Springer Healthcare Limited v. Assistant Commissioner of Income Tax & Anr.

3. In view of the above facts, receipt from Finance, sales and corporate service of Rs. 1,44,34,773/- provided under this agreement also comes under the purview of Fee for Technical services, both under provisions of Income-tax Act and Article-13 of Indo-UK DTAA. The same may be added to the income of the assessee for the A.Y. 2017-18 and charged to tax at prescribed rate.

4. Therefore, the aforesaid information suggests that income chargeable to tax in the case of the assessee for the given AY 2017-18 has escaped assessment.

5. Further, as is evident such income which is chargeable to tax and has escaped assessment is in the form of an asset amounting to Rs. 50 lakh or more as per the provisions of section 149(1)(b) of the Act.

ABHILASHA SHARMA CIRCLE INT TAX 3(1)(2)DEL”

13. The above information is also set out in the notice dated 25.09.2024.

14. It is apparent from the record that the question whether amount of ₹1,44,34,773/- was chargeable to tax under the Act was examined by the AO during the assessment proceedings. During the assessment proceedings, the AO had specifically issued a notice dated 13.12.2019 under Section 142(1) of the Act, requiring the petitioner to furnish details in respect of both finance, sale and corporate services recharges amounting to ₹1,44,34,773/-. The petitioner responded to the said notice on 16.12.2019. The said response is not on record. However, it is stated that the petitioner had explained that the receipts were not chargeable to tax.

15. On 16.12.2019, the AO had issued a show cause notice calling upon the petitioner to show cause why its receipts amounting to ₹1,44,34,773/from SNIPL be not charged to tax. The said notice is reproduced below: “GOVERNMENT OF INDIA MINISTRY OF FINANCE INCOME TAX DEPARTMENT OFFICE OF THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE INT TAX 3(1)(2)DEL To, SPRINGER HEALTHCARE LIMITED THE CAMPUS 4, CRINAN STREET LONDON N[1] 9XS.

FOREIGN United Kingdom PAN: AAVCS5304 H AY: 2017-18 Notice No: ITBA/AST/F/14 3(3) (SCN)/20 19- 20/1022466655( 1) Dated: 16/12/201 Hearing Date and Time: 19/12/2019 03:00 PM SHOW CAUSE NOTICE Vide notice u/s 142(1) of the IT Act, 1961 dated 13.12.2019, you were asked to furnish nature and complete details (complete details of finance sales and complete details of different types of corporate service rendered) of amount earned on account of “finance sales and corporate service charge” amounting Rs. 1,44,34,773/- from SNIPL, which you have claimed not taxable under the beneficial provisions of the double taxation avoidance agreement between India and UK. You were also requested to explain the basis on which amount has been claimed to be not taxable under the beneficial provisions of the double taxation avoidance agreement between India and UK. Since there has been no compliance whatsoever, you are show caused as to why the amount of Rs. 1,44,34,773/- should not be treated as Fee for Technical Services and added to your total income and Taxed Accordingly.

MIKESH KUMAR SINHA CIRCLE INT TAX 3(1)(2)DEL”

16. The petitioner had responded to the said notice by the letter dated 21.12.2019 once again setting out its explanation why receipts are not taxable under the Act. The relevant extract of the said response is set out below: “Finance, sales and corporate service recharges’ amounting to INR 14,434,773 received from SNIPL is not in nature of FTS: It is submitted that the assessee had entered into a Shared Service Agreement, dated 1 January 2015, with SNIPL. By virtue of the agreement, the assessee provides certain general management and controlling, IT and business support services to SNIPL. In this regard, we have also enclosed copy of sample invoices raised by the assessee on SNIPL during the year under consideration (enclosed as Annexure 5). The assessee now proceeds to explain why ‘Finance sales and corporate service recharges’ received by it during the year under consideration, is not attributable as FTS. (A) Taxability of Finance, sales and corporate service recharge as FIS under the provisions of the Act: In this regard, your goodself’s attention is now drawn towards Section 9(1)(vii) of the Act which deals with the stream of income by way of FTS, which shall be deemed to accrue or arise in India. The specific clause that merits consideration in the instant case reads, as follows: “income by way of fees for technical services payable by- (a) ………; or (b) a person who to a resident, except where the fees are payable in respect of services utilised in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India; or (c) ………..” Further, FTS has been defined in Explanation 2 to section 9(1)(vi) of the Act, as under: “consideration (including any lump sumi consideration for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable sunder the head “Salaries”” (Emphasis Supplied) It may kindly be appreciated that for any payment to fall with the ambit of FTS under the Act. it should be made as a consideration for rendering of any managerial, ‘technical’ or ‘consultancy’ services. However, as per section 90(2) of the Act, the taxability of a nonresident in India is governed by provisions of the Act or provisions of the Double Taxation Avoidance Agreement entered between India and the country of residence of the non-resident, whichever are more beneficial Consequently, the assessee now proceeds to explain as to why the Finance, sales and corporate service recharge cost received by the assessee dung the year under consideration does not fall within the ambit of FTS under the relevant provisions of the DTAA (B) Taxability of Finance, sales and corporate service recharge’ as FTS under the provisions of the DTAA: (1) Firstly, your goodself's kind attention is invited to Article 13(4) of the DTAA (enclosed as Annexure 6), which defines the term FTS, as follows: "the term "fees for technical services" means payments of any kind of any person in consideration for the rendering of any technical or consultancy services (including the provision of services of a technical or other personnel) which: (a) are ancillary and subsidiary to the application or enjoyment of the right property or information for which a payment described in paragraph 3(a) of this article is received, or (b) are ancillary and subsidiary to the enjoyment of the property for which a payment described in paragraph 3(b) of thus Article is received; or

(c) make available technical knowledge, experience, skill know-how or processes, or consist of the development and transfer of a technical plan or technical design (Emphasis Supplied) Accordingly, a payment made for rendering any technical or consultancy service is considered as FTS under the DTAA, only if such services ‘make available’ technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design. In other words, in order to categorize an income as FTS, the following twin tests must be cumulatively satisfied (and not alternatively): • Consideration is paid for rendering any technical or consultancy service; and • Such service should make available technical knowledge, experience, skill, know-how, or processes to the service recipient as a result of provision of such services. Further, your goodself will appreciate that the terms technical and/or consultancy have not been defined under the Act and or the DTAA, and it is a well settled law that they need to be interpreted based on their understanding in common parlance, commentaries and various judicial precedents. Therefore, the assessee now proceeds to explain as to why the services rendered by it does not fall under the ambit of technical and or consultancy' services under the provisions of both the Act and the DIAA in view of the meaning interpretation of the abovementioned terms by various Indian Courts and expressions defined m various Dictionaries.”

17. In addition to the above, the petitioner also explained that the services rendered did not qualify as technical services as they were not of a technical nature. The petitioner referred to various authorities including the decision of the Supreme Court in M/s Continental Construction Ltd. v. CIT: (1992) 195 ITR 81 (SC) and the decision of Madras High Court in the case of Skycell Communications Ltd. & Anr. v. DCIT & Ors.: (2001) 251 ITR 53, in support of its contention. In view of the above, there can be no dispute that the focus of the assessment proceedings before the AO centred around the question of taxability of receipts in question. Thus, we find merit in the contention that the initiation of reassessment proceedings would effectively amount to initiating a review of the assessment proceedings, which is impermissible.

18. In Commissioner of Income Tax, Delhi v. Kelvinator of India Limited: (2010) 2 SCC 723, the Supreme Court had explained that the power under Section 147 of the Act is to reassess the income that has escaped assessment and cannot be misunderstood as a power of review. The following extract of the said decision is instructive:

conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to Section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words “reason to believe” but also inserted the word “opinion” in Section 147 of the Act. However, on receipt of representations from the companies against omission of the words “reason to believe”, Parliament reintroduced the said expression and deleted the word “opinion” on the ground that it would vest arbitrary powers in the assessing officer.” [emphasis added]

19. We consider apposite to refer to the following observations made by the Division Bench in Jindal Photo Films Ltd. v. CIT: (1998) 234 ITR 170:

20. In Commissioner of Income Tax v. Techspan India (P) Ltd., (2018) 6 SCC 685, the Supreme Court had reiterated the law that assessment could not be reopened on the basis of a change of opinion. The Court had referred to the earlier decision in Commissioner of Income Tax, Delhi v. Kelvinator of India Limited (supra) and explained the import of expression of “change of opinion” as under: -

The use of the words “reason to believe” in Section 147 has to be interpreted schematically as the liberal interpretation of the word would have the consequence of conferring arbitrary powers on the assessing officer who may even initiate such reassessment proceedings merely on his change of opinion on the basis of same facts and circumstances which has already been considered by him during the original assessment proceedings. Such could not be the intention of the legislature. The said provision was incorporated in the scheme of the IT Act so as to empower the assessing authorities to reassess any income on the ground which was not brought on record during the original proceedings and escaped his knowledge; and the said fact would have material bearing on the outcome of the relevant assessment order.

15. Section 147 of the IT Act does not allow the reassessment of an income merely because of the fact that the assessing officer has a change of opinion with regard to the interpretation of law differently on the facts that were well within his knowledge even at the time of assessment. Doing so would have the effect of giving the assessing officer the power of review and Section 147 confers the power to reassess and not the power to review.

16. To check whether it is a case of change of opinion or not one has to see its meaning in literal as well as legal terms. The words “change of opinion” imply formulation of opinion and then a change thereof. In terms of assessment proceedings, it means formulation of belief by an assessing officer resulting from what he thinks on a particular question. It is a result of understanding, experience and reflection. *** *** ***

18. Before interfering with the proposed reopening of the assessment on the ground that the same is based only on a change in opinion, the court ought to verify whether the assessment earlier made has either expressly or by necessary implication expressed an opinion on a matter which is the basis of the alleged escapement of income that was taxable. If the assessment order is non-speaking, cryptic or perfunctory in nature, it may be difficult to attribute to the assessing officer any opinion on the questions that are raised in the proposed reassessment proceedings. Every attempt to bring to tax, income that has escaped assessment, cannot be absorbed by judicial intervention on an assumed change of opinion even in cases where the order of assessment does not address itself to a given aspect sought to be examined in the reassessment proceedings.”

21. In the present case, the fact that the petitioner had received an aggregate amount of ₹1,44,34,773/- during the previous year relevant to AY 2017-18, which was not surrendered to tax, was not only within the AO’s knowledge, but was subject matter of examination as to whether the said amount was now held to be chargeable to tax under the Act. Concededly, all relevant facts regarding the aspect of taxability of the aforesaid amount were examined by the AO. There is no additional material that has been discovered subsequently, which was not within the knowledge of the AO at the material time.

22. Undeniably, this would be a case of change of opinion, if the said amount is now held as chargeable to tax under the Act.

23. We must, at this stage, note that there is no cavil that the exercise initiated pursuant to the impugned notice is for all intents and purpose an attempt to review the decision the AO in the assessment proceedings. However, it is contended by the Revenue that the same is permissible as the initiation was triggered by audit observations and the same constitutes information that can trigger the reassessment proceedings. We find no merit in the said contention. The fact that audit observation may be deemed to be information suggestive of the assessee’s income escaping assessment does not enhance or expand the power available with the AO to assess/ reassess the assessee’s income that has escaped assessment. It does not alter the very nature of power to assess/ reassess under Section 147 of the Act, to a power to review a concluded assessment.

24. We consider it relevant to refer to Section 148 of the Act and in particular the Explanation 1 to Section 148 of the Act, as was in force at the material time (that is, prior to the amendment by Finance Act, 2023). The relevant extract of said section is set out below: -

(i) any information in the case of the assessee for the relevant assessment year in accordance with the risk management strategy formulated by the Board from time to time;

(ii) any audit objection to the effect that the assessment in the case of the assessee for the relevant assessment year has not been made in accordance with the provisions of this Act; or.”

25. It is clear from the above that in terms of clause (ii) to Explanation I to Section 148 of the Act, an audit objection to the effect that the assessment in the case of an assessee was not made in accordance with the provisions of the Act, is information for the purpose of Section 148 as well as Section 148A of the Act.

26. The contention advanced on behalf of the Revenue is founded on interpreting Explanation I as a mandatory command to issue a notice under Section 148 of the Act notwithstanding the issue flagged under the audit objection has been subject matter of the examination in assessment proceedings and a final decision in terms of an assessment order. This requires us to examine Section 148 of the Act in the light of the import of word “information” as used in the main provision.

27. The term “information” is used in the first proviso to Section 148 of the Act. The said proviso proscribes issuance of notice under Section 148 of the Act unless there is “information” with the AO, which suggests that an assessee’s income chargeable to tax has escaped the assessment for the relevant AY. Thus, if the AO is in receipt of an audit objection, the same is required to be construed as information that suggests that the income of the assessee has escaped assessment. The proviso to Section 148 of the Act is couched in the negative. Whilst, the AO is proscribed from issuance of the notice under Section 148 of the Act, unless it has the “information” that suggests that the assessee’s income has escaped assessment, it is not mandatory for the AO to issue such a notice, or to review the assessment order merely because issues were flagged in an audit objection. The AO is required to apply its mind to the audit objection and form an independent, informed view.

28. The provisions of Section 148A of the Act are also required to be construed by imputing the meaning of the term “information” as provided under Explanation I to

┌─────────────────────────────────────┬──────────────────────────────────────────┐
│ Section 148 of the Act.             │ Section 148A as was in in force prior to │
├─────────────────────────────────────┼──────────────────────────────────────────┤
│ Amendment Act 15 of 2024, is repro  │ duced below:- ry, providing opportunity  │
│ “148-A. Conducting inqui issue of │ before ion 148.—The Assessing Officer  │
│ notice under Sect shall, before     │ notice under Section 148,— f required, │
│ issuing any (a) conduct any         │ with the prior approval of respect to    │
│ enquiry, i specified authority,     │ the information which hargeable to tax   │
│ with suggests that the income c     │ has escaped                              │
│ assessment; (b) provide an          │                                          │
│ opportunity by serving upon him a   │ of being heard to the assessee, [* * *], │
│ noti may be specified in the no but │ ce to show cause within such time, as    │
│ not exceeding thirty d is issued,   │ tice, being not less than seven days and │
│ or such time, a of an application   │ ays from the date on which such notice s │
│ in this 148 should not be issued o  │ may be extended by him on the basis      │
│ suggests that income charg his case │ behalf, as to why a notice under Section │
│ for the relevant conducted, if any, │ n the basis of information which eable   │
│ as per (c) consider the reply of    │ to tax has escaped assessment in         │
│                                     │ assessment year and results of enquiry   │
│                                     │ clause (a); assessee furnished, if any,  │
│                                     │ in response to                           │
└─────────────────────────────────────┴──────────────────────────────────────────┘

29. It is apparent from the above, the term “information” is used in clause (a), clause (b) of Section 148A of the Act and proviso (c) of the said Section. Clause (a) of Section 148A of the Act requires the AO to conduct the enquiry, if necessary, with respect to the information which suggests the income chargeable to tax has escaped assessment. Accordingly, when an audit objection is raised, the AO would have such information in respect of which an enquiry may be conducted under clause (a) of Section 148A of the Act, if required. However, this does not mandate that the AO proceeds to issue a notice under Section 148A of the Act merely on the basis of the audit objection. Clause (b) of Section 148A of the Act requires the AO to provide the assessee with the basis of the information, which suggests that the income chargeable to tax has escaped assessment, in order to enable to the assessee to respond to the said notice.

30. This clearly, establishes that the purpose of an audit objection cannot be considered as a command to issue a notice under Section 148A of the Act irrespective of what such information is. On the contrary, it requires the AO to furnish the information to the assessee and elicit the assessee’s response. Thereafter, the AO is required – in terms of clause (d) of Section 148A of the Act – to take an informed decision whether it is a fit case for issuance of notice under Section 148 of the Act “on the basis of the material available on record including the reply of the assessee”. Obviously, if the AO is satisfied with the reply furnished by the assessee and the material on record, the AO is bound to hold that it is not a fit case for issuance of notice under Section 148 of the Act.

31. In a case such as this, the AO was required to take an informed decision whether the issue raised had been considered and concluded in the assessment proceedings as contended by the petitioner. The said issue cannot be brushed aside by construing an audit objection as a ground of issuing a notice under Section 148 of the Act regardless of whether the assessee’s income had escaped assessment. The expression “escaped assessment” by its very nature, means that the income has not been subjected to an assessment. The expression would not include a case where the AO made an informed assessment of the assessee’s income.

32. Clause (c) of the proviso to Section 148A of the Act excludes the procedure under Section 148A of the Act where the information available with the AO is contained in the books of accounts, documents or material seized in a search conducted under Section 132 of the Act or requisitioned under Section 132A of the Act on or after 01.04.2021. This clause is not applicable to the facts of the present case.

33. The next question that needs to be examined is whether the impugned notice has been issued beyond the period of limitation as stipulated under Section 149(1) of the Act. The first proviso to Section 149(1) of the Act proscribes the issuance of any notice under Section 148 of the Act for a period prior to 31.03.2021, which could not be issued at that time. This requires us to examine whether the impugned notice could be issued under Section 148 of the Act as it was in force prior to 31.03.2021.

34. There is no allegation that there was a failure on the part of the petitioner to disclose any material fact in its return. Thus, the extended period of limitation of six years for reopening assessment would not be available under Section 147 of the Act as it was in force prior to 31.03.2021. The period of limitation is, thus, limited to four years from the end of the relevant AY 2017–18, and concededly, the impugned notices have been issued beyond this period. Thus, by virtue of the first proviso of Section 149 of the Act, no notice could have been issued under Section 148 of the Act as no such notice could have been issued on the basis provisions for reassessment that were in force prior to 31.03.2021. This issue is covered in favour of the petitioner by a recent decision of this Court in Ratnagiri Gas and Power Private Limited v. Assistant Commissioner of Income Tax Circle 19(1), Delhi & Ors.: 2025 SCC OnLine Del 2904.

35. The petition is accordingly allowed. The impugned notice and further proceedings initiated thereto are set aside.

36. All pending applications are also disposed of.

VIBHU BAKHRU, J TEJAS KARIA, J MAY 21, 2025 dr *Note: Corrected by the order dated 30.05.2025 passed on oral mentioning of learned counsel for the parties.