2025 (7) TMI 1057 - HC - Income Tax

Reopening of assessment u/s 147 - original assessment proceedings for the same Assessment Year still continuing - addition on account of Customer Relationship Management CRM receipts - AO construed the CRM receipts as Fees for Technical Services FTS under the Act as well as under the provision of India-Singapore Double Taxation Avoidance Agreement India-Singapore DTAA - HELD THAT - Clearly with the passing of the assessment order all other assessment proceedings in respect of AY 2018-19 ought to have been terminated that had commenced prior to the assessment order even though commenced erroneously ought to have been concluded. AO continued the parallel proceedings to once again to assess the Petitioner s income albeit in the context of the return filed by the Petitioner in response to the notice issued u/s 148. And passed the draft assessment order u/s 144C(1) proposing to assess the Petitioner s income which included an amount as FTS. DRP observed that the decision of ITAT had attained finality and the additions made on account of the subscription of CRM were required to be deleted. In the meanwhile the Revenue filed an Appeal under Section 260A of the Act in this Court 2024 (12) TMI 1598 - DELHI HIGH COURT impugning the common order 2024 (5) TMI 1593 - ITAT DELHI in so far as it related to AY 2018-19. The said Appeal was dismissed by this Court 2024 (12) TMI 1598 - DELHI HIGH COURT It is material to note that in Salesforce.com Singapore Pte Limited 2024 (2) TMI 1396 - DELHI HIGH COURT this Court had considered the question whether the consideration for CRM services rendered by the Petitioner to its customers in India could be considered as royalty under the India-Singapore DTAA and decided the issue in favour of the Petitioner. The said appeals arose in respect of AY 2010-11 to AY 2017-18. The Revenue s appeal 2024 (12) TMI 1598 - DELHI HIGH COURT was dismissed by this Court by relying on the aforesaid decision 2024 (2) TMI 1396 - DELHI HIGH COURT . This was also informed to the AO by the Petitioner. Notwithstanding the same the AO proceeded to pass the impugned assessment order assessing the Petitioner s income. As noted above the impugned order is unsustainable as it is the result or the culmination of the proceeding that were initiated and continued without any jurisdiction. In any view of the matter the issues sought to be raised are conclusively settled in favour of the Petitioner in terms of the decision rendered by this Court in Salesforce.com Singapore Pte Limited 2024 (2) TMI 1396 - DELHI HIGH COURT

Summary

1. The core legal questions considered by the Court were:

• Whether the Assessing Officer (AO) was empowered under the Income Tax Act, 1961 (the Act) to issue a notice under Section 148 for reassessment while the original assessment proceedings for the same Assessment Year (AY) were still ongoing;
• The validity of the impugned reassessment order passed under Section 147 read with Section 144C(13) of the Act for AY 2018-19;
• The taxability of Customer Relationship Management (CRM) receipts as Fees for Technical Services (FTS) under the Act and the India-Singapore Double Taxation Avoidance Agreement (DTAA);
• The effect of the Tribunal's decision on the characterization of CRM receipts and the implications for the reassessment proceedings;
• The impact of the dismissal of the Revenue's appeal by the High Court and the Supreme Court on the issues in dispute.

2. Issue-wise detailed analysis:

Issue 1: Jurisdiction to issue notice under Section 148 during ongoing assessment proceedings

Legal framework and precedents: Section 147 of the Act permits reassessment only if income has escaped assessment. The procedure for initiating reassessment includes issuance of a notice under Section 148. Section 143(2) governs scrutiny assessment, and Section 139(9) relates to defective returns. The Act does not explicitly provide for issuance of a Section 148 notice while the original assessment proceedings are pending.

Court's interpretation and reasoning: The Court observed that the AO issued a notice under Section 148 after initiating assessment proceedings under Section 143(2) and before their conclusion. The Court found no provision in the Act permitting reassessment proceedings to commence while the original assessment was pending. It emphasized that reassessment presupposes a concluded assessment and escaped income, which cannot be the case during ongoing assessment.

Key evidence and findings: The AO's notice under Section 148 was issued on 30.03.2022, while the original assessment proceedings were still pending. The AO's own counsel could not cite any legal provision justifying such issuance.

Application of law to facts: Since the reassessment notice was issued without jurisdiction, the subsequent reassessment order was invalid.

Treatment of competing arguments: The Revenue failed to provide any statutory basis or precedent supporting the issuance of a Section 148 notice during ongoing assessments.

Conclusion: The impugned reassessment order was liable to be set aside for lack of jurisdiction.

Issue 2: Taxability of CRM receipts as Fees for Technical Services under the Act and India-Singapore DTAA

Legal framework and precedents: The tax treatment of CRM receipts depended on their characterization under the Income Tax Act and the India-Singapore DTAA. The question was whether these receipts constituted FTS or royalty, which would attract tax liability.

Court's interpretation and reasoning: The AO treated CRM receipts as FTS and added them to taxable income. However, this characterization was challenged before the Income Tax Appellate Tribunal (ITAT), which ruled in favor of the Petitioner, holding that CRM receipts did not constitute FTS under the DTAA.

Key evidence and findings: The ITAT's common order dated 17.05.2024, covering AY 2018-19 and subsequent years, held that CRM receipts were not taxable as FTS. This decision was consistent with the High Court's earlier ruling in a related case, which had also held that CRM receipts did not amount to royalty under the DTAA.

Application of law to facts: The AO's addition of CRM receipts as FTS was contrary to the ITAT and High Court decisions, thereby rendering the reassessment order unsustainable.

Treatment of competing arguments: The Revenue's attempt to sustain the addition was negated by binding judicial precedents and the dismissal of their appeal by the High Court and Supreme Court.

Conclusion: CRM receipts were not taxable as FTS or royalty under the India-Singapore DTAA, and the addition was to be deleted.

Issue 3: Effect of the ITAT and High Court decisions and the dismissal of Revenue's appeal

Legal framework and precedents: Judicial decisions on tax characterization and assessment procedures are binding unless overturned by a higher court. The dismissal of the Revenue's Special Leave Petition (SLP) by the Supreme Court affirms the finality of the High Court's ruling.

Court's interpretation and reasoning: The Court noted that the ITAT's decision had attained finality and the DRP had accordingly directed deletion of the additions on account of CRM receipts. The Revenue's appeal under Section 260A was dismissed by the High Court, relying on the precedent in the related case. Subsequently, the Supreme Court dismissed the SLP against the High Court's decision, confirming the correctness of the legal position.

Key evidence and findings: The dismissal of the SLP by the Supreme Court on 15.04.2025, with the observation that "no error" was found in the High Court's judgment, conclusively settled the issue in favor of the Petitioner.

Application of law to facts: The finality of the judicial decisions rendered the impugned reassessment order untenable.

Treatment of competing arguments: The Revenue's persistence in pursuing the reassessment despite adverse binding decisions was rejected.

Conclusion: The reassessment order was unsustainable in light of settled judicial pronouncements and was set aside.

3. Significant holdings:

"Section 147 of the Act provides for assessment/reassessment of income that has escaped assessment. There is no question of income escaping assessment prior to the conclusion of the assessment proceedings."

"The learned counsel for the Revenue is also unable to point out any provision of the Act which would enable the AO to issue notice under Section 148 of the Act for reopening of the assessment while the assessment proceedings are ongoing and the assessment of the assessee's income chargeable to tax has not been concluded."

"The impugned assessment order is unsustainable as it is the result or the culmination of the proceeding that were initiated and continued without any jurisdiction."

"The issues sought to be raised are conclusively settled in favour of the Petitioner in terms of the decision rendered by this Court in The Commissioner of Income Tax - International Taxation-3 v. Salesforce.com Singapore Pte Limited."

"After having heard the learned counsel appearing for the petitioner, we find no error in the impugned judgment of the High Court. The Special Leave Petition is accordingly dismissed."

Core principles established include:

• Reassessment under Section 147/148 cannot be initiated while original assessment proceedings are pending;
• CRM receipts do not constitute Fees for Technical Services or royalty under the India-Singapore DTAA and hence are not taxable as such;
• Judicial decisions on tax characterization and procedural jurisdiction are binding and final once upheld by the Supreme Court;
• Proceedings initiated without jurisdiction are null and void and must be set aside.

Final determinations:

• The reassessment proceedings and the impugned order dated 21.01.2025 were quashed for lack of jurisdiction;
• The additions made on account of CRM receipts as FTS were disallowed following the ITAT and High Court rulings;
• The Petitioner's objections and appeals were upheld, and the Revenue's appeals were dismissed;
• The impugned notice of demand and assessment order were set aside accordingly.