330/2013                    Page 3 of 14
       "Reasons
       The assessee is a company incorporated in Ireland. NO
       return of income has been filed by the assessee for the A.Y.
       2006-07
       During the year the assessee has received Rs.301731289 for
       marketing support services from Adobe India which is AE of
       the assessee.
       Indian company is a dependent agent for non-resident
       company as it works wholly and exclusively for non-resident
       and completed contracts of non-residents with the
       distributors in India.
       Without prejudice to the above, the assessee's income is
       chargeable to tax in India as royalty received by him for
       licensing software to various customers in India. During the
       year, the assessee has received Rs.301731289 as fees for
       marketing and sales commission. Operating Global income
       of the company is $ 728434 on marketing receipt of $
       593323. Applying the same rate, profit of the assessee on
       marketing receipt of Rs.301731289 comes to Rs.368112172
       for which no return has been filed.
       IN the above circumstances, I have reason to believe that
       income amounting to Rs.368112172/- is chargeable to tax
       has escaped assessment in terms of Section 147 of the Act.
       Submitted to Addl. DIT, Intl. Taxation, Noida for kind
       approval as escaped income is more than Rs.1 Lakh
                                                                Sd/-
                                               DDIT, Intl. Taxation"


4.     The above reasons relate to the assessment year 2006-07 and

different figures of escapement of income were mentioned in the notices

for the other two years.

W.P.(C) Nos.2326/2013, 2328/2013 & 2330/2013                  Page 4 of 14
5.     On receipt of the reasons recorded for reopening the assessments

the petitioner wrote to the Noida officer on 02.11.2011 on the subject and

in this letter it again reiterated its earlier objections i.e. that the Noida

officer did not have jurisdiction over the petitioner since the petitioner

was already being assessed to income tax by the respondent at Delhi. On

04.11.2011 the Noida officer transferred the proceedings and records to

the respondent. Thereafter on 14.11.2011 the respondent issued notices

under Section 142(1) calling upon the petitioner to file returns of income

for the assessment years in respect of which notices were earlier issued

under Section 148. Predictably, the petitioners response was; (a) the

notices under Section 148 were issued without any jurisdiction by the

Noida officer and at the time when they were issued i.e. 30.03.2011 the

jurisdiction to assess the petitioner was with the respondent; (b) notice

issued under Section 142(1) for the assessment year 2004-05 was barred

by limitation since it was issued beyond the period of six years from the

end of the relevant assessment year; (c) even assuming that the notices

under Section 148 were validly issued by the Noida officer, the time limit

to complete the reassessments under Section 153 of the Act would expire

on 31.12.2013 and (d) the petitioner would need more time to comply



W.P.(C) Nos.2326/2013, 2328/2013 & 2330/2013                   Page 5 of 14
with the notices issued under Section 142(1) for the assessment years

2005-06 and 2006-07.


6.     On 07.01.2013 the respondent wrote to the petitioner pointing out

that no returns had been filed in response to the notices issued on

30.03.2011 under Section 148 and also pointing out that despite issue of

notices under Section 142(1) on 14.11.2011 "to enforce compliance to the

requirement of filing the return in response to notice u/s 148", the

petitioner did not file any return and calling upon the petitioner to show-

cause "as to why the assessment in your case may not be completed u/s.

144 read with Section 147 of the Act".         The petitioner replied on

21.03.2013 and pointed out to the respondent that the notices issued under

Section 148 by the Noida officer were without jurisdiction, that he had not

disposed of the petitioners objections till date, that no communication has

been received by the petitioner as to how the proceedings pending with

the Noida officer were transferred to the respondent and that therefore the

proceedings cannot be continued by the respondent.         It was further

submitted that the petitioner had filed returns in response to the notice

issued by the respondent under Section 142(1) for the assessment years

2005-06 and 2006-07 on 30.03.2012 and 11.09.2012 respectively and that


W.P.(C) Nos.2326/2013, 2328/2013 & 2330/2013                 Page 6 of 14
these returns had been filed without prejudice to the contention that the

issuance of the notices themselves was barred, being beyond limitation

and, therefore, no assessment is permissible. It was also pointed out that

the notice issued under Section 142(1) for the assessment year 2004-05

was beyond limitation and, therefore, no return had been filed. It was

requested that the petitioner should be supplied with a copy of the

communication or the basis for the transfer of the records from Noida to

Delhi. In support of these submissions several authorities were cited. It

was ultimately requested that the proceedings be dropped and a formal

order dropping the proceedings be communicated.


7.     On 01.02.2013 another letter was addressed by the petitioner to the

respondent. In this letter there is reference to the discussions which took

place between the petitioner and the respondent sometime in January,

2013; during that discussion, it would appear that the respondent had

stated that the objections filed by the petitioner to the jurisdiction to

reopen the assessments would be considered only after returns of income

were filed by the petitioner in response to the notices under Section 148 as

held by the Supreme Court in the case of "G.K.N. Drive Shafts (India)

Ltd. vs. ITO", (2003) 259 ITR 19. After referring to the observations of





W.P.(C) Nos.2326/2013, 2328/2013 & 2330/2013                  Page 7 of 14
the respondent, the petitioner submitted that the aforesaid judgment was

not applicable since the very assumption of jurisdiction by the Noida

officer was invalid according to the petitioner and, therefore, the only

course open to the respondent was to drop the proceedings.


8.     On 08.03.2013, the respondent passed the impugned order which is

identical for all the three assessment years for which notices were issued

under Section 148. In this order the respondent disposed of the objections

filed by the petitioner to the reasons recorded for reopening the

assessments. The points made by the respondent in this order are as

follows: -


       (a)     The petitioner has not filed any return in response to the

       notices issued under Section 148 and, therefore, was not entitled to

       file objections at this stage nor was the respondent bound to dispose

       of the objections, if any filed.


       (b)     In any case the petitioner is not correct in law and on facts in

       asserting that the Noida officer did not have jurisdiction over the

       petitioner, and therefore the notices under Section 148 issued by

       him were invalid, and consequently the proceedings cannot be

       continued.

W.P.(C) Nos.2326/2013, 2328/2013 & 2330/2013                     Page 8 of 14
       (c) As per CBDTs notification No.263 issued on 14.09.2001 the

       jurisdiction of Directors of Income Tax (International Taxation)

       over a foreign company lay with the assessing officer in whose area

       the foreign company has a PE or a business connection.

       Examination of records reveals that the petitioner had a "dependent

       agent PE" in Noida in the form of Adobe India, which was also the

       petitioners associated enterprise. Therefore, the Noida officer had

       valid jurisdiction over the petitioner and was entitled to issue the

       notices under Section 148.


      (d) During the previous years relevant to the assessment years for

          which the notices under Section 148 were issued, the petitioner

          had not obtained any "permanent account number" (PAN) nor

          had it filed any return of income. The permanent account number

          was obtained only in 2009, prior to the filing of the return of

          income for the assessment year 2008-09 declaring "nil" income.

          In this view of the matter also, the Noida officer had valid

          jurisdiction over the petitioner.


          (e) An order dated 06.03.2013 had been issued by the DIT

          (International Taxation)-II, New Delhi in F.No.DIT[Intl. Tax.]-


W.P.(C) Nos.2326/2013, 2328/2013 & 2330/2013                 Page 9 of 14
          II/2011-12/3187 by which the jurisdiction over the petitioner for

          the assessment year 2004-05 to 2006-07 was transferred from

          Noida to the respondent at Delhi in order to avoid multiplicity of

          proceedings and the possibility of orders passed by two different

          authorities. Therefore, the respondent was entitled to continue

          the reassessment proceedings which were validly initiated by the

          Noida officer.


          (f) On 04.11.2011 itself the records were transferred to the

          respondent from the Noida officer when the return of the

          petitioner for the assessment year 2008-09 was assessed by the

          respondent. It was only thereafter that the respondent issued

          notice under Section 142(1) which was only a continuation of the

          proceedings validly initiated under Section 148.


9.     For the aforesaid reasons the respondent concluded that the

objections raised by the petitioner were without merit and dismissed them.

From what has been narrated above, it seems clear that the validity of the

proceedings which were continued by the respondent depends upon the

validity of the initiation of the proceedings for reassessment by notices

issues on 30.03.2011 by the Noida officer. If the notices are valid, then


W.P.(C) Nos.2326/2013, 2328/2013 & 2330/2013                  Page 10 of 14
the case having been transferred from the Noida officer to the respondent

at Delhi under Section 127(1) of the Act, the respondent can validly

continue those proceedings which have to ultimately terminate in orders

of reassessment. The question whether the initiation of reassessment

proceedings by the Noida officer was valid or not would depend upon

whether the petitioner had a PE within the jurisdiction of the Noida officer

in which case the notification No.263 issued on 14-9-2001 would apply.

Whether this jurisdictional fact existed or not cannot be examined in

these proceedings taken under Article 226 since the question is hotly

contested, the revenue alleging that the petitioner did have a PE at Noida

by the name Adobe India and the petitioner emphatically denying the

same. In the absence of any evidence unmistakably and indisputably

establishing the existence or otherwise of the PE, we would hesitate to

enter this prohibited arena in writ proceedings. It needs no citation of

authority to support the proposition that the Court exercising its

jurisdiction under Article 226 of cannot enter into disputed questions of

fact which is best left to be resolved in the alternative remedies available

to the petitioner.        In fact the assessment and appellate authorities,

including the Income Tax Appellate Tribunal, constituted under the Act as



W.P.(C) Nos.2326/2013, 2328/2013 & 2330/2013                  Page 11 of 14
fact-finding bodies are best suited to examine whether the petitioner had a

PE in Noida or not and the question of jurisdiction would depend upon the

findings of those authorities.             Moreover, when we are exercising

discretionary jurisdiction, it is not impermissible to consider whether any

real prejudice has been caused to the petitioner to justify the exercise of

the extraordinary jurisdiction which is to be sparingly wielded. We do not

see any such prejudice to the petitioner. If really it had no PE in Noida

and if it is able to establish that, then certainly there would be no case of

escapement of income. In that case the reassessment proceedings will be

without jurisdiction. If on the other hand, the petitioner is found to have a

PE at Noida as alleged by the revenue, and if the revenue is able to

establish that fact, the petitioner not having filed any returns of income for

the assessment years 2004-05 to 2006-07, there was escapement of

income which the revenue is entitled, subject to the provisions of the Act,

to bring to assessment.. There can be no vested right that escaped income

cannot be taxed, provided all the jurisdictional conditions and the

procedural requirements of the Act are satisfied.          This fundamental

question is purely one of fact which ideally should be determined in




W.P.(C) Nos.2326/2013, 2328/2013 & 2330/2013                    Page 12 of 14
proceedings relating to assessment and appeal prescribed under the Act.

This Court cannot, on the facts of the present case, enter that domain.


10.    It is also noticed that the petitioner did not file any returns of

income in response to the notices issued under Section 148. We are

inclined to agree with the view taken by the respondent that even under

the judgment of the Supreme Court cited supra, the petitioner would get

the reasons recorded for reopening the assessment only upon filing the

return of income pursuant to the notice issued under Section 148. The

conduct of the petitioner has been one of defiance; it did not file returns in

response to the notices issued under Section 148. The mere filing of the

return can never amount to submitting to the jurisdiction. The filing of

the return in response to the notice under Section 148 defines the stand

taken by the assessee. Section 148 says that the return called for by the

notice issued under that section shall be treated as if such a return were a

return required to be furnished under Section 139 of the Act. Under the

scheme of the Act, a return of income conveys the position taken by the

assessee to the assessing authority - whether he has taxable income or not.

It is not a mere scrap of paper. There is a sanctity attached to the return.

If the assessing authority calls upon the assessee to file a return of income,


W.P.(C) Nos.2326/2013, 2328/2013 & 2330/2013                    Page 13 of 14
the same shall be complied with by the assessee and it is no answer to the

notice to say that since in his (assessees) opinion there is no taxable

income, he is under no obligation to file the return. The petitioner, not

having made the Noida officer aware that no income chargeable to tax had

escaped assessment and having merely told him that he has no jurisdiction

to issue reassessment notices, was not acting strictly in accordance with

law. The writ remedy being a discretionary remedy, the discretion can be

exercised in favour of the writ petitioner only if his conduct has been in

conformity with law. If it is not, the Court may refuse to exercise the

discretion in favour of the writ petitioner.


11.    For the aforesaid reasons the writ petitions with all connected

applications are dismissed with no order as to costs.




                                                   (R.V. EASWAR)
                                                       JUDGE



                                               (S. RAVINDRA BHAT)
                                                      JUDGE
MARCH 28, 2014
hs




W.P.(C) Nos.2326/2013, 2328/2013 & 2330/2013                 Page 14 of 14

 
 
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