TMI Blog2017 (11) TMI 132X X X X Extracts X X X X X X X X Extracts X X X X ..... rship firm incorporated outside India. The fact that is undeniable is that the AO continues to be bound by the order of the DRP which was by this Court by its decision dated 23rd March 2016 in respect of the same Assessees for the same AY 2010-11. Since the Revenue has not challenged that judgment, the AO had no option but follow the DRP's order. Further, the AO was aware that the earlier attempt at disobeying the DRP's order led to invalidation of the draft and the final assessment order. What is surprising is that while disposing of the objections to the reopening of the assessment, the AO again chose to only record that the DRP held that both the Assessees were not eligible Assessees. The AO did not refer to this Court's order dated 24th March 2016. This is despite the fact that the AO was disposing of the objections more than nine months after the judgment of this Court. This conduct of the AO is simply unacceptable. The passing of the draft assessment order pursuant to reopening of the assessment under Section 147/148 of the Act, in respect of both the Assessees and for the same AY 2010-11, is clearly in the teeth of the order of the DRP as well as judgment of this Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessees having a PE in India particularly when in each of the other AYs the matter was contested and is pending at various levels of the hierarchy. All this goes to show that the Revenue was unable to point out any fresh tangible material which could form the basis for believing the argument on this aspect. Assessee appeal allowed. - W.P.(C) 11968/2016, W.P.(C) 11971/2016, W.P.(C) 11972/2016, & W.P.(C) 12031/2016 - - - Dated:- 31-10-2017 - S. MURALIDHAR PRATHIBA M. SINGH JJ. Petitioner Through: Mr. Porus Kaka, Senior Advocate with Mr. Prakash Kumar, Mr. Manish Kanth, Mrs. Rashmi Singh, Mr. Divesh Chawla, Advocates. Respondent Through: Mr. Rahul Chaudhary, Senior standing counsel with Mr. Sanjay Kumar, Advocate. J U D G M E N T Dr. S. Muralidhar, J. 1. These are four writ petitions under Article 226 of the Constitution of India. Two are by M/s. ESS Distribution (Mauritius) SNCET Campagnie [Writ Petition (C) Nos. 11968 of 2016 and 12031 of 2016] and two by M/s. ESS Advertising (Mauritius) SNCET Compagnie [Writ Petition (C) Nos. 11971 of 2016 11972 of 2016]. The writ petitions arise from a similar set of facts and are being disposed of by this commo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notes to the return, ESS Distribution mentioned as under: ESSD has entered into an agreement with Scorpio Television India Private Limited ('Scorpio') granting the latter the license to use the live main feed to produce content to be used in Interactive Guide, including but not limited to edit, modify, add, delete, dub, cut, sub-title, voice over, reformat, rebroadcast and distribute (including all technical process associated therewith) such live feed on DTH platform for ESPN and Star Sports channels. However, no such feed has been shared during the year under consideration and accordingly, ESSD has not received any sums from Scorpio. 6. The income tax return of ESS Distribution for AY 2010-11 was picked up for scrutiny by the Assessing Officer ( AO‟). The AO raised queries regarding taxability of the subscription/distribution revenue. ESS Distribution provided to the AO the details of the revenue received by it. ESS Distribution stated that it had not received revenue from any other customer (including Scorpio) during the AY in question. A query was raised by the AO as to why the status of the firm should not be treated as foreign company and taxed accord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were as under: Income earned from the Scorpio agreement would be taxable in the hands of the Petitioner, as royalty under Section 9 (1) (vi) of the Act and also under DTAA. The income has escaped assessment for AY 2010-11 as no such receipts were disclosed by the Assessee in its return of Income and neither the same had been offered for taxation during the scrutiny proceeding of the said year. Perusal of 26AS for AY 2010-11 as on 30 March 2015 shows that the receipts from ESPN Software India Pvt. Ltd. during the AY 2010-11 are 439,83,22,056 (4,40,80,29,406 - 97,07,350), whereas the assessment was completed in this case, considering the gross subscription revenue of ₹ 4,05,98,53,517 (as submitted by the Assessee in reply during assessment proceedings). Therefore, subscription revenue of ₹ 33,84,68,539/- received by the Assessee from ESPN Software India Pvt. Ltd. has escaped assessment. 11. ESS Distribution then filed a detailed objection inter alia pointing out that during the AY in question, as already disclosed in notes to the computation, although ESS Distribution entered into agreement with Scorpio it did not have any transaction with or receive any r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der dated 19th December 2016 passed by the AO. The amendment sought by ESS Distribution to challenge the said draft assessment order was allowed by the Court and accordingly, the amended writ petition was taken on record. A reply has been filed to the amended writ petition by the Department. Facts concerning ESS Advertising for AY 2010-11 15. Now turn to the facts in Writ Petition (Civil) No. 11971 of 2016 filed by ESS Advertising (Mauritius) S.N.CT Campagnie ( ESS Advertising ) (earlier known as M/s. ESPN Star Sports Mauritius SNCET Compagnie). It again pertains to AY 2010-11. 16. ESS Advertising is a partnership firm established under the laws of Mauritius by EML having 99.9% share in its profit and the balance 0.1% held by ESS Asian Network Private Limited (EANPL) (incorporated in Singapore). 17. ESS Advertising is engaged in the business of allotting advertising time and programme sponsorship (Ad time) in connection with television programming. ESS Advertising has entered into agreements with ESPN Software India Private Limited (now known as Star Sports India Private Limited since it emerged with Star India Private Limited) for allotting advertisement time to va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rther during assessment proceedings the Assessee has declared gross advertising revenue as non-taxable but finally 30% of them were assessed as attributable income to Indian PE. But the other income amounting to USD 418,939 left to be considered for inclusion in the income of the Assessee. Therefore, the other income of USD 418,939 has escaped assessment. 24. ESS Advertising raised the following contentions in its detailed objections for reopening of the assessment. Some of these contentions are as under: (i) The Revenue has refused to consider the accounts of the Assessee and thereby held that the business income attributable to the Indian operations is estimated at 30 percent of the gross advertising revenue. Such determination of business income attributable to the India PE on an estimated percentage basis is deemed to have considered and taken all business incomes and expenses into its fold and does not leave any scope for picking any particular item reflected in the accounts for a specific treatment. (ii) Therefore, after having considered and rejected the accounts of the Assessee, the action of the AO in stating that amount of USD 418,939 credited in Profit and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing addition as proposed in the notice under Section 147 and 148 of the Act. This led to ESS Advertising filing an application to amend the writ petition to challenge the draft assessment order as well. An amendment was allowed by the Court by its order dated 27th January 2017. The Respondents were directed to main status quo and not enforce the draft assessment order. That interim order was subsequently directed to be made absolute during the pendency of the writ petition. Revenue s reply 29. The reply filed by the Revenue to both Writ Petition (Civil) Nos. 11968 of 2016 and 11971 of 2016 is more or less similar. It is inter alia pointed out that while allowing both the writ petitions this Court by its order dated 23rd March 2016 clarified that it had expressed no opinion regarding the validity of the proceedings against the Petitioners under Section 147/148 of the Act and that the rights and contentions of the parties in those proceedings are left open to be urged and decided by the appropriate authority in accordance with law. 30. It is then contended that acting under bonafide belief and in compliance with the directions of the Hon‟ble Delhi High Court Dra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... finding directions of the DRP and passed the final assessment order. This was an issue of jurisdiction of the AO to proceed under Section 144C of the Act against an entity which is a partnership firm incorporated outside India. 37. The fact that is undeniable is that the AO continues to be bound by the order of the DRP which was by this Court by its decision dated 23rd March 2016 in respect of the same Assessees for the same AY 2010-11. Since the Revenue has not challenged that judgment, the AO had no option but follow the DRP's order. Further, the AO was aware that the earlier attempt at disobeying the DRP's order led to invalidation of the draft and the final assessment order. 38. What is surprising is that while disposing of the objections to the reopening of the assessment, the AO again chose to only record that the DRP held that both the Assessees were not eligible Assessees. The AO did not refer to this Court's order dated 24th March 2016. This is despite the fact that the AO was disposing of the objections more than nine months after the judgment of this Court. This conduct of the AO is simply unacceptable. 39. The passing of the draft assessment order p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed assessment and any new tangible material placed on record before the AO. The reopening was, therefore, based on a mere change of opinion which has been disapproved by the Supreme Court in CIT v. Kelvinator of India Ltd (2010) 320 ITR 561 (SC) law. There, the Supreme Court observed as under: However, one needs to give a schematic interpretation to the words reason to believe failing which, we are afraid, Section 147 would give arbitrary powers to the Assessing Officer to re-open assessments on the basis of mere change of opinion , which cannot be per se reason to re-open. We must also keep in mind the conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review; he has the power to re-assess. But re-assessment has to be based on fulfillment of certain pre-condition and if the concept of change of opinion is removed, as contended on behalf of the Department, then, in the garb of re-opening the assessment, review would take place. One must treat the concept of change of opinion as an inbuilt test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, Assessing Officer has power to re-open, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lvinator (supra). The reasons recorded by the Assessing Officer in the present case do confirm our apprehension about the harm that a less strict interpretation of the words reason to believe vis-a-vis intimation issued under Section 143 (1) can cause to the tax regime. There is no whisper in the reasons recorded, of any tangible material which came to the possession of the Assessing Officer subsequent to the issue of the intimation. It reflects an arbitrary exercise of the power conferred under Section 147. 47. As regards ESS Advertisement, there was only one reason for reopening of the assessment which is that 30% of the gross advertising revenue was assessed as an attributable income to Indian PE amounting to USD 418,939 had been left out for being considered. 48. In the final assessment order passed by the AO in the first round it was observed in para 10.3 which reads as under: 10.3 The Assessee is receiving the advertisement revenue from ESPN India. The Assessee has submitted the profit and loss account for the year ended 31st March 2010. The Assessee s activity has been the purchase and sale of advertising time. As discussed earlier, the purchase of airtime is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ped income and initiating reassessment proceedings. The Assessing Officer had, thus, acted only on the basis of suspicion and it could not be said that the same was based on belief that the income chargeable to tax had escaped assessment. The Assessing Officer has to act on the basis of 'reasons to believe' and not on 'reasons to suspect'. The Tribunal had, thus, rightly concluded that the Assessing Officer had failed to incorporate the material and his satisfaction for reopening the assessment and, therefore, the issuance of notice under section 148 for reassessment proceedings was not valid. [Para 6] 52. As already noticed, the above position is consistent with CIT v. Kelvinator India Pvt. Ltd (supra). Consequently, even in the case of ESS Advertisement, the Court is of the view that the reopening of the assessment under Section 147/148 of the Act for the AY in question was bad in law. Conclusion concerning AY 2010-11 53. For the aforementioned reasons, the Court quashes the notices issued to both ESS Advertisement and ESS Distribution under Sections 147/148 and all consequential proceedings thereto including the order disposing objections to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eafter recourse could be taken to Section 147, provided fresh material had been received by the Assessing Officer after the expiry of limitation fixed for framing the original assessment. So far as the present case is concerned we are of the view that it is evident that, faced with severe paucity of time, the Assessing Officer had attempted to travel the path of Section 147 in the vain attempt to enlarge the time available for framing the assessment. This is not permissible in law. 58. The question whether the Assessees had a PE in India has engaged the Revenue from AY 2003-04 onwards. The Court has been shown an assessment order dated 28th March 2006 in the case of ESPN Star Sports Mauritius for AY 2003-04 where this issue was specifically discussed. Likewise in the case of ESS Distribution an assessment order dated 28th March 2010 for AY 2005-06 also refers to the assessment history where the question of the Assessee having PE in India is discussed. Likewise the assessment order dated 21st October 2011 for AY 2007-08 in the case of ESPN Star Sport Mauritius. 59. Consequently, when the Assessees had filed their respective returns for 2009-10 and intimation was sent under S ..... X X X X Extracts X X X X X X X X Extracts X X X X
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