KLM ROYAL DUTCH AIRLINES Vs. ASSISTANT DIRECTOR OF

JUDGEMENT

(1.) In these writ petitions the Order disposing of the Objections filed by KLM Dutch Airlines ('Assessee' for short) to the initiation of re-assessment proceedings has been challenged; a prayer has also been made for the issuance of a writ of Certiorari or any like Order quashing the impugned Notice under Section 148 of the Income-Tax Act [ for short 'IT Act'] dated 8.3.2006; and for quashing the re-assessment proceedings initiated in pursuance to the Notice dated 8.3.2006. The assailed Notice pertains to Assessment Year (AY) 2001-2002 in WP(C) 16576-77 and to AY 2003-2004 in WP(C) No.16574-75. On a perusal of the impugned Notice it appears that the Assistant Director of Income Tax [for short Assessing Officer(AO)] intends to 'reassess' the income of the Petitioner/Assessee inter alia since the word 'assessed' has been scored out. This is noteworthy since avowedly no assessment has in fact been framed.

(2.) The Assessee had filed its Return of Income under Section 139 of the IT Act on 31.10.2002 for AY 2002-03 declaring a 'nil taxable income' and consequently seeking a refund of tax deducted/deposited. Exemption under Section 90 of the IT Act has been claimed in respect of income earned from "technical handling". On 19.1.2004 a notice under Section 148 of the IT Act was issued in respect of AY 2002-2003. In response thereto the Assessee filed its Return of Income once again declaring nil taxable income. The AO thereupon issued a Questionnaire dated 21.3.2005 inter alia containing the following queries: Why receipts from technical handling is not taxable, furnish the evidence regarding claim that receipt is covered under DATA? What is technical handling and apportioned expenses? Furnish evidence for the amount received under technical handling and expenses incurred? Assessee's case is that these queries were duly answered in terms of its letter dated 28.3.2005. The Assessee thereafter received the impugned Notice dated 8.3.2006 also under Sections 147-148 of the IT Act stating that the AO had 'reason to believe' that income had escaped assessment, this view having been concurred with by the Commissioner of Income Tax. The Assessee again furnished its Return of Income though under protest and simultaneously requested for supply of the reasons recorded for issuance of the Notice dated 8.3.2006. On 10.4.2006 a notice under Section 143(2) of the IT Act seeking further information was issued. Thereupon, the following reasons recorded on 8.3.2006 for the issuance of the Notice under Section 148 of the IT Act were conveyed by the AO to the Assessee on 3.7.2006:- M/s KLM Royal Dutch Airlines Netherlands AY 2002-03 Reasons for Issuance of Notice u/s 148 of the Income Tax Act, 1961 The assessee is a company incorporated in Netherlands. It is into the business operations of aircraft in international business as well as rendering of technical services to other airlines. The assessee during the year under consideration has declared the income from rendering of technical services in its return of income and has claimed the same to be covered under Article-8 of the DTAA between Indian and Netherlands. However, no assessment for the relevant assessment year has been made u/s 143(3) of the Income Tax Act, 1961. It is a settled position, in the light of the decision of Delhi ITAT in the case of British Airways PLC, that income from rendering of technical services cannot be claimed as covered under Article 8 of the DTAA. Therefore, the income from rendering technical services shall be subjected to tax in India. In view of the foregoing I have reasons to believe that income chargeable to tax has escaped assessment for the relevant assessment year within the meaning of Section 147 r.w.s. 148 of the Income Tax Act, 1961. (Pravin Rawal) Assessing Officer By letter dated 24.7.2006 the Assessee filed Objections to the initiation of re- assessment proceedings. Subsequently, a letter dated 6.10.2006 was issued by the AO to the Assessee granting it a final opportunity to comply with the Notice under Section 142(1) by 12.10.2006, failing which the AO would make the assessment as per provisions of Section 144 of the IT Act. It is at this stage that the present Writ Petition has been filed.

(3.) In respect of AY 2003-2004, on 25.2.2004 the Assessee suo moto filed its Return of Income for AY 2003-2004 on the same lines as in the previous year. A Notice dated 29.12.2004 under Section 143(2) of the IT Act came to be issued to the Assessee, inexplicably at the address of its Chartered Accountant. This was followed by a Notice dated 16.9.2005 under Section 143(2) of the IT Act issued yet again at the address of the Chartered Accountant, followed by a Notice under Section 142(1) of the IT Act dated 10.10.2005 raising certain specific queries one amongst them being:-