M/S. Reuters India Pvt. Ltd v. Deputy Commissioner Of Income-Tax

IN THE HIGH COURT OF JUDICATURE AT BOMBAYCIVIL APPELLATE JURISDICTION WRIT PETITION NO.4562 OF 2007 M/s. Reuters India Pvt. Ltd. ...Petitioner vs. Deputy Commissioner of Income-Tax ...Respondent ---- Mr. Nitesh Joshi i/b Mr. Atul K. Jasani for Petitioner.Mr. Suresh Kumar for Respondent. ---- CORAM : K. R. SHRIRAM AND AMIT B. BORKAR, JJ. DATE : 26 NOVEMBER 2021 P. C. : This petition was originally filed in Delhi and got transferredto Mumbai by order of the Apex Court. 2.Petitioner is impugning a notice dated 27/3/2002 forAssessment Year 1996-1997 and dated 15/2/2002 for Assessment Year1997-1998 issued under Section 148 of the Income Tax Act, 1961 (the saidAct). 3.Petitioner is an Indian company and subsidiary of ReutersLimited, U.K. (Reuters UK). Since inception petitioner is engaged in distribution of Reuters products sourced from Reuters UK to subscribers inIndia. Petitioner had entered into with Reuters UK distribution agreement,product distribution agreement, license agreement, data purchase agencyagreement and development agreement. 4.In terms of agreement between petitioner and Reuters UK,petitioner was required to pay 65% of the subscription to Reuters UK andretain the balance. The issue was, whether petitioner should have deductedtax at source on 65% being remitted to Reuters UK. 5.Petitioner, by its application dated 20/5/1996 to the IncomeTax Officer, Special Ward 30(1), Mayur Bhavan, New Delhi, requested forno objection certificate in regard to payment to Reuters UK for the period1/7/1995 to 31/12/1995. No objection sought was to remit the amounts comprising 65 % without deduction of any tax at source. By a certificatedated 20/5/1996, petitioner was issued authorization for payment of sums to Reuters UK without deduction of tax at source. Paragraph No.2 of the said certificate reads as under: "You are hereby authorised to make payment of the aforesaidsum to M/s. Reuters Limited, London U.K. being in the nature ofpurchase price for news & data after deducting income tax atsource at the rate of Nil thereon under section 195(1) of theIncome Tax Act, 1961." 6.Relying on this certificate petitioner remitted 65% componentto Reuters UK without deducting tax at source. Almost 6 years laterrespondent thought it fit to reopen petitioner's assessment on the groundthat petitioner had evaded payment of tax by procuring "NIL" TDScertificate, had misrepresented the facts and therefore payment made bypetitioner to Reuters UK was deductible at source and remittance bypetitioner without deduction of tax amounted to petitioner forfeiting sumof Rs.17,12,64,005/- which was the amount so remitted to Reuters UK. 7.If one reads the reasons for reopening which is almostidentical for both Assessment Year 1996-97 and 1997-1998, the entireallegation is petitioner had misrepresented facts while procuring "Nil" TDScertificate from ACIT (TDS) by misrepresentation of facts. Reasons listvarious clauses of the agreement between petitioner and Reuters UK andthe Assessing Officer held that Reuters UK actually had permanentestablishment in India through petitioner which fact was not disclosed tothe original Assessing Officer. As noted earlier this conclusion of theAssessing Officer for reopening assessment is based on the agreementsbetween petitioner as well as Reuters UK. We have to note that all theseagreements were made available to the Assessing Officer by petitionerwhen it applied for no objection certificate as noted earlier. ACIT (TDS) had all these documents before him to consider, before issuance of noobjection certificate. Even if we interpret clauses in the agreement betweenpetitioner and Reuters UK and for the sake of argument concur with theopinion of Assessing Officer in the reasons recorded for reopening, still thecertificate issued by ACIT (TDS) cannot be invalidated when the certificateotherwise satisfy the requirement of Section 197 of the Act. Even if weagree with the views expressed and the reasons for reopening, still,determination of ACIT (TDS) is error in law, would not cease to bedetermination on which assessee could legitimately act and it is not open tothe Revenue to hold the assessee liable for short deduction of tax made onthe basis of such certificate and that by itself would not enable the Revenueto impose liability on the assessee, who had acted upon the certificate. 8.Moreover to the further affidavit of petitioner filed throughone Ojas Chowkshi on 23/9/2021, order dated 28/8/2015 passed by ITAT,Mumbai Bench is annexed in which ITAT has concluded for AssessmentYear 1997-1998 that petitioner cannot be regarded as being in defaultwhen it has made payment to Reuters UK based on the "Nil" certificateissued by Revenue under section 195 of the Act. It has also held thatReuters UK does not have permanent establishment in India and thereforethe distribution fees received by Reuters UK cannot be held to be taxable in India. 9.In the circumstances, even on merits, reasons recorded forreopening cannot be accepted. Accordingly, Rule made absolute in terms ofprayer clause (a). (AMIT B. BORKAR, J) (K. R. SHRIRAM , J.) Digitally signedbyRAJESHWARIRAJESHWARISUBODHSUBODHKARVEKARVEDate:2021.12.0114:45:41 +0530