37. To sum up, the following principles can be gleaned from the decisions noticed above: (a) fresh notices of demand need not be issued every time the total income undergoes a change due to appellate or revisional orders since section 3(b)(iii) of the validating Act provides that any proceeding initiated on the basis of the notice of demand served upon the assessee before the disposal of the appeal or other proceeding may be continued in relation to that amount so reduced from the stage at which such proceedings stood immediately before such disposal; (b) a case where the assessee has paid the full amount of tax demanded by the AO pursuant to the assessment order stands on a different footing from a case where such demand was not satisfied in full and different considerations shall apply to such a case; (c) the original demand made by the AO on the basis of the assessment order is merely kept in abeyance or suspension during the entire proceedings by way of appeal or revision taken against the assessment and gets revived from inception once the assessment gets finally confirmed in those proceedings; (d) when the assessment order is finally affirmed, the doctrine of merger also applies and interest being compensatory in nature, the revenue is entitled to charge the same from the date of the original order which merged with the final appellate order; (e) as a corollary to the above, it follows that where an assessment is restored and the original demand gets revived from inception, the assessee is liable to pay interest u/s.220(2) of the Act from that date on the unpaid amount and any variation in the amount of the demand favourable to the assessee which was directed by any of the appellate authorities in the interregnum has no effect on the liability of the assessee to pay the interest.
INCOME TAX APPEAL NOS. 486/2011, 491/2011 & 492/2011
IN THE HIGH COURT OF DELHI AT NEW DELHI
RIO TINTO TECHNICAL SERVICES (to the same/similar effect order of Madras High Court in Chennai Metropolitan sewerage board)
Role of Para 3 in Article 7 of India Australia DTAA on expense allowability in computing Permanent establishment income vs. Income tax act (domestic legislation) role:
15. In view of the reasoning given above, it is not possible to agree with the conclusion and the findings recorded by the tribunal that once Article 7 applies, Section 44D read with Section 115A is not applicable. The tribunal has overlooked and not given due credence and importance to paragraph 3 of Article 7 of the DTAA. The said paragraph as noticed above, states that the provisions relating to the tax enactment on the question of deduction of expenditure are fully protected; are to be enforced and are applicable. Deduction can only be claimed in accordance with and subject to the limitations of the Act in the contracting State, i.e., India or Australia, as the case may be. In this manner, Paragraph 3 of Article 7 has given primacy to the provisions stipulated in the domestic tax legislation while computing business income under Article 7(3) in case the assessee has a PE in the non-resident country. 16. In view of the aforesaid reasoning, we have to examine the provisions of the Act to find out whether the assessee is entitled to deduction of expenses and if so, to what extent or there is any prohibition or bar for claiming a deduction under the Act. This ―question‖ is in built or a part of question No.3.
What is fees for technical services u/s 9(1)(vii): Relevant and Irrelevant factors pointed (and status in composite contract; project for construction vs allied activities;: Ericsson A.B not considered)
18. The next question, which arises for consideration is whether the income earned by the assessee is ―fee for technical services‖ within the meaning of Explanation 2 to clause (vii) of sub-section 1 of Section 9 19. The tribunal in their findings recorded in paragraph 4.3 has held that the contracts are inclusive contracts of technical nature as well as of drilling etc. It has been further observed that it cannot be said that the activities of the assessee were of purely technical nature 22. The tribunal has not specifically examined Explanation 2 to Section 9(1) (vii) and whether or not the said explanation is applicable and the income earned by the assessee is covered by the said explanation. The expression ―fees for technical services‖ has been defined in Explanation 2 to Section 9(1)(vii) to mean any consideration including lumpsum payment for rendering managerial, technical or consulting services and includes provisions of service of technical or other personnel.
23. The tribunal has also erred in holding that the extracted portion of the agreement establishes and shows that the consideration received was for a composite contract. Further, even in a case of a composite contract for supply of goods/equipment/machinery and for providing technical services, bifurcation, if already made in the contract, has to be considered and accordingly the income has to be taxed. In absence of bifurcation, an estimated allocation is justified and has to be made for the purpose of tax.
24. The payment in the present case is for furnishing of evaluation report. The fee paid is for the said purpose. To collect and collate the information and furnish evaluation report, the assessee was required and it was necessary to undertake certain tests, mapping and studies. Drilling for tests as to evaluate is to gain information and knowledge. The payment which is received is for furnishing of information and not ―business‖ income or composite income including ―business‖ income as held by the tribunal The fee received from the third party in such cases is fee for technical services, if it satisfies and is covered by the Explanation 2 to Section 9(1)(vii). The payment made is to acquire technical information. Therefore it is ―fee for technical services‖. It will be immaterial whether the assessee had acquired and gained the said technical information because of business or trading activity or after conducting tests, mapping etc. The nature and character of the information furnished and for which the fee or consideration is paid is the relevant criteria for deciding whether or not Explanation 2 to Section 9(1)(vii) is applicable. In the present case, as per the clauses quoted above, the fee was paid to acquire technical and managerial information.
25. At this stage, it will be appropriate to notice and decide the contention of the assessee that Explanation 2 to Section 9(1)(vii) is not applicable in view of the exclusion i.e., the expression ― fee for the technical services, but does not include consideration for any construction, assembly, mining or like project undertaken by the assessee‖. The aforesaid exclusion states that the consideration received by an assessee for construction, assembly, mining or like project has to be excluded and is not fee for technical services. The use of the word ―project‖ in the expression is relevant and significant Use of the word ―project‖ in the said expression requires and mandates that there should be construction project, assembly project or a mining project or a like project undertaken by the recipient and the consideration paid should be on the said account. It is apparent and the clauses of the agreement do not disclose that the assessee had undertaken any mining project or a construction project. There is no such finding recorded by the tribunal also
VISUAL TECHNOLOGIES INDIA PVT LTD
IN THE HIGH COURT OF DELHI AT NEW DELHI + ITA 1873/2010 11. The assessee may be eligible under Section 80 IC but the quantum of deduction is an incidental but an important aspect which must be considered and examined. The Tribunal did not examine the said aspect inspite of the factual matrix referred to and stated in the assessment order. The data and details in the assessment order remain uncontroverted and not adversely commented upon. The Tribunal without examination has upheld the order of the CIT(A), which entitles the assessee to claim deduction of Rs.83,60,017/- under Section 80-IC for the assessment year 2006-07. The question of quantum of deduction was not examined by the Tribunal. 12. Accordingly, the aforesaid question of law is answered in favour of the Revenue and against the assessee. (“Whether the Income Tax Appellate Tribunal is right in allowing the deduction of Rs.80,63,017 under Section 80-IC of the Income Tax Act,1961?.”)
IN THE HIGH COURT OF DELHI AT NEW DELHI + ITA 683/2011
RAJ KUMAR MAHAJAN 9. It is not possible to accept the contention of the learned counsel for the Revenue. We have quoted above the questionnaire and the reply furnished by the assessee. The question of deductions under Section 80IA and 80HHC were specifically examined at the time of original assessment proceedings. The respondent-assessee had justified the claim and furnished documentary evidence or proof. The quantification of the claim was justified. This is a case of change of opinion and this is not permissible as held in CIT v. Kelvinator of India (2010) 320 ITR 561 (SC) and Kelvinator of India v. CIT (2002) 256 ITR 1 (DEL). The opinion of the Assessing Officer may have been legally erroneous but this cannot be a ground for initiation of re-assessment proceedings. An erroneous decision which is prejudicial to the Revenue can be revised but the said option was not exercised. 10. The appeal is accordingly dismissed