BECHTEL POWER CORPORATION,UNITED STATES vs. ACIT CIRCLE-INTERNATIONA TAXATION 1(1)(2), NEW DELHI

Facts

Two assessees (UK and USA tax residents) provided engineering and procurement support services to Reliance Industries Limited (RIL) for its plants in Jamnagar SEZ. The Assessing Officer initially treated their receipts as Fee for Technical Services/Included Services (FTS/FIS) under DTAAs. The Dispute Resolution Panel (DRP), however, directed the AO to tax these receipts primarily as business income attributable to a Permanent Establishment (PE) under DTAA Articles 6 & 7, and only protectively as FTS/FIS under section 44DA.

Held

The Income Tax Appellate Tribunal held that the Assessing Officer failed to implement the binding directions of the DRP by substantively taxing the receipts as FTS/FIS instead of business income attributable to PE. Relying on Section 144C of the Income Tax Act and judicial precedents, the Tribunal concluded that such non-implementation renders the final assessment orders wholly without jurisdiction and void-ab-initio, as the AO is duty-bound to implement DRP directions in letter and spirit.

Key Issues

Whether the final assessment orders passed by the Assessing Officer, failing to implement the binding directions of the Dispute Resolution Panel (DRP), are valid or rendered void-ab-initio.