Reassessment beyond four years is impermissible absent failure to disclose fully and truly material facts.

The petitioner, Elsevier BV, a Netherlands-resident company, received subscription fees from Indian subscribers for access to e-books, e-journals and articles concerning Science & Technology and Health Sciences.

The Authority for Advance Rulings (“AAR”) held on 3 February 2020 that these receipts were not “royalty” under Article 12 of the India–Netherlands DTAA, but constituted business income; it directed the Assessing Officer (“AO”) to examine whether the petitioner had a Permanent Establishment (“PE”) in India.

For AY 2016–17, the petitioner filed a nil return, and the case was selected for scrutiny. Following questionnaires and detailed responses concerning the alleged PE, the AO passed an assessment order under Section 143(3) on 24 November 2021, accepting the returned income.

Subsequently, the AO issued a notice under Section 148A(b), alleging that the petitioner had received ₹1,91,58,479 from Syngene International Limited as professional fees without deduction of tax and had failed to file a return.

The petitioner objected, relying on the AAR ruling, the earlier scrutiny assessment and limitation. The AO rejected the objections under Section 148A(d) and issued a notice under Section 148 on 28 April 2023. The petitioner challenged the reassessment proceedings before the High Court.

Whether the AO could validly initiate reassessment proceedings under Section 148 after the AAR had held that the receipts were business income and after the issue of the petitioner’s PE had been examined during the scrutiny assessment?

Whether the notice under Section 148 was barred by limitation and invalid for failure to satisfy the statutory requirement of failure by the assessee to disclose fully and truly all material facts?

The Court applied Article 12 of the India–Netherlands DTAA, under which the subscription receipts were held by the AAR not to constitute royalty, and Article 7, under which business income of a non-resident is taxable in India only to the extent attributable to an Indian PE.

It relied on Section 245R of the Income Tax Act, 1961, concerning the AAR’s ruling and the consequential determination of PE; Sections 147 and 148, which permit reassessment only where income has escaped assessment and the statutory jurisdictional conditions are satisfied; Section 148A, which requires consideration of the assessee’s response before issuance of a notice under Section 148; and Section 149(1)(b), which limits reassessment beyond four years and within six years to cases involving escaped income of at least ₹1 lakh.

Where an assessment under Section 143(3) has already been made, the first proviso to Section 147 additionally requires failure by the assessee to file a return or to disclose fully and truly all material facts necessary for assessment.

The Court further applied the principles against reassessment based on a mere change of opinion and in favour of certainty and finality of completed assessments.

The Court found that the AAR had conclusively characterised the subscription receipts as business income and had directed the AO to examine the existence of a PE.

During the original scrutiny proceedings, the AO had issued specific questions concerning the PE and the petitioner had furnished detailed responses; therefore, the PE issue had been examined, even though the assessment order did not extensively record the AO’s conclusion.

The Court held that the AO could not reopen the assessment merely because he had allegedly failed to expressly record a finding on an issue that he had been required to examine. Such reopening would undermine the finality of assessment proceedings and would effectively permit the AO to rely on his own omission.

Independently, the notice was invalid on limitation grounds. The relevant facts—including the nature of the subscription receipts and the relationship involving Syngene—were already disclosed and available to the AO during the original scrutiny assessment. Consequently, the jurisdictional condition of failure to disclose fully and truly all material facts was absent, making the extended limitation period unavailable.

Further, the six-year period under Section 149(1)(b) expired on 31 March 2023, whereas the Section 148 notice was issued only on 28 April 2023.

The notice dated 28 April 2023 was quashed on jurisdictional and limitation grounds.

The Court clarified that it had not adjudicated whether the petitioner in fact had a PE in India; the parties remained free to take their respective positions on that issue in relation to subsequent assessment years.

The writ petition was allowed and the pending application was disposed of.