Mphasis Australia Pvt. Ltd. v. The ACIT International Taxation Circle 1(2), Bengaluru / The Addl. CIT Range-I, Bengaluru/ The DCIT (International Taxation) Circle 1(1), Bangalore
[Citation -2017-LL-1121-17]

Citation 2017-LL-1121-17
Appellant Name Mphasis Australia Pvt. Ltd.
Respondent Name The ACIT International Taxation Circle 1(2), Bengaluru / The Addl. CIT Range-I, Bengaluru/ The DCIT (International Taxation) Circle 1(1), Bangalore
Court HIGH COURT OF KARNATAKA
Relevant Act Income-tax
Date of Order 21/11/2017
Judgment View Judgment
Keyword Tags fees for technical services • deduction of tax at source • reassessment proceedings • permanent establishment • software development • reason to believe • service of notice
Bot Summary: The reopening proceedings in terms of section 147 of the IT Act 1961 does not mandate that the Departmental notification empowering the Assessing officer to assess the income of a foreign company should be provided to the Company. The reason to belief had already been formed by the Assessing officer while sending the proposal for proceedings U/s 147 of the IT Act. The information gathered during the course of proceedings u/s 201 of the IT Act, 1961 can be the basis for initiating proceedings u/s 147 of the IT Act. The reassessment proceedings for the Assessment Year 2008-2009 are admittedly pending even now before the said Assessing Authority. Firstly, not only the proceedings have been initiated way-back in the year 2015 and the proceedings are still pending before the said Assessing Authority, who is yet to decide all these objections raised by the assessee by an appropriate order, but also because the nature of objections raised before this Court do not render the proceedings as patently without jurisdiction. Even if there is difference of dates in such approval, vide Annexure-E dated 13.3.2015 on the reasons recorded by the Assessing Authority on 16.3.2015, prima facie, it may reflect premature approval on the part of the Additional Commissioner but it need not render the very initiation of proceedings as non-est or void. On the contrary, the reasons for initiation of the proceedings as assigned by the Respondent- Assessing Authority and quoted above, prima facie, indicates that the Assessing Authority had sufficient Date of Order -21-11-2017 W.P.No.


1/13 IN HIGH COURT OF KARNATAKA, BENGALURU DATED THIS 21ST DAY OF NOVEMBER 2017 BEFORE HON'BLE Dr.JUSTICE VINEET KOTHARI WRIT PETITION No.45711 OF 2017 (T-IT) BETWEEN: MPHASIS AUSTRALIA PTY. LTD. REP. BY ITS AUTHORISED REPRESENTATIVE SRI K.R.GIRISH SON OF SRI RATNA KRISHNA KALPATHI AGED ABOUT 59 YEARS C/O SEMONA CONSULTANTS SHOP NO.5, 17-19, EAST PARADE SUTHERLAND NSW 2232 AUSTRALIA. PETITIONER (BY:MR.ANNAMALAI.S, ADVOCATE FOR MR.SHANKAR.A, ADVOCATE) AND: 1. ASSISTANT COMMISSIONER OF INCOME TAX INTERNATIONAL TAXATION CIRCLE 1(2), BMTC BUILDING 80 FEET ROAD, KORAMANGALA VI BLOCK BENGALURU 560 095. 2. ADDITIONAL COMMISSIONER OF INCOME TAX RANGE-I, INTERNATIONAL TAXATION BMTC BUILDING, 80 FEET ROAD KORAMANGALA VI BLOCK BENGALURU 560 095. 3. DEPUTY COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION) CIRCLE 1(1), BANGALORE Date of Order -21-11-2017 W.P.No.45711/2017 Mphasis Australia Pty Ltd. vs. Assistant Commissioner of Income Tax and Others. . 2/13 ROOM NO.441, 4TH FLOOR BMTC BUILDING, 80 FEET ROAD KORAMANGALA BENGALURU 560 095. RESPONDENTS THIS W.P. IS FILED UNDER ARTICLES 226 & 227 OF CONSTITUTION OF INDIA PRAYING TO QUASH NOTICE ISSUED UNDER PROVISION OF SECTION 148 OF ACT ISSUED BY R1 AS ENCLOSED AND MARKED AS ANNEXURE-A VIDE DATED 16.3.2015 FOR A.Y.2008-09 AS ONE WITHOUT JURISDICTION AND ETC. THIS W.P. COMING ON FOR PRELIMINARY HEARING THIS DAY, COURT MADE FOLLOWING:- ORDER Mr.Annamalai.S, Advocate for Mr.Shankar.A, Advocate for Petitioner. petitioner assessee M/s.Mphasis Australia Pty. Ltd. has filed this Writ Petition in this Court on 4.10.2017 challenging initiation of reassessment proceedings for Assessment Year 2008-2009 under Section 148 of Income Tax Act, 1961 ( Act ). 2. reasons recorded for said reassessment proceedings and as communicated to petitioner-assessee by Respondent No.1 Assistant Commissioner of Income Tax, International Taxation, Date of Order -21-11-2017 W.P.No.45711/2017 Mphasis Australia Pty Ltd. vs. Assistant Commissioner of Income Tax and Others. . 3/13 Circle 1(2), Koramangala Bengaluru, vide Annexure-G dated 16.3.2015 are quoted below for ready reference:- Mphasis Ltd., Bengaluru ( ML / Payer Company ) is engaged in business of providing information technology solutions and services specifically tailored to meet requirements of industries such as Financial Services, Retail, Logistics & Transportation and Technology. Company enters into contracts for software development work with customers outside India and engages services of its overseas group companies i.e. Associated enterprises ( AEs ) for onsite portion of software development work. In respect of offshore portion, Assessee Company executes same in India whereas onsite portion is responsibility of AEs. In respect of onsite portion, AEs are remunerated accordingly. 1.1 ML has made payments to its foreign Associated Enterprises ( AEs) for on-site services which are in nature of software development services and for marketing of its products & services in overseas countries. On winning contract for project Date of Order -21-11-2017 W.P.No.45711/2017 Mphasis Australia Pty Ltd. vs. Assistant Commissioner of Income Tax and Others. . 4/13 ML subcontracts certain part of project to its AEs and in turn AEs are paid for services rendered to Assessee company. AEs also render marketing services in overseas countries and due to marketing efforts of AEs, if contract is won by ML, certain percentage of contract value is paid as selling commission to AEs for services rendered. It was noticed that payments, both for on- site services and marketing services were made by ML to AEs without deduction of tax at source to AEs. Further AEs had also not filed any application before Department for lower or NIL rate of deduction of tax at source. No application was also filed by AEs nor ML before Hon ble AAR seeking ruling on issue of deduction of tax at source on payments made to AEs for on-site services and selling commission. It was observed that payments made by ML to AEs for on- site services and marketing services (a.k.a. Selling Commission ) were covered by definition of Fees for technical services ( FTS ) as defined in Explanation 2 to Section 9(1)(vii) of Income Tax Act, 1961 ( Act ). sums paid by ML to AEs are therefore chargeable to tax under Act. assessee Date of Order -21-11-2017 W.P.No.45711/2017 Mphasis Australia Pty Ltd. vs. Assistant Commissioner of Income Tax and Others. . 5/13 is also one of AE of Payer company and was in receipt of FTS during previous year relevant to assessment year 2008-09. Such payments amounts to `79,17,685/-. Though payee was under obligation to file return and pay taxes as income accrued or arised in India same has not been done. Therefore I have reason to believe that due to omission or failure on part of assessee there is escapement of income and case is fit case to invoke provisions of sec.147. Issue notice U/s.148. 3. Mr.Annamalai.S, learned counsel for petitioner assessee submitted before Court that these objections of assessee have been perfunctorily decided by Assessing Authority vide communication Annexure-M dated 28.11.2016. relevant extract of that communication is also quoted below for ready reference:- 5. Without prejudice to above, objections raised by assesse are countered as under: Date of Order -21-11-2017 W.P.No.45711/2017 Mphasis Australia Pty Ltd. vs. Assistant Commissioner of Income Tax and Others. . 6/13 assessing officer is empowered to assess Income of foreign Company as per Relevant Notifications in this regard. reopening proceedings in terms of section 147 of IT Act 1961 does not mandate that Departmental notification empowering Assessing officer to assess income of foreign company should be provided to Company. Approval of Addl CIT is based on proposal of Assessing officer wherein elaborate reasons have been given. reason to belief had already been formed by Assessing officer while sending proposal for proceedings U/s 147 of IT Act. Sanction given on elaborate reasons for reopening in his report by endorsement YES would amount to his satisfaction (P.Munnirathanm Chetty Vs ITO (AP) 101 ITR 385. proceedings in reassessment begins only with issue of Notice u/s 148. It is only after service of Notice assesse becomes party to proceedings. Consequently assesse is not entitled to get copy of same at stage of issuance of notice (Vishnu Borewell Vs ITO (ORI) 257 ITR 512. Date of Order -21-11-2017 W.P.No.45711/2017 Mphasis Australia Pty Ltd. vs. Assistant Commissioner of Income Tax and Others. . 7/13 There is no statutory format prescribed for Notice u/s 148. notice sent is valid since it mentions that it is notice u/s 148 and section 148 clearly mandates that return is to be filed in response to said Notice. typographical error in notice will not vitiate proceedings. Section 147 prescribes time limit to issue Notice u/s 148, which is validly done in instant case. There is no requirement to furnish reasons within limitation period. material facts with regard to chargeability of Income received by assesse were there before assessing officer at time of recording reasons. information gathered during course of proceedings u/s 201 of IT Act, 1961 can be basis for initiating proceedings u/s 147 of IT Act. Held to be valid (Raymond Woolen Mills Ltd. Vs ITO (SC) 236 ITR 34, Muljimal N Raghavanshi (Bom) 225 ITR 586). 6. draft proposal for completing assessment u/s 144 is separately sent. Your objection, if any should be furnished by 07-12-2016, failing which assessment shall be completed accordingly. Date of Order -21-11-2017 W.P.No.45711/2017 Mphasis Australia Pty Ltd. vs. Assistant Commissioner of Income Tax and Others. . 8/13 4. learned counsel for petitioner urged that petitioner-assessee had to file further objections before said Assessing Authority, as objections raised by petitioner assessee earlier, were not considered entirely and question of jurisdiction, etc. for initiation of these reassessment proceedings were raised by assessee again vide objection letter Annexure-N dated 6.12.2016, though said document, as produced does not bear any date. reassessment proceedings for Assessment Year 2008-2009 are admittedly pending even now before said Assessing Authority. 5. Learned counsel for petitioner relying upon following decisions, however, urged that these reassessment proceedings being without jurisdiction, deserve to be quashed by this Court. (i) ITR Vol.79 603 Chhugamal Rajpal v. S.B.Chaliha (S.C.). Date of Order -21-11-2017 W.P.No.45711/2017 Mphasis Australia Pty Ltd. vs. Assistant Commissioner of Income Tax and Others. . 9/13 (ii) ITR Vol.XLI 191 Calcutta Discount Co. Ltd. v. Income-Tax Officer, Companies District I, Calcutta and Another. (iii) [2015] 64 taxmann.com 313 (SC Commissioner of Income-Tax, Jabalpur (MP) v. S.Goyanka Lime & Chemical Ltd. (iv) [2015] 64 taxmann.com 390 (SC Commissioner of Income-Tax, Jabalpur v. S.Goyanka Lime & Chemical Ltd. 6. Having heard learned counsel for petitioner-assessee, this Court is satisfied that present Writ Petition is premature and does not require any interference by this Court at this stage. This Court has dismissed similar Writ Petition filed by same Parent Company of U.S.A. M/s.Mphasis Corporation, New York, U.S.A., by separate order today (21.11.2017), viz., W.P.No.45709/2017. relevant portion of that order is quoted below for ready reference:- Date of Order -21-11-2017 W.P.No.45711/2017 Mphasis Australia Pty Ltd. vs. Assistant Commissioner of Income Tax and Others. . 10/13 4. Having heard learned counsel for petitioner- assessee, this Court is satisfied that it is premature for this Court to interfere at this stage in present reassessment proceedings. Firstly, not only proceedings have been initiated way-back in year 2015 and proceedings are still pending before said Assessing Authority, who is yet to decide all these objections raised by assessee by appropriate order, but also because nature of objections raised before this Court do not render proceedings as patently without jurisdiction. question of approval by higher authority is administrative job. Even if there is difference of dates in such approval, vide Annexure-E dated 13.3.2015 on reasons recorded by Assessing Authority on 16.3.2015, prima facie, it may reflect premature approval on part of Additional Commissioner but it need not render very initiation of proceedings as non-est or void. These proceedings cannot be quashed merely on this ground, as no prejudice is caused to petitioner by such administrative approval. 5. On contrary, reasons for initiation of proceedings as assigned by Respondent- Assessing Authority and quoted above, prima facie, indicates that Assessing Authority had sufficient Date of Order -21-11-2017 W.P.No.45711/2017 Mphasis Australia Pty Ltd. vs. Assistant Commissioner of Income Tax and Others. . 11/13 and reasonable reasons to initiate such proceedings, as certain payments were made to Associate Enterprises (A.Es.) of parent Company of U.S.A. without making suitable Tax Deduction at Source (TDS) rendering such expenses as non-admissible in hands of assessee. said reasons cannot be said to be irrelevant or non-germane for formation of reasonable belief about escapement of income as required under Section 147/148 of Act or initiation of such proceedings for bringing to tax income which has escaped assessment. 6. Therefore, this Court cannot pre-judge as to how objections of assessee in this regard will be met by Respondent-Assessing Authority. Since, admittedly, proceedings are pending as of now, no pronouncement with regard to merit of such objections can be made at this stage. 7. other objections raised by learned counsel for petitioner assessee are also peripheral in nature and do not want to go to root of matter to render such proceedings as being without jurisdiction. question whether U.S.A. Company has Permanent Establishment in India or not is certainly mixed question of fact and law and that depends upon several facts to be established by Date of Order -21-11-2017 W.P.No.45711/2017 Mphasis Australia Pty Ltd. vs. Assistant Commissioner of Income Tax and Others. . 12/13 assessee upon being questioned by Respondent Assessing Authority. process of adjudication of these facts is still underway to be established before Respondent Assessing Authority. Therefore, this Court cannot render any findings in this regard. 8. It is always safer and better to leave determination of such questions of facts at hands of Authorities created under Act upto Appellate Forums, i.e. Income Tax Appellate Tribunal, which is final fact-finding body under provisions of Income Tax Act, 1961. Cutting short of that procedure and process of assessment would amount to unnecessary interference with such proceedings, which prima facie, appear to have been validly initiated. Therefore, keeping it open for petitioner-assessee to press objections before Assessing Authority and Appellate Authorities under Act to decide these objections and adjudicate these questions of assessee at their own level, present petition is dismissed as premature and does not call for any interference by this Court. 7. In view of aforesaid reasons, this Court is of opinion that petitioner-assessee should raise objections before concerned Authorities Date of Order -21-11-2017 W.P.No.45711/2017 Mphasis Australia Pty Ltd. vs. Assistant Commissioner of Income Tax and Others. . 13/13 created under Income Tax Act including Appellate Forums and allow them to decide objections raised by petitioner-assessee at their own level, as several mixed questions of fact and law do arise in this case. Therefore, it would be premature for this Court to give any findings on objections raised by petitioner-assessee at this stage. 8. Therefore, this petition being premature is liable to be dismissed and is dismissed accordingly. No order as to costs. Copy of order be sent to Respondents forthwith. Sd/- JUDGE VGR Mphasis Australia Pvt. Ltd. v. ACIT International Taxation Circle 1(2), Bengaluru / Addl. CIT Range-I, Bengaluru/ DCIT (International Taxation) Circle 1(1), Bangalore
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