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Income Tax Appellate Tribunal, ‘D’ BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI RAMIT KOCHAR
आदेश /O R D E R
PER N.R.S. GANESAN, JUDICIAL MEMBER: This appeal of the assessee is directed against the order passed by the Assessing Officer passed consequent to the direction of the Dispute Resolution Panel dated 15.09.2017 and pertains to the assessment year 2013-14.
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There is a delay of 31 days in filing the appeal before this Tribunal. The assessee has filed a petition for condonation of delay. Having heard the Ld. representative for the assessee and the Ld.DR, this Tribunal finds that there was reasonable cause on the part of the assessee for not filing the appeal before the stipulated time. Therefore, the delay of 31 days is condoned and the appeal is admitted.
Shri B. Ramakrishnan, the Ld. Representative for the assessee submitted that in the course of assessment proceeding, the Assessing Officer referred the matter to the Transfer Pricing Officer (TPO) for determination of Arm’s Length Price in respect of international transactions. However the TPO found that no adjustment was required to the international transaction carried by the assessee. The Assessing Officer subsequently passed a draft assessment order on 30.12.2016 accepting the income returned by the assessee. While accepting the returned income of the assessee, the Assessing Officer found that the assessee is not eligible for the benefit of the treaty. According to the Ld.AR, the assessee is eligible for the benefit under the Indo Cyprus Double Taxation Avoidance Agreement. The Assessing Officer found that the assessee is not
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eligible for the benefit under the Indo Cyrus DTAA. Therefore, the assessee filed an objection before the Dispute Resolution Panel (DRP). The DRP by their order dated 15.09.2017 found that since no variation was made U/s.144 of the Income Tax Act, 1961 (in short ‘the Act’), the objection filed by the assessee was beyond the scope of the power of the DRP. According to the Ld.AR, when the DRP categorically found that they have no power to adjudicate the issue when there was no variation made by the DRP / Assessing Officer, they cannot proceed further to make observation that the assessee is not the beneficial owner of the royalty. Observation of the DRP that the assessee is not a beneficial owner is beyond the power of the DRP. Moreover this issue does not arise for consideration during the year under consideration since there was no variation with regard to international transactions. On a query from the Bench, when there was no variation how the assessee was aggrieved by the order of the DRP and the assessment order, the Ld.AR submitted that the observation of the Assessing Officer / DRP that the assessee is not the beneficial owner of the royalty would affect the right of the assessee in the subsequent years. Whether the assessee is a beneficial owner of the royalty or not needs to be determined when there was a variation in the international transactions. Since
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admittedly there was no variation in the international transactions, there was no question of deciding whether the assessee is a beneficial owner of the royalties or not. According to the Ld.AR, when the Assessing Officer as well as the DRP found that there was no variation in the international transactions, the Assessing Officer ought to have passed an order on or before 31.12.2016. In this case, the assessment order was admittedly passed on 28.09.2017 which is beyond the time limit prescribed U/s.153 of the Act. The extended time limit U/s.144C(13) of the Act is available to the Assessing Officer, when there was a variation in the international transactions. In the absence of any variation, the Assessing Officer cannot avail the extended period of limitation for passing the order U/s.144C(13) of the Act. The Ld.AR further submitted that since the returned income was admitted without any variation, technically the assessee has no grievance with the assessment order. However the issue whether the assessee is beneficial owner of the royalty or not, would be kept open to be decided subsequently, in the year in which the actual variations arises for consideration in the international transactions.
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On the contrary, Shri M. Srinivasa Rao, the Ld. Departmental Representative submitted that the assessee is an eligible assessee U/s.144C of the Act. Therefore, the Assessing Officer found that the assessee is not the beneficial owner of the royalties. Hence, the assessment order is passed within the time frame consequent to the direction of the DRP.
We have considered the rival submissions on either side and perused the material available on record. We also carefully gone through the Section 144C of the Act, which reads as follows:
“144C. REFERENCE TO DISPUTE RESOLUTION PANEL (1) The Assessing Officer shall, notwithstanding anything to the contrary contained in this Act, in the first instance, forward a draft of the proposed order of assessment (hereafter in this section referred to as the draft order) to the eligible assessee if he proposes to make, on or after the 1st day of October, 2009, any variation in the income or loss returned which is prejudicial to the interest of such assessee. (2) On receipt of the draft order, the eligible assessee shall, within thirty days of the receipt by him of the draft order,- (a) file his acceptance of the variations to the Assessing Officer ; or (b) file his objections, if any, to such variation with,- (i) the Dispute Resolution Panel ; and (ii) the Assessing Officer. (3) The Assessing Officer shall complete the assessment on the basis of the draft order, if- (a) the assessee intimates to the Assessing Officer the acceptance of the varia-tion ; or
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(b) no objections are received within the period specified in sub-section (2). (4) The Assessing Officer shall, notwithstanding anything contained in section 153, pass the assessment order under sub-section (3) within one month from the end of the month in which,- (a) the acceptance is received ; or (b) the period of filing of objections under sub-section (2) expires. (5) The Dispute Resolution Panel shall, in a case where any objection is received under sub-section (2), issue such directions, as it thinks fit, for the guidance of the Assessing Officer to enable him to complete the assessment. (6) The Dispute Resolution Panel shall issue the directions referred to in sub-section (5), after considering the following, namely :- (a) draft order ; (b) objections filed by the assessee ; (c) evidence furnished by the assessee ; (d) report, if any, of the Assessing Officer, Valuation Officer or Transfer Pricing Officer or any other authority ; (e) records relating to the draft order ; (f) evidence collected by, or caused to be collected by, it ; and (g) result of any enquiry made by, or caused to be made by, it. (7) The Dispute Resolution Panel may, before issuing any directions referred to in sub- section (5),- (a) make such further enquiry, as it thinks fit ; or (b) cause any further enquiry to be made by any income-tax authority and report the result of the same to it. (8) The Dispute Resolution Panel may confirm, reduce or enhance the variations proposed in the draft order so, however, that it shall not set aside any proposed variation or issue any direction under sub-section (5) for further enquiry and passing of the assessment order. (9) If the members of the Dispute Resolution Panel differ in opinion on any point, the point shall be decided according to the opinion of the majority of the members. (10) Every direction issued by the Dispute Resolution Panel shall be binding on the Assessing Officer.
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(11) No direction under sub-section (5) shall be issued unless an opportunity of being heard is given to the assessee and the Assessing Officer on such directions which are prejudicial to the interest of the assessee or the interest of the Revenue, respectively. (12) No direction under sub-section (5) shall be issued after nine months from the end of the month in which the draft order is forwarded to the eligible assessee. (13) Upon receipt of the directions issued under sub-section (5), the Assessing Officer shall, in conformity with the directions, complete, notwithstanding anything to the contrary contained in section 153, the assessment without providing any further opportunity of being heard to the assessee, within one month from the end of the month in which such direction is received. (14) The Board may make rules for the purposes of the efficient functioning of the Dispute Resolution Panel and expeditious disposal of the objections filed under sub- section (2) by the eligible assessee. (14A) The provisions of this section shall not apply to any assessment or reassessment order passed by the Assessing Officer with the prior approval of the Commissioner as provided in sub-section (12) of section 144BA. (15) For the purposes of this section,- (a) "Dispute Resolution Panel" means a collegium comprising of three Commissioners of Income-tax constituted by the Board for this purpose ; (b) "eligible assessee" means,- (i) any person in whose case the variation referred to in sub-section (1) arises as a consequence of the order of the Transfer Pricing Officer passed under sub-section (3) of section 92CA ; and (ii) any foreign company.
The Assessing Officer has to pass the draft assessment order, if he proposes to make any variations in the income or loss returned, which is prejudicial to the interests of the assessee. In this case, admittedly there was no variation made to the returned income. In other words, the Assessing Officer accepted the returned income without any variation. The Assessing Officer observed in the
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assessment order, the assessment is prejudice to the interest of the assessee. Therefore, the draft assessment was made. In fact the Assessing Officer made a note in the draft assessment order which reads as follows: “Note: Since the assessment is prejudicial to the interest of the assessee, a foreign company, a draft assessment order is passed as per section 144C(1) of IT Act 1961. On receipt of the draft order assessee has option either to file his acceptance of the variation to the AO or file its objections with DRP and the AO. If no objections are received within the time prescribed u/s 144C(2) of IT Act 1961, the undersigned will proceed to complete the assessment as per law.”
In the above note, the Assessing Officer expected the assessee to file his acceptance of the variations to the Assessing Officer or file his objection with the DRP and the Assessing Officer. Admittedly, there was no variation to the international transactions made by the assessee. Therefore, there is no question of any acceptance or objection by the assessee. The assessee is aggrieved only by the observation of the Assessing Officer that the assessee is not a beneficial owner of the royalty. The issue that the assessee is a beneficial owner of the royalty or not may not be an issue arises for consideration during the year under consideration. The assessee may be one of the eligible assessee within the meaning of Section
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144C(15) of the Act, since the assessee being a foreign company. Even though the assessee is an eligible assessee, there is no variation to the international transactions. Therefore there cannot be any prejudice to the interests of the assessee. In such circumstances, this Tribunal is of the considered opinion that passing of the draft assessment order itself is not warranted. Section 144C(1) of the Act mandates the Assessing Officer to pass draft assessment order after first day of October 2009, in case there was any variation in the income or loss returned which is prejudicial to the interests of the assessee. In this case, there was no variation in the income or loss returned by the assessee. Admittedly, the income returned by the assessee was accepted by the Assessing Officer. Therefore, there is no question of any prejudice to the assessee. Hence the Assessing Officer is not expected to pass any draft assessment order. As rightly submitted by the Ld.AR, the Assessing Officer has to pass an order within 33 months from the end of the relevant assessment order. Admittedly 33 months from the end of the assessment order falls on 31.12.2016. In this case, admittedly the assessment order was passed on 28.09.2017, which is beyond the period of limitation.
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We have carefully gone through the direction of the DRP. The DRP at page 2 of its order as observed as follows:- “Panel: It is seen that the only ground filed pertain to application of tax rate at 25% as per section 115(1)(b) of the Act. The scope of ‘Reference to Dispute Resolution Panel is as per sub-section 2 of section 144C of the Act i.e. the assessee can file his objections only in relation to such “variation” as is referred to in sub section 1 of section 144C. Sub-section 1 of section 144C refers to ‘any variation in the income or loss returned’ as made by the Assessing Officer as is prejudicial to the interest of the assessee. The above objection do not relate to any such variation made by the AO in income or loss as returned by the assessee in its return for AY 2012-13. So, the above objection cannot be adjudicated by this Panel, being beyond its scope of powers. Accordingly, the objection is not accepted.
Without prejudice to the above and notwithstanding the rejection of the objection as above the Panel agrees with the AO in his findings that the assessee is NOT the “beneficial owner” of the Royalties. The AO has elaborately discussed the issue with reference to the facts of the case and with reference to Indo Cyprus DTAA Article 12. Considering the abov4e even on merits of the case the assessee has no case. Grounds dismissed.”
When the DRP found that the objection did not relate to any variation by the Assessing Officer in the income or loss returned by the assessee and it is beyond the scope of its power, it cannot proceed further to observe that the assessee is not a beneficial owner of the royalty. The question of benefits under the Indo Cyprus DTAA and whether the assessee is beneficial owner or not for the royalty could
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be adjudicated when the DRP has power to adjudicate the objection of the assessee. When the DRP was clear in their mind that the objection of the assessee could not be adjudicated, then there cannot be any question of making further observation with regard to beneficial ownership of the royalty. Therefore this Tribunal is of the considered opinion that the DRP has exceeded its jurisdiction in making such an observation with regard to beneficial ownership of the royalty. Therefore the observation with regard to beneficial ownership of the royalty cannot be a binding precedent in the subsequent years to come. Accordingly the finding / observation of the DRP that the assessee is not a beneficial owner of the royalty and the assessee is not eligible for the benefit of Indo Cyprus DTAA are set aside. However the issue whether the assessee is eligible for benefits of Indo Cyprus DTAA and whether the assessee is a beneficial owner of royalty or not are kept open to be decided by the appropriate authorities in the year in which the variations in the international transactions are to be made. With the above observation, the appeal of the assessee stands allowed.
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In the result, the appeal filed by the assessee stands allowed.
Order pronounced in the court on 17th January, 2020 at Chennai.
Sd/- Sd/- (र�मत कोचर) (एन.आर.एस. गणेशन) (N.R.S. Ganesan) (Ramit Kochar) �याियक सद�य/Judicial Member लेखा सद�य /Accountant Member चे�ई/Chennai, �दनांक/Dated, the 17th January, 2020. RSR आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3. आयकर आयु�त (अपील)/CIT(A) 4. आयकर आयु�त/CIT 5. �वभागीय ��त�न�ध/DR 6. गाड� फाईल/GF