Facts of the Case

GE Nuovo Pignone S.p.A., an Italian company (now known as Nuovo Pignone International SRL), is part of the GE Group and engaged in the manufacture and supply of highly specialised and customised equipment. The GE Group operated in India through a Liaison Office and through GE India Industrial Pvt. Ltd. (GEIIPL).

A survey was conducted at the Liaison Office premises in New Delhi on 02 March 2007. Based on materials gathered during the survey and post-survey enquiries, reassessment proceedings under Sections 147/148 were initiated for multiple assessment years, including AY 2009-10.

In earlier rounds of litigation for AYs 2001-02 to 2008-09, the tax authorities, Tribunal and Delhi High Court had held that the GE Group entities had a Fixed Place Permanent Establishment (PE) and a Dependent Agent PE (DAPE) in India, and that profits were attributable to such PE.

For AY 2009-10, reassessment was initiated on the basis that there was no material change in facts as compared to earlier years. The Tribunal upheld the reassessment, existence of PE/DAPE and profit attribution. The assessee challenged these findings before the Delhi High Court.

 

Issues Involved

Whether reassessment under Sections 147/148 for AY 2009-10 was valid in the absence of fresh material specific to that year.

Whether the assessee had a Fixed Place PE in India under Article 5(1) of the India–Italy DTAA.

Whether the assessee had a Dependent Agent PE in India under Article 5(4) of the DTAA.

Whether the attribution of profits to the PE was legally sustainable.

 

Petitioner’s Arguments

The assessee contended that:

Reassessment could not be initiated solely on the basis of material pertaining to earlier assessment years.

The Liaison Office and GEIIPL were engaged only in preparatory and auxiliary activities, and therefore no Fixed Place PE existed.

GEIIPL acted as an independent agent and did not constitute a DAPE.

The attribution of profits at 3.5% of Indian sales was arbitrary and excessive.

Earlier findings should not be mechanically applied without fresh examination for AY 2009-10.

 

Respondent’s Arguments

The Revenue argued that:

The factual matrix for AY 2009-10 remained identical to earlier years, and the assessee never demonstrated any material change.

Earlier judicial findings conclusively established Fixed Place PE, DAPE and profit attribution.

Reassessment was valid as income attributable to PE had escaped assessment.

Principles of consistency justified reliance on earlier determinations.

 

Court Order / Findings

The Delhi High Court dismissed the appeal and held that:

Reassessment proceedings must be tested on jurisdictional grounds, and in the present case, the Assessing Officer had valid reasons to believe that income had escaped assessment.

Where the assessee fails to demonstrate any change in facts, the Revenue is entitled to rely on earlier findings for subsequent years.

Although strict res judicata does not apply in tax matters, principles of consistency assume importance.

The existence of Fixed Place PE and Dependent Agent PE had already been conclusively determined in earlier litigation and had attained finality.

In the absence of any distinguishing factual feature for AY 2009-10, there was no justification to revisit those conclusions.

The methodology adopted for profit attribution had been consistently upheld and was based on relevant material and legal principles.

 

Important Clarification

The Court clarified that:

Reassessment ordinarily must be based on material relatable to the relevant assessment year; however, this principle loses significance where facts are unchanged and the assessee itself asserts continuity of business activities.

Courts will not permit repeated re-litigation of issues already conclusively decided, unless a fundamental factual change is demonstrated.

Consistency protects both Revenue and assessee and ensures certainty in international tax matters.

 

Final Outcome

Appeal Dismissed
Writ Petition Dismissed
 Reassessment Under Sections 147/148 Upheld
 Existence of Fixed Place PE and Dependent Agent PE Affirmed
 Profit Attribution to Indian PE Sustained

Link to download the order - https://www.mytaxexpert.co.in/uploads/1770193311_GENUOVOPIGNONES.P.ANOWKNOWNASNUOVOPIGNONEINTERNATIONALSRLVsCOMMISSIONEROFINCOMETAXINTERNATIONALTAXATIONDELHIIANR..pdf

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