P and O Nedlloyd Ltd. v. Assistant Director of Income-tax (International Taxation)
[Citation -2014-LL-1107]

Citation 2014-LL-1107
Appellant Name P and O Nedlloyd Ltd.
Respondent Name Assistant Director of Income-tax (International Taxation)
Court HIGH COURT OF CALCUTTA
Relevant Act Income-tax
Date of Order 07/11/2014
Judgment View Judgment
Keyword Tags income chargeable to tax • international traffic • shipping business • sole beneficiary • partnership act • double taxation • earned in india • demand notice • non-resident • time barred
Bot Summary: Mr. Porus Kaka, learned senior advocate appeared on behalf of the petitioners, submitted that the income shown under the said revised return amounting to Rs. 241,68,52,588 was the entire partnership income from the amounting to Rs. 241,68,52,588 was the entire partnership income from the joint/pooled partnership business. As such the partnership was not a resident of the U. K. Hence, income for the assessment year 1997-98 in the hands of the partnership did escape assessment. Further facts are that M/s. P O Nedlloyd partnership, U. K. hereinafter referred to as the said partnership filed its return of income arising out of shipping business in India for the assessment year 2002-03 on October 31, 2002, as'New Case-1st year'. Though the petitioners claiming to be partners of the said partnership did not state as much in their covering letter dated March 31, 1999, enclosing the said revised return considering the said partnership had came into being on July 31, 1997, the noting by the Revenue the said partnership was actually carrying on the shipping business in India to realise gross freight of Rs. 241,68,52,588 during the period relevant to the assessment year 1997-98 was not denied. After the said partnership chose to file its return for the assessment year 2002-03 on October 31, 2002, as'New Case-1st year' the petitioners asserted the partnership business carried on by shipping in international traffic out of ports in India had yielded the said gross freight in the hands of petitioner No. 1 as income of the said partnership. Under section 2(23)(i) thereof a firm shall have the meaning assigned to it in the Indian Partnership Act, 1932, and shall include a limited liability partnership as defined in the Limited Liability Partnership Act, 2008. The Revenue in treating the said partnership as an assessee and seeking to assess income of it which had escaped assessment is for the purpose of charging tax on the income of the said partnership, treating it as a person liable to be charged with the levy of income-tax under the said section.


JUDGMENT Arindam Sinha J.-W. P. No. 457 of 2005 Two companies, one incorporated under laws relating to companies in United Kingdom (U. K.) and another incorporated under laws relating to companies in Netherlands have filed this writ petition challenging notice dated March 25, 2004, issued under section 148 of Income-tax Act, 1961, to P & O Nedlloyd (partnership) requiring partnership to deliver return in prescribed form of its income in respect of which it is assessable, chargeable to tax for assessment year 1997-98 which, according to Revenue, had escaped assessment within meaning of section 147 of said Act. petitioners pleaded by deed of partnership dated July 31, 1997, petitioners Nos. 1 and 2 formed partnership firm with effect from January 1, 1997, under provisions of law relating to partnerships of England and Wales, having its office in U. K. to carry on business of shipping in international waters. It is petitioners' case in their pleadings first assessment year subsequent to formation of partnership was assessment year 1997-98. Since incomplete return dated May 19, 1998, was originally filed, petitioner No. 1 under cover of its letter dated March 31, 1999, enclosed revised return. contents of that letter are reproduced below: "We enclose revised return of income for assessment year 1997- 98. With effect from January 1, 1997, P & O Containers Ltd., U. K. and Nedlloyd Lines B. V. have pooled their business worldwide as both these companies were acquired by P & O Nedlloyd Container Ltd., U. K. name of P & O Containers Ltd., U. K. was changed to P & O Nedlloyd Ltd. which operates in India with effect from that date. However, return for above assessment year was inadvertently filed in name of P & O Containers Ltd. reflecting only freight collected by P & O Containers Ltd., U. K. Therefore, this revised return of income is being filed in correct name of P & O Nedlloyd Ltd. being beneficial receiver of freight income earned in India, including freight earned by Nedlloyd Lines B. V. from January 1, 1997, to March 31, 1997. Please take above on your records. Please let us know if you require any further information in matter." returns filed resulted in assessment order dated July 30, 1999. said order speaks as under: "In this case, return of income was filed on May 19, 1998, showing income at nil. Subsequently, revised return was filed on April 12, 1999, showing income at nil. revised return was filed in order to claim refund of taxes paid under section 172(4) to extent of Rs. 25,29,231. assessee is non-resident shipping company engaged in business of operation of ships in international traffic. In response to notice under section 143(2) of Income-tax Act, Sri A. K. Basu, FCA, authorised representative of assessee, attended proceedings from time to time and case was discussed with him. During year under consideration, assessee has shown gross freight to extent of Rs. 2,41,68,52,588. It has been submitted on behalf of assessee that in accordance with article 9 of Agreement for Avoidance of Double Taxation between India and U. K., profit derived by assessee-company from operation of ships in international traffic would be taxable only in U. K. Accordingly, sums received in India from operation of ships including ancillary charges have been claimed as exempted from tax in India. I have perused Double Taxation Avoidance Agreement between India and U. K. I have also considered submissions made on behalf of assessee in this context and found contention of assessee to be correct. Hence, gross freight including ancillary charges, received by assessee-company will not be taxed which implies that tax payable would be nil. Assessed as above under section 143(3), issue demand notice and copy of order to assessee." petitioners are indignant that in spite of full disclosure having been made regarding their business of operation of ships in international traffic, impugned notice was issued by Revenue, that too without disclosing any reasons for issuance thereof. However, since subsequently reasons were given by Revenue by intimation thereof being annexure P-7 to writ petition, received by petitioner on January 17, 2005, objection regarding absence of reasons was not pressed. reasons for issuance of impugned notice as would appear from said annexure are as under: "M/s. P & O Nedlloyd Partnership, U. K. (PONP in short) filed its return of income arising out of shipping business in India for assessment year 2002- 03 on October 31, 2002, as'New Case-1st year'. Meanwhile, information, vide L. No. Addl. DIT (IT-2)/264/2003-04 dated September 22, 2003, has been received that PONP's Indian income from shipping business in earlier years was not disclosed to Department. It is noted that PONP was actually carrying on shipping business in India. It has realised gross freight of Rs. 2,41,68,52,588 from vessels shipped at Indian ports during period relevant to assessment year 1997-98. This resulted in profit of Rs. 18,12,63,944 being 7.5 per cent. of gross freight under section 172(2) of Income-tax Act, 1961. But same was not offered for taxation by PONP. Instead this was wrongly shown as income of M/s. P & O Nedlloyd Ltd. (PONL in short) being PAN: AACCP3162F, which was merely partner of PONP, to fraudulently avail of relief under Indo-UK Treaty. Since partnership is not liable to income-tax in U. K., same is not a'person' resident in U. K. who is entitled to get relief under Indo-U. K. Treaty. In view of this, I have reasons to believe that income of Rs. 18,12,63,944 chargeable to tax for assessment year 1997-98 has escaped assessment due to non-filing of return by PONP under Income-tax Act, 1961. Put up to Addl. DIT (Intl. Taxn.), Kolkata, for his kind perusal and for seeking necessary sanction under section 151(2) for issuing notice under section 148 of Income-tax Act, 1961." Mr. Porus Kaka, learned senior advocate appeared on behalf of petitioners, submitted that income shown under said revised return amounting to Rs. 241,68,52,588 was entire partnership income from amounting to Rs. 241,68,52,588 was entire partnership income from joint/pooled partnership business. Therefore, petitioner No. 1 as partner had already been assessed after exercising its option under section 143(3) of said Act which assessment order continues to remain valid and has not been altered in any way or proceeding. According to him, that assessment order assessed freight income of both partners jointly constituting partnership. Since it is not disputed income concerned is from operation of ships in international traffic, in any event such income was not chargeable to tax in India by reason of India-U. K. and India-Netherlands Double Taxation Avoidance Agreements (DTAA). He submitted it was and is accepted both internationally and in India that partnership income and income in hands of partners is one and same and double taxation was not permitted. He referred to CBDT Circular No. 6, dated March 17, 1944, as well as, inter alia, articles 9(1) and 5 of India-U. K. Treaty and corresponding article 8(a) of IndiaNetherlands Treaty in this context. He also cited lack of jurisdiction in matter of issuance of impugned notice by submitting purported reasons for reassessment was of income under section 172(2) of said Act, jurisdiction for which lies solely with respective port officers where ships arrive and leave. Without waiving such objection, he submitted, there was full and true disclosure and, therefore, in facts and in circumstances it cannot be said there were reasons to believe that income of partnership had escaped assessment for assessment year under notice. partners thus were competent to maintain challenge against notice where income of partnership was already assessed and granted exemption since provisions of articles 9 and 8(a) of India-U. K. and IndiaNetherlands Treaties do not permit taxation of income in India and specifically covers shares of joint business also. There was no failure to disclose and notice along with reasons to reopen are untenable and ought to be quashed. late Mr. Shome, learned senior advocate and after him Mr. Ramesh Chowdhury, learned advocate argued on behalf of Revenue. Revenue's case from its pleadings is that when partnership had come into effect from January 1, 1997, it was required to file its return for relevant assessment year 1997-98. notice was duly issued under section 148 of said Act. Revenue contended U. K. does not consider partnership as resident for purpose of tax treaties under article 4 thereof. As such partnership was not resident of U. K. Hence, income for assessment year 1997-98 in hands of partnership did escape assessment. It was further contention of Revenue partnership not being liable to tax in U. K. cannot claim fiscal domicile of that country. partnership having come into existence on January 1, 1997, however, filed its return for first time on October 31, 2002, for assessment year 2002-03 when partnership, according to Revenue, was sole beneficiary of freight income earned in India on and from January 1, 1997, to March 31, 1997, and in subsequent years which it failed to disclose. Such income cannot be returned by and be assessed in hands of individual partners since income was earned by partnership in India. According to Revenue, benefit of India-U. K. Treaty could be availed of, if admissible, by partnership only. Several decisions were relied on by petitioners. They are as follows: "(i) Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191 (SC); (ii) Director of Income-tax (International Taxation) v.Venkatesh Karrier Ltd. [2012] 349 ITR 124 (Guj); (iii) Sunil Krishna Paul v. CIT [1966] 59 ITR 457 (Cal); (iv) Madhya Pradesh Industries Ltd. v. ITO [1970] 77 ITR 268 (SC); (v) Dunlop Rubber Co. Ltd. (London) v. ITO [1971] 79 ITR 349 (Cal); (vi) CIT v. Burlop Dealers Ltd. [1971] 79 ITR 609 (SC); (vii) ITO v. Lakhmani Mewal Das [1976] 103 ITR 437 (SC); (viii) Ganga Saran and Sons P. Ltd. v. ITO [1981] 130 ITR 1 (SC); (ix) CIT v. Davy Ashmore India Ltd. [1991] 190 ITR 626 (Cal); (x) CIT v. Taiyo Gyogyo Kabushiki Kaisha [2000] 244 ITR 177 (Ker); (xi) Union of India v. Azadi Bachao Andolan [2003] 263 ITR 706 (SC); (xii) Hindustan Lever Ltd. v. R. B. Wadkar, Asst. CIT (No. 1) [2004] 268 ITR 332 (Bom); (xiii) Amiya Sales and Industries v. Asst. CIT [2005] 274 ITR 25 (Cal); (xiv) CIT v. Kelvinator of India Ltd. [2010] 320 ITR 561 (SC); (xv) Emirates Shipping Line, FZE v. Asst. DIT [2012] 349 ITR 493 (Delhi); and (xvi) Indivest P. Ltd. v. Additional DIT [2013] 350 ITR 120 (Bom)." None of propositions of law laid down by above decisions were disputed. parties were ad idem regarding scope and effect of section 90 of Income-tax Act, 1961. facts as emerged from above are that petitioner No. 1 under cover of its letter dated March 31, 1999, had filed revised return of income for assessment year 1997-98. It appears from that letter assessment related to P & O Nedlloyd Ltd. U. K., petitioner No. 1. purport of letter is petitioners had pooled their business worldwide as both companies were acquired by P & O Nedlloyd Containers Ltd. U. K. with effect from January 1, 1997. name of petitioner No. 1 was changed, which operates in India with effect from January 1, 1997. However, since return for said assessment year was inadvertently filed in erstwhile name of petitioner No. 1 reflecting only freight collected by it, therefore, revised return to include freight earned by petitioner No. 2. This court notices in matter of filing revised return there was no mention by petitioners that they were partners of partnership firm or what was name of such firm. It thus becomes clear to this court petitioner No. 1 was company being assessed and it had filed revised return showing gross freight to extent of Rs. 241,68,52,588 earned by both petitioners pooled together and acquired by acquiring company as stated. assessment order was made accordingly. said order says assessee (petitioner No. 1) is non-resident shipping company engaged in business of operation of ships in international traffic. Under article 9 of India- U. K. Treaty profit derived by assessee-company from operation of ships in international traffic would be taxable only in U. K. and was thus exempted from tax in India. Hence, Revenue found tax payable by assessee-company, that is petitioner No. 1, would be nil on such income from freight. Further facts are that M/s. P & O Nedlloyd partnership, U. K. hereinafter referred to as said partnership filed its return of income arising out of shipping business in India for assessment year 2002-03 on October 31, 2002, as'New Case-1st year'. Though petitioners claiming to be partners of said partnership did not state as much in their covering letter dated March 31, 1999, enclosing said revised return considering said partnership had came into being on July 31, 1997, noting by Revenue said partnership was actually carrying on shipping business in India to realise gross freight of Rs. 241,68,52,588 during period relevant to assessment year 1997-98 was not denied. After said partnership chose to file its return for assessment year 2002-03 on October 31, 2002, as'New Case-1st year' petitioners asserted partnership business carried on by shipping in international traffic out of ports in India had yielded said gross freight in hands of petitioner No. 1 as income of said partnership. In premises contention of Revenue that income of said partnership had escaped assessment as chargeable to tax necessitating issuance of impugned notice cannot be brushed aside. This court finds by reason of income of said partnership having escaped assessment which escapement was noticed subsequently as indicated in reasons supplied and as said partnership assessee had failed to disclose fully and truly all material facts necessary for its assessment for earlier assessment years from 1997-98 onwards, assessment under section 143(3) made earlier of petitioner No. 1 could not be relied upon as assessment made of relevant year relating to said partnership. Therefore, Assessing Officer's reasons to believe that income chargeable to tax of said partnership for assessment years prior to return filed by it for assessment year 2002-03 as'New Case-1st year' had escaped assessment cannot be said to be perverse. Hence, it is found notice was not time barred under first proviso to section 147 of said Act and thereby saved from time bar prescribed under section 149 thereof. Whether or not same income stood already disclosed and exempted from tax as income assessed of petitioner No. 1 as assessee being partner of said partnership or such income of partnership had escaped assessment would be question to be gone into and answered in assessment sought to be made pursuant to issuance of notice. In circumstances this court cannot find said partnership had made full disclosure. It is other objection regarding attempt on part of Revenue to subject said partnership to taxation on ground its income was not saved from charge of income-tax by India-U. K. Treaty, that Revenue has not been able to overcome. In dealing with such objection it is necessary to reproduce below certain clauses, relevant for purpose, of India-U. K. Treaty notified on February 11, 1944. "1. Scope of Convention.-(1) This Convention shall apply to persons who are residents of one or both of Contracting States. 3. General definitions.-(1)(f) term'person' includes individual, company and any other entity which is treated as taxable unit under taxation laws in force in respective Contracting States, but, subject to paragraph (2) of this article, does not include partnership: (1)(h) terms'enterprise of Contracting State' and'enterprise of other Contracting State' mean respectively enterprise carried on by resident of Contracting State and enterprise carried on by resident of other Contracting State. (2) partnership which is treated as taxable unit under Income tax Act, 1961 (43 of 1961), of India shall be treated as person for purposes of this Convention. 4. Fiscal domicile.-(1) For purposes of this Convention, term'resident of Contracting State' means any person who, under law of that State, is liable to taxation therein by reason of his domicile, residence, place of management or any other criterion of similar nature. 9. Shipping.-(1) Income of enterprise of Contracting State from operation of ships in international traffic shall be taxable only in that State... (5) provisions of this Article shall apply also to income derived from participation in pool joint business or international operating agency." effect of relevant provisions of India-U. K. Treaty as reproduced above is Convention applies to persons who are residents of one or both of Contracting States by operation of paragraphs (1)(f) and (2) of article 3 of Convention. It is found said partnership, partners of which are registered in U. K. is not person treated as taxable unit under taxation laws in force in U. K. Under section 2(31)(iv) of Income-tax Act, 1961, person includes firm. Under section 2(23)(i) thereof firm shall have meaning assigned to it in Indian Partnership Act, 1932, and shall include limited liability partnership as defined in Limited Liability Partnership Act, 2008. provisions of Indian Partnership Act, 1932, in particular sections 4 and 69 when applied for purpose of determining whether said partnership is firm within meaning of said Act, leads this court to conclude in affirmative. That obviates necessity of applicability of provisions of Limited Liability Partnership Act, 2008. Once it is found said partnership is firm under section 2(23)(i) of Income-tax Act, 1961, it becomes person under section 2(31)(iv) of said Act, attracting operation of paragraph (2) of article 3 of said Convention. Such conclusion is inescapable as Revenue must bring charge of income-tax against person under section 4 of Income-tax Act, 1961. Revenue in treating said partnership as assessee and seeking to assess income of it which had escaped assessment is for purpose of charging tax on income of said partnership, treating it as person liable to be charged with levy of income-tax under said section. In doing so Revenue has to treat said partnership as person within definition provided of person under section 2(31)(iv) of said Act. Thus, Revenue's case said partnership is not covered by said Convention fails. Inasmuch as in facts and circumstances aforesaid it would be unjust to compel said partnership or petitioners to submit themselves to assessment sought by impugned notice, writ petition succeeds. impugned notice dated March 25, 2004, issued under section 148 of Income- tax Act, 1961, to P & O Nedlloyd (partnership) is set aside and quashed. There will, however, be no order as to costs. W. P. No. 458 of 2005 This writ petition contains challenge to notices all dated March 25, 2004, issued under section 148 of Income-tax Act, 1961, on P & O Nedlloyd (partnership) requiring said partnership to deliver returns for their income for assessment years 1998-99, 1999-2000, 2000-01 and 2001-02. This writ petition stands decided in terms of judgment delivered in W. P. No. 457 of 2005 (P & O Nedlloyd Ltd. and others) and impugned notices are set aside and quashed. Urgent photostat certified copy of this judgment, if applied for, be given to parties on usual undertakings. court: Mr. Chowdhury, learned advocate appearing on behalf of Revenue, prays for stay of operation of judgment delivered. prayer is considered and refused. *** P and O Nedlloyd Ltd. v. Assistant Director of Income-tax (International Taxation)
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