ADIT CIR 3(2), MUMBAI V. FIDELITY MANAGEMENT & RESEARCH CO - FIDELITY INVESTMENT TRUST - FIDELITY WORLDWIDE FUND, MUMBAI

ITA 4594/MUM/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4950 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-09-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: 2004-2005
• Appeal Filed On: 06-07-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Double taxation relief; Permanent establishment; Advance ruling; Wrong claim; Revised return
• Section: 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH F , MUMBAI BEFORE SHRI R . S . SYAL , ACCOUNTANT MEMBER AND SHRI SANJAY GARG , JUDICIAL MEMBER ITA NO. 4594/M/12 ASSESSMENT YEAR: 2004 - 05 ADIT (IT) 3 ( 2 ), SCINDIA HOUSE, BALLARD PIER, N.M. ROAD, MUMBAI - 4 000 38 VS. M/S. FIDELITY MANAGEMENT & RESEARCH CO. FIDELITY INVESTMENT TRUST FIDELITY WORLDWIDE FUND, C/O. BMR & ASSOCIATES, 3F, R. KAMANI MARG, BALLARD ESTATES, MUMBAI - 400 001 PAN: AAA TF1592N (APPELLANT) (RESPONDENT) ITA NO S . 4608/M/12 ASSESSMENT YEAR: 2004 - 05 A SSISTANT D IRECTOR OF INCOME TAX (IT) 3 ( 2 ), SCINDIA HOUSE, BALLARD PIER , N.M. ROAD, MUMBAI - 4000 38 VS. M/S. FIDELITY FOCUS HEALTH CARE FUND, C/O. BMR & ASSOCIATES, 3F R. K AMANI M AR G, B ALLARD ESTATE, MUMBAI - 400 001 PAN: AAA TF1360J (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI JITENDRA JAIN REVENUE BY : SHRI SANJEEV JAIN, D.R. DATE OF HEARING : 12.08.13 DATE OF PRONOUNCE MENT : 16.09.13 O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THESE TWO APPEALS ARE PREFERRED BY THE R EVENUE AGAINST THE TWO SEPARATE ORDER S OF THE LD. CIT(A) DATED 30.04.12 AND 27 . 04. 1 2 RESPECTIVELY REL A TING TO ITA NO. 4608/M/12 & 4594/M/12 M/S. FIDELITY MANAGEMENT & RESEARCH CO. 2 THE ASSESSMENT YEAR 200 4 - 05 . IN BOTH THE APPEALS THE REVENUE HAS ASSAILED THE DELETION OF PENALTY BY THE LD. CIT(A) WHICH WAS LEVIED BY THE AO UNDER SECTION 271(1)(C) OF THE INCOME TAX ACT. SINCE A COMMON ISSUE IS INVOLVED IN BOTH THE APPEALS THE SAME ARE BEING DISPOSED OF WITH THIS COMMON ORDE R. FOR THE SAKE OF CONVENIENCE THE FACTS HAVE B EEN TAKEN FROM ITA NO.4594/M/12. 2. THE ASSESSEE IS A TRUST FORMED UNDER THE LAWS OF UNITED STATE OF AMERICA (USA) AND A TAX RESIDENT OF USA. IT IS REGISTERED AS A SUB - ACCOUNT OF FIDELITY MANAGEMENT & RES EARCH COMPANY, A FOREIGN INSTITUTIONAL INVESTOR REGISTERED WITH SEBI. DURING THE PREVIOUS YEAR, THE ASSESSEE ENTERED INTO VARIOUS TRANSACTIONS FOR PURCHASE AND SALE OF SECURITIES IN INDIA RESULTING IN AN INCOME OF RS.1,37,20,039/ - . THE ASSESSEE TREATED T HE SAME AS CAPITAL GAINS AND FILED A RETURN BY PAYING THE TAXES UNDER SECTION 115 AD OF THE INCOME TAX ACT. THEREAFTER , THE ASSESSEE REVISED ITS RETURN OF INCOME BY RELYING ON THE DECISION OF THE AUTHORITY FOR ADVANCE RULING (AAR) IN THE CASE OF ONE OF IT S GROUP FOREIGN INSTITUTIONAL INVESTOR REPORTED IN 271 ITR 1. THE AAR IN THE SAID CASE HAS HELD THAT INCOME FROM PURCHASE AND SALE OF SHARES IN THE HANDS OF FOREIGN INSTITUTIONAL INVESTOR CONSTITUTES BUSINESS INCOME AND HENCE CHARGEABLE TO TAX IN INDIA ON LY IF THE FOREIGN INSTITUTIONAL INVESTOR OR THE SUB - ACCOUNT AS THE CASE MAY BE , HAS A PERMANENT ESTABLISHMENT (PE) IN INDIA. BASED ON THIS DECISION THE ASSESSEE SUBMITTED THAT AS IT DID NOT HAVE ANY PE IN INDIA IT WAS NOT CHARGEABLE TO TAX IN RESPECT OF I TS BUSINESS INCOME IN INDIA. HENCE IT FILED THE REVISED RETURN DECLARING THE INCOME A S NIL. NEITHER THE ORIGINAL RETURN NOR THE REVISED RETURN WERE TAKEN UP FOR SCRUTINY BY THE DEPARTMENT AND THE ASSESSEES CLAIM FOR REFUND OF TAXES PAID WAS PROCESSED BY THE DEPARTMENT , THOUGH NOT ISSUED FOR WANT OF VERIFICATION OF SOME CHALLANS. SUBSEQUENTLY, THE AO ISSUED NOTICE UNDER SECTION 148 REOPENING THE PROCEEDINGS IN THE CASE OF THE ASSESSEE. THE NOTICE UNDER SECTION 148 WAS ISSUED ON NOVEMBER 25, 2009. IN RE SPONSE ITA NO. 4608/M/12 & 4594/M/12 M/S. FIDELITY MANAGEMENT & RESEARCH CO. 3 TO THE SAME THE ASSESSEE SUBMITTED THAT THE ASSESSEE TOO HAD APPLIED TO THE AAR TO DETERMINE THE NATURE OF ITS INCOME FROM SALE OF SECURITIES IN INDIA. THE AAR, IN THE ASSESSEES CASE HOWEVER, VIDE ORDER DATED JANUARY 8, 2007 HELD THAT ITS INCOME W AS IN THE NATURE OF CAPITAL GAINS AND NOT BUSINESS INCOME. SINCE THE RULING IN THE ASSESSEES CASE WAS PRONOUNCED BY THE AAR AFTER THE EXPIRY OF THE DUE DATE TO REVISE ITS RETURN OF INCOME FOR AY 2004 - 05, THE ASSESSEE COULD NOT REVISE ITS RETURN OF INCOME TO ADOPT THE POSITION AS PER THE RULING OF THE AAR IN ITS OWN CASE. FURTHER, THE ASSESSEES CASE WAS NOT SELECTED FOR SCRUTINY UNDER SECTION 143(2) OF THE ACT, WHERE OTHERWISE, ADDITIONAL INFORMATION (FOR THE REVISED POSITION) BASED ON THESE DEVELOPMENTS COULD HAVE BEEN SUBMITTED. T HE ASSESSEE THEREFORE ADMITTED TO A TAXABLE INCOME IN THE NATURE OF CAPITAL GAINS IN THE 148 PROCEEDINGS. AFTER BRINGING THE SAME TO TAX THE AO HAS ALSO LEVIED PENALTY FOR CONCEALMENT OF INCOME AS THE ASSESSEE HAD CLAIMED IN IT S REVISED RETURN THAT ITS INCOME IS NOT CHARGEABLE TO TAX. 3 . HOWEVER, THE LD. CIT(A) WHILE RELYING UPON THE DECI SIONS OF THE ITAT AS WELL OF THE HONBLE BOMBAY HIGH COURT DEALING WITH THE SIMILAR ISSUE IN THE CASE OF OTHER GROUP COMPANIES OF THE ASSESS EE, DELETED THE PENALTY SO LEVIED BY THE AO , OBSERVING AS UNDER: 4. BASED ON THE ABOVE, IT HAS BEEN SUBMITTED THAT THIS IS A CASE OF LEGAL CLAIM BEING MADE BASED ON PREVAILING RULING OF THE AAR AFTER DISCLOSURE OF ALL THE RELEVANT FACTS. THE ASSESSEE HA S ALSO RELIED UPON THE DECISION OF THE ITAT IN ITA NO.1617, 1618, 1619/M/2010 IN THE CASE OF OTHER FIDELITY GROUP SUB - ACCOUNTS WHEREIN IDENTICAL FACTS WERE INVOLVED. IT HAS BEEN SUBMITTED THAT THE HONBLE ITAT HAD DELETED THE PENALTY IN ALL THESE CASES. FURTHER, THE ASSESSEE HAS ALSO SUBMITTED A COPY OF THE BOMBAY HIGH COURT DECISION IN THE CASE OF GROUP FII WHERE THE DEPARTMENTS APPEAL AGAINST THE ORDER OF ITAT HAS BEEN DISMISSED. THE HIGH COURTS DECISION IS IN THE CASE OF FIDELITY MANAGEMENT & RESEAR CH COMPANY INCOME TAX APPEAL (L) NO.953 OF 2011 WITH INCOME TAX APPEAL (L) NO.954 OF 2011 DATED 12 TH SEPTEMBER 2011. 5. THE ASSESSEES SUBMISSIONS HAVE BEEN CONSIDERED. THE MUMBAI ITAT IN ITA NO.1617/M/2000 RELIED ON THE DECISION OF THE SUPREME COURT IN THE CASE OF RELIANCE ITA NO. 4608/M/12 & 4594/M/12 M/S. FIDELITY MANAGEMENT & RESEARCH CO. 4 PETRO PRODUCTS (P) LTD. (322 ITR 158) AND HELD THAT THIS IS A CASE OF MAKING A LEGAL CLAIM AFTER DISCLOSURE OF ALL THE RELEVANT FACTS AND HENCE DOES NOT AMOUNT O CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS. IT IS NO DOUBT TRUE THAT THE ASSESSEE CLAIMED IN ITS REVISED RETURN THAT THE INCOME IS NOT TAXABLE ON 31 ST OF MARCH 2005. THEREAFTER THE AAR IN THEIR OWN CASE GAVE A RULING AGAINST THE ASSESSEE IN JANUARY 2007. THOUGH THE ASSESSEE HAD MADE A CLAIM FOR REFUND IN THE REVISED RETURN, IT DID NOT COME FORWARD TO WITHDRAW THE CLAIM AND IT IS TRUE THAT IF THE DEPARTMENT HAD NOT ISSUED THE NOTICE UNDER SECTION 148 THE INCOME WOULD HAVE REMAINED UNTAXED. HOWEVER, AS SUBMITTED BY THE ASSESSEE, THE ASSESSEE HAS MADE FUL L DISCLOSURE IN THE RETURN OF INCOME AT THE TIME OF FILING THE REVISED RETURN AND THE TIME LIMIT FOR REVISING THE RETURN HAD ALREADY EXPIRED WHEN THE AAR RULING WAS DELIVERED. THERE WAS NO LEGAL OBLIGATION ON THE ASSESSEE TO ALERT THE DEPARTMENT ABOUT ITS CLAIM IN EARLIER YEARS. IN ANY CASE THE ORDER OF THE AAR IS SERVED BOTH ON THE ASSESSEE AS WELL AS ON THE DEPARTMENT. HENCE WHILE IT CAN BE SAID THAT THE ASSESSEES CONDUCT WAS NOT PERFECT FOR THE REASON THAT IT DID NOT WITHDRAW ITS CLAIM FOR REFUND, AT THE SAME TIME THERE WAS NO LEGAL OBLIGATION OBLIGING IT TO DO THE SAME NOR WAS THE REFUND ACTUALLY ISSUED TO IT. IDENTICAL FACTS ARE NOTICED IN THE CASE OF ITS GROUP FII, WHERE THE ITAT HAS HELD THAT THERE IS NO CONCEALMENT OF INCOME. THE BOMBAY HIGH CO URT HAS DISMISSED THE DEPARTMENTS APPEAL AGAINST THE ITAT ORDER. HENCE RESPECTFULLY FOLLOWING THE DECISION OF JURISDICTIONAL ITAT IN INCOME TAX ACT NO.1617, 1618 AND 1619/M/2010 DATED 29 TH OF APRIL 2011, WHICH HAS BEEN UPHELD BY THE BOMBAY HIGH COURT, TH E PENALTY IMPOSED BY AO IS DELETED. 4. THE LD. A.R. BEFORE US ALSO HAD RELIED UPON ANOTHER ORDER OF THE ITAT PASSED IN THE CASE OF OTHER GROUP COMPANIES OF THE ASSESSEE IN ITA NO S . 14/M/10 & 15/M/10 DATED 30.09.10 DEALING WITH THE SIMILAR ISSUE . T HE CO - ORDINATE BENCH OF THIS TRIBUNAL , IN THE ABOVE SAID AUTHORITIES WHILE UPHOLDING THE ORDER OF THE LD. CIT(A) DELETING THE PENALTY , HAS OBSERVED AS UNDER: 7. AGGRIEVED THE REVENUE IS ON APPEAL. HEARD BOTH THE PARTIES. THE FACT IS THAT THE ASSESSEE FIRST RETURNED THE PROFIT ON SALE OF SECURITIES OF RS.9,28,49,984/ - AS CAPITAL GAINS. AFTERWARDS, ON PERUSING THE ORDER OF THE AAR IN THE CASE OF XYZ/ABC EQUITY FUND (250 ITR 194) AND FIDELITY ADVISORS SERIES VIII (271 ITR 1) THE ASSESSEE FELT THAT THE PROFITS M AY CONSTITUTE BUSINESS PROFITS AND AS THE ASSESSEE DOES NOT HAVE ANY PERMANENT ESTABLISHMENT IN INDIA, THE PROFITS WILL NOT BE TAXABLE IN INDIA. THEREFORE THEY FILED REVISED RETURN CLAIMING THE INCOME AS EXEMPT AND APPENDING A NOTE EXPLAINING THE REASON F OR THE SAME. THIS WAS NOT ACCEPTED AND THE ASSESSING OFFICER HAS LEVIED A PENALTY OF RS.30640490/ - ON THE GROUND THAT THE ASSESSEE HAS MADE A FALSE CLAIM. THE ASSESSEE HAS NOT GIVEN ANY INACCURATE PARTICULARS. THE TOTAL INCOME ARISING FROM SALE OF SECURITI ES AT RS.9,28,49,984/ - HAS BEEN DISCLOSED. THE ASSESSEE HAS ALSO DISCLOSED THAT IN THE ORIGINAL RETURN THIS HAS BEEN RETURNED AND FOR THE REASONS EXPLAINED ALONG WITH THE REVISED RETURN THE PROFITS WERE CONSIDERED AS BUSINESS PROFITS. THE ASSESSEE BONAFIDE BELIEVED, BASED ON THE DECISIONS OF THE AAR, ITA NO. 4608/M/12 & 4594/M/12 M/S. FIDELITY MANAGEMENT & RESEARCH CO. 5 CLAIMED IT AS BUSINESS INCOME WHICH THEN HAS TO BE EXCLUDED FROM THE TAXABLE INCOME IN VIEW OF THE PROVISIONS OF THE DTAA BETWEEN INDIA AND CAN ADA. 8. THE APEX COURT IN THE CASE OF CIT VS RELIANCE PETRO PRODU CTS (P) LTD. (322 ITR 158) HAS HELD THAT WHEN NO INFORMATION GIVEN IN THE RETURN IS INCORRECT OR INACCURATE, THE ASSESSEE CANNOT BE HELD GUILTY OF FURNISHING INACCURATE PARTICULARS. MERELY BECAUSE THE ASSESSEE CLAIMED A DEDUCTION WHICH HAS NOT BEEN ACCEPTE D BY THE DEPARTMENT, PENALTY U/S.271(1)(C) IS NOT ATTRACTED. WE FIND THAT THE RATIO OF THE DECISION OF THE APEX COURT SQUARELY COVERS THE ISSUE IN THE INSTANT CASE. RESPECTFULLY FOLLOWING THE RATIO OF THE DECISIONS OF THE APEX COURT IN THE CASE OF CIT VS. RELIANCE PETRO PRODUCTS (P) LTD., WE UPHOLD THE ORDER OF THE CIT(A) DELETING THE PENALTY OF RS .3 , 06 , 40 , 490/ - AND DISMISS THE REVENUES APPEAL ON THIS ISSUE. 5. HENCE RESPECTFULLY FOLLOWING THE DECISION OF THE CO - ORDINATE BENCHES OF THE TRIBUNAL AS WELL AS JURISDICTIONAL HIGH COURT , WE HOLD THAT THE PENALTY IN THE CASE S OF THE ABOVE NAMED ASSESSEE COMPANIES IS NOT LEVIABLE. IN THE RESULT THE ORDERS OF THE LD. CIT(A) PASSED IN BOTH THE APPEALS ARE UPHELD AND BOTH THE APPEALS OF THE REVENUE ARE HEREBY DI SMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 16.09. 2013. SD/ - SD/ - ( R . S . SYAL ) ( SANJAY GARG ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 16.09. 2013. * KISHORE COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT ( A) CONCERNED, MUMBAI THE D R C BENCH //TRUE COPY// [ BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.