Facts of the Case

The petitioner, Timex Group USA Inc., a tax resident of the United States, challenged reassessment proceedings initiated by the Income Tax Department for Assessment Year 2019–20.

The dispute arose from foreign remittances amounting to ₹9,12,50,136 received from Timex Group India Ltd. The Revenue alleged that the said remittance constituted fees for technical services, thereby taxable in India under Section 9(1)(vii) of the Income Tax Act.

A notice under Section 148A(b) was issued to the petitioner at its USA address, requiring a response. The petitioner sought time and requested a personal hearing through its authorized representatives. However, without granting such opportunity, the Assessing Officer (AO) passed an order under Section 148A(d) and issued a consequential notice under Section 148.

Issues Involved

  1. Whether reassessment proceedings initiated under Sections 148A and 148 were valid without granting a personal hearing.
  2. Whether failure to file a Return of Income automatically leads to income escaping assessment.
  3. Whether the remittances received by the petitioner qualify as “fees for technical services” under Section 9(1)(vii).

Petitioner’s Arguments

  • The petitioner contended that principles of natural justice were violated, as no personal hearing was granted despite specific requests.
  • It was argued that the AO passed the order under Section 148A(d) without considering the petitioner’s submissions and correspondence.
  • The petitioner also raised substantive defenses regarding the taxability of the remittances and questioned the characterization as fees for technical services.

Respondent’s Arguments

  • The Revenue maintained that the remittances received by the petitioner were in the nature of consultancy services and thus taxable under Section 9(1)(vii).
  • It was also contended that the petitioner had not filed a Return of Income, thereby justifying reassessment proceedings.

Court’s Findings / Order

  • The petitioner had requested a personal hearing well before the passing of the impugned order.
  • The Assessing Officer failed to consider this request, thereby violating principles of natural justice.

Accordingly, the Court:

  • Set aside the order dated 01.05.2023 passed under Section 148A(d).
  • Quashed the consequential notice issued under Section 148.
  • Granted liberty to the Assessing Officer to pass a fresh order after providing due opportunity of hearing to the petitioner.

Important Clarifications by the Court

  • The Court emphasized that mere non-filing of Return of Income does not automatically establish escapement of income.
  • The Assessing Officer must examine:
    • Applicability of Sections 139 and 115A.
    • Whether the remittances actually constitute taxable income in India.
  • The AO must pass a speaking order addressing all contentions raised by the petitioner.

Link to download the order -https://delhihighcourt.nic.in/app/showFileJudgment/RAS26072023CW97692023_143844.pdf

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