Ita/52/2013 Of M/S.ial India Ltd v. Assistant Commissioner Of Income Tax

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HON'BLE THE CHIEF JUSTICE DR. MANJULA CHELLUR &THE HONOURABLE MR.JUSTICE A.M.SHAFFIQUE TUESDAY, THE 5TH DAY OF NOVEMBER 2013/14TH KARTHIKA, 1935 ITA.No. 52 of 2013 () ---------------------- AGAINST THE ORDER IN ITA 79/COCH/2011 of I.T.A.TRIBUNAL,COCHIN BENCHDATED 20-07-2012APPELLANT/RESPONDENT: ---------------------------------------------- M/S.IAL INDIA LTD. (FORMERLY M/S.IAL SHIPPING AGENCIES (KOCHI)LTD. AMALGAMATED WITH M/S. IAL INDIA LTD.WITH EFFECT FROM 1-04-2004) 6TH FLOOR, METRO PLAZA, MARKET ROAD COCHIN-14, REPRESENTED BY ITS BY ADVS.SRI.DEVAN RAMACHANDRAN SRI.K.M.ANEESH SRI.S.NIKHIL SANKAR SRI.ADARSH KUMAR RESPONDENT/APPELLANT: ------------------------------------------------ ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-I (2), RANGE I, KOCHI. BY SRI.JOSE JOSEPH, SC, FOR INCOME TAX THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 05-11-2013, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: MANJULA CHELLUR,C.J. & A.M.SHAFFIQUE, J. = = = = = = = = = = = = = = = = I.T.A No.52 of 2013 = = = = = = = = = = = = = = = = = = = = = Dated this the 5 th day of November, 2013 JUDGMENT Manjula Chellur,CJ The Assessee company is before us assailing the orders ofthe Tribunal in I.T.A.No.79/Coch/2011 so far as assessment year2002-03. It is not in dispute that the assessee has filed return ofincome contending that it is engaged in the business of shippingline and global freight forwarding and declared a loss of₹3,31,829/- as per the return of income dated 09.10.2002. It isalso not in dispute that the said return was processed underSection 143(1) of the Income Tax Act (hereinafter referred to asthe 'Act') accepting the returned loss, on 21.02.2003. Whathappened subsequently is relevant. 2. The department conducted survey operations at thepremises of IAL Shipping Agencies (Kochi) Ltd Group on24.08.2007, wherein it was found that the assessee before us is also one of the companies belonging to that group. From the report of survey, several facts came to light and the relevant factwas that assessee company also had an agreement dated01.04.2001 entered with another company by name IALContainer Line UK Ltd which was also engaged in the same lineof business as that of assessee company. Though assesseecompany was collecting freight and terminal handling charges,such amounts or charges were not reflected in the income fromsuch business activity in the returns filed by them. HenceAssessing Officer issued notice under Section 148 of the Act.Several details were sought from the assessee. Ultimately, theAssessing Officer completed the assessment on the bestjudgment method under Section 144 of the Act. 3. Aggrieved by the same, company preferred appeal before the Commissioner of Income Tax (Appeals), Kochi(hereinafter referred to as CIT(Appeals) for short) challengingthe additions made by the Assessing Officer on various grounds.CIT (Appeals), placing reliance on the decision of Mumbai Benchof the ITAT and also by referring some of the material placedbefore it by the assessee. The Appellate authority opined that the assessee was acting as an agent of the UK company andwhile opining so, deleted the additions made by the AssessingOfficer. 4. Aggrieved by the same, the Revenue approached the 3. Aggrieved by the same, company preferred appeal before the Commissioner of Income Tax (Appeals), Kochi(hereinafter referred to as CIT(Appeals) for short) challengingthe additions made by the Assessing Officer on various grounds.CIT (Appeals), placing reliance on the decision of Mumbai Benchof the ITAT and also by referring some of the material placedbefore it by the assessee. The Appellate authority opined that the assessee was acting as an agent of the UK company andwhile opining so, deleted the additions made by the AssessingOfficer. 4. Aggrieved by the same, the Revenue approached the Tribunal. The Tribunal, after referring to various observations ofthe Assessing Officer as well as CIT(Appeals), opined that ordersof CIT(Appeals) deserves to be set aside and further restored allthe issues to the file of the Assessing Officer with a direction toproceed with the assessments de novo without being influencedby the “Annual No Objection Certificate” dated 16.04.2001issued by the Deputy Commissioner of Income tax, Circle-I,Mattancherry to examine all the issues afresh. Aggrieved by thesame the assessee company is before us. 5. Learned counsel appearing for the appellant assessee strenuously argues that once there is acceptance of relationshipof principal and agent between the UK company and the Indiancompany, as found in the orders of ITAT, Mumbai which hasreached finality, there was no necessity to go into the said issueagain so far as Cochin Circle is concerned. According to him, onaccount of certain material during the survey proceedings at Mumbai, there was an assessment under Section 144 of the Act,so far as Cochin circle is concerned and additions were alsomade on account of said materials found during the survey.Therefore, there was nothing wrong in placing reliance on theopinion of the Mumbai Tribunal by the CIT(Appeals) at Cochin. 6. He further substantiates his arguments contending thatthe opinion of ITAT at Mumbai was confirmed by the High Courtof Mumbai, therefore there is finality and Revenue at CochinCircle cannot hold de novo enquiry as per directions of Tribunal.According to him, the only relevant consideration in the entirematerial is, whether the appellant-assessee is an agent orprincipal and consequently the 2[nd] issue would be whether thereis a certificate issued by the concerned authority as requiredunder Section 172 of the Act. If the nature of business atMumbai and Cochin are similar, there was justification for CIT(Appeals) to refer to judgment of the High court, Mumbai whichhas reached finality. Therefore, nothing else need to be done bythe Assessing Officer, as CIT(Appeals), apart from referring toMumbai proceedings, has also independently considered thematerial placed before the CIT(Appeals) and has opined that the certificate issued by Deputy Commissioner under Section 172 ofthe Act deserves to be taken into consideration. Therefore,nothing else remains for consideration of Assessing Officer. 7. We have gone through the papers as well as the order ofCIT(Appeals) and impugned orders by the Tribunal. Tribunal hasin detail referred to the material noticed by the Assessing Officerduring proceedings under Section 144 of the Act. At paragraph5 it also refers to the material pertaining to the assessment ofMumbai Company. The main reason for directing a de novoenquiry was that there are de-centralized companies. In thesubsequent orders in the name of M/s.IAL which is nothing butM/s.IAL UK Company. The name of UK Company is changed toM/s.IAL Container Line India Ltd. In order to understandreasoning of the Tribunal, it is just and proper to reproduceparagraphs 4 and 5 of the Tribunal's order which reveal thematerial facts considered by the Assessing Officer. Paragraphs 4and 5 read as under: “4. The AO noticed that the assessee-company as well as the UKCompany are owned and controlled by members of the same family.The key person in both the companies was Shri.T.V.Narayan Kuttyand he was controlling the affairs of both the companies from Dubai. It appears that the group has promoted a company named“M/s.IAL Container Line India Limited.” It has also promoted manyother companies in each area of operation in India like the assesseeherein, IAL(Mumbai) P Ltd., IAL(Calcutta) P Ltd, IAL(Delhi) PLtd.etc. (For the sake of convenience, we may refer them as“Decentralised companies”). It appears that these decentralisedcompanies, which were registered and assessed in Mumbai, claimedthat the income from shipping business is exempt as per the “DTAA”entered between India and U.K. It appears that the respectiveassessing officers have denied DTAA benefit to them. It is stated inthe instant assessment order that the decisions of the respectiveAOs to deny DTAA benefit to these decentralised companies werereversed by Ld CIT(A) and after the receipt of the order of Ld (CIT(A), the registered offices of these decentralised companies wereshifted all over India. Since the Assessing Officers denied DTAAbenefit to these decentralised companies in the subsequent yearsalso, it is stated that all these decentralised companies were mergedwith a new entity named “IAL Container Line India Ltd”, whoseregistered office is located in Kochi. We may caution here that thedetails discussed above are not clearly emanating from record andwe have made only an attempt to understand the back ground ofthe operations from the observations of the AO. Hence, we maymention that these details require authentication from the taxauthorities. The purpose of making these discussions and thepurpose of qualifying the observations are that the facts surroundingthe various issues under consideration have not been clearlybrought out either by the assessing officer or by the assessee. Be that as it may, we shall now proceed to discuss the facts of theinstant case as understood by us. 5. The assessee appears to have claimed that it is actingonly as an agent of UK Company and hence the shipping incomegenerated by it in India belongs to the UK Company referred supra.Accordingly, it did not declare the said income in its Profit and LossAccount. It was also noticed that, in the assessment of anothercompany of the Group named IAL Shipping Agencies (Mumbai) Ltd.,the Department had concluded that there is no Agent-Principalrelationship between IAL. Shipping Agencies(Mumbai) Ltd. and IALContainer Line (UK)Ltd.,(It is not clear whether the IAL(Mumbai) PLtd, referred earlier and the IAL Shipping Agencies (Mumbai) Ltd areone and the same company or different companies). It appears thatthe company named IAL Shipping Agencies (Mumbai) Ltd claimedthat it was acting as an agent of the “UK Company” and further itwas claimed that the income of the UK Company is exempt underthe DTAA entered between Central Government and Government ofUK. Since the claim of agent-principal relationship was denied, thedepartment assessed the entire income derived from shippingbusiness in the hands of IAL Shipping Agencies (Mumbai) Ltd. Byfollowing the said assessment order, the Assessing Officer, in theinstant case also, held that the assessee herein is also actingindependently and not as an agent of the UK Company. Accordinglyhe completed the assessment in the instant case by assessing theentire receipts from shipping activities amounting toRs.1,86,20,408/- in the hands of the assessee on protective basis.The AO also made various other additions and determined a total income of Rs.18,61,14,180/-. It is pertinent to note that theAssessing Officer did not make any reference to any of the letters,details or particulars, if any, filed by the assessee in the assessmentorder.” income of Rs.18,61,14,180/-. It is pertinent to note that theAssessing Officer did not make any reference to any of the letters,details or particulars, if any, filed by the assessee in the assessmentorder.” 8. Paragraph 9 refers to the reasoning why the Tribunalfelt in the interest of justice de novo enquiry would clearlyestablished what exactly is the nature of operations conductedby the Cochin Company. It is also glaring and relevant tomention that certain money transactions were noticed betweenCochin Company and branch of UK Company at Dubai. This wasnot taken into consideration at all by CIT (Appeals), though areference is made. If de novo assessment is done, in the light ofthe observations at paragraphs 4, 5 and 9 of the orders of theTribunal independently, without being influenced by any of theobservations of the Tribunal, it would give an opportunity to theassessee to put forth all the contentions in support of their standthat Cochin Company is nothing but an agent of the UK basedCompany and it has no independent status of its own. In otherwords, it is not a principal; but only acting as an agent. 9. However, the appellant is also entitled to place furthermaterial, if any, in support of their case to clarify the doubts expressed in the above paragraphs of the orders of the Tribunaland the Assessing Officer, without being influenced by any of theobservations of the Tribunal, shall proceed with the matter asdirected by the Tribunal which would meet ends of justice. Accordingly the appeal is dismissed. MANJULA CHELLUR, CHIEF JUSTICE A.M.SHAFFIQUE, JUDGE. sj 7/11