DDIT, New Delhi v. Mc Donald's Corporation, New Delhi

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL NEW DELHI BENCH E NEW DELHI BENCH E NEW DELHI BENCH E NEW DELHI BENCH E BEFORE SHRI C. L. SETHI JUDICIAL MEMBER AND SHRI K. D. RANJAN ACCOUTANT MEMBER ITA NO. 4433 & 4434 /DEL/2010 (ASSESSMENT YEAR 2000-01 & 2001-02) DY. DIRECTOR OF INCOME TAX VS. MC DONALDS CORPORA TION CIRCLE 3(1) INTERNATIONAL TAXATION C/O MC. DONALD S INDIA PVT. LTD. NEW DELHI. 202-206 TOLSTOY HOUSE 15 TOLSTOY MARG NEW DELHI. (APPELLANTS) (RESPONDENTS) PAN / GIR NO. . APPELLANT BY: SHRI SUDESH GARG SR. DR RESPONDENT BY: SHRI G.N. GUTPA ADV. ORDER ORDER ORDER ORDER PER K. D. RANJAN AM: PER K. D. RANJAN AM: PER K. D. RANJAN AM: PER K. D. RANJAN AM: 1. THESE APPEALS BY THE REVENUE FOR THE ASSESSMEN T YEAR 2000-01 & 2001-02 ARISE OUT OF THE COMMON ORDER OF LD. CIT(A)- XXIX NEW DELHI. SINCE THE COMMON ISSUE IS INVOLVE D IN BOTH THESE APPEALS THE SAME ARE BEING DISPOSED OF BY THIS COM MON ORDER. 2. THE RELEVANT GROUNDS OF APPEAL WHICH ARE COMMON IN BOTH THE YEARS ARE REPRODUCED AS UNDER: 1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) ERRED IN HOLDING THAT RECODING OF REASONS FO R ESCAPEMENT OF INCOME ON THE BASIS OF MLA (MASTER LICENSE AGREEMENT) ALREADY AVAILABLE ON RECORD AND CONSIDERED BY THE A.O. DURING ORIGINAL ASSESSMENT WITHOUT HAVING REGARD TO THE FACT THAT THE A.O. BY DUE DILIGENCE EXTRACTED THE REASONS FROM THE RECORD WHI CH SHOULD HAVE BEEN DULY DISCLOSED BY THE ASSESSEE IN THE RETURN OF INCOME AND IT SHOULD HAVE PAID TAXES @30% IN PLACE OF 15% OF GROSS RECEIPT. 2) ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) ERRED IN HOLDING THAT SUBSEQUENT REASSESSMEN T 2 PROCEEDING INITIATED BY THE A.O. THROUGH ISSUE OF N OTICE U/S 148 OF THE I. T. ACT AS BARRED BY LIMITATION AN D WITHOUT JURISDICTION DESPITE THE FACT THAT NOTICE W AS ISSUED WELL WITHIN THE LIMITATION PROVIDED BY THE I . T. ACT. 3. THE FIRST ISSUE FOR CONSIDERATION WHICH IS COMM ON IN BOTH THE APPEALS RELATE TO INITIATION OF REASSESSMENT PROCE EDINGS U/S 147 OF THE ACT. THE FACTS STATED IN BRIEF ARE THAT THE AS SESSMENTS FOR THE ASSESSMENT YEARS 2000-01 AND 2001-02 WERE MADE U/S 143(3)/147 ON 07.03.2005. THE A.O. REINITIATED ASSESSMENT PRO CEEDINGS U/S 147 ON 26.03.2007. IN RESPONSE TO THE NOTICE ISSUE D U/S 148 THE ASSESSEE FILED RETURN OF INCOME AGAIN FOR THESE TWO YEARS ON 20.04.2007 UNDER PROTEST REFLECTING THE INCOME FOR THESE YEARS AS RETURNED EARLIER. THE PRESENT REASSESSMENT PROCEED INGS WERE COMPLETED BY THE A.O. VIDE ORDERS DATED 26.12.2007 FOR BOTH THE YEARS. 4. THE ASSESSEE ENTERED INTO MASTER LEASE AGREEMENT (MLA) DATED 01.01.1996 WITH M/S. MC. DONALDS INDIA P. LTD . (MIPL). AS PER THE TERMS LAID DOWN IN MLA MIPL WAS GRANTED THE NO N-EXCLUSIVE RIGHT TO ADOPT AND USE THE MCDONALDS SYSTEM TO PROM OTE AND DEVELOP RESTAURANTS AT AGREED LOCATIONS IN INDIA. FURTHER TERMS OF MLA ALSO MANDATES THE THAT MIPL WAS TO PAY THE ASSE SSEE INITIAL FRANCHISEE FEE OF US$45 000 ON OPENING OF EACH REST AURANT FRANCHISED BY MIPL AND THEREAFTER ROYALTY @ 5% ON M ONTHLY BASIS ON SALE EFFECTED BY ALL THE RESTAURANT OUTLETS DURING THE PERIOD. IN THE REASSESSMENT PROCEEDINGS THE A.O. HAD ASSESSED ROYA LTY @ 30% VIDE ORDER DATED 26.12.2007 FOR BOTH THE YEARS. 5. BEFORE LD. CIT(A) THE ASSESSEE CHALLENGED THE A SSESSMENT BOTH ON REOPENING OF ASSESSMENT AS WELL AS ON MERIT S. AS REGARDS ASSUMPTION OF JURISDICTION IT WAS SUBMITTED THAT N OTICE ISSUED U/S 3 148 FOR BOTH THE YEARS WERE BARRED BY LIMITATION IN VIEW OF THE PROVISO TO SECTION 147 OF THE ACT AND THEREFORE AS SESSMENT FRAMED WERE BAD IN LAW. IT WAS ALSO SUBMITTED THAT THE ML A WAS AVAILABLE BEFORE THE A.O. AT THE TIME OF ORIGINAL ASSESSMENT MADE U/S 147/143(3) ON 07.03.2005. FURTHER IN THE REASONS RECORDED IT IS NOWHERE MENTIONED THAT THERE WAS FAILURE ON THE PAR T OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL F ACTS NECESSARY FOR COMPLETION OF ASSESSMENTS. IT WAS ALSO SUBMITTED T HAT INITIATION OF 2 ND REASSESSMENT PROCEEDINGS NOTICE DATED 26.03.2007 WERE ISSUED BY SHRI VIJAY KR. CHADHA DY. DIRECTOR OF INCOME TAX CIRCLE-II INTERNATIONAL TAXATION NEW DELHI. IN RESPONSE TO THE SAME THE ASSESSEE HAD FILED ITS RETURN OF INCOME AND HAD REQ UESTED THAT THE COPIES OF THE REASONS RECORDED FOR INITIATION OF RE ASSESSMENT BE SUPPLIED TO IT. SUBSEQUENTLY THE COPY OF REASONS RECORDED UNDER THE SIGNATURE OF MS. NISTHA TIWARI ASSTT. DIRECTOR OF INCOME TAX CIRCLE I(2) INTERNATIONAL TAXATION NEW DELHI WAS SERVED ON THE ASSESSEE ON 28.05.2007. THE RELEVANT EXTRACT FROM THE REASONS SUPPLIED TO THE ASSESSEE WERE AS UNDER: I HEREBY RECORD MY SATISFACTION THAT TO PROTECT AN D SAFEGUARD THE INTEREST OF THE REVENUE IT IS MANDATORY TO ISS UE NOTICE U/S 148 OF THE I. T. ACT 1961 HENCE NOTICE U/S 148 O F THE I. T. ACT IS ISSUED. 6. BEFORE CIT(A) ASSESSMENTS WERE CHALLENGED ON GR OUNDS THAT IN THE REASONS RECORDED NO FRESH EVIDENCE OR INFOR MATION WAS BROUGHT ON RECORD. THE A.O. HAD CHOOSEN TO PLACE R ELIANCE ON THE MATERIAL ALREADY AVAILABLE ON RECORD PLACED DURING THE COURSE OF FIRST REASSESSMENT PROCEEDINGS. SECONDLY IN THE REASONS RECORDED THERE WAS NO ALLEGATION THAT THERE WAS FAILURE ON T HE PART OF HT ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL F ACTS NECESSARY FOR 4 COMPLETION OF HIS ASSESSMENT. IN THE ABSENCE OF SU CH REASONS THE ASSESSMENTS FRAMED WERE BAD IN LAW. 7. IT WAS ALSO SUBMITTED THAT HE ASSESSEES CASE FE LL UNDER THE PROVISO TO SECTION 147 AND THEREFORE THE A.O. WAS R EQUIRED TO RECORD SATISFACTION THAT THERE WAS FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSA RY FOR COMPLETION OF HIS ASSESSMENT. IN THE ABSENCE OF SUCH RECORDING O F REASONS AND REOPENING OF THE ASSESSMENT BASED ON THE MATERIAL A VAILABLE ON RECORD AMOUNTS TO CHANGE OF OPINION AND THEREFORE ASSESSMENT COULD NOT BE UPHELD. 8. LD. CIT(A) CONSIDERED THE SUBMISSIONS MADE BY TH E ASSESSEE AND AFTER DISCUSSION IN DETAIL VARIOUS DECISIONS O N THE ISSUE HAS HELD THAT REASSESSMENT PROCEEDINGS HAVE BEEN INITIA TED ON THE BASIS OF SAME MATERIAL WHICH WAS AVAILABLE ON RECOR D. THERE WAS NO FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FUL LY AND TRULY ALL MATERIAL FACTS RELATING TO ASSESSMENTS. THE REOPEN ING OF THE ASSESSMENT ON THE SAME REASONS AND ON SAME MATERIAL AMOUNTS TO CHANGE OF OPINION. THEREFORE SUBSEQUENT REASSESSM ENT PROCEEDINGS INITIATED BY THE A.O. U/S 148 WERE HELD TO BE BARRED BY LIMITATION AND WITHOUT JURISDICTION. LD. CIT(A) TH EREFORE ANNULLED THE ASSESSMENT FOR BOTH THE ASSESSMENT YEARS. 9. DURING THE COURSE OF HEARING BEFORE THIS TRIBUNA L THE LD. A.R. RELIED ON THE DECISION OF CIT(A) WHEREAS THE LD. S R. DR RELIED ON THE ORDER OF THE A.O. 10. WE HAVE HARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. FROM THE FACTS STATED ABOVE THERE IS NO DISPUTE THAT THE MATERIAL ON THE BASIS OF WHICH 2 ND REASSESSMENT 5 PROCEEDINGS WERE INITIATED WAS AVAILABLE ON RECORD AND WAS CONSIDERED BY THE A.O. WHILE MAKING ASSESSMENT U/S 147/143(3) ON 7.3.2005. THERE IS ALSO NO DISPUTE ABOUT THE FACT THAT 2 ND REASSESSMENT PROCEEDING HAD BEEN INITIATED ON THE S AME MATERIAL. THE A.O. IN THE REASONS RECODED HAS NOT RECORDED SA TISFACTION THAT THERE WAS A FAILURE ON THE PART OF HT ASSESSEE TO D ISCLOSE FULLY AND TRULY ALL THE MATERIAL FACTS NECESSARY FOR HIS ASSE SSMENT. IN THE ABSENCE OF SUCH REASONS THE ASSESSMENT-FRAMED FALL ING UNDER THE PROVISO TO SECTION 147 HAVE TO BE DECLARED BAD IN L AW. IN THE INSTANT CASE ORIGINAL ASSESSMENT WAS MADE U/S 147/ 143(3) ON 7.3.2005 AND ASSESSMENT COULD BE REOPENED UNDER MAI N PROVISIONS OF SECTION 147 WITHIN THE PERIOD OF 4 YEARS FROM TH E END OF THE ASSESSMENT YEAR IN WHICH THE INCOME WAS FIRST ASSES SABLE. FOR THE ASSESSMENT YEAR 2000-01 THE ASSESSMENT COULD HAVE BEEN REOPENED UNDER THE MAIN PROVISIONS OF SECTION 147 B Y 31.03.2005 AND FOR THE ASSESSMENT YEAR 2001-02 BY 31.03.2006. HOWEVER ASSESSMENT CAN BE REOPENED UNDER THE PROVISO TO SEC TION 147 BEYOND THE PERIOD OF 4 YEARS IF THERE WAS FAILURE O N THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL F ACTS NECESSARY FOR HIS ASSESSMENT. IN THE CASE BEFORE US ALL THE FAC TS AND THE MLA WHICH HAS BEEN RELIED UPON BY THE A.O. FOR REOPENIN G OF ASSESSMENTS 2 ND TIME WAS AVAILABLE AT THE TIME WHEN ORIGINAL REASSESSMENT WAS MADE. THEREFORE IN THE ABSENCE O F ANY SPECIFIC RECORDING THAT THERE WAS FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSA RY FOR HIS ASSESSMENT THE ASSESSMENTS MADE ON 26.12.2007 ARE BAD IN LAW. THE ASSESSMENT MADE CANNOT BE UPHELD AS THERE IS A CHANGE OF OPINION IN 2 ND ASSESSMENT PROCEEDINGS WHEN MATERIAL WHICH FORMED THE BASIS FOR 2 ND REASSESSMENT WAS AVAILABLE AT THE TIME OF ORIGINAL REASSESSMENT AND WAS DULY CONSIDERED BY THE A.O. WH ILE ARRIVING AT CERTAIN CONCLUSION. THEREFORE IN OUR CONSIDERED O PINION LD. CIT(A) 6 HAS RIGHTLY CANCELLED THE ASSESSMENTS. ACCORDINGLY WE DO NOT FIND ANY INFIRMITY IN THE ORDERS PASSED BY THE LD. CIT(A ) CANCELING THE ASSESSMENT FOR BOTH THE YEARS. 11. IN THE RESULT APPEAL FILED BY THE REVENUE FOR BOTH THE YEARS ARE DISMISSED. 12. PRONOUNCED IN THE OPEN COURT ON 18 TH FEB. 2011. SD./- SD./- (C. L. SETHI) (K. D. RANJAN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED:18 TH FEB. 2011 SP. COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT TRUE COPY: BY ORDER 4. CIT(A) 5. DR DY. REGISTRAR ITAT NEW DELHI