Director of Income Tax v. Mc Donalds Corporation

Case Laws Analysis
Referred ACIT v. Rajesh Jhaveri Stock Brokers (P) Ltd. 2007 TaxPub(DT) 1257 (SC)
Followed Calcutta Discount Co. Ltd. v. Income Tax Officer & Anr. 1961 TaxPub(DT) 0130 (SC)

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The Tax PublishersITA 908/2011 & ITA 909/2011 2013 TaxPub(DT) 0712 (Del-HC) : (2013) 050 (I) ITCL 0285 : (2013) 213 TAXMAN 0026 INCOME TAX ACT, 1961 --Reassessment --Full and true disclosure Validity of notice issued under section 148--Assessee-company entered into a master licencing agreement (MLA) with an Indian company MIPL and the same was granted non-exclusive right to use the Mc Donald's system at agreed locations in India and in turn of which initial franchise fee and royalty were payable to assessee. Assessee's scrutiny assessments were completed for relevant assessment years after considering the relevant documents and materials. Assessing officer issued notice under section 148 to assessee for reopening of assessment in response to which assessee filed its return and assessment was completed accepting the rate of taxation at the rate of 15 per cent on royalty income. After completion of re-assessment proceedings, again in respect of same assessment years, assessing officer sought to initiate proceedings afresh on the second notice under section 147 on the very same royalty income taking the rate of taxation at the rate of 30 per cent according to section 44D read with section 115A. *Held:* Was not justified, as the assessment record revealed that the MLA had been placed on the record of assessing officer in the very first instance when the assessment was completed under section 143(3) and, thereafter reassessment proceedings were initiated and complete. Also the assessing officer consciously after going through the material concluded that the rate of taxation was 15 per cent and the scope was the same as in the original proceeding and in the first reassessment proceedings, i.e., the taxability of the royalty income under section 44D. Moreso, the duty of assessee to make full disclosure extends to primary facts and once that is done, it is the assessing officer's duty to draw the conclusion and inference flowing from the disclosure so made. Income Tax Act, 1961, Section 147 Income Tax Act, 1961, Section 148 Income Tax Act, 1961, Sections 44D, 115A In The DELHI High Court S. Ravindra Bhat & R.V. Easwar DIT v. Mc Donalds Corporation ITA 908/2011 ITA 909/2011 11 December, 2012 JUDGEMENT *S. Ravindra Bhat, J: (Open Court)* In these appeals the Revenue impugns a common order of the Income Tax Appellate Tribunal (Tribunal, for short) dated 18-2-2011 made in ITA No.4433 & 4434/Del/2010. The common question of law framed is as follows : 'Whether the Income Tax Appellate Tribunal was right in holding that jurisdictional pre-condition for issuance of notice under section 147/ 148 of the Income Tax Act, 1961 are not satisfied in the present case and, accordingly, the re-assessment proceedings are bad in law?' 2. The assessee entered into a master licensing agreement ('MLA') on 1-1-1996 with Mc Donalds India Private Limited ('MIPL'). In terms of that arrangement the MIPL was granted non-exclusive right to use the Mc Donalds system at agreed locations in India. The terms also required MIPL to pay the assessee initial franchise fee of USD 45000 upon the opening of each restaurant and royalty on recorded monthly sales of each restaurant during the period. For the relevant assessment years i.e. 2000-01 and 2001-02, scrutiny assessments were completed after the relevant documents and materials were considered. On 13-11-2003 notice was issued under section 148 proposing to reopen the proceedings under section 148. The assessee filed its return and assessment was completed. On that occasion the assessing officer accepted the assessees submissions that the rate of taxation applicable was 15% as originally held and assessed the royalty receipts of 2,61,33,570 and 3,95,03,200 in respect of the relevant assessment years. SUBSCRIBE FOR FULL CONTENT

The Tax PublishersITA 908/2011 & ITA 909/2011
2013 TaxPub(DT) 0712 (Del-HC) : (2013) 050 (I) ITCL 0285 : (2013) 213 TAXMAN 0026

INCOME TAX ACT, 1961

--Reassessment --Full and true disclosure Validity of notice issued under section 148--Assessee-company entered into a master licencing agreement (MLA) with an Indian company MIPL and the same was granted non-exclusive right to use the Mc Donald's system at agreed locations in India and in turn of which initial franchise fee and royalty were payable to assessee. Assessee's scrutiny assessments were completed for relevant assessment years after considering the relevant documents and materials. Assessing officer issued notice under section 148 to assessee for reopening of assessment in response to which assessee filed its return and assessment was completed accepting the rate of taxation at the rate of 15 per cent on royalty income. After completion of re-assessment proceedings, again in respect of same assessment years, assessing officer sought to initiate proceedings afresh on the second notice under section 147 on the very same royalty income taking the rate of taxation at the rate of 30 per cent according to section 44D read with section 115A. Held: Was not justified, as the assessment record revealed that the MLA had been placed on the record of assessing officer in the very first instance when the assessment was completed under section 143(3) and, thereafter reassessment proceedings were initiated and complete. Also the assessing officer consciously after going through the material concluded that the rate of taxation was 15 per cent and the scope was the same as in the original proceeding and in the first reassessment proceedings, i.e., the taxability of the royalty income under section 44D. Moreso, the duty of assessee to make full disclosure extends to primary facts and once that is done, it is the assessing officer's duty to draw the conclusion and inference flowing from the disclosure so made.

Income Tax Act, 1961, Section 147

Income Tax Act, 1961, Section 148

Income Tax Act, 1961, Sections 44D, 115A

In The DELHI High Court

S. Ravindra Bhat & R.V. Easwar

DIT v. Mc Donalds Corporation

ITA 908/2011 ITA 909/2011

11 December, 2012

JUDGEMENT

S. Ravindra Bhat, J: (Open Court)

In these appeals the Revenue impugns a common order of the Income Tax Appellate Tribunal (Tribunal, for short) dated 18-2-2011 made in ITA No.4433 & 4434/Del/2010. The common question of law framed is as follows :

'Whether the Income Tax Appellate Tribunal was right in holding that jurisdictional pre-condition for issuance of notice under section 147/ 148 of the Income Tax Act, 1961 are not satisfied in the present case and, accordingly, the re-assessment proceedings are bad in law?'

2. The assessee entered into a master licensing agreement ('MLA') on 1-1-1996 with Mc Donalds India Private Limited ('MIPL'). In terms of that arrangement the MIPL was granted non-exclusive right to use the Mc Donalds system at agreed locations in India. The terms also required MIPL to pay the assessee initial franchise fee of USD 45000 upon the opening of each restaurant and royalty on recorded monthly sales of each restaurant during the period. For the relevant assessment years i.e. 2000-01 and 2001-02, scrutiny assessments were completed after the relevant documents and materials were considered. On 13-11-2003 notice was issued under section 148 proposing to reopen the proceedings under section 148. The assessee filed its return and assessment was completed. On that occasion the assessing officer accepted the assessees submissions that the rate of taxation applicable was 15% as originally held and assessed the royalty receipts of 2,61,33,570 and 3,95,03,200 in respect of the relevant assessment years.