Renewed deposit treated as a fresh debt, attracting treaty concessional tax rate and defeating revision powers.

Renewal of a matured deposit under the governing terms, where a fresh application and acceptance are required, is treated as a new contract rather than a mere continuation of the earlier deposit. On that construction, the renewed amount is a loan or debt "first created" after the India-U.K. Double Taxation Avoidance Convention came into force, so article 12(2) applies and the concessional tax rate is available. Because the assessment proceeded on that basis, it was not erroneous or prejudicial on the Commissioner's view, and revision under section 263 was unwarranted.

---

---

Issues: Whether renewal of a matured deposit, made by fresh application under the deposit terms, constituted a loan or debt "first created" after the date of entry into force of the India-U.K. Double Taxation Avoidance Convention so as to attract the concessional tax rate under article 12(2), and whether the Commissioner was justified in invoking section 263 to revise the assessment.

Analysis: The decisive question was the meaning of the expression "first created" in article 12(2). The renewal mechanism required a fresh application in the prescribed form and acceptance by the deposit-taking institution; on that footing, the renewal was treated as a new contract rather than a mere continuation of the earlier deposit. In common legal and commercial usage, renewal may denote repetition or recreation of the earlier transaction, depending on context. Applying that meaning to the deposit scheme, the renewed deposit was held to be a fresh deposit, and therefore a loan or debt first created after the convention came into force. Once that conclusion followed, the assessment adopting the 15 per cent. rate could not be characterised as erroneous or prejudicial on the premise adopted by the Commissioner.

Conclusion: The renewal of the deposit attracted article 12(2), the concessional rate was applicable, and the Commissioner was not justified in exercising revision under section 263.

Ratio Decidendi: Where renewal of a deposit under the governing terms requires a fresh application and creates a new contract, the renewed deposit is a fresh loan or debt for the purpose of article 12(2) of the convention, attracting the stipulated concessional tax rate.

---