MONITOR INDIA PVT LTD Vs. UNION OF INDIA

JUDGEMENT

(1.) 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.) The challenge in these proceedings is to a notice that was issued to the Petitioner on 22 March 2011 under Section 148 of the Income Tax Act, 1961, by which an assessment for Assessment Year 2004 05 is sought to be reopened. The Petitioner is a subsidiary of a Dutch Company, Monitor Group Holdings Netherlands B.V., which in turn is a wholly owned subsidiary of Monitor Company Group L.P. United States. The U.S. based principal is an international strategy consulting firm. During the course of Assessment Year 2004 05, the Petitioner made a payment of Rs. 1.56 crores to its U.S. based principal. This, according to the Petitioner, was a reimbursement for costs incurred for providing Group Management, Finance and Benefits, Training and Professional Development, Information Resources and allocations of human resources services to the Petitioner. On 12 October 2004, the Petitioner filed an application under Section 195(2) to the Deputy Commissioner of Income Tax, Circle I(2), International Taxation, New Delhi. The application sought a no objection certificate authorising the Petitioner to remit the amount to its U.S. principal without deduction of tax at source. According to the Petitioner, the amount was not chargeable to tax in India as it represented reimbursement of expenses incurred on behalf of the Petitioner. The Petitioner filed a return of income on 1 November 2004 for Assessment Year 2004 05 declaring a total income of Rs.1.53 crores. The computation of total income disclosed expenses allocated by a Group Company on which tax has not been deducted at source in the amount of Rs. 1.56 crores. Note 4 appended to the return of income contained the following disclosure:

(3.) On 15 March 2005, an order was passed on the application made by the Petitioner under Section 195(2) by which the Petitioner was authorised to remit a total sum of Rs. 1.74 crores to the U.S. Company without deducting withholding tax on the amount which represented reimbursement of expenditure incurred by the Payee for providing support services to the Petitioner. The Petitioner filed a revised return of income on 1 April 2005. In the revised return, an amount of Rs. 1.56 crores was claimed as a deduction. In the original return of income that amount had been added back and had been treated as a disallowance of expenditure in Note 4 which has been adverted to above. In the revised computation, the amount of Rs. 1.56 crores was not added back. A covering letter was filed with the revised return dated 23 March 2005 stating that in the original return of income, the amount of Rs.1.56 crores was recorded as disallowance for reasons explained in Note 4. Following the receipt of an order under Section 195, the amounts which had been disallowed earlier were claimed as allowable expenditure against the taxable income computed.