Rajpal Yadav, Member (J) -
(1.) LEARNED CIT(Appeals) has decided the appeals of assessee for assessment years 2003 -04 & 2004 -05 by a common order dated 29.3.2011, the revenue is challenging the order of Learned CIT (Appeals) in both the years. In assessment year 2002 -03, the revenue and assessee are in cross appeal against the order of Learned CIT(Appeals) dated 25.11.2011. Since common issues are involved, therefore, we heard them together and deem it appropriate to dispose of them by this common order. The first common issue involved in all the three assessment years is, whether Assessing Officer is justified to reopen the assessment by issuance of a notice under sec. 148 of the Income -tax Act, 1961? In assessment years 2003 -04 and 2004 -05, Learned CIT(Appeals) has quashed the assessment order holding that reopening of assessment is bad in law, whereas in assessment year 2002 -03, Learned CIT(Appeals) has upheld the reopening, therefore, the order of Learned CIT(Appeals) in assessment year 2002 -03 on this issue is being challenged by the assessee and in assessment years 2003 -04 and 2004 -05, it is being challenged by the revenue. In assessment year 2002 -03, Learned First Appellate Authority has noticed the business profile of the assessee in a very lucid manner therefore, while taking the facts, we take the facts from the order of Learned CIT(Appeals) which reads as under:
"3. Briefly stated the facts of the case are that the appellant, McDonald's Corporation, a Delaware Corporation, is a company incorporated in the United States of America. It has developed and operates a restaurant system ('McDonald Systems') through which it has been able to mark its international presence. This system includes proprietary rights in certain valuable trade names, service marks and trademarks, including the trade name 'McDonalds'. Designs and colour schemes for restaurant buildings, signs, equipment layouts, formulas and specifications for certain food products, methods of inventory and operation control, bookkeeping and accounting, and manuals covering business practices and policies, McDonald's Corporation made an application in August, 1992 to the Foreign Investment Promotion Board ('FIPB'), Ministry of Industry, Government of India proposing to incorporate a wholly owned subsidiary in India for setting up McDonald's restaurants in India. In response, FIPB vide its letter dated February 15, 1993 approved the said proposal for setting up a subsidiary. As a result of the aforementioned approval, McDonalds India Pvt. Ltd. ('MIPL') was incorporated on August 13, 1993 under the Indian Companies Act, 1956 (as an indirect subsidiary). Subsequently, the appellant entered into a Master License Agreement ('MLA') dated January 1, 1996 with MIPL. As per the terms laid down in the MLA entered into between the appellant and MIPL, the latter entity has been granted non exclusive rights to adopt and use the McDonald's System to promote and develop restaurants at agreed locations of India. Further the terms of MLA also mandate MIPL to pay the appellant, an initial franchisee fee of USD 45,000 on opening of each restaurant franchised by MIPL and thereafter royalty of 5 per cent on monthly basis, on sales effected by all the restaurant outlets during the period. Further, as per clause 2 of the MLA which confers the various right, license and privilege, McCorp has also authorized MIPL (with prior consent) to sub -license to approved individuals, corporate entities ('Franchisee') the rights conferred on the later by the MLA. Pursuant to such a right, MIPL has contracted with two corporate entities in India viz. Connaught Plaza Restaurants Private Ltd. ('CRPL') and Hardcastle Restaurant Pvt. Ltd. ('HRPL') whereby the rights under the MLA have been sub -licensed to them. These entities have been set up by the MIPL in India as joint venture partners. Pursuant to such sub -licensing arrangement, restaurants using McDonald's Systems are being operated by CRPL and HRPL. In accordance with the approval accorded to MIPL, it started providing for royalty in its books and started remitting the prescribed amounts to McDonald's Corporation. Taxes were duly deducted on such royalty payments in accordance with Sec. 195 of the and were deposited with the revenue authorities. Further, since the application filed by MIPL before FIPB seeking approval for payments of initial franchisee fee was pending approval, MIPL never accounted for initial franchisee fee in its books of account nor made any actual payments to McDonald's Corporation in the period assessment year ('A.Y') 1997 -98 to 2001 -02. McDonald's Corporation suo motu filed its first return of income in A.Y. 2002 -03 declaring royalty received from MIPL as income taxable in India (prior to that since taxes were withheld at source on the royalty income, no income tax return was filed in India).
3.1 The appellant filed its return of income on 30.10.2002 declaring an income of Rs. 4,20,91,580. The appellant had discharged the tax liability by way of taxes deducted at source at the rate of 15% by virtue of claiming beneficial provisions of the India -US tax treaty in contrast to the provisions of Sec. 44D read with Sec. 115A of the Act that stipulates tax rate of 30%. In this regard, the appellant had applied the provisions of sec. 90(2) of the Act, wherein it has been provided that the provisions of the Act would apply to an assessee to the extent they are more beneficial to it as compared to the provisions of tax treaty. The return of income was processed u/s. 143(1) of the Act. Thereafter, the assessment was reopened u/s. 147 of the Act by issuing notice u/s. 148 of the Act on 13.3.2008 and the reassessment proceedings were completed u/s. 143(3) read with sec. 147 on 19.12.2008 determining the total income at Rs. 4,20,91,580 as originally returned. However, the same was taxed @ 30% under sec. 115A read with Section 44D of the Act."
(2.) IN assessment years 2003 -04 and 2004 -05, assessee has filed its return of income on 24.11.2003 and 27.12.2004 declaring an income of Rs. 5,20,86,670 and Rs. 9,67,64,520 respectively. The assessments in both these assessment years have been framed under sec. 143(3) on 24.3.2006 and 20.12.2006. Apart from these facts, there is no material difference between the facts as available in assessment year 2002 -03. The notice under sec. 148 of the Income -tax Act, 1961 has been issued in all these three years on 30.3.2008. The reasons recorded by the Assessing Officer are also verbatim same, copy of the reasons in assessment year 2002 -03 is available on page 43 of the paper book.
(3.) LEARNED counsel for the assessee while impugning the order of the Learned CIT(Appeals) in assessment year 2002 -03 has basically raised three fold submissions. He contended that as far as total income of the assessee is concerned, there is no dispute between the parties in the quantum of the income. The dispute is that according to the Assessing Officer, assessee has a PE in India, therefore, the income is taxable @ 30% under sec. 115A read with sec. 44D, whereas assessee has offered the income @ 15%. Thus, the moot question is, whether the facts showing that assessee had a PE or not in India were available before the Assessing Officer or not. He pointed out that assessment in assessment year 2004 -05 was completed under sec. 143(3) on 20.12.2006 and a question with regard to availability of PE was asked and replied by the assessee, learned Assessing Officer has accepted the explanation of the assessee. Therefore, the information about the existence of PE was already available to the Assessing Officer.;