* IN THE HIGH COURT OF DELHI AT NEW DELHI
Reserved on: 19th March, 2014
% Date of Decision: 25th April, 2014
+ W.P.(C) 3891/2013
SAMSUNG INDIA ELECTRONICS PVT. LTD ..... Petitioner
Through Mr. S.E.Dastur, Sr. Adv. with
Mr. Satyen Sethi,Mr. Madhur
Aggarwal,Mr.A. Trana Panda,
Advs.
versus
DY DIRECTOR OF INCOME TAX, CIRCLE-2(2)
INTERNATIONAL TAXATION ..... Respondent
Through Mr. Sanjeev Sabharwal, Sr.
Standing Counsel
Mr. Roshan Lal Goel, Adv. for R-2
+ W.P.(C) 999/2014
SAMSUNG INDIA ELECTRONICS PVT LTD ..... Petitioner
Through Mr. S.E.Dastur, Sr. Adv. with
Mr. Satyen Sethi,Mr. Madhur
Aggarwal,Mr.A. Trana Panda,
Advs.
versus
DY. COMMISSIONER OF INCOME
TAX & ORS. ..... Respondent
Through Ms. Suruchi Aggarwal, Sr.
Standing Counsel for R-1
Mr. Aditya Malhotra,Adv. for R-4
CORAM:
MR. JUSTICE S. RAVINDRA BHAT
MR. JUSTICE R.V. EASWAR
W.P.(C) Nos.3891/2013 & 999/2014 Page 1 of 16
R.V. EASWAR, J.
These are two writ petitions filed under Art. 226 of the
Constitution of India, challenging the jurisdiction of the first respondent
to (i) reopen the assessment by issue of a notice under section 148 of the
Income Tax Act, 1961 ("the Act") and (ii) to treat the pet itioner as an
"assessee in default" under section 201(1) for not deducting tax under
section 195(2) and consequently recover interest under section 201(1A)
of the Act.
FACTS :
2. The petitioner is a private limited company incorporated in India. It
is a wholly-owned subsidiary of Samsung Electronics Ltd. ("SEC")
incorporated in South Korea. It is engaged in the manufacture and trading
of electronic items in India under the brand name "Samsung". The raw
materials and spares were imported from the holding company. The sales
were "high-seas sales", completed outside the territory of India. The
petitioner's stand was that it was not liable to deduct tax from the
payments made to the SEC for the goods, the contention being that since
the property in the goods was transferred outside the territory of India no
income accrued or arose to SEC in India; correspondingly, there was no
W.P.(C) Nos.3891/2013 & 999/2014 Page 2 of 16
liability on the petitioner's part to deduct tax from the payments as
required by section 195(2). It was also its stand in the return of income
filed for the assessment year 2006-07 that since no tax was deductible
from the payments, the payments could not be disallowed in the
assessment by invoking section 40(a)(i) of the Act.
3. The return of income for the assessment year 2006-07, relevant for
the financial year ended 31-3-2006, was filed on 29-11-2006 along with
Form No. 3 CEB, declaring a total income of Rs. 36,26,44,434/-. The
details of the transactions with the associated enterprises were furnished,
including the transactions with SEC. A reference was made to the
Transfer Pricing Officer ("TPO") who made upward adjustments
amounting to Rs. 1,27,58,65,045/- by order passed on 30-10-2009, which
was later rectified by an order passed on 12-11-2009 under section 154
reducing the adjustment to Rs. 1,24,86,79,414/-. The respondent proposed
a draft assessment order under section 144C of the Act on 22-12-2009
computing the total income at Rs. 1,62,44,65,280/-; no disallowance of
the payments made to SEC was proposed under section 40(a)(i) in the
draft order. The petitioner filed its objections to the draft order before the
Disputes Resolution Panel ("DRP"). The DRP issued directions to the
W.P.(C) Nos.3891/2013 & 999/2014 Page 3 of 16
respondent vide order dated 30-9-2010 and the respondent completed the
assessment of the petitioner under section 143(3) of the Act by order
dated 19-10-2010, after making an adjustment of Rs. 1,24,86,79,414/- to
the international transactions with the associated enterprises as originally
proposed in the draft assessment order read with the rectification order
dated 12-11-2009.
4. During the pendency of the objections before the DRP, a survey
under section 133A was conducted in the premises of the petitioner on
24-6-2010, in the course of which statements from some of the
employees, including expatriate-employees, were recorded. Certain
directions would appear to have been issued on 30-9-2010 by the DRP
under section 144C(5). Thereafter, on 28-3-2011 the respondent issued a
notice under section 148 to SEC reopening its assessment for the
assessment year 2006-07 on the ground that SEC had a "fixed place PE"
and a "dependent agent PE" in India, the income from which had not
been disclosed in its return of income and thus such income had escaped
assessment. Apparently the notice was issued on the basis of the material
gathered during the survey of the premises of the petitioner, and
particularly the statements of the expatriate-employees. The survey also
W.P.(C) Nos.3891/2013 & 999/2014 Page 4 of 16
triggered a notice (undated) from the Income-tax Officer, TDS-
International Taxation which was received by the petitioner on 25-4-2011
seeking details of the payments made by it to SEC and other associated
enterprises during the past ten years, and seeking the petitioner's
explanation as to why it should not be treated as an "assessee in default",
for not deducting tax from the payments.
5. We will now turn to the progress made in the case of SEC pursuant
to the notice issued to it under section 148 on 28-3-2011. A draft
assessment order was passed by the assessing officer on 30-12-2011,
holding that SEC had a fixed place PE in India as its employees who were
deputed to the petitioner had a fixed place allotted to them in the office of
the petitioner. In the draft assessment order, the view taken was that 10%
of the salary paid (by the petitioner) to the expat-employees was
attributable to the fixed place PE and was taxable in India. It needs to be
mentioned that no part of the sales made by the SEC to the petitioner
(high-seas sales) was held attributable to the PE (permanent
establishment) and chargeable to tax on that basis. SEC filed its
objections to the draft assessment order to the DRP under section 144C of
the Act. The DRP called for a remand report from the assessing officer on
W.P.(C) Nos.3891/2013 & 999/2014 Page 5 of 16
the submissions made by SEC. In the remand report dated 7-9-2012 by
the assessing officer (of SEC), he reiterated that SEC had a fixed place
PE in India and submitted that (a) there was such a continuity of dealings
between the petitioner and SEC as would amount to a "business
connection" between them; (b) SEC was carrying on business in Ind ia
through its employees seconded to the petitioner and that the business of
supply of equipment, raw materials etc. is intertwined with the supply of
technology and marketing of the products and (iii) the petitioner, though
incorporated in India as a company, is an agent of SEC. On the basis of
these submissions, it was contended by the assessing officer in the
remand report that all the sales made by the petitioner were sales made by
SEC in India. In its order dated 29-9-2012, the DRP agreed with the
assessing officer that SEC had a fixed place PE in India but rejected the
plea that the petitioner is the agency PE of SEC in India and hence the
(income from the) sales by SEC in India are chargeable to tax in India.
That order of the DRP would appear to have attained finality. An
assessment order was accordingly passed on SEC on 18-10-2012
computing its income at Rs. 1,07,22,431/-; needless to add that no income
from its sales made in India was brought to tax.
W.P.(C) Nos.3891/2013 & 999/2014 Page 6 of 16
6. Turning back to the petitioner's case, on 30 -3-2013 a notice was
issued to it under section 201(1) and (1A) of the Act proposing to treat it
as an assessee in default for not deducting tax from the payments made to
SEC and other associated enterprises and to charge interest for the
default. On the same day (i.e., 30-3-2013), the respondent also issued a
notice under section 148 reopening the petitioner's assessment for the
assessment year 2006-07 and calling upon it to file a return of income.
The reasons recorded for reopening the assessment under section 148(2)
of the Act are as below:
"Annexure P-9
Form for recording the reasons for initiating proceedings under section
148 for obtaining the approved of the Commissioner of Income tax.
1. Name and address of the assessee M/s Samsung India
Electronics Pvt. Ltd.
3rd Floor, Vipul Tech
Square, Golf Course
Road, Sector-43
Gurgaon-122009
2 PAN/GIR AAACS5123K
3 Status Company
4 Distt/Circle Circle 7(1).New Delhi
5 Assessment year in respect of which it is 2006-07
proposed to issue notice under section
148
W.P.(C) Nos.3891/2013 & 999/2014 Page 7 of 16
6 The quantum of income which has 1139.21 cores
escaped assessment:
7 Whether the provisions of section 147(a) NO
or, 147(b) or 147 (c) are applicable or
both the section are applicable
8 Whether the assessment is proposed to No
be made for the first time. If the reply is
in the affirmative, please state:-
(a) Whether any voluntary return had
already been filed, and
(b) If so, the date of filing the said
return
9 If the answer to item 8 is in the negative
please state:-
Rs. 1,62,24,03,720/ u/s
(a) The income originally assessed 143(3)
(b) Whether it is a case of under Yes
assessment as to low a rate,
assessment which has been made
the subject of excessive relief or
allowing of excessive loss or
depreciation.
10 Whether the provisions of section 150(1) No
are applicable. If the reply is in
affirmative, the relevant facts may be
stated against item No. And it may be
brought out that the provisions of
sections 150 (2) would not stand in the
way of initiating proceedings under
section 148 of the Income tax Act.
11 Reasons for the belief that income has escaped assessment:
"That information has been received from DDIT, International
Taxation, Circle2(2), New Delhi that a TDS survey was conducted
W.P.(C) Nos.3891/2013 & 999/2014 Page 8 of 16
on Samsung Electronics India Pvt. Ltd and liaison office of M/s
Samsung Electronics Co. Ltd., Korea on 24.06.2010. After that
notices u/s 148 were issued for AYrs. 2004-05 to 2009-10 in the
case of Samsung Electronics Co. Ltd. Korea and Draft
assessment order u/s 148 read with section 144c were passed on
30.12.2011 wherein, 10% mark up was taken on remuneration to
expatriate employee after holding that the assessee company has
service PE in India. On the basis of re-examination of copies of
documents found during survey and on further analysis of
statements recorded during survey and post survey it was
concluded that Samsung Electronics Corporation has:
i) Permanent Establishment alongwith it there is
ii) Fixed Place PE and
iii) May be dependent agent PE
The DRP has confirmed the order of AO in this regard. Final
order was passed by AO of Samsung Electronics Corporation
on 18.10.2012.
A show cause dated 30.03.2013 in the proceedings u/s
201/201(1A) read with section 195 of the Income Tax Act,
1961 in the case of Samsung India Electronics Pvt. Ltd has
been issued by DDIT, International Tax, Circle 2(2) , New
Delhi, in the light of judgment of Hon'ble Supreme Court in
the case of Transmission Corpn of AP and GE Technology Cen
Pvt. Ltd. The assessee company was liable to deduct tax on
appropriate portion of the total payments which were
chargeable to tax under the provisions of the IT Act,1961. As
the assessee company has failed to withheld tax on payments
made to Samsung Electronics Corporation, the expenditure
claimed in this account is not allowable in view of provisions
of section 40(a)(i) of the Income Tax , 1961. It is observed
from assessment record that M/s Samsung India Electronics
has made huge payments to its parent company M/s Samsung
Electronics Corporations without deducting tax u/s 195 of the
Act which are to be disallowed and added back to the taxable
income of the assessee company. There is failure on the part
W.P.(C) Nos.3891/2013 & 999/2014 Page 9 of 16
of the assessee company to disclose fully and truly all the
material facts necessary for the assessment of its correct
taxable income.
I have therefore, reason to believe that an amount of
Rs.1139.21 crores have escaped assessment within the
meaning of section 147(c) of the IT Act, 1961. The escapement
of income has been by reason of failure on the part of the
assessee to disclose fully and truly, all material fact necessary
for assessment. Since the assessment has been completed u/s
143(3) of the IT Act, 1961 and 4 years have since elapsed. The
assessment record is being submitted for kind perusal and
approval u/s 151 of the IT Act, 1961 for issuance of notice u/s
148 of the IT Act, 1961.
Sd/-
30.3.2013
(Pankaj Kumar Saxena)
Dy. Commissioner of Income Tax.
Circle 7(1), New Delhi.
i) Whether the Addl. CIT is Recommended accordingly
satisfied on the reasons
recorded by the DICT that it is
a fit case for issue of a notice Sd/-
under section 148
(Sukhveer Chaudhary)
Add.Commissioner of Income
tax, Range-7, New Delhi
13 Whether the CIT is satisfied on I have perused the reasons to
the reasons recorded by the believe recorded by the
ACIT/Addl.CIT, that it is a fit Assessing Officer. I am
case for issue of a notice under satisfied that it is a fit case for
section 148. issue of notice under section
148 of the Act.
Sd/-
30.3.2013
(Rajnish Kumar)
Commissioner of Income tax,
W.P.(C) Nos.3891/2013 & 999/2014 Page 10 of 16
Delhi-III, New Delhi
Deputy Commissioner of Income tax,
Room No.313, C.R. Building,
I.P.Estate, New Delhi-110002."
In response to the notice, the petitioner filed a letter dated 8-4-2013
stating that the return of income originally filed by it may be treated as
the return filed in response to the notice of reopening. Thereafter, on
22.11.2013 the petitioner filed its objections with the assessing officer.
These objections were rejected and disposed of by the assessing officer
by order dated 20.1.2014, which is impugned herein.
RIVAL CONTENTIONS:
7. The common contention taken on behalf of the petitioner is that
since the revenue itself took a decision in the reassessment proceedings of
SEC that no income accrued or arose to SEC from sales made by the
petitioner in India, the petitioner was not liable to deduct tax from the
payments made to SEC under section 195(2) with the consequence that:
(i) it cannot be treated as an assessee in default under section 201(1) and
therefore no interest was chargeable under section 201(1A) and (ii) the
payments made to SEC were rightly allowed in the original assessment as
W.P.(C) Nos.3891/2013 & 999/2014 Page 11 of 16
deduction and the notice issued under section 148 to disallow them under
section 40(a)(i) is without jurisdiction. Strong reliance is placed on the
order of the DRP dated 29-9-2012 in the case of SEC which rejected the
claim for enhancement of the income made by the assessing officer on the
ground that SEC had a PE in India and hence assessable on the sales
made through the petitioner in India. It is contended that since the DRP' s
order has attained finality, the revenue cannot now take a contrary
position and contend that there was an income element in the payments
made by the petitioner to SEC on which it (petitioner) ought to have
deducted tax; and if there is no liability to deduct tax, there can be no
failure to deduct tax and no disallowance can be made by invoking
section 40(a)(i). It is pointed out that the original assessment of the
petitioner was concluded on 19-10-2010, after the survey was conducted
(on 24-6-2010) in the course of which statements were obtained from the
seconded expat-employees and other material was gathered, on the basis
of which SEC's assessment for the assessment year 2006 -07 was
reopened by notice issued on 28-3-2011 under section 148. There was
thus no fresh or tangible material which came into the possession of the
revenue after the completion of the original assessment which would
W.P.(C) Nos.3891/2013 & 999/2014 Page 12 of 16
implicate the petitioner with failure to furnish full and true particulars at
the time of the original assessment proceedings. The respondent, it is
contended, has not alleged any such failure on the part of the petitioner
which he is required to do, as this is a case where the proviso to section
147 applies, and the assessment is sought to be reopened after four years
from the end of the assessment year (i.e., assessment year 2006-07 &
notice issued on 30-3-2013). In support of these submissions, a written
synopsis was filed. In this, the aforesaid contentions have been elaborated
with reference to the case-law.
8. The further contentions against the notice under section 201(1) and
(1A) are that: (i) it is contrary to the directions of the DRP in the case of
SEC; (ii) there is no application of mind on the part of the respondent
No.1 and (iii) it is barred by limitation.
9. The contention of the revenue is based on a judgment of this court
in CIT V. Amadeus India Pvt. Ltd. (2013) 351 ITR 92. The learned
standing counsel has also filed an additional affidavit on 12-12-2013. He
has further relied on a judgment of a Full Bench of this court in CIT v.
Sardari Lal & Co. (2001) 251 ITR 864. Besides, he has strongly
contended that the disclosure made by the petitioner in the course of the
W.P.(C) Nos.3891/2013 & 999/2014 Page 13 of 16
original assessment proceedings vis-a-vis payments made to SEC was not
full and true; the petitioner did not disclose that it did not deduct the tax
on such payments. The order of the DRP in the reassessment proceedings
of SEC, in his submission, is irrelevant as it is passed in proceedings
relating to the recipient of the money and those findings should not be
projected into the petitioner's case.
DECISION:
10. The key to the decision is the answer to the question whether any
income arose or accrued to SEC through its PE in India in respect of the
sales made in India. If the answer is in the affirmative, both the notices
would be good notices; if the answer is in the negative, both the notices
would be bad. The answer in our opinion should be in the negative,
because even as per the revenue, as reflected in the order passed by the
DRP in the reassessment proceedings of SEC, no income accrued to SEC
in India. In this regard, the DRP rejected the specific request made by that
assessing officer in his remand report that the petitioner be treated as the
permanent establishment (PE) of SEC and the income of SEC be
computed on that basis. The DRP however held that as regards attribution
of income to the "fixed place PE", a rough and ready basis would be to
W.P.(C) Nos.3891/2013 & 999/2014 Page 14 of 16
estimate 10% of the salary paid to the expat-employees of the petitioner
as the mark-up, as was done by the assessing officer in the draft
assessment order. The remuneration cost in respect of such employees
seconded to the petitioner amounted to Rs. 10,72,24,310; this was taken
as the base and a mark-up of 10% had been applied by the assessing
officer and the income was taken as Rs.1,07,22,431/-. This was approved
by the DRP in its order dated 29-9-2012; the other claims made by the
assessing officer in the remand report were rejected.
11. Thus the basis of both the notices (section 148 and 201) has been
knocked out of existence by the DRP's order in the reassessment
proceedings of SEC for the same assessment year. On the date on which
notices were issued to the petitioner under Sections 148 and 201(1)/(1A),
there was an uncontested finding by the revenue authorities (i.e., the
DRP) in the case of SEC that SEC cannot be taxed in respect of the sales
made in India through the petitioner on the footing that the petitioner is
its PE. If no income arose to SEC on account of sales in India since the
petitioner cannot be held to be its PE in India, two consequences follow:
(i) the payments made by the petitioner to SEC for the goods are not tax
deductible under section 195(2) and hence they were rightly allowed as
W.P.(C) Nos.3891/2013 & 999/2014 Page 15 of 16
deduction in the original assessment of the petitioner and (ii) the assessee
cannot be treated as one in default under section 201(1) and no interest
can be charged under section 201(1A). It needs mention here that the
notice under section 201 is a verbatim reproduction of the remand report
of the assessing officer in SEC's case filed before the DRP.
12. In the view we have taken, it is not necessary to deal with the
contention that the notice issued under section 201 is barred by limitation.
13. The notices, both under section 148 and section 201(1)/(1A) are
accordingly quashed. The writ petitions are allowed. There shall however
be no order as to costs.
(R.V. EASWAR)
JUDGE
(S. RAVINDRA BHAT)
JUDGE
APRIL 25, 2014
//vld
W.P.(C) Nos.3891/2013 & 999/2014 Page 16 of 16
|
