Super Brands Ltd [UK] C/o MM Mitra & Co. Vs A.D.I.T (ITAT Delhi)
ITAT Delhi held that the trade mark license agreement goes to the root of the matter and hence the same cannot be brushed aside while deciding the matter.
Facts-
The assessee company is incorporated under the laws of England and Wales and is in the business of publishing and printing of books which contain the write up of selected different companies. Select Indian companies and their products get advertised through the said book. To bring out the book Super Brand in respect of Indian companies and their products, the assessee has entered into an agreement with Anmol Dar and as per the said agreement, Anmol
Dar is treated as an agent of the assessee.
After considering various clauses of the agreement, AO formed a belief that Anmol Dar is not an independent agent acting on behalf of the assessee in normal course of his business but is economically dependent on the assessee as out of his total income.
The Assessing Officer estimated 85% of the total receipts and treated balance 15% business income of the assessee as taxable at 40%.
The assessee challenged the order before CIT(A) but without any success. Being aggrieved, the present appeal is filed.
Conclusion-
It is true that the entire assessment has been based on the reading of the trade mark license agreement dated August 08, 2002. It is equally true that supplementary trade mark licence agreement dated April 04, 2013 changes the color of the entire transaction.
Such an agreement which goes to the root of the matter cannot be brushed aside lightly. Therefore, in the interest of justice and fair play and as contended by the ld. DR, we deem it fit to restore the entire quarrel to the file of the Assessing Officer.
FULL TEXT OF THE ORDER OF ITAT DELHI
This bunch of 11 appeals by the assessee are preferred against separate orders for captioned Assessment Years.
2. Since common issues are involved in all the captioned appeals, they were heard together and are disposed of by this common order for the sake convenience and brevity.
3. The common grievance on merits in the captioned appeals relates to the alleged constitution of dependent agent PE and taxability of royalty income under Article 7 of India – UK DTAA.
4. In ITA No. 2609/DEL/2020, 654/DEL/2020 and 869/DEL/2020 pertaining to Assessment Years 2007-08, 2010-11 and 203-14 respectively, there is a delay in filing the appeals by 145 days, 21 days and 46 days respectively.
5. The contents of the application for condonation of delay have been duly considered and since the ld. DR has not raised any strong objection against the condonation of delay and finding that the assessee was prevented by reasonable and sufficient cause in not filing the appeals on or before the due date, the delay is condoned.
6. Except for appeal for Assessment Year 2005-06 in ITA No. 3115/DEL/2009, the assessee has raised additional ground which is common in all the Assessment Years and reads as under:
“That on the facts and circumstances of the case and in law, the impugned order passed by the Assessing Officer is barred by limitation and void ab initio and, therefore, is liable to be quashed.”
7. There is another additional ground raised in ITA Nos. 2601/DEL/2020, 654/DEL/2014, 189/DEL/2015, 4461/DEL/2016, 869/DEL/2018, 411/DEL/2018 and 2975/DEL/2019 and the same read as under:
“That on the facts and circumstances of the case and in law, the Assessing Officer erred in passing a draft assessment order without appreciating that there was no variation in income returned by the appellant and, therefore the impugned order passed by the Assessing Officer is void ab initio and, therefore, is liable to be quashed.”
8. In all the captioned Assessment Years, the assessee has also moved an application for admission of additional evidences except in Assessment Years 2013-14, 2014-15 and 2015-16.
9. The ld. DR strongly objected to the additional evidences furnished by the assessee stating that additional evidences should have been furnished by way of a separate Paper Book.
10. A perusal of our record shows that this contention of the ld. DR is factually incorrect because as per order sheet entry dated 24.10.2011, this Bench has noted that the assessee has filed additional evidences by way of a separate paper book alongwith application u/r 29 of the ITAT Rules.
11. We further find that the assessee has, for the convenience of the Bench and the ld. DR, rearranged additional evidences and merged them in a common Paper book, though filed separately as per Rules on 24.10.2011. Additional evidences are accordingly placed on record.
12. The ld. DR also strongly objected to the admission of additional grounds of appeal stating that these issues were never raised before the DRP and were also not raised before this Tribunal in Form No. 36B and are being raised now as an afterthought.
13. We do not find any merit in the submissions of the ld. DR. Firstly, there is no estoppel in law and secondly, the issue raised vide additional ground mentioned hereinabove do not require any verification of facts and are in consonance with the ratio laid down by the Hon’ble Supreme Court in the case of National Thermal Power Corporation 229 I TR 383 wherein the following ratio has been raised:
“7. The view that the Tribunal is confined only to issues arising out of the appeal before the Commissioner of Income-tax (Appeals) takes too narrow a view of the powers of the Appellate Tribunal Undoubtedly, the Tribunal will have the discretion to allow or not allow a new ground to be raised. But where the Tribunal is only required to consider a question of law arising from the facts which are on record in the assessment proceedings we fail to see why such a question should not be allowed to be raised when it is necessary to consider that question in order to correctly assess the tax liability of an assessee.”
14. Similar view has been taken in the case of Jute Corporation of India Ltd 187 ITR 688.
15. In light of the above ratio, we find that this Tribunal is not required to verify any new facts. Therefore, the additional grounds raised are admitted.
16. We will first address to the additional ground which reads as under:
“That on the facts and circumstances of the case and in law, the Assessing Officer erred in passing a draft assessment order without appreciating that there was no variation in income returned by the appellant and, therefore the impugned order passed by the Assessing Officer is void ab initio and, therefore, is liable to be quashed.”
17. The representatives of both the sides were heard at length, the case records carefully perused and relevant provisions of the Act have been duly considered.
18. Briefly stated, the facts of the case are that the Assessing Officer assumed jurisdiction over the assessee on filing of return by the assessee and accordingly, statutory notices were issued and served upon the assessee.
19. As per provisions of section 144C and 92B of the Act where the assessee had entered into international transactions or it is a foreign company being an eligible assessee as defined in Section 144C of the Act in respect of his income/loss, the Assessing Officer has made variation which is prejudicial to the interest of such assessee, the Assessing Officer is mandatorily required to pass proposed order of assessment, which is termed as ‘Draft Assessment order’.
20. Provisions of section 144C as they stood at the relevant point of time of the captioned Assessment Years read as under:
“The Assessing Officer shall, notwithstanding anything to the contrary contained in this Act, in the first instance, forward a draft of the proposed order of assessment (hereafter in this section referred to as the draft order) to the eligible assessee if he proposes to make, on or after the 1st day of October, 2009, any variation in the income or loss returned which is prejudicial to the interest of such assessee.
(15) For the purposes of this section,—
(a) “Dispute Resolution Panel” means a collegium comprising of three Commissioners of Income-tax constituted by the Board54 for this purpose;
(b) “eligible assessee” means,—
(i) any person in whose case the variation referred to in subsection (1) arises as a consequence of the order of the Transfer Pricing Officer passed under sub-section (3) of section 92CA; and
(ii) any foreign company.]”
21. A perusal of the aforementioned section shows that it is applicable only in case the assessee is an eligible assessee as defined in Clause (b) of sub-section (15) and the Assessing Officer proposed to make any variation in income or loss returned by such assessee which is prejudicial to the interest of the assessee.
22. In Assessment Years 2007-08, 2010-11 to 2015-16 where this challenge is common, we find that the Assessing Officer has only re-characterized the income which was shown as royalty income by the assessee and was taxed as ‘business income’ by the Assessing Officer without there being any variation in income returned by the assessee.
In our understanding of the provisions of section 144C of the Act mentioned hereinabove, we are of the considered view that the Assessing Officer wrongly assumed jurisdiction u/s 144C of the Act when there is no variation in the income returned by the assessee.
23. Our view is supported by the decision of the co-ordinate Mumbai Bench in the case of Mousmi SA Investment LLC in ITA No. 7076/MUM/2018. Pertinent findings of the co-ordinate bench are given as under:
“11. In the instant case, the assessee herein is an eligible assessee. However, there is no variation in the income or loss returned, which is prejudicial to the interests of the assessee. Hence the second condition prescribed in sec.144C(1) was not satisfied. Hence the approach of the AO in adopting the procedure prescribed in sec.144C of the Act is not in accordance with the mandate of law. We get support for our view from the decisions rendered by Chennai bench and Pune bench of Tribunal in the cases referred above. Hence the assessment order passed by the AO gets vitiated and the same is liable to be quashed. We order accordingly.”
24. Similar view was taken by the Tribunal Mumbai Bench in IPF India Property Cyprus [No. 1] in ITA No. 6077/MUM/2018. Relevant observations of the co-ordinate bench in this case read as under:
“5. So far as the first issue is concerned, we find that, in the present case, there are no variations in the returned income and the assessee income. The controversy is thus confined to the question as to what will be the rate on which income returned by the assessee is to be taxed. While the assessee has claimed taxation ® 10% under article 11(2) of the India Cyprus DTAA, the Assessing Officer has declined the said treaty protection on the ground that the assessee was not beneficial owner of the said interest, and, accordingly, brought the income is to tax® 40% thereof. There is, quite clearly, no variation in the quantum of income. The question whether it was a case in which the Assessing Officer could have issued the draft assessment order, on the facts of this case, needs to be examined in the light of provisions of Section 144C(1) which provides that, “The Assessing Officer shall, notwithstanding anything to the contrary contained in this Act, in the first instance, forward5 a draft of the proposed order of assessment (hereafter in this section referred to as the draft order) to the eligible assessee if he proposes to make, on or after the 1st day of October, 2009, any variation in the income or loss returned which is prejudicial to the interest of such assessee [Emphasis, by underlining, supplied by us]. The assessee before us is a non-resident company incorporated, and fiscally domiciled, in Cyprus. Accordingly, in terms of Section 144C(15)(b)(ii), the assessee is an eligible assessee but then there is no change in the figure of income returned by the assessee vis-a-vis the income assessed by the Assessing Officer. Clearly, there is no variation in the income returned by the assessee. There is, therefore, no question of a draft assessment order being issued in this case. It is also important to note that the Finance Bill proposes to make the issuance of draft assessment orders in the case of eligible assessees mandatory even when there is no variation in the income or loss returned by the assessee but then this amendment seeks to amend the law with effect from 1st April 2020. Explaining this amendment, Memorandum Explaining Amendments in the Finance Bill 2020 states as follows:
……..
6. Once this amendment is being introduced with effect from 1st April 2020, it is beyond any doubt of controversy that so far as the period prior to 1st April 2020 is concerned, the cases in which no variations in the returned income or loss were proposed, the draft assessment orders were not required to be issued. We, therefore, uphold the plea of the assessee on this point.
7. Coming to the second point, we find that there is no dispute that if no draft assessment order was to be issued in this case, the assessment would have been time barred on 31stDecember 2017 but the present assessment order is passed on 17th August 2018. Once we hold that no draft assessment order could have been issued in this case, as the provisions of Section 144C(1) could not have been invoked in this case, the time limit of completion of assessment was available only upto 31st December 2017. The mere issuance of draft assessment order, when it was legally not required to be issued, cannot end up enhancing the time limit for completing the assessment under section 143(3). We, therefore, uphold the plea of the assessee on this point as well. The impugned assessment order is indeed, in our considered view, time barred. We, accordingly, hold so.
8. As the impugned assessment order itself is held to be time barred, all other grievances raised in appeal, which deal with the merits of stand taken by the Assessing Officer in the assessment order, are rendered academic and infructuous. No adjudication, therefore, is required on these grievances at this stage.”
25. This view also finds support from the Delhi Bench in the case of Silver Bells 189 ITD 678. The relevant findings read as under:
“8. Provision of section 144C( 1) read as under:-
“144C. (1) The Assessing Officer shall, notwithstanding anything to the contrary contained in this Act, in the first instance, forward a draft of the proposed order of assessment (hereafter in this section referred to as the draft order) to the eligible assessee if he proposes to make, on or after the 1st day of October, 2009, any variation [84a Words ” in the income or loss returned” omitted by the Finance Act, 2020, w.e.f. 1-4-2020] which is prejudicial to the interest of such assessee.”
9. A perusal of the aforesaid provisions shows that the Assessing Officer shall forward the draft of the proposed order if he proposes to make any variation in the income or loss returned. The aforestated proposal in the draft assessment order clearly show that the Assessing Officer did not intend to make any variation in the income of the assessee, therefore, the assessment order should have been framed as per the provisions of section 153 r.w.s. 143(3) of the Act meaning thereby that the assessment order dated 7-9-2018 is barred by limitation.
10. In the light of the facts mentioned elsewhere when considered within the provisions of section 144C(1) supra, we have no hesitation to hold that the assessment order is barred by limitation.”
26. In light of the above discussion, we hold that the Assessing Officer wrongly assumed jurisdiction u/s 144C of the Act, and therefore, the final assessment order framed in Assessment Years 2007-08 and 2010-11 to 2015-16 are barred by limitation and accordingly, the impugned assessment orders are liable to be quashed as void ab initio. This additional ground is, accordingly, allowed.
27. We will now address to the other additional ground raised by the assessee which reads as under :
“That on the facts and circumstances of the case and in law, the impugned order passed by the Assessing Officer is barred by limitation and void ab initio and, therefore, is liable to be quashed.”
28. The above challenge in the respective Assessment Years can be understood from the following chart:
