* 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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