The order of the Bench was delivered by
Ashwani Taneja (Accountant Member):-This appeal has been filed by the assessee against the order of Ld. Commissioner of Income Tax (Appeals), Mumbai- 56 {(in short ‘CIT(A)’}, dated 27.10.2015 passed against rectification order u/s 154 of the AO for the Assessment Year 2008-09 on the following grounds:
“1. On the facts and in the circumstances of the case and in law, the learned CIT (Appeals) has erred in holding that the AO has correctly rejected the rectification application filed by the appellant u/s. 154 of the Incometax Act, 1961 claiming relief u/s. 90 of the Act on the ground that there is no apparent mistake since the relief had not been claimed by the appellant in the Return of Income filed by him.
2. On the facts and in the circumstances of the case and in law, the learned CIT (Appeals) has erred in holding that the appellate authorities have powers to entertain fresh claim only if the assessment order is passed u/s. 143(3) and not if the return is processed u/s. 143(1).
3. On the facts and in the circumstances of the case and in law, the learned CIT (Appeals) has erred in holding that since the A.O. in the present case has accepted the income returned by the appellant under the provisions of sec. 143(1) which is with the provisions of law, there is no mistake in the order of the A.O. which could be rectified and there is no ground to defer from the stand taken by the A.O.
4. The appellant prays that the learned ITO be directed to allow appropriate relief in terms of DTAA between India and Singapore as claimed by the appellant in the rectification application and accordingly, the A.O. be directed to –
a) tax the Interest Income of Rs. 2,17,22,013/- @ 15% only instead of @ 30.9% actually charged to the appellant, in terms of Article 11 of DTAA between India and Singapore and
b) exclude Short Term Capital Gains of Rs. 12,84,598/- from the Computation of Taxable Income in terms of Article 13 of DTAA between India and Singapore and delete tax charged oil said income."
2. During the course of hearing, arguments were made by Mrs. D.J. Jariwala, Authorised Representative (AR) on behalf of the Assessee and by Mrs. Surbhi Sharma, Departmental Representative (DR) on behalf of the Revenue.
3. The solitary issue raised by the assessee by way of this appeal is with regard to denial to the assessee, the benefit of provisions of Double Tax Avoidance Agreement (DTAA) between India and Singapore. The case of the assessee is that benefits of provisions of Article 11 and Article 13 of India- Singapore Treaty have not been given to the assessee despite a specific petition having been filed in this regard u/s 154 of the AO. On the other hand, thecase of the revenue is that the claim with regard to the provisions of DTAA was not made by the assessee either in the original return or in the revised return filed by it, but the same was claimed by way of petition u/s 154, which could not have been granted as it required investigation of fact to examine whether the assessee can be granted the benefit of provisions of Article 11 & Article 13 of the DTAA.
3.1. We have gone through the orders of the lower authorities and heard both the parties at great length. Both, the parties have made the arguments exhaustively, putting in ample amount of labour to bring out correct facts and legal position of law.
3.2. The brief background of the case is that the assessee filed its original return on 29.07.2010 which was subsequently revised by him on 13.09.2011. In both of these returns, the residential status of the assessee was shown as ‘nonresident’. The revised return included inter alia the income on account of interest from bank/financial institutions aggregating to Rs. 2,17,22,013/- and income from short term capital gain from sale of securities aggregating to Rs. 12,84,598/-. Subsequently, the assessee filed a petition u/s 154 to the AO claiming that since the assessee was resident of Singapore during the year under concern, therefore in view of DTAA between India and Singapore interest income was liable to be taxed @ 15% and short term capital gain on sale of securities was exempt from tax, whereas in the revised return filed by the assessee, the assessee inadvertently paid tax on the interest income at maximum marginal rate and included the impugned amount of capital gain from sale of shares as part of taxable income. Thus, assessee claimed in the petition that it was mistake apparent from record since income not liable to tax was made taxable on the part of mistake committed by the assessee which was perpetuated by the AO. In support of its claim, the assessee enclosed ‘Tax Residency Certificate’ of Singapore. It was further submitted by the assessee that at the time of processing of the Revised Return, the assessment proceedings of immediately preceding year i.e. A.Y. 2009-10 were also going on before the AO and all these facts with regard to residency of the assessee in Singapore as well as Tax Residency Certificate was available before the AO and therefore, the AO was bound to consider the same under the law as to assess income of assessee in accordance with law. She relied upon the judgment of Hon’ble Kerala High Court in the case of Upasana Hospital & Nursing Home vs. Commissioner of Income Tax-(2002) 253 ITR 507 (Ker) for the proposition that an error apparent on the face of the ‘record’ cannot be said to be only from the ‘record’ of one particular assessment, but from the entire ‘record’ of the assessee relating to all the assessment years. On the basis of this judgment, it was requested by the Ld. Counsel that requisite facts were available in the file of the AO which should not be ignored in the interest of justice and fair play. She drew our attention to Article 265 of constitution of India to argue that no tax should be collected except by authority of law. In support of her claim, she relied upon following judgments and circulars:-
i. Circular no. 14(XL-35) dated 11/04/1955 issued by Central Board of Revenue( Now Central Board of Direct Taxes)
ii. Chicago Pneumatic India Ltd. Vs. Dy. CIT- (2007) 15 SOT 252(Mum.)
iii. CIT vs. M/s. Pruthvi Brokers & Shareholders Pvt. Ltd. 349 ITR 336
iv. Hathway Rajesh Multi Channel vs. Department of Income Tax in ITA No. 6345/M/2013
v. Sanchit software and Solution (P.) Ltd. V. CIT- 349 ITR 404 (Bom)
vi. S.R. Koshti vs. CIT- 276 ITR 165(Guj)
3.3. Before concluding her arguments, Ld. Counsel of the assessee also submitted that in all subsequent years the assessee had claimed the relief as per DTAA and which has been allowed consistently for all of the assessment years viz. A.Ys. 2011-12 to 2015-16. Out of these 5 assessment years, returns of first 3 assessment years have already been processed wherein claim of the assessee has been accepted, and therefore, there should be no reasons to deny the claim in this year merely on some technical grounds when in substance the assessee is eligible for this relief.
3.4. Per contra, Ld. DR opposed the submissions of the assessee in detail. It was argued that the assessee did not make its impugned claim in the return. The assessee had missed the bus and the same could not have been allowed to the assessee by way of rectification proceedings u/s 154. She relied upon the judgment of Hon’ble Bombay High Court in the case of Gammon India Ltd. vs CIT 214 ITR 50 for the proposition that relief u/s 91(1) could not have been allowed to the assessee in the proceedings u/s 154, when requisite facts and documents to justify assessee’s claim were not part of records of the AO of the concerned year. It was also submitted by her that requisite facts with regard to stay of assessee in India and Singapore at different points of time needs to examined to find out the correct position of the assessee. Under these facts, it was requested by her that assessee’s claim is not possible to be allowed as per law and the same has been rightly denied by the lower authorities.
3.5. We have carefully gone through the arguments made by both the parties before us. Though, it is true and we agree with the Ld. DR on this point that the claim of the assessee can be and should be allowed in accordance with provisions of law only, but it is also true that the tax can be collected from the assessee strictly within the four corners of law only. If the assessee is able to show in a bona fide manner at any stage that a particular item of receipts is not liable to be taxed as income in its hands, then, an effort should be made in all fairness that tax upon the same is not recovered from the assessee, so long as nothing in-genuine or mala fide is found on the part of the assessee and so long as the conduct of the assessee is found to be reasonable and fair. On the basis of facts brought before us, it can be noted that during the past few years, the assessee had been residing abroad i.e. in Singapore. Under these circumstances, it is quite natural that assessee would have been dependent upon its tax consultant here in India. The income tax law, especially in our country, has been constantly evolving resulting into numerous amendments time to time. The complexities in the business environment as well as in the real life situations have made the tax laws also equally complex and cumbersome to understand not only by layman but also by the tax specialists. Under these circumstances, we should examine the return of the assessee and its claim on the touch stone of ground realities and circumstances and facts of the case. We cannot close our eyes towards prayer of the taxpayers even for their genuine claims merely because there was an omission on the part of the tax payers in making the same in the most appropriate manner. On the one hand, the revenue department is duty bound to augment collection of tax as well as to tackle problem of tax evasion, but on the other hand, the Revenue is also expected to maintain fairness and transparency in its work so as to build faith of the tax payers on the mechanism and working of the income tax department. With this background, we have analysed the facts of thiscase, evidences/other material available before the AO, the claim made by the assessee and the legal position brought before us. It is noted that in the return filed before the AO, the assessee had undoubtedly claimed its status as that of ‘non-resident’. Item wise details of income earned from all the sources were given in the computation sheet filed along with return of income (i.e. original as well as revised). It is also undisputed fact that copy of assessee’s TRC of Singapore as well as DTAA between India and Singapore was available before the AO in the assessment proceedings of A.Y. 2009-10. It is noted that Hon’ble Kerala High Court in the case of Upasana Hospital and Nursing Home v. CIT held as under:
“We feel that the power of rectification under Section 154 is to be exercised with reference to the records of the assessee available with the Assessing Officer, and not with particular reference to the assessment alone. The error apparent on the face of the record cannot be said to be the record of one particular assessment, but the entire record of the assessee relating to all the assessment years. The same is the view taken by the Supreme Court and other High Courts in the decisions referred to above.”
3.6. Thus, as per law, it was permissible for the AO to refer to the records available for other assessment years if these were somehow relevant for determining the correct tax liability of the impugned assessment year.
3.7. On the other hand, admittedly, there was an omission on the part of the assessee in making claim in the return of income with regard to benefits accrued to the assessee on the basis of DTAA between India-Singapore. Ld. Counsel has drew our attention upon the provisions of Article 265 of the Constitution of India providing that no tax shall be levied or collected except by authority of law. Similarly, reliance has been placed on circular no.14 dated 11.04.1955 issued by the Central Board of Revenue (Now central Board of Direct Taxes) clarifying as under:
“3. Officers of the Department must not take advantage of the ignorance of an assessee as to his rights. It is one of their duties to assist a taxpayer in every reasonable way, particularly in the matter of claiming and securing relief and in this regard the officers should take the initiative in guiding a taxpayer where proceedings or other particulars before them indicate that some refund or relief is due to him. This attitude would, in the long run, benefit the Department, for, it would inspire confidence in him that he may be sure of getting a square deal from the Department. Although, therefore, the responsibility for claiming refunds and relief rest with the assessees on whom it is imposed by law, officers should:
(a) draw their attention to any refunds or relief to which they appear to be clearly entitled but which they have omitted to claim for some reason or other;
(b) freely advise them when approached by them as to their rights and liabilities and as to the procedure to be adopted for claiming refunds and reliefs.”
3.8. Similarly, in the case of Sanchit Software and Solution (P.) Ltd. (supra), the facts were like that claim was made by the assessee for exemption in respect of Dividend Income and Long Term Capital Gains on which Securities Transaction Tax was paid by filing an application for rectification in terms of section 154 of the Act as well as by filing a Revision Petition under sec. 264 of the Act, and not by filing a Revised Return of Income. The Commissioner rejected the Revision Petition filed by the assessee under section 264 of the Act, against which, the assessee had filed a Writ Petition in the High Court of Bombay. The Bombay High Court while deciding the Writ Petition made the following observations:
“In any civilized system, the assessee is bound to pay the tax which he is liable under the law to the Government. The Government on the other hand is obliged to collect only that amount of tax which is legally payable by an assessee. The entire object of administration of tax is to secure the revenue for the development of the Country and not to charge assessee more tax than that which is due and payable by the assessee. It is in aforesaid circumstances that as far back as in 11/04/1955 the Central Board of Direct Tax had issued a circular directing Assessing Officer not to take advantage of assessee's ignorance and/or mistake.”
The Court then stated that "the above Circular should always be borne in mind by the officers of the respondent revenue while administrating the said Act. Ultimately, the Court not only allowed the Writ Petition filed by the assessee and set aside the Order passed by the Commissioner whereby the Commissioner had rejected the Revision Petition filed by the assessee under section 264 of the Act for claiming exemption in respect of Dividend Income and Long Term Capital Gains on which Securities Transaction Tax was paid, but also directed the AO to dispose of the rectification application filed by the assessee at the earliest, preferably within six weeks from the receipt of their order.
3.9. Our attention was also drawn on the judgment of Hon’ble Gujarat High Court in the case S.R. Koshti v. CIT (supra) wherein the facts were that the said assessee had made a claim for exemption u/s. 10(10C) of the I.T. Act by filing a Revised Return of Income, which was allowed by the AO by passing an Order u/s 154 of the Act, but said Order was not approved by the Addl. CIT and the CIT took action u/s. 263 to revise the Order passed by the AO u/s 154 of the Act and also rejected the application for revision made by the assessee u/s 264 of the Act. In this case, the High Court made the following observations:
“The authorities under the Act are under an obligation to act in accordance with law. Tax can be collected only as provided under the Act. If an assessee, under a mistake, misconception or on not being properly instructed, is over-assessed, the authorities under the Act are required to assist him and ensure that only legitimate taxes due are collected. This Court, in an unreported decision in case of Vinay Chandulal Satia v. Shri N.O. Parekh., the Commissioner of income Tax, Special Civil Application No. 622/1981, rendered on 20-81981, has laid down the approach that the authorities must adopt in such matters in the following terms:
"The Supreme Court has observed in numerous decisions, including Ramlal and Ors. v. Rewa Coalfields Ltd., AIR 1962 SC 361; The State of West Bengal v. The Administrator, Howrah Municipality and Ors.. AIR 1972 SC 749, and babutmal Raichand Oswal v. Laxmihai R. Torte, AIR? 1975 SC 1297, that the State authorities should not raise technical pleas lithe citizens have a lawful right and the lawful right is being denied to them merely on technical grounds. The Slate authorities cannot adopt the attitude which private litigants might adopt.”
3.10. It was specifically brought to our attention that in the above-said case also return was passed u/s 143(1) and there was no assessment order passed u/s 143(3) of the Act.
3.11. Thus, in view of the above said legal position, we find it difficult to simply ignore or brush aside, a genuine claim made by the assessee especially when it has been allowed to the assessee in all subsequent years. Under these circumstances, we have analysed the prima facie authenticity in the claim made by the assessee on the basis of India-Singapore DTAA in the light of primary evidences brought before us and our observations in this regard are as discussed in subsequent paragraphs.
4. As per Article 11 of India Singapore DTAA dated 24th January 1994 the treatment of interest shall be as under:
“ARTICLE 11: INTEREST - 1. Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.
2. However, such interest may also be taxed in the Contracting State in which it arises, and according to thelaws of that State, but if the beneficial owner of the interest is a resident of the other Contracting State, the tax so charged shall not exceed:
(a) 10 per cent of the gross amount of the interest if such interest is paid on a loan granted by a bank carrying on a bona fide banking business or by a similar financial institution (including an insurance company)
(b) 15 per cent of the gross amount of the interest in all other cases.”
4.1. From the perusal of the above said Article, it is clear that as per para 2(b) of Article 11, the income on account of interest is liable to tax @ 15% if the assessee is resident of Singapore in the period under concern. Under these circumstances, we find it appropriate that requisite facts in this regard should be verified by the lower authorities in the interest of justice and fair play. Similarly, with regard to taxation of capital gain it was brought to our notice by the Ld. Counsel of the assessee that there was an amendment in the DTAA and a protocol amending the agreement was appended as Annexure –B to the original agreement on 29th June 2005. Before the amendment of DTAA, Article 13 read as under:
“ARTICLE 13: CAPITAL GAINS - 1. Gains derived by a resident of a Contracting State from the alienation of immovable property, referred to in Article 6, and situated in the other Contracting State may be taxed in that other State.
2. Gains from the alienation of movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State or of movable property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing independent personal services, including such gains from the alienation of such a permanent establishment (alone or together with the whole enterprise) or of such fixed base, may be taxed in that other State.
3. Gains from the alienation of ships or aircraft operated in international traffic or movable property pertaining to the operation of such ships or aircraft shall be taxable only in the Contracting State of which the alienator is a resident.
4. Gains derived by a resident of a Contracting State from the alienation of any property other than those mentioned in paragraphs 1, 2 and 3 of this Article shall be taxable only in that State.
5. Gains from the alienation of shares other than those mentioned in paragraph 4 in a company which is a resident of a contracting State may be taxed in that State.
6. Gains from the alienation of nay property other than that mentioned in paragraphs 1,2,3,4 & 5 of this Article and paragraph 3(b) of the Article 12 shall be taxable only in the contracting State of which the alienator is a resident.”
4.2. In the Annexure –B i.e. Amendment dated 29th June 2005 to Article 13 with regard to charging of capital gains was amended as under:
Article 1
Paragraphs 4,5 and 6 of Article 13 (capital Gains) of the Agreement shall be deleted and replaced by the following:
“4. Gains derived by a resident of a contracting state from the alienation of any property other than those mentioned in paragraphs 1,2 and 3 of this Article shall be taxable only in that state.”
4.3. Thus, the prima facie perusal of all these Articles suggest that capital gain arising to resident of Singapore may not be taxable in India. The assessee has furnished before us details of the capital gain showing that the entire amount of capital gain has been earned on account of sale of securities of mutual funds. Under these circumstances, we find it appropriate to send both the issues back to the file of the AO for their examination on merits. The AO shall give adequate opportunity of hearing to the assessee to submit requisite details and documentary evidences to demonstrate that assessee is eligible for the benefit of Article 13 of DTAA as has been claimed by him. Our observations on merits, with regard to prima facie applicability of the provisions of DTAA, were given just to enable us to dispose this appeal. But, AO is not bound by it and it should not have any bearing on the ultimate decision to be taken by the AO with regard to applicability of these provisions upon income of interest and short term capital gains. The AO shall decide this issue on merits afresh after taking into account all the facts and evidences on objective basis and after giving adequate opportunity of hearing to the assessee. The assessee shall extend requisite cooperation to the AO by submitting requisite details and documentary evidences as per law.
5. In the result, this appeal filed by the assessee is partly allowed for statistical purposes.
The order pronounced in the open court on 29th June, 2016.