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 services for RIL's plants. The Assessing Officer (AO) treated the receipts as Fees for Technical Services/Fees for Included Services (FTS/FIS) 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) under DTAAs and section 44DA of the Income Tax Act, with FTS/FIS taxable only on a protective basis.

Held

The Assessing Officer failed to implement the specific and binding directions of the DRP in the final assessment orders, merely reproducing the draft order and adding back receipts as FTS/FIS on a substantive basis. Relying on High Court precedents, the tribunal held that the AO is duty-bound to implement DRP directions. Consequently, the assessment orders, being passed in disregard of binding DRP directions, were deemed wholly without jurisdiction and void-ab-initio.

Key Issues

Whether the final assessment orders passed by the Assessing Officer are valid and with jurisdiction when they fail to implement the binding directions issued by the Dispute Resolution Panel (DRP) under Section 144C of the Income Tax Act.