The author has made a critical analysis of the recent decision of the Kolkota Bench of the ITAT in Van Oord Atlanta B.V. 112 TTJ 229 and identified the important principles of law emerging therefrom. 1. 1. Factual Synopsis of the case
1.1 Van Oord Atlanta B.V. (‘Assessee’) a company incorporated in Netherlands and a resident of that country was accordingly treated as eligible to benefits of ‘DTAA’.
1.2 During Assessment Year 2000-2001 (Financial Year 1999-2000), assessee undertaken a subcontract for maintenance dredging at Haldia Port which got commenced on 26 February 1999 and went upto 28 July 1999 (when the relevant dredger being maintenance equipment exported from India ). Revenue relied on SC ruling in Sun Engg case 198 ITR 297 to contend that as assessee did not raise the plea for non existence of PE either at the time of filing of return of income or at assessment stage, same cannot be raised before CIT(A) . 1.3 In aforesaid connection, assessee did not raise the plea of non-existence of Permanent Establishment (‘PE’) under Article 5 of DTAA between India and Netherlands (as period fell short of six months otherwise required for constituting PE) before AO during assessment proceedings etc. and the same was pleaded for first time before CIT(A) during appellate proceedings.
1.4 In view of above, on calling of remand report by CIT(A), AO observed thereunder that since assessee maintained bank account in India till 12 July 2000 and books of accounts till 31 March 2000, accordingly Project PE stand constituted under subject provision of DTAA (that is activities of assessee continued for more than 6 months). In light of this, AO further observed in its remand report that assessee’s plea contending culmination of its project activities on 26 July 1999 when the maintenance dredger used in project work got exported from India, cannot be accepted.
1.5 CIT(A) finally held that grounds of appeal as taken by assessee relating to non existence of PE etc are totally inadmissible and unsustainable on merit and accordingly upheld AO’s stand. 2. Assessee’s contention before ITAT
2.1 That CIT(A) erred in holding that issue relating to PE do not emerge from assessment order as AO himself has admitted underlying facts involved in the issue and even otherwise in view of plenary powers available under the law to CIT(A), grounds of appeal relating to PE should have been admitted.
2.2 On merits, assessee submitted that since the dredger involved in the maintenance work got exported from India on 26 July 1999, merely having bank account or for that matter books of accounts maintained beyond that date, same are not sufficient to constitute PE under Article 5 of subject DTAA (when otherwise its project activities fell short of six months)
2.3 Further, Assessee placed reliance on Article 265 of Indian Constitution (No tax can be collected except by the authority of the law) to support its contention that even if assessee voluntarily submitted itself to a wrong jurisdiction (here filing of return of income by assessee even when though it did not have a PE in India and non contesting of the same during assessment proceedings) , it is duty of AO to levy tax according to law and not to take benefit out of assessee’s ignorance. 3. Revenue’s contention before ITAT
3.1 Revenue relied on SC ruling in Sun Engg case 198 ITR 297 to contend that as assessee did not raise the plea for non existence of PE either at the time of filing of return of income or at assessment stage, same cannot be raised before CIT(A) which proceedings have otherwise emanated from reassessment proceedings.
3.2 Further, revenue supported AO’s order on merits. 4. ITAT ruling
4.1 Firstly, ITAT distinguished SC ruling in Sun Engg case (supra) as the same related to ken of AO’s powers during reassessment proceedings and here the issue related to powers of CIT(A) to admit fresh ground of appeal. In this context, ITAT relying upon SC ruling in Jute Corporation 187 ITR 688 case and NTPC case 229 ITR 383, came to conclusion that CIT(A) has plenary powers, co-terminus with that of AO’s powers, to dwell upon fresh grounds of appeal. AO is not only a tax collector but also a quasi judicial authority. In this capacity, he (AO) is duty bound to allow such claim which assessee is otherwise entitled to have and has not claimed the same… 4.2 Further, in relation to assessee’s voluntary submission to tax jurisdiction, ITAT finding merit in assessee’s reliance on Article 265 (supra), held that:
• There cannot be any estoppel against the statute; and
• AO is not only a tax collector but also a quasi judicial authority. In this capacity, he (AO) is duty bound to allow such claim which assessee is otherwise entitled to have and has not claimed the same. (In this connection, reliance was placed by ITAT on SC ruling in Mahalaxmi Sugar Mills 160 ITR 920, DHC in 156 ITR 569 etc)
4.3 Further, on merits, ITAT accepting the assessee’s contention regarding non existence of Project PE under subject DTAA held that:
• On export of relevant maintenance dredger, project activities came to an end; and
• Operating of bank accounts and maintaining books of accounts after the export of relevant maintenance dredger did not amount to carrying on of ‘business activity’ in India (here it seems that in order to adjudicate whether bank account operation can be included in instant project’s time span, ITAT took assistance from para 1 of Article 5 of subject DTAA i.e fixed place PE) ; and
4.4 Further, in light of above, ITAT held that since Assessee did not have any PE in India, it was not at all required to file return of income and even if assessee filed the same in ignorance, AO was duty bound not to proceed with the same. In this regard, ITAT treating the return as non est in law held that “simply because assessee filed a return wrongly, that does not automatically fasten the assessee with liability…”. 5. Analysis and Conclusion 5.1 As regards admissibility of fresh ground during assessment proceedings or appellate proceedings, albeit ITAT in the instant case did not consider the ruling of SC in the case of Goetze India 284 ITR 323 (interalia barring admissibility of fresh claims during assessment proceedings except by way of revised return), it seems that conclusion drawn by ITAT in this regard that “… there cannot be estoppel against the statute… ” is in line with: useful reference may be further made to Delhi ITAT ruling in the case of SNC Alvalin 110 TTJ 13, wherein ITAT has distinguished Goetze (supra) on the ground that since fresh claim has been dealt with by AO and CIT(A) , now at ITAT level, revenue cannot rely on Goetze (supra) to oust assessee’s claim.
• Constitutional spirit enshrined in Article 265 (supra)
• SC rulings in Mahalakshmi case (supra) and Anchor Pressing 161 ITR 159 etc. (not considered in Goetze supra)
• CBDT views contained in Circular No 14 dated 11 April 1955 (not considered in Goetze supra)
• Mum ITAT ruling in Chicago Pneumatic 15 SOT 252 which has distinguished Goetze (supra) in light of Article 265 (supra) and CBDT Circular No 14 (supra)
In aforesaid connection, useful reference may be further made to Delhi ITAT ruling in the case of SNC Alvalin 110 TTJ 13, wherein ITAT has distinguished Goetze (supra) on the ground that since fresh claim has been dealt with by AO and CIT(A) , now at ITAT level, revenue cannot rely on Goetze (supra) to oust assessee’s claim otherwise dealt with. Further, Delhi ITAT in Moser Baer 295 ITR 148 (AT) has also distinguished Goetze (supra) in context of fresh claim (viz. opting out) under section 10B of the Act. In this connection, while distinguishing Goetze (supra). ITAT has held that Goetze (supra) operates in different context and has no applicability to section 10B, which is a code in itself.
5.2 As regards time span for which subject project remained in operation, albeit ITAT did not specifically considered OECD Commentary on Model Tax Convention, but reasoning drawn by ITAT that “……if the enterprise ends its business activities for good, its PE will also cease to exist…” seems to be in harmony with OECD which has also echoed similar views in its commentary in relation to the subject matter (refer para 11 etc.).
5.3 As regards filing of return of income by an overseas company which although carried certain operations in India but did not have a PE constituted under subject DTAA and hence no taxability, it seems that views propounded by ITAT in this regard that “…..it (assessee) did not require to file return as there was no PE of its own during material point of time……” seems to be in consonance with views of AAR in Venenburg 289 ITR 464 and contrary to AAR in XYZ – ABC Equity Fund 250 ITR 194. in the opinion of the author, applicability of section 139 of the Act interalia dealing with filing of return of income, in context of foreign companies that are accepted to have no income tax chargeability in India with some foot prints in India , needs to be analysed.. In aforesaid connection, in the opinion of the author, applicability of section 139 of the Act interalia dealing with filing of return of income, in context of foreign companies that are accepted to have no income tax chargeability in India with some foot prints in India, needs to be analysed in the backdrop of:
• Section 1(2) of the Act (stating that the ‘Act’ extends to whole of India)
• Article 245(2) of Indian Constitution (giving power to parliament to make laws having extra territorial operation)
• SC ruling in Electronic Corporation of India 183 ITR 43, interpreting Article 245 in context of ‘Act’ etc, interalia held that there must be some provocation in India to apply an Indian law to a subject
5.4 As regards evaluation of project PE in aforesaid scenario (which fell short of time limit specified in relevant PE article of DTAA), albeit ITAT did not considered the question whether same may be evaluated in residuary para 1 (fixed place PE), it seems that Delhi ITAT in BKI/HAM case 70 TTJ 480 and AAR in its rulings reported at 237 ITR 156 and 228 ITR 55, applying the maxim “generallia specialibus non derogant” has taken a view that project PE can only be evaluated in terms of specific para of Article 5 of relevant DTAA and not as ‘fixed place PE’ which is general in nature. However, a contrary view seems to have been taken by Mumbai ITAT in Micoperi SPA Milano case 82 ITD 369.
