Decided on August 05,2013

Director, Income Tax (International Taxation) Appellant


- (1.) In These Two Appeals, We Are Concerned With Two Assessment Years. The Assessee Has Permanent Establishment In India. The Assessee Carries On Business Within India And Outside India. From 1990-1991, The Assessee Has Been Submitting Returns And Is Being Assessed For Payment Of Tax In India. In Exercise Of Its Right Under Section 90 Of The Income Tax Act, The Assessee Has Opted For Being Taxed In The Manner Prescribed In The Bipartite Agreement Between The Union Of India And The Republic Of Korea. During These Assessment Years, And Also During The Past Assessment Years, The Permanent Establishment Of The Assessee In India Has Been Linked To Certain Projects In India, With Which The Assessee Got Involved. In Relation To Assessments During The Assessment Years, Prior To The Assessment Years With Which We Are Concerned In These Appeals, The Tax Liability Of The Assessee Was Determined On The Basis Of 10 Per Cent Of The Gross Receipt Minus (-) Expenses Established Or Accepted. The Same Method Was Also Applied During The Assessment Years With Which We Are Concerned. This Method Was Adopted In Relation To Within India Activities, In Respect Whereof Payments, Within India, Were Received. During These Two Assessment Years, With Which We Are Concerned, The Assessee Submitted Returns And, There, Claimed To Have Suffered Loss For India Operations. It, Accordingly, Asked For Return Of Tax Deducted At Source. The Assessing Officer Found That, In Relation To The Permanent Establishments, Books Of Accounts Are Being Maintained. It Recorded That Those Were Not Produced. On The Basis Of The Explanations Given And Forms Submitted, It Gathered That, In Relation To Certain Expenditures, Tds Was Deducted And The Same Was Deposited And, Accordingly, Proceeded To Hold That There Cannot Be Any Dispute Pertaining To Those Expenditures. The Assessing Officer Deducted Those Accepted Expenditures From The Undisputed Gross Receipt. 10 Per Cent Of The Amount, So Deduced, Was Assessed As The Tax Liability Of The Assessee. In Addition To That, The Assessee Received Certain Payments, May Be From Indian Enterprises, In Relation To Certain Work. The Assessing Officer Felt That Those Were Pertaining To Outside India Activities Of The Assessee And, Accordingly, Those Are Not Taxable. Subsequent Thereto, Power Under Section 263 Of The Act Was Exercised. In Doing So, It Was Stated That The Taxable Liability Should Have Been Determined On The Basis Of Receipt Minus (-) Expenditure Established And There Was No Scope Of Applying 10 Per Cent Deemed Profit Of The Receipt Minus (-) Accepted Expenditures. The Notice Was Responded By The Assessee, Whereafter The Assessment Order Was Cancelled And The Matter Was Remitted Back To The Assessing Officer. We Are Told That The Assessing Officer Acted On The Basis Of The Said Order And Has Made Reassessment. In The Meantime, Being Aggrieved Against The Order Of The Director Of Income Tax Passed Under Section 263 Of The Act, The Assessee Went Before The Tribunal.
(2.) According To Us, The Tribunal Correctly Held That, Even In The Notice Issued Under Section 263 Of The Act And Also In The Order Of The Director, There Is Not Even An Apprehension About The Disclosures Made, Pertaining To Outside India Activities Relating To Receipt Or The Work Done. Accordingly, There Was No Question Of Sending Back The Matter, Pertaining To Outside India Activities, To The Assessing Officer By The Director Of Income Tax.
(3.) However, The Tribunal Has Taken A Strange Stand Purporting To Express That, Whereas The Assessee Had No Taxable Income, The Assessing Officer Made Assessment Of Taxable Income And, Accordingly, There Was No Prejudice To The Revenue. The Tribunal, As A Fact, Found That There Was No Dispute Pertaining To The Receipt By The Assessee In Relation To Within India Activities. The Tribunal, As A Fact, Has Found That The Assessee Could Establish Only A Part Of The Claimed Expenditure. In Income Tax Parlance, The Deduction Will Be That The Expenditure That The Assessee Has Not Been Able To Account For Is The Income Of The Assessee. The Tribunal Has Held That 10 Per Cent Thereof Assessed As Taxable Income Will Establish That The Revenue Was Not Prejudiced In The Instant Case And, Accordingly, Exercise Of Power Under Section 263 Of The Act Was Inappropriate.;

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