Cooperative Rabobank U A v. Commissioner of Income Tax (IT)

1. By this Petition fled under Article 226 of the Constitution of India, 1950, Petitioner is challenging the validity of Form-3, dated 28th January, 2021 and 26th March, 2021 issued under Section 5 of the Direct Tax Vivad Se Vishwas Scheme, 2020 (the “DTVSV Act”) by the Designated Authority for Assessment

2. Petitioner is a bank established in the Netherlands and it is a part of the Rabobank Group worldwide. It is submitted that Petitioner is a regular assessee under the Income Tax Act, 1961 (the “IT Act”).

3. Petitioner had fled a Return of Income on 31st March, 2003 declaring nil income. The Assessment Order was passed on 28th March, 2005 assessing business profts attributable to permanent establishment (PE) at Rs.31,25,060/-. Being aggrieved by the said order, an appeal was fled before the Commissioner of Income Tax (Appeals) [“CIT(A)”] on 28th April, 2005. The CIT(A), by its order dated 15th May, 2006 deleted the addition, holding that Petitioner does not have a PE in India. Thereafter, the assessing offcer fled Appeal before the Tribunal on 11th August, 2006. The Tribunal, by its order dated 1st April, 2015, restored the issue to the fle of the assessing offcer. Against the said order, Petitioner fled an Appeal before this Court on 23rd September, 2015 under Section 260A of the IT Act. Petitioner also fled Miscellaneous Application before the Tribunal, which came to be rejected by an order dated 21st August, 2018. Thereafter, on 29th August, 2018, this Court in Income Tax Appeal No.1198 of 2015 with Income Tax Appeal No.260 of 2016 with Income Tax Appeal No.264 of 2016 passed an order setting aside both the orders of the Tribunal, viz., the order dated 1st April, 2015 restoring the issue to the fle of the assessing offcer as well as the order dated 21st August, 2018 dismissing the Miscellaneous Application fled by Petitioner. The High Court directed the Tribunal to decide the matter afresh. The following paragraphs of the order of this Court are relevant and are quoted as under:- “26 In the backdrop of all this, and further facts noted, a cryptic order has been passed by the Tribunal. In fact, in paragraph 5 of the order under challenge in reference to the Income Tax Appeal NO. 4632/MUM/2006 for Assessment Year 2002-2003, the Tribunal says that the Indian company had made payment to the Assessee for providing the advisory services to it and under the Head “Guarantee Commission” and that the Indian company was paying the Assesee more than 30% of its income. That the basic issues are, as to whether the Assesee had permanent establishment in India or not and as to whether the services rendered by the Indian company could be treated as the activities carried out by the Assessee. Yet, it says that there is nothing on record to prove that the provisions of Article 5(1) of the Agreement are applicable. That stipulates that the permanent establishment for the purpose of convention meant a fxed business through which the business of the enterprise was wholly or partly carried on. The conclusion is that the Assessee was not having fxed place of business in India. Hence, the First Appellate Authority rightly held that the provisions of Article 5 (1) were inapplicable. It is in these circumstances we are surprised that the Tribunal still deems it ft and proper to remand the case. If there was indeed no material on record, then, the above conclusion was impossible to be reached.

27 Be that as it may, we do not wish to express any opinion on the rival contentions for it may prejudice both sides. In fact, resorting to such shortcuts, results in wastage of precious judicial time of the Tribunal as also Higher courts and delaying the collection and recovery of Revenue, if any. It only enables the parties to postpone the inevitable. It also results in uncertainty and chaos. Judicial decisions have to be consistent and all the more there should be no confusion. There ought to be some predictability and when given facts and circumstances give rise to certain legal principles which parties assert are applicable, then, as a last fact fnding authority, the Tribunal could have summoned all records and thereafter should have arrived at a categorical conclusion whether the First Appellate Authority was right or the Assessing Offcer. This having admittedly not been done, we are of the frm opinion that the Tribunal failed to act as a last fact fnding authority. It failed to discharge its duty and function expected of it by the law. We have no hesitation, therefore, in answering question nos.[1] and 2 as reproduced above in favour of the Assessee and against the Revenue.

28 Having thus answered these substantial questions of law, we set aside the order of the Tribunal. We cause no prejudice to the parties but balance their rights and equities. We restore the Revenue's Appeal to the fle of the Tribunal for a decision afresh on merits and in accordance with law.

29 Needless to clarify therefore, that the initial order dated 1st April, 2015 and the order on the Miscellaneous Applications for rectifcation are quashed and set aside There shall be no order as to costs.

4. With the enactment of the DTVSV Act on 17th March, 2020, Petitioner made declaration in Form-1 along with Undertaking in Form-2 according to the provisions of the DTVSV Act and the Rules thereunder indicating that an Appeal No.4632/MUM/2006 was pending in the Tribunal, which was fled by the Department and there was no application pending on behalf of Petitioner. In the said declaration, Petitioner had indicated an amount payable under the DTVSV Act as Rs.7,50,014/-, which was 50% of the disputed tax. Thereafter, on 28th January, 2021, Form-3 was issued by the Designated Authority indicating the amount payable as Rs.15,00,029/-, which was 100% of the tax arrears, whereas the amount payable indicated by the tax payer was Rs.7,50,014/-. The said Form also refers to the same Appeal Reference No.4632/MUM/2006 as was contained in Form-1. Even, the corresponding column pertaining to Schedule number refers to the pendency of Appeal of the Department before Income Tax Appellate Tribunal (the “ITAT”) as on 31st January, 2020.

5. Thereafter, on 19th March, 2021, Petitioner fled rectifcation application before the Designated Authority explaining as to how the Appeal, that was pending before the ITAT, was the Revenue’s Appeal and not Petitioner’s Appeal. Once again on 26th March, 2021, a revised Form-3 was received determining the amount payable at 100% of the tax arrears, instead of 50% as claimed by Petitioner.

6. Being aggrieved by the same, Petitioner is before us for the following reliefs:- “a. to issue a Writ of Certiorari or a Writ in the nature of Certiorari or any other appropriate Writ, Order or Direction under Article 226 of the Constitution of India calling for the records of the Petitioner’s case and after examining the legality and validity thereof, quash and set aside the Impugned Forms No.3 dated 28th 2021 (Exhibit “J”) and 26th March 2021 (Exhibit “L”) issued by Respondent No.1 for the assessment year 2002-03; b. to issue a Writ of Mandamus or a Writ in the nature of Mandamus or any other appropriate Writ, Order or Direction under Article 226 of the Constitution of India, ordering and directing Respondent No.1 to forthwith withdraw and cancel the Impugned Forms No.3 dated 28th January 2021 (Exhibit “J”) and 26th March 2021 (Exhibit “L”) issued by Respondent No.1 for the assessment year 2002-03 and further ordering and directing Respondent No.1 to issue Form No.3 treating the Petitioner as the Respondent and consequently determining the amount payable under the VSV Act at 50% of the tax arrears;”

7. Respondent-Revenue has fled its affdavit in reply dated 14th June, 2021. It is submitted on behalf of Revenue that Revenue had fled an Appeal before the ITAT and ITAT directed restoration of the issue back to the assessing offcer for fresh adjudication and that the said decision of the ITAT was accepted by the Revenue. He submits that the assessee thereafter fled an Appeal before the Bombay High Court against the said order of the ITAT. The Bombay High Court has restored the matter to the ITAT for fresh consideration. He submits that ITA No.4632/MUM/2006 has been restored on the assessee’s Appeal and, therefore, the dispute pending before the ITAT is assessee’s Appeal and not of the Revenue; the Appeal currently in adjudication being assessee’s Appeal, it justifes levy of 100% tax as per the DTVSV Act and not 50% of the disputed tax.

8. We have heard Shri Pardiwalla, learned Senior Counsel, on behalf of Petitioner and Ms. Bharucha, learned Counsel for Respondents and with their able assistance, we have perused the papers and proceedings in the matter.

9. Petitioner has fled Form-1 stating that it is eligible for payment of 50% of disputed tax as according to Petitioner the pending appeal is Revenue Appeal, whereas department has treated the same as dispute due to Assessee Appeal, requiring Petitioner to pay 100% of disputed tax. There being no other dispute, the issue at hand is whether the Appeal pending before the ITAT is a Revenue Appeal or an Assessee Appeal. Before answering this question, it would be apposite to refer to Section 3 of the DTVSV Act to appreciate the cause of this conundrum. Section 3 of the DTVSV Act is quoted as under:- “3. Subject to the provisions of this Act, where a declarant fles under the provisions of this Act on or before the last date, a declaration to the designated authority in accordance with the provisions of section 4 in respect of tax arrear, then, notwithstanding anything contained in the Income-tax Act or any other law for the time being in force, the amount payable by the declarant under this Act shall be as under, namely:—

┌──────────────────────────────────────────────────────────────────────────────┐
│          this Act shall be as under, namely:—                                │
│  Sl.    Nature of tax arrear.        Amount        Amount payable            │
│  No.                                 payable       under this Act on         │
│                                  under this Act or after the 1st day         │
│                                        on            of April, 2020          │
│                                   or before the     but on or before         │
│                                    31st day of       the last date.          │
│                                  March, 2020.                                │
│ (a)    where the tax arrear      amount of the      the aggregate of         │
│        is   the    aggregate     disputed tax.      the amount of            │
│        amount of disputed                           disputed tax and         │
│        tax,          interest                       ten per cent. of         │
│        chargeable or charged                        disputed tax:            │
│        on such disputed tax                                                  │
│        and penalty leviable                         Provided     that        │
│        or levied on such                            where the ten per        │
│        disputed tax.                                cent. of disputed        │
│                                                     tax exceeds the          │
│                                                     aggregate                │
│                                                     amount         of        │
│                                                     interest                 │
│                                                     chargeable     or        │
│        Mugdha                                                     10 of 18   │
├──────────────────────────────────────────────────────────────────────────────┤
│                               11                Judgment-WP 1028-21.odt      │
│                                                    charged on such           │
│                                                    disputed tax and          │
│                                                    penalty leviable          │
│                                                    or levied on such         │
│                                                    disputed tax, the         │
│                                                    excess shall be           │
│                                                    ignored for the           │
│                                                    purpose         of        │
│                                                    computation     of        │
│                                                    amount payable            │
│                                                    under this Act.           │
│ (b)   where the tax arrear    the aggregate         the aggregate of         │
│       includes the tax,       of the amount         the amount of            │
│       interest or penalty     of    disputed        dispute tax and          │
│       determined in any       tax        and        thirty-fve   per         │
│       assessment on the       twenty-fve            cent. of dispute         │
│       basis of search under   per cent. of          tax:                     │
│       section     132    or   the disputed                                   │
│       section 132A of the     tax: provided        provided      that        │
│       Income-tax Act.         that where the       where the thirty-         │
│                               twenty-fve           fve per cent. of          │
│                               per cent. of         dispute        tax        │
│                               disputed tax         exceeds        the        │
│                               exceeds    the       aggregate                 │
│                               aggregate            amount           of       │
│                               amount       of      interest                  │
│                               interest             chargeable      or        │
│                               chargeable or        charged on such           │
│                               charged     on       disputed tax and          │
│                               such disputed        penalty leviable          │
│                               tax        and       or levied on such         │
│                               penalty              dispute tax, the          │
│                               leviable    or       excess shall be           │
│                               levied on such       ignored for the           │
│       Mugdha                                                     11 of 18    │
│                               12                 Judgment-WP 1028-21.odt     │
│                               disputed tax,         purpose       of         │
│                               the      excess       computation   of         │
│                               purpose      of                                │
│                               computation                                    │
│                               of     amount                                  │
│                               payable under                                  │
│                               this Act.                                      │
│ (C)   where the tax arrear    twenty-fve            thirty per cent. of      │
│       relates to disputed     per cent. of          disputed                 │
│       interest or disputed    disputed              interested       or      │
│       penalty or disputed     interest      or      disputed penalty         │
│       fee.                    disputed              or disputed fee:         │
│                               penalty       or                               │
│                               disputed fee.                                  │
│                  Provided that in a case where an appeal or                  │
│         writ petition or special leave petition is fled by the               │
│         income-tax authority on any issue before the                         │
│         appellate forum, the amount payable shall be one-                    │
│         half of the amount in the Table above calculated on                  │
│         such issue, in such manner as may be prescribed:                     │
│                 Provided further that in a case where an                     │
│         appeal is fled before the Commissioner (Appeals) or                  │
│         objections is fled before the Dispute Resolution                     │
│         Panel by the appellant on any issue on which he has                  │
│         already got a decision in his favour from the Income                 │
│         Tax Appellate Tribunal (where the decision on such                   │
│         issue is not reversed by the High Court or the                       │
│         Supreme Court) or the High Court (where the                          │
│         decision on such issue is not reversed by the                        │
│                                 13               Judgment-WP 1028-21.odt     │
│          half of the amount in the Table above calculated on                 │
│          such issue, in such manner as may be prescribed:                    │
│                  Provided also that in a case where an                       │
│          appeal is fled by the appellant on any issue before                 │
│          the Income Tax Appellate Tribunal on which he has                   │
│          already got a decision in his favour from the High                  │
│          Court (where the decision on such issue is not                      │
│          reversed by the Supreme Court), the amount                          │
│          payable shall be one-half of the amount in the Table                │
│          above calculated on such issue, in such manner as                   │
│          may be prescribed.”                                                 │
│ 10.          Plain reading of the table in the above Section of the          │
└──────────────────────────────────────────────────────────────────────────────┘

11. In this case, assessing offcer had made addition with respect to permanent establishment in the case of Petitioner and consequently denied it benefts of the double taxation avoidance agreement. The entire income was taxed at 40% instead of 10% as declared by Petitioner. Then the matter was appealed to CIT(A). The additions were deleted. Against the said deletions, the Department fled an Appeal before the ITAT being ITA No.4632/MUM/2006 against the order of CIT(A). The Tribunal restored the matter back to the assessing offcer for fresh examination. It is stated that the Department had accepted this order of the ITAT. However, Petitioner challenged this order before this Court by way of an Appeal raising the following two questions:- “(i): Whether, on the facts and in the circumstances of the case and in law, the Tribunal was justifed in not concluding that the Appellant does not have a Permanent Establishment in India and instead setting aside the order of the CIT (A)? (ii):Whether, on the facts and in the circumstances of the case and in law, the Tribunal was justifed in remanding the matter back to Assessing offcer for fresh consideration when the Assessing offcer has not discharged the burden of proving that the Appellant had a PE in India?”

12. This Court, by its order dated 29th August, 2018, answered the substantial questions of law in favour of the assessee and against the Revenue and set aside the order of the Tribunal. This Court restored the Revenue's Appeal to the fle of the Tribunal for a decision afresh on merits and in accordance with law.