9911796707
TMI Blog2014 (2) TMI 1073X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment proceedings. 2. The petitioner, as noticed above, is a company incorporated in United Kingdom and was/is engaged in running and operating BBC World channel w.e.f. 1st December, 2002. Prior thereto another company incorporated in United Kingdom, BBC Worldwide Limited, was engaged in the business of running and operating BBC World channel and had entered into airtime sales and marketing agreement with BBC Worldwide (India) Pvt. Ltd. Airtime sales and marketing agreement between the BBC Worldwide and BBC Worldwide (India) Pvt. Ltd. w.e.f. 1st December, 2012 were novated by assignment of rights of BBC Worldwide Ltd. in favour of the petitioner. Consequently, BBC Worldwide (India) Pvt. Ltd. started acting as an agent for the petitioner in India for sale of airtime for advertisements on BBC world channel. In addition to soliciting advertisement, BBC World (India) Pvt. Ltd. also provide marketing support to the petitioner. BBC Worldwide (India) Pvt. Ltd. was/is a company incorporated in India and being a resident, their income was/is taxable in India. 3. During the period relevant to the assessment year 2003-04 i.e. for the period between 1st December, 2002 to 31st March, 2003, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f activities of the assessee in India and such loss cannot be attributed to the PE of the assessee in India. It is therefore held that the statements furnished by the assessee showing loss from Indian activities do not represent the correct position and the same has been found not reliable. The office believes that in the absence of such crucial information assessment of the income of the assessee for the A.Y. 2003-04 could not be completed properly...." 6. Thereafter the assessing officer referred to explanation 2 to Section 147 and emphasized excessive loss or depreciation allowance or any other allowance computed under the Act is deemed to be a case of income chargeable to tax having escaped assessment. 7. It is an admitted position that in the present case, impugned notice has been issued after four years from the end of the relevant assessment year. The contention of the petitioner in view of the said factual background is that (1) it is a case of change of opinion; (2) the petitioner had made disclosure of full and true material facts and (3) reasons to believe do not justify reopening and meet the legal requirements. 8. In support of the contentions raised by the petition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liberation upon this issue by the AO at any time during the assessment proceedings. Obviously, forming an opinion could not have been possible for the AO in the face of the written submissions running into 407 pages having allegedly been filed two days before the passing of the assessment order. No mention at all has been made in the assessment order indicating the filing of the said submissions, what to talk of forming an opinion after deliberating the same. Hence, there is no change of opinion in the present case, because no opinion was ever originally formed nor there was any occasion to form any such opinion during the assessment proceedings. The assessee's case is hence different on the facts from the cited cases, which therefore do not help the assessee's cause." 10. However, in the counter affidavit, a more categorical and assertive stand has been taken by the respondents, who have pleaded and denied that the petitioner had filed reply dated 22nd March, 2006 in response to notice under Section 143(2) of the Act. 11. In order to determine and decide the controversy, we have examined the original records. Pursuant to order dated 15th January, 2013, passed by a Divisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed what is stated to be verbatim order sheets dated 28th February, 2006 and 2nd March, 2006 which again do not find place in the original records. It is obvious that when proceedings/hearings were held, then order/proceeding sheet should be available. 13. This High Court has in some cases earlier adversely commented about record maintenance by the Revenue as it is unacceptable and faulters on the principle of good governance. Facts mentioned above do not disclose a commendable situation and in fact the situation appears to be alarming and perilous. This requires urgent effective remedial steps. Failure to maintain records has resulted in serious allegations being made that the papers/documents have been tempered or removed etc. The papers/documents on record are not serially numbered and indexed. We also note that it is not practice of the department to give acknowledgement of papers submitted during the course of assessment proceedings. 14. There are various reasons why we feel that we should accept the contention of the petitioner that they had filed details or accounts of India specific revenue and expenditure during the original assessment proceedings and our reasons are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, public relation, India-opt out-programming and legal/ professional fees. The nature of these expenses alongwith the furnished vouchers was examined in detail and the same was found satisfactory. Hence, the loss accruing to the Indian operation of the channel taken at Rs.7,29,39,000/-. However, most of the critical activities including programming and broadcasting are carried out abroad. Therefore, considering the activities being carried out in India and outside, it would be reasonable to attribute 20% of this loss to the channel activities in India. Hence, the loss attributable to the Indian PE is being restricted to Rs.1,45,87,800/-." (iv) The same Assessing Officer Mr. Saad Kidwai, Deputy Director of Income Tax, Circle 1(1), International Taxation, had also passed the original assessment order dated 24th March, 2006 in the case of the petitioner. Thus, the Assessing Officer in the last year, had examined and gone into the question of India specific income and expenditure. He held that only expenses that had been incurred in relation to channel activities in India could be taken into consideration. It was further held that computation in this regard was submitted and the BBC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it would be correct to attribute 20% of the profits (loss) to the assessee"s PE in India. The assessee has furnished audited global accounts of M/s BBC World Ltd. and the same are therefore being used to compute the taxable income of the assessee"s PE in India." Particulars Amount Amount in Rupees Global turnover of the BBC World Limited (as per audited accounts) (A) 7,929,000 591,344,820 Global Profit/(loss) on ordinary activities before taxation before taxation of the BBC World Limited (B) (4,550,000) (339,339,000) Ratio of global profit to global turnover (C = B/A*100) (57.38%) Airtime sales revenue generated from India (C) 811,090 60,491,084 Total Profit/(Loss) from Indian activities on the basis of global profit rate [D = B/A*C] (34,712,376) 20% of above profit attributable to Indian activities [E = D*20/100] (6,942,475) Exchange rate 1 UKP = Rs.74.58 (TT buying rate on 31st March, 2003). Assessed at a loss of Rs.69,42,475/- issue necessary forms." (vi) The Assessing Officer was, therefore, aware and conscious of the details of the activities of the petitioner in India and outside India and thereafter has observed that it would be c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer as the author had to decide what he wants to record and mention in the assessment order. This aspect has been dealt with by the Full Bench of this Court in CIT versus Usha International Limited, (2012) 348 ITR 485 (Delhi) (FB), wherein it has been observed as under:- It was argued on behalf of the Revenue that for determining whether or not it is not a case of change of opinion, reference can and should be made only to the assessment order and the discussion or the reasons stated therein. Reliance was placed on the decision of this court in CIT v. H. P. Sharma [1980] 122 ITR 675 (Delhi) and Consolidated Photo and Finvest Ltd. v. Asst. CIT [2006] 281 ITR 394 (Delhi). The relevant portion of the judgment in H. P. Sharma (supra) reads as under (page 698) : "Adverting to the next question as to whether the resorts to reassessments under sections 147(b) and 148 of the Act were justified or not, it is noteworthy that both the Income-tax Officer and the Appellate Assistant Commissioner have clearly observed that the assessee had not disclosed at the original assessment stage that the rents realised exceeded those mentioned in the municipal records. The Tribunal has not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urmiseful and, therefore, not permissible to still import their existence and consideration. This can, however, be permissible only where the assessment record of that stage overwhelmingly brings out that the matter did come for due consideration and was in fact considered. Mere silence on a matter or absence of discussion in the original order does not imply that the Income-tax Officer adjudicated upon the same one way or the other." (emphasis supplied) We may note that the said decision was not dealing with section 147 of the Act, as amended with effect from April 1, 1989, but was with reference to section 147(b) of the Act under which an Assessing Officer could reopen assessment on the basis of "information". The term "to inform" it was observed means to impart knowledge and it does not mean mere availability. It gets transmuted into an item of information only when its existence is realized and its implications are recognized. However, it is not possible to agree with the observations made in paragraph 16, which have been underlined. The reason is that experience shows that the Assessing Officers do examine several aspects and raise queries but when the written opinion is exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the end of the relevant assessment year and as per the first proviso to Section 147 of the Act, it has to be shown that there was failure on the part of the assessee to disclose fully and truly all facts necessary for the assessment. In the "reasons to believe" it is mentioned that absence of "crucial information" relating to income and expenditure on account of activities of the petitioner in India had resulted in improper computation of income for the assessment year 2003-04. Thus, as per the reasons to believe itself, in case the petitioner had furnished statement showing income and expenditure from Indian activities in the course of the original assessment proceedings, there was no lapse or failure on the part of the assessee i.e. the petitioner. Once it is held that the said details were furnished vide letter/reply dated 22nd March, 2006, the reassessment notice, would fail and faulter. Letter/reply dated 22nd March, 2006 enclosing the details would go to the very root and falsify the averments made in the reasons to believe. The said reasons would be factually incorrect and reassessment notice bad and contrary to the first proviso to Section 147 of the Act. 16. Even otherw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in India. Its Indian operations are a part of the global operations of the company. The accounts of the assessee are maintained globally in UK and it does not maintain any country specific accounts. Therefore, in order to compute the income/loss attributable to the Indian operations [without prejudice to its claim that it does not have a PE in India], Rule 10(ii) of Income-tax Rules, 1962 can be resorted to. Circular no. 6/2001 dated 5 March 2001 also provides for such treatment in similar situations. Rule 10(ii) requires that in case the actual amount of income accruing or arising to any non-resident through a business connection cannot be definitely ascertained, the amount of such income for the purpose of assessment may be calculated on the amount which bears the same proportion to the total profits and gains of business of such person as the receipts so accruing bear to the total receipts of the business. It is pertinent to note that the Hon'ble Special Bench of Delhi Tribunal in the case of Motorola Inc. (96 TTJ 1) held that: "The following steps are involved in computing the income attributable to the PE: First the global sales and the global net profit have to be as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the subsequent Assessing Officer had mentioned that there was non application of mind by the Assessing Officer in the original assessment proceedings, which was apparent as the assessment order was passed on 24th March, 2006, merely 2 days after the purported submissions dated 22nd March, 2006 running into 407 pages were filed by the petitioner. It is not the volume of the record which is determinative but the relevance of the selective papers on the issue in question. Again, it was for the Assessing Officer to pass the assessment order. The contention was raised and the papers and details were filed on the question of attribution of income to the Indian PE, is apparent even from the reply dated 27th February, 2006. Once the detailed submissions were made, the Assessing Officer had to apply his mind and form an opinion. The petitioner in their written submissions dated 27th February, 2006 had specifically referred to the appropriate or reasonable method to compute income attributable to Indian PE. This issue had been examined in the immediate preceding assessment year i.e. assessment year 2002-03 in case of the predecessor BBC Worldwide Ltd. by the very same Assessing Officer Mr. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver the globe and was/is a 24 hour news channel. They have to incur expenses for creating programmes and capsules which were shown and had footprint in India. Advertisement revenue was earned from India as the channel was viewed in India and abroad. The present stand of the respondents is that entire expenditure for creating programmes etc. should be excluded and only India specific operations have to be computed, did not appeal to the earlier/original Assessing Officer. He did not think it appropriate to take the said criteria and had attributed on the basis of the turnover, 20% of the global loss/earnings to the activities attributable to Indian PE. This is a matter of perception or opinion and, therefore, principle of "change of opinion" is applicable. In Usha International Ltd. (supra), it has been observed :- The questions of law at serial Nos. 1 to 3 referred to the Full Bench are interconnected. They deal with the term and facets of the term "change of opinion". The expression "change of opinion" postulates formation of opinion and then a change thereof. In the context of section 147 of the Act it implies that the Assessing Officer should have formed an opinion at the first ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... because the Assessing Officer had formed an opinion in the original assessment, though he had not recorded his reasons. xxxx xxxx In view of the above observations we must add one caveat. There may be cases where the Assessing Officer does not and may not raise any written query but still the Assessing Officer in the first round/original proceedings may have examined the subject-matter, claim, etc., because the aspect or question may be too apparent and obvious. To hold that the Assessing Officer in the first round did not examine the question or subject-matter and form an opinion, would be contrary and opposed to normal human conduct. Such cases have to be examined individually. Some matters may require examination of the assessment order or queries raised by the Assessing Officer and answers given by the assessee but in others cases, a deeper scrutiny or examination may be necessary. The stand of the Revenue and the assessee would be relevant. Several aspects including papers filed and submitted with the return and during the original proceedings are relevant and material. Sometimes application of mind and formation of opinion can be ascertained and gathered even when no speci ..... X X X X Extracts X X X X X X X X Extracts X X X X
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