9911796707
TMI Blog2025 (2) TMI 1177X X X X Extracts X X X X X X X X Extracts X X X X ..... ifest from a reading of the notice dated 19 March 2021, the same was based on various survey reports and the findings that came to be recorded in the course thereof pertaining to various constituents of the GE group. 4. Since, we are in the present case concerned with the reassessment regime which existed prior to the promulgation of Finance Act, 2021, the respondents appear to have followed the procedure as mandated by the Supreme Court in GKN Driveshafts (India) Ltd. v. Income Tax Officer and Ors (2003) 1 SCC 72. The reasons which are stated to have formed the basis for the formation of opinion that income had escaped assessment appear on our record as Annexure-C. From a reading thereof, we find that the reopening was principally founded on the survey, which was conducted on 06-07 June 2019 on various entities forming part of the Energy and Transmission & Distribution (Grid) business of the erstwhile Alstom Group which was subsequently acquired by GE. This becomes apparent from a reading of paragraphs 2 and 3 of the reasons and which are reproduced hereinbelow:- "2. In this case Survey I 33A(l) was conducted on 06-07 June, 20I9 alongwith the following three other entities whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the earlier judgments rendered by the Court in GE Energy Parts Inc vs. Commissioner of Income-tax (International Taxation) 2018 SCC OnLine Del 13256 and which had emanated from a survey which was conducted in 2007 would also clearly not be applicable nor could the same be mechanically applied. Insofar as the question of the existence of a PE is concerned, the petitioner explained that it had admittedly set up a Project Office in respect of onshore supplies and that all revenues attributable to that Project Office had been duly offered for taxation and had, in fact, been duly assessed and accepted. 8. It was further contended that insofar as the revenue of the petitioner was concerned, the same was confined to offshore supplies which were undertaken in the relevant AYs' and thus clearly not exigible to tax, in light of the judgment of the Supreme Court in Ishikawajma-Harima Heavy Industries Ltd vs DIT 2007 SCC 2481. This becomes evident from a reading of the following extract of the objections which were submitted:- "(j) No income escaping assessment It is further submitted that, even otherwise, the present case is not amenable to invocation of reassessment proceedings for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransaction, the aforementioned provision will have no application. The permanent establishment cannot be equated to a business connection, since the former is for the purpose of assessment of income of a non-resident under a Double Taxation Avoidance Agreement, and the latter is for the application of Section 9 of the Income Tax Act. (6) Clause (a) of Explanation 1 to Section 9(1)(i) states that only such part of the income as is attributable to the operations carried out in India, is taxable in India. (7) The existence of a permanent establishment would not constitute sufficient "business connection", and the permanent establishment would be the taxable entity. The fiscal jurisdiction of a country would not extend to the taxing of entire income attributable to the permanent establishment. (8) There exists a difference between the existence of a business connection and the income accruing or arising out of such business connection. (9) Para 6 of the Protocol to the DTAA is not applicable, because, for the profits to be "attributable directly or indirectly", the permanent establishment must be involved in the activity giving rise to the profits." (emphasis supplied) It ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er means. The submission of the Revenue is mostly on the merits of the case which has to be considered in the course of merit hearing. Merely because the applicant has taken over the responsibility of risk of loss or damage till the equipments were delivered in Delhi and also that of insurance etc; it does not establish that the transaction was designed prima facie for avoidance of tax................." (emphasis supplied) Since no income with regard to offshore supplies is taxable in India, no income in any case be attributed to alleged PE of the assessee in India. In view of the foregoing, it is submitted that reassessment proceedings initiated in the present case in absence of any income chargeable to tax escaping assessment renders the same without jurisdiction, bad in law and liable to be dropped." 9. Those objections ultimately came to be rejected by the respondents in terms of an order dated 31 December 2021. While dealing with the objection of the surveys conducted in 2007 and 2019 not being liable to be mechanically extrapolated to the AYs in question, the AO has held as follows:- "V. The assessee has claimed, in essence, that the survey was not undertaken in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sponsible for the business of their respective verticals. Each vertical has Tier-2 businesses. GEPIL has regional organization of Steam Power Tier 2 Business and Hydropower Tier-2 business of GE Renewables. The steam power tier 2 business is led by Mr Andreas Lusch, President and CEO. The Hydropower Tier 2 business is led by Mr Pascal Radue, President and CEO." Thus, clearly, the assessee's vertical is covered directly by the survey findings. Further, the statement of Mr. Apratim Sen, as presented in the reasons, is reproduced below: "I work in the tendering segment of the business. I propose the bids in response to the tenders issued by clients. I deal with bids related to tenders for services. I also interact with customers for potential future contracts. [...] In such cases [to the question, where GEPIL and a foreign entity of the GE Power business jointly enter into a contract with an Indian client for supply and installation of machinery or other equipment, do the employees of GEPIL provide inputs to the foreign entity of the GE group for preparation and finalization of its part of the bid?], the Indian customers float tenders and in response GEPIL and the foreign enti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT [ITA No. 621 of 2017] had held that even though the survey action was conducted on the premises of General Electric International Operations Company Inc. ('GEIOC'); GE India Industrial Pvt. Ltd and ('GEIIPL'), the PE as held by the court was for all GE Group companies. The court held that where personnel in India, even when they do not themselves sign the contract and are not the deciding authority for entering into contracts, play a role that is not auxiliary in the entering of the contract. Importantly, the Court cites India's position on the OECD commentary which is as follows: "a person has attended or participated in negotiations in a State between an enterprise and a client, can, in certain circumstances, be sufficient, by itself, to conclude that the person has exercised in that State an authority to conclude contracts in the name of the enterprise; and that a person who is authorized to negotiate the essential elements of contract, and not necessarily all the elements, can be said to exercise the authority to conclude contracts.". The Court also relied on a decision of Italian Supreme Court in Ministry of Finance (Tax Office) v. Philip Morris (GmBH), Corte Suprema d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny case, it is differentiable on facts as that case involved a consortium of unrelated parties. The assessee's reliance on Linde AG, Linde Engineering Division vs DDIT: [2014] 365 ITR 1 (Del) is premature and incorrect. In any case, it is differentiable on facts as the consortium was dealt with as an Association of Persons. The assessee's reliance on Adobe Systems Incorporated (supra), is once again, incorrect. In that case, the reasons to believe referred to income-escapement arising from the transfer pricing analysis leading to inadequate compensation arising from a cost-plus model, whereas the Revenue's contention was premised on a greater share of income in the hands of the non-resident company as decided through the use of the Profit Split Method. As discussed above, the disposal test is satisfied in the instant case. The assessee's reliance on Swastic Safe Deposit and Investments Ltd vs ACIT: [2019] 265 Taxman 164 (Bom) is incorrect as it is differentiable on facts. The issue under consideration in that case was of taxability of capital gains arising from sale of shares and its concomitant exemption u/s 10(38) of the Income-tax Act, 1961. Consequently, the assessee's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l in this respect also sought to draw sustenance from the decision of the Supreme Court in Raymond Woollen Mills Ltd. v ITO 1997 SCC OnLine SC and to the following passages as appearing therein:- "1. The challenge in this case is to the reopening of the assessment of Raymond Woollen Mills Ltd. We have been shown the recorded reasons for reopening under Section 147-A (sic Section 147). The case of the Revenue was that the assessee was charging to its profit and loss account fiscal duties paid during the year as well as labour charges, power, fuel, wages, chemicals, etc. However, while valuing its closing stock, the elements of fiscal duty and the other direct manufacturing costs were not included. This resulted in the undervaluation of inventories and an understatement of profits. This information was obtained by the Revenue in a subsequent year's assessment proceeding. 2. Mr Vellapally, learned Senior Counsel appearing on behalf of the appellant, has argued that the Department has made a grievous error in coming to this conclusion. 3. In this case, we do not have to give a final decision as to whether there is a suppression of material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration of activities in India. Whether project activity in India continued for a period of more than nine months, for taxability in India in terms of the Agreement for Avoidance of Double Taxation, is a question of fact, that has to be determined separately for each assessment year. (2010) 327 ITR 456 (SC)." 19. In order to appreciate what the Supreme Court held in National Petroleum, it would be apposite to notice the more elaborate discussion which appears in the judgment of this Court in National Petroleum Con. Co. v. Deputy CIT, the relevant parts whereof are extracted hereunder:- "24. The respondents have granted the impugned certificate for deduction at 4 per cent. of the gross receipts. The assessment for the above noted contracts would be undertaken in the future, viz., the assessment years 2019- 20 and 2017-18 respectively. As of now, we are not concerned with a regular assessment proceeding but, with determination of rate of tax deduction. On perusal of reasons, it becomes manifest that during the course of enquiry under section 197 of the Act, the petitioner was asked to furnish the details regarding the scope and nature of the aforenoted contracts. The Revenue conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not to deal with eadem question as that which arises in respect of an assessment for another year and consequently not to set up an estoppel". [Ref: New Jehangir Vakil Mills Co. Ltd v. CIT (1963) 49 ITR (SC) 137]. "It is well settled that in matters of taxation there is no question of res judicata because each year's assessment is final only for that year and does not govern later years, because it determines only the tax for a particular period". [Ref: Installment Supply P. Ltd. v. Union of India [1962] AIR 1962 SC 53 (Constitution Bench)]. 25. The petitioner has argued that the need for consistency and certainty requires that there must exist strong and compelling reasons for a departure from a settled position, which must be spelt out and they are conspicuously absent in the present case. Mr. Balbir Singh has strongly argued that the stand taken by the respondents in the previous year should have been followed and in this regard, he relies upon the decision of the Supreme Court in the case of Radhasoami Satsang v. CIT [1992] 193 ITR321 (SC). Besides, Mr. Singh, as quoted earlier has also led considerable emphasis on the decision of this court dated May 9, 2017, wherein t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and we This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above are informed that for the assessment year 2016-17 and the assessment year 2017-18, the determination is presently against the petitioner. We cannot accept the petitioner's contention that the assessment proceedings for the assessment years 2007-08, 2008-09 and 2009-10 have already determined this question in favour of the petitioner and there is no change in any circumstances. This question would require to be determined and finding of the fact would have to be arrived at, by a careful consideration of terms of contract, determination whereof cannot be undertaken in the proceedings under section 197 of the Act." 20. The interplay between the principle of consistency and the facts of each year of assessment was lucidly explained by our Court in Galileo Nederland BV Vs. Assistant Director of Income Tax (International Taxation) 2014 SCC OnLine Del 4282 as under:- "19. We are aware that each assessment year is separate and distinct and principle of res judicata does not apply to proceedings for subsequent or other year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... way that the business activities are carried on in a given State. Clearly, whether or not a permanent establishment exists in a State during a given period must be determined on the basis of the circumstances applicable during that period and not those applicable during a past or future period, such as a period preceding the adoption of new arrangements that modified the way in which business is carried on." 23. It is in the aforesaid backdrop that the observations of the Supreme Court in CIT v Gupta Abhushan (P) Ltd 2008 SCC OnLine Del 1468 also assume significance and where it was unambiguously held that a survey report pertaining to a particular tax period cannot ipso facto be read or countenanced as being relevant and binding for independent assessment years as is evidenced from paragraph 6 of the report which is extracted hereinbelow: "6. The second part of the reasons recorded by the Assessing Officer indicate that during the survey, it was noticed that extensive renovation work in the business premises of the assessee had been undertaken and that the renovation in respect of the ground floor had been completed and that the renovation in respect of the first floor was go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... understatement of profits. The observation with respect to an assumption being reached is liable to be appreciated in the aforesaid light. The reassessment action is thus liable to be set aside on this short score alone. " 12. We are thus constrained to observe that the entire action of reassessment was based solely on the past surveys which had been conducted. There has been an abject failure on the part of the AO to record any finding on how the material gathered in the course of those surveys would impact the assessment of income for the years in question. As was observed by us in Grid Solutions OY, PE is a fact specific issue and that facts gathered in the course of a survey cannot be mechanically adopted or applied as relevant to an assessment wholly unconnected and separate. The AO also fails to record any satisfaction to the effect that the facts gathered in the course of those past surveys have been, on a prima facie evaluation, found to exist in the AYs' in question. 13. Accordingly, and for all the aforesaid reasons, we allow the instant writ petitions and quash the following impugned notices issued under Section 148: WP(C) Assessment Year Date of SCN 1560 of 2022 ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
