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Income Tax Appellate Tribunal, DELHI BENCH “D”: NEW DELHI
Before: SHRI AMIT SHUKLA & SHRI PRASHANT MAHARISHI
INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “D”: NEW DELHI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA No. 6094, 6095 and 6096/Del/2013 (Assessment Years: 2002-03 to 2004-05) DDIT, Vs. World Sport Nimbus Pte Ltd, Circle-2(1), (now M/s. Nimbus Sports International Taxation, International PTe Ltd), New Delhi Shri Roshan Thapa Nimbus Communications Limited Nimbus centre Obero Complex Andheri ( West) Mumbai – 53 PAN: AAACW4983D (Appellant) (Respondent)
Revenue by : Shri K. Hauthang, Sr. DR Assessee by: None Date of Hearing 14/03/2019 Date of pronouncement 28/05/2019
O R D E R PER PRASHANT MAHARISHI, A. M. 1. These are the three appeals filed by the revenue against the order of the ld CIT(A)-XXIX, New Delhi dated 09.09.2013 for the Assessment Year 2002-03 to 2004-05 2. The revenue has raised the following grounds of appeal in ITA No. 6094/Del/2013 for the Assessment Year 2002-03:- “5. Whether on the facts and in the circumstances of the case, the Ld. CIT (A) has erred in deleting penalty u/s 271(1)(c) of the Income Tax Act, 1961 („the Act‟) imposed by the Assessing Officer 1(a) The Ld. CIT(A) has erred in holding that the Assessing Officer has not pointed out which particulars of income have been inaccurately furnished, ignoring the specific findings and detailed discussion to this effect in the penalty orders u/s 271(1)(c). 1(b) The Ld CIT(A) has erred in not appreciating the fact that the case of the assessee is squarely covered by Explanation 1 to section 271(1)(c) of the Act in view of the categorical findings of the Page | 1
Assessing Officer that the assessee has failed to establish the bona fides of explanation offered by it and that all facts material to the computation of its income were disclosed by it. 1(c) The Ld CIT(A) has erred in holding that the assessee had disclosed all material facts necessary for its assessment in that the entire receipts from M/s Prasar Bharti were disclosed in the returns, not appreciating the fact that: v) the returns were filed by the assessee not voluntarily but in response to notices u/s 142(1) of the Act and after persistent follow-up action by the Assessing Officer vi) the returns were filed declaring nil taxable Income on a legally and factually unsustainable claim that the entire receipts were in the nature of Business Income and were not taxable in India in the absence of a Permanent Establishment (PE) in India. 1(d) The Ld CIT has erred in holding that two views were possible with regard to characterization of income and that the assessee has only taken one of the plausible views, not appreciating the fact that the receipts from M/s Prasar Bharti were clearly in the nature of FTS liable to tax in India, as held consistently by both the appellate authorities, and not amenable to two possible views. The fact that further appeal before High Court has been filed by the assessee referring a Substantial Question of Law is no bar to the levy of penalty as held in the case of Apex Urban Co-op Bank of Maharashtra & Goa Ltd [judgment dated 18.09.2013 of Hon‟ble ITAT, Mumbai in ITA No. 3003/Mum/2013], 1(d) The Ld CIT(A) has erred in relying upon the decision of the Hon‟ble High Court in the case of M/s Reliance Petroproducts [(2010) 322 ITR 158] in deleting the penalty, not appreciating the fact that the ratio of the said case is applicable only in cases where there is a bona fide difference of opinions with regard to admissibility of a claim and all material facts related thereto and disclosed in the ITR voluntarily by the assessee and not the cases where the claim of the assessee is patently untenable and material facts related thereto are not voluntarily disclosed.”
Brief facts of the case shows that assessee is a company Incorporated under the Singapore companies act on 21/3/2000. The business of Assessee Company is of sports coverage/production and distribution and/or evens management and/or of sponsorship. It is a 50- 50% joint venture between the World Sports Group Company incorporated under the laws of the BVI and Nimbus Communication Worldwide Ltd a company incorporated under the laws of Mauritius.
We have been informed by the ld Departmental Representative that these are the appeals against the order of ld CIT (A) who has deleted penalty levied u/s 271(1) (c) of the Act levied by the ld AO. The facts for all these three years are identical except the amount of penalties involved. 5. Therefore, we first state the facts for AY 2002-03. The facts for assessment year 2002 – 03 shows that assessee was issued notice u/s 142 (1) of the income tax act on 26/3/2003 requiring it to furnish its return of income as assessee did not file any voluntary return of income. A notice u/s 133 (6) of the act was also issued on 18/7/2003. Assessee in response to notice u/s 142(1) filed its return of income on 21/11/2003 declaring Nil income. Notice u/s 143 (2) was issued on 24/11/2004. 6. Factual matrix of issue in dispute is that assessee entered into a contract with Prasar Bharti for production of TV feed of cricket matches to be held in India for the period 2002 to 2004 and earned a revenue of Rs. 284182470/–. The assessee requested The Assistant Director Of Income Tax (International Taxation), Mumbai for issue of a certificate under section 197 (1) of the income tax act 1961 permitting Prasar Bharati to make payment to the assessee company without deduction of tax at source in India. The AO as per his order dated 11/2/2003 passed an order u/s 197 (1) of the income tax act, held that profit should be estimated at 10% of gross receipts on which tax at 4.2%, including surcharge should be deducted at source. Though the total contract was for 81 days of play, out of which 15 days of play under the India vs Zimbabwe series was covered during financial year 2001 – 02. On pro rata basis, revenue for 15 days was determined at INR 52626383/– which was held to be the revenue accrued to the assessee during the financial year 2001 – 02. During the course of assessment proceedings, assessee was asked how the above income is not chargeable to tax in India as assessee has filed nil return of income. The assessee explained that it does not have a permanent establishment in India and further its income is also not chargeable to tax under the provisions of Income Tax Act. The learned assessing officer noted that in pursuance of the terms of the agreement it is evident that payment was made to the assessee for rendering of technical services involved in production of live television signals for international quality meeting the specification and
which was acceptable to the international broadcaster for the coverage of international cricketing events to be played in the territory conducted by the board of control for Cricket in India during the period February 2002 to 2004. According to the AO the provision of the services is technical and highly specialized job which requires substantial amount of knowledge, experience as well as supporting sophisticated equipments. He noted that as assessee is specialized in providing the services which is evident from the prequalification bid filed by it before Prashar Bharti. He also noted that assessee has been managing all international cricket television rights for Cricket for the year 2000 – 2006 including the entire production of ICC World Cup 2003 and all other ICC tournament. The production of TV signals for Cricket matches being specialized in technical job which Prasar Bharti could not perform on its own, which were invited from technically competent and experienced companies. In view of this, he held that it is evident that the nature of services provided by the assessee falls within the purview of explanation – 2 to section 9 (1) (vii) of the income tax act and is chargeable to tax in India. He further held that the nature of the services provided by the assessee also false within the purview of clause 4 of article 12 of The Double Taxation Avoidance Agreement and is hence chargeable to tax. He also considered the provisions of article 7 of the Double Taxation Avoidance Agreement between India and Singapore and held that assessee has a permanent establishment in India; therefore, income of the assessee from the above receipts attributable to the permanent establishment in India is taxable as business profits. Therefore applying the rule of force of attraction in case of the assessee as per which all income arising from all sources in the country, where the foreign company maintains a permanent establishment , he held that it is subject to tax in that country. He held that income earned by the assessee directly or indirectly attributable to the permanent establishment is taxable in India. As the assessee did not furnish any basis for attribution of profit of the above income to the permanent establishment India, he applied the provisions of rule 10 of the Income Tax Rules and 20% net profit rate was applied by him. Accordingly he held that the total income accrued to the assessee of INR 52626383/– is taxable at the rate of 20%. The AO further enquired about the copies of all
invoices raised by it against payments received by it from various parties in India. The assessee submitted that amount of US dollar 1646982 was also the amount of remuneration it received from Coca-Cola India private limited, Seagram manufacturing Ltd, Hero Honda motors Ltd and Nimbus Communications Ltd. The learned assessing officer applied the conversion rate of Rs 48.77 per US dollar and determined the total revenue of INR 80323312/– and applied 20% profit attribution thereon amounting to INR 1 6064662/– . He further held that 50% of the above profit is attributable to the permanent establishment in India since the source of these receipts lies in India. Accordingly he charged to tax INR 8032331/– as business income of the assessee. Accordingly he held that total gross fee received from Prasar Bharti of INR 5 2626383/– is chargeable to tax in India at the rate of 20% amounting to INR 10525276/– and further total income from receipts outside India of INR 8032331/– was also chargeable to tax at the rate of 48 % amounting to INR 3855518/–. Accordingly total tax payable was determined at INR 1 4380794/–. Consequently assessment order u/s 143 (3) of the income tax act was passed on 21/2/2005. Similar Orders were also passed for assessment year 2003 – 04 and 2004 – 05 subject to the amounts mentioned in respective years. 7. The assessee preferred appeals before the Commissioner of income tax – (Appeals) - XXIX, New Delhi, who dismissed those appeals by a common order dated 27/3/2008 for all the 3 years. 8. The assessee preferred the appeal before the coordinate bench who vide order dated 30/9/2011 held that a. Assessee does not have a permanent establishment in India during these 3 years. b. Advertisement revenue has no attribution to India and in the absence of any permanent establishment could not therefore be taxed in India. c. that the amount received from Prasar Bharti were in the nature of fees for technical services and should be taxed at the rate of 10% in view of paragraph number 2 of article 12 of Double Taxation Avoidance Agreement between India and Singapore as against 20% rate of tax applied by the learned assessing officer by having recourse to the
provisions of section 44B read with section 115A of The Income Tax Act 1961. 9. The assessee aggrieved with the order of the coordinate bench preferred the appeal before the honourable Delhi High Court wherein the following substantial question of law were referred ;- „ (i) whether on the facts and in the circumstances of the case, was the tribunal justified in law in holding that the payments received by the appellant from Prasar Bharti were in nature of fees for technical services as per paragraph – 4 of article 12 of Double Taxation Avoidance Agreement between India and Singapore? (ii) if the answer to the above question is in the negative, will the payments received by the appellant from Prasar Bharti be treated as business receipts?‟ 10. The revenue was also aggrieved with the order of the coordinate bench on the issue of the permanent establishment which has been decided against the revenue therefore it also filed an appeal under section 260A of the income tax act. The appeals of the revenue have also been admitted by the honourable High Court along with the appeals of the assessee and the following substantial question of law has been framed for answer:- (i) Whether the nature of activities and income earned by the assessee is business income and should be taxed as business income or fees for technical services? (Question of rate of tax is also included in this question) (ii) Whether the income tax appellate tribunal was right in holding that the assessee does not have permanent establishment in India under article 5 of the Double Taxation Avoidance Agreement between India and Singapore? 11. Meanwhile as the penalty proceedings were initiated in respect of the above addition, which was kept in abeyance till the disposal of the appeal by the tribunal, was proceeded with. Subsequently the penalty proceedings continued on receipt of the order of the coordinate bench. Assessee was asked to submit its reply to that.
Assessee explained that all the particulars of income had been correctly disclosed in its return of income. The taxability of its receipts arises due to the difference of opinion between the assessee and the Department and therefore this cannot be regarded as concealment or furnishing inaccurate particulars of income. The assessee also supported its arguments by various decisions of the coordinate benches, honourable high courts and honourable Supreme Court and argued that these judgments are binding on the authorities below. 13. The learned AO rejected the explanation of the assessee noted that assessee has never offered its income for taxation in India knowing fully well that it ought to do so. Therefore it cannot now plead ignorance. The assessee was also assisted by the battery of legal and tax experts. He further noted that assessee is still maintaining that its income is not taxable in spite of finding of 2 appellate authorities to the contrary. He further noted that assessee‟s taxable income would have gone untaxed had it not been picked up for the scrutiny. Therefore he noted that it is a definite case made out for furnishing inaccurate particulars of income having regard to earning of fees for technical services in India. Therefore he noted that assessee has concealed its income and has furnished inaccurate particulars of the income. Accordingly he levied penalty of INR 5262638 by passing an order u/s 271 (1) ( C ) of the income tax act on 27/7/2012 for assessment year 2002 – 03 holding that assessee has furnished inaccurate particulars of its income. 14. Similarly the penalty u/s 271 (1) (C ) for assessment year 2003 – 04 of INR 7642736/– and for assessment year 2004 – 05 of INR 7016852/– was levied. 15. The assessee preferred the appeal before THE COMMISSIONER OF INCOME TAX (APPEALS) – XXIX, New Delhi who passed a consolidated order for all these 3 years on 9/9/2013 quashing the penalty orders. Therefore the learned assessing officer aggrieved, has preferred this appeal. 16. As per the letter dated 5/1/2016 on the file shows that there is a different address at which notices were required to be sent. The registry sent to the notices at those addresses despite that on the appointed date of hearing
none appeared on behalf of the assessee and therefore the issues are decided on the merits of the case as per information available on record. 17. The learned departmental representative vehemently supported the order of the learned assessing officer and stated that the learned CIT – A has deleted the penalty ignoring the specific findings in the detailed discussion made by the learned assessing officer in the penalty orders passed u/s 271 (1) ( C ) of the act. a. He further submitted that the learned CIT – A has erred in holding that there are two views possible with regard to the characterization of income and that assessee has only taken one of the plausible views without appreciating the fact that the receipts from the Prasar Bharti were clearly in the nature of the fees for technical services liable to tax in India and same view has been consistently adopted by both the appellate authorities and therefore there are no two possible views on the issue. b. He further submitted that the learned CIT – A has also erred in relying upon the decision of the Reliance Petro Products without appreciating the fact that the ratio of the said case is applicable only in cases where there is a bona fide difference of opinion with regard to admissibility of claim and all material facts related thereto are disclosed in the income tax return voluntarily filed by the assessee. Here assessee did not file any voluntary return of income. He therefore submitted that the order of the learned CIT – A it deserves to be set aside and the order of the learned assessing officer needs to be restored. 18. We have carefully considered the rival contention and perused the orders of the lower authorities. The learned assessing officer levied penalty holding that the payment received from Prashar Bharti is the income in the nature of fees for technical services. On looking at the assessment order passed u/s 143 (3) of the income tax act the assessing officer has treated the same income as fees for technical services as per page number 7 of the assessment order. The total income accrued to the assessee of INR 5 2626383/– is taxable at the rate of 20% as held by the assessing officer. However we do not find in the assessment order itself that AO has recorded
any satisfaction with regard to the fact that the assessee has furnished inaccurate particulars of income or has concealed the income. The learned assessing officer has merely stated that the penalty proceedings u/s 271 (1)( c) may be initiated separately. Therefore, there is no specific charge in the assessment order with respect to the satisfaction about the fault committed by the assessee. Further On the basis of the facts narrated above, the learned CIT – A has deleted the penalty holding as under:- “5.1 I have carefully gone through various submissions of the appellant; the relevant facts are that the appellant is in receipt of payment from Prasar Bharati in pursuance of the contract under which the appellant is required to produce live television feed for cricket matches. The appellant approached the AO for issuance of nil deduction certificates. However the AO vide order under section 197 (1) dated 11/2/2003 held that the appellant has a service permanent establishment in India and the payments are in nature of business receipts. The appellant filed its return of income declaring therein nil income under belief that it does not have a permanent establishment in India and therefore its business receipts are not taxable in India. In assessment order u/s 143 (3), the AO held that the appellant has a fixed place PE in India and its receipts are in the nature of fees for technical services which is taxable on gross basis at the rate of 20% u/s 44D read with section 115A of the act. The learned CIT – A confirm the finding of the AO. Honourable ITAT held that there is no permanent establishment in India and receipts which are in the nature of fees for technical services are taxable at the rate of 10% on gross basis under relevant Double Taxation Avoidance Agreement. Both the appellant and department are in appeal before the honourable Delhi High Court and the question of law has been framed as mentioned supra.
5.2 The AO has observed in his penalty order that the appellant has concealed and furnished inaccurate particulars of its income. But the AO has not pointed out which particulars of income have been inaccurately furnished. It has been noted that the appellant has approached the AO for nil TDS certificate. Obviously, the proposed payments and contract under which the payments were to be received was placed before the AO. The AO in his order u/s 197 (1) took the view that there exists service PE and receipts are in the nature of business income. The appellant filed its return of income declaring nil taxable income. The returns were accompanied by audited financial statements and entire receipts from Prasar Bharati were disclosed therein. The appellant appended a note in the return of income wherein it has been claimed that its receipts are business income and as it has no permanent establishment in India and therefore business income is not taxable in India. Therefore it is seen that the appellant has disclosed all the material facts necessary for its assessment. However, characterization of receipt and existence of permanent establishment in India remains contentious issues which travelled from AO to honourable Delhi High Court. Therefore at the most, it can be said that two views were possible with regard to characterization of income and existence of permanent establishment and the appellant has taken one of the plausible views. 5.3 The AO has invoked the provisions of explanation 1 to section 271 (1) (c) but has not established how the present case is covered by those provisions. The AO has not mentioned which explanation offered by the appellant was found to be false or could not be substantiated by the appellant. The AO has not pointed
out which vital material facts necessary for computation of income has not been disclosed by the appellant. It is a case where from a given set of facts, the appellant, the AO and appellate authorities have taken different views. 5.4 Various judicial authorities have consistently held that levying penalty u/s 271 (1) ( C ) is not automatic in every case where additions are made in assessment order. For levying of such penalty the case must fall strictly in the four corners of provisions of section 271(1) (C ) . This settled position of law has not changed even after the honourable Supreme Court decision in case of Dharmendra Textile processors. Wherever evidence is good for assessment purpose may not be good for levying penalty u/s 271 (1) (C). This view is supported by various case laws relied upon by the appellant. Honourable Supreme Court in case of Reliance Petro Products (supra) has clearly laid down that any claim made by the appellant but not found sustainable by the AO does not by itself lead to concealment penalty. 5.5 In view of the discussion supra, I hold that the appellant deserves to succeed and hence impugned penalty is passed. All the grounds of appeal pertained only one issue of penalty levied u/s 271 (1) (c) and therefore all grounds of appeal are allowed in favour of the appellant.” 19. Whether the issue is debatable or not, is the moot question which needs to be answered in this case. Admittedly all the appellate authorities have taken a view against the assessee, therefore ld AO is right in holding that when the concurrent appellate authorities have upheld the views of the AO, and there is no question of having two opinions on the issue. However the Honourable Delhi High court in the case of the assessee has admitted substantial question of law on these issues arising out of the appeal of the AO as well as Assessee. We have also noted that the honourable Delhi High Court has admitted these appeals of the revenue as well as the assessee on
quantum proceedings for these years in ITA number 290, 291, 292, 394, 404 and 405/2012 as per order dated 22/8/2013 framing substantial questions of law for adjudication. The honourable Delhi High Court in ITA number 240/2009 in COMMISSIONER OF INCOME TAX VS LIQUID INVESTMENT LTD wherein it has been held that when the substantial question of law has been admitted by the honourable High Court for its adjudication the issue becomes debatable. In the present case also the quantum appeals have been admitted by the honourable Delhi High Court therefore, even if the lower authorities have concurrently decided an issue taking same view, the issue becomes debatable. On such a debatable issue penalty cannot be levied. We also found that the ld CIT (A) has correctly relied up on the decision of Honourable supreme court in case of Reliance petro products Limited (322 ITR 158 ) in deleting the penalty. The Honourable Supreme Court has held that otherwise it would be that in every case of return where the claim made by the assessee is not accepted by the assessing officer for any reason it will invite the penalty u/s 271 (1) (C) which is not the intention of the legislature. Therefore respectfully following the decision of the honourable Delhi High Court in CIT vs liquid investment Ltd (supra), we confirm the order of the learned CIT – A in deleting the penalty levied u/s 271 (1) ( C ) of the income tax act. 20. Accordingly appeals filed by the learned AO for all 3 years are dismissed. Order pronounced in the open court on 28/05/2019. -Sd/- -Sd/- (AMIT SHUKLA) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 28/05/2019 Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi