Facts of the Case

The Revenue filed multiple appeals before the Delhi High Court challenging a common order dated 26.09.2022 passed by the Income Tax Appellate Tribunal (ITAT) relating to Assessment Years 1997-98, 1998-99, 1999-2000, and 2000-01. The reassessment proceedings had been initiated against Oracle Systems Corporation on grounds including alleged non-taxation of royalty income arising from global software licensing deals and the existence of a Permanent Establishment (PE) in India through its Indian affiliate.

The ITAT quashed the reassessment proceedings primarily on the ground that mandatory statutory notices under Section 143(2) of the Income Tax Act, 1961 were not validly issued or served.

 Issues Involved

  1. Whether reassessment proceedings could be sustained when no valid notice under Section 143(2) of the Income Tax Act was issued.
  2. Whether participation by the assessee in assessment proceedings cures the defect of non-issuance of notice under Section 143(2) by virtue of Section 292BB.
  3. Whether the reopening of assessment under Sections 147 and 148 was legally sustainable.
  4. Whether alleged royalty income from global software deals was taxable in India.
  5. Whether the existence of a Permanent Establishment in India was already established through the Bangalore facility.

 Petitioner’s (Revenue’s) Arguments

  • The Revenue contended that royalty income from global software deals was taxable in India under Section 9(1)(vii) as the software was utilized in India.
  • It was argued that reassessment was valid as income had escaped assessment.
  • The Revenue submitted that the assessee’s participation in proceedings cured any procedural defect relating to notice under Section 143(2) by operation of Section 292BB.
  • It was also argued that the existence of a PE in India had already been established through Oracle’s Bangalore facility, making further enquiry unnecessary.

 Respondent’s (Assessee’s) Arguments

  • The assessee asserted that no notice under Section 143(2) was ever issued or served, rendering the entire reassessment proceedings void ab initio.
  • It was contended that Section 292BB cannot cure a complete absence of notice.
  • The assessee relied on earlier decisions of the Delhi High Court in its own case and other binding precedents holding that omission to issue notice under Section 143(2) is a fatal jurisdictional defect.
  • The reopening itself was challenged as invalid and without proper jurisdiction.

 Court Order / Findings

  • The Delhi High Court observed that the Tribunal’s findings regarding non-issuance of notice under Section 143(2) were factual and uncontroverted.
  • The Court held that Section 292BB applies only where a notice has been issued but suffers from defects in service; it does not apply where no notice was issued at all.
  • The Court reiterated settled law that failure to issue notice under Section 143(2) within the prescribed time is fatal to the assessment.
  • Since the core jurisdictional defect existed, no substantial question of law arose for consideration.
  • Consequently, all appeals filed by the Revenue were dismissed.

 Important Clarification

The Court categorically clarified that participation by the assessee in assessment proceedings does not validate reassessment proceedings where the mandatory statutory notice under Section 143(2) was never issued. Section 292BB cannot be invoked to cure a complete absence of jurisdictional notice. Compliance with procedural requirements is a sine qua non for valid reassessment.

Link to download the order - https://www.mytaxexpert.co.in/uploads/1770113125_COMMISSIONEROFINCOMETAXINTERNATIONALTAXATION1NEWDELHIVsORACLESYSTEMSCORPORATION.pdf 

 

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