DDIT Circle-2 (2), New Delhi V. Saraswati Holding Corporation Inc., New Delhi

ITA 2889/DEL/2008

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 8515 (ITAT-DELHI)
• Duration Of Justice: 10 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-07-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 18-06-2009
• Assessment Year: 2003-2004
• Appeal Filed On: 10-09-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANISH KUMAR GUPTA
• Assessee Lawyers: M P MEHROTRA
• Keywords: Double taxation relief; Set aside; Capital Gains
• Section: 143(3); 143(1); 143(2); 90

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH `G : NEW DELHI) BEFORE HONBLE SR. VICE PRESIDENT SHRI R.P. GARG A ND HONBLE JUDICIAL MEMBER, SHRI RAJPAL YADAV ITA NO.2889/DEL./2008 (ASSESSMENT YEAR : 2003-04) DDIT, CIRCLE 2(2), VS. M/S SARASWATI HOLDING CORPO RATION INC., NEW DELHI. C/O M.P. MEHROTRA, C.AS. C-561, DEFENCE COLONY, NEW DELHI. (PAN/GIR NO.AAHCS0969C) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI M.P. MEHROTRA, CA. REVENUE BY : SHRI MANISH KUMAR GUPTA, SR.DR ORDER PER R.P. GARG, SR.VP THIS IS AN APPEAL OF THE REVENUE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME- TAX (APPEALS) FOR ASSESSMENT YEAR 2003-04 IN DELETI NG THE ADDITION OF RS.18,38,353 MADE BY THE ASSESSING OFFICER UNDER THE HEAD LONG TERM C APITAL GAIN BY WRONGLY INTERPRETING OF THE ARTICLES OF INDO MAURITIUS DOUBLE TAXATION AVOI DANCE AGREEMENT. 2. THE ASSESSEE FILED ITS RETURN OF INCOME ON 02.12 .2003 DECLARING TOTAL INCOME OF RS.39,100 FOR THE YEAR UNDER CONSIDERATION. THE RE TURN WAS PROCESSED U/S 143(1) BY THE ASSESSING OFFICER. NOTICE U/S 143(2) WAS ISSUED TO THE ASSESSEE TO SUBMIT THE DETAILS IN RESPECT OF THE RETURNED INCOME. THE ASSESSEE IN RE SPONSE TO THE NOTICE SUBMITTED DETAILED REPLY TO THE ASSESSING OFFICER. IT WAS SUBMITTED T HAT THE ASSESSEE IS A COMPANY INCORPORATED IN MAURITIUS HOLDING THE TAX RESIDENCE CERTIFICATE OF MAURITIUS. IT WAS INCORPORATED WITH THE PURPOSE OF CARRYING ON BUSINE SS OF DEALING AND MAKING INVESTMENT IN SHARES AND SECURITIES ETC. FOR THE PURPOSE OF DO ING BUSINESS IN INDIA. THE ASSESSEE MADE INVESTMENT IN INDIAN CAPITAL MARKET AND DERIVE D INCOME IN THE FORM OF SHORT ITA NO.2889/DEL./2008 (A.Y. : 2003-04) 2 TERM/LONG TERM CAPITAL GAINS. ACCORDING TO THE ASS ESSEE THE SAID TRANSACTION WAS COVERED BY THE PROVISIONS OF DOUBLE TAXATION AVOIDANCE AGRE EMENT (DTAA) BETWEEN INDIA AND MAURITIUS AND AS PER ARTICLE OF THE SAID DTAA AND C IRCULAR NO.682 DATED 30.03.1994 AND 789 DATED 13.4.2000 ISSUED BY THE CBDT, WHICH SAYS THAT THE CAPITAL GAINS MADE ON THE SALE OF INVESTMENTS ARE NOT TAXABLE IN INDIA. THE ASSESSEE REITERATED THAT THE COMPANY IS MAURITIUS INCORPORATED COMPANY AND HAVING TAX RESID ENCE CERTIFICATE OF MAURITIUS AND IS, THEREFORE, NOT LIABLE FOR ANY TAX ON CAPITAL GAINS EARNED ON INVESTMENT IN SHARES AS PER DTAA IN BOTH THE COUNTRIES. THE ASSESSEE ALSO SUBM ITTED THAT THE COMPANY IS NOT EFFECTIVELY MANAGED FROM INDIA AS ITS DIRECTORS AND SHAREHOLDERS ARE NOT BASED IN INDIA. THE ASSESSING OFFICER DID NOT ACCEPT THE SUBMISSION S MADE BY THE ASSESSEE ON THE GROUND THAT THE ASSESSEE DID NOT ACCEPT THE FINDINGS OF TH E DEPARTMENT IN ASSESSMENT YEAR 2000-01 AND THE MATTER IS PENDING BEFORE THE ITAT AND THE R ETURN OF INCOME FOR ASSESSMENT YEARS 2001-02 & 02-03 WAS FILED BY THE ASSESSEE AS A NON- RESIDENT COMPANY AND DID NOT CLAIM THE BENEFIT OF CARRY FORWARD OF LOSSES. THE SAME W AS NOT ALLOWED IN THE ASSESSMENT ORDER U/S 143(3) OF THE ACT FOR THOSE YEARS. THE ASSESSI NG OFFICER, THEREFORE, DID NOT ALLOW BROUGHT FORWARD LOSES OF EARLIER YEARS AND SETTING IT OFF AGAINST THE CAPITAL GAIN OF THIS YEAR DOES NOT ARISE. 3. IN APPEAL, THE COMMISSIONER OF INCOME-TAX (APPEA LS) ALLOWED THE CLAIM OF THE ASSESSEE BY OBSERVING IN PARAS. 6 & 6.1 OF HIS ORDE R AS UNDER 6. I HAVE CAREFULLY EXAMINED THE FACTS OF THE CASE ALONG WITH SUBMISSIONS MADE ON BEHALF OF THE APPELLANT AND HAVE REACHED TO THE FOLLOWING CONCLUSIONS: 6.1 IT IS A MATTER OF RECORD THAT ASSESSING OFFICER HAD TAXED THE CAPITAL GAINS EARNED BY APPELLANT AT RS.18,77,453 IN INDIA FOLLOW ING THE ORDER OF HIS PREDECESSOR FOR A.Y. 2000-01. THE ORDER OF THE PRE DECESSOR OF THE ASSESSING OFFICER FOR ASSESSMENT YEAR 2000-01 WAS CONFIRMED B Y MY PREDECESSOR WHEREIN HE HAS UPHELD THE FINDING OF THE ASSESSING OFFICER THAT APPELLANT WAS LIABLE FOR CAPITAL GAIN TAX IN INDIA. HOWEVER, THE ASSESSEE F ILED APPEAL AGAINST THE ORDER OF MY PREDECESSOR BEFORE ITAT WHEREIN HONBLE ITAT VI DE ORDER DATED 20 TH JULY, 2007 AS REPORTED IN 16 SOT 535 HAS REVERSED THE ORD ER OF MY PREDECESSOR AND HAS HELD THAT AS PER ARTICLE 13(4) OF INDO-MAURITIUS, T HE ASSESSING OFFICER HAD WRONGLY TAXED THE INCOME IN INDIA. 4. LD.DR SUBMITTED THAT THE WORD WHOLLY IS DEFIN ED IN SECTION 6(3)(II) OF THE I.T. ACT IN A MANNER THAT DURING THAT YEAR, THE CONTROL AND MANAGEMENT OF ITS AFFAIRS IS ITA NO.2889/DEL./2008 (A.Y. : 2003-04) 3 SITUATED WHOLLY IN INDIA. LD.DR ALSO SUBMITTED THA T THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF SHIVA KANT JHA VS. AZADI BACHAO ANDOLAN (2002) 122 TAXMAN 952 HAS QUASHED AND SET ASIDE THE IMPUGNED CIRCULAR NO.789 DATED 13.4.2000 ISSUED BY THE CBDT ACCEPTING THE CONTENTION THAT THE SAID CIR CULARS AS ULTRA VIRES AND THE PROVISIONS OF SECTION 90 AND SECTION 119 OF THE ACT AND IS ALS O OTHERWISE BAD AND ILLEGAL. THERE WAS ANOTHER CIRCULARS DATED 10.02.2003 ISSUED BY THE CB DT I.E. CIRCULAR NO.1 WHEREBY THEY HAD LAID DOWN THAT IN A CASE WHERE AN ASSESSEE IS A RESIDENT OF BOTH INDIA AND MAURITIUS, THEN THE ASSESSING OFFICER CAN PROCEED TO TREAT SUC H ASSESSEE AS RESIDENT IN INDIA PROVIDED THE EFFECTIVE MANAGEMENT OF THE ASSESSEE IS IN INDI A. 5. LD.AR OF THE ASSESSEE, ON THE OTHER HAND, SUPPOR TED THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) AND SUBMITTED THAT DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF UOI VS. AZADI BACHAO A NDOLAN, 263 ITR 706, WHEREIN IT HAS BEEN HELD THAT THE CIRCULAR NO.789 DATED 13.04. 2000 IS VALID AND EFFICACIOUS DEFINES OTHERWISE AND DOES NOT ATTRACT IN THIS CASE. IT WA S POINTED OUT THAT THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF SHIVA JHA V S. AZADI BACHAO ANDOLAN HAS BEEN REVERSED BY THE HONBLE SUPREME COURT IN THE CASE O F UOI VS. AZADI BACHAO ANDOLAN, 236 ITR 706 (SC) WHEREIN IT HAS BEEN HELD BY THE AP EX COURT THAT THE CIRCULAR NO.789 DATED 13.4.2000 PROVIDING THAT FIIS, ETC. WHICH ARE RESIDENT OF MAURITIUS WOULD NOT BE TAXABLE IN INDIA ON INCOME FROM CAPITAL GINS ARISIN G BY SALE OF SHARES IS VALID AND EFFICACIOUS. IT HAS ALSO BEEN HELD THAT THE DOUBLE TAXATION AGREEMENT BETWEEN INDIA AND MAURITIUS IS VALID IN LAW AND AN ATTEMPT BY RESIDEN T OF THIRD PARTY TO TAKE ADVANTAGE OF EXISTING PROVISION OF DTAC IS NOT ILLEGAL. AFTER T HAT JUDGMENT OF THE APEX COURT, THE SAID CIRCULAR NO.768 OF CBDT IS BINDING ON THE INCOME-TA X AUTHORITIES AND, IS THEREFORE, APPLICABLE IN THE INSTANT CASE AND AS SUCH THE CAPI TAL GAINS EARNED BY THE ASSESSEE IS NOT TAXABLE IN INDIA. 6. WE HAVE HEARD THE PARTIES AND HAVE PERUSED THE M ATERIAL PLACED ON RECORD. WE ARE OF THE OPINION THAT THE DECISION OF THE APEX CO URT IN THE CASE OF UOI VS. AZADI BACHAO ANDOLAN CITED SUPRA, STANDS IN FAVOUR OF TH E ASSESSEE AND AGAINST THE REVENUE. WE, THEREFORE, RESPECTFULLY THE DECISION OF THE HO NBLE APEX COURT IN THE CASE CITED ITA NO.2889/DEL./2008 (A.Y. : 2003-04) 4 SUPRA CONSIDER IT PROPER TO DENY TO INTERFERE IN TH E ORDER OF THE COMMISSIONER OF INCOME- TAX (APPEALS) AND UPHOLD HIS ORDER. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. 8. ORDER PRONOUNCED IN OPEN COURT ON 10.07.2009. (RAJPAL YADAV) (R.P. GARG) JUDICIAL MEMBER SR. VICE PRESIDENT DATED: JULY 10, 2009. *SKB* COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A)-XXIX, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DELHI. AR/ITAT