SHRI SANJIV GHAI,NEW DELHI vs. DDIT, NEW DELHI

One Sanjiv Ghai is an individual and non-resident of India residing in United Kingdom. For the Assessment Year 2005-06 to 2010-11, he had filed the returns of income, the details of which are as follows:-

He included in such returns the professional fee received from the following Indian companies after claiming expenses.

These companies are under the control and management of the elder brother of the assessee and while making payment to the assessee, these companies have deducted tax at source u/s 194J of the Income-tax Act, 1961 (“the Act@) i.e. Fee for Professional or Technical Services and the payments after deducting the tax at source were deposited in NRO account of the assessee with the Citi Bank, New Delhi.

Subsequently, having received information from the Deputy Director of Income-tax (Investigation), Unit-II(1), Mumbai, on 21.3.2010, the AO recorded the following reasons proposing to reopen the concluded assessments for the Asstt. Years 2005-06 to 2009-10:

Assessee filed returns of income for all these years declaring therein the same income as declared in the original returns and also sought the reasons to be

Learned AO rejected the objections of the assessee to reopen the proceedings in respect of the AY 2005-06 to 2009-10 and notice u/s 143(2) of the Act in respect of the AY 2010-11. He also rejected the contentions of the assessee that all these receipts are commercial receipts received by the assessee for the services rendered outside India, as such, they are not liable for tax in India. At the same time, learned AO disallowed 90% of the expenses claimed by the assessee in his return of income. In addition to this Ld. AO made an addition of Rs. 3.25 lakhs on account of difference of receipts from Rich Kwality Products Private Limited and Rs. 5 Lacs on account of receipt from the Kwality Frozen Foods Private Limited in respect of the assessment year 2007-08, being the difference in receipts shown by the assessee as per the information received from the Investigation Wing of the department in respect of these companies. Finally, the Ld. AO assessed as income of the assessee as follows:-

In the appeal preferred by the assessee, learned CIT(A) upheld the validity of the notices u/s 148 in respect of the Asstt. Year 2005-06 to 2009-10 and the notice u/s 143(2) of the Act in respect of Asstt. Year 2010-11. In respect of the nature of the receipts, learned CIT(A) held that they partake the character of fee for technical services under Explanation 2 to Section 9(1)(vii) of the Act. On this premise, he concluded that these receipts become taxable on gross basis @ 20% as per the DTAA and the question of allowing any expenses from the gross receipt does not arise.

However, it is a matter of record that subsequently, when the rectification application was filed by the assessee, learned CIT(A) vide order dated 5.1.2015 u/s 154 of the Act held that for the first five years, viz., 2005-06 to 2009-10, the fee for technical services shall be taxable @ 20% and for the Asstt. Year 2010-11, the rate of tax shall be 15% in view of Article 13(2) of the Double Taxation Avoidance Agreement (DTAA) between India and UK.

Contending that under DTAA, the FTS is taxable only at 15% for all the years under appeal, the assessee has filed another rectification application u/s 154 of the Act requesting the CIT(A) to modify the order. It is submitted that such a rectification application is still pending.

Assessee, therefore, filed Appeal Nos. 5681 to 5686/Del/2014 challenging the order of the learned CIT(A). The grounds in these appeals are broadly challenging the

Revenue is also aggrieved by the findings of the learned CIT(A) in the impugned order in so far as the learned CIT(A) assumed that the nature of services rendered by the assessee to the other companies are similar in respect of Baskin Robbins Franchise Co. P. Ltd. where no agreements were furnished by the assessee indicating the nature of services. According to the revenue, learned CIT(A) erred in accepting the plea that the nature of receipts in FTS instead of other sources and as declared in the return of income as well as in the return u/s 148. Therefore, the revenue also preferred appeals in respect of Asstt. Years 2005-06 to 2010-11. However, revenue’s appeal for Asstt. Year 2005-06 in ITA

Now coming to the question relating to the validity and service of notice u/s 148 /143(2), which is the subject matter of grounds 2 and 2.1 of all the appeals of the assessee, it is the contention on behalf of the assessee that merely basing on the information received from the Investigation Wing of the department and when any fresh material coming into the possession of the AO after filing of the return of income u/s 139(1) of the Act, notice u/s 148 was issued and the information from Investigation Wing does not constitute a valid reason for vitiating the re-assessment proceedings. It is argued on behalf of the assessee that the information alleged to have been received from the Investigation Wing was already in the possession of the learned AO and inasmuch as the TDS certificates relating to the receipts from the five companies revealing the gross receipts and TDS thereon were already filed with the returns or particulars thereof in Schedule TDS 2, and the quantum of expenses claimed for all these years was also to be found from the original returns. If at all, learned AO entertained any doubt about the quantum of expenses claimed or the net receipts shown in the returns, the proper course was to issue notice u/s 142(1) and 143(2) of the Act but not to resort to reopening on mere suspicion. Seeking to reopen the concluded assessment merely on the ground that there is a huge gap between the gross receipts and net receipts tantamounts to AO presuming that the conduct of business by the assessee did not incur any expenses whatsoever,

Further, basing on the decisions reported in the case of (i)CIT Vs Kelvinator of India Ltd. (2010) 320 ITR 561(SC); (ii)IOT Infrastructure & Energy Services Ltd Vs ACIT (2011) 332 ITR 587 (BOM.); (iii) CIT Vs Orient Craft Ltd. ITA No. 555 / 2012 dated 12.12.2012; (iv) CIT Vs SFIL Stock Broking Ltd. (2010) 233 ITR (Del.) 69 - Delhi High Court; (v) CIT Vs Smt. Paramjit Kaur (2009) 311 ITR 38 (P&H); (vi) GKN Driveshafts (India) Pvt. Ltd Vs ITO (2003) 259 ITR 19 (SC), the assessee objected the reopening of proceedings but without accepting them, learned AO passed the orders by placing reliance on (i) GKN Driveshaft vs ITO, 259 ITR 19 (SC); (ii) Kishore Textiles vs ITO (1995) 82 TRaxman 312 and ACIT vs Rajesh Jhaveri Stock Brokers P. Ltd., 291 ITR 500 (SC); (iii) Bawa Abhai Singh vs DCIT (2001) 117 taxman 12, Central; Provinces Manganese Ore Co. Ltd. vs IT (1991) 98 CTR SC 161, (1991) 191 ITR 662 (SC).

It is further alleged on behalf of the assessee that the assessee furnished the new address by way of letter dated 4.1.2012 filed with the learned AO on 17.1.2012. The notices were not sent to the London address of the assessee but were sent to the old address of the assessee at New Delhi. The proof of dispatch or the delivery thereof is not proper and the assessee never received the notices alleged to have been issued by the department.

Referring to the decisions relied upon by the learned AO in so far as legality of the notice u/s 148 is concerned, learned AR submitted that they have no application to the facts of the case.

Learned DR placed reliance on the orders of the authorities below and reasons given there under to uphold the legality of such notice.

We have perused the orders of the authorities below and find that all these contentions were taken by the assessee before both the authorities. In so far as issuance of service of notice was concerned, it is the observation of the learned AO that the notices to proper address with postage prepaid and sent by registered mail were not received back in his office unserved, as such, a presumption u/s 27 of the General Clauses Act has to be raised and there is a presumption that the official acts are done properly and regularly and a particular course of action was followed in a particular case, as such, when the notice was not returned back unserved, it shall be presumed that the notice was properly served. Learned AO placed reliance on the decision of the Hon’ble jurisdictional High Court in the case of Vins Overseas India Ltd. , 165 Taxman 95 (Del); (ii) CIT vs Atedhsy Films P. Ltd., 301 ITR 69 (Del); and (iii) CIT vs Yamu Industries Ltd., 306 ITR 309 (Del) and reached the conclusion that the objection regarding the non service of notice was not acceptable .

In so far as the proprietary of the reopening of the proceedings is concerned, it is recorded in the orders of the authorities below that it is permissible u/s 147 of the Act to assess and re-assess the proceeding, as such when the return of income was processed u/s 143(1) of the Act, there was no application of mind on the part of the AO to the facts and figures incorporated in the return of income, as such, at a subsequent point of time basing on the information received from a valid source and having formed a belief not on the

Learned AO further recorded that the belief formed in this matter is more than a rumor, gossip or hunch but it is on the basis of a communication or reception of knowledge or intelligence and the result o f his study and investigation which he considered as reliable. Apart from this, learned CIT(A) recorded that the assessee had shown income from business or profession on net basis. Even in sheet of computation of taxable income attached, income from profession has been taken on net basis. For Asstt. Year 2007-08 and 2009-10, the assessee had declared income from other sources in the return and net income was declared under the head “Business Income”, as such, the claim of the assessee that all the particulars were already there in the returns is not correct.

Insofar as observations of the authorities below are concerned, there is no denial of these facts. It is not the case of the assessee that instead of on net basis, he had declared the income from business and profession on gross basis. It is not the case of the assessee that in the sheet of computation of taxable income attached to the return of income relating to the Asstt. Years 2005-06 and 2006- 07, the income from profession and the expenses were shown separately. Having shown the very same income as from business or profession for the Asstt. Years 2005-06 and 2006-07, admittedly the assessee had shown it as income from other sources for the years 2007-08 to 2009-10. These are all the facts to be found on the face of the record and could not be disputed or rebutted by the assessee. In such a situation, the learned AO cannot keep quiet and on the face of the information received from the Investigation Wing and situation definitely

Next issue relates to the characterization of the receipts in the hands of the assessee, which is the subject matter of grounds No. 3 to 3.1 of all the assessee’s appeals and grounds No. 1 and 2 of the revenue’s appeals, according to the learned AO, those are receipts from other sources whereas according to the learned CIT(A) those receipts partake the character of technical services. However, assessee contends that these are the receipts for the commercial service rendered outside India, as such, in view of the fact that the assessee had no permanent establishment in India, they are not chargeable to tax in India.

Argument of the learned AR is that the assessee is a non resident Indian and his passport has an endorsement to the effect “Given indefinite leave to enter to UK as endorsed on previous passport”. Learned AR submitted that where a person does not hold a UK passport but permanently residing in the UK, such person’s passport shall be endorsed stating indefinite leave to remain in UK. He, therefore, submits that there cannot be any doubt that the assessee is a non- resident Indian. He submitted that as a matter of fact, the assessee visited India only thrice between 1.4.2004 and 31.3.2010 and his stay in India did not exceed 182 days in the Asstt. Years 2005-06 to 2010-11. He, therefore, submitted that

He invited our attention to a letter dated 1.7.2006 from Baskin Robins Franchise Co. P. Ltd. to submit that all the agreements with other concerns are also for similar services and such services are in the nature of business development services. Such a letter was noted by the learned AO in his order. According to this letter the services rendered by the assessee consist of the following: -

The main arguments advanced before the learned AO are that the assessee offered the receipts for tax in India by mistake though they are not liable to tax in India and further that in terms of Indo UK DTAA where the assessee had no permanent establishment in India, such receipts are not liable to tax in India, inasmuch as the services were rendered outside India. 27. Learned AO rejected both the contentions of the assessee by specifically observing that the assessee has not furnished any documentary evidence to prove the nature and rendition of services said to have been provided by the assessee, or that such services were actually provided or whether the assessee

Learned CIT(A) also observed that except the letter dated 1.7.2006 indicating the nature of services in respect of one Indian company viz. Baskin Robins Franchise Co. P. Ltd. no other scrap of paper is forthcoming to prove the nature is or rendition of service either personally or through some agency by the assessee. In the absence of any such evidence, learned CIT(A) relied upon two factors for the purpose of characterization of these receipts. One is the nature of service enumerated in the letter dated 1.7.2006 and characterization of the receipt in the TDS certificates issued by the Indian companies.

While referring to the services enumerated in the letter dated 1.7.2006 in respect of Baskin Robins Ltd., learned CIT(A) observed that some professional expertise is required to render these services otherwise in the absence of the profession competency of the assessee to render these servicers, the Indian companies would not have engaged him for the purpose and paid him handsome consideration. Learned CIT(A) relied upon the TDS certificates issued by the Indian companies as to the nature of the payment mentioned therein.

There is no denial of the fact that in the TDS certificate issued by the Indian companies, the nature of payment was made for “Fee for Professional and Technical Services”. In these circumstances, by taking pragmatic view as against the view of the learned AO that the receipts filed under the head “receipts from other sources”, learned CIT(A) fairly and reasonably assumed the nature of services rendered by the assessee to the Indian companies as the same as were mentioned in the letter relating to the services rendered to Baskin Robins. Learned CIT(A), therefore, placing reliance on the recitals of the letter dated 1.7.2006 and the TDS certificates reached a conclusion that the consideration received by the assessee was in the nature of fee for technical services under Explanation 2 to Section 9(1)(vii) of the Act and consequently, held that since the tax on FTS is payable on gross basis, question of allowing any expenses from gross receipts does not arise.

Though the learned AR vehemently disputed the correctness of the findings of the authorities below, fact remains that except the letter dated 1.7.2006, assessee could not produce any evidence whatsoever to prove the nature of services or actual rendering of services either by himself or through some agents. Further, it is also an admitted fact that the amounts were received by the assessee in India inasmuch as they have been credited to the NRO Savings account of the assessee in the Citi Bank, New Delhi. It is also an admitted fact that the TDS certificate categorized these receipts as fee for professional and technical services. So far as the findings of the learned CIT(A), basing on the nature of services described in the letter dated 01.07.2016 in respect of the services said to have been rendered to one Baskin Robins Ltd., we find it difficult to endorse the view of the learned CIT(A) that similar services were actually

However, insofar as the findings of the learned CIT(A) basing on the recitals of TDS certificates issued by the companies wherein the nature of payment is mentioned as Fee for Professional and Technical Services is concerned, we find that there is no escape for the assessee from the same. First of all, the assessee cannot deny these documents. It is assessee’s own case that along with the returns of income filed the assessment years 2005-06 to 2009-10 he had filed the TDS certificates issued by the companies revealingly gross receipts and the tax deducted at source. There is no denial of the fact that all these certificates revealed that while making the payment to the assessee, all the companies have deducted tax at source under section 194J of the Act showing the nature of payment as “Fees for Professional or Technical Services”. This deduction of tax at source was coupled with the remittances into the bank account of the assessee in India. Assessee having never complained against the same but on the other hand offered the receipts to tax in India, now cannot take a plea that he does not know why the Indian companies mentioned the nature of payment as towards “Fees for Professional or Technical Services” or that while the payment was made by way of remittance into the Indian bank account of the assessee. Assessee cannot escape the resistible inference to be drawn as to the genuineness of the recitals of the TDS certificates are the payments made by the Indian companies into the Indian bank accounts of the assessee.

An attempt is made on the part of the assessee to get rid of the recitals of TDS by stating that he does know why was it so done by the Indian companies. The assessee further stated that he also does not know the reason why the amounts were deposited in the NRO account in India instead of paying directly in UK. It is submitted that since the assessee is presently not on good terms with the management of those companies who have since severed all relations between him and have dispense with his services, the agreements may have to be procured from them by making suitable enquiries by issuing commissions to Mumbai where the offices of such companies are located at the address as mentioned in the TDS certificates.

When learned CIT (A) relied upon the contents of the undisputed TDS certificate produced by the assessee along with the return of income, and assessee desires to dispute the same, the onus is heavily on the assessee. It is not open for the assessee to shift the burden to the revenue by saying that should there be any doubt in the mind of the AO as to the nature and rendering of the services or the existence of any agreement, they may make suitable enquiries by issuing summon to Mumbai where the office of the various companies are located at their addresses mentioned in the TDS certificate. Such a course is not permissible.

When the assessee rendered certain services and received such huge remuneration, it is not open for him to contend that he does not possess any document whatsoever in proof of the nature and rendition of the services. Shifting the burden unjustly to the revenue and to seek relief on the failure of the revenue to follow his suggestions is not permissible under law. Assessee had to

Further, at the same time, the revenue also failed to establish before us the reason for not considering the recitals of the TDS certificates which form part of the record for a quite long time. This is the only piece of evidence available on record in respect of the nature and character of the receipts in the hands of the assessee. Unless the original establishes with cogent reasons that these certificates shall not be believed, we don’t find any reason to disbelieve the contents of the certificates which were made at the earliest point of time that is long prior to the litigation. Merely by conjectures and surmises the documents which are forming part of record quite some time cannot be discarded. We, therefore, find that the conclusion reached by the learned CIT(A), is quite reasonable and does not warrant any interference. We, therefore, dismiss grounds No. 3 and 3.1 of assessee’s appeals and grounds No. 1 and 2 of Revenue’s appeals.

Now coming to the ground relating to the applicable rate of tax which is the subject matter of ground No. 3.3 of all the assessee’s appeals, basing on sub- section (2) of section 90 of the Income-tax Act, 1961, Section 115A of the Act and Departmental Circular No. 3 of 2006 dated 27.02.2006 Ld. AR submitted that the

Sub-section (2) of section 90 of the Income-tax Act, 1961 provides that, - “Where the Central Government has entered into an agreement with the Government of any country outside India or specified territory outside India, as the case may be, under sub-section (1) for granting relief of tax, or as the case may be, avoidance of double taxation, then, in relation to the assessee to whom such agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to that assessed'.

The Finance Act, 2005 had reduced the rate of tax on royalty and fee for technical services in the case of a non-resident from 20% to 10% from A.Y. 2006- 07 onwards and prior to its substitution by the Finance Act, 2013, sub-clause (BB) of clause (b) of sub-section (1) of section 115A of the Act, provided the rate of tax of 10% on fee for technical services, and it reads as follows:-

Relevant portion of Departmental Circular No. 3 of 2006 dated 27.02.2006 reads that,-

He further submitted that apart from the clear language of Articles 13 and 30 and Notification dated 11.02.1994, the interpretation submitted in para-3 above is also evident from the Department's Circular No. 39 dated 13.04.1970 issued in the context of applicability of DTAA between India and the Republic of

Now turning to ground number 3.2 of all assessee’s appeals, it relates to the disallowance of expenses claimed for the purpose of business, by the Ld. AO. On this aspect Ld. DRP gave a finding that once the receipts are characterised in the hands of the assessee as FTS, those become taxable on grass basis and there is no question of allowing any expenses from gross receipts. The said finding holds good in respect of the tax on FTS under section u/s 115A(l)(b)(BB) of the Act also. We, therefore, find that inasmuch as the receipts are to be taxed in the hands of the assessee u/s 115A(l)(b)(BB) of the Act, no question as to the allowing of expenses arises. We, therefore, dismiss ground No. 3.2 of all the assessee appeals. 48. Ground No. 4 to 4.2 of Appeal No. 5683/del/2014 for assessment year 2007-08, it relates to the the addition of rupees Rs. 3.25 lakhs on account of difference of receipts from Rich Kwality Products Private Limited and Rs. 5 Lacs on account of receipt from the Kwality Frozen Foods Private Limited. On this aspect, Ld. AO observed that as per the information received from the Deputy Director of Income Tax (Inv) Mumbai the assessee received gross amount of Rs. 13 lakhs from Rich Kwality