TMI Blog2015 (10) TMI 2380X X X X Extracts X X X X X X X X Extracts X X X X ..... ntioned in clause (6) thereof. When a regular assessment is completed in terms of Section 143(3), a presumption can be raised that such an order has been passed upon a proper application of mind. See CIT vs. Kelvinator of India Ltd [2002 (4) TMI 37 - DELHI High Court] . Therefore, in our view, what the Assessing Officer is now seeking to do amounts to a clear change of opinion and that is not permissible. The escapement of income by itself is not sufficient for reopening the assessment in a case covered by the proviso to section 147 of the said Act, unless and until there was failure on the part of the assessee to disclose fully and truly all the material facts necessary for assessment. It was also made clear that unless and until the recorded reasons specifically indicated as to which material fact or facts was/were not disclosed by the petitioner in the course of the original assessment under section 143(3), there could not be any reopening of assessment. See Swarovski India Pvt. Ltd. Vs. Deputy Commissioner of Income Tax (2014 (9) TMI 4 - DELHI HIGH COURT) - Decided in favour of assessee. - W.P.(C) 12856/2009 & CM No. 13676/2009, W.P.(C) 12870/2009 & CM No. 13692/2009 - - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purported reasons which have been recorded for reopening of the assessment for the assessment year 2002-03. It may be pointed out at this juncture itself that the reasons recorded for 2003-04 are virtually identical. The reasons recorded for assessment year 2002-03 are as under:- Reasons recorded for reopening of assessment for AY 2002-03 The assessee is a company incorporated in USA and into the business of supplying and replication of software. The assessment order u/s 143(3) of the Act was passed for the relevant assessment year on March 28, 2005 wherein it was established that the assessee has PE in India under Article 5 of the DTAA as well as business connection‟ u/s 9(1)(i) of the Act. The receipts of the assessee i.e. receipts from software‟ have been treated as royalty‟. The receipts from software were treated as royalty‟ and have been taxed at gross basis as per the DTAA at the rate of 15%. In view of the fact that the assessee has PE in India and that receipts from software were treated as royalty‟ the force of attraction rule‟ would be involved and the income in the nature of royalty should be attributed to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed reasons that the escapement of income had occurred by reason of the failure on the part of assessee to disclose fully and truly all material facts necessary for assessment for that year . It would be pertinent to point out that no so-called material fact has been specified which, according to the Assessing Officer had not been fully and truly disclosed. There is only a general statement that there has been failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. 6. Taking up first point with regard to change of opinion, it may be pointed out that the Double Taxation Avoidance Agreement between India USA, inter-alia, comprises of Article 7 of the DTAA between India and USA which speaks of business profits as under:- ARTICLE 7 - Business profits 1. The profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other State but only so much of them as is attri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... USA. The same, to the extent relevant, reads as under: ARTICLE 12 Royalties and fees for included services 1. Royalties and fees for included services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. 2. However, such royalties and fees for included services may also be taxed in the Contracting State in which they arise and according to the laws of that State; but if the beneficial owner of the royalties or fees for included services is a resident of the other Contracting State, the tax so charged shall not exceed : (a) in the case of royalties referred to in sub-paragraph (a) of paragraph 3 and fees for included services as defined in this Article [other than services described in sub-paragraph (b) of this paragraph] : (i) during the first five taxable years for which this Convention has effect, (a) 15 per cent of the gross amount of the royalties or fees for included services as defined in this Article, where the payer of the royalties or fees is the Government of that Contracting State, a political sub-division or a public sector company ; and (b) 20 per cent of the gross amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid 15% tax in terms of Article 12 (2) (a) (ii) of the DTAA and this has been accepted by the Assessing Officer at the time of original assessment under 143(3) of the said Act. It is now the contention of the Assessing Officer that Article 12 (2) (a) (ii) would not apply because the royalties are connected with the Permanent Establishment of the assessee in India and therefore, by virtue of Article 12(6), the royalties should have been taxed under Article 7. 11. The learned counsel for the petitioner/assessee submitted that this would amount to a change of opinion. This is so because in the first instance when the original assessment was being framed, the Assessing Officer examined the attribution of income to the Permanent Establishment and while doing so attributed only that part of the income of the assessee which falls within Article 7. This was on the basis of the consideration that the assessee carried on two distinct businesses: (1) through its distribution unit and 2) its development unit. This fact is noticed in the assessment order itself. The royalties were attributable to the distribution unit whereas the profits and gains of business arising out of the development u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of opinion can be ascertained and gathered even when no specific question or query in writing had been raised by the Assessing Officer. It is also observed that the aspects and questions examined during the course of assessment proceedings itself may indicate that the Assessing Officer must have applied his mind on the entry, claim or deduction, etc. In the present case, in the circumstances narrated above, it is evident that the when the Assessing Officer was examining the entire issue of royalty and its taxability the Assessing Officer must have examined Article 12 of the DTAA in its entirety, which also contained the exception mentioned in clause (6) thereof. We may also note that in CIT vs. Kelvinator of India Ltd: [2002] 256 ITR 1 / 123 Taxman 433 (Delhi) a full bench of this court held as under:- We also cannot accept the submission of Mr. Jolly to the effect that only because in the assessment order, detailed reasons have not been recorded an analysis of the materials on the record by itself may justify the Assessing Officer to initiate a proceedings under section 147 of the Act. The said submission is fallacious. An order of assessment can be passed either in terms of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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