BECHTEL LIMITED,UNITED KINGDOM vs. ACIT CIRCLE- INTERNATIONAL TAXATION 1(1)(2), NEW DELHI

Facts

Two assessees, tax residents of the UK and USA respectively, entered into contracts with Reliance Industries Limited (RIL) for engineering and procurement support services. The Assessing Officer (AO) initially treated the receipts as Fee for Technical Services/Fee for Included Services (FTS/FIS), making them taxable under DTAAs. However, the Dispute Resolution Panel (DRP) directed the AO to treat the receipts as business income attributable to a Permanent Establishment (PE) and only on a protective basis as FTS/FIS under Section 44DA. Despite these binding directions, the AO passed final assessment orders by reiterating the draft assessment order, failing to implement the DRP's instructions.

Held

The tribunal held that the Assessing Officer's failure to implement the specific and binding directions of the DRP, as mandated by Section 144C of the Income Tax Act, renders the final assessment orders wholly without jurisdiction and void-ab-initio. Citing various judicial precedents, the tribunal emphasized that DRP's directions are binding on the AO, and non-compliance vitiates the assessment process. Consequently, the impugned assessment orders were quashed.

Key Issues

Whether final assessment orders are valid if the Assessing Officer fails to implement specific and binding directions issued by the Dispute Resolution Panel (DRP) under Section 144C of the Income Tax Act, thereby rendering them without jurisdiction.