Facts of the Case

  • The petitioner, Vodafone Roaming Services SARL, is a tax resident of Luxembourg.
  • The Revenue alleged that the petitioner failed to file a return for AY 2014–15.
  • It was contended that the petitioner earned income from providing cellular roaming services to Tata Tele Services Ltd., amounting to ₹2,44,85,873/-.
  • The Revenue treated such income as “royalty” under Section 9(1)(vi) of the Income Tax Act.
  • Notices were issued under Sections 148A(b), 148, 142(1), followed by a draft assessment order under Section 144C(1).
  • The petitioner submitted a detailed reply dated 12.10.2022, which allegedly was not considered by the Assessing Officer.
  • It was also claimed that no proper statutory notice under the proviso to Section 144 was served.

 Issues Involved

  1. Whether income from international roaming services qualifies as “royalty” under Section 9(1)(vi).
  2. Whether reassessment proceedings were conducted in compliance with procedural safeguards under Sections 148A and 144C.
  3. Whether failure to consider the petitioner’s reply violates principles of natural justice.
  4. Whether non-service of statutory notice under Section 144 invalidates the draft assessment order.

 Petitioner’s Arguments

  • The income earned did not accrue or arise in India and therefore was not taxable.
  • Consequently, there was no obligation to file a return of income in India.
  • A detailed reply dated 12.10.2022 was submitted addressing the notices issued, which was ignored by the Assessing Officer.
  • The draft assessment order was passed without proper service of mandatory notice under Section 144 proviso.
  • The entire proceeding suffered from violation of natural justice and procedural irregularities.

 Respondent’s Arguments

  • The petitioner failed to file a return for the relevant assessment year.
  • Income from roaming services constituted “royalty” under Section 9(1)(vi), making it taxable in India.
  • The reassessment proceedings and notices issued were valid under law.

 Court’s Findings / Order

  • The Court observed that the petitioner’s reply dated 12.10.2022 ought to have been considered by the Assessing Officer.
  • It held that ignoring such reply warranted interference.
  • The impugned draft assessment order was set aside.
  • Liberty was granted to the Assessing Officer to pass a fresh draft assessment order.
  • Directions were issued:
    • Consider petitioner’s reply dated 12.10.2022
    • Grant personal hearing
    • Address all contentions raised by the petitioner
  • The writ petition was disposed of accordingly.

 Important Clarification by Court

  • Even at the draft assessment stage, principles of natural justice must be strictly followed.
  • The Assessing Officer is obligated to consider taxpayer submissions before passing orders.
  • Procedural lapses, especially non-consideration of replies, can vitiate assessment proceedings.

Link to download the order - https://delhihighcourt.nic.in/app/showFileJudgment/RAS04072023CW85922023_113123.pdf

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