DCIT - 5(1), MUMBAI V. M/s. ESSAR OIL LTD., MUMBAI

ITA 2441/MUM/2007

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 54919 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 4 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-08-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: L
• Next Hearing Date: 04-08-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 28-03-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MALATHI SRIDHARAN
• Keywords: Depreciation; Residential status; Double taxation relief; Proportionate interest; Permanent establishment; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH L, MUMBAI BEFORE SHRI N.V.VASUDEVAN(J.M) & SHRI J.SUDHAKAR R EDDY (A.M) ITA NO.2441/MUM/2007(A.Y. 2003-04) THE DCIT 5(1), ROOM NO.568/525, AAYKAR BHAVAN, MK ROAD, MUMBAI 20. (APPELLANT) VS. M/S. ESSAR OIL LIMITED, ESSAR HOUSE, 11, K.K.MARG, MAHALAXMI, MUMBAI 34. PAN:AAACE 0890P (RESPONDENT) APPELLANT BY : SMT. MALATHI SRIDHARAN RESPONDENT BY : SHRI NIRAJ SETH DATE OF HEARING : 04/08/2011 DATE OF PRONOUNCEMENT : 12/0 8/2011 ORDER PER N.V.VASUDEVAN, J.M, THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORD ER DATED 8/2/2007 OF CIT(A)-V, MUMBAI RELATING TO THE ASSESSMENT YEAR 2003-04. GROUND NO.1 RAISED BY THE REVENUE READS AS FOLLOWS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND AS PER LAW, THE LD.CIT(A) ERRED IN DIRECTING THE AO TO ALLOW TH E EXPENDITURE OF RS. 78,28,226/- INCURRED BY THE ASSESSEE FOR EXPLORATIO N AND PRODUCTION OF OIL AND GASES AS REVENUE EXPENDITURE. 2. THE ASSESSEE IS IN THE BUSINESS OF CONTRACT DRIL LING, OFFSHORE CONSTRUCTION, EXPLORATION OF MINERAL OIL AND GASES, TRADING IN PETROLEUM PRODUCTS. IN THE COMPUTATION OF INCOME, THE ASSESS EE HAD CLAIMED A DEDUCTION OF RS. 72,26,225/- BEING EXPENSES INCURRE D DURING THE YEAR WHICH HAVE BEEN INCLUDED IN MISCELLANEOUS EXPENSES. THE ASSESSEE SUBMITTED IT WAS IN THE BUSINESS OF: (A) OPERATION OF RIGS FOR EXTRACTION OF OIL. ITA NO.2441/MUM/2007(A.Y. 2003-04) 2 (B) UNDERTAKING OFFSHORE CONTRACTS FOR LAYING OF PIPELI NES ETC. (C) SETTING UP OF REFINERY ETC. (D) MARKETING OF PETROLEUM PRODUCTS. THE ASSESSEE SUBMITTED THAT ACTIVITIES AT (A) &(B) HAD BEEN GOING SINCE INCEPTION OF THE COMPANY AND WERE TAKEN OVER AS BUS INESS IN 1993 FROM ESSAR GUJARAT LTD. THE ASSESSEE SUBMITTED THAT AS FAR AS ACTIVITY AT ( C) IS CONCERNED, DURING THE PREVIOUS YEAR, THE ASSESSEE W AS IN THE PROCESS OF SETTING UP THE PROJECT OF REFINING, CRUDE OIL BY SE TTING UP A 10.5 MILLION TON REFINERY. THE ASSESSEE SUBMITTED THAT AS PART AND PARCEL OF ACTIVITY (A) AND (B) IT HAS BEEN BIDDING FOR VARIOUS CONTRACTS, EXPL ORATION SITES AND HAD INCURRED EXPENDITURE ON TRAVELING BIDDING FOR TENDE RS, EXPLORATION ACTIVITIES AT BLOCKS ETC. THE EXPENDITURE SO INCURRED WERE RE VENUE EXPENDITURE IN NATURE. IN BOOKS OF ACCOUNTS THESE EXPENSES HAVE BE EN SHOWN AS DEFERRED REVENUE EXPENSES. THE ASSESSEE SUBMITTED THAT SINC E THE EXPENSES WERE IN THE NATURE OF REVENUE AND DIRECTLY RELATED WITH THE ONGOING BUSINESS, ENTIRE EXPENSES INCURRED DURING THIS FINANCIAL YEAR SHOULD BE ALLOWED. THE AO HOWEVER WAS OF THE VIEW THAT THE EXPENSES INCURRED WERE ONLY IN THE NATURE OF PRELIMINARY EXPENSES WHICH CAN NOT BE RELATED TO ANY BUSINESS ACTIVITY CARRIED ON BY THE ASSESSEE DURING THE YEAR. THE AO HELD THAT THESE EXPENSES ARE TO BE CAPITALIZED IN THE BOOKS AS PREOPERATIVE EXPENDITURE ON SUCCESSFUL COMPLETION OF THE BID AND AWARD OF CONTRACT. THE A O HELD THAT IN A.YRS. 1994-95 & 1995-96, THE ASSESSEES CLAIM FOR SIMILAR DEDUCTION WAS DISALLOWED AND FOR THE REASONS GIVEN THEREIN, THE D EDUCTION CLAIMED WAS DISALLOWED. 3. ON APPEAL BY THE ASSESSEE, THE CIT(A) DELETED T HE ADDITION MADE BY THE AO FOLLOWING ORDER OF ITAT IN ASSESSEES OWN CA SE IN A.Y 1996-97 TO 1998-99 IN ITA NOS.3643 TO 3645/M/02, WHEREIN IDENT ICAL ISSUE HAD BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL. AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE HAS PREFERRED GROUND NO.1 BEFOR E THE TRIBUNAL. ITA NO.2441/MUM/2007(A.Y. 2003-04) 3 4. AT THE TIME OF HEARING IT WAS ACCEPTED BY THE PA RTIES BEFORE US THAT THE TRIBUNALS ORDER RELIED UPON BY THE CIT(A) FOR DELET ING THE ADDITION MADE BY THE AO HAS ALREADY BEEN CONFIRMED BY THE HONBLE BO MBAY HIGH COURT IN ITA NO.921 OF 2006. THE TRIBUNAL IN ITA NO.3643 TO 3645/M/02 ON IDENTICAL ISSUE HELD AS FOLLOWS: 13. THE SECOND ISSUE TO BE CONSIDERED FOR THE ASS ESSMENT YEAR 1996- 97 IS REGARDING THE EXPENDITURE OF RS. 1,60,04,350/ - INCURRED BY THE ASSESSEE COMPANY IN THE PREVIOUS YEAR FOR EXPLORATI ON AND PRODUCTION OF OIL AND GASES. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF OPERATION OF RIGS FOR EXTRACTION OF OIL, UNDERTAKIN G OFF-SHORE CONTRACTS FOR LAYING OF PIPELINES AND SETTING UP OF REFINERIE S, ETC. THE ASSESSEE COMPANY DURING THE PREVIOUS YEAR RELEVANT TO THE AS SESSMENT YEAR UNDER APPEAL HAD BEEN BIDDING FOR VARIOUS CONTRACTS AS PART OF ITS BUSINESS OF EXTRACTION OF OIL. IN THIS CONNECTION, THE ASSESSEE COMPANY HAVE BEEN INCURRING EXPENDITURE TOWARDS TRAVELING, BIDDING OF TENDERS, ETC. ETC. THE ASSESSEE COMPANY HAD INCURRED AN AMO UNT OF RS. 1,60,04,350/- ON THAT ACCOUNT DURING THE RELEVANT P REVIOUS YEAR. THE ASSESSEE COMPANY IN ITS BOOKS OF ACCOUNT HAS TREATE D THE EXPENDITURE AS DEFERRED REVENUE EXPENDITURE AND HAS WRITTEN OFF ONLY RS. 11,22,867/- AS EXPENDITURE PERTAINING TO THE RELEVA NT ASSESSMENT YEAR. BUT IN THE RETURN OF INCOME, THE ASSESSEE CL AIMED THE FULL AMOUNT AS REVENUE EXPENDITURE. THE ASSESSING OFFI CER DID NOT ALLOW THE EXPENDITURE AS CLAIMED BY THE ASSESSEE ON THE G ROUND THAT EXPENDITURE INCURRED ON BIDDING FOR EXPLORATION WAS CAPITAL IN NATURE. THE ASSESSEE OFFICER DID NOT ALLOW THE EXPENDITURE AS CLAIMED BY THE ASSESSEE ON THE GROUND THAT EXPENDITURE INCURRED ON BIDDING FOR EXPLORATION WAS CAPITAL IN NATURE. THE CIT(A) ALSO AGREED WITH THE FINDING OF THE ASSESSING OFFICER AND CONFIRMED THE DISALLOWANCE. 14. IT IS TO BE SEEN THAT THE ACTIVITIES CARRIED O N BY THE ASSESSEE WERE NOT IN THE NATURE OF AN INDEPENDENT BUSINESS, BUT I T WAS PART OF THE EXISTING BUSINESS CARRIED ON BY IT UNDER THE CONTRO L AND SUPERVISION OF THE SAME MANAGEMENT. THE ACTIVITIES WERE INTER-CON NECTED AND THERE WAS NO INTER-LACING OF FUNDS AND RESOURCES. THE AC TIVITIES WERE CARRIED OUT AS INSEPARABLE FROM THE EXISTING LINE OF BUSINE SS. THEREFORE, IN THE LIGHT OF THE DECISIONS OF THE SUPREME COURT IN THE CASE OF PRODUCE EXCHANGE CORPORATION LTD. VS. CIT 77 ITR 739 AND VE ECUMSEES VS. CIT 220 ITR 185, THESE EXPENSES NEED TO BE ALLOWED AS R EVENUE IN NATURE. THE VERY SAME PRINCIPLE HAS BEEN FOLLOWED IN THE DE CISION OF THE TATA CHEMICALS LTD. VS. DCIT BY THE BOMBAY TRIBUNAL IN 7 2 ITS 1. THEREFORE, IN THE FACTS AND CIRCUMSTANCES OF THE CA SE, WE DIRECT THE ITA NO.2441/MUM/2007(A.Y. 2003-04) 4 ASSESSING AUTHORITY TO ALLOW THE SUM OF RS. 1,60,04 ,350/- AS DEDUCTION ON COMPUTING THE TAXABLE INCOME OF THE AS SESSEE COMPANY. THE ABOVE REASONING OF THE ITAT WOULD EQUALLY APPLY TO THE IMPUGNED EXPENDITURE INCURRED DURING THE PREVIOUS YEAR FOR S ETTING UP REFINERY. WE, THEREFORE, CONFIRM THE ORDER OF THE CIT(A) AND DISM ISS GROUND NO.1 5. GROUND NO.2 RAISED BY THE REVENUE READS AS UNDER : ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND AS PER LAW, THE LD. CIT(A) ERRED IN DIRECTING THE AO NOT TO TAX THE PRINCIPAL AMOUNT OF LEASE RENTAL OF RS. 1,11,58,514/- OF THE ASSET LEAS ED OUT TO M/S. ESSAR STEEL LTD. 6. IN ASSESSMENT YEAR 1995-96, THE ASSESSEE ENTERED INTO TRANSACTION OF LEASE OF ASSETS WITH M/S. ESSAR STEEL LTD. THE ASS ESSEE CLAIMED DEPRECIATION ON THE ASSETS SO LEASED. THE REVENUE TOOK A STAND THAT THE LEASE WAS A FINANCE LEASE AND DISALLOWED THE CLAIM FOR DEPRECIA TION. THE ASSESSEE IN THIS ASSESSMENT YEAR CLAIMED THAT THE LEASE RENTALS SHOU LD NOT BE CONSIDERED AS INCOME BECAUSE OF THE REVENUES STAND THAT THE LEAS E WAS A FINANCE LEASE AND ONLY INTEREST ELEMENT ON THE LOAN ADVANCED COMPRISE D IN THE LEASE RENTALS SHOULD BE CONSIDERED AS INCOME AND REPAYMENT OF PRI NCIPAL CANNOT BE TREATED AS INCOME. THE STAND OF THE ASSESSEE WAS N OT ACCEPTED BY THE AO BECAUSE THE CLAIM OF THE ASSESSEE FOR DEPRECIATION HAD ALREADY BEEN ALLOWED IN A.Y 1995-96 BY THE APPELLATE AUTHORITIES. THE C IT(A) DIRECTED THE AO TO ALLOW THE CLAIM OF THE ASSESSEE. THE REVENUE HAS R AISED GROUND NO.2 AGAINST THE DIRECTION OF CIT(A). 7. AT THE TIME OF HEARING THE LD. COUNSEL FOR THE A SSESSEE FAIRLY SUBMITTED THAT IN VIEW OF THE ORDER OF ITAT IN A.Y 1995-96 IN ITA NO.2827/M/00 DATED 26/4/ 2007 ALLOWING DEPRECIATION, THE DIRECTION OF THE CIT(A) CANNOT BE SUSTAINED. HE HOWEVER, SUBMITTED THAT IN THE EVENT OF DEPRECATION BEING DISALLOWED BY APPELLATE FORUM, THE ASSESSEE SHOULD BE AT LIBERTY TO REVIVE ITS CLAIM FOR EXCLUDING REPAYMENT OF PRINCIPAL FROM ITS TAXABLE INCOME. WE ITA NO.2441/MUM/2007(A.Y. 2003-04) 5 ACCEPT THE PLEASE OF THE LD. COUNSEL FOR THE ASSESS EE AND ALLOW GROUND NO.2 SUBJECT TO THE RIDER THAT IN THE EVENT OF DEPRECIA TION CLAIM OF ASSESSEE BEING DISALLOWED, TO THE EXTENT OF REPAYMENT OF PRINCIPAL AMOUNT UNDER THE AGREEMENT FOR LEASE OF ASSETS, THE SAME SHOULD NOT BE TREATED AS INCOME. 8. GROUND NO.3 RAISED BY THE REVENUE READS AS FOLLO WS: 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND AS PER LAW, THE LD. CIT(A) ERRED IN DIRECTING THE AO TO EXCLUDE THE PROFITS FROM OMAN BRANCH AND QATAR BRANCH FOR TAX PURPOSES IN IN DIA, HOLDING THAT AS THE ASSESSEE HAS BEEN CARRYING ON BUSINESS THROUGH A PERMANENT ESTABLISHMENT IN OMAN AND QATAR AND AS TH E INCOME FROM THE AFORESAID BRANCH IN OMAN AND QATAR ARE DERIVED THEREFROM, IT WAS ONLY THE OMAN AND QATAR GOVERNMENT WHICH WAS ENTITL ED TO LEVY THE TAX AS PER ARTICLE 7 OF DTAA IGNORING THE FACT THAT AS THE ASSESSEE IS A RESIDENT OF INDIA, IT HAS TO BE TAXED ON ITS ENTIRE INCOME IN INDIA AS PER SECTION 5(1) OF THE I.T. ACT 1961, WHICH INCLUDES A LL THE INCOME: I) RECEIVED OR DEEMED TO BE RECEIVED. II) ACCRUES OR ARISES OR DEEMED TO ACCRUE AND ARISE III) ACCRUES OR ARISES OUTSIDE INDIA. 9. THE ASSESSEE HAD UNDERTAKEN PROJECTS IN SULTANA TE OF OMAN & STATE OF QATAR. THE PROFITS FROM THE OMAN & QATAR PROJEC T AMOUNTING TO RS.39,88,03,909/- AND LOSS OF RS. (36,53,785/-) RES PECTIVELY HAD NOT BEEN INCLUDED IN THE TOTAL INCOME BY THE ASSESSEE. THE AO CALLED UPON THE ASSESSEE TO EXPLAIN WHY THE INCOME ARISING OUT OF O MAN & QATAR PROJECTS SHOULD NOT BE INCLUDED IN THE TOTAL INCOME OF THE C OMPANY. ACCORDING TO THE AO, THE ASSESSEE IS A RESIDENT OF INDIA AND THEREFO RE IT HAS TO BE TAXED ON ITS ENTIRE INCOME IN INDIA AS PER SECTION 5(1) OF THE I .T. ACT 1961, WHICH INCLUDES ALL THE INCOME: I) RECEIVED OR DEEMED TO BE RECEIVED. II) ACCRUES OR ARISES OR DEEMED TO ACCRUE AND ARISE III) ACCRUES OR ARISES OUTSIDE INDIA. 10. IN REPLY TO THE QUERY OF THE AO, THE ASSESSEE SUBMITTED THAT IT HAD ESTABLISHED A BRANCH IN BOTH IN THE SULTANATE OF OM AN AS WELL AS THE STATE OF ITA NO.2441/MUM/2007(A.Y. 2003-04) 6 QATAR. THE ASSESSEE SUBMITTED THAT IT HAD ENTERED INTO CONTRACTS WITH THE GOVERNMENT AGENCIES OF THE TWO COUNTRIES TO UNDERT AKE DRILLING OF OIL WELLS. FOR EXECUTING THE SAID CONTRACTS, THE COMPANY HAS F ULL-FLEDGED OFFICE AND PROJECT SET UP IN OMAN & QATAR. THE OPERATIONS WER E LOOKED AFTER BY A CEO DESIGNATE ASSISTED BY TECHNICAL, ADMINISTRATIVE AND FINANCE TEAM. THE RELEVANT ACCOUNTING RECORDS WERE KEPT IN RESPECTIVE COUNTRIES ONLY, EVEN THOUGH THE RESULT OF ALL ACTIVITIES ARE CONSOLIDATE D IN INDIA. THE ASSESSEE ALSO POINTED OUT THAT IT HAD OBTAINED, AS PER LOCAL REQUIREMENTS IN THE TWO COUNTRIES, A LICENSE FOR OPERATING A BRANCH IN THE RESPECTIVE COUNTRIES. 11. THE ASSESSEE POINTED OUT THAT BOTH OMAN & QATA R HAVE INCOME TAX LAWS. IN ACCORDANCE WITH THE SAID LAW, THE INCOME EARNED BY THE ASSESSEE, IN THOSE COUNTRIES ARE TAXABLE IN THE SAID COUNTRIE S. IT WAS SUBMITTED THAT AS REQUIRED UNDER THE LOCAL INCOME TAX LAW IN OMAN& QATAR, THE ASSESSEE HAS BEEN FILING TAX RETURNS IN RESPECTIVE COUNTRIES AND ARE BEING ASSESSED ON THE PROFITS OF THE OMAN & QATAR BRANCH AS PER THE L OCAL LAWS AND TAX ASSESSMENTS IN OMAN AND QATAR WERE COMPLETED IN ACC ORDANCE WITH LOCAL LAW. 12. THE ASSESSEE FURTHER SUBMITTED THAT THE GOVERN MENT OF SULTANATE OF OMAN AS WELL AS THE GOVERNMENT OF THE STATE OF QATA R HAVE ENTERED INTO AGREEMENTS FOR AVOIDANCE OF DOUBLE TAXATION (HEREIN AFTER REFERRED TO AS DTAA). THE AGREEMENT BETWEEN THE REPUBLIC OF INDIA AND THE GOVERNMENT OF SULTANATE OF OMAN WAS NOTIFIED BY SO 563(E), DATED 23/09/97, AND CAME INTO EFFECT FROM APRIL 01, 1998. THE ASSESSEE POIN TED OUT THAT PRIOR TO THE SAID NOTIFICATION; THE ASSESSEE WAS INCLUDING THE O PERATIONAL RESULTS FROM THE ABOVE COUNTRY FOR ITS TAX PURPOSES IN INDIA. AFTER NOTIFICATION OF APPLICABILITY OF DTAA, THE ASSESSEE HAS EXCLUDED THE INCOME EARNE D AT OMAN FOR TAX IN INDIA DUE TO THE APPLICATION OF THE ARTICLE 7 OF AB OVE SAID AGREEMENT. ITA NO.2441/MUM/2007(A.Y. 2003-04) 7 13. SIMILARLY THE GOVERNMENT OF INDIA AND GOVERNME NT OF QATAR HAVE ENTERED INTO A DOUBLE TAXATION AVOIDANCE AGREEMENT FOR AVOIDANCE OF DOUBLE TAXATION AND PREVENTION OF FISCAL EVASION. THIS AG REEMENT WAS NOTIFIED BY GSR 96(E), DATED 08 TH FEBRUARY, 2000 AND CAME INTO EFFECT FROM JANUARY,15 TH 2000. PRIOR TO NOTIFICATION, THE COMPANY WAS INCL UDING THE OPERATIONAL RESULTS FOR ITS TAX PURPOSES IN INDIA. AFTER NOTIFICATION OF APPLICABILITY OF DTAA, THE APPELLANT COMPANY HAS EX CLUDED THE INCOME EARNED AT QATAR FOR TAX IN INDIA DUE TO THE APPLICA TION OF THE ARTICLE 7 OF THE ABOVE SAID AGREEMENT. 14. THE ASSESSEE SUBMITTED THAT AS FAR AS TAX RETU RNS IN INDIA WERE CONCERNED, THE PROFITS OF THE OMAN BRANCH AND THE L OSS FROM QATAR BRANCH WERE SEPARATELY CALCULATED AND THE PROFITS/LOSS SO CALCULATED WERE EXCLUDED WHILE CALCULATING THE INDIAN TAX LIABILITY ON THE B ASIS OF ARTICLE 7 OF INDIA- OMAN DTAA AND INDIA-QATAR TREATY RESPECTIVELY. INDIA - OMAN DTAA ARTICLE 7 THE PROFITS OF AN ENTERPRISE OF CONTRACTING STATE S SHALL BE TAXABLE ONLY IN THAT CONTRACTING STATE UNLESS THE ENTERPRIS E CARRIES ON BUSINESS IN OTHER CONTRACTING STATE THROUGH A PERMA NENT ESTABLISHMENT SITUATED THEREIN. IF THE ENTERPRISE CARRIES ON BUSINESS AS AFORESAID, THE PROFIT OF THE ENTERPRISE MAY BE TAXED IN THAT OTHER CONTRACTING STATE BUT ONLY SO MUCH SO THAT INCOME O R PROFIT AS IS ATTRIBUTABLE DIRECTLY OR INDIRECTLY TO THAT PERMANE NT ESTABLISHMENT. INDIA - QATAR DTTA ARTICLE 7 THE PROFITS OF AN ENTERPRISE OF CONTRACTING STATES SHALL BE TAXABLE ONLY IN THAT CONTRACTING STATE UNLESS THE ENTERPRISE CAR RIES ON BUSINESS IN OTHER CONTRACTING STATE THROUGH A PERMANENT ESTABLI SHMENT SITUATED THEREIN. IF THE ENTERPRISE CARRIES ON BUSINESS AS AFORESAID, THE PROFIT OF THE ENTERPRISE MAY ALSO BE TAXED IN THAT OTHER CONTRACTING STATE BUT ONLY SO MUCH OF THEM AS IS ATTRIBUTABLE TO THAT PER MANENT ESTABLISHMENT. 15. IT WAS THE PLEA OF THE ASSESSEE THAT UNDER SEC TION 5 OF THE INCOME TAX ACT, 1961 (THE ACT) THE WORLD INCOME OF A RESIDENT ENTITY IS LIABLE TO TAX IN INDIA. HOWEVER, AS PER SECTION 90(2) OF THE ACT, I N CASE WHERE INDIA HAS ITA NO.2441/MUM/2007(A.Y. 2003-04) 8 ENTERED INTO A DOUBLE TAX AVOIDANCE AGREEMENT (DTAA ) WITH ANY COUNTRY, THEN THE PROVISIONS OF THE TREATY WOULD OVER-RIDE T HE PROVISIONS OF THE ACT INSOFAR AS THE TREATY PROVISIONS ARE MORE BENEFICIA L TO THE ASSESSEE. THE ASSESSEE SUBMITTED THAT SINCE IT HAD A PERMANENT ES TABLISHMENT IN BOTH THE COUNTRIES AND SINCE AS PER THE DTAA, THE INCOME EAR NED THROUGH SUCH PERMANENT ESTABLISHMENT HAS TO BE TAXED ONLY IN THE OTHER COUNTRY. THE EMPHASIS BY THE ASSESSEE WAS ON THE EXPRESSION MAY BE TAXED AND ACCORDING TO THE ASSESSEE IT IS ONLY THE COUNTRY WH ERE THE PERMANENT ESTABLISHMENT IS SITUATE THAT HAS THE RIGHT TO TAX AND NOT THE COUNTRY IN WHICH THE ASSESSEE IS RESIDENT. THE ASSESSEE SUBMI TTED THAT SINCE THE INCOME IN QUESTION HAS ALREADY BEEN TAXED IN THE OT HER COUNTRY, THE SAME CANNOT BE TAXED IN INDIA AND THEREFORE THE ASSESSEE HAS EXCLUDED THE SAID INCOME IN ITS COMPUTATION OF INCOME. 16. THE AO HOWEVER HELD THAT THE SCOPE OF THE RELEV ANT ARTICLE OF THE DTAA HAS BEEN MISINTERPRETED BY THE ASSESSEE. HE HELD TH AT THE DTAA WITH FOREIGN COUNTRIES ARE MADE DERIVING POWER FROM SECTION 90(1 ) OF THE INCOME TAX ACT. WHILE INTERPRETING THE DTAA ALL THE ARTICLES AND CL AUSES MUST BE READ TOGETHER AND A PARTICULAR ARTICLE, CLAUSE OR SENTEN CE SHOULD NOT BE READ AND INTERPRETED IN ISOLATION. ARTICLE 7 OF THE DTAA WI TH OMAN AND QATAR ENABLES THOSE COUNTRIES TO BRING TO TAX THE PROFIT ATTRIBUT ABLE TO THE PERMANENT ESTABLISHMENT OF THE ASSESSEE IN OMAN AND QATAR. H OWEVER, THE ASSESSEE IS A RESIDENT OF INDIA AND HAS TO BE TAXED ON ITS ENTI RE GLOBAL INCOME IN INDIA. IN THIS REGARD, THE AO REFERRED TO THE PROVISIONS O F SECTION 5(1) OF THE INCOME TAX ACT, 1961 WHICH DEFINES THE SCOPE OF TOTAL INCO ME OF A RESIDENT, WHICH INCLUDES ALL INCOMES (A) RECEIVED OR DEEMED TO BE R ECEIVED, (B) ACCRUES OR ARISES OR DEEMED TO ACCRUE OR ARISE AND (C) ACCRUES OR ARISE TO HIM OUTSIDE INDIA. THE FACT THAT THE SAME INCOME SUFFERS TAX I N OMAN AND QATAR RESPECTIVELY WILL NOT BE A BAR FOR INDIA TO BRING T O TAX THE ENTIRE GLOBAL INCOME OF THE RESIDENT. THE AUTHORITY OF OMAN AND QATAR T O TAX INCOME EARNED BY ITA NO.2441/MUM/2007(A.Y. 2003-04) 9 THE ASSESSEE IN THEIR COUNTRY IS BECAUSE OF THE FAC T THAT THE SOURCE OF INCOME EARNED BY THE ASSESSEE IS FROM THOSE COUNTRIES. TH E RIGHT OF THE INDIAN GOVERNMENT TO TAX THE ASSESSEE ON THE VERY SAME INC OME IS BECAUSE THE ASSESSEE AS A RESIDENT OF THE COUNTRY HAS THE BENEF IT OF THE GOVERNMENTS PUBLIC GOODS AND SERVICES TO FACILITATE THE ECONOMI C ACTIVITY THAT PRODUCES INCOME IN INDIA AS WELL ABROAD. IT IS ONLY IN RECO GNITION OF THE RIGHT OF BOTH COUNTRIES TO TAX THE SAME INCOME DOUBLE TAXATION AV OIDANCE AGREEMENTS ARE ENTERED INTO BETWEEN COUNTRIES. IF SUCH RELIEF FRO M DOUBLE TAXATION IS NOT GIVEN INTERNATIONAL BUSINESS ARRANGEMENTS WOULD NEV ER COME INTO BEING. THE AO FURTHER HELD THAT THERE CAN BE NO DOUBT TH AT THE INCOME EARNED ON THE PROJECT AT OMAN AND QATAR HAS TO BE INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE TO DETERMINE THE LIABILITY FOR TAX PURPOSE S IN INDIA. THEREUPON, DEPENDING ON THE TAXATION LAWS OF THAT COUNTRY AND THE TERMS AND CONDITIONS STIPULATED IN DOUBLE TAXATION AGREEMENT, A RELIEF F OR THE TAX PAID IN THE OTHER COUNTRY BY MEANS OF TAX CREDIT IS GIVEN. THE AO TH EREAFTER REFERRED TO ARTICLE-25 OF THE DTAA BETWEEN INDIA AND OMAN WHICH PROVIDES AS FOLLOWS: ARTICLE 25: AVOIDANCE OF DOUBLE TAXATION: 1. THE LAW IN FORCE IN EITHER OF THE CONTRACTING STATE S WILL CONTINUE TO GOVERN THE TAXATION OF INCOME IN THE RESPECTIVE CON TRACTING STATES EXCEPT WHERE PROVISIONS TO THE CONTRARY ARE MADE IN THIS AGREEMENT. 2. WHERE A RESIDENT OF INDIA DERIVES INCOME WHICH IN A CCORDANCE WITH THE PROVISIONS OF THIS AGREEMENT, MAY BE TAXED IN SULTA NATE OF OMAN, INDIA SHALL ALLOW AS A DEDUCTION FROM TAX ON THE IN COME OF THAT RESIDENT AN AMOUNT EQUAL TO THE INCOME-TAX PAID IN THE SULTANATE OF OMAN, WHETHER DIRECTLY OR BY DEDUCTION. SUCH DEDUC TION SHALL NOT, HOWEVER, EXCEED THAT PART OF THE INCOME-TAX(AS COMP UTED BEFORE THE DEDUCTION IS GIVEN) WHICH IS ATTRIBUTABLE TO INCOME WHICH MAY BE TAXED IN THE SULTANATE OF OMAN. 3. WHERE A RESIDENT OF THE SULTANATE OF OMAN DERIVES I NCOME WHICH, IN ACCORDANCE WITH THE PROVISIONS OF THIS AGREEMENT, M AY BE TAXED IN INDIA, THE SULTANATE OF OMAN SHALL ALLOW AS A DEDUC TION FROM THE TAX ON THE INCOME OF THE RESIDENT AN AMOUNT EQUAL TO TH E INCOME TAX PAID IN INDIA, WHETHER DIRECTLY OR BY DEDUCTION. SUCH D EDUCTION SHALL NOT, HOWEVER, EXCEED THAT PART OF THE INCOME-TAXS( AS CO MPUTED BEFORE THE DEDUCTION IS GIVEN) WHICH IS ATTRIBUTABLE TO THE IN COME WHICH MAY BE TAXED IN INDIA. ITA NO.2441/MUM/2007(A.Y. 2003-04) 10 4. THE TAX PAYABLE IN A CONTRACTING STATE MENTIONED IN PARAGRAPH 2 AND PARAGRAPH 3 OF THE ARTICLE SHALL BE DEEMED TO INCLU DE THE TAX WHICH WOULD HAVE BEEN PAYABLE BUT FOR THE TAX INCENTIVES GRANTED UNDER THE LAWS OF THE CONTRACTING STATES AND WHICH ARE DESIGN ATED TO PROMOTE ECONOMIC DEVELOPMENT. 5. INCOME WHICH, IN ACCORDANCE WITH THE PROVISIONS OF THIS AGREEMENT, IS NOT TO BE SUBJECTED TO TAX IN A CONTRACTING STATE, MAY BE TAKEN INTO ACCOUNT FOR CALCULATING THE RATE OF TAX TO BE IMPOS ED IN THAT CONTRACTING STATE. 17. ACCORDING TO THE AO UNDER ARTICLE 25(2) OF THE DTAA BETWEEN INDIA AND OMAN, WHEN INCOME IS SUBJECT TO TAX, IN BOTH CONTRA CTING STATES, RELIEF FROM DOUBLE TAXATION SHALL BE GIVEN BY GIVING CREDIT FOR TAXES PAID IN OMAN SHALL BE ALLOWED AS A CREDIT. ACCORDING TO THE AO, ARTI CLE 7 OF INDIA-OMAN DTAA SHOULD NOT BE READ IN ISOLATION AND MUST BE READ AL ONG WITH ARTICLE 25 THEREOF. ACCORDING TO THE AO, THE VERY PURPOSE OF THE DTAA IS NOT TO GIVE TAX EXEMPTION BUT TO ALLOW RELIEF FROM TAXING THE SAME INCOME TWICE BY ALLOWING CREDIT TO THE ASSESSEE FOR TAXES PAID IN SULTANATE OF OMAN SO THAT THE ASSESSEE IS NOT MADE TO PAY MORE TAX THAN WHAT HE I S REQUIRED TO PAY IN INDIA AT THE PREVAILING RATES. IN THE LIGHT OF THE ABOVE DISCUSSION, THE AO HELD THAT INCOME FROM OMAN AND QATAR ARE HELD TO BE ASSEABLE IN INDIA AND OMAN INCOME OF RS. 39,88,03,909/- WAS ACCORDINGLY A DDED TO THE TOTAL INCOME AND QATAR LOSS OF RS. 36,53,785/- WAS REDUCE D FROM THE TOTAL INCOME. IN LINE WITH HIS REASONING THE AO GAVE TAX CREDIT FOR RS. 4,38,10,563/- BEING TAX PAID BY ASSESSEE IN OMAN. 18. ON APPEAL BY THE ASSESSEE, THE CIT(A) DIRECTED THE AO TO ACCEPT THE CLAIM OF THE ASSESSEE BY FOLLOWING THE ORDER OF CIT (A) ON IDENTICAL ISSUE IN ASSESSEES CASE FOR A.Y 1999-00 TO 20032.-03 WHEREI N IT WAS HELD THAT INCOME TAXED IN OMAN & QATAR CANNOT BE AGAIN BROUGH T TO TAX IN INDIA. 19. AGGRIEVED BY THE ORDER OF THE CIT(A) THE REVENU E HAS RAISED GROUND NO.3 BEFORE THE TRIBUNAL. ITA NO.2441/MUM/2007(A.Y. 2003-04) 11 20. THE LD. D.R SUBMITTED THAT IN ASSESSEES OWN CA SE IN A.Y 1999-00 AND 2000-01, THE TRIBUNAL CONSIDERED THE PLEA OF THE AS SESSEE FOR EXCLUDING INCOME EARNED IN OMAN AND UPHELD THE CIT(A)S ORDER HOLDING THAT THE SAME IS NOT TAXABLE IN INDIA. THE HONBLE BOMBAY HIGH C OURT ALSO UPHELD THE ORDER OF THE TRIBUNAL FOR A.Y 1999-00, 2000-01 AND 2001-02 AND THEREFORE THE REVENUE HAS NO CASE REGARDING INCOME FROM OMAN. IT WAS HOWEVER SUBMITTED BY HER THAT AS FAR AS INCOME FROM QATAR I S CONCERNED, THE SAME WAS NEVER SUBJECT MATTER OF PROCEEDINGS IN A.Y 1999 -00, 2000-01 AND 2001- 02. THE COMPUTATION OF TOTAL INCOME FOR THESE YEAR S WAS FILED BEFORE US TO DEMONSTRATE THAT INCOME FROM QATAR WAS NEVER SUBJEC T MATTER OF PROCEEDINGS FOR THE ABOVE ASSESSMENT YEARS. THERE IS NO DISPUTE ON THIS ASPECT. 21. IN A.Y 2002-03 HOWEVER, THE ASSESSEE HAD INCOME FROM QATAR WHICH WAS BROUGHT TO TAX BY THE AO. THE HONBLE ITAT HOW EVER, FOLLOWING THE DECISION IN A.Y 1999-2000 TO 2001-02 HELD THAT INCO ME FROM QATAR SHOULD ALSO BE EXCLUDED FROM THE TOTAL INCOME. THE FOLLOW ING WERE THE RELEVANT OBSERVATION OF THE TRIBUNAL IN ITA NO.5198/M/05 FOR A.Y 2002-03. 11. GROUND NO. 1 RAISED BY THE REVENUE IN ITS APPE AL READS AS FOLLOWS:- ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, LEARNED CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO EXCLUDE THE PROFITS FROM OMAN BRANCH AND QATAR BRANCH FOR TAX P URPOSES IN INDIA, HOLDING THAT AS THE ASSESSEE HAS BEEN CARRYI NG ON BUSINESS THROUGH A PERMANENT ESTABLISHMENT IN OMAN AND QATAR AND AS THE INCOME FROM THE AFORESAID BRANCH I N OMAN AND QATAR WERE DERIVED THERE FROM, IT WAS ONLY THE OMAN AND QATAR GOVERNMENT WHICH WAS ENTITLED TO LEVY THE TAX AS PER ARTICLE 7 OF DTAA, IGNORING THE FAT THAT AS THE ASS ESSEE IS A RESIDENT OF INDIA, IT HAS TO BE TAXED ON ITS ENTIRE INCOME IN INDIA AS PER SECTION 5(1) OF THE I.T. ACT, 1961 WHICH INC LUDES ALL INCOMES :- ITA NO.2441/MUM/2007(A.Y. 2003-04) 12 I) RECEIVED OR DEEMED TO BE RECEIVED II) ACCRUES OR ARISES OR DEEMED TO ACCRUE AND ARISE III) ACCRUES OR ARISES OUTSIDE INDIA. 12. THE ASSESSEE COMPANY HAD UNDERTAKEN PROJECT IN OMAN AND QATAR. THE PROFITS FROM THE OMAN AND QATAR PROJECTS AMOUNTING TO RS. 32,99,08,359/- HAD NOT BEEN INCLUDED IN THE TOTAL I NCOME OF THE COMPANY. THE ASSESSING OFFICER CALLED UPON THE ASSE SSEE TO EXPLAIN WHY THE INCOME ARISING OUT OF OMAN AND QATAR PROJEC T SHOULD NOT BE INCLUDED IN THE TOTAL INCOME OF THE COMPANY. VIDE L ETTER DATED 31.01.2005, THE ASSESSEE SUBMITTED IT HAS ESTABLISH ED A BRANCH IN BOTH OMAN AND QATAR, WHICH HAS ENTERED INTO CONTRAC TS WITH THE GOVERNMENT AGENCIES TO UNDERTAKE DRILLING OF OIL WE LLS. FOR EXECUTING THE SAID CONTRACTS, THE COMPANY HAS FULL-FLEDGED OF FICE AND PROJECT SET UP IN OMAN AND QATAR. THE OPERATIONS ARE LOOKED AFT ER BY A CEO DESIGNATED ASSISTED BY TECHNICAL, ADMINISTRATIVE AN D FINANCE TEAM. THE RELEVANT ACCOUNTING RECORDS ARE KEPT IN RESPECTIVE COUNTRIES ONLY, EVEN THOUGH THE RESULT OF ALL ACTIVITIES ARE CONSOLIDATE D IN INDIA. THE COMPANY HAS ALSO OBTAINED, AS PER LOCAL REQUIREMENT , A LICENSE FOR OPERATING A BRANCH IN RESPECTIVE COUNTRIES. BOTH OMAN AND QATAR HAVE INCOME TAX LAWS. AS A RESULT, THE INCOME EARNE D BY THE ASSESSEE IN THESE COUNTRIES ARE TAXABLE IN THE SAID COUNTRIE S. AS REQUIRED UNDER THE LOCAL INCOME TAX LAW IN OMAN & QATAR, THE ASSES SEE HAS BEEN FILING TAX RETURNS IN RESPECTIVE COUNTRIES AND ARE BEING A SSESSED ON THE PROFITS OF THE OMAN AND QATAR BRANCH AS PER THE LOC AL LAWS. THE TAX ASSESSMENTS IN OMAN AND QATAR ARE COMPLETED IN ACCO RDANCE WITH LOCAL PROCEDURES. THE GOVERNMENT OF OMAN AND QATAR AND GOVERNMENT OF INDIA HAVE ENTERED INTO A DOUBLE TAXA TION AVOIDANCE AGREEMENT FOR AVOIDANCE OF DOUBLE TAXATION AND PREV ENTION OF FISCAL EVASION. THE AGREEMENT WITH OMAN WAS NOTIFIED BY SO 563(E) DATED 23.9.97 AND CAME INTO EFFECT FROM APRIL 01, 1998. A GREEMENT WITH QATAR CAME INTO EFFECT FROM 1.4.2001. PRIOR TO NOTI FICATION, THE ASSESSEE WAS INCLUDING THE OPERATIONAL RESULTS FROM BOTH THE ABOVE COUNTRIES FOR ITS TAX PURPOSE IN INDIA. AFTER NOTIF ICATION OF APPLICABILITY OF DTAA, THE ASSESSEE HAS EXCLUDED THE INCOME EARNE D AT OMAN FOR TAX IN INDIA DUE TO THE APPLICATION OF THE ARTICLE- 7 OF ABOVE SAID AGREEMENT. ARTICLE 7 OF DTAA WITH OMAN AND QATAR IS AS FOLLOWS :- THE PROFITS OF AN ENTERPRISE OF A CONTRACTING STATE S SHALL BE TAXABLE ONLY IN THAT CONTRACTING STATE, UNLESS THE ENTERPRI SE CARRIES ON BUSINESS IN OTHER CONTRACTING STATE THROUGH A PERMA NENT ESTABLISHMENT SITUATED THEREIN. IF THE ENTERPRISE C ARRIES ON BUSINESS AS AFORESAID, THE PROFIT OF THE ENTERPRISE MAY BE TAXE D IN THAT OTHER ITA NO.2441/MUM/2007(A.Y. 2003-04) 13 CONTRACTING STATE BUT ONLY SO MUCH THAT INCOME OR P ROFIT AS IS ATTRIBUTABLE DIRECTLY OR INDIRECTLY TO THAT PERMANE NT ESTABLISHMENT. UNDER SECTION 5 OF THE ACT, THE WORLD INCOME OF A R ESIDENT ENTIRELY IS LIABLE TO TAX IN INDIA. HOWEVER, AS PER SECTION 90( 2) OF THE ACT, IN CASE WHERE INDIA HAS ENTERED INTO A DOUBLE TAX AVOIDANCE AGREEMENT (DTAA) WITH ANY COUNTRY, THEN, THE PROVISIONS OF TH E TREATY WOULD OVER RIDE THE PROVISIONS OF THE ACT INSOFAR AS THE TREAT Y PROVISIONS, ARE MORE BENEFICIAL TO THE ASSESSEE. BASED ON THE ABOVE FACT S AND PROVISIONS, THE ASSESSEE HAD EXCLUDED THE SAID INCOME FOR EARNE D IN OMAN AND QATAR THROUGH ITS PERMANENT ESTABLISHMENT SITUATED THERE. 13. THE A.O. AND CIT(A) DID NOT ACCEPT THE CLAIM OF THE ASSESSEE AND THEY HELD THAT THE INCOME FROM PROJECTS EXECUTED IN OMAN AND QATAR IS LIABLE TO TAXATION IN INDIA. 14. AT THE TIME OF HEARING, IT WAS BROUGHT TO OUR N OTICE THAT IN A.Y. 1999-2000 AND 2000-01, IN ITA NOS. 5142 & 5143/MUM/ 03, THIS ISSUE WAS CONSIDERED BY THE TRIBUNAL AND THE TRIBUN AL ON ANALYSIS THE DTAA HELD AS FOLLOWS :- WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND HAVE ALSO GONE THROUGH THE MATERIALS PLACED ON RECORD. T HERE IS ON DISPUTE THAT THE ASSESSEE IS HAVING A PERMANENT EST ABLISHMENT IN OMAN AND IS CLEARLY LIABLE TO TAX UNDER THE PROV ISIONS OF INCOME TAX LAW IN OMAN. IN ALL THE CASES EXTRACTED ABOVE, THE PROFITS OF INDIAN TAX RESIDENT FROM A FOREIGN PERMA NENT ESTABLISHMENT CANNOT BE INCLUDED IN COMPUTING TAXAB LE INCOME OF THE INDIAN TAX RESIDENTS AND MOREOVER, UNDER THE PROVISIONS OF ARTICLE-7 OF THE DTAA; IT IS ONLY THE OMAN GOVER NMENT WHICH IS ENTITLED TO LEVY TAX ON THE PROFITS OF ASSESSEE' S OMAN BUSINESS, PARTICULARLY WHEN IT IS ESTABLISHED THAT THE ENTIRE INCOME IS ATTRIBUTABLE TO THE AFORESAID PERMANENT ESTABLISHME NT AND, THEREFORE, IT WOULD OUTSIDE THE TAXABLE AMBIT IN IN DIA. IT IS NOW THE ACCEPTED POSITION THAT THE PROVISIONS OF DTAA O VERRIDE THE PROVISIONS OF THE INCOME TAX ACT. IN THE LIGHT OF T HE RATIO OF THE DECISION LAID DOWN BY HON'BLE SUPREME COURT IN CIT VS. PVAL KULANDAGAN CHETTIAR, 267 ITR 654, THE INCOME EARNED BY THE ASSESSEE FROM ITS OMAN BRANCH CANNOT BE ADDED AS IN COME FOR COMPUTING THE TAXABLE INCOME IN INDIA. WE DO NOT FI ND ANY INFIRMITY IN THE ORDER OF LEARNED CIT(A). ACCORDING LY, WE DECLINE TO INTERFERE. 15. IN VIEW OF THE ABOVE DECISION OF THE TRIBUNAL, WE CONFIRM THE ORDER OF CIT(A) HOLDING THAT THE INCOME FROM BUSINE SS CARRIED ON AT ITA NO.2441/MUM/2007(A.Y. 2003-04) 14 OMAN AND QATAR CANNOT BE SUBJECTED TO TAX IN INDIA. GROUND NO. 1 OF THE REVENUE IS DISMISSED. 19. THE LD. D.R CONTENDED THAT THE TRIBUNAL WHILE D ECIDING THE APPEAL FOR A.Y 2002-03 FAILED TO TAKE NOTE OF THE DIFFERENCE I N THE LANGUAGE OF ARTICLE -7 OF THE DTAA BETWEEN OMAN TO INDIA WHEN COMPARED TO ARTICLES 7 OF THE DTAA BETWEEN INDIA AND QATAR. IN THIS REGARD IT WA S SUBMITTED THAT A REFERENCE TO ARTICLE-7 OF THE DTAA WITH QATAR INDIC ATES THAT PARA 1 OF THE SAID ARTICLE ASSIGNS THE RIGHT TO TAX BUSINESS PROF ITS TO BOTH THE CONTRACTING STATES. THE BASIC POINT OF DIFFERENCE IN PARA -1 O F ARTICLE-7 OF THE QATAR TREATY IS THE USE OF THE WORDS MAY ALSO BE TAXED AS COMPARED TO THE WORDS MAY BE TAXED USED IN OMAN TREATY. THUS, IN TERMS OF PARA-1 OF ARTICLE 7 OF THE QATAR TREATY, INDIA HAS A RIGHT TO TAX ITS RESI DENTS WITH RESPECT TO PROFIT EARNED BY THEM IN A PERMANENT ESTABLISHMENT SITUATE D OUTSIDE INDIA. IT WAS FURTHER SUBMITTED BY THE LEARNED D.R. THAT THE ABOV E REASONING IS SUPPORTED BY THE DECISION OF THE MUMBAI TRIBUNAL RENDERED IN THE CASE OF MS. POOJA BHATT [ 123 TTJ (MUMBAI) 404]. DRAWING OUR ATTENTI ON TO PARA-7 OF THE SAID ORDER, THE LEARNED D.R. POINTED OUT THAT THE TRIBUN AL HAS DISTINGUISHED THE TERMS SHALL BE TAXED ONLY, MAY BE TAXED AND MA Y ALSO BE TAXED. THE TRIBUNAL HAS HELD THAT WHEN THE WORDS MAY ALSO BE TAXED IS USED, IT MEANS THAT BOTH THE CONTRACTING STATES HAVE AGREED TO TAX . IT WAS SUBMITTED THAT AS THE ORDER PASSED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y 2002-03 DOES NOT CONTAIN ANY INDEPENDENT REASONING, THE SAM E CANNOT HAVE ANY PRECEDENT VALUE. ON THE OTHER HAND, THE DECISION I N THE CASE OF POOJA BHATT (SUPRA), DIRECTLY SUPPORTS THE STAND OF THE REVENUE . IT WAS THEREFORE SUBMITTED THAT THE DECISION IN THE CASE OF POOJA BH ATT (SUPRA) SHOULD BE FOLLOWED. IT WAS ALSO SUBMITTED THAT IN CASE THE T RIBUNAL FEELS THAT THERE IS A CONFLICT BETWEEN THE DECISION IN ASSESSEES OWN CAS E FOR A.Y 2002-03 AND THE DECISION IN THE CASE OF POOJA BHATT (SUPRA), THE HO NBLE BENCH MAY KINDLY MAKE A REFERENCE TO THE HONBLE PRESIDENT FOR CONST ITUTION OF SPECIAL BENCH TO DECIDE THIS ISSUE. ITA NO.2441/MUM/2007(A.Y. 2003-04) 15 20. THE LD. COUNSEL FOR THE ASSESSEE HOWEVER, SUBMI TTED THAT THE DECISION OF THE TRIBUNAL IS BASED ON THE PRINCIPLE THAT INCO ME WHICH HAS SUFFERED TAX ABROAD SHOULD NOT BE TAXED AGAIN IN INDIA EVEN IF T HE ASSESSEE IS RESIDENT UNDER THE ACT AND CONSEQUENTLY THE ENTIRE GLOBAL IN COME OF SUCH ASSESSEE IS TAXABLE IN INDIA. ACCORDING TO HIM THE WORDINGS OF THE TREATY WOULD NOT MAKE ANY DIFFERENCE AS CONTENDED BY THE LD. D.R. 21. WE HAVE CONSIDERED THE RIVAL SUBMISSION. AT TH E OUTSET WE ACCEPT THE CONTENTION OF THE LD. D.R THAT THE TRIBUNAL WHILE D ECIDING THE APPEAL OF ASSESSE FOR A.Y 2002-03 HAS PROCEEDED ON THE ASSUMP TION THAT THE WORDINGS OF ARTICLE 7 OF DTAA BETWEEN INDIA AND OMAN ON THE ONE HAND AND THAT BETWEEN INDIA AND QATAR ARE SIMILAR. THE EXPRESSIO N USED IN ARTICLE 7 OF THE DTAA BETWEEN INDIA AND OMAN IS MAY BE TAXED, WHIL E THE WORDS USED IN ARTICLE 7 OF INDIA QATAR DTAA IS MAY ALSO BE TAXED . COULD THERE BE DIFFERENT CONSEQUENCES BECAUSE OF THE ABOVE DIFFERE NCE IN THE LANGUAGE OF THE DTAA? THIS ASPECT WAS CONSIDERED BY THE ITAT MUMBA I IN THE CASE OF POOJA BHAT (SUPRA). THE FACTS OF THE CASE WERE THE ASSE SSEE IN THAT CASE WAS A FILM ARTISTE WHO PARTICIPATED IN AN ENTERTAINMENT S HOW PERFORMED IN CANADA AND RECEIVED A SUM OF US $6,000. THE TAX WAS ALSO DEDUCTED AT SOURCE IN CANADA EQUAL TO THE SUM OF US $900. THE ASSESSEE C LAIMED IN THE COURSE OF ASSESSMENT PROCEEDINGS THAT A SUM OF RS. 1,86,000 ( US $6,0000) COULD NOT BE TAXED IN INDIA IN VIEW OF ART. 18 OF INDO-CANAD A TREATY [WRONGLY MENTIONED AS ART.17 BY THE AO AND THE CIT(A)] HOWE VER, HER CONTENTION WAS REJECTED BY THE AO. IT WAS FOUND BY THE AO THAT TH E ASSESSEE WAS A RESIDENT OF INDIA AND CONSEQUENTLY, IT WAS HELD BY HIM THAT HER ENTIRE GLOBAL INCOME WAS TAXABLE UNDER THE PROVISIONS OF THE IT ACT, 196 1(THE ACT). WHEN THE ISSUE CAME UP BEFORE THE TRIBUNAL, THE TRIBUNAL AFT ER CONSIDERING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F CIT VS. KULANDGAN CHETTIAR 267 ITR 654(SC) HELD AS FOLLOWS: ITA NO.2441/MUM/2007(A.Y. 2003-04) 16 7. AFTER GIVING OUR DUE CONSIDERATION TO THE ABOV E RIVAL CONTENTIONS, WE ARE OF THE HUMBLE VIEW THAT INCOME DERIVED BY TH E ASSESSEE FROM THE EXERCISE OF HER ACTIVITY IN CANADA IS TAXABLE O NLY IN SOURCE COUNTRY, I.E. CANADA FOR THE REASONS GIVEN HEREAFTER. THE S CHEME OF TAXATION OF INCOME IS CONTAINED IN CHAPTER III OF DTAA/INDO CAN ADA TREATY. ON AN ANALYSIS OF VARIOUS ARTICLES CONTAINED IN CHAPTE R III, WE FIND THAT THE SCHME OF TAXATION IS DIVIDED IN THREE CATEGORIE S. THE FIRST CATEGORY INCLUDES ART.7 (BUSINESS PROFTS WITHOUT PE IN THE O THER STATE), ART.8 (AIR TRANSPORT), ART.9 (SHIPPING), ART 14 9CAPITAL GAINS ON ALIENATION OF SHIPS OR AIRCRAFTS OPERATED IN INTERNATION TRAFFICE), ART .15 (PROFESSIONAL SERVICES), ART.19 (PENSIONS) WHICH PROVIDE THAT IN COME SHALL BE TAXED ONLY IN THE STATE OF RESIDENCE. THE SECOND CATEGOR Y INCLUDES ART.6 (INCOME FROM IMMOVABLE PROPERTY), ART.7 (BUSINESS P ROFITS WHERE PE IS ESTABLISHED IN OTHER CONTRACTING STATE), ART.15 (IN COME FROM PROFESSIONAL SERVICES UNDER CERTAIN CIRCUMSTANCES), ART 16( INCOME FROM DEPENDENT PERSONAL SERVICES WHERE EMPLOYMENT I S EXERCISED IN OTHER CONTRACTING STATE), ART.17 (DIRECTORS FEES), ART 18 (INCOME OF ARTISTES AND ATHLETES), ART.20 (GOVERNMENT SERVICE) WHICH PROVIDE THAT SUCH INCOME MAY BE TAXED IN THE OTHER CONTRACTING S TATE, I.E. STATE OF INCOME COURSE. THE THIRD CATEGORY INCLUDES ART.11 (DIVIDENDS), ART 12 (INTEREST), ART.13 (ROYALTY AND FEE FOR TECHNICAL S ERVICES), ART.14 (CAPITAL GAINS ON OTHER PROPERTIES AND ARTICLE 22 (OTHER INC OME) WHICH PROVIDE THAT SUCH INCOME MAY BE TAXED IN BOTH THE CONTRACTI NG STATES. FOR EXAMPLE, PARA 1 OF ART. 11 PROVES THAT DIVIDEND IN COME MAY BE TAXED IN OTHER CONTRACTING STATE WHILE PARA 2 PROVIDES TH AT DIVIDEND INCOME MAY ALSO BE TAXED IN THE STATE OF RESIDENCE. SIMIL ARLY, ART. 14(2) AND ART. 22 PROVIDE THAT INCOME MAY BE TAXED IN BOTH TH E COUNTRIES. THE ABOVE ANALYSIS CLEARLY SHOWS THAT INTENTION OF PART IES TO THE DTAA IS VERY CLEAR. WHEREVER THE PARTIES INTENDED THAT INC OME IS TO BE TAXED IN BOTH THE COUNTRIES, THEY HAVE SPECIFICALLY PROVIDED IN CLEAR TERMS. CONSEQUENTLY, IT CANNOT BE SAID THAT THE EXPRESSION MAY BE TAXED USED BY THE CONTRACTING PARTIES GAVE OPTION TO THE OTHER CONTRACTING STATES TO TAX SUCH INCOME. IN OUR VIEW, THE CONTEX TUAL MEANING HAS TO BE GIVEN TO SUCH EXPRESSION. IF THE CONTENTION OF THE REVENUE IS TO BE ACCEPTED THEN THE SPECIFIC PROVISIONS PERMITTING BO TH THE CONTRACTING STATES TO LEVY THE TAX WOULD BECOME MEANINGLESS. T HE CONJOINT READING OF ALL THE PROVISIONS OF ARTICLES IN CHAPTE R III OF INDO-CANADA TREATY, IN OUR HUMBLE VIEW, LEADS TO ONLY ONE CONCL USION THAT BY USING THE EXPRESSION MAY BE TAXED IN THE OTHER STATE, T HE CONTRACTING PARTIES PERMITTED ONLY THE OTHER STATE, I.E. STATE OF INCOME SOURCE AND BY IMPLICATION, THE STATE OF RESIDENCE WAS PRECLUDE D FROM TAXING SUCH INCOME. WHEREVER THE CONTRACTING PARTIES INTENDED THAT INCOME MAY BE TAXED IN BOTH THE COUNTRIES, THEY HAVE SPECIFICA LLY PROVIDED. HENCE, THE CONTENTION OF THE REVENUE THAT THE EXPRESSION MAY BE TAXED IN ITA NO.2441/MUM/2007(A.Y. 2003-04) 17 OTHER STATE GIVEN THE OPTION TO THE OTHER STATE A ND THE STATE OF RESIDENCE IS NOT PRECLUDED FROM TAXING SUCH INCOME CANNOT BE ACCEPTED. 8. THE RELIANCE OF THE REVENUE ON ART.23 IS ALSO M ISPLACED. IT HAS BEEN CONTENDED THAT ART.23 GIVES CREDIT OF TAX PAID IN OTHER STATE TO AVOID DOUBLE TAXATION IN CASES LIKE THE PRESENT ONE . IN OUR OPINION, SUCH PROVISIONS HAVE BEEN MADE IN THE TREATY TO COV ER THE CASES FALLING UNDER THE THIRD CATEGORY MENTIONED IN THE PRECEDING PARA I.E. THE CASES WHERE THE INCOME MAY BE TAXED IN BOTH THE COUNTRIES . HENCE, THE CASES FALLING UNDER THE FIRST OR SECOND CATEGORIES WOULD BE OUTSIDE THE SCOPE OF ART. 23 SINCE INCOME IS TO BE TAXED ONLY I N ONE STATE. 22. WE ARE OF THE VIEW THAT THE RELIANCE PLACED BY THE LEARNED D.R. ON THE AFORESAID DECISION DOES NOT HELP THE PLEA OF THE RE VENUE BEFORE US. THE EXPRESSION MAY ALSO BE TAXED IN ARTICLE 7 OF THE DTAA BETWEEN INDIA AND QATAR IS FOLLOWED BY THE WORDS IN THE STATE OF RES IDENCE AS IS FOUND IN ARTICLE 11(2) OF THE DTAA BETWEEN INDIA AND CANADA. AS LAID DOWN IN THE CASE OF POOJA BHATT (SUPRA), THE INTENTION OF COUNT RIES TO THE DTAA IS TO BE SEEN. ARTICLE 11 (2) OF THE DTAA BETWEEN INDIA AND QATAR SPECIFICALLY PROVIDES THAT DIVIDEND CAN ALSO BE TAXED IN THE STA TE OF WHICH THE COMPANY PAYING DIVIDEND IS A RESIDENT. ARTICLE 12 OF THE D TAA BETWEEN INDIA AND QATAR SIMILARLY PROVIDES RIGHT TO BOTH THE SOURCE C OUNTRY AS WELL AS THE RESIDENT COUNTRY TO TAX INTEREST INCOME. WHEREVER THE PARTIES INTENDED THAT INCOME IS TO BE TAXED IN BOTH THE COUNTRIES, THEY H AVE SPECIFICALLY PROVIDED IN CLEAR TERMS. CONSEQUENTLY, IT CANNOT BE SAID THAT THE EXPRESSION MAY ALSO BE TAXED USED IN THE DTAA GAVE OPTION TO THE OTHER CONTRACTING STATES TO TAX SUCH INCOME. AS LAID DOWN IN THE DECISION IN T HE CASE OF POOJA BHATT (SUPRA) CONTEXTUAL MEANING HAS TO BE GIVEN TO SUCH EXPRESSION. IF THE CONTENTION OF THE REVENUE IS TO BE ACCEPTED THEN TH E SPECIFIC PROVISIONS PERMITTING BOTH THE CONTRACTING STATES TO LEVY THE TAX WOULD BECOME MEANINGLESS. IN OUR VIEW, BY USING THE EXPRESSION MAY ALSO BE TAXED IN THE OTHER STATE, THE CONTRACTING PARTIES PERMITTED ONL Y THE OTHER STATE, I.E. STATE OF INCOME SOURCE AND BY IMPLICATION, THE STATE OF R ESIDENCE WAS PRECLUDED ITA NO.2441/MUM/2007(A.Y. 2003-04) 18 FROM TAXING SUCH INCOME. WHEREVER THE CONTRACTING PARTIES INTENDED THAT INCOME MAY BE TAXED IN BOTH THE COUNTRIES, THEY HAV E SPECIFICALLY PROVIDED. HENCE, THE CONTENTION OF THE REVENUE THAT THE EXPRE SSION MAY ALSO BE TAXED IN OTHER STATE GIVING THE OPTION TO THE OTHER STAT E AND THE STATE OF RESIDENCE IS NOT PRECLUDED FROM TAXING SUCH INCOME CANNOT BE ACCEPTED. 23. FOR THE REASONS GIVEN ABOVE, WE FIND NO GROUND S TO TAKE A DIFFERENT VIEW EVEN IN RESPECT OF INCOME DERIVED BY THE ASSESSEE F ROM QATAR AS WAS TAKEN IN AY 02-03. WE THEREFORE CONFIRM THE ORDER OF THE CIT(A) AND DISMISS GROUND NO.3 OF THE REVENUE. 24. GROUND NO.4 RAISED BY THE REVENUE READS AS FOLL OWS: 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND AS PER LAW, THE LD. CIT(A) ERRED IN DIRECTING THE AO TO ALLOW T HE ASSESSEES CLAIM AS TO PROPORTIONATE INTEREST CALCULATED OUT OF TOTAL I NTEREST INCURRED BY THE ASSESSEE ON THE RATIO OF OWN FUNDS TO BORROWED FUND S AS OF 31/3/1997 AND ALLOW SUCH INTEREST U/S. 36(1)(III) OF THE I.T. ACT. 25. SIMILAR ADDITION WAS MADE IN AY 02-03 AND THE B ASIS OF SUCH DISALLOWANCE WAS AS FOLLOWS. DURING THE ASSESSMENT PROCEEDINGS, THE A.O. OBSERVED THAT THE ASSESSEE COMPANY HAD CLAIMED DEDU CTION ON ACCOUNT OF INTEREST AGAINST INCOME DERIVED FROM JETTY OWNED BY THE ASSESSEE. THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY SUCH ALLOWA NCE SHOULD NOT BE DENIED. IN RESPONSE TO WHICH THE ASSESSEE SUBMITTED THAT, THE COMPANY WAS IN THE BUSINESS OF IMPORTING AND SELLING PETROLEUM PRODUCTS, AND FOR THE PURPOSE OF ITS BUSINESS, IT IS REQUIRED TO HAVE JET TY ALONG WITH TANKAGES FACILITIES AND THEREFORE, IN VIEW OF SUCH REQUIREME NT THE COMPANY HAD PURCHASED A JETTY DURING F.Y. 1996-97 FOR A TOTAL C ONSIDERATION OF RS. 70 CRORES. ACCORDING TO THE ASSESSEE, THIS AMOUNT WAS CAPITALIZED IN ITS BOOKS OF ACCOUNT AND HAD ALSO CLAIMED DEPRECIATION ON SUCH J ETTY, WHICH WAS ALSO ALLOWED. FURTHER, IT WAS ALSO SUBMITTED THAT THIS J ETTY WAS USED BY THE ASSESSEE COMPANY FOR ITS OWN USE AS WELL AS IT WAS LET ON HIRE AGAINST WHICH, ITA NO.2441/MUM/2007(A.Y. 2003-04) 19 INCOME WAS ALSO GENERATED AND OFFERED FOR TAX. DURI NG THE YEAR, THE ASSESSEE HAD CLAIMED INTEREST BASED ON CALCULATION MADE ON P ROPORTIONATE BASIS OF OWN FUNDS AND BORROWED FUNDS. HOWEVER, ACCORDING TO THE A.O., THE INTEREST ON BORROWED FUNDS COULD BE CLAIMED ONLY IF THE ASSE SSEE COULD MATCH THE AMOUNT BORROWED WITH PURCHASE OF JETTY. ACCORDINGLY TO THE A.O., THE ASSESSEE COULD NOT MATCH SUCH PURCHASE OF JETTY WIT H BORROWED FUNDS, AND CONSEQUENTLY, HE DISALLOWED THE ENTIRE AMOUNT OF IN TEREST CLAIMED BY THE ASSESSEE. 26. DURING THE APPEAL PROCEEDINGS, IT WAS SUBMITTE D THAT THE A.O. HAS ERRED IN DISALLOWING THE ASSESSEE'S CLAIM MERELY ON THE A SSUMPTION THAT THE ASSESSEE HAD NOT USED THE BORROWED FUNDS FOR THE PU RPOSE OF PURCHASE OF JETTY. IT WAS SUBMITTED THAT THE ASSESSEE WAS BUILD ING A REFINERY AND THIS JETTY WAS A PART OF THE SAID REFINERY PROJECT. THI S JETTY WAS USED FOR ITS OWN MARKETING BUSINESS AND ALSO IT WAS GIVEN ON HIRE AG AINST WHICH THE ASSESSEE COMPANY HAD EARED INCOME AND OFFERED FOR TAX. IT WA S ALSO POINTED OUT THAT THE ASSESSEE COMPANY HAD ALREADY BEEN ALLOWED DEPRE CIATION ON SUCH JETTY WHICH CLEARLY MAKES IT EVIDENT THAT THE ASSESSEE CO MPANY HAS USED THE JETTY FOR THE PURPOSE OF ITS MARKETING BUSINESS AND THERE FORE, INTEREST RELATING TO BORROWED FUNDS APPLIED IN PURCHASE OF SUCH JETTY SH OULD BE ALLOWED AS DEDUCTION U/S. 36(1)(III) OF THE ACT. IN THIS REGAR D, IT WAS FURTHER SUBMITTED THAT THE ASSESSEE COMPANY HAD ITS OWN FUNDS AS WELL AS BORROWED FUNDS, WHICH WERE INTERMINGLED AND HAD BECOME PART OF THE COMMON POOL AND THAT IT WAS NOT PRACTICABLE TO IDENTIFY THE SOURCE OF PU RCHASE OF JETTY AS ENTIRE REFINERY PROJECT WAS UNDERTAKEN AS A WHOLE. HENCE, ASSESSEE HAD CLAIMED PROPORTIONATE INTEREST AS DEDUCTION INSTEAD OF INTE REST ON ENTIRE COST OF THE AFORESAID JETTY. THE ASSESSEE HAS ALSO SUBMITTED TH AT THE DETAILS OF OWN FUNDS AND BORROWED FUNDS IN ITS PAPER BOOK. ACCORDI NG TO THE ASSESSEE, THE A.O. HAS ALSO NOT BROUGHT ON RECORD ANY MATERIAL TO SHOW THAT PURCHASE WAS MADE FROM THE ASSESSEE'S OWN FUNDS AND THEREFORE, A CCORDING TO THE ASSESSEE, THE A.O.'S ACTION IN DISALLOWING THE INTE REST WAS ARBITRARY AND ITA NO.2441/MUM/2007(A.Y. 2003-04) 20 HENCE, DISALLOWANCE MADE ON SUCH ARBITRARY ACTION S HOULD BE DELETED. THE ASSESSEE IN THIS REGARD HAS ALSO RELIED ON VARIOUS JUDGEMENTS. 27. THE CIT(A) ON THE CONSIDERATION OF THE ASSESSEE HELD AS FOLLOWS: I HAVE GONE THROUGH THE CONTENTION OF THE ASSESSEE AS WELL AS THAT OF THE A.O. IT IS NOT IN DISPUTE THAT THE ASSESSEE CO MPANY HAD BEEN USING THE JETTY PURCHASED FOR THE PURPOSE OF THE MA RKETING BUSINESS AND THAT INCOME EARNED THERE FROM WAS ALSO OFFERED FOR TAX. THE A.O. HAS BEEN ALLOWING DEPRECIATION ON JETTY FROM THE BE GINNING. IT IS ALSO NOT IN DISPUTE THAT THE A.O. HAS ALSO NOT BROUGHT O N RECORD ANY MATERIAL TO SHOW THAT THE AFORESAID JETTY WAS PURCH ASED FROM THE OWN SOURCE OF THE ASSESSEE COMPANY AND THEREFORE THE ON LY ISSUE IS WHETHER INTEREST COULD BE ALLOWED, WHEN THE ASSESSE E AND THE A.O. COULD NOT IDENTIFY THE SOURCE OF SUCH PURCHASE. IT IS NOW SETTLED LAW THAT WHERE BOTH THE A.O. AND THE ASSESSEE COULD NOT IDENTIFY THE SOURCE OF PURCHASE, THE BEST COURSE TO BE APPLIED I S TO CALCULATE THE AMOUNT OF INTEREST IN THE RATIO OF BORROWED FUNDS T O OWN FUNDS AND ONLY THE PROPORTIONATE INTEREST SO ARRIVED AT BE AL LOWED AS DEDUCTION U/S. 36(1)(III) OF THE ACT. CONSIDERING THIS FACT, THE A.O. IS DIRECTED TO ALLOW THE ASSESSEE'S CLAIM AS TO PROPORTIONATE INTE REST CALCULATED OUT OF THE TOTAL INTEREST INCURRED BY THE ASSESSEE, ON THE RATIO OF OWN FUNDS TO BORROWED FUNDS AS OF 31.3.1997 AND ALLOW SUCH INTER EST UNDER SECTION 36(1)(III). AS SUCH, THIS GROUND OF THE APPEAL IS P ARTLY ALLOWED. 28. IN THE PRESENT A.Y, THE AO FOLLOWING THE REASO NING ADOPTED IN AY 02-03 DISALLOWED THE CLAIM OF THE ASSESSEE FOR DEDUCTION OF INTEREST EXPENSES. ON APPEAL BY THE ASSESSEE THE CIT(A) FOLLOWING THE ORD ER OF CIT(A) FOR AY 02-03, DELETED THE ADDITION MADE BY THE AO. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVENUE HAS RAISED GROUND NO.4 BEFORE THE TRIBU NAL. 29. AT THE TIME OF HEARING THE PARTIES AGREED THAT THE ISSUE WAS DECIDED BY THE TRIBUNAL IN ITA NO. 5198/MUM/05 FOR AY 02-03 IN ASSESSEES OWN CASE. THE TRIBUNAL UPHELD ORDER OF CIT(A) OBSERVING AS FO LLOWS: 21. WE HAVE HEARD THE LEARNED COUNSEL FOR THE ASSE SSEE WHO REITERATED THE STAND AS TAKEN BEFORE THE CIT(A) AS WELL AS THE LEARNED D.R.WHO RELIED ON THE ORDER OF THE AO. AFTER CONSI DERING THE RIVAL SUBMISSIONS, WE ARE OF THE VIEW THAT THE ORDER OF L EARNED CIT(A) IS JUST AND PROPER AND CALLS FOR NO INTERFERENCE. THE CIT(A ) HAS FOUND THAT ITA NO.2441/MUM/2007(A.Y. 2003-04) 21 THERE WAS NO EVIDENCE OF USE OF OWN FUNDS FOR PURCH ASE OF JETTY. THE REVENUE HAS ITSELF ALLOWED DEPRECIATION ON JETTY IN THE PAST. THE FUNDS FOR PURCHASE OF THE JETTY HAS COME FROM HOTCHPOTCH OF BORROWED AS WELL AS OWN FUNDS. BOTH THE A.O. AND THE ASSESSEE COULD NOT IDENTIFY THE SOURCE OF PURCHASE, THE BEST COURSE TO BE APPLIED W AS TO CALCULATE THE AMOUNT OF INTEREST IN THE RATIO OF BORROWED FUNDS T O OWN FUNDS AND TO ALLOW PROPORTIONATE INTEREST SO ARRIVED AS DEDUCTIO N U/S. 36(1)(III) OF THE ACT. BASIS ON WHICH, INTEREST WAS DIRECTED TO B E ALLOWED BY CIT(A), IN THE FACTS AND CIRCUMSTANCES OF THE CASE, IN OUR OPINION, IS APPROPRIATE. WE UPHOLD THE ORDER OF LEARNED CIT(A) AND DISMISS GROUND NO. 2 OF THE REVENUE. 30. IN VIEW OF THE AFORESAID DECISION, WE DO NOT F IND ANY MERITS IN THIS GROUND RAISED BY THE REVENUE. CONSEQUENTLY GROUND NO.4 IS DISMISSED. 27. IN THE RESULT, THE APPEAL BY THE REVENUE IS PAR TLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 12 TH DAY OF AUGUST, 2011. SD/- SD/- (J.SUDHAKAR REDDY ) (N.V.VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED. 12TH AUGUST.2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3 . THE CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.RL BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR, I TAT, MUMBAI BENCHES MUMBAI. VM. ITA NO.2441/MUM/2007(A.Y. 2003-04) 22 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 8/8/11 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 9/8/11 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7. FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER