IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 29TH DAY OF MARCH, 2019 BEFORE:
THE HON’BLE MRS. JUSTICE S.SUJATHA WRIT PETITION Nos.12897 – 12898/2019 (T – IT) BETWEEN:
THE JOINT COMMISSIONER OF INCOME TAX, SPECIAL RANGE-3, 2ND FLOOR, BMTC BUILDING, 6TH BLOCK, KORAMANGALA BANGALORE-560 095. ... PETITIONER [BY SRI PRABHULING NAVADGI, ASG A/W SRI K.V.ARAVIND, ADV..] AND:
M/s GOOGLE INDIA PVT. LTD., RMZ INFINITY TOWER-E, 4TH FLOOR, OLD MADRAS ROAD, BENGALURU-560 016 PAN:AACCG0527D REP. BY ITS DIRECTOR. …RESPONDENT [BY SRI GANESH S., SENIOR ADV. A/W SRI ANMOL ANAND & SMT.PRIYA TANDON, ADVS. FOR SRI ADITYA V. BHAT, ADV.] THESE WRIT PETITIONS ARE FILED UNDER ARTICLES 226 & 227 OF THE CONSTITUTION OF INDIA, PRAYING TO QUASH THE ORDER DATED 21.02.2019 PASSED BY THE ITAT 'C' BENCH, BENGALURU FOR ASSESSMENT YEAR 2013-14 AND FOR ASSESSMENT YEAR 2014-15 PRODUCED AS ANNEXURE-D.
THESE PETITIONS COMING ON FOR PRELIMINARY HEARING IN ‘B’ GROUP, THIS DAY, THE COURT MADE THE FOLLOWING:-
O R D E R The Revenue has filed these writ petitions challenging the order dated 21.2.2019 passed by the Income Tax Appellate Tribunal ‘C’ Bench, Bengaluru (`Tribunal’ for short) relating to the assessment years 2013-14 and 2014-15, wherein the Tribunal has allowed the stay petitions filed by the assessee subject to certain conditions.
2. The respondent – assessee is engaged in the business of providing Software Development Services, Information Technology Engabled Services and Advertisement Service business. The Assessment Officer completed the final assessments relating to the assessment years 2013-14 and 2014-15 and determined the liability by making certain additions. The breakup of the addition, tax component and interest including the payments made and outstanding tax and interest for
both the assessment years 2013-14 and 2014-15 is tabulated hereunder for convenience.
Addition Points AY 2013-
14 Royalty Issue Transfer Pricing Attribution Total Addition Points AY 2014-
15 Royalty Issue Transfer Pricing Attribution Addition Made by AO (Rs.) Tax Component Including Surcharge and E Cess Interest Compo- Nent Total Demand Payments made Outstand Ing (Tax) Outstanding (Interest)
Total 3. Being aggrieved by the assessment orders, the respondent – assessee has preferred appeals before the Tribunal. In the said appeal proceedings, the stay applications seeking for stay of recovery proceedings were filed and the same came to be allowed directing the respondent – assessee to pay a sum of Rs.350 crores on or before 31.3.2019 and another sum of Rs.125 crores in three installments as follows:
Rs.25 crores on or before 30.4.2019 Rs.50 crores on or before 31.5.2019 Rs.50 crores on or before 30.6.2019 4. Being aggrieved by the same, the Revenue has filed these writ petitions.
5. Learned Additional Solicitor General Sri.Prabhuling Navadagi assisted by the learned counsel Sri.K.V.Aravind for the Revenue submitted that the respondent – assessee has preferred ITA No.502/2018 and allied matters before this Court relating to the assessment year 2013-14 (against the order under Section 201 of the IT Act), 2009-10 and 2008-09. In the said proceedings, the Division Bench of this Court while safeguarding the interest of the Revenue, has observed that on the question of recovery of tax, interest and penalty, the learned counsel urged before this court that approximately 90% of the tax and interest, part of the demand has been paid by the assessee to the Revenue. Further the Bank Guarantee of about Rs.26 crorers, which is subsisting as of now shall be kept alive till the disposal of the said appeals. Therefore, the recovery of the balance amount has been stayed till the said appeals filed by the assessee along with another batch of appeals are decided by this Court. In view of 90% of the amount directed to be paid by the assessee towards tax and interest relating to those assessment years in question, the Tribunal ought to have followed the same in letter and spirit. On the contrary, the Tribunal granted stay of demand subject to payment of Rs.20 crores for the assessment year 2013-14 and Rs.185 crores for the assessment year 2014-15 as against the demand of Rs.764.79 crores and Rs.1150.80 crores respectively, which is not in conformity with the order dated 28.8.2018.
6. Learned ASG further submitted that the Tribunal considered the demand made by the Revenue relating to the royalty alone in utter disregard to the total tax liability determined relating to other issues viz., transfer pricing and attribution. The order of the Tribunal is contrary to the key factors i.e., prima-facie, balance of convenience and hardship. Balancing equity is necessary as the discretion exercised by the Tribunal is arbitrary, perverse and against the public interest. Considering the factual aspects of the case in the light of the order of this Court dated 28.8.2018 In ITA No.502/2018 and allied matters, the order impugned deserves to be set aside.
7. Learned Senior Counsel Sri.Ganesh.S representing the learned counsel Sri.Aditya V. Bhat for the respondent – assessee submitted that the interim order of the Tribunal protects and safeguards the interest of the revenue. Approximately, 89% of the demand towards royalty is directed to be paid as a condition for grant of stay. In addition to that, the assessee has already paid Rs.114 crores relating to the assessment year 2013-14 and Rs.169 crores relating to the assessment year 2014-15 in the proceedings initiated under Section 201 of the Income Tax Act, 1961. It is ordered that if payment made by the assessee to Google Ireland Limited [GIL] were held to be the purchase price of advertisement space and not royalty, then no demand could at all be raised on the assessee. Royalty issue has arose year after year. The very same core issue is the subject matter of ITA Nos.502/2018 to 505/208 and 507/2018 relating to assessment year 2013-14 (S.201), 2009-10 and 2008-09 pending before this Court. This Court framed the substantial question of law and granted interim stay of recovery and fixed the appeals for hearing in the month of November, 2018 and the same is adjourned.
8. In ITA Nos.549/2018, 550/2018, 560 -
564/2018 relating to the subsequent assessment years. The Division Bench of this Court on 23.10.2018 and 3.12.2018 passed an interim order staying the recovery proceedings, following the earlier order of this Court dated 28.8.2018 and granted complete stay.
9. In the light of the order passed by this Court in the appeals filed by the assessee respondent as aforesaid, it was incumbent upon the Tribunal to grant unconditional interim stay. The learned counsel further argued that the entire issue before the Tribunal inasmuch the stay application by the assessee was restricted by the Revenue only to the royalty demand. Surprisingly, the Revenue has filed these petitions contending that the entire tax liability relating to the transfer price and attribution along with royalty has to be considered to decide the stay application.
The Department is raising three distinct demands:
a) Demand under Section 201 of the Act for non- deduction of tax at source.
b) Disallowance of the entire payment in the respondent’s assessment under Section 40(a)(i) of the Act.
c) Assessing the same income in the hands of GIL and raising a demand on it.
Hence, the writ petitions deserve to be rejected.
10. I have considered the submissions made by the learned counsel appearing for both the parties and perused the material on record.
11. The primary contention of the Revenue is that consistency should be maintained in the orders of the Court/Tribunal. The Tribunal is bound to pass an order in conformity with the order of this Court. The order of interim stay of the Tribunal is ex-facie inconsistent with the order of this Court dated 28th August, 2018 in ITA No.502/2018 and allied matters. To analyse the same, it is apt to refer to the relevant paragraphs of the said order at paras-8, 10, 12 and 13.:
“8. On the question of recovery of tax, interest and penalty, the learned counsel urged before this Court that approximately 90% of the tax and interest part of the demand has been paid by the Assessee to the Revenue. Further, the Bank Guarantee of about Rs.26 Crores, which is subsisting as of now and shall be kept alive till the disposal of these appeals, has also been given to the Revenue Department, which adequately protects the interest of the Revenue and therefore, the recovery of the balance amount may be stayed and no coercive proceedings may be undertaken by the Revenue till the present Appeals filed by the Assessee along with another batch of Appeals filed earlier by the Assessee against the order of Tribunal dated 23.10.2017 which are on Board today also are decided and which were admitted by co-ordinate Bench on 15.11.2017.
10. Having heard the learned counsels on both sides about the interim relief, we pass the following interim directions:
i) The coercive process for the recovery of the balance amount of demand may not be taken by the respondent-Revenue in view of their interest having been adequately safeguarded and the major portion of the demand having already been paid by the appellant-Assessee Company.
ii) The penalty proceedings shall not be undertaken by the Revenue Authorities during the pendency of the present appeals filed by the appellant before this Court.
iii) So far as the fresh proceedings to be undertaken by the TPO in pursuance of the remand directions by the Tribunal are concerned, we make it clear that the said exercise can be undertaken by the TPO in pursuance of the impugned order of the learned Tribunal during the pendency of these appeals, but no final order shall be passed by the TPO for all these assessment years in question, in pursuance of the impugned order passed by the learned Tribunal dated 11.05.2018, without obtaining specific leave of this Court.
iv) However, we direct that the Assessee-Company shall co-operate with these remand proceedings and the draft order of TPO may be made available and be placed before this Court at the stage of final hearing of the present appeals and that may be taken into account by the Court at the time of final hearing.
12. Learned counsel for the Assessee submitted before us that more appeals filed by the same Assessee Company are pending before the learned Income Tax Appellate Tribunal and to avoid repetitive orders and multiplicity of litigations, the Tribunal may be directed not to pass final orders on such appeals in the circumstances of the case.
13. We permit the appellant-Assessee to move the learned Income Tax Appellate Tribunal itself with appropriate application in this regard and on which, appropriate orders may be passed by the learned Income Tax Appellate Tribunal, in accordance with law.
12. This order has been followed by another Division Bench of this Court whereby interim orders dated 23.10.2018 and 3.12.2018 have been passed relating to the subsequent assessment years.
13. It is the contention of the Revenue that the entire tax liability has to be considered while disposing of the stay application.
14. In contrast, paragraph Nos.6 and 13 of the memorandum of writ petitions reads thus:-
“6. It is submitted that without prejudice to the contention of the petitioner that the assessee is liable to pay the entire demand, it is submitted that to the extent of issues confirmed by the Tribunal i.e., in respect of the royalty issue, the assessee would be entitled/liable to pay the entire amount pertaining to the confirmed demand.
13. It is submitted that without prejudice to the contention that the assessee/respondent should not be directed to pay tax and interest in respect of the issues remanded in deviating of the interim arrangement made by this Hon’ble Court, the Tribunal should have directed the assessee to pay the entire amount with interest in respect of the issues confirmed by it. Having not directed so, the order of the Tribunal is arbitrary and perverse.”
15. Further paragraph Nos.12 and 13 of the impugned order makes it clear that the department’s demand for the Assessment years 2013-14 and 2014-15 was Rs.24 crores and Rs.365 crores respectively and the said paragraphs are extracted hereunder:-
“12. The learned DR, on the other hand, submitted that 100% of the outstanding amount on account of taxes alone for the three assessment years, if the addition on account of Royalty alone is considered for calculating outstanding demand, would be Rs.596 Crores after giving credit to Rs.375 Crores already paid by the Assessee.
13. The calculation of outstanding demand and sum which the Assesee wants to pay as a condition for grant of stay and the sum which the Department wants the Assessee to pay as a condition for grant of stay are as follows:-
(Rupees in Crores) Assessment Total Demand* Taxes Already Paid
225 0 Assesse’s Offer Department’s Demand
150 347 596 16. It is significant to note that in ITA No.502/2018 and allied matters, the respondent – assessee has approached this Court challenging the order of the Tribunal remanding the matter to the TPO for fresh consideration relating to transfer pricing and attribution issues as well as confirmation of royalty. The liability created as far as the transfer pricing and attribution was set aside by the Tribunal while remanding the matter to TPO. This Court considering that the assessee – respondent has deposited approximately 90% of the tax and interest, part of the demand, granted interim order of stay in ITA No.502/2018 and allied matters, wherein the order of the Tribunal dated 11.05.2018 was challenged before this Court.
17. The aforesaid circumstances would demonstrate that the issue contested before the Tribunal by the revenue in the present proceedings (stay application) was only relating to the royalty issue and the same is further substantiated in the pleadings of the revenue before this Court as aforementioned in paragraph No.12. As such, this Court is astound by the stand of the revenue insisting for consideration of the entire demand including the transfer pricing and attribution, the same relating to the other assessment years being set aside by the Tribunal. On the remand order challenged before this Court, this Court has directed that no final order shall be passed by the TPO without obtaining special leave of the Court during the pendency of the appeals. In the said scenario, the arguments of the revenue requires to be negated insofar as the entire demand to be considered for deciding the stay application. In other words, it is clear that the demand relating to the royalty issue alone requires to be considered while adjudicating upon the stay application and the same cannot be enlarged at this stage to include the demand raised on transfer pricing and attribution.
18. This Court is of the considered opinion that no arbitrariness or perversity is found in the interim order of the Tribunal as regards the quantifying the sum of Rs.475 crores to be paid by the assessee as a condition for grant of stay. However, the split-up of payment directed by the Tribunal warrants interference to balance the equities on both the sides.
19. Considering the totality of circumstances of the case, this Court deems it appropriate to direct the assessee to pay a sum of Rs.400 Crores on or before 31.03.2019.
20. The balance amount of Rs.75 Crores shall be paid in two installments as follows:
a] Rs.25 Crores on or before 30.04.2019; and b] Rs.50 Crores on or before 31.05.2019.
The order of the Tribunal impugned herein, is modified accordingly. Writ petitions stand disposed of in terms of the above.
Sd/- JUDGE BKM/PMR/NC.