HC Partly Reverses Law On Foreign Companies Interest Liability U/s. 234B

HIGH COURT OF DELHI AT NEW DELHI

Judgment delivered on: 7^th November, 2013

TA 327/2012, ITA 330/2012, ITA 338/2012 & ITA 339/2012

DIT-I, INTERNATIONAL TAXATION     

versus

ALCATEL LUCENT USA, INC.  

ITA 328/2012, ITA 329/2012, ITA 336/2012, ITA 337/2012 & ITA 340/2012

DIT-I, INTERNATIONAL TAXATION

versus

ALCATEL LUCENT WORLD SERVICES INC

JUDGMENTR.V.EASWAR, J

1. These are nine appeals filed by the Revenue under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’). They are directed against the common order passed by the Income Tax Appellate Tribunal on 21.10.2011 in ITA Nos. 3821 to 3824/de1/2011 and ITA Nos. 3825 to 3829/de1/201 1. There are two respondents in these appeals (i) Alcatel Lucent USA, INC. and (ii) Alcatel Lucent World Services INC. In respect of the first assessee, the assessment years involved are 2004-05 to 2007-08 and in respect of the second assessee, the assessment years involved are 2004-05 to 2008-09.

2. On 10^th July, 2012 this court framed the following substantial question of law, common to all the appeals: –

“Whether in the facts and circumstances of this case the Tribunal fell into error in holding that the assessee was not liable to pay interest in terms of Section 234B of the Income Tax Act?”

3. ITA No.327 of 2012 was taken as the lead matter by consent. The facts relating to this appeal may be noted in brief. The assessee-Alcatel Lucent USA, INC., is a tax-resident of USA and is part of the Alcatel Lucent Group. It supplied telecom equipments to customers in India in the year under consideration, which is the FYE 31.03.2006, relevant to the assessment year 2007-08. It would appear that the aforesaid group started its operations in India in 1982 in terms of an agreement with ITI Limited, a public sector undertaking which was engaged in the manufacture of telephones. Thereafter a joint venture was established with C-DOT at Chennai, besides establishing a research centre at Bangalore. On 27.02.2009, a survey under Section 133 A of the Act was conducted in the premises of Alcatel Lucent India Ltd., which is the Indian subsidiary and which according to the income tax authorities constituted the permanent establishment (PE) of the assessee in India. The Indian subsidiary provided marketing support services to the assessees. Based on the materials found during the survey, the assessing officer in charge of the assessment of Alcatel – Lucent France, which was another flagship company belonging to the same group, concluded that the assessee had a PE in India in terms of the Double Taxation Avoidance Agreement between India and US and was liable to tax in India on the income earned therein. Based on these findings of the assessing officer who was in charge of the assessment of Alcatel – Lucent France, the assessing officer who was in charge of the assessment of the present assessee issued notices under Section 148 of the Act for the assessment years 2004-05 to 2007-08. It may be added that similar reassessment notices under Section 148 were also issued to the other assessee concerned in the present appeals, i.e. Alcatel Lucent World Services INC. for the very same assessment years; in addition, for the assessment year 2008-09, a notice under Section 142 (1) was also issued to that company. Apparently, these notices were issued on the ground that income chargeable to tax in India had escaped assessment.