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2016 (2) TMI 713 - HC - Income TaxReopening of assessment - Taxation on royalty payment -taxable as business profits and not as royalty under Article 12 of DTAA - Held that:- Insofar as the interest on royalty is concerned, the same was clearly disclosed by the Petitioner in the audit return (form 2 CEB). Further, the TPO has also recorded the same as a disclosed international transaction in his order dated 29th September, 2008. Thus, the contention that the Petitioner had failed to fully and truly disclose any material fact relevant for assessment of that income is plainly unsustainable. The question whether such income was to be taxed as interest income and not as royalty is again a matter of inference. The earlier decision of the AO to assess the same as royalty cannot be traced to any failure on the part of the Petitioner to disclose fully and truly any primary fact. It is apparent that whereas the AO while framing the assessment had not applied the rule of “force of attraction”, the present incumbent apparently feels that the rule of force of attraction ought to have been applied; he now infers that income by way of royalty can also be taxed under Section 44D of the Act as business income in terms of paragraph 1 of Article 7 of the Indo-US DTAA read with paragraph 6 of Article 12 of the Indo-US DTAA. Plainly, this is a change of opinion. It is now well settled that it is impermissible to re-open concluded assessments on the basis of such change of opinion This Court in a recent decision in Sun Pharmaceuticals Industries Ltd. v. Deputy Commissioner Of Income Tax & Anr.[2016 (1) TMI 788 - DELHI HIGH COURT] had examined the CBDT Instruction No. 9 of 2006 and held that the same could not over-ride the statutory powers exercised by an AO in terms of Section 147 of the Act. The said CBDT instruction cannot be understood to compel the AO to re-open assessments that are inconsistent with his views. In the present case, the letter dated 1st September, 2009 clearly indicates that the AO had not accepted the view that the royalty paid to the Petitioner was liable to be taxed at the rate of 20% under Section 44D of the Act. He had expressly stated that ‘no inference may be drawn that the royalty income has accrued to the petitioner from its PE in India’. Mr. Syali is probably correct in assuming that the Petitioner’s assessment for AY 2005-06 is being re-opened only on the basis of CBDT Instruction No. 9 of 2006. This, as held in Sun Pharmaceuticals Industries Ltd (supra), is impermissible. Even if, Mr Chaudhary’s contention is accepted that the decision to re-open the assessment is not based on the audit objections but on independent reasons, it is apparent that the same is on account of a change in opinion. Whereas the AO by its letter dated 1st September, 2009 had reasoned to the contrary, he seems to have veered in favour of the opinion that was espoused by the audit party. As stated earlier, re-opening of assessment on account of change in opinion is also impermissible. - Decided in favour of assessee
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