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Income Tax Appellate Tribunal, MUMBAI BENCH “K”, MUMBAI
Before: SHRI G.S.PANNU & SHRI AMARJIT SINGH
ORDER PER G.S.PANNU,A.M:
The captioned appeal filed by the assessee pertaining to assessment year 2002-03 is directed against the order of the ADIT(IT) -3(1) (in short the Assessing Officer ) passed under section 143(3) r.w.s. 147 r.w.s. 144C(13) of the Income Tax Act, 1961 ( in short the Act) dated 05/08/2018, which is in conformity with the direction of the Dispute Resolution Pannel-2, Mumbai dated 25/06/2010.
In this appeal, assessee has raised the following Grounds of appeal:-
Ground of Appeal
No.
1. Based on facts of the case and in law, the ADIT and the DRP failed to appreciate that the re-assessment proceedings are illegal, bad in law, void, in excess of and/or in want of jurisdiction and otherwise ought to be cancelled.
Your appellants submit that as per the proviso to section 147 where the re- opening is after 4 years, the re-opening cannot be done unless income has escaped assessment by reason of failure on the part of the assessee to make a return under section 139 or in response to a notice under section 142( I) or 148 or to disclose fully and truly all material facts necessary for adjustment. In the present case, it is submitted that there is no failure on the part of the Appellant either to make a return as required or to fully and truly disclose the facts necessary for the assessment. Therefore, there is no income escaping assessment in the hands of the Appellant. Since the facts have been disclosed during the assessment proceedings, the Appellants have discharged their burden and there is no failure on the part of the Appellant. Without prejudice, it is submitted that the re-opening if any, represents a change of opinion on the same set of facts and such re-opening is bad in law. Your appellants submit that the subject re-assessment ought to be cancelled.
Ground of Appeal
No.
2. Based on facts of the case and in law, the ADIT and the DRP ought to have held that the 'interchange' income received by the offshore (non-India) branches/offices of the appellant is not liable to tax in India. Your appellant prays that the ADIT be directed to not consider such interchange income as liable to tax in India and to delete the said addition made by the ADIT to the total income of your appellant. Ground of Appeal No.
3. The ADIT erred in stating that when the overseas cardholders use their cards in India, the Merchant Establishment Discount is paid by Indian branches to foreign banks.
Before proceeding to adjudicate the specific Grounds of appeal raised before us, it may be mentioned that at the time of hearing, it was pointed out by the Ld. Representative for the assessee that the issues involved are fully covered by the decision of the Tribunal in the case of the assessee for assessment year 2001-02, which has been decided by the Tribunal in a combined order passed for assessment year 2000-01, 2001-02 and 2003-04 vide 3689/Mum/09,2358/Mum/14 and others dated 12/02/2016. It has been pointed out that so far as the initiation of proceedings by issuance of notice under section 148 of the Act in this year is concerned, the same is pari-materia with the fact-situation in assessment year 2001-02. In assessment year 2001-02, the Tribunal held the initiation of proceedings by issuance of notice under section 147/148 of the Act as invalid and in this context Ld. Representative for the assessee had referred to the following discussion in the order of the Tribunal dated 12/02/2016(supra), which pertains to the assessment year 2001-02:- “8.As far as CO.s filed by the assessee are concerned,we would like to mention that during the original assessment proceedings the AO had called for the details of ICMED and the assessee had filed detailed reply in this regard(pg-166-185 of the paper book). Though the AO had mentioned that the assessee had failed to disclose the material facts, yet he had not explained as to which information was not filed. We further find that while approving the re-opening proposal the CIT had mentioned that he was satisfied. The reasons for his satisfaction are not available on record.In our opinion, mere mentioning that sanctioning authority was satisfied is not sufficient to initiate re-assessment proceedings, where during the original assessment proceedings AO takes a particular view after considering the submission of the assessee.It is not the case where assessee had not filed details required by the AO.If the AO decided not to call for particular information the assessee cannot he held responsible for that omission/ commission. Therefore, we hold that there was no failure on part of the assessee to disclose material facts truly and fully.Considering all the facts cumulatively, we are of the opinion, that the order passed by the AO for both the AY.s were invalid. C.O.s filed by the assessee are decided in its favour.”
3.1 In this background, we may refer to the relevant facts for the assessment year under consideration. The appellant before us is a Non- resident Banking Company and for assessment year 2002-03 it filed a return of income on 31/10/2002 declaring an income of Rs.348,12,68,683/-, which was subject to scrutiny assessment under section 143(3) of the Act dated 31/3/2005, whereby the total income was determined at Rs.401,27,26,700/-. Subsequently, the said assessment was reopened by issuance of notice under section 148 of the Act dated 31/9/2009. At pages 10 – 12 of the Paper Book, assessee has placed a copy of the reasons recorded by the Assessing Officer for issuance of notice under section 148 of the Act and at pages 13 – 14 of the Paper Book are placed the documents evidencing the approval accorded by the DIT(IT) 3(1) Mumbai for issue of notice under section 148 of the Act. In terms of the said reasons recorded, the Assessing Officer referred to the assessment finalized for assessment year 2000-01 under section 143(3) r.w.s. 147 of the Act, for assessment year 2005-06 under section 143(3) of the Act and for assessment year 2001-02 finalized under section 143(3) r.w.s. 147 of the Act, wherein interchange fee received by the assessee bank on account of usage of non-resident HSBC cards in India has been held to be chargeable to tax which had earlier escaped assessment. The Assessing Officer further records that such escapement of income is within the scope of section 147 of the Act and Explanation 2 (c)(i) of the Act on account of the failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. As a consequence, in the ensuring assessment the Assessing Officer has brought to tax a sum of Rs.42,98,703/- being interchange fee received by the Non-India branches of HSBC branches on account of use of credit cards in India. Against such a decision of the Assessing Officer, which is in conformity with the directions issued by the DRP on 25/06/2010 in response to the objections raised by the assessee against the draft assessment order made by the Assessing Officer, assessee is in further appeal before us.
At the time of hearing, the Ld. Representative for the assessee referred to the reasons recorded by the Assessing Officer for assessment year 2001-02, which are placed at pages 14 – 15 of the Paper Book to point out that the same are identical to the reasons recorded for the instant assessment year, copy of which has been placed at pages 10 -12 of the Paper Book. It is also pointed out that the manner in which the approval has been accorded by the DIT(IT), Mumbai is also identical to that in assessment year 2001-02. Under these circumstances, it is sought to be pointed out that following the decision of the Tribunal for assessment year 2001-02 dated 12/2/2016(supra), which continues to hold the field, the initiation of proceedings under section 147/148 of the Act are invalid and deserve to be set-aside.
In the context of the aforesaid similarity in facts brought out by the Ld. Representative for the assessee, there is no controversion by the Ld. Departmental Representative. The Ld. Departmental Representative has merely referred to the discussion made by the Tribunal in its order dated 12/02/2016(supra) in relation to the initiation of proceedings under section 147/148 of the Act for assessment year 2003-04, which were set-aside on the ground that there was no approval of the competent authority. Notably, such a fact-situation does not prevail in the instant year, and the appellant has not relied upon the decision of the Tribunal for assessment year 2003-04(supra) but for assessment year 2001-02(supra).
We have carefully considered the rival submissions. In our considered opinion, the aforesaid aspect of the order of the Tribunal dated 12/02/2016(supra) brought out by the Ld. Departmental Representative is not relevant for the present year because the discussion made by the Tribunal for assessment year 2001-02(supra), which we have reproduced above brings out the similarity in facts. For assessment year 2001-02, the Tribunal came to conclude that there was no failure on the part of the assessee to disclose the material facts necessary for assessment. Similar is the situation in the instant year also. Thus, in view of the similarity of facts, inasmuch as, the reasons for reopening in the instant assessment year are identically worded (except for the change of figures) with that for assessment year 2001-02, the initiation of proceedings under sections 147/148 the Act in the instant year is also held to be lacking in jurisdiction and accordingly treated as invalid, following the decision of the Tribunal for assessment year 2001-02(supra).
6.1 Apart from the aforesaid, in so far as the merits of the issue is concerned, in assessment year 2000-01(supra) the Tribunal in its order dated 12/02/2016 (supra) has decided similar issue in favour of the assessee, which was further followed by the Tribunal in assessment year 2001-02(supra) also. The relevant discussion in the order of the Tribunal dated 12/2/2016(supra) is as under:- 5.We have heard the rival submissions and perused the material before us.We find that in the matter of Standard Chartered Grindlays Bank Ltd.(supra),the issue of taxability of commission with regard to Credit Cards was deliberated upon and decided by the Tribunal. We would like to re-produce the relevant portion of the order that deals with the facts as well as the reasoning,given by the FAA and the Tribunal,for deciding the issue against the AO.It reads as under:
“43. Next ground of appeal is against deletion of addition of Rs. 10 crores being made on alleged commission earned by foreign branches of ANZ Grindlays Bank on their credit card business overseas where transactions have taken place in India.
44. During the course of assessment the AO required the assessee to give details of total commission received by the foreign branches of the assessee bank on international credit cards issued by them where the transactions were completed in India by the card holders and the cards were honoured by the branches of the assessee bank or branches of any other bank in India. The AO was of the view that whatever income arose in or from India to any foreign branch of the assessee is also taxable in India. The assessee could not furnish any details; at the same time it did not deny that no income arose from the transaction in India on credit cards issued by its foreign branches. The AO, therefore, estimated the income.The AO stated that commission income from cards issued by Indian branches was Rs. 9.90 crores. It would be reasonable to estimate income of Rs. 10 crores earned by foreign branches from transactions entered into India.
45. XXXXXXXX The learned CIT(A) held that the income earned either by way of issuing bank of credit card or acquiring bank of credit card, transaction is accounted for. He also held that under s. 9 of the IT Act all incomes accruing or arising directly or indirectly through or from any business connection in India or through or from any source of income in India can be taxed. As per s. 9(1)(v)(c), income can be deemed to have accrued in India only if payment is made for the debt that has been incurred in India by a non-resident which will not be the case here since the issuing bank which provides debt is outside India being a foreign branch.As per art. 7 of Indo-UK DTAA, income that can be brought to tax in India must be directly or indirectly attributable to the PE in India. Since the transactions were with appellant's foreign branches where the issuing bank and the acquiring bank in India was some bank other than the Indian branch of the assessee, it cannot be said that Indian branch was in any way connected with the transaction or that income earned could in any way be said to have been directly or indirectly through PE in India.He accordingly held that the income arising in India from transaction in India by using credit cards of foreign branches should be taxed in India. This income can only be the income received by the Indian branch and such commission income being already included as an acquiring bank. The income to the foreign branch from the credit given to its card holders outside India cannot be taxed in the hands of the Indian branch since it is not arising in India and also it cannot be attributed to the assets and activities of the Indian branch as is required under art. 7 of DTAA.Therefore, there is no need to further estimate any income. He accordingly deleted the addition. XXXXXXXXXX 48. We have considered the rival submissions. We are in agreement with the finding of the learned CIT(A). Where the foreign branch has issued credit card and even if the transaction takes place in India, the credit is given to the customer outside India and the debt has also arisen outside India. The merchant shipments in India may receive the payment but the merchant shipments do not incur any debt.They merely receive charges for the goods sold or services rendered. However, the charges are received by the foreign branch for providing credit to their card holders outside India.The amount payable by the card holders who have acquired the credit card from branches outside India incurs the debt outside India.Therefore, the fees in respect of such transaction are not taxable in India. We, therefore, uphold the deletion of addition of Rs. 10 crores.” .” As the issue is squarely covered by the decision of the above referred order of the Tribunal, so,we hold that the order of the FAA does not suffer from any legal or factual infirmity as far as issue of taxability of ICMED is considered”.
Confirming his order, we decide the effective ground of appeal against the AO. 6.2 Following the aforesaid precedent, which has been rendered under identical circumstances, on merits also we find no reason to uphold the impugned addition. In sum and substance, in view of the earlier order of the Tribunal dated 12/02/2016(supra), the above stated Grounds of appeal raised by the assessee are allowed, as above.
In the result, the appeal of the assessee is allowed, as above.
Order pronounced in the open court on 30/11/2016