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Judgment
S.J. Vazifdar, J.—This is an appeal u/s 260A of the Income Tax Act, 1961, against the order of the Income Tax Appellate Tribunal (ITAT), dismissing the appellant''s appeal against the order passed by the Commissioner (Appeals) in the matter of assessment u/s 143(3) read with section 147 in respect of the assessment year 1998- 99. The appellant, a company incorporated in Cyprus, was registered as a foreign company in Mauritius. The appellant, on 26th April, 1993, leased a rig owned by it to Amar Ship Management Limited, a company incorporated in India which, in turn, hired the same to the Oil & Natural Gas Commission (ONGC).
On 30th November, 1998, the appellant filed its return of income for the assessment year 1998-99 for the period 1st April, 1997 to 3rd October, 1997, declaring its total income at nil. The Joint Commissioner of Income Tax made an assessment order dated 9th February, 2001, u/s 143(3), assessing the income at Rs.15,299,720/-.
On 4th June, 2004, the assessing officer issued a notice u/s 148. The appellant, in response, stated that its return of income filed on 30th November, 1998, be treated as the return of income filed in response to the notice u/s 148.
The assessing officer, on 31st January, 2006, made an order of re-assessment u/s 147 read with section 143(3) at Rs.1,03,47,47,907/-. The difference between the assessment on 9th February, 2001 and the assessment on 30th January, 2006, was on account of an addition of Rs.102,94,48,187/- made by the assessing officer by way of short term capital gain arising on account of the sale of the said rig in the circumstances we will state shortly.
The assessment order recorded that the appellant had sold the rig for a consideration of US$ 35 million as per a sale agreement dated 19th September, 1997; that a total gain of US$ 102,94,48,187/- had accrued to the appellant''s permanent establishment in India and that the transaction was neither shown/reflected in the return of income filed nor submitted even after the issuance of the notice u/s 148. The order also records that the appellant''s status admittedly was of a non-resident with permanent establishment in India, that the appellant had maintained books of account as required by the Act in relation to the Indian permanent establishment and had also claimed depreciation while computing the business income of the permanent establishment and had thereby accepted that the rig owned and belonged to the Indian permanent establishment of the appellant.
The appellant''s appeal before the CIT was dismissed by an order dated 20th December, 2006, passed by the CIT Appeals XXXI, Mumbai. The appellant''s appeal from the said order was dismissed by the impugned order of the ITAT dated 7th June, 2010.
The appellant has raised the following questions, contending that they are substantial questions of law:
i) Whether on the facts and in the circumstances of the appellant''s case and in law, Hon''ble Tribunal was justified in upholding initiation of reassessment proceedings u/s.147 ignoring the fact that in the reasons for reopening of assessment u/s. 147 recorded by the assessing officer there is no mention at all that there was any failure on the part of the appellant to disclose fully and truly all material facts necessary for its assessment.?
ii) Whether on the facts and in the circumstances of the appellant''s case and in law, Hon''ble Tribunal was justified in holding that during the course of proceedings leading to assessment order u/s.143(3) on February 9, 2009 there was failure on the part of the appellant to disclose fully and truly all material facts necessary for its assessment for assessment year 1998-99?
iii) Whether on the facts and in the circumstances of the appellant''s case and in law, Hon''ble Tribunal was justified in passing the impugned order on 7-6-2010 long after the effective date of hearing on 3.11.2009?
iv).Whether on the facts and in the circumstances of the appellant''s case and in law, Hon''ble Tribunal was justified in upholding, Capital gains assessed by the assessing officer, on the basis of the provisions of section 9(1)(i) of I.T. Act, 1961?
v) Whether on the facts and in the circumstances of the appellant''s case and in law, Hon''ble Tribunal was justified in upholding, Capital gains assessed by the assessing officer, on the basis of Paragraph-2 of Article 13 of Indo Mauritius Double Taxation Avoidance Agreement?
vi).Whether on the facts and in the circumstances of the appellant''s case and in law, Hon''ble Tribunal was correct in upholding that the appellant had sold the rig on 19.9.2009 and thus obliterating the distinction between Bill of Sale and execution/completion of sale
It would be convenient to consider questions (iv), (v) and (vi) first. A substantial question of law does not arise in the facts of this case.
(A) As we mentioned earlier, the status of the appellant admittedly is that of a non-resident with permanent establishment and it filed its first return under the Act in India on that basis on 30th November, 1994. The appellant had from 16th April, 1996, leased its rig to M/s. Amar Ship Management Limited, a company incorporated in India in respect whereof the appellant received operating charges from time to time. M/s. Amar Ship Management Limited, in turn, hired the rig to ONGC.
(B) A Memorandum of Understanding was entered into between the appellant and Foramer S.A., a company incorporated in France in respect of the rig. We will presume for the purpose of this appeal that the MOU constituted an agreement to sell and not an agreement of sale. It would not carry the appellant''s case any further for a bill of sale was admittedly executed by the appellant on 19th September, 1997. The bill of sale states :
We, (a) CARTIER SHIPPING COMPANY LIMITED [Appellant] .... (hereinafter called "the transferor" having our principal place of business at COSTAKIS PANTELIDUS AVENUE, NICOSIA, CYPRUS ...... in consideration of the sum of U.S. $ 35,350,000 ..... paid to us by (b) PRIDE GLOBAL LTD. of PO Box 3174 ..... ROADTOWN, TORTOLA ..... BRITISH VIRGIN ISLANDS ..... (hereinafter called "the transferee(s)" the receipt whereof is hereby acknowledged, transfer ...... all of the ...... 100/100 ...... shares in the Ship above particularly described, and in her boats and appurtenances to the said transferee(s).
Further we, the said transferors for ourselves and our successors covenant with the said transferee(s) and (c) ..... THEIR ..... assigns, that we have power to transfer in manner aforesaid the premises hereinbefore expressed to be transferred, and that the same are free from encumbrances (d) CHARTERS, MORTGAGES, MARITIME LIENS OR ANY OTHER DEBTS/OR CLAIMS WHATSOEVER.
In witness whereof we have executed this bill of sale on 19 SEPTEMBER 1997."
The bill of sale transferred and vested in the purchaser, the right title and interest the rig. It records that the purchaser had paid the consideration and that in consideration thereof the appellant acknowledged the transfer of "all of the 100/100 shares in the Ship .... to the transferee(s)". It further declares that the appellant, as the transferor, had the power "to transfer" in the manner aforesaid, the vessel.
The appellant however relied upon the following note at the foot of the bill of sale:
NOTE: A purchaser of a registered British Vessel does not obtain a complete title until the Bill of Sale has been recorded at the Port of Registry of the ship and neglect of this precaution may entail serious consequence.
The note is irrelevant as, admittedly, the rig is not a registered British vessel.
Faced with this, it was contended that the bill of sale does not reflect the true nature of the transaction. It was contended that the price had not been paid as stated in the bill of sale, but had in fact been paid subsequently. It was further contended that the bill of sale was executed only "for convenience in effecting the transaction".
The above contention, in any event, does not give rise to a question of law, much less, to a substantial question of law.
If, as we have held, the sale took place on 19th September, 1997, the assessee''s liability to pay the tax as demanded cannot be denied. As on that date, the status of the appellant remained the same. The lease between the appellant and M/s. Amar Ship Management Limited was terminated only subsequently on 3rd October, 1997. Further, the appellant gave a notice of discontinuance of business in India on 6th October, 1997. Moreover, the rig also remained in India even after the sale. Admittedly, the port clearance was given only on 30th September, 1997 and the rig allegedly left the Indian territorial waters on 4th October, 1997.
The return was filed for the period 1st April, 1997 to 3rd October, 1997.
Question (vi), as framed, therefore, does not give rise to a substantial question of law. If we are correct in this regard, questions (iv) and (v), as framed, do not arise as admittedly, in that event, the appellant is liable to pay capital gains on the said transaction even under the Indo Mauritius Double Taxation Avoidance Agreement.
The questions framed at paragraphs 4(i) and (ii) of the appeal also do not give rise to a substantial question of law.
As stated earlier, the sale was concluded on 19th September, 1997. The appellant filed the return for the period 1st April, 1997 to 30th October, 1997 on 30th November, 1998. The appellant admittedly did not disclose the transaction in the return. The transaction was discovered independently by the revenue which led to the issuance of the notice u/s 148. If, as we have held in respect of the transaction the assessee is liable to pay capital gains tax, then clearly the income chargeable to tax on account of the transaction had escaped assessment. The transaction was admittedly not disclosed in any manner whatsoever in the return filed on 30th November, 1998.
It was then contended that as the re-opening of the assessment is beyond the period of four years, the assessing officer would only get jurisdiction if the assessing officer is satisfied that the assessee had failed to disclose fully and truly all the material facts necessary for assessment. This satisfaction has to be found in the reasons recorded by the assessing officer for reopening the assessment. It was contended that the reasons recorded on 2nd June, 2004, for re-opening of the assessment did not record in specific terms that there was a failure on the part of the appellant to make a full and true disclosure of all material facts. On this basis, it is contended that the assessing officer did not have jurisdiction to re-open the assessment u/s 47.
It is true that these words of section 147 have not been expressly stated in the order u/s 148. The reasons, however, inter-alia, state :
as per information available with this office, the assessee had sold the rig during this assessment year for USD 3m. and has earned capital gains on the same.
In view of what is stated above, it is clear that the appellant had not disclosed the transaction and the income arising therefrom. In the order, the assessing officer has stated that he came to know of the same "as per the information available with this office", meaning thereby that he came to know of the same independently.
In the facts and circumstances of the case, we are unable to consider the question raised to be a substantial question of law.
This brings us to the third question which is framed in paragraph 4(iii) of the appeal. Mr. Tiwari submitted that the order is illegal, null and void as it was beyond the period of three months from the date on which the hearing of the appeal before the ITAT concluded.
The facts of the case indicate that the dispute in this regard, if at all, is one of fact. Even if it were a question of law, it would not be a substantial question of law. Further, even if it is a substantial question of law, it must be answered against the appellant.
According to Mr. Tiwari, the hearing concluded on 26th September, 2009, and the impugned order was passed by the ITAT on 7th June, 2010. This is not the case. In paragraph 3.5 of the appeal, the appellant has itself alleged that on 26th November, 2009, its advocate had furnished certain details that were asked for. It is further alleged that "several months later", the bench clerk contacted the petitioner''s advocate and orally informed her that the hearing of the appeal would once again take place on 5th March, 2010. The matter, however, was not listed for hearing. The appellant''s advocate stated that the hearing had been fixed as a mere formality in view of the time that had elapsed. It is, however, important to note that the appellant has itself stated that it''s advocate sought permission of the bench to recapitulate some salient points which had been argued at length on 3rd November, 2009, which was granted and that the CIT(DR) also made a brief reply. Thus, admittedly, a hearing was held on 5th March, 2010. The impugned order was passed on 7th June, 2010. The delay in pronouncing the order, if any, is, therefore, of only two days. In the circumstances, we are unable to hold that a substantial question of law arises in this regard. The appeal is, therefore, dismissed.