Varco International Pte Limited vs The Assistant Director of Income Tax

B.S. Verma, J.

(Stay Application No. 10842 of 2010)

Heard learned Counsel for the parties and perused the record.

By means of this writ petition, the Petitioners have sought a writ in the nature of certiorari quashing the notice dated March 31, 2010 issued u/s 148 of the Income Tax Act (for short the Act) (Annexure P-6) and the order dated 9-12-2010 (Annexure P-10). Petitioner has further prayed for a writ of mandamus directing the Respondent to stay the proceedings initiated u/s 148 of the Act and notice under Sections 142(1) and 143(2) of the Act.

According to the Petitioner, the assessment was made by the assessing authority on 17-12-2007 for the Assessment Year 2005-06. Prior to passing the impugned assessment order, the Respondent issued a show cause notice to the Petitioner requiring it to show cause as to why the services provided under the contract No. 5010001687 be not taken as technical services and that work order No. 5010001964 dated 18-6-2004 be not taken as fees for technical services. The notice has been annexed as Annexure II to the writ petition.

The reply was given by the Petitioner during the assessment proceeding. The Petitioner alleged that while passing the earalier assessment order, the reply to the show cause notice was considered and the assessment was made u/s 44BB of the Act.

The Petitioner company is a foreign company and is engaged in the business of providing plant and machinery on hire and rendering services in connection with prospecting, extracting and production of mineral oil.

The Respondent issued a notice on 31-3-2010 u/s 148 of the Act asking the Petitioner to file a return of income in order to assess income escaped during the previous year relevant to assessment year 2005-06. Copy of the notice has been annexed as Annexure P-6 to the writ petition. Pursuant to the notice, the Petitioner gave his reply on 17-4-2010. Petitioner has also made a request to the Respondent to furnish reasons recorded for re-opening of the assessment u/s 148 of the Act. The copy of the reasons recorded has been annexed as Annexure P-8 to the petition, wherein it is mentioned that the Assessee -non resident company is engaged in hiring Blow Out Preventor (BOP) stack and for providing services on behalf of Rig Sagar shakti and Rig Sagar Gaurav and the services rendered are technical services and liable to assessed as fees for technical services observing that this Court in Income Tax Appeal No. 239 of 2001 Commissioner of Income Tax and Anr. v. O.N.G.C (2008) 229 ITR 438(Uttaranchal) wherein the nature of service has been held fee for technical services.

The counsel for the Petitioner has placed reliance upon the Full Bench judgment rendered by the Delhi High Court in the case of Commissioner of Income Tax v. Kelvinator of India Ltd. [2002] 256 ITR 1; and the Apex Court judgment in the case of Commissioner of Income Tax, Delhi Vs. Kelvinator of India Limited, , wherein it has been held that the change of opinion is not permissible even if it is within four years. Learned Counsel for the Petitioner has contended that when the Income Tax Officer had all the material facts before him when he had framed the original assessment, he could not take recourse to Section 147(a) of the Act to correct the error resulting from his own oversight and that change of opinion cannot clothe the assessing officer with the jurisdiction to initiate the proceeding u/s 147 of the Act. In support of his contention, learned Counsel has placed reliance upon the judgment of Delhi High Court rendered in Writ Petition (C) 7515 of 2010, Ritu Investments Private Limited v. Deputy Commissioner of Income Tax decided on 22-11-2010.

In reply, learned Counsel for the revenue Mr. Arvind Vashist Advocate has vehemently urged that the assessing officer is fully competent to assess or reassess such income, other than the income involving matters which are the subject-matter of any appeal, reference or revision, which is chargeable to tax and has escaped assessment as per Proviso second appended to Section 147 of the Act and the case at hand comes within the ambit of explanation 2 (c) appended to Section 147 of the Act, which reads as under:

(c) where an assessment has been made, but-(i) income chargeable to tax has been underassessed; or (ii) such income has been assessed at too low a rate; or (iii) such income has been made the subject of excessive relief under this Act; or (iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed.

Learned Counsel has therefore contended that where the income is escaped assessment, there is no bar of a period of four years and, the assessing authority has jurisdiction to issue notice u/s 148 of the Act. According to the learned Counsel for the Respondent, the case of Commissioner of Income Tax v. Kelvinator of India Ltd. (supra) is not applicable because that is a case of pre-amendment i.e. prior to enactment of the Direct Tax Laws (Amendment)Act, 1987 i.e. prior to 1-4-1989, while the case at hand pertains to Assessment Year 2005-2006.

I have perused the judgment rendered by Full Bench of Delhi High Court as well as the Apex Court in the case of Kelvinator of India (supra). In that case, the Apex Court has also discussed the amendments made after 1-4-1989 and according to the learned Counsel for the revenue, the scope after the amendment is wider.

I have also gone through judgment rendered by a Division Bench of this Court in the case of Commissioner of Income Tax and Anr. v. O.N.G.C. (supra). This judgment is not on the issue of change of opinion. The Division Bench has considered the recitals and various clauses of the contract of agreement between the parties and on that ground, it has been held that the services are technical in nature.

I have also perused the show cause notice issued to the Petitioner. It appears that after considering the reply filed by the Petitioner, the assessing officer came to the conclusion that it is a case filling within the ambit of Section 44BB of the Act and the reason to believe for proceeding u/s 148 of the Act against the Petitioner is that it is an escaped assessment and the case is within the ambit of technical services rendered by the Petitioner and the fee for technical services should be assessed as per provisions of Section 44DA and Section 115A of the Income Tax Act.

Since the notice dated 31-3-2010 u/s 148 of the Act was issued after a lapse of four years from the end of assessment year 2005-2006 i.e. from 31-3-2005, Proviso second appended to Section 147 of the Act would be applicable.

Prima facie the question whether the services rendered by the Petitioner is a technical service or not, it requires scrutiny in the matter by the assessing officer, therefore, as an interim measure it is directed that till the next date of listing, the assessment proceedings may go on but no final order shall be passed in the assessment proceedings by assessing officer. (Stay Application stands disposed of).

Learned Counsel for the Respondent prays for and is allowed three weeks'' time to file counter affidavit. List on 22-12-2011 for admission/orders.