Delhi High Court Dismisses Appeal in ITA 147/2021

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Case Name:

Commissioner of Income Tax (International Taxation)-2, Delhi vs. LG Philips Display Korea Co. Ltd (High Court of Delhi)

ITA 147/2021 & CM APPL. 33051/2021

Date: 22nd September 2021

Key Takeaways:

1. The High Court dismissed the appeal of the Revenue for reasons contained in the order.

2. The court considered the arguments presented by both the appellant and the respondent, including references to the ITAT’s decision, the re-opening of assessment under Section 147 (of Income Tax Act, 1961), and the judgments of the Supreme Court in similar cases.

3. The court also considered the findings of the Dispute Resolution Panel and the judgments of the Supreme Court in cases related to Permanent Establishment (PE) in India.

The case you have provided is a judgment from the High Court of Delhi at New Delhi, with the case number ITA 147/2021. The case involves a dispute between the Commissioner of Income Tax (International Taxation)-2, Delhi (appellant) and LG Philips Display Korea Co. Ltd (respondent) regarding the assessment proceedings for the Assessment Year 2005-06.

The appellant has raised two questions of law in the present appeal, which are as follows:

A. Whether the Income Tax Appellate Tribunal (ITAT) erred in law in quashing the assessment proceedings in the case of the assessee without appreciating the facts that the assessee has a business connection in India under Section 9(1)(i) (of Income Tax Act, 1961) and has a Permanent Establishment (PE) in the form of M/s L.G. Electronics India Ltd. under Article 5(1) & 5(2) of the Double Taxation Avoidance Agreement (DTAA) between India and Indonesia?

B. Whether the ITAT erred in law in holding that no income is attributable to the assessee PE in India?

The High Court, in its judgment, has dismissed the appeal of the Revenue for reasons contained in the order. The court has provided detailed reasoning for dismissing the appeal, which includes references to previous orders and judgments. The court has also considered the arguments presented by both the appellant and the respondent.

The judgment discusses the following key points:

1. The issue arising in this appeal is similar to another case involving PT LP Display Indonesia (sister concern) and part of LG Group of Companies, which was listed for hearing on 21st September, 2021.

2. The court has dismissed the appeal of the Revenue for reasons contained in the order, which are reproduced in the judgment.

3. The court has considered the arguments presented by the appellant and the respondent, including references to the ITAT’s decision, the re-opening of assessment under Section 147 (of Income Tax Act, 1961), and the judgments of the Supreme Court in similar cases.

4. The court has also considered the findings of the Dispute Resolution Panel and the judgments of the Supreme Court in cases related to Permanent Establishment (PE) in India.

Based on the reasoning provided in the judgment, the court has concluded that the present appeal raises no substantial questions of law and, accordingly, the appeal along with the application is dismissed.

FAQ:

Q1: What was the outcome of the appeal in ITA 147/2021?

A1: The appeal was dismissed by the High Court of Delhi.

Q2: What were the key points considered by the court in the judgment?

A2: The court considered the arguments presented by both parties, including references to previous orders and judgments, the re-opening of assessment under Section 147 (of Income Tax Act, 1961), and the findings of the Dispute Resolution Panel and the Supreme Court in similar cases.

Q3: What were the reasons for dismissing the appeal?

A3: The court concluded that the appeal raised no substantial questions of law, leading to the dismissal of the appeal along with the application.

The hearing has been done by way of video conferencing.

1. Present appeal has been filed challenging the order dated 20th October, 2020 passed by the Income Tax Appellate Tribunal [for short ‘ITAT’] in ITA No. 1885/Del/2014 whereby the appeal of the Revenue was dismissed for Assessment Year 2005-06.

2. The questions of law proposed by the appellant-revenue in the present appeal are as under:-

A. Whether on facts and in the circumstances of the case, the Ld. ITAT erred in law in quashing the assessment proceedings in the case of assessee without appreciating the facts the assessee has a business connection in India under Section 9(1)(i) (of Income Tax Act, 1961) and has a PE, in the form of M/s L.G. Electronics India Ltd. under Article 5(1) & 5(2) of DTAA between India and Indonesia?

B. Whether on facts and in the circumstances of the case, the Ld. ITAT erred in law in holding that no income is attributable to the assessee PE in India?

3. Learned counsel for the appellant at the very outset submits that

the issue arising in this appeal is similar to ITA No. 145/2021 in the

case of PT LP Display Indonesia (sister concern) and part of LG Group of Companies which was listed for hearing on 21st September,2021.

4. This court has dismissed the said appeal of the Revenue for reasons contained in that order which are reproduced as under -

“3. Learned counsel for the appellant states that the ITAT erred in holding that the re-opening of assessment under Section 147 (of Income Tax Act, 1961) (for short ‘the Act’) was bad in law. He submits that under Section 147 (of Income Tax Act, 1961), it is well settled that at the time of re-opening what is required is the reasonable belief of the Assessing Officer (‘AO’) that

income has escaped assessment and there is no requirement to establish actual escapement of income.

4. He states that the ITAT erred in relying upon the order dated 4th September, 2018 passed by Commissioner Income Tax (Appeal) [for short ‘CIT(A)’] passed in the case of LG Electronics India Limited [for short ‘LGEIL’] and the judgment dated 14th March, 2018 passed by the Supreme Court

in Honda Motors Co. Ltd. V. SDIT in Civil Appeal Nos. 2833 to 2840 of 2018 to hold that the basis for initiating reassessment proceedings was bad in law on the grounds that at the time of formation of belief for initiating such proceedings on 30th March, 2011, the AO could not have the benefit of

‘hindsight’ i.e., the subsequent appellate order as well as the decision of Hon’ble Supreme Court.

5. Learned counsel for the appellant-revenue states that the ITAT erred in not appreciating that the total income of a person, who is a non-resident in terms of Section 5(2) (of Income Tax Act, 1961) to the extent it is received or deemed to be received in India, or accrued or arisen or deemed to have accrued or arisen in India is taxable in India. He states that Section 9(1) (of Income Tax Act, 1961)

prescribes that all income accruing or arising, whether directly or indirectly through or from any business connection in India shall be deemed to accrue or arise in India. He further states that the ITAT erred in holding that the transactions between the assessee and LGEIL were at arm's length.

6. Admittedly, during the pendency of the present proceedings, the Supreme Court quashed another set of re-assessment proceedings initiated in the case of foreign AEs consequent to TDS survey conducted under Section 133A (of Income Tax Act, 1961) of the

Act in the case of LGEIL and Honda Motors Co. Ltd. The Supreme Court in the case of Honda Motors Co. Ltd. being C.A No. 19659/2017 had held that in view of the fact that the Dispute Resolution Panel had found that there is no Permanent Establishment (‘PE’) in India, the judgment of the Allahabad High Court was set aside and the appeals were allowed.

7. This proposition was also followed by the Supreme Court in Civil Appeal No.781/2018 in the case of L.G Group of Companies by virtue of which all the Special Leave Petitions (SLPs) filed by the Associated Enterprises (‘AEs’) including the SLP filed by the PT LP Display Indonesia for the Assessment

Year 2007-08 were allowed on the basis of finding of the Dispute Resolution Panel (DRP) that the AEs do not have PE in India.

8. In the present case also re-assessment proceedings under Section 147 (of Income Tax Act, 1961)/148 of the Act had been initiated against the respondent-assessee vide notice dated 30th March, 2011 on the ground that all AEs of LG Korea had PE in India in the form of LGEIL. Admittedly, in one of the proceedings filed by the LGEIL challenging the order passed under Section 201(1) (of Income Tax Act, 1961) for Assessment Years 2005-06 to 2010-11, the CIT(A) vide consolidated order dated 4thSeptember, 2018 held that none of the AEs, apart from LG Korea, had PE in India. The said order has not been appealed against by the Department

and hence the finding has become absolute.

5. Learned counsel for the Respondents submits that the order of the order dated 4th September, 2018 passed by Commissioner Income Tax (Appeal) [for short ‘CIT(A)’] passed in the case of LG Electronics India Limited [for short ‘LGEIL’] also covers the case of the present Respondent-assessee wherein the CIT(A) in the 201 proceedings held that none of the AEs, apart from LG Korea, had PE in India.

9. It is also not understood as to how the appellant-Revenue can contend that the respondent-assessee does not have PE in India for the purpose of 201 proceedings in the case of LGEIL but would have a PE as far as its own taxability is concerned for the same Assessment Year.

10. This Court is of the opinion that if the present appeal is entertained, it would amount to sitting in an appeal over the judgment and order passed by the Supreme Court in Civil Appeal No. 781/2018.

11. In fact, this Court is of the opinion that in view of subsequent events post issuance of re-assessment notice in the present case, namely, the Supreme Court judgment in Civil Appeal No. 781/2018, the proceedings initiated by the appellant-Revenue has become infructuous and accordingly ex

debito justitiae, it is the duty of the Court to take such action as is necessary in the interest of justice, which includes disposing of infructuous litigation [See: Shipping Corpn. of India Ltd. v. Machado Bros. and Ors., (2004) 11 SCC 168].

12. Consequently, the present appeal raises no substantial questions of law. Accordingly, the appeal alongwith application being bereft of merit is dismissed.”

6. Given that the same issue arises in the present proceeding, no substantial question of law arises in the present appeal. Accordingly, the appeal alongwith application being bereft of merit is dismissed.

7. The order be uploaded on the website forthwith. Copy of the order be also forwarded to the learned counsel through e-mail.

MANMOHAN, J

NAVIN CHAWLA, J

SEPTEMBER 22, 2021