Mastercard International Inc., Gurgaon v. ACIT, New Delhi

MA 450/DEL/2010 | 2005-2006
Pronouncement Date: 25-02-2011 | Result: Dismissed

Appeal Details

RSA Number 45020124 RSA 2010
Bench Delhi
Appeal Number MA 450/DEL/2010
Duration Of Justice 5 month(s) 25 day(s)
Appellant Mastercard International Inc., Gurgaon
Respondent ACIT, New Delhi
Appeal Type Miscellaneous Application
Pronouncement Date 25-02-2011
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted E
Tribunal Order Date 25-02-2011
Assessment Year 2005-2006
Appeal Filed On 31-08-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E DELHI BEFORE SHRI C.L. SETHI AND SHRI K.G. BANSAL M.A. NO. 450(DEL)/2010 (ARISING OUT OF ITA NO. 3384(DEL)/2009) ASSESSMENT YEAR: 2005-06 MASTERCARD INTERNATIONAL INC. ASSISTANT DIRECTOR OF INCOME C/O AUTHORISED REPRESENTATIVE TA X CIRCLE 3(1) S.R. BATLIBOI & ASSOCIATES VS. I NTERNATIONAL TAXATION 8 TH FLOOR GOLF VIEW CORPORATE NEW DELHI. TOWER-B SECTOR 42 GURGAON. (APPLICANT) (RESPONDENT) APPLICANT BY : SHRI A.J. MUJUMDAR C. A. RESPONDENT BY : SHRI SUDESH GARG SR. DR ORDER PER K.G. BANSAL ; AM IN THIS CASE THE TRIBUNAL HAD PASSED A CONSOLID ATED ORDER ON THE APPEALS OF THE ASSESSEE AND THE REVENUE ON 19.03 .2010 IN WHICH THE APPEAL OF THE ASSESSEE WAS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND THE APPEAL OF THE REVENUE WAS DISMISS ED AS INFRUCTUOUS. THE ASSESSEE FILED AN APPLICATION ON 31.8.2010 POINT ING OUT THAT THERE WERE CERTAIN MISTAKES APPARENT FROM RECORD WHICH R EQUIRED RECTIFICATION U/S 254(2) OF THE INCOME-TAX ACT 1961. IT WAS INT ER-ALIA SUBMITTED THAT THE TRIBUNAL HAS NOT GIVEN ANY SPECIFIC DIRECTION T O THE AO TO COMPUTE THE INCOME OF THE ASSESSEE FOR DEDUCTION OF INDIA RELATED EXPENSES INCURRED MA NO. 450(DEL)/2010 2 IN INDIA OR ABROAD (WHETHER DIRECTLY RELATABLE O R ALLOCABLE EXPENSES) FROM INDIA REVENUE. THE LACK OF DIRECTION CAN LEAD TO SELECTIVE APPLICATION OF THE METHOD AS WAS DONE BY THE AO IN THE ASSESSM ENT ORDER. THE AO MAY ALSO INSIST ON PRODUCTION OF DOCUMENTARY EVIDE NCES FOR EXPENSES WHICH ARE NOT DIRECTLY IDENTIFIABLE TO INDIAN OPERATI ONS AND FOR WHICH NO DOCUMENTARY EVIDENCE CAN BE PRODUCED BEFORE H IM IN THE PECULIAR FACTS OF THE CASE OF THE ASSESSEE. IN VIEW OF THE ABOV E FOLLOWING PRAYERS WERE MADE:- .WE RESPECTFULLY REQUEST THAT HONBLE TRIBUNA L INSTEAD OF RESTORING THE MATTER BACK TO THE FILE OF THE AO MAY KINDLY MAKE A REASONABLE DETERMINATION OF THE INCOME OF THE APPELLANT IN THE MANNER OF BEST JUDGMENT ASSESSM ENT KEEPING IN VIEW THE FACT THAT VARIOUS OPERATIN G EXPENSES INCURRED BY THE ASSESSMENT ABROAD FOR VARIOUS Y EARS HAVE BEEN ALLOWED BY THE REVENUE AUTHORITIES IN M AJORITY OVER THE PAST YEARS. 12. ALTERNATIVELY IF THE ISSUE IS TO BE RES TORED BACK TO THE FILE OF THE AO ADEQUATE SUITABLE AND FAIR DIR ECTIONS MAY KINDLY BE GIVEN TO THE AO REGARDING NORMS FO R REASONABLE ESTIMATION OF INCOME IN VIEW OF THE FACT THAT AL L THE MATERIAL FACTS OF THE CASE ARE ALREADY ON RECORD AND NO FRESH FACT OR EVIDENCE IS LIKELY TO COME UP DURING FRESH ASS ESSMENT PROCEEDING. 2. IN THE COURSE OF HEARING BEFORE US OUR ATT ENTION HAS BEEN DRAWN TOWARDS PARAGRAPH NOS. 4.2 AND 4.5 WHICH CONT AIN THE SUBMISSIONS OF THE MA NO. 450(DEL)/2010 3 ASSESSEE AND THE FINDINGS OF THE TRIBUNAL IN THE MA TTER. THESE READ AS UNDER:- 4.2 IT WAS ALSO SUBMITTED THAT AFTER COMPUTING PROFIT OF THE INDIAN OPERATION ONLY A PART OF THE SAME COULD BE ALLOCATED TO THE PE IN INDIA AS PROVIDED IN ARTICLE 7 OF TH E DTAA. THIS HAS NOT BEEN DONE BY THE LOWER AUTHORITIES. X X X X X X X 4.5 WE HAVE CONSIDERED THE FACTS OF THE CASE A ND RIVAL SUBMISSIONS. IT IS THE CASE OF THE LD. DR THAT A CONSISTENT APPROACH HAS TO BE FOLLOWED IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE. THE ASSESSEE HAS BEEN ASSESSE D TO TAX SINCE ASSESSMENT YEAR 1996-97. AS THERE WERE DISPUTES ABOUT THE VERY EXISTENCE OF THE LIABILITY AS WELL AS THE QUANTUM OF THE LIABILITY THE ASSESSEE MOVED AN APPLICATION F OR RESOLUTION OF THE DISPUTE UNDER MAP. THE COMPETENT AUTHORI TIES OF THE TWO COUNTRIES CAME TO AN AGREED RESOLUTION THA T (I) THE PERSONNEL OF THE ASSESSEE WHO VISITED INDIA AND CARRIED OUT ACTIVITIES ON BEHALF OF THE ASSESSEE CONSTITUT ED ITS PE AS THEIR ACTIVITIES EXCEEDED PREPARATORY AND AU XILIARY ACTIVITIES (II) ALL AMOUNTS RECEIVED BY THE ASSESSEE FROM ITS MEMBERS IN INDIA SHALL CONSTITUTE THE REVENUE OF THE PE AND (III) DEDUCTION SHALL BE ALLOWED FOR ALL EXPENSES INCURRED IN INDIA AND OUTSIDE INDIA ATTRIBUTABLE TO THE RECEIPTS FROM INDIAN MEMBERS SUBJECT TO LIMITATION PLAC ED BY THE DOMESTIC LAW OF INDIA. THIS RESOLUTION WA S ACCEPTED BY THE ASSESSEE AS ALL APPEALS IN THIS MATTER F OR ASSESSMENT YEARS 1996-97 TO 2000-01 WERE WITHDRAWN. THE ASSESSMENTS FOR ASSESSMENT YEARS 2001-02 AND 200 2-03 WERE MADE ON THE SAME LINES. HOWEVER THE AO CHA NGED THE METHOD OF ASSESSMENT IN ASSESSMENT YEARS 200 3-04 AND 2004-05 AND FOLLOWED THE GNOM METHOD OSTENS IBLY FOR THE REASON THAT THE ASSESSEE WAS NOT IN A PO SITION TO FURNISH EVIDENCE IN RESPECT OF COMMON EXPENSES INCURRED OUTSIDE INDIA. SUCH WAS ALSO THE POSITION IN EARLIE R YEARS. THE ASSESSEE ALSO ACCEPTED THESE ORDERS. HOWEVER ON RECEIPT OF THESE ORDERS THE ASSESSEE REVISED ITS RETURN O F INCOME FOR MA NO. 450(DEL)/2010 4 ASSESSMENT YEAR 2005-06 TO BRING IT IN LINE W ITH GNOM METHOD OF COMPUTING THE TOTAL INCOME. THE AO TR EATED THIS RETURN AS INVALID AND MENTIONED THAT THIS MET HOD PERMITTED UNDER RULE 10 WAS NOT THE METHOD PRESCRIBED BY THE COMPETENT AUTHORITIES. THEREFORE THE QUESTION I S WHETHER NET MARGIN METHOD IS THE CONSISTENT METHOD OF GNOM METHOD IS THE CONSISTENT METHOD LOOKING TO THE HI STORY OF THE CASE? THIS IS A FUNDAMENTAL QUESTION WHICH HAS ARISEN AND WHICH WILL ARISE IN ALL THE YEARS. THEREFORE A CCORDING TO US THE RULE OF CONSISTENCY SHALL PREVAIL IN THIS MATTE R. WE ARE OF THE VIEW THAT ASSESSMENTS FOR 7 YEARS FROM ASSESSMENT YEAR 1996-97 TO ASSESSMENT YEAR 2002-03 WERE MADE ON THE BASIS OF THE RESOLUTION OF THE COMPETENT AUTHORI TIES I.E. NET MARGIN METHOD. THIS METHOD WAS REVISED BY THE AO IN ASSESSMENT YEARS 2003-04 AND 2004-05 TO GNOM M ETHOD. THESE YEARS ARE NOT PENDING BEFORE US BECAUSE A S MENTIONED EARLIER THESE ORDERS WERE ACCEPTED BY THE ASSE SSEE. HOWEVER ACCEPTANCE OF THESE ORDERS DOES NOT BY ITSELF LEAD TO THE CONCLUSION THAT GNOM WAS THE CONSISTENT ME THOD FOLLOWED IN THE PAST FOR COMPUTING THE INCOME T HE REASON BEING THAT NET MARGIN METHOD WAS FOLLOWED EARLIE R FOR SEVEN YEARS FROM ASSESSMENT YEAR 1996-97 TO ASSESSMENT Y EAR 2002- 03. THE CONCURRENCE OF THE COMPETENT AUTHORITIES IN RESPECT OF THIS METHOD OF ACCOUNTING FURTHER STRENGTHENS OU R VIEW THAT NET MARGIN METHOD WAS THE CONSISTENT METHOD FOR COMPUTATION OF INCOME NOTWITHSTANDING THE FACT TH AT SUCH COMPUTATION INVOLVED CERTAIN PROBLEMS REGARDING ASCERTAINMENT OF COMMON EXPENSES. THUS WE ARE OF THE VIEW THAT THE AFORESAID NET MARGIN METHOD IS THE CO NSISTENT METHOD OF COMPUTATION OF THE TOTAL INCOME OF THE ASSESSEE WHICH SHOULD ALSO BE FOLLOWED IN ASSESSMENT YEAR 2005- 06. IN THIS YEAR THE ORIGINAL RETURN WAS FILED O N THE BASIS OF AFORESAID METHOD BUT A REVISED RETURN WAS ALSO FILED ON GNOM METHOD BECAUSE OF ASSESSMENT ORDERS PASSED B Y THE AO FOR ASSESSMENT YEARS 2003-04 AND 2004-05. LOOKING TO OUR FINDING ABOVE IT IS HELD THAT THE METHOD FOLL OWED IN THE REVISED RETURN WAS NOT THE CONSISTENT METHOD OF C OMPUTING THE TOTAL INCOME. THEREFORE THE AO IS DIRECTED TO CO MPUTE THE PROFIT ON THE BASIS OF NET MARGIN METHOD. THE DIF FICULTY IN THIS REGARD IS TO ALLOCATE GENERAL EXPENSES IN CURRED OUTSIDE MA NO. 450(DEL)/2010 5 INDIA TO THE INCOME ATTRIBUTABLE TO THE PE AND A PPLICABILITY OF THE PROVISION CONTAINED IN SECTION 44C. WE ARE O F THE VIEW THAT SUCH DIFFICULTY EXISTED IN EARLIER YEARS ALSO WHEN THIS METHOD WAS EMPLOYED. THEREFORE WE ARE ALSO OF THE VIEW THAT THE INCOME FOR THIS YEAR SHOULD BE COMPUTED IN THE SAME MANNER IN WHICH INCOMES OF SEVEN YEARS WERE COMP UTED ON NET MARGIN METHOD BASIS. WE ARE FORTIFIED IN THIS VIEW BY THE FACT THAT EVEN IF BOOKS OF ACCOUNT ARE TO BE REJECTED ON THE GROUND THAT COMPLETE DETAILS OF COMMON EXPENS ES AND VOUCHERS ARE NOT AVAILABLE THE ONLY RECOURSE L EFT TO THE AO WILL BE TO REJECT THE ACCOUNTS AND ESTIMATE I NCOME ON A REASONABLE BASIS WHICH WILL INVARIABLY INVOLVE CONSIDERATION OF THE COMPUTATION OF INCOME IN THE EARLIER YEARS. SUCH A CONSIDERATION WOULD NOT JUSTIFY SUCH A HIGHER RATIO OF PROFIT TO THE RECEIPT FROM THE INDIAN C LIENTS AS COMPUTED BY THE AO FOR THIS YEAR. HAVING STATED AS AFORESAID IT IS EXPECTED THAT THE ASSESSEE S HALL PLACE WHATEVER EVIDENCE IT HAS BEFORE THE AO WHO SHAL L THEREAFTER TAKE A REASONABLE VIEW IN THE MATTER. IN ORDER TO ACHIEVE THIS PURPOSE BOTH THE SIDES WILL BE AT LIBERTY TO LEAD ANY EVIDENCE IN THIS REGARD AS THOUGHT FIT. HOWEVER THIS ORDER WILL BE SUBJECT TO THE LIMITATION THAT THE ASSESSED INCOME SHALL IN NO CASE EXCEED THE EARLIER ASSESSED INCOME FOR THE REASON THAT THE TRIBUNAL HAS NO POWER TO ENHANCE THE A SSESSMENT. THUS THIS ISSUE IS RESTORED TO THE FILE OF THE AO FOR FRESH ADJUDICATION. 2.1 IN PARTICULAR OUR ATTENTION HAS BEEN DRAWN TOWARDS DISCUSSION ON PAGE NO. 14 OF THE ORDER TO THE EFFECT THAT ASSE SSMENTS FOR SEVEN YEARS FROM ASSESSMENT YEAR 1996-97 TO ASSESSMENT YEAR 2002-03 WERE MADE ON THE BASIS OF THE RESOLUTION OF THE COMPETENT AUTHO RITIES I.E. NET MARGIN METHOD. THIS METHOD WAS REVISED IN ASSESSMENT YEARS 2003-04 AND 2004-05 BY THE AO TO ADOPT GNOM METHOD. THESE ORDERS WERE MA NO. 450(DEL)/2010 6 ACCEPTED BY THE ASSESSEE. HOWEVER ACCEPTANCE OF THESE ORDERS DOES NOT BY ITSELF LEAD TO THE CONCLUSION THAT GNOM WAS TH E CONSISTENT METHOD FOLLOWED IN THE PAST FOR COMPUTING THE INCOME T HE REASON BEING THAT NET MARGIN METHOD WAS FOLLOWED EARLIER FOR SEVEN YE ARS. THE CONCURRENCE OF THE COMPETENT AUTHORITY ON THIS METHOD OF ACCOU NTING STRENGTHENS OUR VIEW THAT NET MARGIN METHOD IS THE CONSISTENT M ETHOD OF COMPUTING THE INCOME. ACCORDINGLY THE AO WAS DIRECTED TO CO MPUTE THE PROFITS ON THE BASIS OF THIS METHOD. THE CASE OF THE LD. CO UNSEL IS THAT THE ASSESSEE IS NOT IN A POSITION TO PRODUCE EVIDENCES IN RESPE CT OF ALL EXPENSES DEDUCTIBLE IN COMPUTING THE INCOME UNDER ARTICLE 7 OF THE DTAA A FACT BROUGHT TO THE NOTICE OF THE TRIBUNAL. FURTHER N O SPECIFIC DIRECTION HAS BEEN GIVEN REGARDING ATTRIBUTION OF INCOME IN TH E LIGHT OF ARTICLE 7 OF THE DTAA. THEREFORE IT IS REQUESTED THAT THE ORDER PASSED EARLIER MAY BE RECTIFIED IN THESE MATTERS U/S 254(2) OF THE AC T. 3. IN REPLY THE LD. DR SUBMITTED THAT THE GROUND OF THE ASSESSEE HAS BEEN COMPREHENSIVELY DEALT WITH IN PARAGRAPH NO. 4.5 IN WHICH IT HAS BEEN SPECIFICALLY HELD THAT THE PROFIT HAS TO BE COMPU TED ON NET MARGIN METHOD. IN THIS CONNECTION IT HAS BEEN MENTIONE D THAT THIS METHOD WAS APPROVED BY THE COMPETENT AUTHORITIES FOR SEVEN YEARS FROM ASSESSMENT MA NO. 450(DEL)/2010 7 YEAR 1996-97 TO ASSESSMENT YEAR 2002-03. THE TRIBUNAL HAS ALSO CONSIDERED THE DIFFICULTY IN REGARD TO ALLOCATI ON OF GENERAL EXPENSES INCURRED OUTSIDE INDIA AND ATTRIBUTABLE TO THE PERMANENT ESTABLISHMENT IN INDIA. IT HAS ALSO CONSIDERED THE DIFFICULTY I N APPLICATION OF THE PROVISION CONTAINED IN SECTION 44C. HOWEVER IT HAS BEEN M ENTIONED THAT SUCH DIFFICULTY EXISTED EARLIER ALSO BUT THE PROFITS WERE COMPUTED AND ACCEPTED BY THE ASSESSEE. THUS THIS IS NOT A CASE OF A NY MISTAKE APPARENT FROM RECORD OCCURRING IN THE ORDER OF THE TRIBUNAL. FU RTHER HE DREW OUR ATTENTION TO PARAGRAPH NOS. 11 AND 12 OF THE APPL ICATION BEING THE PRAYERS MADE BY THE ASSESSEE. IT IS PRAYED THAT INSTE AD OF RESTORING THE MATTER TO THE AO THE TRIBUNAL MAY DETERMINE THE INCOME RE ASONABLY ATTRIBUTED TO THE PE TO THE BEST OF ITS JUDGMENT. IN THE AL TERNATIVE IT IS PRAYED THAT ADEQUATE SUITABLE AND FAIR DIRECTION MAY BE GI VEN TO THE AO REGARDING NORMS FOR ESTIMATING THE INCOME IN A REASONABLE MANNER. BOTH THESE PRAYERS ARE NOT IN THE NATURE OF SEEKING RECTI FICATION OF THE ORDER BUT AMOUNT TO SEEKING REVIEW OF THE ORDER. THEREFORE THE APPLICATION IS NOT MAINTAINABLE. 4. WE HAVE CONSIDERED THE FACTS OF THE CASE AN D SUBMISSIONS MADE BEFORE US. WE FIND THAT THE GROUND OF THE ASSES SEE HAS BEEN ADEQUATELY MA NO. 450(DEL)/2010 8 DEALT WITH IN PARAGRAPH NO. 4.5 OF THE ORDER. A LL THE FACTS HAVE BEEN CONSIDERED AND IT HAS BEEN HELD THAT NET MARGIN ME THOD IS THE CONSISTENT METHOD FOLLOWED IN THE PAST FOR COMPUTING PR OFITS. THE DIFFICULTIES IN ATTRIBUTING THE PROFITS HAVE ALSO BEEN ENVISAGED BUT IT IS MENTIONED THAT SUCH DIFFICULTIES EXISTED IN PAST ALSO. THERE FORE THE ASSESSEE WAS GRANTED LIBERTY TO PRODUCE WHATEVER EVIDENCE I T HAD IN THIS MATTER BEFORE THE AO. THE AO HAS ALSO BEEN GIVEN LIBERTY TO BRING ON RECORD ANY RELEVANT EVIDENCE IN THE MATTER AS THOUGHT FIT. THE ORDER IS MADE SUBJECT TO THE LIMITATION THAT THE INCOME TO BE ASSESSE D NOW SHALL NOT EXCEED THE INCOME ASSESSED EARLIER AS TRIBUNAL HAS NO POWER TO ENHANCE THE ASSESSMENT. ACCORDING TO US THERE IS NO MISTAKE APPARENT FROM RECORD IN THE ORDER WHICH CAN BE RECTIFIED U/S 254(2) OF THE ACT. 5. THE RESULT THE APPLICATION IS DISMISSED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT ON 25 FEBRUARY 2011. SD/- SD/- (C.L. SETHI) (K.G.BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE OF ORDER: 25TH FEBRUARY 2011. SP SATIA MA NO. 450(DEL)/2010 9 COPY OF THE ORDER FORWARDED TO: MASTERCARD INTERNATIONAL INC. C/O S.R.BATLIBOI & ASSOCIATES GURGAON. ASSTT. DIRECTOR OF INCOME-TAX CIR. 3(1) INTL. TAX ATION NEW DELHI. CIT(A) CIT THE DR ITAT NEW DELHI. ASSISTANT REGISTRAR.