TMI Blog2013 (7) TMI 1042X X X X Extracts X X X X X X X X Extracts X X X X ..... isclosed the true nature of income received by way of fee for technical services. 4. The learned CIT(A) erred on facts of the case in ignoring the finding of the Assessing Officer that the entire conduct of the assessee and its modus operandi shows that the assessee had no bona fide belief that its income is non-taxable in India. 5. The learned CIT(A) erred in law and facts of the case in relying upon the decision Hon'ble Supreme Court in the case of CIT Vs. Reliance Petro Products Pvt. Ltd. (2101) 322 ITR 158 (SC) as the facts of the present case are distinguishable from the facts of the decision relied upon. 2. The facts which revealed from the record are as under. The assessee company is incorporated in Netherlands and tax resident of Netherlands as per the Double Taxation Avoidance Agreement (DTAA) between India and Netherlands. DSM Engineering Plastics (India) Private Limited (DEPIPL), DSM Anti Infectives India Limited (DAIIL) DSM Nutritional Products India Private Limited (DNPIPL) which was formerly known as RSA Vitamins Private Limited are affiliated companies of the assessee. The assessee filed the return of income for the A.Y. 2006-07 electronically on 24-10-2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose services are covered under the fees for technical services (FTS). He has also noted that the assessee also charged for the licenses of the softwares. It is further observed by the Assessing Officer that the assessee has not sold those softwares but only licensed to its Indian affiliates for use. Hence, he held that the said payments constitute royalty. The Assessing Officer also examined the treaty/DTAA between the India and Netherlands more particularly Article 12 and held that in respect of the C-ICT services those are in the nature of the technical services and income received from rendering those services are FTS under the DTAA. 4. In respect of corporate services the Assessing Officer examined the agreement between the assessee and its affiliates and concluded that the assessee was rendering technical and consultancy services. The Assessing Officer finally rejected the contention of the assessee that the income from C-ICT services and corporate services is not taxable in India and held that those services are in the nature of fees for technical services within the meaning of Sec. 9(1)(vii) of the Income-tax Act and also covered in Article 12 of the DTAA between the In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act. (e) That DSM NV continues to believe that its technical position of non-taxability of receipts from C-ICT services and Corporate Services in India is in accordance with the provisions of the law. However, with a view to avoid any litigation in India (including the cost of litigation), it has decided not to prefer an appeal to the Commissioner of Income-tax (Appeals) against the order of assessment. This decision to not appeal should not be construed by Revenue as a doubt in the bonafide belief of the technical position reported in the tax return by DSM NV. Without prejudice to this fact, based on the various court decisions, technically non-filing of appeal should not have any relevance on the penalty proceedings under section 271(l)(c) of the Act. 2. As per the notice under section 274 of the Act the penalty proceedings have been initiated against the assessee for 'furnishing of inaccurate particulars' or concealment of the particulars of income. The expression furnishing of inaccurate particulars of income has not been defined under the Act. The Orissa High Court in the case of CIT vs Indian Metal and Ferro Alloys Limited [1995] 211 ITR 35 (Refer Annexure 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In law, the intentional suppression of truth or fact known, to the injury or prejudice of another . The word concealment inherently carried with it the element of mens rea. Therefore, the mere fact that some figure or some particulars have been disclosed by itself even if it takes out the case from the purview of non-disclosure, it cannot by itself take out the case from the purview of furnishing inaccurate particulars. Mere omission from the return of an item of receipt does neither amount to concealment nor deliberate furnishing of inaccurate particulars of income unless and until there is some evidence to show or some circumstances found from which it can be gathered that the omission was attributable to an intention or desire on the part of the assessee to hide or conceal the income so as to avoid the imposition of tax thereon. (b) In the case of Indian Cine Agencies v DCIT (275 ITR 430) (Refer Annexure 4), the Madras High Court held that: ..... .as long as there is nothing to show that the assessee concealed the income with a dishonest intent or had furnished inaccurate particulars either deliberately or as a result of gross negligence which was not capable of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen what the assessee did, namely, not including the amount of freight in the taxable turnover, was under a bona fide belief that the amount of freight did not form part of the sale price and was not includible in the taxable turnover... In the above case, it was held that where the assessee did not include a particular item in the taxable turnover under a bona fide belief that he is not liable to include it, it would not be right to condemn the return as a false return inviting imposition of penalty. The Honourable Supreme Court also held that if an alternative view is taken, then even where assessees have a bona fide view of how taxes should be computed, assessees would have to pay taxes based on the other view under the apprehension of being held liable for penalty in case his contention is ultimately found by the Court to be not acceptable and this could surely not have been intended by the Legislature. (b) The Calcutta High Court in the case of CIT v Dhoolie Tea Co Ltd (231 ITR 65) (Refer Annexure 6) has held that where the assessee was under a bonafide belief that his income is not taxable and he failed to disclose such income under a bonafide belief, no penalty shou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of claim of the assessee should not entail levy of penalty. This has been held in various decisions including the following: (a) The Orissa High Court, in the case of CIT v Indian Metals Ferro Alloys Ltd [1995] (211 ITR 35) (Refer Annexure 1) has held that where the assessee has adopted a particular legal claim and the legal claim has not been accepted, it cannot be said that the assessee concealed any income or furnished any incorrect information. The ruling further says that where the assessee based on the judicial precedents makes a bonafide claim under a law, though the claim is rejected, no penalty can be levied for concealment or furnishing of incorrect information. (b) The Bombay High Court in the case of CIT v Shivlal Desai and Sons [1978] (114 ITR 377) (Refer Annexure 12) held that mere disallowance in the assessment proceedings should not result into levy of penalty under section 271(l)(c). (c) The Bombay High Court in the case of CIT v Jogibhai Mangalbhai [1992] (193 ITR 404) (Refer Annexure 13) held that once the assessee has disclosed relevant particulars, mere nonacceptance of the claim by the department does not bring the assessee within the purview of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 271 (1 )(c) was distinguished in the case of CIT v. E. I Dupont (SLP) (Refer Annexure 17), wherein it was held that it was an inaccurate computation of taxable income under the provisions of the Act and on application of wrong law by the assessee. It does not appear that the assessee furnished inaccurate particulars nor did the assessee concealed the income but merely applied e inaccurate legal position in its return. (h) Reliance is also placed on the recent decision of the Honourable Supreme Court in the case of CIT v K.K.Patel Foundation [Special Leave to Appeal (Civil) CC 17165/2008] (Refer Annexure 18), passed on 7 January 2009, wherein the Apex Court by a speaking order dismissed the Special Leave Petition filed by the Department against non-levy of penalty under Section 271(l)(c) of the Act By its observation in the order, the Hon'ble Supreme Court explicitly held that imposition of penalty under section 271 (l)(c) of the Act was not warranted on the peculiar facts of the case. This decision once again emphasizes the fact that penalty is not automatic and facts of a case can justify non-levy of penalty (i) The Hon'ble Supreme Court, Bench consisting of 3 Ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opment and transfer of a technical plan or technical design. However, your good self has taken a different technical view on the taxability C-ICT services and Corporate services. 6. In sum and substance the assessee pleaded that it has shown all the details in respect of its receipts in India in the notes to the return of income and the assessee was under bonafide belief that the income from the affiliates were not taxable. The contention of the assessee did not find favour at the Assessing Officer and the Assessing Officer levied the penalty of ₹ 25 lacs vide order dated 30-06-2009. The assessee challenged the penalty order before the Ld. CIT(A) and the Ld. CIT(A) deleted the entire penalty. The operative part of the findings of the Ld. CIT(A) is as under: After carefully considering the law settled by the Hon'ble Supreme Court in the judgment quoted above, and applying it to the facts of the case, it is observed that the appellant which is a foreign company established in Netherlands, had received payments from its Indian associate companies for certain services since approximately A.Y. 2002-03, which were claimed not taxable in India in the returns filed in Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar came to a different view and it was determined that the receipts are taxable in India. Therefore, in the facts of the case the contention of the appellant that the Assessing Officer came to a conclusion different from that of his predecessor taken in earlier assessment year on the same set of facts looks correct. The appellant has also shown that the relevant materials were supplied as and when called for and there was no omission or commission in filing of particulars of income. The claim of the appellant that the decision of the Assessing Officer made in this assessment year was accepted to avoid protracted litigation including the cost of litigation and the appellant agreed to the stand of the Assessing Officer in other years also to get the issue settled amicably on the assurance of the Assessing Officer the issue is purely legal in nature which will not entail levying of value is not attached to this argument or contention of the appellant, the case of the appellant looks covered by the principle laid by the Supreme Court in Reliance Petro Products (P) Ltd. quoted supra. The Hon'ble Court has clearly held that making an incorrect claim in law cannot tantamount to furnis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interpretation of the treaty between India and Netherlands which has been accepted by the assessee and all the receipts are duly reflected in its balance sheet and books of account and he pleaded for confirming the order of the Ld. CIT(A). We have also head the Ld. CIT, DR. 8. The one admitted fact in this case is that the assessee is nonresident and received certain payments from its Indian affiliates towards providing certain services. The claim of the assessee is that the nature of those services cannot be treated as rendering the technical services and hence the payment received cannot be treated as fees for rendering technical services. The Assessing Officer has gone further by holding that in view of the Article 12 of the DTAA between the India and Netherlands, the fees for technical services and royalty are taxable in the country of source. In our opinion, the penalty order itself demonstrate that it is only the interpretation of law and treaty which resulted into taxation of those income/receipts. The Ld. CIT(A) placed his reliance for allowing the relief to the assessee on the decision of the Hon'ble Supreme Court in the case of Reliance Petroproducts Pvt. Ltd. 322 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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