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M/s Alcatel-Lucent Enterprise Vs. Deputy Commissioner Of Income Tax , Circle -1(1)(1), International Taxation
May, 12th 2016
$~
*      IN THE HIGH COURT OF DELHI AT NEW DELHI

                                                Reserved on: March 31, 2016
                                                Delivered on: April 27, 2016

+                      W.P.(C) 1938/2013 & CM No. 3684/2013
       M/S ALCATEL-LUCENT FRANCE AND ANR ..... Petitioners
                               Through: Mr C.S. Aggarwal, Senior Advocate
                               with Mr Prakash Kumar, Advocate.

                               versus

       ASSISTANT DIRECTOR OF INCOME TAX           ..... Respondent
                     Through: Mr Zoheb Hossain, Standing Counsel.

                               WITH

+                      W.P.(C) 1967/2013 & CM No. 3747/2013
       M/S ALCATEL-LUCENT ENTERPRISE AND ANR ..... Petitioners
                    Through: Mr C.S. Aggarwal, Senior Advocate
                    with Mr Prakash Kumar, Advocate.

                               versus

       ASSISTANT DIRECTOR OF INCOME TAX             ..... Respondent
                     Through: Mr Zoheb Hossain, Standing Counsel.

                               WITH

+                      W.P.(C) 2016/2013 & CM No. 3836/2013
       M/S ALCATEL-LUCENT BELL NV AND ANR ..... Petitioners
                    Through: Mr C.S. Aggarwal, Senior Advocate
                    with Mr Prakash Kumar, Advocate.

                                versus



W.P.(C) No.1938/2013 & connected matters                          Page 1 of 39
       ASSISTANT DIRECTOR OF INCOME TAX           ..... Respondent
                     Through: Mr Zoheb Hossain, Standing Counsel.

                               WITH

+                      W.P.(C) 1853/2014 & CM No. 3869/2014
       M/S. ALCATEL - LUCENT CANADA INC.             ..... Petitioner
                      Through: Mr C.S. Aggarwal, Senior Advocate
                      with Mr Prakash Kumar, Advocate.

                               versus

       DEPUTY DIRECTOR OF INCOME TAX (EARLIER
       ASSISTANT DIRECTOR OF INCOME TAX)          ..... Respondent
                    Through: Mr Zoheb Hossain, Standing Counsel.

                               WITH

+                      W.P.(C) 1862/2014 & CM No. 3880/2014
       M/S. ALCATEL-LUCENT FRANCE (EARLIER
       KNOWN AS ALCATEL CIT FRANCE)               ..... Petitioner
                     Through: Mr C.S. Aggarwal, Senior Advocate
                     with Mr Prakash Kumar, Advocate.

                               versus

       DEPUTY DIRECTOR OF INCOME TAX (EARLIER
       ASSISTANT DIRECTOR OF INCOME TAX)           ..... Respondent
                     Through: Mr Zoheb Hossain, Standing Counsel.

                            WITH
+                      W.P.(C) 1863/2014 & CM No. 3882/2014
       M/S. ALCATEL - LUCENT BELL NV                ..... Petitioner
                      Through: Mr C.S. Aggarwal, Senior Advocate
                      with Mr Prakash Kumar, Advocate.




W.P.(C) No.1938/2013 & connected matters                      Page 2 of 39
                     versus
       DEPUTY DIRECTOR OF INCOME T AX (EARLIER
       ASSISTANT DIRECTOR OF INCOME TAX)    ..... Respondent

                               Through: Mr Zoheb Hossain, Standing Counsel.

                                        WITH

+                      W.P.(C) 1867/2014 & CM No. 3888/2014
       M/S. ALCATEL LUCENT ENTERPRISE             ..... Petitioner
                     Through: Mr C.S. Aggarwal, Senior Advocate
                     with Mr Prakash Kumar, Advocate.

                               versus

       DEPUTY DIRECTOR OF INCOME TAX (EARLIER
       ASSISTANT DIRECTOR OF INCOME TAX)          ..... Respondent
                     Through: Mr Zoheb Hossain, Standing Counsel.

                               WITH

+                      W.P.(C) 1868/2014 & CM No. 3890/2014
       M/S. ALCATEL-LUCENT CANADA INC.            ..... Petitioner
                     Through: Mr C.S. Aggarwal, Senior Advocate
                     with Mr Prakash Kumar, Advocate.

                               versus

       DEPUTY DIRECTOR OF INCOME TAX (EARLIER
       ASSISTANT DIRECTOR OF INCOME TAX)          ..... Respondent
                     Through: Mr Zoheb Hossain, Standing Counsel.

                               WITH

+                      W.P.(C) 1871/2014 & CM No. 3901/2014
       M/S. ALCATEL LUCENT BELL NV                ..... Petitioner
                     Through: Mr C.S. Aggarwal, Senior Advocate



W.P.(C) No.1938/2013 & connected matters                          Page 3 of 39
                               with Mr Prakash Kumar, Advocate.
                               versus

       DEPUTY DIRECTOR OF INCOME TAX (EARLIER
       ASSISTANT DIRECTOR OF INCOME TAX)          ..... Respondent
                     Through: Mr Zoheb Hossain, Standing Counsel.

                               WITH

+                      W.P.(C) 1873/2014 & CM No. 3913/2014
       M/S. ALCATEL-LUCENT ENTERPRISE             ..... Petitioner
                     Through: Mr C.S. Aggarwal, Senior Advocate
                     with Mr Prakash Kumar, Advocate.

                               versus

       DEPUTY DIRECTOR OF INCOME TAX (ASSISTANT
       DIRECTOR OF INCOME TAX)                    ..... Respondent
                     Through: Mr Zoheb Hossain, Standing Counsel.

                               WITH

+                      W.P.(C) 2993/2015 & CM No.5360/2015
       M/S ALCATEL-LUCENT FRANCE                  ..... Petitioner
                    Through: Mr C.S. Aggarwal, Senior Advocate
                    with Mr Prakash Kumar, Advocate.

                               versus

       DEPUTY COMMISSIONER OF INCOME TAX,
       CIRCLE-1(1)(1), INTERNATIONAL TAXATION, ..... Respondent
                        Through: Mr Ashok Manchanda, Advocate.

                               WITH

+                      W.P.(C) 2994/2015 & CM No. 5398/2015




W.P.(C) No.1938/2013 & connected matters                          Page 4 of 39
       M/S ALCATEL-LUCENT ENTERPRISE               ..... Petitioner
                    Through: Mr C.S. Aggarwal, Senior Advocate
                    with Mr Prakash Kumar, Advocate.

                               versus

       DEPUTY COMMISSIONER OF INCOME TAX ,
       CIRCLE -1(1)(1), INTERNATIONAL TAXATION, ..... Respondent
                         Through: Mr Ashok Manchanda, Advocate.

                               WITH

+                      W.P.(C) 2995/2015 & CM No. 5366/2015
       M/S ALCATEL-LUCENT ENTERPRISE,              ..... Petitioner
                    Through: Mr C.S. Aggarwal, Senior Advocate
                    with Mr Prakash Kumar, Advocate.

                                versus

       DEPUTY COMMISSIONER OF INCOME TAX ,
       CIRCLE -1(1)(1), INTERNATIONAL TAXATION, ..... Respondent
                         Through: Mr Ashok Manchanda, Advocate.

                               WITH

+                      W.P.(C) 2997/2015 & CM No. 5369/2015
       M/S ALCATEL-LUCENT BELL NV                  ..... Petitioner
                    Through: Mr C.S. Aggarwal, Senior Advocate
                    with Mr Prakash Kumar, Advocate.

                               versus

       DEPUTY COMMISSIONER OF INCOME TAX,
       CIRCLE-1(1)(1), INTERNATIONAL TAXATION, ..... Respondent
                        Through: Mr Ashok Manchanda, Advocate.

                               WITH




W.P.(C) No.1938/2013 & connected matters                      Page 5 of 39
+                      W.P.(C) 2998/2015 & CM No. 5371/2015
       M/S ALCATEL -LUCENT BELL NV                  ..... Petitioner
                     Through: Mr C.S. Aggarwal, Senior Advocate
                     with Mr Prakash Kumar, Advocate.

                               versus

       DEPUTY COMMISSIONER OF INCOME TAX,
       CIRCLE-1(1)(1), INTERNATIONAL TAXATION, ..... Respondent
                        Through: Mr Ashok Manchanda, Advocate.

                               AND

+                      W.P.(C) 3000/2015 & CM No. 5375/2015
       M/S ALCATEL -LUCENT FRANCE,                  ..... Petitioner
                     Through: Mr C.S. Aggarwal, Senior Advocate
                     with Mr Prakash Kumar, Advocate.

                               versus

       DEPUTY COMMISSIONER OF INCOME TAX,
       CIRCLE-1(1)(1), INTERNATIONAL TAXATION, ..... Respondent
                        Through: Mr Ashok Manchanda, Advocate.

       CORAM:
       JUSTICE S. MURALIDHAR
       JUSTICE R. K. GAUBA

                               JUDGMENT
                                27.04.2016
%
Dr. S. Muralidhar, J:
1. This judgment is common to sixteen writ petitions filed under Article 226
of the Constitution of India by companies belonging to the Alcatel-Lucent
group. Four of the writ petitions are by M/s. Alcatel-Lucent France (,,ALF),



W.P.(C) No.1938/2013 & connected matters                       Page 6 of 39
five by M/s. Alcatel-Lucent Bell NV ('ALB'), five by M/s. Alcatel-Lucent
Enterprise ('ALE') and the remaining two by M/s. Alcatel-Lucent Canada
('ALC'). The challenge in all these writ petitions is to the notices issued by
the Income-tax Department (hereafter 'the Revenue') to each of the
Petitioners under Section 148 of the Income Tax Act, 1961 ('Act') seeking to
reopen the assessments for various Assessment Years ('AYs'). The orders
rejecting the objections of the Petitioners to such reopening are also under
challenge. Consequently, the questions that arise for determination are
similar.

Facts concerning Alcatel-Lucent France
2. To begin with the Court proposes to discuss in some detail the facts
concerning ALF. As already noticed, the facts concerning the other
Petitioners are more or less similar, and will be adverted to in brief at the
appropriate stage in this judgment.

3. ALF, a company incorporated under the laws of France, through its
authorised signatory Mr. Nitin Gupta has filed four of these writ petitions,
viz., W.P.(C) Nos. 1938/2013 (concerning AY 2004-05), 1862/2014
(concerning AY 2005-06), 2993/2015 (concerning AY 2006-07) and
3000/2015 (concerning AY 2008-09). The challenge in these writ petitions
is to the notices issued to ALF under Section 148 of the Income Tax Act
1961 ('Act') seeking to reopen the assessments for the respective AYs. The
orders rejecting the objections of ALF to such reopening are also under
challenge.

4. ALF states that it is a tax resident of France in terms of Article 4 of the



W.P.(C) No.1938/2013 & connected matters                         Page 7 of 39
Double Taxation Avoidance Agreement (,,DTAA'/'tax treaty') entered into
between India and France. ALF contends that it is entitled to be governed by
the DTAA to the extent that the DTAA is more beneficial to it. ALF states
that it supplies telecommunication equipment (hardware) along with
software from outside India to various telecom companies in India. The case
of ALF is that it has no Permanent Establishment (,,PE) in India.




5. As far as AY 2004-05 is concerned ALF states that apart from providing
services to Alcatel-Lucent India (hereafter 'ALI') on which it has paid tax
and for which a return has been filed under the Act, ALF also makes
equipment supplies to Indian customers in the telecom sector. It states that
these sales were made outside India and payment was received outside India
and, therefore, no income accrued or arose that was taxable in India. ALF
states that in India, it derives income in the nature of fees for technical
services (FTS), royalty and interest, which is offered to tax on gross basis
i.e. at the rate of 2.5% in the absence of PE in terms of rates specified under
the DTAA.

6. For AY 2004-05, ALF filed its return of income on 28th October, 2004
declaring an income of Rs. 1,16,01,630/-. For AY 2005-06, ALF filed its
returns on 20th August, 2005 declaring an income of Rs. 2,93,05,860/-. For
AY 2006-07, ALF filed its returns of income on 14th October, 2008
declaring a total income of Rs. 8,15,59,098/-. None of these returns was
picked up for scrutiny.

7. A survey was conducted in the premises of ALI in New Delhi and
Gurgaon on 27th February 2009 under Section 133A of the Act. On the basis



W.P.(C) No.1938/2013 & connected matters                          Page 8 of 39
of the facts gathered during said survey, a notice under Section 148 of the
Act was issued to ALF on 8th October, 2009 (for AYs 2004-05 and 2005-06)
and 3rd November, 2009 (for AY 2006-07). In response to the said notices,
ALF filed its returns on 29th October, 2009 reiterating the earlier return
already filed by it for the said two AYs. Thereafter, further notices were
issued by the Revenue to which replies were filed by ALF.

8. Separate assessment orders were passed by the Assessing Officer ('AO')
on 23rd March, 2010 under Section 148 read with Section 143(3) of the act
for the four AYs, i.e., 2004-05, 2005-06, 2006-07 and 2008-09. It may be
noticed at this stage that for some reason the Revenue did not issue a notice
under Section 148 of the Act to ALF as regards AY 2007-08. The order
passed by the Assessing Officer (,,AO) for AY 2006-07 (forming subject
matter of W.P.(C) 2993/2015) formed the basis of the orders for the other
three AYs, i.e., 2004-05, 2005-06 and 2008-09.

9. In the assessment order dated 23rd March 2010 for AY 2006-07, specific
to the issue of taxability of the software, the AO came to the conclusion that
the sale of software was in reality only a licence to use the software for
consideration. Consequently, it was held that the consideration for software
fell in the category of equipment royalty. It was further held that there was
concealment of facts by furnishing inaccurate particulars. On this basis the
AO also passed similar but separate assessment orders dated 23 rd March
2010 for AYs 2004-05, 2005-06 and 2008-09.

10. The said assessment orders dated 23 rd March 2010 were reversed by the
Commissioner of Income Tax (Appeals) [,,CIT(A)] by a common order



W.P.(C) No.1938/2013 & connected matters                         Page 9 of 39
dated 29th September 2012 for AYs 2004-05 to 2006-07 and 2008-09. The
CIT (A) accepted the plea of ALF that the supply of hardware and software
was an integrated one and that the software was inseparable as held by this
Court in DIT v. Ericsson A.B. (2012) 343 ITR 470 (Del). However, it was
held that "it is undisputed that the appellant has PE in India" and
accordingly the AO was "directed to tax the total consideration received by
the appellant for integrated supply of hardware and software on the same
basis" as was adopted by him for hardware sales, i.e.@2.5% of total sale
consideration received by ALF for supply of hardware and software both
shall be treated as net profit attributable to India PE. The alternative
submission of ALF was that in case the software supply is held to be royalty
then such a receipt should be held as "effectively connected to the PE and
should be taxed same way as the hardware i.e., by attributing 2.5 % deemed
net profit rate to the PE and thereby taxing the total supplies at the rate of
1%. In para 6.2 of its order dated 29th September 2012, the CIT (A) held that
the profit attributable to the PE of ALF in India in respect of sale of
hardware and software was to be estimated at 2.5% of the total sale
consideration.

11. The appeals filed by the Revenue against the above order dated 29th
September 2012 of the CIT(A) were dismissed by the Income Tax Appellate
Tribunal (ITAT) by a common order dated 4th April 2014. The ITAT
followed the decision of this Court in DIT v. Nokia Networks OY
(2013) 358 ITR 259 (Del) and the decision of the Special Bench of the
ITAT in Motorola Inc v. DCIT (2005) 96 TTJ 1[ITAT (Del)] which was
affirmed by this Court in DIT v. Ericsson A.B.(supra). This decision dated




W.P.(C) No.1938/2013 & connected matters                         Page 10 of 39
4th April, 2014 of the ITAT was upheld by this Court by its order dated 27 th
February, 2015 in ITA No. 119/2015 (CIT v. Alcatel Lucent Canada).

12. However, even during the pendency of the above appeals at various
stages, notices under Section 148 of the Act came to be issued by the
Revenue to ALF seeking to reopen the aforementioned assessments for AYs
2004-05, 2005-06, 2006-07 and 2008-09.The notice for AY 2004-05 was
issued on 30th March 2011; for AY 2005-06 on 28th March 2012 and for AY
2006-07 and 2008-09 on 28th March 2013. The reasons recorded under
Section 148 for reopening of the above assessments were identical. It is
therefore sufficient if the reasons recorded on 29th March 2011 for reopening
of the assessment for AY 2004-05 are referred to. It must be noted here that
although the caption mentions AY 2003-04, this is obviously a
typographical error as is plain from the second and penultimate paragraphs
which refer to AY 2004-05. The reasons read as under:
         "Reasons recorded for issue of Notice u/s 148 of the Income
         Tax Act, 1961 in the case of M/s. Alcatel-- Ay 2003-04 (Sic
         2004-05)

         29.03.2011

         The assessee is a company incorporated under the laws of
         France and is the supplier of hardware and software products for
         GSM cellular radio telephone system. During the relevant year
         it had supplied telecommunication hardware and software to
         various customers in India. The assessee had filed return of
         income claiming that the assessee does not have a permanent
         establishment in India. In the assessment order passed on
         23.03.2010 it is held that the assessee had a PE in India and the
         profits are attributable to the PE in India and the software
         income earned by the assessee was taxed as royalty income




W.P.(C) No.1938/2013 & connected matters                         Page 11 of 39
         under the provisions of the Act and the tax treaty.

         It is perused from the record of the case that while deciding the
         tax rate the date of execution of the agreement with Indian
         customers was not taken into account which resulted into an
         underassessment of the income of the assessee for the A.Y.
         2004-05.

         This also satisfies the pre-requisite condition stated under
         explanation 2 to section 147. Relevant portion of section 147 of
         the Act reads as below:

         ...........

         In view of the above, I have reason to believe that the income of
         the assessee for A.Y. 2004-05 chargeable to tax has escaped
         assessment. In this case, not more than six years have elapsed
         from the end of the relevant Asstt. Year (i.e. A.Y. 2004-05) and
         income of more than 1 lakh has escaped assessment due to
         failure on the part of the assessee to disclose fully and truly all
         material facts necessary for assessment, therefore, the notice u/s
         148 r.w.s. 147 of the I.T. Act, 1961 satisfies the time limit for
         issue of notice as provided in Section 149 of the Act.

         As required by section 151 of the Income-Tax Act 1961, the
         reasons are hereby put up for the kind perusal & recording of
         satisfaction."

Reopening of the Assessment for AY 2003-04
13. At this stage it is necessary to digress to a discussion of the facts for AY
2003-04. By an order dated 30th March 2006 for the said AY, the AO
disagreed with the contention of ALF that it had no PE in India. The AO
accordingly held that the software income earned by ALF had to be treated
as royalty income under the Act as well as the DTAA. A specific reference
was made to Clause (c) (ii) under Explanation 2 of Section 147 (ii) (c) of the



W.P.(C) No.1938/2013 & connected matters                           Page 12 of 39
Act, while stating that in deciding the tax rate, the date of the execution of
the agreement by ALF with its Indian customers was not taken into account
and this resulted in escapement of the income of ALF for AY 2003-04.

14. The appeal by ALF against the above order dated 30th March, 2006 of
the AO was allowed by the CIT (A) by an order dated 13th August 2010. The
CIT (A) accepted the plea of ALF that no part of the consideration for
supply of software which was an integral part of the equipment could be
taxable as royalty either under Section 9(1)(vii) of the Act or the relevant
provisions of the DTAA. The further appeal by the Revenue against the said
order dated 13rd August, 2010 of the CIT(A) for AY 2003-04 was dismissed
by the ITAT by the same common judgment dated 4th April 2014 by which
it dismissed the Revenue's appeals for the AYs 2004-05, 2005-06, 2006-07
and 2008-09. This decision dated 4th April, 2014 of the ITAT was upheld by
this Court by its order dated 27th February, 2015 in ITA No. 119/2015 (CIT
v. Alcatel Lucent Canada).

15. Therefore, as far as AY 2003-04 was concerned, the Revenue should be
taken to have accepted the case of ALF that the income received from the
sale of software which was embedded in the hardware supplied by it to the
telecom companies in India should be treated as business income and not as
royalty.

16. However, during the pendency of the above appeals, for AY 2003-04, a
notice under Section 148 of the Act was issued to ALF on 31st March 2010
seeking to reopen the assessment. The 'reasons to believe' recorded by the
AO preceding the issuance of the said notice reads as under:



W.P.(C) No.1938/2013 & connected matters                         Page 13 of 39
        "The assessee is a company incorporated under the laws of
        France and is the supplier of hardware and software products
        for GSM cellular radio telephone system. During the relevant
        year it had supplied telecommunication hardware and software
        to various customers in India. The assessee had filed return of
        income claiming that the assessee does not have a permanent
        establishment in India. In the assessment order passed on
        30.03.2006 it is held that the assessee had a PE in India and the
        profits are attributable to the PE in India and the software
        income earned by the assessee was taxed as royalty income
        under the provisions of the Act and the tax treaty.

        It is perused from the record of the case that while deciding the
        tax rate the date of execution of the agreement with Indian
        customers was not taken into account which resulted into an
        underassessment of the income of the assessee for the A.Y.
        2003.04.

        This also satisfies the pre-requisite condition stated under
        explanation 2 to section 147. Relevant portion of section 147
        of the Act reads as below:
        ........

        In view of the above, I have reason to believe that the income
        of the assessee for A.Y. 2003-04 chargeable to tax has escaped
        assessment. In this case, not more than six years have elapsed
        from the end of the relevant Asstt. Year (i.e. A.Y. 2003-04)
        and income of more than 1 lakh has escaped assessment,
        therefore, the notice u/s 148 r.w.s. 147 of the I.T. Act, 1961
        satisfies the time limit for issue of notice as provided in
        Section 149 of the Act.

        As required by section 151 of the income-Tax Act 1961, the
        reasons are hereby put up for the kind perusal and recording of
        satisfaction."

17. The objections of ALF to the above notice dated 31 st March 2010 were
rejected by an order dated 5th December 2011. Both the above notice and the



W.P.(C) No.1938/2013 & connected matters                          Page 14 of 39
order were challenged by ALF in W.P.(C) No. 8739 of 2011 in this Court. In
a judgment dated 15th May, 2012 in the said writ petition (Alcatel-Lucent
France v. ADIT), this Court concluded that in the original assessment
proceedings under Section 143(3) of the Act (i.e. for AY 2003-04) the
question of taxability of income as well as the rate of tax had been
specifically examined. The Court held that ALF disclosed the said income in
its revised return. In the assessment order dated 30th March 2006, it had been
held that the fee for licensing of the software to the Indian customers was
taxable as royalty/FTS under Article 13 of the DTAA and Section 9(1)(vi)
and (vii) of the Act, and that income was subjected to tax @ 10%. As
already noticed, the said order of the AO was reversed in appeal before the
CIT(A) whose order has been affirmed both by the ITAT as well as by this
Court. The Court further held that "no new fact had come to the knowledge
of the Assessing Officer after completion of the original reassessment
proceedings" and the mere reconsideration of the some facts would not
justify initiating the reassessment proceedings. Accordingly, the notice dated
31st March 2010 under Section 148 of the Act for AY 2003-04 as well as the
order dated 5th December 2011 rejecting ALF's objections thereto were
quashed by the Court. The aforementioned judgment dated 15th May 2012 in
W.P.(C) No. 8739 of 2011 does not appear to have been challenged by the
Revenue.

Re-opening of the assessment for AYs in question
18. Now reverting to the AYs in question i.e., 2004-05, 2005-06, 2006-007
and 2008-09. ALF states that it did not receive the notice dated 30th March
2011 issued to it under Section 148 of the Act for AY 2004-05. However, it




W.P.(C) No.1938/2013 & connected matters                         Page 15 of 39
acknowledged receiving a subsequent notice dated 26th September 2011
issued under Section 143(2). In its reply dated 16th November 2011, ALF
denied receiving the notice dated 30th March 2011 issued under Section 148
of the Act and contended that on that ground the proceedings initiated
thereunder were void ab initio. Thereafter, a further notice dated 22nd
November 2011 was issued to ALF under Section 142(1) wherein ALF was
called upon to file its return of income to which it replied on 14th December
2011 stating that its original return may be treated as compliance with the
notices under Section 142(1)/148. ALF also requested for the reasons for
initiation or reassessment proceedings under Section 147 of the Act. ALF
was thereafter provided with a copy of the reasons.

19. The objections by ALF to the reopening of the assessment for the
aforementioned four AYs were rejected by separate orders. For AY 2004-05
on 28th February 2013, for AY 2005-06 on 11th March 2014, for AYs 2006-
07 and 2008-09 on 4th March 2015. Although, the four orders rejecting the
objections are identical, illustratively reference is made to the order dated
28th February 2013 passed by the AO rejecting ALFs objection for
reopening of the assessment for the AY 2004-05.

20. ALF had raised three principal objections. The first concerned ALF not
having received the notice dated 30th March 2011 under Section 148 of the
Act. Since this plea was negatived and not further urged, it need not be
discussed at this stage. The second was that by the order dated 15 th May
2012, the High Court already quashed similar notice for AYs 2003-04.
According to the AO, there was no similarity of the facts in W.P.(C) No.




W.P.(C) No.1938/2013 & connected matters                        Page 16 of 39
8739 of 2011 since the assessment order dated 30th March 2006 for that AY
i.e., 2003-04 had reproduced and thoroughly discussed the various
provisions of the India-France DTAA thereby forming a considered opinion
on the issue whereas the assessment order dated 23rd March 2010 for AY
i.e., 2004-05 made only a ,,cursory mention of the earlier assessment orders
by reproducing the ,,notes to return of income filed by the Assessee. There
was no mention of the DTAA or any article thereof, therefore, it "could not
be believed by any stretch of imagination" that the AO had formed any
opinion on the issue of taxation of royalty income under Article 13 or any
particular paragraph of the said Article of India-France DTAA or that the
issue was examined or even considered by the AO. Further, according to the
AO, the issue as to the effective connection of the royalty to the PE was not
examined. One more objection of ALF which was considered by the AO
was the third proviso to Section 147. Here again, the AO simply discussed
the order of the CIT(A) without taking into account all the facts, viz., that on
the date the reopening was sought to be initiated, appeals were pending
either before the CIT(A) or the ITAT.

The present writ petitions
21. The present writ petitions have been filed by ALF questioning the above
notices under Section 148 of the Act and the consequent orders of the AO
rejecting its objections to the reopening of the assessments for the
aforementioned AYs.

22. While notice was issued in W.P.(C) No. 1938 of 2013 on 22 nd March
2013, stay was granted of the assessment proceedings. Similar interim




W.P.(C) No.1938/2013 & connected matters                          Page 17 of 39
orders were passed in the other writ petitions. Replies have been filed by the
Revenue and rejoinders thereto have been filed by ALF.

Submissions of counsel
23. Broadly the submissions of Mr. C.S. Aggarwal, learned Senior counsel
for ALF is that reopening of the assessment was sought to be done merely
on a change of opinion since the assessment orders earlier passed under
Section 148/143 (3) were after a detailed examination by the AO of whether
there was any concealment of income from the sale of software as royalty
income with effective linkage to the PE in India. Secondly, it was submitted
that in terms of the third proviso to Section 147, since the correctness of the
assessment order of the AO was subject matter of appeal either before the
CIT(A) or the ITAT, reassessment proceedings could not be undertaken.
Thirdly, it was contended that the decision dated 15 th May 2015 of this
Court in W.P.(C) No. 8739 of 2011 was on identical facts and the issue
stood decided in favour of the ALF. Fourthly, it was submitted that there
was no fresh tangible material for the formation of the reasons to believe.

24. Reliance was placed on the decisions in Ritu Investments (P) Ltd. v.
DCIT (2012) 345 ITR 214 (Del), Atma Ram Properties (P) Ltd. v. DCIT
(2012) 343 ITR 141 (Del) and CIT v. Kelvinator of India Ltd.(2010) 320
ITR 561 (SC).

25. Replying to the above submissions, Mr. Ashok Manchanda, learned
Senior Standing counsel and Mr. Zoheb Hossain learned Junior Standing
counsel for the Revenue sought to place reliance on the decision of the
Supreme Court in Income Tax Officer, Cuttack & Ors. v. Biju Patnaik,



W.P.(C) No.1938/2013 & connected matters                         Page 18 of 39
1990 SCR Supl. (3) 488. Reliance was also placed on the decision in CIT
v. Usha International Ltd. (2012) 348 ITR 485 (Del.). According to Mr.
Manchanda, when the return was originally filed, the stand of ALF was that
it had no PE in India. The AO negatived this plea and held to the contrary.
When the matter travelled to the CIT(A), the ALF succeeded as far as the
question concerning the treatment of the income for the sale of software as
income for royalty. However, the CIT (A) concurred with the AO that ALF
did have a PE in India and it was on that basis that there was attribution of
profits to the PE with the direction to the AO to tax the gross receipts at
2.5%. Yet, while filing the return in response to the notices under Section
148 in the second round, the ALF continued to maintain that it had no PE in
India. This in itself would constitute a failure of the Assessee to disclose
fully and truly all material facts.

26. Mr. Manchanda also referred to the fact that in the assessment order, the
AO had made a reference to certain agreements produced by ALF which had
no bearing at all to the issue in the assessment proceedings. These included
even agreements to which ALF was not a party. Although, this was a fact
not specifically adverted to in the 'reasons to believe' recorded for reopening
of the assessments for the above AYs, Mr Manchanda submitted on the
strength of the decision in Biju Patnaik (supra) that as long as the material
on the basis of which the reasons to believe had been formed was available
in the record and that record was before the Court, it could not be said that
the reopening of the assessment on that score was not legally permissible.




W.P.(C) No.1938/2013 & connected matters                         Page 19 of 39
Analysis and reasons
27. The above submissions have been considered. The Court finds that there
is no answer given by the Revenue to one of the main grounds of challenge
stemming from the third proviso to Section 147, which reads as under:

       "147. Income escaping assessment.- If the Assessing Officer has
       reason to believe that any income chargeable to tax has escaped
       assessment for any assessment year, he may, subject to the
       provisions of sections 148 to 153, assess or reassess such income
       and also any other income chargeable to tax which has escaped
       assessment and which comes to his notice subsequently in the
       course of the proceedings under this section, or recompute the loss
       or the depreciation allowance or any other allowance, as the case
       may be, for the assessment year concerned (hereafter in this section
       and in sections 148 to 153 referred to as the relevant assessment
       year) :
       Provided that where an assessment under sub-section (3) of section
       143 or this section has been made for the relevant assessment year,
       no action shall be taken under this section after the expiry of four
       years from the end of the relevant assessment year, unless any
       income chargeable to tax has escaped assessment for such
       assessment year by reason of the failure on the part of the assessee
       to make a return under section 139 or in response to a notice issued
       under sub-section (1) of section 142 or section 148 or to disclose
       fully and truly all material facts necessary for his assessment, for
       that assessment year:
       ...
       Provided further that the Assessing Officer may assess or
       reassess such income, other than the income involving matters
       which are the subject matters of any appeal, reference or
       revision, which is chargeable to tax and has escaped assessment.
       Explanation 1.--Production before the Assessing Officer of
       account books or other evidence from which material evidence
       could with due diligence have been discovered by the Assessing



W.P.(C) No.1938/2013 & connected matters                        Page 20 of 39
       Officer will not necessarily amount to disclosure within the
       meaning of the foregoing proviso.
       Explanation 2.--For the purposes of this section, the following
       shall also be deemed to be cases where income chargeable to tax
       has escaped assessment, namely :--
       (a) where no return of income has been furnished by the assessee
       although his total income or the total income of any other person in
       respect of which he is assessable under this Act during the previous
       year exceeded the maximum amount which is not chargeable to
       income-tax ;
       (b) where a return of income has been furnished by the assessee but
       no assessment has been made and it is noticed by the Assessing
       Officer that the assessee has understated the income or has claimed
       excessive loss, deduction, allowance or relief in the return ;
       (c) where an assessment has been made, but--
       (i) income chargeable to tax has been underassessed ; or
       (ii) such income has been assessed at too low a rate ; or
       (iii) such income has been made the subject of excessive relief
       under this Act ; or
       (iv) excessive loss or depreciation allowance or any other allowance
       under this Act has been computed.
       Explanation 3.--For the purpose of assessment or reassessment
       under this section, the Assessing Officer may assess or reassess the
       income in respect of any issue, which has escaped assessment, and
       such issue comes to his notice subsequently in the course of the
       proceedings under this section, notwithstanding that the reasons for
       such issue have not been included in the reasons recorded under
       sub-section (2) of section 148." (emphasis supplied)

28. The third proviso acts as a restraint on the AO from seeking to reopen an
assessment which is itself the subject matter of further scrutiny in an appeal




W.P.(C) No.1938/2013 & connected matters                           Page 21 of 39
that is pending. In the present case, the orders initiating the reopening of the
assessments were passed even when the appeals against the assessment
orders were pending either before the CIT(A) or ITAT. The said
determination by the AO in the earlier assessment proceedings was, at the
time of issuance of the second round of notice under Section 148 of the Act,
still the subject matter of the appeal before the CIT(A). In other words, these
notices were issued for AYs 2004-05 and 2005-06 on 30th March 2011 and
20th March 2012, whereas, an appeal was pending in respect of the said two
years before the CIT(A) as of those dates. The order of the CIT(A) came
only on 29th September 2012. As regards AY 2006-07 and 2008-09, the
notices under Section 148 of the Act were issued on 28 th March 2013 at a
stage when the Revenues appeal against the order of the CIT(A) for the said
two AYs was still pending before the ITAT. As already noticed, the decision
of the ITAT in those pending appeals was rendered on 4th April 2014. The
third proviso to Section 147 of the Act mandates that the AO would not
assess or re-assess income "involving matters which are the subject matter
of any appeal, reference or revision". This mandate of the third proviso to
Section 147, which was inserted with effect from 1st April 2008, appears to
have been completely overlooked by the AO when he proceeded to issue the
notices under Section 148 of the Act for the above AYs.

29. Turning to the 'reasons to believe', even a cursory look reveals that they
are no different from the reasons that preceded the notice dated 31st March
2010 for AY 2003-04 which was quashed by this Court by order dated 15 th
May 2012 in W.P.(C) No. 8739 of 2011. The reasons for reopening of the
assessment, as stated in what was recorded on 29th March 2011, for AY




W.P.(C) No.1938/2013 & connected matters                          Page 22 of 39
2004-05 is that (i) ALF had filed a return of income claiming that it does not
have a PE in India (ii) in the assessment order dated 23 rd March 2010 it was
held that the assessee had a PE in India to which its profits are attributable
(iii) the software income earned by ALF was taxed as royalty income under
the provisions of the Act and the tax treaty (iv) while deciding the tax rate,
the date of execution of the agreement with Indian customers was not taken
into account (v) this resulted in an underassessment of the income of ALF
for AY 2004-05. Therefore, again a reference is made to Clause (c) (ii)
under Explanation 2 to Section 147 of the Act. Although, the reopening is
beyond the period of four years after the end of AY 2004-05 and within a
period of six years, no reference has been made to any particular material
that was not disclosed by ALF. The language of the statute is simply
repeated - that the AO had reason to believe that the income of more than
one lakh had escaped assessment "due to failure on the part of the assessee
to disclose fully and truly all material facts necessary for assessment". As
was noticed by this Court in its order dated 15 th May 2012 while quashing
an identical notice for AY 2003-04, the reasons do not refer to any new fact
coming to the knowledge of the AO after the completion of original
assessment proceedings.

30. It also requires to be noticed that the original assessment proceedings for
AYs 2004-05, 2005-06, 2006-07 and 2008-09 were under Sections
148/143(3) of the Act. The AO, should therefore, be presumed to have
examined in some detail whether there had been any escapement of income
for assessment. In the circumstances, the inescapable conclusion is that the
attempt for the second time to reopen the assessments for the AYs in




W.P.(C) No.1938/2013 & connected matters                          Page 23 of 39
question is based only on a change of opinion and nothing else.

31. As far as the reliance of the decision in Biju Patnaik (supra) is
concerned, as rightly pointed out by Mr. Aggarwal, that dealt with Section
147(a) as it then stood. Section 147 (a) has undergone a change that has been
explained in some detail by the Supreme Court in Kelvinator India (supra)
and in particular the following extract:
         "On going through the changes, quoted above, made to section
         147 of the Act, we find that, prior to the Direct Tax Laws
         (Amendment) Act, 1987, reopening could be done under the
         above two conditions and fulfilment of the said conditions
         alone conferred jurisdiction on the Assessing Officer to make a
         back assessment, but in section 147 of the Act (with effect from
         1st April, 1989), they are given a go-by and only one condition
         has remained, viz., that where the Assessing Officer has reason
         to believe that income has escaped assessment, confers
         jurisdiction to reopen the assessment. Therefore, post-1st April,
         1989, power to reopen is much wider. However, one needs to
         give a schematic interpretation to the words "reason to believe"
         failing which, we are afraid, section 147 would give arbitrary
         powers to the Assessing Officer to reopen assessments on the
         basis of "mere change of opinion", which cannot be per se
         reason to reopen. We must also keep in mind the conceptual
         difference between power to review and power to reassess. The
         Assessing Officer has no power to review ; he has the power to
         reassess. But reassessment has to be based on fulfilment of
         certain preconditions and if the concept of "change of opinion"
         is removed, as contended on behalf of the Department, then, in
         the garb of reopening the assessment, review would take place.
         One must treat the concept of "change of opinion" as an in-built
         test to check abuse of power by the Assessing Officer. Hence,
         after 1st April, 1989, the Assessing Officer has power to
         reopen, provided there is "tangible material" to come to the
         conclusion that there is escapement of income from
         assessment. Reasons must have a live link with the formation




W.P.(C) No.1938/2013 & connected matters                          Page 24 of 39
         of the belief. Our view gets support from the changes made
         to section 147 of the Act, as quoted hereinabove. Under the
         Direct Tax Laws (Amendment) Act, 1987, Parliament not only
         deleted the words "reason to believe" but also inserted the word
         "opinion" in section 147 of the Act. However, on receipt of
         representations from the companies against omission of the
         words "reason to believe", Parliament reintroduced the said
         expression and deleted the word "opinion" on the ground that it
         would vest arbitrary powers in the Assessing Officer. We quote
         hereinbelow the relevant portion of Circular No. 549 dated
         October 31, 1989 ([1990] 182 ITR (St.) 1, 29), which reads as
         follows:
               "7.2 Amendment made by the Amending Act, 1989, to
              reintroduce the expression 'reason to believe' in section
              147.- A number of representations were received against
              the omission of the words 'reason to believe' from section
              147 and their substitution by the 'opinion' of the Assessing
              Officer. It was pointed out that the meaning of the
              expression, 'reason to believe' had been explained in a
              number of court rulings in the past and was well settled
              and its omission from section 147 would give arbitrary
              powers to the Assessing Officer to reopen past
              assessments on mere change of opinion. To allay these
              fears, the Amending Act, 1989, has again amended section
              147 to reintroduce the expression 'has reason to believe' in
              place of the words 'for reasons to be recorded by him in
              writing, is of the opinion'. Other provisions of the new
              section 147, however, remain the same.""

32. In view of the above authoritative enunciation of the legal position in
light of the amended Section 147, the reliance by the Revenue on the
decision of Biju Patnaik (supra) is to no avail.

33. Where reopening of the assessment is sought to be done more than four
years after the end of the relevant assessment year, then the requirement of
the Revenue having to say that there was a failure to disclose fully and truly



W.P.(C) No.1938/2013 & connected matters                          Page 25 of 39
all material facts by the Assessee leading to escapement of income is a sine
qua non. In Ritu Investments v. DCIT (supra), the Court took note of the
fact that the AO would not get jurisdiction to reopen the assessment only on
the basis of mere "error of judgment". The Court referred to the decision in
Gemini Leather Stores v. Income Tax Officer, B-Ward, Agra (1975) 100
ITR 1 (SC), and held that when the AO had all the material facts before him
he could not take recourse to Section 147(a) "to remedy the error resulting
from his own oversight". Reference was also made to the decision in of the
Supreme Court in Indian & Eastern Newspaper Society v. Commissioner
of Income Tax, New Delhi (1979) 119 ITR 996 (SC), and it was noted that
the contrary view in Kalyanji Mavji & Co. v. CIT (1976) 102 ITR 287 (SC)
was no longer good law. In this context reference was also made to the
decision of Atma Ram (supra). The Court clarified that Explanation (1) to
Section 147 applies only where the AO on the basis of account books or
other evidence fails to discover the material facts and not where the AO fails
to apply the relevant law. There can be no doubt that as far as the present
case is concerned, the reasons do not refer to any failure on the part of ALF
to disclose any material when it filed its original return or even the return
pursuant to the earlier notices issued under Section 148 of the Act.

34. Mr Manchanda for the Revenue placed considerable on the following
passage in the decision of this Court in Usha International (supra):
         "25. Thus if a subject matter, entry or claim/deduction is not
         examined by an Assessing Officer, it cannot be presumed that
         he must have examined the claim/deduction or the entry, and
         therefore, it is the case of "change of opinion". When at the
         first instance, in the original assessment proceedings, no
         opinion is formed, principle of "change of opinion" cannot and



W.P.(C) No.1938/2013 & connected matters                         Page 26 of 39
         does not apply. There is a difference between change of
         opinion and failure or omission of the Assessing Officer to
         form an opinion on a subject matter, entry, claim, deduction.
         When the Assessing Officer fails to examine a subject matter,
         entry, claim or deduction, he forms no opinion. It is a case of
         no opinion."




35. As far as the present case is concerned, a perusal of para 8.2 of the order
dated 23rd March 2010 for AY 2006-07 reveals that the issue concerning the
treatment of the income from the sale of the embedded software as royalty
has been dealt with in detail. It cannot, therefore, be said that no opinion was
formed by the AO on this aspect. The reasons for reopening only refer to
escapement of income and nothing else. This hinged upon whether, in fact,
the income from the sale of software at all could be said to be ,,royalty.
Where the CIT(A) has agreed with ALF that this did not amount to royalty,
the question of applicable rate of tax on such royalty would not arise. It is
therefore, not possible to agree with the contention of the Revenue on the
strength of the decision of the Usha International (supra) that in the first
instance there was no opinion formed by the AO.

36. In fact, in the order rejecting the objections preferred by the ALF, the
AO rejects this plea only on the ground that the earlier orders only made a
cursory reference to the issue. This understanding by the AO of what
constitutes reasons for reopening an earlier assessment order is both
factually and legally erroneous. As long as the earlier assessment order
made a reference to an issue, it did not matter, as far as the AO is concerned,
whether the reference to it was ,,cursory or otherwise. In fact, as already
noticed, it was not cursory. There was a detailed discussion on this aspect.




W.P.(C) No.1938/2013 & connected matters                          Page 27 of 39
Secondly, the AO failed to appreciate that he could not assume jurisdiction
to reopen the assessment when the earlier assessment orders were the subject
matter of the appeal. He chose to ignore the third proviso to Section 147,
even though it was pointed out by ALF.

37. The desperate attempt by the Revenue at trying to infer the failure to
disclose material particulars because of the inconsistent stand of ALF on
whether it has a PE in India deserves to be rejected. Reasons for the second
time were recorded by the AO on 14th March 2013 for reopening the
assessment for AY 2006-07 and 13th March 2013 for AY 2008-09. This was
after the order dated 29th September 2012 of the CIT(A) which negatived the
plea of ALF that it had no PE in India. The AO was aware that ALF was
nevertheless maintaining its stand that it did not have a PE although it did
not appeal against the order of the CIT(A). It cannot be said that there was
any failure to disclose any material particulars only because ALF continued
with its stand of not having a PE in India. In any event this was known to the
AO and yet in the reasons recorded for reopening the assessment this is not
referred to as a failure on the part of ALF to disclose true and material
particulars.

38. The reasons for reopening merely repeat the words of the statute that
there has been a failure by ALF to disclose material particulars. This is
certainly not sufficient as far as the legal requirement is concerned. It has
been repeatedly held by the Court that the mere repeating of the words in the
statute is hardly sufficient compliance. Reference in this regard may
illustratively be made to the decision dated 8th October 2015 of this Court in




W.P.(C) No.1938/2013 & connected matters                         Page 28 of 39
W.P.(C) 1873 of 2013 (Oracle System Corporation v. Dy. Director of
Income Tax) and the decision dated 18th December 2008 in W.P.(C) NO.
17719-20 of 2006 (Silver Oak Laboratories Pvt. Ltd v. DCIT).

39. It is also trite law that at the stage of the rejection of the objections for
reopening of the assessment or in the counter affidavit in the writ petition
challenging reopening of the assessment, the Revenue cannot be permitted
to supply fresh reasons or fresh material that do not themselves find mention
in the reasons for reopening of the assessment. This legal position is again
well settled in Indian Oil Corporation v. ITO [1986] 159 ITR 956(SC).

40. Mr. Manchanda, learned counsel for the Revenue, sought to develop
another line of argument referring to the second proviso to Section 147
which states that the first proviso would not apply where "any income in
relation to any asset (including financial interest of any entity located
outside India) chargeable to tax has escaped assessment for any assessment
year." This according to him has to be read along w ith Clause (d) of
Explanation 2 which states that for the purposes of Section 147 where a
person is found to have any asset (including financial interest of any entity
located outside India) then it would be deemed to be a case of income
having escaped assessment. He also referred to Explanation 4 of Section 147
to urge that the above provisions were introduced by way of the Finance
Act, 2012 would be applicable to any assessment year prior to 1 st April
2012.

41. Mr. Manchanda was, however, unable to point out how any of the above
provisions are applicable to the case in hand. Mr. Manchanda tried to urge



W.P.(C) No.1938/2013 & connected matters                           Page 29 of 39
that the income by way of royalty as a result of the sale of embedded
software should be held to arise from the intellectual property held by ALF
outside India. As already pointed out, this does not constitute the reasons for
reopening the assessment. This has been suggested only at the stage of
arguments before this Court. The Court will only have to go by what there is
on record as regards the 'reasons to believe' for the purposes of Sections 147
and 148 of the Act and not the reasons which Revenue now suggests during
arguments in the Court.

42. A desperate attempt has been made by the Revenue, as is reflected in the
order of the AO rejecting the objections of ALF to the reopening of the
assessments, to draw a distinction between the facts concerning AY 2003-04
and those concerning the subsequent AYs which form subject matter of the
present writ petitions. Mr. Manchanda suggested that no reference was made
by the AO in the original assessment order to the applicability of Section
44DA(1) of the Act which was specifically referred to by the AO when he
formed the reasons for reopening the assessment.

43. The reasons for reopening the assessment for AY 2004-05 do not made
any reference to Section 44DA(1). Although it has been mentioned in the
reasons for the other three AYs in question, this was not an issue that arose
for the first time based on any tangible material that came to the notice of
the AO subsequent to the original assessment orders which were themselves
under Section 147 read with Section 143 (3) of the Act. As far as the issue
regarding the agreements, this appears to be brought up for the first time at
the stage of rejection of the objections. It did not form part of the original




W.P.(C) No.1938/2013 & connected matters                         Page 30 of 39
reasons for reopening the assessments. Section 147 is not to be casually
invoked to suit the convenience of the Revenue and at every stage to correct
the errors of AOs which could have easily been avoided had there been a
proper discharge of the statutory duty. Once that legal perspective is kept in
view, repeatedly invoking Section 147 of the Act on the same materials,
only because there is no statutory bar against it, would constitute an abuse of
the process of law.

44. The Court would also like to observe that it is extraordinary that
Sections 147 and 148 of the Act have been invoked by the Revenue not
once but twice in respect of the same Assessee and on the same set of facts
and same reasons. The Court had in its order dated 15 th May 2012 for AY
2003-04 already held that the reopening of the assessment for these very
reasons was bad in law.

45. For the above reasons the Court holds that there was no justification for
the Revenue to have invoked the power under Sections 147 and 148 of the
Act for the second time in respect of ALF for AYs 2004-05, 2005-06, 2006-
07 and 2008-09. The impugned notices issued and the corresponding orders
of the AO rejecting ALF's objections to the said notices are hereby quashed.
The writ petitions of ALF are allowed but in the circumstances with no
orders as to costs.

Facts concerning ALC
46. The facts, concerning the other petitions are mentioned at this stage only
to highlight that the issues involved in them are identical to those in the
petitions by ALF. Consequently, the decision in their petitions cannot be any



W.P.(C) No.1938/2013 & connected matters                         Page 31 of 39
different.

47. As far as ALC is concerned, notices under Section 148 were first issued
on 8th January 2010 in relation to AY 2005-06 and AY 2007-08. ALC filed
its return of income for the AYs 2005-06 and 2007-08 declaring ,,nil
income on 8th March 2010. The AO thereafter issued letters dated 16 th
March 2010 during the course of the assessment proceedings in relation to
each of the AYs seeking an explanation as to why the assessment order
passed in the case of ALF for AY 2006-07 should not be relied upon and a
similar order passed. ALC replied to the AO by a letter dated 18 th March
2010 relying on ALF's submissions in regard to AY 2006-07.

48. The AO proceeded to pass separate assessment orders under Section 148
read with 143(3) dated 23rd March 2010 for AYs 2005-06 and 2007-08
computing the total income of ALC at Rs 17,43,129 for AY 2007-08, at Rs.
3,20,41,442 for AY 2005-06. The AO held that ALC had a PE in India and
that software supplies will be taxed as royalty. ALC filed an appeal before
the CIT(A) against the order of the AO on 21st April, 2010 for both the
aforementioned AYs.

49. Even while the appeal was pending, the impugned notices under Section
148 dated 28th March, 2012 for AYs 2005-06 and 2007-08 were again issued
to ALC. ALC filed a letter dated 2nd May, 2012 seeking extension of time
for filing of a return in compliance with the said notice and another letter
dated 22nd May, 2012 stating that the return of income filed originally in
response to the earlier notice under Section 148 may be considered as its
return in compliance with the impugned notice dated 28 th March, 2012.



W.P.(C) No.1938/2013 & connected matters                       Page 32 of 39
Further, by letters dated 22nd May, 2012 and 2nd December 2013, ALC
sought the reasons recorded prior to initiation of the reassessment
proceedings under Section 147/148.

50. Meanwhile the CIT(A) passed a common order dated 29 th October 2012
in the appeals against the assessment orders dated 23 rd March, 2010
pertaining to AYs 2003-04 to 2008-09. The CIT(A) further held that
software receipts were not taxable as being in the nature of ,,royalty and
attributed 2.5 % net profit on the entire receipts (hardware and software) as
profits attributable to the PE.

51. Subsequent to this, ALC filed a letter dated 5th June 2013 requesting the
AO to keep the reassessment proceedings in abeyance in light of the order
dated 15th May, 2012 passed by this Court in WP(C) 8739/2011 staying the
proceedings till disposal of the writ petitions in the case of ALF for 2003-04.
The Deputy Director of Income Tax, Circle 1(1) then issued notices dated
20th November 2013 to ALC under Section 142(1) in each of the
aforementioned AYs requiring ALC to furnish certain information and
present itself at the office of the AO. The AO provided ALC with a copy of
the reasons recorded for reopening of assessment by letter dated 16th
January, 2014 to which ALC filed detailed objections by a letter dated 18 th
February 2014 to the validity of the initiation of reassessment proceedings
under Section 147 and requested the AO to dispose of the said objections by
passing a speaking order. Thereafter, the AO passed the impugned order
dated 11th March 2014 rejecting ALC 's objections.

52. ALC filed WP(C) No. 1853 of 2014 for AY 2007-08 and WP(C) No.



W.P.(C) No.1938/2013 & connected matters                         Page 33 of 39
1868 of 2014 for AY 2005-06 challenging the notices under Section 148 and
the orders rejecting the objections of the Assessee to the initiation of the
reassessment proceedings.

Facts concerning ALB
53. In the case of ALB, notices were issued under Section 148 for the AYs
2004-05, 2005-06, 2006-07, 2007-08 and 2008-09 pursuant to which it filed
its return of income for the said AYs. The AO then passed separate
assessment orders dated 23rd March 2010 computing the income of ALB at
Rs. 45,60,020 for AY 2004-05; Rs. 48,80,614 for AY 2005-06; Rs
45,02,671 for AY 2006-07; Rs. 88,437 for AY 2007-08 and Rs 9,03,620 for
AY 2008-09. ALB also filed appeals before the CIT(A) on 21st April, 2010
against the orders of the AO for each of the aforementioned AYs.

54. Even while the appeals were pending, the impugned notices under
Section 148 dated 30th March, 2011 for AY 2004-05; dated 28th March 2012
for AYs 2005-06 and 2007-08; and dated 28th March 2013 for AYs 2006-07
and 2008-09 were issued to ALB. Subsequently, notices under Section
143(2) were also issued on 26th September 2011 for AY 2004-05. By a letter
dated 16th November 2011, ALB submitted that it had never received notices
under Section 148 of the Act for the said AYs. Thereafter, notices under
Section 142(1) of the Act were issued on 22nd November 2011 to the
Assessee requiring it to furnish a return of income.

55. ALB then wrote a letter dated 14th December 2011 stating that the return
of income filed originally in response to the earlier notice under Section 148
may be considered as its return in compliance with the impugned notice



W.P.(C) No.1938/2013 & connected matters                         Page 34 of 39
dated 30th March 2011 in AY 2004-05. By the same letter, ALB also
requested for intimation of the reasons recorded by the AO for initiation of
the proceedings under Section 147 of the Act which were accordingly
furnished to the Assessee. Thereafter, the Asst. Director of Income Tax
(Intl Tax), Circle 1(1) sent a letter dated 14 th June 2012 to ALB enclosing
proof of service of the notice under Section 148 and further stating that no
return had been filed pursuant to the notice under Section 142(1) dated 22nd
November 2011 and calling upon ALB to present at a hearing and submit an
explanation for the same.

56. ALB responded by a letter dated 25th June 2012 repeating that it had not
received any notice under Section 148 and without prejudice to the above,
enclosing a copy of its letter dated 14 th December 2011. ALB then filed
detailed objections on 4th July 2012 to the initiation of the reassessment
proceedings under Section 147 of the Act for AY 2004-05. In relation to the
other AYs as well, ALB filed detailed objections to the initiation of
proceedings under Section 147.

57. Meanwhile, the CIT(A) passed an order dated 21 st November 2012
pertaining to AY 2004-05; an order dated 5th December 2012 pertaining to
AYs 2005-06, 2006-07, 2007-08 and 2008-09 (which was appealed before
the ITAT on 22nd February 2013) whereby it was held that software receipts
are not taxable in the nature of ,,royalty and attributed 2.5% net profits on
the entire receipts (hardware and software) as profits attributable to the PE.
The ITAT passed an order dated 4th April 2014 for the AYs 2002-03 to
2008-09 holding that revenues earned out of software equipment did not fall




W.P.(C) No.1938/2013 & connected matters                         Page 35 of 39
within the ambit of ,,royalties.

58. ALB's objections were disposed of by an order dated 28th February 2013
for AY 2004-05, dated 11th March 2014 for AYs 2005-06 and 2007-08; and
dated 4th March 2015 for AYs 2006-07 and 2008-09, rejecting the same.
Hence, ALB filed WP (C) No. 2016 of 2013 pertaining to AY 2004-05,
WP(C) No. 1863 of 2014 for AY 2005-06, WP(C) No. 2998 of 2015 for AY
2006-07, WP (C) No. 1871 of 2014 for AY 2007-08 and WP (C) No. 2997
of 2015 pertaining to AY 2008-09 challenging the impugned notices under
Section 148 and the orders disposing of the objections to the initiation of
proceedings under Section 147.

Facts concerning ALE
59. As far as ALE is concerned, notices under Section 148 were issued to it
on 20th October 2009 pursuant to the survey took place at the premises of
ALI. This prompted ALE to file returns of income for the AYs 2004-05,
2005-06, 2006-07, 2007-08 and 2008-09 declaring ,,nil income. During the
course of the assessment proceedings, the AO issued letters dated 16 th
March 2010 seeking an explanation as to why the reasoning in the case of
ALF for the AY 2006-07, being on similar facts, should not be relied upon
and an order passed in the case of ALE for the aforementioned AYs.

60. ALE sought to rely on the submissions made by ALF in the case
pertaining to AY 2006-07. On 23rd March, 2010 the AO passed separate
assessment orders under Section 148 computing the total income of the
Assessee at Rs. 7,53,22,740 for AY 2004-05, Rs 4,48,20,790 for AY 2005-
06, Rs. 6,52,19,674 for AY 2006-07, Rs. 11,19,02,284 for AY 2007-08 and



W.P.(C) No.1938/2013 & connected matters                      Page 36 of 39
Rs. 16,41,68,300 for AY 2008-09. In doing so, the AO also held that ALE
has a business connection and PE in India and that software supplies were to
be taxed as royalty. ALE then filed appeals against these orders on 21st April
2010 before the CIT(A).

61. Even while the appeal was pending, the impugned notices under Section
148 were again issued to the Assessee Company on 28th March 2012 for
AYs 2004-05 to 2008-09. ALE initially sought time for filing of its return by
letter dated 2nd May 2012 and then filed a letter dated 22nd May 2012 where
it requested the AO to consider the earlier returns filed by it as compliance
with the new notice dated 23rd March 2012.

62. The CIT(A) passed an order dated 21st November 2012 in the appeals for
AYs 2002-2003 to 2008-09 whereby it was held that software receipts are
not taxable in the nature of ,,royalty and attributed 2.5% net profits on the
entire receipts (hardware and software) as profits attributable to the PE. By
letter dated 5th June 2013 ALE requested the AO to keep the reassessment
proceedings in abeyance in light of the order dated 15th May, 2012 passed by
this Court in WP(C) 8739/2011 staying the proceedings till disposal of the
writ petitions in the case of ALF for 2003-04. However, the Deputy Director
of Income Tax, Circle 1(1) issued notices under Section 142(1) requiring
ALE to furnish certain information and present itself for explanation on
these points before the AO on 2nd December 2013.

63. On that date, ALE wrote to the AO requesting that reassessment
proceedings be dropped in light of the aforementioned order dated 15th May,
2012 in WP(C) 8739/2011. ALE also requested a copy of the reasons



W.P.(C) No.1938/2013 & connected matters                         Page 37 of 39
recorded for initiation of proceedings under Section 147. On 16 th January,
2014, ALE was provided a copy of the said reason for reopening of
assessment. Based on this, ALE filed detailed objections to the validity of
the initiation of reassessment proceedings under Section 147 for the AYs
2004-05 to 2008-09 on 18th February 2014 which primarily were threefold:
that the proceedings were barred in terms of the third proviso to Section 147
of the Act; that no new material had come to light, and, that a mere change
in opinion cannot be the basis for reopening of an assessment under Section
147.

64. By orders dated 11th March 2014, the AO disposed of the objections and
rejected the contentions of the Assessee Company. Thereafter, ALE filed
WP(C) No. 1967/2013 challenging the initiation of proceedings u/s l47/l48
of the Act for the AY 2004-05. This Court by an order dated 22nd March
2013 issued notice in the matter and stayed the assessment proceedings
initiated by issuance of notice u/s 148 of the Act. ALE also filed WP(C) No.
1873 of 2014 challenging the reopening of the assessment for the AY 2005-
06, WP(C) No. 2994 of 2015 for AY 2006-07, WP(C) No. 1867 of 2014 for
AY 2007-08 and WP (C) No. 2995 of 2015 for AY 2008-09.

65. The issues on the above three batches of writ petitions by ALC, ALB
and ALE are identical to the issues that arose in the writ petitions filed by
ALF which have been allowed by this Court by the present judgment. For
the same reasons, the Court allows the writ petitions in this batch which
have been filed by ALC, ALB and ALE and hereby quashes the impugned
notices issued and the corresponding orders of the AO rejecting their




W.P.(C) No.1938/2013 & connected matters                        Page 38 of 39
objections to the said notices are hereby quashed. All pending applications
are disposed of. There shall be no orders as to costs.




                                                     S. MURALIDHAR, J




                                                     R. K. GAUBA, J
APRIL 27, 2016
RK/mg




W.P.(C) No.1938/2013 & connected matters                       Page 39 of 39

 
 
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