$~15
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on: 19.11.2015
+ W.P.(C) 2062/2014 & CM No.4320/2014 (stay)
DISCOVERY ASIA INC. ..... Petitioner
versus
ASSISTANT DIRECTOR OF INCOME TAX ..... Respondent
Advocates who appeared in this case:
For the Petitioners : Mr M.S. Syali, Sr Advocate with Mr Mayank
Nagi and Ms Husnal Syali, Advocates.
For the Respondents : Mr Kamal Sawhney, Mr Raghvendra Singh and
Mr Shikhar Garg, Advocates.
CORAM:-
HON'BLE MR JUSTICE BADAR DURREZ AHMED
HON'BLE MR JUSTICE SANJEEV SACHDEVA
JUDGMENT
BADAR DURREZ AHMED, J (ORAL)
1. This writ petition is directed against the notice dated 28.03.2012
issued under Section 148 of the Income Tax Act, 1961 (hereinafter
referred to as `the said Act') pertaining to the Assessment Year 2005-06.
It is also directed against the order dated 10.02.2014 whereby the
objections preferred by the petitioner were rejected by the Assessing
Officer.
2. The assessment under Section 143(3) was originally done on
19.12.2008. The notice under Section 148, which is impugned herein,
has been issued beyond the period of four years from the end of the
W.P.(C) No.2062/2014 Page 1 of 5
relevant assessment year. The reasons for initiating the reassessment
proceedings which were supplied to the petitioner on 16.01.2014 are as
under:-
"INCOME TAX DEPARTMENT
1. Name & Address of : Discovery Asia Inc. One Discovery
the Assessee Place Silver Spring, Maryland
20910-3354 USA
2. Permanent Account : AABCD4333P
No.
3. Status : Foreign Company
4. Residential Status : Non-resident
5. Assessment year : 2005-06
6. Date of order : 26.03.2012
Reasons for issue of notice u/s 148 of the Income Tax Act, 1961 :-
Return declaring Nil income for AY 2005-06 was filed by
the assessee on 30.10.2005, which was later revised on
30.03.2007 declaring an income of Rs.3,62,68,927/- and the
assessment was completed u/s 143(3) on 19.12.2008 at an
income of Rs.37,61,13,121/-. The reasons for the variance in the
assessed income from the returned income was that Discovery
Communications India (DCIN) was held to be the assessee's PE
in India and profits were attributable to it. Further, the
subscription revenues received by the assessee were taxed as
royalty income.
2. Article 12(6) of the DTAA between India and US provides
that the provisions of Article 12(1) and 12(2) shall not apply if
the royalties or fees for technical services arise through a
permanent establishment (PE) and are attributable to such PE and
in such a case, the provisions of Article 7 shall apply. Further, as
per the provisions of section 115A(b) of the Act, where the total
income of a non-resident or a foreign company includes any income
by way of royalty/fees for technical services received from
government or an Indian concern in pursuance of an agreement
after 31st March, 1976, subject to the provisions of sub-section (2),
the Income tax payable shall be 20% where such royalty is received
W.P.(C) No.2062/2014 Page 2 of 5
in pursuance of an agreement made after 31.05.1997 but before
01.06.2005. Therefore, in such a case, the provisions of section
44D(3) of the Act would apply, which provides that
notwithstanding anything to the contrary contained in sections 28 to
44C, in the case of an assessee being a foreign company, no
deduction in respect of any expenditure or allowance shall be
allowed under any of the said sections in computing the income by
way of royalty received from government or an Indian concern in
pursuance of an agreement made by a foreign company after
31.03.1976 but before 01.04.2003.
3. Perusal of the assessment record reveals that in the assessee's
case, the royalty income amount to Rs.336,754,388/- was taxed @
15% under the DTAA. However, as the royalty income had been
earned through PE based on agreement dated 18.08.2004 identical
and renewal / remaining to the main agreement that was entered
into on 02.12.1996, it should have been taxed @ 30% on gross
basis. The correct calculation regarding royalty income would be as
under:-
Calculation Sheet
Amount of Royalty 336,754,388
Tax @ 30% on above 101,026,316
Add: Surcharge @ 2.5% 2,525,658
Total 103,551,974
Add : Education Cess @ 2% 2,071,039
Total Tax 105,623,013
''
3. The petitioner preferred objections on 04.02.2014 which were
rejected by the Assessing Officer by virtue of the impugned order dated
10.02.2014. One of the points urged by Mr Syali, appearing on behalf of
the petitioner, was that the reasons do not mention anything about failure
on the part of the assessee to fully and truly disclose all the material facts
necessary for the assessment. He submitted that this is a pre-condition
prescribed in the first proviso to Section 147 of the Act before the
W.P.(C) No.2062/2014 Page 3 of 5
reassessment proceedings can be undertaken. It is submitted that there is
not even an allegation that there has been any failure on the part of the
assessee to fully and truly disclose all the material facts necessary for the
assessment. Reliance was placed on Haryana Acrylic Manufacturing P.
Ltd. v. CIT : (2009) 308 ITR 38 (Del) as also on the Rural
Electrification Corporation Ltd. vs. CIT & Anr.: 355 ITR 356 (Del).
4. We have examined the reasons which have been quoted above and
it is evident that there is no whisper of the petitioner having failed to
disclose fully and truly all the material facts necessary for its assessment.
It is therefore clear, based on the said decisions, that the necessary
ingredients for invoking the provisions of Section 147 beyond the period
of four years are missing. As such, the initiation of the reassessment
proceedings pertaining to the assessment year 2005-06 is without the
authority of law.
5. We may also point out that the very issue which has been raised in
the reasons has been considered in detail in the course of the original
assessment proceedings. In fact, the reasons themselves indicate that
what is sought to be done through reassessment was already available in
the record of the assessment proceedings. The agreements which have
been referred to in the reasons were available before the Assessing
Officer and had been examined in detail by the Assessing Officer.
Therefore, there is also substance in the submissions made by Mr Syali
that the reopening of assessment is nothing but a mere change of opinion
also. Thus, in either eventuality, the reassessment proceedings cannot be
sustained in law.
W.P.(C) No.2062/2014 Page 4 of 5
6. Consequently, the impugned notice dated 28.03.2012 issued under
Section 148 of the said Act as also the proceedings pursuant thereto
including the order dated 10.02.2014 disposing of the objections are
quashed/set aside.
7. The writ petition is allowed. There shall be no order as to costs.
BADAR DURREZ AHMED, J
NOVEMBER 19, 2015 SANJEEV SACHDEVA, J
st
W.P.(C) No.2062/2014 Page 5 of 5
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