High Court Of Bombay
NYK Line (India) Ltd. vs. DCIT-1(3)
Assessment Year : 2004-05
Section : 44B, 147
Dr. D.Y. Chandrachud And M.S. Sanklecha, JJ.
Writ Petition No. 158 Of 2012
February 10, 2012
Dr. D.Y. Chandrachud, J. – Rule; with the consent of Counsel for the parties returnable forthwith. With the consent of Counsel and at their request the Petition is taken up for hearing and final disposal.
2. By a notice dated 28 March 2011 issued under Section 148 of the Income Tax Act, 1961 the assessment of the Petitioner for Assessment Year 2004-05 is sought to be reopened.
3. The Petitioner entered into an agreement of agency on 1 April 1993 with a non resident shipping line of which the Petitioner is a wholly owned subsidiary. Under the agreement, the Petitioner undertook the obligation, inter-alia, to render services relating to vessel operations and collection and remittance of freight. The Petitioner is paid commission as compensation for services rendered. The Petitioner collects Container Detention Charges which are levied on importers of goods. On 15 September 1993, the Reserve Bank of India (RBI) issued a circular setting out modalities for appropriation of Container Detention Charges (CDCs) collected. Under the circular a sum of US $ 1.5 per TEU per day was to be retained to meet local expenses towards administration charges. The Petitioner maintains a separate bank account for debiting and crediting the receipts and payments on account of its principal. The Container Detention Charges under consideration were credited to the account upto 31 March 2009.
4. For Assessment Year 2004-05, the Petitioner filed a return of income on 1 November 2004 declaring an income of Rs. 4,36,46,010/-. In the notes forming part of the accounts the Petitioner made the following disclosure:-
“12. The RBI has in the permission given for remittance of CDC (Container Detention Charges) amount to principal, has allocated $ 1.5 per day, per TEU as administrative charges for Agent’s local use out of the non-remittable funds. The said allocation is not as per the Agency Agreement entered into by the company with the Principals and hence no entry has been passed in the books of Accounts for such allocation amounting to Rs. 3,30,53,628/- (Rs.2,73,79,398).”
5. The Statutory Auditors of the Petitioner included the following note in their report dated 2 July 2004 which was annexed to the report:-
“Subject to note No.11 regarding change in the method of charging commission since 1999 which is subject to confirmation by the Principal and note No.12 regarding non accounting of administrative charges of Rs. 3,30,53,628/- for Agent’s local use out of the non-remittable funds.”
6. Even for the prior Assessment Year 2003-04 a similar disclosure was made by the Petitioner in the notes forming part of the accounts. The Assessing Officer had issued a questionaire requiring disclosure of details of agency commission together with a copy of the agreement with the principal. Details were also sought of the amount of expenditure in foreign currency and of the amounts remitted to the principal. An order of assessment was passed under Section 143(3) for Assessment Year 2003-04 on 21 March 2006.
7. For the Assessment Year in question, Assessment Year 2004-05, an order of assessment was passed by the Assessing Officer on 22 December 2006. The Petitioner entered into an addendum with its foreign principal on 25 May 2009 authorizing the Petitioner to retain administration charges out of the Container Detention Charges in accordance with the norms prescribed by the Reserve Bank of India. Pursuant thereto, in a return of income filed for Assessment Year 2010-11 the entire administration charges retained out of the Container Detention Charges for the period between 1993 to 2009 were offered for tax.
8. A notice has been issued to the Petitioner on 28 March 2011 purporting to reopen the assessment for Assessment Year 2004-05 for the following reasons:-
“The assessee is a wholly owned subsidiary of a Japanese Company, NYK Ltd.. It handles with freight booking and collection for the Principal. Apart from that, it also takes care of the management of the containers, collecting container rent, paying the ports and other agents for container on behalf of the Principal. The assessee company doesn’t charge anything for these services and towards the expenses it incurs for rendering these services. The RBI to stop such practice has issued a directive/ circular No.EC By Pass II.361/Misc.93.94 dt.15.09.03 issued by Exchange Control Department of RBI, notifying the remission of container rent so collected whereby it is mandatory for the agent (like assessee company) to retain 1.50$ per TOU paid out of 12.50$ CDC collected towards its own administrative expenses. This amount cannot be remitted to the holding company abroad. The assessee company has kept this amount which it could not remit to the holding company in a separate account and shows it as payable to the holding company whereas in reality it should have shown as part of the receipts of the assessee company. The amount for the year is Rs. 1,16,89,636/-. This amount was added as income of the assessee company in the security (sic) assessment for A.Y. 2007-08. The facts being the same, similar treatment has to be given for this amount in A.Y. 2006-07.”
9. The learned counsel appearing for the Petitioner submitted that (i) the reopening of assessment is beyond a period of four years. Consequently, in order to satisfy the jurisdictional requirement under the proviso to Section 147, there has to be a failure on the part of the Assessee to disclose fully and truly all necessary facts for assessment for that Assessment Year; (ii) As a matter of fact the Petitioner made a full disclosure of the fact that the Reserve Bank of India had while granting its permission for remittance of Container Detention Charges to the principal allocated an amount of US $ 1.5 per container as administration charges for local use of the Agent. The Petitioner had disclosed that this allocation was not as per the Agency Agreement and hence no entry was passed in the books of accounts. The statutory auditors also made a complete disclosure after which an order of assessment was passed under Section 143(3); (iii) The reopening of assessment is based entirely on the order of assessment passed for Assessment Year 2007-08. Unless there is a failure to disclose on the part of the Petitioner, the assessment cannot be reopened.
10. On the other hand, the learned counsel appearing for the Revenue submitted that (i) the reopening is based on the fact that in the assessment proceedings for Assessment Year 2007-08 the amount retained has been brought to tax. The assessment could have been reopened on the basis of a finding contained in an order of assessment for a subsequent year; (ii) Though the Petitioner has availed of the Dispute Resolution Procedure for Assessment Year 2007-08 the addition to income has been confirmed.
11. Now the admitted fact before the Court is that the reopening of the assessment has taken place beyond a period of four years of the end of the relevant assessment year. Under the proviso to Section 147, the primary requirement which must be fulfilled where an assessment is sought to be reopened beyond a period of four years is that there must be a failure on the part of the assessee to disclose fully and truly all necessary facts for assessment for that Assessment Year. While filing the return, the Petitioner clearly disclosed, in the notes forming part of the accounts, that the Reserve Bank of India while granting its permission for remittance of Container Detention Charges to the principal had allocated an amount of US $ 1.5 per day per container as administration charges for the agent out of non-remittable funds. At that stage, it was disclosed that the agreement between the Petitioner and its foreign principal did not contemplate retention of the aforesaid amount. Such a disclosure was also made by the statutory auditors in their report. Therefore, there was no suppression of material facts by the Petitioner. The assessment is sought to be reopened on the basis of an order of assessment which has been passed subsequently for Assessment Year 2007-08. No doubt, as a matter of principle, it is open to an Assessing Officer to reopen an assessment on the basis of an order of assessment which has been passed for a subsequent assessment year subject to the statutory requirements of Section 147 being fulfilled. Beyond a period of four years the test is not merely whether there has been an escapement of income, but whether, there has been a failure on the part of the Assessee to disclose fully and truly all material facts necessary for the assessment. The fact that for Assessment Year 2007-08 a similar amount has been added back may be reflective of the fact that there was escapement, but that is not adequate for reopening an assessment beyond a period of four years. Here there was a disclosure by the Petitioner of the material facts necessary for the assessment. Hence, we accept the contention of the Petitioner that the primary jurisdictional requirement under the proviso to Section 147 has not been fulfilled.
12. Before concluding we may also advert to the submission which has been urged on behalf of the Petitioner that for Assessment Year 2010-11 the Petitioner has offered the entire Container Detention Charges from 1993 to 2009, which it was permitted to retain by its foreign principal following an addendum to its agreement, dated 25 May 2009. The learned counsel appearing for the Petitioner submitted that if the stand of the Revenue was to be accepted then the Revenue would, as a result of the bar of limitation, be unable to reopen the earlier assessments beyond a period of six years. On the contrary, the Petitioner, it is urged, has brought to tax the entire Container Detention Charges for the period between 1993 and 2009 in the assessment proceedings for Assessment Year 2010-11. While we have adverted to the submission, we have based this judgment on the absence of jurisdiction to reopen the assessment for Assessment Year 2004-05 in view of the fact that there was no failure on the part of the Petitioner to disclose fully and truly all material facts.
13. For these reasons, we make Rule absolute by setting aside the notice dated 28 March 2011. In the circumstances of the case, there shall be no order as to costs.
[Citation : 346 ITR 355]