M/s Indian Farmers Fertiliser Cooperative Ltd., New Delhi V. Pr CIT, New Delhi

ITA 2487/DEL/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 7177 (ITAT-DELHI)
• Duration Of Justice: 4 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-09-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 10-10-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 04-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K SAROHA
• Keywords: Capital asset; Depreciation; Residential status; Double taxation relief; Opportunity of being heard; Principle of natural justice; Rule of consistency; Deemed to accrue or arise in india; Permanent establishment; Question of law; Corroborative evidences; Deemed dividend; Competent authority; Assessment record; Notional interest; Revised return; Reason to believe; Revenue expenditure; Capital expenditure
• Section: 43B; 143(3); 142(1); 5(2); 14A; 263; 90; 154; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C, NEW DELHI BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER AND SHRI J.S. REDDY, ACCOUNTANT MEMBER I.T.A. NO. 2487/DEL/2016 A.Y. : 2010-11 M/S INDIAN FARMERS FERTILIZERS COOPERATIVE LTD., IFFCO SADAN, C-1, DISTRICT CENTRE, SAKET PLACE, NEW DELHI 110 017 (PAN: AAAAI0050M VS. PR. CIT, DELHI-11 ROOM NO. 2402, 24 TH FLOOR, E-2, CIVIC CENTRE, NEW DELHI (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. VIJAY RANJAN, ADV. SH. VARTIK R. CHOKSI, CA & MS. IRA R. KAPOOR, CA, SH. ATUL CHABBRA, CA DEPARTMENT BY : SH. A.K. SAROHA, CIT(DR) DATE OF HEARING : 31-08-2016 DATE OF ORDER : 19-09-2016 ORDER PER H.S. SIDHU, J.M. THE ASSESSEE HAS FILED THIS APPEAL AGAINST TH E ORDER DATED 29.3.2016 PASSED BY THE PRINCIPAL COMMISSIONER OF INCOME TAX 11, DELHI, U NDER SECTION 263 OF THE INCOME TAX ACT, 1961 RELEVANT TO ASSESSMENT YEAR 2010-11. 2. THE ASSESSEE HAS RAISED 11 GROUNDS WHICH ARE RE PETITIVE IN NATURE, BUT IT HAS FILED CONCISE GROUNDS OF APPEAL AS DETAILED BELOW: 1. IN LAW AND ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE LEARNED PRINCIPAL C.I.T. ERRED IN ASSUMING JURISDICTION U/S .263 OF THE I.T. ACT, WHEREAS THE MANDATORY CONDITIONS FOR ASSUMING SUCH JURISDICTION WERE COMPLETELY ABSENT THUS RESULTING IN THE ORDER PASSED BEING BAD IN LAW. 2. IN LAW AND ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE LEARNED PRINCIPAL C.I.T. ERRED IN HIS OBSERVATION IN THE OR DER THAT THE ISSUE OF TAX CREDIT ON DIVIDEND AS PER ARTICLE-25(4) OF T HE DTAA ITA NO. 2487/DEL/2016 2 BETWEEN GOVERNMENT OF INDIA AND THE OMANI GOVERNMEN T REFLECTED LACK OF INQUIRY AND NON-APPLICATION OF MI ND BY THE ASSESSING OFFICER. FURTHER, THE LEARNED PRINCIPAL C .I.T. ALSO ERRED IN DOUBTING THE INTENT AND PURPOSE OF EXEMPTION GRA NTED ON DIVIDEND INCOME UNDER THE OMANI TAX LAWS IGNORING T HE CONFIRMATION GIVEN BY THE OMANI TAX AUTHORITIES. TH E ORDER OF THE LEARNED PRINCIPAL C.I.T. ON THIS ISSUE HAS BEEN PAS SED IN COMPLETE DISREGARD OF THE ORDER OF THE JURISDICTIONAL ITAT I N THE CASE OF M/S. KRIBHCO (ITA NO. 6785/DEL/2015) ON IDENTICAL FACTS. 3. IN LAW AND ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE LEARNED PRINCIPAL C.I.T. ERRED IN DIRECTING THE ASSESSING O FFICER TO EXAMINE THE APPLICABILITY OF THE PROVISO TO SECTION 36(1)(I II) REGARDING CAPITALIZATION OF INTEREST EXPENDITURE AND FURTHER ERRED IN OBSERVING THAT PART OF INTEREST EXPENDITURE MAY PE RTAIN TO INVESTMENT NOT CONNECTED WITH BUSINESS AND CONSEQUE NTLY MAY NOT BE DEDUCTIBLE U/S.36(1)(III). 4. IN LAW AND ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE LEARNED PRINCIPAL C.I.T. ERRED IN RESTORING TO THE ASSESSIN G OFFICER, HIS ORDER, OBSERVING THAT THERE WAS A POSSIBILITY OF INCOME OTHER THAN DIVIDEND, AN OBSERVATION COMPLETELY IMPERMISSIBLE I N LAW TO BE A BASIS FOR AN ORDER U/S.263. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A CO-OPERATIVE SOCIETY REGISTERED IN INDIA UNDER THE PROVISIONS OF MULTI-STATE CO-OPERAT IVE SOCIETIES ACT, 2002. THE PRINCIPAL BUSINESS OF THE ASSESSEE IS MANUFACTURE AND IMPORT OF FERTILIZERS LIKE UREA, DAP AND COMPLEX FERTILIZERS. DURING THE YEAR 2002, AS A PUB LIC SECTOR UNDERTAKING, PURSUANT TO A MOU BETWEEN THE GOVERNMENT OF INDIA AND THE SULTANA TE OF OMAN TO PROMOTE PROJECTS OF MUTUAL ECONOMIC INTEREST FOR BOTH THE COUNTRIES, TH E ASSESSEE ALONG WITH ANOTHER INDIAN COOPERATIVE SOCIETY (M/S KRISHAK BHARTI COOPERATIVE LTD.) ENTERED INTO A JOINT VENTURE WITH OMAN OIL COMPANY TO FORM OMAN FERTILIZER COMPANY SA OC (OMIFCO), WHICH IS A REGISTERED COMPANY IN OMAN UNDER THE OMANI LAWS. TH E ASSESSEE SOCIETY HOLDS 25% SHARE IN OMIFCO, WHICH IS ENGAGED IN MANUFACTURING UREA AND AMMONIA. THE UREA MANUFACTURED BY OMIFCO IS PURCHASED BY THE GOVERNMENT OF INDIA U NDER A LONG TERM AGREEMENT. 3.1 THE ASSESSEE SOCIETY HAS ESTABLISHED A BRANCH O FFICE IN OMAN TO OVERSEE ITS INVESTMENT IN OMIFCO AND TO FACILITATE RENDERING OF PERSONNEL PLACEMENT AND TECHNICAL SERVICES TO M/S OMIFCO. THE BRANCH OFFICE IS INDEPE NDENTLY REGISTERED AS A FOREIGN COMPANY BRANCH UNDER THE OMANI LAWS AND IT IS AN AC CEPTED POSITION BY THE INCOME TAX DEPARTMENT THAT THE SAID BRANCH OFFICE CONSTITUTES PERMANENT ESTABLISHMENT (PE) IN OMAN IN ITA NO. 2487/DEL/2016 3 TERMS OF ARTICLE 5 OF DOUBLE TAXATION AVOIDANCE A GREEMENT (DTAA) BETWEEN INDIA AND OMAN. THE SAID BRANCH OFFICE MAINTAINS ITS OWN BOOK S OF ACCOUNT AND FILES RETURNS OF INCOME AS PER THE LOCAL INCOME TAX LAW OF OMAN. 4. IN THIS CASE THE ASSESSEE HAS ORIGINALLY FILED T HE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2010-11 ON 13.10.2010 DECLARING TOTAL INCOME O F RS.723,16,22,035. SUBSEQUENTLY REVISED RETURN OF INCOME WAS FILED ON 14.10.2011 DE CLARING INCOME OF RS.577,15,94,117. THE MAIN REASON FOR THE VARIATION IN THE TOTAL INCOME A S PER THE ORIGINAL RETURN AND REVISED RETURN OF INCOME WAS THAT DIVIDEND INCOME RECEIVED BY THE APPELLANT-SOCIETYS BRANCH IN OMAN FROM OMIFCO, OMAN AMOUNTING TO RS.144,11,73,150 WAS EXCLUDED ON THE GROUND THAT THE SAID INCOME WAS EARNED BY THE P.E. OF THE APPELLANT -SOCIETY IN OMAN AND AS PER THE PROVISIONS OF DTAA READ WITH SECTION 90 OF THE I.T . ACT, AS INTERPRETED BY THE HONBLE APEX COURT IN INDIA , THE SAID INCOME WAS ASSESSABLE ON LY IN OMAN AND NOT IN INDIA. 5. THE CASE OF THE ASSESSEE WAS PICKED UP FOR SCRUT INY AND NOTICES U/S.143(2) AND 142(1) OF THE I.T. ACT, WERE ISSUED BY THE ASSESSING OFFIC ER ALONGWITH THE DETAILED QUESTIONNAIRES. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, DE TAILED REPLIES WERE FILED ALONGWITH SUPPORTING EVIDENCES AND THE AUTHORIZED REPRESENTAT IVES OF THE ASSESSEE-SOCIETY DULY ATTENDED BEFORE THE ASSESSING OFFICER FROM TIME TO TIME AS A LSO ACKNOWLEDGED IN THE ASSESSMENT ORDER. ALL NECESSARY DETAILS AND PARTICULARS WERE DULY FUR NISHED AND THE CASE WAS EXAMINED MINUTELY BY THE ASSESSING OFFICER AND DISCUSSED WITH THE AUT HORIZED REPRESENTATIVES OF THE APPELLANT- SOCIETY. THE ASSESSMENT WAS COMPLETED U/S.143(3) OF THE I.T. ACT, 1961 ON 28.2.2014 BY THE AO WHO MADE THE FOLLOWING ADDITIONS:- ( RUPEES) 1. DIVIDEND INCOME RECEIVED FROM OMIFCO 144,11,73,150 2. DISALLOWANCE U/S.43B 15,94,113 3. DISALLOWANCE U/S.14A READ WITH RULE 8D OF THE I.T. RULES. 31,33,42,000 4. DISALLOWANCE OF HORTICULTURE EXPENSES 60,70,000 6. WHILE COMPLETING THE ASSESSMENT, INTER ALIA, THE ASSESSING OFFICER ALLOWED TAX CREDIT OF A SUM OF RS.41,52,45,771/- IN RESPECT OF THE DIV IDEND INCOME OF RS.144,11,73,150 RECEIVED ITA NO. 2487/DEL/2016 4 BY THE APPELLANT-SOCIETY FROM OMIFCO. AS MENTIONED ABOVE, THE AFORESAID DIVIDEND INCOME WAS SIMULTANEOUSLY BROUGHT TO THE CHARGE OF TAX BY THE ASSESSING OFFICER AFTER REJECTING THE ASSESSEES CLAIM THAT THE SAID INCOME COULD NOT BE TAXED UNDER THE INDIAN INCOME-TAX LAW. IT MAY BE MENTIONED THAT AS PER THE OMANI TAX LAWS, EX EMPTION WAS GRANTED TO THE DIVIDEND INCOME BY VIRTUE OF AMENDMENTS MADE IN THE OMANI TA X LAWS IN THE YEAR 2000. HOWEVER, BY VIRTUE OF THE PROVISIONS OF ARTICLE-25(4) OF DT AA R.W.S 90(1)(A)(II) OF THE IT ACT, THE ASSESSING OFFICER, AFTER THOROUGHLY EXAMINING THE I SSUES AND AFTER FULL APPLICATION OF MIND ALLOWED CREDIT FOR THE AFORESAID TAX WHICH WOULD HA VE BEEN PAYABLE IN OMAN BUT FOR THE EXEMPTION GRANTED. 7. SUBSEQUENT TO THE COMPLETION OF THE ASSESSMENT T HE LEARNED PR. C.I.T.-11, DELHI ISSUED A SHOW CAUSE NOTICE DATED 22.12.2015 U/S.263 OF THE I.T. ACT. FOR READY REFERENCE, THE CONTENTS OF THE SHOW CAUSE NOTICE ARE REPRODUCED B ELOW:- THE ASSESSMENT RECORDS OF M/S INDIAN FARMERS FERTI LISER COOPERATIVE LIMITED FOR THE A.Y. 2010-11 WERE CALLED FOR AND EX AMINED. THE ASSESSING OFFICER FRAMED ASSESSMENT ON28.02.2014. T HE AO COMPUTED THE INCOME OF THE ASSESSEE AS UNDER:- NET TAXABLE INCOME AS SHOWN IN REVISED RETURN RS. 577,15,94,117 ADD: (A) DIVIDEND INCOME RECEIVED FROM OMIFCO, OMAN (PARA 3) RS. 144,11,73,150 (B) DISALLOWANCE U/S. 43B RS. 15,94,113 (C) DISALLOWANCE U/S. 14A R.W.R. 8D(2)(II) RS. 31,33,42,000 (D) DISALLOWANCE OF HORTICULTURE EXPENSES RS. 60.70.000 TAXABLE INCOME RS. 753,37,73,380 2. THE AO COMPUTED THE TAX AS PER ITNS 150(COPY PLA CED AS ANNEXURE). THE PERUSAL OF INCOME TAX COMPUTATION FO RM IT IS FOUND THAT THE AO GAVE RELIEF U/S 90 OF RS. 41,52,45,771/- ITA NO. 2487/DEL/2016 5 AND DETERMINED THE DEMAND OF RS. 18,27,23,245/. THE ASSESSEE MOVED AN APPLICATION U/S. 154. THE AO PASSED ORDER U/S 15 4 ON 18.03.2014 AND AGAIN COMPUTED INCOME AS PER ITNS150 AND DETERM INED THE TAX ON ASSESSED INCOME OF RS.238,56,35,456/- AND GAVE CRED IT OF PREPAID TAXES AND RELIEF U/S.90 OF RS.228,72,86,443/- AND D ETERMINED THE DEMAND OF RS.17,44,89,190/-. APPARENTLY THE CREDIT OF PREPAID TAXES AND RELIEF INCLUDES RELIEF U/S 90 OF RS.41,52,45,77 1/-. 3. THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(A). T HE CIT(A) PASSED ORDER ON 09.03.2015AND UPHELD THE ADDITION O F RS. 144,11,73,150/- ON ACCOUNT OF DIVIDEND RECEIVED FRO M OVERSEA JOINT VENTURE OMIFCO(OMAN). 4. AS PER ORDER SHEET ENTRY THE AO CONDUCTED VARIOU S HEARINGS WHEREIN SH. RAWAT AND SH. ATUL CHHABRA ATTENDED THE PROCEEDINGS. VIDE ORDER SHEET ENTRY DATED 20.02.2014 THE ASSESSE E WAS ASKED AS REGARDS THE JUSTIFICATION FOR NON TAXABILITY OF INC OME FROM 'OMAN' DIVISION WITH DETAILS OF DIVIDENDS RECEIVED. 5. THE AO ISSUED QUESTIONNAIRE DATED 30.09.2013 AND HAS ASKED ON 37 POINTS. VIDE POINT NO. 29 & 30 ASKED THE FOLL OWING QUESTIONS:- IN RESPECT OF ANY INCOME COVERED IN DTAA, PLEASE FU RNISH DETAILED NOTE WITH COPY OF RESPECTIVE AGREEMENT AND ALSO GIVE REASONS FOR CLAIMING RELIEF U/S.90 OF THE IT ACT, 1 961. PLEASE GIVE A DETAILED NOTE ON TAX CREDIT CLAIMED B Y THE SOCIETY IN RESPECT OF DIVIDEND INCOME RECEIVED FROM OMIFCO. 6. THE ASSESSEE FILED REPLY DATED 26.02.2014 AND SU BMITTED THAT THE TAX CREDIT SHOULD BE ALLOWED IF THE DEPARTMENT TAXES THE DIVIDEND INCOME. THE ASSESSEE SUBMITTED THAT THE DECISION OF THE HON'BLE SUPREME COURT IN AZAADI BACHAO ANDOL AN[2003; 263 ITR 706] WOULD BE APPLICABLE FOR ALLOWING THE TAX C REDIT. 7. THE AO DID NOT ACCEPT THE CONTENTION OF THE ASSE SSEE AND TAXED THE DIVIDEND INCOME. THE AO DID NOT APPLY HIS MIND AS WHERE THE ASSESSEE HAS NOT PAID ANY TAX IN OMAN / AND THERE SHOULD NOT BE ANY QUESTION OF GIVING CREDIT OF RS.41,52,45,771/-. 8. THE AO DID NOT APPLY HIS MIND IN REGARD TO SECTI ON 90 WHICH AUTHORIZES THE TWO GOVERNMENTS TO ENTER INTO AN AGR EEMENT FOR AVOIDANCE OF DOUBLE TAXATION. 9. THE GOVERNMENT ISSUED A NOTIFICATION NO. SO 563( E) DATED 23.09.1997 WHICH IS REPRODUCED AS UNDER:- WHEREAS THE ANNEXED AGREEMENT BETWEEN THE GOVERNME NT OF THE SULTANATE OF OMAN AND THE GOVERNMENT OF THE REPUBLIC OF INDIA FOR THE AVOIDANCE OF DOUBLE TAXATION AND T HE ITA NO. 2487/DEL/2016 6 PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON INCOME HAS ENTERED INTO FORCE ON THE 3 RD JUNE, 1997 AFTER THE NOTIFICATION BY BOTH THE CONTRACTING STATES TO EACH OTHER OF THE COMPLETION OF THE PROCEEDINGS REQUIRED BY THEIR LAW S FOR BRINGING INTO FORCE OF THE SAID AGREEMENT IN ACCORD ANCE WITH PARAGRAPH I OF ARTICLE 29 OF THE SAID AGREEMENT: NOW, THEREFORE, IN EXERCISE OF POWERS CONFERRED BY SECTION 90 OF THE INCOME-TAX ACT, 1961 (43 OF 1961), THE CENTR AL GOVERNMENT HEREBY DIRECTS THAT ALL THE PROVISIONS O F THE SAID AGREEMENT SHALL BE GIVEN EFFECT TO THROUGHOUT THE T ERRITORY OF INDIA. THE PERUSAL OF THE NOTIFICATION SHOWS THAT THE AGRE EMENT HAS BEEN ENTERED INTO IN EXERCISING POWERS CONFERRED BY SECT ION 90 OF THE IT ACT, 1961. THE RELEVANT PART OF SECTION 90 IS REPRO DUCED AS UNDER:- 90. AGREEMENT WITH FOREIGN COUNTRIES OR SPECIFIED TERRITORIES .- (1) THE CENTRAL GOVERNMENT MAY ENTER INTO AN AGRE EMENT WITH THE GOVERNMENT OF ANY COUNTRY OUTSIDE INDIA OR SPEC IFIED TERRITORY OUTSIDE INDIA, (A) FOR THE GRANTING OF RELIEF IN RESPECT OF (I) INCOME ON WHICH HAVE BEEN PAID BOTH INCOME-TAX UNDER THIS ACT AND INCOME-TAX IN THAT COUNTRY OR SPECIFIED TERRITORY, AS THE CASE MAY BE, OR (II) INCOME-TAX CHARGEABLE UNDER THIS ACT AND UNDER THE CORRESPONDING LAW IN FORCE IN THAT COUNTRY OR SPECI FIED TERRITORY, AS THE CASE MAY BE, TO PROMOTE MUTUAL ECONOMIC RELATIONS, TRADE AND INVESTMENT, OR (B) FOR THE AVOIDANCE OF DOUBLE TAXATION OF INCOME UNDER THIS ACT AND UNDER THE CORRESPONDING LAW IN FORCE IN THAT CO UNTRY OR SPECIFIED TERRITORY, AS THE CASE MAY BE, OR 10. SECTION 90 CLEARLY MENTIONS THAT THE RELIEF IS TO BE GRANTED IN RESPECT OF INCOME ON WHICH HAVE BEEN PAID BOTH INCO ME TAX UNDER THIS ACT AND INCOME TAX AND INCOME TAX IN THAT COUNTRY OR SPECIFIED TERRITORY, AS THE CASE MAY BE. THE SEC TION 90(L)(A)(II) IS IN REGARD TO THE INCOME TAX CHARGEABLE UNDER THIS ACT AND UNDER THE CORRESPONDING LAW IN FORCE IN THAT COUNTRY AND MOREOVER, INCOME TAX SHOULD BE CHARGEABLE IN THE AC T OF EITHER COUNTRY. 11. FROM THE PERUSAL OF RECORD IT IS FOUND THAT THE ASSESSEE HAS CLAIMED TAX CREDIT EVEN THOUGH NO TAX HAS BEEN PAID IN EITHER COUNTRY. ITA NO. 2487/DEL/2016 7 12. THE CENTRAL GOVERNMENT DERIVES ITS AUTHORITY TO ENTER INTO AGREEMENT FOR AVOIDANCE OF DOUBLE TAXATION FROM SEC TION 90 OF THE IT ACT. THE PRIMARY OBJECTIVE IS NOT TO TAX THE SAME INCOME IN BOTH THE COUNTRIES. THE AO FAILED TO NOTI CE THIS BARE PROVISION OF SECTION 90 THAT THE ASSESSEE SHOULD HA VE PAID THE TAXES. IN THE PRESENT CASE THERE IS NO DISPUTE THAT THE ASSES SEE HAS NOT PAID ANY TAX ON THE DIVIDEND INCOME. 13. THE ASSESSEE HAS PLACED RELIANCE ON ARTICLE 25( 4) OF THE DOUBLE TAXATION AGREEMENT. IT REFERS TO THE TAX INCENTIVE GRANTED UNDER THE LAW OF THE CONTRACTING STATE AND WHICH ARE DESIGNED TO PROMOTE ECONOMIC DEVELOPMENT. 14. THE 'TAX INCENTIVE' HAS NOT BEEN DEFINED IN THE DOU BLE TAXATION AGREEMENT. THEREFORE WE HAVE TO GO TO ARTI CLE 3(2) WHICH READS AS UNDER:- AS REGARDS THE APPLICATION OF THIS AGREEMENT BY A CONTRACTING STATE, ANY TERM NOT DEFINED THEREIN SHA LL, UNLESS THE CONTEXT OTHERWISE REQUIRES, HAVE THE MEANING WH ICH IT HAS UNDER THE LAW OF THAT CONTRACTING STATE CONCERNING THE TAXES TO WHICH THIS AGREEMENT APPLIES.' 15. AS PER ARTICLE 3(2) THE MEANING OF EXPRESSION ' TAX INCENTIVE' HAS TO BE TAKEN FROM MEANING GIVEN IN THE IT ACT. E VEN IN THE IT ACT, THE TERM 'TAX INCENTIVE' HAS NOT BEEN DEFINED. THE AO DID NOT NOTICE THE PRIMARY CONDITION OF ARTICLE 25(4) THAT TAX INC ENTIVE SHOULD BE DESIGNED TO PROMOTE ECONOMIC DEVELOPMENT. THE AO SI MPLY ACCEPTED THE VERSION OF THE ASSESSEE AND DID NOT APPLY HIS M IND AS TO THE VERACITY OF THE STATEMENT GIVEN BY THE ASSESSEE. TH E AO DID NOT NOTICE WHAT ARE THE TAX INCENTIVES WHICH ARE DESIGNED TO P ROMOTE ECONOMIC DEVELOPMENT. IN THE PRESENT CASE, THE DIVIDEND INCO ME HAS BEEN MADE EXEMPT UNDER ARTICLE 8(BIS) UNDER THE OMANI COMPANI ES INCOME TAX LAW. THIS WOULD BE A MERE ASSUMPTION THAT SUCH EXEMPTION IS DESIGNED TO PROMOTE ECONOMIC DEVELOPMENT. THE AO FA ILED TO NOTICE THIS VITAL DIFFERENCE. 16. THE AO FAILED TO EXAMINE THE FACT AS WHETHER AR TICLE 25(4) OF THE DOUBLE TAXATION AGREEMENT HAS BEEN FULLY COMPLI ED WITH BY THE ASSESSEE. IT CANNOT BE PRESUMED THAT THE EXEMPTION GRANTED UNDER ARTICLE 8(BIS) IS MEANT FOR ECONOMIC DEVELOPMENT. T HERE HAS TO STRICT INTERPRETATION OF THE STATUTE. ARTICLE 8(BIS) DOES NOT INDICATE THAT THE EXEMPTION IS DESIGNED FOR ECONOMIC DEVELOPMENT. 17. CAPITALIZATION OF INTEREST- 36(L)(III) PROVISO: THE PERUSAL OF BALANCE SHEET FOR THE A.Y. 2010-11 S HOWS THAT THE ASSESSEE HAS SHOWN LOAN FUNDS OF RS. 11,532.17 CROR ES. WHEREAS THE SHARE CAPITAL AND RESERVES AND SURPLUS FIGURE IS RS . 4,270.50 CRORES. THE TOTAL OF THE BALANCE SHEET IS RS. 16,319.45 CRO RES. THIS MEANS THE ITA NO. 2487/DEL/2016 8 ASSESSEE IS HAVING ONLY 26.16% OWN FUNDS. THE PERUS AL OF BALANCE SHEET FURTHER SHOWS THAT THE ASSESSEE HAS SHOWN CAP ITAL WORK IN PROGRESS OF RS. 333 CRORES. THE ASSESSEE HAS NOT SH OWN ANY FIGURE OF INTEREST PERTAINING TO CAPITAL WORK IN PROGRESS. TH E SCHEDULE 6(43 RD ANNUAL REPORT) SHOWING CAPITAL WORK IN PROGRESS DOE S NOT SHOW ANY INTEREST COMPONENT. THE AO DID NOT MAKE ANY INQUIRY AS REGARDS THE APPLICATION OF SECTION 36(L)(III) PROVISO. AS PER P ARA 13 OF SIGNIFICANT ACCOUNTING RULES, THE ASSESSEE HAS MENTIONED THAT B ORROWING COSTS THAT ARE ATTRIBUTABLE TO THE ACQUISITION OR CONTRACT OF QUALIFYING ASSET ARE CAPITALIZED AS PER THE COST OF SUCH ASSETS. BUT THE ASSESSEE HAS NOT GIVEN ANY DETAIL ABOUT INTEREST COMPONENT IN THE CA PITAL WORK IN PROGRESS WHICH IS TO BE CALCULATED FOR THE PERIOD BEGINNING FROM THE DATE ON WHICH THE CAPITAL WAS BORROWED FOR ACQUISITION OF THE ASSET TILL THE DATE OF WHICH SUCH ASSET WAS FIRST P UT TO USE. THE AO DID NOT MAKE ANY INQUIRY OR RAISED ANY QUERY FOR CALCUL ATING THE INTEREST TO BE CAPITALIZED U/S 36(L)(III) PROVISO. THE AO DID NOT MAKE ANY FURTHER INQUIRY AS WHETHER THE CALCULATION MADE BY THE ASSE SSEE, IF ANY, IS CORRECT OR NOT. 18. THE ASSESSEE HAS ATTACHED ANNEXURE E AS MAJOR A DDITIONS TO FIXED ASSETS IN THE A.Y. 2010-11. THE TOTAL AMOUNT IS RS. 37.67 CRORES. THE AO HAS NOT MADE ANY INQUIRY AS REGARDS THE INTE REST COMPONENT WHICH WOULD BE LIABLE TO BE CAPITALIZED AS PER SECT ION 36(L)(III) PROVISO. 19. THE ASSESSEE HAS SHOWN LOANS & ADVANCES UNDER S CHEDULE LL (43 RD ANNUAL REPORT) OF RS. 27 CRORES. THE AO HAS NOT AS KED FOR THE PURPOSE OF SUCH ADVANCES AS WHETHER THESE ARE FOR B USINESS PURPOSE OR NOT. WHETHER SOME OF THE ADVANCES ARE MEANT FOR ACQ UISITION OF CAPITAL ASSET. IF THAT IS SO, THEN SECTION 36(L)(III) PROVI SO WOULD COME INTO OPERATION. NO SUCH QUERIES HAVE BEEN RAISED BY THE AO NOR ANY EXPLANATION GIVEN BY THE ASSESSEE. 20. THE ASSESSEE IN SCHEDULE 20(43 RD ANNUAL REPORT), PARA 1 HAS MENTIONED THAT ESTIMATED VALUE OF CONTRACTS (NET OF ADVANCES) TO BE EXECUTED ON CAPITAL ACCOUNT AND NOT PROVIDED FOR AMOUNT TO RS. 436.36 CRORES. AGAIN THE ASSESSEE HAS NOT MENTIONED THE ELEMENT OF INTEREST PERTAINING TO THESE CONTRACTS. 21. 36(L)(III): THE ASSESSEE HAS SHOWN INVESTMENT OF RS.7,531.28 CR ORES AND THE DETAIL IS GIVEN UNDERSCHEDULE 7(43 RD ANNUAL REPORT). SCHEDULE 7(43 RD ANNUAL REPORT) SHOWS THAT THE ASSESSEE HAS MADE LONG TERM INVESTMENTS. ALTHOUGH THE ASSESSEE I S HAVING BORROWED FUNDS TO THE EXTENT OF74% YET THE AO HAS N OT RAISED ANY QUERY AS REGARDS THE INTEREST COMPONENT ATTRIBUTABL E TO SUCH INVESTMENTS AND HOW IT IS ALLOWABLE UNDER THE BUSINESS HEAD I.E. U/S 36(L)(III). THE ASSESSEE HAS NOT ESTABLISHED AN Y NEXUS AS REGARDS THE ITA NO. 2487/DEL/2016 9 UTILIZATION OF FUNDS FROM OWN SOURCES OR FUNDS ON W HICH INTEREST IS PAID BY THE ASSESSEE. 22. RENTAL INCOME: THE ASSESSEE HAS SHOWN INCOME FROM HOUSE PROPERTY A T RS. 5,71,31,586/- AFTER AVAILING DEDUCTION U/S 24 OF RS . 61,42,331/-. THE ASSESSEE HAS SHOWN RENTAL INCOME FROM IFFCO TOWER,G URGAON. FROM THE DETAILS IT APPEARS THAT ASSESSEE HAS RENTED OUT CERTAIN TOWERS TO THE TELECOM COMPANIES LIKE BHARTI AIRTEL AND M/S BSNL. APPARENTLY, RENTING OF TOWER SHOULD NOT COME UNDER THE HEAD 'IN COME FROM HOUSE PROPERTY', AS IT SHOULD NOT COME UNDER THE PURVIEW OF PROPERTY CONSISTING OF ANY BUILDINGS OR LANDS APPURTENANT TH ERETO (REFER SECTION 22). NO ENQUIRY HAS BEEN MADE BY AO ON THIS ASPECT. 23. IN VIEW OF THE ABOVE, I AM OF THE OPINION THAT THE ORDER PASSED BY THE ASSESSING OFFICER U/S. 143(3) OF THE I.T. AC T, 1961 IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF T HE REVENUE. YOU ARE GIVEN AN OPPORTUNITY OF BEING HEARD AND SHOW CAUSE AS TO WHY THE IMPUGNED ORDER BE NOT ENHANCED/MODIFIED OR SET-ASIDE FOR FRE SH ASSESSMENT U/S 263 OF THE I.T. ACT, 1961. YOUR CASE IS FIXED FOR HEARING ON 04.01.2016 AT 3:30 PM. 8. ON THE VERY NEXT DAY I.E. ON 23.12.2015, THE LEA RNED PR. C.I.T. ISSUED A LETTER PURPORTED TO BE A SECOND SHOW CAUSE NOTICE U/S.26 3, THE CONTENTS OF WHICH ARE REPRODUCED BELOW:- IN CONTINUATION TO THIS OFFICE SHOW CAUSE NOTICE U /S. 263 FOR THE A.Y. 2010-11 DATED22.12.2015 ISSUED VIDE F. NO. PR. CIT- LL/SHOW CAUSE/263/2015-16/1175 THE FOLLOWING OBSERV ATIONS ARE ALSO MADE. 2. ONGOING THROUGH THE ANNUAL REPORT IT IS FOUND TH AT THE ASSESSEE HAS FOLLOWING ASSOCIATES:- (I) IFFCO-TOKIO GENERAL INSURANCE COMPANY LTD. (II) OMAN INDIA FERTILISER COMPANY S.A.O.C. (III) JORDAN INDIA FERTILISER COMPANY, L.L.C. (IV) IFFCO CHHATTISGARH POWER LTD. (V) IFFCO KISAN SANCHAR LTD. (VI) IFFCO KISAN SEZ LTD. (VII) INDUSTIRES CHIMIQUES DU SENEGAL (VIII) KISAN INTERNATIONAL TRADING, FZE (IX) NATIONAL COMMODITY & DERIVATIVES EXCHANGE LTD. (X) NATIONAL COLLATERAL MANAGEMENT SERVICES LTD. (XI) INDIAN POTASH LIMITED ITA NO. 2487/DEL/2016 10 (XII) IFFCO KISAN BAZAR & LOGISTICS LTD. (XIII) INDIAN FARM FORESTRY DEVELOPMENT COOPERATIVE LTD. (XIV) IFFCO FOUNDATION (XV) COOPERATIVE RURAL DEVELOPMENT TRUST (XVI) IFFCO KISAN SEWA TRUST (XVII) GROWMAX AGRI CORP. (XVIII) ARIA CHEMICALS (ORISSA) LTD. 3. THE ASSESSEE HAS SHOWN DIVIDEND INCOME FROM OMIF CO OMAN, INDIAN POTASH LIMITED. THE AO HAS NOT MADE AN Y INQUIRY AS REGARDS THE INCOME WHICH MIGHT HAVE BEEN RECEIVED OR DUE TO THE ASSESSEE FROM ASSOCIATES AS MENTIONED AB OVE. THE ASSESSEE HAS ALSO NOT ATTACHED ANY DOCUMENTS AS REG ARDS THE BALANCE SHEET, P&L A/C ETC. OF ASSOCIATES WHERE THE ASSESSEE IS HAVING INTEREST. FOR EXAMPLE, THE ASSESSEE HAS SIMP LY SHOWN DIVIDEND INCOME FROM OMIFCO OMAN BUT NO OTHER DOCUM ENT HAS BEEN ASKED BY THE AO OR GIVEN BY THE ASSESSEE. THE ASSESSEE WOULD BE TAXABLE ON THE GLOBAL INCOME IRRESPECTIVE OF THE ASSOCIATES FROM WHICH THE ASSESSEE DERIVES INCOME. THE ASSESSEE MAY BE ELIGIBLE FOR ANY KIND OF ALLOWANCE AS PER DO UBLE TAXATION AGREEMENT IF ANY WITH ANY OTHER COUNTRY. 4. IN PARA 22 OF SHOW CAUSE NO. 1175 DATED 22.12.20 15 IT HAS BEEN ASKED ABOUT THE RENTAL INCOME. IT IS FURTH ER CLARIFIED THAT THE ASSESSEE MAY BE SHOWING RENTAL INCOME FROM COMM UNICATION TOWERS FROM TELECOM COMPANIES. IF THAT IS THE CASE, THEN THE CASE OF THE ASSESSEE WOULD NOT FALL UNDER THE HEAD INCOM E FROM HOUSE PROPERTY AS THESE COMMUNICATION TOWERS CANNOT BE CALLED AS BUILDINGS OR LANDS APPURTENANT THERETO. 5. YOUR CASE IS FIXED FOR HEARING ON 04.01.2016 AT 3:30 PM, AS ALREADY INTIMATED IN SHOW CAUSE NOTICE U/S. 263 DATED 22.12.2015. 9. IN RESPONSE TO THE ABOVE SHOW CAUSE NOTICE, THE ASSESSEE FILE A DETAILED REPLY DATED 11 TH JANUARY 2016 AS WELL AS 19 TH JANUARY 2016 WHICH ARE COMPILED IN THE PAPER BOOK FILED WITH US (PAGES 355-390). TO SUMMARIZE THE ASSESSEE HAS RAISED THE FOLLOWING CONTENTIONS: THAT THE ASSESSING OFFICER HAS CONDUCTED DETAILED E NQUIRIES YEAR AFTER YEAR AND IT WAS ONLY AFTER EXAMINATION OF ALL FACTS THAT THE CR EDIT FOR DEEMED TAX PAID WAS ALLOWED; THAT THE ASSESSING OFFICER HAD EXAMINED THE CLAIM I N THE LIGHT OF ARTICLE 25(4) OF INDIA-OMAN DTAA AS WELL AS SECTION 90 OF THE INCOME TAX ACT, 1961; ITA NO. 2487/DEL/2016 11 THAT IN LIGHT OF THE ABOVE FACT THE ASSESSING OFFIC ER HAD TAKEN A PLAUSIBLE VIEW WHICH THE LD. PCIT CANNOT SUBSTITUTE. SEVERAL CASE LAWS WERE CITED AND COMPILED IN SUPPORT OF THIS CONTENTION. THAT ON MERITS AS WELL ON ANALYSIS OF THE PROVISION S OF INDIA-OMAN DTAA THE CLAIM OF THE ASSESSEE OUGHT TO HAVE BEEN ALLOWED. THAT IN RESPECT OF CAPITALIZATION OF INTEREST U/S 3 6(1)(III) PROVISO THE ASSESSEE SUBMITTED THAT THE SAME WAS IN LINE WITH ACCOUNTING POLICY REGULARLY FOLLOWED , CERTIFICATE OF STATUTORY AUDITORS , THAT THE FREE R ESERVES WERE SUFFICIENT ENOUGH TO COVER UP THE ADDITION OF FIXED ASSETS AS WELL AS CW IP , THAT THE ASSESSEE COMPANY HAD ALSO CAPITALIZED INTE REST OF RS.7.08 CRORES FOLLOWING A CONSISTENT ACCOUNTING POLICY, AS DISCLO SED AT PAGE NO.258 OF THE PAPER BOOK, IN THE AUDITED FINANCIAL STATEMENTS FROM YEAR TO YEAR. FURTHER THE ASSESSEE HAS ALSO STATED THAT DETAILED MATERIAL WAS CALLED FOR AND SUBMITTED BEFORE THE ASSESSING OFFICER. THE ASSESSE E HAS ALSO CITED SEVERAL CASE LAWS SUPPORTING ITS CONTENTION THAT ON MERITS NO DI SALLOWANCE U/S 36(1)(III) IS CALLED FOR. 10. VIDE HIS IMPUGNED ORDER U/S.263 OF THE I. T. ACT, 1961 THE LD. PCIT REJECTED THE VARIOUS SUBMISSIONS MADE BEFORE HIM. THE RELEVANT P ORTION OF THE FINDING OF THE PCIT WITH RESPECT TO THE CLAIM FOR ALLOWING TAX CREDIT FOR DE EMED TAX PAID ON DIVIDEND INCOME IN OMAN IS REPRODUCED HERE UNDER: 2. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE ASSESSEE. THE MAIN ISSUE IN REGARD TO THE CLAIM OF THE TAX CREDIT EVEN THOUGH THE ASSESSEE HAS NOT PAID ANY TAX IN OMAN. THE ASSE SSEE HAS RELIED UPON ARTICLE 25(4) OF THE DOUBLE TAXATION AGREEMENT . 21. IN MY OPINION, THE A O DID NOT MAKE ANY VERIFICATION/ENQUIRIES AS REGARDS THE LEGAL VALUE OF LETTERS ISSUED BY THE SECRETARY GENERAL AND ALSO DID NOT MAKE ANY EN QUIRY AS REGARDS THE DESIGNED FOR ECONOMIC DEVELOPMENT. THERE WAS LA CK OF INQUIRY AND NON-APPLICATION OF MIND. 22. IF WE ACCEPT THE ARGUMENT OF THE ASSESSEE THAT ALL TAX INCENTIVES WOULD BE DEEMED AS PROMOTING ECONOMIC DEVELOPMENT, THEN THERE WAS NO NEED TO INSERT WORDS THAT THE TA X INCENTIVES ITA NO. 2487/DEL/2016 12 GRANTED UNDER THE LAW OF THE CONTRACTING STATE AND WHICH ARE DESIGNED TO PROMOTE ECONOMIC DEVELOPMENT. THERE WA S NO NEED TO WRITE WORDS AND WHICH ARE DESIGNED TO PROMOTE ECON OMIC DEVELOPMENT. THE STATUTE HAS TO BE READ WITH REFER ENCE TO WHAT HAS BEEN MENTIONED. THERE IS NO SCOPE OF GOING BEYOND W HAT HAS BEEN STATED. IN PARA 13 OF THE LETTER DATED 10.03.2016 I T WAS ESPECIALLY MENTIONED THAT THE WORD DESIGNED MEANS THAT THERE W OULD HAVE TO BE SOME CONSCIOUS EFFORT. PARA 13 OF THE LETTER DATED 10.03.2016 IS AGAIN REPRODUCED AS UNDER:- 13. THIS IS A GENERAL EXEMPTION FOR EVERY PERSON W HO SO EVER EARNS DIVIDEND INCOME. IT IS NOT NECESSARY THA T ANY SHAREHOLDER WHO EARNS DIVIDEND WOULD BE PROMOTING T HE ECONOMIC DEVELOPMENT. IT IS MERE INVESTMENT IN A PA RTICULAR COMPANY. A GENERAL EXEMPTION CANNOT BE STRETCHED TO SAY THAT THIS IS DESIGNED FOR ECONOMIC DEVELOPMENT WHER EAS ARTICLE 25(4) CLEARLY MENTIONS THAT THE INCENTIVE S HOULD BE DESIGNED FOR ECONOMIC DEVELOPMENT. YOU MAY KINDLY N OTE EVEN THE WORD DESIGN WHICH MEANS THERE WOULD HAVE T O BE SOME CONSCIOUS EFFORT. THE ENGLISH MEANING OF DESIG N IS TO DO OR PLAN (SOMETHING) WITH A SPECIFIC PURPOSE IN MIND . GIVING A GENERAL EXEMPTION DOES NOT LEAD TO A SPECIFIC PURPO SE IN MIND. GENERAL EXEMPTION DOES NOT SHOW THAT THERE IS A SPECIFIC PURPOSE. IF THAT IS SO, THEN THE SAME SHOU LD HAVE BEEN INCORPORATED IN THE SULTANI DEGREE. THE SULTANI DEG REE TILL DATE HAS NOT THOUGHT UPON FOR THE LAST 16 YEARS, TO AMEND THE SULTANI DEGREE SO AS TO INCORPORATE THAT EXEMPTION GIVEN TO DIVIDEND INCOME IS DESIGNED FOR ECONOMIC DEVELOPMEN T WITHIN THE PURVIEW OF ARTICLE 25(4) OF DOUBLE TAXAT ION AGREEMENT. PLEASE OFFER YOUR COMMENTS. 23. THE ASSESSEE HAS NOT GIVEN ANY SPECIFIC REPLY T O THIS PARA OF MY LETTER WHICH EXPLAINS WORD DESIGNED FOR ECONOMIC DEVELOPMENT HAS A PARTICULAR MEANING. THEREFORE, WE CANNOT SAY THAT ANY GENERAL EXEMPTION WOULD BE MEANT DESIGNED FOR ECONOMIC DEVE LOPMENT. IT WAS THE WISDOM OF BOTH THE COUNTRIES WHO ENTERED IN TO DOUBLE TAXATION AGREEMENT THAT THE ARTICLE 25(4) WOULD GIV E TAX BENEFIT ONLY WHEN THE TAX INCENTIVE HAS BEEN DESIGNED FOR E CONOMIC DEVELOPMENT. WE CANNOT BY ANY STRETCH OF IMAGINATION INTERPRET THESE WORDS AS POINTING TOWARDS GENERAL EXEMPTION. THE ASSESSEE SOUGHT A CLARIFICATION FROM THE OMAN OFFICERS WHERE AS IT WAS A MATTER TO BE DECIDED BY BOTH THE COUNTRIES AS IT IS RELATING TO DOUBLE TAXATION AGREEMENT WHICH WAS ENTERED INTO BY BOTH T HE COUNTRIES. THAT MEANS THE ISSUE HAS TO BE DECIDED NOT BY ONE C OUNTRY BUT BY BOTH THE COUNTRIES AS DOUBLE TAXATION AGREEMENT IS ENTERED INTO BY TWO COUNTRIES. THERE COULD HAVE BEEN CERTAIN SCHEME S WHICH ARE DESIGNED FOR ECONOMIC DEVELOPMENT. THE INTERPRETATI ON OF THE WORDS DESIGNED FOR ECONOMIC DEVELOPMENT COULD NOT BE BR USHED ASIDE BY SIMPLE SAYING THAT ANY INVESTMENT IS FOR ECONOMIC D EVELOPMENT. EVEN IF WE AGREE THAT THE CONTENTION OF THE ASSESSE E, THE BASIC ITA NO. 2487/DEL/2016 13 REQUIREMENT DESIGNED FOR ECONOMIC DEVELOPMENT HAS N OT BEEN FULFILLED. THE ASSESSEE HAS TO DEMONSTRATE THAT CER TAIN INVESTMENTS WERE DESIGNED FOR ECONOMIC DEVELOPMENT. IF WE DO NO T INTERPRET PROPERLY THE WORDS DESIGNED FOR ECONOMIC DEVELOPMEN T, THEN SUCH WORDS WOULD BECOME REDUNDANT. THIS AGREEMENT HAS BE EN ENTERED INTO BY BOTH THE COUNTRIES WITH ALL ITS WISDOM FOR INCORPORATING THE WORDS DESIGNATED FOR ECONOMIC DEVELOPMENT. .. . 28. THE ASSESSEE HAS FURTHER REFERRED TO ROYAL DECR EE NO.68/2000 AND STRESSED UPON THE WORDS IN EXIGENCI ES OF PUBLIC GOOD. THE WORDS EXIGENCIES OF PUBLIC GOOD CANNOT B E EQUATED WITH DESIGNED FOR ECONOMIC DEVELOPMENT. BOTH HAVE DIFF ERENT MEANINGS AND CONNOTATIONS. ARTICLE 25(4) SPECIFICAL LY MENTIONS THE WORDS DESIGNED FOR ECONOMIC DEVELOPMENT. HAD THERE BEEN SUCH INTENTION THE ROYAL DECREE COULD HAVE MENTIONED THE WORD DESIGNED FOR ECONOMIC DEVELOPMENT. IN THEIR WISDOM THEY DID NOT THINK IT PROPER TO USE THE SAME WORDS AS GIVEN IN ARTICLE 25 (4). IN THE JURISPRUDENCE A PARTICULAR EXPRESSION CANNOT BE DEE MED AS COVERING ANY OTHER EXPRESSION. FOR EXAMPLE, IN THIS CASE THE EXIGENCY OF PUBLIC GOOD CANNOT BE EQUATED WITH DESIGNATED FOR ECONOMIC DEVELOPMENT. THEREFORE THE ASSESSEE CANNOT TAKE A NY SUPPORT FROM THE WORDS THE EXIGENCIES OF PUBLIC GOODS. THE ASS ESSEE ON PAGE 135 HAS PLACED THE AMENDMENTS TO THE LAW OF INCOME TAX OF COMPANY (PLACED AS ANNEXURE-2). ARTICLE-2). ARTICLE 8(BIS) SIMPLY SAYS AS UNDER:- AS AN EXCEPTION FROM THE PROVISIONS OF ARTICLE (8) OF THIS LAW, TAX SHALL NOT APPLY TO THE FOLLOWING:- 3) DIVIDENDS RECEIVED BY THE COMPANY FROM ITS OWNERSHIP OF SHARES, PORTIONS OR SHAREHOLDING IN TH E SHARE CAPITAL OF ANY OTHER COMPANY. 4) PROFITS OR GAINS REALIZED BY THE COMPANY FROM TH E SALE OR DISPOSAL OF SECURITIES REGISTERED IN MUSCAT SECU RITIES MARKET. 29. THE ASSESSEE HAS AGAIN RELIED UPON A LETTER DAT ED 11.12.2000 (PLACED AS ANNEXURE-3) ISSUED TO OMAN OIL COMPANY ( SAOC) BY THE SECRETARY GENERAL FOR TAXATION. IN THIS LETTER IT HAS BEEN MENTIONED THAT AS PER THE NEWLY INTRODUCED ARTICLE 8(BIS) OF THE COMPANY INCOME TAX LAW, DIVIDEND DISTRIBUTED BY ALL COMPA NIES, INCLUDING THE TAX EXEMPT COMPANIES WOULD BE EXEMPT FROM PAY MENT OF INCOME TAX IN THE HANDS OF THE RECIPIENTS. IN THIS MANNER, THE GOVERNMENT OF OMAN WOULD ACHIEVE ITS MAIN OBJECTIVE OF PROMOTING ECONOMIC DEVELOPMENT WITH IN OMAN BY ATTRACTING INV ESTMENTS. IT IS FURTHER MENTIONED THAT THE INTERPRETATION OF ARTICL E 8(BIS) IS TO PROMOTE ECONOMIC DEVELOPMENT IN OMAN IN THE INDIAN INVESTORS ITA NO. 2487/DEL/2016 14 SHOULD BE ABLE TO OBTAIN RELIEF IN INDIA ARTICLE 25 (4) OF THE AGREEMENT FOR AVOIDANCE OF DOUBLE TAXATION IN INDIA. 30. IN THE OPINION OF THE REVENUE IT IS JUST AN OPI NION FROM AN OFFICER OF THE OMAN IN REGARD TO INTERPRETATION OF ARTICLE 8(BIS) AND CANNOT TAKE THE FORM OF A STATUTE UNTIL AND UNLESS THE OFFICER IS AUTHORIZED OR DERIVES AUTHORITY FROM THE OMANI TAX LAW. 31.1 ON PERUSAL OF OMANI TAX LAW, IT IS FOUND THAT THE SECRETARY GENERAL FOR TAXATION DOES NOT DERIVE ANY AUTHORITY FOR ISSUING SUCH LETTER THAT HAS THE SANCTITY OF A LAW FOR INTERPRET ING A PARTICULAR ARTICLE. ARTICLE 4(BIS) HAS A REFERENCE OF THE SECR ETARY GENERAL. AS PER ARTICLE 2(6)(BIS) A SECRETARY GENERAL MEANS THE SECRETARY GENERAL FOR TAXATION AT THE MINISTRY OF FINANCE WH ICH IS MENTIONED IN ARTICLE 4(BIS) OF THE LAW. . 38. THE HON'BLE ITAT HAS GIVEN RELIEF PRIMARILY ON THE BASIS OF THE LETTER ISSUED BY SECRETARY GENERAL VIDE LETTER DATED 11.12.2000 . IT HAS BEEN PERHAPS MISINTERPRETED TO BE ISSUED BY THE SULTANATE OF OMAN. WITH DUE RESPECT TO THE HON'BLE ITAT, THE DEC ISION OF THE HON'BLE ITAT MAY BE CONTESTED BEFORE THE HON'BLE HI GH COURT. AS ALREADY EXPLAINED ABOVE, THE CLARIFICATION ISSUED B Y THE SECRETARY GENERAL IS AT THE MOST AN OPINION AND DOES NOT TAKE THE SHAPE OF LAW. THE SECRETARY GENERAL FOR TAXATION IN ITS LETT ERS, HAS NOT REFERRED TO ANY ARTICLE OF OMANI TAX LAW FROM WHICH THE SECRETARY GENERAL DERIVES ITS AUTHORITY TO ISSUE SUCH LETTERS . IT APPEARS THAT THE SECRETARY GENERAL RESPONDED TO A LETTER OF OMANI OI L COMPANY AND NOTHING ELSE. EFFECTIVELY THE SECRETARY GENERAL IN ITS LETTER HAS INTERPRETED ARTICLE 25(4) WHICH IS MAINLY IN THE DO MAIN OF TWO GOVERNMENT, NOT UNDER ANY OFFICER, MAY BE A VERY SE NIOR OFFICER UNDER THE OMANI TAX LAW. THE MATTER HAS TO BE SETTL ED BY THE TWO GOVERNMENTS AND NOT BY A SINGLE OFFICER OF THE OMAN I TAX LAW AND THAT TOO IN RESPONSE TO A LETTER OF A COMPANY. 39. THE TAX CREDIT CAN BE GIVEN ONLY WITH THE STRIC T INTERPRETATION AS HELD BY THE APEX COURT IN THE CASE OF TARULATA S HYAM (SUPRA). 40. THE HON'BLE ITAT DID NOT CONSIDER THIS ASPECT THAT THE INTERPRETATION HAS TO BE WITH REFERENCE TO THE WOR DS USED IN THE ACT/DTAA. THE HON'BLE ITAT, PERHAPS PRESUMED THAT THIS IS A LETTER ISSUED BY SULTANATE OF OMAN. BUT THE LETTERS WERE ISSUED BY ONE OFFICER OF OMAN WHO HAS NO AUTHORITY UNDER TH E LAW TO ISSUE SUCH CLARIFICATION. IF HE HAS ISSUED SUCH CLARIFICA TION, AT THE MOST IT COULD BE CONSIDERED AS HIS OPINION. THE DEPARTMENT MAY FILE A MISCELLANEOUS APPLICATION BEFORE THE HON'BLE ITAT POINTING OUT THAT THE SAID LETTERS ARE JUST AN OPINION FROM THE OFFICERS OF THE DEPARTMENT AND THERE WAS SOME AMENDMENT IN THE LA W. THIS IS APPARENT MISTAKE OF LAW AS WELL AS MISTAKE ON THE FACE OF FACTS. THE ITA NO. 2487/DEL/2016 15 HON'BLE ITAT DID NOT CONSIDER THE ASPECT THAT ANY INTERPRETATION HAS TO BE BETWEEN TWO GOVERNMENTS UNDER THE DTAA, NOT BY ONE OFFICER OF OMAN AND THAT TOO IN RESPONSE TO A LETT ER. IT IS UNCONCEIVABLE THAT ANY INTERPRETATION OF LAW COUL D BE IN RESPONSE TO A LETTER OF A COMPANY AND THEN IT IS TO BE TREAT ED AS IF IT IS OMANI LAW. THIS IS A MISTAKE OF FACT AND LAW. THE HON'BLE ITAT DID NOT CONSIDER THE ASPECT THAT THE LETTERS HAVE NOT BEEN ISSUED BY QUOTING ANY ARTICLE OF OMANI TAX LAW FROM WHICH THE SECRE TARY GENERAL WOULD DERIVE THE AUTHORITY. IN THE LEGAL JURISPRU DENCE THIS IS ONE OF THE REQUIREMENTS TO SHOW ITS AUTHORITY UNDER THE L AW. 41. IN MY OPINION THE MATTER IS UNAMBIGUOUS. HOWEVE R, IN VIEW OF CIRCUMSTANCES OF THE CASE JUSTIFY, THE MATTER I S RESORTED TO THE FILE OF THE A O IN EXERCISE OF MY POWER U/S.263 THAT SAYS THAT PASS SUCH ORDER THEREON AS THE CIRCUMSTANCES OF THE CA SE JUSTIFY WITH FOLLOWING OBSERVATIONS:- THE A O WOULD REFER THE MATTER TO THE CONCERNED AUT HORITIES WHO ARE RESPONSIBLE FOR ENTERING INTO DOUBLE TAXATI ON AGREEMENT. THE A O, THROUGH PROPER CHANNEL, WOULD W RITE A LETTER TO THE OFFICERS OF THE DEPARTMENT PERHAPS FT D WHO MAY REQUEST THE OMANI GOVERNMENT AS REGARDS THE INTERPRETATION OF ARTICLE 25(4) OF TDAA WITH PARTIC ULAR EMPHASIS ON THE WORD DESIGNED FOR ECONOMIC DEVELOPM ENT. THE A O WOULD NARRATE ALL THE FACTS AND ALSO SEND A COPY OF THE ORDER U/S.263 PASSED BY ME WHEREIN I HAVE MADE CERTAIN OBSERVATIONS AS REGARDS THE INTERPRETATION. IT IS Q UITE POSSIBLE THAT BOTH THE GOVERNMENTS I.E. INDIA AND OMAN MAY R EACH AT A CONCLUSION THAT MAY BE IN FAVOUR OF REVENUE OR IN FAVOUR OF THE ASSESSEE. PENDING ANY COMMUNICATION FROM THE CONCERNED AUTHORITIES, THE VIEW MAY BE THAT THE ASS ESSEE IS NOT ENTITLED FOR TAX CREDIT. THE PROCESS SHOULD BE STARTED IN THE MONTH OF APRIL ITSELF SO THAT NECESSARY COMMUNI CATION COULD COME IN TIME AS THE ASSESSMENT HAS TO BE FRAM ED U/S.143(3) / 263 WITHIN THE TIME LIMITED. 11. IN SUPPORT OF GROUND OF APPEAL RAISED BY THE AS SESSEE SOCIETY, THE LEARNED COUNSEL OF THE ASSESSEE FILED THE PAPER BOOK COMPRISING OF DET AILED WRITTEN SUBMISSIONS, RELEVANT DOCUMENTS AND ALSO RELIED UPON VARIOUS JUDICIAL DEC ISIONS. FOR THE SAKE OF CLARITY, THE RELEVANT PORTION OF THE SUBMISSIONS MADE BY THE LE ARNED COUNSEL OF THE ASSESSEE FROM PARA- 8.3 TO 8.11, PAGES 24 TO 72 OF THE PAPER BOOK, IS R EPRODUCED BELOW:- 8.3 FOR BETTER UNDERSTANDING, THESE GROUNDS HAVE BEEN DIVIDED INTO SEVERAL CATEGORIES AS MENTIONED ABOVE AND I T WOULD BE CONVENIENT TO PROCEED WITH FURTHER ELABORATION CAT EGORY- WISE, IN THE FOLLOWING SUBMISSIONS:- ITA NO. 2487/DEL/2016 16 (A) DEEMED TAX CREDIT ON DIVIDEND INCOME FROM OMIFCO: IN RESPONSE TO THE SHOW CAUSE NOTICE ISSUED BY THE LEARNED PR. CIT, THE APPELLANT-SOCIETY FILED A COMPREHENSIVE WRITTEN REPLY DATED 11 TH JANUARY, 2016 WHEREIN THE FACTUAL AND THE LEGAL POSITION WAS FU LLY EXPLAINED AND IT WOULD BE WORTHWHILE TO REPRODUCE BELOW THE RELEVANT PART OF THIS WRITTEN REPLY:- 3.1.2 ON THE FACTS IN OUR CASE, AS POINTED OUT IN THE N OTICE ITSELF, THE LD. A.O HAD SPECIFICALLY ENQUIRED FROM THE SOCIETY THE FOLLOWING QUESTIONS AT POINT 29 AND 30 OF THE QUESTIONNAIRE ISSUED AS PART OF THE SCRUTINY PROCEEDINGS ON 30 TH SEP,2013 :- 29.IN RESPECT OF ANY INCOME COVERED IN DTAA, PLEASE FURNISH DETAILED NOTE WITH COPY OF RESPECTIVE AGREE MENT AND ALSO GIVE REASONS FOR CLAIMING RELIEF U/S 90 OF THE ITACT,1961. 30. PLEASE GIVE A DETAILED NOTE ON TAX CREDIT CLAIMED BY THE SOCIETY IN RESPECT OF DIVIDEND INCOME RECEIVED FROM OMIFCO 3.1.3 THE SOCIETY VIDE ITS REPLY DATED 12 TH NOV, 2013 (RELEVANT EXTRACTS ENCLOSED AS ANNEXURE-I ) GAVE A DETAILED REPLY HIGHLIGHTING THE RELEVANT PROVISIONS OF THE INCOME TAX ACT, THE AGREEMENT FOR AVOIDANCE OF DOUBLE TAXATION AND PREVENTION OF FISCAL EVASION WI TH OMAN, AND THE JUDICIAL PRONOUNCEMENTS IN SUPPORT OF THE SOCIETYS CLAIM AS TO NON-TAXABILITY OF THE SAM E IN INDIA. A COPY OF THE DTAA AND THE COMMERCIAL REGISTRATION CERTIFICATE ISSUED BY THE GOVERNMENT O F OMAN WAS ALSO ENCLOSED FOR PERUSAL OF THE ASSESSING AUTHORITY. THE ISSUE WAS ALSO DISCUSSED WITH THE LD . A.O IN SUBSTANTIVE DETAILS DURING THE COURSE OF THE HEARING . 3.1.4 FURTHER, IN SUBSEQUENT HEARING ON 20 TH FEB, 2014 , THE LD. A.O SPECIFICALLY EXPRESSED DISINCLINATION TO AC CEPT THE SOCIETYS CLAIM FOR EXEMPTION AND ENQUIRED ABOU T SUBSTANTIATING THE ALTERNATIVE CLAIM OF CREDIT FOR TAXES DEEMED TO HAVE BEEN PAID IN OMAN UNDER ARTICLE 25 O F THE DTAA ON THE LINES OF THE EARLIER YEARS ( FROM FY 2005-06 TO FY 2008-09 ) . 3.15 ACCORDINGLY, THE SOCIETY MADE ALTERNATIVE SUBM ISSIONS VIDE ITS LETTER DATED 26 TH FEB, 2014 (COPY ENCLOSED AS ANNEXURE-II ) IN SUPPORT OF ITS CLAIM FOR TAX CREDIT ITA NO. 2487/DEL/2016 17 UNDER ARTICLE 25(4) OF THE DTAA READ WITH SECTION 90(1)(A)(II) OF THE IT ACT. THIS REPLY DETAILED OUT THE RELEVANT PROVISIONS OF THE OMANI TAX LAW INCLUDING ARTICLE 8 ( BIS ) WHICH GOVERNED THE DIVIDEND EXEMPTION AFTER HAVING BEEN SPECIFICALLY AMENDED BY ROYAL DECREE 68 OF 2000 AS A MEASURE TO ENCOURAGE ECONOMI C DEVELOPMENT. THE REPLY SPECIFICALLY MENTIONS AT POI NT B.2 THE RATIONALE FOR THIS INCENTIVE COMING UNDER T HE AMBIT OF ARTICLE 25(4) OF THE DTAA. FURTHER AT POI NT A.4 OF THE REPLY, REFERENCE HAD BEEN MADE TO THE ASSESSMENT ORDERS PASSED BY THE TAX AUTHORITIES IN OMAN IN THE ASSESSEES CASE WHICH SPECIFICALLY RECORDED THE OBJECTIVE FOR THE EXEMPTION UNDER ARTICLE 8 ( BIS ) TO PROMOTE ECONOMIC DEVELOPMENT WITHIN OMAN TO ATTRACT INVESTMENTS . IT ALSO CONTAINED THE WORKING OF THE TAX CREDIT AND JUDICIA L PRONOUNCEMENTS IN SUPPORT OF THE CLAIM. ON THE DAT E OF HEARING ON 26 TH FEB, 2014 TOO, THE ISSUE OF CREDIT FOR DEEMED TAXES PAID IN OMAN AND THE RATIONALE FOR SUC H A PROVISION WAS DISCUSSED AT LENGTH WITH THE LD. A. O . 3.1.6 IN THE ASSESSMENT ORDER DATED 28 TH FEB.,2014 , THE LD. A.O SPECIFICALLY RECORDS ARTICLES 25(2) AND 25(4) O F THE DTAA AND VIDE FINDING AT PARA 3.3 AND 3.4 RECORDS T HAT IN VIEW OF THE ABOVE PROVISIONS, THE TAX CREDIT FOR TAXES WHICH WOULD HAVE BEEN PAYABLE IS BEING ALLOWE D TO THE ASSESSEE . 3.1.7 FROM THE ABOVE FACTUAL MATRIX, IT IS LUMINESC ENT THAT THE LD. A.O HAD NOT ONLY ENQUIRED ABOUT THE TAX CREDIT CLAIM IN THE HEARING ON 20 TH FEB, 2014 BUT ALSO ANALYSED ARTICLE 25(4) OF THE DTAA ( REPRODUCED IN THE ASSESSMENT ORDER ) IN THE LIGHT OF OUR REPLY CONTAINING REASONS FOR THE CLAIM AS PER THE ROYAL DECREE 68 OF 2000 WHICH AMENDED ARTICLE 8 OF THE OMANI TAX LAW. AFTER HAVING ANALYSED OUR REPLY ONLY, THE LD. A.O H AD ALLOWED THE TAX CREDIT IN THE ASSESSMENT ORDER SPECIFICALLY GIVING REFERENCE TO ARTICLES 25(4) AND 25(2) OF THE DTAA. IN OUR REPLY, THERE WAS A SPECIFIC REFERENCE TO THE FOLLOWING : A. THE PREAMBLE OF THE ROYAL DECREE WHICH HIGHLIGHTED THE AIM OF THE AMENDMENT AS EXIGENCIES OF PUBLIC GOOD. B. THE ASSESSMENT ORDERS PASSED BY THE OMANI TAX AUTHORITIES RECORDING THE OBJECTIVE OF THE TAX EXEMPTION BEING TO PROMOTE ECONOMIC DEVELOPMENT. ITA NO. 2487/DEL/2016 18 THUS, IT CANNOT BE CONCLUDED AT THIS STAGE NOW THAT THE LD. A.O HAS NOT APPLIED HIS MIND ON THE MERITS OF T HE ISSUE. IT IS INCORRECT TO STATE THAT THE A.O HAS SIMPLY ACCEPTED THE VERSION OF THE ASSESSEE . IT IS TRITE THAT THE ONLY AUTHORITY COMPETENT TO COMMENT/CLARIFY ON THE OBJECTIVE OF THE TAX EXEMPTION GIVEN BY THE OMANI TAX LAW CAN BE THE OMANI TAX AUTHORITIES ONLY . BY BELIEVING THE OBJECTIVE OF THE TAX INCENTIVE AS STATED IN THE ASSESSMENT ORDER ISSUED BY THE OMANI TAX AUTHORITIES, THE ASSESSING OFFICER HAS BELIEVED THE OMANI TAX AUTHORITIES AND NOT THE ASSESSEE ALONE AS CLAIMED IN THE SHOW CAUSE NOTICE. BY BELIEVING THE OMANI TAX AUTHORITIES, THE LD. A.O HAS TAKEN A PERFECTLY LEGAL VIEW OF ALLOWING THE TA X CREDIT ON A COMBINED READING OF ARTICLES 25(2) AND 25(4). BY TAKING THE ONLY LEGALLY PLAUSIBLE VIEW, T HE ORDER CANNOT BE TERMED AS ERRONEOUS IN THE EYES OF THE LAW TO FALL WITHIN THE SCOPE OF THE REVISIONARY POW ER U/S. 263. 3.1.8 IT IS PERTINENT TO NOTE THAT EVEN AFTER THE A MENDMENT TO SECTION 263 BY FINANCE ACT 2015, EXPLANATION - 2 CLEARLY SAYS THAT THE ORDER IS DEEMED TO BE ERRONEOUS IF THE ORDER IS PASSED ALLOWING ANY RELIEF WITHOUT INQUIRING INTO THE CLAIM . THE SUBSTANCE OF THE AMENDMENT IS THAT ONLY A COMPLETE LACK OF ENQUIRY I N CONTRAST TO SUFFICIENCY OF ENQUIRY CAN BE A GROUND FOR REVISION. 3.19 IN SUPPORT OF THE ABOVE LEGAL ARGUMENT, RELIAN CE IS PLACED ON THE FOLLOWING PRONOUNCEMENTS OF THE JUDICIARY : ( RELEVANT EXTRACTS REPRODUCED FOR EASE OF REFERENCE): I. SC IN MAX INDIA LIMITED 295 ITR 282 (2007) AFFIRMING P&H HC 268 ITR 128 AND FOLLOWING SC IN MALABAR INDUSTRIAL CO. LTD 243 ITR 83 (2000) EVERY LOSS OF REVENUE AS A CONSEQUENCE OF AN ORDER OF THE ASSESSING OFFICER CANNOT BE TREATED AS PREJUDIC IAL TO THE INTERESTS OF THE REVENUE. FOR EXAMPLE, WHEN AN INCOME-TAX OFFICER ADOPTED ONE OF THE COURSES PERMISSIBLE IN LAW AND IT HAS RESULTED IN LOSS OF REVENUE; OR WHERE TWO VIEWS ARE POSSIBLE AND THE INCOME-TAX OFFICER HAS TAKEN ONE VIEW WITH WHICH TH E COMMISSIONER DOES NOT AGREE, IT CANNOT BE TREATED A S AN ERRONEOUS ORDER PREJUDICIAL TO THE INTERESTS OF THE REVENUE, UNLESS THE VIEW TAKEN BY THE INCOME-TAX OFFICER IS UNSUSTAINABLE IN LAW . ITA NO. 2487/DEL/2016 19 II. DELHI HIGH COURT IN POWER FINANCE CORPORATION LTD (2015-TIOL-2414-HC-DEL) FOLLOWING COORDINATE BENCH IN HONDA SIEL POWER PRODUCTS (2010-TIOL-468-HC-DEL) FROM THE AFORESAID DISCUSSION, IT IS APPARENT THAT THE EXPRESSION PREJUDICIAL TO THE INTEREST OF REVENUE APPEARING IN SECTION 263 HAS TO BE READ IN CONJUNCT ION WITH THE EXPRESSION ERRONEOUS AND THAT EVERY LOSS OF REVENUE AS A CONSEQUENCE OF AN ORDER OF THE ASSESSI NG OFFICER CANNOT BE TREATED AS PREJUDICIAL TO THE INT EREST OF THE REVENUE. IN CASES WHERE THE ASSESSING OFFICE R ADOPTS ONE OF THE COURSES PERMISSIBLE IN LAW OR WHE RE TWO VIEWS ARE POSSIBLE AND THE INCOME-TAX OFFICER H AS TAKEN ONE VIEW, THE COMMISSIONER OF INCOME-TAX CANN OT EXERCISE HIS POWERS UNDER SECTION 263 TO DIFFER WIT H THE VIEW OF THE ASSESSING OFFICER EVEN IF THERE HAS BEE N A LOSS OF REVENUE. OF COURSE, IF THE ASSESSING OFFICE R TAKES A VIEW WHICH IS PATENTLY UNSUSTAINABLE IN LAW, THE COMMISSIONER OF INCOME-TAX CAN EXERCISE HIS POWERS UNDER SECTION 263 WHERE A LOSS OF REVENUE RESULTS A S A CONSEQUENCE OF THE VIEW ADOPTED BY THE ASSESSING OFFICER III. DELHI HIGH COURT IN SUNBEAM AUTO LTD.-332 ITR 167 (DELHI)-2011 ... THEREFORE, ONE HAS TO SEE FROM THE RECORD AS TO WHETHER THERE WAS APPLICATION OF MIND BEFORE ALLOWI NG THE EXPENDITURE IN QUESTION AS REVENUE EXPENDITURE. LEARNED COUNSEL FOR THE ASSESSEE IS RIGHT IN HIS SUBMISSION THAT ONE HAS TO KEEP IN MIND THE DISTINC TION BETWEEN 'LACK OF INQUIRY' AND 'INADEQUATE INQUIRY'. IF THERE WAS ANY INQUIRY, EVEN INADEQUATE THAT WOULD N OT BY ITSELF GIVE OCCASION TO THE COMMISSIONER TO PASS ORDERS UNDER SECTION 263 OF THE ACT, MERELY BECAUSE HE HAS DIFFERENT OPINION IN THE MATTER. IT IS ONLY IN CASES OF 'LACK OF INQUIRY' THAT SUCH A COURSE OF ACTION WOUL D BE OPEN IV. BOMBAY HIGH COURT-GABRIEL INDIA LTD.-203 ITR 108 (1993) CASES MAY BE VISUALISED WHERE THE INCOME-TAX OFFIC ER WHILE MAKING AN ASSESSMENT EXAMINES THE ACCOUNTS, MAKES ENQUIRIES, APPLIES HIS MIND TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND DETERMINES THE INCOME EITHER BY ACCEPTING THE ACCOUNTS OR BY MAKING SOME ESTIMATE HIMSELF. THE COMMISSIONER, ON PERUSAL OF T HE RECORDS, MAY BE OF THE OPINION THAT THE ESTIMATE MA DE BY THE OFFICER CONCERNED WAS ON THE LOWER SIDE AND LEFT ITA NO. 2487/DEL/2016 20 TO THE COMMISSIONER HE WOULD HAVE ESTIMATED THE INCOME AT A FIGURE HIGHER THAN THE ONE DETERMINED B Y THE INCOME-TAX OFFICER. THAT WOULD NOT VEST THE COMMISSIONER WITH POWER TO RE-EXAMINE THE ACCOUNTS AND DETERMINE THE INCOME HIMSELF AT A HIGHER FIGURE . IT IS BECAUSE THE INCOME-TAX OFFICER HAS EXERCISED THE QUASI-JUDICIAL POWER VESTED IN HIM IN ACCORDANCE WI TH LAW AND ARRIVED AT A CONCLUSION AND SUCH A CONCLUSI ON CANNOT BE TERMED TO BE ERRONEOUS SIMPLY BECAUSE THE COMMISSIONER DOES NOT FEEL SATISFIED WITH THE CONCLUSION. IT MAY BE SAID IN SUCH A CASE THAT IN T HE OPINION OF THE COMMISSIONER THE ORDER IN QUESTION I S PREJUDICIAL TO THE INTERESTS OF THE REVENUE. BUT TH AT BY ITSELF WILL NOT BE ENOUGH TO VEST THE COMMISSIONER WITH THE POWER OF SUO-MOTTO REVISION BECAUSE THE FIRST REQUIREMENT, VIZ., THAT THE ORDER IS ERRONEOUS, IS ABSENT . IN VIEW OF THE ABOVE SUBMISSIONS, IT IS PRAYED THA T THE INITIATION OF PROCEEDINGS UNDER SECTION 263 IS NOT LEGALLY TENABLE AND THE SAME NEED TO BE DROPPED IN THE INSTANT CASE SINCE AS AMPLY EVIDENCED BY THE RECORD, THE LD. A.O HAS TAKEN A VALID LEGAL STAND ON THE ISSUE OF TAX CREDIT AFTER FULL APPLICATION OF H IS MIND. 3.1.10WITHOUT PREJUDICE TO THE ABOVE, IT IS FURTHER SUBMITTED THAT THE ISSUE OF TAX CREDIT IS PART OF THE LARGER ISSUE OF THE RIGHTS OF THE COUNTRY OF RESIDENCE TO TAX INCOM E ALREADY SUBJECTED TO TAX UNDER ARTICLE 7 OF THE DTA A IN THE COUNTRY OF SOURCE WHICH IS A SUBJECT MATTER OF APPEAL FILED BY THE SOCIETY BEFORE THE HONBLE INCO ME TAX APPELLATE TRIBUNAL UNDER S.253 OF THE I.T ACT,1961. THE SUBJECT OF EXEMPTION INCLUDES AN INTERPRETATION TO THE ENTIRE TREATY PROVISIONS WHIC H INCLUDE ARTICLE 25 TOO WHICH IS THE SUBJECT MATTER OF THE PROPOSED REVISION. HENCE, IN VIEW OF EXPLANATION (C ) U/S 263(1), THE ISSUE OF TAX CREDIT CANNOT BE SUBJE CT MATTER OF REVISION. 3.2 REPLY ON MERITS OF THE ISSUE 3.2.1 ON MERITS, THE CRUX OF THE ISSUE IS WHETHER T HE EXEMPTION FROM TAX GRANTED UNDER THE OMANI TAX LAW ON DIVIDENDS EARNED BY THE SOCIETYS PE IN OMAN FALLS WITHIN THE AMBIT OF ARTICLE 25(4) OF THE DTAA WITH OMAN READ WITH SECTION 90 OF THE INCOME TAX ACT,196 1 OR NOT. 3.2.2 TO APPRECIATE THE BACKGROUND OF ARTICLE 25(4) , SECTION 90 WHICH GOVERNS THE POWER OF THE CENTRAL GOVERNMENT T O ITA NO. 2487/DEL/2016 21 ENTER INTO AGREEMENT WITH ANOTHER COUNTRY IS ANALYS ED BELOW. ' AGREEMENT WITH FOREIGN COUNTRIES OR SPECIFIED TERRITORIES . 90 (1) THE CENTRAL GOVERNMENT MAY ENTER INTO AN AGREEMENT WITH THE GOVERNMENT OF ANY COUNTRY OUTSID E INDIA OR SPECIFIED TERRITORY OUTSIDE INDIA, - (A) FOR THE GRANTING OF RELIEF IN RESPECT OF - (I) INCOME ON WHICH HAVE BEEN PAID BOTH INCOME TAX UNDER THIS ACT AND INCOME-TAX IN THAT COUNTRY OR SPECIFIED TERRITORY, AS THE CASE MAY BE, OR (II) INCOME-TAX CHARGEABLE UNDER THIS ACT AND UNDER THE CORRESPONDING LAW IN FORCE IN THAT COUNTRY OR SPECIFIED TERRITORY, AS THE CASE MAY BE, TO PROMOTE MUTUAL ECONOMIC RELATIONS, TRADE AND INVESTMENT, OR (B) FOR THE AVOIDANCE OF DOUBLE TAXATION OF INCOME UNDER THIS ACT AND UNDER THE CORRESPONDING LAW IN FORCE IN THAT COUNTRY OR SPECIFIED TERRITORY, AS THE CASE MAY BE, OR (C) FOR EXCHANGE OF INFORMATION FOR THE PREVENTION OF EVASION OR AVOIDANCE OF INCOME-TAX CHARGEABLE UNDER THIS ACT OR UNDER THE CORRESPONDING LAW IN FORCE IN THAT COUNTRY OR SPECIFIED TERRITORY, AS THE CASE MAY BE, OR INVESTIGATION OF CASES OF SUCH EVASION OR AVOIDANCE, OR (D) .......... THE DISTINCTION BETWEEN SUB CLAUSE (A) (I) AND (A ) (II) IS CLEAR. WHILE SUB-CLAUSE (A) (I) REQUIRES PAYMENT O F TAX AS A PREREQUISITE FOR CLAIMING RELIEF, NO SUCH PRE- CONDITION EXISTS IN SUB-CLAUSE (A) (II). THE CONDI TION IN SUB-CLAUSE (A) (II) IS CHARGEABILITY OR LIABILITY TO TAX . THE OBJECTIVE OF SUB-CLAUSE (A) (II) IS TO PROMOTE MUTUAL ECONOMIC RELATIONS, TRADE AND INVESTMENT . IN OTHER WORDS, THE OBJECTIVE OF SUB-CLAUSE (A) (II) IS TO U SE THE TAX TREATY TO FACILITATE POLICY OBJECTIVES OF THE GOVERNMENT OF INDIA. UNDER SUB-CLAUSE (A) (II), THE ITA NO. 2487/DEL/2016 22 POWER OF THE CENTRAL GOVERNMENT EXTENDS TO GRANT RELIEF NOT ONLY FOR AVOIDANCE OF DOUBLE TAXATION, BUT ALSO FOR GRANTING RELIEF FOR INCOME EXEMPT FROM TAXATION. THE INFERENCE AT POINT 11 OF THE SHOW CAUSE NOTICE LOOKING DOWN ON THE CLAIM OF TAX CREDIT WITH OUT PAYING TAX IS ERRONEOUS IN LAW AS THE RELEVANT QUES TION IS CHARGEABILITY/LIABILITY TO TAX AND NOT ACTUAL PAYMENT OF TAX . 3.2.3 THE QUESTION WHETHER AN INCOME WHICH IS EXEM PT IS ELIGIBLE TO BE CLASSIFIED AS CHARGEABLE/LIABLE TO TAX OR NOT IS NO LONGER RES INTEGRA AS THE ISSUE HAS BEEN DECIDED BY NO LESS THAN THE APEX COURT IN THE CASE OF UOI AND OTHERS VS. AZADI BACHAO ANDOLAN & OTHERS 263 ITR 706 (SC). (COPY AT ANNEXURE-III ). INTERESTINGLY IN THIS CASE, THE APEX COURT WAS HEAR ING AN APPEAL BY THE DEPARTMENT AGAINST AN ORDER OF THE DELHI HIGH COURT WHICH HAD UPHELD THE PLEA BY A BUN CH OF PETITIONERS THAT THE TREATY BENEFITS SHOULD BE D ENIED IF THE INCOME TAX HAS NOT BEEN PAID IN ONE OF THE CONTRACTING COUNTRIES (MAURITIUS) AND QUASHED CBDTS CLARIFICATORY CIRCULAR NO 789 DATED 13.04.2000. AFTER EXHAUSTIVE ARGUMENTS AND ANALYSI S, THE APEX COURT UPHELD THE PLEA OF THE LD. ATTORNEY GENERAL THAT MERELY BECAUSE A SOURCE OF INCOME IS EXEMPT AT A PARTICULAR POINT OF TIME, IT CANNOT BE CONSTRUED THAT TAX IS NOT PAYABLE/LIABILITY FROM TH E CHARGING SECTION IS NOT THERE . IN FACT THE VERY NEED FOR GIVING EXEMPTION ARISES SINCE THERE IS A CHARGE I N THE FIRST PLACE. RELEVANT PARAGRAPHS OF THE JUDGMENT ARE REPRODUCED BELOW: 76. IT IS URGED BY THE LEARNED ATTORNEY GENERAL AND SHRI SALVE FOR THE APPELLANTS THAT THE PHRASE LIABLE TO TAXATION IS NOT THE SAME AS PAYS TAX. THE TEST OF LIABILITY FOR TAXATION IS NOT TO BE DETERMINED ON THE BASIS OF AN EXEMPTION GRANTED IN RESPECT OF ANY PARTICULAR SOURCE OF INCOME, BUT BY TAKING INTO CONSIDERATION THE TOTALITY OF THE PROVISIONS OF THE INCOME-TAX LAW THAT PREVAILS IN EITHER OF THE CONTRACTING STATES . 1 MERELY BECAUSE, AT A GIVEN TIME, THERE MAY BE AN EXEMPTION FROM INCOME-TAX IN RESPECT OF ANY PARTICULAR HEAD OF INCOME, IT CANNOT BE CONTENDED THAT THE TAXABLE ENTITY IS NOT LIABLE TO TAXATION. THEY URGE THAT UPON A PROPER CONSTRUCTION OF THE PROVISIONS OF MAURITIAN INCOME TAX ACT IT IS CLEAR THAT THE FIIS INCORPORATED UNDER MAURITIUS LAWS ARE ITA NO. 2487/DEL/2016 23 LIABLE TO TAXATION; THEREFORE, THEY ARE RESIDENTS IN MAURITIUS WITHIN THE MEANING OF THE DTAC. 77. FOR THE APPELLANTS RELIANCE IS PLACED ON THE JUDGMENT OF THIS COURT IN WALLACE FLOUR MILLS CONTRACTING STATE. LTD. V. CCE [1989] 4 SCC 592, A CASE UNDER THE CENTRAL EXCISE ACT. THIS COURT HELD THAT THOUGH THE TAXABLE EVENT FOR LEVY OF EXCISE DUTY IS THE MANUFACTURE OR PRODUCTION, THE REALISATION OF THE DUTY MY BE POSTPONED FOR ADMINISTRATIVE CONVENIENCE TO THE DATE OF REMOVAL OF THE GOODS FROM THE FACTORY. IT WAS HELD THAT EXCISABLE GOODS DO NOT BECOME NON- EXCISABLE MERELY BECAUSE OF AN EXEMPTION GIVEN UNDER A NOTIFICATION. THE EXEMPTION MERELY PREVENTS THE EXCISE AUTHORITIES FROM COLLECTING TAX WHEN THE EXEMPTION IS IN OPERATION. 2 78. IN KASINKA TRADING V. UNION OF INDIA [1995] 1 SCC 274THIS PRINCIPLE WAS REITERATED IN CONNECTION WITH AN EXEMPTION UNDER THE CUSTOMS ACT. THIS COURT OBSERVED : 'THE EXEMPTION NOTIFICATION ISSUED UNDER SECTION 25 OF THE ACT HAD THE EFFECT OF SUSPENDING THE COLLECTION OF CUSTOMS DUTY. IT DOES NOT MAKE ITEMS WHICH ARE SUBJECT TO LEVY OF CUSTOMS DUTY ETC. AS ITEMS NOT LEVIABLE TO SUCH DUTY. IT ONLY SUSPENDS THE LEVY AND COLLECTION OF CUSTOMS DUTY, WHOLLY OR PARTIALLY, AND SUBJECT TO SUCH CONDITIONS AS MAY BE LAID DOWN IN THE NOTIFICATION BY THE GOVERNMENT IN PUBLIC INTEREST. SUCH AN EXEMPTION BY ITS VERY NATURE IS SUSCEPTIBLE OF BEING REVOKED OR MODIFIED OR SUBJECTED TO OTHER CONDITIONS.' 79. WE ARE INCLINED TO AGREE WITH THE SUBMISSION OF THE APPELLANTS THAT, MERELY BECAUSE EXEMPTION HAS BEEN GRANTED IN RESPECT OF TAXABILITY OF A PARTICULAR SOURCE OF INCOME, IT CANNOT BE POSTULATED THAT THE ENTITY IS NOT LIABLE TO TAX AS CONTENDED BY THE RESPONDENTS . 3.2.4 TAX SPARING CREDIT-PURPOSE : THE UNITED NATIONS MODEL TAX CONVENTION (2011) DEFINES TAX SPARING CREDIT AS CREDIT GRANTED BY A DEVELOPED COUNTRY (CAPITAL EXPORTING COUNTRY- INDIA IN THE INSTANT CASE ) IN RESPECT OF TAX SPARED BY THE INCENTIVE LEGISLATIO N IN THE DEVELOPING COUNTRY (CAPITAL IMPORTING COUNTRY- OMAN IN THE INSTANT CASE ). ITA NO. 2487/DEL/2016 24 OECDS GLOSSARY OF TAX TERMS DEFINES TAX SPARING CREDIT AS - TERM USED TO DENOTE A SPECIAL FORM OF DOUBLE TAXATION RELIEF IN TAX TREATIES WITH DEVELOPING COUNTRIES. WHERE A COUNTRY GRANTS TAX INCENTIVES TO ENCOURAGE FOREIGN INVESTMENT AND THAT COMPANY IS A RESIDENT OF ANOTHER COUNTRY WITH WHICH A TAX TREATY HAS BEEN CONCLUDED, THE OTHER COUNTRY MA Y GIVE A CREDIT AGAINST ITS OWN TAX FOR THE TAX WHICH THE COMPANY WOULD HAVE PAID IF THE TAX HAD NOT BEEN 'SPARED (I.E. GIVEN UP)' UNDER THE PROVISIONS OF TH E TAX INCENTIVES. THE PURPOSE OF ADOPTING THIS PROVISION IN THE DOU BLE TAXATION AGREEMENTS IS TO ENSURE THAT THE TAX INCEN TIVES GRANTED IN A COUNTRY ( SAY S) FOR FOREIGN INVESTORS ARE NOT RENDERED INEFFECTIVE IN THE HANDS OF THE FOREIG N INVESTOR BY HOME COUNTRY (OF THE FOREIGN INVESTOR) DENYING THE CREDIT FOR THE TAXES FOREGONE BUT NOT ACTUALLY PAID IN THE COUNTRY S. THE RELEVANT PARAGR APHS OF THE UN MODEL TAX CONVENTION COMMENTARY ARE REPRODUCED BELOW FOR EASE OF REFERENCE: THE EFFECTIVENESS OF THE TAX INCENTIVE MEASURES INTRODUCED BY MOST DEVELOPING COUNTRIES THUS DEPENDS ON THE INTERRELATIONSHIP BETWEEN THE TAX SYSTEMS OF THE DEVELOPING COUNTRIES AND THOSE OF THE CAPITAL-EXPORTING COUNTRIES FROM WHICH THE INVESTMENT ORIGINATES. IT IS OF PRIMARY IMPORTANCE TO DEVELOPING COUNTRIES TO ENSURE THAT THE TAX INCENTIVE MEASURES SHALL NOT BE MADE INEFFECTIVE BY TAXATION IN THE CAPITAL- EXPORTING COUNTRIES USING THE 309 ARTICLE 23 COMMENTARY FOREIGN TAX CREDIT SYSTEM. THIS UNDESIRABLE RESULT IS TO SOME EXTENT AVOIDED IN BILATERAL TREATIES THROUGH A TAX-SPARING CREDIT, BY WHICH A DEVELOPED COUNTRY GRANTS A CREDIT NOT ONLY FOR THE TAX PAID BUT ALSO FOR THE TAX SPARED BY INCENTIVE LEGISLATION IN THE DEVELOPING COUNTRY......... WHILE THE EXEMPTION METHOD OF PROVIDING RELIEF FOR DOUBLE TAXATION ELIMINATES THE UNDESIRABLE EFFECTS OF THE RESIDENCE COUNTRYS TAXES ON THE SOURCE COUNTRYS T AX INCENTIVE SCHEME, MANY DEVELOPED COUNTRIES ARE UNPREPARED TO INCLUDE THIS SYSTEM IN THEIR TREATIES . WHERE THE INVESTORS HOME COUNTRY APPLIES THE PRINC IPLE OF FOREIGN TAX CREDIT, THE MOST EFFECTIVE METHOD OF PRESERVING THE EFFECT OF THE TAX INCENTIVES AND CONCESSIONS EXTENDED BY DEVELOPING COUNTRIES IS A TAX-SPARING CREDIT ITA NO. 2487/DEL/2016 25 3.2.5 ARTICLE 25 OF THE INDO OMAN DTAA WHICH IS AT THE C RUX OF THE ISSUE IS REPRODUCED BELOW:- ARTICLE 25 : AVOIDANCE OF DOUBLE TAXATION 1. THE LAW IN FORCE IN EITHER OF THE CONTRACTING STATES WILL CONTINUE TO GOVERN THE TAXATION OF INCOME IN THE RESPECTIVE CONTRACTING STATES EXCEPT WHERE PROVISIONS TO THE CONTRARY ARE MADE IN THIS AGREEMENT. 2. WHERE A RESIDENT OF INDIA DERIVES INCOME WHICH, IN ACCORDANCE WITH THE PROVISIONS OF THIS AGREEMENT, MAY BE TAXED IN THE SULTANATE OF OMAN, INDIA SHALL ALLOW AS A DEDUCTION FROM THE TAX ON THE INCOME OF THAT RESIDENT AN AMOUNT EQUAL TO THE INCOME-TAX PAID IN THE SULTANATE OF OMAN, WHETHER DIRECTLY OR BY DEDUCTION. SUCH DEDUCTION SHALL NOT, HOWEVER, EXCEED THAT PART OF THE INCOME-TAX (AS COMPUTED BEFORE THE DEDUCTION IS GIVEN) WHICH IS ATTRIBUTABLE TO THE INCOME WHICH MAY BE TAXED IN THE SULTANATE OF OMAN. 3. ... 4. THE TAX PAYABLE IN A CONTRACTING STATE MENTION ED IN PARAGRAPH 2 AND PARAGRAPH 3 OF THIS ARTICLE SHALL BE DEEMED TO INCLUDE THE TAX WHICH WOULD HAVE BEEN PAYABLE BUT FOR THE TAX INCENTIVES GRANTED UNDER THE LAWS OF THE CONTRACTING STATE AND WHICH ARE DESIGNED TO PROMOTE ECONOMIC DEVELOPMENT. 5. ... BEFORE ATTEMPTING TO INTERPRET THE PROVISIONS OF TH E DTAA, IT WILL BE USEFUL TO REFER TO THE FOLLOWING OBSERVATIONS OF THE APEX COURT IN AZADI BACHAO ANDOLAN (SUPRA) ON THE PRINCIPLES TO BE KEPT IN MIND WHILE INTERPRETING A TREATY : INTERPRETATION OF TREATIES 120. THE PRINCIPLES ADOPTED IN INTERPRETATION OF TREATIE S ARE NOT THE SAME AS THOSE IN INTERPRETATION OF STAT UTORY LEGISLATION. ................. ..THE INTERPRETATION OF A TREATY IMPORTED INTO MUNICIPAL LAW BY INDIRECT ENACTMENT WAS DESCRIBED B Y LORD WILBERFORCE AS BEING UNCONSTRAINED BY TECHNIC AL RULES OF ENGLISH LAW, OR BY ENGLISH LEGAL PRECEDENT , BUT CONDUCTED ON BROAD PRINCIPLES OF GENERAL ACCEPTATIO N. THIS ECHOES THE OPTIMISTIC DICTUM OF LORD WIDGERY C J ITA NO. 2487/DEL/2016 26 THAT THE WORDS ARE TO BE GIVEN THEIR GENERAL MEANI NG, GENERAL TO LAWYER AND LAYMAN ALIKE THE MEANING OF THE DIPLOMAT RATHER THAN THE LAWYER.' 1 121. AN IMPORTANT PRINCIPLE WHICH NEEDS TO BE KEPT IN MIND IN THE INTERPRETATION OF THE PROVISIONS OF AN INTERNATIONAL TREATY, INCLUDING ONE FOR DOUBLE TAXATION RELIEF, IS THAT TREATIES ARE NEGOTIATED AN D ENTERED INTO AT A POLITICAL LEVEL AND HAVE SEVERAL CONSIDERATIONS AS THEIR BASES . COMMENTING ON THIS ASPECT OF THE MATTER, DAVID R. DAVIS IN PRINCIPLES OF INTERNATIONAL DOUBLE TAXATION RELIEF 2 , POINTS OUT THAT THE MAIN FUNCTION OF A DOUBLE TAXATION AVOIDANCE TREATY SHOULD BE SEEN IN THE CONTEXT OF AIDING COMMERCIAL RELATIONS BETWEEN TREATY PARTNERS AND AS BEING ESSENTIALLY A BARGAIN BETWEEN TWO TREATY COUN TRIES AS TO THE DIVISION OF TAX REVENUES BETWEEN THEM IN RESPECT OF INCOME FALLING TO BE TAXED IN BOTH JURISDICTIONS....... THE SIGNIFICANCE OF THE ABOVE OBSERVATIONS IS TO APPRECIATE THAT THE PRIMARY RATIONALE OF ARTICLE 25 (4) IS TO EXTEND THE TAX CREDIT ALREADY GIVEN BY ARTICLE 2 5(2) EVEN TO CASES WHERE THE TAX IS NOT ACTUALLY PAID BU T WOULD HAVE BEEN PAYABLE HAD IT NOT BEEN EXEMPTED UNDER THE TAX LAWS OF ONE OF THE CONTRACTING STATES . THUS, ARTICLE 25(4) IS A TAX SPARING PROVISION CONSCIOUSLY AIMED AT GIVING TAX CREDIT EVEN IF ACTU AL TAX IS NOT PAID IN THE CONTRACTING STATE OF SOURCE OF THE INCOME. BY THIS, IT IS ENSURED THE TAX EXEMPTION BE NEFIT GRANTED BY A CONTRACTING COUNTRY IS NOT MADE INEFFECTIVE BY TAXATION IN THE COUNTRY OF RESIDENCE (COR) OF THE FOREIGN INVESTOR UNDER THE FOREIGN TAX CREDIT SYSTEM. THE TRADE OFF/RATIONALE FOR THE COR FOR GIVING THIS CREDIT OF TAXES SPARED IS IMPROVING THE TRADE/ECONOMIC RELATIONS AMONGST THE CONTRACTING COUNTRIES SINCE THE ULTIMATE TAX COST IN ANY INVEST MENT PROJECT IS REDUCED/ELIMINATED IN THE HANDS OF THE INVESTOR. 3.2.6 FROM THE COMBINED READING OF ARTICLES 25(2), 25(4) AND SECTION 90(1)(A)(II), IT IS CLEAR THAT ACTUAL PAYME NT OF TAXES IS NOT A SINA QUA NON FOR THE CLAIM OF THE TAX CREDIT. HOWEVER, THE FOLLOWING TWO CONDITIONS STILL NEED TO BE SATISFIED FOR THE CLAIM OF THE TAX CREDIT :- A. THE TAX SHOULD HAVE BEEN PAYABLE AND ITA NO. 2487/DEL/2016 27 B. THE TAX IS NOT ACTUALLY PAID ON ACCOUNT OF THE TAX INCENTIVE PROVISIONS AIMED AT PROMOTING ECONOMIC DEVELOPMENT. THE SATISFACTION OF BOTH THESE CONDITIONS IN THE SOCIETYS CASE IS DISCUSSED BELOW: A. WHETHER TAX WAS PAYABLE BY THE SOCIETYS PE IN OMAN? I. IN THE PREVIOUS YEAR RELEVANT TO A.Y 2010-11, THE OMANI TAX LAW WAS GOVERNED BY ROYAL DECREE 47 OF 1981. (RELEVANT EXTRACTS AT ANNEXURE-IV ). SOME OF THE RELEVANT PROVISIONS OF THIS LAW ARE DISCUSSED BELOW: ARTICLE 2(4) : THE TERM COMPANY INCLUDES ANY PERMANENT ESTABLISHMENT IN OMAN WHICH IS SUPPORTED BY A FOREIGN COMPANY ARTICLE 2(17) : TAX MEANS ANY TAX PAYABLE UNDER THIS LAW AND INCLUDES PENALTY, INTEREST ..... ARTICLE 2(19) : TAXABLE INCOME MEANS THE TOTAL AMOUNT OF GROSS INCOME LESS ANY DEDUCTIONS ALLOWED THERE FROM ARTICLE 4(BIS) : THE SECRETARIAT GENERAL SHALL PRIMARILY BE COMPETENT OF A) TAKING THE PROCEDURES NECESSARY FOR MAKING THE TAX ASSESSMENTS AND THE EXEMPTION THERE FROM IN THE MANNER SPECIFIED IN THE LAW........... ARTICLE 8 (CHARGING SECTION): SUBJECT TO THIS LAW, TAX SHALL BE CHARGED FOR EACH TAXABLE YEAR UPON THE TAXABLE INCOME OF ANY COMPANY WHICH ACCRUES OR ARISES IN OMAN OR IS DEEMED BY THE SECRETARY GENERAL TO SO ACCRUR OR ARISE IN RESPECT OF ........ ANY INCOME FROM ANY OTHER SOURCE . ARTICLE 8 (BIS) INSERTED BY ROYAL DECREE 68/00 EFFECTIVE FROM 2000 : THE TAX SHALL NOT APPLY TO THE DIVIDENDS RECEIVED BY THE COMPANY FROM THE SHARES, PORTIONS OR STOCK IT OWNS IN THE CAPITAL OF ANY OTHER COMPANY II. A COMBINED READING OF THE ABOVE PROVISIONS CLEARLY SHOW THAT THE CHARGE ON THE INCOME OF THE PE IS GOVERNED BY ARTICLE 8 READ WITH ARTICLE 2(4) AND 2( 17). ITA NO. 2487/DEL/2016 28 HOWEVER IN THE YEAR 2000, ARTICLE 8(BIS) WAS ADDED TO EXEMPT DIVIDENDS RECEIVED BY THE COMPANY INCLUDING THE SOCIETYS PE. IF THE AMENDMENT HAD NOT TAKEN PLACE, THE DIVIDEND INCOME ACCRUED/EARNED IN OMAN WOULD HAVE BEEN TAXED IN OMAN SINCE THE SOCIETYS PE IS INCLUDED IN THE DEFINITION OF COMPANY UNDER ARTICLE 2(24). THE VERY PURPOSE OF GIVING THE EXEMPTION IS TO CARVE OUT AN EXCEPTION FROM THE CHARGING SECTION. IF THERE WAS NO CHARGE IN THE FIR ST PLACE, THERE WOULD HAVE BEEN NO NEED TO INSERT 8 (BIS) TO GRANT THE EXEMPTION. THE CHARGE DOES NOT GO AWAY MERELY BECAUSE EXEMPTION IS GRANTED AT A PARTICULAR POINT OF TIME. III. IT IS VERY SIGNIFICANT TO NOTE THAT THIS ISSUE HAS ALSO BEEN DEALT AT LENGTH IN THE CLARIFICATION DATED 6 TH AUG, 2000 ( ANNEXURE-V ) GIVEN BY THE MINISTRY OF FINANCE, SECRETARIAT GENERAL FOR TAXATION, SULTANATE OF OMAN , (PRIOR TO INSERTION OF ARTICLE 8 (BIS )) WHEREIN IT IS CLEARLY CLARIFIED AT POINT 2 THAT INCOME INCLUDING DIVIDENDS OF A PE OF ANY FOREIGN ENTERPRISE IS CHARGEABLE TO TAX AND IS CHARGED TO TAX AT RATES MENTIONED IN PARAGRAPH 6(II) BELOW . HENCE IT IS CLEAR THAT TAX WAS PAYABLE BY THE SOCIETYS PE ON THE DIVIDENDS RECEIVED BUT FOR THE AMENDMENT MADE TO ARTICLE 8 OF THE OMANI TAX LAW. . B. THE FOLLOWING IS RELEVANT TO UNDERSTAND THE NATURE OF THE EXEMPTION GRANTED BY ARTICLE 8( BIS ): I. THE PREAMBLE TO ROYAL DECREE 68 OF 2000 ( ANNEXURE-VI ) ISSUED BY THE SULTANATE OF OMAN (WHICH INSERTED ARTICLE 8 ( BIS )) STATES THAT THE AMENDMENTS HAVE BEEN DONE IN EXIGENCIES OF PUBLIC GOOD . IN LAW, THE PREAMBLE TO A STATUTE IS A WELL RECOGNIZED INTERNAL TOOL OF INTERPRETATION OF THE STATUTE. IN ACCORDANCE WITH THE EXIGENCIES OF PUBLIC GOOD MEANS A DEMAND FOR THE ECONOMIC GOOD OF THE PUBLIC. PUBLIC GOOD CORRESPONDS TO NATIONAL NEEDS AND SELF INTEREST OF A COUNTRY. IN A FISCAL STATUE, AMENDMENT FOR PUBLIC GOOD CLEARLY IMPLIES AMENDMENT THROUGH TAX INCENTIVES TO FOSTER ECONOMIC DEVELOPMENT/JOB GROWTH THROUGH INFLOW OF FOREIGN CAPITAL . THUS, FROM THE PREAMBLE ITSELF IT IS CLEAR THAT THE EXEMPTION TO DIVIDENDS IS A TAX INCENTIVE MEASURE AIMED AT FOSTERING ECONOMIC DEVELOPMENT. THERE IS NO ITA NO. 2487/DEL/2016 29 OTHER MOTIVE OTHER THAN ECONOMIC DEVELOPMENT WHICH CAN BE REASONABLY ATTRIBUTED TO A TAX INCENTIVE/ EXEMPTION MEASURE. HENCE, THE REQUIREMENT OF ARTICLE 25(4) IS FULFILLED IN THE CASE OF THE SOCIETY. II. THE ABOVE CONCLUSION IS FORTIFIED BEYOND DOUBT BY A CLARIFICATORY LETTER ISSUED BY THE SECRETARIAT GENERAL FOR TAXATION, MINISTRY OF FINANCE, SULTANATE OF OMAN, DATED 11 TH DECEMBER, 2000 ( ANNEXURE-VII ) ISSUED IN RESPONSE TO A LETTER WRITTEN ON BEHALF OF THE INDIAN SPONSORS (IFFCO/KRIBHCO) BY THE OMANI JV PARTNER M/S. OMAN OIL COMPANY ( ANNEXURE-VIII ) SEEKING CLARIFICATIONS ON THE INTENT OF ARTICLE 8( BIS ). THE SAID LETTER CLEARLY EXPLAINS THAT: - BEFORE THE RECENT AMENDMENTS, THOUGH THE COMPANIES ENGAGED IN ACTIVITIES CONSIDERED ESSENTIAL FOR ECONOMIC DEVELOPMENT WERE GIVEN TAX EXEMPTION, TAX WAS PAYABLE BY RECIPIENTS OF DIVIDENDS FROM THESE COMPANIES. - THIS IMPLIED THAT THE INVESTORS HAD A TAX COST IN THEIR HANDS RESULTING IN NEGATIVE IMPACT ON INVESTMENTS THUS ADVERSELY AFFECTING THE OBJECTIVE OF ECONOMIC DEVELOPMENT - TO OBLITERATE THE ABOVE CITED NEGATIVE EFFECT, THE EXEMPTION IS NOW GRANTED IN THE HANDS OF RECIPIENTS TOO SO THAT THE GOVERNMENT OF OMAN WOULD ACHIEVE ITS MAIN OBJECTIVE OF PROMOTING ECONOMIC DEVELOPMENT BY ATTRACTING INVESTMENTS IT IS TRITE THAT THE ONLY AUTHORITY COMPETENT TO COMMENT ON THE RATIONALE OF ANY TAX INCENTIVE PROVISION IN A COUNTRYS TAX LAW IS THE AUTHORITIES/LEGISLATURE/JUDICIARY OF THAT COUNTRY ALONE. THERE IS NO SCOPE FOR THE OTHER COUNTRYS TAX AUTHORITIES ( INDIA IN THE INSTANT CASE ) TO SECOND GUESS THE OBJECTIVES ESPECIALLY IN THE LIGHT OF CLEAR CUT CLARIFICATION GIVEN IN THE ABOVE CITED LETTER. SUCH AN ATTEMPT WOULD CLEARLY FALL FOUL OF THE MANDATE OF ARTICLE 25(4) ENTERED CONSCIOUSLY BY THE GOVERNMENTS OF BOTH THE COUNTRIES AND HAS TO BE REPELLED. 3.2.8 WITHOUT PREJUDICE TO THE ABOVE, IT IS SUBMITTED THAT THOUGH EACH ASSESSMENT YEAR IS SEPARATE AND DISTINCT AND PRINCIPLE OF RES JUDICATA DOES NOT ITA NO. 2487/DEL/2016 30 APPLY TO PROCEEDINGS FOR SUBSEQUENT OR OTHER YEARS., DECISION ON AN ISSUE OR QUESTION THOUGH NOT BINDING SHOULD BE FOLLOWED AND NOT IGNORED UNLESS THERE IS A CHANGE IN LAW OR FACTS TO TAKE A DIFFERENT VIEW. RELIANCE IS PLACED IN THIS REGARD ON THE DECISION OF THE HONBLE SUPREME COURT IN RADHA SOAMI SATSANG VERSUS COMMISSIONER OF INCOME TAX, [1992] 193 ITR 321 (SC), ( FOLLOWED BY THE APEX COURT IN CIT VS. EXCEL INDUSTRIES [2013] 358 ITR 295 ) WHICH HELD THAT WHEN A FUNDAMENTAL ASPECT PERVADING THROUGH DIFFERENT ASSESSMENT YEARS HAS BEEN FOUND AS A FACT IN ONE WAY OR THE OTHER, IT WOULD INAPPROPRIATE TO ALLOW THE POSITION TO BE CHANGED IN A SUBSEQUENT YEAR PARTICULARLY WHEN THE SAID FINDING HAS BEEN ACCEPTED. THE SAID PRINCIPLE IS ALSO BASED UPON THE RULES OF CERTAINTY AND CONSISTENCY THAT A DECISION TAKEN AFTER DUE APPLICATION OF MIND SHOULD BE FOLLOWED CONSISTENTLY. ON THE FACTS IN OUR CASE, NEITHER THE LAW (DOMESTIC LAW /TREATY) NOR THE FACTS HAVE CHANGED FROM THE EARLIER YEARS WHEREIN THE REVENUE HAS ALLOWED THE CLAIM OF TAX CREDIT FROM AY 2006-07 TO AY 2011-12. HENCE, THE SETTLED POSITION SHOULD BE FOLLOWED FOR THE SAKE OF CONSISTENCY TOO. IN THE LIGHT OF THE ABOVE IT IS PRAYED THAT THE PROPOSED REVISIONARY PROCEEDINGS ARE NOT SUSTAINABLE IN LAW OR FACTS IN VIEW OF THE FOLLOWIN G: - ON THE LEGAL ISSUE OF REVISIONARY JURISDICTION U/S 263, IN VIEW OF THE SPECIFIC ENQUIRY BY THE A.O AND DETAILED REPLY ON THE ISSUE COVERING ALL THE ASPECTS OF ARTICLE 25 (4) - ON FACTS, BASED ON THE CLEAR CONFIRMATION ON CHARGEABILITY OF OMANI TAX BOTH BEFORE THE AMENDMENT TO ARTICLE 8( BIS) AND AFTER THE AMENDMENT TO ARTICLE 8 CONFIRMING THE OBJECTIVE OF THE CHANGE IN LAW BY THE OMANI SECRETARIAT GENERAL OF TAXATION. HENCE, THE PROPOSED REVISIONARY PROCEEDINGS MAY KINDLY BE DROPPED. (EMPHASIS SUPPLIED) ITA NO. 2487/DEL/2016 31 8.4 THE LEARNED PR. CIT HAS CONSIDERED THE SUBMISSI ONS MADE BY THE APPELLANT-SOCIETY VIDE LETTER DATED 11 TH JANUARY, 2016, RELEVANT PARTS OF WHICH HAVE BEEN REPRODUCED ABOVE. HOWEVER, HE COMMUNICATED TO THE APPELLANT-SOCIETY V IDE FURTHER LETTER DATED 10 TH MARCH, 2016 THAT HE WAS NOT SATISFIED WITH THE REPLY GIVEN. VIDE PARA-6 OF THIS LETTER TH E LEARNED PR. CIT CONVEYED THAT NO SANCTITY CAN BE ATTACHED TO TH E LETTERS ISSUED BY THE SECRETARIAT GENERAL OF TAXATION OF OM AN REGARDING THE PURPOSE FOR WHICH EXEMPTION WAS GRANT ED TO DIVIDEND INCOME. HE OPINED THAT THE APPELLANT-SOCIE TY IS TRYING TO GIVE A SHAPE OF LAW TO THE LETTERS ISSUED BY THE ADMINISTRATIVE OFFICER. HE FURTHER STATED THAT THE RE SHOULD BE SOME PROVISION IN THE OMANI TAX DECREE AUTHORIZING AN OFFICER TO ISSUE CLARIFICATIONS ABOUT THE TAX LAWS. THE LE ARNED PR. CIT HAS MENTIONED THAT IN THE RELEVANT SECTION 8(BIS) O F THE OMANI TAX LAW, THERE IS NO REFERENCE THAT EXEMPTION TO DI VIDEND INCOME WAS DESIGNED FOR ECONOMIC DEVELOPMENT. THE LEARNED PR. CIT FURTHER CONVEYED THAT MERE INVESTMENT IN A COMPANY TO EARN DIVIDEND INCOME DOES NOT RESULT INTO ECONOMIC DEVELOPMENT. THE LEARNED PR. CIT ALSO REFERRED TO T HE ORDER DATED 9 TH MARCH, 2016 PASSED BY THE HON'BLE ITAT DELHI BENCH IN THE CASE OF KRIBHCO. IN THIS ORDER THE HON 'BLE TRIBUNAL QUASHED THE ORDER PASSED BY THE LEARNED PR . CIT U/S.263 IN SIMILAR FACTS AND CIRCUMSTANCES. THE LEA RNED PR. CIT OBSERVED THAT THE DEPARTMENT MAY NOT ACCEPT THE ORD ER OF THE ITAT. AT PARAS 15 & 16 OF THE SAID LETTER DATED 10 TH MARCH, 2016 THE LEARNED PR. CIT FURTHER OBSERVED THAT THE ARTICLE-6(3) OF THE OMANI TAX DECREE RELIED UPON BY THE APPELLAN T-SOCIETY CANNOT BE CONSTRUED TO GRANT ANY POWER TO THE SE CRETARY GENERAL OF TAXATION OF SULTANATE OF OMAN TO ISSUE ANY CLARIFICATION REGARDING INTERPRETATION OF LAW. THE LEARNED PR. CIT AT PARA-13 OF HIS ORDER HAS MENTIONED THAT IN R ESPONSE TO THE AFORESAID LETTER THE APPELLANT-SOCIETY FURTHER FILED WRITTEN SUBMISSIONS VIDE LETTER DATED 22 ND MARCH, 2016. THE LEARNED PR. CIT HAS BRIEFLY REFERRED TO THE CONTENTIONS OF THIS LETTER. IT WOULD BE APPROPRIATE TO REPRODUCE BELOW THE RELEVAN T PART OF THE APPELLANT-SOCIETYS LETTER DATED 22 ND MARCH, 2016 FOR THE KIND CONSIDERATION AND APPRECIATION OF THIS HON'BLE TRIBUNAL:- A1. AS YOUR HONOUR IS ALREADY AWARE , THE INCOME TAX APPELLATE TRIBUNAL HAS PRONOUNCED ITS JUDGMENT IN T HE CASE OF M/S KRISHAK BHARTI COOPERATIVE LTD.(KRIBHCO FOR SHORT) VS. ACIT, CIRCLE 30(1), NEW DELHI IN ITA NOS. 6785 & 6786/DEL/2015 VIDE ITS ORDER DATED 9 TH MARCH,2016. AS RIGHTLY MENTIONED IN YOUR SCN, EACH CASE LAW TURNS ON ITS O WN FACTS. THE ITAT HAS QUASHED THE REVISIONARY ORDER BOTH ON THE GROUNDS OF JURISDICTION, CONSISTENCY AN D ON MERITS TOO. THE FACTS IN OUR CASE ARE ON ALL FOURS COVERED BY THE SAID DECISION. SIMILAR TO M/S KRIBHCOS CAS E, ITA NO. 2487/DEL/2016 32 IN OUR CASE TOO, AS SUBMITTED IN OUR REPLY DATED 11 TH JAN, 2016 : DETAILED ENQUIRY LETTERS WERE ISSUED BY THE ASSESSI NG OFFICER FROM AY 2006-07 TO THE AY 2011-12 (INCLUDIN G AY 2010-11, BEING THE YEAR UNDER PROPOSED REVISION) . AFTER DISCUSSION OF ARTICLE 25(4) OF THE DTAA, ARTI CLE 8 (BIS) OF THE OMANI LAW AND THE ASSESSMENT ORDERS IN OMAN WHICH HIGHLIGHTED THE OBJECTIVE OF THE DIVIDEN D EXEMPTION IMPLYING PROPER APPLICATION OF MIND, THE TAX CREDIT WAS ALLOWED TO THE SOCIETY IN THE SCRUTI NY ASSESSMENT ORDERS. VIEW ADOPTED BY THE A.O WAS ONE OF THE PLAUSIBLE AN D POSSIBLE VIEW (KINDLY REFER PARA 15 OF THE ITAT ORDER) IT MAY KINDLY BE NOTED THAT THE HONBLE TRIBUNAL HA S ALSO RECORDED AN UNAMBIGUOUS FINDING THAT THE ORDER PASS ED U/S. 263 IS ALSO BAD IN LAW ON THE FOLLOWING TWO GROUNDS:- 1. THERE WAS FULL APPLICATION OF MIND ON THE PART O F THE A.O. AT THE TIME OF ORIGINAL ASSESSMENT AND HE HAS ADOPTED A VIEW WHICH IS A POSSIBLE VIEW AND THEREFO RE, HAVING REGARD TO THE ESTABLISHED POSITION OF LAW, T HE PCIT CANNOT INVOKE HIS JURISDICTION U/S. 263 MERELY TO SUBSTITUTE HIS VIEW IN PLACE OF THE VIEW ADOPTED BY THE A.O.. 2. THE ORDER PASSED U/S. 263 IS ALSO CONTRARY TO TH E WELL- ESTABLISHED PRINCIPLE OF CONSISTENCY OF APPROACH IN THE ABSENCE OF CHANGE IN THE FACTS OR THE PROVISION OF LAW. IT WAS OBSERVED BY THE HONBLE TRIBUNAL THAT DURING TH E PRECEDING YEARS, IN SCRUTINY ASSESSMENTS PASSED BY THE DEPARTMENT, AFTER FULL APPLICATION OF MIND AND AFTE R DETAILED DISCUSSION IN THE ORDERS, THE DEPARTMENT H AS BEEN ALLOWING CREDIT FOR DEEMED DIVIDEND TAX. IT IS RESPECTFULLY SUBMITTED THAT THE CASE OF THE ASSESSEE SOCIETY IS COVERED BY THE ORDER OF THE HONBLE TRIB UNAL IN THE CASE OF KRIBHCO ON ALL ISSUES, FACTUALLY AS WELL AS LEGALLY. IT IS THEREFORE, RESPECTFULLY SUBMITTED THAT THE NOTICE ISSUED U/S. 263 MAY KINDLY BE DROPPED. HENCE , BASED ON THE SIMILARITY OF FACTS AND LAW, WE REQUES T YOUR HONOUR TO FOLLOW THE ORDER OF THE JURISDICTION AL ITAT AND DROP THE REVISIONARY PROCEEDINGS. THOUGH YOUR HONOUR IS WELL VERSED IN LAW AND THE DOCTRINE OF PRECEDENT/STARE DECISIS, WE WOULD LIKE TO RELY ON T HE FOLLOWING CASE LAWS (WITH RELEVANT EXTRACTS) ITA NO. 2487/DEL/2016 33 HIGHLIGHTING THE BINDING NATURE OF THE JURISDICTION AL TRIBUNALS ORDERS TILL THE SAME ARE STAYED/SET ASIDE/OVER-RULED BY HIGHER COURTS: A. MP HIGH COURT- AGARWAL WAREHOUSING AND LEASING LTD. V. CIT (257 ITR 235) RELYING ON THE SUPREME COURTS ORDER IN UOI VS. KAMLAKASHI FINANCE CORPORATION LTD. THE TRIBUNAL IS CREATED UNDER SECTION 252 OF THE INCOME-TAX ACT, CONSISTING OF AS MANY JUDICIAL AND ACCOUNTANT MEMBERS AS MAY BE APPOINTED BY THE CENTRAL GOVERNMENT. ONE SUCH JUDICIAL MEMBER OF THE TRIBUNAL IS NORMALLY APPOINTED AS THE PRESIDENT THE REOF. ANY ASSESSEE AGGRIEVED BY THE ORDERS PASSED BY THE AUTHORITIES AS ENUMERATED UNDER CLAUSES (A) TO (C) OF SUB-SECTION (1) OF SECTION 253 MAY APPEAL TO THE TRIBUNAL. THE TRIBUNAL HAS POWER TO PASS SUCH ORDER S ON SUCH AN APPEAL AS IT THINKS FIT SUB-SECTION (4) OF SECTION 254 ATTACHES FINALITY TO THE ORDERS OF THE TRIBUNAL SUBJECT TO THE PROVISIONS OF SECTION 256 ( OR SECTION 260A). NEEDLESS TO SAY THE ORDERS PASSED BY THE TRIBUNAL ARE BINDING ON ALL THE REVENUE AUTHORITIES FUNCTIONING UNDER THE JURISDICTION OF T HE TRIBUNAL. DEALING WITH THIS VERY ASPECT OF THE MATTER, THE SUPREME COURT IN THE CASE OF UNION OF INDIA V. KAMLAKSHI FINANCE CORPORATION LTD., AIR 1992 SC 711; [1991] 55 ELT 433 (SC) EMPHASIZED (PAGE 712 OF AIR 1992 SC) : 'IT CANNOT BE TOO VEHEMENTLY EMPHASIZED THAT IT I S OF UTMOST IMPORTANCE THAT, IN DISPOSING OF THE QUASI- JUDICIAL ISSUES BEFORE THEM REVENUE OFFICERS ARE BO UND BY THE DECISIONS OF THE APPELLATE AUTHORITIES. THE ORDER OF THE APPELLATE COLLECTOR IS BINDING ON THE ASSIST ANT COLLECTORS WORKING WITHIN HIS JURISDICTION AND THE ORDER OF THE TRIBUNAL IS BINDING UPON THE ASSISTANT COLLE CTORS AND THE APPELLATE COLLECTORS WHO FUNCTION UNDER THE JURISDICTION OF THE TRIBUNAL. THE PRINCIPLES OF JUD ICIAL DISCIPLINE REQUIRE THAT THE ORDERS OF THE HIGHER AP PELLATE AUTHORITIES SHOULD BE FOLLOWED UNRESERVEDLY BY THE SUBORDINATE AUTHORITIES. THE MERE FACT THAT THE ORDER OF THE APPELLATE AUTHORITY IS NOT 'ACCEPTABLE' TO T HE DEPARTMENTIN ITSELF AN OBJECTIONABLE PHRASEAND IS THE SUBJECT-MATTER OF AN APPEAL CAN FURNISH NO GROUND FOR NOT FOLLOWING IT UNLESS ITS OPERATION HA S BEEN SUSPENDED BY A COMPETENT COURT . IF THIS HEALTHY RULE IS NOT FOLLOWED, THE RESULT WILL ONLY BE UNDUE HARASSMENT TO ASSESSEES AND CHAOS IN ADMINISTRATION OF TAX LAWS.' ITA NO. 2487/DEL/2016 34 OBVIOUSLY, THE COMMISSIONER OF INCOME-TAX (APPEAL S) NOT ONLY COMMITTED JUDICIAL IMPROPRIETY BUT ALSO ER RED IN LAW IN REFUSING TO FOLLOW THE ORDER OF THE APPEL LATE TRIBUNAL. EVEN WHERE HE MAY HAVE SOME RESERVATIONS ABOUT THE CORRECTNESS OF THE DECISION OF THE TRIBUN AL, HE HAD TO FOLLOW THE ORDER B. BOMBAY HIGH COURT- BANK OF BARODA- 256 ITR 385 [2001] AT THIS JUNCTURE, WE CANNOT RESIST FROM OBSERVIN G THAT THE JUDGMENT DELIVERED BY THE TRIBUNAL WAS VERY MUC H BINDING ON THE ASSESSING OFFICER. THE ASSESSING OFFICER WAS BOUND TO FOLLOW THE JUDGMENTS IN ITS TR UE LETTER AND SPIRIT. IT WAS NECESSARY FOR THE JUDICIA L UNITY AND DISCIPLINE THAT ALL THE AUTHORITIES BELOW THE T RIBUNAL MUST ACCEPT AS BINDING THE JUDGMENT OF THE TRIBUNAL . THE ASSESSING OFFICER BEING INFERIOR OFFICER VIS-A- VIS THE TRIBUNAL, WAS BOUND BY THE JUDGMENT OF THE TRIBUNAL AND THE ASSESSING OFFICER SHOULD NOT HAVE TRIED TO DISTINGUISH THE SAME ON UNTENABLE GROUNDS. IN THIS BEHALF, IT WILL NOT BE OUT OF PLACE TO MENTION THAT IN THE HIERARCHICAL SYSTEM OF COURTS WHICH EXISTS IN OUR COUNTRY, IT IS NECESSARY FOR EACH LOWER TIER INCL UDING THE HIGH COURT, TO ACCEPT LOYALLY THE DECISIONS OF THE HIGHER TIERS. IT IS INEVITABLE IN HIERARCHICAL SY STEM OF COURTS THAT THERE ARE DECISIONS OF THE SUPREME APPE LLATE TRIBUNALS WHICH DO NOT ATTRACT THE UNANIMOUS APPROV AL OF ALL MEMBERS OF THE JUDICIARY. BUT THE JUDICIAL S YSTEM ONLY WORKS IF SOMEONE IS ALLOWED TO HAVE THE LAST W ORD, AND THAT LAST WORD ONCE SPOKEN IS LOYALLY ACCEPTED . THE BETTER WISDOM OF THE COURT BELOW MUST YIELD TO THE HIGHER WISDOM OF THE COURT ABOVE AS HELD BY THE SUPREME COURT IN THE MATTER OF CCE V. DUNLOP INDIA LTD. AIR 1985 SC 330 . A2. POINT NO. 14 & 15- SANCTITY OF LETTER NOT CON SIDERED BY ITAT AT POINT 14 OF YOUR OFFICES LETTER DATED 11 TH MARCH, 2016 IT IS STATED THAT ITAT IN ITS ORDER HAS NOT CONSIDERED THE SANCTITY OF LETTER ISSUED BY THE SEC RETARY GENERAL OF TAXATION TO A SINGLE COMPANY. IT IS HUMBLY SUBMITTED THAT AT PAGE 64 OF THE ORDER, CLAU SE 6(3) OF THE OMANI LAW STATING THAT ANY DOCUMENT ISSUED BY THE SECRETARY GENERAL SHALL BE CONSIDERED AN OFFICIAL DOCUMENT IF IT CARRIES ITS NAME HAS BEEN DULY REPRODUCED. AT PARA 13 ON PAGE 73, THE ORDER OF TH E LD. ITAT STATES THAT WE HAVE CONSIDERED THE RIVAL ITA NO. 2487/DEL/2016 35 SUBMISSIONS AND PERUSED THE RELEVANT RECORDS AVAILABLE WITH US . THE RECORDS INCLUDE THE LETTERS ISSUED BY THE SECRETARY GENERAL OF TAXATION (SGT), MINISTRY OF FINANCE IN AUGUST AND DECEMBER, 2000. THE SUBMISSIONS INCLUDE THE REFERENCE TO ARTICLE 6(3) OF THE OMANI TAX LAW. FURTHER AT PARA 19, THE ITA T STATES THAT INTERPRETATION OF OMANI TAX LAWS CAN BE CLARIFIED ONLY BY THE HIGHEST TAX AUTHORITIES OF OMAN AND SUCH INTERPRETATION GIVEN BY THEM MUST BE ADOPTED IN INDIA . HENCE, FROM THE ABOVE FACTS, SINCE ARTICLE 6(3) W AS VERY MUCH BEFORE THE ITAT, IT IS CLEAR THAT THE ITA T HAS CONSIDERED THE LETTER/DOCUMENT OF H.E THE SGT I N THE CONTEXT OF ARTICLE 6(3) AND HAS CONCLUDED THE LETTERS TO BE A SUFFICIENT AID TO INTERPRET THE INTENT OF T HE DIVIDEND EXEMPTION. ONE MAY OR MAY NOT AGREE WITH THE CONCLUSION OF THE ITAT BUT IT WOULD BE WHOLLY FALLACIOUS TO PRESUME THAT THE ITAT HAS NOT CONSIDERED THE VALIDITY/LEGALITY OF THE LETTER . IN THIS REGARD, IT MAY BE USEFUL TO REFER TO THE FOLLOWING OBSERVATIONS OF ITAT-HYDERABAD IN THE CASE OF M/S. LIQUORS INDIA LTD. IN ITA NOS. 352/HYD/2013: FURTHER, WE MAKE IT CLEAR THAT NEITHER THE CIT/CIT(A) NOR THE TRIBUNAL CANNOT SCRUTINISE THE EARLIER ORDER OF THE TRIBUNAL, SENTENCE BY SENTENCE MERELY TO FIND OUT WHETHER ALL THE FACTS HAVE BEEN SET OUT IN DETAIL BY THE TRIBUNAL OR WHETHER SOME INCIDENTAL FACT WHICH APPEARS ON THE RECORD HAS NOT BEEN NOTICED BY THE TRIBUNAL IN ITS JUDGMENT. IF THE AUTHORITY, ON A FAIR READING OF THE JUDGMENT OF THE TRIBUNAL, FINDS THAT IT HAS TAKEN INTO ACCOUNT ALL RELEVANT MATERIAL AND HAS NOT TAKEN INTO ACCOUNT ANY IRRELEVANT MATERIAL IN BASING ITS CONCLUSION, THE DECISION OF THE TRIBUNAL IS NOT LIABLE TO BE INTERFERED WITH, UNLESS, OF COURSE, THE CONCLUSIONS ARRIVED AT BY THE TRIBUNAL ARE PERVERSE. IT IS NOT NECESSARY FOR THE TRIBUNAL IN ITS JUDGMENT SPECIFICALLY OR ANY EXPRESS WORDS THAT IT HAS TAKEN INTO ACCOUNT THE CUMULATIVE EFFECT OF THE CIRCUMSTANCES OR HAS CONSIDERED THE TOTALITY OF THE FACTS OF THE CASE, AS IF IT IS A MAGIC FORMULA: IF THE JUDGMENT OF THE TRIBUNAL SHOWS THAT IT HAS, IN FACT, DONE SO, THERE IS NO REASON TO INTERFERE WITH THE DECISION OF THE TRIBUNAL . THE CIT IS NOT JUSTIFIED IN FINDING A HOLE IN THE ORDER OF THE TRIBUNAL SO AS TO DISALLOW THE CLAIM OF THE ITA NO. 2487/DEL/2016 36 ASSESSEE TOWARDS TRADE SCHEME EXPENDITURE. IN OUR OPINION, THE COMMENTS OF THE CIT REGARDING THE INTERPRETATION TAKEN BY THE TRIBUNAL ON EARLIER OCCASION DESERVES TO BE REPUDIATED AS A FACT OF GROSS JUDICIAL INDISCIPLINE. HENCE, SINCE AT PARA 17 OF THE ORDER, THE HONBLE ITAT HAS ALSO DECIDED THE ISSUE ON MERITS, IT IS PRAYED THAT THE REVISIONARY PROCEEDINGS MAY BE DROPPED FOLLOWIN G THE JURISDICTIONAL TRIBUNALS ORDER ON THE MERITS OF THE CASE TOO. A3 . POINTS 6 TO 9 - SANCTITY OF LETTER ISSUED BY H.E SG T, MINISTRY OF FINANCE, OMAN THOUGH AS DISCUSSED ABOVE, THE HONBLE ITAT IN IT S WISDOM HAS ALREADY DECIDED THE ISSUE OF VALIDITY OF THE LETTER ISSUED BY THE SGT, MINISTRY OF FINANCE, OMAN , IN RESPONSE TO THE DOUBTS IN YOUR OFFICES LETTER DATE D 11 TH MARCH, 2016, WE MAKE THE FOLLOWING ADDITIONAL SUBMISSIONS IN CONTINUATION TO OUR SUBMISSIONS DATE D 19 TH AND 11 TH JANUARY, 2016 FOR YOUR HONOURS KIND PERUSAL: I. EACH COUNTRY IS SOVEREIGN IN DECIDING THE BRANCHES OF ITS GOVERNMENT, STRUCTURE OF ITS LAWS, CONVENTIONS, EXTENT OF DELEGATED LEGISLATION ETC. IN INDIA, AS A MATTER OF CONVENTION, THE INTENT OF CHANGES IN TAX LAW ARE EXPLAINED IN THE RELEVANT YEARS MEMORANDUM EXPLAINING PROVISIONS IN THE FINANCE BILL. HOWEVER , EVEN IN INDIA, THERE IS NO CONSTITUTIONAL/STATUTORY REQUIREMENT FOR INTENT OF EACH AND EVERY CHANGE TO BE EXPLAINED IN THE MEMORANDUM. EACH COUNTRYS CONVENTIONS DIFFER. SINCE THERE IS NO SUCH CONVENT ION IN OMAN ( SURELY, FOR NO FAULT OF THE ASSESSEE ), A SPECIFIC CLARIFICATION WAS SOUGHT FROM THE MINISTRY OF FINANCE IN OMAN IN THE YEAR 2000 WHICH WAS REPLIED BY HE THE SECRETARY GENERAL FOR TAXATION, MINISTRY OF FINANCE, OMAN, VIDE LETTERS DATED 6 TH AUGUST, 2000 AND 11 TH DECEMBER, 2000. IN THE ABSENCE OF ANY COGENT MATERIAL, THERE WAS AND IS ABSOLUTELY NO BASIS FOR US OR ANY INDIAN AUTHORITY TO DOUBT THE AUTHORITY OF THE SECRETARY GENERAL FOR TAXATION, MINISTRY OF FINANCE, OMAN, TO ISSUE SUCH A LETTER . CAN IT BE REASONABLY EXPECTED THAT AS AN INVESTOR, WE WILL FI RST ASK THE OMAN GOVERNMENT TO AMEND ITS LAWS AUTHORIZING THE SGT TO SPECIFICALLY ISSUE CLARIFICATION/LETTER TO US BEFORE WE RELY ON SUCH A CLARIFICATION? IF THAT BE SO, GOING A STEP FURTHER, AN INVESTOR MAY EVEN HAVE TO WAIT TILL THE OTHER COUNT RYS ITA NO. 2487/DEL/2016 37 JUDICIARY ALSO AFFIRMS THE VALIDITY OF SUCH A PROVI SION BEFORE IT TAKES THE INVESTMENT DECISION? IS THIS A REASONABLE/FAIR EXPECTATION? II. YOUR KIND ATTENTION IS DRAWN TO ARTICLE 3 OF THE OM ANI TAX LAW (SUBMITTED AS ANNEXURE-IV IN THE REPLY DATE D 11 TH JAN., 2016) WHICH STATES THAT THE THE SECRETARY GENERAL SHALL BE RESPONSIBLE FOR THE EXECUTION OF THIS LAW.. EXECUTION IN ITSELF HAS WIDE CONNOTATIONS AND THE POWER TO ISSUE CLARIFICATIONS CAN BE REASON ABLY CONSTRUED TO BE INCLUDED IN THIS POWER/RESPONSIBILI TY ITSELF AS IN THE ABSENCE OF SUITABLE CLARIFICATIONS , IF THE INTENT OF SOME PROVISIONS REMAIN UNCERTAIN AND THE INVESTOR IS UNABLE TO CALCULATE THE IMPACT OF SUCH INCENTIVES ON THE POST TAX RETURNS ON ITS INVESTMEN TS, THE INCENTIVE PROVISIONS WOULD NOT ACHIEVE THEIR PURPOS E THUS HINDERING THE EFFECTIVE EXECUTION OF THE LAW. YOUR HONOUR WOULD APPRECIATE THAT EXECUTION OF TAX LAW I S NOT JUST COLLECTION OF REVENUES BUT ALSO ENSURING T HAT THE LEGISLATIVE PURPOSE BEHIND THE INCENTIVE/EXEMPT ION PROVISIONS OF ENCOURAGING INVESTMENT IS CLARIFIED T O ALL PROSPECTIVE INVESTORS. HENCE, IT IS UNFAIR TO TREAT THE LETTER OF HS SGT DATED 11 TH DEC., 2000 AS UNAUTHORIZED IN LAW. III. FURTHER, THERE IS A PRESUMPTION OF REGULARITY EXPRESSED BY THE MAXIM OF LAW 'OMNIA PRAESUMUNTUR RITE ET SOLEMNITER ESSE ACTA DONEC PROBETUR IN CONTRARIUM IMPLYING THAT ALL JUDICIAL AND OFFICIAL ACTS ARE PRESUMED TO BE HAVING BEEN RIGHTLY AND REGULARL Y DONE. NEITHER MOTIVE CAN BE PRESUMED NOR BAD FAITH NOR ABUSE OF POWER . THIS MAXIM IS CODIFIED IN SECTION 114(E) OF THE INDIAN EVIDENCE ACT, 1872 TOO . HENCE, THE REGULARITY/LEGAL VALIDITY OF THE OFFICIAL LETTE RS SHOULD BE RESPECTED. IV. IN THE ABSENCE OF ANY EXPLICIT LIMITATION ON THE AUTHORITY OF THE SGT IN THE OMANI TAX LAW AND IN VIEW OF THE POWERS OF THE HE THE SGT IN THE OVERALL SCHEME OF THE OMANI TAX LAW, IT IS UNJUST AND UNFAIR TO CALL IT MERE OPINION OF AN OFFICER . SUCH AN INTERPRETATION WOULD IMPLY THAT NO INVESTOR WOULD BELIEVE THE AUTHORITIES OF ANY COUNTRY AND TH E TAX SPARING CREDIT PROVISION ENSHRINED IN ARTICLE 25(4) OF THE INDO OMAN DTAA R.W.S 90(1)(A)(II) WOULD BE RENDERED OTIOSE . A.4. POINT NOS. 10 TO 12- NON MENTIONING OF ECO NOMIC DEVELOPMENT IN ARTICLE 8 (BIS) ITA NO. 2487/DEL/2016 38 I. IT IS STATED IN YOUR OFFICES LETTER THAT THE INTEN T OF ECONOMIC DEVELOPMENT IS NOT EXPLICITLY WRITTEN IN ARTICLE 8(BIS) AND THE ASSESSEE IS TRYING TO INSERT ECONOMIC DEVELOPMENT IN THE SAME. IT IS HUMBLY SUBMITTED THAT THERE IS NO SUCH ATTEMPT BY US . THE INTENT OF LAW MAY OR MAY NOT BE MENTIONED IN A LEGA L PROVISION DEPENDING UPON THE INDIVIDUAL PRACTICES/CONVENTIONS OF EACH COUNTRY. EVEN IN IND IA, WE FIND SO MANY TAX INCENTIVES AIMED AT ECONOMIC DEVELOPMENT CONTAINED IN SECTION 10 AND CHAPTER VIA WITHOUT EXPLICITLY MENTIONING THE AIM/INTENT OF THE M IN THE SECTION ITSELF. AS STATED EARLIER, WE HAVE TO G ATHER THE SAME FROM THE INTERNAL AND EXTERNAL AIDS TO CONSTRUCTION LIKE THE EXPLANATORY MEMORANDUM, THE OBJECT CLAUSE OF THE FINANCE BILL, THE MINISTERS SPEECH ETC. SIMILARLY, JUST BECAUSE ARTICLE 8(BIS) DOES NOT CONTAIN THE REFERENCE TO ECONOMIC DEVELOPMENT, IT CANNOT BE PRESUMED THAT THE SAID EXEMPTION IS NOT DESIGNED FOR ECONOMIC DEVELOPMENT . II. FURTHER, IT IS A BASIC PRINCIPLE OF CONSTRUCTION OF STATUTES THAT THE STATUTE HAS TO BE READ AS A WHOLE IN ITS CONTEXT . CONTEXT INCLUDES THE PREVIOUS STATE OF LAW, THE PREAMBLE, OBJECT SOUGHT TO BE ACHIEVED, MISCHIE F SOUGHT TO BE REMEDIED. (UOI VS. ELPHINSTONE SPINNIN G AND WEAVING CO. LTD. AIR 2001 SC 724-2001- CONSTITUTION BENCH). PRIOR TO INSERTION OF ARTICLE 8(BIS) (PREVIOUS STATE OF LAW ), THE INVESTORS IN OMAN SUFFERED A TAX COST ON THE RETURNS FROM THEIR INVESTMENT IF THE INVESTEE COMPANIES INCOME WAS EXEMPT FROM TAX. THE SGT IN ITS LETTER DATED 6 TH AUGUST, 2000 AND 11 TH DEC., 2000 (ANNEXURE V AND VII TO OUR REPLY DATED 11 TH JAN., 2016) REITERATES THIS FACTUAL POSITION AND IN THE LETTER OF THE 11 TH DEC., 2000 GOES ON TO SAY THAT : WE REFER TO YOUR LETTER DATED 2 DECEMBER, 2000 A ND OUR PREVIOUS LETTER DATED 6 AUGUST, 2000 ON THE ABO VE SUBJECT. UNDER ARTICLE 8 OF THE COMPANY INCOME TAX LAW OF OMAN, DIVIDEND FORMS PART OF THE GROSS INCOME CHARGEABLE TO TAX. THE TAX LAW OF OMAN PROVIDES INCOME TAX EXEMPTION TO COMPANIES UNDERTAKING CERTA IN IDENTIFIED ECONOMIC ACTIVITIES CONSIDERED ESSENTIAL FOR THE COUNTRYS ECONOMIC DEVELOPMENT WITH A VIEW TO ENCOURAGING INVESTMENTS IN SUCH SECTORS. BEFORE THE RECENT AMENDMENTS TO THE PROFIT TAX LA W ON COMMERCIAL AND INDUSTRIAL ESTABLISHMENTS, ARTICLE 5 OF ITA NO. 2487/DEL/2016 39 THIS LAW PROVIDED FOR EXEMPTION OF DIVIDEND INCOME IN THE HANDS OF THE RECIPIENTS IF SUCH DIVIDENDS WERE RECEIVED OUT OF THE PROFITS ON WHICH OMANI INCOME T AX WAS PAID BY DISTRIBUTING COMPANIES. IT MEANT THAT OMANI INCOME TAX WAS PAYABLE BY THE RECIPIENTS ON A NY DIVIDEND INCOME RECEIVED OUT OF THE EXEMPT PROFITS FROM TAX EXEMPT COMPANIES. AS A RESULT, INVESTORS I N TAX EXEMPT COMPANIES THAT UNDERTAKE THOSE ACTIVITIE S CONSIDERED ESSENTIAL FOR THE COUNTRYS ECONOMIC DEVELOPMENT SUFFERED A TAX COST ON THEIR RETURN ON INVESTMENTS. THE TAX TREATMENT UNDER THE ABOVE MENTIONED ARTICLE 5 HAD THE NEGATIVE IMPACT ON INVESTMENTS IN TAX EXEMPT PROJECT. THE COMPANY INCOME TAX LAW OF 1981 WAS, THEREFORE, RECENTLY AMENDED BY ROYAL DECREE NO. 68/2000 BY THE INSERTION OF A NEW ARTICLE 8(BIS), W HICH IS EFFECTIVE AS FROM THE TAX YEAR 2000 . AS PER THE NEWLY INTRODUCED ARTICLE 8(BIS) OF THE COMPANY INCOME TAX LAW, DIVIDEND DISTRIBUTED BY ALL COMPANIES, INCLUDING THE TAX EXEMPT COMPANIES WOULD BE EXEMPT FROM PAYMENT OF INCOME TAX IN THE HANDS O F THE RECIPIENTS. IN THIS MANNER, THE GOVERNMENT OF OMAN WOULD ACHIEVE ITS MAIN OBJECTIVE OF PROMOTING ECONOMIC DEVELOPMENT WITHIN OMAN BY ATTRACTING INVESTMENTS. WE PRESUME FROM OUR RECENT DISCUSSIONS WITH YOU T HAT THE INDIAN INVESTORS IN THE ABOVE PROJECT WOULD BE SETTING UP PERMANENT ESTABLISHMENT IN OMAN AND THAT THEIR EQUITY INVESTMENTS IN THE PROJECT WOULD BE EFFECTIVELY CONNECTED WITH SUCH PERMANENT ESTABLISHMENTS. ON THE ABOVE PRESUMPTION, WE CONFIRM THAT TAX WOU LD BE PAYABLE ON DIVIDEND INCOME EARNED BY THE PERMANENT ESTABLISHMENTS OF THE INDIAN INVESTORS, A S IT WOULD FORM PART OF THEIR GROSS INCOME UNDER ARTICLE 8, IF NOT FOR THE TAX EXEMPTION PROVIDED UNDER ARTICLE 8(BIS ). AS THE INTRODUCTION OF ARTICLE 8(BIS) IS TO PROMO TE ECONOMIC DEVELOPMENT IN OMAN, THE INDIAN INVESTORS SHOULD BE ABLE TO OBTAIN RELIEF IN INDIA UNDER ARTI CLE 25(4) OF THE AGREEMENT FOR AVOIDANCE OF DOUBLE TAXATION IN INDIA. ALL OTHER MATTERS COVERED IN OUR LETTER NO. FT/13 /92/, DATED 6 AUGUST, 2000 REMAIN UNCHANGED. ITA NO. 2487/DEL/2016 40 IT IS AN ACCEPTED POSITION OF INTERPRETATION THAT IF THERE IS SOME DOUBT ABOUT THE INTERPRETATION OF A PARTICULAR PROVISION OF LAW, THE COMPETENT AUTHORITY TO CLARIF Y THAT PROVISION IS ONLY THE GOVERNMENT OF THAT PARTI CULAR COUNTRY. THE INCOME TAX DEPARTMENT OF INDIA HAS NO LOCUS STANDI IN THIS MATTER. ALSO, THE PREAMBLE TO ROYAL DECREE 68 OF 2000 (SUBMITTED AS ANNEXURE-VI TO OUR REPLY DATED 11.01.2016) ISSUED BY THE SULTANATE OF OMAN (WHICH INSERTED ARTICLE 8 (BIS)) STATES THAT THE AMENDMENT S HAVE BEEN DONE IN EXIGENCIES OF PUBLIC GOOD. IN LAW, THE PREAMBLE TO A STATUTE IS A WELL-RECOGNIZED INTERNAL AID TO CONSTRUCTION/INTERPRETATION OF THE STATUTE. IN ACCORDANCE WITH THE EXIGENCIES OF PUBLIC GOOD MEANS A DEMAND FOR THE ECONOMIC GOOD OF THE PUBLIC. PUBLIC GOOD CORRESPONDS TO NATIONAL NEEDS AND SELF-INTERES T OF A COUNTRY. IN A FISCAL STATUE, AMENDMENT FOR PUBLIC GOOD CLEARLY IMPLIES AMENDMENT THROUGH TAX INCENTIVES TO FOSTER ECONOMIC DEVELOPMENT/JOB GROWTH THROUGH INFLOW OF FOREIGN CAPITAL . THUS, FROM THE PREAMBLE ITSELF IT IS CLEAR THAT THE EXEMP TION TO DIVIDENDS IS A TAX INCENTIVE MEASURE AIMED AT FOSTE RING ECONOMIC DEVELOPMENT. THERE IS NO OTHER MOTIVE OTHE R THAN ECONOMIC DEVELOPMENT WHICH CAN BE REASONABLY ATTRIBUTED TO A TAX INCENTIVE/EXEMPTION MEASURE. THUS, WHEN READ IN ITS CONTEXT , IT IS CLEAR THAT THE EXEMPTION TO DIVIDENDS WAS GIVEN TO INCENTIVIZE INVESTORS TO INVEST MORE. THE LINK BETWEEN INVESTM ENT AND ECONOMIC DEVELOPMENT IS TOO OBVIOUS IN ECONOMICS TO BE IGNORED IN INTERPRETING ARTICLE 8(B IS) MORE SO WHEN THE SAME IS SPECIFICALLY ACKNOWLEDGED BY THE MINISTRY OF FINANCE OF THE COUNTRY(OMAN) ITSELF . A5 . POINT NO. 13-GENERAL EXEMPTIONS LINK WITH ECONOMIC DEVELOPMENT I. IT IS STATED IN YOUR OFFICE LETTER THAT IT IS NOT NECESSARY THAT ANY SHAREHOLDER WHO EARNS DIVIDEND WOULD BE PROMOTING THE ECONOMIC DEVELOPMENT. IT IS MERE INVESTMENT IN A PARTICULAR COMPANY.. WE HUMBLY SUBMIT THAT WE AGREE THAT THE ACT OF RECEIVING DIVI DENDS CANNOT PROMOTE ECONOMIC DEVELOPMENT BUT WE CANNOT LOSE SIGHT OF THE FACT THAT RECEIPT OF DIVIDEND IS A CONSEQUENCE OF INVESTMENT . ECONOMIC DEVELOPMENT TAKES PLACE QUA INVESTMENT AND NOT QUA DIVIDEND RECEIPTS . IT IS THE ACT OF INVESTMENT WHICH PROMOTES ECONOMIC DEVELOPMENT DIRECTLY BY MEANS OF ITA NO. 2487/DEL/2016 41 GENERATION OF EMPLOYMENT AND INDIRECTLY BY ITS EFFE CTS ON OTHER SECTORS OF THE ECONOMY HAVING LINKAGES WIT H THE INDUSTRY. FOR INSTANCE , DUE TO THE OMIFCO FERTILISER PROJECT COMING IN OMAN, NOT ONLY PEOPLE EMPLOYED IN THE COMPANY BUT ALSO ITS VENDORS, CONTRACTORS ETC. WOULD EARN INCOME WHICH WOULD OBVIOUSLY HELP IN DEVELOPMENT OF OMAN ECONOMY. FROM THE INVESTOR POINT OF VIEW, ANY PRUDENT INVEST OR COMPARING INVESTMENT OPTIONS BEFORE MAKING A FINAL DECISION WILL OBVIOUSLY COMPARE THE POST TAX RETURNS ON ITS INVESTMENTS AMONG VARIOUS COMPETING COUNTRIES/INVESTMENT OPTIONS. THE POST TAX RETURNS WOULD NECESSARILY TAKE INTO ACCOUNT THE TAX ON PROJECTED DIVIDENDS IN SOURCE COUNTRY AND HOME COUNTRY BASED ON THE RESPECTIVE DOMESTIC TAX LAWS AND THE PROVISIONS OF THE DOUBLE TAX AVOIDANCE AGREEMENTS. THE RELEVANCE OF DTAAS AS A MEANS OF ENCOURAGING CROSS BORDER TRADE AND INVESTMENT IS CODIFIED IN S. 90(1)(A)(II) OF OUR INCOME TAX ACT T OO. IT IS OBVIOUS THAT GIVEN THE SAME AMOUNT OF PROFITS EA RNED BY A INVESTEE COMPANY AND DIVIDEND PAY OUT RATIOS, THE POST TAX RETURNS FOR THE INVESTOR WOULD BE HIGH ER IN A COUNTRY WHICH GRANTS THE DIVIDEND EXEMPTION (L IKE ARTICLE 8 (BIS ) OF OMANI TAX LAW) THAN A COUNTRY WHICH DOES NOT GRANT AN EXEMPTION. HENCE, THE NEXUS BETWEEN THE DIVIDEND EXEMPTION AND ECONOMIC DEVELOPMENT IS LUMINESCENT AND CANNOT BE BRUSHED ASIDE . EVEN IF FOR A MOMENT THE EXPLICIT LETTERS OF HE THE SGT AND THE ASSESSMENT ORDERS IN OMAN ARE IGNORED, THE ONLY REASONABLE INTERPRETATION AS TO T HE INTENT OF THE DIVIDEND EXEMPTION CAN BE AS AN INCENTIVE AIMED AS AN ECONOMIC DEVELOPMENT MEASURE ONLY. II. IT IS NOT TRUE THAT GENERAL EXEMPTION CANNOT BE FOR A SPECIFIC PURPOSE. THERE IS NO LEGAL/FACTUAL BASIS FOR SUCH AN OBSERVATION. IN TAX LAWS, EACH AND EVERY INCENTIVE PROVISION HAS A PURPOSE. TAX INCENTIVES INCLUDE EXEMPTIONS, DEDUCTIONS, TAX CREDITS ETC. TH E WORDS ECONOMIC DEVELOPMENT HAVE A VERY WIDE CONNOTATION AND CANNOT BE GIVEN A RESTRICTED MEANIN G TO CONFINE IT TO ONLY SOME SECTORS OF THE ECONOMY. WH EN THE INTENT IS TO INCENTIVIZE FOREIGN INVESTMENT IN ALL THE SECTORS OF THE ECONOMY, A GENERAL DIVIDEND EXEMPTIO N CAN BE GIVEN AS A TAX INCENTIVE ACROSS ALL SECTORS. SUCH AN EXEMPTION WOULD NOT LOSE ITS ATTRIBUTE OF ENCOURAGING ECONOMIC DEVELOPMENT JUST BECAUSE IT APPLIES ACROSS ALL SECTORS. IF THE INTENTION IN THE DTAA WAS TO RESTRICT ITS MEANING TO CERTAIN SPECIFIED SECTORS, SUITABLE QUALIFIERS WOULD HAVE ITA NO. 2487/DEL/2016 42 BEEN INSERTED BEFORE THE WORDS ECONOMIC DEVELOPMENT IN ARTICLE 25(4). IN CONCLUSION IN THE LIGHT OF THE ABOVE SUBMISSI ONS AND THE DECISION OF THE JURISDICTIONAL ITAT IN THE CASE OF M/S. KRIBHCO (SUPRA) BOTH ON MERITS AND NON- MAINTAINABILITY OF THE PROPOSED REVISION U/S. 263, SUFFICIENT ENQUIRY HAVING BEEN DONE AT THE ASSESSME NT STAGE, WE ONCE AGAIN PRAY FOR DROPPING THE PROCEEDI NGS U/S. 263 ON THE ISSUE. (EMPHASIS SUPPLIED) 8.5 IT MAY KINDLY BE APPRECIATED THAT THE APPELLANT -SOCIETY NOT ONLY STRONGLY RELIED ON THE DECISION RENDERED BY A CO-OR DINATE BENCH OF THE HON'BLE TRIBUNAL ON THE SAME ISSUE BUT ALSO HAS EXPLAINED IN GREAT DETAIL AS TO HOW THE SECRETARY G ENERAL OF TAXATION, OMAN IS FULLY COMPETENT AND AUTHORIZED TO CLARIFY THE PURPOSE OF ANY AMENDMENT MADE IN THE OMANI TAX LAW AND ALSO DEMONSTRATED THE INEXTRICABLE LINK BETWEEN INV ESTMENT AND ECONOMIC DEVELOPMENT ON THE ONE HAND AND BETWEEN TH E POST TAX RETURNS FOR AN INVESTOR AND INVESTMENT ON THE O THER HAND. THE LEARNED PR. CIT HAS MERELY ASSUMED THAT THE REL EVANT LETTERS ISSUED BY THE SECRETARY GENERAL OF TAXATION CAN BE CONSIDERED AS LETTERS/OPINION ISSUED BY AN OFFICER WHICH HAVE NO SANCTITY IN THE EYES OF LAW. IT IS RESPECTFULLY SUBMITTED THAT THE SECRETARY GENERAL OF TAXATION, OMAN IS ACTING U NDER THE AUTHORITY OF THE SOVEREIGN STATE OF SULTANATE OF OM AN AND HE IS FULLY COMPETENT TO ISSUE A CLARIFICATION WHENEVER T HERE IS ANY DOUBT RAISED BY THE AFFECTED COMPANY/FOREIGN INVEST ORS REGARDING THE PURPOSE OF ANY AMENDMENT BROUGHT ABOU T IN THE OMANI TAX LAW. THE LEARNED PR. CIT HAS CONSIDERED T HE VARIOUS SUBMISSIONS MADE ON BEHALF OF THE APPELLANT -SOCIETY AND HAS RECORDED HIS FINDINGS ON THE RELEVANT ISSUE AT PARAS 20 TO 50 OF HIS ORDER. FIRST OF ALL, AT PARA-21 HE HA S MADE THE FOLLOWING SWEEPING REMARK. 21. IN MY OPINION, THE A O DID NOT MAKE ANY VERIF ICATION / ENQUIRIES AS REGARDS THE LEGAL VALUE OF LETTERS ISS UED BY THE SECRETARY GENERAL AND ALSO DID NOT MAKE ANY ENQUIRY AS REGARDS THE DESIGNED ECONOMIC DEVELOPMENT. THERE WAS LACK O F INQUIRY AND NON-APPLICATION OF MIND. FROM THE ABOVE, IT MAY KINDLY BE SEEN THAT THE LEA RNED PR. CIT HAS PROPOSED TO TREAT THE ASSESSMENT ORDER AS ERRON EOUS AND PREJUDICIAL ON THE GROUND THAT THE ASSESSING OFFICE R DID NOT MAKE ANY VERIFICATION/INQUIRY REGARDING THE LEGAL V ALUE OF THE LETTERS ISSUED BY THE SECRETARY GENERAL OF TAXATION . IN THIS REGARD, IT IS SUBMITTED THAT THE ASSESSING OFFICER HAS CONSIDERED THIS ISSUE ON MERITS IN GREAT DETAIL IN A SCRUTINY ASSESSMENT ORDER PASSED BY HIM AND HE HAS FURTHER FOLLOWED CON SISTENT ITA NO. 2487/DEL/2016 43 VIEW TAKEN BY THE DEPARTMENT STARTING FROM THE ASSE SSMENT YEAR 2006-07 ONWARDS IN SCRUTINY ASSESSMENT COMPLET ED. THE ASSESSING OFFICER HAS FURTHER TAKEN NOTE OF THE ASS ESSMENTS MADE IN THE CASE OF THE P.E. OF THE APPELLANT-COMPA NY WHEREIN ALSO IT IS UNAMBIGUOUSLY RECORDED THAT EXEMPTION HA S BEEN GRANTED TO DIVIDEND INCOME FOR THE PURPOSE OF ECONO MIC DEVELOPMENT. THEREFORE, NO FAULT CAN BE FOUND IN T HE APPROACH OF THE ASSESSING OFFICER. AT PARA-23 THE LEARNED PR . CIT HAS OBSERVED THAT THE ISSUE AS TO WHETHER EXEMPTION HAS BEEN GRANTED FOR THE PURPOSE OF ECONOMIC DEVELOPMENT, HA S TO BE DECIDED NOT BY ONE COUNTRY BUT BY BOTH THE COUNTRIE S AS DOUBLE TAXATION AGREEMENT IS ENTERED INTO BY TWO COUNTRIES . IT IS HUMBLY SUBMITTED THAT THIS OBSERVATION MADE BY THE LEARNED PR. CIT IS TOTALLY FALLACIOUS. IF THERE IS SOME DEBATE ABOUT THE INTERPRETATION OF ANY PROVISION OF THE DT AA ONLY THEN THE TWO COUNTRIES WOULD COME INTO PICTURE. HOWEVER, IF THE QUESTION IS CONFINED ONLY TO THE INTERPRETATION OF A PARTICULAR PROVISION OF THE TAX LAW OF ONE OF THE C OUNTRIES, IT IS ONLY THAT SPECIFIC COUNTRY WHICH CAN ISSUE ANY CLARIFICATION REGARDING THE INTERPRETATION. THE OTH ER COUNTRY OBVIOUSLY DOES NOT HAVE ANY LOCUS STANDI IN THIS MATTER. FOR EXAMPLE, IF THERE IS ANY DOUBT REGARDING THE INTERPRETATION OF ANY PROVISIONS OF THE INCOME-TAX ACT, ONLY THE GOVERNMENT OF INDIA THROUGH ITS AGENCY CAN CLARIFY SUCH PROVISION. SIMILARLY, IF THERE IS SOME DEBATE REGA RDING THE INTERPRETATION OF ANY PROVISION OR PURPOSE WHICH IS CONFINED TO THE OMANI TAX LAW, ONLY THE SULTANATE OF OMAN THROU GH ITS AGENCY CAN ISSUE CLARIFICATION. THERE IS NO QUESTIO N OF THE TWO COUNTRIES SITTING TOGETHER ON THIS PARTICULAR ISSUE . 8.6 AT PARA-24 THE LEARNED PR. CIT HAS REFERRED TO THE HON'BLE SUPREME COURT DECISION IN THE CASE OF UNION OF INDI A AND ANOTHER VS. AZADI BACHAO ANDOLAN, 263 ITR 706 AND A T PARA- 25, THE LEARNED PR. CIT HAS ALSO REPRODUCED THE FO LLOWING PART OF THE HON'BLE SUPREME COURTS ORDER:- THE NICETIES OF THE OECD MODEL OF TAX TREATIES O R THE REPORT OF THE JOINT PARLIAMENTARY COMMITTEE ON THE STOCK MARKET SCAM AND MATTERS RELATING THERETO, ON WHICH CONSIDERABLE TIME WAS SPENT BY MR . JHA, WHO APPEARED IN PERSON, NEED NOT DETAIN US FOR TOO LONG, THOUGH WE SHALL ADVERT TO THEM LATER. THIS CO URT IS NOT CONCERNED WITH THE MANNER IN WHICH TAX TREATIES ARE NEGOTIATED OR ENUNCIATED; NOR IS IT CONCERNED WITH THE WISDOM OF ANY PARTICULAR TREATY. WHETHER THE INDO- MAURITIUS DTAC OUGHT TO HAVE BEEN ENUNCIATED IN THE PRESENT FORM, OR IN ANY OTHER PARTICULAR FORM, IS N ONE OF OUR CONCERN. WHETHER SECTION 90 OUGHT TO HAVE BEEN PLACED ON THE STATUTE BOOK, IS ALSO NOT OUR CONCERN. SECTION 90, WHICH DELEGATES POWERS TO THE ITA NO. 2487/DEL/2016 44 CENTRAL GOVERNMENT, HAS NOT BEEN CHALLENGED BEFORE US, AND, THEREFORE, WE MUST PROCEED ON THE FOOTING THAT THE SECTION IS CONSTITUTIONALLY VALID. THE CHALLENGE BE ING ONLY TO THE EXERCISE OF THE POWER EMANATING FROM THE SECTIO N, WE ARE OF THE VIEW THAT SECTION 90 ENABLES THE CENT RAL GOVERNMENT TO ENTER INTO A DTAC WITH THE FOREIGN GOVERNMENT. WHEN THE REQUISITE NOTIFICATION HAS BEE N ISSUED THEREUNDER, THE PROVISIONS OF SUB-SECTION (2 ) OF SECTION 90 SPRING INTO OPERATION AND AN ASSESSEE WH O IS COVERED BY THE PROVISIONS OF THE DTAC IS ENTITLED T O SEEK BENEFITS THEREUNDER, EVEN IF THE PROVISIONS OF THE DTAC ARE INCONSISTENT WITH THE PROVISIONS OF THE INCOME- TAX ACT, 1961. WE ARE AT A LOSS TO UNDERSTAND AS TO HOW THE AFORE SAID OBSERVATION OF THE HONBLE SUPREME COURT SUPPORTS T HE VIEW TAKEN BY THE LEARNED PR. CIT. AS A MATTER OF FACT T HESE OBSERVATIONS ARE IN ASSESSEES FAVOUR. AT PARA-27 T HE LEARNED PR. CIT HAS FURTHER OBSERVED THAT AT PARA-4 OF THE LETTER DATED 6 TH AUGUST, 2000 IT IS MENTIONED THAT EXEMPTION WAS GRA NTED INITIALLY FOR A PERIOD OF 5 YEARS AND THIS PERIOD M AY BE EXTENDED FOR A FURTHER PERIOD OF FIVE YEARS. WE ARE AGAIN AT LOSS TO UNDERSTAND WHAT IS THE RELEVANCE OF THESE REMARKS O F THE LEARNED PR. CIT BECAUSE THE EXEMPTION CONTINUES AND HAS BEEN ALLOWED IN RESPECT OF THE ASSESSMENT YEAR UNDER APP EAL AND, THEREFORE, THE ENTIRE CONTROVERSY HAS ARISEN. FURTH ER, THE INSINUATION AT PARA 27 OF THE IMPUGNED ORDER THAT A RESPONSE TO LETTER CANNOT BECOME A LAW IS UNCALLED FOR AND NOT APPOSITE AS THE LAW IS ALREADY LAID DOWN IN THE ROYAL DECREES O F THE OMANI GOVERNMENT, THE LETTER ISSUED BY H.E THE SECRETARY GENERAL DOES NOT OVERRIDE IT IS ONLY A CLARIFICATION ON THE INTENT OF LAW TO ALLAY ANY DOUBTS IN THE MINDS OF THE FOREIGN INV ESTORS. THERE IS NO REQUIREMENT IN LAW FOR A CLARIFICATION SOUGHT BY AN INVESTOR TO BE MADE PUBLIC. 8.7 AT PARA 28, THE LEARNED PR. CIT HAS ATTEMPTED TO CAST A DOUBT ON THE INTENT OF THE EXEMPTION ON THE GROUND THAT THE ROYAL DECREE OUGHT TO HAVE MENTIONED THE EXACT WORDS DESIGNED FOR ECONOMIC DEVELOPMENT IN THE DECREE ITSELF AND IN ITS ABSENCE, THE ASSESSEE CANNOT PRESUME THE SAME AS DE SIGNED FOR ECONOMIC DEVELOPMENT. IT IS HUMBLY SUBMITTED TH AT WITH DUE RESPECT, THIS IS UNJUSTIFIED AND IS IN IGNORANC E OF THE LEGISLATIVE PROCESS. THERE IS NO CONSTITUTIONAL/LEG AL REQUIREMENT IN THE SULTANATE OF OMAN OMAN (OR FOR T HAT MATTER EVEN INDIA) FOR THE INTENT OF THE LAW TO BE MENTIONED IN THE LAW ITSELF. THE INTENT HAS TO BE GATHERED BY TH E COURTS AS PART OF THE INTERPRETATION/CONSTRUCTION PROCESS HA VING REGARD TO CONTEXT, HISTORY OF THE LAW, MISCHIEF SOUGHT TO BE ITA NO. 2487/DEL/2016 45 REMEDIED AND VARIOUS INTERNAL/EXTERNAL AIDS TO CONS TRUCTION OF STATUTES. THE MERE FACT THAT THE INTENT OF THE CHANGE IN LAW WAS NOT MENTIONED IN THE ROYAL DECREE CANNOT BE HEL D AGAINST THE APPELLANT. 8.8 AT PARA-30, THE LEARNED PR. CIT HAS AGAIN REPEA TED THAT THE LETTER ISSUED BY THE SECRETARY GENERAL OF TAXATION IS MERELY AN OPINION OF AN OFFICER OF OMAN WHICH CANNOT BE AC CEPTED. THE LEARNED PR. CIT HAS REFUSED TO ACCEPT DETAILED SUBMISSIONS MADE BEFORE HIM THAT THE SECRETARY GENE RAL OF TAXATION, OMAN IS FULLY COMPETENT AND AUTHORIZED TO ISSUE ANY CLARIFICATION REGARDING THE PURPOSE OF ANY PROV ISION OF OMANI TAX LAW. 8.9 AT PARA- 33, THE LEARNED PR. CIT HAS CONCL UDED THAT THERE IS NO ARTICLE IN THE OMANI TAX LAW WHICH EMPOWERS THE SGT FOR INTERPRETING A PARTICULAR ARTICLE. IT IS SUBMITTED THAT THIS IS A COMPLETE MISREADING OF THE OMANI TAX LAW ESPECIALLY ARTICLE 3 OF ROYAL DECREE 47 WHICH SPECIFICALLY ST ATES THAT THE THE SECRETARY GENERAL SHALL BE RESPONSIBLE FOR THE EXECUTION OF THIS LAW. . EXECUTION IN ITSELF HAS WIDE CONNOTATIONS AND THE POWER TO ISSUE CLARIFICATIONS CAN BE REASONABLY CONSTRUED TO BE INCLUDED IN THIS POWER/RESPONSIBILITY ITSELF AS IN THE ABSENCE OF SU ITABLE CLARIFICATIONS, IF THE INTENT OF SOME PROVISIONS RE MAIN UNCERTAIN AND THE INVESTOR IS UNABLE TO CALCULATE T HE IMPACT OF SUCH INCENTIVES ON THE POST TAX RETURNS ON ITS INVE STMENTS, THE INCENTIVE PROVISIONS WOULD NOT ACHIEVE THEIR PURPOS E THUS HINDERING THE EFFECTIVE EXECUTION OF THE LAW. YOUR HONOUR WOULD APPRECIATE THAT EXECUTION OF TAX LAW IS NOT J UST COLLECTION OF REVENUES BUT ALSO ENSURING THAT THE L EGISLATIVE PURPOSE BEHIND THE INCENTIVE/EXEMPTION PROVISIONS O F ENCOURAGING INVESTMENT IS CLARIFIED TO ALL PROSPECT IVE INVESTORS. HENCE, IN THE ABSENCE IT IS UNFAIR AND D ISINGENUOUS TO TREAT THE LETTER OF HS SGT DATED 11TH DEC., 2000 AS UNAUTHORIZED IN LAW. 8.10 AT PARA-34 THE LEARNED PR. CIT HAS RELIED ON THE HON'BLE SUPREME COURT DECISION IN THE CASE OF SMT. TARULATA SHYAM VS. CIT, 108 ITR 345. THE LEARNED PR. CIT HAS RELIE D ON THE FOLLOWING OBSERVATIONS OF THE HON'BLE SUPREME COURT IN THE ABOVE JUDGEMENT:- IT IS URGED THAT THE PRINCIPLE IN THE LAST LIMB O F SUB- SECTION (1) OF SECTION 108 OF THE COMMONWEALTH ACT SHOULD ALSO BE READ INTO THE INDIAN STATUTE. IT IS MAINTAINED THAT THE OMISSION OF SUCH WORDS FROM SECTIONS 2(6A)(E) AND 12(1B) DOES NOT SHOW THAT THE INTENDMENT OF THE INDIAN LEGISLATURE WAS DIFFERENT. ACCORDING TO THE COUNSEL WHAT ITA NO. 2487/DEL/2016 46 IS EXPLICIT IN SECTION 108(1) OF THE COMMONWEALTH A CT, IS IMPLICIT IN SECTIONS 2(6A)(E) AND12(1B) AND THE GENERAL SCHEME OF THE ACT WHICH REQUIRES THAT THE ASSESSMENT IS TO BE MADE ON THE BASIS OF TOTAL INCO ME OF THE WHOLE PREVIOUS YEAR. SUCH A VIEW, CONCLUDES MR. SHARMA, WOULD ALSO BE IN CONSONANCE WITH REASON AND JUSTICE. WE HAVE GIVEN ANXIOUS THOUGHT TO THE PERSUASIVE ARGUMENTS OF MR. SHARMA. HIS ARGUMENTS, IF ACCEPTED , WILL CERTAINLY SOFTEN THE RIGOUR OF THIS EXTREMELY DRASTIC PROVISION AND BRING IT MORE IN CONFORMITY WITH LOGI C AND EQUITY. BUT THE LANGUAGE OF SECTIONS 2(6A)(E) A ND 12(1B) IS CLEAR AND UNAMBIGUOUS. THERE IS NO SCOPE FOR IMPORTING INTO THE STATUTE WORDS WHICH ARE NOT THER E. SUCH IMPORTATION WOULD BE, NOT TO CONSTRUE, BUT TO AMEND THE STATUTE. EVEN IF THERE BE A CASUS OMISSUS , THE DEFECT CAN BE REMEDIED ONLY BY LEGISLATION AND NOT BY JUDICIAL INTERPRETATION . TO US, THERE APPEARS NO JUSTIFICATION TO DEPART F ROM THE NORMAL RULE OF CONSTRUCTION ACCORDING TO WHICH THE INTENTION OF THE LEGISLATURE IS PRIMARILY TO BE GATHERED FROM THE WORDS USED IN THE STATUTE . IT WILL BE WELL TO RECALL THE WORDS OF ROWLATT J. IN CAPE B RANDY SYNDICATE V. INLAND REVENUE COMMISSIONERS [1921] 1 KB 64 (KB) AT PAGE 71, THAT : ' .. ...... IN A TAXING ACT ONE HAS TO LOOK MEREL Y AT WHAT IS CLEARLY SAID. THERE IS NO ROOM FOR ANY INTENDMEN T. THERE IS NO EQUITY ABOUT A TAX.THERE IS NO PRESUMPT ION AS TO A TAX . NOTHING IS TO BE READ IN, NOTHING IS TO BE IMPLIED. ONE CAN ONLY LOOK FAIRLY AT THE LANGUAGE U SED.' ONCE IT IS SHOWN THAT THE CASE OF THE ASSESSEE CO MES WITHIN THE LETTER OF THE LAW, HE MUST BE TAXED, HOW EVER GREAT THE HARDSHIP MAY APPEAR TO THE JUDICIAL MIND TO BE. (EMPHASIS SUPPLIED) WE ARE AGAIN AT A LOSS TO UNDERSTAND THE RELEVANCE OF THIS CASE FOR THE PURPOSE OF DECIDING AS TO WHETHER THE SECRE TARY GENERAL OF TAXATION, OMAN IS COMPETENT TO ISSUE A CLARIFICA TION OR NOT. THERE CAN BE NO QUARREL ABOUT THE PRINCIPLE OF JURI SPRUDENCE LAID DOWN BY THE HON'BLE SUPREME COURT IN THE ABOVE CASE BUT HOW IT SUPPORTS THE VIEW ADOPTED BY THE LEARNED PR. CIT IS NOT CLEAR. 8.11 AT PARA 36, THE LEARNED PR. CIT HAS AVERRED THAT WHAT THE WORDS DESIGNED FOR ECONOMIC DEVELOPMENT ARE EXPLICIT TH ERE IS NO ITA NO. 2487/DEL/2016 47 ROOM FOR SOMETHING IMPLICIT. WITH DUE RESPECT, WE ARE AT A LOSS TO UNDERSTAND WHAT IS IMPLICIT WHEN THE CLARIF ICATION ISSUED BY HE THE SGT IS AMPLY CLEAR AND EXPLICIT TH AT THE AMENDMENT TO EXEMPT DIVIDENDS IN OMANS DOMESTIC LA W WAS DONE WITH THE SPECIFIC OBJECTIVE OF REDUCING TH E TAX COST FOR THE INVESTORS SO THAT THEY ARE ENCOURAGED TO IN VEST RESULTING IN FURTHERANCE OF THE AIM OF ECONOMIC DEVELOPMENT OF OMAN. FURTHER, EVEN IF FOR A MOMENT THE CLARIF ICATION ISSUED BY HE THE SGT IS IGNORED, THE SCOPE OF ECONOMIC DEVELOPM ENT AS USED IN ARTICLE 25(4) IS SO WIDE THAT ANY FISCAL INCENTIVE AIMED AT INVESTMENT PROMOTION DIRECTLY THROUGH LESS ER TAXES/EXEMPTION ON DIVIDENDS CAN HAVE NO OBJECTIVE OTHER THAN ECONOMIC DEVELOPMENT. SOME OF THE DICTIONARY MEANINGS ARE REP RODUCED BELOW WHICH AMPLY CLARIFY THAT ECONOMIC DEVELOPMENT COVER S JOB AND INDUSTRIAL GROWTH WHICH IS A DIRECT RESULT OF I NCREASE IN INVESTMENT ON ACCOUNT OF TAX INCENTIVES LIKE DIVID END EXEMPTION ( IF A TERM IS NOT DEFINED IN THE STATUTE, RESORT TO DICTIONARY IS A JUDICIALLY APPROVED AID TO CONSTRUC TION ) : A. THE SCOPE OF ECONOMIC DEVELOPMENT INCLUDES THE P ROCESS AND POLICIES BY WHICH A NATION IMPROVES THE ECONOMI C, POLITICAL, AND SOCIAL WELL-BEING OF ITS PEOPLE. ( HTTPS://EN.WIKIPEDIA.ORG/WIKI/ECONOMIC_ DEVELOPMENT) B. ECONOMIC DEVELOPMENT USUALLY REFERS TO THE ADOPT ION OF NEW TECHNOLOGIES, TRANSITION FROM AGRICULTURE-BASED TO INDUSTRY- BASED ECONOMY, AND GENERAL IMPROVEMENT IN LIVING STANDARDS. (HTTP://WWW.BUSINESSDICTIONARY.COM/DEFINITION/ECON OMIC- DEVELOPMENT.HTML ) C. ECONOMIC DEVELOPMENT REFERS TO THE INCREASE IN T HE STANDARD OF LIVING IN A NATION'S POPULATION WITH SUSTAINED G ROWTH FROM A SIMPLE, LOW-INCOME ECONOMY TO A MODERN, HIGH-INCO ME ECONOMY. ECONOMIC DEVELOPMENT IS ENHANCED WHEN THE LOCAL QUALITY OF LIFE IMPROVES. ECONOMIC DEVELOPMENT CAN BE EXTENSIVE OR INTENSIVE. IT IS EXTENSIVE WHEN THERE IS INCREASE OF OVERALL WEALTH AND INTENSIVE WHEN THERE IS INCRE ASE OF PER CAPITA WEALTH. (HTTP://DEFINITIONS.USLEGAL.COM/E/ECONOMIC - DEVELOPMENT%20/) WHEN THE INTENT IS TO INCENTIVIZE FOREIG N INVESTMENT IN ALL THE SECTORS OF THE ECONOMY, A GENERAL DIVIDEND EXEMPTIO N CAN BE GIVEN AS A TAX INCENTIVE ACROSS ALL SECTORS. SU CH AN EXEMPTION WOULD NOT LOSE ITS ATTRIBUTE OF ENCOURAGI NG ITA NO. 2487/DEL/2016 48 ECONOMIC DEVELOPMENT JUST BECAUSE IT APPLIES ACROSS ALL SECTORS. IF THE INTENTION IN THE DTAA WAS TO RESTRI CT ITS MEANING TO CERTAIN SPECIFIED SECTORS, SUITABLE QUAL IFIERS WOULD HAVE BEEN INSERTED BEFORE THE WORDS ECONOMIC DEVELOPMENT IN ARTICLE 25(4). 8.9 AT PARA-38 THE LEARNED PR. CIT HAS AGAIN REFERR ED TO THE HON'BLE DELHI ITAT DECISION IN THE CASE OF KRIBCHO AND HE HAS ASSUMED THAT PROBABLY THE HON'BLE ITAT HAS MISINTERPRETED THE LETTER DATED 11 TH DECEMBER, 2000 ISSUED BY THE SECRETARY GENERAL OF TAXATION TO BE ISSUED B Y THE SULTANATE OF OMAN. HE HAS AGAIN REPEATED THAT THE L ETTER ONLY CONTAINS AN OPINION OF THE SECRETARY GENERAL. IT IS RESPECTFULLY SUBMITTED THAT THE LETTERS REFERRED TO ABOVE HAVE BEEN OFFICIALLY ISSUED BY THE SECRETARY GENERAL OF TAXATION, OMAN ON THE LETTERHEADS OF THE MINISTRY OF FINANCE , SULTANATE OF OMAN. OBVIOUSLY, THE SOVEREIGN HEAD OF THE STATE I.E. THE SULTAN OF OMAN IS NOT SUPPOSED TO PU T HIS PERSONAL SIGNATURE TO SUCH LETTERS OF CLARIFICATION . THE SECRETARY GENERAL OF TAXATION, OMAN IS THE HIGHEST AUTHORITY APPOINTED FOR EXECUTION AND FOR ISSUING VARIOUS NOT IFICATIONS, FORMS AND DOCUMENTS AND HE DRAWS AUTHORITY FROM THE SOVEREIGN STATE OF THE SULTANATE OF OMAN. IT IS MOS T HUMBLY AND WITHOUT ANY DISRESPECT SUBMITTED THAT THE LEARN ED PR. CIT IS NOT SUPPOSED TO ASSUME THAT A HIGHER APPELLATE A UTHORITY HAS MISINTERPRETED THE LETTER ISSUED BY THE SECRETA RY GENERAL OF OMAN. 8.10 AGAIN AT PARA-40 OF THE ORDER THE LEARNED PR. CIT HAS REPEATED THAT THE HON'BLE TRIBUNAL PERHAPS PRESUM ED THAT THE LETTER WAS ISSUED BY THE SULTANATE OF OMAN AN D THAT THE HON'BLE TRIBUNAL DID NOT CONSIDER THAT THE INTERPR ETATION HAS TO BE WITH REFERENCE TO THE WORDS USED IN THE ACT/ DTAA. THE LEARNED PR. CIT HAS EVEN SUGGESTED THAT THE DEP ARTMENT MAY FILE A MISCELLANEOUS APPLICATION BEFORE THE HON 'BLE ITAT POINTING OUT THAT THE SAID LETTERS ARE JUST OP INION FROM THE OFFICER OF THE DEPARTMENT OF OMAN WHICH IS A MI STAKE APPARENT FROM RECORD IN LAW AS WELL AS ON FACTS. HE HAS FURTHER OBSERVED THAT THE HON'BLE TRIBUNAL DID NOT CONSIDER THAT ANY INTERPRETATION HAS TO BE BETWEEN TWO GOVER NMENTS UNDER THE DTAA AND NOT BY OFFICER OF OMAN. IT IS RE ITERATED THAT THE LEARNED PR. CIT HAS ENTIRELY PROCEEDED ON THE BASIS OF AN INCORRECT IMPRESSION OR ASSUMPTION. THE SPECIFIC ISSUE PERTAINED TO CLARIFICATION OF THE PURPOSE OF ONE OF THE PROVISIONS OF THE OMANI TAX LAW AND NOT THE PROVISI ONS OF THE DTAA. THEREFORE, THE GOVERNMENT OF INDIA IS OB VIOUSLY FUNCTUS OFFICIO AND HAS NO LOCUS STANDI IN THIS MAT TER. THE HON'BLE TRIBUNAL DELHI BENCH HAS DECIDED THIS ISSUE AFTER CONSIDERING THE ENTIRE MATERIAL AND FACTS WHICH FOR MED PART OF THE RECORD IN THE CASE OF KRIBHCO. IT IS TRUE THAT THE ITA NO. 2487/DEL/2016 49 DEPARTMENT WOULD BE WITHIN ITS RIGHT TO FILE OR NOT TO FILE ANY APPEAL AGAINST THE AFORESAID ORDER OF THE HON'BLE T RIBUNAL BUT THIS DOES NOT DETRACT FROM THE MERITS OF THE OR DER PASSED BY THE HON'BLE TRIBUNAL WHICH MUST BE ACCEPTED BY T HE LOWER AUTHORITIES TILL SUCH ORDER IS REVERSED OR STAYED B Y A SUPERIOR APPELLATE FORUM. 8.11 AT PARA-41 OF THE ORDER THE LEARNED PR. CIT HA S SET ASIDE THE ASSESSMENT ORDER ON THIS ISSUE AND HAS RESTORED THE MATTER TO THE FILE OF THE ASSESSING OFFICER WITH THE FOLLOWI NG DIRECTIONS:- THE A O WOULD REFER THE MATTER TO THE CONCERNED AUTHORITIES WHO ARE RESPONSIBLE FOR ENTERING INTO DOUBLE TAXATION AGREEMENT. THE A O, THROUGH PROPER CHANNEL, WOULD WRITE A LETTER TO THE OFFICER S OF THE DEPARTMENT PERHAPS FTD WHO MAY REQUEST THE OMANI GOVERNMENT AS REGARDS THE INTERPRETATION OF ARTICLE 25(4) OF TDAA WITH PARTICULAR EMPHASIS ON THE WORD DESIGNED FOR ECONOMIC DEVELOPMENT. THE A O WOULD NARRATE ALL THE FACTS AND ALSO SEND A COPY OF THE ORDER U/S.263 PASSED BY ME WHEREIN I HAVE MADE CERTAIN OBSERVATIONS AS REGARDS THE INTERPRETATION. IT IS QUITE POSSIBLE THAT BOTH THE GOVERNMENTS I.E. INDIA AND OMAN MAY REACH AT A CONCLUSION THAT MAY BE IN FAVOUR OF REVENUE OR IN FAVOUR OF THE ASSESSEE. PENDING ANY COMMUNICATION FROM THE CONCERNED AUTHORITIES, THE VIEW MAY BE THAT THE ASSESSEE IS N OT ENTITLED FOR TAX CREDIT. THE PROCESS SHOULD BE STAR TED IN THE MONTH OF APRIL ITSELF SO THAT NECESSARY COMMUNICATION COULD COME IN TIME AS THE ASSESSMENT HAS TO BE FRAMED U/S.143(3) / 263 WITHIN THE TIME LIMITED. IT IS RESPECTFULLY SUBMITTED THAT THE LEARNED PR. CIT HAS EXCEEDED HIS POWERS U/S.263 OF THE I.T. ACT WHILE G IVING THE AFORESAID DIRECTIONS TO THE ASSESSING OFFICER. HE H AS DIRECTED THE ASSESSING OFFICER TO ADDRESS A LETTER TO THE CO NCERNED DEPARTMENT PERHAPS F.T.D. WHO MAY REQUEST THE OMANI GOVERNMENT REGARDING THE INTERPRETATION OF ARTICLE- 25(4) OF DTAA. THE ASSESSING OFFICER HAS ALSO BEEN DIRECTE D TO SEND A COPY OF THE LEARNED PR. CITS ORDER PASSED U /S.263. HE HAS FURTHER OBSERVED THAT IT IS QUITE POSSIBLE THAT BOTH THE GOVERNMENTS I.E. INDIA AND OMAN MAY REACH AT A CONC LUSION THAT MAY BE IN FAVOUR OF REVENUE OR IN FAVOUR OF AS SESSEE. HE HAS FURTHER OBSERVED THAT PENDING ANY COMMUNICAT ION FROM THE CONCERNED AUTHORITY THE VIEW SHOULD BE ADO PTED THAT THE ASSESSEE IS NOT ENTITLED TO TAX CREDIT. THE AFORESAID DIRECTIONS ARE FULL OF DOUBTS AND SUSPICIONS AND TH ERE IS NO CLARITY WITH REGARD TO THE REASSESSMENT TO BE ITA NO. 2487/DEL/2016 50 COMPLETED BY THE ASSESSING OFFICER. AS MENTIONED AB OVE, THE QUESTION OF INTERPRETATION OF SECTION 25 OF DTA A IS NOT AT ALL INVOLVED . THERE IS NO DISPUTE REGARDING THE INTERPRETATION OF THE AFORESAID ARTICLE-25(4) OF DT AA. THE ONLY DISPUTE IS REGARDING THE PURPOSE OF ARTICLE-8( BIS) OF THE OMANI TAX LAW AND FOR SUCH INTERPRETATION AS ALREAD Y EXPLAINED ABOVE, THE GOVERNMENT OF INDIA OR FTD (FO REIGN TAX DIVISION) OF CBDT HAS NO ROLE TO PLAY. IT IS RE SPECTFULLY SUBMITTED THAT THE LEARNED PR. CIT HAS INVOKED A JU RISDICTION U/S.263 WITH REGARD TO THIS PARTICULAR ISSUE MERELY ON ASSUMPTIONS, SUSPICION AND SURMISES AND SUCH A VIEW IS NOT SUSTAINABLE IN LAW. FURTHER, THE VERY FACT THAT THE PR CIT CONSI DERS THAT CONFIRMATION OF FTD IS REQUIRED TO CONCLUDE ON THE ISSUE IMPLIES THAT AS ON THE DATE OF PASSING OF THE ORDER , THE REVISIONARY AUTHORITY IS UNSURE AS TO THE BASIS ON WHICH THE THE ASSESSMENT CAN BE HELD AS ERRONEOUS. THIS IS CL EARLY NOT PERMISSIBLE WITHIN THE FOUR CORNERS OF S.263 AS INT ERPRETED BY VARIOUS COURTS INCLUDING JURISDICTIONAL DELHI HIGH COURT IN THE CASE OF GLOBUS INFOCOM VS CIT (2014-369 ITR 14) , RELEVANT EXTRACTS FROM WHICH ARE REPRODUCED BELOW: 16. THUS, IN CASES OF WRONG OPINION OR FINDING ON M ERITS, THE CIT HAS TO COME TO THE CONCLUSION AND HIMSELF DECIDE THAT THE ORDER IS ERRONEOUS, BY CONDUCTING NECESSARY ENQ UIRY, IF REQUIRED AND NECESSARY, BEFORE THE ORDER UNDER SECT ION 263 IS PASSED. IN SUCH CASES, THE ORDER OF THE ASSESSIN G OFFICER WILL BE ERRONEOUS BECAUSE THE ORDER PASSED IS NOT S USTAINABLE IN LAW AND THE SAID FINDING MUST BE RECORDED. CIT CANNOT REMAND THE MATTER TO THE ASSESSING OFFICER TO DECID E WHETHER THE FINDINGS RECORDED ARE ERRONEOUS THE MATTER CANNOT BE REMITTED FOR A FRESH DECISION TO T HE ASSESSING OFFICER TO CONDUCT FURTHER ENQUIRIES WITH OUT A FINDING THAT THE ORDER IS ERRONEOUS. FINDING THAT T HE ORDER IS ERRONEOUS IS A CONDITION OR REQUIREMENT WHICH MUST BE SATISFIED FOR EXERCISE OF JURISDICTION UNDER SECTIO N 263 OF THE ACT. IN SUCH MATTERS, TO REMAND THE MATTER/ISSUE TO THE ASSESSING OFFICER WOULD IMPLY AND MEAN THE CIT HAS NOT EXAMINED AND DECIDED WHETHER OR NOT THE ORDER IS ER RONEOUS BUT HAS DIRECTED THE ASSESSING OFFICER TO DECIDE TH E ASPECT/QUESTION. 17. THIS DISTINCTION MUST BE KEPT IN MIND BY THE CI T WHILE EXERCISING JURISDICTION UNDER SECTION 263 OF THE ACT AND IN TH E ABSENCE OF THE FINDING THAT THE ORDER IS ERRONEOUS AND PREJ UDICIAL TO THE INTEREST OF REVENUE, EXERCISE OF JURISDICTION U NDER THE SAID SECTION IS NOT SUSTAINABLE. .. THE JURISDICTIONAL PRECONDITION STIPULATED IS THAT THE CIT MUST ITA NO. 2487/DEL/2016 51 COME TO THE CONCLUSION THAT THE ORDER IS ERRONEOUS AND IS UNSUSTAINABLE IN LAW 12. IN THE BACKDROP OF THE ABOVE FACTS, THE LEARNE D COUNSEL OF THE ASSESSEE FURTHER SUBMITTED THAT THE CASE OF THE ASSESSEE SOCIETY I S SQUARELY COVERED BY THE ORDER OF THE HON'BLE ITAT IN THE CASE OF KRISHAK BHARTI COOPER ATIVE LTD. VS. ACIT, CIRCLE-31, NEW DELHI. THE SAID DECISION IS ALSO FURNISHED BEFORE US FROM PAGES 581 TO 608 OF THE PAPER BOOK. THE RELEVANT PORTION OF THE HEAD NOTES OF T HIS DECISION IS REPRODUCED BELOW:- SECTION 9 , READ WITH SECTION 90, OF THE INCOME-TAX ACT, 1961 AND ARTICLE 25 OF THE DOUBLE TAXATION AVOIDANCE AGREEME NT BETWEEN INDIA AND OMAN AND ARTICLE 8(BIS) OF OMANI TAX LAWS - INCOME - DEEMED TO ACCRUE OR ARISE IN INDIA (METHOD OF ELIMI NATION OF DOUBLE TAXATION) - ASSESSMENT YEARS 2010-11 & 2011- 12 - ASSESSEE-SOCIETY RECEIVED DIVIDEND INCOME FROM AN O MANI COMPANY - ASSESSEE WAS LIABLE TO PAY TAX IN INDIA O N SAID DIVIDEND INCOME AS PER INDIAN INCOME-TAX ACT, HOWEVER, IT WA S NOT LIABLE TO PAY ANY TAX ON SUCH DIVIDEND INCOME IN OMAN BY VIRT UE OF EXEMPTION GRANTED AS PER ARTICLE 8(BIS) OF OMANI TA X LAWS - ASSESSEE INCLUDED DIVIDEND INCOME IN ITS TOTAL INCO ME AND, THEREAFTER, CLAIMED CREDIT OF TAX ON GROUND THAT AR TICLE 25 OF DTAA BETWEEN INDIA AND OMAN ALLOWS TAX CREDIT IN INDIA F OR TAXES PAYABLE IN OMAN, EVEN THOUGH NO TAXES WERE ACTUALLY PAID IN OMAN BY VIRTUE OF EXEMPTION - REVENUE CONTENDED THAT ARTICLE 8(BIS ) EXEMPTION CANNOT BE CONSTRUED AS AN INCENTIVE GRANTED UNDER O MAN'S TAX LAWS SO AS TO QUALIFY FOR ARTICLE 25(4) BENEFIT AS IT EX ISTS ACROSS BOARD WITH NO EXCEPTIONS IN OMAN AND IT IS MERELY A FEATURE OF OMAN'S TAX LAW - WHETHER CLAUSE (4) OF ARTICLE 25 OF DTAA BETWEEN INDIA AND OMAN LAYS DOWN THAT TAX PAYABLE SHALL BE DEEMED TO INCLU DE TAX WHICH WOULD HAVE BEEN PAYABLE BUT NOT PAID BECAUSE OF CER TAIN TAX INCENTIVE GRANTED UNDER LAWS OF CONTRACTING STATE D ESIGNED TO PROMOTE ECONOMIC DEVELOPMENTS - HELD, YES - WHETHER AS PER LETTER OF OMAN, MINISTRY OF FINANCE EXEMPTION GRANTED UNDE R ARTICLE 8(BIS) OF OMANI TAX LAWS WAS TO PROMOTE ECONOMIC DEVELOPME NTS IN OMAN AND TO ATTRACT INVESTMENT, HENCE, ASSESSEE WOU LD BE ENTITLED TO TAX CREDIT IN RESPECT OF DEEMED DIVIDEND TAX WHICH WOULD HAVE BEEN PAYABLE IN OMAN - HELD, YES [PARAS 19 & 20] [IN FAV OUR OF ASSESSEE] FACTS THE ASSESSEE, A CO-OPERATIVE SOCIETY, WAS PRIMARI LY ENGAGED IN MANUFACTURE OF FERTILIZERS LIKE UREA AND AMMONIA. IT ENTERED INTO A JOINT VENTURE WITH OMAN OIL COMPANY TO FORM A FERTILIZER COMPANY OMIFCO AND GOT THE SAME REGISTERED UNDER OMANI LAWS. THE ASSESSEE HELD 25 PER CENT SHARES IN OMIFCO AND THE FERTILIZERS MANUFACTURED BY OMIFCO WERE PURCHASED BY THE ITA NO. 2487/DEL/2016 52 GOVERNMENT OF INDIA UNDER A LONG TERM AGREEMENT. TH E ASSESSEE ALSO HAD A BRANCH OFFICE IN OMAN TO OVERSE E ITS INVESTMENT IN THE JV COMPANY AND IT CONSTITUTED PER MANENT ESTABLISHMENT (PE) IN OMAN IN TERMS OF INDIA-OMAN DTAA. THE ASSESSEE FILED ITS RETURN OF INCOME ON 24-9-2 010 FOR RELEVANT ASSESSMENT YEAR 2010-11. LATER ON THE CASE WAS SELECTED FOR SCRUTINY AND WHILE COMPLETING ASSESSME NT, THE ASSESSING OFFICER ALLOWED TAX CREDIT OF RS. 41.53 C RORES WITH RESPECT TO DIVIDEND INCOME OF RS. 134.41 CRORE S RECEIVED BY ASSESSEE FROM OMIFC WHICH WAS EXEMPT IN OMAN BY VIRTUE OF ARTICLE 8(BIS) OF OMANIAN TAX LAW S. THE SAID DIVIDEND INCOME WAS SIMULTANEOUSLY BROUGHT TO THE CHARGE OF TAX IN THE ASSESSMENT AS PER THE INDI AN TAX LAWS. HOWEVER, SUBSEQUENTLY, COMMISSIONER OF INCOME - TAX (CIT) WAS OF VIEW THAT AS ASSESSEE DID NOT PAY ANY TAX IN OMAN OWING TO EXEMPTION, NO FOREIGN TAX CREDIT WAS AVAILABLE TO IT. IT WAS OBSERVED THAT ARTICLE 25(4) REQUIRES THAT IN ORDER TO CLAIM CREDIT, TAX SHOULD HAVE BEEN PAYABLE IN OMAN IF NOT FOR THE TAX INCENTIVES GRANTED IN OM AN TO PROMOTE ECONOMIC DEVELOPMENT. THE COMMISSIONER OPINED THAT EXEMPTION GRANTED BY OMAN CANNOT BE TRE ATED AS A TAX INCENTIVE AS SAME EXISTED ACROSS THE BOARD AND WAS SIMPLY A FEATURE OF OMAN'S TAX LAW WHICH DOES NOT T AX DIVIDEND INCOME. ACCORDINGLY THE COMMISSIONER REVIS ED THE ORDER OF THE ASSESSING OFFICER AND DISALLOWED T HE TAX CREDIT SO CLAIMED BY ASSESSEE. ON APPEAL TO THE TRIBUNAL: HELD WITH REGARD TO ALLOWING CREDIT FOR DEEMED DIVIDEND TAX WHICH WOULD HAVE BEEN PAYABLE IN OMAN, THE RELEVANT PROVISIONS OF THE DTAA BETWEEN THE REPUBLIC OF INDI A AND THE SULTANATE OF OMAN, READ WITH SECTION 90 OF THE INCOME-TAX ACT WERE CONSIDERED. CLAUSE (4) OF ARTIC LE 25 OF DTAA LAYS DOWN THAT THE TAX PAYABLE SHALL BE DEE MED TO INCLUDE THE TAX WHICH WOULD HAVE BEEN PAYABLE BU T FOR THE TAX INCENTIVE GRANTED UNDER THE LAWS OF THE CONTRACTING STATE AND WHICH ARE DESIGNED TO PROMOTE ECONOMIC DEVELOPMENTS. THUS, THE CRUCIAL ISSUE TO B E EXAMINED IS WHETHER THE DIVIDEND INCOME WAS GRANTED EXEMPTION IN OMAN WITH THE PURPOSE OF PROMOTING ECONOMIC DEVELOPMENT. THE EXEMPTION HAS BEEN GRANTE D UNDER ARTICLE 8(BIS) OF THE OMANI TAX LAWS. THE SAI D PROVISION HAS BEEN CLARIFIED AND EXPLAINED VIDE LET TER DATED 11-12-2000 ISSUED BY THE SULTANATE OF OMAN, ITA NO. 2487/DEL/2016 53 MINISTRY OF FINANCE, SECRETARIAT GENERAL FOR TAXATI ON, MUSCAT. [PARA 18] FROM THE PERUSAL OF CLARIFICATIONS THERE REMAINS NO DOUBT REGARDING THE PURPOSE OF GRANTING EXEMPTION TO DIVI DEND INCOME. THE INTERPRETATION OF OMANI TAX LAWS CAN BE CLARIFIED ONLY BY THE HIGHEST TAX AUTHORITIES OF OM AN AND SUCH INTERPRETATION GIVEN BY THEM MUST BE ADOPTED I N INDIA. FURTHER, IN THE TAX ASSESSMENTS MADE IN OMAN IN RESPECT OF THE PE OF THE ASSESSEE-SOCIETY IT IS CLE ARLY MENTIONED THAT THE DIVIDEND INCOME WHICH IS INCLUDE D IN THE GROSS TOTAL INCOME IS, HOWEVER, EXEMPT IN ACCOR DANCE WITH ARTICLE 8(BIS) AND SUCH EXEMPTION IS GRANTED W ITH THE OBJECTIVE OF PROMOTING ECONOMIC DEVELOPMENTS WITHIN OMAN BY ATTRACTING INVESTMENTS. IN VIEW OF THE FACT S STATED ABOVE, ON MERITS ALSO THE ASSESSEE-SOCIETY I S ENTITLED TO TAX CREDIT IN RESPECT OF DEEMED DIVIDEND TAX WHI CH WOULD HAVE BEEN PAYABLE IN OMAN. THEREFORE, THE COMMISSIONER WAS NOT JUSTIFIED IN DIRECTING THE ASS ESSING OFFICER TO WITHDRAW THE AFORESAID TAX CREDIT. FURTH ER SUCH CREDIT WAS ALLOWED BY THE ASSESSING OFFICER DURING SEVERAL PRECEDING ASSESSMENT YEARS AND, THEREFORE, WHEN THERE IS NO CHANGE IN THE FACTS AND THE RELEVANT PR OVISIONS OF LAW, FOLLOWING THE WELL SETTLED PRINCIPLE OF CON SISTENCY OF APPROACH, CREDIT FOR DEEMED DIVIDEND TAX IS CLEA RLY ALLOWABLE IN RESPECT OF THE ASSESSMENT YEAR UNDER A PPEAL. [PARA 19] .. IN VIEW OF THE ABOVE, THE IMPUGNED ORDER PASSED BY THE COMMISSIONER UNDER SECTION 263 IS WITHOUT JURISDICT ION AND NOT SUSTAINABLE IN LAW. ACCORDINGLY, THE SAID O RDER IS HEREBY QUASHED AND AS A RESULT, THE ASSESSEE'S APPE AL STANDS ALLOWED. [PARA 21] SINCE THE FACTS AND CIRCUMSTANCES PERTAINING TO THE ASSESSMENT YEAR 2011-12, THE GROUNDS OF APPEAL RAIS ED BY THE ASSESSEE-SOCIETY AND THE ARGUMENTS AND SUBMISSI ONS ON BEHALF OF THE ASSESSEE AS WELL AS ON BEHALF OF T HE DEPARTMENT ARE IDENTICAL AND SAME. THEREFORE, FOR T HE ASSESSMENT YEAR 2011-12 ALSO THE IMPUGNED ORDER OF THE COMMISSIONER IS QUASHED. SIMILARLY, ON MERITS ALSO THE COMMISSIONER IS NOT JUSTIFIED IN GIVING DIRECTIONS TO THE ASSESSING OFFICER FOR WITHDRAWAL OF TAX CREDIT IN R ESPECT OF DEEMED DIVIDEND TAX AS WELL AS ADDITION WITH REG ARD TO THE UNDISTRIBUTED PROFITS REFLECTED IN THE BOOKS OF THE P.E. [PARA 22] IN THE RESULT, BOTH THE APPEALS FILED BY THE ASSESS EE STAND ALLOWED. [PARA 23] ITA NO. 2487/DEL/2016 54 13. THE LEARNED CIT(DR), IN SUPPORT OF HIS CONTENTI ON STATED THAT THE ORDER OF THE PR. CIT IS CORRECT AND HAS FILED FURTHER SUBMISSIONS DUR ING THE COURSE OF THE HEARING. THE RELEVANT PORTION (PARAS-3 TO 5.2) OF HIS SUBMISSIONS IS REP RODUCED BELOW:- 3. WITH REFERENCE TO ARTICLE 25 OF DTAA, AN AO KNO WING NUANCES OF INCOME TAX WOULD DEFINITELY ASK THE MATE RIAL TO BE PRODUCED TO SATISFY (THE A O) THAT THE CLAIMED EXEM PTION OF TAX BY OMANI GOVT. IS DESIGNED FOR ECONOMIC DEVELOPMENT. 3. DURING THE ASSESSMENT PROCEEDINGS, THE LETTERS D ATED 06.08.2000 AND 11.12.2000 ISSUED BY SECRETARY GENER AL FOR TAXATION, SULTANATE OF OMAN WERE NEITHER ASKED BY A O NOR PRODUCED BY THE ASSESSEE (THESE WERE FIRST TIME FIL ED BY THE ASSESSEE BEFORE THE PR. CIT). A COPY OF LETTER DATED 11.07.2 016 FROM THE A O PRODUCED IN SUPPORT. 4. THE LETTER DATED 06.08.2000 ONLY TALKS OF POSSIB ILITY OF EXEMPTION FOR FIVE YEARS AND FURTHER EXTENSION OF F IVE YEARS SUBJECT TO DECISION OF FINANCIAL AFFAIRS AND ENERGY RESOURC ES COUNCIL. IF THIS LETTER DATED 06.08.2000 WAS BEFORE A O, THEN A N A O KNOWING NUANCES OF INCOME TAX WOULD DEFINITELY ASK THE MATE RIAL, INCLUDING DECISION OF FINANCIAL AFFAIRS AND ENERGY RESOURCES COUNCIL, TO BE PRODUCED TO SATISFY (THE A O) THAT THE SAID EXEMPTI ON OF TAX BY OMAN GOVT. WAS VALID FOR THE A.Y. UNDER CONSIDERATION. 5.1 THE ASSESSMENT ORDER DOES NOT MAKE ANY ENQUIRY REGARDING THE ISSUE OF CREDIT OF TAX PAID IN OMAN, DIRECTLY. IN FACT THE REFERENCE IN THE ASSESSMENT ORDER ABOUT THE ISSUE IS IN THE C ONTEXT OF DEALING WITH THE CLAIM OF ASSESSEE THAT THE DIVIDEND INCOME RECEIVED FROM OMIFCO IS EXEMPT ALL TOGETHER. 5.2 REF. OF DEALING ABOUT THE ISSUE OF CREDIT OF T AX PAID IN OMAN CASE IN AY 2006-07 DOES NOT HELP THE ASSESSEE BECAUSE A BARE READING OF RELEVANT PORTION OF THE ASSESSMENT ORDER (OF AY 06-07) WILL SHOW THAT IT IS AN EXAMPLE OF NON-APPLICATION OF MIND AS WELL AS VIOLATION OF PRINCIPLES OF NATURAL JUSTICE. 14. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTEN TIONS AND PERUSED THE RECORDS AVAILABLE WITH US. BEFORE PROCEEDING TO THE MERITS OF THE C ASE, IT WOULD BE NECESSARY ON OUR PART TO EXAMINE WHETHER THE ASSESSING OFFICER HAD TAKEN UP AN ARBITRARY AND UNREASONABLE VIEW WITHOUT MAKING ANY INQUIRIES OR NOT. IT IS SEEN FROM THE ASSESSMENT ORDERS U/S.143(3) FOR THE ASSESSMENT YEARS 2008-09 TO 2009-10 THAT THE REVEN UE HAD CONSISTENTLY ADOPTED THE VIEW THAT THE ASSESSEE IS ENTITLED TO TAX CREDIT ON T HE DEEMED DIVIDEND WHICH WOULD HAVE BEEN PAYABLE IN OMAN. THE REVENUE HAD TAKEN A CONSCIOUS VIEW AFTER CONSIDERING THE PROVISIONS ITA NO. 2487/DEL/2016 55 OF THE OMANI TAX LAWS, SECTION 90 OF THE I.T. ACT, ARTICLE-25 OF THE DRAA AND THE CLARIFICATIONS ISSUED BY THE ROYAL DECREE OF THE OM ANI GOVERNMENT. COPIES OF THE ASSESSMENT ORDERS FOR A.YS. 2007-08 TO 2009-10 HAVE BEEN PLAC ED BEFORE US FROM PAGES 495 TO 558 OF THE PAPER BOOK. ON PERUSAL OF THE SAME, IT IS SEEN THAT THE REVENUE HAS, AFTER THOROUGHLY EXAMINING THE ISSUES ON HAND AND EXAMINING THE PROV ISIONS, CONSIDERED THE DIVIDEND INCOME AS EXEMPT. FURTHER, IN RESPECT OF THE CURRENT AS SESSMENT YEAR I.E. A.Y. 2010-11 WHICH IS SUBJECT MATTER OF REVISION AND APPEAL BEFORE US THE ASSESSING OFFICER HAS ADOPTED THE SAME VIEW IN CONSONANCE WITH THE VIEW ADOPTED IN THE PA ST YEARS AND FOR WHICH DETAILED QUERIES AND INQUIRES WERE RAISED AND CONDUCTED BY THE ASS ESSING OFFICER. THE LEARNED COUNSEL OF THE ASSESSEE HAD ALSO INVITED OUR ATTENTION TO PA GE 277 OF THE PAPER BOOK WHEREIN THE ASSESSING OFFICER HAD VIDE POINTS NO. 28 TO 31 R AISED SEVERAL QUERIES IN RESPECT OF TAX CREDIT CLAIMED BY THE ASSESSEE FOR DIVIDEND INCOME RECEIVED FROM OMIFCO. OUR ATTENTION WAS ALSO INVITED TO PAGES 393 TO 397 AS WELL AS PAG ES NO.408 TO 410 OF THE PAPERBOOK WHEREIN DETAILED SUBMISSIONS WERE MADE BEFORE THE A SSESSING OFFICER. THEREFORE, THE CONTENTIONS OF THE REVENUE THAT NO ADEQUATE INQUIRI ES IN RESPECT OF THE ABOVE ISSUE WERE MADE IS COMPLETELY MISPLACED. THEREFORE, ON THIS G ROUND THE JURISDICTION U/S.263 ASSUMED BY THE LEARNED PR. CIT IS INCORRECT. 14.1 EVEN OTHERWISE, SINCE THE REVENUE HAS ALL OWED THE CLAIM OF TAX CREDIT TO THE ASSESSEE CONSISTENTLY ON YEAR TO YEAR BASIS THE VI EW NOW PROPOSED TO BE SUBSTITUTED BY THE LEARNED PR. CIT IS TOTALLY OUTSIDE THE AMBIT OF THE PROVISIONS OF SECTION 263 FOLLOWING THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. ESCORTS LTD. , 338 ITR 435, THE RELEVANT PART OF WHICH READS AS UNDER: - WHERE A FUNDAMENTAL ASPECT OF A TRANSACTION IS FOU ND TO HAVE BEEN PERMEATED THROUGH DIFFERENT ASSESSMENT YEARS A ND THIS FUNDAMENTAL ASPECT HAS STOOD UNCONTESTED THEN THE R EVENUE CANNOT BE ALLOWED TO CHANGE ITS VIEW TAKEN IN EARLIER ASSE SSMENT YEARS UNLESS IT IS ABLE TO DEMONSTRATE A CHANGE IN CIRCUM STANCES IN THE SUBSEQUENT ASSESSMENT YEAR. HELD, THAT THE COMMISSIONERS ORDER DID NOT CONTAIN A FINDING TO THE EFFECT THAT THE STAND TAKEN BY THE ASSESSEE THA T THE UNITS PURCHASED FROM THE UNIT TRUST OF INDIA HAD ACTUALLY BEEN PHYSICALLY DELIVERED ALONG WITH EXECUTED TRANSFER D EED WAS FALSE. WITHOUT SUCH A FINDING THE ALLEGATION THAT THE TRAN SACTIONS WERE SPECULATIVE COULD NOT BE SUSTAINED. THE FUNDAMENTAL NATURE OF THE TRANSACTIONS WAS EXAMINED YEAR AFTER YEAR MORE IMP ORTANTLY IN THE ITA NO. 2487/DEL/2016 56 ASSESSMENT YEAR 1986-87 IT WAS SPECIFICALLY CONSIDE RED BY THE COMMISSIONER (APPEALS) AND IT REMAINED THE SAME. GI VEN THE FACT THAT THE ASSESSEE HAD BEEN ENGAGED IN THESE TRANSAC TIONS IN THE PRECEDING ASSESSMENT YEARS, THE COMMISSIONER COULD HAVE HAD NO OCCASION TO HAVE RECOURSE TO THE REVISIONAL POWERS UNDER SECTION 263 OF THE ACT ON THE FUNDAMENTAL ASPECTS OF THE TR ANSACTIONS IN ISSUE ON WHICH A VIEW HAD BEEN TAKEN AND NOT SHOWN TO HAVE BEEN CHALLENGED. 14.2 RESPECTFULLY FOLLOWING THE FINDINGS OF THE H ON'BLE JURISDICTIONAL HIGH COURT, THE LEARNED PR. CIT HAS ERRED IN ASSUMING JURISDICTION U/S.263 OF THE I.T. ACT. ACCORDINGLY, THE LEARNED PR. CIT COULD HAVE NO OCCASION TO HAVE RE COURSE TO THE REVISIONAL POWERS U/S.263 ON THE VERY FUNDAMENTAL ISSUE THAT A CONSISTENT VIEW HAS TO BE ADOPTED AFTER DETAILED INQUIRIES BY THE REVENUE FOR ALL THE EARLIER YEA RS I.E. A.YS. 2006-07 TO 2009-10. FURTHER, AS DISCUSSED ABOVE, WE HAVE NO HESITATION IN HOLDIN G THAT THE ORDER PASSED BY THE LEARNED PR. CIT IS BAD IN LAW FOR THE FOLLOWING REASONS:- (A) THAT, DETAILED INQUIRIES WERE MADE BY THE A SSESSING OFFICER AT THE TIME OF THE ORIGINAL ASSESSMENT PROCEEDINGS WITH REGARD TO TH E TAX CREDIT ON DEEMED DIVIDEND WHICH WOULD HAVE BEEN PAYABLE IN OMAN BUT FOR T HE EXEMPTION GRANTED THE ASSESSEE HAD FILED DETAILED REPLIES IN RESPONSE TO THE QUERY WHICH WERE DULY CONSIDERED BY THE ASSESSING OFFICER BEFORE ALLOWIN G TAX CREDIT. (B) THAT, SUCH CREDIT WAS ALLOWED BY THE REVENUE FO R ALL THE EARLIER YEARS I.E. A.YS. 2006- 07 TO 2009-10, THEREFORE, WE HAVE NO HESITATION I N HOLDING THAT THERE WAS COMPLETE APPLICATION OF MIND ON THE PART OF THE ASSESSING OFFICER AND THAT THE ASSESSING OFFICER HAS ADOPTED A VIEW CONSISTENT WITH THE P RECEDING YEARS AND, THEREFORE, THE ASSESSING OFFICER HAVING TAKEN A PLAUSIBLE VIEW A FTER FULL APPLICATION OF MIND, THE VIEW OF THE LEARNED PR. CIT CANNOT SUBSTITUTE H IS VIEW BY ASSUMING JURISDICTION U/S.263 OF THE ACT. 14.3 IN THIS RESPECT WE WOULD LIKE TO PLACE RELIA NCE ON THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. ASHISH RAJPAL, 320 ITR 674, THE HEADNOTE OF WHICH IS REPRODUCED HEREUNDER FOR READY REFERENCE: THE PARAMETERS AND PRINCIPLES LAID DOWN BY THE COU RTS WHICH GOVERN THE EXERCISE OF POWER BY THE COMMISSIONER UN DER THE PROVISIONS OF SECTION 263 OF THE INCOME-TAX ACT, 19 61, ARE: (I) THE POWER IS SUPERVISORY IN NATURE, WHEREBY THE COMMISS IONER CAN CALL ITA NO. 2487/DEL/2016 57 FOR AND EXAMINE THE ASSESSMENT RECORDS. (II) THE CO MMISSIONER CAN REVISE THE ASSESSMENT ORDER IF THE TWIN CONDITI ONS PROVIDED IN THE ACT ARE FULFILLED, THAT IS, THAT THE ASSESSMENT ORDER IS NOT ONLY ERRONEOUS BUT IS ALSO PREJUDICIAL TO THE INTEREST O F THE REVENUE. THE FULFILLMENT OF BOTH THE CONDITIONS IS AN ESSENTIAL PREREQUISITE. (III) AN ORDER IS ERRONEOUS WHEN IT IS CONTRARY TO LAW OR PROCEEDS ON AN INCORRECT ASSUMPTION OF FACTS OR IS IN BREACH OF TH E PRINCIPLES OF NATURAL JUSTICE OR IS PASSED WITHOUT APPLICATION OF MIND, THAT IS, IS STEREO-TYPED, INASMUCH AS, THE ASSESSING OFFICER, A CCEPTS WHAT IS STATED IN THE RETURN OF THE ASSESSEE WITHOUT MAKING ANY ENQUIRY CALLED FOR IN THE CIRCUMSTANCES OF THE CASE, THAT I S, PROCEEDS WITH UNDUE HASTE. (IV) THE EXPRESSION PREJUDICIAL TO THE INTEREST OF THE REVENUE WHILE NOT TO BE CONFUSED WITH THE LOSS OF TAX WILL CERTAINLY INCLUDE AN ERRONEOUS ORDER WHICH RESULTS IN A PERSON NOT PAYING TAX WHICH IS LAWFULLY PAYABLE TO THE REVENUE . (V) EVERY LOSS OF TAX OF THE REVENUE CANNOT BE TREATED AS BEI NG PREJUDICIAL TO THE INTEREST OF THE REVENUE. FOR EXAMPLE, WHEN THE ASSESSING OFFICER HAS RECOURSE TO ONE OF THE TWO COURSES POSS IBLE IN LAW OR WHERE THERE ARE TWO VIEWS POSSIBLE AND THE COMMISSI ONER DOES NOT AGREE WITH THE VIEW TAKEN BY THE ASSESSING OFFICER WHICH HAS RESULTED IN A LOSS. (VI) THERE IS NO REQUIREMENT OF ISSUANCE OF A NOTICE BEFORE COMMENCING PROCEEDINGS UNDER SECTION 263 . WHAT IS REQUIRED IS ADHERENCE TO THE PRINCIPLES OF NATURAL JUSTICE BY GRANTING TO THE ASSESSEE AN OPPORTUNITY OF BEING HE ARD BEFORE PASSING AN ORDER UNDER SECTION 263 . (VII) IF THE A SSESSING OFFICER ACTS IN ACCORDANCE WITH LAW HIS ORDER CANNOT BE TER MED AS ERRONEOUS BY THE COMMISSIONER, SIMPLY BECAUSE ACCOR DING TO HIM, THE ORDER SHOULD HAVE BEEN WRITTEN MORE ELABORATEL Y. RECOURSE CANNOT BE HAD TO SECTION 263 TO SUBSTITUTE THE VIEW OF THE ASSESSING OFFICER WITH THAT OF THE COMMISSIONER. (VIII) THE E XERCISE OF STATUTORY POWER UNDER SECTION 263 OF THE ACT IS DEP ENDENT ON EXISTENCE OF OBJECTIVE FACTS ASCERTAINED FROM PRIMA FACIE MATERIAL ON RECORD. THE EVALUATION OF SUCH MATERIAL SHOULD S HOW THAT TAX WHICH WAS LAWFULLY EXIGIBLE WAS NOT IMPOSED. 14.4 RESPECTFULLY FOLLOWING THE ABOVE DECISION OF T HE HON'BLE HIGH COURT WE HAVE NO RECOURSE BUT TO HOLD THAT THE ORDER PASSED BY THE L EARNED PR. CIT U/S.263 IS BAD IN LAW. SINCE THE ORDER PASSED BY THE LEARNED PR. CIT WHICH IS UN DER APPEAL HAS BEEN QUASHED BY US, GOING INTO THE MERITS OF THE ISSUES IS ONLY OF ACADEMIC INTEREST. HOWEVER, SINCE DETAILED ARGUMENTS HAVE BEEN RAISED ON THE MERITS OF THE IS SUES, FOR THE SAKE OF COMPLETENESS, WE PROCEED TO EXAMINE AND DECIDE THE ISSUES ON MERIT S AS WELL. 14.5 WITH REGARD TO ALLOWING CREDIT FOR DEEME D DIVIDEND TAX WHICH WOULD HAVE BEEN PAYABLE IN OMAN, THE ISSUE NOW STANDS COVERED BY THE ITAT DECISION IN THE CASE OF KRISHAK ITA NO. 2487/DEL/2016 58 BHARTI COOPERATIVE LTD. , 67 TAXMANN.COM 138. RELEV ANT PARAS 18 & 19 ARE REPRODUCED HEREUNDER:- 18. WITH REGARD TO ALLOWING CREDIT FOR DEEMED DIVID END TAX WHICH WOULD HAVE BEEN PAYABLE IN OMAN, WE HAVE GONE THROU GH THE RELEVANT PROVISIONS OF THE DTAA BETWEEN THE REPUBLI C OF INDIA AND THE SULTANATE OF OMAN, READ WITH SECTION 90 OF THE I.T. ACT. CLAUSE (4) OF ARTICLE 25 OF DTAA LAYS DOWN THAT THE TAX PA YABLE SHALL BE DEEMED TO INCLUDE THE TAX WHICH WOULD HAVE BEEN PAY ABLE BUT FOR THE TAX INCENTIVE GRANTED UNDER THE LAWS OF THE CON TRACTING STATE AND WHICH ARE DESIGNED TO PROMOTE ECONOMIC DEVELOPMENTS . THUS, THE CRUCIAL ISSUE TO BE EXAMINED IS WHETHER THE DIVIDEN D INCOME WAS GRANTED EXEMPTION IN OMAN WITH THE PURPOSE OF PROMO TING ECONOMIC DEVELOPMENT. THE EXEMPTION HAS BEEN GRANTED UNDER A RTICLE 8(BIS) OF THE OMANI TAX LAWS. THE SAID PROVISION HAS BEEN CLARIFIED AND EXPLAINED VIDE LETTER DATED 11.12.2000 ISSUED BY TH E SULTANATE OF OMAN, MINISTRY OF FINANCE, SECRETARIAT GENERAL FOR TAXATION, MUSCAT. THE TEXT OF THIS LETTER HAS ALREADY BEEN RE PRODUCED (SUPRA). FROM THIS LETTER, THE FOLLOWING POINTS EMERGE: (A) UNDER ARTICLE-8 OF THE OMANI TAX LAWS, DIVIDE ND FORMS PART OF GROSS INCOME CHARGEABLE TO TAX. (B) AS A RESULT, INVESTORS IN TAX EXEMPT COMPANIE S THAT UNDERTAKE ACTIVITIES CONSIDERED ESSENTIAL FOR THE C OUNTRY'S ECONOMIC DEVELOPMENT SUFFERED A TAX COST WHICH HAD THE NEGATIVE IMPACT. (C) THE COMPANY INCOME-TAX LAW OF 1981 WAS THEREF ORE AMENDED BY ROYAL DECREE NO. 68/2000 BY INSERTION OF A NEW ARTICLE 8(BIS). (D) THEREBY THE GOVERNMENT OF OMAN WOULD ACHIEVE ITS MAIN OBJECTIVE OF PROMOTING ECONOMIC DEVELOPMENT BY ATTR ACTING INVESTMENTS. (E) TAX WOULD BE PAYABLE ON DIVIDEND INCOME IF NO T FOR THE TAX EXEMPTION PROVIDED UNDER ARTICLE 8(BIS). (F) AS THE INTRODUCTION OF ARTICLE 8(BIS) IS TO P ROMOTE ECONOMIC DEVELOPMENTS IN OMAN, THE INDIAN INVESTORS SHOULD B E ABLE TO OBTAIN RELIEF IN INDIA UNDER ARTICLE 25(4) OF TH E AGREEMENT FOR AVOIDANCE OF DOUBLE TAXATION. 19. FROM THE ABOVE CLARIFICATIONS THERE REMAINS NO DOUBT REGARDING THE PURPOSE OF GRANTING EXEMPTION TO DIVIDEND INCOM E. THE INTERPRETATION OF OMANI TAX LAWS CAN BE CLARIFIED O NLY BY THE HIGHEST TAX AUTHORITIES OF OMAN AND SUCH INTERPRETA TION GIVEN BY THEM MUST BE ADOPTED IN INDIA. FURTHER, IN THE TAX ASSESSMENTS MADE IN OMAN IN RESPECT OF THE PE OF THE ASSESSEE-SOCIET Y IT IS CLEARLY ITA NO. 2487/DEL/2016 59 MENTIONED THAT THE DIVIDEND INCOME WHICH IS INCLUDE D IN THE GROSS TOTAL INCOME IS, HOWEVER, EXEMPT IN ACCORDANCE WITH ARTICLE 8(BIS) AND SUCH EXEMPTION IS GRANTED WITH THE OBJECTIVE OF PROMOTING ECONOMIC DEVELOPMENTS WITHIN OMAN BY ATTRACTING INV ESTMENTS. IN VIEW OF THE FACTS STATED ABOVE, WE ARE OF THE CONSI DERED VIEW THAT ON MERITS ALSO THE ASSESSEE-SOCIETY IS ENTITLED TO TAX CREDIT IN RESPECT OF DEEMED DIVIDEND TAX WHICH WOULD HAVE BEEN PAYABLE I N OMAN. THEREFORE, WE HOLD THAT ON MERITS ALSO THE LEARNED PCIT WAS NOT JUSTIFIED IN DIRECTING THE ASSESSING OFFICER TO WIT HDRAW THE AFORESAID TAX CREDIT . (EMPHASIS SUPPLIED) 14.6 RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH OF DELHI TRIBUNAL IN THE CASE OF KRISHAK BHARTI COOPERATIVE LTD., (SUP RA), WE ARE OF THE CONSIDERED VIEW THAT ON MERIT ALSO THE ASSESSEE IS ENTITLED TO TAX CRE DIT IN RESPECT OF THE DEEMED DIVIDEND TAX WHICH WOULD HAVE BEEN PAYABLE IN OMAN. 15. WE NOTE THAT IN THE IMPUGNED ORDER PASSED U/ S.263 THE LEARNED PR. CIT HAS ALSO GIVEN DIRECTIONS TO THE ASSESSING OFFICER ON ANOTHE R ISSUE I.E. ISSUE OF CAPITALIZATION OF INTEREST IN THE PARTICULAR HEAD OF INCOME. THE RE LEVANT PORTION OF THE FINDINGS OF THE LEARNED PR. CIT IS REPRODUCED HEREUNDER FOR READY REFERENCE :- 66. THE A O HAS FAILED TO ALLOCATE OR MAKE INQUI RY AS REGARDS THE ALLOCATION OF INTEREST IN THE PARTICULAR HEAD OF IN COME. FOR EXAMPLE NO INTEREST HAS BEEN ATTRIBUTED TOWARDS THE INVESTMENT S WHICH ARE IN THE RANGE OF RS.892.33 CRORES IN THE F.Y.2009-10. THE A SSESSEE SIMPLY SUBMITTED THAT IN ASSESSMENT YEAR ONLY 10% OF THE F UNDS HAVE BEEN UTILIZED OUT OF THE TOTAL OWN FUNDS OF RS.8171 CROR ES BUT WITHOUT ESTABLISHING THE NEXUS. SIMILARLY IF THERE IS WORKI NG PROGRESS, IT CANNOT BE PRESUMED THAT ONLY OWN FUNDS HAVE BEEN UT ILIZED. THE WORKING PROGRESS ULTIMATELY BECOMES THAT ASSET. TH E ASSESSEE HAS HIMSELF ADMITTED THAT THERE ARE INTEREST BEARING BO RROWINGS FOR FIXED ASSETS. AS PER SECTION 36(1)(III) PROVISO, THERE HA S TO BE DATE-WISE CALCULATION AS THE LAW IS CLEAR. THE RELEVANT SECTI ON IS REPRODUCED AS UNDER:- 67. AS PER SECTION 36(1)(III) PROVISO THE INTERES T IS TO BE CAPITALIZED FOR THE PERIOD BEGINNING FROM THE DA TE ON WHICH THE CAPITAL WAS BORROWED FOR ACQUISITION OF THE ASSET TILL THE DATE ON WHICH SUCH ASSET WAS PUT TO USE. IF THE ASSESSEE HI MSELF SHOWING WORKING PROGRESS, THEN IT IS CLEAR THAT THE SAID AS SET HAS NOT BEEN PUT TO USE. THERE CAN BE INSTANCES THAT THE ASSESSEE A CQUIRES/PURCHASES THE ASSET AND MANY A TIMES ADVANCE PAYMENT IS TO BE MADE FOR THE ITA NO. 2487/DEL/2016 60 ACQUISITION OF ASSET. IN THAT CASE THERE WOULD BE C APITALIZATION OF INTEREST TILL THE ASSESSEE ACQUIRES THE ASSET AND A LSO PUT TO USE. THE INTEREST WOULD START FROM THE DATE OF PAYMENT. 68. THE ASSESSEE HAS NOT PLACED ON RECORD ANY SUCH KIND OF CALCULATION EITHER FOR 36(1)(III) PROVISO OR FOR I TS INVESTMENTS AS REGARDS THE ALLOCATION OF INTEREST IS CONCERNED. 69. THE A O HAS NOT APPLIED HIS MIND ON THIS ASPECT . SIMPLY CALLING FOR CERTAIN DETAILS DOES NOT MEAN THAT THE A O HAS MADE A PARTICULAR INQUIRY WHICH HAS A BEARING ON THE TAX L AW. EVEN NOW THE ASSESSEE HAS NOT GIVEN THE DATE WISE CALCULATION A S REQUIRED U/S.36(1)(III) PROVISO OR DATE WISE INVESTMENTS WH ICH COULD SHOW THAT THE ASSESSEE HAS UTILIZED ONLY THE OWN FUNDS. 70. IF THE ASSESSEE IS GIVING FIGURES BASED ON THE BALANCE SHEET, THEN IT IS ABUNDANTLY CLEAR THAT THE ASSESSEE IS HA VING MIXED POOL OF FUNDS. EFFECTIVELY THE ASSESSEE IS REQUIRED PRIMARI LY TO UTILIZE FUNDS FOR ITS BASIC BUSINESS. THE ASSESSEE HAS ALSO DEMON STRATED THAT THE INVESTMENTS ARE STRATEGIC IN NATURE AND HAS A LINK WITH ITS BUSINESS AND THOSE COMPANIES WHERE INVESTMENTS HAVE BEEN MADE AR E ALSO IN THE SIMILAR BUSINESS. IT MAY BE TRUE THAT THE INVESTMEN TS ARE STRATEGIC YET THESE REMAIN LONG TERM INVESTMENTS AND CANNOT PARTA KE THE CHARACTER OF BUSINESS OF THE ASSESSEE. NOWHERE THE ASSESSEE H AS SHOWN THE PROFITS FROM SUCH INVESTMENTS UNDER THE HEAD BUSINE SS. IN FACT SUCH PROFITS CANNOT BE TAXED UNDER THE HEAD BUSINESS, FO R EXAMPLE DIVIDEND INCOME IS TO BE TAXED UNDER THE HEAD INCOME FROM OT HER SOURCES. IF THE ASSESSEE SELLS HIS INVESTMENTS, THE SAME WOULD BE TAXED UNDER THE HEAD CAPITAL GAINS. LAW IS VERY CLEAR AS REGARDS TH E HEADS OF INCOME. THERE CANNOT BE ANY KIND OF DEVIATION FROM THIS AND THE EXPENSES ARE ALSO TO BE ALLOCATED ACCORDING TO EACH HEAD OF INCO ME. EFFECTIVELY THE ASSESSEE HAS CLAIMED INTEREST UNDER THE HEAD BUSINE SS EVEN THOUGH THE FUNDS HAVE BEEN UTILIZED WHERE PROFITS WOULD BE TAX ED UNDER OTHER HEADS OF INCOME. FOR EXAMPLE INCOME FROM OTHER SOUR CES OR CAPITAL GAINS. 15.1 IN THIS RESPECT, THE LEARNED COUNSEL OF THE ASSESSEE SUBMITTED THAT DETAILED INQUIRIES WERE MADE BY THE ASSESSING OFFICER IN RESPECT OF THE EXPENDITURE INCURRED BY IT ON THE FIXED ASSETS. REFERENCE WAS MADE TO THE NOTICE ISSUED U/ S.142(1) OF THE ACT, WHICH IS COMPILED AT PAGES 275 TO 278 OF THE PAPER BOOK (REFER POINTS N O.9, 10, 14, 15 & 19) WHEREIN THE ASSESSING OFFICER HAD RAISED QUERIES IN RESPECT OF THE DETAILS OF MAJOR ADDITIONS TO THE FIXED ASSETS, BRIEF NOTE REGARDING THE CAPITAL WORK-IN-P ROGRESS, THE MANNER IN WHICH THE DEPRECIATION WAS CLAIMED AND THE DETAILS OF SECURE D AS WELL AS UNSECURED LOANS. REPLIES OF THE ABOVE QUERIES ARE ALSO COMPILED AT PAGES 392 OF THE PAPER BOOK. FURTHER, THE LEARNED COUNSEL REFERRED TO THE AUDITED FINANCIAL STATEMENT S OF THE ASSESSEEWHICH WAS ALSO COMPILED ITA NO. 2487/DEL/2016 61 BEFORE US IN THE PAPER BOOK. REFERENCE TO PAGE 231 OF THE PAPER BOOK COMPRISING SIGNIFICANT ACCOUNTING POLICIES WAS MADE WHEREIN THE AUDITOR HAS CERTIFIED THAT ALL INDIRECT EXPENDITURE ARE INCURRED DURING THE PERIOD UP TO THE DATE OF COMMERCIAL PRODUCTION ATTRIBUTABLE TO THE CONSTRUCTION OF THE PROJECT WAS CAPITALIZED ON PROPORTIONATE BASIS. FURTHER, REFERENCE WAS ALSO MADE TO THE SIGNIFICANT ACCOUNTI NG POLICIES IN THE AUDITORS REPORT COMPILED AT PAGE 235 OF THE PAPER BOOK IN RESPECT OF THE BORROWING COST WHICH IS REPRODUCED HEREUNDER FOR THE SAKE OF BREVITY:- 13. BORROWING COST BORROWING COSTS THAT ARE ATTRIBUTABLE TO THE ACQUI SITION OR CONSTRUCTION OF QUALIFYING ASSETS ARE CAPITALIZED A S PART OF COST OF SUCH ASSETS. A QUALIFYING ASSET IS ONE THAT NECESSA RILY TAKES SUBSTANTIAL PERIOD OF TIME TO GET READY FOR INTENDE D USE. ALL OTHER BORROWING COSTS ARE RECOGNIZED AS AN EXPENSE IN THE PERIOD OF WHICH THEY ARE INCURRED. 15.2 REFERENCE WAS ALSO MADE TO PAGE 237 OF THE P APER BOOK COMPRISING OF THE BALANCE SHEET AND DETAILED BREAK-UP OF THE GROSS BLOCK OF T HE ADDITION MADE TO THE FIXED ASSETS. THE LEARNED COUNSEL ALSO POINTED OUT THAT THE INTERNAL CASH FLOWS AS WELL AS PROFIT BEFORE DEPRECIATION WAS SUFFICIENT ENOUGH TO MEET WITH THE ADDITION IN THE FIXED ASSETS. THE LEARNED COUNSEL OF THE ASSESSEEALSO POINTED OUT THAT THE BO RROWING COST OF RS.7.08 CRORES IN RESPECT OF THE QUALIFYING ASSETS HAVE BEEN CAPITALIZED DURING THE YEAR. IN THIS RESPECT HE DREW OUR ATTENTION TO PAGE NO.258 OF THE PAPER BOOK I.E. SCH EDULE-20 NOTE NO.(V). 15.3 THE ASSESSING OFFICER ALSO RELIED UPON THE SYNOPSIS FILED VIDE PAGES NO.72 TO 214 OF THE PAPER BOOK. RELEVANT PART OF THE SYNOPSIS F ILED IS REPRODUCED HEREUNDER FOR READY REFERENCE: 11.15 WITH REGARD TO THE VARIOUS OBSERVATIONS MADE BY THE LEARNED PR. CIT REFERRED TO ABOVE, IT IS HUMBLY SUB MITTED WITH DUE RESPECT THAT ALL THESE OBSERVATIONS ARE ME RELY ON ASSUMPTIONS AND SUSPICION AND THE LEARNED PR. CIT H AS COMPLETELY IGNORED THE FACTUAL POSITION AS THOROU GHLY EXPLAINED BEFORE HIM. IT IS REITERATED THAT THIS R ELEVANT ISSUE WAS FULLY EXAMINED BY THE ASSESSING OFFICER DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS WITH REFERENCE TO THE ANNUAL REPORT CONTAINING THE AUDITED ACCOUNTS WITH SCHEDULES AND NOTES THERETO. THE ASSESSING OFFICER, AS MENTIONED ABOVE, RAISED QUERIES AND REPLIES WERE FILED WHICH WERE EXAMINED BY THE ASSESSING OFFICER WHIC H PROVES THAT THERE AS FULL APPLICATION OF MIND ON TH E PART OF ITA NO. 2487/DEL/2016 62 THE ASSESSING OFFICER. THE FOLLOWING FACTUAL POSITI ON WHICH EMERGES FROM THE ANNUAL REPORT AND THE AUDITED A CCOUNTS WHICH WERE THOROUGHLY EXAMINED BY THE ASSESSING OFF ICER, WOULD PROVE THAT THE VARIOUS ASSUMPTIONS DRAWN BY THE LEARNED PR. CIT ARE NOT INCONSONANCE WITH THE FACT UAL POSITION WHICH EMERGES FROM THE AUDITED ACCOUNTS. (A) AT PAGE-83 OF THE ANNUAL REPORT UNDER THE HEADI NG SIGNIFICANT POLICIES, AGAINST SR. NO.4 THE FOLLOWING REMARKS:- 4. EXPENDITURE INCURRED DURING CONSTRUCTION PERIOD . IN RESPECT OF NEW/MAJOR EXPANSION OF UNITS, THE INDIRECT EXPENDITURE INCURRED DURING CONSTRUCTION PERIOD UPTO THE DATE OF THE COMMENCEMENT OF COMMERCIAL PRODUCTION WHICH IS ATTRIBUTABLE TO THE CONSTRUCTION OF THE PROJECT, IS CAPITALIZED ON PROPORTIONATE BASIS. (B) AT PAGE-87 OF THE ANNUAL REPORT UNDER SR. NO.13 THE FOLLOWING STATEMENT IS MADE:- 13. BORROWING COST . BORROWING COSTS THAT ARE ATTRIBUTABLE TO THE ACQUISITION OR CONSTRUCTION OF QUALIFYING ASSETS ARE CAPITALIZED AS PART OF COST OF SUCH ASSETS. A QUALIFYING ASSET IS ONE THAT NECESSARILY TAKES SUBSTANTIAL PERIOD OF TIME TO GET READY FOR INTENDED USE. ALL OTHER BORROWING COSTS ARE RECOGNIZED AS AN EXPENSE IN THE PERIOD IN WHICH THEY ARE INCURRED. (C) AT PAGE-89 OF THE ANNUAL REPORT CONTAINING THE BALANCE SHEET AS ON 31 ST MARCH, 2010, THE VALUE OF CAPITAL WORK IN PROGRESS AS ON 31.3.2010 IS SHOWN A T RS.333 CRORES WHEREAS THE SAME WAS RS.290 CRORES AS ON 31.3.2009. THUS THERE IS ACCRETION OF ONLY RS.42.02 CRORES. FURTHER, IT IS NOTABLE THAT THE TO TAL VALUE OF FIXED ASSETS AS ON 31.3.2010 IS RS.7531.28 CRS. AS AGAINST RS.7552.95 CRS. AS ON 31.3.2009 WHICH PROVES THAT THE VALUE OF FIXED ASSETS HAS ACTUALLY GONE DOWN AND THERE HAS BEEN NO ACCRETION WHATSOEVER. ITA NO. 2487/DEL/2016 63 (D) AT PAGE-90 OF THE ANNUAL REPORT CONTAINING THE PROFIT AND LOSS ACCOUNT FOR THE F.Y. 2009-10 THE TOTAL INTEREST EXPENDITURE IS DEBITED AT RS.764.98 CRS. AS AGAINST THE TOTAL EXPENDITURE OF RS.1023.20 CRS. FOR THE PRECEDING FINANCIAL YEAR WHICH SHOW THAT THE TOTAL INTEREST EXPENDITURE HAS SUBSTANTIALLY REDUCED DURING THE PRESENT YEAR. (E) AT PAGE-102 OF THE ANNUAL REPORT DETAILS OF LOA NS AND ADVANCES GIVEN BY THE ASSESSEE ARE REFLECTED IN SCHEDULE-11. THIS SHOWS THAT THE TOTAL QUANTUM OF SUCH LOANS AND ADVANCES AS ON 31.3.2010 STANDS AT RS.3376.87 CRS. AS AGAINST PRECEDING YEARS RS.5464.77 CRS. THUS, THE LOANS AND ADVANCES HAVE SUBSTANTIALLY REDUCED. (F) AT PAGE-110 OF THE REPORT CONTAINING SCHEDULE- 20 UNDER SR.NO. (IV) IT IS MENTIONED THAT BORROWING COST AMOUNTING TO RS.7.08 CRS. IN RESPECT OF QUALIFYING ASSETS HAS BEEN CAPITALIZED DURING THE YEAR. THIS SHOWS THAT THE RELEVANT COMPONENT OF INTEREST EXPENDITURE PERTAINING TO CAPITAL ASSET HA S ALREADY BEEN CAPITALIZED BY THE APPELLANT-SOCIETY AND THUS THERE IS NO BASIS FOR THE ASSUMPTION OF TH E LEARNED PR. CIT THAT THE APPELLANT-SOCIETY HAS FAIL ED TO CAPITALIZE THE COST OF BORROWING. (G) AT PAGES 98 & 99 OF THE ANNUAL REPORT, COMPLETE DETAILS OF INVESTMENTS HAVE BEEN GIVEN IN SCHEDULE- 7. IT IS SEEN THAT THE TOTAL INVESTMENTS AS ON 31.3.2010 STAND AT RS.7531.10 CRS. AS AGAINST RS.7552.95 CRS. AS ON 31.3.2009. THIS SHOWS THAT THE QUANTUM OF INVESTMENT HAS ACTUALLY GONE DOWN BY RS.21.67 CRS. THUS, IT IS CLEAR THAT THE APPREHENSION OR RATHER SUSPICION OF THE LEARNED PR. CIT THAT BORROWED FUNDS HAVE GONE INTO INVESTMENT DURING THE PRESENT YEAR IS AGAINST THE CORRECT FACT UAL POSITION WHICH WAS THOROUGHLY EXAMINED BY THE ASSESSING OFFICER. 11.16 TO REITERATE, EVEN THE LEARNED PR. CIT HAS NO T DISPUTED THAT THE TOTAL INVESTMENTS ARE MERELY 10% OF THE INTERES T FREE OWN FUNDS AVAILABLE WITH THE APPELLANT-SOCIETY. THE PRIMARY CLAIM OF THE APPELLANT-SOCIETY IS THAT EVEN THESE INVESTMENTS WERE IN THE NATURE OF STRATEGIC INVESTM ENTS FOR BUSINESS PURPOSE ONLY AND, THEREFORE, EVEN IF IT IS ASSUMED THAT PART OF THE BORROWED FUNDS WENT INTO THESE INV ESTMENTS, NO DISALLOWANCE CAN BE MADE U/S. 36(1)(III) FOR THE SIMPLE REASON THAT SUCH EXPENDITURE WOULD BE ENTIRELY FOR BUSINESS ITA NO. 2487/DEL/2016 64 PURPOSES. THE APPELLANT-SOCIETY RELIES ON THE LEG AL POSITION AS DISCUSSED BELOW:- (I) CIT VS. RAJENDRA BROTHERS, 52 TAXMANN.COM 334 (GUJ. ) THE HEADNOTE OF THIS CASE IS REPRODUCED BELOW FOR READY REFERENCE: BOTH THE COMMISSIONER (APPEALS) AS WELL AS THE TRIBUNAL HAVE RECORDED CONCURRENT FINDINGS OF FACT TO THE EFFECT THAT THE ASSESSEE WAS ALSO RUNNING A SARAFI BUSINESS AND THE FUNDS OBTAINED FROM THE BANK HAD GOT MERGED WITH THE FUNDS OF OTHER BUSINESSES. HAVING REGARD TO THE TOTAL FUNDS AVAILABLE FROM THE SARAFI BUSINESS, THE TRIBUNAL HAS FOUND NO REASON TO BELIEVE THAT BANK FUNDS HAVE BEEN DIVERTED AS INTEREST FREE/LOWER INTEREST ADVANCES. MOREOVER, NO MATERIAL HAS BEEN BROUGHT ON RECORD BY THE REVENUE EITHER TO DEMONSTRATE THAT THE SARAFI BUSINESS WAS BOGUS OR TO ESTABLISH DIVERSION OF INTEREST BEARING FUNDS AS LOW/INTEREST FREE ADVANCES. THE REVENUE IS NOT IN A POSITION TO POINT OUT ANY MATERIAL TO THE CONTRARY SO AS TO DISLODGE THE CONCURRENT FINDINGS OF FACT RECORDED BY THE COMMISSIONER (APPEALS) AND THE APPELLATE TRIBUNAL. FROM THE FACTS NOTED HEREINABOVE, IT IS APPARENT THAT THE TRIBUNAL HAS BASED ITS CONCLUSION ON THE CONCURRENT FINDINGS OF FACT RECORDED BY IT UPON APPRECIATION OF THE EVIDENCE ON RECORD. IT IS NOT THE CASE OF THE REVENUE THAT THE TRIBUNAL, WHILE APPRECIATING THE EVIDENCE ON RECORD HAS TAKEN INTO CONSIDERATION ANY IRRELEVANT MATERIAL, OR THAT ANY RELEVANT MATERIAL HAS BEEN IGNORED. UNDER THE CIRCUMSTANCES, IN THE ABSENCE OF ANY PERVERSITY BEING POINTED OUT IN THE CONCURRED FINDINGS OF FACT RECORDED BY THE TRIBUNAL, NO QUESTION OF LAW, MUCH LESS, ANY SUBSTANTIAL QUESTION OF LAW CAN BE SAID TO ARISE OUT OF THE IMPUGNED ORDER SO AS TO WARRANT INTERFERENCE. THE APPEAL, THEREFORE, FAILS AND IS ACCORDINGLY DISMISSED. [PARA 7]. (EMPHASIS SUPP LIED) ITA NO. 2487/DEL/2016 65 IN THE ABOVE CASE THE HON'BLE GUJARAT HIGH COURT HELD THAT IT IS THE ONUS OF THE REVENUE TO ESTABLISH THA T INTEREST BEARING FUNDS WERE DIVERTED FOR NON-BUSINESS PURPO SES. (II) CIT VS. RAM KISHAN VERMA, 64 TAXMANN.COM 358 (RAJ.) THE CATCH-NOTE OF THIS CASE IS REPRODUCED BELOW F OR READY REFERENCE: SECTION 36(1)(III) OF THE INCOME-TAX ACT, 1961 - INTEREST ON BORROWED CAPITAL (INTEREST FREE LOANS) - ASSESSMENT YEARS 2005-06 AND 2008-09 - WHETHER WHERE CAPITAL OF ASSESSEE WAS MORE THAN INTEREST FREE ADVANCES MADE TO FRIENDS/RELATIVES AND ASSESSING OFFICER WAS NOT ABLE TO PROVE NEXUS BETWEEN INTEREST BEARING LOANS HAVING BEEN DIVERTED TOWARDS INTEREST FREE LOANS/ADVANCES, NO PART OF INTEREST PAID ON LOANS COULD BE DISALLOWED - HELD, YES [PARAS 12, 13 AND 14] [IN FAVOUR OF ASSESSEE]. (EMPHASIS SUPPLIED) IN THE ABOVE CASE ALSO IT WAS HELD THAT THE ONUS I S ON THE ASSESSING OFFICER OR THE DEPARTMENT TO PROVE NEXUS BETWEEN INTEREST BEARING LOANS HAVING BEEN DIVERT ED TOWARDS INTEREST FREE LOANS/ADVANCES. (III) CIT VS. VIJAY SOLVEX LTD., 59 TAXMANN.COM 294 (RAJ. ) THE CATCH-NOTE OF THIS CASE IS REPRODUCED BELOW F OR READY REFERENCE: SECTION 36(1)(III) OF THE INCOME-TAX ACT, 1961 - INTEREST ON BORROWED CAPITAL (INTEREST-FREE ADVANCE S TO SISTER CONCERNS) - ASSESSMENT YEAR 1992-93 - DURING COURSE OF ASSESSMENT PROCEEDINGS, ASSESSING OFFICER NOTICED THAT ON ONE HAND, ASSESSEE-COMPANY WAS MAKING PAYMENT OF INTEREST TO BANKS ETC. BUT ON OTHER HAND, IT HAD ADVANCED MONEY TO SISTER CONCERNS ON WHICH NO INTEREST WAS CHARGED - ASSESSING OFFICER WAS OF VIEW THAT INTEREST BEARING LOANS HAD BEEN DIVERTED TO NON- BUSINESS PURPOSES AND, ACCORDINGLY, HE DISALLOWED INTEREST ON INTEREST-FREE ADVANCES GIVEN TO SISTER CONCERNS - IT WAS OBSERVED THAT ASSESSEE-COMPANY HAD ITS OWN SUFFICIENT FUNDS AND REVENUE WAS UNABLE TO PROVE NEXUS BETWEEN BORROWED FUNDS AND ADVANCES GIVEN - WHETHER, ON FACTS, NOTIONAL INTEREST DISALLOWED BY ASSESSING OFFICER WAS TO BE ITA NO. 2487/DEL/2016 66 DELETED - HELD, YES [PARAS 16 AND 17] [IN FAVOUR OF ASSESSEE ]. (EMPHASIS SUPPLIED) (IV) PRANIK SHIPPING & SERVICES LTD. VS. ACIT, 19 TAXMANN.COM 107 (MUM.) THE HEADNOTE OF THIS CASE IS REPRODUCED BELOW FOR READY REFERENCE: FACTS-I DURING ASSESSMENT PROCEEDINGS, THE ASSESSING OFFI CER OBSERVED THAT THE ASSESSEE HAD GIVEN INTEREST-FREE ADVANCES AGGREGATING TO RS. 50.29 LAKH TO ITS SISTER CONCERN S WHEREAS SUBSTANTIAL AMOUNT OF INTEREST WAS PAID ON THE FUND S BORROWED. ON BEING SHOW CAUSED AS TO WHY THE PROPORTIONATE DISALLOWANCE OF INTEREST BE NOT MADE, THE ASSESSEE JUSTIFIED ITS CLAIM BY STATING THAT IT HAD SHARE CAPITAL, RESERVES AND SURPLUS AND UNSECURED LOANS AMOUNTING TO RS. 3544.64 LAKH ON WHICH NO INTEREST WAS PAYABLE. THE ASSESSING OFFICER, HOWEVER MADE DISALLOWANCE UNDER SECTION 36(1)(III) BY APPLYING 1 5 PER CENT RATE OF INTEREST. THE COMMISSIONER (APPEALS) U PHELD THE DISALLOWANCE. ON ASSESSEE'S APPEAL : HELD-I THE ASSESSEE HAS SHARE CAPITAL OF RS. 15.25 CRORE ALONG WITH RESERVES AND SURPLUS AMOUNTING TO RS. 19.48 CRORE T HEREBY TOTALLING SHAREHOLDERS' FUND TO THE TUNE OF RS. 35. 73 CRORE. EVEN IF THE DEBIT BALANCE OF PROFIT AND LOSS ACCOUN T OF RS. 3.93 CRORE AND THE LIABILITY OF RS. 24.43 CRORE TOW ARDS INTEREST PAYABLE NOT DEBITED TO PROFIT AND LOSS ACC OUNT IS CONSIDERED, STILL THERE IS EXCESS OF SHARE CAPITAL AND RESERVES TO THE EXTENT OF RS. 7.37 CRORE [35.73 CRORE - 28.3 6 CRORE (3.93 CRORE + 24.43 CRORE)]. AS AGAINST THIS EXCESS OF SHAREHOLDERS' FUND OF RS. 7.37 CRORE, THE ASSESSEE ADVANCED INTEREST-FREE LOANS TO ITS SISTER CONCERNS AMOUNTIN G TO RS. 50.29 LAKH. [PARA 4] FROM THE DECISION OF JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. RELIANCE UTILITIES & POWER LTD. [2009] 31 3 ITR 340 / 178 TAXMAN 135 (BOM.), IT IS MANIFEST THAT IF THE ASSESSEE HAS INTEREST-FREE FUNDS AS WELL AS INTERES T BEARING FUNDS AT ITS DISPOSAL, THEN THE PRESUMPTION WOULD B E THAT INVESTMENTS WERE MADE FROM INTEREST-FREE FUNDS AVAI LABLE WITH THE ASSESSEE. IN THE INSTANT CASE, THE INTERES T-FREE FUNDS AVAILABLE AT THE DISPOSAL OF THE ASSESSEE ARE FAR I N EXCESS OF THE INTEREST-FREE LOANS ADVANCED TO THE SISTER CONC ERNS. THEREFORE, FOLLOWING THE MANDATE OF THE JURISDICTIO NAL HIGH ITA NO. 2487/DEL/2016 67 COURT IN THE CASE OF RELIANCE UTILITIES & POWER LTD . (SUPRA ), THE ADDITION IS TO BE DELETED. [PARA 6]. (V) CIT VS. HDFC BANK LTD., 49TAXMANN.COM 335 (BOM.) THE RELEVANT OBSERVATIONS OF THE HON'BLE BOMBAY HI GH COURT ARE REPRODUCED BELOW FROM PARA-4 OF THE JUDGEMENT:- 4. WE DO NOT AGREE. IN THE CASE AT HAND, AS RECORDED B Y THE ITAT, UNDISPUTEDLY THE ASSESSEE'S OWN FUNDS AND OTHER NON-INTEREST BEARING FUNDS WERE MORE THAN THE INVES TMENT IN THE TAX FREE SECURITIES. THE ITAT THEREFORE HELD THAT THERE WAS NO BASIS FOR DEEMING THAT THE ASSESSEE HAD USED THE BORROWED FUNDS FOR INVESTMENT IN TAX FREE SECURITIE S . ON THIS FACTUAL ASPECT, THE ITAT DID NOT FIND ANY MERI T IN THE CONTENTION RAISED BY THE REVENUE AND THEREFORE, ACCORDINGLY ANSWERED THE QUESTION IN FAVOUR OF THE ASSESSEE. ON GOING THROUGH THE ORDER OF THE CIT (AP PEALS) DATED 28TH MARCH 2005 AS WELL AS THE IMPUGNED ORDER , WE DO NOT FIND THAT THE CIT (APPEALS) OR THE ITAT ERRE D IN HOLDING IN FAVOUR OF THE ASSESSEE. IN THIS REGARD, THE SUBMISSION OF MR MISTRY, THE LEARNED SENIOR COUNSEL APPEARING ON BEHALF OF THE ASSESSEE, THAT THIS ISSU E IS SQUARELY COVERED BY A JUDGMENT OF THIS COURT IN THE CASE OF CIT V. RELIANCE UTILITIES & POWER LTD. [2009] 313 ITR 340/178 TAXMAN 135 (BOM.) IS WELL FOUND ED. (EMPHASIS SUPPLIED) (VI) CIT VS. GUJARAT STATE FERTILIZERS AND CHEMICALS LTD ., 358 ITR 323 (GUJ.) THE HEADNOTE OF THIS CASE IS REPRODUCED BELOW FOR READY REFERENCE: HELD, THAT THE DIVIDEND INCOME EARNED WAS RS. 1,14,43,040 AND THE ESTIMATE OF EXPENDITURE WAS ASS ESSED AT THE RATE OF 10 PER CENT. OF THE TOTAL INCOME. HAD T HE DEPARTMENT BEEN SUCCESSFUL IN ESTABLISHING THAT THE ASSESSEE HAD INCURRED THE EXPENSES TO EARN THE DIVI DEND INCOME FROM THE BORROWED FUNDS, THE ENTIRE DISCUSSI ON OF APPLICATION OF SECTION 14A OF THE ACT COULD BE UNDE RSTOOD. HOWEVER, WHEN BOTH THE COMMISSIONER (APPEALS) AND T HE TRIBUNAL HAD NOTED THAT THE ASSESSEE HAD SUFFICIENT FUNDS AVAILABLE WITH IT, WHICH WERE MORE THAN THE AMOUNT IT INVESTED FOR EARNING THE DIVIDEND INCOME, THE AUTHO RITIES HAD CORRECTLY SET ASIDE THE ORDER OF DISALLOWANCE U NDER SECTION 14A OF THE ACT IN RESPECT OF INTEREST EXPEN DITURE. WHEN THE VERY BASIS FOR EMPLOYING SECTION 14A OF TH E ACT ON THE FACTUAL MATRIX WAS LACKING, THE DISALLOWANCE TO THE ITA NO. 2487/DEL/2016 68 EXTENT OF 10 PER CENT. OF THE DIVIDEND INCOME WAS N OT PERMISSIBLE. WHEN IT TRANSPIRED FROM THE RECORD THA T THE ASSESSEE'S OWN FUNDS WERE HIGHER THAN THE INVESTMEN T MADE BY IT AND WITH NOTHING TO INDICATE THAT THE BORROWE D FUNDS WERE UTILISED FOR THE PURPOSE OF INVESTMENT IN SHAR ES AND FOR EARNING DIVIDENDS, THE TRIBUNAL COMMITTED NO ER ROR . AS FAR AS THE OTHER ADMINISTRATIVE EXPENSES WERE CONCE RNED, TO PUT AN END TO THE ENTIRE DISPUTE THE ASSESSEE AGREE D TO A DISALLOWANCE OF RS. 5 LAKHS. THIS WAS REASONABLE. (EMPHASIS SUPPLIED) (VII) CIT VS. TORRENT POWER LTD., 363 ITR 474 (GUJ.) THE RELEVANT PART OF THE HEADNOTE OF THIS CASE IS R EPRODUCED BELOW FOR READY REFERENCE: HELD, DISMISSING THE APPEAL, THAT THE MATERIAL ON RECORD SHOWED THAT THE ASSESSEE HAD SHAREHOLDING FUNDS TO THE EXTENT OF RS. 2607.18 CRORES AND THE INVESTMENT MAD E BY IT WAS TO THE EXTENT OF RS. 195.10 CRORES. IN OTHER WO RDS, THE ASSESSEE HAD SUFFICIENT FUNDS FOR MAKING THE INVEST MENTS AND IT HAD NOT USED BORROWED FUNDS FOR SUCH PURPOSE . THERE WAS NOTHING ON RECORD TO INDICATE THAT THERE HAD BE EN IN FACT ANY ACTUAL EXPENDITURE INCURRED BY THE ASSESSEE FOR EARNING TAX-FREE INCOME OF RS. 14 CRORES. DISALLOWANCE OF 1 PER CENT. OF INTEREST EXPENDITURE ARTIFICIALLY OR ON TH E BASIS OF ASSUMPTION RIGHTLY HAD NOT BEEN SUSTAINED BY THE TR IBUNAL. THE DELETION OF ADDITION WAS JUSTIFIED. CIT VS. HERO CYCLES LTD. [2010] 323 ITR 518 (P&H) ( PARA 10) CIT VS. SINTEX INDUSTRIES LTD. [2014] 2 ITR-OL 364 (GUJ.) (PARA-11) CIT VS. SUZLON ENERGY LTD. [2013] 354 ITR 630 (GUJ) (PARA 9) CIT VS. UTI BANK LTD. [2014] 2 ITR-OL 366 (GUJ) (P ARA 10) GODREJ AND BOYCE MFG. CO. LTD. V. DCIT [2010] 328 I TR 81 (BOM)(PARA 11) ITO V. DAGA CAPITAL MANAGEMENT P. LTD. [2009] 312 ITR (AT)1 (MUM) [SB] (PARA 5) MAXOPP INVESTMENT LTD. V. CIT [2012] 347 ITR 272 (DEL.)(PARA 6) ITA NO. 2487/DEL/2016 69 (EMPHASIS SUPPLIED) (VIII) CIT VS. GUJARAT FOILS LTD., 377 ITR 324 (GUJ.) THE RELEVANT PART OF THIS JUDGEMENT IS REPRODUCED B ELOW FROM PAGE 334 OF THE REPORT: NOW, SO FAR AS TAX APPEAL NO. 963 OF 2008 FOR THE ASSESSMENT YEAR 2002-03 AND TAX APPEAL NO. 964 OF 2 008 FOR THE ASSESSMENT YEAR 2003-04 WITH RESPECT TO THE DISALLOWANCE OF INTEREST EXPENSES CLAIMED UNDER SECTION 36(1)(III) OF THE ACT IS CONCERNED, THE LEA RNED TRIBUNAL HAS OBSERVED THAT THE ASSESSEE WAS HAVING INTEREST- FREE FUNDS AVAILABLE WITH IT. THE LEARNED TRIBUNAL HAS OBSERVED THAT THE ADVANCES WERE GIVEN BY THE ASSESS EE TO VARIOUS PARTIES TO THE EXTENT OF RS. 2,62,48,341 DU RING THE FINANCIAL YEAR 1996-97. THE LEARNED TRIBUNAL HAS AL SO FOUND THAT EVEN THE ASSESSEE WAS HAVING INTEREST-F REE FUNDS TO THE EXTENT OF RS. 3,93,65,572 AS ON MARCH 31, 20 02 . IT IS REQUIRED TO BE NOTED THAT IN THE EARLIER PRECEDING YEAR NO DISALLOWANCE WAS MADE OUT OF THE INTEREST CLAIMED B Y THE ASSESSEE. CONSIDERING THE AFORESAID FACTS AND CIRCU MSTANCES OF THE CASE, THE LEARNED TRIBUNAL HAS RIGHTLY DELET ED THE DISALLOWANCE ON INTEREST EXPENSES. WE ARE IN COMPLETE AGREEMENT WITH THE VIEW TAKEN BY THE LEARN ED TRIBUNAL (EMPHASIS SUPPLIED) (IX) CIT VS. RELIANCE UTILITIES AND POWER LTD., 313 ITR 340 (BOM.) THE RELEVANT PART OF THE HEADNOTE OF THIS CASE IS REPRODUCED BELOW FOR READY REFERENCE: HELD, DISMISSING THE APPEAL, THAT IF THERE WERE FU NDS AVAILABLE BOTH INTEREST-FREE AND OVERDRAFT AND/OR L OANS TAKEN, THEN A PRESUMPTION WOULD ARISE THAT INVESTME NTS WOULD BE OUT OF THE INTEREST-FREE FUNDS GENERATED O R AVAILABLE WITH THE COMPANY, IF THE INTEREST-FREE FU NDS WERE SUFFICIENT TO MEET THE INVESTMENTS. IN THIS CASE THIS PRESUMPTION WAS ESTABLISHED CONSIDERING THE FINDING OF FACT BOTH BY THE COMMISSIONER (APPEALS) AND THE TRIBUNAL . THE INTEREST WAS DEDUCTIBLE. EAST INDIA PHARMACEUTICAL WORKS LTD. V. CIT [1997] 224 ITR 627 (SC) AND WOOLCOMBERS OF INDIA LTD. V. CIT [1982] 134 ITR 219 (CAL) RELIED ON. (EMPHASIS SUPPLIED) ITA NO. 2487/DEL/2016 70 A. BOMBAY HIGH COURT-CIT VS. HDFC BANK[2014] 366 ITR 505 IN THE PRESENT CASE, UNDISPUTEDLY THE ASSESSEE'S C APITAL, PROFIT RESERVES, SURPLUS AND CURRENT ACCOUNT DEPOSI TS WERE HIGHER THAN THE INVESTMENT IN THE TAX-FREE SECURITIES. IN VIEW OF THIS FACTUAL POSITION, AS PE R THE JUDGMENT OF THIS COURT IN THE CASE OF RELIANCE UTIL ITIES & POWER LTD. (SUPRA), IT WOULD HAVE TO BE PRESUMED TH AT THE INVESTMENT MADE BY THE ASSESSEE WOULD BE OUT OF THE INTEREST-FREE FUNDS AVAILABLE WITH THE ASSESSEE. WE THEREFORE, ARE UNABLE TO AGREE WITH THE SUBMISSION OF MR SURESH KUMAR THAT THE TRIBUNAL HAD ERRED IN DISMISS ING THE APPEAL OF THE REVENUE ON THIS GROUND. WE DO NOT FIND THAT QUESTION (A) GIVES RISE TO ANY SUBSTANTIA L QUESTION OF LAW AND IS THEREFORE REJECTED. THE ABOVE RATIO HAS BEEN REITERATED RECENTLY BY THE HONBLE BOMBAY HIGH COURT AGAIN IN THE CASE OF TH E SAME ASSESSEE [2016-TIOL-408-MUM-IT] HAS REITERATED THE ABOVE RATIO LAID DOWN BY IT AGAIN IN THE FOLLOW ING WORDS CASTIGATING THE ITAT , MUMBAI FOR DEVIATING F ROM THE SAME: 11(A)THE PETITIONER WAS POSSESSED OF SUFFICIENT IN TEREST FREE FUNDS OF RS.2153 CRORES AS AGAINST THE INVESTM ENT IN TAX FREE SECURITIES OF RS.52.02 CRORES. CONSEQUENTL Y, THERE IS A PRESUMPTION THAT THE INVESTMENT WHICH HA S BEEN MADE IN THE TAX FREE SECURITIES HAS COME OUT O F THE INTEREST FREE FUNDS AVAILABLE WITH THE PETITIONER. THIS IS SO AS IT HAS BEEN HELD BY THIS COURT IN THE PETITIONER 'S OWN CASE FOR AN EARLIER ASSESSMENT YEAR BEING HDFC BANK LTD.(SUPRA). THIS DECISION ON THE ABOVE ISSUE HAS B EEN ACCEPTED BY THE REVENUE. THIS IS EVIDENCED BY THE F ACT ALTHOUGH AN APPEAL HAS BEEN FILED TO THE SUPREME CO URT WITH REGARD TO ANOTHER ISSUE ARISING FROM THE ORDER IN HDFC BANK LTD. (SUPRA) NAMELY BROKEN PERIOD INTERES T, NO APPEAL ON THIS ISSUE AS RAISED BEFORE THE TRIBUN AL HAS BEEN CHALLENGED BEFORE THE SUPREME COURT 14. THE ONLY BASIS FOR PROCEEDING ON THE BASIS THAT THERE IS A CONFLICT BETWEEN THE TWO DECISIONS OF THIS COU RT WHICH EMERGES FROM THE IMPUGNED ORDER IS THAT IN PETITIONER'S OWN CASE IN HDFC BANK LTD. (SUPRA), RELIANCE WAS PLACED UPON THE DECISION OF THIS COURT IN RELIANCE UTILITIES AND POWER LTD. (SUPRA) TO CONCLU DE THAT WHERE BOTH INTEREST FREE FUNDS AND INTEREST BEARING FUNDS ARE AVAILABLE AND THE INTEREST FREE FUNDS ARE MORE THAN THE INVESTMENTS MADE, THE PRESUMPTION IS THAT THE INVES TMENT IN THE TAX FREE SECURITIES WOULD HAVE BEEN MADE OUT OF THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE. TH OUGH, ITA NO. 2487/DEL/2016 71 THE DECISION OF THIS COURT IN RELIANCE UTILITIES AN D POWER LTD. (SUPRA) WAS RENDERED IN THE CONTEXT OF SECTION 36(1)(III) OF THE ACT, IT WAS CONSCIOUSLY APPLIED B Y THIS COURT WHILE INTERPRETING SECTION 14A OF THE ACT IN HDFC BANK LTD. (SUPRA). .. THE ABOVE RATIO HAS ALSO BEEN RECENTLY FOLLOWED BY THE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. MICROL ABS LTD. REPORTED AT [2016] 383 ITR 490 (KARN). THE CONSISTENT VIEW HELD IN THE ABOVE CASES IS T HAT IF THE INVESTMENTS MADE BY THE ASSESSEE ARE ADEQUATELY COV ERED BY OWN FUNDS THE PRESUMPTION WOULD BE THAT NO BORRO WED FUNDS HAVE BEEN DIVERTED FOR MAKING THESE INVESTMEN TS AND FURTHER THAT THE ONUS IS ON THE REVENUE TO ESTABLIS H NEXUS BETWEEN THE BORROWED FUNDS AND THE INVESTMENTS MADE BY THE ASSESSEE. EVEN IF, FOR THE SAKE OF ARGUMENT, IT IS ASSUMED THAT TWO INTERPRETATIONS ON THIS ISSUE ARE POSSIBLE, IT IS A SETTLED PRINCIPLE THAT THE INTERPRETATION W HICH FAVOURS THE ASSESSEE MUST BE ADOPTED. THIS PRINCIPLE WAS EX PLAINED BY THE HONBLE SUPREME COURT IN THE LANDMARK DECISI ON IN THE CASE OF CIT VS. VEGETABLE PRODUCTS LTD. 88 I TR 192. AGAIN IN THE CASE OF MANISH MAHESWARI VS. ACIT 28 9 ITR 341 THE HONBLE SUPREME COURT OBSERVED THAT WH ERE TWO INTERPRETATIONS ARE POSSIBLE THE COURTS SHOULD INTERPRET THE PROVISIONS IN FAVOUR OF THE TAX PAYER AND AGAINST THE REVENUE. IN THE CASE OF PRADIP J. MEHTA VS. CIT 300 ITR 231 THE HONBLE SUPREME COURT REITERATED THAT WHEN TWO INTERPRETATIONS ARE POSSIBLE, THEN INVARIABLY T HE COURT WOULD ADOPT THAT INTERPRETATION WHICH IS IN FAVOU R OF THE TAX PAYER AND AGAINST THE REVENUE . 11.17 IN THE BACKDROP OF THE FACTUAL AND THE LEGAL POSITION EXPLAINED ABOVE IN DETAIL, IT IS RESPECTFULLY SUBM ITTED THAT ON MERITS ALSO THE LEARNED PR. CIT WAS WHOLLY UNJUS TIFIED IN SETTING ASIDE THE ASSESSMENT ORDER ON THIS ISSUE T O THE ASSESSING OFFICER WITH DIRECTIONS TO GO INTO TH E RECORDS OF THE PRECEDING 10 YEARS FOR WORKING OUT THE AVE RAGE AND THEN TO APPLY DEBT EQUITY FORMULA. ON MERITS, AS ELABORATED IN THE SUBMISSIONS MADE BEFORE THE PR CI T (REPRODUCED AT PARA-11.4) , LOOKING AT THE ISSUE FR OM VARIOUS ANGLES, THE PROPOSED DISALLOWANCE U/S 36(1) (III) CANNOT BE SUSTAINED AS SUMMARIZED BELOW: ONUS OF PROVING NON DIVERSION OF FUNDS BORROWED FOR WORKING CAPITAL TOWARDS CWIP AND FIXED ASSETS DISCHARGED BY ASSESSEEBY SUBMISSION OF INDEPENDENT STATUTORY AUDITOR CERTIFICCATE AND AVAILABILITY OF OWN FUNDS & INTERNAL ACCRUALS ITA NO. 2487/DEL/2016 72 INVESTMENTS ARE FINANCED FROM OWN FUNDS GIVEN THAT THEY CONSTITUTE NOT MORE THAN 10% OF THE OWN FUNDS- PRESUMPTION TO APPLY IN ASSESSEES FAVOUR EVEN OTHERWISE, THERE IS A BUSINESS NEXUS TO THE INVESTMENTS, THUS COVERED UNDER FOR THE PURPOSE OF BUSINESS U/S. 36(1)(III) AS INTERPRETED BY THE APEX COURT ALTERNATIVELY, DEDUCTION ALLOWABLE UNDER 57(III) EVEN IF PRESUMPTION OF OWN FUNDS AND BUSINESS NEXUS IS APPLIED AGAINST THE ASSESSEE.. INTEREST CANNOT BE ADDED TO COST AS SUGGESTED BY THE LD PR CIT IN VIEW OF EXPRESS PROVISIONS TO THE CONTRARY IN THE INCOME TAX ACT. FURTHER, THERE IS ABUNDANT EVIDENCE THAT ALL T HESE ISSUES PERTAINING TO SECTION 36(1)(III) WERE THOROUGHLY E XAMINED BY THE ASSESSING OFFICER AND THERE WAS FULL APPLIC ATION OF MIND BY HIM DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS AND THEREFORE THE LEARNED PR. CIT HAS N O JURISDICTION TO INVOKE HIS POWERS U/S.263 OF THE I.T. ACT FOR THESE REASONS, IT IS HUMBLY SUBMITTED THAT, TH E IMPUGNED ORDER PASSED BY THE LEARNED PR. CIT U/S.2 63 ON THIS ISSUE MAY KINDLY BE HELD AS BAD IN LAW AND QU ASHED. 15.4 AGAINST THE AFORESAID CONTENTIONS OF THE A SSESSEES COUNSEL, THE LEARNED DR HAS FILED THE FOLLOWING FURTHER SUBMISSIONS DURING THE COURSE OF THE HEARING: 6. ON THE ISSUE OF 36(1)(III) AND 36(1) PROVISO, T HERE IS CASE OF NON-ENQUIRY AND NON-APPLICATION OF MIND. AR COULD NOT POINT-OUT ANY MATERIAL TO INDICATE THE CONTRARY. THE ATTEMPT TO S AY THAT PROVISIONS OF SECTIONS 36(1) AND 14A ARE MUTUALLY EXCLUSIVELY AN D A O HAS DISCUSSED ISSUE OF 14A, DOES NOT PROVE CASE OF AP PLICATION OF MIND AND ANY ENQUIRY (MUCH LESS ADEQUATE ENQUIRY). 7. IN CASE OF SCRUTINY THE NEED FOR CALLING BALANCE SHEET/P&L A/C. ETC. OF ASSOCIATE CONCERNS AND MAKING RECONCILIATI ON /VERIFICATION CANNOT BE OVER-EMPHASIZED. ANY A O BEING A RATIONAL PERSON, BEING INFORMED OF THE NUANCES OF TAX LAWS IS EXPECTED TO DO SO. 8. RELIANCE IS PLACED UPON JUDGEMENT OF HON'BLE ITA T DELHI IN CASE OF NIIT VS. CIT (CENTRAL)-II [2015] 60 TAXMANN .COM 313 (DELHI TRIB.) WHERE AFTER ANALYZING PLETHORA OF JUDGEMENTS ON THE ISSUE THE HON'BLE ITAT HAS HELD (IN PARA 28.2) THAT AN INQUIR Y WHICH IS JUST ITA NO. 2487/DEL/2016 73 FARCE OR MERE PRETENCE OF INQUIRY, CANNOT BE SAID T O BE AN INQUIRY AT ALL, MUCH LESS AN INQUIRY NEEDED TO REACH THE LEVEL OF S ATISFACTION OF THE A O ON THE GIVEN ISSUE. THE LEVEL OF SATISFACTION WOU LD OBVIOUSLY MEAN THAT HE HAS CONDUCTED THE INQUIRY IN A MANNER WHER EBY HE PLACES ON RECORD THE MATERIAL ENOUGH TO REACH THE SATISFACTIO N, WHICH A RATIONAL PERSON, BEING INFORMED OF THE NUANCES OF TAX LAWS WOULD REACH AFTER DUE APPRECIATION OF SUCH MATERIAL. IF THIS COMPONE NT IS MISSING, IT WILL ALWAYS BE A CASE OF LACK OF INQUIRY AND NOT INADEQU ATE INQUIRY. 9. RELIANCE IS ALSO PLACED ON RATIO OF HON'BLE SC I N CASE OF MALABAR INDUSTRIAL CO. LTD. VS. CIT 109 TAXMAN 66 ( SC) WHICH HAS HELD THAT I) AN INCORRECT ASSUMPTION OF FACTS OR AN INCORRECT APPLICATION OF LAW WILL SATISFY THE REQUIREMENT OF THE ORDER BEING ERRONEOUS. IN THE SAME CATEGORY FALL ORDERS PASSED WITHOUT APPLYIN G THE PRINCIPLES OF NATURAL JUSTICE OR WITHOUT APPLICATION OF MIND. II) THE PHRASE PREJUDICIAL TO THE INTERESTS OF THE REVENUE IS NOT AN EXPRESSION OF ART AND IS NOT DEFINED IN THE ACT. UN DERSTOOD IN ITS ORDINARY MEANING, IT IS OF WIDE IMPORT AND IS NOT C ONFINED TO LOSS OF TAX. 16. WE HAVE CAREFULLY CONSIDERED THE SUBMISSION S AND ARGUMENTS MADE BY THE LEARNED COUNSEL OF THE ASSESSEE AS WELL AS THE LEARNED CIT( D.R.) AND HEARD BOTH THE PARTIES AT LENGTH. WE FIND THAT THE ASSESSING OFFICER HAD MADE DETAILE D INQUIRIES AND EXAMINED THE ENTIRE BLOCK OF FIXED ASSETS. A BRIEF NOTE ON CAPITAL WORK IN PR OGRESS WAS ALSO FILED AND QUERIES REGARDING THE MANNER IN WHICH THE DEPRECIATION WAS CLAIMED WA S ALSO RAISED. FURTHER THE ASSESSEE IS FOLLOWING A SETTLED ACCOUNTING POLICY/PRINCIPLE F OR CAPITALIZATION OF EXPENSES INCLUDING INTEREST EXPENSES TO BOTH THE FIXED ASSETS AS W ELL AS CAPITAL WORK IN PROGRESS. THIS METHOD WAS FORMING PART OF THE AUDITED FINANCIAL STATEMENT S WHICH WERE FILED BEFORE THE ASSESSING OFFICER AS WELL. WE ALSO FIND THAT THE FREE RESERVE S WERE ALSO MORE THAN SUFFICIENT TO COVER UP THE INVESTMENT IN FIXED ASSETS / CAPITAL WORK IN PR OGRESS. FURTHER THE ASSESSEE SOCIETY HAS GENERATED SUFFICIENT INTERNAL CASH FLOWS TO MEET WI TH THE COST OF FIXED ASSETS AS WELL AS CAPITAL WORK IN PROGRESS. IN SPITE OF THIS FACT THE ASSESSE E HAS CAPITALIZED A SUM OF RS. 7.09 CRORES IN THE BOOKS OF ACCOUNTS. THE LEARNED PR. CIT HAS ALSO NOT DISPUTED THAT THE TOTAL INVESTMENTS WERE MERELY 10% OF THE INTEREST-FREE FUNDS AVAILABL E WITH THE ASSESSEE SOCIETY. WE ALSO FIND THAT A CONSISTENT VIEW HAS TAKEN BY ALL THE JUDICIA L AUTHORITIES THAT IN THE EVENT OF AVAILABILITY OF INTEREST-FREE FUNDS A PRESUMPTION WOULD BE TH AT INVESTMENTS WOULD BE OUT OF INTEREST- FREE FUNDS GENERATED OR AVAILABLE WITH THE ASSE SSEE. IN THIS RESPECT, RELIANCE WAS PLACED ON ITA NO. 2487/DEL/2016 74 THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE O F CIT VS. RELIANCE UTILITY AND POWER LTD. 313 ITR 340. 16.1 IN LIGHT OF THE ABOVE DISCUSSIONS AS WELL AS FACTUAL MATRIX, WE HAVE NO HESITATION IN HOLDING THAT THE ORDER PASSED BY THE LEARNED PR. C IT IS BAD IN LAW FOR THE FOLLOWING REASONS:- (A) THAT, AS DISCUSSED ABOVE, DETAILED INQUIRIES WE RE MADE BY THE ASSESSING OFFICER WITH REGARD TO THE CAPITALIZATION OF INTERE ST TO FIXED ASSETS AS WELL AS CAPITAL WORK IN PROGRESS. (B) THAT, EVEN ON THE FACTS OF THE CASE THE ASSES SEE HAD SUFFICIENT INTEREST-FREE FUNDS TO MEET WITH THE CAPITAL EXPENDITURE AND, THEREFORE, FOLLOWING THE RATIO OF THE DECISION OF THE HON'BLE BOMBAY HIGH CO URT IN RELIANCE UTILITY AND POWER LTD. (SUPRA), NO DISALLOWANCE U/S.36(1)( III) IS CALLED FOR. (C) THAT, THE ASSESSEE HAD ALREADY DISCHARGED ITS ONUS OF PROVING NON-DIVERSION OF FUNDS BORROWED FOR WORKING CAPITAL TOWARDS C APITAL WORK IN PROGRESS AND FIXED ASSETS BY SUBMITTING A CERTIFICATE OF AN I NDEPENDENT STATUTORY AUDITOR AND PROVED AVAILABILITY OF OWN FUNDS AND INTERN AL ACCRUALS WHICH WAS NOT REBUTTED BY LD. PR.CIT. 16.2 THEREFORE, SINCE THERE WAS FULL APPLICA TION OF MIND ON THE PART OF THE ASSESSING OFFICER DURING THE COURSE OF THE ASSESSMENT PROCEE DINGS AS WELL AS BASED ON THE ABOVE EVIDENCES PLACED BEFORE HIM, THE LEARNED PR. CIT HAS NO JURISDICTION TO INVOKE THE PROVISIONS TO PASS AN ORDER U/S.263 OF THE I.T. AC T. FOR THIS REASON, WE HOLD THAT THE ORDER PASSED BY THE LEARNED PR. CIT U/S.263 ON THIS ISSUE IS BAD IN LAW AND SET ASIDE. 17. BEFORE CONCLUDING WE WOULD ALSO LIKE TO DE AL WITH THE RECENT INSERTION OF EXPLANATION 2 TO SECTION 263 OF THE ACT. WE HAVE ALREADY HELD A BOVE THAT IN RESPECT OF BOTH THE ISSUES I.E. ALLOWING CREDIT OF DEEMED TAXES PAID ON DIVIDEND IN OMAN AS WELL AS CAPITALIZATION OF INTEREST U/S 36(1)(III) DETAILED ENQUIRIES AS WELL AS VERIFI CATION HAVE BEEN MADE BY THE AO. FURTHER IT IS ALSO NOT THE CASE OF THE LD. PR CIT THAT THE ORD ER IS NOT IN ACCORDANCE WITH ANY INSTRUCTION/ DIRECTION ISSUED BY THE BOARD OR IS NOT IN ACCORDAN CE WITH ANY DECISION OF HONBLE DELHI HIGH COURT OR THE APEX COURT OF INDIA. ACCORDINGLY THE ORDER PASSED BY THE AO CANNOT BE REGARDED AS DEEMED TO BE ERRONEOUS OR PREJUDICIAL T O THE INTERESTS OF THE REVENUE UNDER EXPLANATION 2 OF THE ACT. ITA NO. 2487/DEL/2016 75 18. IN VIEW OF THE ABOVE, WE HOLD THAT THE IMPUGNED ORDER PASSED BY THE LEARNED PR. CIT U/S. 263 OF THE INCOME TAX ACT IS W ITHOUT JURISDICTION AND NOT SUSTAINABLE IN LAW. ACCORDINGLY, THE SAID ORDER IS HEREBY QUASHED AND AS A RESULT, THE ASSESSEES APPEAL STANDS ALLOWED. 19. IN THE RESULT, THE APPEAL FILED BY THE ASSESSE E STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 19-09-2016. SD/- SD/- (J.S. REDDY) (H.S. SIDHU) ACCOUNTANT MEMBER JUDI CIAL MEMBER DATED: 19/09/2016 *SR BHATNAGAR* COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR