Mphasis Australia Pty Ltd v. The Assistant

IN THE HIGH COURT OF KARNATAKA, BENGALURU. DATED THIS THE 21 DAY OF NOVEMBER 2017. BEFORE THE HON'BLE Dr. JUSTICE VINEET KOTHARI %WRIT PETITION No.45711 OF 2017 (TIT) BETWEEN: MPHASIS AUSTRALIA PTY. LTD.REP. BY ITS AUTHORISKED RBPRBESENTATIVSRI K.R.GIRISHSON OF SRI RATNA KRISHNA KALPATHI.AGED ABOUT 59 YEARSC/O SEMONA CONSULTANTSSHOP NO.95, 17-19, EAST PARADESUTHERLAND —-— NSW 229AUSTRALIA. ~ .. PRHTITIONER (BY:MR.ANNAMALAI.S, ADVOCATE |FOR MR.SHANKAR.A, ADVOCATE) | AND: 1]THE ASSISTANT COMMISSIONER OF [INCOME TAXINTKBRNATIONAL TAXATION INTKBRNATIONAL TAXATION CIRCLE 1(2), BMTC BUILDING80 FEET ROAD, KORAMANGALA VI BLOCKBBENGALURU 560 095.80 FEET ROAD, KORAMANGALA VI BLOCKBBENGALURU 560 095. «|THE ADDITIONAL COMMISSIONER OF INCOMB TAX.RANGE-I, INTERNATIONAL TAXATIONBMTC BUILDING, 80 FEET ROADKORAMANGALA VI BLOCKBBENGALURU 560 095.RANGE-I, INTERNATIONAL TAXATIONBMTC BUILDING, 80 FEET ROADKORAMANGALA VI BLOCKBBENGALURU 560 095. 3.)THER DEPUTY COMMISSIONER OF INCOME TAX(INTERNATIONAL TAXATION) (INTERNATIONAL TAXATION) CIRCLE 1(1), BANGALORE Mphasis Australia Pty Ltd. vs. The Assistant Commissioner of Income Tax and Others. . 2/13 ROOM NO.441, 4 FLOOR,BMTC BUILDING, 80 FEET ROADKORAMANGALA>BBENGALURU 560 095. ~ RBSPONDENTS THIS W.P. IS FILBED UNDER ARTICLES 226 & 227 OF THE.CONSTITUTION OF INDIA PRAYING TO QUASH THE NOTICEISSUBD UNDER THR PROVISION OF SBCTION 148 OF THER ACTISSUBD BY THR RI AS BNCLOSBD AND MARKBD ASANNBXURE-A VIDE DATED 16.3.2015 FOR THER A.Y.2008-09 ASONE WITHOUT JURISDICTION AND BIC.. THIS W.P. COMING ON FOR PRBLIMINARY HEARING THIS|DAY, THE COURT MADE THE FOLLOWING:- ORDER Mr.Annamalai.S, Advocate for Mr.Shankar.A, Advocate for Petitioner. | The petitioner — assessee M/s.Mphasis AustraliaPty. Ltd. has filed this Writ Petition in this Court on4.10.2017challenging the initiation of reassessment proceedings for the Assessment Year|2008-2009under Section 148ot theIncome Tax Act, 1961(‘the Act’). © 2 |TheTECASOTIrecorded|forthe.said|reassessment proceedings and as communicated to thepetitioner-assessee by the Respondent No.1 — AssistantCommissioner of Income Tax, International Taxation, Date of Order -21-11-2017 W.P.No.45711/2017 Mphasis Australia Pty Ltd. vs. The Assistant Commissioner of Income Tax and Others. . Circle 1(2), Koramangala Bengaluru, videAnnexure-G dated16.3.2015are quoted below for ready reference:- “Mphasis Ltd., Bengaluru {“ML”/“Payer Company”) is engaged in the business ofproviding information technology solutions and|ServicesspecificallytailoredTomeetftherequirements of industries such as Financialservices, Retail, Logistics & Transportation andTechnology. The Company enters into contracts:for software development work with customers|outside India and engages services of its|overseas group companies t.e. Associatedenterprises (“AEs”) for the onsite portion ofsoftware development work.In respect of theoffshoreportion,the AssesseeCompanyexecutes the same in India whereas the onsite.portion is the responsibility of the AEs. In|respectofonsite portion,the|AESareremunerated accordingly. 1.1ML has made payments to its|foreignAssociatedEnterprises(‘CAE}on-site services which are in the nature ofsoftwaredevelopment.servicesandformarketing of its products & services in overseas:countries. On winning a contract for a project jor Date of Order -21-11-2017 W.P.No.45711/2017 Mphasis Australia Pty Ltd. vs. The Assistant Commissioner of Income Tax and Others. . 1.1ML has made payments to its|foreignAssociatedEnterprises(‘CAE}on-site services which are in the nature ofsoftwaredevelopment.servicesandformarketing of its products & services in overseas:countries. On winning a contract for a project jor Date of Order -21-11-2017 W.P.No.45711/2017 Mphasis Australia Pty Ltd. vs. The Assistant Commissioner of Income Tax and Others. . ML subcontracts a certain part of the project to|its AES and in turn the AEs are paid for theservices rendered to the Assessee company.The AEs also render marketing services in)overseas countries and due to marketing efforts|of the AEs, if a contract is won by ML, a certain|percentage of contract value is paid as selling|commission to the AEs for the services rendered.It was noticed that the payments, both for on-site services and marketing services were made|by ML to the AEs without deduction of tax atsource to the AEs. Further the AEs had also notfiled any application before the Department for|lower or NIL rate of deduction of tax at source.No application was also filed by the AEs nor ML|before the Hon’ble AAR seeking a ruling on theissue of deduction of tax at source on thepayments made to the AEs for on-site services|and selling commission. It was observed thatthepayments made by ML to the AEs for on-site services and marketing services (a.k.a.“Selling Commission’) were covered by thedefinition of Fees for technical services(“FTS”) as defined inExplanation 2 to Section|O(1)(vi) of the Income Tax Act, 1961 (*Act“), Thesums paid by ML to the AEs are therefore|chargeable to tax under the Act. The assessee| Date of Order -21-11-2017 W.P.No.45711/2017 Mphasis Australia Pty Ltd. vs. The Assistant Commissioner of Income Tax and Others. . is also one of the AE of the Payer company andwas in receipt of FITS during the previous yearrelevant to assessment year 2008-09. Suchpayments amounts to0/9, 17,685-, Though thepayee was under obligation to file return and|pay taxes as the income accrued or arised in|India the same has not been done. Therefore Ihave aq reason to believe that due to omission orfailure on the part of the assessee there is anescapement of income and the case is a fit caseto invoke the provisions of sec.147. Issue noticeU/s. 148. 3.|Mr.Annamalai.S, learned counsel for thepetitioner—assessee submitted before the Court thatthese objections of the assessee have been perfunctorilydecided by the Assessing Authority vide communication Annexure-Mdated28.11.2016_ The relevant extract ofthat communication is also quoted below for readyreference:-. oneWithout prejudice to the above, the|objections raised by the assesse are countered as|under: Date of Order -21-11-2017 W.P.No.45711/2017 Mphasis Australia Pty Ltd. vs. The Assistant Commissioner of Income Tax and Others. . The assessing officer is empowered to assess the|Income of a foreign Company as per the RelevantNotifications in this regard. The reopeningproceedings in terms of section 147 of the IT Act1961 does not mandate that the Departmentalnotification empowering the Assessing officer to|assess the income of a foreign company should beprovided to the Company.Income of a foreign Company as per the RelevantNotifications in this regard. The reopeningproceedings in terms of section 147 of the IT Act1961 does not mandate that the Departmentalnotification empowering the Assessing officer to|assess the income of a foreign company should beprovided to the Company. Date of Order -21-11-2017 W.P.No.45711/2017 Mphasis Australia Pty Ltd. vs. The Assistant Commissioner of Income Tax and Others. . The assessing officer is empowered to assess the|Income of a foreign Company as per the RelevantNotifications in this regard. The reopeningproceedings in terms of section 147 of the IT Act1961 does not mandate that the Departmentalnotification empowering the Assessing officer to|assess the income of a foreign company should beprovided to the Company.Income of a foreign Company as per the RelevantNotifications in this regard. The reopeningproceedings in terms of section 147 of the IT Act1961 does not mandate that the Departmentalnotification empowering the Assessing officer to|assess the income of a foreign company should beprovided to the Company. The Approval of the Addl CIT is based on the|proposal of the Assessing officer wherein elaboratereasons have been given. The reason to belief had|already been formed by the Assessing officer while|sending the proposal for proceedings U/s 147 ofthe IT Act. The Sanction given on the elaborate|reasons for reopening in his report by an|endorsement“VES” wouldamountto|hissatisfaction (P.Munnirathanm Chetty Vs ITO (AP)LOI ITR 385.proposal of the Assessing officer wherein elaboratereasons have been given. The reason to belief had|already been formed by the Assessing officer while|sending the proposal for proceedings U/s 147 ofthe IT Act. The Sanction given on the elaborate|reasons for reopening in his report by an|endorsement“VES” wouldamountto|hissatisfaction (P.Munnirathanm Chetty Vs ITO (AP)LOI ITR 385. The proceedings in reassessment begins only with|the issue of Notice u/s 148. It is only after the|service of Notice assesse becomes a party to theproceedings. Consequently assesse is not entitledto get a copy of the same at the stage of issuance|of notice (Vishnu Borewell Vs ITO (ORI) 257 ITR512.the issue of Notice u/s 148. It is only after the|service of Notice assesse becomes a party to theproceedings. Consequently assesse is not entitledto get a copy of the same at the stage of issuance|of notice (Vishnu Borewell Vs ITO (ORI) 257 ITR512. Date of Order -21-11-2017 W.P.No.45711/2017 Mphasis Australia Pty Ltd. vs. The Assistant Commissioner of Income Tax and Others. . There is no statutory format prescribed for Notice|u/s 148. The notice sent is valid since it mentions|that it is a notice u/s 148 and section 148 clearly|mandates that a return ts to be filed in response to|the said Notice. The typographical error in the|notice wil not vitiate the proceedings.u/s 148. The notice sent is valid since it mentions|that it is a notice u/s 148 and section 148 clearly|mandates that a return ts to be filed in response to|the said Notice. The typographical error in the|notice wil not vitiate the proceedings. section 147 prescribes the time limit to issue Notice.u/s 145, which is validly done in the instant case.There is no requirement to furnish the reasons|within the limitation period.u/s 145, which is validly done in the instant case.There is no requirement to furnish the reasons|within the limitation period. The material facts with regard to chargeability ofthe Income received by the assesse were therebefore the assessing officer at the time of recordingthe reasons. The information gathered during the|course of proceedings u/s 201 of the IT Act, 1961.can be the basis for initiating proceedings u/s 147of the IT Act. Held to be valid (Raymond WoolenMills Ltd. Vs ITO (SC) 236 ITR 34, Muljimal NRaghavanshi (Bom) 225 ITR 586).the Income received by the assesse were therebefore the assessing officer at the time of recordingthe reasons. The information gathered during the|course of proceedings u/s 201 of the IT Act, 1961.can be the basis for initiating proceedings u/s 147of the IT Act. Held to be valid (Raymond WoolenMills Ltd. Vs ITO (SC) 236 ITR 34, Muljimal NRaghavanshi (Bom) 225 ITR 586). The material facts with regard to chargeability ofthe Income received by the assesse were therebefore the assessing officer at the time of recordingthe reasons. The information gathered during the|course of proceedings u/s 201 of the IT Act, 1961.can be the basis for initiating proceedings u/s 147of the IT Act. Held to be valid (Raymond WoolenMills Ltd. Vs ITO (SC) 236 ITR 34, Muljimal NRaghavanshi (Bom) 225 ITR 586).the Income received by the assesse were therebefore the assessing officer at the time of recordingthe reasons. The information gathered during the|course of proceedings u/s 201 of the IT Act, 1961.can be the basis for initiating proceedings u/s 147of the IT Act. Held to be valid (Raymond WoolenMills Ltd. Vs ITO (SC) 236 ITR 34, Muljimal NRaghavanshi (Bom) 225 ITR 586). 6. The draft proposal for completing theassessment u/s 144 is separately sent. Your'|objection, tf any should be furnished by)*#+,#,)+-.fauing which the assessment shall becompleted accordingly.”objection, tf any should be furnished by)*#+,#,)+-.fauing which the assessment shall becompleted accordingly.” Date of Order -21-11-2017 W.P.No.45711/2017 Mphasis Australia Pty Ltd. vs. The Assistant Commissioner of Income Tax and Others. . a |The learned counsel for the petitioner urgedthat|thepetitioner-assessee hadTO filefurtherobjections before the said Assessing Authority, as theobjections raised by the petitioner—assessee earlier, werenot considered entirely and the question of jurisdiction,etc. for initiation of these reassessment proceedingswere raised by the assessee again vide objection letterAnnexure-Ndated66.12.2016thoughthesaid.document, as produced does not bear any date. Thereassessment proceedings for the Assessment Year2008-2009are admittedly pending even now before thesaid Assessing Authority. 5Learned counsel for the petitioner relyingupon the following decisions, however, urged that thesereassessment proceedings being without jurisdiction,deserve to be quashed by this Court. $;&ITR Vol.79 603— Chhugamal Rajpal v.9.B.Chaliha (S.C.). Date of Order -21-11-2017 W.P.No.45711/2017 Mphasis Australia Pty Ltd. vs. The Assistant Commissioner of Income Tax and Others. . 9/13 $;;&ITR Vol.XLI 191— Calcutta Discount Co.Ltd. VO.Income- laxOfficer,CompaniesDistrict I, Calcutta and Another. $;;;&[2015] 64.taxmann.como13(SC| Commissioner of Income-Tax, Jabalpur (MP)v. 9.Goyanka Lime & Chemical Ltd. $;7&IZO15]64.taxmann.com390(SC Commissioner of Income-Tax, Jabalpur v. ».Goyanka Lime & Chemical Ltd. 6. Having heard the learned counsel for thepetitioner-assessee, this Court is satisfied that thepresent Writ Petition is premature and does not requireany interference by this Court at this stage. This Courthas dismissed a similar Writ Petition filed by the sameParent Company of U.S.A. M/s.Mphasis Corporation,NewYork,|U.DS.A.,byaseparate.order.today(21.11.2017),V1Z.,W.P.No.45709/2017. The relevantportion of that order is quoted below for readyreference:- Date of Order -21-11-2017 W.P.No.45711/2017 Mphasis Australia Pty Ltd. vs. The Assistant Commissioner of Income Tax and Others. . 10/13 Commissioner of Income-Tax, Jabalpur (MP)v. 9.Goyanka Lime & Chemical Ltd. $;7&IZO15]64.taxmann.com390(SC Commissioner of Income-Tax, Jabalpur v. ».Goyanka Lime & Chemical Ltd. 6. Having heard the learned counsel for thepetitioner-assessee, this Court is satisfied that thepresent Writ Petition is premature and does not requireany interference by this Court at this stage. This Courthas dismissed a similar Writ Petition filed by the sameParent Company of U.S.A. M/s.Mphasis Corporation,NewYork,|U.DS.A.,byaseparate.order.today(21.11.2017),V1Z.,W.P.No.45709/2017. The relevantportion of that order is quoted below for readyreference:- Date of Order -21-11-2017 W.P.No.45711/2017 Mphasis Australia Pty Ltd. vs. The Assistant Commissioner of Income Tax and Others. . 10/13 “AHaving heard learned counsel for|the petitioner- assessee, this Court is satisfied that it ispremature for this Court to interfere at this stage in thepresent reassessment proceedings. Firstly, not onlythe proceedings have been initiated way-back in theyear 2015 and the proceedings are still pendingbefore the said Assessing Authority, who is yet todecide all these objections raised by the assessee byan appropriate order, but also because the nature ofobjections raised before this Court do not render theproceedings as patently without jurisdiction. Thequestion of approval by higher authority is anadministrative job. Even if there is difference of datesin such approval, videAnnexure-f_ dated13.33.201on the reasons recorded by the Assessing Authority on16.3.2015,prima facie, it may reflect premature|approval on the part of the Additional Commissionerbut it need not render the very initiation ofproceedings asnon-est. OFvoid. These proceedingscannot be quashed merely on this ground, as noprejudice is caused to the petitioner by such anadministrative approval. 5.|On the contrary, the reasons for initiation ofthe proceedings as assigned by the Respondent-Assessing Authority and quoted above,prima facie27indicates that the Assessing Authority had sufficient Date of Order -21-11-2017 W.P.No.45711/2017 Mphasis Australia Pty Ltd. vs. The Assistant Commissioner of Income Tax and Others. . 11/13 and reasonable reasons to initiate such proceedings,as certain payments were made to the AssociateEnterprises (A.Es.) of the parent Company of U.S.A.without making suitable Tax Deduction at Source(TDS) rendering such expenses as non-admissible inthe hands of the assessee. The said reasons cannotbe said to be irrelevant or non-germane for theformation of a reasonable belief about escapement ofincome as required under|Section 147/148of the Act|or initiation of such proceedings for bringing to the taxthe income which has escaped assessment. _ 6.|Therefore, this Court cannot pre-judge as tohow the objections of the assessee in this regard willbe met by the Respondent-Assessing Authority. Since,admittedly, the proceedings are pending as of now, nopronouncement with regard to merit of such objectionscan be made at this stage. — 7.|The other objections raised by learned|counsel for the petitioner assessee are also peripheralin nature and do not want to go to the root of thematter to render such proceedings as being withoutjurisdiction. The question whether U.S.A. Companyhas a Permanent Establishment in India or not iscertainly a mixed question of fact and law and thatdepends upon several facts to be established by the Date of Order -21-11-2017 W.P.No.45711/2017 Mphasis Australia Pty Ltd. vs. The Assistant Commissioner of Income Tax and Others. . 12/13 assessee upon being questioned by the Respondent —Assessing Authority. The process of adjudication ofthese facts is still underway to be established beforethe Respondent Assessing Authority. Therefore, thisCourt cannot render any findings in this regard. 7.|The other objections raised by learned|counsel for the petitioner assessee are also peripheralin nature and do not want to go to the root of thematter to render such proceedings as being withoutjurisdiction. The question whether U.S.A. Companyhas a Permanent Establishment in India or not iscertainly a mixed question of fact and law and thatdepends upon several facts to be established by the Date of Order -21-11-2017 W.P.No.45711/2017 Mphasis Australia Pty Ltd. vs. The Assistant Commissioner of Income Tax and Others. . 12/13 assessee upon being questioned by the Respondent —Assessing Authority. The process of adjudication ofthese facts is still underway to be established beforethe Respondent Assessing Authority. Therefore, thisCourt cannot render any findings in this regard. 5.|It is always safer and better to leave thedetermination of such questions offacts at the handsof the Authorities created under the Act upto theAppellate Forums, t.e. Income Tax Appellate Tribunal,which is the final fact-finding body under theprovisions of the.Income Tax Act, 1961.Cutting|Short of that procedure and process of assessmentwould amount to unnecessary interference with suchproceedings, whichprima facie,appear to have been|validly initiated. Therefore, keeping it open for thepetitioner-assessee to press the objections before theAssessing Authority and Appellate Authorities underthe Act to decide these objections and adjudicatethese questions of the assessee at their own level, thepresent petition is dismissed as premature and doesnot callfor any interference by this Court. TS|In view of the aforesaid reasons, this Courtis of the opinion that the petitioner-assessee shouldraise the objections before the concerned Authorities Date of Order -21-11-2017 W.P.No.45711/2017 Mphasis Australia Pty Ltd. vs. The Assistant Commissioner of Income Tax and Others. . 13/13 created under the Income Tax Act including the Appellate Forums and allow them to decide the objections raised by the petitioner-assessee at their own level, as several mixed questions of fact and law do arise in this case. Therefore, it would be premature for thisCourt to give any findings on the objections raised bythe petitioner-assessee at this stage. | 8.|Therefore, this petition being premature isliable to be dismissed and isdismissedaccordingly. No. order as to costs. Copy of the order be sent to theRespondents forthwith. VGR Sd/-. JUDGE.