DCIT (IT) 2(1)(2), V. D.B. INTERNATIONAL (ASIA) LTD,

MA 192/MUM/2015

• Counselvise Citation: [2016] 124 COUNSELVISE.COM (IT) 4351 (ITAT-MUMBAI)
• Duration Of Justice: 7 month(s) 21 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 11-04-2016
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: L
• Assessment Year: 2005-2006
• Appeal Filed On: 21-08-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: VISHWAS S JADHAV
• Keywords: Rectification of order; Double taxation relief; Question of law

Judgement Text

L IN THE INCOME TAX APPELLATE TRIBUNAL L BENCH, MUMBAI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER MA NO. 192/MUM/2015 ARISING OUT OF ITA NO. 4583/MUM/2009 ( / ASSESSMENT YEAR : 2005-06) DY. COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION) 2(1)(2), MUMBAI. / V. M/S D.B. INTERNATIONAL (ASIA) LTD., C/O BSR & CO. LLP, IST FLOOR, LODHA EXCELUS, APOLLO MILLS COMPOUND, N.M. JOSHI MARG, MAHALAXMI, MUMBAI- 400011. ./ PAN : AABCB 1383K ( / APPLICANT ) .. ( / RESPONDENT ) APPLICANT BY : SHRI VISHWAS S. JADHAV (D.R.) RESPONDENT BY: SHRI NIRAJ SHETH / DATE OF HEARING : 11-03-2016 / DATE OF PRONOUNCEMENT : 11-04-2016 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER THIS ABOVE MISCELLANEOUS APPLICATION , FILED BY TH E REVENUE, BEING MA NO.192/MUM/2015 ARISING OUT OF APPEAL BEARING ITA N O. 4583/MUM/2009, THE REVENUE HAS SOUGHT RECTIFICATION OF MISTAKE APP ARENT FROM RECORDS IN THE ORDERS DATED 03-10-2012 PASSED BY THE MUMBAI TRIBUN AL IN ITA NO. 4583/MUM/2009 FOR THE ASSESSMENT YEAR 2005-06. 2 IN THIS MISCELLANEOUS APPLICATION, THE REVENUE HA S CONTENDED AS UNDER:- MA NO. 192/MUM/2015 ARISING OUT OF ITA NO. 4583/MUM/20 09 2 THE ASSESSEE COMPANY IS INCORPORATED IN SINGAPORE AND IS A TAX RESIDENT OF THAT COUNTRY. THE COMPANY IS REGISTERED AS A FOREIGN INTERNATIONAL (FII) WITH SECURITIES AND EXCHANGE BO ARD OF INDIA. IN THE RETURN OF INCOME THE ASSESSEE HAS SHOWN NET SHORT TERM GAIN ON SALE OF TREASURY BILL AT RS. 28,96,75,577/- , SHORT TERM CAPITAL GAIN ON CLOSE OUT OF DERIVATIVES AT RS. 62, 22,225/- TOTALING AT RS. 352466674/- AND THE SAME HAVE BEEN CLAIMED T O BE EXEMPT. DURING THE COURSE OF SCRUTINY PROCEEDINGS, THE AO O BSERVED THAT THE ASSESSEE HAD DECLARED INTEREST INCOME OF RS. 5, 45,04,400/- ON REDEMPTION OF TREASURY BILLS WHICH WAS OFFERED F OR TAX @15% AS PER ARTICLE 11 OF THE DTAA. FURTHER NO SET OFF O F BROUGHT FORWARD OF CAPITAL LOSSES OR CARRY FORWARD HAS BEEN CLAIMED. FURTHER, THE ASSESSEE HAS SHOWN TOTAL GAIN OF RS. 3 0,05,82,788/- AND LOSSES ON ACCOUNT OF SUCH TRANSACTION AT RS. 10 ,71,27,750/- AND NET FOREIGN EXCHANGE GAIN ON ROLL OVER/CANCELLA TION OF FORWARD CONTRACTS HAS BEEN SHOWN AT RS. 19,34,55,038/-. THE AO HELD THAT THE ABOVE TRANSACTION DOES NOT FAL L UNDER THE PURVIEW OF SECTION 45(1), IT CANNOT BE TAXABLE UNDE R THE HEAD CAPITAL GAINS AND FURTHER GAIN OF RS. 19,34,55,038/ - WHICH HAS RESULTED TO THE ASSESSEE IS NOT ON ACCOUNT OF ANY A DVENTURE IN TRADE OR BUSINESS. ACCORDINGLY, THE GAIN OF RS. 19, 34,55,038/- HAS TO BE TAXED UNDER THE HEAD INCOME FROM OTHER SO URCES. AS PER ARTICLE 23 OF INDO-SINGAPORE DTAA, INCOME WHICH ARE NOT EXPRESSLY MENTIONED IN THE OTHER ARTICLE OF THE SAI D AGREEMENT MAY BE TAXED IN ACCORDANCE WITH THE TAX LAWS OF THE RESPECTIVE CONTRACTING STATES. BY TAKING RECOURSE TO ARTICLE 2 3 OF DTAA, ACCORDINGLY INCOME AS DETERMINED ABOVE IS TAKEN AS INCOME FROM OTHER SOURCES AND SUBJECT TO TAX. AGGRIEVED WITH THE ORDER OF THE AO, THE ASSESSEE PR EFERRED AN APPEAL BEFORE THE CIT(A). THE CIT(A) DECIDED THE IS SUE IN ASSESSEE'S FAVOUR BY HOLDING SUCH GAIN AS CAPITAL G AIN AND THUS NOT CHARGEABLE TO TAX. ON APPEAL BY THE DEPARTMENT BEFORE THE ITAT, THE ITAT HELD THAT THE INCOME ARISING FROM FO RWARD EXCHANGE CONTRACT IS ASSESSABLE AS CAPITAL GAIN AND RESULTANTLY THERE CAN BE NO CHARGE TO TAX UNDER THE DTAA. THE DEPARTMENT FILED AN APPEAL BEFORE THE HON'BLE H IGH COURT ON THE FOLLOWING QUESTION OF LAW: MA NO. 192/MUM/2015 ARISING OUT OF ITA NO. 4583/MUM/20 09 3 A) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ITAT WAS RIGHT IN HOLDING INCO ME ARISING FROM EARLY SETTLEMENT OF FORWARD FOREIGN CO NTRACT IS TO TREATED AS CAPITAL GAIN AS AGAINST THE INCOME FR OM OTHER SOURCES ASSESSED BY THE ASSESSING OFFICER? B) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ITAT HAS ERRED IN GRANTING REL IEF OF ARTICLE 13 OF THE INDIA-SINGAPORE DTAA TO THE ASSES SEE FOR THE GAINS ON CANCELLATION OF FORWARD FOREIGN EXCHAN GE CONTRACT BY TREATING IT AS CAPITAL GAINS'? C) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ITAT HAS ERRED IN IGNORING THE PROVISION OF ARTICLE 24 OF THE INDIA-SINGAPORE DTAA WHICH PROVIDES FOR RESTRICTION OF SUCH RELIEF ONLY TO THE EXTENT OF THE INCOME THAT HAS BEEN REMITTED TO SINGAPORE. THE ITAT HAS ALSO ERRED IN NOT APPRECIATING THAT THE ASSESSE E HAS NOT COMPLIED WITH ARTICLE 24 OF THE INDIA-SINGAPORE DTA A AS IT HAS NOT REMITTED THE PROCEEDS TO SINGAPORE?' ONLY QUESTION (A) & (B) HAS BEEN ADMITTED. REGARDIN G QUESTION NO. (C), THE HON'BLE HIGH COURT HAS HELD THAT IT IS NOT MAINTAINABLE BEING NOT RAISED BEFORE THE HON'BLE ITAT. ON VERIFICATION/PERUSAL OF THE RECORDS IT IS SEEN T HAT ADDITIONAL GROUND OF APPEAL WAS FILED WITH THE ITAT ON THE FOL LOWING GROUND VIDE LETTER DATED 22.07.2011. 'ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN GRANTING THE RELIEF ON ARTICLE 13 O F INDIA-SINGAPORE DTAA TO THE ASSESSEE FOR THE GAINS ON CANCELLATION OF FORWARD FOREIGN EXCHANGE CONTRACTS AS 'CAPITAL GAINS' IGNOR ING PROVISIONS OF ARTICLE 24 OF THE TAX TREATY WHICH PR OVIDES FOR RESTRICTION OF SUCH RELIEF ONLY TO THE EXTENT SUBJE CT INCOME HAS BEEN REMITTED TO SINGAPORE, WHICH HAS NOT BEEN SHOW N TO HAVE BEEN COMPLIED WITH, IN THIS CASE.' MA NO. 192/MUM/2015 ARISING OUT OF ITA NO. 4583/MUM/20 09 4 IN THE ITAT ORDER DATED 03.10.2012, THIS ADDITIONAL GROUND OF APPEAL WAS NOT ADJUDICATED. HENCE THIS MISCELLANEOU S APPLICATION FOR FRESH CONSIDERATION OF THE LEFT OUT GROUND OF A PPEAL. 3. THUS THE REVENUE CONTENDED THAT THE ADDITIONAL G ROUND FILED BY THE REVENUE IN THIS APPEAL VIDE COMMUNICATION DATED 22- 7-2011 WHICH WAS FILED WITH THE ITAT RAISING THE FOLLOWING ADDITIONAL GROU ND:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN GRANTING THE RELIEF ON ARTICLE 13 OF INDIA- SINGAPORE DTAA TO THE ASSESSEE FOR THE GAINS ON CAN CELLATION OF FORWARD FOREIGN EXCHANGE CONTRACTS AS 'CAPITAL GAIN S' IGNORING PROVISIONS OF ARTICLE 24 OF THE TAX TREATY WHICH PR OVIDES FOR RESTRICTION OF SUCH RELIEF ONLY TO THE EXTENT SUBJE CT INCOME HAS BEEN REMITTED TO SINGAPORE, WHICH HAS NOT BEEN SHOWN TO HAVE BEEN COMPLIED WITH, IN THIS CASE. 2. THE APPELLANT PRAYS THAT THE ORDER OF THE LD. CI T(A) ON THE ABOVE GROUND BE SET ASIDE AND THAT THE ASSESSING OF FICER RESTORED. 3. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY.' 4. THE LD. D.R. SUBMITTED THAT THE ABOVE SAID ADDIT IONAL GROUND WAS NOT ADJUDICATED BY THE TRIBUNAL WHILE FRAMING THE ORDER DATED 3-10-2012 IN ITA NO. 4583/MUM/2009 FOR THE ASSESSMENT YEAR 2005-06 D ESPITE THE FACT THAT THE ADDITIONAL GROUND SPECIFICALLY RAISED BY THE RE VENUE IN ITS APPEAL. 5. THE LD. COUNSEL, ON THE OTHER HAND, SUBMITTED TH AT THE ADDITIONAL GROUND WAS HANDED OVER TO THE COUNSEL FOR THE ASSES SEE DURING THE COURSE OF PROCEEDINGS BEFORE THE TRIBUNAL IN ITA NO. 4583/MUM /2009 AND THE ENTIRE CASE IS UNDER THE APPEAL BASED ON THE APPLICATION O F THE TREATY AND IT COULD NOT BE SAID THAT THE TRIBUNAL HAS NOT ADJUDICATED T HE SAID MATTER VIDE ORDER DATED 3-10-2012. THE SAID APPEAL GROUND IS NOT ARI SING FROM THE ASSESSMENT ORDER. MA NO. 192/MUM/2015 ARISING OUT OF ITA NO. 4583/MUM/20 09 5 6. THE LD. D.R., IN THE REJOINDER, SUBMITTED THAT T HIS ADDITIONAL GROUND NEEDS TO BE ADMITTED AND ADJUDICATED BY THE TRIBUNA L. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE ORDER OF THE TRIBUNAL AND OTHER MATERIALS AVAILABLE ON RECORD. WE HAVE OBSERVED THAT THE REVENUE HAS DULY FILED THE ADDITIONAL GROUND VIDE C OMMUNICATION DATED 22 ND JULY, 2011 WITH THE TRIBUNAL, WHICH IS DULY PLACED IN THE FILE. IN THIS REGARD, WE ARE OF THE CONSIDERED OPINION THAT IN THE INTERE ST OF JUSTICE THE ORDER IN ITA NO. 4583/MUM/2009 DATED 3 RD OCTOBER, 2012 FOR THE ASSESSMENT YEAR 2005- 06 SHOULD BE RECALLED FOR THE LIMITED PURPOSES OF D ECIDING ABOUT ADMISSIBILITY OF THE ADDITIONAL GROUND RAISED BY THE REVENUE AND IF ADMITTED THEN TO PROCEED WITH ADJUDICATION OF ADDITIONAL GROUND ON M ERITS . WE ACCORDINGLY, RECTIFY THE SAID MISTAKE BY RECALLING THE ORDER OF THE TRIBUNAL ON THIS ISSUE WITH A DIRECTION TO THE REGISTRY TO POST THE APPEAL OF THE ASSESSEE FOR HEARING BEFORE THE REGULAR BENCH TO DECIDE THE ISSUE OF ADM ISSIBILITY OF ADDITIONAL GROUND . REGISTRY IS ALSO DIRECTED TO ISSUE NOTICES TO BOTH THE PARTIES AFTER FIXING THE APPEAL BEFORE THE REGULAR BENCH. 8. IN THE RESULT, THE MISCELLANEOUS APPLICATION BEI NG MA NO. 192/MUM/2015 ARISING OUT OF APPEAL NO ITA NO.4583/M UM/2009 FOR THE ASSESSMENT YEAR 2005-06 FILED BY THE REVENUE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH APRIL, 20 . # $% & ' 11-04-2016 ( ) SD/- SD/- (AMIT SHUKLA) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER $ MUMBAI ; & DATED 11-04-2016 [ MA NO. 192/MUM/2015 ARISING OUT OF ITA NO. 4583/MUM/20 09 6 !'#$%&%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. 9 ( ) / THE CIT(A)- CONCERNED, MUMBAI 4. 9 / CIT- CONCERNED, MUMBAI 5. <=( >>?@ , ?@ , $ / DR, ITAT, MUMBAI L BENCH 6. (BC D / GUARD FILE. / BY ORDER, < > //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , $ / ITAT, MUMBAI