DCIT (IT) 3(2)(2), MUMBAI V. OVERSEAS CHINESE BANKING CORP LTD, MUMBAI

ITA 3917/MUM/2015

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 3715 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 1 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-08-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Next Hearing Date: 03-10-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 24-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M V RAJGURU
• Assessee Lawyers: ARVIND SONDE
• Keywords: Double taxation relief; Rule of consistency; Permanent establishment; Difference of opinion; Revised return; Reason to believe; Change of opinion
• Section: 143(3); 234B; 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL L BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA, AM AND SHRI RAVISH SOOD, JM I.T.A. NO. 3917/MUM/2015 ( ASSESSMENT YEAR: 2008 - 09 ) DY. CIT(INTERNATIONAL TAXATION) - 3(2)(2), MUMBAI VS. OVERSEAS CHINESE BANKING CORP. LTD. C/O . CHITALE & ASSOCIATES NIRLON HOUSE, 5 TH FLOOR, DR. A.B. ROAD, WORLI, MUMBAI - 400 030 PAN/GIR NO. AAACO 1235 A ( APPELLANT ) : ( RESPONDENT ) APPELLANT BY : SHRI M. V. RAJGURU RESPONDENT BY : SHRI ARVIND SONDE DATE OF HEARING : 30.05.2018 DATE OF PRONOUNCEMENT : 13.08 .2018 O R D E R PER S HAMIM YAHYA, A. M.: THIS A PPEAL BY THE REVENUE IS DIRECTED AGAINST THE O RDER BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 55, MUMBAI DATED 23.02.2015 AND PERTAINS TO THE A SSESSMENT YEAR 2008 - 09. 2. THE G ROUNDS OF APPEAL READ AS UNDER: 1, ON THE FACTS AND IN THE CIRCUMSTRANCES OF THE CASE AND IN LAW, WHETHER THE LD. CIT(A) ERRED IN HOLDING THAT THE ASSESSEE WAS A BANKING COMPANY ELIGIBLE TO HAVE ITS INTEREST INCOME EARNED ON FIXED DEPOSITS HELD WITH DBS BA NK MUMBAI TAXED @ 10% U/S. 11(2)(A) OF THE DTAA BETWEEN INDIA AND SINGAPORE, IGNORING THE FACT THAT THE OPERATIONS OF THE SAID BANKING COMPANY HAD BEEN WOUND UP IN DECEMBER 2003 AND ALSO THAT THE AMOUNT ON WHICH INTEREST WAS EARNED WAS IN THE NATURE OF A F IXED DEPOSIT AND NOT A LOAN PRESCRIBED AS PER ARTICLE 11(2)(A) OF THE INDIA - SINGAPORE DTAA? 2 ITA NO. 3917/MUM /2015 OVERSEAS CHINESE BANKING CORP. LTD. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS FOREIGN COMPANY, INCORPORATED IN SINGAPORE AND THE SCRUTINY ASSESSMENT WAS COMPLETED U/S. 143(3) OF THE INCOME TAX ACT, 1961 ON 27.07.2010. THE TOTAL TAXABLE INCOME WAS ASSESSED AT RS.3,14,97,084/ - BEING THE REVISED RETURNED INCOME. 4. THEREAFTER THE ASSESSMENT WAS REOPENED BY RECORDING THE FOLLOWING REASONS: THE ASSESSEE RECEIVED INTEREST ON FIXED DEPOSITS KEPT WITH DBS BANK LTD. AND AMOUNT OF RS.3,14,97,084/ - WAS OFFERED FOR TAXATION AS INCOME FROM OTHER SOURCES. THE SAID INTEREST WAS CHARGED AT 10% WITHOUT SURCHARGE AND EC WHEREAS THAT INTEREST SHOULD HAVE BEEN TAXED AT 15% OF THE GROSS AMOUNT OF INTEREST AS TH E APPLICABLE ARTILCE WILL BE ARTICLE 11(2)(B) AND NOT ARTICLE 2(A). THIS HAS RESULTED IN SHORT LEVY OF INTEREST AT THE RATE OF 10% INSTEAD OF AT THE RATE OF 15% AMOUNTING TO RS. 17,89,S22/ - FURTHER SURCHARGE AND EC AND INTEREST UNDER SECTION 234B ARE ALSO LEVIABLE ON THIS TAX. THEREFORE . 1 AM SATISFIED AND HAVE REASON TO BELIEVE THAT INCOME TO THE EXTENT OF RS. 17.89.822/ - IS CHARGEABLE TO TAX & HAS ESCAPED ASSESSMENT U/S 147 OF THE IT. ACT 1961 IN CASE OF M/S OVERSEAS CHINESE BANKING CORPORATION LTD.' 5. IN THE REASSESSMENT ORDER, THE ASSESSING OFFICER HELD AS UNDER: 5. THE ASSESSEE IS A COMPANY INCORPORATED IN SINGAPORE AND USED TO BE BRANCH OFFICE OF A FOREIGN BANK ENGAGED IN COMMERCIAL BANKING ACTIVITY SUCH AS RETAIL BANKING, LOANS AND BILL DISCOUNTIN G. HOWEVER SAID OPERATIONS OF THE BRANCH HAS BEEN WOUND UP WITH EFFECT FROM 12/12/2003, WITH APPROVAL OF THE RBI AND HENCE IN THE INSTANT YEAR, NO BUSINESS OPERATION HAS BEEN CARRIED OUT BY THE BRANCH. THE ENTIRE INCOME IN THE INSTANT YEAR IS THE INTEREST EARNED ON FIXED DEPOSIT WITH DBS BANK LTD. MUMBAI. 6. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS FOUND THAT ASSESSEE HAS EARNED ONLY INTEREST INCOME FROM FIXED DEPOSIT KEPT IN DBS BANK MUMBAI AFTER CLOSURE OF BRANCH IN INDIA. THIS INTEREST INCOME HAS BEEN OFFERED TO TAX UNDER HEAD INCOME FROM OTHER SOURCE AND CLAIMED TAXABLE AT THE RATE OF 10% AS PER ARTICLE 11(2) (A) OF THE DTAA BETWEEN INDIA & SINGAPORE. THE WRITTEN SUBMISSIONS FILED BY THE ASSESSEE HAVE BEEN PERUSED. SINCE THE BRANCH OF THE ASSE SSEE CLOSED DOWN AND NO BUSINESS ACTIVITY HAS BEEN CARRIED OUT IN THE INSTANT YE AR, THERE IS NO PERMANENT ESTABLISHMENT AND HENCE, NORMAL PROVISIONS OF THE IT ACT 3 NOT APPLICABLE. THE INCOME EARNED WILL FALL UNDER THE 3 ITA NO. 3917/MUM /2015 OVERSEAS CHINESE BANKING CORP. LTD. HEAD OF INCOME FROM OTHER 'SOURCES AN D AS PER THE ARTICLE 11 OF INDO - SINGAPORE DTAA BETWEEN SINGAPORE AND INDIA WHICH IS REPRODUCED AS UNDER: ARTICLE 11: INTEREST - 1. INTEREST ARISING IN A CONTRACTING STATE AND PAID TO A RESIDENT OF THE OTHER CONTRACTING STATE MAY BE TAXED IN THAT OTH ER STATE, 2. HOWEVER, SUCH INTEREST MAY ALSO BE TAXED IN THE CONTRACTING STATE IN WHICH II ARISES, AND ACCORDING TO THE LAWS OF THAT STATE, BUT IF THE BENEFICIAL OWNER OF THE INTEREST IS A RESIDENT OF THE OTHER CONTRACTING STATE, THE TAX SO CHARGED SHALL NOT EXCEED: (A) 10 PER CENT OF THE GROSS AMOUNT OF THE INTEREST IF SUCH INTEREST IS P AID ON A LOAN GRANTED BY A BANK CARRYING ON A BONAFIDE BANKING BUSINESS OR BY A SIMILAR FINANCIAL INSTITUTION (INCLUDING AN INSURANCE COMPANY); (B) 15 PER CENT OF THE GROSS AMOUNT OF THE INTEREST IN ALL OTHER CASES. THE ASSESSEE EARNED INTEREST ON FIXED DEPOSITS AND NOT ON A LOAN GRANTED IN THE COURSE OF BANKING BUSINESS SINCE THE BANKING OPERATIONS AND BRANCH ACTIVITIES IN INDIA HAVE STATED TO HAVE BEEN WOUND U P W I T H EFFECT FROM 12.12.2003. AS SUCH THE INTEREST INCOME EARNED BY ASSESSEE IS REQUIRED LO BE TAXED @ 15% AS PER ARTICLE 11(2) (B) AS AGAINST 10%. 8. AS DISCUSSED ABOVE THE RATE OF TAXATION WILL BE 15% AND NOT 10% AS SHOWN IN THE RETURN OF INCOME. 9. IN THIS REGARD THE CONTENTION OF THE ASSESSEE THAT INTEREST INCOME EARNED DURING THIS PERIOD IS INCOME FROM OTHER SOURCES IS ACCEPTED AND THE RETURNED INCOME OF THE ASSESSEE IS ACCEPTED AT RS.3, 14,97,084/ - PROVIDED THAT SUCH INTEREST INCOME WILL BE TAXED @15 % AS PER PROVISIONS OF ARTICLE 11(2) (B) OF THE INDIA - SINGAPORE DTAA AS DISCUSSED ABOVE. 10. ASSESSED ACCORDINGLY U/S. 143(3) R.W.S. 147 R.W.S 144 C(3). GIVE CREDIT FOR TDS AND TAXES PAID, IF ANY, AFTER DUE VERIFICATION. CHARGE INTEREST AS APPLICABLE, SUR CHARGE @2.5% AND E.C. @ 3% IS ALSO LEVIABLE ON THIS TAX. ISSUE D.N/ R.O ACCORDINGLY. 6. UPON THE ASSESSEES APPEAL, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) QUASHED THE REOPENING AND OBSERVED AS UNDER: 3.2 I HAVE CONSIDERED AO'S ORDER AS WELL AS APPELL ANT AR'S SUBMISSION. HAVING TAKEN NOTE TO THE SAME, I AM IN COMPLETE AGREEMENT WITH THE APPELLANT'S THIS SUBMISSION THAT ALL THE NECESSARY DOCUMENTS PERTAINING TO THE INCOME OF THE APPELLANT WERE DISCLOSED BY THE APPELLANT IN ITS RETURN OF INCOME FILED WHI CH WAS ASSESSED BY THE AO U/S.143(3) BY ORDER DATED 05.08.2010. THE PERUSAL OF THE REASONS RECORDED BY THE AO FOR RE - ASSESSMENT CLEARLY SUGGESTS THAT THE SUBSEQUENT AO FORMED A DIFFERENT OPINION FOR CHARGING OF A DIFFERENT TAX RATE AS PER INDIA - SINGAPORE D TAA. THE AO IN RE - ASSESSMENT PROCEEDINGS WAS OF THE VIEW THAT THE 4 ITA NO. 3917/MUM /2015 OVERSEAS CHINESE BANKING CORP. LTD. TAX SHOULD BE CHARGED AS PER ARTICLE 11(2)(B) OF THE INDIA - SINGAPORE DTAA WHICH IS CLEARLY IN MY CONSIDERED VIEW IS CHANGE OF OPINION WHICH CANNOT BE PERMITTED IN VIEW OF THE DECISION OF THE APEX COURT IN THE CASE OF KELVINATOR INDIA LTD. VS. CIT 320 ITR PG.561. IN VIEW OF THE SAME, RE - ASSESSMENT PROCEEDINGS INITIATED BY THE AO HELD TO BE UNJUSTIFIED AND INCORRECT. ACCORDINGLY, THE ORDER OF THE AO IS ANNULLED. 7. UPON MERITS, THE LD. COMMISS IONER OF INCOME TAX (APPEALS) DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY HOLDING AS UNDER: 4.3 I HAVE CONSIDERED THE AO'S ORDER AS WELL AS APPELLANT AR'S SUBMISSIONS. HAVING TAKEN NOTE TO THE SAME, I FIND THAT THE ISSUE INVOLVED IN THIS GROUND OF APPE AL IS COVERED IN FAVOUR OF THE APPELLANT'S OWN CASE FOR A.Y.2005 - 06, 2006 - 07, 2007 - 08 WHEREIN THE HON'BLE DRP HAS CATEGORICALLY HELD THAT THE APPELLANT'S INTEREST INCOME IS TAXABLE AS PER ARTICLE 11(2)(A) OF THE INDIA - SINGAPORE DTAA AT THE RATE OF 10%. THU S, FOLLOWING THE RULE OF CONSISTENCY AND AFTER TAKING NOTE OF THE VARIOUS DECISIONS CITED BY THE APPELLANT'S AR IN ITS SUBMISSION, I CONSIDER IT PROPER AND APPROPRIATE TO HOLD THAT THE APPELLANT'S INTEREST IS TAXABLE AT THE RATE OF 10% AS PER ARTICLE 11(2) (A). ACCORDINGLY, THE APPELLANT'S THIS GROUND IS ALLOWED. 8. AGAINST THE ABOVE ORDER, THE REVENUE HAS FILED AN APPEAL BEFORE THE ITAT, ONLY CHALLENGING THE MERITS OF THE ADDITION. THE QUASHING OF REOPENING HAS NOT BEEN CHALLENGED BEFORE US. 9. UPON CAREF ULLY CONSIDERATION, WE FIND THAT ONCE THE REOPENING HAS BEEN HELD TO BE INVALID AND THE REVENUE CHOOSES NOT TO CHALLENGE THE SAME, THE ADJUDICATION ON MERITS IS A PURPOSELESS REASON. H ENCE, THIS APPEAL FILED BY THE REVENUE IS DISMISSED. 10. IN THE RESULT , TH IS APPEAL FILED BY THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 13.08.2018 SD/ - SD/ - ( RAVISH SOOD ) (S HAMIM YAHYA) J UDICIAL MEMBER A CCOUNTA NT MEMBER MUMBAI ; DATED : 13.08.2018 ROSHANI , SR. PS 5 ITA NO. 3917/MUM /2015 OVERSEAS CHINESE BANKING CORP. LTD. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT - CONCERNED 5. DR, ITAT, MUMBAI 6. GUARD F ILE BY ORDER, (DY./ASSTT. REGISTRAR) ITAT, MUMBAI