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Income Tax Appellate Tribunal, ‘L’ BENCH, MUMBAI
Before: SHRI G.S. PANNU, AM & SHRI RAVISH SOOD, JM
The present appeal has been filed by the revenue therein assailing the order of the CIT(A), dated. 29.05.2013 deleting the penalty imposed by the A.O under Sec. 271(1)(c) of the Income Tax Act, 1961 (for short ‘Act’), vide his order dated. 14.02.2011.
2. The assessee is a firm of solicitors based in United Kingdom. The assessee renders legal services and has offices in various countries across the world. The assessee had during the year under consideration offered its professional services to various clients having projects in India. The professional services to the aforesaid clients were rendered by the assessee, both in India and abroad. The assessee filed its return of income on 31.10.1995 declaring Nil income. The A.O while framing assessment in the hands of the assessee under Sec. 143(3) therein held that the assessee had a ‘Permanent Establishment’ (for short ‘P.E’) in India, under Article 5(2)(k) of the India-U.K DTAA. The A.O thus on the basis of his aforesaid finding therein held that the services rendered in India and abroad, as regards the projects in India, were liable to tax in India, thus assessed the income of the assessee at Rs. 2,84.85,303/-. That the assessee assailed the assessment order before the CIT(A), who vide his order dated 28.03.2001 restored the case to the file of the A.O for framing a fresh assessment. The A.O vide his order passed U/ss. 143(3) r.w.s 250 of the ‘Act’, dated. 28.03.2002, assessed the income of the assessee at Rs. 23,66,86,260/-. The assessee filed an 3 (A.Y. 1995-96) M/s. Linklaters appeal before the CIT(A) against the order of assessment passed by the A.O u/s 143(3) r.w.s.
The CIT(A) vide his order dated. 13.03.2003 disposed the appeal of the assessee and therein concluded that the assessee had a ‘P.E’ in India, however only that part of the fees which related to the services rendered by the assessee in India could only be attributed to the ‘P.E’. That the order of the CIT(A) was assailed before the Income Tax Appellate Tribunal by way of cross appeals filed by the assessee and the revenue. The Tribunal vide its order dated. 16/07/2010 dismissed the appeal of the assessee and confirmed the existence of a ‘P.E’ under Article 5(2)(k) of the India-UK DTAA. The Tribunal further referring to the language of Article 7(1) of the India-UK DTAA, therein concluded that the entire amount relatable to the projects connected with India were attributable to the ‘P.E’ and were not liable to be restricted merely to the fees in respect of the services rendered in India. The Tribunal further held that while determining the fees for the services rendered in India, the actual fees charged by the assessee to its clients was to be taken into account and not the notional fees based on the probable price at which such services could be obtained.
The A.O after giving effect to the order of the Tribunal, therein called upon the assessee to show cause as to why penalty under Sec. 271(1)(c) for furnishing of inaccurate particulars of income may not be imposed on it. The A.O observed that the assessee was at all times aware about the number of partners and staff members who visited India, as well as the time spent by them in India, and as such was very much aware that as the threshold limit of 90 days contemplated 4 (A.Y. 1995-96) M/s. Linklaters under Article 5(2)(k) stood breached, therefore a ‘P.E’ under Article 5(2)(k) was in existence. The A.O in the backdrop of the aforesaid facts therein concluded that the assessee despite being aware of the aforesaid facts, by withholding the same had thus intentionally not offered its income for tax in India. The A.O further referring to the fact that the revenues earned by the assessee for the services performed in India were to be taken at actual figures, and no adjustment as regards the same were permissible. The A.O thus on the basis of his aforesaid observations therein concluded that the assessee had furnished inaccurate particulars of income and concealed the particulars of its income, thus on the said count imposed a penalty under Sec. 271(1)(c) of Rs. 2,90,70,932/- in the hands of the assessee.
4. The assessee carried the order passed by the A.O under Sec. 271(1)(c) in appeal before the CIT(A). The assessee assailed the order imposing penalty, both on the ground of limitation as well as on merits. That though the CIT(A) declined to subscribe to the claim of the assessee that the penalty imposed by the A.O under Sec. 271(1)(c) was beyond limitation, but however finding favor with the contentions raised by the assessee in context of the ‘merits’ of the case, therein observed that the assessee had made a legal claim after disclosing all the relevant particulars in its ‘return of income’, coupled with the fact that the issue pertaining to the existence of a ‘P.E’ in India was highly debatable and thus the claim raised by the assessee was backed by a bonafide belief . The CIT(A) after deliberating at length on the contentions of the assessee and referring to the orders passed by his 5 (A.Y. 1995-96) M/s. Linklaters predecessors wherein penalty imposed u/s 271(1)(c) had been vacated, thus deleted the penalty.
The revenue being aggrieved with the order of the CIT(A) had carried the matter in appeal before us. We have heard the Ld. Representatives of both the parties. We are of the considered view that a number of issues were involved in this case regarding the taxability of income of the assessee in India and most of the issues involved were raised for the first time, and as such there were no precedents as regards the same. We find considerable force in the claim of the assessee that the issues involved in the case were highly debatable and have not attained clarity even till date, which could be gathered from the very fact that a reference to the ‘Special Bench’ is pending on the said issue. We are persuaded to observe that that the issue as to whether the assessee had a ‘PE’ in India, or not, is debatable, and the assessee remaining under a bonafide belief that professional services of the nature rendered by the assessee were not covered by the provisions of Article 5(2)(k) of the India-UK DTAA, had thus claimed that no ‘P.E’ was in existence in India. Alternatively, even if it was to be held that the assessee had a ‘P.E’ in India, there still remained a considerable debate on the scope of income that could be attributed to such ‘P.E’. We find that the assessee had made full disclosure of facts in the statement of income filed alongwith its ‘return of income’, and the claim that it did not have a ‘P.E’ in India was made after disclosing all the relevant facts. The assessee had at Sr.No.8 of the aforesaid statement accompanying the return of income therein specifically disclosed that the partners and 6 (A.Y. 1995-96) M/s. Linklaters employees of the assessee had visited India and performed services in India. The assessee had further in the schedule accompanying the return of income had computed the income and expenditure pertaining to its Indian activities, and had duly reflected an income of 691,190 pounds in respect of such Indian activities, against which after taking into account expenditures attributable to the same, the assessee had reflected an income of 4,68,419 pounds for its Indian operations. We are thus of the considered view that in the backdrop of the aforesaid facts it can safely be concluded that the assessee after disclosing all the relevant facts, i.e the fact that the partners and employees had visited India, rendered services in India, as well as the approximate value of the income from such services, had thus to the best of his understanding, therein remaining under a bonafide belief had raised a legal claim that it did not have a ‘P.E’ in India. We have given a thoughtful consideration to the facts of the case and perused the orders of the lower authorities and are of the considered view that the assessee after making the following disclosures in its statement of income accompanying the ‘return of income’, as under:- (i) That all the relevant facts on the basis of which the assessee had a concluded that it did not have ‘PE’ in India were duly disclosed in the statement of income filed alongwith its ‘return of income’. (ii) That a complete disclosure as regards the fact that the partners and employees of the assessee had visited India and performed services in India was disclosed by the assessee in the statement of income filed alongwith its ‘return of income’.
7 (A.Y. 1995-96) M/s. Linklaters A complete computation of income and expenditure pertaining to the (iii) Indian activities of the assessee, on the basis of which the income of the assessee from the Indian activities was determined at £691,190, which after considering the expenditure attributable to the same remained at £4,68,419, was disclosed by the assessee in the statement of income filed alongwith its ‘return of income’. , thus remaining under a bonafide belief that a ‘P.E’ as per Article (5)(2)(k) may not arise in the case of rendering of professional services, had claimed that no ‘P.E’ was in existence in India during the year. We further find that the main controversy between the revenue and assessee which had travelled up to the Tribunal was on the issue of attribution of income, while for in the present case the assessee had on its own given calculation of the income which was attributable to the ‘P.E’ in India in its ‘return of income’. We are thus persuaded to hold that on a conjoint appreciation of the aforesaid facts, it can safely be concluded that as it is a case where the assessee had made a legal claim after disclosing all the relevant particulars, therefore the case of the assessee, as canvassed by the Ld. A.R before us is squarely covered by the judgment of the Hon’ble Supreme Court in the case of : CIT Vs. Reliance Petroproducts (2010)322 ITR 158 (SC), wherein the Hon’ble Apex Court had observed as under:-
The assessee had furnished all the details of its expenditure as well as income in its return, which details, in themselves, were not found to be inaccurate nor could be viewed as the concealment of income on its part. It was up to the authorities to accept its claim in the return or not. Merely because the assessee had claimed the expenditure, which claim was not accepted or 8 (A.Y. 1995-96) M/s. Linklaters was not acceptable to the Revenue, that by itself would not attract the penalty under s. 271(1)(c). If the contention of the Revenue is accepted then in case of every return where the claim made is not accepted by AO for any reason, the assessee will invite penalty under s. 271(1)(c). That is clearly not the intendment of the legislature. The Tribunal, as well as, the CIT(A) and the High Court have correctly reached this conclusion.
We thus in the backdrop of the facts of the present case are therein persuaded to subscribe to the view arrived at by the CIT(A), who as per our considered view had rightly vacated the penalty imposed by the A.O u/s 271(1)(c) in the hands of the assessee. We thus find no reason to take a different view as against that arrived at by the CIT(A) and thus uphold his order and dismiss the appeal of the revenue.
The appeal of the revenue is dismissed. C.O No. 233/Mum/2014 : 1. The assessee had assailed the order of the CIT(A), to the extent the latter had upheld the penalty imposed by the A.O under Sec. 271(1)(c) by holding that the same was within the period of limitation as stood contemplated u/s 275 of the ‘Act’.
The brief facts of the case which seizes the issue under consideration are that the Tribunal had passed an order on quantum appeal in the case of the assessee for the year 9 (A.Y. 1995-96) M/s. Linklaters under consideration, viz A.Y 1995-96 as on 16.07.2010. The A.O thereafter had imposed penalty under Sec. 271(1)(c), vide his order dated. 14.02.2011. The contention of the assessee was that as the penalty was liable to be imposed within a period of six months from the end of the month in which the order of the Tribunal was received by the DIT, which as claimed by the assessee was received as on 29.07.2010, therefore the penalty under Sec. 271(1)(c) could be validly imposed in the hands of the assessee, latest by 31.01.2011. Thus in the backdrop of the aforesaid facts it was averred by the assessee that the penalty imposed by the A.O under Sec. 271(1)(c) vide his order dated. 14.02.2011, being beyond the limitation period contemplated under Sec. 275, therefore the same was liable to be vacated. The submissions of the assessee did not find favor with the CIT(A), who observed that as the order of the Tribunal was factually received by the DIT(T)-II who had the jurisdiction over the case of the assessee, only in the month of August, 2010, therefore the penalty imposed by the A.O u/s 271(1)(c) as on 14.02.2011 was well within the limitation period and thus rejected the contention of the assessee that the penalty imposed under Sec. 271(1)(c) was beyond limitation. The CIT(A) while concluding that the order passed by the A.O was within limitation, therein observed as under:-
10 (A.Y. 1995-96) M/s. Linklaters “09. The submissions of the assessee as well as the submissions of the AO in remand proceedings have been considered. It is true that the Department has considered the date of 29th July, 2010 for the purposes of filing appeal in the High Court and calculating limitation in that regard. However, merely because the department voluntarily considered a date for the purposes of filing appeal, the same may not be conclusive for the purposes of determining the limitation for imposing penalty. It is seen from the jurisdiction order passed by the CBDT that the jurisdiction over this case was assigned to DIT(T)-II in the month of July, 2010. Therefore on 29 th July, 2010 when the order of the ITAT was served on DIT(IT)-1, the same cannot be considered for calculating the limitation, as on the said date , DIT(T)-II had the jurisdiction over the case of the and not the DIT(IT)-1. Letter written by DDIT (Technical), who is posted under the DIT(IT)-1, dated 03.08.2010, forwarding the order of ITAT to DDIT(IT)-4(1) clearly shows that the order was received for the first time by the concerned AO directly only in the month of August, 2010. That is why the DDIT-4(1) while transferring the case in t he month of January, 2011 to DDIT(IT)-3(1) has specifically mentioned the limitation as 28.02.2011. Having regard to all these facts, it is held that the order imposing penalty is not barred by limitation in this case. Hence, the assesse’s objection in this regard is dismissed.”
11 (A.Y. 1995-96) M/s. Linklaters 3. We have given a thoughtful consideration to the facts of the case and the averments of the Ld. A.R. and are of the considered view that now when it remains as a matter of fact that the order of the Tribunal had been received by the DIT(IT)-II who was exercising the jurisdiction over the case of the assessee, only in the month of August, 2010, therefore the same had to be construed as the starting point for computing the period of limitation within which the A.O could have imposed penalty u/s 271(1)(c) in the hands of the assessee. We though are not oblivious of the fact that the order of the Tribunal was received by the DIT(IT)-1 as on 29.07.2010, but then the material aspect which cannot be brushed aside is that pursuant to the order passed by the CBDT under Sec. 120 of the ‘Act’ in the month of July, 2010, the jurisdiction over the case of the assessee was clearly vested with DIT(IT)-II. Thus in the backdrop of the fact that the jurisdiction over the case of the assessee was exclusively vested with the DIT(IT)-II as on 29.07.2010, viz the date on which the order of the Tribunal was served on the DIT(IT)-I, wherein the latter on the said material date had no jurisdiction over the case of the assessee, therefore it can safely be concluded that as on 29.07.2010 no order of the Tribunal could be said to have been served on the DIT(IT)-II, and as such the said date, viz 29.07.2010 cannot be held to be the starting point for computing the period of limitation for imposition of penalty u/s 271(1)(c) in the hands of the assessee. We are unable to persuade ourselves to subscribe to the contention of the assessee that the period of limitation is to be gathered from 29.07.2010, despite the fact that no such order was received on the said date by the DIT(IT)-II who had the jurisdiction over the case of 12 (A.Y. 1995-96) M/s. Linklaters the assessee. We are of the considered view that the period of limitation has to be taken from the date when the DIT(IT)-II had received the order of the Tribunal, which on the basis of the letter dated. 03.08.2010 written by the DDIT(Technical) working under DIT(IT)-I was forwarded to the DDIT(IT)-4(1) to whom the case of the assessee was assigned, can thus safely be taken to have been served on the DIT(IT)-II only in the month of August, 2010. We are not impressed with the contention of the Ld. A.R that the period of limitation would start running from the date when the order of the Tribunal was received by the DIT(IT)-1 (who had no jurisdiction over the case of the assessee as on 29.07.2010, viz the date when the order of the Tribunal was received by him), because no valid assessment could be framed by any A.O working under the DIT(IT)-1, as the said jurisdiction to impose penalty u/s 271(1)(c) remained with the A.O working under the DIT(IT)-II, and as such the starting point for computing the period of limitation for imposition of penalty by an A.O working under the DIT(IT)-II could by no means be gathered from the date of receipt of the order of the Tribunal by the DIT(IT)-1 who as on the date of receipt of the order of the Tribunal had no jurisdiction over the case of the assessee. Thus as the penalty imposed by the A.O u/s 271(1)(c), vide his order dated. 14.02.2011, by reckoning the date of receipt of the order of the Tribunal as being in the month of August, 2010, falls within the period of limitation contemplated u/s 275, we therefore uphold the order of the CIT(A) and dismiss the cross objection filed by the assessee.
The cross objection filed by the assessee is dismissed.