2008 (8) TMI 601 - AT - Income Tax

Tribunal Grants Relief u/s 91 for 2001-03; Quashes CIT's Order, Finds AO's Decisions Correct and Non-Prejudicial.

The Tribunal allowed the appeals for the assessment years 2001-02 and 2002-03, determining that the assessee was entitled to relief under section 91 ... Revision u/s 263 - Double taxation relief - Orders of AO are erroneous and prejudicial to the interests of the revenue - ‘erroneous’, ‘erroneous assessment’ and ‘erroneous judgment’ - Income in Bhutan - AO, allowing credit for tax paid in foreign country by minimum alternate tax determined as payable u/s 115JB, the intention of Legislature in introducing the section gets violated as the same was introduced with the intention that the company must pay at least 7.5 per cent of its book profit as taxes - HELD THAT:- We find that the expressions ‘erroneous’, ‘erroneous assessment’ and ‘erroneous judgment’ have been defined in Black’s Law Dictionary. According to the definition, ‘erroneous’ means ‘involving error; deviating from the law’. 'Erroneous assessment' refers to an assessment that deviates from the law and is, therefore, invalid, and is defect that is jurisdictional in its nature, similarly, ‘erroneous judgment’ means one rendered according to course and practice of court, but contrary to law, upon mistaken view of law, or upon erroneous application of legal principles. An order cannot be termed as erroneous unless it is not in accordance with law. Section 91 provides for unilateral double taxation relief in respect of income arising in countries with which the Central Government has not entered into the agreement u/s 90. The object of section 91 is with the amount of Indian income-tax paid or the amount of tax paid in foreign country whichever is lower is allowed as deduction from the tax payable under the Act on such doubly taxed income. No dispute that the assessee is entitled to relief u/s 91 of the Act. The scheme of the Act is that section 115JB is applicable wherein the case of an assessee, being a company, the income-tax payable on the total income as computed under this Act in respect of any previous year is less than 7.5 per cent of its book profit, 7.5 per cent book profit shall be deemed to be the total income of the assessee. On consideration of guidelines laid down by the Apex Court in the decisions of CIT v. Carew & Co. Ltd.[1979 (9) TMI 4 - SUPREME COURT], K.V. AL.M. Ramanathan Chettiar v. CIT [1972 (10) TMI 6 - SUPREME COURT] and the ratio laid down in the case of Jeewanlal [1969 (6) TMI 17 - CALCUTTA HIGH COURT], we find that income in Bhutan has been considered while invoking section 115JB, once Bhutan income has been considered for the purpose of this Act, the assessee is entitled to deduction u/s 91. We are, therefore, of the considered view that the assessee is entitled to deduction u/s 91 of the Act even on merit. The orders of the AO are neither erroneous nor prejudicial to the interests of the revenue, therefore, the CIT is not correct in invoking section 263. The order of the CIT is, thus, quashed. Since on merit we quashed the order of CIT, therefore, this legal ground that action of the CIT is barred by limitation, raised by the assessee becomes academic and, therefore, we do not think it necessary to express our opinion on this issue. In the result, the appeals filed by the assessee for the assessment years 2001-02 and 2002-03 are allowed. Issues Involved:1. Validity of the CIT's order under section 263.2. Entitlement of the assessee to relief under section 91.3. Limitation period for invoking section 263.Detailed Analysis:1. Validity of the CIT's order under section 263:The appeal concerns the CIT's order under section 263, which allows the Commissioner to revise any order passed by the Assessing Officer if it is deemed 'erroneous insofar as it is prejudicial to the interests of the revenue.' The CIT observed that the Assessing Officer incorrectly allowed relief for taxes paid in Bhutan while computing tax payable under section 115JB. The CIT argued that this relief was not intended by the Legislature, as section 115JB was introduced to ensure companies pay at least 7.5% of their book profits as taxes. The CIT concluded that the orders of the Assessing Officer were erroneous and prejudicial to the interests of the revenue.2. Entitlement of the assessee to relief under section 91:The assessee argued that the action of the Assessing Officer was in line with the provisions of the Income-tax Act. Section 115JB mandates that if the income-tax payable on the total income is less than 7.5% of the book profits, then the book profits shall be deemed the total income, and tax shall be calculated accordingly. Section 91 provides relief from double taxation for residents who have paid tax in a foreign country with no DTA agreement. The assessee contended that section 91 allows for a deduction from Indian income-tax payable, and this should apply even under section 115JB. The Tribunal agreed with the assessee, noting that once the income in Bhutan is considered under section 115JB, the assessee is entitled to deduction under section 91. The orders of the Assessing Officer were neither erroneous nor prejudicial to the interests of the revenue, thus quashing the CIT's order.3. Limitation period for invoking section 263:The assessee also argued that the CIT's action was barred by limitation. The original assessment under section 143(3) was completed on 31-3-2003, and the CIT should have initiated proceedings against this order. Instead, the CIT acted against the appeal effect order passed under section 250 on 3-6-2005. The limitation for invoking section 263 expired on 31-3-2005, making the CIT's action in 2006 untimely. Although this argument was raised, the Tribunal found it unnecessary to express an opinion on this issue since the order was quashed on merit.Conclusion:The Tribunal allowed the appeals for the assessment years 2001-02 and 2002-03, concluding that the assessee was entitled to relief under section 91 even when section 115JB was invoked. The CIT's order under section 263 was quashed as the Assessing Officer's orders were neither erroneous nor prejudicial to the interests of the revenue. The issue of limitation was deemed academic and not addressed.