MAY 23, 2020

By Piyush Kaushik (FCA; LL.M), Advocate

INTRODUCTION: THE Delhi High Court being the paramount High Court in the Country has a pivotal role in the development of law & jurisprudence in the country. Amongst various branches of law the Direct taxation being one of the vital branch of law has also witnessed a commendable development in its growth and attaining clarity on vexed issues from the decisions of Delhi High Court. Vide the present article an analysis is undertaken of 20 significant decisions under the Direct tax law rendered in the recent past 8-9 months period wherein the ratio laid down by the Hon'ble Court on wide ranging versatile issues pursuant to a meticulous assimilation of facts; comprehensive analysis of controversy involved; legal position & rival contentions provide a crisp clarity & value addition not only for the legal fraternity but also for the litigants. The present article attempts in providing a snapshot summary of these decisions by outlining the issue / controversy involved in the respective case and the decision of Hon'ble Court.

1. Religare Finvest Ltd. Vs DCIT dated 28/08/2019

Reporting citations: 2019-TIOL-2133-HC-DEL-IT

Issue Involved: Powers of Assessing Officer ('AO') in directing for special audit u/s 142(2A) of Income tax Act ('the Act')

Decision of Hon'ble Court: The Hon'ble Court pursuant to a detailed analysis held that where the assessee was unable to cull out requisite details from books of account furnished during assessment proceedings and further the accounts of assesses were voluminous and complex to handle for Assessing Officer and, further, a fact of diversion of funds by assessees had also came out in forensic audit report of SEBI, then in such circumstances the Assessing Officer ('AO') was justified in issuing notice for special audit under section 142(2A) of Income tax Act ('the Act'). While exercising its jurisdiction under Article 226 of the Constitution of India, the Court does not sit in appeal over the order passed by the AO directing special audit u/s 142(2A) so long the subjective satisfaction of the AO is based on cogent reasons which was there on the facts of this case. Hon'ble Court noted that sec 142(2A) was amended by the Finance Act, 2013 whereby the words "volume of the accounts, doubts about the correctness of the accounts, multiplicity of transactions in the accounts or specialized nature of business activities of the Assessee" have been inserted after the expression "the nature and complexity of the accounts". Hon'ble Court accordingly did not find merit in the submission of assessee to the effect that notwithstanding the amendment, the scope of the said provision should be limited and restricted to only those categories of cases, where the volume of account, or the multiplicity of transactions are disproportionate to the size and volume of business.

2. P.D.R Solutions FZC Vs Dispute Resolution Panel dated 24/09/2019

Reporting citation: 2019-TII-72-HC-DEL-INTL

Issue involved: Whether writ jurisdiction under Article 226 is amenable in the absence of patent non application of mind by the Dispute Resolution Panel ('DRP).

Decision of Hon'ble Court: Held by the Hon'ble Court that the failure of statutory authority (Dispute Resolution Panel) to apply its mind and exercise jurisdiction will be amenable to writ jurisdiction under Article 226 of Constitution. If there is a fundamental error relating to the exercise of jurisdiction which is glaring and noticeable, it would fall within the exceptions to the rule of alternative remedy that the courts have carved out for entertaining writ petition. Each case has to turn on its own facts, and the court cannot at the threshold refuse to entertain the petition merely on the ground that the petitioner has selected to avail of its remedy by filing objections before the Dispute Resolution Panel.

3. J.B.M.Industries Ltd. Vs Commissioner of Income Tax dated 30/09/2019

Reporting citation: 2019-TIOL-2646-HC-DEL-IT

Issue Involved: Allowability of expenditure u/s 37(1) incurred on higher education of director of assessee company.

Decision of Hon'ble Court: Held by the Hon'ble Court that the expenditure incurred on higher education of daughter of director of assessee company who is barely 18 years of age in a course which is general in nature and is not any specialised training or degree cannot be said to have been incurred wholly and exclusively for the purpose of business and accordingly the same would not be allowable u/s 37(1) of Income tax Act.

4. Maple Logistics (P.) Ltd. Vs Principal Chief Commissioner of Income Tax dated 14/10/19

Reporting citations: 2019-TIOL-2555-HC-DEL-IT

Issue involved: Sustainability of AO's action in withholding refund by invoking sec 241A of the Act and the parameters to be followed by AO while invoking section 241A.

Decision of Hon'ble Court:   The legislature has not intended to withhold the refunds just because scrutiny assessment is pending. If such would have been the intent, Section 241A would have been worded so. On the contrary, section 241A enjoins the AO to process the determined refunds, subject to the caveat envisaged under Section 241A. The language of section 241A envisages that the said provision is not resorted to merely for the reason that the case of the assessee is selected for scrutiny assessment. Sufficient checks and balances have been built in under the said provision and same have to be given due consideration and meaning. An order under section 241A should be transparent and reflect due application of mind. Merely because a scrutiny notice has been issued should not weigh with the AO to withhold the refund. The AO has to apply his mind judiciously and such application of mind has to be found in the reasons which are to be recorded in writing. AO must make an objective assessment of all the relevant circumstances that would fall within the realm of "adversely affecting the revenue". The Hon'ble Court further held that in the present case, the AO has completely lost sight of the words in the provision to the effect that, "the grant of the refund is likely to adversely affect the revenue." The reasons that are relied upon by the Revenue to justify the withholding of the refund in the present case, are abysmally lacking in reasoning. Except for reproducing the wordings of Section 241A of the Act, they do not state anything more. The entire purpose of Section 241A would be negated, in case the AO was to construe the said provision in the manner he has sought to do. It would be wholly unjust and inequitable for the AO to withhold the refund, by citing the reason that the scrutiny notice has been issued. Such an interpretation of the provision would be completely contrary to the intent of the legislature. The AO has been completely swayed by the fact that since the case of the assessee has been selected for scrutiny assessment, he is justified to withhold the refund of tax. Hon'ble Court referred and noted various decisions on the subject such as decisions in the case of Corrtech International (P.) Ltd. v. Dy. CIT - 2017-TIOL-2047-HC-AHM-IT; Tata Teleservices Vs. CBDT - 2016-TIOL-960-HC-DEL-IT Group M Media India (P.) Ltd. v. Union of India - 2016-TIOL-2541-HC-MUM-IT etc.

5. RDS Projects Ltd, Vs ACIT dated 23/10/19

Reporting citations: 2019-TIOL-2966-HC-DEL-IT

Issue Involved: Whether the re-opening of assessment u/s 147 is permissible based on information that the assessee is beneficiary of accommodation entry from sham companies operated by alleged entry operator.

Decision of Hon'ble Court: Held by the Hon'ble Court that where the AO initiated reassessment proceedings u/s 147 based on information that assessee had received accommodation entries in form of share capital from two sham companies, in view of fact that even though identity of investor companies might have been established, neither financial capacity/creditworthiness of said investor companies, nor genuineness of transaction was examined at time of original assessment u/s 143(3) then the re-assessment proceedings are valid under the law. Such information with AO provides a live link for formation of belief with respect to escapement of income. Various decisions on the issue extensively referred by Hon'ble Court including the Supreme Court decision in the case of Pr. CIT  v.  NRA Iron & Steel (P.) Ltd.  - 2019-TIOL-101-SC-IT. Hon'ble Court noted that Courts have held that in the case of cash credit entries, it is necessary for the assessee to prove not only the identity of the creditors, but also the capacity of the creditors to advance money, and establish the genuineness of the transactions. The initial onus of proof lies on the assessee. Hon'ble Court observed that Delhi High Court in  Roshan Di Hatti  v.  CIT, (1992) 2 SCC 378, held that if the assessee fails to discharge the onus by producing cogent evidence and explanation, the AO would be justified in making the additions back into the income of the assessee.

Hon'ble Court noted the following principles which emerge where sums of money are credited as Share Capital/Premium are as under:

i. The assessee is under a legal obligation to prove the genuineness of the transaction, the identity of the creditors, and credit-worthiness of the investors who should have the financial capacity to make the investment in question, to the satisfaction of the AO, so as to discharge the primary onus.

ii. The Assessing Officer is duty bound to investigate the credit-worthiness of the creditor/subscriber, verify the identity of the subscribers, and ascertain whether the transaction is genuine, or these are bogus entries of name-lenders.

iii. If the enquiries and investigations reveal that the identity of the creditors to be dubious or doubtful, or lack credit-worthiness, then the genuineness of the transaction would not be established.

Accordingly pursuant to above findings the Hon'ble Court while dismissing the writ petition upheld the re-opening for AY 2012-13.

Reporting citation: 2019-TIOL-2646-HC-DEL-IT

Issue involved: Assumption of jurisdiction u/s 153C r/w sec 153A by the AO.

Decision of Hon'ble Court: Held that in the absence of any incriminating material unearthed during search the Assessing Officer (AO) cannot assume jurisdiction u/s 153C r/w sec 153A in order to make addition on account of cash credits u/s 68 of Income tax Act. Decision of High Court in case of CIT Vs Kabul Chawla - 2015-TIOL-2006-HC-DEL-IT followed.

7. Principal Commissioner of Income Tax Vs Frontier Land Development P. Ltd. dated 25/11/19

Issue involved: Allowability of forfeiture of advance u/s 37(1)

Decision of Hon'ble Court:   Held by the Hon'ble Court that where the assessee-company engaged in business of development of real estate had, in ordinary course of business, made certain advance for purchase of land to construct commercial complex but same was forfeited as assessee could not make payment of balance amount then such forfeiture of advance would be allowed as a business expenditure u/s 37(1) of the Act.

8. Commissioner of Income Tax (Exem.) Vs India Habitat Centre dated 27/11/19

Issue involved: Applicability of principle of mutuality in case of an entity registered u/s 12A as a charitable entity.

Decision of Hon'ble Court:   Held that India Habitat Centre, inter alia, set up with primary aim and objective to promote habitat concept, was registered as a charitable trust u/s 12A then the principle of mutuality for computation of its income was not required to be gone into as income was to be computed as per sections 11, 12 and 13 of the Act.

9. Curewell (India) Ltd. Vs Income Tax Officer dated 28/11/19

Reporting citation: 2019-TIOL-2765-HC-DEL-IT

Issue involved: Scope of wholesale remand by the ITAT.

Decision of Hon'ble Court:   Held by the Hon'ble Court that where remand made by Tribunal to Assessing Officer was a complete and wholesale remand for framing a fresh assessment then the Assessing Officer could not deny to evaluate fresh claim raised by assessee during remand assessment proceedings.

10. BPTP Limited Vs Principal Commissioner of Income Tax (Central)-III, N.Delhi dated 28/11/19

Reporting citations: 2019-TIOL-2965-HC-DEL-IT

Issue involved: The issue involved in this case was where in case of assessee, engaged in business of real estate, Assessing Officer initiated reassessment proceedings on ground that External Development Charges (EDC) paid by assessee to Haryana Urban Development Authority (HUDA) were subject to TDS under section 194 and in absence of TDS, amount would be subject to disallowance under section 40(a)(ia), in view of fact that Assessing Officer had not given any basis for forming his opinion that how EDC which was in nature of statutory fee, was subject to deduction of tax at source under section 194, whether the impugned reassessment proceedings u/s 147 deserved to be quashed.

Decision of Hon'ble Court: Held by the Hon'ble Court that in case of an assessee, engaged in business of real estate, initiation of reassessment proceedings u/s 147 on the ground that External Development Charges (EDC) paid by assessee to Haryana Urban Development Authority (HUDA) were subject to TDS under section 194 of Income tax Act and in absence of TDS, amount would be subject to disallowance under section 40(a)(ia), in view of fact that the AO had not given any basis for forming his opinion as to how EDC which was in nature of statutory fee, was subject to deduction of tax at source under section 194, then in such circumstances the impugned reassessment proceedings is not sustainable under the law.

Following five important principles, interalia, have been laid down in this case by the Hon'ble Court on re-opening of assessment u/s 147 beyond four years:

i. Reading of the proviso to section 147 and the decisions of this Court discussed above makes it amply clear that after a period of four years from the end of the Assessment Year, for the AO to assume jurisdiction, it becomes necessary that income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return, or to disclose all material facts necessary for that assessment year;

ii. Though, the recorded reasons allude to an ostensible failure on the part of the assessee to disclose fully and truly all material facts, however, the recorded reasons except for using the expression "failure on the part of the assessee to disclose fully and truly all material facts", do not specify as to what is the nature of default or failure on the part of the assessee. The reasons also do not explain or specify as to what is the rationale connection between the reasons to believe and the material on record;

iii. Hon'ble Court held that it would also be profitable to refer to the decision of  CIT Vs Central Warehousing Corpn. - 2015-TIOL-333-HC-DEL-IT  and  CIT  v.  Kelvinator of India Ltd. - 2003-TIOL-179-HC-DEL-IT-LB & CIT Vs.  Usha International Ltd.  - 2012-TIOL-764-HC-DEL-IT-LB and several other decisions wherein it has been repeatedly held that reopening initiated without any failure on the part of the assessee in fully and truly disclosing all material facts without any fresh tangible material deserves to be quashed. In view of the aforesaid test laid down by this Court for re-opening of the assessment in cases where proviso to section 147 of the Act is attracted, we find that in the present case, the test is not met. It is well settled proposition under the Income Tax Act that merely a change of opinion would not give the AO the jurisdiction to reopen the assessment under section 147/148, as the same would amount to reviewing the earlier decision. There has to be some relevant tangible material for the AO to come to the conclusion that there is escapement of income from assessment, and there must be a live link with such material for the formation of the belief.

iv. The statutory orders containing reasons have to be judged on the basis of what is apparent and not what is explained later. Revenue cannot be permitted to improve the same by offering better explanation during the course of the proceedings. On this aspect the Court referred to the decision of Supreme Court in Mohinder Singh Gill v. Chief Election Commissioner [1978] 1 SCC 405;

v. The Hon'ble Court also agreed to submission of petitioner's counsel to the effect that assessee shall be deemed to have deducted and deposited tax, if the recipient of income pays tax on payments received, even though the assessee has not deducted TDS for such payment. In such a situation, there can be no disallowance under section 40(a)(ia) in the hands of the Assessee. The Hon'ble Court observed that this ignorance cannot escape judicial notice, as the assessment is sought to be reopened after a period of four years from the end of the relevant assessment year. The notice does not state that the EDC charges collected by HUDA have not been subjected to tax as income in the hands of HUDA. This also shows non-application of mind thereby warranting interference of Court.

Hon'ble Court accordingly quashed re-opening of assessment u/s 147 initiated for two years i.e. AY 2012-13 & AY 2013-14.

11. Intec Corporation Vs ACIT dated 16/12/19

Reporting citations: 2019-TIOL-2893-HC-DEL-IT

Issue involved: The issue involved in this case was whether re-opening of assessment under section 147/148 for AY 2009-10 invoking extended timeline under section 150 based on Tribunal's earlier year's findings was sustainable under law since the assessee had categorically agreed to be bound by findings of Tribunal for earlier year i.e. AY 2008-09.

Facts in brief: During the course of assessment for AY 2009-10, Petitioner has claimed deduction from its gross income under section 80-IC of the Act of its new industrial unit in Uttarakhand. Petitioner claimed that the entire manufacturing of assessee upto AY 2007-08, was done from its industrial unit at Kala Amb, Himachal Pradesh and thereafter, the manufacturing process had been split between the unit at Kala Amb and Selaqui in Uttarakhand. During scrutiny proceedings for AY 2008-09, the AO disallowed the deductions claimed under section 80-IC on the profits of Selaqui unit in Uttarakhand which was made by splitting its earlier manufacturing unit. On an appeal preferred by the Petitioner, CIT (A) decided the matter in favour of the assessee. During the scrutiny proceeding for AY 2009-10, the Petitioner pressed before the AO to follow the order of CIT (A) in respect of deduction under section 80-IC for AY 2008-09 and also submitted that the decision of the ITAT would be binding upon it. The relevant portion of the submission made by the Petitioner has been reproduced in the reasons that formed the basis for reopening the assessment for AY 2009-10. Since the Petitioner agreed to be bound by the findings of the ITAT for AY 2008-09, the question which had arisen was whether it is legally permissible to reopen the assessment pertaining for AY 2009-10 in light of the decision of ITAT pertaining to AY 2008-09. The ITAT has, for AY 2008-09, held that the assessee's Selaqui unit in Uttarakhand for which deduction under section 80-IC was sought, did not carry on any manufacturing activity and it was just a dropbox address and accordingly not eligible for deduction u/s. 80-IC.

Decision of Hon'ble Court: Adverting to the ground of limitation raised by the Petitioner, the Hon'ble Court observed that a plain reading of section 150 reveals that it deals with a situation where an assessment or re-assessment for a particular year or for a particular person is necessitated by an order passed by appellate or revisional authority or on a reference. In such cases, it may not be possible for the Revenue to adhere to the time limits prescribed under section 149, as the order of appeal, reference or revision or by a Court, proceeding under any other law may be passed beyond the period contemplated under section 149. It is for this reason, the legislature has not placed any time limit for making the assessment or re-assessment in such circumstances and for this reason, section 150 begins with the non-obstante clause. At the same time, it does not mean that the power under section 150(1) is uncanalised or unrestricted. The safeguard has been built under Sub-section (2) of section 150. The entire object of section 150 (2) is to bar the proceedings under sub-section (1) in the matter of assessment/re-assessment or re-computation, which has become the subject matter of the reference or revision by reasons of any other provisions limiting the time limit. Section 150 (1) provides that the power to issue notice under section 148 in consequence of or giving effect to any finding or direction of the Appellate/Revisional Authority or the Court, is subject to the provision contained in Section 150(2), which provides that directions under section 150(1) cannot be given by the Appellate/Revisional Authority or the Court if on the date on which the order impugned in the appeal/revision was passed, the re-assessment proceedings had become time barred. In other words, as per section 150(2), the Appellate Authority could give directions for the re-assessment only in respect of an assessment year, which was within the limitation stipulated under Section 148 in respect of which re-assessment proceedings could be initiated on the date of passing of order under appeal. In this regard the Court referred to the decision of   Praveen Kumari v. CIT  [1999] 237 ITR 339 (Punj. & Har.)  and K M Sharma v. ITO  - 2002-TIOL-727-SC-IT-LB.

The legislature has designedly not placed any time limit under section 150, and reading a period of limitation into it, would be incorrect approach. In the present case, the date relevant for deciding the question of limitation in terms of section 150(2), and the observations in Praveen Kumari (supra), would be the date of the order of the CIT (A), which was passed on 05.10.2011 and was the subject matter of appeal. Thus, the limitation of six years under section 149, must be alive on the date of passing of the order of CIT (A). In the present case since, as on 05.10.2011, the time limit for reopening of assessment for A.Y. 2009-10 had not lapsed, the order of the ITAT was well within the limitation.

Accordingly the Hon'ble Court not finding any merit in the submissions of senior counsel for petitioner to the effect that re-opening for AY 2009-10 is barred by limitation upheld the reopening u/s 147 for AY 2009-10.

12. M/s Tsys Card Tech Services Ltd. Vs DCIT dated 19/12/19

Reporting citation: 2020-TII-01-HC-DEL-INTL

Issue involved: The issue involved pertained to right of assessee to file objections to re-opening of assessment u/s 147 and the AO's obligation thereafter.

Decision of Hon'ble Court: The right to file objections to a proposed re-opening of assessment under Section 147 of the Income Tax Act is a meaningful right, and not a mere empty formality. While dealing with the objections, the Assessing Officer should apply his mind. The whole purpose of this exercise is to examine whether - in the light of the objections raised, the notice under Section 148 of the Act should be dropped, or pursued, so as to prevent the assessee from facing unnecessary and avoidable harassment and expenditure in the process of reassessment and also to save a wasteful exercise being undertaken by the Assessing Officer. In the present case, the Assessing Officer has completely failed to apply his mind to the submissions of the petitioner and also to examine as to how the two different Form 26 AS have been generated by the system. The Court accordingly, set aside the order disposing objections since it suffered from complete non-application of mind. The Assessing Officer shall proceed to pass a fresh order after dealing with the submissions raised by the petitioner in its objections.

13. National Petroleum Construction Co. Vs DCIT (International taxation) dated 20/12/19

Reporting citation: (2019)-TII-85-HC-DEL-INTL

Issue involved: Challenge to certificate issued u/s 197 of the Act in writ petition under Article 226.

Decision of Hon'ble Court: On summoning t he original record of the respondents the Court observed that it is seen that the Respondents have exercised jurisdiction under section 197 with due application of mind. Court observed that it is the cardinal principle of administrative law that, under Article 226 of the Constitution of India, judicial review is directed not against the decision, but the decision making process, as reiterated in the recent judgment of the Supreme Court in  Sarvepalli Ramaiah (dead) as per legal representatives and Ors. v. District Collector, Chittor District and Ors. (2019) 4 Supreme Court Cases 500.

Respondents have granted the impugned certificate for deduction u/s 197 @ 4% of the gross receipts. The assessment for the above noted contracts would be undertaken in the future viz. AY-2019-20 and 2017-18 respectively. As of now, we are not concerned with a regular assessment proceeding but, with determination of rate of tax deduction. On perusal of reasons, it becomes manifest that during the course of enquiry under section 197 of the Act, the petitioner was asked to furnish the details regarding the scope and nature of the afore noted contracts. Revenue contends that for the R-series contracts, the petitioner has made contradictory statement regarding commissioning period and period of as-built documentation etc. Petitioner, in its submission dated 22.06.2019, contends that commissioning work is not undertaken by them for the R-series contracts, and the same is to be performed by ONGC. Without going into the question as to whether the petitioner's stand is contradictory, we may note that the Assessing Officer while exercising its power under section 197, during the course of the enquiry, cannot undertake an exhaustive exercise to determine this issue conclusively.

Hon'ble Court observed that since the petitioner itself having requested the respondent ( though in a qualified manner) to deduct the tax @ 4%+applicable surcharge & cess for the entire contractual revenues, revenue was justified in accepting the same in its certificate u/s 197 and the petitioner cannot be permitted to resile there from, once the department has accepted petitioner's proposal.

14. Khem Chand Mukim Vs Principal Director of Income Tax (Inv.) dated 09/01/20

Reporting citation: 2020-TIOL-189-HC-DEL-IT

Issue involved: Issue involved in this case was w here no cogent basis for arriving at conclusion that assessee was in possession of jewellery which represented his undisclosed income or property was discernible from satisfaction note then whether impugned search and seizure was to be quashed and all actions taken pursuant to such search and seizure were to be declared illegal.

Decision of Hon'ble Court: On a plain reading of sub-section (1) of section 132, it emerges that for taking action of search and seizure, the concerned authority must have 'reason to believe' that any of the circumstances provided under clauses (a) to (c) of sub-section (1) of section 132 is fulfilled in consequence of information in his possession. In other words, it is an imperative and mandatory requirement of law that in order to authorize an action of search and seizure, at least one of the conditions precedent, as set out in the said provision exist in fact, and such reasons have to be recorded in writing before authorization is issued to conduct search and seizure. The 'reason to believe' as recorded should be on the basis of relevant materials which have a bearing on formation of belief as search warrants cannot be issued for making a fishing and roving enquiry. Only if such conditions are fulfilled, the action of authorization can be said to have been validly exercised. The Manual of Office Procedure Volume -III Chapter 5 - Search and Seizure, further confirms strict compliance an adherence of the procedure and preconditions in regards of search and seizure of jewellery, bullion and stock-in-trade.

One of the questions that arises for consideration is whether in the instant case, the provisions of section 132(1)(c) were satisfied, or not, before authorizing the search. On a perusal of the satisfaction note as well as the counter affidavit on behalf of respondent Nos. 3 and 4, it is evident that the sole ground for the action of search and seizure is that the Investigation Wing of the Income Tax department was in possession of credible information that assessee was in possession of jewellery which represents his undisclosed income or property. Apart from mere reproduction of the said words, no cogent basis for arriving at this conclusion is discernible from the satisfaction note. There is plethora of case law holding that the term 'reason to believe' cannot be interpreted and construed as 'reason to suspect'. The reason to suspect that the assessee has undisclosed assets, and that there is likelihood that the same would not be disclosed, does not amount to saying that there are reasons to believe that the assessee is in possession of undisclosed assets, and intends to evade tax. This is the fundamental flaw in the action initiated by the respondent No. 2 and therefore, the entire exercise is vitiated and unlawful.

The crux of the matter is that the reasons were, firstly, not recorded before undertaking the search and was, therefore, completely unauthorized and a high-handed action on the part of the respondents. The respondents do not state that jewellery was concealed, or was kept by the assessee surreptitiously. Merely because the assessee was in possession of the same, it cannot be said that the same represents income or property which has not been disclosed or will not be disclosed. Section 132(1) is a serious invasion on the privacy of the citizens, and has to be resorted to when there are pre-existing and pre-recorded good reasons to believe that the action under section 132(1) is called for. While revenue can argue that element of surprise is critical and essential for a successful operation of search and seizure, nevertheless, it has be cognizant that to balance the rights of the citizens, legislature has built-in sufficient safeguards. This is to ensure that undue hardship and harassment should not be caused by the arbitrary and unfounded action of the raiding party. Moreover, as discussed above it is not imperative that every article found as a result of search has to be seized. For this purpose, the provision itself restrains and curbs the authority to make seizure of stock-in-trade.

15. Vanita Sanjeev Anand Vs Income Tax Officer dated 15/01/20

Reporting citation: 2020-TIOL-213-HC-DEL-IT

Issue involved: Issue involved in this case was w here Assessing Officer sought to reopen assessment in case of assessee on ground that certain loan amount was outstanding and same was liable to be added to income of assessee as notional income under section 56, however, reasons were completely silent as to how provisions of section 56 were attracted in respect of outstanding liability of loan even if it remained unpaid and there being no material to justify reopening of assessment, then whether the re-assessment proceedings u/s 147 were to be quashed and set aside.

Decision of Hon'ble Court:   The recorded reasons are entirely based on the information received from the office of Income-Tax Officer (Investigation) Unit-7, New Delhi vide letter, dated 9-3-2018. The premise for reopening as spelt out in the recorded reasons is that the petitioner-assessee had transactions with 'D' Associates and had received certain credits in her account maintained with ICICI Bank, GK Branch, New Delhi. This transaction was considered to be a short term loan from one AD, the proprietor of 'D' Associates and was partly returned back. It is also the case of revenue that on enquiries, AD confirmed that he had given loan to the petitioner and the same had been included in his books of account as 'Loans and Advances'. On a perusal of the loan agreement, the Assessing Officer concluded that the expiry date of the loan agreement was 15-3-2011 and on the said date, the loan along with interest became due. Thereon, taking note of the fact that the Petitioner-assessee has made a payment of Rs. 60 lakh to AD on 11-8-2011, against the loan amount of Rs. 70.12 lakh, he arrived at the aggregate liability due to AD from the petitioner as Rs. 77.17 lakh after factoring the interest amount of Rs. 7.05 lakh. After adjusting the amount of Rs. 60 lakhs against the aforesaid liability it was concluded that Rs. 17.17 lakhs remain unpaid and the same has to be treated as income chargeable to Income Tax under the head of 'Income from other sources' in terms of section 56(2) and section 56(2)(vii)(a). On this basis, it was assumed that the aforesaid income had escaped assessment in the hands of the assessee within the meaning of Explanation 2(a) of section 147.

The report of Investigation Wing could not  ipso facto  lead to the inference the income of the assesse has escaped assessment. In this case, there was no scrutiny assessment under section 143(3) and the return of income was merely processed under section 143(1). Notwithstanding the fact that the reopening in the present case relates to the return which was only processed under section 143(1), it is still open to the assessee to contest the reopening on the ground that there was, either no reason to believe, or that the alleged reason to believe is not relevant for the formation of the belief that income chargeable to tax escaped assessment. 

It cannot be understood as to how the outstanding loan liability is considered to be without consideration. It also cannot be understood as to how an outstanding loan liability can be categorised as notional income, even if it is unpaid. Unless the entire transaction in question is disputed, and the amount received is considered to be without consideration, outstanding loan amount cannot on the  ipse dixit  of the Assessing Officer be classified to be income that has escaped assessment. The lender as well as the assessee/borrower have duly admitted that part of the loan and interest are outstanding.

Hon'ble Court accordingly while allowing the writ petition quashed the re-opening of assessment u/s 147 for AY 2011-12.

16. Commissioner of Income Tax (Exem) Vs Association of Third Party Administrators dated 20/01/20

Reporting citation: 2020-TIOL-277-HC-DEL-IT

Issue involved: Issue involved in this case was where assessee-Association of third party administrators (ATPA) was engaged in primary aim and objective to organise and arrange all licensed third party administrators (TPAs) to be members of trust for mutual betterment of TPA business, merely because certain benefits accrued to TPA members and certain objects of trust were for advancement of business of TPA, then whether it would ipso facto render trust to be non-charitable and whether the ITAT was justified in grating registration u/s 12A to such association.

Decision of Hon'ble Court: At the initial stage of registration, it is to be examined that whether the proposed activities of the assessee can be considered charitable within the meaning of section 2(15). On an application for registration of a trust or institution made under section 12AA, the Principal Commissioner or Commissioner shall call for such documents or information from the trust or institution as he thinks necessary in order to satisfy himself about the genuineness of activities of the trust or institution; and the compliance of such requirements of any other law for the time being in force by the trust or institution, as are materials for the purpose of achieving its objects, and he may also make such inquiries as he may deem necessary in this behalf. Once he is satisfied about the objects of the trust or institution, and genuineness of its activities, he shall pass an order under the said provision. On this aspect, the tax authorities have looked into the aims and objects of the trust.

The primary or dominant object of the trust satisfies the conditions laid down under section 2(15). Even if some ancillary or incidental objects are not charitable in nature, the institution would still be considered as a charitable organisation. Merely because some facilities were beyond its main object, that by itself would not deprive the institution of the benefits of a charitable organisation. If the primary purpose of advancement of objects is for general public utility, the institution would remain charitable, even if there are incidental non-charitable objects for achieving the said purpose.

Merely because the objects of the trust are for the advancement of the business of TPA, it would not  ipso facto  render the trust to be non-charitable. The objects of the trust are not exclusively for the promotion of the interests of the TPA members. The objects were to provide benefit to general public in the field of insurance and health facilities. In the course of carrying out the main activities of the trust, the benefits accruing to the TPA members cannot, by itself, deny the institution the benefit of being a charitable organisation.

Hon'ble Court accordingly held that Registration u/s 12A was rightly granted by ITAT.

17. Housing & Urban Development Corporation Ltd. dated 06/02/20

Reporting citation: 2020-TIOL-929-HC-DEL-IT

Issue Involved: The assessee, a Public Sector Undertaking (PSU), in its return of income claimed deduction on account of the provision made for revision of pay in the books of account. The deduction was made in light of the Pay Revision Committee as appointed by the Government of India. The assessee's case was selected for scrutiny and an assessment order under section 143(3) was passed. The Commissioner exercised its jurisdiction under section 263 on the ground that Assessing Officer had not disallowed the provision for revision of pay as the expenditure was purely a provision against unascertained liability and could not be claimed as expenditure for relevant assessment year 2007-08. Pursuant to the aforesaid directions, the Assessing Officer framed the assessment order under section 263/143(3), and disallowed the claim for provision of salary. On appeal, the Commissioner (Appeals) and the Tribunal also upheld the order of the Assessing Officer.

Decision of Hon'ble Court: The appellant is a PSU under Government of India. A Pay Revision Committee (PRC) was constituted by the Ministry of Heavy Industries and Public Enterprises, under the Chairmanship of (Retd.) Justice M. Jagannadha Rao, Supreme Court of India. The pay revision fell due during the assessment year 2007-08, with effect from 1-1-2007. The committee held a total of 39 meetings out of which 4 meetings were held during the assessment year 2007-08, and it furnished its final report. Pursuant to the recommendations of PRC, the appellant declared expenditure of Rs. 1.60 crores on account of provision for revision of pay in books of account from 1-1-2007, since the effective date of implementation was not known. The report of the PRC was implemented later in September, 2008; nevertheless, this would not render the expenditure to become "unascertained liability", making it ineligible for deduction for the year under consideration i.e. 2007-08. The appellant has placed on record a note of the Finance Wing relating to aforesaid provision.

The pay revision of employees of the appellant, a PSU is due every ten years with the expiry of one wage settlement or agreement. Invariably, there is a time lag between expiry of a wage revision and negotiation of a fresh wage revision. The assessee had made provision of Rs. 1.60 crores on scientific foundation and on the basis of its past experience in its accounts for financial year 2006-07. The provision was made for the period 1-1-2007 to 31-3-2007 and deduction was claimed on the standpoint that appellant is under an obligation to pay revised pay to its employees with effect from 1-1-2007, determination whereof, was a matter of time. The appellant, thus had a reasonable basis to make provision for this expenditure. Similar provisions were also made in subsequent years. 

It is a well settled principle of law that an assessee, following the mercantile system of accounting, is not entitled to claim deduction until the liability for which deduction is claimed has accrued. The Act makes a distinction between actual liability in praesenti  and a liability  de future  which, for the time being is only contingent. The former is deductible but not the latter. The question to be decided in each case is whether any present liability has accrued against the assessee.

The position in the current case is that the liability had already arisen with certainty. The committee was constituted for the purpose of wage revision. The wages would be revised was a foregone conclusion. Merely because the making of the report and implementation thereof took time, it could not be said that there was no basis for making the provision. In view of the above the Hon'ble Court held that the Tribunal and the Commissioner (Appeals) have fell in error by disallowing the expenditure of Rs. 1.60 crores on account of anticipated pay revision in assessment year 2007-08.

18. Principal Commissioner of Income Tax Vs CBRE South Asia (P.) Ltd. dated 13/02/2020

Issue involved:   Assessee, a private limited company, paid a sum of Rs. 6.64 crores as commission and ex gratia to one of its director, who was a shareholder of company holding 24 per cent share holding - Assessing Officer invoking provisions of section 36(1)(ii) disallowed amount paid to director and added same to total income of assessee in the course of assessment proceedings for AY 2009-10. Commissioner (Appeals) upheld order of Assessing Officer. Tribunal overturned order of Commissioner (Appeals) in favour of assessee. It held that earlier Tribunal in assessee's own case for assessment years 2007-08 and 2008-09 vide order dated 7-3-2016 had deleted such disallowance and revenue had not preferred any appeal against order of Tribunal and for subsequent assessment years from 2010-11 to 2014-15 Assessing Officer had passed orders under section 143(3) and allowed payment of commission/incentive. Revenue aggrieved by order of Tribunal preferred appeal before High Court.

Decision of Hon'ble Court:  Hon'ble Court held that it did not find any merit in the contention of the revenue that the observations of the Tribunal qua the findings of the Assessing Officer and CIT(A) are incorrect. Irrespective of the observations of the Tribunal, the fact remains that the reasoning of the CIT (A) for disallowance under section 36(1)(ii) of the Act has been consistently rejected by the Tribunal for the previous years which stands accepted by the revenue. The identical expenditures stood allowed in the preceding years as also in the succeeding assessment years. Hon'ble Court observed that it is also unable to find any cogent material that would indicate that the expenditure was not for the purpose of the business of the assessee. This factual background does not give rise to any substantial question of law for consideration of Hon'ble Court.

19. Experion Developers (P) Ltd. Vs ACIT dated 13/02/2020

Reporting citation: 2020-TIOL-414-HC-DEL-IT

Issue involved: Following three fold issues were involved in this case before the Hon'ble Court:

i) Where reassessment notice u/s 148 for AY 2012-13 was issued on basis of information received from DIT (Investigation) that a parent company of assessee at Singapore had made an investment of huge amount in assessee company but said investing company did not appear to be carrying out any regular business activities and was floated to act as a conduit to funnel funds into Indian companies then whether the impugned notice was justified ;

ii) Where necessary sanction to issue notice under section 148 was obtained from Pr. Commissioner as per provision of section 151, Pr. Commissioner was not required to provide elaborate reasoning to arrive at a finding of approval when he was satisfied with reasons recorded by Assessing Officer ;

iii) Where pursuant to scheme of amalgamation a company was merged with assessee company and amalgamating company ceased to exist in its individual capacity, a reopening notice u/s 148 was to be issued only in name of assessee merged entity and there was no requirement to issue separate notices in name of assessee amalgamated company and another to amalgamating company in its individual capacity as assessee amalgamated company had taken over all liabilities of amalgamating company.

Decision of Hon'ble Court: On the aforesaid three core issues involved the Hon'ble Court held as under:

i) In the present case, new facts, material or information have come to the knowledge of the Assessing Officer by way of the report of DIT (Intelligence and Criminal Investigation) with regards to the doubtful source of the investments made into the petitioner companies. At the time of original assessment, the Assessing Officer was not aware of or in possession of information which could have indicated that the introduction of share capital from outside India has been routed through a doubtful entity. DIT (I&CI) had also made detailed enquiries regarding origin of funds which were used for introduction of share capital and premium. This information was received much later after the original assessment had been completed, and is germane and relevant to the subjective opinion formed by the Assessing Officer in regard to escapement of income. In the present case, the Assessing Officer's reasons to believe are fortified with the tangible material in the form of specific information received by the Investigation Wing. Thus, the Assessing Officer is downright justified in issuing the notice for reassessment. It is revealed from the said material available on record that a reasonable belief was formed by the Assessing Officer that income of the petitioner has escaped assessment and therefore, once the reasonable belief is articulated and expressed by the Assessing Officer on the basis of cogent tangible material, he was not expected to arrive at a final conclusion thereon at the stage of issuance of notice. At this stage, having regard to the scope of section 147 as also sections 148 to 152, the Assessing Officer's decision is to be governed by the mandate of the statute that requires him to have 'reason to believe', and not to conclusively establish the fact of escapement of income. Therefore, even if scrutiny assessment has been undertaken in the first place, if significant new material is found in the form of information, the Assessing Officer can form a belief that the income of the petitioner has escaped assessment, and reopen assessment. It is also trite law that for cases relating to inter alia, share application money, three vital aspects have to be considered by the Assessing Officer, namely (i) the identity of the investors; (ii) the creditworthiness of the investors; and (iii) the genuineness of the transaction.  Ex-facie, the order of assessment which was passed by the Assessing Officer under section 143(3), does not indicate that all these aspects were gone into. Today, there is serious doubt relating to creditworthiness of the share applicant/investor, in view of the investigation report noted above and clarity can only come in by way of reassessment. Therefore, the recorded reasons are not mere change of opinion. From a reading of the reasons recorded, it is clear that there is fresh tangible material in the hands of the Assessing Officer with respect to the dubious nature of the source of investments made into the assessee company, which fact had not been fully and truly disclosed at the time of the assessment. The factum of shareholding and business activity of the investor had not been disclosed at the time of assessment proceedings. Mere disclosure of the identity of the investor could not translate into a satisfaction with regard to creditworthiness of the investor. In the present case, the return of income merely lists Investor entity as the holding company and the notes to the audited financial statement merely mention that securities application money has been received from the holding company. The genuineness of this transaction as also the creditworthiness of the investor are doubtful in the present case and, therefore, mere mention of the said transaction does not amount to 'full' and 'true' disclosure. Therefore, this amounts to the fulfilment of the second condition, that is, failure to disclose fully and truly all material facts, relevant for his assessment in that assessment year.

ii) Whilst it is the settled position in law that the sanctioning authority is required to apply his mind and the grant of approval must not be made in a mechanical manner, however, the mere fact that the sanctioning authority did not record his satisfaction in so many words would not render invalid the sanction granted under section 151(2) when the reasons on the basis on the basis of which sanction was sought could not be assailed and even an appellate authority is not required to give reasons when it agrees with the finding unless statute or rules so requires. There is no requirement to provide elaborate reasoning to arrive at a finding of approval when the Principal Commissioner is satisfied with the reasons recorded by the Assessing Officer. Therefore, it is clear that necessary sanction for issuance of notice under section 148, as required under section 151 had been obtained.

iii) In the present case, pursuant to the scheme of amalgamation, approved by this Court EDIPL was amalgamated with EDPL. Thus, the income of EDIPL merged with the income of EDPL on the date of the reassessment notice, therefore, EDIPL and EDPL existed as a single common entity, for the relevant assessment year 2012-2013, i.e. beginning on 1-4-2012, which is the date of the amalgamation. Petitioner contends that the common notice for reassessment issued in the name of EDPL is bad in law as separate notices are required to be issued in the name of EDPL in its own capacity and in the name of EDPL, as successor-in-interest of EDIPL separately since during the relevant time, i.e., assessment year 2012-2013, they existed as separate entities. There is no dispute that in the present case, the amalgamating company does not exist on the date of issuance of notice and, accordingly, the assessment had to be made in the name of amalgamated company i.e. the petitioner. However, section 170(2) cannot be construed in the manner, the petitioner has urged. The aforesaid provision nowhere requires that two separate notices and separate assessment order are to be passed. On the contrary, the petitioner as a successor would also be liable for the income of the previous year in which the succession took place upto the date of the succession. Therefore it could not be understood as to what purpose would be served by two separate assessment orders. Pertinently, as of now, only the requirement of issue of two separate notices under section 147/148 and there is no any such requirements emanating from section 170 (2) is concerned.

Accordingly, the Hon'ble Court not finding any merit in the petition dismissed the writ petition and upheld the re-opening notice u/s 148.

20. Paradigm Geophysical Pty Ltd. Vs Commissioner of Income Tax (International Taxation)-3, N.Delhi dated 13/03/2020

Reporting citation: 2020-TII-16-HC-DEL-INTL

Background facts and issues involved: Petitioner-assessee was a company incorporated under the laws of Australia and is a tax-resident of that country. It is engaged in the business of developing and providing customized software enabled solutions and annual maintenance services. The solutions provided by the Petitioner are used by the oil and gas industry in relation to excavation, extraction, production activities and seismic analysis

Petitioner opted to be taxed on presumptive basis under section 44BB(1) of the Act, whereby 10% of the aggregate of receipts is deemed to be profits and gains of business and is subjected to tax. The assessee filed its return of for the assessment year 2012-2013, declaring a total income of Rs. 19,71,61,430/- arising inter alia, from the business of providing services or facilities in connection with extraction or production of mineral oils. The case was picked up for scrutiny and notice under Section 143(2)/142(1) was issued by the Assessing Officer (hereinafter, "AO"). Eventually, the AO held that in accordance with terms of the contract, the nature of services provided by the Petitioner fell within the purview of Royalty/ Fees for Technical Services (hereinafter, referred to as "FTS") and is liable to be taxed under section 44DA instead of section 44BB, and proposed to compute the total income of Petitioner at Rs. 4,92,90,360/- as against total income of Rs. 1,97,16,140, offered to tax by the Petitioner. On 05.03.2015, a draft assessment order was issued by the AO under Section 143(3)/144C (1) of the Act proposing to tax the revenues received by the Petitioner under section 44DA of the Act, estimating 25% of gross receipts as "business income" taxable under section 28 to 43C of the Act. Thereafter, the final assessment order was passed on 11.05.2015, under Section 44C(3)(b)/143(3), confirming the addition/adjustment proposed in the Draft Assessment Order.

The Petitioner neither filed any objection before the Dispute Resolution Panel against the Draft Assessment Order, nor did it file an appeal before the Commissioner of Income Tax (Appeal). Instead, it chose to exercise the alternate remedy by filing a Revision Petition under Section 264 of the Act before Commissioner of Income Tax (International Taxation)-3 New Delhi (hereinafter, "CIT"), claiming that the Petitioner was wrongfully denied the benefit of assessment under Section 44BB-the special provision under the Act for computing income arising inter alia on account of providing services or facilities in connection with oil and gas operations.

The CIT declined to interfere with the final assessment order and rejected Petitioner"s revision petition, primarily on the ground of maintainability, without dealing with the merits of the case. The writ petition [W.P.(C) No. 6052/2017] = 2017-TII-65-HC-DEL-INTL; (2018) 400 ITR 497 (Del.) impugning the said order was allowed, order of the CIT was quashed and the matter was remanded to the Respondent with a direction to examine the case on merits, with liberty to the Petitioner to challenge the same in case of an adverse outcome. Subsequently, vide order dated 01.11.2018, the case was decided on merits and Petitioner's claim of taxation on presumptive basis under Section 44BB was rejected, and the view of the AO that Petitioner's case would fall within the ambit of section 44DA of the Act was upheld. Aggrieved with the aforesaid order, the Petitioner has filed the present writ petition.

Decision of Hon'ble Court: The crux of the controversy involved before the Hon'ble Court was whether income from software enabled solutions earned by assessee was to be characterized as income from Royalty / Fees for Technical Services ('FTS') and accordingly subject to tax u/s 44DA being the stand of revenue or whether the income earned by assessee from software enabled solutions is to be characterized as income from services or facilities in connection with extraction or production of mineral oils and accordingly be subject to tax u/s 44BB being the stand of assessee.

The Hon'ble Court pursuant to a comprehensive analysis of factual and legal position allowed the writ petition of petitioner / assessee by laying down the following important principles :

i) If, inter alia, Section 44DA applies for the purpose of computing profits or gains or any other income referred in section 44DA, then Sub Section (1) of Section 44BB would not apply. The nature of income dealt with by Section 44DA is either Royalty, or Fees for Technical Services. Thus, it needs examination whether the nature of income derived by the Petitioner either qualifies as "Royalty" or "Fees for Technical Services."

ii) The interplay between Section 44DA (1) and 44BB(1) of the Act has been a subject matter of several judgments. Revenue has always maintained its stand that both set of provisions are special in nature which operate in their own clearly defined spheres; once a particular receipt of income takes on the character of Royalty/FTS as defined in section 9(1) (vi)/ 9(1) (vii), it cannot be considered for treatment under Section 44BB and has to be taxed under Section 115A/44DA of the Act. That being said, there are several judgments of this court, wherein it has been held that Section 44BB is a specific provision and incase the income falls within the ambit of Section 44DA(1) of the Act, it would be liable to be taxed under Section 44BB(1) of the Act, provided it was in connection with extraction or production of mineral oils. This conflict or inconsistency now stands resolved by virtue of the amendments introduced under the Finance Act, 2010.

iii) Section 44 BB is a special provision for computing profits and gains of a non-resident from business of providing services or facilities in connection with, or supplying plant and machinery on hire, used or to be used in the prospecting for or extraction or production of mineral oils,including petroleum and natural gas. Section 44DA is broader and more general in nature and provides for assessment of the income of the non-resident by way of royalty or fees for technical services, where such non-resident carries on business in India through a permanent establishment situated therein, or performs services from a fixed place of profession situated in India and the right, property or contract in respect of which the royalties or fees for technical services are paid is effectively connected with the permanent establishment or fixed place of profession situated in India. One more distinction between sections 44 DA and 44 BB is that, in section 44 BB one does not find any reference to a permanent establishment in India and the services contemplated therein are more specific than what is contemplated in section 44 DA. Thus, Section 44BB is a special provision in so far as it relates to the applicability of the provision in the context of the specified services. Section 44DA applies where such non-resident carries on business in India through a permanent establishment stipulated therein or performs services from a fixed place of profession, such income shall be computed under the head "profit and gains of business or profession" in accordance with the provisions of the Act, subject to the condition that no deduction shall be allowed in respect of any expenditure or allowance which is not wholly or exclusively incurred for the business of such permanent establishment or fixed place of profession in India or in respect of amounts, if any, paid by the permanent establishment to its head office or to any of its other offices. Section 115A of the Act provides the rate of taxation in respect of income of a non-resident, in the nature of royalty or fees for technical services, other than the income referred in Section 44DA i.e. income in the nature of royalty and fees for technical services which is not connected with the permanent establishment of the non-resident.

The aforesaid provisions further underwent change by way of amendments introduced by the Finance Act, 2010 w.e.f. 01.04.2011. By way of the said Act, a reference to Section 44DA was inserted in the proviso to sub Section (1) of Section 44BB. Simultaneously, a second proviso to sub Section (1) of Section 44DA was inserted to the following effect:

"Provided further that provisions of Section 44BB shall not apply in respect of the income referred to in this Section".

This proviso reinforces the legislative intent to carve out an exception to the character of the income referred to in this section i.e. royalty and fees for technical services. The principles relating to interpretation of statute emphatically lay down that statute should be interpreted to preserve the legislative intent. A reading of the overall scheme of section 44BB and 44DA leaves no manner of doubt that section 44BB applies if the assessee is engaged in the business of providing services or facilities in the prospecting for, or extraction or production of minerals oils. However, if income earned by such assessee takes the color of royalty or FTS, then the computation for the purposes of determining "profits and gains of business or profession" is to be done as per the provisions of section 44DA of the Act. Therefore, now in the current scenario if the income of the assessee is Royalty or FTS, then the same would be taxed under Section 9(1)(vi)/(vii) read with Section 115A or 44DA, as the case may be.

iv) Income from rendering of services through provision of software cannot be categorized as FTS.  It would be covered under the exclusionary limb of definition of FTS u/s 9(1)(vii) i.e. it would be covered under 'mining or like project' which is excluded from the purview of FTS under the domestic tax law. It is to be borne in mind that as per the explanation to Section 44DA, the expression "fees for technical services" shall have the same meaning as in Explanation 2 to clause (vii) of sub Section (1) of Section 9. This definition excludes "mining or like projects" from the ambit of the definition of "fees for technical services". The CBDT circular No. 1862,dated 22.10.1990, also clarifies that a rendition of services like training and carrying out drilling operations for exploration/exploitation of oil and natural gas would also be covered within the phrase "mining or like projects" and therefore shall fall outside the ambit of "technical services". This definition of FTS remains unchanged and circular No. 1862 dated 22.10.1990 is still in force. Thus, in a nutshell, if the services provided by the assessee constitute services for "mining or like project", the consideration therefore it would be excluded from the scope of "fees for technical services". It is well settled that when there are two provisions in an enactment which cannot be reconciled with each other, the doctrine of harmonious construction should be applied and attempt should be so interpret the provisions, if possible, giving effect to both. It is the duty of the courts to avoid "a head on clash" between two sections of the same Act and, "whenever it is possible to do so, to construe provisions which appear to conflict so that they harmonise. " It should not be lightly assumed that" Parliament had given with one hand what it took away with the other". The provisions of one section of a statute cannot be used to defeat those of another "unless it is impossible to effect reconciliation between them". Despite the amendments introduced in Section 44BB and 44DA, the legislature has not amended the definition of FTS and it remains unchanged. It has to be given the meaning that emerges from Explanation 2 clause (vii) of sub Section (1) of Section 9. As a result, if the services are rendered for "mining or like project", the same would not qualify as FTS. Thus, if the income of an assessee is not covered under the definition of FTS, it would get excluded from the purview of Section 44DA. Thus, in view of these detailed findings the Hon'ble Court held that income from provision of software enabled solutions by the assessee cannot be regarded as FTS & would accordingly be outside the purview of section 44DA.

v) Hon'ble Court held that in order to ascertain whether income from said activity is in the nature of 'royalty' it needs to be seen whether it is a case of supply of software only and whether ancillary services are inextricably linked to supply of software. Since the CIT failed to deal on this aspect therefore the matter remanded back to CIT on this limited aspect.

vi) Importantly, the Hon'ble High Court also granted liberty to assessee to claim the benefit of Treaty definition of Royalty as per Article 12(3) of India Australia Tax Treaty i.e. for the purpose of applicability of section 44DA the Treaty definition of Royalty would prevail over the definition as per domestic tax law contained u/s 9(1)(vi).

[The views expressed are strictly personal.]