ADIT (IT) 3(2), MUMBAI V. FIDELITY MANAGEMENT & RESEARCH CO, MUMBAI

ITA 14/MUM/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 4607 (ITAT-MUMBAI)
• Duration Of Justice: 8 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: 2006-2007
• Appeal Filed On: 01-01-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NARESH KR BALODIA
• Keywords: Business income; Double taxation relief; Bonafide belief; Permanent establishment; Advance ruling; Wrong claim; Revised return; Ignorance of law

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES F, MUMBAI BEFORE SHRI. R.S. SYAL (A.M.) AND SMT. ASHA VIJAYAR AGHAVAN (J.M.) ITA NO.14/MUM/2010 ASSESSMENT YEAR : 2004-2005 A.D.I.T.(IT) 3(2) SC INDIA HOUSE, R.NO.134, 1 ST FLR., N.M. RD., MUMBAI VS. FIDELITY MANAGEMENT & RESEARCH CO. A/C FIDELITY FOCUS TECHNOLOGY FUND C/O BMR & ASSOCIATES 3F CONTRACTOR BLDG., 41, R KAMANI RD., BALLARD ESTATE, MUMBAI 400001. PAN : AAATF1380N (APPELLANT) (RESPONDENT) ITA NO.15/MUM/2010 ASSESSMENT YEAR : 2004-2005 A.D.I.T.(IT) 3(2) SC INDIA HOUSE, R.NO.134, 1 ST FLR., N.M. RD., MUMBAI VS. FIDELITY MANAGEMENT & RESEARCH CO. A/C FIDELITY INVESTMENT CANADA FIDELITY FAR EAST FUND C/O BMR & ASSOCIATES 3F CONTRACTOR BLDG., 41, R KAMANI RD., BALLARD ESTATE, MUMBAI 400001. PAN : AAATF1380N (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI NARESH KR. BALODIA (D.R.) RESPONDENT BY : SHRI SAIRAM SESHADRI MS. ANKITA MAHESHKA O R D E R PER ASHA VIJAYARAGHAVAN, J.M. THESE TWO APPEALS ARE PREFERRED BY THE REVENUE AGAI NST THE TWO SEPARATE ORDERS PASSED BY THE LEARNED CIT (A)-X, MU MBAI DATED 15.10.2009 RELATING TO ASSESSMENT YEAR 2004-05. 2. FACTS AND BRIEF ARE THAT THE ASSESSEE IS REGISTE RED AS A TRUST IN CANADA AND IS ALSO A TAX RESIDENT OF CANADA. THE ASSESSEE IS REGISTERED AS SUB ACCOUNT OF PYRAMIS GLOBAL ADVISOR, LLC FUND WHICH I S REGISTERED WITH SECURITIES EXCHANGE BOARD OF INDIA (SEBI) AS A FORE IGN INSTITUTIONAL INVESTOR ITA NO.14/MUM/2010 ITA NO.15/MUM/2010 2 (FLL). THE ASSESSEE HAD FILED ITS RETURN OF INCOME ON 18.08.2004 DECLARING INCOME AT ` .9,28,49,984/- UNDER THE HEAD OF CAPITAL GAINS EA RNED FROM SALE OF SECURITIES IN INDIA AND ALSO PAID TAX OF ` .3,07,11,690/- THEREON. THE ASSESSEE HAS ALSO EARNED DIVIDEND ON ITS INVESTMENT WHICH HAS BEEN CLAIMED AS EXEMPT. THEREAFTER, RELYING ON THE AAR RULING I N THE CASE OF XYZ/ABC EQUITY FUND, (2001) (250 ITR 194) (AAR) AND FIDELIT Y ADVISORS SERIES VIII, (2004)(271 ITR 1) (AAR), THE ASSESSEE FILED A REVIS ED RETURN OF INCOME ON 25.03.2005 SHOWING TAXABLE INCOME AT ` NIL, AND CLAIMING REFUND OF TAXES PAID, ON THE GROUND THAT ITS INCOME WAS IN THE NATU RE OF BUSINESS INCOME AND SINCE THE ASSESSMENT HAS NOT HAVING PE ITS INCO ME IS NOT TAXABLE IN INDIA IN VIEW OF ARTICLE 7 READ WITH ARTICLE 5 OF D TAA. HOWEVER, THE ASSESSING OFFICER COMPLETED THE ASSESSMENT VIDE ORD ER U/S.143(3) DATED 22.12.2006 DETERMINING THE INCOME UNDER HEAD AS C APITAL GAIN AT ` .9,28,49,984/-. THE PENALTY PROCEEDINGS U/S. 271( 1)(C) WERE ALSO INITIATED FOR MAKING FALSE CLAIM IN THE REVISED RETURN OF INC OME. THE ASSESSING OFFICER ACCORDINGLY, LEVIED PENALTY OF ` .3,06,40,490/- U/S. 271(1)(C) OF THE ACT. 2.1 THE ASSESSING OFFICER HAS DISCUSSED THE PROVISI ON OF THE SCHEME OF GOVERNMENT OF INDIA UNDER WHICH THE FLLS ARE ALLOW ED TO OPERATE IN INDIAN SECURITIES AND SPECIAL PROVISIONS OF INDIAN INCOME- TAX DEALING WITH TAXABILITY OF FLLS. THE ASSESSING OFFICER HELD TH AT FLLS ARE PERMITTED TO INVEST IN THE CAPITAL MARKET AS INVESTORS AND GAINS ARISING ON PURCHASE AND SALE OF SHARES AND STOCKS ARE TO BE ASSESSED AS CA PITAL GAINS U/S.115AD OF I.T. ACT, 1961 WHICH SPECIFICALLY PROVIDED FOR UNDE R GOVERNMENT OF INDIA GUIDELINES WHICH ARE PART OF SEBI REGULATION. TO SAY THAT FLLS ARE ENTITLED TO CARRY OUT BUSINESS DEALING IN SECURITIES, IT WOU LD BE VIOLATIVE OF THE CLEAR MANDATE OF SEBI REGULATIONS, 1995 AND WOULD MAKE TH E ENTIRE REGULATORY FRAME WORK REDUNDANT WHEREBY FLLS HAVE BEEN ALLOWED TRIBUNAL INVEST IN THE CAPITAL MARKET IN INDIA. THE ASSESSING OFFICER DIS CUSSED THE PROSPECT OF THE ASSESSEE AND OBSERVED THAT THE INVESTMENT OBJECTIVE OF THE FUND, BEING AN INSURANCE PRODUCTS FUND-O.P. IS CAPITAL GROWTH. TH E ASSESSING OFFICER ALSO QUOTED THE EXTRACTS OF THE PROSPECTUS AND OBSERVED THAT IT IS EVIDENT, AS ALSO DISCUSSED IN THE ASSESSMENT ORDER THAT THE FUND (TH E ASSESSEE) HAS BEEN ITA NO.14/MUM/2010 ITA NO.15/MUM/2010 3 CREATED FOR THE PURPOSE OF INVESTMENT IN INTERNATIO NAL SECURITIES MARKET AND IN GIVING INFORMATION TO ITS OWN INVESTORS, THE NAT URE OF INCOME OF THE FUND HAS BEEN STATED AS DIVIDEND OR CAPITAL GAINS. THE ASSESSING OFFICER ALSO NOTED THAT IT IS EVIDENT THAT THE FUND WILL BE HAVI NG INCOME IN THE FORM OF DIVIDENDS AND CAPITAL GAINS, WHICH WILL BE DISTRIBU TED OR ALLOWED TO BE ACCUMULATED. THE FUND IS A TAX TRANSPARENT ENTITY IN ITS COUNTRY AND ITS BENEFICIARIES ARE PAYING TAXES ON DIVIDEND INCOME A ND CAPITAL GAINS AND THUS THE ASSESSEES CONTENTION THAT ITS INCOME FROM INDIAN SECURITIES MARKET IS BUSINESS INCOME WAS NOT ACCEPTED. 2.2 THE LEARNED AR OF THE ASSESSEE SUBMITTED THAT I N THE ASSESSMENT ORDER IT WAS ONLY STATED THAT THE INCOME OF ASSESSE E FROM INDIAN OPERATIONS IS OF THE NATURE OF CAPITAL GAINS AS AGAINST BUSINE SS INCOME ON THE BASIS OF A DIFFERENT VIEW ADOPTED BY HIM. THE ASSESSING OFFIC ER HAS ALSO NOT INDICATED WHETHER SUCH PENALTY PROCEEDINGS WERE TO BE INITIAT ED ON CONCEALMENT OF INCOME OR DUE TO FURNISHING INACCURATE PARTICULARS. IT WAS SUBMITTED THAT ASSESSE HAD FILED ITS ORIGINAL RETURN REPORTING INC OME FROM SALE OF SECURITIES IN THE NATURE OF CAPITAL GAINS. RELYING ON RULING OF THE AAR IN XYZ/ABC AND FAS VIII (SUPRA) IN SISTER CONCERN WHEREIN AAR RULE D THAT INCOME OF THESE FLLS FROM PURCHASE AND SALE OF SECURITIES IN INDIA IS BUSINESS INCOME. IN SIMILAR FRAME WORK, FFEF REVISED ITS RETURN OF INCO ME AND MADE A CLAIM FOR THE BENEFIT UNDER TREATY AND TO CLAIM TO EXEMPTION FROM INCOME TAX INDIA. SINCE THE RULING IN CASE OF SISTER CONCERN THE FFEF FILED AN ADVANCE RULING TO THE AAR IN THE YEAR 2006 TO OBTAIN AN ORDER IN ITS CASE WHETHER ITS INCOME FROM THE SALE OF PORTFOLIO INVESTMENT IN INDIA WOUL D BE CATEGORIZED AS BUSINESS INCOME. THE AR ARGUED THAT IT IS WELL ES TABLISHED PRINCIPAL THAT NO PENALTY CAN BE LEVIED WHERE A SUBSEQUENT JUDGMEN T HAS BEEN DELIVERED WHICH ESTABLISHES A POINT OF LAW/PRINCIPLE CONTRARY AS TO THE POSITION TAKEN BY TAXPAYER. 2.3 THE AR SUBMITTED THAT ALONG WITH THE REVISED RE TURN OF INCOME, THE ENTIRE BASIS ON WHICH THE REVISED RETURNS HAVE BEEN FIELD, HAS BEEN EXPLAINED AND ALL THE INFORMATION AND EXPLANATIONS WERE FURNISHED AND THE ASSESSING OFFICER IN THE ASSESSMENT ORDERS ITSELF H AS DISCUSSED THE ISSUE AS ITA NO.14/MUM/2010 ITA NO.15/MUM/2010 4 TO WHETHER THE INCOME SHOULD BE ASSESSED UNDER THE HEAD BUSINESS INCOME OR UNDER THE HEAD CAPITAL GAINS AND ON TH IS FACTUAL MATRIX, THE QUESTION OF COMING TO A CONCLUSION THAT THE ASSESSE E HAVE CONCEALED THE PARTICULARS OF INCOME OR HAVE FURNISHED INACCURATE PARTICULARS OF INCOME SO AS TO ENABLE THE LEVY OF PENALTY U/S. 271(1)(C) DOE S NOT ARISE. THE AR ALSO SUBMITTED THAT THEY HAVE FILED REVISED RETURN OF IN COME ENCLOSING LETTER DATED 25.03.2005 THEREIN OF WHICH RELEVANT PARA IS REPRODUCED AS UNDER: WE REFER THE RETURN OF INCOME (ROI) IN FORM NO.3 FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, FILED WITH YOU R OFFICE ON 27.02.2004, BEARING ACKNOWLEDGMENT NO.1153. A COPY OF THE ACKNOWLEDGMENT ROI IS ENCLOSED HEREWITH AS ANNEXURE A FOR YOUR READY REFERENCE. THE FUND HAD, IN THE ORIGINAL ROI, OFFERED TO TAX T HE INCOME EARNED ON SALE OF SECURITIES IN INDIA AS CAPITAL GA INS AND PAID TAXES THEREON. HOWEVER, AS THE FUND HAS BEEN CARRY ING ON BUSINESS AS AN INVESTMENT TRUST, THE SHARES AND SEC URITIES WERE HELD BY THE FUND AS BUSINESS ASSETS, THE PROFI TS FROM THE OBJECT OF THE FUND AS SEEN FROM ITS CHARTER DOCUMEN TS, THE REGISTRATION WITH SECURITIES & EXCHANGE BOARD OF IN DIA (SEBI) AS A FOREIGN INSTITUTIONAL INVESTOR AND THE ENORMIT Y AND FREQUENCY OF TRANSACTIONS OF PURCHASE AND SALE OF S HARES AND SECURITIES BY THE FUND. FURTHER, IN THE VIEW OF T HE PROVISIONS OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA) BETWEEN INDIA AND USA, THE BUSINESS PROFITS COULD BE TAXED IN INDIA ONLY IF THERE IS A PERMANENT ESTABLISHMENT (PE) I N INDIA. AS THE FUND DOES NOT HAVE AN OFFICE, A PLACE OF BUSINE SS OR A DEPENDENT AGENT IN INDIA, IT DOES NOT HAVE A PE IN INDIA AND THEREFORE, THE BUSINESS INCOME ON SALE OF SECURITIE S WOULD NOT BE TAXABLE IN INDIA. WITH REGARDS TO OUR CLAIM THAT THE INCOME EARNED BY THE FUND IS IN THE NATURE OF BUSINESS INCOME WE WOULD LIKE TO P LACE RELIANCE ON A RECENT RULING DELIVERED BY THE AUTHOR ITY OF ADVANCE RULINGS (AAR) IN RESPECT OF ONE OF OUR SI STER FUNDS, NAMELY, FIDELITY ADVISOR SERIES VIII REPORTED IN ( 2004) 271(1)(C) ITR 0001 (AAR) THE FACTS OF THE WHICH ARE SIMILAR T O OUR CASE. THE RULING DELIVERED BY THE AAR IS ENCLOSED HEREWIT H AS ANNEXURE B. IN THIS CASE THE AAR AFTER PERUSING CE RTAIN PARAMETERS SUCH AS THE OBJECTS FOR WHICH THE APPLIC ANT WAS ESTABLISHED, THE FREQUENCY OF TRADE, ETC. HELD THAT THE INCOME EARNED BY FIDELITY ADVISOR SERIES VIII WAS IN THE N ATURE BUSINESS INCOME. THE AAR ALSO CONSIDERED WHETHER THE PRESENCE OF THE CUSTODIAN IN INDIA WOULD TANTAMOUNT TO THE FIDELITY ADVISOR SERIES VIII HAVING A PE IN INDIA, AND IN THIS REGARD RULES IN THE NEGATIVE. THE AAR RULED THAT THE INCOME EARNED BY FIDELITY ADVISOR SERIES VIII WAS IN THE N ATURE OF BUSINESS INCOME. THE AAR ALSO CONSIDERED WHETHER T HE PRESENCE OF THE CUSTODIAN IN INDIA WOULD TANTAMOUNT TO THE FIDELITY ADVISOR SERIES VIII HAVING A PE IN INDIA, AND IN THIS REGARD RULED IN THE NEGATIVE. THE AAR RULED THAT T HE INCOME EARNED BY FIDELITY ADVISOR SERIES VIII WAS IN THE N ATURE OF ITA NO.14/MUM/2010 ITA NO.15/MUM/2010 5 BUSINESS INCOME AND IN THE ABSENCE OF PE IN INDIA I TS INCOME FROM SALE OF SECURITIES WAS NOT TAXABLE IN INDIA. THE AAR HAS TAKEN A SIMILAR VIEW IN THE CASE OF XYZ/ABC EQUITY FUND (2001) 250 ITR 194 (AAR). IN VIEW OF THE ABOVE, THE FUND WISHES TO OFFER IS I NCOME AS BUSINESS INCOME AND ACCORDINGLY REVISED THE ROI FOR THE ABOVE MENTIONED ASSESSMENT YEAR. THE REVISED ROI IN FORM NO.2 ALONG WITH THE COMPUTATION OF INCOME IS ATTACHED WI TH THE LETTER. 3. THE LEARNED AR RELIED ON THE FOLLOWING DECISIONS BEFORE THE CIT(A). CIT VS. CARBORANDUM UNIVERSAL LTD. 215 ITR 376 (M AD.) CIT VS. GANESH PRASAD BADRI PRASAD 231 ITR 951 (M P) CIT VS. SUBRAMANIAN CHETTIAR 110 ITR 602 (KER.) CIT VS. RAJ TRADING 217 ITR 208 (RAJ) ACIT VS. PORRITS AND SPENCERS (A) LTD. 22 SOT 231 (DEL.) CIT VS. GANESH BUILDERS 299 ITR 403 (MAD.) THE ASSESSEE ALSO RELIED ON THE DECISION OF THE IT AT, MUMBAI IN THE CASE OF M/S. VARIABLE PRODUCTS FUNDS, OVERSEAS PORT FOLIO IN ITA NO.559 & 584/MUM/2009 DT. 07.05.2009. 4. THE CIT(A) ALLOWED THE ASSESSEES CLAIM OBSERVIN G AS UNDER: I HAVE CONSIDERED THE FACTS AND GONE THROUGH THE P ENALTY ORDER PASSED BY THE ASSESSING OFFICER AND ALSO THE SUBMISSIONS MADE BY THE ASSESSEE BEFORE ME. I FIND THAT THE ASSESSEE HAS FILED ORIGINAL RETURN OF INCOME SHOWIN G INCOME UNDER THE HEAD OF CAPITAL GAIN. HOWEVER, IT WAS REVISED ON THE BASIS OF ADVANCE RULING IN THE CASE OF XYZ/ABC EQUITY FUND, (2001) (250 ITR 194) (AAR) AND FIDELITY ADVIS ORS SERIES VIII, (2004) (271 ITR 1) (AAR), WHEREIN SAME SET OF FACTS THE INCOME WAS HELD TO BE ASSESSABLE AS BUSINESS INCOME . THE ASSESSEE FILED A REVISED RETURN OF INCOME ON 31.03. 2005 SHOWING TAXABLE INCOME AT ` .NIL, AND CLAIMING REFUND OF TAXES PAID, ON THE GROUND THAT ITS INCOME WAS IN THE NATU RE OF BUSINESS INCOME AND SINCE THE ASSESSEE HAS NOT HA VING PE ITS INCOME IS NOT TAXABLE IN INDIA IN VIEW OF ARTIC LE 7 READ WITH ARTICLE 5 OF DTAA. THIS REVISED RETURN OF INCOME WAS FILED WITH COVERING LETTER DATED 25.03.2005 EXPLAINING THE REA SONS THEREOF. HOWEVER, THE ASSESSING OFFICER HAS ASSESS ED ITS A INCOME FORM CAPITAL GAINS ONLY. THERE IS NO ALLEGA TION OR OBSERVATION OF THE ASSESSING OFFICER IN THE ASSESSM ENT ORDER THAT ANY FACT MATERIAL TO THE COMPUTATION OF INCOME WAS EITHER NOT DISCLOSED OR WAS FOUND TO BE WRONG. THE ASSESS MENT HAS BEEN MADE ON THE BASIS OF FACTS DISCLOSED BY THE AS SESSEE IN THE RETURN OF INCOME AND ALSO DURING THE COURSE OF ASSESSMENT PROCEEDINGS AS AND WHEN DEMANDED BY THE ASSESSING O FFICER. ASSESSMENT HAS BEEN MADE BY THE ASSESSING OFFICER H AVING A DIFFERENT OPINION FORM THE POINT OF VIEW OF THE ASS ESSEE. THUS ITA NO.14/MUM/2010 ITA NO.15/MUM/2010 6 THERE IS NO QUESTION OF CONCEALING ANY FACTS. THE REVISED CLAIM WAS BASED ON LEGAL RULING. THUS THERE WAS NO CONCE ALMENT WHATSOEVER, NOR HAS THE ASSESSEE HAS COMMITTED AN A CT OF FURNISHING INACCURATE PARTICULARS OF HIS INCOME. THE ENTIRE FACTS AND CLAIM HAS BEEN EXPLAINED IN THE LETTER WH ILE FILING THE REVISED RETURN OF INCOME AND SAME WAS BASED ON JUDI CIAL RULING. A PERUSAL OF THE PENALTY ORDER REVEALS THA T THE ASSESSING OFFICER HAS REJECTED THE CONTENTIONS ON T HE BASIS THAT IGNORANCE OF LAW DOES NOT EXTINGUISH THE LIABILITY TO OBEY THE LAW. THE ASSESSING OFFICER OBSERVED THAT ASSESSEE HAS TRIED HIS LUCK TO BE IN TWO BOATS AT THE SAME TIME WITH G UILTY MIND, BUT AT THE SAME TIME CLAIMING HIS ASSERTION TO BE C ONTENTION ARISEN OUT OF BONAFIDE BELIEF, WHICH DOES NOT HOLD WATER. THIS VIEW OF LEARNED ASSESSING OFFICER MANIFESTS THAT TH ERE WAS BONAFIDE BELIEF ON THE PART OF ASSESSEE AND AT THE SAME TIME IT WAS BASED ON JUDICIAL RULING IN SAME TYPE OF FUND T HAT THE ITS INCOME COULD BE ASSESSED AS BUSINESS INCOME. THE A SSESSEE FILED REVISED RETURNS OF INCOME ALONG WITH A LETTER WHICH EXPLAINING THE REASONS FOR FILING THE RETURN OF INC OME. IT IS EVIDENT FROM THE RETURN FILED BY THE ASSESSEE THAT FULL DISCLOSURE OF THE CLAIM THAT ITS BUSINESS INCOME IS NOT TAXABLE IN INDIA IN VIEW OF ARTICLE 7 READ WITH ARTICLE 5 OF D TAA. THE ASSESSING OFFICER HAS, HOWEVER, TAKEN A DIFFERENT V IEW THAT THE AMOUNT IS TAXABLE. IT IS TRITE LAW THAT PENALTY PR OCEEDINGS ARE DISTINCT AND SEPARATE PROCEEDINGS FOR ASSESSMENT PR OCEEDINGS. THE FINDING RECORDED IN THE ASSESSMENT ORDER IS NOT CONCLUSIVE FOR DECIDING THE IMPOSITION OF PENALTY. IT ONLY HA S A PERSUASIVE VALUE. ANY FINDING RECORDED IN THE ASSESSMENT ORDER DOES NOT MEAN THAT THE PENALTY HAS TO BE IMPOSED AUTOMATICAL LY. EXPLANATION 1 TO SECTION 271(1)(C) PROVIDES THAT TH E PENALTY WOULD BE DEEMED TO ATTRACT WHERE IN RESPECT OF A FA CT MATERIAL TO THE COMPUTATION OF INCOME EITHER NO EXPLANATION IS OFFERED, OR EXPLANATION OFFERED IS FOUND TO BE FALSE. ASSESSEE HAS OFFERED EXPLANATION WHICH WAS NOT FOUND TO BE FALSE AND ACC ORDINGLY ITS CASE IS NOT COVERED BY CLAUSES (A) OF EXPLANATI ON 1. CLAUSE (B) OF EXPLANATION 1 PROVIDES THAT WHERE THE ASSESS EE IS NOT BALE TO SUBSTANTIATE ITS EXPLANATION AND FAILS TO P ROVE THAT SUCH EXPLANATION IS BONAFIDE AND ALL THE FACTS RELATING TO THE SAME HAVE BEEN DISCLOSED, PENALTY IS LEVIABLE. I FIND T HAT THE ASSESSEE HAD MADE DISCLOSURE FIRST IN THE ORIGINAL RETURN, LATER IN THE REVISED RETURN ENCLOSING A LETTER THEREWITH AND THEREAFTER DURING ASSESSMENT PROCEEDINGS ON THE BASIS OF JUDIC IAL RULINGS RELIED UPON. JUST BECAUSE ASSESSEE EXPLANATION WAS NOT FOUND ACCEPTABLE BY THE ASSESSING OFFICER, IT DOES NOT FO LLOW THAT THE ASSESSEE WAS UNABLE TO SUBSTANTIATE HIS EXPLANATION BY PROVIDING VARIOUS EVIDENCES AND JUDICIAL OPINIONS. I AM, THEREFORE, OF THE VIEW THAT THE ASSESSMENT HAS BEEN MADE ON THE BASIS OF DIFFERENCE F OPINION ON THE SAME SET O F FACTS WHICH HAVE BEEN FULLY DISCLOSED BY THE ASSESSEE. THE CAS E OF THE ASSESSEE IS, THEREFORE, NOT COVERED BY EXPLANATION 1. BASED ON THE FACTS OF THE CASE, I NOTE THAT THE ASSESSEE HAD MADE ALL THE NECESSARY DISCLOSURES BY WAY OF NOTES TO THE RETURN OF INCOME AND SUBMITTED REQUIRED INFORMATION, DOCUMENTS AND ITA NO.14/MUM/2010 ITA NO.15/MUM/2010 7 EXPLANATIONS TO THE ASSESSING OFFICER DURING THE AS SESSMENT PROCEEDINGS. 5. THE CIT(A) THEN ANALYZED THE FOLLOWING DECISIONS : * THE HONBLE ITAT, MUMBAI BENCH IN THE CASE OF ROB ORANT INVESTMENTS (P) LTD. (7 SOT 181) * THE HONBLE SUPREME COURT IN THE CASE OF K.C. BUILD ERS, 265 ITR 562 (SUPREME COURT) * THE HONBLE JURISDICTIONAL MUMBAI TRIBUNAL IN THE C ASE OF TELEBUILD CONSTRUCTION (P) LTD. VS. ACIT (13 SOT 218) * THE HONBLE DELHI HIGH COURT IN THE CASE OF BACARD I MARTIN INDIA LTD. (288 ITR 585) (DELHI) * IN THE CASE OF DCIT VS. MS. AISHWARYA RAI (12 SOT 114) (MUM) * THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. NATH BROS. EXIM INTERNATIONAL (288 ITR 670) (DEL) * THE HONBLE JURISDICTIONAL ITAT IN THE CASE OF VARI ABLE INSURANCE FUND OVERSEAS PORTFOLIO VS. ADIT (IT) 2(2) MUMBAI (ITA N O.559/M/2009) (ASSESSMENT YEAR 2004-05) (DTD 07.05.2009) 6. THE CIT(A) THEN CONCLUDED AS FOLLOWS: IN VIEW OF THE ABOVE, I AM OF THE VIEW THAT THE AS SESSEE HAS MADE ITS CLAIMS UNDER A BONAFIDE BELIEF AND BASED O N JUDICIAL RULING. THE CONTENTIONS OF THE ASSESSEE THAT IT DO ES NOT HAVE A PE IN INDIA AND ITS INCOME COULD BE CONSIDERED AS B USINESS INCOME AS PER ARTICLE 7 OF DTAA HENCE ITS INCOME IS NOT TAXABLE IN INDIA IS BACKED BY VARIOUS JUDICIAL PRECEDENTS. WHEN THERE ARE TWO VIEWS POSSIBLE AND THE ASSESSEE HAS TAKEN O NE VIEW BASED ON A BONAFIDE BELIEF, WHICH IS NOT AGREEABLE TO THE ASSESSING OFFICER/HIGHER APPELLATE AUTHORITIES IT W ILL NOT AUTOMATICALLY LEAD TO A CASE FOR PENALTY U/S. 271(1 )(C) OF THE I.T. ACT, 1961. CONSIDERING MY AFORESAID CONCLUSIONS A S WELL AS CASE LAWS AS DISCUSSED ABOVE AND RESPECTFULLY FOLLO WING THE DECISION OF JURISDICTIONAL TRIBUNAL IN THE CASE OF M/S. VARIABLE PRODUCT FUNDS; OVERSEAS PORTFOLIO VS. ADIT (IT) 2(2 ) (ITA NO.559/M/09)(ASSESSMENT YEAR 2004-05)(DTD.07.05.09) WHICH IS ANOTHER FIDELITY SUB ACCOUNT LIKE ASSESSEE AND W HICH IS FULLY APPLICABLE TO THE FACTS OF THE ASSESSEE, IT IS HELD THAT NO PENALTY U/S. 271(1)(C) FOR THE YEAR UNDER CONSIDERATION IS LEVIABLE IN CASE OF ASSESSEE. I AM THEREFORE SATISFIED THAT THE ASSESSING OFFICER HAS WRONGLY IMPOSED PENALTY. PENALTY IMPOS ED BY THE ASSESSING OFFICER IS DELETED. ACCORDINGLY, THE ASSE SSING OFFICER IS DIRECTED TO DELETE THE ENTIRE PENALTY OF ` .3,06,40,490/-. 7. AGGRIEVED THE REVENUE IS ON APPEAL. HEARD BOTH THE PARTIES. THE FACT IS THAT THE ASSESSEE FIRST RETURNED THE PROFIT ON S ALE OF SECURITIES OF ` .9,28,49,984/- AS CAPITAL GAINS. AFTERWARDS, ON PE RUSING THE ORDER OF THE AAR IN THE CASE OF XYZ/ABC EQUITY FUND (250 ITR 194 ) AND FIDELITY ADVISORS SERIES VIII (271 ITR 1) THE ASSESSEE FELT THAT THE PROFITS MAY CONSTITUTE BUSINESS PROFITS AND AS THE ASSESSEE DOE S NOT HAVE ANY ITA NO.14/MUM/2010 ITA NO.15/MUM/2010 8 PERMANENT ESTABLISHMENT IN INDIA, THE PROFITS WILL NOT BE TAXABLE IN INDIA. THEREFORE THEY FILED REVISED RETURN CLAIMING THE IN COME AS EXEMPT AND APPENDING A NOTE EXPLAINING THE REASON FOR THE SAME . THIS WAS NOT ACCEPTED AND THE ASSESSING OFFICER HAS LEVIED A PENALTY OF R S.30640490/- ON THE GROUND THAT THE ASSESSEE HAS MADE A FALSE CLAIM. T HE ASSESSEE HAS NOT GIVEN ANY INACCURATE PARTICULARS. THE TOTAL INCOME ARISING FROM SALE OF SECURITIES AT RS.92849984 HAS BEEN DISCLOSED. THE ASSESSEE HAS ALSO DISCLOSED THAT IN THE ORIGINAL RETURN THIS HAS BEEN RETURNED AND FOR THE REASONS EXPLAINED ALONG WITH THE REVISED RETURN THE PROFITS WERE CONSIDERED AS BUSINESS PROFITS. THE ASSESSEE BONAFIDE BELIEVE D, BASED ON THE DECISIONS OF THE AAR, CLAIMED IT AS BUSINESS INCOME WHICH THE N HAS TO BE EXCLUDED FROM THE TAXABLE INCOME IN VIEW OF THE PROVISIONS O F THE DTAA BETWEEN INDIA AND CANDADA. 8. THE APEX COURT IN THE CASE OF CIT VS RELIANCE PE TRO PRODUCTS (P) LTD. (322 ITR 158) HAS HELD THAT WHEN NO INFORMATION GIV EN IN THE RETURN IS INCORRECT OR INACCURATE, THE ASSESSEE CANNOT BE HEL D GUILTY OF FURNISHING INACCURATE PARTICULARS. MERELY BECAUSE THE ASSESSE E CLAIMED A DEDUCTION WHICH HAS NOT BEEN ACCEPTED BY THE DEPARTMENT, PENA LTY U/S.271(1)(C) IS NOT ATTRACTED. WE FIND THAT THE RATIO OF THE DECISION OF THE APEX COURT SQUARELY COVERS THE ISSUE IN THE INSTANT CASE. RESPECTFULL Y FOLLOWING THE RATIO OF THE DECISIONS OF THE APEX COURT IN THE CASE OF CIT VS. RELIANCE PETRO PRODUCTS (P) LTD., WE UPHOLD THE ORDER OF THE CIT(A) DELETING TH E PENALTY OF ` .30640490/- AND DISMISS THE REVENUES APPEAL ON THIS ISSUE. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED ON THIS 30 TH DAY OF SEPTEMBER, 2010. SD/- (R.S. SYAL) ACCOUNTANT MEMBER SD/- (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER MUMBAI, DATED 30 TH SEPTEMBER, 2010. JANHAVI ITA NO.14/MUM/2010 ITA NO.15/MUM/2010 9 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS)- , MUM BAI 4. COMMISSIONER OF INCOME TAX, CITY- , MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH F, MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI