P.M. Jagtap, Accountant Member - This appeal filed by the assessee is directed against the order of ld. CIT(A) - XXXI, Mumbai dated 22-12-2006.
2. The assessee in the present case is a company incorporated and based in Netherlands and is a tax resident of that country. It is engaged in the operation of ships in international traffic in partnership with P&O Nedlloyd Ltd., UK with profit sharing ratio of 56:44 under the name and style of P&O Nedlloyd B.V. (PONP). In the return of income filed for the year under consideration, its share in the gross freight collection in India was shown by the assessee at Rs. 321,61,28,297/- and after deducting import freight of Rs. 160,413,551/- claimed to be exempt, the net freight collection from India was shown at Rs. 3,055,714,746/-. It was claimed that the assessee being a tax resident of Netherlands, the profit derived from the operation of ships in international traffic was taxable only in Netherlands in accordance with Article 8-A(2) of the agreement for Avoidance of the Double Taxation between India and Netherlands and accordingly the income received in India from the operation of ships was exempt from tax in India. It was also claimed that the import freight was not taxable even under Article 8-A of the said agreement. Accordingly, 'nil' income was declared by the assessee in the return of income filed for the year under consideration in India.
3. During the course of assessment proceedings, the A.O. examined the claim of the assessee for exemption on account of income received in India from the operation of ships. On such examination, he found that the partnership firm PONP formed in UK was not registered in the said country as there was no such requirement. He held that the said partnership, however, was a valid partnership as per the provisions of Indian Partnership Act and was qualified as "Person" u/s 2(32) of the Income-tax Act, 1961. He found that as per the Deed of Partnership, the property and assets of the partnership comprised of assets transferred by the partners and the same were available for use of the partnership in the business. He held that the business thus was carried on by the partnership and not by the partners either individually or jointly. He also held that when it was agreed between the partners that the partnership would use the assets of the partners whether for a consideration or free, then it would still give rise to income of the partnership and not of the partners who own the assets. Since PONP being a partnership firm was not liable to taxation in UK, he held that it was not a tax resident of UK and the benefit of the treaty was not available to it. He held that the said partnership was treated fiscally transparent in UK and it was therefore not liable to tax in that country. He noted even there was no rule specially provided in the convention that the partnership of a state, where it is treated as transparent, can be considered as resident of that state under Article 4-A. He found that the Government of UK itself has taken a stand that the partnership is not considered as a resident of that country for the purposes of tax treaty. He held that the taxable entity in India is a partnership and not the partners and there was no provision under the Indian Income-tax Act to assess the income of the assessee in the hands of partners by applying the provisions of the treaty. He found that there was a specific provision made in Article-4 of the Indo-USA Treaty providing that a USA firm may be treated as a resident to the extent its partners are liable to tax in USA. He found that similar provision, however, was not there in the Indo-UK Treaty. He held that there was thus no legal authority to extend treaty benefit to partners in respect of income earned by the UK partnership firm. He held that the partnership firm, being treated as fiscally transparent in UK, was not liable to tax in that state within the meaning of Article-4(1) and the same therefore could not be a resident of UK for the purposes of convention. He, therefore, denied the benefit claimed by the assessee under the treaty holding that the partnership firm PONP was not covered by the provisions of Article 9(5) of the India-UK DTAA and Article 8A of the Indo-Netherlands Treaty and brought the income from the operations in India to tax in the hands of the assessee u/s 172(2) of the Act at Rs. 24,12,09,632/- being 7.5% of the gross receipts of Rs. 321,61,28,297/-.
4. Aggrieved by the order of the A.O., appeal was preferred by the assessee before the ld. CIT(A) and elaborate submissions were made on behalf of the assessee before him in support of its case. After considering the said submissions as well as the relevant material available on record, the ld. CIT(A) agreed with the conclusion of the A.O. that although the Indian Partnership is a person for the purposes of Indo-UK DTAA, the U.K. partnership was not a person for the purposes of the said DTAA as per Article 3(1) and Article 3(2) and the UK Partnership firm not being a person under the Indo UK DTAA, no benefit of the Treaty could be extended to such person. He did not agree with the contention of the assessee that if UK partnership firm is not a person under Indo-UK DTAA Treaty, the said partnership cannot be a person even as per Section 2(31) of the Income-tax Act, and consequently no assessment of the said firm can be made in India. He held that the contents of the partnership deed were sufficient to establish that it was a general partnership having all the features of the partnership under the Indian Partnership Act, 1932. He held that the profits of PONP, UK partnership firm were taxable as the profits of a firm in India. He held that there was no choice provided u/s 2(31) or elsewhere in the Act giving any option to the A.O. either to assess the firm or its partners. He held that PONP is a person within the meaning of section 2(31) of the Income-tax Act which is liable to tax since the partnership firm is a taxable entity in India. He therefore agreed with the A.O. that the income of UK partnership firm PONP was to be assessed in the status of firm in India. Having held so, the ld. CIT(A) was of the view that the share of income of the partners was exempt as per section 10(2A) of the Act and the A.O. should have allowed such exemption to the assessee for the share of profits from the firm PONP. In this regard, he noted that the assessment of P&O Nedlloyd Ltd., UK, other partner of PONP was made in Calcutta wherein the share of profit from the firm of PONP was held to be exempt u/s 10(2A) of the Act and proceedings were initiated against PONP by issuing notice u/s 148 of the Act for A.Y. 2003-04 to assess the income of partnership firm which had been stayed by the Hon'ble Calcutta High Court. As regards the claim of the assessee for the benefit under DTAA, the ld. CIT(A) held that the income of the assessee being exempt in India as per the Income-tax Act, 1961, there was no question of going to the DTAA to claim any benefit. In this regard, he relied on the decision of Hon'ble Supreme Court in the case of CIT v. P.V.A.L. Kulandagan Chettiar [2004] 267 ITR 654/137 Taxman 460 wherein it was held that the provisions of DTAA cannot impose a tax liability where the liability is not imposed by a local Act. It was held that where tax liability is imposed by the Act, the agreement may be resorted to either for reducing the tax liability or altogether avoiding the tax liability. He also relied on the decision in the case of Union of India v. Azadi Bachao Andolan [2003] 263 ITR 706/132 Taxman 373 (SC) wherein it was held that the effect of an agreement entered into by virtue of section 90 of the Act would be that if no tax liability is imposed under this Act, the question of resorting to the agreement would not arise. It was held that no provision of the agreement can possibly fasten a tax liability where the liability is not imposed by the Act. The ld. CIT(A) thus held that the share profit of the assessee from the partnership firm of PONP was exempt from tax in India as per section 10(2A) of the Act as the said firm was chargeable to tax in India in respect of its income. Against the order of the ld. CIT(A), the assessee has preferred this appeal before the Tribunal.
5. At the time of hearing of this appeal, the ld. D.R. raised a preliminary objection that this appeal filed by the assessee before the Tribunal is not maintainable as the assessee cannot be said to be aggrieved by the order of the ld. CIT(A) impugned in the said appeal. He submitted that the ld. CIT(A) vide his impugned order has in fact allowed full relief to the assessee by holding that the income of the assessee from the partnership firm of PONP from the shipping operations in India is exempt u/s 10(2A) of the Indian Income-tax Act, being share of profit from the partnership firm. He contended that no tax thus is payable by the assessee in India as a result of the order of the ld. CIT(A) and it cannot be said that the assessee is aggrieved by the said order. He contended that the present appeal filed by the assessee against the order of the ld. CIT(A) thus is not maintainable and it is liable to be dismissed at the threshold.
6. The ld. counsel for the assessee, on the other hand, submitted that as per section 253 of the Act, any assessee aggrieved by the order specified in the said section can file appeal before the Tribunal. He submitted that the claim of the assessee for benefit under Treaty has been denied and the assessee thus is aggrieved by the order of the ld. CIT(A) giving it a right to file appeal before the Tribunal. He contended that when partnership firm is held to be assessable to tax in India by the order of the ld. CIT(A), the assessee being a partner will be called upon to pay tax and the ld. D.R. is not correct to submit that the assessee is not liable to pay tax as a result of the order of the ld. CIT(A). He referred to section 188-A of the Act which provides that the partners are jointly and severally liable for payment of the firms tax. He also relied on the decision of the Tribunal in the case of Mamatha Motels v. Asstt. CIT [2004] 91 ITD 412 (Cochin) and the decision of Hon'ble Punjab and Haryana High Court in the case of Amin Chand and Sons v. CIT [1982] 133 ITR 439/[1980] 4 Taxman 542. He also placed reliance on the decision of Hon'ble Allahabad High Court in the case of J&T Jain v. CIT [1961] 41 ITR 700 wherein it was held that subsistence of demand is not essential for maintainability of appeal before the Tribunal. He cited the decision of Hon'ble Bombay High Court in the case of Kikabhai Abdulali v. ITAT [1957] 32 ITR 762 wherein it was held that the right to appeal to the Tribunal from an order passed by the AAC or the right to apply for a reference of a question of law arising out an order of the Tribunal is not confined technically to the party to the appeal but is a much wider right which may be exercised by any person who becomes liable to pay tax by any order against which the appeal is preferred. He contended that the present appeal filed by the assessee before the Tribunal is maintainable as per the provisions of section 253(1) of the Act.
7. We have considered the rival submissions on this preliminary issue and also carefully perused the relevant judicial pronouncements on this point including the case laws cited by the ld. counsel for the assessee. Section 253(1) read with clause (a) thereof contemplates that any assessee "aggrieved" by any of the orders mentioned therein may appeal to the Tribunal. There can be no quarrel with the proposition put forth by the ld. counsel for the assessee, which is also supported by the judicial pronouncements cited by him, that if the partnership firm is assessed, partners can be called upon to pay the tax of the partnership firm. Section 188-A of the Act also provides that the partners are jointly and severally liable to pay the firm's tax. The question in the instant case, however, is whether any income has been assessed in the hands of the partnership firm as a result of the order of the CIT(A) which is impugned by the assessee in the instant appeal and the answer to this question is clearly negative. It is no doubt true that the ld. CIT(A) in the said order has agreed with the A.O. that the UK partnership firm being fiscally transparent in UK is not taxable in that country but is taxable in India being a "person" under the Indian Income-tax Act. However, this decision of the ld. CIT(A) is given while deciding the case of the assessee and not that of the partnership firm. As a matter of fact, the case of the partnership firm was not before the ld. CIT(A) at all and the decision of the ld. CIT(A) rendered while deciding the case of the assessee cannot result in the assessment of the firm giving rise to any tax liability. As noted by the ld. CIT(A) in his impugned order, the proceedings against the partnership firm were already initiated separately by the concerned A.O. by issue of notice u/s 148 of the Act and any assessment of income of the partnership firm in India giving rise to any tax liability can result from the said proceedings alone and not as a result of the order of the ld. CIT(A). If the outcome of the said proceedings which, as informed to us during the course of hearing, have been stayed by the Hon'ble Calcutta High Court, result in the assessment of any income in the hands of the partnership firm in India giving rise to any tax liability, the assessee can certainly be said to be aggrieved by such outcome as he can be called upon to pay the tax of the partnership firm in the capacity as a partner. However, the order passed by the A.O. in the case of the assessee as well as the proceedings emanating from the said order including the order of the ld. CIT(A) cannot result in the assessment of partnership firm giving rise to any tax liability payable either by the partnership firm or the partners thereof including the assessee.
8. In the case of J&T Jain (supra) relied upon by the ld. counsel for the assessee, the issue relating to maintainability of the appeal before the Tribunal was raised in an altogether different context. In that case, the appeal had been preferred by the assessee before the Tribunal against the order passed by the AAC. By the said order, the AAC had overruled the findings of the ITO on the issue of addition made on account of cash credits but did not consider it necessary to decide the legal issue raised by the assessee relating to the validity of assessment made by the ITO. When the assessee went up to the Tribunal and raised this legal issue, the Tribunal dismissed the appeal of the assessee as not maintainable on the ground that the demand raised against the assessee stood already cancelled by the order passed by the AAC. The Hon'ble Allahabad High Court, however, held that the principal ground in the appeal filed by the assessee before the Tribunal was related to the validity of the proceedings and it was necessary for the Tribunal to decide the same. It was held that the Tribunal misdirected itself in law in taking a view that subsisting demand was essential for maintainability of appeal before the Tribunal. The issue involved before the Hon'ble Allahabad High Court in the case of J&T Jain (supra) as well as the relevant facts involved thus were altogether different than that of the present case and the reliance of the ld. counsel for the assessee on the said decision, in our opinion, is completely misplaced.
9. The ld. Counsel for the assessee has also relied on the decision of Hon'ble Bombay High Court in the case of Kikabhai Abdulali (supra) in support of assessee's case. In the said case, a firm by name Gokaldas Dayalji was assessed to tax as an unregistered firm and Gokaldas appealed to the AAC contending that the assessment should have been on himself as an individual and not on the firm. This contention was based on his allegation that the firm was a proprietary concern and not a partnership firm. The appeal preferred by Gokaldas was dismissed. Thereafter the property of the petitioner (who had filed the petition before the Hon'ble Bombay High Court) was attached as his name was appearing as a partner along with Gokaldas and others in a partnership deed to recover the firm's tax. The said petitioner thereupon preferred an appeal before the Tribunal denying his liability to assess and contending that he was not a partner in that firm. The Tribunal considered the said appeal as maintainable and also allowed the same on merit holding that the petitioner was not a partner. The ld. CIT then made an application for a reference to the Hon'ble Bombay High Court on the question of law whether there was any evidence before the Tribunal to hold that the petitioner was not a partner. The said application was rejected by the Hon'ble Bombay High Court. Thereafter Gokaldas applied for a reference to the Tribunal to refer the question of law as to whether the appeal preferred by the petitioner was competent. The Tribunal granted the said application as a result of which the petitioner went before the Hon'ble Bombay High Court under Articles 226 & 227 of the Constitution urging that it was not competent to the Tribunal in law to make the reference on the application filed by Gokaldas. The issue raised before the Hon'ble Bombay High Court therefore was whether the application filed by Gokaldas for a reference to the Tribunal was maintainable or not. In this context, the Hon'ble Bombay High Court referred to the definition of "assessee" given in the Act and held that as per the said definition given by the Act itself, any person by whom income-tax or any other sum of money is payable under this Act has a right to make an application for a reference. It was held that Shri Gokaldas as a partner or a proprietor of the firm was liable to pay tax assessed upon the firm and moreover the effect of the judgment of the Tribunal was that the petitioner was relieved of his liability on account of tax payable by the firm thereby increasing the liability of Gokaldas to that extent. It was held that Shri Gokaldas thus rightly felt aggrieved by the decision of the Tribunal as his rights were vitally affected and was liable to pay tax as a result of the said order. It was held that although Shri Gokaldas accepted the decision of the AAC holding that income tax was payable by all the partners of the firm, he become aggrieved only as a result of the decision of the Tribunal and therefore was competent to file a reference before the Tribunal even though he was technically not a party to the appeal.
10. A careful perusal of the decision of the Hon'ble Bombay High Court in the case of Kikabhai Abdulali (supra) shows that the term "assessee aggrieved" used in section 253(1), is interpreted and explained as any person by whom income-tax or any other sum of money is payable as a result of the order which is sought to be appealed against. In the case of CIT v. Ambala Flour Mills [1970] 78 ITR 256 (SC), the Hon'ble Supreme Court ruled that if a person is fastened with the liability to tax, he has a right of appeal so as to challenge the liability with which he is sought to be fastened. In the case of CIT v. N. Ch. R. Row and Co. [1983] 144 ITR 557/[1982] 11 Taxman 226, the Hon'ble Calcutta High Court held that the right to appeal by the Tribunal from an order passed by the AAC was not confined technically to the party who was a party to the appeal but is a much wider right which might be exercised by any person who was liable to pay tax by any order against which the appeal was preferred.
11. In the case of MICO Employees Association v. Asstt. CIT [2007] 292 ITR 567/162 Taxman 475 (Kar.) there was a dispute between MICO Employees Association and the Department regarding TDS vis-à-vis service of employees and the appeal filed by the Employees Association was held to be not maintainable by the Hon'ble Karnataka High Court holding that only an assessee whose liability to pay tax in terms of an order is provided to the right of appeal u/s 253. It was held that though the Employees Association might be an aggrieved party to certain extent, it was not an assessee in terms of definition given in section 2(7) of the Act which would mean a person any tax or a sum of money is payable. It was held that in terms of the statute only the assessee who is liable to pay tax in terms of the order alone is provided with right to appeal though to a certain extent association may be an aggrieved party but association is not an assessee. It was held that no appeal therefore could have been filed by the association in terms of this Act.
12. The legal position emanating from the judicial pronouncements discussed above is that the term "assessee aggrieved" used in section 253(1) being a person competent to file an appeal before the Tribunal is the person who is an aggrieved party liable to pay tax in terms of the order against which the appeal is to be preferred. As already discussed by us there is no tax payable by the assessee in the present case as a result of the impugned order passed by the ld. CIT(A) even as a partner of the firm as the said order of the ld. CIT(A) has not given rise to any tax liability of the partnership firm. In our considered opinion, this appeal filed by the person, who is not the "assessee aggrieved" as envisaged in section 253(1), is not maintainable and the same is liable to be dismissed at the threshold. We order accordingly.
13. Keeping in our decision rendered above dismissing the present appeal treating the same as not maintainable, we do not consider it necessary or expedient to go into the merits of the issues raised therein.
14. In the result, appeal filed by the assessee is dismissed.