PCIT Vs Jas Trading Pvt. Ltd. (Bombay High Court)
The Bombay High Court considered an appeal filed by the Revenue challenging an order of the Income Tax Appellate Tribunal (ITAT) dated 6 July 2018. The Revenue contended that the Tribunal had erred in holding that payments made by the assessee for software licences were not royalty under Section 9(1)(vi) of the Income Tax Act, 1961 or Article 12 of the India–USA Double Taxation Avoidance Agreement (DTAA), and that IT support charges such as internet charges, email facility and backup support services could not be treated as royalty or fees for included services.
The High Court, however, noted that the Tribunal’s decision was not based on the merits of these issues. The principal contention before the Tribunal was that the reassessment proceedings for Assessment Year 2004-05 were invalid as the Assessing Officer had not supplied the complete recorded reasons for reopening the assessment. Instead, only a gist of the reasons was furnished to the assessee. This contention was accepted by the Tribunal, which allowed the assessee’s appeal.
The Court examined the Tribunal’s order and observed that the reasons initially supplied to the assessee stated that one of the assessee’s directors, Shri Shailesh Shah, had admitted before the Income Tax authorities that the assessee had engaged in paper entries and transactions for which it had earned commission. On the basis of this admission, the Assessing Officer formed a belief that income of ₹1,85,453 had escaped assessment for Assessment Year 2004-05.
