Case: Monitor India Private Limited Vs. The Union of India &amp; Another

or credits made after the date on which a certificate had been issued. Since the Petitioner had already credited the amount in its books of account, the Assessing Officer has opined that the certificate for nondeduction of tax is not valid in respect of the payment of Rs.1.56 crores. Moreover, it has been stated that the amount mentioned in the certificate does not tally with the amount credited or paid by the Petitioner. Now, reading the reasons as they stand, it is evident that there is not even an allegation to the effect that there was a failure on the part of the Petitioner to fully and truly disclose all material facts necessary for the assessment. But for the purposes of the present discussion, it is not necessary to rest the view which we are inclined to take, merely on the absence of any averment that there was a failure to disclose on the part of the Petitioner. The record before the Court indicates that even when the original return was filed, the Petitioner had in the note (Note4) annexed to the return of income, expressly clarified that the Petitioner had filed an application under Section 195 in respect of the corporate allocation payable to its principal. The Note indicated that the principal provided administrative and management support services and the costs which were incurred were allocated at actuals to various subsidiaries globally that benefited from the service provided. The Petitioner stated that the costs which were allocated were reimbursed to the foreign principal at actuals and that there was no markup. The Petitioner stated that it believed that there was no income tax liability arising on such corporate allocations and the company was hopeful that a nil order of withholding would be passed. However, pending the order from the Revenue authorities, the amount was treated as being disallowed, but the Petitioner reserved its right to revise the return after receipt of the order from the Revenue. This was also duly elaborated upon in the Profit and Loss Account as well as in the Tax Audit Report. After an order was passed under Section 195(2) on 15 March 2005, a revised return of income was filed on 1 April 2005. During the course of the assessment proceedings, the Assessing Officer made enquiries specifically in regard to the manner in which the allocation has been made and sought an explanation from the Petitioner both in regard to the basis and quantum of the allocation. During the course of the replies which were supplied by the Petitioner during the course of the assessment proceedings, the Petitioner disclosed the following facts: (i) That a payment was made in the amount of Rs.1.56 crores by the Petitioner to its foreign principal; (ii) The payment which was made represented a reimbursement on the basis of actuals to the foreign principal in respect of costs incurred on behalf of the Petitioner for providing services; (iii) That there was an agreement between the Petitioner and the foreign principal, a copy of which was placed on record; (iv) The allocation of expenses was carried out in accordance with the methodology which was placed on record; (v) An order had been passed under Section 195(2) by the Assessing Officer. There was, therefore, in these circumstances, a full disclosure of all primary and material facts necessary for the assessment. As we have noted earlier, the Assessing Officer has not even indicated in the reasons that have been recorded that there was any failure to disclose fully and truly all material facts. But quite apart from the facts and as indicated above, we find merit in the contention of the Petitioner that there was a full and true disclosure of all necessary material for assessment for Assessment Year 2004-05.11, The assessment has been sought to be reopened purely on the basis that (i) A certificate was issued to the Petitioner under Section 197; (ii) That by virtue of Circular 774/99 a certificate under Section 197 would be valid only for payment or credit made after the issuance of the certificate; and (iii) Since the Petitioner had already credited an amount in its books, the certificate was not valid. The Assessing Officer has, in our view, erroneously proceeded on the basis that the certificate was issued under Section 197. The certificate, as a matter of fact, was issued on an application that was filed under Section 195(2) and was a certificate under that provision. But perhaps more fundamental is the fact that the provisions of Section 195 are attracted where any person is responsible for paying to a nonresident any interest or any other sum chargeable under the provisions of the Act. It is in such cases that the requirement of deducting income tax at the time of credit of such income to the account of the Payee or at the time of payment arises. The Assessing Officer has, in the reasons which have been recorded, made no reference at all to whether the payment which was effected to the foreign principal represented income chargeable under the provisions of the Act. The contention of the Petitioner all along has been that this payment represented only a reimbursement of costs incurred and should, therefore, not be treated as income. On this aspect, the reasons contain no disclosure to the effect that the Assessing Officer is of the view that this represented income which was chargeable.12. In the circumstances, having regard to the fact that the reopening of the assessment has taken place beyond a period of four years of the end of the relevant Assessment Year, we find merit in the case of the assessee that the jurisdictional condition for reopening of the assessment has not been fulfilled. There has been clearly no failure on the part of the Petitioner to disclose fully and truly all material facts necessary for the assessment. Moreover, as we have noted earlier that is not even the case of the Assessing Officer for reopening of the assessment.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]10. The basis on which the assessment for Assessment Yearis sought to be reopened is set out in the reasons which were disclosed to the Petitioner on 22 March 2011. The reasons set out that the Petitioner made an application fornondeduction of TDS after the books for05 had been finalized and the amount of Rs.1.56 crores had been credited to the account of the U.S. Company. According to the Assessing Officer, under Circular 774/99, a certificate under Section 197 is valid only for payment or credits made after the date on which a certificate had been issued. Since the Petitioner had already credited the amount in its books of account, the Assessing Officer has opined that the certificate for nondeduction of tax is not valid in respect of the payment of Rs.1.56 crores. Moreover, it has been stated that the amount mentioned in the certificate does not tally with the amount credited or paid by the Petitioner. Now, reading the reasons as they stand, it is evident that there is not even an allegation to the effect that there was a failure on the part of the Petitioner to fully and truly disclose all material facts necessary for the assessment. But for the purposes of the present discussion, it is not necessary to rest the view which we are inclined to take, merely on the absence of any averment that there was a failure to disclose on the part of the Petitioner. The record before the Court indicates that even when the original return was filed, the Petitioner had in the note (Note4) annexed to the return of income, expressly clarified that the Petitioner had filed an application under Section 195 in respect of the corporate allocation payable to its principal. The Note indicated that the principal provided administrative and management support services and the costs which were incurred were allocated at actuals to various subsidiaries globally that benefited from the service provided. The Petitioner stated that the costs which were allocated were reimbursed to the foreign principal at actuals and that there was no markup. The Petitioner stated that it believed that there was no income tax liability arising on such corporate allocations and the company was hopeful that a nil order of withholding would be passed. However, pending the order from the Revenue authorities, the amount was treated as being disallowed, but the Petitioner reserved its right to revise the return after receipt of the order from the Revenue. This was also duly elaborated upon in the Profit and Loss Account as well as in the Tax Audit Report. After an order was passed under Section 195(2) on 15 March 2005, a revised return of income was filed on 1 April 2005. During the course of the assessment proceedings, the Assessing Officer made enquiries specifically in regard to the manner in which the allocation has been made and sought an explanation from the Petitioner both in regard to the basis and quantum of the allocation. During the course of the replies which were supplied by the Petitioner during the course of the assessment proceedings, the Petitioner disclosed the following facts: (i) That a payment was made in the amount of Rs.1.56 crores by the Petitioner to its foreign principal; (ii) The payment which was made represented a reimbursement on the basis of actuals to the foreign principal in respect of costs incurred on behalf of the Petitioner for providing services; (iii) That there was an agreement between the Petitioner and the foreign principal, a copy of which was placed on record; (iv) The allocation of expenses was carried out in accordance with the methodology which was placed on record; (v) An order had been passed under Section 195(2) by the Assessing Officer. There was, therefore, in these circumstances, a full disclosure of all primary and material facts necessary for the assessment. As we have noted earlier, the Assessing Officer has not even indicated in the reasons that have been recorded that there was any failure to disclose fully and truly all material facts. But quite apart from the facts and as indicated above, we find merit in the contention of the Petitioner that there was a full and true disclosure of all necessary material for assessment for Assessment YearThe assessment has been sought to be reopened purely on the basis that (i) A certificate was issued to the Petitioner under Section 197; (ii) That by virtue of Circular 774/99 a certificate under Section 197 would be valid only for payment or credit made after the issuance of the certificate; and (iii) Since the Petitioner had already credited an amount in its books, the certificate was not valid. The Assessing Officer has, in our view, erroneously proceeded on the basis that the certificate was issued under Section 197. The certificate, as a matter of fact, was issued on an application that was filed under Section 195(2) and was a certificate under that provision. But perhaps more fundamental is the fact that the provisions of Section 195 are attracted where any person is responsible for paying to a nonresident any interest or any other sum chargeable under the provisions of the Act. It is in such cases that the requirement of deducting income tax at the time of credit of such income to the account of the Payee or at the time of payment arises. The Assessing Officer has, in the reasons which have been recorded, made no reference at all to whether the payment which was effected to the foreign principal represented income chargeable under the provisions of the Act. The contention of the Petitioner all along has been that this payment represented only a reimbursement of costs incurred and should, therefore, not be treated as income. On this aspect, the reasons contain no disclosure to the effect that the Assessing Officer is of the view that this represented income which was chargeable.12. In the circumstances, having regard to the fact that the reopening of the assessment has taken place beyond a period of four years of the end of the relevant Assessment Year, we find merit in the case of the assessee that the jurisdictional condition for reopening of the assessment has not been fulfilled. There has been clearly no failure on the part of the Petitioner to disclose fully and truly all material facts necessary for the assessment. Moreover, as we have noted earlier that is not even the case of the Assessing Officer for reopening of the assessment.